Here Are The 7 Taxes MN Gov. Tim Walz Is Proposing

Under current law, individual income is taxed at four different rates that are applied to brackets of income. The highest bracket of income is taxed at 9.8% for income of more than $276,000 for 3 married joint filers, $220,730 for head of household, $166,040 for single, and $138,100 for married filing separate. Beginning in tax year 2022, the thresholds would be adjusted for inflation in the same manner as existing brackets.

Minnesota currently does not provide a separate rate for capital gains. Minnesota includes net capital gains income in taxable income and subjects it to the same tax rates as apply to other income. Capital gains are generally reported by higher income taxpayers. Minnesota filers with incomes over $100,000 reported about 86% of the capital gains income in tax year 2016. Filers with income over $500,000 reported about 57% of the capital gains and the average gain was $234,437. Over 7,000 households would have an average increase in tax of $30,000 per return. This would raise $486 million in the FY22-23 Biennium.

The Governor recommends taxing foreign income when it is repatriated to the United States. This proposal would continue Minnesota’s approach of taxing repatriated foreign income that was in effect prior to the changes included in the 2019 tax bill. This recommendation would be effective retroactively to tax year 2016 and would raise $336 million in the FY22-23 Biennium.

The Governor recommends increasing the current corporate franchise tax rate from 9.8% to 11.25%. The increase would be effective beginning in tax year 2021. Minnesota currently taxes profits of C corporations at a flat 9.8% tax rate. For corporations that do business in more than one state, the rate is applied to income that is apportioned to Minnesota based on the in-state percentage of sales. This proposal asks profitable corporations to pay their fair share and would raise $424 million in the FY22-23 Biennium.

The Governor recommends reinstating the estate tax exclusion at $2.7 million. Small businesses and farms will still have access to the full $5 million exemption. This recommendation would be effective for estates of decedents dying after December 31, 2020. In 2017, the legislature increased the estate tax exclusion amount and it is currently at $3 million. The estate tax cut passed by the legislature resulted in over 700 of the wealthiest 1,000 estates in Minnesota no longer having a potential liability for the Minnesota estate tax. Reinstating the lower estate tax exemption would raise $28 million in the FY22-23 Biennium.

The Governor recommends creating a new gross receipts tax to be collected at retail. This tax will be equal to 35% of the gross receipts from retail sales of nicotine solutions and devices. The Governor also recommends taxing electronic delivery devices at 95% of the wholesale sales price. Currently the nicotine solution, or vapor solution, consumed through devices are subject to this tax, but the devices are not subject to tax when sold separately. The 2019 Minnesota Student Survey shows that e-cigarette, or vaping, use continues to escalate among youth. Youth are more price sensitive. This proposal would increase the price and raise $12 million in the FY22-23 Biennium.

The Governor recommends increasing the cigarette tax and correlating moist snuff tax. The current pack tax is $3.04 and the last major increase was in 2013. The automatic inflator was removed in 2017. The proposal would increase the cigarette pack tax by $1 with a correlating moist snuff increase. The proposal includes a floor stock tax on existing product. The purpose of the 2013 cigarette tax increase and inflator was to make strategic investments in health care, education and jobs, and to reduce smoking in Minnesota, particularly among its youth. Each year, more than 6,300 Minnesotans die from smoking - related illnesses, and smoking costs Minnesotans more than $3 billion in excess health care costs. Since the increase took effect in 2013, smoking has declined, most notably among high school students. These tobacco tax provisions would be effective July 1, 2021. The recommendation would raise $139 million in the FY22-23 Biennium.