Credit Against Minnesota Income Taxes for Corporation Shareholders

Minnesota Statute Section 290.06, subd. 22(g) (1994 and 1996) provides a credit against Minnesota income taxes for S corporation shareholders whose S corporation pays to another state taxes which are on or measured by net income. The purpose of this credit is to avoid double taxation of the same income by two or more states. the statute states: Subd. 22. Credit for taxes paid to another state. (a) a taxpayer who is liable for taxes on or measured by net income to another state or province or territory of Canada, as provided in paragraphs (b) through (f), upon income allocated or apportioned to Minnesota, is entitled to a credit for the tax paid to another state or province or territory of Canada if the tax is actually paid in the taxable year or a subsequent taxable year. A taxpayer who is a resident of this state pursuant to section 290.01, subdivision 7, clause (2), and who is subject to income tax as a resident in the state of the individual's domicile is not allowed this credit unless the state of domicile does not allow a similar credit. (g) for the purposes of this subdivision, a resident shareholder of a corporation having a valid election in effect under section 1362 of the Internal Revenue Code must be considered to have paid a tax imposed on the shareholder in an amount equal to the shareholder's pro rata share of any net income tax paid by the S corporation to another state. For the purposes of the preceding sentence, the term "net income tax" means any tax imposed on or measured by a corporation's net income. Minn. Stat. 290.06, subds. 22 (a) and (g) (1994 and 1996). the language to be considered is "on or measured by net income".