HF 1822

as introduced - 91st Legislature (2019 - 2020) Posted on 02/28/2019 02:33pm

A bill for an act
relating to taxation; income; providing for a throwback sales rule applicable to
apportionment of income; making technical changes; amending Minnesota Statutes
2018, sections 290.015, subdivision 1; 290.191, subdivisions 5, 6.

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

Section 1.

Minnesota Statutes 2018, section 290.015, subdivision 1, is amended to read:

Subdivision 1.

General rule.

(a) Except as provided in subdivision 3, a person that
conducts a trade or business that has a place of business in this state, regularly has employees
or independent contractors conducting business activities on its behalf in this state, or owns
or leases real property that is located in this state or tangible personal property, including
but not limited to mobile property, that is present in this state is subject to the taxes imposed
by this chapter.

(b) Except as provided in subdivision 3, a person that conducts a trade or business not
described in paragraph (a) is subject to the taxes imposed by this chapter if the trade or
business obtains or regularly solicits business from within this state, without regard to
physical presence in this state.

(c) For purposes of paragraph (b), business from within this state includes, but is not
limited to:

(1) sales of products or services of any kind or nature to customers in this state who
receive the product or service in this state;

(2) sales of services which are performed from outside this state but the services are
received in this state;

(3) transactions with customers in this state that involve intangible property and result
in receipts attributed to this state as provided in section 290.191, subdivision 5 or 6;

(4) leases of tangible personal property that is located in this state as defined in section
290.191, subdivision 5, paragraph deleted text begin (g) deleted text end new text begin (f) new text end , or 6, paragraph (e); and

(5) sales and leases of real property located in this state.

(d) For purposes of paragraph (b), solicitation includes, but is not limited to:

(1) the distribution, by mail or otherwise, without regard to the state from which such
distribution originated or in which the materials were prepared, of catalogs, periodicals,
advertising flyers, or other written solicitations of business to customers in this state;

(2) display of advertisements on billboards or other outdoor advertising in this state;

(3) advertisements in newspapers published in this state;

(4) advertisements in trade journals or other periodicals, the circulation of which is
primarily within this state;

(5) advertisements in a Minnesota edition of a national or regional publication or a
limited regional edition of which this state is included of a broader regional or national
publication which are not placed in other geographically defined editions of the same issue
of the same publication;

(6) advertisements in regional or national publications in an edition which is not by its
contents geographically targeted to Minnesota, but which is sold over the counter in
Minnesota or by subscription to Minnesota residents;

(7) advertisements broadcast on a radio or television station located in Minnesota; or

(8) any other solicitation by telephone, computer database, cable, optic, microwave, or
other communication system.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxable years beginning after December
31, 2018.
new text end

Sec. 2.

Minnesota Statutes 2018, 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 new text begin :
new text end

new text begin (1) new text end 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 new text begin ; or
new text end

new text begin (2) the property is shipped from an office, store, warehouse, factory, or other place of
storage in this state and the purchaser is the United States government or the taxpayer is
not taxable in the state of the purchaser new text end .

(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.

deleted text begin (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.
deleted text end

deleted text begin (f) deleted text end new text begin (e) new text end Sales, rents, royalties, and other income in connection with real property is
attributed to the state in which the property is located.

deleted text begin (g) deleted text end new text begin (f) new text end 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.

deleted text begin (h) deleted text end new text begin (g) new text end 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.

deleted text begin (i) deleted text end new text begin (h) new text end 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.

deleted text begin (j) deleted text end new text begin (i) new text end 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 If the taxpayer is not taxable in the state of the purchaser, the
sale is attributable to this state if the greater proportion of the service is performed in this
state.
new text end

deleted text begin (k) deleted text end new text begin (j) new text end 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 for taxable years beginning after December
31, 2018.
new text end

Sec. 3.

Minnesota Statutes 2018, section 290.191, subdivision 6, is amended to read:

Subd. 6.

Determination of receipts factor for financial institutions.

(a) For purposes
of this section, the rules in this subdivision and subdivisions 5, paragraph deleted text begin (k) deleted text end new text begin (j) new text end , and 8 apply
in determining the receipts factor for financial institutions.

(b) "Receipts" for this purpose means gross income, including net taxable gain on
disposition of assets, including securities and money market instruments, when derived
from transactions and activities in the regular course of the taxpayer's trade or business.

(c) "Money market instruments" means federal funds sold and securities purchased under
agreements to resell, commercial paper, banker's acceptances, and purchased certificates
of deposit and similar instruments to the extent that the instruments are reflected as assets
under generally accepted accounting principles.

(d) "Securities" means United States Treasury securities, obligations of United States
government agencies and corporations, obligations of state and political subdivisions,
corporate stock, bonds, and other securities, participations in securities backed by mortgages
held by United States or state government agencies, loan-backed securities and similar
investments to the extent the investments are reflected as assets under generally accepted
accounting principles.

(e) Receipts from the lease or rental of real or tangible personal property, including both
finance leases and true leases, must be attributed to this state if the property is located in
this state. Receipts from the lease or rental of tangible personal property that is
characteristically 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 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.

(f) Interest income and other receipts from assets in the nature of loans that are secured
primarily by real estate or tangible personal property must be attributed to this state if the
security property is located in this state under the principles stated in paragraph (e).

(g) Interest income and other receipts from consumer loans not secured by real or tangible
personal property that are made to residents of this state, whether at a place of business, by
traveling loan officer, by mail, by telephone or other electronic means, must be attributed
to this state.

(h) Interest income and other receipts from commercial loans and installment obligations
that are unsecured by real or tangible personal property or secured by intangible property
must be attributed to this state if the proceeds of the loan are to be applied in this state. If
it cannot be determined where the funds are to be applied, the income and receipts are
attributed to the state in which the office of the borrower from which the application would
be made in the regular course of business is located. If this cannot be determined, the
transaction is disregarded in the apportionment formula.

(i) Interest income and other receipts from a participating financial institution's portion
of participation and syndication loans must be attributed under paragraphs (e) to (h). A
participation loan is an arrangement in which a lender makes a loan to a borrower and then
sells, assigns, or otherwise transfers all or a part of the loan to a purchasing financial
institution. A syndication loan is a loan transaction involving multiple financial institutions
in which all the lenders are named as parties to the loan documentation, are known to the
borrower, and have privity of contract with the borrower.

(j) Interest income and other receipts including service charges from financial institution
credit card and travel and entertainment credit card receivables and credit card holders' fees
must be attributed to the state to which the card charges and fees are regularly billed.

(k) Merchant discount income derived from financial institution credit card holder
transactions with a merchant must be attributed to the state in which the merchant is located.
In the case of merchants located within and outside the state, only receipts from merchant
discounts attributable to sales made from locations within the state are attributed to this
state. It is presumed, subject to rebuttal, that the location of a merchant is the address shown
on the invoice submitted by the merchant to the taxpayer.

(l) Receipts from the performance of fiduciary and other services must be attributed to
the state in which the services are received. For the purposes of this section, services provided
to a corporation, partnership, or trust must 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 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.

(m) Receipts from the issuance of travelers checks and money orders must be attributed
to the state in which the checks and money orders are purchased.

(n) Receipts from investments of a financial institution in securities and from money
market instruments must be apportioned to this state based on the ratio that total deposits
from this state, its residents, including any business with an office or other place of business
in this state, its political subdivisions, agencies, and instrumentalities bear to the total deposits
from all states, their residents, their political subdivisions, agencies, and instrumentalities.
In the case of an unregulated financial institution subject to this section, these receipts are
apportioned to this state based on the ratio that its gross business income, excluding such
receipts, earned from sources within this state bears to gross business income, excluding
such receipts, earned from sources within all states. For purposes of this subdivision, deposits
made by this state, its residents, its political subdivisions, agencies, and instrumentalities
must be attributed to this state, whether or not the deposits are accepted or maintained by
the taxpayer at locations within this state.

(o) A financial institution's interest in property described in section 290.015, subdivision
3, paragraph (b), is included in the receipts factor in the same manner as assets in the nature
of securities or money market instruments are included in paragraph (n).

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxable years beginning after December
31, 2018.
new text end