Taxes

PASSED 

*All items passed as part of the Omnibus Tax Bill CCR: HF 2438

PROPERTY TAX RELIEF  

The final Tax Bill contained more than $125 million in property tax relief, a main priority that Senate DFLers fought to be included in the final deal. One-time homeowner refund increases will deliver an average refund boost of nearly $200 to about 600,000 Minnesotans.  

Homestead Credit Refund increase: $125 million for a one-time, 14.88% increase in homestead credit refunds based on 2026 taxes. This will deliver an average refund increase of nearly $200 to 588,000 homeowners in 2026.  

  • Household income under $142,490 in 2025 is eligible.   


School Seasonal Tax Base Replacement Aid: A new seasonal tax base replacement aid program is created to offset voter-approved operating referendum levies in districts with seasonal recreational properties (cabins). MDE receives $3.42 million to provide aid to qualifying districts that must be used to reduce a district’s referendum levy based on a formula that factors the amount of seasonal rec property – which is not subject to school referenda – in each district.   

  • Reduces tax rates by as much as 50% in school districts with large amounts of cabins.  
  • Also helps these cabin-heavy districts pass school district levies because it reduces the per-property impact on residents within the district. Statewide runs here


Homelessness Prevention Aid sunset extension: The 2028 sunset on Local Homeless Prevention Aid passed in 2023 is extended by four years, to 2032. This money is provided directly to counties, taking pressure off property taxpayers who would otherwise need to help support these efforts.

Homestead resort property tier limit increase: Market value tiers that determine class rates for “Ma & Pa Resorts” are roughly doubled so that lower tax rates apply to a larger amount of value. This will help keep Minnesota’s tradition of small, family-owned resorts alive by relieving property tax pressures caused by increased land values, particularly in lake country.

SUSTAINABLE AVIATION FUEL (SAF)  

Minnesota’s current SAF credit is bolstered to encourage more development of sustainable jet fuels using Minnesota resources. The following changes were made in 2026:  

  • Expand the definition of SAF derived from biomass by adding it must be, “produced in the U.S., provided any agricultural feedstocks are from planted crops and crop residue harvested from agricultural land cleared or cultivated any time prior to Dec. 19, 2007, [a.k.a. existing farmland] that is either actively managed or fallow; gaseous carbon oxides; or hydrogen that has a carbon intensity not greater than four kilograms of carbon dioxide equivalent per kilogram of hydrogen produced.”  
  • Exclude certain uses of SAF from eligibility by stating carbon oxides sequestered as part of the production process cannot be used as a tertiary injectant in a qualified enhanced oil recovery project.  
  • Provide a supplemental tax credit rate of $0.02/gallon for SAF for each additional 1% carbon intensity reduction of greater than 50%. Total credit capped at $2/gallon.  
  • Increase the maximum credit allocation by $5.3 million in each of FY2027 and FY 2028, and by $2.1 million in FY 2029 through FY 2035. That effectively increases total credits that can be issued through 2035 from $11.6 million to $36.9 million.


FEDERAL CONFORMITY  

Minnesota is not an automatic conformity state, meaning our tax code does not automatically update to match federal changes. There were many items from the Big Billionaire Bill/H.R.1 to which Minnesota has chosen not to conform because they favored the ultra-wealthy or were unsustainable, or inefficient tax policy. This year’s tax bill did conform to a number of federal changes, though; most of which raise revenue: $22.97 million in 2026-2027 and $367.6 million in 2028-2029. Conforming to federal changes that fit within the state’s budget and policy priorities reduces confusion for taxpayers and tax-preparers.

A few of the more recognizable changes:   

  • Limiting deductible charitable contributions: New 1% floor on charitable contribution deductions for individuals and corporations: Only contributions in excess of 1% of income can be deducted. Raises $124.7 million.  
  • Dependent Care Assistance Program enhanced: The amount of employer-provided childcare and dependent care assistance that can be excluded from gross income is increased from $5,000 to $7,500. Saves taxpayers (costs) $16.2 million.  
  • Employer-provided childcare credit enhancement: Minnesota will match the federal increased credit rate and maximum credit for employers providing childcare. It’s ultimately a tax-win for businesses, but those that claim the credit cannot also deduct associated expenses on MN taxes, which is why this raises revenue. Raises $373.6 million.  
  • Bonus depreciation: Minnesota fully conforms to the 100% bonus depreciation deduction in the current tax year, no add-back required. Saves taxpayers (costs) $36.3 million.  
  • Research & experimentation: Allows full expensing for experimental and research expenditures. Saves taxpayers (costs) $29.2 million.   
  • Business interest deduction: Narrows the base used to determine the limit on the business interest deduction, thereby increasing the MN deduction. Saves taxpayers (costs) $165.3 million.   
  • Section 179 expensing: Increases the total amount that is deductible and the phaseout threshold. Saves taxpayers (costs) $58.9 million.   
  • GILTI income: Pro-rata share rules are modified so Global Intangible Low-Tax Income (GILTI) income is captured if shares are owned at any point during the tax year, not just the last calendar day of the year. Raises $25.6 million.


NEW TAX ON FRAUD  

The Tax Bill included bipartisan language to create a new, 100% tax and tax penalty on any money acquired by fraud of a public program. The “Take it Back Act” also puts any tax revenue gained from this new policy into a Tax Relief Account, which will be used to reduce the first income tax bracket by at least 0.1% for the following tax year if enough money is available on December 15 of each year. This is a common-sense policy that will help ensure stolen taxpayer funds are returned to the rightful source.

MINERALS TAXES  

The Minerals Article of the Tax Bill predominately dictates how Mesabi Metallics revenue will be distributed once the mine is operational, potentially by next year. It distributes proceeds of an existing tax that is levied on mining operations to school districts and other assets within the taconite relief area on and near the Iron Range. The bill lists specific allocations for multiple school districts and projects, as well as per-ton rates that Mesabi Metallics must contribute to several accounts. The language was a bipartisan agreement mainly among Range-area legislators.

BEGINNING FARMER TAX CREDIT  

The $4 million annual cap on credits available is lifted for calendar year 2026 only. The Senate’s position to permanently lift the cap did not prevail in the final deal, despite broad support. This program helps new farmers hoping to purchase land as well as existing farmers looking to sell or rent land or sell equipment or livestock to new farmers. Since being created in 2018 and expanded in 2023, this program consistently has more demand than credits available.  

“PTE” TAX EXTENSION  

The Tax Bill extended Minnesota’s current Pass-Through Entity (PTE) tax option for Tax Years 2026 and 2027, effective retroactively for TY 2026. This provides a way for Minnesota businesses to avoid the federal State And Local Tax (SALT) deduction cap, regardless of whether the state conforms to that limit. There is no cost to the state, but the policy helps affected businesses avoid about $400 million in federal taxes and, instead, keeps the money in Minnesota.    

NURSING FACILITY WORKFORCE WAGE SUPPLEMENT SUBTRACTION  

The Human Services budget bill provided $11.5 million in one-time funding for a $400 check to any nursing home worker who worked at least 260 hours in the first half of 2026 and did not receive the minimum wage that was scheduled to take effect on January 1. The remainder of the funds will provide checks up to $200 to all other nursing home workers who worked at least 260 hours in the first half of the year. Language in the Tax Bill establishes an individual income tax subtraction for the amount of these one-time payments to nursing facility workers so they will not be subject to income taxes.

PGA SALES TAX EXEMPTION   

The Tax bill provides a state sales tax exemption on admissions to a world-championship golf tournament sponsored by the PGA and related events sponsored by the PGA through July 1, 2030. This is an effort to secure future PGA championship tournaments in the state. 

HENNEPIN & RAMSEY COUNTY ERF TAXES  

Hennepin and Ramsey counties are allowed to extend the current sunset of the mortgage registry and deed taxes from Jan. 1, 2028, to Jan. 1, 2036. The revenue funds the counties’ Environmental Response Funds.

MINNEAPOLIS TOURISM IMPROVEMENT DISTRICT (TID)   

The bill clarifies that TID fees collected in Minneapolis TIDs are not part of the purchase price and not subject to state sales tax remittance requirements.

OTHER ITEMS  

The Tax Bill also included language for provisions that are mainly related to other jurisdictions; more information on the policies can be found in the noted sections:   

  • School employee healthcare (EGIP) study (Education) – Funding for the school employee EGIP study, which was included in the final HHS bill.  
  • Nuclear study (Energy) – $500,000 and a study requirement from the Great Plains Institute to inform policymakers of the potential impact of new nuclear generation on the public interest of Minnesotans.  
  • Tyler settlement/Housing bill fix (Housing): This bill carried necessary language updates for the omnibus Housing Bill that passed earlier in the session.  
  • DVS account transfer (Transportation): The Tax Bill carried $75 million in FY 2027 transferred from the DVS operating account to the general fund, related to the tab-fee holiday included in the bonding bill.

DID NOT PASS

Social Media Platform Data Collection Tax: For the second year in a row, Republicans refused to accept the Senate’s plan to establish a tax on the 14 largest social media companies in the world for the privilege of collecting consumer data. Only social media companies with more than 100,000 Minnesota consumers would be subject to the tax, with has a graduated rate based on the number of Minnesota customers on which the companies are freely collecting data and selling it for a massive profit. Not a single Minnesotan would pay this tax.

Disabled Veteran Market Value Exclusion increase: The Sente Tax Bill included the first increase in the current market value cap for the Disabled Veteran Market Value Exclusion since its creation 18 years ago. The Senate’s bill would have increased the exclusion for veterans with a disability rating over 75% from $150,000 to $175,000, and from 4300,000 to $350,000 for 100%-disabled veterans. This did not pass in the final bill.

Federal Enforcement Aid for cities impacted by Metro Surge: The Senate’s position to provide $2 million in one-time Federal Enforcement Aid to cities and counties with verifiable, direct cost increases due to Operation Metro Surge did not pass in the final agreement. Without this reimbursement, many local governments across the state will be forced to raise property taxes to pay for damage and increased public safety costs caused by federal agents.

Hennepin County ballpark tax: No changes to the Hennepin County Ballpark Tax – or extensions related to the funding of HCMC – were included in any final agreement. The current rate and sunset date remains intact. 

St. Paul sales taxes changes: The city of St. Paul’s requests for extensions and changes to two existing local sales taxes – including the Common Cent 2023 tax and an existing tax used to pay for RiverCentre upgrades – did not pass.

Local sales tax authorizations: No local government sales tax authorizations were included in the bill, despite the Senate carrying 37 requests for communities across the state.

Several agricultural provisions, including:  

  • Expanding the definition of “family member” that qualifies for special ag homestead status  
  • Allowing farm wineries’ equipment used to bottle and brew products to be classified as ag land  
  • Allowing a property tax exemption for land used for grazing by a nonprofit conservation organization  
  • Expanding the location requirements for multiple properties owned by the same owner to qualify for ag homestead status


Sales tax base expansion: Governor Walz’s original 2026 supplemental budget proposed raising $79 million in ’26-27 and $243 million in ’28-29 by lowering the state sales tax rate from 6.5% to 6.425% but also expanding the base by taxing some services, including legal, accounting, brokerage and trust services, and some bank service charges. The proposal was not included in the Senate’s tax bill, nor did it pass in the final agreement.  

Sports and Events Reimbursement Account: The Senate Tax Bill included a proposal to create a Minnesota Sports and Events Reimbursement Account to reimburse local organizing committees that secure specific sporting events in the state of Minnesota. In short, it would capture additional revenue generated in the area surrounding an event and dedicate it to a common account that could be accessed by future committees attempting to attract other events. There was an unknown cost linked to the account creation, since the concept hinged on yet-unknown future revenue capture. This did not pass in the 2026 session.

Film Tax Credit modifications: The Senate’s Tax Bill added several definitions to positions that could be considered eligible to claim the state’s existing Film Tax Credit, lowered the 12-month expenditure threshold needed to qualify for the credit, increased the maximum credit eligibility, and added an additional credit for projects that employ Minnesota residents in key creative roles or film outside the seven-county metro area. This did not pass.

Minneapolis downtown taxing district, MSFA payments: A Minneapolis proposal to extend its current downtown area taxing district to the North Loop and reduce annual payments to the Minnesota Sports Facilities Authority’s capital improvement account did not pass.

“No tax on tips” / “No tax on overtime”: Minnesota will not match two cornerstones of Trump’s Big Billionaire Bill. Exempting tips from state income taxes would cost $766 million through 2029; exempting some overtime from state income taxes would cost $264 million through 2029. These are very expensive policies that would impact relative few Minnesota taxpayers. Of workers earning less than $25/hour, just 5.2% are in occupations that tend to rely on tips. And among workers overall, only 6% report receiving overtime income. These policies create winners and losers in the tax code: giving people who make the same amount of money different tax benefits simply based on the job they hold. The no-tax-on-tip policy, in particular, provides a way for businesses to pay workers less, while asking every customer to pay more.  

Levy limit/property tax cap: Republicans proposed limiting the amount of levy increase that local governments could propose each year before having to ask for voter approval. This short-sighted, ineffective proposal did not receive a hearing, nor did it pass. It hamstrings local governments that are responsible for providing critical services like police and fire without offering a real solution to rising costs that they are being asked to absorb – including hundreds of millions of dollars in cuts and shifts by the Trump Administration.