SF 1017

as introduced - 92nd Legislature (2021 - 2022) Posted on 03/26/2021 01:00pm

A bill for an act
relating to taxation; individual income and corporate franchise; providing for
federal conformity to exclusion of paycheck protection loan forgiveness from gross
income and certain related deductions; providing certain business entities the option
to file as C-option corporations; amending Minnesota Statutes 2020, sections
289A.02, subdivision 7; 289A.08, by adding a subdivision; 289A.38, by adding a
subdivision; 290.01, subdivisions 19, 31, by adding a subdivision; 290.0132, by
adding a subdivision; 290.06, subdivisions 2c, 22; 290.091, subdivision 2; 290.0921,
subdivision 2; 290.92, subdivisions 4b, 4c; 290A.03, subdivision 15; 291.005,
subdivision 1; 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 2020, section 289A.02, subdivision 7, is amended to read:

Subd. 7.

Internal Revenue Code.

Unless specifically defined otherwise, "Internal
Revenue Code" means the Internal Revenue Code of 1986, as amended through December
31, 2018 new text begin , except that for the purposes of exclusion from gross income of paycheck protection
loan forgiveness and allowable deductions of covered expenses paid for with covered loans
under section 1106 of Public Law 116-136, as clarified by Title II, subtitle B, section
276(a)(i) of Public Law 116-260, "Internal Revenue Code" means the Internal Revenue
Code as amended through December 27, 2020 new text end .

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective the day following final enactment, except
that changes incorporated by federal changes are effective retroactively at the same time
the changes were effective for federal purposes.
new text end

Sec. 2.

Minnesota Statutes 2020, section 289A.08, is amended by adding a subdivision to
read:

new text begin Subd. 7a. new text end

new text begin Election to file as C-option corporation. new text end

new text begin (a) A qualifying entity may elect
to file a return as a C-option corporation. Except as provided in this subdivision, a C-option
corporation must calculate its tax liability as a corporation subject to the franchise tax on
corporations imposed in section 290.02 and must allocate its income as a corporation as
required under sections 290.17, 290.191, and 290.20.
new text end

new text begin (b) The election under paragraph (a):
new text end

new text begin (1) must be made on or before the due date or extended due date of the qualifying entity's
return as a C-option corporation;
new text end

new text begin (2) may only be made by persons who hold more than 50 percent ownership interest in
the qualifying entity; and
new text end

new text begin (3) is binding on all persons who have an ownership interest in the qualifying entity.
new text end

new text begin (c) The election is binding for a period of four taxable years following the taxable year
of the election. The election may be revoked before the expiration of the period if:
new text end

new text begin (1) the revocation is requested by persons who hold more than 50 percent ownership
interest in the qualifying entity; and
new text end

new text begin (2) the revocation is made on or before the due date or the extended due date of the
qualifying entity's return for that year.
new text end

new text begin (d) If an election is revoked before the expiration of the period, a new election to file as
a C-option corporation may not be made by the qualifying entity for the following four
taxable years.
new text end

new text begin (e) The expiration or revocation of an election is effective at the close of a taxable year
and nothing in this section releases a C-option corporation from complying with the
requirements of this chapter for that taxable year.
new text end

new text begin (f) For purposes of this subdivision:
new text end

new text begin (1) "qualifying entity" means a:
new text end

new text begin (i) partnership;
new text end

new text begin (ii) limited liability company; or
new text end

new text begin (iii) corporation organized under subchapter S of the Internal Revenue Code for federal
income tax purposes, including a qualified subsidiary also organized under subchapter S of
the Internal Revenue Code; and
new text end

new text begin (2) "C-option corporation" means a qualifying entity that has made the election under
paragraph (a).
new text end

new text begin (g) Tax liability must be calculated by multiplying the Minnesota taxable income of the
qualifying entity by a tax rate of 9.85 percent.
new text end

new text begin (h) A member's, partner's, or shareholder's adjusted basis in the member's, partner's, or
shareholder's interest in the limited liability company, partnership, or S corporation, and
the treatment of distributions, is determined as if the election under this subdivision is not
made.
new text end

new text begin (i) A qualifying entity must not have a partnership, limited liability company, or
corporation as a member or partner.
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, 2020.
new text end

Sec. 3.

Minnesota Statutes 2020, section 289A.38, is amended by adding a subdivision to
read:

new text begin Subd. 17. new text end

new text begin C-option corporations. new text end

new text begin For purposes of this section, "taxpayer" includes a
C-option corporation, and all applicable reports, amendments, adjustments, assessments,
changes in tax, refunds, and statements under this section apply to a C-option corporation
for those taxable years in which the C-option election under section 289A.08, subdivision
7a, is effective. For purposes of this subdivision, "C-option corporation" means a qualifying
entity under section 289A.08, subdivision 7a, paragraph (f), that made the election in section
289A.08, subdivision 7a, paragraph (a), for the applicable tax 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, 2020.
new text end

Sec. 4.

Minnesota Statutes 2020, section 290.01, is amended by adding a subdivision to
read:

new text begin Subd. 4d. new text end

new text begin C-option corporation. new text end

new text begin "C-option corporation" means a qualifying entity
under section 289A.08, subdivision 7a, paragraph (f), that made the election in section
289A.08, subdivision 7a, paragraph (a), for the applicable tax 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, 2020.
new text end

Sec. 5.

Minnesota Statutes 2020, section 290.01, subdivision 19, is amended to read:

Subd. 19.

Net income.

(a) For a trust or estate taxable under section 290.03, and a
corporation taxable under section 290.02, the term "net income" means the federal taxable
income, as defined in section 63 of the Internal Revenue Code of 1986, as amended through
the date named in this subdivision, incorporating the federal effective dates of changes to
the Internal Revenue Code and any elections made by the taxpayer in accordance with the
Internal Revenue Code in determining federal taxable income for federal income tax
purposes, and with the modifications provided in sections 290.0131 to 290.0136.

(b) For an individual, the term "net income" means federal adjusted gross income with
the modifications provided in sections 290.0131, 290.0132, and 290.0135 to 290.0137.

(c) In the case of a regulated investment company or a fund thereof, as defined in section
851(a) or 851(g) of the Internal Revenue Code, federal taxable income means investment
company taxable income as defined in section 852(b)(2) of the Internal Revenue Code,
except that:

(1) the exclusion of net capital gain provided in section 852(b)(2)(A) of the Internal
Revenue Code does not apply;

(2) the deduction for dividends paid under section 852(b)(2)(D) of the Internal Revenue
Code must be applied by allowing a deduction for capital gain dividends and exempt-interest
dividends as defined in sections 852(b)(3)(C) and 852(b)(5) of the Internal Revenue Code;
and

(3) the deduction for dividends paid must also be applied in the amount of any
undistributed capital gains which the regulated investment company elects to have treated
as provided in section 852(b)(3)(D) of the Internal Revenue Code.

(d) The net income of a real estate investment trust as defined and limited by section
856(a), (b), and (c) of the Internal Revenue Code means the real estate investment trust
taxable income as defined in section 857(b)(2) of the Internal Revenue Code.

(e) The net income of a designated settlement fund as defined in section 468B(d) of the
Internal Revenue Code means the gross income as defined in section 468B(b) of the Internal
Revenue Code.

(f) The Internal Revenue Code of 1986, as amended through December 31, 2018, shall
be in effect for taxable years beginning after December 31, 1996 new text begin , except that for the purposes
of exclusion from gross income of paycheck protection loan forgiveness and allowable
deductions of covered expenses paid for with covered loans under section 1106 of Public
Law 116-136, as clarified by Title II, subtitle B, section 276(a)(i) of Public Law 116-260,
"Internal Revenue Code" means the Internal Revenue Code as amended through December
27, 2020 new text end .

(g) Except as otherwise provided, references to the Internal Revenue Code in this
subdivision and sections 290.0131 to 290.0136 mean the code in effect for purposes of
determining net income for the applicable year.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective the day following final enactment, except
that changes incorporated by federal changes are effective retroactively at the same time
the changes were effective for federal purposes.
new text end

Sec. 6.

Minnesota Statutes 2020, section 290.01, subdivision 31, is amended to read:

Subd. 31.

Internal Revenue Code.

Unless specifically defined otherwise, "Internal
Revenue Code" means the Internal Revenue Code of 1986, as amended through December
31, 2018. Internal Revenue Code also includes any uncodified provision in federal law that
relates to provisions of the Internal Revenue Code that are incorporated into Minnesota law new text begin ,
except that for the purposes of exclusion from gross income of paycheck protection loan
forgiveness and allowable deductions of covered expenses paid for with covered loans under
section 1106 of Public Law 116-136, as clarified by Title II, subtitle B, section 276(a)(i) of
Public Law 116-260, "Internal Revenue Code" means the Internal Revenue Code as amended
through December 27, 2020 new text end .

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective the day following final enactment, except
that changes incorporated by federal changes are effective retroactively at the same time
the changes were effective for federal purposes.
new text end

Sec. 7.

Minnesota Statutes 2020, section 290.0132, is amended by adding a subdivision
to read:

new text begin Subd. 30. new text end

new text begin Income of partners, members, or shareholders. new text end

new text begin The amount of income
determined after allowable deductions and the additions and subtractions required under
this chapter that is received from a qualifying entity, as defined under section 289A.08,
subdivision 7a, for purposes of calculating adjusted gross income by a partner, member, or
shareholder of a qualifying entity that has elected to file as a C-option corporation under
section 289A.08, subdivision 7a, is a subtraction. The amount of net income as adjusted
under this subdivision must not be less than zero. The amount of the subtraction allowed
under this subdivision may not exceed the partner's, member's, or shareholder's portions of
the qualifying entity's net income after assignment under section 290.17, or apportionment
under section 290.191 or 290.20, as may be required.
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, 2020.
new text end

Sec. 8.

Minnesota Statutes 2020, section 290.06, subdivision 2c, is amended to read:

Subd. 2c.

Schedules of rates for individuals, estates, and trusts.

(a) The income taxes
imposed by this chapter upon married individuals filing joint returns and surviving spouses
as defined in section 2(a) of the Internal Revenue Code must be computed by applying to
their taxable net income the following schedule of rates:

(1) On the first $38,770, 5.35 percent;

(2) On all over $38,770, but not over $154,020, 6.8 percent;

(3) On all over $154,020, but not over $269,010, 7.85 percent;

(4) On all over $269,010, 9.85 percent.

Married individuals filing separate returns, estates, and trusts must compute their income
tax by applying the above rates to their taxable income, except that the income brackets
will be one-half of the above amounts after the adjustment required in subdivision 2d.

(b) The income taxes imposed by this chapter upon unmarried individuals must be
computed by applying to taxable net income the following schedule of rates:

(1) On the first $26,520, 5.35 percent;

(2) On all over $26,520, but not over $87,110, 6.8 percent;

(3) On all over $87,110, but not over $161,720, 7.85 percent;

(4) On all over $161,720, 9.85 percent.

(c) The income taxes imposed by this chapter upon unmarried individuals qualifying as
a head of household as defined in section 2(b) of the Internal Revenue Code must be
computed by applying to taxable net income the following schedule of rates:

(1) On the first $32,650, 5.35 percent;

(2) On all over $32,650, but not over $131,190, 6.8 percent;

(3) On all over $131,190, but not over $214,980, 7.85 percent;

(4) On all over $214,980, 9.85 percent.

(d) In lieu of a tax computed according to the rates set forth in this subdivision, the tax
of any individual taxpayer whose taxable net income for the taxable year is less than an
amount determined by the commissioner must be computed in accordance with tables
prepared and issued by the commissioner of revenue based on income brackets of not more
than $100. The amount of tax for each bracket shall be computed at the rates set forth in
this subdivision, provided that the commissioner may disregard a fractional part of a dollar
unless it amounts to 50 cents or more, in which case it may be increased to $1.

(e) An individual who is not a Minnesota resident for the entire year must compute the
individual's Minnesota income tax as provided in this subdivision. After the application of
the nonrefundable credits provided in this chapter, the tax liability must then be multiplied
by a fraction in which:

(1) the numerator is the individual's Minnesota source federal adjusted gross income as
defined in section 62 of the Internal Revenue Code and increased by:

(i) the additions required under sections 290.0131, subdivisions 2, 6, 8 to 10, 16, and
17, and 290.0137, paragraph (a); and reduced by

(ii) the Minnesota assignable portion of the subtraction for United States government
interest under section 290.0132, subdivision 2, the subtractions under sections 290.0132,
subdivisions 9, 10, 14, 15, 17, 18, deleted text begin and deleted text end 27, new text begin and 30, new text end and 290.0137, paragraph (c), after applying
the allocation and assignability provisions of section 290.081, clause (a), or 290.17; and

(2) the denominator is the individual's federal adjusted gross income as defined in section
62 of the Internal Revenue Code, increased by:

(i) the additions required under sections 290.0131, subdivisions 2, 6, 8 to 10, 16, and
17, and 290.0137, paragraph (a); and reduced by

(ii) the subtractions under sections 290.0132, subdivisions 2, 9, 10, 14, 15, 17, 18, deleted text begin and deleted text end
27, new text begin and 30, new text end and 290.0137, paragraph (c).

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxable years beginning after December
31, 2020.
new text end

Sec. 9.

Minnesota Statutes 2020, section 290.06, subdivision 22, is amended to read:

Subd. 22.

Credit for taxes paid to another state.

(a) A taxpayer who is liable for taxes
based on net income to another state, as provided in paragraphs (b) through (f), upon income
allocated or apportioned to Minnesota, is entitled to a credit for the tax paid to another state
if the tax is actually paid in the taxable year or a subsequent taxable year. A taxpayer who
is a resident of this state pursuant to section 290.01, subdivision 7, paragraph (b), and who
is subject to income tax as a resident in the state of the individual's domicile is not allowed
this credit unless the state of domicile does not allow a similar credit.

(b) For an individual, estate, or trust, the credit is determined by multiplying the tax
payable under this chapter by the ratio derived by dividing the income subject to tax in the
other state that is also subject to tax in Minnesota while a resident of Minnesota by the
taxpayer's federal adjusted gross income, as defined in section 62 of the Internal Revenue
Code, modified by the addition required by section 290.0131, subdivision 2, and the
subtraction allowed by section 290.0132, subdivision 2, to the extent the income is allocated
or assigned to Minnesota under sections 290.081 and 290.17.

(c) If the taxpayer is an athletic team that apportions all of its income under section
290.17, subdivision 5, the credit is determined by multiplying the tax payable under this
chapter by the ratio derived from dividing the total net income subject to tax in the other
state by the taxpayer's Minnesota taxable income.

(d)(1) The credit determined under paragraph (b) or (c) shall not exceed the amount of
tax so paid to the other state on the gross income earned within the other state subject to
tax under this chapter; and

(2) the allowance of the credit does not reduce the taxes paid under this chapter to an
amount less than what would be assessed if the gross income earned within the other state
were excluded from taxable net income.

(e) In the case of the tax assessed on a lump-sum distribution under section 290.032, the
credit allowed under paragraph (a) is the tax assessed by the other state on the lump-sum
distribution that is also subject to tax under section 290.032, and shall not exceed the tax
assessed under section 290.032. To the extent the total lump-sum distribution defined in
section 290.032, subdivision 1, includes lump-sum distributions received in prior years or
is all or in part an annuity contract, the reduction to the tax on the lump-sum distribution
allowed under section 290.032, subdivision 2, includes tax paid to another state that is
properly apportioned to that distribution.

(f) If a Minnesota resident reported an item of income to Minnesota and is assessed tax
in such other state on that same income after the Minnesota statute of limitations has expired,
the taxpayer shall receive a credit for that year under paragraph (a), notwithstanding any
statute of limitations to the contrary. The claim for the credit must be submitted within one
year from the date the taxes were paid to the other state. The taxpayer must submit sufficient
proof to show entitlement to a credit.

(g) For the purposes of this subdivision, a resident shareholder of a corporation treated
as an "S" corporation under section 290.9725, must be considered to have paid a tax imposed
on the shareholder in an amount equal to the shareholder's pro rata share of any net income
tax paid by the S corporation to another state. For the purposes of the preceding sentence,
the term "net income tax" means any tax imposed on or measured by a corporation's net
income.

(h) For the purposes of this subdivision, a resident partner of an entity taxed as a
partnership under the Internal Revenue Code must be considered to have paid a tax imposed
on the partner in an amount equal to the partner's pro rata share of any net income tax paid
by the partnership to another state. For purposes of the preceding sentence, the term "net
income" tax means any tax imposed on or measured by a partnership's net income.

(i) For the purposes of this subdivision, "another state":

(1) includes:

(i) the District of Columbia; and

(ii) a province or territory of Canada; but

(2) excludes Puerto Rico and the several territories organized by Congress.

(j) The limitations on the credit in paragraphs (b), (c), and (d), are imposed on a state
by state basis.

(k) For a tax imposed by a province or territory of Canada, the tax for purposes of this
subdivision is the excess of the tax over the amount of the foreign tax credit allowed under
section 27 of the Internal Revenue Code. In determining the amount of the foreign tax credit
allowed, the net income taxes imposed by Canada on the income are deducted first. Any
remaining amount of the allowable foreign tax credit reduces the provincial or territorial
tax that qualifies for the credit under this subdivision.

(l)(1) The credit allowed to a qualifying individual under this section for tax paid to a
qualifying state equals the credit calculated under paragraphs (b) and (d), plus the amount
calculated by multiplying:

(i) the difference between the preliminary credit and the credit calculated under paragraphs
(b) and (d), by

(ii) the ratio derived by dividing the income subject to tax in the qualifying state that
consists of compensation for performance of personal or professional services by the total
amount of income subject to tax in the qualifying state.

(2) If the amount of the credit that a qualifying individual is eligible to receive under
clause (1) for tax paid to a qualifying state exceeds the tax due under this chapter before
the application of the credit calculated under clause (1), the commissioner shall refund the
excess to the qualifying individual. An amount sufficient to pay the refunds required by this
subdivision is appropriated to the commissioner from the general fund.

(3) For purposes of this paragraph, "preliminary credit" means the credit that a qualifying
individual is eligible to receive under paragraphs (b) and (d) for tax paid to a qualifying
state without regard to the limitation in paragraph (d), clause (2); "qualifying individual"
means a Minnesota resident under section 290.01, subdivision 7, paragraph (a), who received
compensation during the taxable year for the performance of personal or professional services
within a qualifying state; and "qualifying state" means a state with which an agreement
under section 290.081 is not in effect for the taxable year but was in effect for a taxable
year beginning before January 1, 2010.

new text begin (m) A resident partner, member, or shareholder of a qualifying entity making an election
to be taxed as a C-option corporation under section 289A.08, subdivision 7a, may claim a
credit for the amount of their pro rata share of any net income tax paid to another state by
the entity or on a composite return filed with that state on behalf of its Minnesota resident
partners, members, or shareholders. For purposes of this paragraph, "net income tax" means
any tax imposed on or measured by net income, but "net income" does not include any
income that is apportioned to this state under section 290.191 or 290.20.
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, 2020.
new text end

Sec. 10.

Minnesota Statutes 2020, section 290.091, subdivision 2, is amended to read:

Subd. 2.

Definitions.

For purposes of the tax imposed by this section, the following
terms have the meanings given.

(a) "Alternative minimum taxable income" means the sum of the following for the taxable
year:

(1) the taxpayer's federal alternative minimum taxable income as defined in section
55(b)(2) of the Internal Revenue Code;

(2) the taxpayer's itemized deductions allowed in computing federal alternative minimum
taxable income, but excluding:

(i) the charitable contribution deduction under section 170 of the Internal Revenue Code;

(ii) the medical expense deduction;

(iii) the casualty, theft, and disaster loss deduction; and

(iv) the impairment-related work expenses of a person with a disability;

(3) for depletion allowances computed under section 613A(c) of the Internal Revenue
Code, with respect to each property (as defined in section 614 of the Internal Revenue Code),
to the extent not included in federal alternative minimum taxable income, the excess of the
deduction for depletion allowable under section 611 of the Internal Revenue Code for the
taxable year over the adjusted basis of the property at the end of the taxable year (determined
without regard to the depletion deduction for the taxable year);

(4) to the extent not included in federal alternative minimum taxable income, the amount
of the tax preference for intangible drilling cost under section 57(a)(2) of the Internal Revenue
Code determined without regard to subparagraph (E);

(5) to the extent not included in federal alternative minimum taxable income, the amount
of interest income as provided by section 290.0131, subdivision 2;

(6) the amount of addition required by section 290.0131, subdivisions 9, 10, and 16;

(7) the deduction allowed under section 199A of the Internal Revenue Code, to the extent
not included in the addition required under clause (6); and

(8) to the extent not included in federal alternative minimum taxable income, the amount
of foreign-derived intangible income deducted under section 250 of the Internal Revenue
Code;

less the sum of the amounts determined under the following:

(i) interest income as defined in section 290.0132, subdivision 2;

(ii) an overpayment of state income tax as provided by section 290.0132, subdivision
3, to the extent included in federal alternative minimum taxable income;

(iii) the amount of investment interest paid or accrued within the taxable year on
indebtedness to the extent that the amount does not exceed net investment income, as defined
in section 163(d)(4) of the Internal Revenue Code. Interest does not include amounts deducted
in computing federal adjusted gross income;

(iv) amounts subtracted from federal taxable or adjusted gross income as provided by
section 290.0132, subdivisions 7, 9 to 15, 17, 21, 24, and 26 to deleted text begin 29 deleted text end new text begin 30 new text end ;

(v) the amount of the net operating loss allowed under section 290.095, subdivision 11,
paragraph (c); and

(vi) the amount allowable as a Minnesota itemized deduction under section 290.0122,
subdivision 7.

In the case of an estate or trust, alternative minimum taxable income must be computed
as provided in section 59(c) of the Internal Revenue Code, except alternative minimum
taxable income must be increased by the addition in section 290.0131, subdivision 16.

(b) "Investment interest" means investment interest as defined in section 163(d)(3) of
the Internal Revenue Code.

(c) "Net minimum tax" means the minimum tax imposed by this section.

(d) "Regular tax" means the tax that would be imposed under this chapter (without regard
to this section and section 290.032), reduced by the sum of the nonrefundable credits allowed
under this chapter.

(e) "Tentative minimum tax" equals 6.75 percent of alternative minimum taxable income
after subtracting the exemption amount determined under subdivision 3.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxable years beginning after December
31, 2020.
new text end

Sec. 11.

Minnesota Statutes 2020, section 290.0921, subdivision 2, is amended to read:

Subd. 2.

Definitions.

(a) For purposes of this section, the following terms have the
meanings given them.

(b) "Alternative minimum taxable net income" is alternative minimum taxable income,

(1) less the exemption amount, and

(2) apportioned or allocated to Minnesota under section 290.17, 290.191, or 290.20.

(c) The "exemption amount" is $40,000, reduced, but not below zero, by 25 percent of
the excess of alternative minimum taxable income over $150,000.

(d) "Minnesota alternative minimum taxable income" is alternative minimum taxable
net income, less the deductions for alternative tax net operating loss under subdivision 4;
and dividends received under subdivision 6. The sum of the deductions under this paragraph
may not exceed 90 percent of alternative minimum taxable net income. This limitation does
not apply to:

(1) a deduction for dividends paid to or received from a corporation which is subject to
tax under section 290.36 and which is a member of an affiliated group of corporations as
defined by the Internal Revenue Code; or

(2) a deduction for dividends received from a property and casualty insurer as defined
under section 60A.60, subdivision 8, which is a member of an affiliated group of corporations
as defined by the Internal Revenue Code and either: (i) the dividend is eliminated in
consolidation under Treasury Regulation 1.1502-14(a), as amended through December 31,
1989; or (ii) the dividend is deducted under an election under section 243(b) of the Internal
Revenue Code.

(e) "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended
through December 16, 2016 new text begin , except that for the purposes of exclusion from gross income
of paycheck protection loan forgiveness and allowable deductions of covered expenses paid
for with covered loans under section 1106 of Public Law 116-136, as clarified by Title II,
subtitle B, section 276(a)(i) of Public Law 116-260, "Internal Revenue Code" means the
Internal Revenue Code as amended through December 27, 2020 new text end .

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective the day following final enactment, except
that changes incorporated by federal changes are effective retroactively at the same time
the changes were effective for federal purposes.
new text end

Sec. 12.

new text begin [290.096] SPECIAL RULES FOR C-OPTION CORPORATIONS.
new text end

new text begin Subdivision 1. new text end

new text begin Allocation of subtractions and credits. new text end

new text begin No carryover generated by a
C-option corporation for a subtraction allowed under this chapter that remains after the
revocation or expiration of the election in section 289A.08, subdivision 7a, paragraph (a),
may be claimed by a partner, member, or shareholder of that C-option corporation.
new text end

new text begin Subd. 2. new text end

new text begin Credits. new text end

new text begin (a) Credits and credit carryovers against the tax due under this chapter
that are claimed by a C-option corporation must be distributed as follows:
new text end

new text begin (1) for a nonrefundable credit, the credit is distributed to the C-option corporation; and
new text end

new text begin (2) for a refundable credit, the amount of the credit that does not exceed the C-option
corporation's taxable income is distributed to the C-option corporation and the amount of
the credit that exceeds the amount of the C-option corporation's taxable income is distributed
in the same manner as the subtraction in section 290.0132, subdivision 30.
new text end

new text begin (b) A credit carryover generated by an individual taxpayer may be claimed by a C-option
corporation of which the individual is a partner, member, or shareholder.
new text end

new text begin Subd. 3. new text end

new text begin Refunds. new text end

new text begin (a) A C-option corporation may make a claim for a refund under
section 289A.50. Refunds must be paid to each partner, member, or shareholder in the same
manner as the distribution of the subtraction in section 290.0132, subdivision 30.
new text end

new text begin (b) For purposes of applying interest to refunds under paragraph (a), the amount refunded
bears interest under section 289A.56, subdivision 2, from the later of when the partner's,
member's, or shareholder's individual return is filed or when the C-option corporation's
return is filed.
new text end

new text begin Subd. 4. new text end

new text begin Estimated tax. new text end

new text begin (a) A C-option corporation must make payments of estimated
tax as required under section 289A.26.
new text end

new text begin (b) Payments of estimated tax under paragraph (a) made by a C-option corporation for
a taxable year for which the taxpayer is not a C-option corporation must be distributed to
each partner, member, or shareholder in the same manner as the distribution of the subtraction
in section 290.0132, subdivision 30.
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, 2020.
new text end

Sec. 13.

Minnesota Statutes 2020, section 290.92, subdivision 4b, is amended to read:

Subd. 4b.

Withholding by partnerships.

(a) A partnership shall deduct and withhold
a tax as provided in paragraph (b) for nonresident individual partners based on their
distributive shares of partnership income for a taxable year of the partnership.

(b) The amount of tax withheld is determined by multiplying the partner's distributive
share allocable to Minnesota under section 290.17, paid or credited during the taxable year
by the highest rate used to determine the income tax liability for an individual under section
290.06, subdivision 2c, except that the amount of tax withheld may be determined by the
commissioner if the partner submits a withholding exemption certificate under subdivision
5.

(c) The commissioner may reduce or abate the tax withheld under this subdivision if the
partnership had reasonable cause to believe that no tax was due under this section.

(d) Notwithstanding paragraph (a), a partnership is not required to deduct and withhold
tax for a nonresident partner if:

(1) the partner elects to have the tax due paid as part of the partnership's composite return
under section 289A.08, subdivision 7;

(2) the partner has Minnesota assignable federal adjusted gross income from the
partnership of less than $1,000; or

(3) the partnership is liquidated or terminated, the income was generated by a transaction
related to the termination or liquidation, and no cash or other property was distributed in
the current or prior taxable year;

(4) the distributive shares of partnership income are attributable to:

(i) income required to be recognized because of discharge of indebtedness;

(ii) income recognized because of a sale, exchange, or other disposition of real estate,
depreciable property, or property described in section 179 of the Internal Revenue Code;
or

(iii) income recognized on the sale, exchange, or other disposition of any property that
has been the subject of a basis reduction pursuant to section 108, 734, 743, 754, or 1017 of
the Internal Revenue Code

to the extent that the income does not include cash received or receivable or, if there is cash
received or receivable, to the extent that the cash is required to be used to pay indebtedness
by the partnership or a secured debt on partnership property; deleted text begin or
deleted text end

(5) the partnership is a publicly traded partnership, as defined in section 7704(b) of the
Internal Revenue Code new text begin ; or
new text end

new text begin (6) the partnership has elected to be taxed as a C-option corporation under section
289A.08, subdivision 7a new text end .

(e) For purposes of sections 270C.60, 289A.09, subdivision 2, 289A.20, subdivision 2,
paragraph (c), 289A.50, 289A.56, 289A.60, and 289A.63, a partnership is considered an
employer.

(f) To the extent that income is exempt from withholding under paragraph (d), clause
(4), the commissioner has a lien in an amount up to the amount that would be required to
be withheld with respect to the income of the partner attributable to the partnership interest,
but for the application of paragraph (d), clause (4). The lien arises under section 270C.63
from the date of assessment of the tax against the partner, and attaches to that partner's share
of the profits and any other money due or to become due to that partner in respect of the
partnership. Notice of the lien may be sent by mail to the partnership, without the necessity
for recording the lien. The notice has the force and effect of a levy under section 270C.67,
and is enforceable against the partnership in the manner provided by that section. Upon
payment in full of the liability subsequent to the notice of lien, the partnership must be
notified that the lien has been satisfied.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxable years beginning after December
31, 2020.
new text end

Sec. 14.

Minnesota Statutes 2020, section 290.92, subdivision 4c, is amended to read:

Subd. 4c.

Withholding by S corporations.

(a) A corporation having a valid election in
effect under section 290.9725 shall deduct and withhold a tax as provided in paragraph (b)
for nonresident individual shareholders their share of the corporation's income for the taxable
year.

(b) The amount of tax withheld is determined by multiplying the amount of income
allocable to Minnesota under section 290.17 by the highest rate used to determine the income
tax liability of an individual under section 290.06, subdivision 2c, except that the amount
of tax withheld may be determined by the commissioner if the shareholder submits a
withholding exemption certificate under subdivision 5.

(c) Notwithstanding paragraph (a), a corporation is not required to deduct and withhold
tax for a nonresident shareholder, if:

(1) the shareholder elects to have the tax due paid as part of the corporation's composite
return under section 289A.08, subdivision 7;

(2) the shareholder has Minnesota assignable federal adjusted gross income from the
corporation of less than $1,000; deleted text begin or
deleted text end

(3) the corporation is liquidated or terminated, the income was generated by a transaction
related to the termination or liquidation, and no cash or other property was distributed in
the current or prior taxable year new text begin ; or
new text end

new text begin (4) the S corporation has elected to be taxed as a C-option corporation under section
289A.08, subdivision 7a new text end .

(d) For purposes of sections 270C.60, 289A.09, subdivision 2, 289A.20, subdivision 2,
paragraph (c), 289A.50, 289A.56, 289A.60, and 289A.63, a corporation is considered an
employer.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxable years beginning after December
31, 2020.
new text end

Sec. 15.

Minnesota Statutes 2020, section 290A.03, subdivision 15, is amended to read:

Subd. 15.

Internal Revenue Code.

"Internal Revenue Code" means the Internal Revenue
Code of 1986, as amended through December 31, 2018 new text begin , except that for the purposes of
exclusion from gross income of paycheck protection loan forgiveness and allowable
deductions of covered expenses paid for with covered loans under section 1106 of Public
Law 116-136, as clarified by Title II, subtitle B, section 276(a)(i) of Public Law 116-260,
"Internal Revenue Code" means the Internal Revenue Code as amended through December
27, 2020 new text end .

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective the day following final enactment, except
that changes incorporated by federal changes are effective retroactively at the same time
the changes were effective for federal purposes.
new text end

Sec. 16.

Minnesota Statutes 2020, section 291.005, subdivision 1, is amended to read:

Subdivision 1.

Scope.

Unless the context otherwise clearly requires, the following terms
used in this chapter shall have the following meanings:

(1) "Commissioner" means the commissioner of revenue or any person to whom the
commissioner has delegated functions under this chapter.

(2) "Federal gross estate" means the gross estate of a decedent as required to be valued
and otherwise determined for federal estate tax purposes under the Internal Revenue Code,
increased by the value of any property in which the decedent had a qualifying income interest
for life and for which an election was made under section 291.03, subdivision 1d, for
Minnesota estate tax purposes, but was not made for federal estate tax purposes.

(3) "Internal Revenue Code" means the United States Internal Revenue Code of 1986,
as amended through December 31, 2018 new text begin , except that for the purposes of exclusion from
gross income of paycheck protection loan forgiveness and allowable deductions of covered
expenses paid for with covered loans under section 1106 of Public Law 116-136, as clarified
by Title II, subtitle B, section 276(a)(i) of Public Law 116-260, "Internal Revenue Code"
means the Internal Revenue Code as amended through December 27, 2020 new text end .

(4) "Minnesota gross estate" means the federal gross estate of a decedent after (a)
excluding therefrom any property included in the estate which has its situs outside Minnesota,
and (b) including any property omitted from the federal gross estate which is includable in
the estate, has its situs in Minnesota, and was not disclosed to federal taxing authorities.

(5) "Nonresident decedent" means an individual whose domicile at the time of death
was not in Minnesota.

(6) "Personal representative" means the executor, administrator or other person appointed
by the court to administer and dispose of the property of the decedent. If there is no executor,
administrator or other person appointed, qualified, and acting within this state, then any
person in actual or constructive possession of any property having a situs in this state which
is included in the federal gross estate of the decedent shall be deemed to be a personal
representative to the extent of the property and the Minnesota estate tax due with respect
to the property.

(7) "Resident decedent" means an individual whose domicile at the time of death was
in Minnesota. The provisions of section 290.01, subdivision 7, paragraphs (c) and (d), apply
to determinations of domicile under this chapter.

(8) "Situs of property" means, with respect to:

(i) real property, the state or country in which it is located;

(ii) tangible personal property, the state or country in which it was normally kept or
located at the time of the decedent's death or for a gift of tangible personal property within
three years of death, the state or country in which it was normally kept or located when the
gift was executed;

(iii) a qualified work of art, as defined in section 2503(g)(2) of the Internal Revenue
Code, owned by a nonresident decedent and that is normally kept or located in this state
because it is on loan to an organization, qualifying as exempt from taxation under section
501(c)(3) of the Internal Revenue Code, that is located in Minnesota, the situs of the art is
deemed to be outside of Minnesota, notwithstanding the provisions of item (ii); and

(iv) intangible personal property, the state or country in which the decedent was domiciled
at death or for a gift of intangible personal property within three years of death, the state or
country in which the decedent was domiciled when the gift was executed.

For a nonresident decedent with an ownership interest in a pass-through entity with
assets that include real or tangible personal property, situs of the real or tangible personal
property, including qualified works of art, is determined as if the pass-through entity does
not exist and the real or tangible personal property is personally owned by the decedent. If
the pass-through entity is owned by a person or persons in addition to the decedent, ownership
of the property is attributed to the decedent in proportion to the decedent's capital ownership
share of the pass-through entity.

(9) "Pass-through entity" includes the following:

(i) an entity electing S corporation status under section 1362 of the Internal Revenue
Code;

(ii) an entity taxed as a partnership under subchapter K of the Internal Revenue Code;

(iii) a single-member limited liability company or similar entity, regardless of whether
it is taxed as an association or is disregarded for federal income tax purposes under Code
of Federal Regulations, title 26, section 301.7701-3; or

(iv) a trust to the extent the property is includable in the decedent's federal gross estate;
but excludes

(v) an entity whose ownership interest securities are traded on an exchange regulated
by the Securities and Exchange Commission as a national securities exchange under section
6 of the Securities Exchange Act, United States Code, title 15, section 78f.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective the day following final enactment, except
that changes incorporated by federal changes are effective retroactively at the same time
the changes were effective for federal purposes.
new text end