A bill for an act
relating to taxation; individual income; allowing a pass-through entity to file and
pay a pass-through entity income tax; amending Minnesota Statutes 2020, sections
289A.08, by adding a subdivision; 290.0132, by adding a subdivision; 290.06,
subdivision 2c; 290.091, subdivision 2; 290.92, subdivisions 4b, 4c.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:
Minnesota Statutes 2020, section 289A.08, is amended by adding a subdivision
to read:
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(a) For the purposes of this subdivision, the following
terms have the meanings given:
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(1) "income" has the meaning given in subdivision 7, paragraph (j), except that the
provisions that apply to a partnership apply to a qualifying entity and the provisions applying
to a partner apply to a qualifying owner. The income of both a resident and nonresident
qualifying owner is allocated and assigned to this state as provided for nonresident partners
and shareholders under section 290.17;
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(2) "qualifying owner" means an individual partner, member, or shareholder of a
qualifying entity; and
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(3) "qualifying entity" means a partnership, limited liability company, or corporation
organized under subchapter S of the Internal Revenue Code for federal income tax purposes,
including a qualified subsidiary also organized under subchapter S of the Internal Revenue
Code, but "qualifying entity" does not include a partnership, limited liability company, or
corporation that has a partnership, limited liability company, or corporation as a partner,
member or shareholder.
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(b) A qualifying entity may elect to file a return and pay the pass-through entity tax
imposed under paragraph (c). The election:
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(1) must be made on or before the due date or extended due date of the qualifying entity's
pass-through entity tax return;
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(2) may only be made by qualifying owners who hold more than a 50 percent ownership
interest in a qualifying entity; and
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(3) is binding on all qualifying owners who have an ownership interest in the qualifying
entity.
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(c) Subject to the election in paragraph (b), a pass-through entity tax is imposed on a
qualifying entity in an amount equal to the sum of the tax liability of each qualifying owner.
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(d) The amount of a qualifying owner's tax liability under paragraph (c) is the amount
of the qualifying owner's income multiplied by the highest rate used to determine the tax
liability for individuals under section 290.06, subdivision 2c. When making this
determination:
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(1) nonbusiness deductions, standard deductions, or personal exemptions are not allowed;
and
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(2) a credit or deduction is allowed only to the extent allowed to the qualifying owner.
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(e) The amount of each credit and deduction used to determine a qualifying owner's tax
liability under paragraph (d) must also be used to determine that qualifying owner's individual
income tax liability under chapter 290.
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(f) This subdivision does not negate the requirement that a qualifying owner pay estimated
tax if the qualifying owner's tax liability would exceed the requirements set forth in section
289A.25. The qualifying owner's liability to pay estimated tax is, however, satisfied when
the qualifying entity pays estimated tax in the manner prescribed in section 289A.25 for
composite estimated tax.
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(g) A qualifying owner's adjusted basis in the interest in the qualifying entity, and the
treatment of distributions, is determined as if the election to pay the pass-through entity tax
under paragraph (b) is not made.
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(h) To the extent not inconsistent with this subdivision, for purposes of this chapter, a
pass-through entity tax return must be treated as a composite return and a qualifying entity
filing a pass-through entity tax return must be treated as a partnership filing a composite
return.
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(i) The provisions of subdivision 17 apply to the election to pay the pass-through entity
tax under this subdivision.
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(j) Nothing in this subdivision prevents a qualifying entity electing to pay the pass-through
entity tax from also filing a composite return and paying tax for an electing partner as
allowed in that subdivision.
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This section is effective for taxable years beginning after December
31, 2020.
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Minnesota Statutes 2020, section 290.0132, is amended by adding a subdivision
to read:
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The amount of a qualifying owner's
income used to determine tax liability under section 289A.08, subdivision 7a, paragraph
(d), is a subtraction.
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This section is effective for taxable years beginning after December
31, 2020.
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Minnesota Statutes 2020, section 290.06, subdivision 2c, is amended to read:
(a) The income taxes
imposed by this chapter upon married individuals filing joint returns and surviving spouses
as defined in section 2(a) of the Internal Revenue Code must be computed by applying to
their taxable net income the following schedule of rates:
(1) On the first $38,770, 5.35 percent;
(2) On all over $38,770, but not over $154,020, 6.8 percent;
(3) On all over $154,020, but not over $269,010, 7.85 percent;
(4) On all over $269,010, 9.85 percent.
Married individuals filing separate returns, estates, and trusts must compute their income
tax by applying the above rates to their taxable income, except that the income brackets
will be one-half of the above amounts after the adjustment required in subdivision 2d.
(b) The income taxes imposed by this chapter upon unmarried individuals must be
computed by applying to taxable net income the following schedule of rates:
(1) On the first $26,520, 5.35 percent;
(2) On all over $26,520, but not over $87,110, 6.8 percent;
(3) On all over $87,110, but not over $161,720, 7.85 percent;
(4) On all over $161,720, 9.85 percent.
(c) The income taxes imposed by this chapter upon unmarried individuals qualifying as
a head of household as defined in section 2(b) of the Internal Revenue Code must be
computed by applying to taxable net income the following schedule of rates:
(1) On the first $32,650, 5.35 percent;
(2) On all over $32,650, but not over $131,190, 6.8 percent;
(3) On all over $131,190, but not over $214,980, 7.85 percent;
(4) On all over $214,980, 9.85 percent.
(d) In lieu of a tax computed according to the rates set forth in this subdivision, the tax
of any individual taxpayer whose taxable net income for the taxable year is less than an
amount determined by the commissioner must be computed in accordance with tables
prepared and issued by the commissioner of revenue based on income brackets of not more
than $100. The amount of tax for each bracket shall be computed at the rates set forth in
this subdivision, provided that the commissioner may disregard a fractional part of a dollar
unless it amounts to 50 cents or more, in which case it may be increased to $1.
(e) An individual who is not a Minnesota resident for the entire year must compute the
individual's Minnesota income tax as provided in this subdivision. After the application of
the nonrefundable credits provided in this chapter, the tax liability must then be multiplied
by a fraction in which:
(1) the numerator is the individual's Minnesota source federal adjusted gross income as
defined in section 62 of the Internal Revenue Code and increased by:
(i) the additions required under sections 290.0131, subdivisions 2, 6, 8 to 10, 16, and
17, and 290.0137, paragraph (a); and reduced by
(ii) the Minnesota assignable portion of the subtraction for United States government
interest under section 290.0132, subdivision 2, the subtractions under sections 290.0132,
subdivisions 9, 10, 14, 15, 17, 18, deleted text beginanddeleted text end 27new text begin, and 30new text end, and 290.0137, paragraph (c), after applying
the allocation and assignability provisions of section 290.081, clause (a), or 290.17; and
(2) the denominator is the individual's federal adjusted gross income as defined in section
62 of the Internal Revenue Code, increased by:
(i) the additions required under sections 290.0131, subdivisions 2, 6, 8 to 10, 16, and
17, and 290.0137, paragraph (a); and reduced by
(ii) the subtractions under sections 290.0132, subdivisions 2, 9, 10, 14, 15, 17, 18, deleted text beginanddeleted text end
27new text begin, and 30new text end, and 290.0137, paragraph (c).