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HF3127 (Legislative Session 94 (2025-2026))

Expiration of the pass-through entity tax modified.

Related bill: SF3405

AI Generated Summary

Purpose of the Bill

This bill aims to modify the expiration date of the passthrough entity tax in Minnesota. It addresses how passthrough entities, such as partnerships, limited liability companies (LLCs), and S corporations, pay taxes on behalf of their owners.

Main Provisions

  • Passthrough Entity Tax: This tax applies to businesses that are structured as partnerships, LLCs taxed as partnerships, and S corporations, allowing them to file a return and pay taxes at the entity level.
  • Qualifying Entities and Owners: The bill defines a "qualifying entity" as a partnership, LLC, or S corporation that elects to file under this tax rule. A "qualifying owner" is an individual, estate, or trust with ownership in the qualifying entity.
  • Election and Liability: Qualifying entities can choose to pay taxes at the entity level on income allocated to their owners. The election is mandatory for all qualifying owners and is irrevocable for the taxable year.
  • Tax Calculation: The tax is calculated based on the highest individual tax rate on each qualifying owner's income, excluding non-business deductions.
  • Expiration: The provision for passthrough entity tax will expire along with a section of the Internal Revenue Code for taxable years beginning after December 31, 2027.

Significant Changes

  • The bill amends the existing statute to extend the applicability of the passthrough entity tax and provides clarity on how and when qualifying entities can elect to pay this tax.
  • It aligns Minnesota’s passthrough entity tax expiration with federal provisions, maintaining the state's authority for audits and assessments related to the tax.

Relevant Terms

  • Passthrough entity
  • Tax liability
  • Qualifying entity
  • Limited liability company (LLC)
  • S corporation
  • Composite return
  • Nonresident income
  • Internal Revenue Code

Bill text versions

Actions

DateChamberWhereTypeNameCommittee Name
April 07, 2025HouseFloorActionIntroduction and first reading, referred toTaxes

Citations

 
[
  {
    "analysis": {
      "added": [],
      "removed": [],
      "summary": "This bill modifies the expiration of the passthrough entity tax provisions under section 289A.08, subdivision 7a.",
      "modified": [
        "Clarifies the election and payment procedures for passthrough entities."
      ]
    },
    "citation": "289A.08",
    "subdivision": "subdivision 7a"
  },
  {
    "analysis": {
      "added": [],
      "removed": [],
      "summary": "This legislation references section 290.06, subdivision 40, in relation to credit claims by qualifying owners.",
      "modified": [
        "Specifies limitations on refunds for credits claimed under this section."
      ]
    },
    "citation": "290.06",
    "subdivision": "subdivision 40"
  }
]

Progress through the legislative process

17%
In Committee

Sponsors