GILTI happiness? The DFL tax plan selects new business taxes that may be less of a problem than the International Composite Report

Minnesota’s tax negotiators have abandoned one method of withholding income for companies with offshore branches and replaced it with another.

Goodbye Global Integrated Reporting. Hello GILTI.

A private meeting between House Tax Committee Chairwoman Aisha Gomez and her Senate counterpart Ann Rest ended Wednesday evening. The deal announced includes tax increases, tax cuts and tax spending to make up for the $3 billion in net revenue cuts over the next two years.

That was their goal. But to get there, dozens of resolutions include nearly $4 billion in tax benefits, from rebate checks to allowing school districts to avoid paying sales taxes on new school construction. It also includes more than $1 billion in tax increases. Most of them are in business and have high income.

“The question for many Minnesotans is, ‘Which is fair? You’ve got a profit. Why is revenue in this?’ Gov. Tim Walz said at a news conference Wednesday. “The areas where we’re talking about revenues are very, very dedicated to things that we know need long-term funding.”

The biggest omission from the Assembly committee report is the House’s proposal to create a new 5th income tax bracket. The 10.85 percent rate works out to $1 million for married couples and $600,000 for individuals. The current maximum rate is 9.85%. The new rate would affect 24,200 taxpayers, or about 0.8% of taxpayers, which would increase the average rate by $9,231 per year.

Senate leaders haven’t moved on the new income tax, but the biggest innovation in the deal is known for its acronym common sense Low tax income for international intangibles. It is planned to collect 437 million dollars in the budget for the next two years.

Other additions, if not love, are things only tax accountants can understand.

• Changes to how corporations deduct dividends from domestic subsidiaries raised $128 million.
• A new tax on investment income such as interest, dividends and personal, trust and estate taxes would raise $128 million.
• A quick and itemized deduction from the standard for top earners with adjusted gross income starting at $300,000 yields $354 million.

But GILTI got more attention, because it replaced the global report of corporate income. Sen. Bill Weber, Republican of the Senate, joked on the Tax Conference Committee that they would have a hard time explaining it. He is not alone.

International joint report It required corporations with foreign subsidiaries that pay income tax to the state to include the income of the foreign subsidiaries. The goal was to confront corporations that shift income to other countries to avoid federal and state taxes.

Had Minnesota followed suit, Alaska would have been the only state to fully tax such earnings, though it does so for its oil and gas companies. Other countries do not. He could have collected 600 million dollars in two years, but there was a question mark whether it was possible to collect it. If corporations don’t pay, proving they owe government money requires access to records kept in other countries.

Although it was included in the tax bills that passed the House and Senate, Recess gave caucus support shortly after House-Senate negotiations began.

“The international reporting arrangement did not have our support,” she said on the first day of negotiations. She said she liked the GILTI provision, even though the offer was not approved by the House after several days of closed-door talks, including Gov. Tim Walz and Revenue Commissioner Paul Marquardt.

So what is GILTI? Paul Marquardt, as chairman of the House Tax Committee, was the chairman of the House Tax Committee who first proposed the tax reform in 2019. In the year It was the result of the GOP-passed Tax Cuts and Jobs Act of 2017, which offered lower taxes for corporations that bring some foreign earnings back to the US. Hold in foreign companies.

Marquardt said that since the GOP-Congress passed the bill and President Trump signed it, Republicans who control the state Senate think it’s safe. They didn’t.

With Democrats in control of both the House and Senate, and the conference committee looking for money to replace the International Consolidated Reports, GILTI is back.

Marquardt explains the idea this way: Some corporations continue to transfer so-called intangible assets, such as patents, trademarks and copyrights, and pharmaceutical formulations, to foreign countries. They then buy them back or rent them by transferring payments abroad. That money is treated as a business expense rather than an asset for tax purposes.

In addition to being a way for these transfers to reduce their taxes in the U.S., companies with foreign subsidiaries have an advantage over domestic companies that don’t, he said.

“It’s President Trump and the Republican Congress who say we have to deal with this problem,” Marquardt said. “For me, it’s always been about leveling the playing field with small businesses.”

The Department of Revenue has more confidence in its estimate of how much revenue the federal government would generate for the state by implementing GILTI. While Marquardt thinks it’s fair to assume what the tax revenue could be, collecting it has been a challenge.

“Let’s say you have a company based in China,” he said. “Do you think China will give us your number and your companies? We know the money is there. We certainly didn’t know how to bring it up.

GILTI is easy to estimate because corporations that pay Minnesota corporate taxes are deducted from their state taxes and report to the state how much they paid to the U.S., he said. Those tax payments are a subset of what the state can collect through international reporting.

Tax Foundation GILTI explains. In this way: “GILTI allows US companies to be relatively indifferent about where in the world they do business – in high-tax countries or low-tax countries – as long as companies pay at least the minimum amount of tax.

“To the extent that companies don’t pay that minimum tax rate, a tax on the GLT gives the U.S. an opportunity to pay more taxes to ensure that the minimum is paid,” the foundation said.

The same is true for the 20 taxing states and the District of Columbia.