Minnesota Tax Law Changes: What Businesses Should Know Right Now

Minnesota’s recently signed omnibus tax bill (H.F. 2438) introduces several updates impacting businesses across the state. Many of these changes will affect the 2025 tax year filings in addition to 2026 and future year planning. 

At a high level, the bill brings Minnesota closer into alignment with certain federal tax rules, while creating intentional differences in others. For business owners, the goal should be understanding where things changed and what that means for your next move.

Here’s a breakdown with the most relevant updates and what you need to know...

Federal Conformity Updates

A key to interpreting this new bill is understanding that Minnesota tax code follows “static conformity,” meaning it adopts federal tax law changes at specific points in time rather than automatically. This bill updates Minnesota’s conformity date to generally align with federal law as of May 1, 2026. 

This bill brings Minnesota back into alignment on several important items, including:

• Section 179 expensing limits
• Interest expense limitation rules under Section 163(j)
• Elements of depreciation treatment
• Treatment of research and development expenditures (partially - see below)
  

Why this matters:

• The passage of the law helped reduce the complexity and eliminate many of the differences between the Minnesota law and the federal law due to the passage of the OBBBA in July of 2025.
• Alignment on items like Section 179 and interest limitations helps, but ongoing state differences still require careful coordination.
• Partial conformity means businesses need to evaluate both sets of rules when making investments, and choice of entity decisions, especially around R&D.
  
  

Pass-Through Entity (PTE) Tax Extension

One of the most impactful updates is the extension of the PTE tax, something that businesses have been trying to navigate carefully. The new bill extends the PTE tax through 2027, applies it retroactively to 2026, and provides clarity on estimated payments that many businesses were waiting for.

• Extended through December 31, 2027
• Retroactive to January 1, 2026
• Continues to allow federal deductibility of state taxes

The bill also addresses estimated payment uncertainty from earlier this year:

• No penalties for missed Q1 2026 payments if paid with the Q2 estimate

Why this matters:

This gives business owners more certainty and flexibility in how they manage state and federal tax exposure. It also removes some of the guesswork around 2026 estimated payments, allowing for more confident planning moving forward.

R&D Expensing: Different Rules by Entity

The state treatment of R&D expenditures was one of the most anticipated items in the bill as the amounts for many businesses were quite significant. R&D conformity by entity type made it one of the more nuanced areas of the bill.

For Pass-Through Entities

• Conform to federal rules
• Immediate expensing allowed

For C Corporations

• Do not fully conform
• 80% of current-year deductions must be added back
• Capitalized costs are amortized over 4 years

Why this matters:

Choice of entity now directly impacts how R&D expenses are treated in Minnesota. Additional rules apply for prior-year costs and catch-up deductions.

What This Means for Your Business

As a business, these changes create clear planning opportunities. This is particularly true with regards to the PTE tax extension, Section 179 alignment, and updates to interest limitation rules. There are also timing considerations around the retroactive aspects with the law change and the upcoming estimated tax payments. Finally, some added complexity remains, especially with R&D treatment differing by entity type and the various remaining gaps between federal and Minnesota tax rules.

Here are some of the common questions we’re hearing around this new bill:

• Should we revisit entity structure based on R&D treatment?
• Do we need to amend prior returns?
• How should we handle 2026 estimates?
• Are there new opportunities for capital investments?

The right answers depend on your situation, which makes thoughtful planning more important than quick reactions.

A Final Thought

This bill is a reminder of how quickly tax rules can shift, especially when federal and state laws move at different speeds. The goal isn’t to chase every detail. More simply, it’s staying aware, asking the right questions, and working with a team that brings these changes forward before they become issues.

If you have questions about how these new updates apply to your business, now is a good time to start that conversation.