HF 3967

as introduced - 92nd Legislature (2021 - 2022) Posted on 03/03/2022 02:05pm

A bill for an act
relating to taxation; income; modifying certain requirements for the pass-through
entity tax; amending Minnesota Statutes 2021 Supplement, sections 289A.08,
subdivision 7a; 289A.382, subdivision 2.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:

Section 1.

Minnesota Statutes 2021 Supplement, section 289A.08, subdivision 7a, is
amended to read:

Subd. 7a.

Pass-through entity tax.

(a) For the purposes of this subdivision, the following
terms have the meanings given:

(1) "income" has the meaning given in subdivision 7, paragraph (j), modified by the
addition provided in section 290.0131, subdivision 5, and the subtraction provided in section
290.0132, subdivision 3, except that the provisions that apply to a partnership apply to a
qualifying entity and the provisions that apply to a partner apply to a qualifying owner. The
income of deleted text begin both deleted text end a resident deleted text begin and deleted text end new text begin qualifying owner of an entity taxed as a partnership under
the Internal Revenue Code is not subject to allocation outside this state as provided for
resident individuals under section 290.17, subdivision 1, paragraph (a). The income of a new text end
nonresident qualifying owner new text begin or the income of a qualifying owner of an entity taxed as an
S corporation including a qualified subchapter S subsidiary organized under section
1361(b)(3)(B) of the Internal Revenue Code new text end is allocated and assigned to this state as provided
for nonresident partners and shareholders under sections 290.17, 290.191, and 290.20;

(2) "qualifying entity" means a partnership, limited liability company new text begin taxed as a
partnership or S corporation new text end , or S corporation including a qualified subchapter S subsidiary
organized under section 1361(b)(3)(B) of the Internal Revenue Code. Qualifying entity does
not include a partnership, limited liability company, or corporation that has a deleted text begin partnership,
limited liability company other than a disregarded entity, or deleted text end corporation as a partner, member,
or shareholder; and

(3) "qualifying owner" means:

(i) a resident or nonresident individual new text begin trust new text end or estate that is a partner, member, or
shareholder of a qualifying entity; deleted text begin or
deleted text end

(ii) deleted text begin a resident or nonresident trust that is a shareholder of a qualifying entity that is an
S corporation deleted text end new text begin an entity taxed as a partnership under the Internal Revenue Code; or
new text end

new text begin (iii) a disregarded entity that has a qualifying owner as its single owner new text end .

(b) For taxable years beginning after December 31, 2020, deleted text begin in which the taxes of a
qualifying owner are limited under section 164(b)(6)(B) of the Internal Revenue Code, deleted text end a
qualifying entity may elect to file a return and pay the pass-through entity tax imposed under
paragraph (c). The election:

(1) must be made on or before the due date or extended due date of the qualifying entity's
pass-through entity tax return;

(2) may only be made by qualifying owners who collectively hold more than a 50 percent
ownership interest in the qualifying entity;

(3) is binding on all qualifying owners who have an ownership interest in the qualifying
entity; and

(4) once made is irrevocable for the taxable year.

(c) Subject to the election in paragraph (b), a pass-through entity tax is imposed on a
qualifying entity in an amount equal to the sum of the tax liability of each qualifying owner.

(d) The amount of a qualifying owner's tax liability under paragraph (c) is the amount
of the qualifying owner's income multiplied by the highest tax rate for individuals under
section 290.06, subdivision 2c. When making this determination:

(1) nonbusiness deductions, standard deductions, or personal exemptions are not allowed;
and

(2) a credit or deduction is allowed only to the extent allowed to the qualifying owner.

(e) The amount of each credit and deduction used to determine a qualifying owner's tax
liability under paragraph (d) must also be used to determine that qualifying owner's income
tax liability under chapter 290.

(f) This subdivision does not negate the requirement that a qualifying owner pay estimated
tax if the qualifying owner's tax liability would exceed the requirements set forth in section
289A.25. The qualifying owner's liability to pay estimated tax on the qualifying owner's
tax liability as determined under paragraph (d) is, however, satisfied when the qualifying
entity pays estimated tax in the manner prescribed in section 289A.25 for composite estimated
tax.

(g) A qualifying owner's adjusted basis in the interest in the qualifying entity, and the
treatment of distributions, is determined as if the election to pay the pass-through entity tax
under paragraph (b) is not made.

(h) To the extent not inconsistent with this subdivision, for purposes of this chapter, a
pass-through entity tax return must be treated as a composite return and a qualifying entity
filing a pass-through entity tax return must be treated as a partnership filing a composite
return.

(i) The provisions of subdivision 17 apply to the election to pay the pass-through entity
tax under this subdivision.

(j) If a nonresident qualifying owner of a qualifying entity making the election to file
and pay the tax under this subdivision has no other Minnesota source income, filing of the
pass-through entity tax return is a return for purposes of subdivision 1, provided that the
nonresident qualifying owner must not have any Minnesota source income other than the
income from the qualifying entity, other electing qualifying entities, and other partnerships
electing to file a composite return under subdivision 7. If it is determined that the nonresident
qualifying owner has other Minnesota source income, the inclusion of the income and tax
liability for that owner under this provision will not constitute a return to satisfy the
requirements of subdivision 1. The tax paid for the qualifying owner as part of the
pass-through entity tax return is allowed as a payment of the tax by the qualifying owner
on the date on which the pass-through entity tax return payment was made.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective retroactively for taxable years beginning
after December 31, 2020.
new text end

Sec. 2.

Minnesota Statutes 2021 Supplement, section 289A.382, subdivision 2, is amended
to read:

Subd. 2.

Reporting and payment requirements for partnerships and tiered
partners.

(a) Except for when an audited partnership makes the election in subdivision 3,
and except for negative federal adjustments required under federal law taken into account
by the partnership in the partnership return for the adjustment or other year, all final federal
adjustments of an audited partnership must comply with paragraph (b) and each direct
partner of the audited partnership, other than a tiered partner, must comply with paragraph
(c).

(b) No later than 90 days after the final determination date, the audited partnership must:

(1) file a completed federal adjustments report, including all partner-level information
required under section 289A.12, subdivision 3, with the commissioner;

(2) notify each of its direct partners of their distributive share of the final federal
adjustments;

(3) file an amended composite report for all direct partners who were included in a
composite return under section 289A.08, subdivision 7, in the reviewed year, and pay the
additional amount that would have been due had the federal adjustments been reported
properly as required; deleted text begin and
deleted text end

(4) file amended withholding reports for all direct partners who were or should have
been subject to nonresident withholding under section 290.92, subdivision 4b, in the reviewed
year, and pay the additional amount that would have been due had the federal adjustments
been reported properly as required deleted text begin . deleted text end new text begin ; and
new text end

new text begin (5) file an amended pass-through entity tax report for all direct partners who were
included in a pass-through entity tax return under section 289A.08, subdivision 7a, in the
reviewed year, and pay the additional amount that would have been due had the federal
adjustments been reported properly as required.
new text end

(c) No later than 180 days after the final determination date, each direct partner, other
than a tiered partner, that is subject to a tax administered under this chapter, other than the
sales tax, must:

(1) file a federal adjustments report reporting their distributive share of the adjustments
reported to them under paragraph (b), clause (2); and

(2) pay any additional amount of tax due as if the final federal adjustment had been
properly reported, plus any penalty and interest due under this chapter, and less any credit
for related amounts paid or withheld and remitted on behalf of the direct partner under
paragraph (b), clauses (3) and (4).

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective retroactively for taxable years beginning
after December 31, 2020.
new text end