SF 4690 (2025-2026) – Minnesota Tax Policy and Technical Changes
Purpose and overall scope
- This bill makes a broad set of policy and technical changes to Minnesota taxes, covering individual income tax, corporate franchise tax, and property taxes.
- It also removes obsolete Job Opportunity Building Zone (JOBZ) provisions and consolidates several miscellaneous tax provisions. It includes repeals of listed statutory sections and adds/adjusts definitions and effective dates.
- Effective dates: many changes apply to tax years beginning after December 31, 2025 (i.e., 2026 and later). Several provisions have earlier or retroactive language, especially within Article 3 (Miscellaneous).
Key provisions and changes
Article 1 – Individual Income and Corporate Franchise Taxes
- Composite return option for nonresident partners, shareholders, and beneficiaries (289A.08, subd. 7):
- Partnerships (and similarly described entities) with nonresident partners may file a composite Minnesota return to pay tax on behalf of those nonresidents who have no other Minnesota source income.
- Tax is computed by applying the nonresident partner’s share of Minnesota-source income to the highest individual rate (no standard or personal exemptions for the nonresident partner); net investment income is taxed under 290.033.
- Elections to use the composite method require certain conditions (e.g., nonresident partner has no other Minnesota source income; or for specific entity types such as trusts/estates and corporations, with analogous treatment).
- If the nonresident partner has other Minnesota-source income, the composite return does not satisfy subdivision 1 requirements.
- The tax paid via the composite return can satisfy the individual’s estimated tax obligations if the composite method is used.
- Effective for taxable years beginning after December 31, 2025.
Net income definitions and modifications (section 2):
- Recasts “net income” for trusts, estates, corporations, and individuals with respect to federal modifications, references to the Internal Revenue Code (IRC) in effect as of specified dates, and how composite and pass-through taxation interacts with Minnesota adjustments.
- Sets rules for treatment of certain investments (e.g., REITs, regulated investment companies) and special entities under Minnesota tax rules.
- Effective for taxable years beginning after December 31, 2025.
Accelerated recognition of installment sale gains (290.0137):
- Nonresidents may be required to recognize gains upon installment sales of S-corporations/partnerships that operated in Minnesota upon becoming nonresidents.
- Elective deferral option for nonresidents: defer recognizing unrecognized installment sale gains, subject to irrevocable agreement to file Minnesota returns and allocate gains to Minnesota in the year of recognition.
- Income gained under this provision must be excluded from net income in future years where the composite return (if filed) already taxed that income.
- Effective for taxable years beginning after December 31, 2025.
Article 2 – Property Taxes
- Market value definition adjustments (273.032):
- Definitions for market value/estimated market value exclude certain adjustments (vacant land exclusions, agricultural and open space exemptions, tax increment financing adjustments, and other value-deferment mechanisms) when computing levy limits, state aid, or net debt.
- Includes treatment of tax-exempt property in market value calculations.
- Effective the day after final enactment.
Additional taxes for property previously qualified under older schemes (123.111, subdivision 9):
- Clarifies how “additional taxes” are calculated when real property stops qualifying under prior valuation improvements, and sets caps/time frames for such levies (current year and up to last three years of qualification).
- Effective day after enactment.
Local government district charges and housing improvement areas (428A.02 and 428A.13):
- Expands/provides guidance about special service districts and housing improvement areas, including the filing and notification requirements to the Department of Revenue.
Other miscellaneous property tax and TIF-related provisions (e.g., 469.175 plan filing, and miscellaneous repeals):
- Requires filing plans with the Department of Revenue and the State Auditor; aligns with other state tax administration requirements.
- Effective day after enactment.
Article 3 – Miscellaneous (Numerous adjustments and repeals)
- Changes to use of unemployment data (268.19) and data sharing provisions:
- Expands permissible data-sharing by the Department of Employment and Economic Development and related agencies for enforcement and program administration purposes.
- Maintains confidentiality protections, with specified exceptions for certain agencies.
- Other tax-related amendments:
- Adds venue provisions (270C.055) for multiple offenses in revenue-related cases (effective July 31, 2026).
- Modifies various exemptions, deductions, and credits in multiple sections (e.g., 290.01, 290.0921, 290.0922, 297B.03) with targeted adjustments for depreciation, job opportunity buildings zones, wind energy, and other credits.
- Repeals listed obsolete JOBZ-era sections (272.02, 273.11, 273.1315, 273.1385, 273.25, 273.65, 273.66, 273.67, 274.07, 428B.02, 477A.085, 477A.18, among others), and implements corresponding transitional or redefined rules.
- Retroactive elements: several provisions indicate effective retroactively from January 1, 2026, for certain revenue provisions.
Who is affected
- Individual taxpayers with pass-through entities (partnerships, S-corporations, estates, trusts) that utilize or may elect composite returns.
- Nonresident partners, shareholders, or beneficiaries in Minnesota, particularly those with Minnesota-source income via partnerships/S-corps.
- Minnesota-based corporations and trusts, particularly those affected by modifications to net income and minimum tax computations and IRC-based adjustments.
- Property owners and local governments in Minnesota, especially those under market-value-based levy limits, TIF districts, open space, agricultural property programs, and housing improvement districts.
- Entities and individuals benefitting from existing exemptions, or those facing adjustments/removal of obsolete JOBZ provisions.
Procedural and timeline notes
- Effective dates generally target tax years beginning after December 31, 2025 (calendar years 2026 onward) for many provisions.
- Some provisions specify immediate effect the day after final enactment (e.g., certain market-value definitions).
- Repeals of specific statutes occur upon enactment, removing certain JOBZ-era authorities and exemptions.
- The bill contains transitional language for certain provisions tied to wind energy, capital projects, and special district charges.
Bottom line
SF 4690 consolidates multiple tax policy and technical adjustments across individual income, corporate franchise, and property taxes; it redefines composite filing for nonresident partners, incorporates enhanced depreciation and IRC-based adjustments, accelerates recognition rules for installment sales for nonresidents, and repeals obsolete JOBZ provisions while tightening/clarifying property tax definitions and district-related procedures. Most changes apply to tax years 2026 and later, with several variations and transitional rules.
