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Representative Agbaji presents bill to expand Minnesota's net investment income tax to include certain business income
Summary
House File 4123, presented by Representative Agbaji, would expand Minnesota's net investment income tax to include business income paid through pass-through entities such as S corporations and LLCs and is projected in testimony to generate roughly $88.7 million in the next tax year.
Representative Agbaji introduced House File 4123 to the House Taxes Committee, saying the bill "expands upon a bill that we have passed a couple years ago" by broadening what counts as net investment income and bringing certain business income into the base.
The bill would include income from a trade or business that is not subject to federal self-employment payroll taxes, such as income paid through S corporations and some LLCs, while leaving the existing tax rate unchanged. Representative Agbaji said the change would primarily affect people receiving income through pass-through entities and that the expansion could yield roughly $88.7 million in revenue in the next tax year.
Supporters during public testimony said the proposal targets income that currently receives preferential treatment at the federal level and could help fund state priorities. "Minnesota's net investment income tax... shines a spotlight on the types of income that are largely concentrated among higher income households," a witness from the Minnesota Budget Project testified, noting federal policy context and income concentration trends.
Business groups and trade associations opposed the change, arguing it would functionally create an additional tax on many small and medium-sized pass-through businesses. Brian Cooke of the Minnesota Chamber of Commerce warned the measure would impose a new tax burden on small firms and could worsen Minnesota's competitiveness relative to neighboring states.
Committee members asked questions about which filers would be affected and about overlaps with federal and state tax rules. Representative Agbaji and other supporters said the bill builds on an existing foundation in state law and federal rules and that details could be refined in later drafting.
The committee ultimately laid HF 4123 over for possible inclusion in the 2026 tax bill; no final action to pass or reject the bill occurred during the hearing. The record shows both policy and administrative concerns will be part of follow-up conversations.
