1.1                          A bill for an act
  1.2             relating to taxation; corporate franchise tax; 
  1.3             modifying the sales factor for leases of certain 
  1.4             mobile equipment; amending Minnesota Statutes 1994, 
  1.5             section 290.191, subdivisions 5 and 6. 
  1.6   BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
  1.7      Section 1.  Minnesota Statutes 1994, section 290.191, 
  1.8   subdivision 5, is amended to read: 
  1.9      Subd. 5.  [DETERMINATION OF SALES FACTOR.] For purposes of 
  1.10  this section, the following rules apply in determining the sales 
  1.11  factor.  
  1.12     (a) The sales factor includes all sales, gross earnings, or 
  1.13  receipts received in the ordinary course of the business, except 
  1.14  that the following types of income are not included in the sales 
  1.15  factor: 
  1.16     (1) interest; 
  1.17     (2) dividends; 
  1.18     (3) sales of capital assets as defined in section 1221 of 
  1.19  the Internal Revenue Code; 
  1.20     (4) sales of property used in the trade or business, except 
  1.21  sales of leased property of a type which is regularly sold as 
  1.22  well as leased; 
  1.23     (5) sales of debt instruments as defined in section 
  1.24  1275(a)(1) of the Internal Revenue Code or sales of stock; and 
  1.25     (6) royalties, fees, or other like income of a type which 
  2.1   qualify for a subtraction from federal taxable income under 
  2.2   section 290.01, subdivision 19(d)(11).  
  2.3      (b) Sales of tangible personal property are made within 
  2.4   this state if the property is received by a purchaser at a point 
  2.5   within this state, and the taxpayer is taxable in this state, 
  2.6   regardless of the f.o.b. point, other conditions of the sale, or 
  2.7   the ultimate destination of the property. 
  2.8      (c) Tangible personal property delivered to a common or 
  2.9   contract carrier or foreign vessel for delivery to a purchaser 
  2.10  in another state or nation is a sale in that state or nation, 
  2.11  regardless of f.o.b. point or other conditions of the sale.  
  2.12     (d) Notwithstanding paragraphs (b) and (c), when 
  2.13  intoxicating liquor, wine, fermented malt beverages, cigarettes, 
  2.14  or tobacco products are sold to a purchaser who is licensed by a 
  2.15  state or political subdivision to resell this property only 
  2.16  within the state of ultimate destination, the sale is made in 
  2.17  that state.  
  2.18     (e) Sales made by or through a corporation that is 
  2.19  qualified as a domestic international sales corporation under 
  2.20  section 992 of the Internal Revenue Code are not considered to 
  2.21  have been made within this state.  
  2.22     (f) Sales, rents, royalties, and other income in connection 
  2.23  with real property is attributed to the state in which the 
  2.24  property is located.  
  2.25     (g) Receipts from the lease or rental of tangible personal 
  2.26  property, including finance leases and true leases, must be 
  2.27  attributed to this state if the property is located in this 
  2.28  state and to other states if the property is not located in this 
  2.29  state.  Moving property including, but not limited to, motor 
  2.30  vehicles, rolling stock, aircraft, vessels, or mobile equipment 
  2.31  is located in this state if: 
  2.32     (1) the operation of the property is entirely within this 
  2.33  state; or 
  2.34     (2) the operation of the property is in two or more states 
  2.35  and the principal base of operations from which the property is 
  2.36  sent out is in this state that is used in more than one state 
  3.1   must be apportioned to this state pro rata according to the 
  3.2   portion of use in this state. 
  3.3      (h) Royalties and other income not described in paragraph 
  3.4   (a), clause (6), received for the use of or for the privilege of 
  3.5   using intangible property, including patents, know-how, 
  3.6   formulas, designs, processes, patterns, copyrights, trade names, 
  3.7   service names, franchises, licenses, contracts, customer lists, 
  3.8   or similar items, must be attributed to the state in which the 
  3.9   property is used by the purchaser.  If the property is used in 
  3.10  more than one state, the royalties or other income must be 
  3.11  apportioned to this state pro rata according to the portion of 
  3.12  use in this state.  If the portion of use in this state cannot 
  3.13  be determined, the royalties or other income must be excluded 
  3.14  from both the numerator and the denominator.  Intangible 
  3.15  property is used in this state if the purchaser uses the 
  3.16  intangible property or the rights therein in the regular course 
  3.17  of its business operations in this state, regardless of the 
  3.18  location of the purchaser's customers. 
  3.19     (i) Sales of intangible property are made within the state 
  3.20  in which the property is used by the purchaser.  If the property 
  3.21  is used in more than one state, the sales must be apportioned to 
  3.22  this state pro rata according to the portion of use in this 
  3.23  state.  If the portion of use in this state cannot be 
  3.24  determined, the sale must be excluded from both the numerator 
  3.25  and the denominator of the sales factor.  Intangible property is 
  3.26  used in this state if the purchaser used the intangible property 
  3.27  in the regular course of its business operations in this state. 
  3.28     (j) Receipts from the performance of services must be 
  3.29  attributed to the state in which the benefits of the services 
  3.30  are consumed.  If the benefits are consumed in more than one 
  3.31  state, the receipts from those benefits must be apportioned to 
  3.32  this state pro rata according to the portion of the benefits 
  3.33  consumed in this state.  If the extent to which the benefits of 
  3.34  services are consumed in this state is not readily determinable, 
  3.35  the benefits of the services shall be deemed to be consumed at 
  3.36  the location of the office of the customer from which the 
  4.1   services were ordered in the regular course of the customer's 
  4.2   trade or business.  If the ordering office cannot be determined, 
  4.3   the benefits of the services shall be deemed to be consumed at 
  4.4   the office of the customer to which the services are billed.  
  4.5      Sec. 2.  Minnesota Statutes 1994, section 290.191, 
  4.6   subdivision 6, is amended to read: 
  4.7      Subd. 6.  [DETERMINATION OF RECEIPTS FACTOR FOR FINANCIAL 
  4.8   INSTITUTIONS.] (a) For purposes of this section, the rules in 
  4.9   this subdivision and subdivisions 7 and 8 apply in determining 
  4.10  the receipts factor for financial institutions.  
  4.11     (b) "Receipts" for this purpose means gross income, 
  4.12  including net taxable gain on disposition of assets, including 
  4.13  securities and money market instruments, when derived from 
  4.14  transactions and activities in the regular course of the 
  4.15  taxpayer's trade or business.  
  4.16     (c) "Money market instruments" means federal funds sold and 
  4.17  securities purchased under agreements to resell, commercial 
  4.18  paper, banker's acceptances, and purchased certificates of 
  4.19  deposit and similar instruments to the extent that the 
  4.20  instruments are reflected as assets under generally accepted 
  4.21  accounting principles.  
  4.22     (d) "Securities" means United States Treasury securities, 
  4.23  obligations of United States government agencies and 
  4.24  corporations, obligations of state and political subdivisions, 
  4.25  corporate stock and other securities, participations in 
  4.26  securities backed by mortgages held by United States or state 
  4.27  government agencies, loan-backed securities and similar 
  4.28  investments to the extent the investments are reflected as 
  4.29  assets under generally accepted accounting principles.  
  4.30     (e) Receipts from the lease or rental of real or tangible 
  4.31  personal property, including both finance leases and true 
  4.32  leases, must be attributed to this state if the property is 
  4.33  located in this state.  Tangible personal property that is 
  4.34  characteristically moving property, such as motor vehicles, 
  4.35  rolling stock, aircraft, vessels, mobile equipment, and the 
  4.36  like, is considered to be located in a state if:  
  5.1      (1) the operation of the property is entirely within the 
  5.2   state; or 
  5.3      (2) the operation of the property is in two or more states, 
  5.4   but the principal base of operations from which the property is 
  5.5   sent out is in the state that is used in more than one state 
  5.6   must be apportioned to this state pro rata according to the 
  5.7   portion of use in this state.  
  5.8      (f) Interest income and other receipts from assets in the 
  5.9   nature of loans that are secured primarily by real estate or 
  5.10  tangible personal property must be attributed to this state if 
  5.11  the security property is located in this state under the 
  5.12  principles stated in paragraph (e).  
  5.13     (g) Interest income and other receipts from consumer loans 
  5.14  not secured by real or tangible personal property that are made 
  5.15  to residents of this state, whether at a place of business, by 
  5.16  traveling loan officer, by mail, by telephone or other 
  5.17  electronic means, must be attributed to this state.  
  5.18     (h) Interest income and other receipts from commercial 
  5.19  loans and installment obligations that are unsecured by real or 
  5.20  tangible personal property or secured by intangible property 
  5.21  must be attributed to this state if the proceeds of the loan are 
  5.22  to be applied in this state.  If it cannot be determined where 
  5.23  the funds are to be applied, the income and receipts are 
  5.24  attributed to the state in which the office of the borrower from 
  5.25  which the application would be made in the regular course of 
  5.26  business is located.  If this cannot be determined, the 
  5.27  transaction is disregarded in the apportionment formula.  
  5.28     (i) Interest income and other receipts from a participating 
  5.29  financial institution's portion of participation and syndication 
  5.30  loans must be attributed under paragraphs (e) to (h).  A 
  5.31  participation loan is an arrangement in which a lender makes a 
  5.32  loan to a borrower and then sells, assigns, or otherwise 
  5.33  transfers all or a part of the loan to a purchasing financial 
  5.34  institution.  A syndication loan is a loan transaction involving 
  5.35  multiple financial institutions in which all the lenders are 
  5.36  named as parties to the loan documentation, are known to the 
  6.1   borrower, and have privity of contract with the borrower.  
  6.2      (j) Interest income and other receipts including service 
  6.3   charges from financial institution credit card and travel and 
  6.4   entertainment credit card receivables and credit card holders' 
  6.5   fees must be attributed to the state to which the card charges 
  6.6   and fees are regularly billed.  
  6.7      (k) Merchant discount income derived from financial 
  6.8   institution credit card holder transactions with a merchant must 
  6.9   be attributed to the state in which the merchant is located.  In 
  6.10  the case of merchants located within and outside the state, only 
  6.11  receipts from merchant discounts attributable to sales made from 
  6.12  locations within the state are attributed to this state.  It is 
  6.13  presumed, subject to rebuttal, that the location of a merchant 
  6.14  is the address shown on the invoice submitted by the merchant to 
  6.15  the taxpayer.  
  6.16     (l) Receipts from the performance of fiduciary and other 
  6.17  services must be attributed to the state in which the benefits 
  6.18  of the services are consumed.  If the benefits are consumed in 
  6.19  more than one state, the receipts from those benefits must be 
  6.20  apportioned to this state pro rata according to the portion of 
  6.21  the benefits consumed in this state.  If the extent to which the 
  6.22  benefits of services are consumed in this state is not readily 
  6.23  determinable, the benefits of the services shall be deemed to be 
  6.24  consumed at the location of the office of the customer from 
  6.25  which the services were ordered in the regular course of the 
  6.26  customer's trade or business.  If the ordering office cannot be 
  6.27  determined, the benefits of the services shall be deemed to be 
  6.28  consumed at the office of the customer to which the services are 
  6.29  billed.  
  6.30     (m) Receipts from the issuance of travelers checks and 
  6.31  money orders must be attributed to the state in which the checks 
  6.32  and money orders are purchased.  
  6.33     (n) Receipts from investments of a financial institution in 
  6.34  securities and from money market instruments must be apportioned 
  6.35  to this state based on the ratio that total deposits from this 
  6.36  state, its residents, including any business with an office or 
  7.1   other place of business in this state, its political 
  7.2   subdivisions, agencies, and instrumentalities bear to the total 
  7.3   deposits from all states, their residents, their political 
  7.4   subdivisions, agencies, and instrumentalities.  In the case of 
  7.5   an unregulated financial institution subject to this section, 
  7.6   these receipts are apportioned to this state based on the ratio 
  7.7   that its gross business income, excluding such receipts, earned 
  7.8   from sources within this state bears to gross business income, 
  7.9   excluding such receipts, earned from sources within all states.  
  7.10  For purposes of this subdivision, deposits made by this state, 
  7.11  its residents, its political subdivisions, agencies, and 
  7.12  instrumentalities must be attributed to this state, whether or 
  7.13  not the deposits are accepted or maintained by the taxpayer at 
  7.14  locations within this state. 
  7.15     (o) A financial institution's interest in property 
  7.16  described in section 290.015, subdivision 3, paragraph (b), is 
  7.17  included in the receipts factor in the same manner as assets in 
  7.18  the nature of securities or money market instruments are 
  7.19  included in paragraph (n).  
  7.20     Sec. 3.  [EFFECTIVE DATE.] 
  7.21     Sections 1 and 2 are effective retroactive for taxable 
  7.22  years beginning after December 31, 1988.