Tax & Fiscal

Omnibus Tax Bill
Omnibus tax bill language
Omnibus tax bill spreadsheet

Key Takeaways

• No levy limits, valuation caps, or assessment practice changes became law
• One-time 14.9% increase to the homestead credit refund that goes out to applicants this summer, paid for out of the state general fund, not a property tax shift onto counties
• Four year extension of Local Homelessness Prevention Aid, which had been scheduled to expire after 2028 payments.
• No individual local sales tax authorizations or modifications passed, nor any changes to the general law authorization process
• Limited changes to the property tax system overall, very little passed in the way that would shift property taxes to homeowners

The omnibus tax bill took a circuitous route to becoming law this year. Both chambers knew that there were several high-profile issues in taxes that the legislature would likely address in 2026. Whether it was federal tax conformity, a proposed Hennepin County sales tax to address a funding shortfall for the Hennepin County Medical Center, a slew of individual local sales taxes from cities and a few from counties after the two year moratorium expired, expiration of the pass through entity tax and credit that reduces federal taxes on Minnesota businesses at no cost to the state, or enhancing the Sustainable Aviation Fuel tax credit that was a priority for the Walz administration, there was plenty on the agenda this year.

On top of that counties were playing defense on property taxes throughout the session. While the tax chairs generally indicated hesitance around levy limits in this environment, they remained a topic throughout the session, with the Senate Republicans pushing particularly hard to get them included. The last time we had divided government proposals around limited market value and other valuation caps received quite a bit of momentum, as did other proposals that would significantly shift tax base. Those bills didn’t receive as much support in tax committee this year, but other proposals more focused on assessment practices and shifting the burden of proof from the taxpayer to the assessor did. Those proposals didn’t end up getting included in the final agreement but are likely to return in similar form in future years. 

Given the 67-67 tie in the House and the inherently political nature of any tax bill, it looked like a failure to launch for the tax bill most of the session. Bills that raise revenue must originate in the House according to the state constitution, and the House tax committee didn’t move a bill out the whole session. Several motions were made on priority bills for the two caucuses but none ever received the 50% plus one threshold needed to get out of committee. Meanwhile, realizing that a House tax bill wasn’t likely to ever come to fruition, Senate Tax Chair Ann Rest decided to move a bill out of her committee, even if she knew it couldn’t be passed off the floor until the Senate received a tax bill from the House.

What happened after that was a “tax discussion group” that operated outside the normal legislative process that began on May 6. On May 12 the discussion group returned, to “adopt” several non-controversial no cost provisions, even though there was not a bill identified that the proposals were being included in.

When the leaders agreed on budget targets for each committee on the final Wednesday May 13 before adjournment, the tax bill received a tax reduction target of $277 million in FY 26-27 and a tax increase target of $353 million in FY 28-29. After that, discussions took place outside of the public eye, primarily between the leaders. The result was a series of budget provisions that got near the target and the non-controversial no cost items the discussion group “adopted” on May 12. As far as process, the tax bill agreement got thrown into a conference committee that had initially been formed in 2025 to reconcile differences in transportation policy between the two chambers. The committee didn’t even end up formally meeting before adopting the report, though the Senate did hold an informational hearing on the language the afternoon before adjournment.

From a budget perspective almost all of the increased tax revenue came from conforming to federal law changes that passed in July 2025. The biggest exception was a tax increase on charitable contributions for those that itemize deductions. In 2025 the federal government imposed a 0.5% floor for contributions to qualify, that is, taxpayers can only deduct contributions in excess of half of one percent from their federal taxable income. The Minnesota 2026 omnibus tax bill went beyond what the federal government passed, instead imposing a 1% floor.

Otherwise the bill included most of the pressing items that legislators identified early in session. Federal tax conformity did end up passing for the most part, at least the provisions that were seen as political or administrative priorities. The pass through entity tax and credit received a two year extension, meaning it will be a topic at the capitol again in 2027. Hennepin County did not end up receiving their request for a local sales tax, but was covered instead through one time state general funds. The Sustainable Aviation Fuel tax credit was extended and its cap was lifted. A one-time 14.9% increase to the Homestead Credit Refund passed to address concerns over rising property taxes. However, the House DFL raised objections to including other city or county local sales taxes if Hennepin County did not receive their local sales tax.

All in all the tax bill ended up costing only $24.1 million in FY 26-27 as the temporary tab fee reduction which initially had been assumed to travel in the tax bill ended up getting included in the bonding bill instead. The bill raised $342.1 million in FY 28-29, which the Walz administration saw as a significant win to close the structural deficit moving forward. The bill passed the House 126-8 and the Senate 52-15.

Local Homelessness Prevention Aid Extended
Article 4, Section 9 extends the expiration date on Local Homelessness Prevention Aid. This aid to counties was set to sunset after 2028 but now will not expire until after 2032. $17.6 million of the aid goes out annually to counties while $2.4 million goes out to tribal nations. The most recent report on how the aid is getting spent is available here and the 2026 certification for how much each county receives is here. Rep. Aisha Gomez (DFL-Minneapolis) authored this extension in the House and it was included in the Senate omnibus tax bill.

Homestead Credit Refund One Time Increase
Article 4, Section 11 increases the homestead credit refund for refunds based on taxes payable in 2026 by 14.88%. People that already qualify for the homestead credit refund will receive this increase later this year. There is not a cost to counties since this refund is paid out of the state general fund. This proposal cost $125 million in FY 27. Sen. Grant Hauschild (DFL-Hermantown) authored this provision (at 12% rather than 14.9%) in the Senate and it was included in the Senate omnibus tax bill. Approximately 588,000 homeowners will receive an average $212 increase in their refund.

Homestead Resorts Property Tax Modifications
Article 4, Section 5 increases the tier thresholds for class 1c homestead resort properties. This will result in a property tax shift onto other properties beginning with assessment year 2026.

Tier Limits	Class Rate	Previous Law	New Law
1st Tier Value Threshold	0.5%	First $600,000	First $1.5m
2nd Tier Value Threshold	1%	$600,000-$2.3m	$1.5m-$4.5m
3rd Tier Value Threshold	1.25%	Above $2.3m	Above $4.5m

And this table demonstrates how much of the homestead resort value statewide falls into these three different tiers, comparing previous law to the new law.

Tier Limits	Class Rate	Previous Law	New Law
1st Tier Value Threshold	0.5%	43%	71%
2nd Tier Value Threshold	1%	45%	22%
3rd Tier Value Threshold	1.25%	12%	7%

The result is a total estimated shift of $890,000 in property taxes statewide away from properties newly qualifying for a lower tier classification rate and onto all other properties, including homesteads.

Nuclear Powered Electric Generating Facilities Study
Article 8, Section 11 appropriates $500,000 to the Department of Commerce for a contract with the Great Plains Institute for a study on nuclear energy. Requires a legislative report on the study, to be submitted by February 1, 2027.

Driver and Vehicle Services Account Transfer
Article 8, Section 14 transfers $75 million from the driver and vehicle services operating account to the general fund in FY 2027. The fund has a projected $87 million positive balance in FY 26 that’s projected to grow to $119 million by FY 29. The transfer was dropped into the bill last minute, after not being included in any bill that moved off either floor. The transfer was included in the agreement in order to pay for one time spending like the homestead credit refund. When the tax bill came to the Senate floor Sen. John Jaskinski (R-Faribault) noted his opposition to the use of the fund for this purpose, saying that it would be more appropriate to use for Deputy Registrars.

Levy Limits
Numerous levy limit bills were introduced this year, which MICA opposed. The most prominent of them was SF4756 from Sen. Michael Kreun (R-Blaine). It includes growth factors for population and inflation through the implicit price deflator. It also provides more flexibility than most levy limit proposals by allowing the base levy comparison to be the previous amount the local government could have levied to, rather than the previous levy itself, reducing the “use it or lose it” incentive. However, it does not factor in any number of cost drivers that counties experience. Most notably it does not include any mechanism to address state and federal mandates that counties are required to fulfill by law. Nor does it account for other fixed costs like pension obligations or health care costs. When Sen. Kreun described the bill he said that levy limits could potentially curtail future unfunded mandates, but the bill does nothing to actually reduce unfunded mandates, it’s only aspirational in that regard. With property taxes continuing to increase it’s likely we continue to see more creative levy limit proposals regardless of which party is in the majority in 2027.

Individual Local Sales Tax Authorizations and Modifications
Both House and Senate tax committees spent considerable time hearing and discussing individual local sales tax authorizations this year. With the Hennepin County sales tax proposal not being included in the final agreement, the House DFL took the position that no other local sales tax modifications or new authorizations should be included either. Rep. Aisha Gomez has long been known to be a skeptic of local sales taxes, though this year she put a special emphasis that if the legislature is going to consider local sales taxes that they should follow the requirements outlined in statute. A few of those that she highlighted in particular were the capital project requirements and that the tax must turn off for a year before turning back on. The capital project requirements state that the project must be:
(1) a single building or structure including associated infrastructure needed to safely access or use the building or structure;
(2) improvements within a single park or named recreation area; or
(3) a contiguous trail.

Rep. Greg Davids (R-Preston) was generally more open to different types of projects. He noted that given budget pressures there wasn’t an opportunity to increase County Program Aid or Local Government Aid he viewed allowing local governments to go to their voters on these types of projects is a positive step the state can take. When discussing the notwithstanding clauses that are frequently used in these authorizations he said, “it works, we’ve done them before.”

It’s difficult to forecast how individual local sales tax authorizations will be received without knowing the composition of the legislature next year, or who the Senate chair and lead will be, but suffice to say that in the House Rep. Davids has a more open approach while Rep. Gomez will be emphasizing requirements in current law among other possible restrictions.

Evidentiary Standards on the Burden of Proof in Tax Court
HF3971 (Huot) would have changed the law regarding how Tax Court judges view and weigh evidence in challenges to property valuations for property tax purposes. Generally, when a taxpayer files a claim in Tax Court, the Tax Court must accept the determinations of the applicable government unit as correct unless the taxpayer provides evidence to show the government was mistaken. This bill would have made it so that for property taxpayers’ claims that their property taxes were based on mistaken property valuations, counties would have the initial burden of showing that the property valuations were correct.

Additionally, this bill would have provided Tax Court judges the discretion to admit evidence of comparable property valuations in lawsuits challenging property taxes. Comparable property valuations are not used to determine property values in the three most widely accepted approaches to determining property values. Those approaches rely on the costs of replacing a property, the income generated by a property, and the sales of comparable properties.

MICA testified in opposition to the bill when it was heard in House Tax Committee, mostly focused with concerns on flipping the burden of proof from the taxpayer to the county. The language was not heard in the Senate nor was it included in their omnibus tax bill.

Income Property Assessment Data
SF3804 would have made several changes related to the treatment and disclosure of income property assessment data and assessor’s records. The bill prohibits a government entity from denying a request for legal discovery of income property assessment data that is made by a party in a legal proceeding on the grounds that the data is classified as private or nonpublic data. The bill was heard in both the House and Senate Judiciary committees. Proponents claimed it would prevent the exposure of sensitive business data—such as rent rolls, lease terms, and operating expenses—that could put businesses at a competitive disadvantage if made public during legal proceedings. Counties argued that the bill would have weakened statutory privacy protections by eliminating the need for a court order or notice to a property owner before sensitive data is shared in litigation as well as make it more difficult to provide accurate assessments. Proponents made the commitment to work with counties over the interim to see if there is a viable middle ground before introducing the bill again next year.

Disabled Veterans Market Value Exclusion-Increased Limits
The proposal would increase the maximum market value exclusion for homesteads of a veteran with a disability: from $150,000 to $175,000 for a veteran with a 70% or greater disability, and from $300,000 to $350,000 for a veteran with a total (100%) and permanent disability.

In assessment year 2025, approximately 29,000 homesteads received the exclusion. In assessment year 2026, approximately 21,500 homesteads would receive a larger exclusion under the proposal. The proposal would shift an estimated $7.8 million in property taxes onto other properties, including other homesteads. The bill was included in the Senate omnibus tax bill but not the final agreement. On the House floor Rep. Bjorn Olson (R-Fairmont) objected to its exclusion from the bill, noting that it was a top priority of the Commanders Task Force which provided recommendations to the legislature on veterans issues.

2c Managed Forest Lands Property Tax Modifications
To be eligible for class 2c managed forest land classification under current law, a property must be no less than 20 and no more than 1,920 acres statewide per taxpayer, be managed under a forest management plan and not be enrolled in the sustainable forest resource management incentive program. The proposal would have allowed land wholly or partially subject to a conservation easement to qualify for 2c classification. The classification rate for class 2c is one of the lowest at 0.65%. The proposal was included in the Senate omnibus tax bill and received a favorable hearing in the House, but was not included in the final agreement.

Agricultural Property Classification to Include Certain Farm Wineries
The proposal expands the definition of agricultural products for property tax classification purposes to include wine produced by a farm winery. It would also allow contiguous acreage that contains a farm winery property to be eligible for agricultural classification. Under current law, property used for wine fermentation and storage is classified as commercial-industrial property, with a class rate of 1.5% or 2%. The Department of Revenue assumed a negligible property tax shift onto other properties as a result of the proposed bill, which was included in the Senate omnibus tax bill but not the final agreement.

Location Requirements Modification for Special Ag Homestead Classification
Under current law, both the owner and the person actively farming an agricultural property must live within four cities or townships of the property to qualify for special agricultural homestead classification. The proposal would have expanded these location requirements. Both the owner and the person actively farming would be required to live within the county where the property is located or an adjacent county to qualify for special agricultural homestead. The property tax shift onto homesteads and other properties is unknown.