Minnesota Legislature has passed a tax bill on May 18, 2026 which the governor is expected to sign in the next week. Let’s talk about what is in the bill.
Extension of Pass Through Entity Tax
The pass through entity tax had been helping Minnesota pass through businesses for a number of years before it expired on 12/31/2025. This bill will extend the PTE for the 2026 and 2027 tax years. So it’s only a 2 year extension, but definitely a win for our pass through entity clients.
Since it had expired and it was very unsure if it would be extended many businesses had not been paying PTE estimates for the 2026 year. Included in the bill is a provision that if a business gets caught up with their PTE estimates with their Q2 payment (due June 15th) then no interest will be assessed for failing to make that Q1 payment.
This is a win for logic and reason. It would be crazy to charge interest for failing to pay estimates when the law said it was not in effect, so that’s a little bit of welcome relief for taxpayers.
Example:
PTE estimate for 2026 in total is $100,000. No first quarter was paid so second quarter would be $50,000 and then third quarter will be $25,000 and fourth quarter will be $25,000.
Conformity with IRS rules
There is a lot of meat to this part of the bill and we will need time to further digest it, but in general this is the conformity which helps for a lot of changes that came around through the HR1 bill that Congress passed July 4th 2025. Things like the definition of bonus depreciation and Section 163j are particularly important items.
One thing to note is that although conformity was updated, it did not really include Section 174 expenses. It appears that Minnesota will require you to add back 80% of the Section 174 expenses you deduct and then subtract them over the subsequent 4 years so we will still have adjustments related to the Section 174 costs that have plagued many businesses for the past 3 years.
Important to note that this conformity is retroactively applied to the 2025 tax year. Many taxpayers already filed their 2025 returns and included Form M1NC for nonconformity items. Minnesota has historically adjusted returns themselves automatically, it remains to be seen if they intend to do it automatically or if taxpayers will file amended returns. Depending on the amount of change you might consider filing an amended return once the forms have been updated by Minnesota. We would anticipate it will take a few weeks for Minnesota to be able to update the forms for all of the changes.
Stay tuned for more updates and podcasts that break down more practical situations.