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HF 1019

as introduced - 92nd Legislature (2021 - 2022) Posted on 03/08/2021 04:43pm

KEY: stricken = removed, old language.
underscored = added, new language.

Bill Text Versions

Engrossments
Introduction Posted on 02/11/2021

Current Version - as introduced

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A bill for an act
relating to taxation; modifying provisions related to state government; requiring
proposed tax expenditures to expire; establishing a legislative Tax Expenditure
Review Commission; providing appointments; modifying the Department of
Revenue tax expenditure report requirements; amending Minnesota Statutes 2020,
sections 3.192; 3.8853, subdivision 2; 270C.11, subdivisions 2, 4, 6; 270C.13,
subdivision 1; proposing coding for new law in Minnesota Statutes, chapter 3.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:

Section 1.

Minnesota Statutes 2020, section 3.192, is amended to read:


3.192 REQUIREMENTS FOR NEW OR RENEWED TAX EXPENDITURES.

new text begin (a) new text endAny bill that creates, renews, or continues a tax expenditure must include a statement
of intent that clearly provides the purpose of the tax expenditure and a standard or goal
against which its effectiveness may be measured.

new text begin (b) new text endFor purposes of this section, "tax expenditure" has the meaning given in section
270C.11, subdivision 6.

new text begin (c) Any bill that creates a new tax expenditure or continues an expiring tax expenditure
must include an expiration date for the tax expenditure that is no more than eight years from
the day the provision takes effect.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective beginning with the 2022 legislative
session.
new text end

Sec. 2.

Minnesota Statutes 2020, section 3.8853, subdivision 2, is amended to read:


Subd. 2.

Director; staff.

new text begin(a) new text endThe Legislative Budget Office Oversight Commission must
appoint a director and establish the director's duties. The director may hire staff necessary
to do the work of the office. The director serves in the unclassified service for a term of six
years and may not be removed during a term except for cause after a public hearing.

new text begin (b) The director and staff hired under this section must provide professional and technical
assistance to the Tax Expenditure Review Commission under section 3.8855.
new text end

Sec. 3.

new text begin [3.8855] TAX EXPENDITURE REVIEW COMMISSION.
new text end

new text begin Subdivision 1. new text end

new text begin Establishment. new text end

new text begin The Tax Expenditure Review Commission is created to
review Minnesota's tax expenditures and evaluate their effectiveness and fiscal impact.
new text end

new text begin Subd. 2. new text end

new text begin Definitions. new text end

new text begin For the purposes of this section, "significant tax expenditure,"
"tax," and "tax expenditure" have the meanings given in section 270C.11, subdivision 6.
new text end

new text begin Subd. 3. new text end

new text begin Membership. new text end

new text begin (a) The commission consists of:
new text end

new text begin (1) two senators appointed by the senate majority leader;
new text end

new text begin (2) two senators appointed by the senate minority leader;
new text end

new text begin (3) two representatives appointed by the speaker of the house;
new text end

new text begin (4) two representatives appointed by the minority leader of the house of representatives;
and
new text end

new text begin (5) the commissioner of revenue or the commissioner's designee.
new text end

new text begin (b) Each appointing authority must make appointments by January 31 of the regular
legislative session in the odd-numbered year.
new text end

new text begin (c) If the chair of the house or senate committee with primary jurisdiction over taxes is
not an appointed member, the chair is an ex officio, nonvoting member of the commission.
new text end

new text begin Subd. 4. new text end

new text begin Duties. new text end

new text begin (a) In the first three years after the commission is established, the
commission must complete an initial review of the state's tax expenditures. The initial review
must identify the purpose of each of the state's tax expenditures, if none was identified in
the enacting legislation in accordance with section 3.192. The commission may also identify
metrics for evaluating the effectiveness of an expenditure.
new text end

new text begin (b) In each year following the initial review under paragraph (a), the commission must
review and evaluate Minnesota's tax expenditures on a regular, rotating basis. The
commission must establish a review schedule that ensures each tax will be reviewed by the
commission at least once every ten years. The commission may review expenditures affecting
similar constituencies or policy areas in the same year, but the commission must review a
subset of the tax expenditures within each tax type each year. To the extent possible, the
commission must review a similar number of tax expenditures within each tax type each
year. The commission may decide not to review a tax expenditure that is adopted by reference
to federal law.
new text end

new text begin (c) Before December 1 of the year a tax expenditure is included in a commission report,
the commission must hold a public hearing on the expenditure, including but not limited to
a presentation of the review components in subdivision 5.
new text end

new text begin Subd. 5. new text end

new text begin Components of review. new text end

new text begin (a) When reviewing a tax expenditure, the commission
must at a minimum:
new text end

new text begin (1) provide an estimate of the annual revenue lost as a result of the expenditure;
new text end

new text begin (2) identify the purpose of the tax expenditure if none was identified in the enacting
legislation in accordance with section 3.192;
new text end

new text begin (3) estimate the measurable impacts and efficiency of the tax expenditure in
accomplishing the purpose of the expenditure;
new text end

new text begin (4) compare the effectiveness of the tax expenditure and a direct expenditure with the
same purpose;
new text end

new text begin (5) identify potential modifications to the tax expenditure to increase its efficiency or
effectiveness;
new text end

new text begin (6) estimate the amount by which the tax rate for the relevant tax could be reduced if
the revenue lost due to the tax expenditure were applied to a rate reduction;
new text end

new text begin (7) if the tax expenditure is a significant tax expenditure, estimate the incidence of the
tax expenditure and the effect of the expenditure on the incidence of the state's tax system;
new text end

new text begin (8) consider the cumulative fiscal impacts of other state and federal taxes providing
benefits to taxpayers for similar activities; and
new text end

new text begin (9) recommend whether the expenditure be continued, repealed, or modified.
new text end

new text begin (b) The commission may omit a component in paragraph (a) if the commission determines
it is not feasible due to the lack of available data, third-party research, staff resources, or
lack of a majority support for a recommendation.
new text end

new text begin Subd. 6. new text end

new text begin Department of Revenue; research support. new text end

new text begin (a) The research division of the
Department of Revenue must provide the commission with the data required to complete
the review components in subdivision 5, paragraph (a), clauses (1), (6), (7), and (8).
new text end

new text begin (b) At the request of the commission, the research division of the Department of Revenue
must provide the commission with summary data on a tax expenditure in support of a review.
Data shared under this section must comply with the rules governing statistical studies under
section 270B.04.
new text end

new text begin Subd. 7. new text end

new text begin Report to legislature. new text end

new text begin (a) By December 15 of each year, the commission must
submit a written report to the legislative committees with jurisdiction over tax policy. The
report must detail the results of the commission's review of tax expenditures in the previous
calendar year, including the review components detailed in subdivision 5.
new text end

new text begin (b) Notwithstanding paragraph (a), during the period of initial review under subdivision
4, the report may be limited to the purpose statements and metrics for evaluating the
effectiveness of expenditures, as identified by the commission. The report may also include
relevant publicly available data on an expenditure.
new text end

new text begin (c) The report may include any additional information the commission deems relevant
to the review of an expenditure.
new text end

new text begin (d) The legislative committees with jurisdiction over tax policy must hold a public
hearing on the report during the regular legislative session in the year following the year in
which the report was submitted.
new text end

new text begin Subd. 8. new text end

new text begin Terms; vacancies. new text end

new text begin (a) Members of the commission serve a term beginning
upon appointment and ending at the beginning of the regular legislative session in the next
odd-numbered year. The appropriate appointing authority must fill a vacancy for a seat of
a current legislator for the remainder of the unexpired term. Members may be removed or
replaced at the pleasure of the appointing authority.
new text end

new text begin (b) If a commission member ceases to be a member of the legislative body from which
the member was appointed, the member vacates membership on the commission.
new text end

new text begin Subd. 9. new text end

new text begin Officers. new text end

new text begin The commission shall elect a chair and vice-chair as presiding officers.
The chair and vice-chair must alternate every two years between members of the house of
representatives and senate. The chair and vice-chair may not be from the same legislative
chamber.
new text end

new text begin Subd. 10. new text end

new text begin Staff. new text end

new text begin Legislative Budget Office staff hired under section 3.8853, subdivision
2, must provide professional and technical assistance to the commission as the commission
deems necessary, including assistance with the report under subdivision 7.
new text end

new text begin Subd. 11. new text end

new text begin Expenses. new text end

new text begin The members of the commission and its staff shall be reimbursed
for all expenses actually and necessarily incurred in the performance of their duties.
Reimbursement for expenses incurred shall be made in accordance with policies adopted
by the Legislative Coordinating Commission.
new text end

new text begin EFFECTIVE DATE; SPECIAL PROVISIONS. new text end

new text begin (a) This section is effective the day
following final enactment.
new text end

new text begin (b) Appointing authorities for the commission must make initial appointments by January
15, 2022. The speaker of the house must designate one member of the commission to convene
the first meeting of the commission by July 1, 2022. The first report of the commission
under Minnesota Statutes, section 3.8855, subdivision 7, is due on December 15, 2022.
new text end

Sec. 4.

Minnesota Statutes 2020, section 270C.11, subdivision 2, is amended to read:


Subd. 2.

Preparation; submission.

The commissioner shall prepare a tax expenditure
budget for the state. The tax expenditure budget report shall be submitted to the legislature
by deleted text beginFebruarydeleted text endnew text begin Novembernew text end 1 of each even-numbered year.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for tax expenditure budgets due on or
after November 1, 2023.
new text end

Sec. 5.

Minnesota Statutes 2020, section 270C.11, subdivision 4, is amended to read:


Subd. 4.

Contents.

new text begin(a) new text endThe report shall detail for each tax expenditure itemnew text begin:
new text end

new text begin (1)new text end the amount of tax revenue forgonedeleted text begin,deleted text endnew text begin;
new text end

new text begin (2)new text end a citation of the statutory or other legal authority for the expendituredeleted text begin, anddeleted text endnew text begin;
new text end

new text begin (3)new text end the year in which it was enacted or the tax year in which it became effectivedeleted text begin.deleted text endnew text begin;
new text end

new text begin (4) the purpose of the expenditure, as identified in the enacting legislation in accordance
with section 3.192 or by the Tax Expenditure Review Commission;
new text end

new text begin (5) the incidence of the expenditure, if it is a significant sales or income tax expenditure;
and
new text end

new text begin (6) the revenue-neutral amount by which the relevant tax rate could be reduced if the
expenditure were repealed.
new text end

new text begin (b)new text end The report may contain additional information which the commissioner considers
relevant to the legislature's consideration and review of individual tax expenditure items.
This may includedeleted text begin,deleted text end but is not limited todeleted text begin, statements of the intended purpose of the tax
expenditure,
deleted text end analysis of whether the expenditure is achieving that objectivedeleted text begin,deleted text end and the effect
of the expenditure deleted text begindevicedeleted text end on the deleted text begindistribution of the tax burden anddeleted text end administration of the tax
system.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for tax expenditure budgets due on or
after November 1, 2023.
new text end

Sec. 6.

Minnesota Statutes 2020, section 270C.11, subdivision 6, is amended to read:


Subd. 6.

Definitions.

For purposes of this section, the following terms have the meanings
given:

(1) new text begin"business tax credit" means:
new text end

new text begin (i) a credit against the corporate franchise tax claimed by a C corporation; or
new text end

new text begin (ii) a credit against the individual income tax claimed by a pass-through entity that is
allocated to its partners, members, or shareholders;
new text end

new text begin (2) "pass-through entity" means a partnership, limited liability corporation, or S
corporation;
new text end

new text begin (3) "significant tax expenditure" means a tax expenditure, but excluding any tax
expenditure that:
new text end

new text begin (i) is incorporated into state law by reference to a federal definition of income;
new text end

new text begin (ii) results in a revenue reduction of less than $10,000,000 per biennium; or
new text end

new text begin (iii) is a business tax credit;
new text end

new text begin (4) new text end"tax expenditure" means a tax provision which provides a gross income definition,
deduction, exemption, credit, or rate for certain persons, types of income, transactions, or
property that results in reduced tax revenuenew text begin, but excludes provisions used to mitigate tax
pyramiding
new text end; deleted text beginand
deleted text end

deleted text begin (2)deleted text endnew text begin (5)new text end "tax" means any tax of statewide application or any tax authorized by state law
to be levied by local governments generally. It does not include a special local tax levied
pursuant to special law or to a special local tax levied pursuant to general authority that is
no longer applicable to local governments generallydeleted text begin.deleted text endnew text begin; and
new text end

new text begin (6) "tax pyramiding" means imposing sales taxes under chapter 297A on intermediate
business-to-business transactions rather than sales to final consumers.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for tax expenditure budgets due on or
after November 1, 2023.
new text end

Sec. 7.

Minnesota Statutes 2020, section 270C.13, subdivision 1, is amended to read:


Subdivision 1.

Biennial report.

new text begin(a) new text endThe commissioner shall report to the legislature deleted text beginby
March 1 of each odd-numbered year
deleted text end on the overall incidence of the income tax, sales and
excise taxes, and property tax.

new text begin (b) The commissioner must submit the report:
new text end

new text begin (1) by March 1, 2021; and
new text end

new text begin (2) by March 1, 2024, and each even-numbered year thereafter.
new text end

new text begin (c) new text endThe report shall present information on the distribution of the tax burden as follows:
(1) for the overall income distribution, using a systemwide incidence measure such as the
Suits index or other appropriate measures of equality and inequality; (2) by income classes,
including at a minimum deciles of the income distribution; and (3) by other appropriate
taxpayer characteristics.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for tax incidence reports due on or after
March 1, 2021.
new text end