House, Senate and Governor Each Approaching Tax Conformity Differently

Tuesday, April 3, 2018

 Is Minnesota heading for another special session with taxes at the center of the debate?  After the 2017 session, lawmakers and Dayton had a veto tussle that ended into a special session and through the summer after it ended up in the courts. At this point in the legislative session, Dayton, Senate tax leadership and House tax leadership each have very different strategies for creating conformity between Minnesota's tax laws and the new federal tax law. 

Dayton introduced his proposal earlier in March by first calling it "complex." (Pioneer Press) and Star Tribune)  Dayton proposes a restructuring to reduce taxes for individuals and increase taxes for corporations, rolling back tobacco tax and other provisions that were the focus of last session's big conflict, and changing the definition of income from using federal taxable income to federal adjusted gross income as the basis for calculating state income tax. The Dayton plan retains existing Minnesota tax benefits, including charitable contribution deductions. (Dayton’s' budget proposal.)

The Minnesota Senate is taking a different approach.  Recently, Senate tax committee chair, Sen. Roger Chamberlin (District 38 - R) laid you some broad themes of his plans in a Senate-produced interview. As Chamberlain told MCF, he seeks to broaden the tax base and lower rates, keep it as simple as possible, and limit deductions and credits. In his Senate interview he suggests federal tax changes will not affect charitable giving, saying he believes "Americans and Minnesotans are very generous, and are just not simply going to stop giving . . . I believe that we will be fine." Chamberlin's committee has yet to schedule a hearing on charitable giving reforms such as Endow Minnesota.

In the Minnesota House, tax committee chair, Rep. Greg Davids seems to be taking a different approach. He was early in the media talking about the tax conformity challenge. (MPR)  In conversations with MCF, Davids suggests he plans to take a pragmatic approach to crafting a conformity bill. He has held hearings on both Endow Minnesota and a bill to expand Minnesota’s charitable giving tax deduction. Davids has also lent his name as a supporter of each of these bills.

House and Senate leaders will be releasing their tax bills in the week, or so, after the legislature reconvenes from their Easter/Passover holidays break on April 9. It's clear each legislative body will have different proposals and each of those will be wildly different from the Governors. While leaders have publicly said the acrimony created by the battle over the 2017 tax bill is behind them, it's hard to feel that's so when you hear conversations in the Capitol's corridors. Also, there's the question of whether or not Senate tax Chair Chamberlin will wield more influence in his second year in the role. As noted by Star Tribune reporter, J. Patrick Coolican, the perception last year was that it was House Chair Davids' tax bill. The path to closing out a tax bill is never very clear at this stage of the legislative session; the legislature is the place where stranger things happen and somehow deals get closed.  However, considering the fact the 2018 tax bill resolution went well into overtime, and no agreement would be gained on tax bills during the 2016 and 2017 sessions, it's fair to move into the final months of the legislative with a little skepticism and a sense of uncertainty about whether Minnesota will take any actions to counter the effects of federal tax changes on philanthropy and charitable giving.