MINNESOTA CHAMBER OF COMMERCE: The Legislature wrapped up its final bills of the 2023 session and adjourned for the year late last night. In all, the legislative majorities are set to raise taxes by $10 billion in the next four years, and that’s after draining the record $17.5 billion surplus. Major changes in policy were also enacted, ranging from transportation and health care to energy and environment and workplace mandates. Every employer in the state – and every Minnesota resident – will be impacted.
Tax bill imposes $2.2 billion of new taxes
The tax bill was passed over the weekend and is expected to be signed by Governor Walz. The tax bill includes both tax relief provisions targeted mostly to low and middle-income taxpayers, including a one-time $1.1 billion refundable tax credit as well as permanent tax increases on employers and wealthier households.
At a time of a historic $17.5 billion surplus, the bill imposes $2.2 billion of new taxes over the next four years, with many falling on the state’s job creators. This will make Minnesota less competitive, impose headwinds to the state’s economic growth and add greater fiscal instability to the state’s budget by relying on volatile revenue sources.
In today’s world of global competition and increased mobility of both people and capital, costs matter, impacting decisions on where to invest, locate and grow. Minnesota already imposes a higher cost of doing business than most other states and has the 45th worst business tax climate, according to the Tax Foundation. Since 2021, 25 states have reduced their individual income tax rates, and 13 states have reduced their corporate tax rates, including their top rates, to be more attractive for investment and growth.
Instead of reducing uncompetitive taxes, this bill further widens our state’s tax competitiveness gap by imposing retroactive tax increases, placing Minnesota multinational companies at a disadvantage with their foreign competitors and other states, giving Minnesota the 4th highest tax rate in the nation, 10.85% for income taxation on investment, and some capital gains income that will further disincentivize some wealthier households to reside and invest in our state.
Transportation deal includes tying gas tax to inflation, adding new 50-cent delivery fee, metro sales tax
The transportation funding bill came together quickly last week and was passed by both the House and the Senate this weekend. In total, the bill raises taxes by $3.8 billion. The tax increases include: Tying the gas tax to inflation, with a roughly three-cent increase in the tax expected the first year alone A 50-cent tax on deliveries over $100, excluding food A .75% metro area sales tax to be used for transportation (in addition to a .25% increase passed as part of the housing budget bill) Increased tab fees Increased motor vehicle sales tax
2-week paid sick leave, 20-week paid family and medical leave mandates to be signed into law
The paid family and medical leave (PFML) mandate was passed in the House and Senate is expected to be signed by Governor Walz. It was adjusted slightly by shortening the combined leave allowance to 20 weeks and extending the enactment date to 2026. While welcome, these changes do not go far enough to address our goal to ensure solvency, protect flexible compensation packages and prevent a hard mandate and new payroll tax on employers and employees. The PFML mandate is separate and in addition to the new statewide paid sick and safe time (SST) mandate as outlined below.
The statewide SST mandate was also passed and is set to take effect on January 1, 2024. This new law mandates that employers must provide 1 hour for every 30 hours worked, up to 48 hours annually (with accrual of up to 80 hours) of fully paid time off for routine or minor illnesses, issues relating to stalking and sexual assault, and school closures, among other listed reasons. This law does not preempt local ordinances, nor does it explicitly prohibit local jurisdictions from adopting policies that go beyond the state policy. This bill is in addition to the above-mentioned mandated PFML, meaning these leaves can be “stacked.”
Other labor mandates make Minnesota more of an outlier for businesses
There are numerous provisions imposing unnecessary new workplace regulations, workforce restrictions, and increased bureaucracy, record-keeping costs and litigation risks and significant new fines and penalties on Minnesota industries, employers, and facilities. Separate from the direct cost impacts to employers, the new laws require millions of dollars in increased state spending to implement and enforce the numerous new provisions and standards.
This includes a ban on non-competes and restrictive franchise agreements, an apprenticeship mandate on refineries, changes to workplace rules and new ergonomics standards specifically on warehouse distribution centers, meat and poultry processing facilities, health care providers, and nursing homes, multiple new opportunities for private rights of action, adult-size changing facilities requirements for publicly accessible buildings, a prohibition on an employer’s ability to educate employees on public policy and several updates to expand the reach of employment statutes by eliminating long-standing exemptions for small employers, part-time employees, and unduly disrupting operations as well as waiting periods before an employee can exercise certain privileges.
Minnesota’s Human Rights Act was also updated in a few ways that will impact hiring and management decisions and anti-discrimination laws, including banning salary history questions during hiring, including hair in the definition of race and changing definitions of sexual orientation and gender identity.
Legalization of recreational marijuana
During the 2023 legislative session, policymakers legalized the recreational adult use of marijuana. Portions of the new law take effect as early as July 1, 2023, but Minnesotans will mostly be looking at August 1, which is when the elimination of criminal penalties takes effect and is considered to be the de facto legalization date. Employers should take note because cannabis is now considered a “lawful consumable product” in the state.
The omnibus new law does more than just simply legalize cannabis use. It establishes the Office of Cannabis Management, creates the expungement process for marijuana-related offenses, establishes regulations and licensing structures for the new industry, provides grants for critical social services, and provides guidelines for workplaces and employee cannabis use, among others.
One key area of concern for employers throughout the legislative process has been whether the drug testing regulations sufficiently provide employers with the autonomy and flexibility to manage their workplaces and workforce. The new law provides restrictions and guidelines for testing employees and job applicants for cannabis use.
New health care mandates to become law
The Legislature passed six new health insurance coverage mandates, adding to our already long list of 60, that are expected to add roughly $113 million to premiums in the first year alone. Policymakers also passed legislation to empower an unelected board to unilaterally set the prices for certain prescription drugs sold in the state. And they have put us on the path allowing for any Minnesotan, regardless of income, to receive public health care benefits via MinnesotaCare, likely leading to higher costs for those with private health insurance and reduced access to health care providers and services.
Energy and environment bill passes; further complicating Minnesota’s permitting process and increasing utility bills
The environment and natural resources bill passed and contains increased fees, fines and regulation of water appropriations permits, increased public meeting requirements for air permits, increased reporting of air emissions and further restrictions, and bans and fees on certain products containing PFAS. The PFAS regulations are nation-leading, with unknown complications for manufacturers as the bans are enacted. Hear the Chamber’s Brian Cook comment on this bill on MPR.
What’s next?
As we have all year, the Chamber is committed to fighting for Minnesota’s business community. We’re hitting the road next month for the Statewide Policy Tour to share details about the session and gather feedback from business leaders like you. We’ll also be hosting webinars and providing other resources to ensure businesses can comply with the countless mandates and regulations becoming law.
Article is provided by the Minnesota Chamber of Commerce.