Small Business Owner Testimony on Conformity with the Federal Tax and Jobs Act of 2017

Davis Senseman, Founder of Davis Law Office and Advisory Board Member of the Main Street Alliance MN, prepared testimony for the Minnesota state legislature's House Tax Committee about state conformity with the Federal Tax and Jobs Act of 2017.


A transcript of the testimony is below.

"As a member of Main Street Alliance of Minnesota’s advisory board and a small business attorney with a roster of over 800 Minnesota based small business clients, I read and analyzed the entire federal tax bill so that I could help explain it to my colleagues and clients. Since and have written and contributed to a number of pieces explaining how the changes to the tax code will affect small business owners. I am here today with two requests.

The first is that as you work on tax conformity and decide how to change the Minnesota tax laws in response to the federal law changes, that you not make the same mistake your counterparts in Washington made, and that you actually reach out and engage representatives from all communities in this state to hear - honestly - how any proposed change might effect each community. Please do not limit the information you receive to simply that provided by groups who can pay enough to have a lobbyist here, as I assure you, none of those folks speak for the actual small businesses of Minnesota.

The second is that you realize that in thinking about what is best for small businesses of Minnesota, a group that, at last report from the SBA employed 47.9% of Minnesota employees, you realize that for the vast majority of them (some estimates put this number as high as 95%), their “business” from a tax standpoint, doesn’t even exist. That’s what a passthrough entity is for tax purposes - a disregarded entity.

These taxpayers pay tax on all of their income at the personal level, and in Minnesota, the median income for those individuals who owned pass-through businesses in 2015, the last year for which data is available from the Small Business Administration, was $48,241.

Folks who make $48,241 are generally one catastrophe away from needing any of the social services the great state of Minnesota has historically been able to provide and which are funded by our tax base. Folks who make $48,241 are not worried about whether the estate tax exemption in Minnesota will be raised from $3 Million, but are worried about whether there will be enough money to fund MinnesotaCare or heating assistance if their business suffers a down month. Folks who make $48,241 are counting on you to realize that the highest-income residents of Minnesota just got a gift from the federal government in many ways, including with the unasked for and complicated 20% passthrough deduction, and they certainly don’t need a matching one from this legislature, especially considering that particular federal change is projected to cost the state $592 million dollars in revenue.

Small business owners are far more interested in funding for healthcare, childcare, education & infrastructure rather than additional tax cuts. If you want to know what would help small businesses in Minnesota, ask us, not high paid lobbyists who don’t really represent us."