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S.F. No. 654 - Allowing standard or itemized deduction election on state return
Author: Senator Ann H. Rest
Prepared By: Nora Pollock, Senate Counsel (651/297-8066)
Date: April 3, 2019


Minnesota defines “net income” as federal taxable income (FTI) as defined in the Internal Revenue Code (IRC) as amended through a specific date, with the modifications resulting from Minnesota additions and subtractions. A taxpayer’s election to claim the standard deduction or itemize deductions is part of the FTI calculation. By reference to FTI in its calculation of “net income,” the election of the standard deduction or itemized deduction at the federal level is binding for state income tax purposes. The federal Tax Cuts and Jobs Act (TCJA) modified many factors in the calculation of FTI, such as the increased standard deduction and the limitation on the deduction for state and local taxes for itemizers. The Department of Revenue issued a Revenue Notice in 2018 that for tax year 2018 only, Minnesota taxpayers may elect the standard or itemized deduction on their returns without regard to the election claimed at the federal level. This bill would codify that election provision, effective beginning in tax year 2019.

Section 1. Net income. Modifies the definition of “net income” to allow taxpayers to use the pre-TCJA calculation of federal taxable income for state income tax purposes, as provided in section 2, regardless of whether Congress changes federal standard or itemized deduction provisions.

Section 2. Taxpayer election for itemized or standard deduction.

Subd. 1. Legislative purpose. Specifies that the legislature intends to provide an ongoing mechanism for Minnesota taxpayers between claiming the standardized deduction and itemizing deductions. States that the legislature does not intend for taxpayers to be bound by changes made at the federal level that may result in different choices for federal tax purposes and that in enacting this provision, the legislature is not delegating its taxing authority. 

Subd. 2. Election allowed. Allows taxpayers to claim the standard deductions or to itemize deductions as calculated under the IRC as amended through December 16, 2016 (the IRC reference date under current law) for purposes of calculating net income regardless of the election claimed for federal tax purposes.

Subd. 3. Application of chapter. Applies the provisions of subdivision 2 to the calculation of all other tax and credit provisions, including AMT and the property tax refund.

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