A Special Session for Tax Conformity Would Do More Harm Than Good

For practical as well as political reasons, the conformity door has already closed for tax filing in 2019.

By far the biggest problem resulting from the tax bill veto is the failure to adjust the state's tax code to federal changes.  It's generally acknowledged that the inability to adopt a conformity plan will result in a greater investment of time, effort and expense among individual and business taxpayers as well as increased administrative challenges and costs.  In the aftermath, the Department of Revenue has exhibited a stiff upper lip, assuring everyone agency staff are committed to ensuring all the information, education and services needed to help taxpayers meet their obligations next year will be available. That's a tall order considering a $4 million appropriation in the bill for Revenue to implement tax conformity was also a casualty of the veto, and now no new money is available to deal with non-conformity...which is almost assuredly a more expensive proposition.

As a result, some have wondered whether a special session might be needed to revisit tax conformity.  The governor has been adamant that he will not call a special session, and the prospect of taking time out from campaigning in an election year to rehash this debate undoubtedly yields similar levels of enthusiasm among legislators toward the idea.  However, there has been speculation that a post-election "lame duck" special session could be called to tackle this issue in time for the 2019 filing season.

Not only is that a longshot, it would likely do more harm than good.

The process to update tax filing systems begins immediately after session and runs into January when filing season opens.  Already, the Department has begun its work to synthesize the differences between Minnesota and the new federal tax laws. Combined with developing and updating the necessary forms, this takes a couple of months.  Once those near final forms are published, the development and testing of the tax processing system commences adding a few more months to the timeline.  Meanwhile, all this work must be coordinated with your favorite tax software company and pass certification and testing protocols.  All this happens to some extent every year; this year the process is on a different level of scale, scope, and complexity.

For the sake of argument, suppose the November election results align or a kumbaya meteor strikes the Capitol, a late year special session is called, and a conformity bill for tax year 2018 is signed.  All that investment of time, effort, and money essentially becomes worthless.  The whole filing system update process must start from scratch.  And even if the Department could miraculously condense its normal 6-or-so month process into a 6-8 week window before filing season commenced without rising DOR staff mortality rates, there is zero chance any commercial software would be available meaning paper returns for all and the accompanying hassle and cost on both ends.

Of course a special session on conformity could get a jump start for the 2020 filing season.  But other than maybe free up some legislative time in the 2019 session it’s not clear what benefit that offers. 

In short, our bed for tax year 2018 has been made.  We now have to lie in it.