1.1                          A bill for an act 
  1.2             relating to taxation; corporate franchise; modifying 
  1.3             the taxation of foreign source income; repealing 
  1.4             foreign operating corporation provisions; amending 
  1.5             Minnesota Statutes 2002, sections 290.17, subdivision 
  1.6             4; 290.191, subdivision 5; Minnesota Statutes 2003 
  1.7             Supplement, section 290.01, subdivisions 19c, 19d; 
  1.8             repealing Minnesota Statutes 2002, section 290.01, 
  1.9             subdivision 6b. 
  1.10  BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
  1.11     Section 1.  Minnesota Statutes 2003 Supplement, section 
  1.12  290.01, subdivision 19c, is amended to read: 
  1.13     Subd. 19c.  [CORPORATIONS; ADDITIONS TO FEDERAL TAXABLE 
  1.14  INCOME.] For corporations, there shall be added to federal 
  1.15  taxable income: 
  1.16     (1) the amount of any deduction taken for federal income 
  1.17  tax purposes for income, excise, or franchise taxes based on net 
  1.18  income or related minimum taxes, including but not limited to 
  1.19  the tax imposed under section 290.0922, paid by the corporation 
  1.20  to Minnesota, another state, a political subdivision of another 
  1.21  state, the District of Columbia, or any foreign country or 
  1.22  possession of the United States; 
  1.23     (2) interest not subject to federal tax upon obligations 
  1.24  of:  the United States, its possessions, its agencies, or its 
  1.25  instrumentalities; the state of Minnesota or any other state, 
  1.26  any of its political or governmental subdivisions, any of its 
  1.27  municipalities, or any of its governmental agencies or 
  2.1   instrumentalities; the District of Columbia; or Indian tribal 
  2.2   governments; 
  2.3      (3) exempt-interest dividends received as defined in 
  2.4   section 852(b)(5) of the Internal Revenue Code; 
  2.5      (4) the amount of any net operating loss deduction taken 
  2.6   for federal income tax purposes under section 172 or 832(c)(10) 
  2.7   of the Internal Revenue Code or operations loss deduction under 
  2.8   section 810 of the Internal Revenue Code; 
  2.9      (5) the amount of any special deductions taken for federal 
  2.10  income tax purposes under sections 241 to 247 of the Internal 
  2.11  Revenue Code; 
  2.12     (6) losses from the business of mining, as defined in 
  2.13  section 290.05, subdivision 1, clause (a), that are not subject 
  2.14  to Minnesota income tax; 
  2.15     (7) the amount of any capital losses deducted for federal 
  2.16  income tax purposes under sections 1211 and 1212 of the Internal 
  2.17  Revenue Code; 
  2.18     (8) the exempt foreign trade income of a foreign sales 
  2.19  corporation under sections 921(a) and 291 of the Internal 
  2.20  Revenue Code; 
  2.21     (9) the amount of percentage depletion deducted under 
  2.22  sections 611 through 614 and 291 of the Internal Revenue Code; 
  2.23     (10) for certified pollution control facilities placed in 
  2.24  service in a taxable year beginning before December 31, 1986, 
  2.25  and for which amortization deductions were elected under section 
  2.26  169 of the Internal Revenue Code of 1954, as amended through 
  2.27  December 31, 1985, the amount of the amortization deduction 
  2.28  allowed in computing federal taxable income for those 
  2.29  facilities; 
  2.30     (11) ~~the amount of any deemed dividend from a foreign~~ 
  2.31  ~~operating corporation determined pursuant to section 290.17,~~ 
  2.32  ~~subdivision 4, paragraph (g);~~ 
  2.33     ~~(12)~~ the amount of any environmental tax paid under section 
  2.34  59(a) of the Internal Revenue Code; 
  2.35     ~~(13)~~ (12) the amount of a partner's pro rata share of net 
  2.36  income which does not flow through to the partner because the 
  3.1   partnership elected to pay the tax on the income under section 
  3.2   6242(a)(2) of the Internal Revenue Code; 
  3.3      ~~(14)~~ (13) the amount of net income excluded under section 
  3.4   114 of the Internal Revenue Code; 
  3.5      ~~(15)~~ (14) any increase in subpart F income, as defined in 
  3.6   section 952(a) of the Internal Revenue Code, for the taxable 
  3.7   year when subpart F income is calculated without regard to the 
  3.8   provisions of section 614 of Public Law 107-147; and 
  3.9      ~~(16)~~ (15) 80 percent of the depreciation deduction allowed 
  3.10  under section 168(k) of the Internal Revenue Code.  For purposes 
  3.11  of this clause, if the taxpayer has an activity that in the 
  3.12  taxable year generates a deduction for depreciation under 
  3.13  section 168(k) and the activity generates a loss for the taxable 
  3.14  year that the taxpayer is not allowed to claim for the taxable 
  3.15  year, "the depreciation allowed under section 168(k)" for the 
  3.16  taxable year is limited to excess of the depreciation claimed by 
  3.17  the activity under section 168(k) over the amount of the loss 
  3.18  from the activity that is not allowed in the taxable year.  In 
  3.19  succeeding taxable years when the losses not allowed in the 
  3.20  taxable year are allowed, the depreciation under section 168(k) 
  3.21  is allowed. 
  3.22     <b>[EFFECTIVE DATE.]</b> This section is effective for taxable 
  3.23  years beginning after December 31, 2003. 
  3.24     Sec. 2.  Minnesota Statutes 2003 Supplement, section 
  3.25  290.01, subdivision 19d, is amended to read: 
  3.26     Subd. 19d.  [CORPORATIONS; MODIFICATIONS DECREASING FEDERAL 
  3.27  TAXABLE INCOME.] For corporations, there shall be subtracted 
  3.28  from federal taxable income after the increases provided in 
  3.29  subdivision 19c:  
  3.30     (1) the amount of foreign dividend gross-up added to gross 
  3.31  income for federal income tax purposes under section 78 of the 
  3.32  Internal Revenue Code; 
  3.33     (2) the amount of salary expense not allowed for federal 
  3.34  income tax purposes due to claiming the federal jobs credit 
  3.35  under section 51 of the Internal Revenue Code; 
  3.36     (3) any dividend (not including any distribution in 
  4.1   liquidation) paid within the taxable year by a national or state 
  4.2   bank to the United States, or to any instrumentality of the 
  4.3   United States exempt from federal income taxes, on the preferred 
  4.4   stock of the bank owned by the United States or the 
  4.5   instrumentality; 
  4.6      (4) amounts disallowed for intangible drilling costs due to 
  4.7   differences between this chapter and the Internal Revenue Code 
  4.8   in taxable years beginning before January 1, 1987, as follows: 
  4.9      (i) to the extent the disallowed costs are represented by 
  4.10  physical property, an amount equal to the allowance for 
  4.11  depreciation under Minnesota Statutes 1986, section 290.09, 
  4.12  subdivision 7, subject to the modifications contained in 
  4.13  subdivision 19e; and 
  4.14     (ii) to the extent the disallowed costs are not represented 
  4.15  by physical property, an amount equal to the allowance for cost 
  4.16  depletion under Minnesota Statutes 1986, section 290.09, 
  4.17  subdivision 8; 
  4.18     (5) the deduction for capital losses pursuant to sections 
  4.19  1211 and 1212 of the Internal Revenue Code, except that: 
  4.20     (i) for capital losses incurred in taxable years beginning 
  4.21  after December 31, 1986, capital loss carrybacks shall not be 
  4.22  allowed; 
  4.23     (ii) for capital losses incurred in taxable years beginning
  4.24  after December 31, 1986, a capital loss carryover to each of the 
  4.25  15 taxable years succeeding the loss year shall be allowed; 
  4.26     (iii) for capital losses incurred in taxable years 
  4.27  beginning before January 1, 1987, a capital loss carryback to 
  4.28  each of the three taxable years preceding the loss year, subject 
  4.29  to the provisions of Minnesota Statutes 1986, section 290.16, 
  4.30  shall be allowed; and 
  4.31     (iv) for capital losses incurred in taxable years beginning
  4.32  before January 1, 1987, a capital loss carryover to each of the 
  4.33  five taxable years succeeding the loss year to the extent such 
  4.34  loss was not used in a prior taxable year and subject to the 
  4.35  provisions of Minnesota Statutes 1986, section 290.16, shall be 
  4.36  allowed; 
  5.1      (6) an amount for interest and expenses relating to income 
  5.2   not taxable for federal income tax purposes, if (i) the income 
  5.3   is taxable under this chapter and (ii) the interest and expenses 
  5.4   were disallowed as deductions under the provisions of section 
  5.5   171(a)(2), 265 or 291 of the Internal Revenue Code in computing 
  5.6   federal taxable income; 
  5.7      (7) in the case of mines, oil and gas wells, other natural 
  5.8   deposits, and timber for which percentage depletion was 
  5.9   disallowed pursuant to subdivision 19c, clause (11), a 
  5.10  reasonable allowance for depletion based on actual cost.  In the 
  5.11  case of leases the deduction must be apportioned between the 
  5.12  lessor and lessee in accordance with rules prescribed by the 
  5.13  commissioner.  In the case of property held in trust, the 
  5.14  allowable deduction must be apportioned between the income 
  5.15  beneficiaries and the trustee in accordance with the pertinent 
  5.16  provisions of the trust, or if there is no provision in the 
  5.17  instrument, on the basis of the trust's income allocable to 
  5.18  each; 
  5.19     (8) for certified pollution control facilities placed in 
  5.20  service in a taxable year beginning before December 31, 1986, 
  5.21  and for which amortization deductions were elected under section 
  5.22  169 of the Internal Revenue Code of 1954, as amended through 
  5.23  December 31, 1985, an amount equal to the allowance for 
  5.24  depreciation under Minnesota Statutes 1986, section 290.09, 
  5.25  subdivision 7; 
  5.26     (9) amounts included in federal taxable income that are due 
  5.27  to refunds of income, excise, or franchise taxes based on net 
  5.28  income or related minimum taxes paid by the corporation to 
  5.29  Minnesota, another state, a political subdivision of another 
  5.30  state, the District of Columbia, or a foreign country or 
  5.31  possession of the United States to the extent that the taxes 
  5.32  were added to federal taxable income under section 290.01, 
  5.33  subdivision 19c, clause (1), in a prior taxable year; 
  5.34     (10) ~~80 percent of royalties, fees, or other like income~~ 
  5.35  ~~accrued or received from a foreign operating corporation or a~~ 
  5.36  ~~foreign corporation which is part of the same unitary business~~ 
  6.1   ~~as the receiving corporation;~~ 
  6.2      ~~(11)~~ income or gains from the business of mining as defined 
  6.3   in section 290.05, subdivision 1, clause (a), that are not 
  6.4   subject to Minnesota franchise tax; 
  6.5      ~~(12)~~ (11) the amount of handicap access expenditures in the 
  6.6   taxable year which are not allowed to be deducted or capitalized 
  6.7   under section 44(d)(7) of the Internal Revenue Code; 
  6.8      ~~(13)~~ (12) the amount of qualified research expenses not 
  6.9   allowed for federal income tax purposes under section 280C(c) of 
  6.10  the Internal Revenue Code, but only to the extent that the 
  6.11  amount exceeds the amount of the credit allowed under section 
  6.12  290.068; 
  6.13     ~~(14)~~ (13) the amount of salary expenses not allowed for 
  6.14  federal income tax purposes due to claiming the Indian 
  6.15  employment credit under section 45A(a) of the Internal Revenue 
  6.16  Code; 
  6.17     ~~(15)~~ (14) the amount of any refund of environmental taxes 
  6.18  paid under section 59A of the Internal Revenue Code; 
  6.19     ~~(16)~~ (15) for taxable years beginning before January 1, 
  6.20  2008, the amount of the federal small ethanol producer credit 
  6.21  allowed under section 40(a)(3) of the Internal Revenue Code 
  6.22  which is included in gross income under section 87 of the 
  6.23  Internal Revenue Code; 
  6.24     ~~(17) for a corporation whose foreign sales corporation, as~~ 
  6.25  ~~defined in section 922 of the Internal Revenue Code, constituted~~ 
  6.26  ~~a foreign operating corporation during any taxable year ending~~ 
  6.27  ~~before January 1, 1995, and a return was filed by August 15,~~ 
  6.28  ~~1996, claiming the deduction under section 290.21, subdivision~~ 
  6.29  ~~4, for income received from the foreign operating corporation,~~ 
  6.30  ~~an amount equal to 1.23 multiplied by the amount of income~~ 
  6.31  ~~excluded under section 114 of the Internal Revenue Code,~~ 
  6.32  ~~provided the income is not income of a foreign operating~~ 
  6.33  ~~company;~~ 
  6.34     ~~(18)~~ (16) any decrease in subpart F income, as defined in 
  6.35  section 952(a) of the Internal Revenue Code, for the taxable 
  6.36  year when subpart F income is calculated without regard to the 
  7.1   provisions of section 614 of Public Law 107-147; and 
  7.2      ~~(19)~~ (17) in each of the five tax years immediately 
  7.3   following the tax year in which an addition is required under 
  7.4   subdivision 19c, clause (16), an amount equal to one-fifth of 
  7.5   the delayed depreciation.  For purposes of this clause, "delayed 
  7.6   depreciation" means the amount of the addition made by the 
  7.7   taxpayer under subdivision 19c, clause (16).  The resulting 
  7.8   delayed depreciation cannot be less than zero. 
  7.9      <b>[EFFECTIVE DATE.]</b> This section is effective for taxable 
  7.10  years beginning after December 31, 2003. 
  7.11     Sec. 3.  Minnesota Statutes 2002, section 290.17, 
  7.12  subdivision 4, is amended to read: 
  7.13     Subd. 4.  [UNITARY BUSINESS PRINCIPLE.] (a) If a trade or 
  7.14  business conducted wholly within this state or partly within and 
  7.15  partly without this state is part of a unitary business, the 
  7.16  entire income of the unitary business is subject to 
  7.17  apportionment pursuant to section 290.191.  Notwithstanding 
  7.18  subdivision 2, paragraph (c), none of the income of a unitary 
  7.19  business is considered to be derived from any particular source 
  7.20  and none may be allocated to a particular place except as 
  7.21  provided by the applicable apportionment formula.  The 
  7.22  provisions of this subdivision do not apply to business income 
  7.23  subject to subdivision 5, income of an insurance company, or 
  7.24  income of an investment company determined under section 290.36. 
  7.25     (b) The term "unitary business" means business activities 
  7.26  or operations which result in a flow of value between them.  The 
  7.27  term may be applied within a single legal entity or between 
  7.28  multiple entities and without regard to whether each entity is a 
  7.29  sole proprietorship, a corporation, a partnership or a trust.  
  7.30     (c) Unity is presumed whenever there is unity of ownership, 
  7.31  operation, and use, evidenced by centralized management or 
  7.32  executive force, centralized purchasing, advertising, 
  7.33  accounting, or other controlled interaction, but the absence of 
  7.34  these centralized activities will not necessarily evidence a 
  7.35  nonunitary business.  Unity is also presumed when business 
  7.36  activities or operations are of mutual benefit, dependent upon 
  8.1   or contributory to one another, either individually or as a 
  8.2   group. 
  8.3      (d) Where a business operation conducted in Minnesota is 
  8.4   owned by a business entity that carries on business activity 
  8.5   outside the state different in kind from that conducted within 
  8.6   this state, and the other business is conducted entirely outside 
  8.7   the state, it is presumed that the two business operations are 
  8.8   unitary in nature, interrelated, connected, and interdependent 
  8.9   unless it can be shown to the contrary.  
  8.10     (e) Unity of ownership is not deemed to exist when a 
  8.11  corporation is involved unless that corporation is a member of a 
  8.12  group of two or more business entities and more than 50 percent 
  8.13  of the voting stock of each member of the group is directly or 
  8.14  indirectly owned by a common owner or by common owners, either 
  8.15  corporate or noncorporate, or by one or more of the member 
  8.16  corporations of the group.  For this purpose, the term "voting 
  8.17  stock" shall include membership interests of mutual insurance 
  8.18  holding companies formed under section 60A.077.  
  8.19     (f) The net income and apportionment factors under section 
  8.20  290.191 or 290.20 of foreign corporations and other foreign 
  8.21  entities which are part of a unitary business shall not be 
  8.22  included in the net income or the apportionment factors of the 
  8.23  unitary business.  A foreign corporation or other foreign entity 
  8.24  which is required to file a return under this chapter shall file 
  8.25  on a separate return basis.  ~~The net income and apportionment~~ 
  8.26  ~~factors under section 290.191 or 290.20 of foreign operating~~ 
  8.27  ~~corporations shall not be included in the net income or the~~ 
  8.28  ~~apportionment factors of the unitary business except as provided~~ 
  8.29  ~~in paragraph (g).~~ 
  8.30     (g) ~~The adjusted net income of a foreign operating~~ 
  8.31  ~~corporation shall be deemed to be paid as a dividend on the last~~ 
  8.32  ~~day of its taxable year to each shareholder thereof, in~~ 
  8.33  ~~proportion to each shareholder's ownership, with which such~~ 
  8.34  ~~corporation is engaged in a unitary business.  Such deemed~~ 
  8.35  ~~dividend shall be treated as a dividend under section 290.21,~~ 
  8.36  ~~subdivision 4.~~ 
  9.1      ~~Dividends actually paid by a foreign operating corporation~~ 
  9.2   ~~to a corporate shareholder which is a member of the same unitary~~ 
  9.3   ~~business as the foreign operating corporation shall be~~ 
  9.4   ~~eliminated from the net income of the unitary business in~~ 
  9.5   ~~preparing a combined report for the unitary business.  The~~ 
  9.6   ~~adjusted net income of a foreign operating corporation shall be~~ 
  9.7   ~~its net income adjusted as follows:~~ 
  9.8      ~~(1) any taxes paid or accrued to a foreign country, the~~ 
  9.9   ~~commonwealth of Puerto Rico, or a United States possession or~~ 
  9.10  ~~political subdivision of any of the foregoing shall be a~~ 
  9.11  ~~deduction; and~~ 
  9.12     ~~(2) the subtraction from federal taxable income for~~ 
  9.13  ~~payments received from foreign corporations or foreign operating~~ 
  9.14  ~~corporations under section 290.01, subdivision 19d, clause (10),~~ 
  9.15  ~~shall not be allowed.~~ 
  9.16     ~~If a foreign operating corporation incurs a net loss,~~ 
  9.17  ~~neither income nor deduction from that corporation shall be~~ 
  9.18  ~~included in determining the net income of the unitary business.~~ 
  9.19     ~~(h)~~ For purposes of determining the net income of a unitary 
  9.20  business and the factors to be used in the apportionment of net 
  9.21  income pursuant to section 290.191 or 290.20, there must be 
  9.22  included only the income and apportionment factors of domestic 
  9.23  corporations or other domestic entities ~~other than foreign~~ 
  9.24  ~~operating corporations~~ that are determined to be part of the 
  9.25  unitary business pursuant to this subdivision, notwithstanding 
  9.26  that foreign corporations or other foreign entities might be 
  9.27  included in the unitary business.  
  9.28     ~~(i) Deductions for expenses, interest, or taxes otherwise~~ 
  9.29  ~~allowable under this chapter that are connected with or~~ 
  9.30  ~~allocable against dividends, deemed dividends described in~~ 
  9.31  ~~paragraph (g), or royalties, fees, or other like income~~ 
  9.32  ~~described in section 290.01, subdivision 19d, clause (10), shall~~ 
  9.33  ~~not be disallowed.~~ 
  9.34     ~~(j)~~ (h) Each corporation or other entity, except a sole 
  9.35  proprietorship, that is part of a unitary business must file 
  9.36  combined reports as the commissioner determines.  On the 
 10.1   reports, all intercompany transactions between entities included 
 10.2   pursuant to paragraph ~~(h)~~ (g) must be eliminated and the entire 
 10.3   net income of the unitary business determined in accordance with 
 10.4   this subdivision is apportioned among the entities by using each 
 10.5   entity's Minnesota factors for apportionment purposes in the 
 10.6   numerators of the apportionment formula and the total factors 
 10.7   for apportionment purposes of all entities included pursuant to 
 10.8   paragraph ~~(h)~~ (g) in the denominators of the apportionment 
 10.9   formula. 
 10.10     ~~(k)~~ (i) If a corporation has been divested from a unitary 
 10.11  business and is included in a combined report for a fractional 
 10.12  part of the common accounting period of the combined report:  
 10.13     (1) its income includable in the combined report is its 
 10.14  income incurred for that part of the year determined by 
 10.15  proration or separate accounting; and 
 10.16     (2) its sales, property, and payroll included in the 
 10.17  apportionment formula must be prorated or accounted for 
 10.18  separately. 
 10.19     <b>[EFFECTIVE DATE.]</b> This section is effective for taxable 
 10.20  years beginning after December 31, 2003. 
 10.21     Sec. 4.  Minnesota Statutes 2002, section 290.191, 
 10.22  subdivision 5, is amended to read: 
 10.23     Subd. 5.  [DETERMINATION OF SALES FACTOR.] For purposes of 
 10.24  this section, the following rules apply in determining the sales 
 10.25  factor.  
 10.26     (a) The sales factor includes all sales, gross earnings, or 
 10.27  receipts received in the ordinary course of the business, except 
 10.28  that the following types of income are not included in the sales 
 10.29  factor: 
 10.30     (1) interest; 
 10.31     (2) dividends; 
 10.32     (3) sales of capital assets as defined in section 1221 of 
 10.33  the Internal Revenue Code; 
 10.34     (4) sales of property used in the trade or business, except 
 10.35  sales of leased property of a type which is regularly sold as 
 10.36  well as leased; and 
 11.1      (5) sales of debt instruments as defined in section 
 11.2   1275(a)(1) of the Internal Revenue Code or sales of stock~~; and~~ 
 11.3      ~~(6) royalties, fees, or other like income of a type which~~ 
 11.4   ~~qualify for a subtraction from federal taxable income under~~ 
 11.5   ~~section 290.01, subdivision 19(d)(11)~~.  
 11.6      (b) Sales of tangible personal property are made within 
 11.7   this state if the property is received by a purchaser at a point 
 11.8   within this state, and the taxpayer is taxable in this state, 
 11.9   regardless of the f.o.b. point, other conditions of the sale, or 
 11.10  the ultimate destination of the property. 
 11.11     (c) Tangible personal property delivered to a common or 
 11.12  contract carrier or foreign vessel for delivery to a purchaser 
 11.13  in another state or nation is a sale in that state or nation, 
 11.14  regardless of f.o.b. point or other conditions of the sale.  
 11.15     (d) Notwithstanding paragraphs (b) and (c), when 
 11.16  intoxicating liquor, wine, fermented malt beverages, cigarettes, 
 11.17  or tobacco products are sold to a purchaser who is licensed by a 
 11.18  state or political subdivision to resell this property only 
 11.19  within the state of ultimate destination, the sale is made in 
 11.20  that state.  
 11.21     (e) Sales made by or through a corporation that is 
 11.22  qualified as a domestic international sales corporation under 
 11.23  section 992 of the Internal Revenue Code are not considered to 
 11.24  have been made within this state.  
 11.25     (f) Sales, rents, royalties, and other income in connection 
 11.26  with real property is attributed to the state in which the 
 11.27  property is located.  
 11.28     (g) Receipts from the lease or rental of tangible personal 
 11.29  property, including finance leases and true leases, must be 
 11.30  attributed to this state if the property is located in this 
 11.31  state and to other states if the property is not located in this 
 11.32  state.  Receipts from the lease or rental of moving property 
 11.33  including, but not limited to, motor vehicles, rolling stock, 
 11.34  aircraft, vessels, or mobile equipment are included in the 
 11.35  numerator of the receipts factor to the extent that the property 
 11.36  is used in this state.  The extent of the use of moving property 
 12.1   is determined as follows: 
 12.2      (1) A motor vehicle is used wholly in the state in which it 
 12.3   is registered.  
 12.4      (2) The extent that rolling stock is used in this state is 
 12.5   determined by multiplying the receipts from the lease or rental 
 12.6   of the rolling stock by a fraction, the numerator of which is 
 12.7   the miles traveled within this state by the leased or rented 
 12.8   rolling stock and the denominator of which is the total miles 
 12.9   traveled by the leased or rented rolling stock. 
 12.10     (3) The extent that an aircraft is used in this state is 
 12.11  determined by multiplying the receipts from the lease or rental 
 12.12  of the aircraft by a fraction, the numerator of which is the 
 12.13  number of landings of the aircraft in this state and the 
 12.14  denominator of which is the total number of landings of the 
 12.15  aircraft. 
 12.16     (4) The extent that a vessel, mobile equipment, or other 
 12.17  mobile property is used in the state is determined by 
 12.18  multiplying the receipts from the lease or rental of the 
 12.19  property by a fraction, the numerator of which is the number of 
 12.20  days during the taxable year the property was in this state and 
 12.21  the denominator of which is the total days in the taxable year.  
 12.22     (h) Royalties and other income not described in paragraph 
 12.23  (a), clause (6), received for the use of or for the privilege of 
 12.24  using intangible property, including patents, know-how, 
 12.25  formulas, designs, processes, patterns, copyrights, trade names, 
 12.26  service names, franchises, licenses, contracts, customer lists, 
 12.27  or similar items, must be attributed to the state in which the 
 12.28  property is used by the purchaser.  If the property is used in 
 12.29  more than one state, the royalties or other income must be 
 12.30  apportioned to this state pro rata according to the portion of 
 12.31  use in this state.  If the portion of use in this state cannot 
 12.32  be determined, the royalties or other income must be excluded 
 12.33  from both the numerator and the denominator.  Intangible 
 12.34  property is used in this state if the purchaser uses the 
 12.35  intangible property or the rights therein in the regular course 
 12.36  of its business operations in this state, regardless of the 
 13.1   location of the purchaser's customers. 
 13.2      (i) Sales of intangible property are made within the state 
 13.3   in which the property is used by the purchaser.  If the property 
 13.4   is used in more than one state, the sales must be apportioned to 
 13.5   this state pro rata according to the portion of use in this 
 13.6   state.  If the portion of use in this state cannot be 
 13.7   determined, the sale must be excluded from both the numerator 
 13.8   and the denominator of the sales factor.  Intangible property is 
 13.9   used in this state if the purchaser used the intangible property 
 13.10  in the regular course of its business operations in this state. 
 13.11     (j) Receipts from the performance of services must be 
 13.12  attributed to the state where the services are received.  For 
 13.13  the purposes of this section, receipts from the performance of 
 13.14  services provided to a corporation, partnership, or trust may 
 13.15  only be attributed to a state where it has a fixed place of 
 13.16  doing business.  If the state where the services are received is 
 13.17  not readily determinable or is a state where the corporation, 
 13.18  partnership, or trust receiving the service does not have a 
 13.19  fixed place of doing business, the services shall be deemed to 
 13.20  be received at the location of the office of the customer from 
 13.21  which the services were ordered in the regular course of the 
 13.22  customer's trade or business.  If the ordering office cannot be 
 13.23  determined, the services shall be deemed to be received at the 
 13.24  office of the customer to which the services are billed. 
 13.25     <b>[EFFECTIVE DATE.]</b> This section is effective for taxable 
 13.26  years beginning after December 31, 2003. 
 13.27     Sec. 5.  [REPEALER.] 
 13.28     Minnesota Statutes 2002, section 290.01, subdivision 6b, is 
 13.29  repealed. 
 13.30     <b>[EFFECTIVE DATE.]</b> This section is effective for taxable 
 13.31  years beginning after December 31, 2003.