Minnesota Enacts Omnibus Tax Bill

Minnesota’s 2026 omnibus tax bill (H.F. 2438), which introduces several changes affecting businesses operating in the state, has been signed into law by Gov. Tim Walz.

The legislation extends the state’s pass-through entity tax (PTET) regime, addresses uncertainty around federal conformity, and includes targeted provisions affecting specific industries and transactions.

Considerations for 2025 Filings

Because this legislation addresses prior conformity gaps, it may have immediate implications for 2025 Minnesota tax filings, including returns that have already been filed.

The Minnesota Department of Revenue is expected to issue additional guidance on how these changes should be implemented, including whether amended returns will be required or if the state will instead calculate adjustments and notify taxpayers directly.

Pass Through Entity Tax Election Extension

The legislation extends Minnesota’s PTET election through tax year 2027. Key provisions include:

• Penalty relief for missed Q1 2026 estimated payments, provided the amount is paid with a timely Q2 estimate.
• Extension of the individual-level credit for pass-through entity taxes paid to other states.

Federal Conformity Updates

Minnesota has updated its IRC conformity to reflect provisions from recent federal legislation enacted in the One Big Beautiful Bill, while continuing to apply certain state-specific modifications.

Key updates include:

• Increase in the Section 179 expensing limit from $1 million to $2.5 million.
• Continued conformity to Section 163(j), with existing Minnesota modifications preserved.
• Conformity to 100% bonus depreciation, with an 80% addback and recovery over five years (no separate MACRS calculation required).
• Section 174 domestic research and experimental expenditures:
  • Pass-through entities may fully expense these costs immediately.
  • C corporations must continue to add back 80% of the amortized deduction and recover it over four years.
• Taxation of foreign source income:
  • Updates references relating to the taxation of foreign source income from global intangible low-taxed income (GLTI) to net CFC tested income (NCTI).
  • Defines NCTI for Minnesota purposes.
  • Treats NCTI and Subpart F income as dividends eligible for the dividends received deduction, without a corresponding adjustment to the sales factor.

Other Notable Provisions

The bill also includes several more targeted provisions:

• One-time increase to the Homestead Credit Refund.
• Creation of a 100% fraud penalty on funds improperly received through state programs.
• Clarifications on installment sale gain for nonresident owners of pass-through entities, including accelerated Minnesota gain recognition in certain cases.
• Sales tax exemptions extended for certain events (such as major golf tournaments) through 2030.
• Administrative updates, including funding for a state-run free-file tax system.

Our State and Local Tax team can help evaluate next steps with the extension of this legislation.