Recent revisions to Minnesota tax laws and requirements have generated many questions regarding timing and procedural issues. This communication addresses the issues most frequently asked about by our clients.
Individual income tax
Per the Minnesota Department of Revenue website, taxpayers will not be penalized for the portion of underpayment that results from the new rate for quarterly estimated tax payments due April 15, June 15, or Sept. 16, 2013. Any catch-up payment can be made with a fourth-quarter estimate payment to avoid underpayment penalties and interest on 2013 income tax returns.
The top individual tax rate in Minnesota is now 9.85 percent for married filing jointly (MFJ) taxpayers with income greater than $250,000 and single taxpayers with income greater than $150,000. Although the rate increase is "only" 2 percent, this will result in an actual tax increase of approximately 25 percent for taxpayers falling into this new bracket.
Corporate income tax
The Minnesota minimum fee increased for corporate taxpayers. The new fee ranges from $190 to $9,340 (previously $100 to $5,000). In conjunction with the fee increase, the thresholds at which the fee amount applies also increased.
Sales and use tax
Of all of the sales and use tax law changes enacted in the 2013 Omnibus Tax Bill, the tax on warehousing and storage services is one of the most controversial. With a delayed effective date of April 1, 2014, this looming tax increase on B2B storage services has had the most media attention compared to the other sales tax increases that took effect July 1, 2013, e.g., repair and maintenance labor on specified equipment.
If this law stays on the books, businesses will have to pay sales or use tax on third-party warehouse or storage facility charges for keeping their business personal property, e.g., inventory. There are some exclusions, most notably storage of agricultural products, refrigerated storage, electronic data, and self-storage (cannot be deducted as a business expense).
The rules regarding whether a state has the right to tax your businesses income or charge sales and use tax on sales made by your business are complex and vary depending on the state and type of tax. Your tax professional can help you by providing a nexus study for either income or sale and use tax applicability.
Additionally, you may be able to reduce your state income tax liability by reviewing how your revenue is sourced (allocated or divided) between states. Different types of revenue have different allocation rules. For example, receipts from the sale of tangible personal property generally are assigned to the state where the property is delivered. Receipts from rendering services are assigned using one of several approaches, e.g., where costs are incurred, where customer receives the benefit of the service, depending on state-specific statues, rules, or regulations. An understanding of the application of the various methods may help reduce your annual state tax liability by properly allocating income to states with lower tax rates.
For more information or any questions you might have about the Minnesota tax changes, please contact your Baker Tilly advisor or send an e-mail to email@example.com.