The Minnesota Legislature is out on recess after reaching the first major deadline for policy bills. When lawmakers return on April 7^th, they will begin the process of compiling omnibus policy bills and will continue the discussion related to a potential supplemental spending bill and a bonding bill.

Floor activity will likely increase as lawmakers attempt to act on various policy proposals. However, the evenly divided House of Representatives will continue to serve as a buffer by preventing extremely controversial bills from being approved without bi-partisan support.

Here are some keys bills that have seen activity thus far.

Pass-Through Entity Tax Election – Both the House and the Senate Tax Committees heard a bill that would restore and extend Minnesota’s Pass-Through Entity (PTE) Tax election. The PTE Tax election was originally passed in 2021 to provide a workaround to the $10,000 State and Local Tax (SALT) deduction cap. It allowed pass-through entities to pay their state taxes at the entity-level and enabled the owners to deduct those payments on their federal returns. The PTE Tax election expired after December 31, 2025.

NFIB supported the initial passage of PTE Tax election, and we testified in support of these bills in both committees. We also submitted written comments in support of restoring and extending this option for Minnesota’s small businesses. The bill was laid over in the House and was recommended to pass in the Senate. NFIB will continue to urge passage of this important tax option for small businesses.

Federal Tax Conformity – One of the main tax-related discussions this year revolves around whether (and to what extent) Minnesota should update its federal tax conformity to reflect changes made in the federal tax package. Minnesota’s individual and corporate tax systems rely on the federal income tax system. Minnesota operates under what is referred to as “static date conformity” which means that the Minnesota references a specific version of the Internal Revenue Code based on a specific date.

Currently, Minnesota references the Internal Revenue Code, as amended through May 1, 2023. This means that changes to federal tax law after that date are not applicable for state income tax purposes.

The Legislature has considered the following proposals related to updating Minnesota’s federal tax conformity:

–  Section 179 Conformity – Section 179 of the Internal Revenue Code allows businesses to deduct the full cost of qualifying equipment or property in the year it is purchased. The federal tax package increased the Section 179 deduction limit to $2.5 million. Minnesota fully conforms to the Section 179 deduction but does not automatically adopt these increased limits. This bill would update Minnesota conformity to allow for the $2.5 million limit. NFIB testified in support of this bill and submitted written comments in support.

–  100% Bonus Depreciation – The federal tax package permanently restored 100% bonus depreciation for qualified property. Prior to enactment, bonus depreciation was set to reduce to 40% by property placed in service in 2025 and eliminated entirely by 2027. Minnesota currently conforms to this phase-down, and only partially conforms to federal bonus depreciation because state law does not allow the full amount of bonus depreciation to be claimed in the tax year allowed federally. Instead, Minnesota taxpayers must add back 80% of the bonus depreciation in the year the property is placed and then subtract one-fifth of that 80% in each of the five following tax years.

This bill does not eliminate the five-year add-back for bonus depreciation, but it updates Minnesota’s conformity to ensure that businesses can immediately deduct a greater share of qualifying equipment purchases. NFIB testified in support of this bill and submitted written comments in support.

–  Research & Experimentation (R&E) Expensing – Prior to 2022, businesses were allowed to immediately deduct R&E expenses in the year that those expenses were incurred. Since then, businesses have been required to spread out the deduction over five years. The federal tax package returned to immediate expense. Minnesota generally conforms to the federal treatment of R&E expenses but needs to update its conformity to allow for immediate expensing. Otherwise, Minnesota taxpayers will need to continue to spread the deduction out over a five-year period.

This bill updates Minnesota’s conformity to R&E expensing and will allow for the immediate deduction. NFIB testified in support of this bill and submitted written comments in support.

Suitable Seating Mandate – The Senate and the House both heard a bill that would require all employers to provide “suitable seating” for their employees and permit the use of those seats when “the nature of the work reasonably permits the use of seats.” The bill defines suitable seating as “an adequate number of seats placed in reasonable proximity to the work area and includes chairs or benches that have support for an individual’s back.”

This is another workplace mandate that purportedly addresses an “issue” that can (and is) largely worked out between employers and their employees. Under this bill, small business owners could be forced to reconfigure their workspace and purchase additional equipment – all for the sake of ensuring the broad concept of “adequate seating” is met. Unsurprisingly, it also includes new punitive measures for failure to comply, which would expose small businesses to more penalties and fines, even in instances where they acted in good faith.

NFIB testified in opposition to this bill and will continue to monitor whether it moves forward. The bill was laid over for future consideration in both Committees.

Small Business PFML Exemption – The House Workforce, Labor, and Economic Development Committee heard a bill that would exempt small businesses with 15 or fewer employees from the PFML mandate. This would have provided additional flexibility to some of Minnesota’s smallest businesses by providing them with an option to opt-in to the program if they so desired.

NFIB testified in support of this bill and was joined by three small business members who also spoke in support of the bill. Unfortunately, the bill failed to pass committee on a party-line vote.

S-Corp Shareholder PFML Exemption – The House Workforce, Labor, and Economic Development Committee heard a bill that would exempt certain S-Corp officers from being required to participate in the PFML program. This common-sense fix would have recognized that S-Corp officers typically play the role of owner, employer, and the main employee. Instead of continuing to force these owners to pay for a benefit they will likely never be able to use, it aimed to provide them with the choice to opt-out of the program.

NFIB testified in favor of the bill, and we believe that it reflects the underlying principle that individuals who control their own work situations should not be required to participate in the program. Unfortunately, it failed to pass committee on a party-line vote.

Sales Tax on Advertisements – A bill that would impose a sales tax on advertising services was heard on the House Taxes Committee. As written, the bill would subject a wide array of digital and non-digital advertising services to Minnesota’s sale tax. This bill is part of a push to expand the sales tax base to more services.

NFIB submitted testimony in opposition, highlighting that competitively priced advertising is one of the primary tools that small businesses have at their disposal to compete with larger competitors. We also raised concerns about potential legal challenges, as has been the case in other states.

The bill was laid over for possible inclusion in an omnibus tax bill.

Training Investment Agreement Prohibition – Both the House and the Senate heard a bill which would prohibit employees and employers from entering into written agreements that require an employee to repay the employer for certain costs or reimbursements if the employee leaves before a stipulated period of time. The bill was introduced by the same lawmaker who carried the bill that banned noncompete clauses.

NFIB submitted written testimony in opposition to this bill, noting that this bill penalizes employers for making a good faith investment in workforce training and professional development. This bill would also subject small business to thousands of dollars of penalties for merely “presenting” an employee or prospective employee with one of these agreements, which would have a chilling effect that disincentivizes the use of other common retention tools used by employers.

In the House, the bill failed on a tie vote, with all Republican members voting against and all Democrat members voting for. In the Senate, the bill was passed onto the Judiciary Committee.

Health Benefit Mandate Defrayal – The House Commerce Committee heard a bill that would require the State to defray the costs associated with newly mandated health benefits if the Department of Commerce’s evaluation of mandated health benefits indicates that they would increase the price of health insurance premiums. This bill would prevent increased costs from being passed on to small businesses and their employees.

NFIB supports House File 400 and submitted written comments in support for the Committee. You can read the comments in full here.

Organized Retail & Supply Chain Task Force – The House Public Safety Committee heard House File 2879, which would create an Organized Retail and Supply Chain Crimes Advisory Board. The purpose of the Advisory Board would be to provide advice and guidance to the Commissioner of Public Safety related to the investigation and prosecution of organized retail and supply chain theft and theft enterprises.

Minnesota ranks in the top 10 nationally for retail theft with incidents occurring 10% higher than expected based on population. Seventeen states have established organized retail crime task forces to coordinate efforts across law enforcement, prosecutors, and the private sector. NFIB signed onto a coalition letter in support of this bill. You can view the letter that was submitted to the Committee here.

As the legislative session continues, NFIB will continue to track and advocate on all these issues and more.