February 19, 2021
Minnesota Legislature – Weekly Recap
This week, the House Tax Committee heard two important bills. On Tuesday, they heard HF501 and amended, which dealt with federal tax conformity. On Thursday, the Tax Committee heard HF991, which is the Governor’s budget proposal.
PPP Tax Conformity: In Tuesday’s hearing on federal tax conformity, the committee spent a good amount of time discussing PPP Loan Forgiveness. The language included in the bill would exclude forgiven loans from gross income and prevent the denial of business expense deductions for forgiven loans from the program. Businesses that applied for PPP loans were unaware that they would be taxed on them at the state level, as Congress was clear that they were meant to be tax free. The entire bill, as amended, would cost the state nearly $846 million. The PPP tax conformity is a hefty portion of the bill at approximately $411 million.
The debate in the hearing was focused on the small businesses that were/are having financial difficulties due to COVID that needed these PPP loans to keep their businesses open and employees paid. Now they are finding out that the state will collect extra tax revenue during their difficulties and that is a tough pill for these businesses to swallow. Legislators brought up the businesses that received loans that may not have needed them and how to deal with those situations. It is unclear if they will find a way to pick and choose who will be eligible for tax conformity and who will not.
Click on the following links for a summary of the bill, as amended, and a Session Daily article on the hearing. The MBA is part of the United for Jobs Coalition that is supporting PPP federal tax conformity. Click here for talking points from the Coalition. The Senate Tax Committee has a desire to pass federal conformity quickly.
Governor’s Tax Proposal: Yesterday, the tax committee heard the Governor’s tax proposal, which has many provisions that are problematic, including a fifth-tier income level, an increase in the corporate tax rate and moving the estate tax law back to the $2.7 million threshold. While this is a starting point for the Governor, the Senate majority has no intention of increasing taxes. Compromise will be needed to find a conclusion this year, as the House/Governor and the Senate will begin their negotiations very far apart.
In the PPP section of this update, we saw that the cost to conform in the entire bill would be $846 million. The revenue estimate of this bill would increase the General Fund revenue $972.7 million in FY 2022. Based on these two numbers, we suspect that the discussion will focus on the Governor trading one for the other; whereas the Senate majority has stated they will not trade on either.
A few key things:
- Increasing the state’s corporate rate to 11.25% would result in an increase of $236.5 million
- Creating a fifth tax bracket of 10.85% for those earning over $500,000, or $1 million for those married filing jointly – would result in an additional $214.7 million
- Reinstating the $2.7 million exclusion from the estate tax - would result in another $11.6 million
Click on the following links for a summary of the bill and a Session Daily article on the hearing. The Minnesota Chamber of Commerce testified on the bill yesterday and provided a very thorough letter of their concerns with the bill.
Both bills were laid on the table for possible inclusion in a future Tax Omnibus bill. The February Forecast will be announced next Friday, February 26. After that, committees will begin to narrow their bills and we will have a better understanding of where these issues will fall.
Bill Heard in House Commerce Committee to Allow Account Openings for Financial Institutions
On Tuesday, a bill (HF1067), authored by Representative Jim Davnie (D-Minneapolis) was heard in the House Commerce and Consumer Protection Committee that would exempt financial institutions that have a program to expand access to financial services to the unbanked and underbanked from following the statute that does not allow a financial institution to open an account for someone that has had their account closed in the past year due to NSF activity. The statute only applies to state-chartered banks, as nationally-chartered banks are not subject to this statute.
Background: Last session, Representative Davnie offered an amendment to remove the account opening prohibition language and stated that financial institutions could still choose not to open these accounts, but it would be based off their policy and internal decisions and not a unilateral decision by statute. He said that financial institutions were in the best position to make these decisions.
At the MBA, we have had dozens of conversations regarding this statute over the years and we recognize that there are differing opinions on the statute. The language in the bill is a compromise, allowing banks that want to offer a program for the unbanked/underbanked to do so, while also allowing banks to not offer such programs and follow the statute.
One Point to Note: In working groups, meetings, etc. that the MBA has participated in over the years with non-profits, legislators and others, this statute has come up as a hindrance to offering products and programs to those that most need them. Most recently, a non-profit was looking to partner with a bank for a program that would allow people to build their credit, increase their credit score and have some financial tools. When the non-profit was looking for a partner, the state-chartered bank that they approached said they could not implement the program due to the statute. This change would allow a financial institution who wanted to implement that program the flexibility to make that decision.
The bill would also remove the $4 returned deposit fee cap. No other specific dollar amounts are mandated in the statute other than to state fees must be reasonable. If this language were to be removed from the statute, the fee would fall under the reasonable category. Again, this language is only for state-chartered financial institutions, as nationally-chartered institutions can charge more. As expected, there was push back on this section of the bill, as the chair would like to specify a specific amount and index it for inflation. The current language was enacted in 1991.
This law has been on the books since 1983 when the Minnesota Retailers pushed for the language due to the number of bad checks they were receiving. Now, many retailers do not even accept checks. Minnesota is the only state that has this law on the books.
The bill was laid over for further discussion.
Cannabis Legalization Bill Heard in House Commerce
On Wednesday, the House Commerce and Consumer Protection Committee heard the cannabis legalization bill (HF600), authored by the House Majority Leader Representative Ryan Winkler (D-Golden Valley). The bill is 179 pages, so the goal is not to summarize the bill, but to briefly touch on the banking conversation in the hearing.
If you are interested, here is a link to the bill summary and a Session Daily article on the hearing.
Since the hearing was in the Commerce Committee, there was a chance the author would be asked about banking for these businesses. The MBA was on the call and ready for questions if asked about how other states were offering accounts to marijuana-related businesses. One member of the committee did ask the author about the concerns that since marijuana is on the controlled substance Schedule 1 list, would this cause an impediment to obtaining banking services. Winkler spoke of Colorado and claims that 80% of the businesses in Colorado have some kind of banking relationship. This was the same percentage he told us when we last met with him, but all conversations we have had with colleagues in Colorado indicate that this is not the case.
When the MBA met with the Majority Leader, we stressed the importance of remembering that as much as people would like Minnesota to begin where Colorado may be at now, it is not realistic. At last glance of the 12,000 banks and credit unions in the country, only 720 had any kind of marijuana-related business customers. There is a high risk and an extreme amount of due diligence a financial institution would need to take on with a marijuana-related business. With the new Congress, this should be on the top of their list to address safe banking options for states that have legalized cannabis. At the end of the day, banking will not be a reason the bill does not pass, as has been proven in other states. It is just another thing the legislature should keep in mind as they move forward.
The bill passed the committee on a party-line vote and is scheduled to be heard next week in the House Labor, Industry, Veterans and Military Affairs Committee. The Senate companion has not been scheduled for a hearing.
- A bill that would extend the Farmer Lender Mediation timeline will, once again, be heard in the House Agriculture Committee on Monday. A bill was heard last month to extend the mediation timeline during the pandemic. Monday’s version looks to extend the timeline by 30 days permanently and then push the sunset, which was set to expire in 2022, out to 2027. The extension comes after one person, who works for UofM Extensions claimed more time was needed in the process. The MBA will have a member testify on Monday.
- A bill (SF440) that would expand current law protections for property in foreclosure to tax-forfeited property, common interest communities, and contracts for deed was heard in the House Judiciary and Civil Law Committee yesterday. This bill also makes changes to the process of issuing and recording a state deed for tax-forfeited property. The bill makes several conforming and clarifying changes. The goal of the bill is to ensure consistency in Chapter 325N – the law that protects homeowners from predatory equity stripping scams. The bill is now headed to the Floor in both the House and Senate.
- A bill (HF567) that appropriates $500,000 in fiscal year 2022 from the general fund to the Minnesota Housing Finance Agency for grants to nonprofits to investigate and report on housing discrimination by conducting statewide fair housing testing was heard this week in the House Housing Committee. The grant funds may be used to recruit and train testers and for test result analysis. Grant recipients could share test results with state or federal agencies that handle fair housing discrimination complaints or use the information to advocate for the rights of the prospective renter or purchaser. The bill was laid over for possible inclusion in an omnibus bill.
- Last spring, due to the pandemic, Minnesota passed a law (HF114) extending certain court deadlines and statutes of limitation. That provision was set to expire on February 15. This bill extends that date to April 15, 2021 and was signed into law on February 12. Issues were raised by the Minnesota State Bar Association that the current language in the law was confusing. This law would clarify that the law only suspends the expiration of deadlines during the suspension period. It will also provide for much greater clarity and should prevent court resources from being spent on resolving deadline-related disputes.
Mark Your Calendar
Here are some key dates for the 2021 legislative session:
- February 26 – February Budget Forecast Announcement
- March 12 – 1st Committee Deadline - bills must be out of all policy committees in one body
- March 16-17 – ABA’s Virtual Washington Summit (more information below)
- March 19 – 2nd Committee Deadline - bills must be out of all policy committees in both bodies
- March 27 – April 5 – Legislative Spring/Passover/Easter Break
- April 9 – 3rd Committee Deadline - bills must be out of all committees except Finance/Taxes
- May 17 – Session ends – Constitutionally required adjournment date.
- May 20 – MBA Minnesota Matters – End of Session Webinar
Next Week (as of Friday morning):
Monday House Ag Committee will, once again, hear the Farmer-Lender Mediation (HF80) bill to extend the mediation timeline
Tuesday House Housing Committee will hear a bill (HF896) on manufactured homes affixed to land within a cooperative
Please contact Tess Rice or Therese Kuvaas for any additional information.
For more legislative updates, follow Therese Kuvaas, Government Relations Manager, on Twitter @thkuvaas
Bill Introductions (all introduced on Thursday, February 18):
S.F. No. 1017: A bill for an act relating to taxation; individual income and corporate franchise; providing for federal conformity to exclusion of paycheck protection loan forgiveness from gross income and certain related deductions; providing certain business entities the option to file as C-option corporations; amending Minnesota Statutes 2020, sections 289A.02, subdivision 7; 289A.08, by adding a subdivision; 289A.38, by adding a subdivision; 290.01, subdivisions 19, 31, by adding a subdivision; 290.0132, by adding a subdivision; 290.06, subdivisions 2c, 22; 290.091, subdivision 2; 290.0921, subdivision 2; 290.92, subdivisions 4b, 4c; 290A.03, subdivision 15; 291.005, subdivision 1; proposing coding for new law in Minnesota Statutes, chapter 290.
H. F. 1262, A bill for an act relating to taxation; income; excluding loans forgiven under the paycheck protection program from gross income; allowing expense deductions.
H. F. 1269, A bill for an act relating to creditor remedies; prohibiting garnishment of government aid for assistance related to financial hardship during the COVID-19 public health emergency.