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S.F. No. 1253 - Technology Corporate Franchise Tax Certificate Transfer Program
 
Author: Senator Ann H. Rest
 
Prepared By: Nora Pollock, Senate Counsel (651/297-8066)
 
Date: March 6, 2015



 

This bill establishes a corporate franchise tax benefit transfer program for new or expanding technology and biotechnology corporations.  Under the program, technology/biotechnology companies may transfer or sell their Minnesota net operating loss (NOL) carryovers to other corporate franchise taxpayers in the state in exchange for financial assistance for costs incurred by the technology/biotechnology company.  The program is effective beginning in tax year 2015.

Section 1

Provision

Subd. 1

Requires the Commissioner of Employment and Economic Development (DEED) to establish a corporate franchise tax benefit transfer program for new or expanding technology and biotechnology corporations. 
 

Subd. 2

Defines the following terms: biotechnology; biotechnology company; full-time employee; new or expanding; and technology company.
 

Subd. 3

Directs the Commissioner of DEED, in cooperation with the Commissioner of Revenue, to review and approve applications of corporate franchise taxpayers to acquire surrendered tax benefits from biotechnology or technology companies in exchange for financial assistance.  The amount of financial assistance must be at least 75 percent of the value of the surrendered tax benefit.  The surrendered tax benefit is determined by multiplying the NOL carryover amount, the technology or biotechnology company’s anticipated apportionment percentage, and the corporate franchise tax rate of 9.8 percent.   

Carryover benefits are capped at $60 million per fiscal year for all transfers.  If the amount of carryover transfers applied for amount exceeds the cap, DEED must allocate tax benefits to ensure that the total amount is within the $60 million limit.  Applicants with $250,000 or less of transferable benefits receive the full amount; applicants with more than $250,000 of transferable benefits receive a minimum of $250,000; and applicants having more than $250,000 of transferable benefits receive a proportionately reduced amount.
 

Subd. 4

Establishes that transferable tax benefits include the product of:  the unused but otherwise allowable NOL carryover amount; the technology or biotechnology company’s anticipated apportionment percentage; and the corporate franchise tax rate of 9.8 percent.  Transferable tax benefits are limited to the net operating losses that the applicant requests and is eligible to surrender.  To be eligible, the new or expanding technology or biotechnology company must not have had any positive net operating income in any of the two previous years of ongoing operations, or be more than 50 percent directly or indirectly owned or controlled by another corporation that has demonstrated net positive operating income in any of the two previous years of ongoing operations.  The maximum lifetime value of tax benefits a corporation may surrender is $15 million.
 

Subd. 5

Directs the Commissioner of DEED, in consultation with the Commissioner of Revenue, to establish rules for recapture of all or a part of the tax benefits for transferring corporations that fail to use the tax benefits as required or if it fails to maintain its headquarters or base of operations in Minnesota for five years following the receipt of financial assistance resulting from the sale of its NOL carryover losses.  The recapture provisions would not apply if the failure to maintain headquarters or base of operation in Minnesota is due to liquidation of the technology or biotechnology company.
 

Subd. 6

Requires the Commissioner of DEED, in cooperation with the Commissioner of Revenue, to review applications to acquire surrendered tax benefits in the form of corporate franchise tax benefit transfer certificates.  The private financial assistance received in exchange for the surrendered tax benefits must be used for expenses incurred in the operation of the new or expanding biotechnology/technology company in the state.  DEED may require the corporation to enter a written agreement regarding maintenance of its headquarters or base of operations in the state or other conditions. 
 

Section 2

Adds a conforming change to the definition of “taxable income” for corporate franchise taxpayers to exclude NOLs that were transferred or sold under section 1
 

Section 3

Allows a tax credit equal to the amount of the transferred tax benefits under section 1
 

 
 
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