A tax provision in Minnesota's HF2438 gives manufacturing owners a limited window to reduce federal tax liability through entity-level income tax elections.
Most manufacturing owners in Minnesota don't realize they have a narrow window—ending December 31, 2027—to elect a state tax strategy that could significantly reduce their federal tax bill. That opportunity exists because of a provision buried in HF2438, the state's taxation and government financing bill.
HF2438 revives and extends Minnesota's pass-through entity (PTE) tax election. Here's what that means in plain terms: if your business is structured as a partnership, an LLC taxed as a partnership, or an S corporation, you can now elect to have your business pay state income tax at the entity level—at Minnesota's highest individual rate of 9.85%—rather than passing all income through to owners' personal returns.
Why would you do that? Because of a federal tax rule. When your business pays state income tax at the entity level under this election, it generates a federal deduction for state and local taxes (SALT) that applies at the entity level. This matters enormously because individual taxpayers face a $10,000 annual cap on SALT deductions. By moving the deduction to the entity level, you bypass that cap entirely.
For manufacturing businesses with significant state tax liability, this can translate to real federal tax savings for owners.
This provision applies to:
It does not apply to C corporations, which already pay tax at the entity level.
The provision has retroactive effect: it was revived and reenacted effective January 1, 2026. This means businesses can make the election for tax years beginning on or after that date.
The sunset date is equally important: the election expires for taxable years beginning after December 31, 2027. After that date, the option disappears unless the legislature extends it again.
If you're considering this election, you need to act within the next two tax years to capture any benefit.
The provision is found in HF2438, Article 2, Section 9, which amends Minnesota Statute § 289A.08, subdivision 7a. It appears on page 33, lines 33.1–33.5 of the bill.
Whether this election makes sense for your business depends on your specific structure, income level, and federal tax situation. The math is different for every company. This is not a decision to make without consulting your tax advisor, who can model the federal and state tax impact for your particular circumstances and determine whether electing into the PTE tax is worthwhile.
Because the window closes after 2027, now is the time to have that conversation.
For a detailed, business-specific breakdown of how pass-through entity elections work, contact your tax professional or Minnesota trade association.