A tax provision buried in Minnesota's HF2438 could reduce your federal tax bill—but only if your business structure qualifies and you act before the deadline.
Most Minnesota retail owners don't realize that a state tax provision passed in HF2438 could lower their federal income tax liability—but only for a limited time and only if their business is structured the right way.
Here's what happened: Minnesota has revived and retroactively reinstated a pass-through entity (PTE) tax election, effective January 1, 2026. The provision expires for taxable years beginning after December 31, 2027. If your retail business is organized as a partnership, an LLC taxed as a partnership, or an S corporation, you may be eligible to use it.
Under this election, your business can pay an entity-level income tax directly to Minnesota at the highest individual state rate: 9.85%. In exchange, your business generates a federal SALT (state and local tax) deduction at the entity level—not at the owner level.
Why does this matter? Federal law caps individual SALT deductions at $10,000 per year. For many retail owners, especially those in high-tax states or with significant business income, this cap is a real constraint. By taking the deduction at the entity level instead, you bypass that $10,000 individual cap entirely. The deduction flows through to your owners' tax returns without the limitation.
The net effect: you may owe more Minnesota state tax, but you could save more in federal tax—potentially coming out ahead overall.
This election is available only to pass-through entities. If you operate as a C corporation or sole proprietorship, this doesn't apply to you. If you're a partnership, multi-member LLC taxed as a partnership, or S corporation, you should discuss this with your tax advisor.
The retroactive reinstatement means the election applies to taxable years beginning on or after January 1, 2026—so if you're filing 2026 returns, this could be relevant now.
This is not a permanent change. The provision expires for taxable years beginning after December 31, 2027. That means you have a narrow window—roughly two tax years—to benefit from this election before it sunsets. If Congress doesn't extend it, the option disappears.
This makes timing and planning important. If you're considering a business restructuring or have flexibility in how you organize your retail operation, this expiration date should factor into your decision.
The Details: This provision is found in HF2438 (the Taxation bill for financing and operation of state and local government), Article 2, Section 9, which amends Minnesota Statutes § 289A.08, subdivision 7a (pages 33, lines 33.1–33.5).
Because tax law interacts with your specific business structure, income level, and federal situation, this is not a do-it-yourself decision. Talk to your CPA or tax attorney about whether the PTE tax election makes sense for your retail business and whether you should file an election for 2026 or 2027.
Source: HF2438, Article 2, Section 9 (Minn. Stat. § 289A.08, subd. 7a)