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Tuesday Talk: Tax Bill Q&A

April 01, 2014 By Joe Sheeran, Communications Director

Let’s start this conversation with the premise that taxes aren’t a bad thing. They allow us to provide community stability by investing in and maintaining public institutions such as schools, law enforcement, roads, and health services.

Minnesota’s Legislature made some last-minute changes that could impact your tax returns due April 15. Lawmakers are also considering a second round of tax laws that will impact income, property, sales, and estate taxes to be paid this year and next year.

Changes already enacted deal with refunds for educators spending money out-of-pocket, elimination of some business-to-business sales taxes, and estate tax reductions. Proposals for additional tax law changes include more property tax relief, small business and farm tax reductions, and adjusting future city aid payments to keep pace with inflation.

What are your questions on the new tax laws (actual and proposed), and how they will impact you?

How much of the current budget surplus should be used to reduce taxes?

How do we use the tax code to simultaneously promote growth and social and economic justice?

Minnesota’s capacity to invest in itself has been hamstrung by a decade of conservative tax policy that has primarily benefited high income earners, with higher property taxes and fewer services for modest and middle-income earners.

Thanks for participating! Commenting on this conversation is now closed.

17 Comments:

  • Rachel says:

    April 1, 2014 at 6:46 am

    Good morning! Jeff will be joining us at 8:00 am. You are welcome to submit your questions at any time. Also, check back later—this conversation continues all day.

  • Jeff Van Wychen says:

    April 1, 2014 at 7:58 am

    The tax bill signed into law on March 21 made big strides in conforming Minnesota’s income tax to the federal system, including changes that will affect tax returns that have already been filed and other returns due by April 15.  The recent tax act also repealed business-to-business sales taxes enacted last year, provided an increase in the progressive Working Family Credit, and a big cut in estate taxes.

    The legislature is now working on a second tax bill.  The House version of this bill currently includes an annual increase in city aids so that the total aid appropriation keeps pace with inflation and population growth, one-time property tax relief for homeowners and renters, simplification of the property tax system through elimination of a few minor classes, relief for small businesses from the state business property tax, and an increase in the agricultural market value credit for owners of farm land, among other things.

    What items did the House bill miss that the Senate tax bill should include?  What items should not be in either bill?  When all is said and done, how much of the projected surplus ($1.23 billion for the current biennium) should go into tax cuts, how much for spending increases, and how much into beefing up the state budget reserve?  (I’m particularly fond of the third option.)  We’re standing by to hear your thoughts!

  • Joe says:

    April 1, 2014 at 8:08 am

    Jeff, what advice would you have for folks filing this year when it comes to the last minute tax changes? Are there any big changes that impact lots of folks?

    • Jeff Van Wychen says:

      April 1, 2014 at 8:26 am

      The Dept. of Revenue (DOR) lists ten categories of folks who MAY be affected in terms of the 2013 return, to be filed by April 15, 2014.  These include (1) people with kids filing a joint tax return who have incomes between $25,000 and $40,000, (2) people who were foreclosed upon or who had a “short sale,” (3) if you paid mortgage insurance premiums as part of your home loan and your income is below $100,000, (4) you paid interest on a student loan that could be deducted on your federal return and your income is below $75,000 for individual filers and $155,000 for joint.  There are 6 other categories of people who could be affected on their 2013 returns.  For a complete list and the conditions that apply, please go to: http://www.revenue.state.mn.us/Documents/press-conference-032414/Overview.pdf

      If you fall into one of these categories and have already filed, you may not need to do anything.  DOR can automatically adjust your return in many instances.  If needed, DOR may contact you for additional info.  In some instances, an amended return may need to be filed in order to qualify for the additional tax relief, but again DOR will contact you if that is necessary.  If you have not filed already, it may be best to wait until April 3, when new filing information from DOR will be available (and all of the DOR and tax preparer software will be updated based on the new law changes).

      For more information on the recent tax law changes and who will be affected, go to the DOR homepage (http://www.revenue.state.mn.us/Pages/default.aspx) and click on the orange “Tax Law Changes” button.

  • cathy says:

    April 1, 2014 at 8:24 am

    I see LGA will be increased…Although that sounds good, out here in rural Minnesota, businesses are getting local tax breaks. Businesses are requesting and receiving tax abatements (5-10yr) from city, county and school districts. Then we find out that there are cuts to county libraries and schools because of the “tight budget.”  I worry that the increase in LGA will only lead to more tax abatements for companies who can well afford to pay local taxes.

    • Jeff Van Wychen says:

      April 1, 2014 at 8:34 am

      Cathy:
      LGA received by local governments is not really related to the abatement authority; I don’t think there is any connection or relationship between the LGA a community receives and the level of abatements that it does or does not grant to businesses.  Apart from that, there are a list of criteria that should be met before a city can grant abatements (so that they’re not giving abatements to businesses that don’t need it), but I must confess that I am not up on this area of law, nor do I know the extent to which the abatements are received by undeserving businesses.

  • martha anderson says:

    April 1, 2014 at 8:25 am

    I pay interest on a qualifying student loan. Nearly $2500 in 2013. Will we get a break for this at the state level? My COAL has no idea and is unable to answer this question. Married filing jointly under $125,000. Thanks!

    • Jeff Van Wychen says:

      April 1, 2014 at 8:41 am

      According to the Revenue Dept.:
      You paid interest on a student loan that could be deducted on your federal tax return and your modified adjusted gross income is below $75,000 for individual filers or $155,000 for joint filers, you may be able to deduct up to $2,500 of the interest, which would have the affect of reducing your state income taxes.  Based on the information you provided, it sounds like you qualify for additional tax relief through the recent law changes, but I can’t give a definitive answer.  (BTW, what is a COAL?)

  • Joe says:

    April 1, 2014 at 8:27 am

    It seems like we’re using tax policy to give a lot of the surplus away. Wouldn’t it be best to put more away. What’s the right balance?

    • Jeff Van Wychen says:

      April 1, 2014 at 8:47 am

      The tax act signed into law on March 21 will but another $150 million into the state budget reserve, but the reserve will still remain well below the level recommended by the bi-partisan 2009 MN Budget Trends Advisory Commission.  In addition, the act specified that a portion (one-third, as I recall) of future surpluses be dedicated to beefing up the reserve.  Nonetheless, I think it would be a good idea to but even more in the reserve immediately.  After all, the projected $1.23 billion budget balance for the current biennium is just that: a PROJECTION, which may or may not materialize in 15 months when the current biennium comes to a close.  The safe bet would be to increase the reserve, rather than give it all away through tax cuts or spending increases, which could leave us with a deficit if the surplus does not materialize as expected.

  • Mike Downing says:

    April 1, 2014 at 8:48 am

    Growth increases opportunities for all and improves economic and social justice if one improves their education and skills to compete in the 21st Century.  Increased taxes inhibit growth. Then why would we increase taxes if we want increased growth to improve economic and social justice?

    • Jeff Van Wychen says:

      April 1, 2014 at 8:59 am

      Hi Mike:
      First of all, to be clear, the legislature is currently cutting taxes (just so that no one assumes that we are currently talking about tax increases).  Second, I reject your formulation, which I think is simplistic.  Taxes that are wasted are a drag on growth, but taxes spent on the right things encourage growth.  For example, former state economist Tom Stinson has argued that tax dollars invested in higher education and infrastructure a half century ago transformed MN from a middling state in terms of economic performance to a national leader in terms of income, job, and GDP growth.  Another example, non-partisan experts note that expenditures in early childhood education provide an 8 to 1 return on investment, and ultimately reduce a whole variety of public and private expenses.  If low tax / low spending was the highest and best road to prosperity, MN would not be doing as well as it is, and other low tax states would be doing much better.

  • carl Brookins says:

    April 1, 2014 at 8:50 am

    very little surplus should go to reducing current taxes. We have too many pressing needs.
    For example:
    One of the most far-reaching effective means of securing the economic future for Minnesota is to put in place state-wide high speed broadband Internet capability. All sorts of businesses could locate in quiet rural towns like Echo, if there was access. Rural dwellers would have access to expert advice and diagnosis from Mayo and other doctors. Mental health practitioners would be able to expand their supportive reach to all remote corners of the state as needed.
    This development is just as important as rural electrification. Internet build-out is the one public/private partnership that can have huge positive economic impact on rural Minnesota.  Why is the legislature ignoring this important development?

    • Jeff Van Wychen says:

      April 1, 2014 at 9:06 am

      Carl: I am not an expert on hi-speed internet, but I suspect that you are correct.  Providing high-speed internet access for rural MN would seem to be the kind of infrastructure investment that we should be making.  Like roads and bridges, statewide high-speed broadband would seem to be an effective way to connect people and encourage commerce.  And in the long run, it may provide more bang for the buck than other types of infrastructure spending.

  • Paul says:

    April 1, 2014 at 9:13 am

    Jeff, do you have any advice for those of us who owe have already filed?  Specifically for those were owing taxes to the state but are now expecting a refund?  Should we still pay what we were expecting ok pay by April 15th or should we wait to hear from the DoR?

    • Jeff Van Wychen says:

      April 1, 2014 at 9:42 am

      If you think you owe taxes and have not heard back from the Revenue Department by April 15, I recommend submitting your tax payment simply to avoid penalties associated with late payment and late filing.  According to the Revenue Department website:
        If you already filed your return, we will review it.  If you qualify for a new deduction or credits, one of three things will happen after our review:
        1. We will adjust your return, if possible. We will send you a letter explaining the adjustment and send you a
      refund.
        2. We will request more information from you. We will use that information to adjust your return, if
      possible. We will send you a letter explaining the adjustment and send you a refund.
        3. If we cannot adjust your return, we will notify you that you will need to file an amended return to get the
      benefits of these tax law changes. We advise you to not amend your return for these new deductions or
      credits until we notify you. You (or your tax preparer) may decide to amend your return for other reasons.

      Again, for more information please check out the following links:
      http://www.revenue.state.mn.us/Documents/press-conference-032414/Overview.pdf
      and
      http://www.revenue.state.mn.us/Pages/law_changes.aspx

      Good luck!

  • Jeff Van Wychen says:

    April 1, 2014 at 9:43 am

    There’s another tax bill working its way through the legislature. Within a few weeks (possible before Easter), House and Senate negotiators will be meeting to work out the differences between their respective bills, with the likely result being the second omnibus tax act of 2014.

    Thanks to those who commented this morning.  If you have questions/comments that you did not get in by the 9:30 deadline, please feel free to still submit them; I will check back in later today and provide whatever feedback I can.  And please keep reading Minnesota 2020 and our Hindsight blog for more news on tax developments during the 2014 session.