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Gov. Walz signs tax breaks into law with conformity bill, the first of the session

The bill brings Minnesota’s tax code into alignment with the federal code, which underwent several changes in recent years as Congress passed pandemic-relief bills.

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Minnesota Gov. Tim Walz signs a tax conformity bill into law at the state Capitol in St. Paul on Thursday. The bill had strong bipartisan support and was the first to be signed into law in the 2023 session.
Alex Derosier / Forum News Service
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ST. PAUL — Minnesota Gov. Tim Walz on Thursday, Jan. 12, signed into law the first bill of the 2023 legislative session, a tax conformity bill that's projected to bring more than $100 million in tax relief over the next few years.

Joined by bipartisan lawmakers and hospitality industry representatives in the Governor’s Reception Room at the Minnesota Capitol, Walz signed the tax conformity bill, which brings Minnesota’s tax code into alignment with the federal code, which underwent several changes over the past few years as Congress passed pandemic-relief bills.

During the pandemic, the federal government enacted policies that affected the tax status of businesses and individual filers, including student loan borrowers and the hospitality industry. But because Minnesota hadn’t conformed its tax laws to the federal code since 2019, some filers in the state may have missed out on some of the credits and deductions.

“This is the way the Legislature is supposed to work, this is the way things are supposed to get done,” the governor said, later adding: “This is a great achievement. And I think it really speaks to what Minnesotans are saying — just come together, find some compromise and get some things done. And this is no small feat, this $100 million tax conformity bill that impacts Minnesotans' lives.”

Under the changes signed into law by Walz, many filers would be able to claim exemptions, credits and deductions made available during the pandemic by the federal government that Minnesota did not recognize. The exemptions included grants for restaurants and venues shuttered by lockdowns.

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The changes would mean Minnesota would give up about $100 million in revenue in 2024 and 2025, and another $3 million or so in the following two years, according to nonpartisan legislative research.

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Minnesota Revenue Commissioner Paul Marquart delivers remarks on the 2023 tax conformity bill Thursday, Jan. 12, 2023, at the state Capitol in St. Paul.
Alex Derosier / Forum News Service

Department of Revenue Commissioner Paul Marquart said new tax forms for 2022 would be immediately available when the bill became law. Marquart, a former Democratic representative from Dilworth who chaired the House Tax Committee before his current appointment, had urged lawmakers to act swiftly on conformity so it could go into effect in time for the opening of the 2022 tax season, which starts Jan. 23.

“The updating is already going on with computer software for tax providers to make sure we can get that updated and get those tests done. Make sure are no glitches and so forth,” he said. “The timing is perfect … this will make things a lot simpler for filers in 2022.”

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The conformity change affects tax returns for 2019-22, years affected by pandemic-era federal bills like the American Rescue Plan and CARES Act. Filers will have to submit amended returns for previous years where state and federal tax codes did not align in order to take advantage of the changes.

Dayna Frank, president and CEO of Minneapolis’ famed music venue First Avenue and its associated venues, hailed the bill as a great success for the state’s independently owned venues, which were tested by the pandemic closures and faced higher tax burdens due to relief grants that were not exempted under Minnesota’s tax code. Frank said the additional tax burden in 2022 could have been “business-ending.”

Of all the bills making headlines early in the session, tax conformity stands out for its bipartisanship and swiftness of action by Republican and Democratic Farmer Labor lawmakers. House Majority Leader Jamie Long and Senate Majority Leader Kari Dziedzic, both of Minneapolis, were present for the signing, as were GOP House Minority Leader Lisa Demuth and Senate Minority Leader Mark Johnson.

DFLers have many early priorities this session that they’ll likely move on with little to no support from Republicans, including abortion rights and a package of elections-related legislation. But conformity is an issue with broad support, so the bill was fast-tracked through the House and Senate and to the governor’s desk.

Walz said he was encouraged by the level of cooperation, but didn’t hide from the fact that there will be more controversial bills down the road.

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“This one feels good to me. I'm, again, not naive. There will be signings in here that will not make some people happy. That's the way it's gonna go,” he told reporters. “But I think it sets the tone that all voices matter.”

MORE FROM ALEX DEROSIER:
Gov. Tim Walz on Friday, Feb. 3, signed into law a bill establishing a Juneteenth holiday in Minnesota.

Alex Derosier covers Minnesota breaking news and state government for Forum News Service.
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