H.F. 2323, the Minnesota Omnibus Tax Bill from the House of Representatives, has enough tax increases to offend every taxpayer in Minnesota. Unfortunately, the news channels in the Minnesota Twin Cities area only reported last night about the sales tax increases on beer, alcohol, cigarettes, and the downloading of music and videos on the internet. What about all of the other tax increases?
The other tax increases are actually the major ones to be more worried about.
Individual Tax Changes
For example, in regards to individual taxpayers:
1. Disallowing the itemized deductions for real and personal property taxes, mortgage interest, and charitable contributions.
2. The elimination of numerous other subtractions from taxable income.
3. The imposition of a new 9 percent income tax rate at $300,000 of taxable income for married joint filers, adjusted for other filing statuses.
4. Imposes a gift tax to complement or back up the Minnesota estate tax.
5. Provides that for a single-member limited liability company (LLC), which the owner has elected disregarded status for individual income tax purposes, and which has income that is assigned to Minnesota, the income is taxed as though it was received directly by the individual, rather than by the LLC. This parallels the similar treatment of ownership interest in partnerships (which includes multi-member LLCs) and S corporations.
Corporate Tax Changes
For corporations, there is some good and some bad. For example:
1. Eliminates special rules for foreign operating corporations or FOCs, and the exclusion of 80% of foreign royalties.
2. Expands the definition of domestic corporations to include tax havens.
3. Accelerates the adoption of single sales factor apportionment to tax year 2009. Currently, single sales factor apportionment is being phased in. This bill would also adopt single sales factor apportionment for financial institutions.
4. Indexes (increases) the corporate franchise tax minimum fee for inflation. The lowest fee would increase from $100 to $170. the highest fee would increase from $5,000 to $8,320.
5. Conforms Minnesota's individual and corporate income tax to the increased section 179 expensing amounts for tax year 2009.
Sales Tax Changes
1. Expands the sales tax to digital products and makes conforming changes.
2. Eliminates the isolated and occasional sales exemption for private sales of boats, snowmobiles, and all-terrain vehicles.
3. Defines solicitor for sales tax nexus purposes to include persons that direct sales to internet sites through electronic links ("Amazon" or "agency" nexus).
Other changes include:
1. Providing an option for counties to impose a 1/2 cent sales tax.
2. Numerous Property Tax changes.
3. Other.
CONCLUSION
In summary, there are too many changes within the bill to mention them all here. The good news is that none of these changes have been enacted yet, and Governor Pawlenty has stated that he would veto any tax increase; we'll see. We will also see what compromises may occur that could result in some of these tax law changes being enacted.
Please click on the following link for access to the entire Omnibus Tax Bill:
http://www.house.leg.state.mn.us/hrd/bs/86/HF2323.html
If you have any questions, please contact me at leveragesalt@earthlink.net.
