Minnesota ~ Multiple Taxes: Governor Proposes Reduction of Foreign Royalty Subtraction, Jobs Tax Credit, Nexus Provisions

Minnesota Gov. Mark Dayton has issued supplemental budget recommendations that include a reduction in the foreign royalty subtraction, a jobs credit against corporate and personal income taxes, and sales and use tax nexus provisions.

Reduction of Foreign Operating Corporation

Under the governor’s budget recommendations, the subtractions and deductions for foreign operating corporations (FOCs) and foreign royalty earnings would be reduced in order to close “corporate loopholes.” The amount of FOC income that is allowed to be claimed as a dividend deduction would be reduced from 80% to 62% in tax year 2012 and then to 39% each year thereafter. For foreign royalty earnings, the governor also recommends reducing the current royalty subtraction from 80% to 62% in the first year (tax year 2012) and to 39% in each subsequent year.

Jobs Now Tax Credit

The governor’s proposed Jobs Now Tax Credit would provide businesses with a $3,000 tax credit for each unemployed Minnesotan, veteran, or recent graduate hired in calendar year 2012. The proposal also includes a $1,500 credit for each new hire through June 2013. In order for the business to receive the tax credit, the new hires would have to remain employed for one year.

Nexus

According to the governor’s budget recommendations, the legal definition of “affiliated entity” would be changed to include entities who refer potential customers, whether by a link on an Internet website or otherwise, to the out-of-state retailer. As previously reported, click-through nexus legislation was prefiled in the Minnesota House of Representatives as H.F. 1849 on January 13, 2012 (TAXDAY, 2012/01/19, S.15), and this bill was introduced in the House on January 24, 2012. A companion bill, S.F. 2082, was introduced in the Minnesota Senate on February 27, 2012. These bills include a rebuttable presumption that, if certain requirements are satisfied, a retailer would have a solicitor in Minnesota if it enters into an agreement with a resident under which the resident, for a commission or other consideration, directly or indirectly refers potential customers, whether by a link on an Internet website or otherwise, to the seller.

The news release and related supplemental budget documents are available on the governor’s website at http://mn.gov/governor/initiatives/budget/.

Governor’s 2012 Supplemental Budget Recommendations, Minnesota Gov. Mark Dayton, March 12, 2012

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