Minnesota Legislature
SF 2853
as introduced - 93rd Legislature (2023 - 2024) Posted on 06/13/2023 10:05am
Current Version - as introduced
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A bill for an act
relating to taxation; individual income; modifying the pass-through entity tax;
amending Minnesota Statutes 2022, sections 289A.08, subdivision 7a, as amended;
289A.382, subdivision 2.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:
Section 1.
Minnesota Statutes 2022, section 289A.08, subdivision 7a, as amended by Laws
2023, chapter 1, section 3, 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 bothdeleted text end a resident deleted text begin anddeleted text end new text begin qualifying owner of a qualifying entity that is a partnership
or limited liability company 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 both anew text end nonresident qualifying ownernew text begin
of a qualifying entity and the income of a resident qualifying owner of a qualifying entity
that is 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 companynew text begin taxed as a
partnership or S corporationnew text end , or S corporation including a qualified subchapter S subsidiary
organized under section 1361(b)(3)(B) of the Internal Revenue Codenew text begin that has at least one
qualifying ownernew text end . Qualifying entity does not include a deleted text begin partnership, limited liability company,
or corporation that has a partnership, limited liability company other than a disregarded
entity, or corporation as a partner, member, or shareholderdeleted text end new text begin publicly traded partnership, as
defined in section 7704 of the Internal Revenue Codenew text end ; and
(3) "qualifying owner" means:
(i) a resident or nonresident individual or estate that is a partner, member, or shareholder
of a qualifying entity; deleted text begin or
deleted text end
(ii) a resident or nonresident trust that is a shareholder of a qualifying entity that is an
S corporationdeleted text begin .deleted text end new text begin ; 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;
new text begin
(2) must exclude partners, members, shareholders, or owners who are not qualifying
owners;
new text end
deleted text begin (2)deleted text end new text begin (3)new text end may only be made by qualifying owners who collectively hold more than deleted text begin adeleted text end 50
percentnew text begin of thenew text end ownership deleted text begin interestdeleted text end new text begin interestsnew text end in the qualifying entitynew text begin held by qualifying ownersnew text end ;
deleted text begin (3)deleted text end new text begin (4)new text end is binding on all qualifying owners who have an ownership interest in the
qualifying entity; and
deleted text begin (4)deleted text end new text begin (5)new text end 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.
(k) Once a credit is claimed by a qualifying owner under section 290.06, subdivision
40, a qualifying entity cannot receive a refund for tax paid under this subdivision for any
amounts claimed under that section by the qualifying owners. Once a credit is claimed under
section 290.06, subdivision 40, any refund must be claimed in conjunction with a return
filed by the qualifying owner.
new text begin
(l) This section expires at the same time and on the same terms as section 164(b)(6) of
the Internal Revenue Code, except that the expiration of this section does not affect the
commissioner's authority to audit or power of examination and assessments for credits
claimed under this section.
new text end
new text begin EFFECTIVE DATE. new text end
new text begin
This section is effective retroactively for taxable years beginning
after December 31, 2021.
new text end
Sec. 2.
Minnesota Statutes 2022, 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 requireddeleted 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, 2021.
new text end