Law360 (March 9, 2020, 7:35 PM EDT) -- Minnesota House Republicans on Monday proposed full federal conformity on deducting expenses for capital equipment and eliminating taxes on Social Security in a $1 billion tax cut package, following a February estimate of a $1.5 billion revenue surplus.

The most important part of the minority GOP's proposal would be full conformity with the 2017 federal tax overhaul's provisions on expensing certain capital equipment under Internal Revenue Code Section 179 , Rep. Greg Davids, R-Preston, ranking Republican on the House Taxes Committee, said Monday in a news conference. The state Legislature in June conformed to the Tax Cuts and Jobs Act's raising the deduction limit to $1 million, but had retained a state cap on the amount deductible in the first year and a requirement that adds back excess over the cap before being deducted in following years.

Full conformity would allow Minnesotans to take the full deduction in the year the qualifying equipment is placed in service. Davids said full conformity was necessary to protect the state's small businesses, farmers and truckers.

"We had devastating testimony in [the] tax committee last week with farmers and business owners alike stating their concerns and how hard they've been hit with tax bills that never should have happened," Davids said.

Tax bills in Minnesota are heard in committee before being laid over to consider for inclusion in an omnibus tax bill. Davids told Law360 that there were several bills on Section 179 conformity under consideration. Under a bill he sponsored, H.B. 2947, full conformity would be retroactive for tax years 2018 and 2019 as well. The bill would cost $238 million over two years, according to a fiscal note.

Another House Republican priority is to eliminate state taxes on Social Security, Rep. Tony Jurgens, R-Cottage Grove, said in the news conference. There are already 37 states that do not tax Social Security income and Minnesota should do the same, Jurgens said, adding that this would eliminate taxes on 350,000 Minnesotans.

Eliminating the Social Security tax would cost the state an estimated $435 million in revenue, Davids said in the session.

The House Republicans' proposals on Section 179 and Social Security are similar to those put forward by the Senate Republicans on Feb. 20. The Senate GOP, which controls that portion of the Legislature, also proposed about $1 billion in tax cuts, but its proposal came out before a Feb. 27 announcement by the state budget office that Minnesota is expected to have a $1.5 billion surplus for fiscal years 2020 and 2021. The February figure is $181 million more than the office's November estimate. 

The House GOP tax package would also expand the state's student loan debt tax credit, from $500 to $1,000. The package would include $50 million in school equalization aid, which Deputy Minority Leader Anne Neu, R-North Branch, said would translate into "direct property tax relief" for thousands of Minnesotans, and increase the state personal exemption by $1,300. The package would also expand eligibility for the state's child care tax credit.

Most of the cost for Section 179 conformity would be one-time spending, Davids told Law360, asserting that the costs in future years would be very manageable. House Minority Leader Kurt Daudt, R-Crown, said in the session there was enough money "in the tails," or in future years following the current budget, to eliminate taxes on Social Security permanently.

"My [Democratic-Farmer-Labor] friends are saying, 'Well, we don't want to put the spending in the base, just small one-time spending.' This fits perfectly," Davids told Law360. 

Responding to a question about whether the spread of COVID-19, also known as coronavirus, might affect the state's economy enough to make the February forecast unreliable, Daudt said in the session that there was "already some pessimism built into our forecasts" and that he was confident the state could rely on the forecast.

The House Republicans asked to hear from Democratic Gov. Tim Walz and the House Democratic-Farmer-Labor party about their plans for tax relief. Davids told Law360 that he had heard the governor and the Democrats, who control the House, "really don't want to do anything this year" regarding tax cuts.

"The Democrats coming out with a press conference on tax relief is probably not too likely," Davids said.

Walz, House Democratic and Republican leadership and Senate Republican leadership did not respond to requests for comment on the House Republicans' tax proposals.

Jurgens did not respond to requests for comment.

--Editing by Neil Cohen.

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