On January 26, 2020, Governor Walz unveiled his biennial budget plan totaling $52.4 billion that includes 2021 free summer school programs for students 4 and older, $750 cash payment to 32,000 low-income families, an increase in the child tax credit of $160 per year, and $150 million for businesses damaged in the riots this past year.
To pay for these programs, Governor Walz’s plan calls for $1.6 billion in new taxes. Specifically, adding a fifth-tier income tax level, a 1.5% capital gains tax, a tax on previously taxed foreign income, a 15% increase in the corporate tax rate, reinstating the estate tax exclusion, and an increase on the cigarette and vaping tax.
Fifth Tier Income Tax
Walz’s proposed tax hike would apply to people with the following incomes:
- $1 million (as married, filing jointly).
- $750,000 (as the head of household).
- $500,000 (as single).
Corporate Tax Rate
- Increasing the current corporate franchise tax rate from 9.8% to 11.25%. This tax would not apply unless the corporation does business in multiple states.
Estate Tax
- The Governor recommends reinstating the estate tax exclusion at $2.7 million. Small businesses and farms will still have access to the full $5 million exemption. This proposed tax would be effective for estates of decedents dying after December 31, 2020. In 2017, the legislature increased the estate tax exclusion amount, and it is currently at $3 million.
Capital Gains Tax
Currently, Minnesota does not have a separate rate for capital gains. Walz’s proposed capital gains tax does the following:
- An additional tax of 1.5 percent on capital gains and dividend income over $500,000 up to $1,000,000
- 4 percent additional tax on income over $1,000,000 for individuals, trusts, and estates
Taxing Foreign Income
- Taxing foreign income when it is repatriated to the United States.
Cigarette and Vapor Tax increase
- This proposal would increase the cigarette pack tax by $1 and would levy a new tax on the sale of e-cigarette devices by 35 percent.
Virtus Law, PLLC continues to monitor developments in this (and other areas) and will continue to post relevant updates to this website.