Minnesota had been looking at mandatory worldwide reporting and backed away from that plan. However, the state made its outreach to tax global income by recently enacting H.B. 1938 (“the bill”), which amends Minnesota statutes to include global intangible low-taxed income (GILTI) in the Minnesota income base. The state did not adopt the 50% GILTI deduction allowed under IRC § 250; however, the bill does clarify that GILTI will be treated as dividend income for purposes of the dividend received deduction as well as for purposes of the sales factor calculation.
In addition, the bill modifies treatment of the dividend received deduction by reducing the percentage of deduction allowed from 80 to 50% for a corporation that owns 20% or more of another corporation. A similar reduction from 70 to 40% deduction is allowed for corporations owning less than 20% of another corporation.
The bill also includes several changes to individual and corporate income taxes, including an Internal Revenue Code (IRC) conformity update. As Minnesota income tax rules are generally based on federal income tax laws, changes to federal laws impact Minnesota tax rules through Internal Revenue Service conformity dates. In January, Minnesota law was updated to conform with the IRC as of December 15, 2022. This recent tax bill updates the conformity date to the IRC as of May 1, 2023, resulting in many of the federal income tax nonconformity modifications reported on from 2017 through 2021, with Minnesota returns no longer being required. The state intends to issue guidance on the process of amending affected tax returns and advises taxpayers to await these instructions before filing amended returns.
The inclusion of GILTI in the tax base is unfortunate in light of what we had hoped would become a trend, wherein New Jersey is considering legislation that eliminates GILTI from the tax base. Ryan believes states taxing all or a portion of GILTI is an overreach both from an inherent statutory conflict and as a result of being facially discriminatory from a U.S. constitutional perspective.
Please contact the Ryan specialists listed below to discuss this new law before you include GILTI in your Minnesota return and for any other concerns you may have with respect to this new law.
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