HF 1496

as introduced - 83rd Legislature (2003 - 2004) Posted on 12/15/2009 12:00am

  1.1                          A bill for an act 
  1.2             relating to corporate franchise tax; providing for 
  1.3             taxation of deemed dividends received from foreign 
  1.4             operating corporations; amending Minnesota Statutes 
  1.5             2002, sections 290.01, subdivision 6b; 290.17, 
  1.6             subdivision 4. 
  1.7   BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
  1.8      Section 1.  Minnesota Statutes 2002, section 290.01, 
  1.9   subdivision 6b, is amended to read: 
  1.10     Subd. 6b.  [FOREIGN OPERATING CORPORATION.] The term 
  1.11  "foreign operating corporation," when applied to a corporation, 
  1.12  means a domestic corporation with the following characteristics: 
  1.13     (1) it is part of a unitary business at least one member of 
  1.14  which is taxable in this state; 
  1.15     (2) it is not a foreign sales corporation under section 922 
  1.16  of the Internal Revenue Code, as amended through December 31, 
  1.17  1999, for the taxable year; and 
  1.18     (3) either (i) the average of the percentages of its 
  1.19  property and payrolls assigned to locations inside outside the 
  1.20  United States and the District of Columbia, excluding the 
  1.21  commonwealth of Puerto Rico and possessions of the United 
  1.22  States, as determined under section 290.191 or 290.20, is 20 80 
  1.23  percent or less greater; or (ii) it has in effect a valid 
  1.24  election under section 936 of the Internal Revenue Code. 
  1.25     [EFFECTIVE DATE.] This section is effective for tax years 
  1.26  beginning after December 31, 2003. 
  2.1      Sec. 2.  Minnesota Statutes 2002, section 290.17, 
  2.2   subdivision 4, is amended to read: 
  2.3      Subd. 4.  [UNITARY BUSINESS PRINCIPLE.] (a) If a trade or 
  2.4   business conducted wholly within this state or partly within and 
  2.5   partly without this state is part of a unitary business, the 
  2.6   entire income of the unitary business is subject to 
  2.7   apportionment pursuant to section 290.191.  Notwithstanding 
  2.8   subdivision 2, paragraph (c), none of the income of a unitary 
  2.9   business is considered to be derived from any particular source 
  2.10  and none may be allocated to a particular place except as 
  2.11  provided by the applicable apportionment formula.  The 
  2.12  provisions of this subdivision do not apply to business income 
  2.13  subject to subdivision 5, income of an insurance company, or 
  2.14  income of an investment company determined under section 290.36. 
  2.15     (b) The term "unitary business" means business activities 
  2.16  or operations which result in a flow of value between them.  The 
  2.17  term may be applied within a single legal entity or between 
  2.18  multiple entities and without regard to whether each entity is a 
  2.19  sole proprietorship, a corporation, a partnership or a trust.  
  2.20     (c) Unity is presumed whenever there is unity of ownership, 
  2.21  operation, and use, evidenced by centralized management or 
  2.22  executive force, centralized purchasing, advertising, 
  2.23  accounting, or other controlled interaction, but the absence of 
  2.24  these centralized activities will not necessarily evidence a 
  2.25  nonunitary business.  Unity is also presumed when business 
  2.26  activities or operations are of mutual benefit, dependent upon 
  2.27  or contributory to one another, either individually or as a 
  2.28  group. 
  2.29     (d) Where a business operation conducted in Minnesota is 
  2.30  owned by a business entity that carries on business activity 
  2.31  outside the state different in kind from that conducted within 
  2.32  this state, and the other business is conducted entirely outside 
  2.33  the state, it is presumed that the two business operations are 
  2.34  unitary in nature, interrelated, connected, and interdependent 
  2.35  unless it can be shown to the contrary.  
  2.36     (e) Unity of ownership is not deemed to exist when a 
  3.1   corporation is involved unless that corporation is a member of a 
  3.2   group of two or more business entities and more than 50 percent 
  3.3   of the voting stock of each member of the group is directly or 
  3.4   indirectly owned by a common owner or by common owners, either 
  3.5   corporate or noncorporate, or by one or more of the member 
  3.6   corporations of the group.  For this purpose, the term "voting 
  3.7   stock" shall include membership interests of mutual insurance 
  3.8   holding companies formed under section 60A.077.  
  3.9      (f) The net income and apportionment factors under section 
  3.10  290.191 or 290.20 of foreign corporations and other foreign 
  3.11  entities which are part of a unitary business shall not be 
  3.12  included in the net income or the apportionment factors of the 
  3.13  unitary business.  A foreign corporation or other foreign entity 
  3.14  which is required to file a return under this chapter shall file 
  3.15  on a separate return basis.  The net income and apportionment 
  3.16  factors under section 290.191 or 290.20 of foreign operating 
  3.17  corporations shall not be included in the net income or the 
  3.18  apportionment factors of the unitary business except as provided 
  3.19  in paragraph (g). 
  3.20     (g) The adjusted net income of a foreign operating 
  3.21  corporation shall be deemed to be paid as a dividend on the last 
  3.22  day of its taxable year to each shareholder thereof, in 
  3.23  proportion to each shareholder's ownership, with which such 
  3.24  corporation is engaged in a unitary business.  Such deemed 
  3.25  dividend shall be treated as a dividend under section 290.21, 
  3.26  subdivision 4.  The dividend received deduction shall not be 
  3.27  allowed on dividends, interest, royalties, or capital gains 
  3.28  received by the foreign operating corporation included in the 
  3.29  deemed dividend. 
  3.30     Dividends actually paid by a foreign operating corporation 
  3.31  to a corporate shareholder which is a member of the same unitary 
  3.32  business as the foreign operating corporation shall be 
  3.33  eliminated from the net income of the unitary business in 
  3.34  preparing a combined report for the unitary business.  The 
  3.35  adjusted net income of a foreign operating corporation shall be 
  3.36  its net income adjusted as follows: 
  4.1      (1) any taxes paid or accrued to a foreign country, the 
  4.2   commonwealth of Puerto Rico, or a United States possession or 
  4.3   political subdivision of any of the foregoing shall be a 
  4.4   deduction; and 
  4.5      (2) the subtraction from federal taxable income for 
  4.6   payments received from foreign corporations or foreign operating 
  4.7   corporations under section 290.01, subdivision 19d, clause (10), 
  4.8   shall not be allowed. 
  4.9      If a foreign operating corporation incurs a net loss, 
  4.10  neither income nor deduction from that corporation shall be 
  4.11  included in determining the net income of the unitary business. 
  4.12     (h) For purposes of determining the net income of a unitary 
  4.13  business and the factors to be used in the apportionment of net 
  4.14  income pursuant to section 290.191 or 290.20, there must be 
  4.15  included only the income and apportionment factors of domestic 
  4.16  corporations or other domestic entities other than foreign 
  4.17  operating corporations that are determined to be part of the 
  4.18  unitary business pursuant to this subdivision, notwithstanding 
  4.19  that foreign corporations or other foreign entities might be 
  4.20  included in the unitary business.  
  4.21     (i) Deductions for expenses, interest, or taxes otherwise 
  4.22  allowable under this chapter that are connected with or 
  4.23  allocable against dividends, deemed dividends described in 
  4.24  paragraph (g), or royalties, fees, or other like income 
  4.25  described in section 290.01, subdivision 19d, clause (10), shall 
  4.26  not be disallowed. 
  4.27     (j) Each corporation or other entity, except a sole 
  4.28  proprietorship, that is part of a unitary business must file 
  4.29  combined reports as the commissioner determines.  On the 
  4.30  reports, all intercompany transactions between entities included 
  4.31  pursuant to paragraph (h) must be eliminated and the entire net 
  4.32  income of the unitary business determined in accordance with 
  4.33  this subdivision is apportioned among the entities by using each 
  4.34  entity's Minnesota factors for apportionment purposes in the 
  4.35  numerators of the apportionment formula and the total factors 
  4.36  for apportionment purposes of all entities included pursuant to 
  5.1   paragraph (h) in the denominators of the apportionment formula. 
  5.2      (k) If a corporation has been divested from a unitary 
  5.3   business and is included in a combined report for a fractional 
  5.4   part of the common accounting period of the combined report:  
  5.5      (1) its income includable in the combined report is its 
  5.6   income incurred for that part of the year determined by 
  5.7   proration or separate accounting; and 
  5.8      (2) its sales, property, and payroll included in the 
  5.9   apportionment formula must be prorated or accounted for 
  5.10  separately. 
  5.11     [EFFECTIVE DATE.] This section is effective for tax years 
  5.12  beginning after December 31, 2003.