INDIVIDUAL INCOME TAX
Active Business Income Rate Capped
January 14, 2015
Yes
DOR Administrative
Costs/Savings
Department of Revenue
Analysis of H.F. 63 (Anderson, S.)
F.Y. 2016
Active Trade or Business Income
Excluded from the Fourth Tier
Adjustments
General Fund Total
($178,400)
Unknown
(Unknown)
Fund Impact
F.Y. 2017
F.Y. 2018
(000’s)
($189,700)
Unknown
(Unknown)
($199,800)
Unknown
(Unknown)
No
X
F.Y. 2019
($209,500)
Unknown
(Unknown)
Effective beginning with tax year 2015
EXPLANATION OF THE BILL
The bill eliminates the 4th tier income tax rate of 9.85% and replaces it with a 2% tax on current
law 4th tier income, except that active trade or business income is excluded. The effect is to
replicate current law 4th tier tax on all income other than active trade or business income. Active
trade or business income includes income from sole proprietorships, farming, and non-passive
income from partnerships and S corporations. However, income from trading in financial
instruments or commodities is not considered active business income, while income resulting
from disposition of certain active interests in partnerships or S corporations is included. The
marriage credit is redefined to exclude from its calculation active trade or business income not
subject to the 4th tier.
REVENUE ANALYSIS DETAIL
 The House Income Tax Simulation Model (HITS 6.3) was used to estimate the revenue
impact. These simulations assume the same economic conditions used by Minnesota
Management and Budget for the forecast published in November 2014. The model uses a
stratified random sample of tax year 2012 individual income tax returns compiled by the
Minnesota Department of Revenue.
 Tax year impacts were allocated to the following fiscal year.
 Information concerning the amount of financial trading business income is not available, nor
is information on income from disposition of active interests in partnerships and S
corporations. Such amounts may be substantial and act in opposite directions.
Number of Taxpayers: Based on the HITS Model and without the adjustments, in tax year 2015
about 51,000 returns would have a decrease in tax.
Source:
Minnesota Department of Revenue
Tax Research Division
www.revenue.state.mn.us/research_stats/Pages/
Revenue-Analyses.aspx
hf0063_1/gt