2000 Minnesota Statutes

     290.191 Apportionment of net income. 

    Subdivision 1.    General rule.  (a) Except as otherwise 
 provided in section 290.17, subdivision 5, the net income from a 
 trade or business carried on partly within and partly without 
 this state must be apportioned to this state as provided in this 
 section.  

    (b) For purposes of this section, "state" means a state of 
 the United States, the District of Columbia, the commonwealth of 
 Puerto Rico, or any territory or possession of the United States 
 or any foreign country. 

    Subd. 2.    Apportionment formula of general application. 
  Except for those trades or businesses required to use a 
 different formula under subdivision 3 or section 290.35 or 
 290.36, and for those trades or businesses that receive 
 permission to use some other method under section 290.20 or 
 under subdivision 4, a trade or business required to apportion 
 its net income must apportion its income to this state on the 
 basis of the percentage obtained by taking the sum of:  

    (1) 75 percent of the percentage which the sales made 
 within this state in connection with the trade or business 
 during the tax period are of the total sales wherever made in 
 connection with the trade or business during the tax period; 

    (2) 12.5 percent of the percentage which the total tangible 
 property used by the taxpayer in this state in connection with 
 the trade or business during the tax period is of the total 
 tangible property, wherever located, used by the taxpayer in 
 connection with the trade or business during the tax period; and 

    (3) 12.5 percent of the percentage which the taxpayer's 
 total payrolls paid or incurred in this state or paid in respect 
 to labor performed in this state in connection with the trade or 
 business during the tax period are of the taxpayer's total 
 payrolls paid or incurred in connection with the trade or 
 business during the tax period.  

    Subd. 3.    Apportionment formula for financial 
 institutions.  Except for an investment company required to 
 apportion its income under section 290.36, a financial 
 institution that is required to apportion its net income must 
 apportion its net income to this state on the basis of the 
 percentage obtained by taking the sum of:  

    (1) 75 percent of the percentage which the receipts from 
 within this state in connection with the trade or business 
 during the tax period are of the total receipts in connection 
 with the trade or business during the tax period, from wherever 
 derived; 

    (2) 12.5 percent of the percentage which the sum of the 
 total tangible property used by the taxpayer in this state and 
 the intangible property owned by the taxpayer and attributed to 
 this state in connection with the trade or business during the 
 tax period is of the sum of the total tangible property, 
 wherever located, used by the taxpayer and the intangible 
 property owned by the taxpayer and attributed to all states in 
 connection with the trade or business during the tax period; and 

    (3) 12.5 percent of the percentage which the taxpayer's 
 total payrolls paid or incurred in this state or paid in respect 
 to labor performed in this state in connection with the trade or 
 business during the tax period are of the taxpayer's total 
 payrolls paid or incurred in connection with the trade or 
 business during the tax period. 

    Subd. 4.    Apportionment formula for certain mail order 
 businesses.  If the business of a corporation, partnership, or 
 proprietorship consists exclusively of the selling of tangible 
 personal property and services in response to orders received by 
 United States mail, telephone, facsimile, or other electronic 
 media, and 99 percent of the taxpayer's property and payroll is 
 within Minnesota, then the taxpayer may apportion net income to 
 Minnesota based solely upon the percentage that the sales made 
 within this state in connection with its trade or business 
 during the tax period are of the total sales wherever made in 
 connection with the trade or business during the tax period.  
 Property and payroll factors are disregarded.  In determining 
 eligibility for this subdivision:  

    (1) the sale not in the ordinary course of business of 
 tangible or intangible assets used in conducting business 
 activities must be disregarded; and 

    (2) property and payroll at a distribution center outside 
 of Minnesota are disregarded if the sole activity at the 
 distribution center is the filling of orders, and no 
 solicitation of orders occurs at the distribution center. 

    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; 

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

    (6) royalties, fees, or other like income of a type which 
 qualify for a subtraction from federal taxable income under 
 section 290.01, subdivision 19(d)(11).  

    (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, and the taxpayer is taxable in 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 not described in paragraph 
 (a), clause (6), 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. 

    Subd. 6.    Determination of receipts factor for financial 
 institutions.  (a) For purposes of this section, the rules in 
 this subdivision and subdivision 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). 

    Subd. 7. Repealed, 1991 c 291 art 7 s 26 

    Subd. 8.    Deposit; definition.  (a) "Deposit," as used 
 in subdivision 7, has the meanings in this subdivision.  

    (b) "Deposit" means the unpaid balance of money or its 
 equivalent received or held by a financial institution in the 
 usual course of business and for which it has given or is 
 obligated to give credit, either conditionally or 
 unconditionally, to a commercial, checking, savings, time, or 
 thrift account whether or not advance notice is required to 
 withdraw the credited funds, or which is evidenced by its 
 certificate of deposit, thrift certificate, investment 
 certificate, or certificate of indebtedness, or other similar 
 name, or a check or draft drawn against a deposit account and 
 certified by the financial institution, or a letter of credit or 
 a traveler's check on which the financial institution is 
 primarily liable.  However, without limiting the generality of 
 the term "money or its equivalent," any such account or 
 instrument must be regarded as evidencing the receipt of the 
 equivalent of money when credited or issued in exchange for 
 checks or drafts or for a promissory note upon which the person 
 obtaining the credit or instrument is primarily or secondarily 
 liable, or for a charge against a deposit account, or in 
 settlement of checks, drafts, or other instruments forwarded to 
 the bank for collection.  

    (c) "Deposit" means trust funds received or held by the 
 financial institution, whether held in the trust department or 
 held or deposited in any other department of the financial 
 institution.  

    (d) "Deposit" means money received or held by a financial 
 institution, or the credit given for money or its equivalent 
 received or held by a financial institution, in the usual course 
 of business for a special or specific purpose, regardless of the 
 legal relationship so established.  Under this paragraph, 
 "deposit" includes, but is not limited to, escrow funds, funds 
 held as security for an obligation due to the financial 
 institution or others, including funds held as dealers reserves, 
 or for securities loaned by the financial institution, funds 
 deposited by a debtor to meet maturing obligations, funds 
 deposited as advance payment on subscriptions to United States 
 government securities, funds held for distribution or purchase 
 of securities, funds held to meet its acceptances or letters of 
 credit, and withheld taxes.  It does not include funds received 
 by the financial institution for immediate application to the 
 reduction of an indebtedness to the receiving financial 
 institution, or under condition that the receipt of the funds 
 immediately reduces or extinguishes the indebtedness.  

    (e) "Deposit" means outstanding drafts, including advice or 
 another such institution, cashier's checks, money orders, or 
 other officer's checks issued in the usual course of business 
 for any purpose, but not including those issued in payment for 
 services, dividends, or purchases or other costs or expenses of 
 the financial institution itself.  

    (f) "Deposit" means money or its equivalent held as a 
 credit balance by a financial institution on behalf of its 
 customer if the entity is engaged in soliciting and holding such 
 balances in the regular course of its business.  

    (g) Interinstitution fund transfers are not deposits.  

    Subd. 9.    Determination of property factor; general 
 rules.  For all taxpayers, the property factor includes 
 tangible property, real, personal, and mixed, owned or rented, 
 and used by the taxpayer in connection with the trade or 
 business, as set forth in subdivision 10.  For financial 
 institutions only, the property factor also includes intangible 
 property, as set forth in subdivision 11.  For both tangible and 
 intangible property, the property included in the property 
 factor is the average of the total property used by the taxpayer 
 in connection with its business during the tax period.  Such 
 averages must be on a commensurate basis for property within and 
 without the state.  

    Subd. 10.    Property factor; tangible property.  (a) 
 Tangible property includes land, buildings, machinery and 
 equipment, inventories, and other tangible personal property 
 actually used by the taxpayer during the taxable year in 
 carrying on the business activities of the taxpayer.  Tangible 
 property which is separately allocated under section 290.17 is 
 not includable in the property factor.  

    (b) Cash on hand or in banks, shares of stock, notes, 
 bonds, accounts receivable, or other evidences of indebtedness, 
 special privileges, franchises, and goodwill, are specifically 
 excluded from the property factor, except as otherwise provided 
 for financial institutions in subdivision 11.  

    (c) The value of tangible property that is owned by the 
 taxpayer and that is to be used in the apportionment fraction is 
 the original cost adjusted for any later capital additions or 
 improvements and partial disposition by reason of sale, 
 exchange, or abandonment.  

    (d) For purposes of computing the property factor, United 
 States government property that is used by the taxpayer must be 
 considered owned by the taxpayer.  

    (e) Property that is rented by the taxpayer is valued at 
 eight times the net annual rental.  Net annual rental is the 
 annual rental paid by the taxpayer less any annual rental 
 received by the taxpayer from subrentals.  If the subrents taken 
 into account in determining the net annual rental produce a 
 negative or clearly inaccurate value for any item of property, 
 another method that will properly reflect the value of rented 
 property may be required by the commissioner or requested by the 
 taxpayer.  In no case, however, shall the value be less than an 
 amount which bears the same ratio to the annual rental paid by 
 the taxpayer for such property as the fair market value of that 
 portion of the property used by the taxpayer bears to the total 
 fair market value of the rented property.  Rents paid during the 
 year cannot be averaged.  

    (f) A person filing a combined report shall use this method 
 of calculating the property factor for all members of the group. 

    Subd. 11.    Financial institutions; property factor.  
 (a) For financial institutions, the property factor includes, as 
 well as tangible property, intangible property as set forth in 
 this subdivision.  

    (b) Intangible personal property must be included at its 
 tax basis for federal income tax purposes.  

    (c) Goodwill must not be included in the property factor.  

    (d) Coin and currency located in this state must be 
 attributed to this state.  

    (e) Lease financing receivables must be attributed to this 
 state if and to the extent that the property is located within 
 this state.  

    (f) Assets in the nature of loans that are secured by real 
 or tangible personal property must be attributed to this state 
 if and to the extent that the security property is located 
 within this state.  

    (g) Assets in the nature of consumer loans and installment 
 obligations that are unsecured or secured by intangible property 
 must be attributed to this state if the loan was made to a 
 resident of this state.  

    (h) Assets in the nature of commercial loan 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 assets must be attributed to the state in which 
 there is located the office of the borrower from which the 
 application would be made in the regular course of business.  If 
 this cannot be determined, the transaction is disregarded in the 
 apportionment formula.  

    (i) A participating financial institution's portion of 
 participation and syndication loans must be attributed under 
 paragraphs (e) to (h).  

    (j) Financial institution credit card and travel and 
 entertainment credit card receivables must be attributed to the 
 state to which the credit card charges and fees are regularly 
 billed.  

    (k) Receivables arising from merchant discount income 
 derived from financial institution credit card holder 
 transactions with a merchant are attributed to the state in 
 which the merchant is located.  In the case of merchants located 
 within and without the state, only receivables 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) Assets in the nature of securities and money market 
 instruments are apportioned to this state based upon the ratio 
 that total deposits from this state, its residents, 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, the assets are 
 apportioned to this state based upon the ratio that its gross 
 business income earned from sources within this state bears to 
 gross business income earned from sources within all states.  
 For purposes of this paragraph, deposits made by this state, its 
 residents, its political subdivisions, agencies, and 
 instrumentalities are attributed to this state, whether or not 
 the deposits are accepted or maintained by the taxpayer at 
 locations within this state. 

    (m) A financial institution's interest in any property 
 described in section 290.015, subdivision 3, paragraph (b), is 
 included in the property factor in the same manner as assets in 
 the nature of securities or money market instruments are 
 included under paragraph (1).  

    Subd. 12.    Determination of payroll factor.  (a) The 
 payroll factor must be determined in the same way for all 
 taxpayers.  

    (b) Wages or salaries must be determined to be paid or 
 incurred in this state if the individual with respect to whom 
 the wages or salaries are paid is either employed within this 
 state or is actually engaged in work in the territorial confines 
 of this state, or if working without this state, is identified 
 with or accountable to an office within this state.  

    (c) The wages or salaries paid to officers and employees 
 working from offices within this state are considered payroll 
 within this state even though the officer's and employee's 
 employment requires them to spend working time without this 
 state.  Officers and employees whose employment requires them to 
 work without the state entirely and who are assigned to an 
 office without the state, are not considered employees within 
 the state for the purpose of apportionment even though their 
 salaries are paid from the taxpayer's general offices within the 
 state. 

    HIST: 1987 c 268 art 1 s 75; 1988 c 719 art 2 s 31-35; 1989 c 
 27 art 2 s 6,7; 1989 c 28 s 25; 1Sp1989 c 1 art 10 s 27; 1990 c 
 604 art 2 s 16; 1991 c 291 art 6 s 46; art 7 s 17-19; 1992 c 363 
 art 1 s 11; 1992 c 511 art 6 s 19; 1993 c 375 art 8 s 13,14; 
 1994 c 587 art 1 s 24; 1995 c 264 art 10 s 9-11; 1996 c 471 art 
 1 s 9,10; 1997 c 231 art 5 s 9; 1999 c 243 art 2 s 24,25