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Minnesota Legislature

Office of the Revisor of Statutes

HF 2019

as introduced - 91st Legislature (2019 - 2020) Posted on 03/07/2019 07:40pm

KEY: stricken = removed, old language.
underscored = added, new language.

Current Version - as introduced

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A bill for an act
relating to taxation; estate; conforming to the federal exclusion amount; making
technical changes; amending Minnesota Statutes 2018, sections 289A.10,
subdivision 1; 291.005, subdivision 1; 291.016, subdivision 3; repealing Minnesota
Statutes 2018, sections 289A.10, subdivision 1a; 289A.12, subdivision 18; 289A.18,
subdivision 3a; 289A.20, subdivision 3a; 291.03, subdivisions 8, 9, 10, 11.

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

Section 1.

Minnesota Statutes 2018, section 289A.10, subdivision 1, is amended to read:


Subdivision 1.

Return required.

new text begin(a) new text endIn the case of a decedent who has an interest in
property with a situs in Minnesota, the personal representative must submit a Minnesota
estate tax return to the commissioner, on a form prescribed by the commissioner, ifdeleted text begin:
deleted text end

deleted text begin (1)deleted text end a federal estate tax return is required to be fileddeleted text begin; ordeleted text endnew text begin.
new text end

deleted text begin (2) the sum of the federal gross estate and federal adjusted taxable gifts, as defined in
section 2001(b) of the Internal Revenue Code, made within three years of the date of the
decedent's death exceeds $1,200,000 for estates of decedents dying in 2014; $1,400,000 for
estates of decedents dying in 2015; $1,600,000 for estates of decedents dying in 2016;
$2,100,000 for estates of decedents dying in 2017; $2,400,000 for estates of decedents dying
in 2018; $2,700,000 for estates of decedents dying in 2019; and $3,000,000 for estates of
decedents dying in 2020 and thereafter.
deleted text end

new text begin (b) new text endThe return must contain a computation of the Minnesota estate tax due. The return
must be signed by the personal representative.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for estates of decedents dying in 2020
and thereafter.
new text end

Sec. 2.

Minnesota Statutes 2018, section 291.005, subdivision 1, is amended to read:


Subdivision 1.

Scope.

Unless the context otherwise clearly requires, the following terms
used in this chapter shall have the following meanings:

(1) "Commissioner" means the commissioner of revenue or any person to whom the
commissioner has delegated functions under this chapter.

(2) "Federal gross estate" means the gross estate of a decedent as required to be valued
and otherwise determined for federal estate tax purposes under the Internal Revenue Code,
increased by the value of any property in which the decedent had a qualifying income interest
for life and for which an election was made under section 291.03, subdivision 1d, for
Minnesota estate tax purposes, but was not made for federal estate tax purposes.

(3) "Internal Revenue Code" means the United States Internal Revenue Code of 1986,
as amended through deleted text beginDecember 16, 2016deleted text endnew text begin March 31, 2018new text end.

(4) "Minnesota gross estate" means the federal gross estate of a decedent after (a)
excluding therefrom any property included in the estate which has its situs outside Minnesota,
and (b) including any property omitted from the federal gross estate which is includable in
the estate, has its situs in Minnesota, and was not disclosed to federal taxing authorities.

(5) "Nonresident decedent" means an individual whose domicile at the time of death
was not in Minnesota.

(6) "Personal representative" means the executor, administrator or other person appointed
by the court to administer and dispose of the property of the decedent. If there is no executor,
administrator or other person appointed, qualified, and acting within this state, then any
person in actual or constructive possession of any property having a situs in this state which
is included in the federal gross estate of the decedent shall be deemed to be a personal
representative to the extent of the property and the Minnesota estate tax due with respect
to the property.

(7) "Resident decedent" means an individual whose domicile at the time of death was
in Minnesota. The provisions of section 290.01, subdivision 7, paragraphs (c) and (d), apply
to determinations of domicile under this chapter.

(8) "Situs of property" means, with respect to:

(i) real property, the state or country in which it is located;

(ii) tangible personal property, the state or country in which it was normally kept or
located at the time of the decedent's death or for a gift of tangible personal property within
three years of death, the state or country in which it was normally kept or located when the
gift was executed;

(iii) a qualified work of art, as defined in section 2503(g)(2) of the Internal Revenue
Code, owned by a nonresident decedent and that is normally kept or located in this state
because it is on loan to an organization, qualifying as exempt from taxation under section
501(c)(3) of the Internal Revenue Code, that is located in Minnesota, the situs of the art is
deemed to be outside of Minnesota, notwithstanding the provisions of item (ii); and

(iv) intangible personal property, the state or country in which the decedent was domiciled
at death or for a gift of intangible personal property within three years of death, the state or
country in which the decedent was domiciled when the gift was executed.

For a nonresident decedent with an ownership interest in a pass-through entity with
assets that include real or tangible personal property, situs of the real or tangible personal
property, including qualified works of art, is determined as if the pass-through entity does
not exist and the real or tangible personal property is personally owned by the decedent. If
the pass-through entity is owned by a person or persons in addition to the decedent, ownership
of the property is attributed to the decedent in proportion to the decedent's capital ownership
share of the pass-through entity.

(9) "Pass-through entity" includes the following:

(i) an entity electing S corporation status under section 1362 of the Internal Revenue
Code;

(ii) an entity taxed as a partnership under subchapter K of the Internal Revenue Code;

(iii) a single-member limited liability company or similar entity, regardless of whether
it is taxed as an association or is disregarded for federal income tax purposes under Code
of Federal Regulations, title 26, section 301.7701-3; or

(iv) a trust to the extent the property is includible in the decedent's federal gross estate;
but excludes

(v) an entity whose ownership interest securities are traded on an exchange regulated
by the Securities and Exchange Commission as a national securities exchange under section
6 of the Securities Exchange Act, United States Code, title 15, section 78f.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for estates of decedents dying after
December 31, 2019.
new text end

Sec. 3.

Minnesota Statutes 2018, section 291.016, subdivision 3, is amended to read:


Subd. 3.

Subtraction.

(a) deleted text beginFor estates of decedents dying after December 31, 2016,deleted text end A
subtraction is allowed in computing the Minnesota taxable estate, equal to the deleted text beginsum of:deleted text endnew text begin
applicable exclusion amount under section 2010(c)(2) of the Internal Revenue Code.
new text end

deleted text begin (1) the exclusion amount for the year of death under paragraph (b); and
deleted text end

deleted text begin (2) the lesser of:
deleted text end

deleted text begin (i) the value of qualified small business property under section 291.03, subdivision 9,
and the value of qualified farm property under section 291.03, subdivision 10; or
deleted text end

deleted text begin (ii) $5,000,000 minus the exclusion amount for the year of death under paragraph (b).
deleted text end

deleted text begin (b) The following exclusion amounts apply for the year of death:
deleted text end

deleted text begin (1) $2,100,000 for decedents dying in 2017;
deleted text end

deleted text begin (2) $2,400,000 for decedents dying in 2018;
deleted text end

deleted text begin (3) $2,700,000 for decedents dying in 2019; and
deleted text end

deleted text begin (4) $3,000,000 for decedents dying in 2020 and thereafter.
deleted text end

deleted text begin (c)deleted text endnew text begin (b)new text end The subtraction under this subdivision must not reduce the Minnesota taxable
estate to less than zero.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for estates of decedents dying after
December 31, 2019.
new text end

Sec. 4. new text beginREPEALER.
new text end

new text begin Minnesota Statutes 2018, sections 289A.10, subdivision 1a; 289A.12, subdivision 18;
289A.18, subdivision 3a; 289A.20, subdivision 3a; and 291.03, subdivisions 8, 9, 10, and
11,
new text end new text begin are repealed.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for estates of decedents dying after
December 31, 2019.
new text end

APPENDIX

Repealed Minnesota Statutes: 19-4054

289A.10 FILING REQUIREMENTS FOR ESTATE TAX RETURNS.

Subd. 1a.

Recapture tax return required.

If a disposition or cessation as provided by section 291.03, subdivision 11, paragraph (a), has occurred, the qualified heir, as defined under section 291.03, subdivision 8, paragraph (c), or personal representative of the decedent's estate must submit a recapture tax return to the commissioner.

289A.12 FILING REQUIREMENTS FOR INFORMATION RETURNS AND REPORTS.

Subd. 18.

Returns by qualified heirs.

A qualified heir, as defined in section 291.03, subdivision 8, paragraph (c), must file two returns with the commissioner attesting that no disposition or cessation as provided by section 291.03, subdivision 11, paragraph (a), occurred. The first return must be filed no earlier than 24 months and no later than 26 months after the decedent's death. The second return must be filed no earlier than 36 months and no later than 39 months after the decedent's death.

289A.18 DUE DATES FOR FILING OF RETURNS.

Subd. 3a.

Recapture tax return.

A recapture tax return must be filed with the commissioner within six months after the date of the disposition or cessation as provided by section 291.03, subdivision 11, paragraph (a).

289A.20 DUE DATES FOR MAKING PAYMENTS OF TAX.

Subd. 3a.

Recapture tax.

The additional estate tax imposed by section 291.03, subdivision 11, paragraph (b), is due and payable on or before the expiration of the date provided by section 291.03, subdivision 11, paragraph (c).

291.03 RATES.

Subd. 8.

Definitions.

(a) For purposes of this section, the following terms have the meanings given in this subdivision.

(b) "Family member" means a family member as defined in section 2032A(e)(2) of the Internal Revenue Code, or a trust whose present beneficiaries are all family members as defined in section 2032A(e)(2) of the Internal Revenue Code.

(c) "Qualified heir" means a family member who acquired qualified property upon the death of the decedent and satisfies the requirement under subdivision 9, clause (8), or subdivision 10, clause (5), for the property.

(d) "Qualified property" means qualified small business property under subdivision 9 and qualified farm property under subdivision 10.

Subd. 9.

Qualified small business property.

Property satisfying all of the following requirements is qualified small business property:

(1) The value of the property was included in the federal adjusted taxable estate.

(2) The property consists of the assets of a trade or business or shares of stock or other ownership interests in a corporation or other entity engaged in a trade or business. Shares of stock in a corporation or an ownership interest in another type of entity do not qualify under this subdivision if the shares or ownership interests are traded on a public stock exchange at any time during the three-year period ending on the decedent's date of death. For purposes of this subdivision, an ownership interest includes the interest the decedent is deemed to own under sections 2036, 2037, and 2038 of the Internal Revenue Code.

(3) During the taxable year that ended before the decedent's death, the trade or business must not have been a passive activity within the meaning of section 469(c) of the Internal Revenue Code, and the decedent or the decedent's spouse must have materially participated in the trade or business within the meaning of section 469(h) of the Internal Revenue Code, excluding section 469(h)(3) of the Internal Revenue Code and any other provision provided by United States Treasury Department regulation that substitutes material participation in prior taxable years for material participation in the taxable year that ended before the decedent's death.

(4) The gross annual sales of the trade or business were $10,000,000 or less for the last taxable year that ended before the date of the death of the decedent.

(5) The property does not include:

(i) cash;

(ii) cash equivalents;

(iii) publicly traded securities; or

(iv) any assets not used in the operation of the trade or business.

(6) For property consisting of shares of stock or other ownership interests in an entity, the value of items described in clause (5) must be excluded in the valuation of the decedent's interest in the entity.

(7) The decedent continuously owned the property, including property the decedent is deemed to own under sections 2036, 2037, and 2038 of the Internal Revenue Code, for the three-year period ending on the date of death of the decedent. In the case of a sole proprietor, if the property replaced similar property within the three-year period, the replacement property will be treated as having been owned for the three-year period ending on the date of death of the decedent.

(8) For three years following the date of death of the decedent, the trade or business is not a passive activity within the meaning of section 469(c) of the Internal Revenue Code, and a family member materially participates in the operation of the trade or business within the meaning of section 469(h) of the Internal Revenue Code, excluding section 469(h)(3) of the Internal Revenue Code and any other provision provided by United States Treasury Department regulation that substitutes material participation in prior taxable years for material participation in the three years following the date of death of the decedent.

(9) The estate and the qualified heir elect to treat the property as qualified small business property and agree, in the form prescribed by the commissioner, to pay the recapture tax under subdivision 11, if applicable.

Subd. 10.

Qualified farm property.

Property satisfying all of the following requirements is qualified farm property:

(1) The value of the property was included in the federal adjusted taxable estate.

(2) The property consists of agricultural land and is owned by a person or entity that is either not subject to or is in compliance with section 500.24.

(3) For property taxes payable in the taxable year of the decedent's death, the property is classified as class 2a property under section 273.13, subdivision 23, and is classified as agricultural homestead, agricultural relative homestead, or special agricultural homestead under section 273.124.

(4) The decedent continuously owned the property, including property the decedent is deemed to own under sections 2036, 2037, and 2038 of the Internal Revenue Code, for the three-year period ending on the date of death of the decedent either by ownership of the agricultural land or pursuant to holding an interest in an entity that is not subject to or is in compliance with section 500.24.

(5) The property is classified for property tax purposes as class 2a property under section 273.13, subdivision 23, for three years following the date of death of the decedent.

(6) The estate and the qualified heir elect to treat the property as qualified farm property and agree, in a form prescribed by the commissioner, to pay the recapture tax under subdivision 11, if applicable.

Subd. 11.

Recapture tax.

(a) If, within three years after the decedent's death and before the death of the qualified heir, the qualified heir disposes of any interest in the qualified property, other than by a disposition to a family member, or a family member ceases to satisfy the requirement under subdivision 9, clause (8); or 10, clause (5), an additional estate tax is imposed on the property. In the case of a sole proprietor, if the qualified heir replaces qualified small business property excluded under subdivision 9 with similar property, then the qualified heir will not be treated as having disposed of an interest in the qualified property.

(b) The amount of the additional tax equals the amount of the exclusion claimed by the estate under subdivision 8, paragraph (d), multiplied by 16 percent.

(c) The additional tax under this subdivision is due on the day which is six months after the date of the disposition or cessation in paragraph (a).

(d) The tax under this subdivision does not apply to the acquisition of title or possession of the qualified property by a federal, state, or local government unit, or any other entity with the power of eminent domain for a public purpose, as defined in section 117.025, subdivision 11, within the three-year holding period.

(e) This subdivision shall not apply as a result of any of the following:

(1) a portion of qualified farm property consisting of less than one-fifth of the acreage of the property is reclassified as class 2b property under section 273.13, subdivision 23, and the qualified heir has not substantially altered the reclassified property during the three-year holding period; or

(2) a portion of qualified farm property classified as class 2a property at the death of the decedent pursuant to section 273.13, subdivision 23, paragraph (a), consisting of a residence, garage, and immediately surrounding one acre of land is reclassified as class 4bb property during the three-year holding period, and the qualified heir has not substantially altered the property.