Committee hears contentious debate over bills to exempt tips and overtime from state tax; fiscal cost questioned

The House Tax Committee on March 3 heard extended testimony and member debate on two conformity bills—HF35-24 (overtime subtraction) and HF35-25 (tipped-income subtraction)—that would align Minnesota’s tax code with federal provisions exempting certain overtime and tip income. Representative Robbins, the bills’ sponsor, said the measures would help working-class Minnesotans and make state filing consistent with federal treatment.

Small-business owners and hospitality industry representatives testified in favor. "Staff can keep more of their earnings," said Andrew Weiss, who described operating a Finnish Bistro in Saint Paul and outlined front- and back-of-house wage differences. Supporters argued the bills would return money to workers and help businesses along border communities compete for workers.

Opponents—among them the Minnesota Budget Project and public-fiscal analysts—urged caution. The Budget Project director said the proposals "are not a good solution," arguing the carve-outs are poorly targeted, would be regressive and could cost roughly half a billion dollars per biennium. Mark Pavement of the Minnesota Center for Fiscal Excellence warned that conforming to federal provisions before federal anti‑abuse rules are finalized could create administrative and avoidance risks.

Nonpartisan revenue staff presented fiscal estimates: the overtime subtraction (HF35-24) showed an estimated revenue reduction of about $365.09 million in fiscal 2027 and roughly $197–203 million in fiscal 2029; the tipped-income subtraction (HF35-25) was estimated at about $126 million in fiscal 2027 and $68–69 million in later years. Members questioned distributional effects, administration and whether the state should instead invest revenue in refundable credits or broader rate reductions.

The committee discussed tradeoffs—simplicity versus equity, short-term taxpayer relief versus structural tax reform—and members on both sides said they favored helping working families but disagreed on the mechanism. Chair noted continued testimony would follow and the bills were laid over for possible inclusion; the committee scheduled additional testimony and evening sessions to continue the discussion.