Complete M8A to determine your Minnesota source income and minimum fee.
Note: If you conduct all your business in Minnesota, check the box above line 1. Complete columns A and B and enter 1 1.00000 (for 100 percent) on line 18, column B1 (and the remaining columns, as needed).
If a qualified subchapter S subsidiary (QSSS) is not included on your return, complete columns A and B1.
If a QSSS is included, read “Three-Factor Formula for QSSS Filers” below.” Each QSSS must have a Minnesota tax ID number. Column A must include the total amounts of all S corporations included on Form M8 and column B1 is for the QSSS designated filer. The remaining columns are for each of the other S corporations in the group that have a Minnesota apportionment factor. If you need more than three columns, attach additional forms as needed.
Minnesota uses a weighted three-factor formula comprised of property, payroll and sales (which includes gross earnings, receipts and rents received) during the tax year to determine the apportionment factor.
For tax year 2011, the factor weights are 0.05 for property, 0.05 for payroll and 0.90 for sales (receipts).
to determine the Minnesota apportionment factor, first determine your property, payroll and sales factors.
If column A of line 6, 10 or 14 of M8A is zero, you are not able to use the three-factor apportionment formula prescribed by law. Rather, use the factor weights provided below:
- If the only missing factor is either property or payroll, change the sales factor weight on line 16 from 0.90 to 0.947, and the weight of the remaining factor from 0.05 to 0.053.
- If the only missing factor is sales, change the weight of both the property and payroll factors on lines 8 and 12 from 0.05 to 0.50.
- If you are missing two factors, change the weight of the remaining factor to 1.00.
Petitioning to Use Another Method of Allocation
State law (M.S. 290.20, subd. 1a and Minnesota Rules 8020.0100, subp. 3) allows entities to request permission from the department to allocate all, or any part of, taxable net income in a manner other than the three-factor formula or by applying the methodology contained in Revenue Notice 08-04.
To request permission, complete Form ALT, Petition to Use Alternative Method of Allocation (see Revenue Notice 04-07).
Permission will be granted only if you can show that the three-factor formula does not properly and fairly reflect your Minnesota income, and that the alternative formula you have chosen does.
If you are not required to complete federal Schedule L (Form 1120S), you may want to do so to determine the property factor. Enclose the completed federal Schedule L (Form 1120S) or a copy of the S corporation’s balance sheet with your return.
The property factor consists of tangible property which includes land, buildings, machinery, equipment, inventories and other tangible personal property valued at original cost.
Original cost is your cost or original basis when you acquired the property. Depreciation and fair market value are not considered.
M8A, lines 1–9
In column A, lines 1–5, enter the total property items for your entire business. In column B1 (and remaining columns as needed), enter the property items for your business in Minnesota.
Line 1. Add the beginning and ending year inventories, divide by two and enter the result on line 1. This is your average value of inventory for your business for the tax year.
Line 2. Add the beginning and ending year values of the buildings, machinery, equipment and other tangible property and divide by two. Enter the result on line 2.
Line 3. Add the land’s beginning and ending year values and divide by two. Enter the result on line 3.
Line 4. For financial institutions only. See the apportionment instructions on this page.
Line 5. Rented property is based on the actual rent you paid for property (land, buildings, equipment, etc.) used during the tax year. The rents you receive are included in the sales factor.
To determine the value of rented property, multiply the rent paid for the tax year by eight.
M8A, line 10
In column A, enter your total payroll paid or incurred for the tax year in connection with the entire business.
In column B1 (and the remaining columns as needed), enter your total payroll paid or incurred in Minnesota, or paid for labor performed in Minnesota, for the tax year in connection with the business.
M8A, line 14
The sales factor includes all sales, rents, gross earnings or receipts received in the ordinary course of your business, except:
- sales of capital assets under IRC section 1221;
- sales of property used in the trade or business, except sales of leased property that is regularly sold as well as leased; and
- sales of stock or sales of debt instruments under IRC section 1275(a)(1).
Financial Institutions: See Apportionment for Financial Institutions in the next column.
Determining Minnesota Sales
Sales, rents, royalties and other income from real property are attributed to the state in which the property is located.
Tangible Personal Property
Sales of tangible personal property are attributed to Minnesota if the property is received by a purchaser within Minnesota and the S corporation is taxed in this state, regardless of the f.o.b. point or other conditions of sale, or the ultimate destination of the property.
Tangible personal property delivered to a common or contract carrier or foreign vessel for delivery to a purchaser in another state or nation is a sale in that state or nation, regardless of f.o.b. point or other conditions of sale.
Property is received by a purchaser in Minnesota if the recipient is located in this state, even if the property is ordered from outside Minnesota.
Sales of tobacco products, beer, wine and other alcoholic beverages to someone licensed to resell the products only within the state of ultimate destination is a sale in the destination state.
Receipts from leasing or renting tangible personal property, including finance leases and true leases, are attributed to the state in which the property is located. Receipts from the lease or rental of moving property are attributed to Minnesota to the extent the moving property is used in Minnesota.
The extent of use is determined as follows:
- A motor vehicle is used wholly in the state in which it is registered.
- Receipts from rolling stock are assigned to Minnesota in the ratio of miles traveled in Minnesota to total miles traveled.
- Receipts from aircraft are assigned to Minnesota in the ratio of landings in Minnesota to total landings.
- Receipts from vessels, mobile equipment and other mobile property are assigned to Minnesota in the ratio of days the property is in Minnesota to the total days of the tax year.
Sales of intangible property are attributed to the state in which the property is used by the purchaser.
Royalties, fees and similar income not qualifying for the foreign royalty subtraction, received for the use of or the privilege of using intangible property (such as patents, copyrights, trade names, franchises or similar items) are attributed to the state in which the property is used by the purchaser.
Intangible property is attributed to Minnesota if the purchaser uses the property, or rights in the property, to conduct business within this state, regardless of the location of the purchaser’s customers.
If the property is used in more than one state, then the sales or royalties must be apportioned to Minnesota pro rata based on the portion of use within this state.
If you cannot determine the portion of use in Minnesota, then exclude the sales or royalties from both the numerator and denominator of the sales factor.
Receipts from the performance of personal services are attributed to the state in which the services are received.
Receipts from services provided to a corporation, partnership or trust may only be attributed to a state in which it has a fixed place of doing business.
If you can’t determine where the service was received, or if it was received in a state where the corporation, partnership or trust doesn’t have a fixed place of business, use the location of the office of the customer from which the service was ordered.
If you can’t determine the ordering office, use the office location to which the service was billed.
M8A, lines 19–21
S corporations are subject to a minimum fee if the sum of its Minnesota source property, payroll and sales or receipts is at least $500,000.
However, if you are a qualified business participating in a JOBZ zone in Minnesota and all your property and payroll are within the zone, you are exempt from the minimum fee. Enter zero on line 21 of M8A and on line 2 of Form M8.
M8A, line 19—Adjustments
The minimum fee is determined by your total Minnesota property, payroll and sales.
In some cases the property, payroll and sales used for computing the minimum fee will be different than those used for apportionment. The following adjustments should be made to your Minnesota factors on line 19.
Add: All tangible property owned or rented that is not included on line 6 of M8A. Some examples include construction in progress, idle property, any nonbusiness property or rent expense. The amounts should be determined in the same manner as the amounts on lines 1–5.
- JOBZ zone minimum fee adjustment from Schedule JOBZ (enclose a copy of Schedule JOBZ).
- Any amounts included on lines 6, 10 or 14 that represent your share of the factors passed through from partnerships.
- For financial institutions only, the amount of intangible property listed on line 4.
- The reduction of property owned for a short taxable year. to determine, multiply the sum of line 1 and line 2 by a fraction: the numerator is 365 minus the number of days in the tax year; the denominator is 365.
Enclose a schedule showing the computation and pass-through information of any adjustments listed on M8A, line 19.
This is part of a series of posts on S corporation Tax Form M8.
This post is an excerpt from the Minnesota Department of Revenue’s publication, 2011 S Corporation Form M8 Instructions.