Revenue Connection #3

​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.

Legislative updates

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.
• For more information, see http://webprod/individ/pages/other_supporting_content_whats_new_09.aspx (for individual qualifications) and http://webprod/withholding/pages/other_supporting_content_whats_new_employers_09.aspx (for employer reporting requirements).
• A federal update adopts all of the federal tax provisions enacted between February 13 and December 31, 2008 for tax year 2008, with a few exceptions. See http://webprod/individ/pages/other_supporting_content_whats_new_08.aspx for more information.
• 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.
• The threshold for making electronic payments has been reduced from $120,000 to $10,000 for lawful gambling, cigarette and tobacco, alcoholic beverage, and insurance premium taxes and for the metropolitan solid waste landfill fee. For more information, see http://webprod/e-file/pages/other_supporting_content_electronic_requirements.aspx.
• 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:

• Elimination of political contribution refunds for contributions made between July 1, 2009 and June 30, 2011, resulting in a savings of $10.4 million for the biennium. This recommendation does not affect individuals electing to contribute to the State Election Campaign Fund on their individual income tax or property tax refund returns. For more information, visit http://webprod/individ/pages/other_supporting_content_political_contrib_refund.aspx.
• Reduction of the renters refund to more accurately reflect actual property taxes paid. This reduction would result in a savings of $51 million for the biennium. More information can be found at http://webprod/other_supporting_content/pages/renters_ptr_reduction.aspx.

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.