Minnesota 2025-2026 Regular Session

Minnesota House Bill HF3127 Compare Versions

Only one version of the bill is available at this time.

Old	New	Differences
1	1	1.1 A bill for an act
2	2	1.2 relating to taxation; modifying the expiration of the pass-through entity tax;
3	3	1.3 amending Minnesota Statutes 2024, sections 289A.08, subdivision 7a; 290.06,
4	4	1.4 subdivision 23a.
5	5	1.5BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:
6	6	1.6 Section 1. Minnesota Statutes 2024, section 289A.08, subdivision 7a, is amended to read:
7	7	1.7 Subd. 7a.Pass-through entity tax.(a) For the purposes of this subdivision, the following
8	8	1.8terms have the meanings given:
9	9	1.9 (1) "income" has the meaning given in section 290.01, subdivision 19, paragraph (i).
10	10	1.10The income of a resident qualifying owner of a qualifying entity that is a partnership or
11	11	1.11limited liability company taxed as a partnership under the Internal Revenue Code is not
12	12	1.12subject to allocation outside this state as provided for resident individuals under section
13	13	1.13290.17, subdivision 1, paragraph (a). The income of a nonresident qualifying owner of a
14	14	1.14qualifying entity and the income of a resident qualifying owner of a qualifying entity that
15	15	1.15is an S corporation, including a qualified subchapter S subsidiary organized under section
16	16	1.161361(b)(3)(B) of the Internal Revenue Code, are allocated and assigned to this state as
17	17	1.17provided for nonresident partners and shareholders under sections 290.17, 290.191, and
18	18	1.18290.20;
19	19	1.19 (2) "qualifying entity" means a partnership, limited liability company taxed as a
20	20	1.20partnership or S corporation, or S corporation including a qualified subchapter S subsidiary
21	21	1.21organized under section 1361(b)(3)(B) of the Internal Revenue Code that has at least one
22	22	1.22qualifying owner. Qualifying entity does not include a publicly traded partnership, as defined
23	23	1.23in section 7704 of the Internal Revenue Code; and
24	24	1Section 1.
25	25	REVISOR EAP/CH 25-0527203/28/25
26	26	State of Minnesota
27	27	This Document can be made available
28	28	in alternative formats upon request
29	29	HOUSE OF REPRESENTATIVES
30	30	H. F. No. 3127
31	31	NINETY-FOURTH SESSION
32	32	Authored by Davids04/07/2025
33	33	The bill was read for the first time and referred to the Committee on Taxes 2.1 (3) "qualifying owner" means:
34	34	2.2 (i) a resident or nonresident individual or estate that is a partner, member, or shareholder
35	35	2.3of a qualifying entity;
36	36	2.4 (ii) a resident or nonresident trust that is a shareholder of a qualifying entity that is an
37	37	2.5S corporation; or
38	38	2.6 (iii) a disregarded entity that has a qualifying owner as its single owner.
39	39	2.7 (b) For taxable years beginning after December 31, 2020, a qualifying entity may elect
40	40	2.8to file a return and pay the pass-through entity tax imposed under paragraph (c). The election:
41	41	2.9 (1) must be made on or before the due date or extended due date of the qualifying entity's
42	42	2.10pass-through entity tax return;
43	43	2.11 (2) must exclude partners, members, shareholders, or owners who are not qualifying
44	44	2.12owners;
45	45	2.13 (3) may only be made by qualifying owners who collectively hold more than 50 percent
46	46	2.14of the ownership interests in the qualifying entity held by qualifying owners;
47	47	2.15 (4) is binding on all qualifying owners who have an ownership interest in the qualifying
48	48	2.16entity; and
49	49	2.17 (5) once made is irrevocable for the taxable year.
50	50	2.18 (c) Subject to the election in paragraph (b), a pass-through entity tax is imposed on a
51	51	2.19qualifying entity in an amount equal to the sum of the tax liability of each qualifying owner.
52	52	2.20 (d) The amount of a qualifying owner's tax liability under paragraph (c) is the amount
53	53	2.21of the qualifying owner's income multiplied by the highest tax rate for individuals under
54	54	2.22section 290.06, subdivision 2c. The computation of a qualifying owner's net investment
55	55	2.23income tax liability must be computed under section 290.033. When making this
56	56	2.24determination:
57	57	2.25 (1) nonbusiness deductions, standard deductions, or personal exemptions are not allowed;
58	58	2.26and
59	59	2.27 (2) a credit or deduction is allowed only to the extent allowed to the qualifying owner.
60	60	2.28 (e) The amount of each credit and deduction used to determine a qualifying owner's tax
61	61	2.29liability under paragraph (d) must also be used to determine that qualifying owner's income
62	62	2.30tax liability under chapter 290.
63	63	2Section 1.
64	64	REVISOR EAP/CH 25-0527203/28/25 3.1 (f) This subdivision does not negate the requirement that a qualifying owner pay estimated
65	65	3.2tax if the qualifying owner's tax liability would exceed the requirements set forth in section
66	66	3.3289A.25. The qualifying owner's liability to pay estimated tax on the qualifying owner's
67	67	3.4tax liability as determined under paragraph (d) is, however, satisfied when the qualifying
68	68	3.5entity pays estimated tax in the manner prescribed in section 289A.25 for composite estimated
69	69	3.6tax.
70	70	3.7 (g) A qualifying owner's adjusted basis in the interest in the qualifying entity, and the
71	71	3.8treatment of distributions, is determined as if the election to pay the pass-through entity tax
72	72	3.9under paragraph (b) is not made.
73	73	3.10 (h) To the extent not inconsistent with this subdivision, for purposes of this chapter, a
74	74	3.11pass-through entity tax return must be treated as a composite return and a qualifying entity
75	75	3.12filing a pass-through entity tax return must be treated as a partnership filing a composite
76	76	3.13return.
77	77	3.14 (i) The provisions of subdivision 17 apply to the election to pay the pass-through entity
78	78	3.15tax under this subdivision.
79	79	3.16 (j) If a nonresident qualifying owner of a qualifying entity making the election to file
80	80	3.17and pay the tax under this subdivision has no other Minnesota source income, filing of the
81	81	3.18pass-through entity tax return is a return for purposes of subdivision 1, provided that the
82	82	3.19nonresident qualifying owner must not have any Minnesota source income other than the
83	83	3.20income from the qualifying entity, other electing qualifying entities, and other partnerships
84	84	3.21electing to file a composite return under subdivision 7. If it is determined that the nonresident
85	85	3.22qualifying owner has other Minnesota source income, the inclusion of the income and tax
86	86	3.23liability for that owner under this provision will not constitute a return to satisfy the
87	87	3.24requirements of subdivision 1. The tax paid for the qualifying owner as part of the
88	88	3.25pass-through entity tax return is allowed as a payment of the tax by the qualifying owner
89	89	3.26on the date on which the pass-through entity tax return payment was made.
90	90	3.27 (k) Once a credit is claimed by a qualifying owner under section 290.06, subdivision
91	91	3.2840, a qualifying entity cannot receive a refund for tax paid under this subdivision for any
92	92	3.29amounts claimed under that section by the qualifying owners. Once a credit is claimed under
93	93	3.30section 290.06, subdivision 40, any refund must be claimed in conjunction with a return
94	94	3.31filed by the qualifying owner.
95	95	3.32 (l) This subdivision expires at the same time and on the same terms as section
96	96	3.33164(b)(6)(B) of the Internal Revenue Code for taxable years beginning after December 31,
97	97	3.342027, except that the expiration of this subdivision does not affect the commissioner's
98	98	3Section 1.
99	99	REVISOR EAP/CH 25-0527203/28/25 4.1authority to audit or power of examination and assessments for credits claimed under this
100	100	4.2section.
101	101	4.3 EFFECTIVE DATE.This section is effective the day following final enactment.
102	102	4.4 Sec. 2. Minnesota Statutes 2024, section 290.06, subdivision 23a, is amended to read:
103	103	4.5 Subd. 23a.Pass-through entity tax paid to another state.(a) A credit is allowed against
104	104	4.6the tax imposed on a qualifying entity under section 289A.08, subdivision 7a, for
105	105	4.7pass-through entity tax paid to another state. The credit under this subdivision is allowed
106	106	4.8as a credit for taxes paid to another state under subdivision 22, paragraph (a), and may only
107	107	4.9be claimed by a qualifying owner. The credit allowed under this subdivision must be claimed
108	108	4.10in a manner prescribed by the commissioner.
109	109	4.11 (b) This section subdivision expires at the same time and on the same terms as section
110	110	4.12164(b)(6)(B) of the Internal Revenue Code for taxable years beginning after December 31,
111	111	4.132027, except that the expiration of this section subdivision does not affect the commissioner's
112	112	4.14authority to audit or power of examination and assessments for credits claimed under this
113	113	4.15section.
114	114	4.16 (c) As used in this subdivision, the following terms have the meanings given:
115	115	4.17 (1) "income" has the meaning provided in section 290.01, subdivision 19, paragraph (i);
116	116	4.18 (2) "pass-through entity tax" means an entity-level tax imposed on the income of a
117	117	4.19partnership, limited liability corporation, or S corporation;
118	118	4.20 (3) "qualifying entity" has the meaning provided in section 289A.08, subdivision 7a,
119	119	4.21paragraph (a); and
120	120	4.22 (4) "qualifying owner" has the meaning provided in section 289A.08, subdivision 7a,
121	121	4.23paragraph (b).
122	122	4.24 EFFECTIVE DATE.This section is effective the day following final enactment.
123	123	4Sec. 2.
124	124	REVISOR EAP/CH 25-0527203/28/25