Section 1, subdivision 1, 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.
Subdivision 2 defines the following terms:
“Biotechnology” means knowledge, products, services, and technology related to biological systems.
“Biotechnology company” is an emerging corporation that has headquarters or its operations base in the state; owns, has filed for, or has a license to use proprietary intellectual property; and is engaged in research, development, provision, or production of biotechnology for commercial or public purposes.
“Full-time employee” is an employee subject to wage withholding of, or a partner of, a new or expanding biotechnology company who works at least 35 hours per week and receives group health benefits from the company. Independent contractors and consultants are not considered employees.
“New or expanding” means a technology or biotechnology company that:
On both June 30th of the year in which the company files an application to sell or transfer their NOL carryovers and on the date of the carryover certificate, has fewer than 250 full-time employees; and
On both June 30th of the year in which the company files an application to sell or transfer their NOL carryovers and on the date of the carryover certificate, has as at least one full-time employee for a corporation that has been incorporated less than three years, or at least five full-time employees for corporations incorporated for three, but less than five years, or at least ten employees for all other corporations.
Subdivision 3 directs DEED, in cooperation with the Commissioner of Revenue, to review and approve applications by new or expanding biotechnology or technology companies to sell their unused, allowable NOL carryovers to another corporate franchise taxpayer. The amount of the benefit is the amount of the carryover, multiplied by the apportionment percentage used to determine Minnesota income tax share, multiplied by 9.8 percent (the corporate franchise tax rate under current law).
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.
Subdivision 4 establishes the net operating losses eligible for transferable tax benefits, which 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.
Subdivision 5 directs 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.
Subdivision 6 directs 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 and 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 for the purchasing corporations to deduct the amount of the transferred tax benefits under section 1.