A quiet provision in Minnesota's latest tax bill gives auto service owners a way to save on federal taxes—but only if they know it exists and act before the deadline.
Most auto service shop owners don't realize Minnesota has handed them a legal way to reduce their federal income tax bill by thousands of dollars per year. The catch: the opportunity expires after 2027, and it requires an affirmative election to use it.
The provision is buried in HF2438, Minnesota's omnibus taxation bill. Specifically, Article 2, Section 9 (found on page 33) extends the state's pass-through entity tax election through taxable years beginning after December 31, 2027.
If you operate your auto service business as an S-corporation, partnership, or LLC taxed as a partnership, you can elect to have your business pay Minnesota income tax at the entity level—rather than passing all income through to your personal return.
That sounds like a wash, but it isn't. Here's why: when your business pays Minnesota tax at the entity level, you generate a state tax deduction. You can then claim that deduction on your federal return. Normally, state and local tax (SALT) deductions are capped at $10,000 per year under federal law. This election lets you bypass that cap.
For a profitable auto service operation, this can mean $2,000 to $5,000 or more in federal tax savings annually, depending on your business income and tax bracket.
This election is available only to pass-through entities—primarily S-corps, partnerships, and LLCs taxed as partnerships. Sole proprietorships and C-corporations don't qualify. If you're unsure which structure you operate under, ask your accountant.
The election is voluntary. You don't have to use it. But if you don't affirmatively elect it, you won't get the benefit.
The extension is retroactively effective from January 1, 2026. That means if you're eligible and want to claim the benefit for 2026 and 2027, you still have time—but you'll need to file an amended return or make the election when you file your 2026 return, depending on your accountant's advice.
After December 31, 2027, the election expires. Taxable years beginning on or after January 1, 2028 will no longer qualify.
If you own an auto service shop structured as an S-corp, partnership, or partnership-taxed LLC, sit down with your accountant or tax professional before year-end. Ask them whether electing the pass-through entity tax makes sense for your specific situation. The math varies based on your income, state residence, and federal tax bracket.
Don't assume your accountant has already flagged this. Many small business owners miss it because it requires a deliberate choice.
The window is open through 2027. After that, it closes.
Source: Minnesota HF2438, Article 2, Section 9 (amending Minn. Stat. § 289A.08, subd. 7a), effective retroactively January 1, 2026.