Minnesota — Corporate Income / Franchise Tax

Minnesota imposes an annual franchise tax on every corporation that exercises its corporate franchise to engage in contacts with Minnesota that produce gross income attributable to sources within the state.

Source: Minn. Stat. § 290.02

The tax applies to both domestic corporations (those created or organized in Minnesota or under Minnesota law) and foreign corporations (those created or organized outside Minnesota).

Source: Minn. Stat. § 290.01, subd. 5, 5a

## Entity Types Subject to Tax

C corporations that file federal Form 1120 and have nexus with Minnesota must file Form M4, Corporation Franchise Tax Return, and are subject to the tax measured by taxable income and alternative minimum taxable income.

Source: Minn. Stat. § 290.02

S corporations (those electing treatment under section 290.9725) generally are not subject to the entity-level franchise tax, but file informational returns on Form M8 and may be subject to the minimum fee.

Source: Minn. Stat. § 290.0922

Partnerships and most LLCs (those classified as partnerships for federal tax purposes) are not subject to corporate franchise tax at the entity level but file informational returns and may be subject to the minimum fee.

Source: Minn. Stat. § 290.0922

## Nexus — Jurisdictional Requirement

A corporation is subject to Minnesota filing requirements and tax if it exercises its franchise to engage in contacts with Minnesota that cause part of its income to be allocable to Minnesota under the apportionment statutes (sections 290.17, 290.191, 290.20, or 290.36).

Source: Minn. Stat. § 290.014, subd. 5(1)

Unlike federal tax law, Minnesota does not require that a foreign (non-U.S.) corporation's income be "effectively connected" with a U.S. trade or business in order to impose the franchise tax; constitutional nexus is the standard.

Source: Revenue Notice #26-01 (Feb. 2, 2026)

## Exemptions

Certain entities are exempt from taxation under Chapter 290, including:

• Corporations, individuals, estates, and trusts engaged in the business of mining or producing iron ore and certain other minerals subject to the occupation tax under Minn. Stat. § 298.01 (except for income from other business or property not used in the mining business).
• Organizations exempt from federal income tax under Subchapter F of the Internal Revenue Code, unless subject to unrelated business income tax or other specific provisions.
• Insurance companies subject to the premium tax under Chapter 297I.

Source: Minn. Stat. § 290.05

Minnesota imposes a flat franchise tax rate of 9.8 percent on corporate taxable income. The rate applies to both domestic and foreign C corporations subject to Minnesota franchise tax.

Source: Minn. Stat. § 290.06, subd. 1

For tax years beginning after December 31, 2013, Minnesota apportions multistate corporate income using a single-sales-factor formula. A corporation's Minnesota taxable income equals its total apportionable income multiplied by the ratio of Minnesota sales to total sales everywhere. The property and payroll factors are excluded from the calculation.

Source: Minn. Stat. § 290.191, subd. 2; Revenue Notice #17-01

Minnesota corporate franchise tax returns are due on the same date the federal income tax return is required to be filed. The Minnesota due date automatically conforms to the federal deadline, including any changes to the federal filing calendar. For a calendar-year C corporation, this is typically the 15th day of the fourth month following year-end; for fiscal-year filers, it is the federal due date for that accounting period.

Source: Minn. Stat. § 289A.18, subd. 1

Minnesota Statutes section 290.191, subdivision 5, prescribes how a corporation determines which sales are included in the Minnesota numerator of the single-sales-factor apportionment formula. The statute applies different sourcing rules to tangible personal property, services, and real property.

## Tangible Personal Property — Destination Rule

Sales of tangible personal property are sourced to the destination state. Under subdivision 5(b), sales are made within Minnesota if the property is delivered or shipped to a purchaser within this state, regardless of f.o.b. point or other conditions of the sale.

Carrier delivery rule: Tangible personal property delivered to a common carrier, contract carrier, or foreign vessel for delivery to a purchaser in another state or nation is a sale in that other state or nation, regardless of f.o.b. point or other conditions of the sale. This rule applies even when the seller ships the property from a Minnesota location.

Regulated products exception: When intoxicating liquor, wine, fermented malt beverages, cigarettes, or tobacco products are sold to a purchaser who is licensed by a state or political subdivision to resell the property only within the state of ultimate destination, the sale is attributed to that state of ultimate destination.

DISC exclusion: Sales made by or through a corporation qualified as a domestic international sales corporation under IRC section 992 are not considered to have been made within Minnesota.

Source: Minn. Stat. § 290.191, subd. 5(b)–(e)

## Services — Where Services Are Received

Receipts from the performance of services are attributed to the state where the services are received. The statute looks to the location of the customer's receipt of the benefit, not the location where the taxpayer performs the service activities.

Subdivision 5(a) provides the general rule for service receipts. The statute does not define "where services are received" for most service types, leaving interpretative questions to administrative guidance and case law. The Department of Revenue has applied the statute to source services based on the customer's location or, in some interpretations, the location of indirect beneficiaries of the services.

Special rule for mutual fund services: For management, distribution, or administrative services performed for a fund regulated under 15 U.S.C. chapter 2D, subchapter I (the Investment Company Act of 1940), receipts must be attributed to the state where the fund's shareholders reside. Attribution is determined by the ratio of (1) the average outstanding shares owned by Minnesota-resident shareholders at the beginning and end of each year, to (2) the average total outstanding shares at the beginning and end of the year. Shareholder residence is determined by the mailing address furnished by the shareholder to the fund.

Source: Minn. Stat. § 290.191, subd. 5(a), subd. 6(k)

## Real Property Income

Sales, rents, royalties, and other income in connection with real property are attributed to the state in which the property is located. If real property is located in Minnesota, all income from that property is attributed to Minnesota for sales factor purposes.

Source: Minn. Stat. § 290.191, subd. 5(f)

## Exclusion of Transactional Taxes from Sales Factor

Transactional taxes imposed on gross receipts—such as sales taxes, business privilege taxes, consumer taxes, gross receipts taxes, and similar taxes measured by the sales price or consideration received on a per-transaction basis—are not income to the seller and therefore are excluded from both the numerator and denominator of the Minnesota sales factor. This exclusion applies regardless of whether the seller collected and remitted the tax, absorbed the tax, or passed the tax on to the purchaser as a reimbursement.

The Department of Revenue treats these transactional taxes in the same manner as Minnesota sales and use taxes: they are not considered part of the consideration given in exchange for goods or services and are not included in the cost of goods sold.

Source: Revenue Notice #17-12 (Dec. 18, 2017)

Minnesota requires corporations that are part of a unitary business to file combined reports. Each corporation or other entity (except a sole proprietorship) that is part of a unitary business must file combined reports as the Commissioner of Revenue determines. The combined report aggregates the net income of each member corporation and apportions the unitary business's entire income using the single-sales-factor formula.

Source: Minn. Stat. § 290.17, subd. 4(h)

## Definition of Unitary Business

The term "unitary business" means business activities or operations which result in a flow of value between them. The unitary business concept may be applied within a single legal entity or between multiple entities, without regard to whether each entity is a sole proprietorship, a corporation, a partnership, or a trust.

Source: Minn. Stat. § 290.17, subd. 4(b)

## Presumptions of Unity

Unity is presumed whenever there is unity of ownership, operation, and use, evidenced by centralized management or executive force, centralized purchasing, advertising, accounting, or other controlled interaction. However, the absence of these centralized activities will not necessarily evidence a nonunitary business.

Unity is also presumed when business activities or operations are of mutual benefit, dependent upon, or contributory to one another, either individually or as a group.

Source: Minn. Stat. § 290.17, subd. 4(c)

## Unity of Ownership — More-Than-50-Percent Test

Unity of ownership does not exist when two or more corporations are involved unless more than 50 percent of the voting stock of each corporation is directly or indirectly owned by a common owner or by common owners, either corporate or noncorporate, or by one or more of the member corporations of the group. For this purpose, "voting stock" includes membership interests of mutual insurance holding companies formed under Minn. Stat. § 66A.40.

Source: Minn. Stat. § 290.17, subd. 4(e)

## Water's-Edge Combined Reporting — Exclusion of Foreign Corporations

Minnesota applies water's-edge combined reporting. For purposes of determining the net income of a unitary business and the apportionment factors under section 290.191, only the income and apportionment factors of domestic corporations or other domestic entities (those created or organized in the United States or under U.S. law, or under the laws of any U.S. state, the District of Columbia, or any political subdivision) are included in the combined report, notwithstanding that foreign corporations or other foreign entities might be part of the unitary business.

Exception for pass-through foreign entities: The income and apportionment factors of a foreign entity, other than an entity treated as a C corporation for federal income tax purposes, that are included in the federal taxable income of a domestic corporation, domestic entity, or individual must be included in determining Minnesota net income and the apportionment factors.

A foreign corporation or other foreign entity that is not included on a combined report and that is required to file a return under Minnesota law must file on a separate return basis.

Source: Minn. Stat. § 290.17, subd. 4(g)

## Combined Report Mechanics

A combined group means two or more corporations that are part of a unitary business as defined in Minn. Stat. § 290.17, subdivision 4, and that are required or permitted to file a combined report. The designated member of the combined group files a single return on behalf of all members. All intercompany transactions between entities included in the combined group must be eliminated. The entire net income of the unitary business is apportioned among the entities by using each entity's Minnesota factors in the numerators of the apportionment formula and the total factors of all included entities in the denominators.

The single return must be filed on the basis of the designated member's taxable year. Each member must conform the calculation of its corporate franchise tax—including Minnesota net income, alternative minimum tax, apportionment factors, deductions, and credits—to the designated member's annual accounting period.

Source: Minn. R. 8019.0405, subp. 2, 3; Minn. Stat. § 290.17, subd. 4(h)