Minnesota ~ Corporate Income Tax: Disregarded Foreign Subsidiary Properly Included in Combined Return

For corporate income tax purposes, the activities of a foreign subsidiary that elected to be disregarded for federal income tax purposes were properly included in the Minnesota reports of a combined entity because the entity was no longer a foreign entity, but was part of a unitary business. According to statute, the net income and apportionment factors of foreign corporations and other foreign entities that are part of a unitary business cannot be included in the net income and apportionment factors of the unitary business for tax computation purposes. In this case, the foreign subsidiary had distributed its assets and liabilities to its sole shareholder, a domestic corporation, and elected to be classed as a disregarded entity for federal income tax purposes. Thereafter, the domestic corporation was acquired by the parent corporation and was included in the parent’s consolidated federal returns. The Commissioner of Revenue argued that including the foreign subsidiary in the parent’s consolidated federal returns violated the statute. However, the court determined that the foreign subsidiary, by virtue of its election as a disregarded entity, was no longer a foreign corporation or other foreign entity, and, therefore, its income and apportionment factors were that of the domestic corporation.

Ashland Inc. v. Commissioner of Revenue, Minnesota Tax Court, No. 08819-R, June 6, 2016, ¶204-147



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