Perhaps the most positive feature of the conference report on House File 2337 is that it does not include the deep cuts to renters’ property tax refunds that had been included in the House’s bill. That means that Minnesota’s low- and moderate-income renters will not be asked to pay for the bill’s tax cuts, which primarily go to businesses and investors.
However, the conference report has not found a sustainable way to pay for the tax cuts. In this budget cycle, the tax cuts are paid for through a $44 million transfer from the state’s budget reserve and a $4 million transfer from a special revenue account used by the Department of Revenue. But the bill adds $145 million to the revenue shortfall in the next budget cycle, currently projected to be over $1.1 billion, making it more difficult to sustainably fund the state’s priorities.
The conference report includes $48 million in tax cuts in FY 2012-13 and $141 million in FY 2014-15, less than in the original House and Senate tax bills. Some of the major tax cut provisions include:
- Freezing the amount raised from the statewide property tax paid by businesses and cabins, instead of adjusting it for inflation as under current law. This results in a $10 million tax reduction in FY 2012-13 and $72 million in FY 2014-15, and the cost will grow over time.
- Increasing the Research & Development credit for businesses with certain R&D expenses ($8 million in FY 2012-13 and $13 million in FY 2014-15).
- Increasing the Angel Investor Tax Credit for those who invest in certain start-up businesses ($4.5 million in FY 2012-13 and $10 million in FY 2014-15).
- Allowing businesses who purchase capital equipment to receive a sales tax exemption at the time of purchase, instead of needing to pay upfront and apply for a refund. The exemption applies to businesses with fewer than 81 employees in FY 2012 and to all businesses in FY 2016 ($19 million in both FY 2012-13 and FY 2014-15).
- Increasing the targeted property tax refund for homeowners for property taxes paid in 2012 only ($4 million in FY 2012-13 and $2 million in FY 2014-15). This refund is available to homeowners of any income level whose 2012 property taxes increase by 12 percent and at least $100 over the previous year.
Cities with populations of 5,000 or more will see their 2013 state funding through Local Government Aid frozen at 2012 levels; smaller cities will receive the larger of what they received in 2012 or are scheduled to receive in 2013. The bill also includes a number of local development provisions that provide local tax incentives but do not have a cost to the state.
It’s not clear whether the Governor will sign the bill. Governor Dayton has opposed making cuts to the Renters’ Credit, and that provision is not in this bill. However, the Governor has also opposed using the budget reserve and increasing the future budget deficit, and this bill does both.