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SF3405 (Legislative Session 94 (2025-2026))

Pass-through entity tax expiration modification

Related bill: HF3127

AI Generated Summary

Purpose of the Bill

This bill aims to modify the expiration of the passthrough entity tax provisions in Minnesota law. The change impacts how certain business entities choose to be taxed at the state level.

Main Provisions

  1. Passthrough Entity Tax Election: The bill allows qualifying business entities, like partnerships and S corporations, to elect to pay taxes on behalf of their owners rather than having the tax liabilities pass directly to the individual owners. This is subject to certain conditions:

    • The election must be made by qualifying owners holding more than 50% of the entity.
    • The election is binding and irrevocable for that tax year.

  2. Tax Calculation and Payment:

    • The tax imposed is equal to the combined tax liabilities of all qualifying owners, calculated using the highest individual tax rate.
    • Deductions normally available to individuals are limited under this tax structure.

  3. Owner Obligations and Rights:

    • Qualifying owners must still meet their estimated tax payment requirements.
    • Owners can claim credits on their personal returns for taxes paid by the entity.
    • Nonresident owners with no other Minnesota income can treat the entity’s tax return as their personal return for Minnesota income derived only from the entity.

  4. Expiration:

    • The passthrough entity tax provision is set to expire for taxable years starting after December 31, 2027, aligning with federal provisions under the Internal Revenue Code.

Significant Changes

  • The bill extends the duration in which passthrough entities can elect this tax treatment. It aligns the expiration of the provision with a federal tax provision, providing continuity in tax planning for businesses choosing this filing option.
  • Does not change the Commissioner's authority for audits and assessments of credits, even after expiration.

Relevant Terms

  • Passthrough entity tax
  • Elective tax
  • Qualifying owners
  • Partnerships
  • S corporations
  • Tax credits
  • Nonresident owners
  • Internal Revenue Code

Bill text versions

Past committee meetings

  • Taxes on: April 29, 2025 09:00
  • Taxes on: April 29, 2025 09:00

Actions

DateChamberWhereTypeNameCommittee Name
April 22, 2025SenateFloorActionIntroduction and first reading
April 22, 2025SenateFloorActionReferred toTaxes

Citations

 
[
  {
    "analysis": {
      "added": [
        "New provisions regarding the election and binding nature of passthrough entity tax."
      ],
      "removed": [],
      "summary": "This bill modifies the provisions for the passthrough entity tax under section 289A.08, subdivision 7a.",
      "modified": [
        "Modifications to filing requirements and conditions for passthrough entities."
      ]
    },
    "citation": "289A.08",
    "subdivision": "subdivision 7a"
  },
  {
    "analysis": {
      "added": [
        "New tax computation rules for qualifying owners."
      ],
      "removed": [],
      "summary": "The bill modifies tax liability provisions related to passthrough entities under section 290.06, subdivision 23a.",
      "modified": [
        "Adjustments to how tax liabilities are calculated for passthrough entities."
      ]
    },
    "citation": "290.06",
    "subdivision": "subdivision 23a"
  },
  {
    "analysis": {
      "added": [],
      "removed": [],
      "summary": "This bill references the definition of income in the context of passthrough entity tax.",
      "modified": []
    },
    "citation": "290.01",
    "subdivision": "subdivision 19"
  },
  {
    "analysis": {
      "added": [],
      "removed": [],
      "summary": "This bill references tax allocation rules for resident individuals.",
      "modified": []
    },
    "citation": "290.17",
    "subdivision": "subdivision 1"
  },
  {
    "analysis": {
      "added": [],
      "removed": [],
      "summary": "This bill references allocation rules for nonresident partners and shareholders.",
      "modified": []
    },
    "citation": "290.191",
    "subdivision": ""
  },
  {
    "analysis": {
      "added": [],
      "removed": [],
      "summary": "This bill references rules regarding allocation of income for nonresidents.",
      "modified": []
    },
    "citation": "290.20",
    "subdivision": ""
  },
  {
    "analysis": {
      "added": [],
      "removed": [],
      "summary": "This bill references requirements for estimated tax payments.",
      "modified": []
    },
    "citation": "289A.25",
    "subdivision": ""
  }
]

Progress through the legislative process

17%
In Committee

Sponsors