HF 18

as introduced - 88th Legislature, 2013 1st Special Session (2013 - 2013) Posted on 09/10/2013 10:05am

A bill for an act
relating to taxation; corporate franchise; modifying rules for foreign operating
corporations and exclusion of foreign royalties; amending Minnesota Statutes
2012, sections 289A.08, subdivision 3, as amended; 290.01, subdivisions 19c,
as amended, 19d, as amended, by adding a subdivision; 290.0921, subdivision
3, as amended, by adding a subdivision; 290.095, subdivision 2, as amended;
290.10, subdivision 1, as amended; 290.17, subdivision 4, as amended; 290.191,
subdivision 5, as amended.

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

Section 1.

Minnesota Statutes 2012, section 289A.08, subdivision 3, as amended by
Laws 2013, chapter 143, article 6, section 5, is amended to read:

Subd. 3.

Corporations.

(a) A corporation that is subject to the state's jurisdiction to
tax under section 290.014, subdivision 5, must file a return new text begin , except that a foreign operating
corporation as defined in section 290.01, subdivision 6c, is not required to file a return new text end .

(b) Members of a unitary business that are required to file a combined report on one
return must designate a member of the unitary business to be responsible for tax matters,
including the filing of returns, the payment of taxes, additions to tax, penalties, interest,
or any other payment, and for the receipt of refunds of taxes or interest paid in excess of
taxes lawfully due. The designated member must be a member of the unitary business that
is filing the single combined report and either:

(1) a corporation that is subject to the taxes imposed by chapter 290; or

(2) a corporation that is not subject to the taxes imposed by chapter 290:

(i) Such corporation consents by filing the return as a designated member under this
clause to remit taxes, penalties, interest, or additions to tax due from the members of the
unitary business subject to tax, and receive refunds or other payments on behalf of other
members of the unitary business. The member designated under this clause is a "taxpayer"
for the purposes of this chapter and chapter 270C, and is liable for any liability imposed
on the unitary business under this chapter and chapter 290.

(ii) If the state does not otherwise have the jurisdiction to tax the member designated
under this clause, consenting to be the designated member does not create the jurisdiction
to impose tax on the designated member, other than as described in item (i).

(iii) The member designated under this clause must apply for a business tax account
identification number.

(c) The commissioner shall adopt rules for the filing of one return on behalf of the
members of an affiliated group of corporations that are required to file a combined report.
All members of an affiliated group that are required to file a combined report must file one
return on behalf of the members of the group under rules adopted by the commissioner.

(d) If a corporation claims on a return that it has paid tax in excess of the amount of
taxes lawfully due, that corporation must include on that return information necessary for
payment of the tax in excess of the amount lawfully due by electronic means.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxable years beginning after
December 31, 2013.
new text end

Sec. 2.

Minnesota Statutes 2012, section 290.01, as amended by Laws 2013, chapter
143, article 6, is amended by adding a subdivision to read:

new text begin Subd. 6c. new text end

new text begin Foreign operating corporation. new text end

new text begin The term "foreign operating
corporation," when applied to a corporation, means a domestic corporation with the
following characteristics:
new text end

new text begin (1) it is part of a unitary business at least one member of which is taxable in this state;
new text end

new text begin (2) it has at least 80 percent of the gross income from all sources of the corporation
in the tax year is active foreign business income; and
new text end

new text begin (3) for purposes of this subdivision, active foreign business income means gross
income that is (i) derived from sources without the United States, as defined in subtitle A,
chapter 1, subchapter N, part 1, of the Internal Revenue Code; and (ii) attributable to the
active conduct of a trade or business in a foreign country.
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, 2013.
new text end

Sec. 3.

Minnesota Statutes 2012, section 290.01, subdivision 19c, as amended by Laws
2013, chapter 143, article 6, section 8, 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 amount of percentage depletion deducted under sections 611 through 614 and
291 of the Internal Revenue Code;

(9) 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;

(10) 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;

(11) 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 Division C, title III, section 303(b) of Public Law 110-343;

(12) 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;

(13) 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;

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

(15) the amount of expenses disallowed under section 290.10, subdivision 2; deleted text begin and
deleted text end

(16) discharge of indebtedness income resulting from reacquisition of business
indebtedness and deferred under section 108(i) of the Internal Revenue Code deleted text begin . deleted text end new text begin ;
new text end

new text begin (17) the amount of any deemed dividend from a foreign operating corporation
determined pursuant to section 290.17, subdivision 4, paragraph (j). The deemed dividend
shall be reduced by the amount of the addition to income required by clauses (18) to (21);
new text end

new text begin (18) 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:
new text end

new text begin (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;
new text end

new text begin (ii) losses incurred, directly or indirectly, from factoring transactions or discounting
transactions;
new text end

new text begin (iii) royalty, patent, technical, and copyright fees;
new text end

new text begin (iv) licensing fees; and
new text end

new text begin (v) other similar expenses and costs.
new text end

new text begin 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.
new text end

new text begin 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;
new text end

new text begin (19) 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:
new text end

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

new text begin (ii) income from factoring transactions or discounting transactions;
new text end

new text begin (iii) royalty, patent, technical, and copyright fees;
new text end

new text begin (iv) licensing fees; and
new text end

new text begin (v) other similar income.
new text end

new text begin 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.
new text end

new text begin 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;
new text end

new text begin (20) 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; and
new text end

new text begin (21) 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.
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, 2013.
new text end

Sec. 4.

Minnesota Statutes 2012, section 290.01, subdivision 19d, as amended by Laws
2013, chapter 143, article 6, section 9, 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 (8), 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 subdivision 19c, clause (1), in a
prior taxable year;

(10) 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;

(11) 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;

(12) 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;

(13) 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;

(14) 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 Division C, title III, section 303(b) of Public Law 110-343;

(15) in each of the five tax years immediately following the tax year in which an
addition is required under subdivision 19c, clause (12), 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 (12). The
resulting delayed depreciation cannot be less than zero;

(16) in each of the five tax years immediately following the tax year in which an
addition is required under subdivision 19c, clause (13), an amount equal to one-fifth of the
amount of the addition;

(17) to the extent included in federal taxable income, discharge of indebtedness
income resulting from reacquisition of business indebtedness included in federal taxable
income under section 108(i) of the Internal Revenue Code. This subtraction applies only
to the extent that the income was included in net income in a prior year as a result of the
addition under subdivision 19c, clause (16); deleted text begin and
deleted text end

(18) the amount of expenses not allowed for federal income tax purposes due
to claiming the railroad track maintenance credit under section 45G(a) of the Internal
Revenue Code deleted text begin . deleted text end new text begin ; and
new text end

new text begin (19) 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.
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, 2013.
new text end

Sec. 5.

Minnesota Statutes 2012, section 290.0921, subdivision 3, as amended by Laws
2013, chapter 143, article 6, section 24, is amended to read:

Subd. 3.

Alternative minimum taxable income.

"Alternative minimum taxable
income" is Minnesota net income as defined in section 290.01, subdivision 19, and
includes the adjustments and tax preference items in sections 56, 57, 58, and 59(d), (e),
(f), and (h) of the Internal Revenue Code. If a corporation files a separate company
Minnesota tax return, the minimum tax must be computed on a separate company basis.
If a corporation is part of a tax group filing a unitary return, the minimum tax must be
computed on a unitary basis. The following adjustments must be made.

(1) For purposes of the depreciation adjustments under section 56(a)(1) and
56(g)(4)(A) of the Internal Revenue Code, the basis for depreciable property placed in
service in a taxable year beginning before January 1, 1990, is the adjusted basis for federal
income tax purposes, including any modification made in a taxable year under section
290.01, subdivision 19e, or Minnesota Statutes 1986, section 290.09, subdivision 7,
paragraph (c).

For taxable years beginning after December 31, 2000, the amount of any remaining
modification made under section 290.01, subdivision 19e, or Minnesota Statutes 1986,
section 290.09, subdivision 7, paragraph (c), not previously deducted is a depreciation
allowance in the first taxable year after December 31, 2000.

(2) The portion of the depreciation deduction allowed for federal income tax
purposes under section 168(k) of the Internal Revenue Code that is required as an
addition under section 290.01, subdivision 19c, clause (12), is disallowed in determining
alternative minimum taxable income.

(3) The subtraction for depreciation allowed under section 290.01, subdivision 19d,
clause (15), is allowed as a depreciation deduction in determining alternative minimum
taxable income.

(4) The alternative tax net operating loss deduction under sections 56(a)(4) and 56(d)
of the Internal Revenue Code does not apply.

(5) The special rule for certain dividends under section 56(g)(4)(C)(ii) of the Internal
Revenue Code does not apply.

(6) The tax preference for depletion under section 57(a)(1) of the Internal Revenue
Code does not apply.

(7) The tax preference for intangible drilling costs under section 57(a)(2) of the
Internal Revenue Code must be calculated without regard to subparagraph (E) and the
subtraction under section 290.01, subdivision 19d, clause (4).

(8) The tax preference for tax exempt interest under section 57(a)(5) of the Internal
Revenue Code does not apply.

(9) The tax preference for charitable contributions of appreciated property under
section 57(a)(6) of the Internal Revenue Code does not apply.

(10) For purposes of calculating the tax preference for accelerated depreciation or
amortization on certain property placed in service before January 1, 1987, under section
57(a)(7) of the Internal Revenue Code, the deduction allowable for the taxable year is the
deduction allowed under section 290.01, subdivision 19e.

For taxable years beginning after December 31, 2000, the amount of any remaining
modification made under section 290.01, subdivision 19e, not previously deducted is a
depreciation or amortization allowance in the first taxable year after December 31, 2004.

(11) For purposes of calculating the adjustment for adjusted current earnings in
section 56(g) of the Internal Revenue Code, the term "alternative minimum taxable
income" as it is used in section 56(g) of the Internal Revenue Code, means alternative
minimum taxable income as defined in this subdivision, determined without regard to the
adjustment for adjusted current earnings in section 56(g) of the Internal Revenue Code.

(12) For purposes of determining the amount of adjusted current earnings under
section 56(g)(3) of the Internal Revenue Code, no adjustment shall be made under section
56(g)(4) of the Internal Revenue Code with respect to (i) the amount of foreign dividend
gross-up subtracted as provided in section 290.01, subdivision 19d, clause (1), deleted text begin or deleted text end (ii) the
amount of refunds of income, excise, or franchise taxes subtracted as provided in section
290.01, subdivision 19d, clause (9) new text begin , or (iii) the amount of royalties, fees, or other like
income subtracted as provided in section 290.01, subdivision 19d, clause (19) new text end .

(13) Alternative minimum taxable income excludes the income from operating in a
job opportunity building zone as provided under section 469.317.

(14) Alternative minimum taxable income excludes the income from operating in a
biotechnology and health sciences industry zone as provided under section 469.337.

Items of tax preference must not be reduced below zero as a result of the
modifications in this subdivision.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxable years beginning after
December 31, 2013.
new text end

Sec. 6.

Minnesota Statutes 2012, section 290.0921, as amended by Laws 2013, chapter
143, article 6, is amended by adding a subdivision to read:

new text begin Subd. 7a. new text end

new text begin Foreign operating companies. new text end

new text begin The income and deductions related to
foreign operating companies, as defined in section 290.01, subdivision 6c, that are used
to calculate Minnesota alternative minimum taxable income, are limited to the amounts
included for purposes of calculating taxable income under section 290.01, subdivision 29.
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, 2013.
new text end

Sec. 7.

Minnesota Statutes 2012, section 290.095, subdivision 2, as amended by Laws
2013, chapter 143, article 6, section 26, is amended to read:

Subd. 2.

Defined and limited.

(a) The term "net operating loss" as used in this
section shall mean a net operating loss as defined in section 172(c) of the Internal Revenue
Code, with the modifications specified in subdivision 4. The deductions provided in
section 290.21 new text begin and the modification provided in section 290.01, subdivision 19d, clause
(19), new text end cannot be used in the determination of a net operating loss.

(b) The term "net operating loss deduction" as used in this section means the
aggregate of the net operating loss carryovers to the taxable year, computed in accordance
with subdivision 3. The provisions of section 172(b) of the Internal Revenue Code relating
to the carryback of net operating losses, do not apply.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxable years beginning after
December 31, 2013.
new text end

Sec. 8.

Minnesota Statutes 2012, section 290.10, subdivision 1, as amended by Laws
2013, chapter 143, article 6, section 27, is amended to read:

Subdivision 1.

Expenses, interest, and taxes.

new text begin Except as provided in section 290.17,
subdivision 4, paragraph (k), new text end in computing the net income of a taxpayer no deduction shall
in any case be allowed for expenses, interest and taxes connected with or allocable against
the production or receipt of all income not included in the measure of the tax imposed by
this chapter, except that for corporations engaged in the business of mining or producing
iron ore, the mining of which is subject to the occupation tax imposed by section 298.01,
subdivision 4, this shall not prevent the deduction of expenses and other items to the extent
that the expenses and other items are allowable under this chapter and are not deductible,
capitalizable, retainable in basis, or taken into account by allowance or otherwise in
computing the occupation tax and do not exceed the amounts taken for federal income tax
purposes for that year. Occupation taxes imposed under chapter 298, royalty taxes imposed
under chapter 299, or depletion expenses may not be deducted under this subdivision.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxable years beginning after
December 31, 2013.
new text end

Sec. 9.

Minnesota Statutes 2012, section 290.17, subdivision 4, as amended by Laws
2013, chapter 143, article 6, section 28, is amended to read:

Subd. 4.

Unitary business principle.

(a) If a trade or business conducted wholly
within this state or partly within and partly without this state is part of a unitary business,
the entire income of the unitary business is subject to apportionment pursuant to section
290.191. Notwithstanding subdivision 2, paragraph (c), none of the income of a unitary
business is considered to be derived from any particular source and none may be allocated
to a particular place except as provided by the applicable apportionment formula. The
provisions of this subdivision do not apply to business income subject to subdivision 5,
income of an insurance company, or income of an investment company determined under
section 290.36.

(b) The term "unitary business" means business activities or operations which
result in a flow of value between them. The term may be applied within a single legal
entity or between multiple entities and without regard to whether each entity is a sole
proprietorship, a corporation, a partnership or a trust.

(c) Unity is presumed whenever there is unity of ownership, operation, and use,
evidenced by centralized management or executive force, centralized purchasing,
advertising, accounting, or other controlled interaction, but the absence of these
centralized activities will not necessarily evidence a nonunitary business. Unity is also
presumed when business activities or operations are of mutual benefit, dependent upon or
contributory to one another, either individually or as a group.

(d) Where a business operation conducted in Minnesota is owned by a business
entity that carries on business activity outside the state different in kind from that
conducted within this state, and the other business is conducted entirely outside the state, it
is presumed that the two business operations are unitary in nature, interrelated, connected,
and interdependent unless it can be shown to the contrary.

(e) Unity of ownership does not exist when two or more corporations are involved
unless more than 50 percent of the voting stock of each corporation is directly or indirectly
owned by a common owner or by common owners, either corporate or noncorporate, or
by one or more of the member corporations of the group. For this purpose, the term
"voting stock" shall include membership interests of mutual insurance holding companies
formed under section 66A.40.

(f) The net income and apportionment factors under section 290.191 or 290.20 of
foreign corporations and other foreign entities which are part of a unitary business shall
not be included in the net income or the apportionment factors of the unitary business;
except that the income and apportionment factors of a foreign entity, other than an entity
treated as a C corporation for federal income tax purposes, that are included in the federal
taxable income, as defined in section 63 of the Internal Revenue Code as amended through
the date named in section 290.01, subdivision 19, of a domestic corporation, domestic
entity, or individual must be included in determining net income and the factors to be used
in the apportionment of net income pursuant to section 290.191 or 290.20. A foreign
corporation or other foreign entity which is not included on a combined report and which
is required to file a return under this chapter shall file on a separate return basis. new text begin The net
income and apportionment factors under section 290.191 or 290.20 of foreign operating
corporations shall not be included in the net income or the apportionment factors of the
unitary business except as provided in paragraph (j).
new text end

(g) For purposes of determining the net income of a unitary business and the factors
to be used in the apportionment of net income pursuant to section 290.191 or 290.20, there
must be included only the income and apportionment factors of domestic corporations or
other domestic entities new text begin other than foreign operating corporations new text end that are determined to
be part of the unitary business pursuant to this subdivision, notwithstanding that foreign
corporations or other foreign entities might be included in the unitary business; except that
the income and apportionment factors of a foreign entity, other than an entity treated as
a C corporation for federal income tax purposes, that is included in the federal taxable
income, as defined in section 63 of the Internal Revenue Code as amended through the
date named in section 290.01, subdivision 19, of a domestic corporation, domestic entity,
or individual must be included in determining net income and the factors to be used in the
apportionment of net income pursuant to section 290.191 or 290.20.

(h) Each corporation or other entity, except a sole proprietorship, that is part of a
unitary business must file combined reports as the commissioner determines. On the
reports, all intercompany transactions between entities included pursuant to paragraph
(g) must be eliminated and the entire net income of the unitary business determined in
accordance with this subdivision is apportioned among the entities by using each entity's
Minnesota factors for apportionment purposes in the numerators of the apportionment
formula and the total factors for apportionment purposes of all entities included pursuant
to paragraph (g) in the denominators of the apportionment formula. Except as otherwise
provided by paragraph (f), all sales of the unitary business made within this state pursuant
to section 290.191 or 290.20 must be included on the combined report of a corporation or
other entity that is a member of the unitary business and is subject to the jurisdiction of
this state to impose tax under this chapter.

(i) If a corporation has been divested from a unitary business and is included in a
combined report for a fractional part of the common accounting period of the combined
report:

(1) its income includable in the combined report is its income incurred for that part
of the year determined by proration or separate accounting; and

(2) its sales, property, and payroll included in the apportionment formula must
be prorated or accounted for separately.

new text begin (j) The adjusted net income of a foreign operating corporation shall be deemed to
be paid as a dividend on the last day of its taxable year to each shareholder thereof, in
proportion to each shareholder's ownership, with which such corporation is engaged in
a unitary business. Such deemed dividend shall be treated as a dividend under section
290.21, subdivision 4.
new text end

new text begin Dividends actually paid by a foreign operating corporation to a corporate shareholder
which is a member of the same unitary business as the foreign operating corporation shall
be eliminated from the net income of the unitary business in preparing a combined report
for the unitary business. The adjusted net income of a foreign operating corporation
shall be its net income adjusted as follows:
new text end

new text begin (1) any taxes paid or accrued to a foreign country, the commonwealth of Puerto
Rico, or a United States possession or political subdivision of any of the foregoing shall
be a deduction; and
new text end

new text begin (2) the subtraction from federal taxable income for payments received from foreign
corporations or foreign operating corporations under section 290.01, subdivision 19d,
clause (19), shall not be allowed.
new text end

new text begin If a foreign operating corporation incurs a net loss, neither income nor deduction from
that corporation shall be included in determining the net income of the unitary business.
new text end

new text begin (k) Deductions for expenses, interest, or taxes otherwise allowable under this chapter
that are connected with or allocable against dividends, deemed dividends described
in paragraph (j), or royalties, fees, or other like income described in section 290.01,
subdivision 19d, clause (19), shall not be disallowed.
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, 2013.
new text end

Sec. 10.

Minnesota Statutes 2012, section 290.191, subdivision 5, as amended by Laws
2013, chapter 143, article 6, section 29, 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; deleted text begin and
deleted text end

(5) sales of debt instruments as defined in section 1275(a)(1) of the Internal Revenue
Code or sales of stock deleted text begin . deleted text end new text begin ; and
new text end

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

(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 new text begin not described in paragraph (a), clause (6), new text end 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.

(k) 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, 2013.
new text end