HF4951

Purpose

This bill creates a new Minnesota tax on a specific type of interest income earned by financial institutions. It targets the portion of credit card finance charges that exceed a 10% annual percentage rate (APR). The goal is to raise state revenue by taxing this “excess credit card interest income” in addition to existing taxes.

Main provisions

• Defines key terms:
  • Annual percentage rate (APR): as defined in federal regulations (CFR 12 Part 226.1).
  • Credit card: a card or device that lets a cardholder obtain credit from a financial institution to buy goods or services, or obtain loans, under an arrangement.
  • Finance charge: as defined by federal regulations (CFR 12 Part 226.1).
  • Financial institution: includes various banks, trust companies, savings banks/associations, industrial loan and thrift companies, regulated lenders, or their operating subsidiaries.
  • Excess credit card interest income: the total interest income a financial institution earns from credit card finance charges that is above a 10% APR.
• Tax base and calculation:
  • The excess credit card interest income is the amount of interest from credit card finance charges that goes beyond 10% APR.
  • For financial institutions that are subject to apportionment for Minnesota tax purposes, the excess amount is multiplied by the institution’s Minnesota apportionment percentage (as determined under the Minnesota apportionment rules).
• Tax rate:
  • In addition to the existing Minnesota corporate tax, there is a new tax on excess credit card interest income at a rate of 100%.
• Application:
  • Applies to the same financial institutions defined above.
  • The apportionment language means multi-state institutions must calculate Minnesota’s share of the tax using Minnesota-specific apportionment rules (290.191 or 290.20).

Significant changes to existing law

• Adds a new section (290.034) creating the “excess credit card interest income tax.”
• Establishes a 100% tax rate on the excess credit card interest income of financial institutions.
• Requires inclusion of this new tax in addition to the current tax under Minnesota law (i.e., it does not replace the existing tax but adds to it).
• Introduces a specific apportionment treatment for multi-state financial institutions, tying Minnesota tax to the institution’s Minnesota-apportionment percentage.

How this would operate (summary)

• A financial institution calculates its credit card finance charges.
• It separates the portion of interest income that is above a 10% APR.
• This excess amount is subject to a 100% tax, with the applicable Minnesota apportionment percentage applied for institutions with multi-state operations.
• The result is paid as an additional tax alongside the current Minnesota corporate tax.

Practical implications

• Financial institutions may face higher tax costs related to credit card lending in Minnesota.
• The tax is designed to apply to the portion of credit card interest above 10% APR, not to all credit card income.
• Since the tax is on institutions, any effects on pricing, fees, or interest rates would depend on how these costs are managed by individual institutions.

Relevant Terms - Excess credit card interest income - Annual percentage rate (APR) - Credit card - Finance charge - Financial institution - Minnesota apportionment percentage - Apportionment (section references 290.17, 290.191, 290.20) - Tax rate: 100 percent - Minnesota tax context: section 290.034 (new) and related provisions - CFR 12 Part 226.1 (definitions used)