Minnesota Small Businesses Confront $15 Million Tax Hike

The Minnesota State Legislature recently passed a tax corrections bill to repair mistakes from the rushed 2023 session that resulted in nearly $365 million in tax increases. However, while the bill aimed to rectify individual tax rate changes, it overlooked crucial corrections for small businesses and entrepreneurs.

The primary oversight in the 2023 tax bill involved using 2019 standard deduction amounts as the baseline for tax year 2024, neglecting to adjust for inflation. This mistake would result in a collective increase of approximately $350 million in taxable income for filers in 2024. Although the fix has no immediate fiscal impact on the state, it places a significant burden on small businesses and entrepreneurs.

Of particular concern is the exclusion of the Net Operating Loss deduction from the corrections bill. This deduction serves as a lifeline for small businesses, including mom-and-pop shops, main street businesses, and entrepreneurs navigating economic challenges. Failing to address this oversight means small businesses and entrepreneurs will collectively bear an estimated $14.8 million in additional taxes this year.

Efforts to rectify the Net Operating Loss date change were proposed by Senate Republicans but were ultimately defeated along party lines. The exclusion of this critical provision further exacerbates the challenges faced by small businesses already grappling with economic uncertainties.

This tax hike compounds the strain on Minnesota's small business community, which, we can’t forget, has already been impacted by Democrats passing $10 billion in tax increases last year. 

It’s due time that Democrats prioritize the needs of small businesses and entrepreneurs who are vital contributors to our state’s economy.