The omnibus tax bill passed by the legislature and signed by Governor Dayton on May 23, 2013 made sweeping changes that affected Minnesota taxpayers as well as entities and individuals doing business in Minnesota. The tax bill is projected to raise approximately $2.1 billion in additional revenue and would eliminate the state budget deficit. This post highlights some of the key elements of the legislation that could have broad effect to individual taxpayers.

Most of the income tax provisions are retroactive to January 1, 2013. Most of these changes, as well as others we have not necessarily included, will need additional guidance from the Department of Revenue. This memo is meant to be a summary of key provisions from the recent omnibus bill that was recently enacted. Contact your tax advisor with specific questions.

Individual Tax Changes

Individual tax rates

The bill creates a new 9.85 percent tax bracket for the top Minnesota taxable incomes. This new rate affects joint filers with taxable income over $250,000, married filing separate filers with taxable income over $125,000 and single taxpayers with taxable income over $150,000. For some individuals (those affected by the 39.6 percent new federal rate) the combination of federal and state taxes will approximate 50 percent.

Alternative tax rate

The alternative minimum tax rate for individuals, estate and trusts is increased to 6.75 percent (from 6.4 percent).

Estimated income tax penalties

The legislation exempts from penalty and interest the underpayment of estimated taxes before September 15, 2013 for taxes resulting from the new 9.85 percent rate. If the estimated taxes have been set using safe harbor rules of prior year taxes, this change will have no effect.

Business tax changes

Minimum franchise tax

The minimum fee that is charged to pass-through entities and C corporations that have limited or no income has changed. The fee previously ranged from $0 to $5,000. The new fee ranges from $0 to $9,340. While the new bill nearly doubles the amount of the minimum fee, a number of entities may end up with a lower fee after the change.

Research and development credit

The credit has changed in that 1) it is now a nonrefundable credit (may only decrease tax owing), 2) it may be applied against taxable incomes of other members of a unitary group, and 3) any unused portion may be carried forward 15 years to offset future tax.

Greater Minnesota Internship Program credit

This is a new credit which creates a refundable credit against the corporate franchise tax for eligible employers based upon 40 percent of the compensation paid to an intern qualifying under the program. The maximum credit is $2,000 per intern, and the total tax credits authorized are $2 million per year. It is effective for years beginning after December 31, 2013.

Changes to other credits

The legislation makes a number of changes to the Angel investment credit for businesses certified after June 30, 2013, and to the Historic structure rehabilitation credit, effective on May 24, 2013


Disclaimer: All content provided in this article is for informational purposes only, and is subject to change. Contact a DS+B professional before using or acting on any information provided in this article