HF 2179

as introduced - 89th Legislature (2015 - 2016) Posted on 04/09/2015 11:13am

A bill for an act
relating to taxation; individual income; providing sourcing rules for certain
income; amending Minnesota Statutes 2014, section 290.191, subdivision 5.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:

Section 1.

Minnesota Statutes 2014, section 290.191, subdivision 5, is amended to read:

Subd. 5.

Determination of sales factor.

For purposes of this section, the following
rules apply in determining the sales factor.

(a) The sales factor includes all sales, gross earnings, or receipts received in the
ordinary course of the business, except that the following types of income are not included
in the sales factor:

(1) interest;

(2) dividends;

(3) sales of capital assets as defined in section 1221 of the Internal Revenue Code;

(4) sales of property used in the trade or business, except sales of leased property of
a type which is regularly sold as well as leased; and

(5) sales of debt instruments as defined in section 1275(a)(1) of the Internal Revenue
Code or sales of stock.

(b) Sales of tangible personal property are made within this state if the property is
received by a purchaser at a point within this state, regardless of the f.o.b. point, other
conditions of the sale, or the ultimate destination of the property.

(c) Tangible personal property delivered to a common or contract carrier or foreign
vessel for delivery to a purchaser in another state or nation is a sale in that state or nation,
regardless of f.o.b. point or other conditions of the sale.

(d) Notwithstanding paragraphs (b) and (c), when intoxicating liquor, wine,
fermented malt beverages, cigarettes, or tobacco products are sold to a purchaser who is
licensed by a state or political subdivision to resell this property only within the state of
ultimate destination, the sale is made in that state.

(e) Sales made by or through a corporation that is qualified as a domestic
international sales corporation under section 992 of the Internal Revenue Code are not
considered to have been made within this state.

(f) Sales, rents, royalties, and other income in connection with real property is
attributed to the state in which the property is located.

(g) Receipts from the lease or rental of tangible personal property, including finance
leases and true leases, must be attributed to this state if the property is located in this
state and to other states if the property is not located in this state. Receipts from the
lease or rental of moving property including, but not limited to, motor vehicles, rolling
stock, aircraft, vessels, or mobile equipment are included in the numerator of the receipts
factor to the extent that the property is used in this state. The extent of the use of moving
property is determined as follows:

(1) A motor vehicle is used wholly in the state in which it is registered.

(2) The extent that rolling stock is used in this state is determined by multiplying
the receipts from the lease or rental of the rolling stock by a fraction, the numerator of
which is the miles traveled within this state by the leased or rented rolling stock and the
denominator of which is the total miles traveled by the leased or rented rolling stock.

(3) The extent that an aircraft is used in this state is determined by multiplying the
receipts from the lease or rental of the aircraft by a fraction, the numerator of which is
the number of landings of the aircraft in this state and the denominator of which is the
total number of landings of the aircraft.

(4) The extent that a vessel, mobile equipment, or other mobile property is used in
the state is determined by multiplying the receipts from the lease or rental of the property
by a fraction, the numerator of which is the number of days during the taxable year the
property was in this state and the denominator of which is the total days in the taxable year.

(h) Royalties and other income received for the use of or for the privilege of using
intangible property, including patents, know-how, formulas, designs, processes, patterns,
copyrights, trade names, service names, franchises, licenses, contracts, customer lists, or
similar items, must be attributed to the state in which the property is used by the purchaser.
If the property is used in more than one state, the royalties or other income must be
apportioned to this state pro rata according to the portion of use in this state. If the portion
of use in this state cannot be determined, the royalties or other income must be excluded
from both the numerator and the denominator. Intangible property is used in this state if
the purchaser uses the intangible property or the rights therein in the regular course of its
business operations in this state, regardless of the location of the purchaser's customers.

(i) Sales of intangible property are made within the state in which the property is
used by the purchaser. If the property is used in more than one state, the sales must be
apportioned to this state pro rata according to the portion of use in this state. If the
portion of use in this state cannot be determined, the sale must be excluded from both the
numerator and the denominator of the sales factor. Intangible property is used in this
state if the purchaser used the intangible property in the regular course of its business
operations in this state.

(j) Receipts from the performance of services must be attributed to the state where
the services are received. For the purposes of this section, receipts from the performance
of services provided to a corporation, partnership, or trust may only be attributed to a
state where it has a fixed place of doing business. If the state where the services are
received is not readily determinable or is a state where the corporation, partnership, or
trust receiving the service does not have a fixed place of doing business, the services
shall be deemed to be received at the location of the office of the customer from which
the services were ordered in the regular course of the customer's trade or business. If the
ordering office cannot be determined, the services shall be deemed to be received at the
office of the customer to which the services are billed. new text begin Receipts received as compensation
by a nonresident individual for the performance of services as a member of a board of
directors, or similar body, are attributed to Minnesota based on the ratio of the time spent
in Minnesota providing services as a member of that board divided by the time spent
everywhere providing services as a member of that board.
new text end

(k) For the purposes of this subdivision and subdivision 6, paragraph (l), receipts
from management, distribution, or administrative services performed by a corporation
or trust for a fund of a corporation or trust regulated under United States Code, title 15,
sections 80a-1 through 80a-64, must be attributed to the state where the shareholder of
the fund resides. Under this paragraph, receipts for services attributed to shareholders are
determined on the basis of the ratio of: (1) the average of the outstanding shares in the
fund owned by shareholders residing within Minnesota at the beginning and end of each
year; and (2) the average of the total number of outstanding shares in the fund at the
beginning and end of each year. Residence of the shareholder, in the case of an individual,
is determined by the mailing address furnished by the shareholder to the fund. Residence
of the shareholder, when the shares are held by an insurance company as a depositor for
the insurance company policyholders, is the mailing address of the policyholders. In
the case of an insurance company holding the shares as a depositor for the insurance
company policyholders, if the mailing address of the policyholders cannot be determined
by the taxpayer, the receipts must be excluded from both the numerator and denominator.
Residence of other shareholders is the mailing address of the shareholder.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective the day following final enactment
and applies retroactively to all open taxable years and returns.
new text end