State Tax Day - Current, S.7, Minnesota—Multiple Taxes: IRC Conformity Updated, Pass-Through Entity Tax Extended, and More, (Jun 1, 2026)

Minnesota has enacted omnibus tax legislation that brings state law into further conformity with federal law and makes many other tax changes. The changes include:

updating the Internal Revenue Code (IRC) tie-in date;
extending the pass-through entity ...

Minnesota has enacted omnibus tax legislation that brings state law into further conformity with federal law and makes many other tax changes. The changes include:

updating the Internal Revenue Code (IRC) tie-in date;
extending the pass-through entity tax;
mandating a direct free filing system for individual income tax returns;
revising tax credits and exemptions;
providing a one-time increase in the homestead credit refund;
modifying refund claim time limits;
clarifying composite return options; and
imposing a new tax on amounts obtained by fraud of a public program.

Federal conformity

Minnesota’s new IRC tie-in date for income and franchise tax purposes is May 1, 2026 (previously, May 1, 2023). Incorporated federal changes are generally effective for Minnesota purposes at the same time they were effective for federal purposes. However, some federal changes are not adopted. The following modifications apply:

for taxable years beginning after December 31, 2025, the itemized deduction for charitable contributions for an individual is limited to contributions in excess of 1% of the taxpayer’s contribution base for the year;
an addition to income is required for distributions from a 529 plan used to pay for postsecondary credentialing expenses, effective retroactively at the same time the changes under the One Big Beautiful Bill Act (OBBBA) (P.L. 119-21) became effective;
for taxable years beginning after December 31, 2025, an addition to income is required for employer student loan payments, as well as other forms of educational assistance in excess of $5,250;
for taxable years beginning after December 31, 2025, an addition to income is required for qualified transportation fringe benefits in excess of the limit in effect prior to the passage of OBBBA;
for taxable years beginning after December 31, 2025, an addition to income is required for any income that is nontaxable federally as hazard duty pay for services provided in the Sinai Peninsula, Kenya, Mali, Burkina Faso, and Chad;
for taxable years beginning after December 31, 2026, an addition to income is required to offset the federal tax benefits for capital gains in an Opportunity Zone;
for taxable years beginning after December 31, 2026, the amount of capital gains in an Opportunity Zone that was previously deferred under federal law and added to Minnesota income may be subtracted under Minnesota law when the gain is recognized federally;
an addition to income is required for the amount of interest on loans secured by rural or agricultural real property that was excluded from gross income for federal purposes, effective retroactively at the same time the provision in the OBBBA became effective;
for taxable years beginning after December 31, 2025, an addition to income is required for the amount of business meal expenses in excess of the 50% limitation that are deducted under federal law for meals provided on certain fishing vessels, fish processing facilities, and oil and gas platforms, plus the amount of expenses allowed as a deduction for goods and services sold by a taxpayer in a bona fide transaction;
for taxable years beginning after December 31, 2025, a subtraction from income is allowed for net CFC tested income, similar to the amount allowed under prior law for qualified business asset investment;
for purposes of determining net CFC tested income or subpart F income, OBBBA provisions relating to the look-thru rule do not apply and adjustments are required;
for corporations, additions to income are required for 80% of the amount of deduction claimed for domestic research and experimental expenditures that are expensed federally, effective retroactively for taxable years beginning after 2021, and for the amount of deduction claimed for unamortized amounts, effective retroactively for taxable years beginning after 2024;
subtractions to income are allowed for the 80% addition for research and experimental expenditures, effective retroactively for taxable years beginning after 2022, and for unamortized amounts deducted federally over an accelerated timeframe and added back for Minnesota purposes, effective retroactively for taxable years beginning after 2024; and
for taxable years beginning after December 31, 2025, Minnesota decouples from federal changes to the dependent care credit and adopts a version of the credit that was allowed federally prior to OBBBA.

Alternative minimum tax definitions are also modified to account for additions and subtractions required due to the state’s selective conformity to federal law.

Pass-through entity tax

The Minnesota pass-through entity tax is extended so that it is available through tax years 2026 and 2027. The related credit for pass-through entity tax paid is similarly extended. Estimated tax payment relief is provided for tax year 2026.

Direct free filing system

The Department of Revenue (DOR) must establish an electronic system through which taxpayers can directly file their individual income tax returns electronically for free. The DOR must make the system available on its website for taxable years beginning after December 31, 2026, and must not limit access based on income. The system must allow taxpayers to claim the marriage penalty credit, education credit, child and working families credits, dependent care credit, student loan credit, and renter’s credit.

Credits and exemptions

Sustainable aviation fuel credit.—Changes to the sustainable aviation fuel credit include:

modifying the definition of “biomass” to exclude certain agricultural feedstocks and include gaseous carbon oxides and certain hydrogen;
providing that carbon oxides sequestered as part of the production process must not be used as tertiary injectants in qualified enhanced oil recovery projects;
allowing a supplemental credit of $0.02 per gallon, up to $2.00 per gallon total, for projects meeting certain carbon intensity reductions;
increasing the total amount of credits that may be allocated; and
extending the credit through tax year 2035.

Agricultural asset owner credit.—For tax year 2026 only, the annual $4 million cap on tax credits for agricultural asset owners that sell or rent assets to beginning farmers is temporarily removed.

Championship golf exemption.—Sales of admission to a world championship golf tournament sponsored by the Professional Golfer’s Association of America (PGA) and related events sponsored by the PGA are exempt from sales tax, effective for sales made after June 30, 2026.

Property taxes

Homestead credit refund.--For homestead credit refund claims based on property taxes payable in 2026, the refund otherwise payable is increased by 14.88%.

Class 1c properties.--The tier thresholds for class 1c homestead resort properties are increased. The threshold for the first tier increases from $600,000 to $1,500,000 and the threshold for the second tier increases from $1,700,000 to $3,000,000, effective beginning with assessment year 2026.

Property owned by certain tribes.—An existing exemption for a medical clinic in Duluth owned by the Fond du Lac Band of Lake Superior Chippewa is modified, effective beginning with assessment year 2027, by adding the clinic’s parking lot to the exemption, allowing the property to consist of up to five (previously, two contiguous) parcels and structures, and extending the expiration of the exemption from 2028 to 2038.

Also, a new exemption is established for a parcel of property in Cloquet that is owned by the Fond du Lac Band of Lake Superior Chippewa and used to store medical equipment and materials, effective beginning with taxes payable in 2027.

Refund claim time limits

The general timeframe for filing claims for refund of state tax is changed to the later of:

three and one-half years from the date the return was due, including any extension granted (if filed within the extended time); or
two years from the date the tax, penalties, or interest was paid (previously, one year from the date of an order assessing tax, an order determining an administrative appeal, or a return made by the Commissioner of Revenue where the taxpayer failed to file a return).

Composite returns

Nonresident partners who incur accelerated gain under an installment sale may opt to file composite returns, unless they defer the gain, in which case they would need to report the deferred gain on individual income tax returns, effective for taxable years beginning after December 31, 2025.

Tax on amounts obtained by fraud

A tax equal to 100% of the program fraud amount will be imposed on any individual or organization convicted of public program fraud, effective for convictions after 2025.

Also, for amounts obtained by fraud of a public program, as determined by the Commissioner of Revenue, for which a conviction has not been made, a penalty equal to 100% of the amount attributable to the fraud may be imposed, effective for determinations of fraud made after 2025.

Ch. 128 (H.F. 2438), Laws 2026, effective as noted

State Tax Day - Current, S.7, Minnesota—Multiple Taxes: IRC Conformity Updated, Pass-Through Entity Tax Extended, and More, (Jun 1, 2026)

Minnesota has enacted omnibus tax legislation that brings state law into further conformity with federal law and makes many other tax changes. The changes include:

updating the Internal Revenue Code (IRC) tie-in date;
extending the pass-through entity ...

Minnesota has enacted omnibus tax legislation that brings state law into further conformity with federal law and makes many other tax changes. The changes include:

updating the Internal Revenue Code (IRC) tie-in date;
extending the pass-through entity tax;
mandating a direct free filing system for individual income tax returns;
revising tax credits and exemptions;
providing a one-time increase in the homestead credit refund;
modifying refund claim time limits;
clarifying composite return options; and
imposing a new tax on amounts obtained by fraud of a public program.

Federal conformity

for taxable years beginning after December 31, 2025, the itemized deduction for charitable contributions for an individual is limited to contributions in excess of 1% of the taxpayer’s contribution base for the year;
an addition to income is required for distributions from a 529 plan used to pay for postsecondary credentialing expenses, effective retroactively at the same time the changes under the One Big Beautiful Bill Act (OBBBA) (P.L. 119-21) became effective;
for taxable years beginning after December 31, 2025, an addition to income is required for employer student loan payments, as well as other forms of educational assistance in excess of $5,250;
for taxable years beginning after December 31, 2025, an addition to income is required for qualified transportation fringe benefits in excess of the limit in effect prior to the passage of OBBBA;
for taxable years beginning after December 31, 2025, an addition to income is required for any income that is nontaxable federally as hazard duty pay for services provided in the Sinai Peninsula, Kenya, Mali, Burkina Faso, and Chad;
for taxable years beginning after December 31, 2026, an addition to income is required to offset the federal tax benefits for capital gains in an Opportunity Zone;
for taxable years beginning after December 31, 2026, the amount of capital gains in an Opportunity Zone that was previously deferred under federal law and added to Minnesota income may be subtracted under Minnesota law when the gain is recognized federally;
an addition to income is required for the amount of interest on loans secured by rural or agricultural real property that was excluded from gross income for federal purposes, effective retroactively at the same time the provision in the OBBBA became effective;
for taxable years beginning after December 31, 2025, an addition to income is required for the amount of business meal expenses in excess of the 50% limitation that are deducted under federal law for meals provided on certain fishing vessels, fish processing facilities, and oil and gas platforms, plus the amount of expenses allowed as a deduction for goods and services sold by a taxpayer in a bona fide transaction;
for taxable years beginning after December 31, 2025, a subtraction from income is allowed for net CFC tested income, similar to the amount allowed under prior law for qualified business asset investment;
for purposes of determining net CFC tested income or subpart F income, OBBBA provisions relating to the look-thru rule do not apply and adjustments are required;
for corporations, additions to income are required for 80% of the amount of deduction claimed for domestic research and experimental expenditures that are expensed federally, effective retroactively for taxable years beginning after 2021, and for the amount of deduction claimed for unamortized amounts, effective retroactively for taxable years beginning after 2024;
subtractions to income are allowed for the 80% addition for research and experimental expenditures, effective retroactively for taxable years beginning after 2022, and for unamortized amounts deducted federally over an accelerated timeframe and added back for Minnesota purposes, effective retroactively for taxable years beginning after 2024; and
for taxable years beginning after December 31, 2025, Minnesota decouples from federal changes to the dependent care credit and adopts a version of the credit that was allowed federally prior to OBBBA.

Alternative minimum tax definitions are also modified to account for additions and subtractions required due to the state’s selective conformity to federal law.

Pass-through entity tax

Direct free filing system

Credits and exemptions

Sustainable aviation fuel credit.—Changes to the sustainable aviation fuel credit include:

modifying the definition of “biomass” to exclude certain agricultural feedstocks and include gaseous carbon oxides and certain hydrogen;
providing that carbon oxides sequestered as part of the production process must not be used as tertiary injectants in qualified enhanced oil recovery projects;
allowing a supplemental credit of $0.02 per gallon, up to $2.00 per gallon total, for projects meeting certain carbon intensity reductions;
increasing the total amount of credits that may be allocated; and
extending the credit through tax year 2035.

Property taxes

Homestead credit refund.--For homestead credit refund claims based on property taxes payable in 2026, the refund otherwise payable is increased by 14.88%.

Refund claim time limits

The general timeframe for filing claims for refund of state tax is changed to the later of:

three and one-half years from the date the return was due, including any extension granted (if filed within the extended time); or
two years from the date the tax, penalties, or interest was paid (previously, one year from the date of an order assessing tax, an order determining an administrative appeal, or a return made by the Commissioner of Revenue where the taxpayer failed to file a return).

Composite returns

Tax on amounts obtained by fraud

A tax equal to 100% of the program fraud amount will be imposed on any individual or organization convicted of public program fraud, effective for convictions after 2025.

Ch. 128 (H.F. 2438), Laws 2026, effective as noted