Minn. Senator Proposes Taxing Corporations Based in Havens

The Bloomberg BNA Tax Management Weekly State Tax Report filters through current state developments and analyzes those critical to multistate tax planning.

By Mark Wolski

March 31 — Minnesota Sen. John Marty (DFL) introduced legislation that would require corporations headquartered in 46 tax havens to be subject to the same taxation as domestic companies.

While it's still early in the legislative session—the bill was introduced March 29—a spokeswoman for the Minnesota Chamber of Commerce told Bloomberg BNA March 31 that S.F. 3318 is unlikely to move this year. Beth Strinden Kadoun, the chamber's vice president of tax and fiscal policy, said similar legislation has failed to gather support in years when the state was facing a budget deficit. With the state now holding a $900 million budget surplus, she said the bill will likely be a hard sell this year.

The bill has been referred to the Senate Taxes Committee. No hearings have been scheduled yet.

Under S.F. 3318, businesses located in tax havens throughout the world would be included in Minnesota's definition of “domestic corporation” if they are incorporated in those havens. Businesses would also be considered domestic corporations if they report that 20 percent or more of their gross income derives from one or more tax havens, or if the average of their income, property and sales factors within the U.S. is 20 percent or more.

46 Havens Named

The bill identifies 46 tax havens, including the Cayman Islands, the U.S. Virgin Islands, Panama, Luxembourg and Liberia.

S.F. 3318 provides that a country would no longer be considered a tax haven for Minnesota tax purposes once it enters into a tax treaty or agreement with the U.S. that allows for the exchange of information relevant to the U.S. in enforcing its tax laws, and the foreign jurisdiction imposes a tax rate of at least 10 percent on a tax base equal to at least 90 percent of the tax base that applies to corporations under the Internal Revenue Code.

Kadoun said the chamber opposes the legislation, as it would undermine the ability of Minnesota companies to compete in a global marketplace. Further, she said, it goes against the trend in other countries and states on taxation of foreign income. She said the bill would likely put Minnesota multinational companies at a competitive disadvantage.

‘Part of a Trend.'

Jackson Brainerd, research analyst for the National Conference of State Legislatures, said Minnesota bill is actually part of a trend, as at least 10 other states have introduced tax haven legislation this year. He said while only one of the bills successfully passed one house, the number may indicate states’ concerns about corporations re-incorporating themselves overseas.

He noted, however, that while the Minnesota bill listed a number of smaller countries, the Congressional Research Service has found that many of the recent corporate inversions have involved larger countries like the United Kingdom, Canada and Ireland. None of those three nations is included in Minnesota’s list.

Brainerd added that six states have actually passed tax haven bills: Alaska, Connecticut, Montana, Oregon, Rhode Island and West Virginia. Washington, D.C. also has enacted a tax haven law, he said.

Marty was unavailable for comment.

To contact the reporter on this story: Mark Wolski in St. Paul, Minn., at mwolski@bna.com

To contact the editor responsible for this story: Ryan Tuck at rtuck@bna.com

For More Information

More information on S.F. 3318 is at http://src.bna.com/dLT.