HF 664

as introduced - 90th Legislature (2017 - 2018) Posted on 01/30/2017 01:28pm

A bill for an act
relating to taxation; individual income; modifying the credit for taxes paid to other
states; making the credit refundable; amending Minnesota Statutes 2016, section
290.06, subdivision 22.

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

Section 1.

Minnesota Statutes 2016, section 290.06, subdivision 22, is amended to read:

Subd. 22.

Credit for taxes paid to another state.

(a) A taxpayer who is liable for taxes
based on net income to another state, as provided in paragraphs (b) through (f), upon income
allocated or apportioned to Minnesota, is entitled to a credit for the tax paid to another state
if the tax is actually paid in the taxable year or a subsequent taxable year. A taxpayer who
is a resident of this state pursuant to section 290.01, subdivision 7, paragraph (b), and who
is subject to income tax as a resident in the state of the individual's domicile is not allowed
this credit unless the state of domicile does not allow a similar credit.

(b) For an individual, estate, or trust, the credit is determined by multiplying the tax
payable under this chapter by the ratio derived by dividing the income subject to tax in the
other state that is also subject to tax in Minnesota while a resident of Minnesota by the
taxpayer's federal adjusted gross income, as defined in section 62 of the Internal Revenue
Code, modified by the addition required by section 290.0131, subdivision 2, and the
subtraction allowed by section 290.0132, subdivision 2, to the extent the income is allocated
or assigned to Minnesota under sections 290.081 and 290.17.

(c) If the taxpayer is an athletic team that apportions all of its income under section
290.17, subdivision 5, the credit is determined by multiplying the tax payable under this
chapter by the ratio derived from dividing the total net income subject to tax in the other
state by the taxpayer's Minnesota taxable income.

(d) new text begin (1) new text end The credit determined under paragraph (b) or (c) shall not exceed the amount of
tax so paid to the other state on the gross income earned within the other state subject to
tax under this chapter deleted text begin , nor shall deleted text end new text begin ;
new text end

new text begin (2) new text end the allowance of the credit new text begin does not new text end reduce the taxes paid under this chapter to an
amount less than what would be assessed if deleted text begin such income amount was deleted text end new text begin the gross income
earned within the other state were new text end excluded from taxable net income.

(e) In the case of the tax assessed on a lump-sum distribution under section 290.032, the
credit allowed under paragraph (a) is the tax assessed by the other state on the lump-sum
distribution that is also subject to tax under section 290.032, and shall not exceed the tax
assessed under section 290.032. To the extent the total lump-sum distribution defined in
section 290.032, subdivision 1, includes lump-sum distributions received in prior years or
is all or in part an annuity contract, the reduction to the tax on the lump-sum distribution
allowed under section 290.032, subdivision 2, includes tax paid to another state that is
properly apportioned to that distribution.

(f) If a Minnesota resident reported an item of income to Minnesota and is assessed tax
in such other state on that same income after the Minnesota statute of limitations has expired,
the taxpayer shall receive a credit for that year under paragraph (a), notwithstanding any
statute of limitations to the contrary. The claim for the credit must be submitted within one
year from the date the taxes were paid to the other state. The taxpayer must submit sufficient
proof to show entitlement to a credit.

(g) For the purposes of this subdivision, a resident shareholder of a corporation treated
as an "S" corporation under section 290.9725, must be considered to have paid a tax imposed
on the shareholder in an amount equal to the shareholder's pro rata share of any net income
tax paid by the S corporation to another state. For the purposes of the preceding sentence,
the term "net income tax" means any tax imposed on or measured by a corporation's net
income.

(h) For the purposes of this subdivision, a resident partner of an entity taxed as a
partnership under the Internal Revenue Code must be considered to have paid a tax imposed
on the partner in an amount equal to the partner's pro rata share of any net income tax paid
by the partnership to another state. For purposes of the preceding sentence, the term "net
income" tax means any tax imposed on or measured by a partnership's net income.

(i) For the purposes of this subdivision, "another state":

(1) includes:

(i) the District of Columbia; and

(ii) a province or territory of Canada; but

(2) excludes Puerto Rico and the several territories organized by Congress.

(j) The limitations on the credit in paragraphs (b), (c), and (d), are imposed on a state
by state basis.

(k) For a tax imposed by a province or territory of Canada, the tax for purposes of this
subdivision is the excess of the tax over the amount of the foreign tax credit allowed under
section 27 of the Internal Revenue Code. In determining the amount of the foreign tax credit
allowed, the net income taxes imposed by Canada on the income are deducted first. Any
remaining amount of the allowable foreign tax credit reduces the provincial or territorial
tax that qualifies for the credit under this subdivision.

new text begin (l) If the amount of the credit that a qualifying individual is eligible to receive under this
section for taxes paid to a qualifying state, disregarding the limitation in paragraph (d),
clause (2), exceeds the taxes due under this chapter, the commissioner shall refund the
excess to the individual. An amount sufficient to pay the refunds required by this section
is appropriated to the commissioner from the general fund.
new text end

new text begin For purposes of this paragraph, "qualifying individual" means a Minnesota resident as
defined in section 290.01, subdivision 7, paragraph (a), who received compensation during
the taxable year for the performance of personal or professional services within a qualifying
state, and "qualifying state" means a state with which an agreement under section 290.081
is not in effect for the taxable year but was in effect for a taxable year beginning before
January 1, 2010.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxable years beginning after December
31, 2016.
new text end