Under current law, definitions used in determining Minnesota taxable income are based on the Internal Revenue Code, as amended through December 31, 2018, with certain exceptions. Since that date, Congress has enacted the following significant acts:

• Taxpayer Certainty and Disaster Tax Relief (TCDTR) Act of 2019
• Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019
• Families First Coronavirus Response Act (FFCRA) of 2020
• Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020
• Taxpayer Certainty and Disaster Tax Relief (TCDTR20) Act of 2020
• COVID-related Tax Relief Act (COVIDTRA) of 2020
• American Rescue Plan Act (ARPA) of 2021

These acts contain changes affecting partnerships for tax year 2021. A bill signed into law on July 1, 2021, conforms Minnesota law to certain provisions from these federal acts.

Because Minnesota has not adopted certain federal changes, adjustments are required to correctly determine your Minnesota taxable income. Use Schedules KPINC and KPCNC to calculate nonconformity adjustments relating to these acts.

The tax bill establishes a fully refundable pass-through entity (PTE) tax allowing electing pass-through businesses to pay state income tax at the entity level rather than at the owner level. By making the PTE election, owners can reduce the impacts of the $10,000 deduction limit for state and local taxes (SALT) endorsed federally under Notice 2020-75.

Pass-through entities may only make this election:

• In taxable years where the SALT cap is in place
• When owners collectively holding more than 50% ownership in the entity make the election

Once made, elections are irrevocable. The PTE tax is calculated in the same manner as required for composite tax and provides similar withholding, penalty, credit, and nonresident allocation requirements.

This law change is effective for taxable years beginning after December 30, 2020.

For details and questions, go to Pass-Through Entity Tax.

The new Minnesota film tax credit is a nonrefundable credit for 25% of eligible production costs. For more information regarding the tax credit and eligibility, go to the Minnesota Department of Employment and Economic Development website.

The tax bill clarified that for taxable years beginning after December 31, 2019, no Section 179 addition is required for any taxpayer. The full Section 179 conformity includes specific language clarifying that no addition is needed for:

• Carryover amounts for property placed in service in taxable years beginning before January 1, 2020
• Property placed in service before January 1, 2020, by a partnership or S corporation filing on a fiscal year with a partner or shareholder filing on a calendar year

This clarification is effective retroactively for taxable years beginning after December 31, 2019.

The tax bill provides language for reporting federal adjustments following a partnership-level IRS audit and contains various definitions relating to reporting federal adjustments.

By default, each partnership must file a federal adjustments report related to federal changes and submit the report to both Minnesota and its direct partners within 90 days after the final determination date. Each partnership reporting changes must also file amended composite and withholding reports for nonresident partners within 180 days. Each direct partner, other than a tiered partner, receiving an adjustment report must also make a federal adjustment report and pay any additional tax due within 180 days of the final determination date.

Select partnerships reporting federal adjustments after a partnership-level audit may make an election to pay additional tax due to Minnesota at the entity level. This election is called the partnership pays election. A partnership making this election must:

• Do so on a federal adjustments report filed with the commissioner of Revenue within 90 days of the final determination date
• Determine and report the residency status of all direct individual, trust, and estate partners, and information pertaining to all other direct partners as required by the commissioner of Revenue
• Pay tax on the properly allocated and apportioned share of all income at the highest marginal rate for its individual, estate, trust, and corporate partners

Taxpayers may make estimated payments on expected Minnesota tax liabilities while under an IRS audit. The estimated payments must relate to the expected result from the audit and be applied to Minnesota tax liability assessed. Estimated payments limit the accrual of statutory interest, and taxpayers are entitled to a refund of excess estimated payment amounts if claimed within one year of the final determination date. 

These law changes are effective retroactively for taxable years beginning after December 31, 2017, except for partnerships that make an early election to apply the federal Bipartisan Budget Act (BBA) partnership audit rules.