Tax Committee considers estate tax changes

The Senate Tax Committee considered two bills this week to dramatically change Minnesota’s estate tax; a tax imposed on some estates of the deceased. Minnesota’s current estate tax applies to very few people. The Department of Revenue estimated about 1,100 estates were subject to the tax in 2014, and that estimate was taken before Democrats increased the threshold at which assets are taxed by $1 million: from $1 million to $2 million, a change that will be fully phased in next year. This was a significant tax cut that has cost the state $116 million this budget cycle.

The committee laid over two bipartisan bills this week that would further reduce Minnesota estate tax obligations for the few who are affected. The first would repeal the estate tax completely, costing $306 million next biennium. The second bill, at a cost of $138 million, would increase the exemption to $5 million and apply one consistent rate of 16%. Right now, rates range between 10% and 16% depending on the size of the estate. This compares to the federal estate tax exemption of $5.45 million with a top rate of 40%.

Minnesota also has an additional small business and farm property subtraction, which already provides a cumulative exemption of $5 million to small business owners or farmers. This was passed in 2011 to recognize that many business operations’ assets easily reach the seven-figure range, especially when property is involved. Lawmakers approved the higher exemption for these entities to ensure tax laws were not preventing Minnesotans from passing on family businesses or farm operations. Under either of these bills, that exemption would no longer be needed. Both bills were laid over for possible inclusion in the Omnibus Tax Bill later this session.

(S.F. 83) (S.F. 8)