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SF3405 (Legislative Session 94 (2025-2026))

Pass-through entity tax expiration modification

Related bill: HF3127

AI Generated Summary

Purpose of the Bill

This bill aims to modify the rules governing the expiration of the passthrough entity tax, which relates to the taxation of specific business entities such as partnerships and S corporations in Minnesota.

Main Provisions

  • Passthrough Entity Tax Election: The bill allows qualifying entities, such as partnerships and S corporations, to elect to file a return and pay a passthrough entity tax. This election is meant for business owners who collectively hold more than 50% of ownership interests.
  • Tax Calculation: The tax imposed on a qualifying entity is calculated based on each qualifying owner's tax liability. The qualifying owner's income is multiplied by the highest tax rate for individuals, but standard deductions and personal exemptions are not allowed.
  • Credits and Deductions: Credits or deductions are only allowed as permitted to the qualifying owner, and regardless, owners remain responsible for paying estimated taxes if their liability exceeds thresholds set by existing law.
  • Filing Requirements: Entities making this election shall file what is considered a composite return, similar to a partnership. In some cases, nonresident owners whose only Minnesota income comes from these entities may use the passthrough entity tax return as their sole state tax return.
  • Expiration and Continuance: The provision concerning the passthrough entity tax will expire in conjunction with corresponding federal provisions after December 31, 2027. However, the state's authority to audit and assess tax returns remains unaffected by this expiration.

Significant Changes to Existing Law

  • The bill extends the availability of passthrough entity tax elections until the end of 2027, aligning with federal tax regulation timelines but extending state administrative powers beyond the expiration.
  • It provides procedural guidelines ensuring these passthrough taxes are handled as composite returns, maintaining consistency and simplifying tax responsibilities for qualifying owners.

Relevant Terms

  • Passthrough entity tax
  • Qualifying entity, partnership, S corporation
  • Income allocation, nonresident, resident
  • Composite return, tax liability, highest tax rate
  • Federal Internal Revenue Code references, section 164(b)(6)(B)
  • Expiration, tax audit authority

Bill text versions

Actions

DateChamberWhereTypeNameCommittee Name
April 21, 2025SenateFloorActionIntroduction and first reading
April 21, 2025SenateFloorActionIntroduction and first reading
April 21, 2025SenateFloorActionReferred toTaxes

Citations

 
[
  {
    "analysis": {
      "added": [
        "Clarification on how passthrough entity tax applies to qualifying owners."
      ],
      "removed": [
        ""
      ],
      "summary": "This bill modifies the expiration of the passthrough entity tax as outlined in Minnesota Statutes 2024, section 289A.08, subdivision 7a.",
      "modified": [
        "Expiration date for passthrough entity tax updated."
      ]
    },
    "citation": "289A.08",
    "subdivision": "7a"
  },
  {
    "analysis": {
      "added": [
        "Clause on claiming of credits by qualifying owners."
      ],
      "removed": [
        ""
      ],
      "summary": "Modifications to tax liabilities and credits within Minnesota Statutes 2024, section 290.06, subdivision 23a.",
      "modified": [
        "Redefines how tax credits are applied when passthrough entity tax is elected."
      ]
    },
    "citation": "290.06",
    "subdivision": "23a"
  },
  {
    "analysis": {
      "added": [
        ""
      ],
      "removed": [
        ""
      ],
      "summary": "The bill references adjustments to the tax rate for individuals under section 290.06, subdivision 2c.",
      "modified": [
        "References were clarified for calculating tax liabilities using the highest tax rates."
      ]
    },
    "citation": "290.06",
    "subdivision": "2c"
  },
  {
    "analysis": {
      "added": [
        "Qualifications for estimated tax payments clarified for qualifying owners."
      ],
      "removed": [
        ""
      ],
      "summary": "This statute relates to the requirements for estimated tax payments.",
      "modified": [
        "Clarified the application of estimated tax payments to passthrough entity tax."
      ]
    },
    "citation": "289A.25",
    "subdivision": ""
  }
]

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