Tax Savings | Minnesota Senate DFL

A $100 million tax-relief federal conformity bill was the first legislation passed in the 2023 session, and a $4 billion tax-reduction package was the last to pass in an historic session that lowered everyday costs for millions of Minnesotans. In addition to one-time rebate checks for 2.58 million Minnesota taxpayers, the omnibus tax bill delivered cost-savings on income taxes, property taxes, and even energy bills. Aids to local governments will help keep property taxes in check across the state while improving local services, and a new infusion of Public Safety Aid will assist every city, county and Tribal nation in the state with public safety needs specific to each community.

THIS DFL-LED LEGISLATURE PROVIDED $4 BILLION IN TAX RELIEF, the largest tax cut in state history

$1 billion in rebates to middle-class Minnesota families and individuals
$1 billion in Social Security tax reductions; 76% of Minnesotans will pay no taxes on Social Security
$1 billion to families with kids who are especially impacted by the high cost of life right now
$300 million in property tax relief to homeowners, renters, seniors, and farmers
$300 million in public safety aid to help communities across the state with their unique priorities
Millions more to help Minnesotans with property taxes, energy costs, and other everyday costs

Social Security Tax Cut: $1.24 billion tax savings to 322,000 Social Security and public pension recipients

The Omnibus Tax Bill included the largest tax-reduction for Social Security recipients in state history, and a new tax subtraction for those earning public pension payments rather than Social Security.

Who: No couple earning less than $100,000/year or individuals earning less than $78,000/year will pay state income tax on their Social Security benefits. This means 76% of Social Security recipients – 322,000 Minnesotans – will not have to report these benefits as taxable income.

For taxpayers earning more than those thresholds, the subtraction phases out by 10% for every $4,000 over that limit. For instance, couples earning $104,000 will still be able to subtract 90% of their benefits from taxes. The benefit is fully phased out for couples earning $140,000/year and individuals earning more than $118,000. However, the existing Social Security Tax Subtraction remains an option for all taxpayers if that calculation proves more financially beneficial. No taxpayers will be taxed on the full amount of their benefits, as current law already dictates.

How much: About 322,000 Social Security recipients will save about $734 in taxes annually.

When: This change applies to Tax Year 2023, meaning taxpayers will notice the change when filing their taxes in 2024.

Pensions: The tax bill established a new public pension subtraction for Minnesota seniors that receive public pensions instead of Social Security because of the jobs they worked – mainly state troopers; certain teachers, firefighters and public safety officers; and federal employees.

Married couples earning up to $100,000/year will be able to subtract up to $25,000 of their public pension benefits from taxable income; single filers earning $78,000 or less can subtract $12,500. The subtraction fully phases out for taxpayers earning $120,000 married / $108,000 single.

One-Time Advanced Refundable Credits (Rebates)

This year’s budget returns $1.13 billion to 2.58 million taxpayers in the form of direct payments.

Who: Married taxpayers filing joint returns earning under $150,000/year and single filers earning under $78,000 based on 2021 tax filings will qualify for a one-time direct refundable payment.

How much: Up to $1,300 per household: $260/adult plus $260/child up to three kids. This income is not taxable in the state of Minnesota and the bill prohibits it from being considered an asset or income for purposes of state assistance programs or other tax benefits.

How will it be delivered?

Is no expressed deadline for making these payments, but the Department has publicly said it expects to begin making payments in early fall 2023. The Department of Revenue may contract with a private vendor to process, print, mail or deliver the checks, direct deposits, or debit cards.

Information on how to update banking information and the expected timelines will be updated throughout the summer at this website: https://www.revenue.state.mn.us/direct-tax-rebate-payments-for-2021.

Child Tax Credit

This year’s state budget includes a nation-leading Child Tax Credit, delivering $1.52 billion in tax savings to 265,000 families with children. This transformational investment is estimated to reduce child poverty by one-third (documentation)

Credits: $1,750 per child age 0-17, refundable, indexed to inflation
No cap on number of children
Income phase-out thresholds begin at: $35,000 married/joint; $29,500 single, head of household
- Fully phased out for married-joint filers at $52,500 -1 kid/$67,083 – 2 kids/$81,666 – 3 kids/$96,250 – 4 kids
Taxpayers may receive advanced payments, rather than waiting until tax filing to receive the credit. The commissioner of Revenue is granted authority to pursue advanced payments if it is feasible.

K12 Education Tax Credit Increase, Expansion

Minnesota taxpayers with older children in K-12 schools will receive additional help paying for education-related expenses. Incomes up to $70,000 now qualify for the credit, up from $35,500 in current law. The maximum credit is increased from $1,000 to $1,500 per child. This credit has not been adjusted in 25 years. As a result, an additional 31,200 returns are expected to qualify, and 5,100 currently eligible taxpayers would see an increase. In total, ~36,300 returns would see an average $305 tax reduction for Tax Year 2023.

Natural Gas Fees Sales Tax Exemption

The tax bill provides $13.6 million in sales tax savings to utility customers affected by natural gas price increases related to the February 2021 “polar vortex.” The Minnesota Public Utilities Commission approved a plan that allows utilities to recover an estimated $660 million over two years by adding a temporary “Severe Weather Cost Recovery Charge” to customer’s bills. The Omnibus Tax Bill extends an existing sales tax exemption on natural gas sales that will help customers absorb some of those additional costs.

Property Tax Relief

This year’s tax bill included at least $293 million in property tax relief for homeowners, renters, farmers, and seniors:

Homeowners

One-time, 20.6% homeowner property tax refund increase for taxes payable 2023 and permanent 3% reduction in copays that determine the size of refunds.
One-time Targeted Property Tax Refund increase
- Helps homeowners whose 2023 property taxes increased more than 6% (was 12%) and $100 since 2022 and increases the maximum refund to $2,500 (was $1,000). No income restrictions.
Homestead Market Value Exclusion increase
- Homes valued under $517,200 qualify for a partial market value exclusion; current law fully phases out this exclusion at $417,800 of market value. This is the first update since 2011.
- 1.31 million homesteads would benefit from a net $52.88 million decrease in homestead taxes statewide.

Renters

One-time 20.6% refund increase for rent paid in 2022
Beginning Tax Year 2024, the renter’s refund is converted to an income tax credit that will be available when filing taxes in April, rather than requiring an additional application due in August. This is estimated to capture 120,000 renters who currently qualify for the credit but do not file.
The new credit will be based off of Federally Adjusted Gross Income rather than household income, helping 36,000 renters to newly qualify and increasing benefits for most.

Seniors

Income eligibility for the senior citizen property tax deferral program is increased from $60,000 to $96,000, and the home ownership requirement is reduced from 15 years to 5.
Seniors also benefit from the Renter’s Refund changes, as more than 50% of current recipients in rural counties and 1/3 of all recipients are seniors or people with disabilities (map).

Farmers

The first-tier market value limit for agricultural homestead property is increased from $2.15 million to $3.5 million beginning with assessment year 2025, providing an average property tax savings of $2,400.

$300 Million One-Time Public Safety Aid

The tax bill delivers $300 million in one-time aid to cities, counties, and Tribal governments. Of that total, $210 million is provided to cities (runs here) and $90 million to counties & Tribal governments (runs here). No community will receive less than $1,500.

Use of proceeds

Payments must be used to, “provide public safety, including community violence prevention and intervention programs; community engagement; mental health crisis responses; victim services; training programs; first responder wellness; equipment related to fire, rescue, and emergency services; or to pay other personnel or equipment costs.
Proceeds may notbe used for employer contributions to the public employees police and fire fund if the entity received police state aid in 2022; any costs associated with alleged wrongdoing or misconduct; the purchase of an armored or tactical vehicle or substantially similar vehicle; the purchase of tear gas, chemical munitions, or substantially similar items; or the costs of construction, reconstruction, remodeling, expansion, or improvement of a police station, including related facilities including access roads, lighting, sidewalks, and utility components on or adjacent to the property on which the police station is located that are necessary for safe access to and use of the building.

Timing of payments

Commissioner must certify aid amounts by Sept. 1, 2023, and must be fully paid to each entity by Dec. 26, 2023.

Aids to Local Governments

Minnesota has long been known for a strong state-local partnership that commits targeted state funding to help communities across the state provide an equitable level of local services without over-burdening property taxpayers. That partnership was upheld in this year’s tax bill through a variety of increases in local government aids. It’s estimated for every $1 of local government aid results in a $0.50 reduction in property taxes.

Local Government Aid to cities – $80 million/year increase + formula reform, no inflation. Also includes $68.3 million pre-payment in FY ’24. Runs here.
County Program Aid to counties – $80 million/year increase. Runs here.
Tribal Nations Aid – $35 million/year ongoing. This is a new program to distribute to any of 11 federally recognized Tribes that apply.
Soil and Water Conservation District aid – $30 million ’24-25 / $24 million ’26-27. Of the total, 70% will be split evenly between all SWCDs, 20% apportioned based on a district’s share of nonpublic lands, and the remaining 10% would be based on a district’s share of state population.
Electric Utility Transition Aid: $6.97 million to communities with transitioning electric generating plants (Becker, Oak Park Heights, Itasca Co, etc.)
Class 4d low-income housing transition aid: $1.16 million ’26-27 for cities in which net tax capacity of 4d property exceeds 2% of total net tax capacity in 2023.
PILT (Payment in Lieu of Taxes): $1/acre increase in PILT payments – $29.3 million through ‘27

Affordable Housing Investments

The Omnibus Tax Bill included more than $105 million of ongoing investments to affordable housing across the state, including:

$40 million one-time appropriation to Housing Development Fund, Workforce & Affordable Homeownership account for affordable housing needs across the state.
$65 million for statewide local housing aid
- For cities, counties, and 7 Tribal nations not located in the 7-county metro areawith a high percentage of “cost-burdened households,” those paying more than 30% of income toward housing.
- Distribution formula provided for 1^st, 2^nd, 3^rd class non-metro cities; Grants of up to $25,000 available to MHFA for cities under 10,000 in consult with the League of MN Cities.
- Funds must be used for: emergency rental assistance, support to nonprofit affordable housing providers, development of market-rate rental housing, etc.
Tribal governments are newly allowed to apply for the state’s Local Homeless Prevention Aid.
Class rate reduction for 4d low-income affordable housing and community land trusts.

Teacher Retirement Age Adjustment To 65

See ‘Pensions’ section for more information

The Omnibus Tax Bill included $101.93 million for pension adjustment aid to TRA and St. Paul TRFA to lower the retirement age to 65 for post-1989 TRA members. It also increases the employee/employer contribution rates by 0.25% and 0.75% respectively.

U.S. Bank Stadium Reserve

The Tax Bill will save Minnesota taxpayers about $226 million in interest payments by using part of the surplus to pay off U.S. Bank Stadium debt this fiscal year, before June 30, 2023. In addition, $15.7 million is provided for a secure fence on the stadium perimeter to meet current homeland security regulations, and additional funds are set aside for ongoing stadium-related maintenance and capital improvements. Finally, the bill repays the city of Minneapolis’ advance payments and limits the sales tax collections retained by state to 3% of annual growth.

Charitable Gaming Combined Net Receipts Tax Reduction (E-Pulltabs)

The tax bill delivers a $61.9 million tax cut to Minnesota charitable gaming organizations, the first since 2012. The bill also lowers the cost to purchase the games by capping the outrageous fees that distributors are allowed to charge Minnesota charities, and it expands the audit requirements so fewer small charities will be subject to the onerous task.

In addition, the tax bill responds to a recent court ruling by ensuring the electronic games meet the requirements of the original 2012 authorization, which reflected an agreement made with our state’s Tribal nations that they would not mimic casino-style slot games. Beginning in 2025, the e-pulltab games will need to meet the original requirement that players activate or open each electronic pull-tab ticket and each individual line, row, or column of each electronic pull-tab ticket. (original language here in HF 2958/Chapter 299).

Specific language is included in HF 1938 – Article 13, Sec.3

Combined net receipts tax reduced $61.9 million: The tax applied to e-pulltab revenue is reduced by 1% for each bracket, for a total $61.9 million tax reduction. Effective for games played after June 30, 2023.

Net Receipts	Current rate	HF 1938 Rate
Under $87,000	9%	8%
$87,501-$122,500	18%	17%
$122,501-$157,500	27%	25%
$157,501 and over	36%	33.5%

Audit threshold adjusted: Receipts from electronic pull-tabs are excluded from the definition of “gross receipts” that trigger an annual financial audit if those receipts exceed $750,000/year. This is expected to save charities money and time, as the audit threshold will not be as easy to reach. Only applies if the e-pulltab manufacturer completes an annual system and organization controls audit (which is required later in this bill), so accountability is not sacrificed. Effective for audits conducted after June 30, 2024.

Electronic bingo definition: One definition added to ‘electronic bingo’: “contains no spinning reels or other representations that mimic a video slot machine, including but not limited to free plays, bonus games, screens, or game features that are triggered after the initial symbols are revealed that display the results of the game.” – Effective after Aug. 1, 2023.

Electronic pull-tabs design: Language added: – Effective after Aug. 1, 2023.

“An electronic pull-tab device must not include representations that mimic the display or user interface of a video slot machine by requiring a player to manually activate the reveal or result of each single row of symbols with a separate and distinct action for each pull-tab ticket.”
Specifies that features that mimic slots would include free plays, bonus games, screens, or game features that are triggered after the initial symbols are revealed.
Pulltabs must contain a mechanism requiring a player to manually activate each electronic ticket to be opened and the reveal of each single row of symbols with a separate and distinct action.
Each game shall include a certification from a board-approved testing laboratory that the game and device meet the standards and requirements established in statute and rules and is in conformance with game procedures provided by the manufacturer.
“Manually activate” means the person must either touch an icon on the device screen or press a button located elsewhere on the device, or, exclusively for purposes of accommodating use by a player who is visually impaired, perform some other action that initiates activity on a device.

Electronic pull-tab game removal: The board must remove any games and electronic pulltab devices that do not conform to the requirements from the inventories of distributors and organizations by Dec. 31, 2024.

Distributor fees capped: Beginning July 1, 2024, licensed distributors may not charge a licensed organization more than 25% of gross profits derived from e-pulltab games. Distributors may request a hearing before the board to seek a fee in excess of this amount in certain circumstances.

Tax Benefits For ‘ITIN’ Holders

Taxpayers who do not have a Social Security number obtain an Individual Taxpayer Identification Number form the IRS to comply with U.S. tax laws. In most cases, ITINs cannot be sued to access federal or state tax credits. The Omnibus Tax Bill included language to extend the state’s Working Family Tax Credit to ITIN holders, and to allow homeowners to use an ITIN to file for homestead status. Homestead status results in a lower property tax class rate and is a prerequisite for qualifying for the homestead property tax refund. This is a minor but important adjustment to state tax law that will make sure tax benefits are equally available to more working Minnesota families.

Corporate Tax Responsibility

On revenue increases: We have made choices in this bill to support average Minnesota families and seniors with meaningful tax relief, and we are doing that in a responsible way that also allows us to support education, health care, public safety, and other things that make this a great place to live. The surplus is here today but gone tomorrow – much of it cannot support ongoing spending that is associated with large tax cuts.

Tax measures to ensure corporations are equitably and honestly reporting Minnesota tax obligations will help support the ongoing costs of the many new tax reductions passed in the Omnibus Tax Bill. In total, the bill raises $2.1 billion through 2027 through a variety of changes for high-earning corporate and individual taxpayers.

Federal conformity changes to limit excess businesses losses and certain charitable deductions – raises $101.1 million.
‘GILTI’ federal conformity – taxes corporate intangible assets that are transferred to foreign countries. This was approved federally by a Republican Congress and President Trump in 2017’s TCJA bill; now Minnesota is finally conforming – raises $816.1 million.
Accelerating standard and itemized deduction by 10% for those earning over $340,000 and 20% over $1 million – raises $739.7 million.
Reduced deductions for corporate dividends received, from 50% to 40% – raises $239.1 million.
1% tax on net investment income over $1 million, excluding agricultural land sales – raises $262.7 million.
Corporate Net Operating Loss modified from 80% to 70% – raises $58.1 million.

Beginning Farmer Tax Credit

The Omnibus Tax Bill provides $6 million/year in credits for the rent or sale of agricultural assets to beginning farmers: Minnesota residents seeking entry or who have entered farming within the last 10 years, and who will provide the majority of labor and management of the farm located in the state. Key changes from current credit:

Eliminates the current requirement that the beginning farmer or spouse is not directly related to the owner, with certain requirements
Increases the credit rate for sales from 5% to 8%
Increases the maximum credit for sales from $32,000 to $50,000
Increases the credit rate for socially disadvantaged farmers to 12%
Adds report to legislature including information on # of beginning farmers by race and ethnicity
Extends the credit sunset to TY 2030

Political Contribution Refund Program

The Political Contribution Refund Program is increased from $50 to $75 for individuals and from $100 to $150 for couples, effective Jan. 1, 2024.

ECONOMIC DEVELOPMENT INCENTIVES

Film Production Credit

This tax credit is extended through 2030 and the total amount of credits available is increased to $18.6 million in 24-25 and $25.7 million in 26-27. The current annual appropriation is capped at $4.95 million/year. Advocates say the higher credit amounts are key to attracting more job-supporting investments and attention to Minnesota.

Angel Investment Tax Credit

The tax bill reinstates the investment tax credit for Tax Year 2023 with a $5 million appropriation in both 2024 and 2025.

Historic Structure Rehabilitation Credit

The tax bill reinstates the Historic Structure Rehabilitation Tax Credit as of July 1, 2023, and extends sunset to 2030. Projects that started rehabilitation after June 30, 2022 (when the credit sunset), could qualify if they submit their applications within 60 days of June 30, 2023. Also extends the period in which a project must be placed into service after the allocation certificate is issued from three to five years, which matches the requirements under the federal credit.

One-Time Grants To Certain Local Governments

Spring Grove – $250,000: For fire recovery, December ’22 fire
Northfield – $300,000: For the city of Northfield for infrastructure related to a cooperatively owned manufactured home park.
Windom – $13 million to DEED for a grant to the city, available until June 30, 2025. This is related to HyLife Foods meat processing facility.
- $10 million: to be used by the city for the Windom HyLife Affordable Housing Development
- $2 million: for repayment of PFA loans issued to the city for wastewater improvements
- $1 million: for recruitment efforts including locating and securing a purchaser of the plant
- $1 million to the Department of Education for one-time supplemental aid to the Windom school district
Crane Lake – $1.294 million: Watershed district debt service relief (PFA grant)
Minneapolis – $10 million to DEED for a grant to Minneapolis to be paid by July 15, 2023.
- $8 million for, “a grant to a foundation that provides business advising, branding and marketing support, and real estate consulting to businesses located on Lake Street in Minneapolis, between 30^th Avenue South and Nicollet Avenue. The organization must use the funds for direct business support or direct corridor support, including assistance with marketing, placemaking, and public relations services.”
- $2 million for property acquisition at 1860 28^th Street East and 2717 Longfellow Avenue (Roof Depot property).

Local Sales Tax authorizations

This year’s tax bill authorized several communities to ask voters to approve local sales tax adjustments, but it also includes a two-year moratorium on the practice.Aside from those approved in this bill, a political subdivision may not adopt a resolution or seek voter approval in connection with imposing a new or modifying an existing local sales tax until after May 31, 2025.

Authorizations granted – local approval required for all.

St. Paul	Rochester	North Mankato	Marshall
Avon	Excelsior	Rogers	Edina
Fergus Falls	Beltrami County	Blackduck	Bloomington
Chanhassen	Cottage Grove	Detroit Lakes	Dilworth
East Grand Forks	Fairmont	Henderson	Hibbing
Golden Valley	Jackson (city)	Jackson County	Monticello
Mounds View	Proctor	Rice County	Richfield
Roseville	St. Joseph	Stearns County	Stillwater
Winona	Woodbury	Waite Park	Oakdale

TAX CHANGES AND INCENTIVES CARRIED IN OTHER BILLS

Electric Vehicle tax credit (Environment & Energy omnibus)
Electric Bike tax credit (Transportation omnibus)
Metro sales tax for transit (Transportation omnibus)
Metro sales tax for housing (Housing omnibus)
Minimum $0.08 mark-up on gasoline repeal (Commerce omnibus)
Cannabis 10% gross receipts tax (Cannabis section)
PFML starting at 0.7% (0.35% per employee and employer); capped at no more than 1.2% (Jobs & Labor section)

Did not pass:

Childcare and Dependent Care Tax Credit Increase

The Senate tax bill included a substantial, $1 billion investment in a Child and Dependent Care Credit that would have provided tax credits of up to $12,500 for taxpayers with employment-related childcare expenses. Minnesotans earning up to $200,000 would have been able to use up to 50% of total childcare expenses to be eligible for the refundable credit. This concept has been around for at least the past two sessions, advertised as a way to help families afford the cost of childcare and make it easier for parents to re-enter the workforce after adding a child.

Sales Tax Exemption on Baby Products

The Senate tax bill would have excluded a number of baby-related products from state sales tax, including: Baby wipes; cribs and bassinettes and associated mattresses and sheets; changing tables and pads; strollers; car seats and bases; baby swings; bottle sterilizers; and infant eating utensils. This was not included in the final bill, but the child tax credit – which will help make child-related costs more affordable – was greatly expanded.

Worldwide Combined Reporting

The Senate’s original tax bill raised $1.2 billion through 2027 by requiring corporations to submit to “worldwide combined reporting” – a requirement that corporations with subsidiaries include revenue earned outside the U.S. to calculate Minnesota corporate taxes. No other states require this type of reporting, but other states allow them to use it. It can lower or raise taxes depending on the business. This option was swapped for the other corporate and high-income tax changes included in the final bill.

Election Aid

The original Senate tax bill included $40 million for local election expense reimbursements. This was not included in the final bill, but the State and Local Government and Elections Omnibus Bill included $2.5 million for the VOTER account, for grants to local governments for the same purpose.