In March 21, 2014, the Minnesota legislature passed a comprehensive tax bill which was signed into law by Governor Dayton the same day. Here is a summary of selected provisions affecting individuals and businesses.
Gift Tax Repeal
The Minnesota Gift Tax was repealed retroactive to its effective date of July 1, 2013. If you have not yet filed a Minnesota gift tax return for 2013, you need not file. If you already filed and paid the tax, the Minnesota Department of Revenue will review your return and refund any payments you made.
Estate Tax Changes
The Minnesota estate tax exemption increases from $1 million to $1.2 million for 2014, and then continues to increase in $200,000 annual increments thereafter, stabilizing at $2 million in 2018 and forward. Gifts made within three years before death continue to be factored in to the Minnesota estate tax calculation, in spite of the repeal of the gift tax. (NOTE: As indicated below under Potential Additional Changes, the omnibus tax bill currently being debated in conference committee would clarify that only gifts made after June 30, 2013 are included in the three-year gift lookback for Minnesota estate tax purposes.)
The Minnesota estate tax rates are adjusted, starting at 9% for deaths in 2014 (10% for each year thereafter) and increasing to a top rate of 16% for 2014 forward. The punitive 41% marginal rate on the smallest estates is eliminated.
The new law also provides for a separate Minnesota QTIP election between spouses, allowing the personal representative of the estate of the first spouse to die to direct an amount equal to the full federal exemption amount into a trust for the surviving spouse, without subjecting it to Minnesota estate tax. The new law doesnot provide Minnesota estate tax portability to spouses.
Here is a summary of the new amounts:
Click here to view table.
Sales Tax Changes
The sales tax on business-to-business (B2B) services is repealed effective for sales and purchases made after March 31, 2014. Minnesota companies will no longer pay any state or local sales tax on the following business-to-business services:
- Labor service charges for repair and maintenance of electronic, farm, and commercial equipment, which were effective July 1, 2013;
- Purchases of telecommunications equipment by telecommunications providers, which were effective July 1, 2013; and
- Storage and warehousing services of business-related goods, which were to be effective April 1, 2014.
Transactions under the first two categories occurring from July 1, 2013 through March 31, 2014 are still taxable and must be reported.
Income Tax Changes
The following provisions of Minnesota income tax law now conform to federal law for 2013 (and in certain cases, going forward):
- Working family credit
- Mortgage insurance deduction
- Higher education tuition deduction
- Student loan interest deduction
- Education savings account
- Employer-provided assistance for education, adoption, and transit
- IRA charitable rollover
- National Health Corps scholarships
- Mortgage debt forgiveness
- Deduction for educator expenses
- Elimination of “marriage penalty” (for 2014 calendar year and forward)
Income Tax Return Filings
- If you have filed a return and paid the tax, the Department will notify you if any further action is required or if you are entitled to a refund.
Potential Additional Changes
The omnibus tax bill (HF3167) is being debated in conference committee. If passed, it would:
- Clarify that gifts made after June 30, 2013 are includible in the Minnesota taxable estate for Minnesota estate tax purposes;
- Increase the agricultural homestead market value credit;
- Increase homestead credit and renter property tax refunds;
- Modify the exemption for certain nonprofit fundraising events;
- Create a microdistillery tax credit;
- Extend the current exclusion for discharge of indebtedness income resulting from foreclosure for one year;
- Provide that certain works of art owned by a non-resident and on loan in Minnesota do not have a Minnesota situs under the estate tax;
- Eliminate sales tax for certain live and prerecorded presentations; and
- Provide that the location of an individual's attorneys, CPAs, or financial advisors may not be a factor for determining residency for tax purposes.