Minnesota recently passed legislation that provides nearly $650 million in tax relief. Prior to this, the most recent tax legislation was enacted in 2014, so a long-overdue reprieve is coming for many Minnesota businesses and individuals. In particular, seniors on Social Security, owners of lower-valued business property, college students and parents saving for college, counties and cities, families with child or dependent care expenses and farmers supporting school construction got the biggest wins. To help our clients, prospects and others understand the new legislation, Smith Schafer has provided the highlights below.
Individual and Estate Income Tax Changes
New income tax credits or subtractions include:
- Subtractions for certain Social Security benefits
- Credit for student loan principal and interest payments
- Income exclusion for discharge of debt on student loans with income-based repayment plans
- Credit OR subtraction for 529 college savings plans
- Subtraction for earnings of first-time homebuyer accounts
Other changes to income tax law include:
- Increased credit for child or dependent care expenses to match the federal credit
- Increased second-tier rate under the research credit from 2.5% to 4%
- Greater Minnesota Internship Credit repealed
- Individual income tax accelerated on installment sales of interests in or assets of Minnesota pass-through entities by nonresidents or residents who move out of the state
- A new reciprocity agreement with Wisconsin and modification of the credit for taxes paid to other states for MN residents who worked in Wisconsin in years when a reciprocity agreement was not in effect (now also refundable)
- Due date for partnership returns changed to match the federal due date of March 15 for calendar-year partnerships or the 15th day of the third month following the partnership’s year end
Sales Tax Rates and Property Tax Changes
Among several definitions and exemptions, the following provisions are included in the new bill:
- Increased or new local sales tax authorized for various cities and counties from 0.5% up to a 2% lodging tax in one community
- Exemption for the first $100,000 of each parcel of commercial-industrial property from the state general tax
- State general property tax frozen at the 2018 level for both commercial-industrial property and seasonal-recreational property
- The addition of a property tax credit for agricultural property equal to 40% of the tax attributable to school district bond levies on that property
Sales Tax Nexus
Regarding sales tax nexus, the new legislation:
- Requires “marketplace providers” with a place of business in Minnesota (such as Amazon.com) to collect and remit sales tax unless the retailer selling through the marketplace is already collecting tax
- Stipulates that retailers are not required to collect Minnesota sales tax if their sole physical connection to Minnesota is making less than $10,000 of taxable sales in the state through a marketplace provider who has a place of business in MN (effective July 1, 2019 or earlier if federally mandated)
- Requires retailers to collect and remit sales tax if they have a storage facility in MN, employ a resident who works from a home office in the state or has an “affiliated entity” in the state
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While a few important provisions were considered but ultimately not included in the tax bill (such as Section 179 expensing federal conformity, which leaves Minnesota as one of only 12 non-conforming states), the new legislation offers significant tax relief for many groups. If you have questions about the changes or would like assistance with tax planning, Smith Schafer can help! For additional information or if you have questions, click here to contact us.
