June 17, 2009
Sales and use tax rate increases to 6.875 percent
The general sales and use tax rate will increase three-eighths of one percent to 6.875 percent on July 1, 2009. Additional information, including new sales tax rate charts, can be found on our website at http://webprod/sales/pages/other_supporting_content_sales_tax_rates.aspx.
Highlights of tax-related changes include the following:
Individuals are allowed a nonrefundable credit equal to 20 percent of certain health insurance premiums paid from an employer plan under IRC section 125.
A federal update adopts all of the federal changes to taxable income for individuals included in The American Recovery and Reinvestment Act of 2009, including the provision allowing some individuals a five-year carryback of net operating losses. However, Minnesota did not conform to the deferred income from the discharge of indebtedness resulting from reacquisition of business indebtedness (also applies to corporation franchise), the motor vehicle sales tax deduction allowed as an itemized deduction or additional standard deduction, or the deduction of the first $2,400 of unemployment compensation. These three items will be added back to Minnesota income. In addition, Minnesota did not conform to the federal extension of bonus depreciation or increased section 179 expensing. Taxpayers will continue to add back 80 percent of the amounts in the first tax year, and then subtract one-fifth of the amounts added back in each of the five following years.
Disclosure requirements for refund anticipation loans and refund anticipation checks have been modified, prohibiting certain actions for tax preparers, and modifying penalties and civil damages for violations by tax preparers.
Intermediary reporting requirement
Minnesota has a new reporting requirement for qualified intermediaries of like-kind exchanges. Qualified intermediaries who facilitate like-kind exchanges under IRC Section 1031 must submit a report to the Department of Revenue upon demand. The report must be filed within 30 days of the demand.
Withholding tax consequences for misclassifying employees
A recent law change requires employers who misclassify workers and fail to withhold Minnesota income taxes to be liable for a greater amount of tax. The employers will be required to pay taxes equal to 3 percent of the misclassified workers’ salaries. The tax will apply even if the employees have been paying the taxes themselves and, unlike in the past, businesses may not claim income taxes paid by their employees as a credit against their own liability.
Governor Pawlenty’s unallotment recommendations
Governor Pawlenty announced on June 16, as part of his unallotment authority, his recommendations for balancing the state budget, including the following:
The governor’s unallotment proposal will be presented to the Legislative Advisory Committee on June 18. More information will be posted to our website when available.