United States

Minnesota enacts Omnibus Supplemental Tax Bill

TAX ALERT  | 

On May 20, 2014, Minnesota enacted HF 3167, the Omnibus Supplemental Tax Bill (the Bill), marking the second time this year that Minnesota has made across-the-board tax law changes. Taxpayers must be very careful in determining the impact of this bill on their individual and business liabilities, as the changes involved affect a wide variety of taxes and there is substantial variation in effective dates. Highlights of the bill include:

Sales tax

  • Prepayment relief: The Bill provides partial relief with respect to the June prepayment of sales tax by retailers. For taxes remitted after May 30, 2014, the threshold requiring a June prepayment is raised from $120,000 to $250,000, and the early payment percentage is reduced from 90 percent to 81.4 percent.
  • Digital presentation exemption: Effective July 1, 2014, the Bill provides for an exemption for charges for digital presentations if (1) digital participants and the presenter are able to interact at the time the presentation is accessed, (2) in-person participants, if any, are able to interact in the same manner as digital participants, and (3) admission to the in-person presentation, if any, is not subject to sales tax.
  • Digital instructional materials exemption: Effective May 21, 2014, the Bill expands the exemption applicable to instructional materials to digital audio works and digital audiovisual works.
  • Data center certification and exemption expansion: Effective May 21, 2014, the Bill requires qualified data centers to be certified by the Commissioner of Employment and Economic Development before sales tax refunds may be issued by the Commissioner of Revenue. Additionally, for purchases made after June 30, 2013, the Bill expands the qualified data center exemption to cover software maintenance agreements.
  • Coin-operated entertainment devices: For sales made after June 30, 2014, the Bill provides an exemption for the purchase of certain coin-operated entertainment and amusement devices purchased by retailers selling admission to places of amusement.
  • Service businesses exemption limitation: Effective May 21, 2014, the Bill provides that businesses primarily engaged in lobbying, gambling, entertainment, professional sports, political consulting, leisure, hospitality or various professional services, including those provided by attorneys, accountants, physicians and health care consultants, no longer qualify for the sales tax exemption under the Qualified Expansion of Greater Minnesota Business provisions that were enacted in 2013.
  • Fundraising sales exemption: The Bill raises the threshold to exempt fundraising sales by nonprofit organizations from $10,000 to $20,000, effective for sales and purchases after Dec. 31, 2014. The Bill also cleans up a standing issue with this exemption by broadly defining the term “fund-raising events” as “activities of limited duration, not regularly carried out in the normal course of business, that attract patrons for community, social, and entertainment purposes, such as auctions, bake sales, ice cream socials, block parties, carnivals, competitions, concerts, concession stands, craft sales, bazaars, dinners, dances, door-to-door sales of merchandise, fairs, fashion shows, festivals, galas, special event workshops, sporting activities such as marathons and tournaments, and similar events. Fund-raising events do not include the operation of a regular place of business in which services are provided or sales are made during regular hours such as bookstores, thrift stores, gift shops, restaurants, ongoing Internet sales, regularly scheduled classes, or other activities carried out in the normal course of business.”
  • Local government exemption: The Bill provides clarification related to the sales tax exemption for local governments, effective for sales after June 30, 2014. The main clarification is in the definition of the term “local government,” which, for periods prior to Jan. 1, 2016, is defined as statutory or home rule charter cities, counties, and townships. The definition is slated to broaden over the following two years to include joint powers organizations and instrumentalities of statutory or home rule charter cities, counties, and townships.
  • Microdistillery credit: The Bill establishes a credit for microdistillers of $1.33 per liter on 100,000 liters sold in any fiscal year beginning on or after July 1, 2014, limited to the lesser of total tax due or $133,000.

Income tax

  • Internal Revenue Code conformity: The Bill updates the state’s Internal Revenue Code conformity date from Dec. 20, 2013, to March 26, 2014, bringing Minnesota into conformity with the tax provisions included in the federal appropriations bill and a bill providing tax relief for donations to victims of the Philippines typhoon. Depending on the particular section of the Minnesota statutes in which this conformity update was reflected, the change is effective either on May 21, 2014, or retroactively for tax years beginning after Dec. 31, 2012. However, all changes to the Internal Revenue Code are treated as effective for state purposes on the date they became effective for federal purposes.
  • Small business definition expansion: The Bill expands the types of businesses that may qualify for income tax credits under the Qualified Expansion of Greater Minnesota business provisions that were enacted in 2013. For tax years beginning after Dec. 31, 2013, businesses primarily engaged in researching or developing a proprietary product, process or service in the fields of agriculture, tourism, forestry, mining, manufacturing or transportation can be certified as a qualified small business.
  • Transportation fringe subtraction: Starting in 2014, the Bill provides that Minnesota will allow a subtraction for individuals for a portion of their transportation fringe benefit taxed for federal purposes.
  • Federal audit changes: With respect to changes in Minnesota tax due to federal audit changes, the Bill provides that assessments and claims for refund must be made within one year of the federal tax order, or one year from the date of a final administrative or judicial determination, whichever comes later.

Estate tax

  • Situs of artwork: Effective for estates of decedents dying after Dec. 31, 2013, the Bill provides that qualified works of art that are owned by nonresident decedents and are located in Minnesota because they are on loan to a qualified nonprofit organization do not have situs in Minnesota.
  • Qualifying income interests: Effective for estates of decedents dying after Dec. 31, 2013, the decedent’s Minnesota taxable estate includes the value of any property in which the decedent had a qualifying income interest for life and for which an election was made under Minnesota Statutes section 291.03, subdivision 1d for Minnesota estate tax purposes, but which was not included in the decedent’s taxable estate for federal estate tax purposes.
  • Taxable gifts: Effective for taxable gifts made after June 30, 2013, the Bill defines the term “taxable gift” for decedents dying before Jan. 1, 2014, as a transfer by gift that is included in taxable gifts for federal gift tax purposes, subject to certain additions and subtractions.

Property tax

  • Renter refund increase: The Bill provides a one-time 6 percent increase in the renter property tax refund for claims filed based on rent paid in 2013.
  • Homestead credit increase: The Bill provides a one-time 3 percent increase in the homestead credit refund for taxes payable in 2014.
  • Agricultural homestead credit increase and supplemental credit: The Bill increases the maximum agricultural homestead market value credit from $115 to $490. This increase is effective for taxes payable in 2015. Additionally, for taxes paid in 2014, the Bill provides a one-time supplemental credit equal to $205 or the net property taxes payable on the property, excluding the taxes attributable to the house, garage, and surrounding one acre of land.
  • Storage bin exemption: The Bill expands the business property production tax exemption to cover certain storage bins and tanks used in the production of biofuels, wine, beer, distilled beverages or dairy products. This change is effective for assessment year 2015.
  • Solar energy generating systems: For 2015 assessments with taxes payable in 2016, the Bill repeals the exemption for electric power photovoltaic devices and replaces it with an exemption for solar energy generating systems. This new exemption applies only if the real property upon which a solar energy generating system is located is used primarily for solar energy production
    subject to the new solar energy production tax.

Other

  • Solar energy production tax: The Bill creates a tax imposed at rate of $1.20 per megawatt hour on the production of electricity from solar energy generating systems exceeding 1 megawatt per hour. This new tax is effective for 2015.

This document contains general information, may be based on authorities that are subject to change, and is not a substitute for professional advice or services.  This document does not constitute assurance, tax, consulting, business, financial, investment, legal or other professional advice, and you should consult a qualified professional advisor before taking any action based on the information herein.  RSM LLP, its affiliates and related entities are not responsible for any loss resulting from or relating to reliance on this document by any person.

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