Tax bill increases cannabis tax, eliminates data centers’ electricity exemption

The 2025 tax law helps balance the state’s books by increasing the cannabis gross receipts tax and eliminating data centers’ tax exemption for electricity use. It also makes the corporate research and development tax credit partially refundable.

Sponsored by Rep. Greg Davids (R-Preston) and Sen. Ann Rest (DFL-New Hope), the law includes provisions on individual and corporate income taxes, property taxes, sales and use taxes, aids and credits, and tax increment financing.

2025 Special Session: SSHF9*/SSSF20/CH13

Individual income taxes and corporate franchise taxes

Among other provisions, the law:

• requires the Campaign Finance and Public Disclosure Board to establish an electronic filing system for the political contribution refund and amends the law governing the processing of political refund contribution claims, effective in tax year 2027;

• clarifies the rollover of the sustainable aviation fuels credit;

• for tax year 2025 and later, establishes new income tax subtractions for coerced debt, certain consumer enforcement public compensation payments, and foreign service pensions;

• establishes new income tax subtractions for student loan payments made by critical access dental clinics, effective for tax year 2026 and later;

• makes the credit for increasing research partially refundable, with growth in the refundable amount subject to a cap, effective for tax year 2025 and thereafter;

• establishes an income tax subtraction for stipend payments that were included in a collective bargaining agreement between the state of Minnesota and SEIU Healthcare Minnesota and Iowa, effective June 15, 2025; and

• repeals the assignment process for the Minnesota education credit, effective for tax year 2026.

Property taxes

Changes to state tax policy regarding property taxes include the following, beginning with assessment year 2026, except where indicated:

• establishing and modifying property tax exemptions pertaining to charitable rental housing and certain property owned by tribes;

• allowing assessors in the metropolitan counties to reduce the valuation of property subject to a conservation easement;

• allowing property to qualify for the agricultural property tax classification if it is used to produce floriculture products;

• modifying the taxation of attachments and appurtenances of electric utility cooperatives’ electric distribution systems, beginning with tax year 2025;

• setting the interest rate on confession of judgment payments equal to the prime rate charged by banks, effective Jan. 1, 2026;

• increasing from $3,000 to $10,000 the amount a city of the third class is allowed to levy for free musical entertainment, effective June 15, 2025;

• allowing abatements for certain land bank property;

• extending a property tax exemption for property owned by the Bloomington Port Authority that is being held for economic development purposes, effective upon approval by the Bloomington City Council;

• providing a property tax exemption for taxes paid in 2022 and a portion of taxes paid in 2021 for property in Minneapolis purchased by Red Lake Nation for the Red Lake Nation College, effective June 15, 2025; and

• repealing a requirement that a fiscal disparities adjustment be included on certain property tax notices.

Sales and use taxes, excise taxes

Among the tax policy changes in this area are:

• requiring certain vendors to remit a portion of their June sales tax liability early, effective for tax remitted after May 31, 2027;

• increasing the cannabis gross receipts tax from 10% to 15%, effective for sales after June 30, 2025;

• repealing the electricity sales tax exemption for qualified data centers, effective for sales and purchases after June 30, 2025; and

• allowing certain brewers to file alcohol excise tax returns annually without Department of Revenue approval, effective for returns filed in 2026.

Property tax aids

Changes related to property tax aids include:

• reducing Sustainable Forest Incentive Act payment rates by 10%, effective beginning with payments made in 2027;

• reducing the annual appropriation for aquatic invasive species prevention aid from $10 million to $5 million, effective beginning with aids payable in 2027;

• proving aid penalty forgiveness for the cities of Stewart, Alpha, Odin and Trosk, effective June 15, 2025; and

• providing an adjustment in the 2026 local government aid calculation for the city of Baldwin.

Tax increment financing and local sales taxes

The law allows some municipalities to establish tax increment financing districts and extends the deadlines for some previously approved districts. Among these changes, the law:

• extends the expiration of certain temporary tax increment financing authority from 2025 to 2026;

• extends to Dec. 31, 2025, the period of time for Ramsey to make an interfund loan agreement;

• expands the area in which increment can be spent for redevelopment districts in Maplewood;

• extends the five-year rule period for tax increment financing districts in Maple Grove, St. Paul, Edina, Minnetonka, Moorhead and St. Cloud;

• extends the deadline for temporary use of increment in Bloomington, Marshall and Oakdale; and

• allows tax increment financing authority to be established in Brooklyn Center, Brooklyn Park, Eden Prairie, Plymouth and St. Cloud.

The law also makes changes to the current local sales tax for the city of Hermantown, effective June 15, 2025.

Public finance

Provisions are modified regarding the financing of local government projects and the allocation of federal tax-exempt bonds, including shortening the notice periods for hearings regarding:

• issuance of county capital improvement bonds;

• adoption of certain municipal housing programs;

• proposed municipal industrial development projects;

• approval of an economic development abatement; and

• a city or town proposal to issue capital improvement bonds.

The law also expands the “debt obligations” definition and the state guarantee on payment of principal and interest of certain bonds. It modifies the applicability of the Minnesota Bond Allocation Act to certain economic development authority debt, and requires that recipients of allocations of tax-exempt bonds issue any bonds by the last business day of the year in which the allocation was received.

It also expands a list of county projects for which a county cannot enter a construction contract without first levying a tax or issuing county bonds.

Miscellaneous provisions

The law establishes a consumer protection restitution account to distribute consumer enforcement action public compensation to eligible consumers, effective July 1, 2025.

It also eliminates the local government cannabis aid account and removes the cannabis gross receipts tax dedication to that account, effective for revenues received after June 30, 2025. The local government cannabis aid account is eliminated effective Jan. 2, 2026.

The law reduces the penalty for failing to provide a renter with a certificate of rent paid from $100 to $50, establishes a $50 penalty for failing to provide the Department of Revenue with a copy of the certificate of rent paid, and requires a manufactured home park owner or managing agent to provide such a certificate to the Department of Revenue. This takes effect for certificates issued after Dec. 31, 2025.

The law also:

• changes the purpose statement requirement for tax expenditures and makes changes related to the operation of the Tax Expenditure Review Commission, effective June 15, 2025;

• increases the State Agricultural Society’s debt limit for state fair bonds from $30 million to $50 million;

• establishes a permanent rate of 0.5% for the credit for research, under the provider tax;

• modifies the timing for when a pharmacy may claim a refund for the legend drugs tax paid on out-of-state drug shipments;

• extends until June 30, 2027, the availability of a 2023 grant to the city of Minneapolis; and

• repeals the marijuana and controlled substance tax, effective Aug. 1, 2025.

Corrections and clarifications

There are several technical corrections and clarifications in the law, effective June 15, 2025, including:

• limiting the sustainable aviation fuels sales tax exemption to materials, supplies and equipment purchased after June 30, 2027, and before July 1, 2034;

• modifying the transportation dedication of the sales taxes from the sale and purchase of motor vehicle repair and replacement parts;

• clarifying that a tax preparer may not take ownership or control or establish an account in the preparer’s name for any department payment paid to a client;

• lengthening the timelines for parties and the Office of Administrative Hearings to act in a contested case proceeding regarding a cease-and-desist order or administrative penalty issued to a tax preparer; and

• extending the expiration date for the film credit under the premium tax to match the expiration date for the credit under the individual income and corporate franchise taxes enacted in 2023.

HF1346* / SF2350 / CH13