Early tax bill to address drafting errors

Feb 23, 2024

beth

By Beth Kadoun
Vice President, Tax and Fiscal Policy

An early tax bill is on its way to Governor Walz this week to fix some drafting errors from the 2023 omnibus tax bill. Unfortunately, this early tax bill is missing a tax drafting error impacting businesses with net operating losses (NOL) for this current tax filing season.

There were two major drafting errors in the 2023 tax bill. This bill addresses the component for individual income taxpayers that take the standard deduction but does not fix the component for businesses with net operating losses. The individual income tax standard deduction was mistakenly set at 2019 levels versus inflation adjusted levels which would have resulted in a $350 million tax increase. NOL is especially important for start-up companies and those operating in cyclical industries as it allows businesses to offset losses in future years and even out business profitability. Minnesota will be deviating from the federal cap of 80% and moving to a 70% cap. The conference committee agreement had an effective date for tax year 2024 which at least gave a little more notice and planning time for taxpayers – however, the bill language mistakenly had a date of tax year 2023.

The tax committee chairs sent letters of intent stating they would fix both of these issues at “the earliest possible opportunity.” But according to committee testimony, the governor’s office requested the NOL not be included in the early tax bill due to the $15 million one-time revenue impact.

Taxpayers would have relied in good faith on the letter of intent from the Tax Committee Chairs that this would be fixed and this information is still on the department’s website.

We urge policymakers to address the NOL issue as soon as possible as this impacts taxpayers for this tax filing season so they do not have to pay higher taxes this year than expected. A separate bill has been introduced but this may now be delayed until next omnibus tax bill moves forward likely in May.