Lawmakers weigh conforming to federal tax bill as Minnesota ranks among highest-tax states

Brian Cook
Director, Tax, Fiscal and Elections Policy

Minnesota legislators will decide during the 2026 legislative session whether to conform to three major business tax provisions passed by Congress in 2025, which would lower tax burdens, provide more immediate cash flow to businesses, and improve our economy’s competitiveness.

The provisions come from the federal tax package known as H.R. 1, often referred to as the “Big Beautiful Bill,” enacted in 2025. Because Minnesota does not automatically conform to federal tax law, lawmakers must vote on whether to adopt these changes into the state tax code.  

Section 179 expensing – Improving cash flow by turning a long-term deduction into an immediate one

The first provision involves elements of Section 179 of the tax code, which allow businesses to write off large purchases immediately, instead of slowly over time. Under the updated federal law, businesses can deduct up to $2.5 million in qualifying equipment purchases in the year they are made instead of spreading those deductions out over several years.  

Conforming to that limit would allow Minnesota businesses to immediately deduct investments in machinery, vehicles and other capital equipment, improving cash flow and encouraging expansion.  

Bonus depreciation – Accelerating cost recovery, encouraging immediate investment  

The second provision of the federal tax bill for Minnesota to consider addresses bonus depreciation, which lets a business write off the cost of equipment and investments right away, instead of spreading it out over several years. The federal bill brought back full bonus depreciation and made it permanent.  

This change allows businesses to immediately deduct 100% of capital investments, like machinery, equipment, vehicles, computers and technology, furniture and fixtures and equipment used in operations. Aligning Minnesota’s tax code with that policy would make it easier for companies to invest in facilities and production capacity without waiting years to recover those costs.  

R&D expensing – Faster write-offs, faster innovation

The third provision of the federal bill restores immediate expensing for domestic research and development costs, instead of having to spread it out over several years. Prior to 2022, businesses could deduct research and development expenses in the same year they occurred. Then that shifted to a five-year amortization schedule – deducting little by little over time.  

Conforming at the state level would allow Minnesota companies to fully deduct research costs in the year they invest, which encourages innovation and job growth.

According to Doug Loon, President and CEO of the Minnesota Chamber of Commerce, “conforming to these federal provisions would simplify the tax code, encourage business investment and help ensure Minnesota remains a place where companies can grow, hire and compete.”  

The conformity debate comes as Minnesota’s corporate and individual income tax rates rank among the highest in the nation.  

Since 2021, more than 20 states have reduced individual income tax rates and more than a dozen have cut corporate rates. Minnesota’s corporate income tax rate is 9.8 percent, now the second highest in the country. Because New Jersey applies its higher corporate rate only to companies with more than $10 million in taxable income, Minnesota effectively has the highest broad-based corporate rate for many businesses. On the individual side, Minnesota’s top income tax rate is 9.85 percent, the sixth highest in the nation.  

According to a recent Minnesota Chamber member poll, taxes are the number one concern facing businesses and the number one barrier to growth. Employers report that high tax burdens limit their ability to reinvest, hire and expand operations.

“Conforming to these federal provisions would simplify the tax code for many Minnesota businesses and allow them to reinvest more quickly in innovation, expansion, and workforce development” said Chris Powers, Partner and Tax Leader at Abdo. “Aligning state and federal policy can reduce complexity while strengthening Minnesota’s competitiveness.”

The Invest in Minnesota coalition, which includes the Minnesota Chamber, local chambers of commerce, trade associations and business groups, is leading the effort to conform with the federal tax bill. Members represent communities across the state, including Albert Lea, Austin, Bemidji, Duluth, Mankato, Rochester, St. Cloud and the Twin Cities metro.

If the Minnesota Legislature does not take action on these tax provisions before April 15, many Minnesota businesses will pay significantly higher taxes to the federal government instead of keeping that money in our state.