Minnesota reverses course with new tax legislation

A new tax law was signed March 21, 2014, affecting many Minnesota taxpayers. With sweeping bipartisan support, it impacts individuals and businesses.

Highlights of the bill include:

Estate and gift tax changes

The law retroactively repeals the gift tax that was added to Minnesota statute with the omnibus tax bill of 2013. In addition, it provides for an increase in the estate tax income exemption to $2 million from $1 million over five years. The exemption will increase $200,000 per year beginning with estate returns for decedents dying in 2014. Tax rates and brackets for estates have also been modified to account for the increase in the exemption. Beginning for decedents dying in 2015, the lowest estate tax rate increases to 10 percent, while the highest rate remains at 16 percent.

Sales and use tax

The sales and use tax on warehousing and storage services, set to go into effect on April 1, 2014, has been repealed. Effective March 31, 2014, the existing sales and use tax on labor repair costs for commercial and industrial equipment and electronic and precision equipment is repealed. Since these two tax provisions went into effect June 1, 2013, many taxpayers may already have paid the tax. The legislation does not provide for any type of refund or retroactive relief for amounts already paid.

The effective date for the up-front exemption from sales and use tax on the purchase of capital equipment is deferred to June 30, 2015. Businesses purchasing capital equipment used primarily for manufacturing, fabricating, mining, or refining tangible personal property will still be subject to sales and use tax upon purchase. Any sales or use tax paid on the purchase of capital equipment until the up-front exemption is effective can be refunded by filing a capital equipment refund claim with the Department of Revenue.

Individual income tax relief

Touted as a tax break for low- and middle-income families, the law brings Minnesota into conformity with federal laws enacted or extended since April 14, 2011, and is retroactive to tax periods beginning after Dec. 31, 2012. Minnesota now allows certain deductions previously required to be added back for Minnesota tax purposes, such as:

  • Classroom expenses for up to $250 for educators
  • Higher education tuition expense and student loan interest
  • Itemized deduction claimed for mortgage insurance premiums
  • Employer-provided assistance for education or adoption
  • Discharge of indebtedness on principal residences related to foreclosure or short sales

In addition to these changes, the law also makes adjustments to the income limitations for the working family credits and increases to the credit itself. The credit allowed and income thresholds are variable and based upon the number of qualifying children of the taxpayer. These changes are also effective retroactively for tax years beginning after Dec. 31, 2012.

Action steps

If these changes impact your 2013 tax situation and you have already filed your Minnesota return, one of the following will occur:

  • The Department of Revenue will fix the return and send you a letter explaining the correction.
  • The department will send a letter to you requesting additional information in order to correct the return.
  • You will need to file an amended return to receive the benefits from the retroactive legislation.

If you have not already filed your Minnesota return:

  • The revenue department requests you wait until April 3 to do so. Updated forms and instructions should be available.

For more information on this topic, or to learn how Baker Tilly tax specialists can help, contact our team.

The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely.  The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.