ST. PAUL, Minn. (AP) — Hundreds of thousands of Minnesota residents will see their state tax burdens drop thanks to a bill that won final backing Friday from the Legislature and Gov. Mark Dayton.
By lopsided margins, the House and Senate approved the $434 million relief package containing extra deductions and exemptions that can be claimed on this year’s tax forms and many more that can be accessed next year. The bill also repeals three controversial business sales taxes beginning in April. And it raises the balance of the state’s reserves by $150 million.
Calling it a “monumental victory,” Dayton and legislative leaders hailed it an hour before the final House vote. The Democratic governor soon signed it.
“I’m not aware of a time when a major tax bill has passed this quickly,” Dayton said. After the bill signing, he said in a statement the tax cuts will put “more money in the pockets of Minnesota families and businesses” and “make taxes simpler for Minnesotans.”
It lines Minnesota’s tax code up with more deductions available to federal filers, which will reduce state tax burdens for qualifying residents.
Among the recipients would be those eligible for working family credits, recent college graduates paying off loans and people receiving certain tuition allowances. Those who lost homes to foreclosure or unloaded them in short sales in the last year would get some of the largest relief. Dayton’s administration said at least 300,000 and as many as 500,000 tax filers could qualify for one or more breaks this year. The pool of those affected climbs substantially next year as another round of cuts kick in.
Revenue Department Commissioner Myron Frans said programmers would work through the weekend to update state filing systems and software. He urged people who might qualify for the new deductions to wait until Monday to submit a return. Those who have already filed will get a refund automatically or be contacted by the department later this spring about amending their return.
About half of taxpayers have already filed this year.
The proposal marks a sharp turn from last spring, when lawmakers digging out of a budget hole and intent on repaying old IOUs raised taxes by more than $2.1 billion. A recent economic report showed Minnesota was on pace to have a $1.2 billion surplus by the summer of 2015.
“We know we faced very, very terrible times last year dealing with a deficit that had been in the making for a number of years,” said Sen. Ann Rest, DFL-New Hope. “We have tax relief we are giving today that speaks of a fairly conservative approach to the good times we are enjoying now.”
Republicans, who are a minority in both legislative chambers, said the state’s ample surplus should have given lawmakers even more room to reduce taxes. Some refused to call it a “tax cut” because it pales in comparison to the amount taxes were raised last year.
“We need to be careful about doing any victory laps in the back of the chamber. We shouldn’t be doing any backslaps. We shouldn’t be proud of ourselves,” said Sen. David Osmek, R-Mound.
His party made several unsuccessful attempts to beef up the amount being sent back, such as exempting military pensions from the income tax and accelerating an expanded tax deduction for married filers so it would happen instantly. Under the bill, the increase in the standard deduction for couples won’t start until people file taxes next year when they would average $115 in savings.
“If the lifting of the marriage penalty is a good idea next year, it’s a good idea this year,” said Rochester Sen. David Senjem.
Senate Taxes Committee Chairman Rod Skoe, DFL-Clearbrook, said such a change would require more than $70 million. He also said it could pose logistical problems because it involves 650,000 returns that would have be recalculated by the Revenue Department or amended by the taxpayers.
Without counting the amount set aside for the reserve funds, the Legislature will have designated about half of the state’s surplus. Lawmakers have about two months before the session’s adjournment to figure out what to do with the rest.
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