CPAs warn of headaches after Minnesota lawmakers put tax changes on back burner

Some Minnesotans will face extra challenges this tax season after state lawmakers gave up on quickly making changes to the state’s tax code by late January, tax professionals say.

Top lawmakers in the House and Senate said this week they would not pursue a deal on so-called tax conformity until later in this year’s legislative session. The decision means Minnesota’s state income tax forms will not align with the federal changes approved by President Donald Trump and Congress in 2017 when filing season starts Jan. 28.

Tax conformity, the process of aligning the state and federal forms, was once seen as an urgent issue at the state Capitol. But lawmakers and Gov. Mark Dayton failed to reach an agreement last year, and the leaders of a divided state Legislature said it would be harmful to rush through changes now before the filing season.

“My concern is about the taxpayer, they’d have delays in refunds,” said state Rep. Paul Marquart, DFL-Dilworth and chairman of the House tax committee. “The ship has sailed for 2018. So let’s put something in place that’s going to be beneficial for the taxpayers for 2019.”

Republican State Sen. Roger Chamberlain, who chairs the Senate tax committee, echoed those concerns.

“It’s a big, complicated process to adjust to the federal law changes. It’s just too difficult to do in January,” said Chamberlain, R-Lino Lakes. “Right now it would do more harm than good.”

DFL House Speaker Melissa Hortman and Republican Senate Majority Leader Paul Gazelka said this week that the state Revenue department is prepared for the tax filing season.

Headaches ahead – for some

But individual filers will face headaches because of the delay, said Steve Warren, senior tax manager at Minneapolis-based accounting firm Schechter Dokken Kanter.

“I consider it a big deal, because for a lot of people it is a major inconvenience,” Warren said.

Tax filers who always take the standard deduction and plan to continue to -- more than half of filers, Warren said – won’t see a big impact. But business owners and people who have real estate holdings will face major hassles, he said.

In the middle are filers who previously itemized their tax returns. For the first time, many will take the federal standard deduction because it doubled. But they’re still allowed to itemize their state returns.

“They may not have been tracking their charitable contributions, their medical receipts,” Warren said. “They’ve got to go back if they can and go figure out what their itemized deductions are.”

The arrangement will last only for the 2018 tax year if lawmakers can agree on tax conformity legislation this year. But with divided government, that’s no easy feat.

Both sides eye tax cuts

In interviews, the GOP and DFL tax committee chairmen both mentioned tax cuts as a priority but took different approaches.

In the Senate, Chamberlain said he’d like to see lawmakers lower rates in the bottom tax brackets, effectively providing an income tax cut for all filers. There won’t be any tax increases in the conformity legislation, he said.

“There’s no way around this. We can’t go any higher. We can’t go any higher. We have to go down,” Chamberlain said.

In the House, Marquart said he wanted targeted tax cuts for senior citizens, low-income and middle-income people.

“I think we certainly need to do tax cuts for those who were shortchanged in the (2017) federal bill,” he said. I don’t know if you can do tax cuts for everyone – I don’t know if that’s possible.”