SF4960

Purpose

• To change how Minnesota taxes certain corporate income by adjusting the way income is apportioned to Minnesota. The bill moves toward using a sales-based approach and adds a provision related to foreign sales in the apportionment, aiming to determine what portion of a company’s income is taxed by Minnesota.

Key provisions

• Amends Minnesota Statutes 2024 section 290.191, subdivision 2 to set the apportionment formula as a three-factor approach (sales, property, and payroll) and to specify how each factor is calculated.

• Apportionment formula (overall method)

  • The tax amount is based on a percentage calculated from three factors: 1) Sales factor: the percentage of the taxpayer’s sales that occur in Minnesota compared with total sales. 2) Property factor: the percentage of the taxpayer’s total tangible property located in Minnesota compared with total property. 3) Payroll factor: the percentage of the taxpayer’s total payroll paid in Minnesota or for labor performed in Minnesota compared with total payroll.
  • The three factor percentages are combined to determine the Minnesota apportionment of net income for tax purposes.

• Factor weight schedule (by taxable year)

  • The bill provides a staged schedule showing how much weight each factor carries for different years, transitioning toward a single-sales-factor approach:
  • 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 calendar years: Sales 100%, Property 0%, Payroll 0%
  • This progression shows a shift toward weighting sales more heavily, eventually using only the sales factor for later years (single-sales-factor approach).

• Exceptions and interactions with other formulas

  • The three-factor approach does not apply to trades or businesses required to use a different formula under subdivision 3 or section 290.36.
  • It also does not apply to entities that have permission to use a different method under section 290.20.
  • It also does not apply, or only applies to the extent consistent, to entities that include foreign pro rata sales under subdivision 13.

• New provision on foreign sales

  • The bill adds a new subdivision (290.21, subdivision 10) addressing foreign sales factors in the apportionment for certain taxpayers. This indicates an intent to explicitly treat foreign sales in the apportionment calculation, though the precise statutory text for that subdivision is not fully shown in the excerpt.

Significant changes to existing law

• Creates a staged shift from a mixed three-factor apportionment toward a single-sales-factor approach over time, culminating in 100% weight on the sales factor for 2014 and later years.
• Introduces a new provision related to foreign sales factors (foreign sales) in apportionment, to be defined under a newly added subdivision.
• Adds flexibility to exclude or limit the three-factor method for taxpayers who are subject to different formulas or who have permission for alternate methods.

Relevant Terms - apportionment - sales factor - property factor - payroll factor - Minnesota apportionment formula - Minnesota Statutes 290.191 - subdivision 2 - subdivision 3 - section 290.36 - section 290.20 - foreign pro rata sales - subdivision 13 - 290.21 (new subdivision) - tax period / taxable year - three-factor method - single-sales-factor (100% sales) approach - Minnesota taxes on corporate income - foreign sales factor (as added/new provision)