Minnesota Corporate Franchise Tax Change for Foreign Disregarded Entities

By Allison Woodbury

The Minnesota Department of Revenue issued its position on foreign disregarded entities of corporate taxpayers on October 4, 2017. In response to the Minnesota Supreme Court decision filed August 2, 2017 in Ashland Inc. v. Commissioner of Revenue, the department reversed its policy of excluding foreign disregarded entities from unitary return groups for tax years 1997-2012 as formerly set out under Revenue Notice 98-08. Minnesota had previously not permitted the net income or the apportionment factors of foreign corporations or foreign entities to be included in the combined corporate franchise tax return, even if part of a unitary business.

Corporate franchise taxpayers who filed a Minnesota return for the period at issue may be entitled to a refund, may owe additional tax, or may be required to adjust net operating loss carryforwards. The department will not assess or collect late-payment, late-filing, or substantial understatement penalties on any additional tax owed under this revised position. Corporate franchise taxpayers with disregarded foreign entities for the 1997-2012 tax years should consult with their return preparers to determine if any adjustments are required or refunds are available.

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