HF4769

Purpose

This bill changes how Minnesota determines the portion of a business’s income that is taxed by adding a foreign sales factor to the state apportionment calculation. It aims to affect where income is attributed for tax purposes by modifying the weighting of the factors that apportion net income to Minnesota.

Main provisions

• Adds a new subdivision (290.21, subdivision 10) to require consideration of foreign sales in the apportionment percentage for certain taxpayers.
• Reaffirms the general apportionment approach: a trade or business that must apportion its net income uses a three-factor formula (sales factor, property factor, payroll factor) to determine the Minnesota share of income.
  • The apportionment combines:
  • Sales factor: the percentage of total sales that occur in Minnesota compared to total sales.
  • Property factor: the percentage of total tangible property located in Minnesota compared to total property.
  • Payroll factor: the percentage of total payroll paid in Minnesota compared to total payroll.
• There is a year-by-year schedule showing how much weight each factor carries in the apportionment, with the sales factor gradually increasing as the weights for property and payroll decrease from earlier years (e.g., 2007–2013 show a rising sales weight).
  • Illustrative weights (from the bill text):
  • 2007: Sales 78%, Property 11%, Payroll 11%
  • 2008: Sales 81%, Property 9.5%, Payroll 9.5%
  • 2009: Sales 84%, Property 8%, Payroll 8%
  • 2010: Sales 87%, Property 6.5%, Payroll 6.5%
  • 2011: Sales 90%, Property 5%, Payroll 5%
  • 2012: Sales 93%, Property 3.5%, Payroll 3.5%
  • 2013: Sales 96%, Property 2%, Payroll 2%
  • 2014 and later years: the text shows a continuation of the schedule, but the exact weights for 2014+ are not clearly shown in the excerpt.
• The standard three-factor formula (paragraphs a and b) would not apply in certain situations:
  • If a taxpayer is required to use a different formula under subdivision 3 or section 290.36.
  • If a taxpayer has received permission to use a different method under section 290.20.
  • If the taxpayer includes foreign pro rata sales under subdivision 13, but only to the extent that the foreign inclusion is inconsistent with the standard paragraphs a and b.

How it changes current law

• Introduces a foreign sales factor into Minnesota’s income apportionment, shifting or clarifying how foreign sales are treated when calculating the Minnesota tax base for multi-state businesses.
• Maintains existing alternative formulas or permissions to use other methods, but clarifies that including foreign pro rata sales interacts with those rules and should be limited where inconsistent with the standard three-factor method.

Potential impact and who is affected

• Affects businesses that operate in multiple states and report income in Minnesota, particularly those with significant foreign (out-of-state) sales.
• For many taxpayers, the bill could change the Minnesota share of income subject to tax by increasing or adjusting the weight of Minnesota sales (and potentially foreign sales) in the apportionment calculation.
• Those already using a different apportionment method or who have permission to use an alternative method may see changes in how the new foreign sales factor interacts with their method.

Practical considerations

• Businesses may need to gather and verify data on in-state vs total sales, in-state vs total property, and in-state vs total payroll to compute the apportionment under the revised formula.
• Tax planning and compliance processes may need adjustments to account for the foreign sales component and its interaction with existing methods.

Next steps (if you’re tracking this bill)

• Monitor committee actions and amendments clarifying the exact weights for 2014 and later years.
• Watch for any guidance on how foreign pro rata sales are calculated and how they interact with existing subtraction or adjustments in subdivision 13.

Relevant Terms - apportionment - apportionment formula - sales factor - property factor - payroll factor - foreign sales - foreign pro rata sales - Minnesota Statutes 2024 sections 290.191 subdivision 2 - 290.21 subdivision 10 - subdivision 3 - section 290.36 - section 290.20 - subdivision 13 - trade or business - net income - in-state vs total sales/property/payroll