Minnesota Corporate Tax Rate and Filing Rules

Minnesota imposes a corporate franchise tax on the net income of businesses operating within its borders. This tax applies to traditional C corporations and other entities that elect to be taxed as corporations for federal purposes. The state’s system is built upon a corporation’s federally reported income, which is then adjusted according to Minnesota-specific tax laws to determine the final taxable amount.

This tax is distinct from other business taxes, such as sales tax or property tax, as it is calculated based on profitability rather than gross receipts or property value. All corporations deriving income from sources within the state must file a return, regardless of where the company is incorporated.

The Corporate Franchise Tax Rate

The Minnesota corporate franchise tax is calculated at a flat rate of 9.8 percent. This single rate is applied to a corporation’s taxable net income apportioned to the state, meaning the same rate applies to all levels of corporate income. This rate positions Minnesota as having one of the higher corporate income tax rates in the country.

In addition to the regular franchise tax, Minnesota employs an Alternative Minimum Tax (AMT). Businesses must compute their tax liability under both the regular system at 9.8 percent and the AMT system, which uses a 5.8 percent rate on a broader income base. After calculating the tax due under both methods, the corporation must pay the greater of the two amounts.

Calculating Minnesota Net Income

The starting point for determining a corporation’s tax obligation is its federal taxable income, as reported on Form 1120. This figure must be adjusted by specific additions and subtractions mandated by Minnesota law to arrive at the state’s definition of net income.

Additions to Income

Certain items not taxed at the federal level are taxable in Minnesota and must be added back to the federal income figure. A primary example is interest income from bonds issued by other states or their municipalities. Minnesota also does not fully conform to federal bonus depreciation rules, requiring companies to add back a portion of the accelerated depreciation taken on their federal return. Corporations must also add back the amount of foreign-derived intangible income (FDII) deducted on their federal return.

Subtractions from Income

Conversely, some income taxed at the federal level may be deducted for Minnesota tax purposes. For instance, certain types of capital gains may qualify for a subtraction, reducing the amount of income subject to the franchise tax.

Apportionment for Multistate Corporations

Corporations that conduct business in multiple states must determine what portion of their total income is subject to Minnesota’s franchise tax. This process begins with establishing “nexus,” a sufficient business connection within the state that obligates the company to file a Minnesota tax return. Activities that create nexus can include having a physical office, employees, or a certain level of sales within the state.

Once nexus is established, Minnesota uses a single-sales factor apportionment formula to allocate a share of a multistate corporation’s net income to the state. This method is based on the proportion of a company’s total sales made to customers in Minnesota. The apportionment factor is calculated by dividing the corporation’s Minnesota sales by its total sales everywhere.

To illustrate, consider a corporation with a total net income of $1 million. If the company has $5 million in total sales and $500,000 of those sales are to customers in Minnesota, its apportionment factor is 10 percent. This 10 percent factor is then multiplied by the total net income, resulting in $100,000 of income being subject to the Minnesota corporate franchise tax. This single-factor approach simplifies the calculation compared to formulas that also include property and payroll factors.

Filing and Paying Corporate Franchise Tax

After calculating the tax liability, corporations must follow specific procedures for filing returns and remitting payments. The primary return for most corporations is Form M4, the Minnesota Corporation Franchise Tax Return. A simplified form, Form M4T, is available for smaller corporations.

The standard deadline for filing the corporate franchise tax return is the 15th day of the 4th month following the close of the corporation’s tax year. For calendar-year filers, this due date is April 15th. An extension to file is not an extension to pay, and any tax liability is still due by the original deadline to avoid penalties and interest.

Corporations that expect to owe franchise tax are required to make quarterly estimated tax payments. These payments are due on the 15th day of the 3rd, 6th, 9th, and 12th months of the tax year. Businesses can submit their returns and make payments electronically through the state’s e-Services portal or by mail.