HF 3494

as introduced - 90th Legislature (2017 - 2018) Posted on 03/08/2018 02:30pm

A bill for an act
relating to taxation; corporate franchise; clarifying the application of the tax to
certain captive insurance companies; amending Minnesota Statutes 2016, section
290.01, by adding a subdivision; Minnesota Statutes 2017 Supplement, sections
290.01, subdivision 4a; 290.05, subdivision 1; 290.17, subdivision 4.

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

Section 1.

Minnesota Statutes 2017 Supplement, section 290.01, subdivision 4a, is amended
to read:

Subd. 4a.

Financial institution.

(a) "Financial institution" means:

(1) any corporation or other business entity registered (i) under state law as a bank
holding company; (ii) under the federal Bank Holding Company Act of 1956, as amended;
or (iii) as a savings and loan holding company under the federal National Housing Act, as
amended;

(2) a national bank organized and existing as a national bank association pursuant to the
provisions of United States Code, title 12, chapter 2;

(3) a savings association or federal savings bank as defined in United States Code, title
12, section 1813(b)(1);

(4) any bank or thrift institution incorporated or organized under the laws of any state;

(5) any corporation organized under United States Code, title 12, sections 611 to 631;

(6) any agency or branch of a foreign depository as defined under United States Code,
title 12, section 3101;

(7) any corporation or other business entity that is more than 50 percent owned, directly
or indirectly, by any person or business entity described in clauses (1) to (6), other than an
insurance company taxable under chapter 297I;

(8) a corporation or other business entity that derives more than 50 percent of its total
gross income for financial accounting purposes from finance leases. For the purposes of
this clause, "gross income" means the average from the current tax year and immediately
preceding two years and excludes gross income from incidental or occasional transactions.
For purposes of this clause, "finance lease" means any lease transaction that is the functional
equivalent of an extension of credit and that transfers substantially all the benefits and risks
incident to the ownership of property, including any direct financing lease or leverage lease
that meets the criteria of Financial Accounting Standards Board Statement No. 13, accounting
for leases, or any other lease that is accounted for as financing by a lessor under generally
accepted accounting principles; or

(9) any other person or business entity, other than an insurance company deleted text begin taxable under
chapter 297I deleted text end , that derives more than 50 percent of its gross income from activities that an
entity described in clauses (2) to (6) or (8) is authorized to transact. For the purposes of this
clause, gross income does not include income from nonrecurring, extraordinary items.

(b) The commissioner is authorized to exclude any person from the application of
paragraph (a), clause (9), if the person proves by clear and convincing evidence that the
person's income-producing activity is not in substantial competition with any person described
in paragraph (a), clauses (2) to (6) or (8).

new text begin EFFECTIVE DATE. new text end

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

Sec. 2.

Minnesota Statutes 2016, section 290.01, is amended by adding a subdivision to
read:

new text begin Subd. 5c. new text end

new text begin Disqualified captive insurance company. new text end

new text begin (a) "Disqualified captive insurance
company" means an insurance company that:
new text end

new text begin (1)(i) is licensed as a captive insurance company under the laws of any state or foreign
country; or
new text end

new text begin (ii) derives 80 percent or more of its total premiums for the taxable year from entities
that are members of the unitary business, as that term is used in section 290.17; and
new text end

new text begin (2)(i) receives less than 50 percent of its gross receipts for the taxable year from
premiums; or
new text end

new text begin (ii) pays less than 0.25 percent of its total premiums for the taxable year in tax under
chapter 297I or a comparable tax of another state or country.
new text end

new text begin (b) For purposes of this subdivision, "premiums" means amounts paid for arrangements
that constitute insurance for federal income tax purposes, but excludes return premiums,
premiums for reinsurance assumed from other insurance companies, and any other premiums
that are or would be exempt from taxation under section 297I.05 as a result of their type or
character, if the insurance was for business in Minnesota.
new text end

new text begin EFFECTIVE DATE. new text end

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

Sec. 3.

Minnesota Statutes 2017 Supplement, section 290.05, subdivision 1, is amended
to read:

Subdivision 1.

Exempt entities.

The following corporations, individuals, estates, trusts,
and organizations shall be exempted from taxation under this chapter, provided that every
such person or corporation claiming exemption under this chapter, in whole or in part, must
establish to the satisfaction of the commissioner the taxable status of any income or activity:

(a) corporations, individuals, estates, and trusts engaged in the business of mining or
producing iron ore and mining, producing, or refining other ores, metals, and minerals, the
mining, production, or refining of which is subject to the occupation tax imposed by section
298.01; but if any such corporation, individual, estate, or trust engages in any other business
or activity or has income from any property not used in such business it shall be subject to
this tax computed on the net income from such property or such other business or activity.
Royalty shall not be considered as income from the business of mining or producing iron
ore within the meaning of this section;

(b) the United States of America, the state of Minnesota or any political subdivision of
either agencies or instrumentalities, whether engaged in the discharge of governmental or
proprietary functions; and

(c) any insurance company, deleted text begin as defined in section 290.17, subdivision 4, paragraph (j),
but including any insurance company licensed and domiciled in another state that grants,
on a reciprocal basis, exemption from retaliatory taxes deleted text end new text begin other than a disqualified captive
insurance company new text end .

new text begin EFFECTIVE DATE. new text end

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

Sec. 4.

Minnesota Statutes 2017 Supplement, section 290.17, subdivision 4, 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 new text begin , but excluding an insurance company as defined in
section 290.01, subdivision 5b, that is also a disqualified captive insurance company, new text end 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.

(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 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.

(j) For purposes of this subdivision, "insurance company" means an insurance company,
as defined in section 290.01, subdivision 5b, that is deleted text begin :
deleted text end

deleted text begin (1) licensed to engage in the business of insurance in Minnesota pursuant to chapter
60A; or
deleted text end

deleted text begin (2) domiciled and licensed to engage in the business of insurance in another state or
country that imposes retaliatory taxes, fines, deposits, penalties, licenses, or fees and that
does not grant, on a reciprocal basis, exemption from such retaliatory taxes to insurance
companies or their agents domiciled in Minnesota.
deleted text end

deleted text begin (k) For purposes of this subdivision, "retaliatory taxes" means taxes imposed on insurance
companies organized in another state or country that result from the fact that an insurance
company organized in the taxing jurisdiction and doing business in the other jurisdiction is
subject to taxes, fines, deposits, penalties, licenses, or fees in an amount exceeding that
imposed by the taxing jurisdiction upon an insurance company organized in the other state
or country and doing business to the same extent in the taxing jurisdiction deleted text end new text begin not a disqualified
captive insurance company new text end .

new text begin EFFECTIVE DATE. new text end

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