Matthew Perry is the president of the Southwest Business Association. This piece was submitted by We Can Do Better Minnesota, a coalition of independent small businesses, entrepreneurs, and association leaders.
As the president of the Southwest Business Association, I represent small, independent businesses some of whom have spent decades investing in the neighborhoods where we live, work, and raise our families.
These are not abstract economic units—they are the coffee shops, contractors, retailers, and service providers that form the backbone of our local economy. They are the local neighborhood shops and restaurants that contribute to making our communities the special places they are.
Over the past several years, our members have endured extraordinary challenges. From the disruption of COVID-19 to the ongoing recovery following Operation Metro Surge, small businesses have been tested in ways few could have anticipated. While many have shown remarkable resilience, the reality is that recovery is still fragile.
Now, we face yet another hurdle—this time from our own state government.
A bill moving through the legislature, HF 3127, puts at risk a critical tax provision that many small businesses rely on. The Minnesota Pass-Through Entity, or PTE, tax option. Failing to extend this option would place an additional burden on the very businesses that have worked hardest to keep our communities strong.
The key word here is “extend.”
Let me explain the PTE option in simple terms.
Many small businesses are structured so that the business itself doesn’t pay income taxes.
Instead, the profits “pass through” to the owners, who report that income on their personal tax returns. That’s why they’re called “pass-through” businesses.
Here’s where the issue comes in: when these owners pay state taxes, there’s a federal limit on how much of those taxes they can deduct. That limit can make their federal tax bill higher.
The PTE option fixes that. Instead of the owner paying the state tax personally, the business pays it directly. Because of how federal tax rules work, the business can deduct the full amount. That reduces the total income subject to federal taxes.
Put simply:
Importantly, this does not reduce how much Minnesota collects in taxes—it simply prevents small business owners from being penalized at the federal level.
Minnesota already has a higher cost of doing business compared to many neighboring states. Meanwhile, 36 other states, including California and Illinois, have adopted or extended similar tax relief measures. The question before our legislature is whether Minnesota will remain competitive or fall further behind.
If this legislation is not extended, the consequences are clear. Higher effective taxes, less available cash, delayed hiring, and stalled growth. For some businesses still recovering, it could be the difference between survival and closure.
We are urging Gov. Tim Walz and state lawmakers to extend the Minnesota PTE option and make that extension retroactive to Jan. 1, 2026. Without that retroactivity, some businesses could face double taxation when paying quarterly taxes.
At a time when affordability and economic recovery are at the center of public conversation, this is a practical, proven step that would provide immediate relief. Our small businesses have carried our communities through difficult times. Now, they need their state to stand with them.
Let’s fix the Minnesota PTE and give small businesses the fair treatment and the breathing room they deserve.
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