Minnesota Legislature
HF 3127
as introduced - 94th Legislature (2025 - 2026) Posted on 04/07/2025 03:06pm
Bill Text Versions
| Engrossments | ||
|---|---|---|
| Introduction | Posted on 04/04/2025 |
Current Version - as introduced
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A bill for an act
relating to taxation; modifying the expiration of the pass-through entity tax;
amending Minnesota Statutes 2024, sections 289A.08, subdivision 7a; 290.06,
subdivision 23a.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:
Section 1.
Minnesota Statutes 2024, 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 section 290.01, subdivision 19, paragraph (i).
The income of a resident 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 a nonresident qualifying owner 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, are 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 taxed as a
partnership or S corporation, or S corporation including a qualified subchapter S subsidiary
organized under section 1361(b)(3)(B) of the Internal Revenue Code that has at least one
qualifying owner. Qualifying entity does not include a publicly traded partnership, as defined
in section 7704 of the Internal Revenue Code; and
(3) "qualifying owner" means:
(i) a resident or nonresident individual or estate that is a partner, member, or shareholder
of a qualifying entity;
(ii) a resident or nonresident trust that is a shareholder of a qualifying entity that is an
S corporation; or
(iii) a disregarded entity that has a qualifying owner as its single owner.
(b) For taxable years beginning after December 31, 2020, 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) must exclude partners, members, shareholders, or owners who are not qualifying
owners;
(3) may only be made by qualifying owners who collectively hold more than 50 percent
of the ownership interests in the qualifying entity held by qualifying owners;
(4) is binding on all qualifying owners who have an ownership interest in the qualifying
entity; and
(5) 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. The computation of a qualifying owner's net investment
income tax liability must be computed under section 290.033. 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.
(l) This subdivision expires deleted text begin at the same time and on the same terms as section
164(b)(6)(B) of the Internal Revenue Codedeleted text end new text begin for taxable years beginning after December 31,
2027new text end , except that the expiration of this subdivision does not affect the commissioner's
authority to audit or power of examination and assessments for credits claimed under this
section.
new text begin EFFECTIVE DATE. new text end
new text begin
This section is effective the day following final enactment.
new text end
Sec. 2.
Minnesota Statutes 2024, section 290.06, subdivision 23a, is amended to read:
Subd. 23a.
Pass-through entity tax paid to another state.
(a) A credit is allowed against
the tax imposed on a qualifying entity under section 289A.08, subdivision 7a, for
pass-through entity tax paid to another state. The credit under this subdivision is allowed
as a credit for taxes paid to another state under subdivision 22, paragraph (a), and may only
be claimed by a qualifying owner. The credit allowed under this subdivision must be claimed
in a manner prescribed by the commissioner.
(b) This deleted text begin sectiondeleted text end new text begin subdivisionnew text end expires deleted text begin at the same time and on the same terms as section
164(b)(6)(B) of the Internal Revenue Codedeleted text end new text begin for taxable years beginning after December 31,
2027new text end , except that the expiration of this deleted text begin sectiondeleted text end new text begin subdivisionnew text end does not affect the commissioner's
authority to audit or power of examination and assessments for credits claimed under this
section.
(c) As used in this subdivision, the following terms have the meanings given:
(1) "income" has the meaning provided in section 290.01, subdivision 19, paragraph (i);
(2) "pass-through entity tax" means an entity-level tax imposed on the income of a
partnership, limited liability corporation, or S corporation;
(3) "qualifying entity" has the meaning provided in section 289A.08, subdivision 7a,
paragraph (a); and
(4) "qualifying owner" has the meaning provided in section 289A.08, subdivision 7a,
paragraph (b).
new text begin EFFECTIVE DATE. new text end
new text begin
This section is effective the day following final enactment.
new text end