International Business Machines Corporation and Subsidiaries, Respondents,
Commissioner of Revenue, Relator.
Court Office of Appellate Courts
A. Pickhardt, Michael J. Kaupa, Faegre Baker Daniels LLP,
Minneapolis, Minnesota, for respondents.
M. Ellison, Attorney General, Wendy Tien, Assistant Attorney
General, Saint Paul, Minnesota, for relator.
calculate Minnesota's research and development tax credit
under Minn. Stat. § 290.068 (2010), Minnesota
incorporates the minimum base amount limitation set forth in
I.R.C. § 41(c)(2) (2012).
the 2011 tax year, the denominator of the
fixed-base-percentage formula used to calculate a
taxpayer's Minnesota tax credit for increasing research
activities uses the taxpayer's federal, rather than
Minnesota, aggregate gross receipts for the years 1984
case requires us to interpret Minnesota's research and
development (R&D) tax credit statute. Minn. Stat. §
290.068 (2010). Specifically, we must answer two
questions. First, does the Minnesota Legislature's
incorporation of the federal tax code's definition of the
term "base amount" in section 290.068 include the
federal "minimum base amount" limitation?
See Minn. Stat. § 290.068, subd. 1(a)(2);
I.R.C. § 41(c)(1)-(2) (2012). Second, does the term
"aggregate gross receipts" as used in the Internal
Revenue Code formula for calculating the R&D credit refer
to Minnesota or federal aggregate gross receipts?
See I.R.C. § 41(c)(3)(A). The Minnesota Tax
Court held that the Legislature incorporated the federal
"minimum base amount" limitation into
Minnesota's tax credit statute and that for the 2011 tax
year, the term "aggregate gross receipts" referred
to federal aggregate gross receipts, not Minnesota aggregate
gross receipts. We affirm.
facts of this case, as they relate to the structure of the
tax credit for R&D expenses, are the same as set forth in
General Mills, Inc. v. Commissioner of Revenue, No.
A18-1660, __ N.W.2d __(Minn. July 31, 2019). Thus, we provide
here only the facts relevant to this appeal. Respondent IBM
is a technology corporation organized under the laws of New
York. The company has several facilities in Rochester,
Minnesota, where it engages in significant R&D
timely filed its Minnesota corporate franchise tax return for
the 2011 tax year; in its return, the company claimed
Minnesota R&D credits based on its increased research
activities. On April 15, 2016, IBM filed an amended 2011
Minnesota corporate franchise tax return requesting-based on
a recalculation of the Minnesota R&D credit-a refund of
$4, 395, 399. Relator Commissioner of Revenue denied
IBM's refund claim.
General Mills, see __ N.W.2d at __,
IBM's refund request and the Commissioner's denial of
the request reflect a disagreement on two issues. First, IBM
and the Commissioner disagree on whether the "minimum
base amount" set forth in I.R.C. § 41(c)(2) is
incorporated into Minnesota's definition of "base
amount." IBM argues that Minnesota does not incorporate
the federal "minimum base amount" into its R&D
credit; the Commissioner argues that it does. The parties
also disagree on whether, in 2011, the term "aggregate
gross receipts" in the fixed-base percentage formula
referred to federal or Minnesota aggregate gross receipts.
IBM contends that it referred to federal aggregate gross
receipts, while the Commissioner argues the term was limited
to Minnesota receipts.
the Commissioner's denial of IBM's refund request,
the company appealed to the Minnesota Tax Court. On May 17,
2018, the tax court heard consolidated oral arguments on
joint motions for summary judgment in this case and in
General Mills' case. On August 17, 2018, the tax court
granted summary judgment in both cases. See Int'l
Bus. Mach. Corp. v. Comm'r of Revenue, No. 9053-R,
2018 WL 4054529 (Minn. T.C. Aug. 17, 2018); General
Mills, Inc. v. Comm'r of Revenue, No. 9016-R, 2018
WL 4053060 (Minn. T.C. Aug. 17, 2018). On the first
issue, the tax court agreed with the Commissioner, reasoning
that the "minimum base amount" was incorporated by
reference into Minnesota law. IBM, 2018 WL 4054529
at *6. ...