It’s the kind of “oops” that can happen in the drafting of legislation that is hundreds of pages long being written with legislative deadlines approaching.
But when it happens in the bill that controls Minnesota state taxes, small errors can cost a lot of money. An error in this past session’s omnibus taxes bill discovered a month after it was signed by the governor will cost state taxpayers $352 million a year extra if not corrected.
It will be corrected, pledged state Department of Revenue Commissioner Paul Marquart and the chairs of the two legislative taxes committees.
“It’s an oversight and it took someone from the department a month to find it,” he said. “A lot of eyes looked at it, including mine, and it just wasn’t caught.” Mistakes are sometimes made in drafting complex bills, he said. “But this one certainly, moneywise, is larger than most.”
One inch of bill language made a $352 million difference, Marquart said. His staff discovered the error June 26 while incorporating the lengthy tax omnibus bill into state law and preparing tax forms and advice for taxpayers. But because it wouldn’t have impacted tax returns until the 2024 tax year — payable in April of 2025 — he said the state has time to fix the glitch.
Marquart said he has spoken to both legislative tax chairs — DFL Sen. Ann Rest of New Hope and DFL Rep. Aisha Gomez of Minneapolis — and both agreed to expedite amendments to the tax bill when lawmakers return to St. Paul on Feb. 12.
The taxes bill netted an overall reduction in state tax collections of $3 billion via rebate checks and targeted tax credits. But it also increased some taxes, mostly on high earners and corporations, by $1 billion.
But while speeding up the phaseout of the standard deduction for high earners, the tax bill accidentally returned to the standard deduction for state income taxpayers that was set in 2019. So rather than letting married joint filers deduct their first $27,650 from their taxable income, they would only be able to deduct $24,400.
If not fixed, the average state married-filing-jointly taxpayer would be charged $210 more for taxes paid in 2025. The average single filer would pay an extra $110. It would impact 2.3 million tax filings and 76% of all state income taxpayers. Only the 7% of taxpayers — those who still itemize deductions and those who earn less than the standard deduction — would not be affected.
The standard deductions were increased in 2019 to $24,400 for a couple filing jointly and $12,200 for single filers. That same change required that the standard deduction be indexed to inflation, in this case what is called the chained consumer price index. That would have taken it to $27,650 for couples and $13.825 for singles for the 2024 tax year. But in drafting the taxes bill, staff failed to amend a section of current law that would have made sure the 2019 deduction amount was inflated to 2024 levels.
“In short, what is happening is you would miss four years of inflation,” Marquart said.
Marquart served in the House for 22 years, representing a district that included his hometown of Dilworth. He served as House Taxes Committee chair the last four years of his term. He did not seek reelection in 2022 and was appointed by Walz to lead the Department of Revenue in December.
The 380-page tax deal announced in May and signed by Gov. Tim Walz later that month combined tax increases, tax cuts and what are termed tax expenditures to meet a $3 billion net reduction in revenue over the two years starting this month. That was DFL leaders’ target reduction amount.
But the dozens of decisions needed to get there included around $4 billion in tax benefits and $1 billion in tax increases. The benefits include everything from rebate checks and targeted tax credits to letting local governments and school districts forgo paying state sales taxes on construction projects. It also includes more than $1 billion in tax hikes on businesses and high earners.
But one of those tax hikes included a faster phaseout of standard and itemized deduction for high earners starting at $300,000 in adjusted gross income. It was meant to raise $354 million over two years. But that change required bill drafters to go into current law governing inflationary increases which is where the mistake happened, Marquart said.