HF 2319

as introduced - 86th Legislature (2009 - 2010) Posted on 02/09/2010 02:01am

A bill for an act
relating to taxation; individual income and corporate franchise tax; clarifying the
treatment of certain built-in losses of certain banks with an ownership change;
amending Minnesota Statutes 2008, section 290.01, subdivisions 19c, 19d;
proposing coding for new law in Minnesota Statutes, chapter 290.

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

Section 1.

Minnesota Statutes 2008, section 290.01, subdivision 19c, is amended to
read:

Subd. 19c.

Corporations; additions to federal taxable income.

For corporations,
there shall be added to federal taxable income:

(1) the amount of any deduction taken for federal income tax purposes for income,
excise, or franchise taxes based on net income or related minimum taxes, including but not
limited to the tax imposed under section 290.0922, paid by the corporation to Minnesota,
another state, a political subdivision of another state, the District of Columbia, or any
foreign country or possession of the United States;

(2) interest not subject to federal tax upon obligations of: the United States, its
possessions, its agencies, or its instrumentalities; the state of Minnesota or any other
state, any of its political or governmental subdivisions, any of its municipalities, or any
of its governmental agencies or instrumentalities; the District of Columbia; or Indian
tribal governments;

(3) exempt-interest dividends received as defined in section 852(b)(5) of the Internal
Revenue Code;

(4) the amount of any net operating loss deduction taken for federal income tax
purposes under section 172 or 832(c)(10) of the Internal Revenue Code or operations loss
deduction under section 810 of the Internal Revenue Code;

(5) the amount of any special deductions taken for federal income tax purposes
under sections 241 to 247 and 965 of the Internal Revenue Code;

(6) losses from the business of mining, as defined in section 290.05, subdivision 1,
clause (a), that are not subject to Minnesota income tax;

(7) the amount of any capital losses deducted for federal income tax purposes under
sections 1211 and 1212 of the Internal Revenue Code;

(8) the exempt foreign trade income of a foreign sales corporation under sections
921(a) and 291 of the Internal Revenue Code;

(9) the amount of percentage depletion deducted under sections 611 through 614 and
291 of the Internal Revenue Code;

(10) for certified pollution control facilities placed in service in a taxable year
beginning before December 31, 1986, and for which amortization deductions were elected
under section 169 of the Internal Revenue Code of 1954, as amended through December
31, 1985, the amount of the amortization deduction allowed in computing federal taxable
income for those facilities;

(11) the amount of any deemed dividend from a foreign operating corporation
determined pursuant to section 290.17, subdivision 4, paragraph (g). The deemed dividend
shall be reduced by the amount of the addition to income required by clauses (20), (21),
(22), and (23);

(12) the amount of a partner's pro rata share of net income which does not flow
through to the partner because the partnership elected to pay the tax on the income under
section 6242(a)(2) of the Internal Revenue Code;

(13) the amount of net income excluded under section 114 of the Internal Revenue
Code;

(14) any increase in subpart F income, as defined in section 952(a) of the Internal
Revenue Code, for the taxable year when subpart F income is calculated without regard
to the provisions of section 103 of Public Law 109-222;

(15) 80 percent of the depreciation deduction allowed under section 168(k)(1)(A)
and (k)(4)(A) of the Internal Revenue Code. For purposes of this clause, if the taxpayer
has an activity that in the taxable year generates a deduction for depreciation under
section 168(k)(1)(A) and (k)(4)(A) and the activity generates a loss for the taxable year
that the taxpayer is not allowed to claim for the taxable year, "the depreciation allowed
under section 168(k)(1)(A) and (k)(4)(A)" for the taxable year is limited to excess of the
depreciation claimed by the activity under section 168(k)(1)(A) and (k)(4)(A) over the
amount of the loss from the activity that is not allowed in the taxable year. In succeeding
taxable years when the losses not allowed in the taxable year are allowed, the depreciation
under section 168(k)(1)(A) and (k)(4)(A) is allowed;

(16) 80 percent of the amount by which the deduction allowed by section 179 of the
Internal Revenue Code exceeds the deduction allowable by section 179 of the Internal
Revenue Code of 1986, as amended through December 31, 2003;

(17) to the extent deducted in computing federal taxable income, the amount of the
deduction allowable under section 199 of the Internal Revenue Code;

(18) the exclusion allowed under section 139A of the Internal Revenue Code for
federal subsidies for prescription drug plans;

(19) the amount of expenses disallowed under section 290.10, subdivision 2;

(20) an amount equal to the interest and intangible expenses, losses, and costs paid,
accrued, or incurred by any member of the taxpayer's unitary group to or for the benefit
of a corporation that is a member of the taxpayer's unitary business group that qualifies
as a foreign operating corporation. For purposes of this clause, intangible expenses and
costs include:

(i) expenses, losses, and costs for, or related to, the direct or indirect acquisition,
use, maintenance or management, ownership, sale, exchange, or any other disposition of
intangible property;

(ii) losses incurred, directly or indirectly, from factoring transactions or discounting
transactions;

(iii) royalty, patent, technical, and copyright fees;

(iv) licensing fees; and

(v) other similar expenses and costs.

For purposes of this clause, "intangible property" includes stocks, bonds, patents, patent
applications, trade names, trademarks, service marks, copyrights, mask works, trade
secrets, and similar types of intangible assets.

This clause does not apply to any item of interest or intangible expenses or costs paid,
accrued, or incurred, directly or indirectly, to a foreign operating corporation with respect
to such item of income to the extent that the income to the foreign operating corporation
is income from sources without the United States as defined in subtitle A, chapter 1,
subchapter N, part 1, of the Internal Revenue Code;

(21) except as already included in the taxpayer's taxable income pursuant to clause
(20), any interest income and income generated from intangible property received or
accrued by a foreign operating corporation that is a member of the taxpayer's unitary
group. For purposes of this clause, income generated from intangible property includes:

(i) income related to the direct or indirect acquisition, use, maintenance or
management, ownership, sale, exchange, or any other disposition of intangible property;

(ii) income from factoring transactions or discounting transactions;

(iii) royalty, patent, technical, and copyright fees;

(iv) licensing fees; and

(v) other similar income.

For purposes of this clause, "intangible property" includes stocks, bonds, patents, patent
applications, trade names, trademarks, service marks, copyrights, mask works, trade
secrets, and similar types of intangible assets.

This clause does not apply to any item of interest or intangible income received or accrued
by a foreign operating corporation with respect to such item of income to the extent that
the income is income from sources without the United States as defined in subtitle A,
chapter 1, subchapter N, part 1, of the Internal Revenue Code;

(22) the dividends attributable to the income of a foreign operating corporation that
is a member of the taxpayer's unitary group in an amount that is equal to the dividends
paid deduction of a real estate investment trust under section 561(a) of the Internal
Revenue Code for amounts paid or accrued by the real estate investment trust to the
foreign operating corporation;

(23) the income of a foreign operating corporation that is a member of the taxpayer's
unitary group in an amount that is equal to gains derived from the sale of real or personal
property located in the United States; deleted text begin and
deleted text end

(24) for taxable years beginning after December 31, 2006, and before January 1,
2008, the additional amount allowed as a deduction for donation of computer technology
and equipment under section 170(e)(6) of the Internal Revenue Code, to the extent
deducted from taxable income deleted text begin . deleted text end new text begin ; and
new text end

new text begin (25) the amount of any deduction attributable to built-in losses under section 382
of the Internal Revenue Code deducted in computing federal taxable income for the
taxable year under Internal Revenue Service Notice 2008-83, but disallowed under section
290.094 for that taxable year.
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, 2007.
new text end

Sec. 2.

Minnesota Statutes 2008, section 290.01, subdivision 19d, is amended to read:

Subd. 19d.

Corporations; modifications decreasing federal taxable income.

For
corporations, there shall be subtracted from federal taxable income after the increases
provided in subdivision 19c:

(1) the amount of foreign dividend gross-up added to gross income for federal
income tax purposes under section 78 of the Internal Revenue Code;

(2) the amount of salary expense not allowed for federal income tax purposes due to
claiming the work opportunity credit under section 51 of the Internal Revenue Code;

(3) any dividend (not including any distribution in liquidation) paid within the
taxable year by a national or state bank to the United States, or to any instrumentality of
the United States exempt from federal income taxes, on the preferred stock of the bank
owned by the United States or the instrumentality;

(4) amounts disallowed for intangible drilling costs due to differences between
this chapter and the Internal Revenue Code in taxable years beginning before January
1, 1987, as follows:

(i) to the extent the disallowed costs are represented by physical property, an amount
equal to the allowance for depreciation under Minnesota Statutes 1986, section 290.09,
subdivision 7, subject to the modifications contained in subdivision 19e; and

(ii) to the extent the disallowed costs are not represented by physical property, an
amount equal to the allowance for cost depletion under Minnesota Statutes 1986, section
290.09, subdivision 8;

(5) the deduction for capital losses pursuant to sections 1211 and 1212 of the
Internal Revenue Code, except that:

(i) for capital losses incurred in taxable years beginning after December 31, 1986,
capital loss carrybacks shall not be allowed;

(ii) for capital losses incurred in taxable years beginning after December 31, 1986,
a capital loss carryover to each of the 15 taxable years succeeding the loss year shall be
allowed;

(iii) for capital losses incurred in taxable years beginning before January 1, 1987, a
capital loss carryback to each of the three taxable years preceding the loss year, subject to
the provisions of Minnesota Statutes 1986, section 290.16, shall be allowed; and

(iv) for capital losses incurred in taxable years beginning before January 1, 1987,
a capital loss carryover to each of the five taxable years succeeding the loss year to the
extent such loss was not used in a prior taxable year and subject to the provisions of
Minnesota Statutes 1986, section 290.16, shall be allowed;

(6) an amount for interest and expenses relating to income not taxable for federal
income tax purposes, if (i) the income is taxable under this chapter and (ii) the interest and
expenses were disallowed as deductions under the provisions of section 171(a)(2), 265 or
291 of the Internal Revenue Code in computing federal taxable income;

(7) in the case of mines, oil and gas wells, other natural deposits, and timber for
which percentage depletion was disallowed pursuant to subdivision 19c, clause (9), a
reasonable allowance for depletion based on actual cost. In the case of leases the deduction
must be apportioned between the lessor and lessee in accordance with rules prescribed
by the commissioner. In the case of property held in trust, the allowable deduction must
be apportioned between the income beneficiaries and the trustee in accordance with the
pertinent provisions of the trust, or if there is no provision in the instrument, on the basis
of the trust's income allocable to each;

(8) for certified pollution control facilities placed in service in a taxable year
beginning before December 31, 1986, and for which amortization deductions were elected
under section 169 of the Internal Revenue Code of 1954, as amended through December
31, 1985, an amount equal to the allowance for depreciation under Minnesota Statutes
1986, section 290.09, subdivision 7;

(9) amounts included in federal taxable income that are due to refunds of income,
excise, or franchise taxes based on net income or related minimum taxes paid by the
corporation to Minnesota, another state, a political subdivision of another state, the
District of Columbia, or a foreign country or possession of the United States to the extent
that the taxes were added to federal taxable income under section 290.01, subdivision 19c,
clause (1), in a prior taxable year;

(10) 80 percent of royalties, fees, or other like income accrued or received from a
foreign operating corporation or a foreign corporation which is part of the same unitary
business as the receiving corporation, unless the income resulting from such payments or
accruals is income from sources within the United States as defined in subtitle A, chapter
1, subchapter N, part 1, of the Internal Revenue Code;

(11) income or gains from the business of mining as defined in section 290.05,
subdivision 1, clause (a), that are not subject to Minnesota franchise tax;

(12) the amount of disability access expenditures in the taxable year which are not
allowed to be deducted or capitalized under section 44(d)(7) of the Internal Revenue Code;

(13) the amount of qualified research expenses not allowed for federal income tax
purposes under section 280C(c) of the Internal Revenue Code, but only to the extent that
the amount exceeds the amount of the credit allowed under section 290.068;

(14) the amount of salary expenses not allowed for federal income tax purposes due
to claiming the Indian employment credit under section 45A(a) of the Internal Revenue
Code;

(15) for taxable years beginning before January 1, 2008, the amount of the federal
small ethanol producer credit allowed under section 40(a)(3) of the Internal Revenue Code
which is included in gross income under section 87 of the Internal Revenue Code;

(16) for a corporation whose foreign sales corporation, as defined in section 922
of the Internal Revenue Code, constituted a foreign operating corporation during any
taxable year ending before January 1, 1995, and a return was filed by August 15, 1996,
claiming the deduction under section 290.21, subdivision 4, for income received from
the foreign operating corporation, an amount equal to 1.23 multiplied by the amount of
income excluded under section 114 of the Internal Revenue Code, provided the income is
not income of a foreign operating company;

(17) any decrease in subpart F income, as defined in section 952(a) of the Internal
Revenue Code, for the taxable year when subpart F income is calculated without regard
to the provisions of section 103 of Public Law 109-222;

(18) in each of the five tax years immediately following the tax year in which an
addition is required under subdivision 19c, clause (15), an amount equal to one-fifth of
the delayed depreciation. For purposes of this clause, "delayed depreciation" means the
amount of the addition made by the taxpayer under subdivision 19c, clause (15). The
resulting delayed depreciation cannot be less than zero; deleted text begin and deleted text end

(19) in each of the five tax years immediately following the tax year in which an
addition is required under subdivision 19c, clause (16), an amount equal to one-fifth of
the amount of the addition deleted text begin . deleted text end new text begin ; and
new text end

new text begin (20) for a bank with an ownership change qualifying under Internal Revenue Service
Notice 2008-83 and section 1261 of Public Law 111-5, Division B, allowances for losses
on loans or bad debts (including deductions for a reasonable addition to a reserve for bad
debts) that were added to federal taxable income under section 290.094 and subdivision
19c, clause (25), in a prior taxable year, but only to the extent and in the taxable year
permitted under section 290.094 and section 382 of the Internal Revenue Code, applied
without regard to the provisions of Internal Revenue Service Notice 2008-83.
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, 2008.
new text end

Sec. 3.

new text begin [290.094] EFFECT OF IRS NOTICE 2008-83.
new text end

new text begin Subdivision 1. new text end

new text begin Findings. new text end

new text begin (a) The Minnesota legislature makes the following
findings in connection with Internal Revenue Service Notice 2008-83 and its application
to the computation of taxable income and tax under this chapter. As used in the section,
"the notice" refers to Internal Revenue Service Notice 2008-83.
new text end

new text begin (b) The legislature approves and endorses the findings of Congress in section 1261,
subsection (a), of Public Law 111-5, Division B, that the legal authority of the Internal
Revenue Service to prescribe the notice is doubtful and that the notice is inconsistent with
the intent of section 382 of the Internal Revenue Code. The legislature further finds that
the notice is inconsistent with the intent of the legislature in adopting and conforming to
the provisions of section 382 for purposes of computing the tax under this chapter in
the legislature's enactments since 1986.
new text end

new text begin (c) The legislature further finds that in conforming to and adopting the provisions of
section 382 of the Internal Revenue Code for purposes of computing tax liability under
this chapter, it did not adopt as part of Minnesota law future Internal Revenue Service
notices construing that provision, when the Internal Revenue Service's legal authority to
issue the notice is doubtful. Doing so may delegate the legislature's constitutional power
to the Internal Revenue Service contrary to the holding of the Minnesota Supreme Court
in Wallace v. Commissioner of Taxation, 289 Minn. 220, 184 N.W.2d 558 (1971).
new text end

new text begin (d) The legislature further finds that it is in the public interest to conform to the
provisions of the notice and section 1261 with regard to the computation of individual
income tax, given the likely small effect on tax liability and the difficulties that failing
to conform to federal law would create for tax compliance and administration of the
individual income tax.
new text end

new text begin (e) The legislature further finds that it is not in the public interest to conform to the
notice with regard to the computation of corporate franchise tax. Following the notice
would result in significant reductions in corporate franchise tax liability and temporary or
permanent reductions in state revenue. The state has little or no interest in encouraging
taxpayers to rely on Internal Revenue Service notices of doubtful legality for Minnesota
state tax purposes and taxpayers have no reasonable expectation that they can rely on them
as to the Minnesota tax effects of transactions. In addition, the affected taxpayers are
likely sufficiently sophisticated and capable to calculate their Minnesota and federal tax
following different rules governing the allowability of deductions for built-in losses.
new text end

new text begin Subd. 2. new text end

new text begin Application of the notice. new text end

new text begin (a) For purposes of computing federal taxable
income in computing the individual income tax, section 1261 of Public Law 111-5,
Division B, applies and is in effect at the same time the provision is in effect for federal
purposes.
new text end

new text begin (b) For purposes of the corporate franchise tax imposed under sections 290.02,
subdivision 1, and 290.0921 and any related provision of this chapter or chapter 289A,
the provisions of Internal Revenue Service Notice 2008-83 do not apply and the taxable
income of corporations, subject to tax under subchapter C of the Internal Revenue Code,
must be computed without regard to the notice. The provisions of this paragraph apply
without regard to whether the ownership change occurred on, before, or after January 16,
2009. Taxable income must be computed as if the notice did not apply, disallowing any
deduction for losses on loans or bad debts (including any deduction for a reasonable
addition to a reserve for bad debts) permitted by the notice that otherwise would have been
treated as a built-in loss or a deduction that is attributable to periods before the change
date under section 382 of the Internal Revenue Code.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective the day following final enactment.
new text end