A provision in Minnesota's latest tax bill extends a federal deduction workaround that could meaningfully reduce what retail owners pay in state income tax.
Most Minnesota retail owners don't know they have access to a tax election that can save them thousands annually—and it just got extended through 2027.
The provision is buried in HF2438, Minnesota's taxation and state financing bill. Specifically, Article 2, Section 9 extends the pass-through entity (PTE) tax election through taxable years beginning after December 31, 2027. If you own your retail business as an S-corporation, partnership, or LLC taxed as a partnership, this matters to you.
Here's the problem it solves: Federal law caps the SALT deduction (state and local taxes) at $10,000 per year. For business owners in high-tax states like Minnesota, that's a real ceiling. You pay Minnesota income tax on your business profits, but you can only deduct $10,000 of state and local taxes on your personal return.
The PTE tax election is a workaround. Instead of paying Minnesota income tax at the individual owner level, your business entity itself pays Minnesota income tax. That entity-level payment generates a federal SALT deduction that isn't subject to the $10,000 cap. For owners with significant business income, this can mean thousands in additional federal deductions—and lower federal tax liability.
The math is straightforward for many retail owners: if your business pays $50,000 in Minnesota income tax as an entity rather than flowing through to you personally, you get a $50,000 federal deduction instead of being capped at $10,000.
You're eligible if your retail business is structured as:
• An S-corporation
• A partnership
• An LLC taxed as a partnership
If you're a sole proprietor or operate as a C-corporation, this election doesn't apply to you. But if you're in one of those three structures, you should understand whether this election makes sense for your situation.
The extension is retroactively effective from January 1, 2026. That means the election applies to tax years beginning on or after January 1, 2026, through December 31, 2027. After that date, the provision expires unless Minnesota extends it again.
The specific statutory change is found in Article 2, Section 9 of HF2438, amending Minnesota Statutes § 289A.08, subdivision 7a.
If you haven't already made this election, now is the time to discuss it with your tax advisor. The extension through 2027 gives you a defined window to plan around. Some owners will want to make the election retroactively for 2026 if they haven't already; others may want to evaluate whether it makes sense going forward.
The PTE tax election isn't automatic—you have to affirmatively elect it. And it's not right for every business structure or income level. But for retail owners with meaningful business income, it's the single broadest direct tax-savings mechanism available under Minnesota law.
Source: HF2438, Article 2, Section 9, effective retroactively January 1, 2026, amending Minn. Stat. § 289A.08, subd. 7a.