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S.F. No. 1529 - Modifying treatment of unrelated business income tax
Author: Senator David H. Senjem
Prepared By: Nora Pollock, Senate Counsel (651/297-8066)
Date: March 5, 2019


This bill would provide nonconformity to the Internal Revenue Code (IRC) for purposes of calculating unrelated business income tax (UBIT). Under current federal and state law, nonprofit organizations that operate a trade or business unrelated to the organization’s mission are subject to UBIT on that unrelated business income. Minnesota uses federal UBIT as its starting point for Minnesota UBIT and applies the 9.8% corporate franchise rate to unrelated business income after applying a $1,000 exemption.

Prior to enactment of federal Tax Cuts and Jobs Act (TCJA) in 2017, losses from an unrelated business could be used to offset gains of another member of the unitary group for purposes of a nonprofit’s UBIT liability. Under TCJA, nonprofits must separately calculate each unrelated business entity’s income and combine them, and the net result must not be less than zero. This change prevents nonprofits from offsetting gains with losses for purposes of UBIT liability. Under the bill, Minnesota would not conform to the TCJA provision that disallows offsets for purposes of calculating Minnesota UBIT liability.

Another element of the UBIT calculation under TCJA was the requirement for nonprofits to include the value of certain employer provided benefits (qualified transportation fringe benefits, parking, and on-site athletic facilities) in their unrelated business income. Prior to TCJA, nonprofits could deduct the value of these benefits in calculating UBIT, thus offsetting gains that may have resulted from unrelated business activity of a member of its unitary group. The TCJA disallowed this deduction, so nonprofits must include the value of the benefits in their UBIT calculation. Under the bill, Minnesota would not conform to this TCJA provision and would continue to allow nonprofits to exempt these benefits for purposes of calculating Minnesota UBIT liability.

Effective retroactively tax year 2018.

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