Busy Week at the Capitol

After a turbulent January and early February, activities at the Legislature returned to normal this past week. The halls of the Capitol were filled with people from all over Minnesota as numerous stakeholders held “Day at the Capitol” events. House and Senate committees met to consider policy and spending bills while also vetting the Governor’s budget recommendations. This cadence will continue for the next few weeks until Minnesota Management and Budget releases the budget forecast on March 6. This budget forecast will provide the necessary revenue and spending numbers for the House and Senate to begin budget development work.

House Republicans in Majority…for now

On the political front, House Republicans still hold a 67-66 majority and have been functioning as the majority party in the House. While unable to pass bills without a 68th vote, they do have enough members at 67 to control management of the House. The special election in the largely blue House District 40B will be held on March 11, and a likely DFL victory in this seat will return the House to a 67-67 tie.

Tax Credit for Underutilized Buildings Advances

The House Housing Finance and Policy Committee heard the conversion of underutilized buildings (CUB) bill this week.  The bill would provide an income tax credit for the reuse of vacant and underutilized buildings.  Proponents testified that the tax credit would allow for office-to-housing conversions, particularly in downtown Minneapolis and St. Paul, and lead to much needed revitalization. While there is a lot of momentum behind this idea, the cost is significant. The bill passed the Housing Finance and Policy Committee and has been referred to the House Tax Committee.

Governor’s Sales Tax Proposal Receives Committee Airing

Earlier this week, the House Taxes Committee heard from Commissioner of Revenue Paul Marquart regarding the Governor’s proposed changes to the Minnesota tax code. As part of the plan, the Governor has proposed expanding the tax base to include more services, while providing a slight reduction to the sales tax rate from 6.875% to 6.8%. Despite the rate decrease, collections would be expected to increase approximately $185 million over the course of the next biennium, as the tax is expanded to include most legal, accounting, brokerage and some bank services charges. Marquart defended the proposal, highlighting that it “right-sizes the tax code to a more service-oriented economy. Back in 1967, when we initiated the sales tax at 3%, about 60% of our economy was goods, which is taxes, and 40% services. Today, that has flip-flopped. So, you are taxing a narrower and narrower portion of the economy which increases the rate you have enact to get the same amount.”

Business-Related Tax Proposals Also Discussed

While business-to-business sales taxes would remain exempt under the Governor’s proposal, other changes affecting businesses have been proposed. One issue that was the subject of committee conversation is a possible expansion of the state’s research and development (R&D) credit. DFL Committee Lead Aisha Gomez (Minneapolis) questioned whether that was the best approach following a recent report by the Office of the Legislative Auditor. Others on the committee agreed, suggesting that the Angel Tax Credit may be a better approach to help businesses. We expect more conversations and committee action after bill language is released with additional details on the specifics of the Governor’s tax proposal.

February 21, 2025