Friday the Minnesota Legislature passed a federal conformity bill and Governor Mark Dayton signed it (HF 1777, Session Laws Chapter 150). Some of the changes in the bill affect tax year 2013. The legislation conforms Minnesota’s individual income tax and corporate franchise tax on an ongoing basis retroactively to tax year 2013 to most federal changes enacted since April 14, 2011, with conformity delayed until tax year 2014 for the increased standard deduction for married filers. The legislation also does not conform Minnesota law to the increased income thresholds for the limitation on itemized deductions and for the phase out of personal and dependent exemptions.
Business Taxes. Minnesota will not conform to increased section 179 expensing and increased bonus depreciation, which federal law extended to tax year 2013 only. Repeals the imposition of sales tax on the following business purchases as of April 1, 2014 (not retroactive):
- repair labor for electronic and precision equipment
- repair labor for commercial and industrial equipment (including farm equipment)
- storage and warehousing services (currently not taxable until April 1, 2014)
The legislation reinstates and expands the exemption for capital equipment used in providing telecommunication and pay television services beginning May 1, 2014. The exemption will now cover poles, wire, cable, fiber, and conduit. The legislation delays the date on which the sales tax exemption on purchases of capital equipment would convert from a refund-based exemption to an upfront
Exemption, and extends the Angel Investment Credit program by two years and increasing the annual credit allocation from $12 million to $15 million.
Individual Taxes. If you have already filed a 2013 individual return, and the return is affected by the changes, you will receive notification from the Minnesota Department of Revenue, and should not do anything until you receive direction from the Dept of Revenue. One of three things will happen with the return. The department:
1. Will fix the return and send you a letter explaining how it was fixed.
2. Will send you a letter requesting more information and use that information to fix the return. You will receive a letter explaining how it was fixed.
3. Will not be able to fix the return. If this happens, you will receive a letter explaining the return can’t be fixed. If this happens, you will need to file an amended return to get the benefits of the law changes that apply to you.
If you have not filed, wait to file your return. The MN Dept of Revenue is working to get new forms and instructions out by April 3. Note: If you use a desktop version of a software product, please be sure to watch for software updates from your software company. Here is a link to the MN Dept of Revenue website (click on the lower right of the web page for tax law updates): http://www.revenue.state.mn.us/Pages/default.aspx
The gift and estate tax changes include the following:
- Repeal of the Minnesota gift tax retroactive to June 30, 2013.
- The exemption stays at $1 million for 2013, and then is phased in as follows - $1,200,000 for estates of decedents dying in 2014; $1,400,000 for estates of decedents dying in 2015; $1,600,000 for estates of decedents dying in 2016; $1,800,000 for estates of decedents dying in 2017; and $2,000,000 for estates of decedents dying in 2018 and thereafter.
- Decedent’s estates will include federal adjusted taxable gifts made within three years of death.
- Adopted stand-alone Minnesota estate tax rates and brackets, meaning they get rid of the “bubble” marginal rates for estates just over the exemption. For 2014, the tax rate starts at 9% for the excess over $1.200.000, and increases to a top state rate of 16% on the portion over $10.1 million.
- Excludes publicly- traded investments from the pass-through entity rules that tax non-residents on Minnesota real estate and tangible personal property owned by entities in which the decedent had an interest.
- Authorizes a QTIP marital deduction election to be made for Minnesota estate tax purposes regardless of whether the election is made for federal estate tax purposes.
Here is a link to the final bill as signed by the Governor: https://www.revisor.mn.gov/laws/?id=150&doctype=Chapter&year=2014&type=0