HOUSE AND SENATE PASS TAX CORRECTIONS BILL

By strong bipartisan votes, the House and Senate this week passed the Tax Corrections Bill which will impact 2023 taxes.  The Governor is expected to sign the bill quickly because taxpayers are already starting to file their returns. The bill corrects the 2023 tax law that inadvertently reduced the standard deduction amount for tax year 2024. The bill would set the tax year 2023 standard deduction at $27,650 for married joint or surviving spouse filers, $20,800 for head of household filers, and $13,825 for all other filers. The bill also modifies the definition of “Tribal Nation” in statewide local housing aid, and allows a 0.625% local sales and use tax authorization for Beltrami County approved by voters in November.

SCHOOL RESOURCE OFFICER BILLS MAKE PROGRESS

The House and Senate are both considering bills, H.F.  3489, Rep. Cedric Frazier (DFL-New Hope) / S.F. 3534, Sen. Bonnie Westlin (DFL-Plymouth), that would change a law, passed last year, that bars school workers and resource officers from restraining students in a way that limits their ability to breathe or voice their distress.  After this prohibition on restraints passed in 2023, dozens of police departments around Minnesota terminated or suspended school resource contracts with local school districts.  Law enforcement groups say the 2023 law needs to change before the school resource officers can return to schools while advocacy groups argue that the law should remain unchanged. DFL legislators are working with stakeholders and their Republican counterparts in an attempt to cobble together a compromise.  It is expected that this bill will come to floor votes within the next two weeks.

CONSUMER DATA PRIVACY ACT GETS ITS (FIRST) DAY

Rep. Steve Elkins (DFL-Bloomington) has been working on a bill to provide protections to consumer data collected by various entities for several years. While many acknowledge that a federal law applicable nationally is a preferred option, the lack of action at that level has led to more than a dozen states adopting a patchwork of state solutions. H.F. 2309, the Consumer Data Privacy Act, is Minnesota’s version, and is similar, but not identical to many of the other state models. The bill received its first hearing in the House Commerce Finance and Policy Committee on Wednesday. Following the adoption of a delete-all amendment to the original Consumer Data Privacy Act, the legislation largely exempts entities that fall under other data privacy laws, such a HIPAA, which governs health care related data, and the Gramm-Leach-Bliley Act, which primarily impacts the financial and insurance entities.

COUNTING DOWN LEGISLATIVE DAYS

It is well-known that the Minnesota Legislature must adjourn by the Monday prior to Memorial Day, but less understood is that each two-year biennium is limited to a maximum of 120 legislative days. According to current law, a legislative day is any day that either the House of Representatives or the Senate meets for a floor session. In 2023, the legislature used 77 legislative days, leaving only 43 available in 2024. The limited number of legislative days remaining puts additional pressure on the legislature to efficiently move bills through the committee process.

LOOKING AHEAD

Next week brings a couple significant events in Minnesota political circles. Tuesday, February 27, is precinct caucus day, where political party activists gather for local meetings to begin the process of organizing and preparing for the 2024 elections. These caucus-goers, who tend to be more partisan than the general electorate, will also be the ones to bestow party endorsements on candidates. The Presidential Primary Election will take place the following week, on Tuesday, March 5. Additionally, Minnesota Management and Budget will release the updated February Economic Forecast on Wednesday, February 28. The prior November forecast showed a temporary surplus of approximately $2.4 billion, but it disappeared by the end of the next budget cycle due to an imbalance with expenses anticipated to outpace revenue in future years. Wednesday’s economic forecast will be an important measure for legislators in determining if they have the ability to spend any money this session.

Good News Coming in the February Forecast?

Minnesota continues to exceed expectations in its revenue collections, which bodes well for the February Economic Forecast announced at the end of the month. On Monday, February 12, Minnesota Management and Budget (MMB) reported that net revenue collections for all major tax types in January exceeded forecasted amounts. General fund revenue collections in January were $313 million more than forecasted and, for fiscal year 2024, revenue collections already exceed the forecast by $384 million.

House to Debate Tax Fix

On Monday, February 19, the full House of Representatives will debate H.F. 2757, a bill correcting a tax provision that passed when the 2023 Omnibus Tax Bill became law last May. According to the bill author, Representative Aisha Gomez (DFL-Minneapolis), this change in 2023 inadvertently reduced the standard individual income tax deduction by undoing the inflation adjustments instituted since 2019. H.F. 2757 undoes this change and preserves the standard deduction for Minnesota filers. Without this correction, most Minnesota filers would see a tax increase. The House is expected to overwhelmingly pass this bill with Senate action following quickly.

Changes in House Membership

The House of Representatives has experienced two changes in membership. Rep. Bianca Virnig (DFL-Eagan), a former school board member, won a District 52B special election on December 5 to replace former Representative Ruth Richardson, who resigned September 1, 2023. Former Representative and House Speaker Kurt Daudt (R-Crown) resigned his seat on February 11. A special election has been called for March 19 to fill the District 27B seat. There have been no changes in Senate membership.

Key Session Dates

With the 2024 Legislative Session up and running, here are the key dates to watch:

Legislative Retirements

While session is barely a week old, fifteen House members have already announced that this session will be their last.  The chart below lists these members:

Source: Minnesota Legislative Reference Library

2024 promises to be busy for campaign finance and lobbying compliance reporters. In order to better serve our clients, Winthrop & Weinstine, has created a Campaign Finance and Lobbying Compliance group to help keep our clients up-to-date on the latest compliance issues. This calendar includes each of the reporting dates for filings at the Minnesota Campaign Finance and Public Disclosure Board (CFB) and the Federal Elections Commission (FEC).

In addition to reminders on reporting dates, please continue to watch your inbox for updates as the CFB issues additional guidance on the new lobbyist requirements passed by the legislature in 2023. The latest lobbying information will be included in an update coming next week.

Should you have any questions or need assistance, please see the contact information below.

Download the Campaign Finance Calendar.

Last week, the Minnesota Office of Cannabis Management (“OCM”) issued its annual report to the Legislature for 2024. When HF100 was signed into law last Spring by Governor Tim Walz, Minnesota became the twenty-third state in the nation to legalize marijuana for adult recreational use. Since that time, however, there have been more questions than answers with respect to what Minnesota’s new cannabis market will actually look like, or when it will come online. This OCM report provides the first—albeit high-level—answers to some of those questions.  OCM’s report, which “offers recommendations from the Office to ensure the effective rollout of Minnesota’s regulated adult-use cannabis program,” includes the following key take-aways:

• The report emphasizes OCM’s desire to strengthen the social equity components of the current legislation in order to “help ensure social equity applicants have improved access to the capital necessary to begin businesses and build generational wealth.” To achieve this goal, OCM recommends the following actions:
  • Replace the current point-system (and corresponding point-bonus for social equity applicants) with an entirely new social equity license classification, presumably to ensure that social equity applicants are guaranteed a meaningful percentage of cannabis licenses.
  • Provide a temporal advantage to social equity applicants by allowing them to enter the market before other license-holders. OCM further suggests that temporary licenses and temporary regulations could be issued in order to facilitate the early launch of a limited adult-use market.
  • Define social-equity ownership percentages in a manner that enables those business to efficiently raise capital (for instance, requiring less than 100% ownership by individuals who qualify as social equity applicants).
• The report recommends eliminating the need for applicants to secure a location prior to applying for a license in order to reduce the financial burden of initially pursuing a license.
• OCM suggests eliminating the requirement that local governments be given the opportunity to provide input regarding specific license applications, suggesting that such a requirement invites unnecessary risk of litigation and licenses that go unused.
• Finally, OCM suggests eliminating the legislation’s current distinction (and separation) between medical and adult-use cannabis for purposes of cultivation.  In doing so, OCM recognizes that eliminating this arbitrary distinction between a “medical” plant and an “adult-use” plant for cultivation purposes should lead to lower retail prices for consumers and a more streamlined licensing processes.

There is no way of knowing which, if any, of these recommendations the legislature may adopt in the 2024 session. Nonetheless, this report by OCM is informative for market on-lookers. Not only does the report provide the Office’s first public statement regarding perceived shortcomings in the statute it will be enforcing, but it also provides insight into OCM’s own priorities in advance of future rulemaking.

The Employee Retention Tax Credit (“ERTC”), under the CARES Act, is a refundable tax credit filed against a company’s payroll taxes. The ERTC was enacted to incentivize employers to maintain their employee base during the COVID-19 pandemic. Recently, the ERTC has been highly scrutinized by the IRS, citing fraudulent claims facilitated by third-party tax credit promoters. On December 20, 2023, the IRS released Notice 2024-3, which announced a Voluntary Disclosure Program (“VDP”). The VDP allows a taxpayer who believes it may have filed an inaccurate claim to return 80% of their ERTC to avoid a subsequent audit by the IRS.

ERTC DEVELOPMENTS PRIOR TO THE VDP

On September 14, 2023, the IRS announced a temporary moratorium on processing new ERTC claims until at least December 31, 2023. The IRS cited extreme backlog (more than 600,000 claims), as the purpose for the moratorium. The IRS stipulated that the existing backlog was due to many fraudulent claims, focusing on ERTC submissions where: (1) no entity was in existence during the ERTC eligibility period; or (2) there were no paid employees during the ERTC eligibility period. The IRS reported that 20,000 letters were sent out to taxpayers between September 14 to December 31, 2023. To this date, the IRS has not officially lifted the moratorium on processing ERTC claims.

The moratorium on processing was the latest in a series of announcements that focused on the ERTC. On April 20, 2023, the IRS listed the ERTC on their annual “Dirty Dozen” list. The IRS warned that certain third-party tax credit promoters were using the ERTC as a possible “scam” to collect fees from companies that do not otherwise qualify for the ERTC, flooding the IRS with ERTC claims, and resulting in many businesses being audited. The IRS cautioned businesses to carefully consider their ERTC service providers before claiming the ERTC. The Dirty Dozen list was preceded by similar warnings from the IRS.

WHAT TO KNOW ABOUT THE VDP

Notice 2024-3 announced the framework for the VDP. The VDP “includes the settlement of the ERC for purposes of a participant’s employment tax obligations by eliminating their eligibility for the ERC while allowing a participant to retain 20% of the claimed ERC amount.” The VDP application deadline is March 22, 2024. The VDP is not available to taxpayers under employment tax examination or audit.

The Notice also “resolves the issue of the corresponding adjustment to income tax expense for participants.” Upon filing the ERTC, a taxpayer is required to reduce wage expense in the context of income tax. The VDP stipulates that the taxpayer will have no income tax obligation as a result of settlement, regardless of whether the taxpayer reduced their wage expense after filing the ERTC. If the taxpayer already amended their income tax return to reduce wages, they may file an Administrative Adjustment Request (“AAR”) to reclaim wage expense originally reduced by the ERTC.

In short, the VDP allows taxpayers to retain 20% — an amount that many third-party tax credit promoters charged as their contingency fees for preparation. The VDP relinquishes a taxpayer’s eligibility for the ERTC. When submitting the VDP, the taxpayer must provide the taxpayer’s name, the tax periods the ERTC was claimed, and the name of any third-party preparer used when claiming the ERTC. The ERTC is available on a quarter-by-quarter basis, but the taxpayer must give up the entirety of their ERTC benefit in the quarter in which they are applying.

WHAT TO KNOW ABOUT THE ERTC IN THE CONTEXT OF THE IRS DEVELOPMENTS

If you have filed for the ERTC, but have not received the refund, it does not mean that your business should be concerned. Upon announcing the temporary moratorium on the ERTC, the IRS warned that the ERTC processing period could exceed the normal processing time (180 days). Additionally, it does not mean that the VDP is the only option for your business.

For businesses under audit for their ERTC, the VDP is not available. If your business has been audited, it does not mean that it does not qualify for the ERTC. Winthrop & Weinstine, P.A.’s Specialty Tax & Incentives Group has extensive experience with the ERTC and the IRS audit framework. Our attorneys can assist in an analysis of the ERTC, whether your company is under audit or considering the VDP settlement option.

The 2023 legislative session saw a substantial number of changes to employment laws in Minnesota. As you and your business enter 2024, the team at Winthrop & Weinstine has prepared a summary of the changes that may impact your business, as well as helpful checklists to guide you as you comply with those changes.

Sick and Safe Time Law:

Effective:  January 1, 2024

What’s New: Starting on January 1, employers will be required to provide all employees that work at least 80 hours per year in Minnesota with “earned sick and safe time”  (“ESST”) or paid leave that can be used for certain specified reasons set forth in the statute, including when an employee is sick, needs to care for a family member, needs to seek assistance because the employee or their family member has experienced domestic abuse, or for closure of an employee’s workplace or family member’s school or place of care.

How to Plan and Prepare to Provide ESST in 2024:

• Determine if the new law applies to your business. Do you have one or more employees that work 80 or more hours a year in Minnesota?
• Think about the types of employees you have: hourly workers, salaried workers, etc. What paid time off policies do you currently have in place, and do they need to be modified?
• Decide whether you want to provide ESST through the Accrual or Frontload Method described in the statute.
  • ALL employees must either start accruing hours on January 1, 2024, OR have at least 80 hours frontloaded, depending on whether you intend to pay out ESST at the end of a year.
  • If you decide on the Accrual Method, determine how you will keep track of each employee’s accrued hours (1 hour is accrued for every 30 hours worked).
• Draft a written notice to all employees regarding ESST rights and provide it to all employees no later than January 1, 2024. If you have an employee handbook you must include the written ESST notice in the handbook as well.
• Contact your payroll provider and ensure that ESST information will be included on paystubs for the first pay period of 2024. The total ESST hours accrued and available for use and the total number of ESST hours used during the pay period must be contained on each employee’s paystub.
• Update Policies and Procedures:
  • Include a notice of employee rights and remedies in any employee handbook.
  • Update existing PTO, vacation and related policies to ensure that they are in compliance with the new law.

Non-Competition Ban:

Effective: July 1, 2023

What’s New:  A covenant not to compete entered into on or after July 1, 2023, is considered void and unenforceable under Minnesota law, with few exceptions (e.g., in the context of the sale or dissolution of a business.)

How to Plan and Prepare to Protect Your Business in 2024:

• Remove non-competition provisions from your existing agreement templates.
• Non-Compete Agreements entered into prior to July 1, 2023, are still in effect. The new law is not retroactive.
• Be careful not to void your existing non-competition restrictions by amending agreements that contain those provisions. Consider entering into new agreements instead.
• Analyze and consider revising/bolstering non-solicitation and confidentiality provisions in your agreements. The new law does not prohibit the use of non-solicitation agreements (i.e., agreements restricting the ability to use client or contact lists or solicit customers of the employer).
• Non-competition restrictions agreed upon during the sale of a business or in anticipation of the dissolution of a business are still valid and enforceable as long as the restrictions are temporary and reasonable.

Recreational Marijuana/Changes to Drug Testing:

Effective: July 1, 2023

What’s New:  Employee use, possession, or distribution of cannabis products in the workplace can still be prohibited by Minnesota employers. However, testing job applicants for cannabis use is not allowed unless the testing is required by state or federal law or there is a statutory exception. Safety-sensitive employees are carved out as an exception, and can still be tested for cannabis pre-employment and in other circumstances.

How to Plan and Prepare Your Business in 2024:

Revise your Drug Free work policy to make clear that employees are not permitted to be under the influence of cannabis products at work. Prohibiting “drugs” or referring to “drug testing” is not sufficient, because cannabis products are removed from the definition of “drug” under Minnesota’s Drug and Alcohol Testing in the Workplace Act.

• Make sure any drug testing policy is in compliance with Minnesota’s Drug and Alcohol Testing in the Workplace Act.
• Stop pre-employment testing for cannabis unless the individual’s job is safety-sensitive or another exception applies.
• Update your employee handbook and/or employment polices with regard to any cannabis-related policies.
• Consider training your managers regarding how to comply with the new law.

Pregnancy Accommodations:

Effective: July 1, 2023

What’s New: If requested, pregnant employees must be provided with longer restroom, food, and water breaks (not just more frequent breaks); pregnant employees may also be entitled to a temporary leave of absence, work schedule or job assignment modifications, and more frequent or longer breaks.

How to Plan and Prepare to Provide These Accommodations in 2024:

• Ensure you have a written notice in place advising employees of their right to receive pregnancy accommodations, and provide the notice at the time of hire and when an employee makes an inquiry about, or requests, parental leave.
• Update any employee handbook with language regarding an employee’s right to pregnancy accommodations.

Parental Leave:

Effective: July 1, 2023

What’s New: As of July 1, 2023, regardless of employer size or how long an employee has been employed with that employer, an employee has a right to up to 12 weeks of unpaid leave for the birth or adoption of a child or for pregnancy, childbirth, or related health conditions.

How to Plan and Prepare to Provide These Accommodations in 2024:

• Update any employee handbook with proper language regarding employees’ rights to take parental leave accommodations.

Nursing Mothers and Lactating Employees:

Effective: July 1, 2023

What’s New: Provides workplace protections for expectant employees and new parents. Requires that an employer provide all nursing and lactating employees reasonable break times — regardless of whether that time would unduly disrupt the employer’s operations — to express milk, regardless of the child’s age, in a location or space that is “clean, private, and secure.”

How to Plan and Prepare to Provide These Accommodations in 2024:

• Ensure you have a written notice in place for employees advising of their right to express milk at the time of hire and when an employee makes an inquiry about, or requests, parental leave.
• Update any employee handbook with appropriate language regarding nursing employees’ workplace rights.
  • Breaks are no longer limited to 12 months after a child’s birth.
  • Remove any language that states breaks do not have to be provided if the break unduly disrupts the company’s operation.
  • Make sure nursing employees do not have their pay docked for taking nursing breaks.
  • Make sure employees can take a break to express milk regardless of whether the break time aligns with already-provided breaks.
• Provide appropriate training on these new procedures to supervising employees.

Captive Audience:

Effective: August 1, 2023

What’s New: Beginning August 1, 2023, employers cannot take adverse action against employees who choose not to participate in meetings for religious or political reasons.

How to Plan and Prepare Your Business in 2024:

• Ensure you have a written notice in place for employees advising of their right to decline to attend meetings for religious or political reasons.
• Update any employee handbook with language regarding employees’ rights with regard to company meetings.

Veterans Benefits/Services:

Effective: January 1, 2024

What’s New: Beginning January 1, 2024, all employers must display a new veterans’ benefits poster as provided by the DLI.

How to Plan and Prepare Your Business to Provide These Benefits in 2024:

•  Post DLI poster, which is available at: https://www.dli.mn.gov/posters

Pay History Ban

Effective: January 1, 2024

What’s New: Beginning January 1, 2024, all employers are prohibited from inquiring into an applicant’s current wage, salary, benefits, or other compensation for purposes of determining the compensation that will be paid to the applicant. The prohibition further applies to an employer’s use of publicly available salary information. An employer may not actively try to access publicly available information with the intention of using it to determine the applicant’s potential wages, salary, earnings, benefits, or other compensation. The prohibition does not apply if an applicant’s salary history is shared voluntarily. If voluntarily shared, employers can use this information to potentially offer a higher wage or salary than their initial offer.

How to Plan and Prepare Your Business in 2024:

• Remove any requests for pay history from all application and interview materials.
• Train all employees involved in the hiring process on this change so they know they cannot inquire about previous pay.
• Begin planning how compensation will be determined, and clearly communicate this change to employees involved in hiring.
• Update any employee handbook and/or policies and procedures regarding determining compensation or interview questions.

Minnesota Paid Family and Medical Leave:

Effective: January 2026

What’s New: Provides partial wage replacement for employees for 12-20 weeks in a 52-week period for medical leave, bonding, caring for a family member, safety leave, or qualifying exigency leave. All employers with one or more employees must provide paid leave in accordance with the law. Paid leave will be available to all employees on the first day of employment; an employer does not have to require the employee to work for 12 months to receive the benefit. Note: the paid leave will be provided through a state fund and will be funded through a payroll tax.

How to Plan and Prepare for 2026:

• Watch for information from DEED and DLI about how this program will be implemented.
• Start reviewing existing policies and procedures and consider handbook revisions.
• Prepare for having to provide notice and posting requirements.

Download the 2023 Employment Law Changes – Checklist

Companies have new reporting requirements beginning January 1, 2024.  The Corporate Transparency Act (CTA) passed as part of an anti-money laundering regime. The CTA requires a government-maintained registry of beneficial ownership information (BOI) for certain entities registered or formed to do business in the U.S. The CTA requires that those entities report their BOI to the Financial Crimes Enforcement Network (FinCEN) of the Treasury Department.

The reporting requirements of the CTA are effective on January 1, 2024. Companies existing before January 1, 2024 will have until January 1, 2025 to submit BOI reports. However, new reporting companies formed on or after January 1, 2024 must comply with CTA’s 90-day reporting deadline.

Who Needs to Report?

Any corporation, limited liability company, or other similar entity that is (i) created by the filing of a document with a Secretary of State or a similar office under the law of a State or Indian Tribe or (ii) formed under the law of a foreign country that is registered to do business in the United States must report, unless the entity is exempt.  In addition, most partnerships (LPs, LLPs, and LLLPs) are reporting companies under the CTA because such entities are generally formed with a filing through the Secretary of State or other similar office.  Sole proprietorships, certain types of trusts and general partnerships that are not created with a filing through the secretary of state or other similar office may fall outside the CTA’s definition of a reporting company.

Exempt companies include public companies, banks, credit unions, insurance companies and insurance producers, entities registered with the SEC (such as broker dealers), registered investment advisers and investment companies, venture capital fund advisers, public accounting firms, tax-exempt entities and others.

The exemption likely to have the broadest impact on reporting requirements is the large private company exemption. Companies will not be subject to the CTA’s reporting requirements if it:

• Has more than 20 employees on a full-time basis;
• Reports gross receipts or sales of more than $5 million in the previous year’s tax returns (including subsidiaries and operating affiliates); and
• Has a physical presence in the U.S.

Another important exemption is the pooled investment vehicle exemption. This exemption applies to certain pooled investment vehicles when they are operated or advised by certain other exempt entities, such as banks, credit unions, brokers or dealers in securities, federally registered investment advisers, or venture capital fund advisers.

A common misconception is that small entities do not need to report.  However, even though the CTA includes numerous exemptions, its impact will be felt broadly by many small businesses, including certain special purpose entities, which are generally unlikely to fall within the scope of its exemptions as they currently stand.

Who is a Beneficial Owner?

The CTA defines a beneficial owner to mean, with respect to an entity, an individual who (i) directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise exercises “substantial control” over the entity or (ii) owns or controls not less than 25% of the “ownership interests” of the entity.

An individual can be a beneficial owner of a reporting company even if that person does not own any equity of the reporting company but exerts substantial control.  Under the CTA, an individual exercises substantial control if the individual serves as a senior officer (meaning the president, CFO, GC, CEO, COO, or any other officer performing a similar function, regardless of title). An individual’s title itself is not determinative of senior officer status under the CTA. Instead, the determination will be based on whether the individual exercises authority or performs the functions of a senior officer- in other words, if the individual exercises substantial control.

Unless an exemption applies, a reporting company must identify all individuals who meet the beneficial owner definition, While the number of individuals identified will vary from company to company, all reporting companies should identify at least one individual with substantial control.

Who is a Company Applicant?

A company applicant is an individual who directly files the formation documents for a domestic reporting company or first registers a foreign reporting company, or where more than one individual is involved in the filing process, is primarily responsible for directing or controlling the filing of the relevant document(s) by another.

A reporting company created or registered before January 1, 2024, does not need to report information regarding its company applications and does not need to report any change to the required information about its company applicants as long as the information regarding the company applicants was correct when first reported.

Information Reported

Under the CTA, a reporting company must disclose information in its BOI report about itself and its beneficial owners and, in the case of a reporting company created or registered after January 1, 2024, its company applicants.

Reporting Company

The reporting company must disclose the following information:

• Full legal name of the reporting company (including any trade names, d/b/a names, or t/a names whether formally registered);
• Complete current street address (no P.O. boxes, registered agent addresses, mail forwarding/virtual office addresses) for the principal place of business for a domestic reporting company or the primary location where a foreign reporting company conducts business;
• The state, tribal, or foreign jurisdiction of formation; and
• The IRS TIN, including an EIN. If a foreign reporting company has not been issued a TIN, it may provide a tax identification number issued by a foreign jurisdiction and the name of the issuing jurisdiction as an alternative.

Reporting companies, like company applicants and beneficial owners, may opt to obtain a FinCEN identifier by checking a box on its BOI report during submission.

Beneficial Owners and Company Applicants

Each reporting company must disclose the following information regarding each of its beneficial owners and – where the entity was created or registered after January 1, 2024 – its company applicants:

• Full legal name,
• Date of birth,
• Current address,
• Unique identification number from an unexpired passport, driver’s license, other acceptable identification document, or FinCEN identity number, and
• An image of the identification document from which the unique identification number was obtained.

Instead of reporting the above information for beneficial owners or company applicants, an individual may obtain a FinCEN identifier. The reporting company may then report the individual’s FinCEN identifier on its BOI report as opposed to the specific information regarding that individual. This may be a good option for individuals who prefer to provide their information directly to FinCEN rather than through disclosing information to the reporting company and for individuals who are likely to be identified as beneficial owners or company applicants for multiple reporting companies.

Although the information contained in the BOI report will not be publicly accessible, it will be available to federal, state and international law enforcement agencies as well as financial institutions for customer due diligence.

Initial Reports

FinCEN will not accept any BOI reports before January 1, 2024. Reporting companies that were created before January 1, 2024, will have until January 1, 2025 to file their initial BOI report.

However, entities formed on or after January 1, 2024, must file their initial BOI reports with FinCEN within 90 days of the earlier of the date on which the reporting company:

• Receives actual notice that its creation (or in the case of a foreign reporting company registration to do business) has become effective; or
• A Secretary of State, or similar office, first provides public notice that the company has been created (or in the case of a foreign reporting company registered to do business).

Reporting companies that no longer qualify for one of the exemptions listed in the CTA after January 1, 2024 must file their initial BOI report within 30 days from the date on which the applicable exemption ends.

Updated and Corrected Reports

If the information regarding the reporting company or its beneficial owners previously reported changes, the reporting company must update the previously filed report within 30 days, even if the change is small or immaterial. There is no materiality threshold or qualifier regarding a reporting company’s obligation to report and update any changes to a previously filed BOI report. The reporting company must report all changes to the required information, unless the change is due to the termination or dissolution of the reporting company.

With regard to any inaccuracies contained in a reporting company’s BOI report, if the reporting company becomes aware, or has reason to know, that any of the information contained in its previously filed report was inaccurate when filed, the reporting company must file a correct report within 30 days of such time to fix any inaccuracies. The CTA does provide a safe harbor from liability for filing a false BOI report if the reporting company files a corrected report within 90 days of the submission of an incorrect report.

Liability Under the CTA

Compliance with the CTA may be cumbersome, but the penalty for non-compliance is extremely costly.  The CTA includes both civil and criminal penalties for violations and noncompliance.  The civil penalty may be up to $500/day for each day a violation continues. There is a criminal fine of up to $10,000 and potential imprisonment for up to two years, or both, for any person who willfully provides or attempts to provide false or fraudulent BOI or who fails to report complete or updated BOI to FinCEN. Penalties may also apply to reporting companies and individuals who cause a reporting company not to report or who are senior officers (based on the substantial control rules) of a reporting company at the time of its failure to fulfill its obligation or to accurately report or update BOI.

Further, the CTA allows civil penalties and a criminal penalty of up to $250,000 in fines or up to 5 years imprisonment, or both, for any person knowingly disclosing or using the BOI contained in a reporting company’s BOI report in an unauthorized manner.

The CTA does include a safe harbor of up to 90 days for correction of inaccuracies.  But, the safe harbor does not extend to inaccuracies that were made for the purpose of evading the reporting requirements or were known to the person submitting the report at the time the report was submitted.

The CTA carries significant potential liability for violations along with its substantial reporting obligations. As such, reporting companies should begin to identify applicable obligations and implement compliance processes to monitor and report changes to the information required to be reported in order to avoid penalties.

Looking Ahead

Reporting companies should develop policies and procedures to avoid penalties. These requirements could represent a significant change to a company’s current internal operations, with the broadened scope of who is required to report and bringing previously existing entities into compliance.  The CTA may have a significant impact on your business; Winthrop & Weinstine, P.A.’s attorneys can assist in reviewing that impact and how to comply with the CTA’s obligations.

Minnesota Management and Budget (MMB) released the State Economic Forecast today. In the Forecast, MMB declared that “Minnesota’s budget and economic outlook remains stable” for the remainder of the FY 2024-2025 biennium, with a projected surplus of $2.4 billion. This $2.4 billion number is an increase of $808 million from the estimates made after the 2023 legislative session.

MMB credited the surplus to strong revenue collections driven by higher-than-expected consumer spending and corporate profits. These strong revenue collections are partially offset by higher estimates in health and human services and education spending. These higher than anticipated spending estimates carry over into the FY 2026-2027 biennium.

The data from this Forecast will be used by Governor Tim Walz and the Legislature to develop a supplemental budget for the 2024 Legislative Session. MMB will release another Forecast in late February of 2024.

In a unanimous decision filed Monday, November 20, 2023, the Minnesota Court of Appeals affirmed a district court opinion that limits medical assistance claims against estates to only the amount of long-term-care services that were actually provided to the decedent.

Under Minnesota law, the State of Minnesota can recover “the amount of medical assistance rendered to recipients 55 years of age or older that consisted of nursing facilities, home and community based services, and related hospital and prescription drug services.” Minn. Stat. § 256B.15, subd. 2(a). The underlying policy justification for this practice is to make sure that those who receive medical assistance “use their own assets to pay their share of the cost of their care.” Id. at subd. 1(a).

Background

In Estate of Ecklund,[1] the decedent, Joanne Ecklund, had been enrolled in Minnesota’s medical-assistance program and received benefits through Medica, a managed care organization. During Ecklund’s lifetime, Minnesota’s medical-assistance program made “capitation payments” to Medica to cover the cost of Ecklund’s care.

A “capitation payment” is similar to an insurance premium. Under its medical-assistance program, Minnesota makes capitation payments to participating managed care organizations for each recipient of medical assistance by considering price and utilization data from the medical assistance populations. In exchange for these payments, the managed care organizations take on the financial risk of providing medical assistance services, and negotiate with various healthcare providers to secure discounts for covered services.

A byproduct of the State of Minnesota’s method of paying capitation payments to managed care organizations is that, depending on the medical assistance recipient, the amount the managed care organization receives in capitation payments might be more or less than the amount the managed care organization actually pays for covered services received by the recipient.[2]

This was certainly the case for Ecklund. Upon her death, Hennepin County attempted to recover $66,052.62 in capitation payments that the State had paid to Medica for her long-term care services. However, despite the fact that Medica had received capitation payments of $66,052.62 for Ecklund’s care, it had only paid $8,806.84 to Ecklund’s care providers for services that she had actually received.

This was where the dispute arose. Ecklund’s estate argued that by only allowing the State to recover “the amount of medical assistance rendered” to medical assistance recipients, the estate recovery statute was unambiguously clear that Hennepin County could only recover the amount of services that had actually been provided to Ms. Ecklund, or $8,806.64. Conversely, Hennepin County argued that capitation payments were included as “payments” within the definition of medical assistance such that it could recover the entire amount of capitation payments paid to Medica, in this case $66,052.62. For the purposes of the estate recovery statute, “Medical assistance” is defined as “payment of part or all of the cost of the care and services identified [as covered services] in section 256B.0625, for eligible individuals whose income and resources are insufficient to meet all of this cost.” Minn. Stat. § 256B.02, subd. 8 (2022).

The Decision

The Court of Appeals rejected Hennepin County’s argument for two primary reasons. First, while Hennepin County attempted to argue that capitation payments were included as payments within the definition of medical assistance, the word “capitation” never actually made an appearance in the definition of medical assistance, or in Minnesota’s estate recovery statute as a whole, even though the term was listed in other Minnesota medical assistance statutes. Given that the legislature referenced capitation payments in other medical assistance statutes but left the term out of the estate recovery statute, the Court of Appeals assumed this was an intentional omission and found that it would be inappropriate for it to infer capitation payments into the definition of “medical assistance” where the legislature had declined to do so.

Second, the Court of Appeals noted that, while capitation payments enabled and required a managed care organization to pay for covered services, the capitation payment itself was not the cost of covered services, nor the payment of that cost. Given that “medical assistance” was defined as “payment of part or all of the cost of care and services…”, to find that medical assistance included capitation payments would be an unreasonable interpretation of the definition.

Instead, the Court agreed with Ecklund’s estate, who contended that the statutory language allowing Minnesota to recover the “amount of medical assistance rendered to recipients” required an interpretation that only allowed the State to recover the cost of long-term-care services that had actually been provided to Ecklund, or $8,806.64. This reading of the statute was not only clearer and more concise than Hennepin County’s interpretation, but also served the legislature’s policy goal of ensuring recipients paid “their share of the cost of their care.” Minn. Stat. § 256B.15, subd. 1(a).

Implications of the Ruling

The most immediate impact of this ruling is that it drastically changes the amount an estate could be responsible for when it comes to a decedent that has received medical assistance. In Ecklund’s case, the difference between the amount of capitation payments made on Ecklund’s behalf, and the amount of services actually received by Ecklund was $57,245.98. If the State is attempting to recover the cost of medical assistance from an estate, going the extra mile to determine how much was actually paid out for services versus the amount of capitation payments could yield significant savings.

From a more long-term perspective, this ruling increases the likelihood that changes will be made to the Minnesota estate recovery statute. Look for proposals that allow the State to recover not only the cost of the services rendered, but also capitation payments made on behalf of medical assistance recipients.

[1] The full case citation is In re Estate of Ecklund, A23-0210, — N.W.2d —, 2023 WL 8009402, at *1 (Minn. Ct. App. Nov. 20, 2023). As of the date of publishing, the opinion had not been assigned a spot in the Northwestern Reporter.

[2] As a hypothetical example, suppose Minnesota paid a capitation payment of $1,000 to a managed care organization each month to care for a medical assistance recipient. In one month, the recipient may only require $500 worth of services, in which case the managed care organization would receive a $1,000 capitation payment, but only need to use $500 of it, generating a $500 surplus. However, if the recipient required $2,000 worth of services the next month, the managed care organization would still only receive the $1,000 capitation payment from the State. In this case, the managed care organization would need to cover the $1,000 shortfall between the $2,000 worth of services required by the recipient, and the $1,000 capitation payment received from the State.

Over the summer, the Minnesota State Legislature passed a new earned sick and safe time (ESST) law that goes into effect starting January 1, 2024. Governor Tim Walz signed the new amendments into the current sick and safe time law, as part of an omnibus jobs and economic development bill. The law requires employers to provide paid leave to employees in Minnesota. Minnesota employers will want to review their existing leave policies to ensure compliance by the start of the new year.

Who is covered by the new MN law?

The ESST law applies to any individual or business with one or more employees.  All employees, including part-time and temporary employees, who perform work in Minnesota for at least 80 hours per year are entitled to ESST.  Independent contractors are excluded from the definition of “employee.”  For purposes of ESST, temporary employees supplied by a staffing agency are considered employees of the staffing agency unless a contractual agreement states otherwise.

How is ESST earned, and does ESST carry-over from year to year?

An employer may use either an accrual method or a frontloading method to comply with the new ESST requirements.  Under the accrual method, employees must begin accruing ESST at the commencement of employment and will accrue one hour of ESST for every 30 hours worked, up to a maximum of 48 hours of ESST in a year (unless the employer’s policy is more generous).  For ESST accrual, exempt employees are considered to work 40 hours per workweek.  Employers using the accrual method must permit employees to carry over accrued but unused ESST at the end of the benefit year, but an employer may limit an employee’s total accrued ESST to 80 hours.

For the frontloading method, an employer may provide employees a lump sum of ESST at the beginning of each year or the commencement of employment.  Under the frontloading approach, employers must provide employees with 48 hours of ESST if the employer pays out unused ESST at the end of the year. If the employer does not pay out unused ESST at the end of the year, then an employer using the frontloading method must frontload 80 hours of ESST.

Employers may choose any consecutive 12-month period as the benefit year for purposes of administering employee ESST, as long as the policy year is clearly communicated to each employee.  Employers are not required to pay out unused ESST at termination of employment.  Employees who are transferred to a separate division, entity, or location but remain employed by the same employer retain their ESST. When there is a separation from employment and the employee is rehired within 180 days of separation, previously accrued earned sick and safe time that had not been used must be reinstated.

What can employees use ESST for?

Employees may use ESST as it is accrued—there is no waiting period.  Employees may use ESST:

1. For the employee’s mental or physical illness, injury, or other health condition or need for preventive care.
2. To care for a covered family member with a mental or physical illness, injury, or other health condition or who needs preventive care.
3. For absence due to domestic abuse, sexual assault, or stalking of the employee or the employee’s covered family member; to seek medical attention related to physical or psychological injury or disability caused by domestic abuse, sexual assault, or stalking; obtain services from a victim services organization; obtain psychological or other counseling; seek relocation or take steps to secure an existing home due to domestic abuse, sexual assault, or stalking; or seek legal advice or take legal action related to domestic abuse, sexual assault, or stalking.
4. For closure of the employee’s place of business due to weather, public emergency, or the need to care for a covered family member whose school or place of care has been closed due to weather or public emergency.
5. Because the employee is unable to work or telework because the employer prohibits them from going to work because of health concerns related to the potential transmission of a communicable illness related to a public emergency; because the employee is seeking or awaiting results of a diagnostic test for or medical diagnosis of a communicable disease related to a public emergency when the employee has been exposed to the communicable disease or the employer has requested the test or diagnosis.
6. Because health authorities or a health care professional said the presence of the employee or family member in the community would jeopardize the health of others due to exposure to a communicable disease, whether or not the employee or family member has actually contracted the disease.

The statute contains an extensive definition of covered family members and includes:

• an employee’s:

(i) child, foster child, adult child, legal ward, child for whom the employee is legal guardian, or child to whom the employee stands or stood in loco parentis;
(ii) spouse or registered domestic partner;
(iii) sibling, stepsibling, or foster sibling;
(iv) biological, adoptive, or foster parent, stepparent, or a person who stood in loco parentis when the employee was a minor child;
(v) grandchild, foster grandchild, or stepgrandchild;
(vi) grandparent or stepgrandparent;
(vii) a child of a sibling of the employee;
(viii) a sibling of the parents of the employee; or
(ix) a child-in-law or sibling-in-law;

• any of the family members listed above of a spouse or registered domestic partner;
• any other individual related by blood or whose close association with the employee is the equivalent of a family relationship; and
• up to one individual annually designated by the employee.

How do employees use ESST?

Employers may require employees to provide advance notice of the need to use ESST if the need for use is foreseeable, but cannot require more than seven days’ advance notice.  If the need is unforeseeable, an employer may require the employee to give notice of the need to use ESST as soon as practicable.  Any notice requirements must be in an employer’s policy which is distributed to employees.

ESST may be used in the smallest increment of time tracked by the employer’s payroll system, provided that increment is not more than four hours.  An employer may not require that the employee seek or find a replacement worker to cover the hours the employee uses ESST.

Can employers require documentation of the need for ESST?

Employers may require reasonable documentation regarding the need for ESST when an employee uses ESST for more than three days in a row. An employer must not require an employee to disclose details related to domestic abuse, sexual assault, stalking or the details of the employee’s or family member’s medical condition.

Reasonable documentation may include a signed statement from a health care professional if an employee uses ESST for reasons 1, 2, 5, or 6, above (employee/family member illness, injury, preventive care; public health emergency; waiting for test result or diagnosis after exposure; exposure to communicable disease which would jeopardize the health of others).  However, if the employee or family member did not use ESST to obtain services from a health care professional or if documentation cannot be obtained in a reasonable time or without added expense, then the employee may provide a written statement indicating the employee is using ESST for a qualifying purpose.

For ESST use under reason 3 above (domestic violence, sexual assault, stalking), an employer must accept a court record or documentation signed by a volunteer or employee of a victims services organization, an attorney, a police officer, or an antiviolence counselor as reasonable documentation.

Employers must accept as reasonable documentation for use of ESST under reason 4 above (closure of employee’s place of business or family member’s school or place of care due to weather or public emergency), a written statement from the employee indicating that the employee is using or used ESST for a qualifying purpose.

Are there any other restrictions?

An employer is not allowed to discharge, discipline, penalize, interfere, threaten, restrain, coerce, retaliate, or discriminate against someone if they use ESST or request a statement (see next question regarding earnings statements) of their ESST.  Employers are prohibited from counting ESST as an absence that may lead to adverse action under their absence control policy or attendance point system.

Are there notice and posting requirements?

The ESST law requires employers to provide written notice to all employees regarding ESST rights, including the amount of ESST available, the accrual year, the terms of use, requirements for providing notice of use, and prohibition of retaliation. This information must be provided in English and in the employee’s primary language by January 1, 2024, or at the commencement of employment, whichever is later.  The Minnesota Department of Labor and Industry will publish a model notice.  An employer that provides an employee handbook to its employees must include in the handbook notice of employee rights and remedies under the ESST law.

The ESST law also requires information to be provided on employee earnings statements (pay stubs): the total number of ESST hours accrued and available for use; and the total number of ESST hours used during the pay period.

Do employers need to provide ESST on top of existing PTO or vacation time policies?

Employers do not need to provide additional paid time off in the form of ESST if an existing PTO, sick leave, or vacation policy already provides equal to or more leave than would be required under the ESST law.  Employers that want to use their existing policies to meet the ESST requirements must permit employees to use their leave time for all qualifying ESST reasons and must meet all other requirements under the law, such as carry-over and use requirements. Employers may need to modify policies to avoid assessing attendance “points” or other discipline for use of ESST.

What about local sick and safe time ordinances?

The MN ESST law does not preempt local sick and safe time ordinances, such as those in Minneapolis, St. Paul, Bloomington, or Duluth.  Employers subject to both state and local ESST laws will need to comply with whatever law provides the more generous benefit to employees in the event of a conflict.

Winthrop & Weinstine continues to monitor the situation, and we expect the Minnesota Department of Labor and Industry to publish additional FAQs and more specific guidance. For more information about the new ESST law, please feel free to reach out to any member of our Employment Counseling team.