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CORRECTED FINAL -- 04/15/10

2009 S Corporation Form M8 Instructions

Adjustments to income include their share of income on their tax
What’s new for 2009 Federal bonus depreciation. If you elected return. However, the S corporation taxes
Factor percentages have changed on your 2009 federal return the special and minimum fee are paid by the entity.
The property and payroll factors on Sched- deduction equal to 50 percent of the cost
A C corporation is required to ﬁle Form
ule M8A have changed from 9.5 percent of qualifying property placed in service, 80
M4, Minnesota Corporation Franchise Tax,
to 8 percent each, and the sales factor has percent of the bonus depreciation amount
instead of Form M8.
changed from 81 percent to 84 percent. Ef- must be added to Minnesota income. For
fective for tax year 2009. details, see Schedule KS, line 5.
Minimum fee
The amount your shareholders add back in An S corporation is subject to a minimum
2009 can be taken as a subtraction in equal fee if the sum of its Minnesota source
Questions? parts over the next ﬁve years when they ﬁle property, payroll and sales or receipts is at
their Minnesota tax return. least $500,000. However, the S corporation
You can ind forms and information, Increased section 179 expensing. Minne- is exempt from the minimum fee if the S
including answers to frequently asked sota did not adopt the increased federal sec- corporation is a qualiﬁed business partici-
questions and options for iling and tion 179 expensing for tax year 2009. Pass pating in a Job Opportunity Building Zone
paying electronically, at: through to your shareholders the difference (JOBZ) in Minnesota and all of its property
between the expensing allowed for federal and payroll are within the zone.
www.taxes.state.mn.us and state tax purposes. Appropriate lines
The minimum fee is computed on M8A,
Send us an e-mail at: have been added to Schedule KS. which is on page 2 of Form M8.
businessincome.tax@state.mn.us The amount your shareholders add back in
2009 can be taken as a subtraction in equal
Call us at 651-556-3075 parts over the next ﬁve years when they ﬁle File your return
TTY: 711 Minnesota Relay their Minnesota tax return.
electronically
Discharge of indebtedness for business Options are available to electronically pre-
Need forms? debt. Minnesota did not adopt the new fed- pare and ﬁle your S corporation tax return.
Forms and other tax information are eral election to defer discharge of indebted- Electronic ﬁling is a secure, fast and easy
available on our website at ness income from reacquisition of business way to ﬁle. For more information, go to our
www.taxes.state.mn.us debt (see Schedule KS). Effective for taxable website at www.taxes.state.mn.us.
years ending after Dec. 31, 2008.
We’ll provide information in another format
upon request to persons with disabilities. Credit for tuberculosis testing on cattle.
For corporations, the credit is limited to 25 Before you ile
percent (reduced from 50 percent) of the Complete your federal return
Contents Before you complete Form M8, complete
expenses incurred during the year to test
federal Form 1120S and supporting sched-
your cattle for tuberculosis. Effective for tax-
What’s new for 2009 ............. 1 able years beginning after Dec. 31, 2008. ules. You will need to reference them.
General information ............ 1–3
Filing requirements ............ 1
Due dates and extensions ...... 2 Minnesota tax ID number
Payment options .............. 2 Your Minnesota tax ID is the seven-digit
Filing requirements number you’re assigned when you register
Filing reminders .............. 3
M8 instructions ............... 4–6 Corporations doing business in with the department. Generally, it is the
Frequently asked questions ..... 6 Minnesota that have elected to be same as your sales and use tax or Minnesota
M8A instructions .............. 7–9 employer’s withholding tax number.
taxed as S corporations under sec-
KS instructions .............. 10–12 It’s important to include your Minnesota tax
tion 1362 of the Internal Revenue
ID on your return so that any payments you
Code (IRC) must ﬁle Form M8. make are properly credited to your account.
If you don’t have a Minnesota tax ID,
Who must ile you must apply for one. To apply, go
Any corporation with a valid federal elec- to www.taxes.state.mn.us and click on
tion under IRC section 1362 is considered “Register for a Minnesota tax ID num-
an S corporation for Minnesota purposes. ber” from the e-Services menu, or call
651-282-5225 or 1-800-657-3605.
The entire share of an entity’s income is
taxed to the shareholder, whether or not it is
actually distributed. Each shareholder must Continued
Stock No. 3509820 (Rev. 4/10) 1

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                                                                             CORRECTED FINAL -- 04/15/10

General information (continued)

Due dates and 
                                                Payment options
extensions
                                                If you’re required to pay any Minnesota business tax electronically, you must pay all 
Due date for iling and                          taxes electronically. A 5 percent penalty will be assessed if you fail to do so when 
paying is March 15, 2010                        required.
File your return and pay the taxes payable as 
soon as possible after the end of the tax year,    Pay electronically using e-File Minnesota
but no later than the following dates:           •  To pay over the Internet—go to www.taxes.state.mn.us, and click on “Login to 
•	 Calendar	year	returns:	March	15,	2010.           e-File Minnesota” from the e-Services menu, or 
                                                 •  To pay by phone—call 1-800-570-3329.
•	Fiscal year returns: the 15th day of the 
  third month after the end of your tax year.    Both options are free. To be timely, you must complete your transaction and re-
                                                 ceive a conirmation number on or before the due date for that payment.
If the due date falls on a weekend or legal 
holiday, returns and payments electronically     If you’re using the system for the irst time and need a temporary password, call 
made or postmarked on the next business          651-282-5225 or 1-800-657-3605.
day are considered timely.
                                                   Pay by credit card
                                                 For a fee, you may charge your payments to your Visa, MasterCard, American Ex-
Extension of time to ile
All S corporations are granted an automatic      press or Discover/Novus credit card. To do so, have your credit card ready and go 
six-month extension to ﬁle Form M8, if           to www.oficialpayments.com or call 1-800-272-9829. 
the tax payable for the year is paid by the 
regular due date.                                  Pay by check
                                                 When making the following payments by check:             you must attach Form:
However, if the IRS grants an extension of          Tax return payment (taxes payable on M8)   ............... PV40
time to ﬁle your federal return that is longer      Extension payment  .................................. PV81
than the Minnesota automatic six-month              Estimated tax payments   ..............................   M72
extension, your state ﬁling due date is ex-         Amended return payment (taxes payable on M8X)         ......... PV65
tended to the federal due date. 
                                                 Your check authorizes us to make a one-time electronic funds transfer from your  
This is a ﬁling extension only. To avoid pen-
                                                 account. You may not receive your canceled check.
alties, you must make an extension tax pay-
ment by the regular due date. See Extension      Forms are available from our website at www.taxes.state.mn.us.
payment in the section below for details.
                                                cally (see Payment options above). If you’re   To make an estimated payment, see Payment 
                                                not required to pay electronically, you may    options above. If you’re paying by check, send 
Payments                                        pay by check and send a completed Form         a completed Form M72 with your payment. 
There are four types of tax payments an S 
corporation can make — extension, estimated     PV81 along with your payment.
                                                                                               For additional information, see the S Corpo-
tax, tax return and amended return pay-                                                        ration Estimated Tax instructions.
ments. You can pay electronically, by credit    Estimated payments
card or by check. (See Payment options          An S corporation must make quarterly 
above.)                                         estimated tax payments if it has $500 or       Tax return payment
                                                                                               If line 19 of Form M8 shows an amount 
                                                more of:
Note: If you’re currently paying electronically                                                due, you must make a tax return payment 
using the ACH credit method, continue to call   •	 estimated	S	corporation	taxes	and	the	      (see Payment options above). If you’re not 
your bank as usual. If you wish to make pay-     minimum fee, or                               required to pay electronically, you may pay 
ments using the ACH credit method, instruc-     •	 any	nonresident	shareholder’s	share	of	     by check and send a completed Form PV40 
tions are available at www.taxes.state.mn.us.    estimated composite income tax, or            along with your payment. 
                                                •	 any	nonresident	shareholder’s	share	of	
Extension payment                                estimated Minnesota nonresident with-         Penalties and interest
Your tax is due by the regular due date, even    holding.                                      Late payment. A late payment penalty is 
                                                                                               assessed on any tax not paid by the regular 
if you are ﬁling under an extension. Any tax    Payments are due by the 15th day of the 
                                                                                               due date. The penalty is 6 percent of the 
not paid by the regular due date is subject     third, sixth, ninth and 12th months of the 
                                                                                               unpaid tax.
to penalties and interest (see lines 16 and 17  tax year. If estimated tax is required for the 
on page 5).                                     S corporation taxes/minimum fee, compos-       If you ﬁle your return after the regular due 
If you are ﬁling after the regular due date,    ite income tax, and/or nonresident with-       date with a balance due, an additional 5 per-
you can avoid penalties and interest by         holding, include all in the same quarterly     cent penalty will be assessed on the unpaid 
making an extension payment on or before        payments.                                      tax.
the regular due date. Pay your tax electroni-
                                                                                               Continued                                  2

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                                                                               CORRECTED FINAL -- 04/15/10

General information (continued)

Late iling. There is also a penalty if you 
                                                Nonresident withholding
ﬁle after the extended due date and owe tax.    S corporations are required to withhold      Annual reporting of all 
The late ﬁling penalty is 5 percent of any tax  Minnesota income tax for a nonresident 
                                                                                             JOBZ tax beneits
not paid by the regular due date.               shareholder if the shareholder:              Each qualiﬁed JOBZ business is also 
Interest. You must also pay interest on the     •	 has	a	legal	residence	that	is	not	Minne-  required to annually ﬁle two addition-
penalty and tax you are sending in late. The    sota,                                        al forms with the Department of Rev-
interest rate for 2010 is 3 percent.            •	 is	not	included	in	composite	income	tax,  enue.  These forms are ﬁled separate 
Other penalties. There are also civil and       •	 has	Minnesota	distributive	income	of	     from the JOBZ business’s tax return.
criminal penalties for intentionally failing to $1,000 or more from this S corporation,      1. By October 15, 2010, each quali-
ﬁle a Minnesota return, evading tax and for     and                                          ﬁed business must ﬁle Form M500, 
ﬁling a frivolous, false or fraudulent return.  •	 has	income	that	was	not	generated	by	a	   Reporting of JOBZ Tax Beneﬁts, to 
                                                transaction related to the termination or    report the amount of taxes the busi-
                                                liquidation of the S corporation in which    ness would have paid in 2009 had it 
Filing reminders                                no cash or property was distributed in the   not been in a JOBZ zone.
                                                current or prior taxable year.
                                                                                             2. By December 1, 2010, each quali-
Accounting period
You must use the same accounting period         If you are required to pay nonresident       ﬁed business must certify to the 
for Minnesota as you use for your federal       withholding, see the line 4 instructions on  Department of Revenue that it is 
return. If you change your federal account-     page 4.                                      in compliance with the terms of its 
ing period, attach a copy of federal Form                                                    business subsidy agreement.
1128, Application to Adopt, Change or Retain    Use of information                           Failure to submit either of these 
a Tax Year, to your short-period Minnesota      All information on this form is private,     reports will result in the business being 
return.                                         except for your Minnesota tax ID number,     removed from the JOBZ program.
                                                which is public. Private information cannot 
                                                be given to others except as provided by 
Composite income tax                            state law. 
An S corporation may pay composite Min-
nesota income tax on behalf of its nonresi-     The identity and income information of the   Where to ile paper returns
dent shareholders who elect to be included      shareholders are required under state law so Mail your Form M8 and all completed 
in lieu of each shareholder ﬁling his or        the department can determine the share-      Minnesota and federal forms and schedules 
her own Minnesota return. The electing          holder’s correct Minnesota taxable income    using a mailing label (below). 
individuals must not have any Minnesota         and verify if the shareholder has ﬁled a     If you choose not to use the label, mail your 
source income other than the income from        return and paid the tax. The Social Security forms to: Minnesota S Corporation Income 
this S corporation and other entities elect-    numbers of the shareholders are required     Tax, Mail Station 1770, St. Paul, MN 55145-
ing composite ﬁling.                            under M.S. 289A.12, subd. 13.                1770.
If you are paying composite income tax for 
your electing shareholders, check the box       Assembling paper tax                         Reporting federal changes
for composite income tax on the front of                                                     If the Internal Revenue Service (IRS) 
                                                forms
Form M8 and see the line 3 instructions on      Arrange your Minnesota schedules in the      changes or audits your federal return or you 
page 4.                                         order they were completed and place them     amend your federal return and it affects 
Nonresidents included in the composite          behind your Form M8. Then place your         your Minnesota return or the federal Sched-
income tax are not subject to the nonresi-      federal return and its schedules behind the  ules K-1, you must amend your Minnesota 
dent withholding requirements (see the          Minnesota material. Do not staple or tape    return. File your Form M8X within 180 
next section).                                  any enclosures to your return.               days after you were notiﬁed by the IRS or 
                                                                                             after you ﬁled your federal amended return. 
                                                                                             Enclose a copy of the IRS report or your 
                                                                                             amended federal return with your amended 
                                                                                             Minnesota return.
                                                                                             If the changes do not affect your Minnesota 
Use a mailing label if iling a paper return                                                  return, you have 180 days to send a letter of 
Use this mailing label on your own envelope to mail your Form M8 and                         explanation to the department. Send your 
attachments. (Cut on the dotted line and tape to your envelope.)                             letter and a complete copy of your amended 
                                                                                             federal return or the correction notice to: 
                                                                                             Minnesota S Corporation Tax, Mail Station 
                                                                                             5170, St. Paul, MN 55146-5170.
                                                                                             If you fail to report as required, a 10 percent 
                 S Corporation Tax                                                           penalty will be assessed on any additional tax.
                 St. Paul, Minnesota 55145-1770
                                                                                                                                         3

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                                                                               CORRECTED FINAL -- 04/15/10

Completing Form M8

Before you complete Form M8, you must                                                         If you received a signed and dated Form 
complete the following; you will need to        Line instructions                             AWC, Alternative Withholding Certiﬁcate, 
                                                Round amounts to whole dollars. Decrease 
                                                                                              from one or more shareholders, check the 
reference them:                                 amounts less than 50 cents and increase 
                                                                                              box provided on line 4 of Form M8. You 
•	 federal	Form	1120S	and	supporting	           amounts 50 cents or more to the next higher 
                                                                                              must include the certiﬁcate(s) when you ﬁle 
schedules, and                                  dollar.
                                                                                              your return.
•	 Schedule	KS	for	each	nonresident	share-      Line 1—S corporation taxes
holder and to any Minnesota shareholder         Enter the total of the following S corpora-   Line 6—Employer transit pass 
who has adjustments to income (see page         tion taxes on line 1, and check the ap-       credit
                                                                                              If you provided transit passes at a reduced 
10).                                            plicable boxes to indicate the tax types 
                                                                                              cost to your employees for use in Minneso-
                                                included. Show the detail for each type 
                                                                                              ta, complete Schedule ETP, Employer Transit 
                                                of tax and the percentage apportioned to 
                                                                                              Pass Credit, to determine your credit. 
Check boxes                                     Minnesota. Multiply that amount by 9.8 
Final return                                    percent (.098)—the corporate tax rate—to      Enter the amount of the credit that is being 
If this is a ﬁnal return and the S corporation  determine your Minnesota tax. For each tax,   claimed directly by the S corporation and 
will not be required to ﬁle returns in the      enclose a separate schedule showing your      not passed through to the shareholders. 
future (e.g., going out of business), be sure   computation.                                  Line	6	cannot	exceed	the	total	of	S	corpora-
to check this box on the front of the form.                                                   tion taxes and the minimum fee (sum of 
                                                •	 Determine	the	tax	on	the	Minnesota	por-
Composite income tax                            tion of passive income subject to federal     lines 1 and 2). Enclose Schedule ETP. 
If you are paying composite income tax for      tax. Enclose a copy of the federal schedule   Line 8—Minnesota Nongame Wild-
your electing shareholders, check the box for   used to ﬁgure your federal tax.
                                                                                              life Fund
composite income tax on the front of your                                                     S corporations can help preserve Min-
return and see the instructions for line 3.     •	 Determine	the	tax	on	the	Minnesota	por-
                                                tion of recognized built-in gain and net      nesota’s rare and endangered animals and 
Financial institutions                          capital gain subject to federal tax.          plants by donating to this fund. To donate, 
If you are a ﬁnancial institution electing                                                    enter your contribution on line 8. This 
                                                •	 If	the	S	corporation	is	paying	the	LIFO	
to be taxed as an S corporation for federal                                                   amount will be added to your total tax and 
                                                recapture tax (ﬁgured for the last year the 
purposes, check the box on the front of the                                                   will decrease your refund or increase your 
                                                corporation was a C corporation) over 
form.                                                                                         balance due. Monies donated are deductible 
                                                a four-year period, include this year’s       the following year.
Qualiied Subchapter S Subsidiary                installment.
(QSSS)                                                                                        Line 10—Enterprise zone credit
If you are including a qualiﬁed subchapter S    Line 2—Minimum fee                            If your business has been certiﬁed and ap-
subsidiary (QSSS) on this return, check the     Complete M8A of Form M8 to determine          proved by the Department of Employment 
box on the front of your Form M8.               the minimum fee to enter on line 2. See the   and Economic Development as employ-
                                                M8A instructions beginning on page 7.         ment property in an enterprise zone, enter 
If the parent S corporation has nexus with 
Minnesota, you must use the parent’s fed-       You are exempt from the minimum fee if        the credit that is being claimed directly by 
eral and state ID number. If the parent does    you are a qualiﬁed business participating in  the S corporation and not passed through 
not have nexus, ﬁle Form M8 under the fed-      a JOBZ zone in Minnesota and all of your      to the shareholders. Enclose Schedule EPC. 
eral and state ID numbers of a QSSS with        property and payroll are within the zone.
                                                                                              Line 11—JOBZ Jobs credits
nexus in Minnesota. In any event, a com-        Line 3—Composite income tax                   A refundable jobs credit, based on higher-
plete copy of the federal Form 1120S must       To determine line 3, you must ﬁrst ﬁgure      paying jobs, is available to qualiﬁed busi-
be included with the Minnesota return.          the amount of composite tax attributed to     nesses operating in a JOBZ zone. A qualiﬁed 
See Three-factor formula for QSSS ﬁlers on      each electing shareholder. See the instruc-   business must have signed a Business Sub-
page 7 for more information.                    tions for line 31 of Schedule KS on page 12.  sidy Agreement with the zone administra-
                                                                                              tor. Complete and enclose Schedule JOBZ, 
Qualiied business participating in a            Add the composite income tax attributed to    JOBZ Tax Beneﬁts. 
JOBZ zone                                       all electing shareholders (the total of lines 
If you are a qualiﬁed business participating    31 from all KS schedules), and enter the      Also include any credit you may have re-
in a JOBZ zone in Minnesota and all of your     result on line 3 of Form M8.                  ceived as a partner of a partnership (include 
                                                                                              Schedule KPC with your return).
property and payroll are within the zone, 
                                                Line 4—Nonresident withholding
you are not required to pay a minimum fee.                                                    Enter the total jobs credit that is being 
                                                To determine line 4, you must ﬁrst ﬁgure 
Check the box on the front of Form M3.                                                        claimed directly by the S corporation and 
                                                the amount to withhold for each nonresi-
                                                                                              not passed through to the shareholders.
Initial return                                  dent shareholder. See the instructions for 
If this is the S corporation’s ﬁrst return ﬁled line 32 of Schedule KS on page 12.            To learn more about the zones, go to the 
                                                                                              Minnesota Department of Employment 
in Minnesota, check the box on the front of     Add the withholding required for all non-
                                                                                              and Economic Development website at 
the form.                                       resident shareholders (the total of lines 32 
                                                                                              www.deed.state.mn.us. 
                                                from all KS schedules), and enter the result 
                                                on line 4 of Form M8.
                                                                                              Continued                                    4

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CORRECTED FINAL -- 04/15/10

M8 (continued)

Line 12—Cattle tuberculosis test- Payment method. If you are required to Line 20—Overpayment
ing credit pay electronically and do not, an additional If line 14 is less than the sum of lines 9 and
If you own cattle in Minnesota and you in- 5 percent penalty applies to payments not 18, subtract line 14 from the sum of lines 9
curred expenses during the year to test your made electronically, even if your paper and 18. Enter the result on line 19 and enter
cattle for tuberculosis, you may qualify for a check is sent on time. zero on line 20.
credit of 25 percent of your total expenses.
To determine line 12, follow the steps below: Line 17—Interest If you have an overpayment, you may
You must pay interest on the unpaid tax and choose to have it direct deposited into your
1 Expenses you incurred to penalty from the regular due date until the bank account. You may also choose to apply
conduct tuberculosis testing total is paid. The interest rate for calendar all or a portion of your overpayment toward
on your cattle in Minnesota ... year 2010 is 3 percent. your 2010 estimated tax account.
2 The credit is limited to 25%
.25
(.25) of your expenses ........ To ﬁgure how much interest you owe, use Line 21—2010 estimated tax
the following formula with the appropriate Skip this line if you owe additional tax.
3 Multiply step 1 by step 2 ...... interest rate:
If you are paying 2010 estimated tax, you
Enter the result from step 3 on line 12. You
Interest = may apply all or a portion of your refund to
cannot pass through this credit to your
(tax + penalty) x # of days late x interest rate ÷ 365your 2010 estimated tax. Enter the portion
shareholders.
Line 18—Additional charge for of line 20 you want to apply toward your
Expenses incurred in a calendar year in 2010 estimated tax.
underpayment of estimated tax
which tuberculosis testing of cattle in
Minnesota is not federally required are not If you did not pay the correct amount of es- Line 22—Refund
allowed in claiming the credit. timated tax by the due dates, you may have If you want to request your refund to be
to pay an additional charge for underpaying direct deposited into your bank account,
Line 13—Estimated tax and exten- or not paying estimated tax. complete line 23. Your bank statement will
sion payments You may also owe the additional charge if: indicate when your refund was deposited to
Enter your total prepayments, including: your account. Otherwise, skip line 23 and
• your total 2009 estimated tax payments • the total of lines 1 and 2—less any credits your refund will be sent to you in the mail.
on lines 6, 10, 11 and 12—is $500 or
made in 2009 and 2010, paid either elec- more, or Line 23—Direct deposit of refund
tronically or with Form M72, If you want your refund to be directly
• any nonresident shareholder’s share of
• any 2009 extension payment, paid elec- deposited into your checking or savings
the composite income tax on line 3 is
tronically or with PV81, that was made by account, enter the routing and account
$500 or more, or
the due date when ﬁling under an exten- numbers.
• any nonresident shareholder’s share of
sion, or You can ind your bank’s routing number and
• the portion of your 2008 refund applied Minnesota withholding tax on line 4 is account number on the bottom of your check.
to your 2009 estimated tax. $500 or more.
Complete Schedule EST, Additional
Line 16—Penalty
Penalties are collected as part of the tax and Charge for Underpayment of Estimated
Tax, to determine the additional charge for routing number must have nine digits.
The
are in addition to any additional charge
for underpaying estimated tax. If you are underpaying estimated tax. Compute the The account number may contain up to 17
paying your tax after the regular due date, underpayment charge separately for the S digits (both numbers and letters). Enter the
include the appropriate penalties on line 16. corporation taxes/minimum fee and for number and leave out any hyphens, spaces
You must include a statement showing how each nonresident shareholder who has $500 and symbols.
you arrived at the penalty amount. or more of either composite income or
If the routing or account number is incor-
nonresident withholding tax.
Late payment. If the tax is not paid by rect or is not accepted by your ﬁnancial
the original due date, a penalty is due of 6 Enter the total charge, if any, on line 18. institution, your refund will be sent to you
percent of the unpaid tax on line 15. Enclose the schedule with your return. in the form of a paper check.
Late iling. If you are ﬁling your return Line 19—Amount owed By completing line 23, you are authorizing
after the extended due date, you must pay a Add lines 15 through 18. This is the amount the department and your ﬁnancial institu-
late ﬁling penalty. The late ﬁling penalty is 5 of tax you owe. Be sure to check the ap- tion to initiate electronic credit entries, and
percent of the unpaid tax on line 15. propriate box on line 19 to indicate your if necessary, debit entries and adjustments
method of payment. See Payment options on for any credits made in error.
Balance not paid. If you ﬁle your return page 2.
after the original due date and owe tax, an
additional penalty is due. The additional
Continued
penalty is 5 percent of the unpaid tax on
line 15.

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                                                                    CORRECTED FINAL -- 04/15/10

M8 (continued)

                                             Checking the box does not give your pre-      By providing an e-mail address, you are 
Signature                                    parer the authority to sign any tax docu-     authorizing the department to correspond 
The return must be signed by a principal 
                                             ments on your behalf or to represent you at   with you or the designated person over 
ofﬁcer of the corporation. 
                                             any audit or appeals conference. For these    the Internet and you understand that the 
If you paid someone to prepare your return,  types of authorities, you must ﬁle a power    entity’s nonpublic tax data may be transmit-
the preparer must also sign. The preparer’s  of attorney or Form REV184 with the           ted over the Internet. 
ID number and phone number should also       department.
                                                                                           You also accept the risk that the data may 
be included. 
                                             E-mail address                                be accessed by someone other than the 
You may check the box in the signature area  If the department has questions regarding     intended recipient. The department is not 
to give us your permission to discuss your   your return and you want to receive corre-    liable for any damages that the entity may 
return with the paid preparer. This autho-   spondence electronically, indicate the e-mail incur as a result of an interception.
rization remains in effect until you notify  address below your signature. Check a box 
the department in writing (either by mail or to indicate if the e-mail address belongs to 
fax) that the authorization is revoked.      an employee of the S corporation, the paid 
                                             preparer or other contact person.

Frequently asked questions

Q:  I iled federal Form 2553 with the IRS to elect to become      Q:  When determining composite income tax, can I reduce the 
  an S corporation. Do I also need to ile a similar form with       taxable income by a prior year’s net operating loss?
  Minnesota?                                                      A:  No. Only the current year’s income is included when determin-
A:  No. Once you have ﬁled Form 2553 with the IRS and it has been   ing composite income tax.
  approved, Minnesota automatically accepts your S corporation 
  status.                                                         Q:  If the S corporation does business in a reciprocity state 
                                                                    (Wisconsin, North Dakota or Michigan) and the sole share-
Q:  Does Minnesota allow a parent S corporation to elect to         holder is a Minnesota resident, does the shareholder have 
  treat its subsidiary as a QSSS (Qualiied Subchapter S             to ile a return in the other state?
  Subsidiary)?                                                    A:  Yes. The shareholder would be required to ﬁle a return in the 
A:  Yes. Minnesota conforms to this federal treatment. The parent   other state. The income earned by an S corporation does not 
  S corporation that owns a QSSS must ﬁle a single Form M8 re-      qualify for exemption under the reciprocity agreements.
  porting the income, deductions and credits for both the parent 
  and the QSSS, as described in Revenue Notice 98-09.             Q:  What information will I need to pay taxes electronically?
                                                                  A:  To pay electronically over the Internet or by phone you will 
Q:  When I ile a single QSSS return, how do I determine the         need your Minnesota tax ID number, password and your bank 
  minimum fee?                                                      routing and account numbers. 
A:  Complete a separate M8A and ﬁgure the minimum fee based on 
                                                                    If you are using the system for the ﬁrst time and you need a 
  each company’s factors. Enter the sum of all minimum fees on 
                                                                    temporary password, call 651-282-5225 or 1-800-657-3605.
  the Form M8.

                                                                                                                                      6

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CORRECTED FINAL -- 04/15/10

Completing M8A

Complete M8A to determine your Min-
Petitioning to use another Property factor
nesota source income and minimum fee. If If you are not required to complete federal
method of allocation
you conducted all your business in Minne- State law (M.S. 290.20, subd. 1a and Min- Schedule L (Form 1120S), you may want
sota during the tax year, complete columns nesota Rules 8020.0100, subp. 3) allows to do so to determine the property factor.
entities to request permission from the Enclose the completed federal Schedule L
A and B1. Enter 1.00000 (for 100 percent) department to allocate all, or any part of, (Form 1120S) or a copy of the S corpora-
on line 18, column B 1 (and the remaining taxable net income in a manner other than tion’s balance sheet with your return.
columns, as needed). the three-factor formula or by applying the The property factor consists of tangible
methodology contained in Revenue Notice
property which includes land, buildings,
If a qualiﬁed subchapter S subsidiary 08-04.
machinery, equipment, inventories and
(QSSS) is not included on your return, To request permission, complete Form ALT, other tangible personal property valued at
Petition to Use Alternative Method of Alloca-original cost.
complete columns A and B1.
tion (see Revenue Notice 04-07).
Original cost is your cost or original basis
If a QSSS isincluded, read “Three-factor
Permission will be granted only if you can when you acquired the property. Deprecia-
formula for QSSS ﬁlers” below.” Each QSSS show that the three-factor formula does not tion and fair market value are not considered.
must have a MN Tax ID number. Column properly and fairly reﬂect your Minnesota
A must include the total amounts of all S income, and that the alternative formula
you have chosen does. Continued
corporations included on Form M8 and
column B 1is for the QSSS designated ﬁler.
The remaining columns are for each of the Three-factor formula for QSSS ilers
other S corporations in the group that have
a Minnesota apportionment factor. If you If your federal Form 1120S includes a The apportionment formula is computed
need more than three columns, attach ad- qualiﬁed subchapter S subsidiary (QSSS), by adding the apportionment ratios of all
ditional forms as needed. you must ﬁle a single Form M8. However, unitary entities with nexus in Minnesota.
for computing the minimum fee and The numerators of these apportion-
allocating income for nonresidents, each ment factors would include the property,
Three-factor formula entity must compute their own income, payroll and sales (or receipts) attributed
Minnesota uses a weighted three-factor deductions, factors and credits sepa- to Minnesota for each entity having nexus
formula comprised of property, payroll rately. Provide a worksheet that separates in Minnesota. The denominators of the
and sales (which includes gross earnings, these items for each entity. Also, attach a apportionment factors include the prop-
receipts and rents received) during the tax schedule with each entity’s name, address, erty, payroll and sales (or receipts) in all
year to determine the apportionment factor. federal and Minnesota tax ID numbers locations for all the entities in the unitary
For tax year 2009, the factor weights are and include it with the ﬁling. business.
0.08 for property, 0.08 for payroll and 0.84 If the S corporation parent or any of the
for sales (receipts). Resident shareholders
Under Minnesota law, the entire income QSSSs are not engaged in a single unitary
To determine the Minnesota apportionment of Minnesota residents is subject to Min- business, a nonresident shareholder is only
factor, ﬁrst determine your property, payroll nesota income tax, regardless of the S subject to tax on an apportioned share of
and sales factors. corporation apportionment factors. the income earned by those entities that
have nexus with Minnesota.
If column A of line 6, 10 or 14 of M8A is
zero, you are not able to use the three-fac- Nonresident shareholders The income from such entities for non-
tor apportionment formula prescribed by In determining the amount of income to resident shareholders is apportioned to
law. Rather, use the factor weights provided be included on a nonresident sharehold- Minnesota using the weighted three-factor
below: er’s Minnesota income tax return, Form apportionment formula determined under
M1, a determination must be made as M.S. 290.191. A separate apportionment
• If the only missing factor is either prop- to whether the S corporation parent and formula is calculated for each entity with
erty or payroll, change the sales factor the QSSS are engaged in a single unitary nexus in Minnesota. Only the property,
weight on line 16 from 0.84 to 0.913, and business. payroll and sales (receipts) numerators
the weight of the remaining factor from Nonresident shareholders will need to and denominators for that entity are used
0.08 to 0.087. know their Minnesota apportioned share to apportion the shareholder’s income for
• If the only missing factor is sales, change of the combined income for those entities that entity.
the weight of both the property and pay-
roll factors on lines 8 and 12 from 0.08 to that are part of the same unitary business. Complete a Schedule KS for each nonresi-
0.50. The weighted three-factor formula deter- dent shareholder.
mined on M8A must be used to apportion
• If you are missing two factors, change the the combined income of the parent and
weight of the remaining factor to 1.00. QSSS.
7

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                                                                                CORRECTED FINAL -- 04/15/10

M8A (continued)

M8A, lines 1–9                                  Determining Minnesota sales                   tions of sale, or the ultimate destination of 
In column A, lines 1–5, enter the total                                                       the property.
                                                Real property
property items for your entire business.        Sales, rents, royalties and other income from Tangible personal property delivered to 
In column B 1(and remaining columns as          real property are attributed to the state in  a common or contract carrier or foreign 
needed), enter the property items for your      which the property is located.                vessel for delivery to a purchaser in another 
business in Minnesota.                                                                        state or nation is a sale in that state or na-
Line 1. Add the beginning and ending year       Tangible personal property                    tion, regardless of f.o.b. point or other 
                                                Sales of tangible personal property are 
inventories, divide by two and enter the                                                      conditions of sale.
                                                attributed to Minnesota if the property is 
result on line 1. This is your average value of                                               Property is received by a purchaser in Min-
                                                received by a purchaser within Minnesota 
inventory for your business for the tax year.                                                 nesota if the recipient is located in this state, 
                                                and the S corporation is taxed in this state, 
Line 2. Add the beginning and ending year       regardless of the f.o.b. point or other condi-even if the property is ordered from outside 
                                                                                              Minnesota.
values of the buildings, machinery, equip-
ment and other tangible property and                                                          Continued
divide by two. Enter the result on line 2.
Line 3. Add the land’s beginning and end-       Apportionment for inancial institutions
ing year values and divide by two. Enter the 
                                                In general, a ﬁnancial institution is any     consumer and commercial loans and lease 
result on line 3.
                                                national or state bank, bank holding          ﬁnancing, credit card, and merchant dis-
Line 4. For ﬁnancial institutions only. See     company, savings and loan, or any other       count receivables. 
the apportionment instructions on this page.    corporation that does business that a bank 
                                                or other ﬁnancial institution would be        Line 14—Sales or receipts factor
Line 5. Rented property is based on the                                                       Financial institutions use a receipts factor 
                                                authorized to do.
actual rent you paid for property (land,                                                      instead of a sales factor. 
buildings, equipment, etc.) used during the     Financial institutions complete M8A the 
tax year. The rents you receive are included    same way as other S corporations, except      Include the gross income from activities in 
in the sales factor.                            for lines 4 and 14.                           the ordinary course of business, including 
                                                                                              income from securities and money market 
To determine the value of rented property,                                                    instruments. 
                                                Line 4—Property factor
multiply the rent paid for the tax year by      The property factor for ﬁnancial institu-
eight.                                                                                        The following are considered Minnesota 
                                                tions includes certain intangible property.
                                                                                              income: 
                                                The following are considered Minnesota        •	 interest	income	from	loans	secured	
Payroll factor                                  property:                                        by real or tangible personal property 
M8A, line 10                                    •	 coin	and	currency	located	in	Minnesota        located in Minnesota
In column A, enter your total payroll paid 
                                                •	 lease	inancing	receivables,	to	the	extent	 •	 interest	on	consumer	loans	not	secured	
or incurred for the tax year in connection 
                                                the property is located in Minnesota             by real or tangible personal property if 
with the entire business.
                                                •	 secured	loans	if	real	or	tangible	personal	   the borrower is a Minnesota resident 
In column B 1(and the remaining columns         property is located in Minnesota              •	 interest	on	commercial	loans	not	secured	
as needed), enter your total payroll paid or    •	 unsecured	(or	secured	by	intangible	          by real or tangible personal property if 
incurred in Minnesota, or paid for labor        property) consumer loans to Minnesota            the proceeds are applied in Minnesota
performed in Minnesota, for the tax year in     residents                                     •	 merchant	discount	income	if	the	mer-
connection with the business.                   •	 unsecured	(or	secured	by	intangible	          chant is located in Minnesota
                                                property) commercial loans if the pro-        •	 receipts	from	travelers	checks	if	pur-
                                                ceeds are applied in Minnesota                   chased in Minnesota
Sales factor                                    •	 credit	card	receivables	if	the	fees	and	
                                                                                              •	 receipts	from	credit	cards	if	regularly	
M8A, line 14                                    charges are regularly billed to Minnesota
                                                                                                 billed in Minnesota
The sales factor includes all sales, rents,     •	 receivables	from	merchant	discount	
                                                                                              •	 receipts	for	regulated	inancial	institu-
gross earnings or receipts received in the      income if the merchant is located in 
                                                                                                 tions from securities, based on the ratio 
ordinary course of your business, except:       Minnesota, and
                                                                                                 of total deposits from Minnesota to total 
•	 interest                                     •	 securities,	money	market	instruments	
                                                                                                 deposits in and outside Minnesota
•	 dividends                                    and secondary market assets appor-
•	 sales	of	capital	assets	under	IRC	section	   tioned to Minnesota, in the ratio of          •	 receipts	for	nonregulated	inancial	
1221                                            Minnesota deposits to all deposits if            institutions from securities, based on 
                                                a regulated ﬁnancial institution, or in          the ratio of gross business income from 
•	 sales	of	property	used	in	the	trade	or	                                                       Minnesota to total gross business income
                                                the ratio of Minnesota gross business 
business, except sales of leased property                                                     •	 receipts	from	secondary	market	assets	
                                                income to total gross business income if 
that is regularly sold as well as leased, and                                                    treated in the same way as securities
                                                unregulated.
•	 sales	of	stock	or	sales	of	debt	instruments	                                               •	 receipts	from	the	performance	of	
under IRC section 1275(a)(1).                   Secondary market assets are obligations          services if the services are received in 
                                                that are not originally solicited or entered 
Financial institutions: See Apportionment                                                        Minnesota. 
                                                into by the owner. They include secured, 
for ﬁnancial institutions in the next column.                                                                                               8

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                                                                                CORRECTED FINAL -- 04/15/10

M8A (continued)

Sales of tobacco products, beer, wine and       Intangible property is attributed to Min-       However, if you are a qualiﬁed business par-
other alcoholic beverages to someone            nesota if the purchaser uses the property, or   ticipating in a JOBZ zone in Minnesota and 
licensed to resell the products only within     rights in the property, to conduct business     all your property and payroll are within the 
the state of ultimate destination is a sale in  within this state, regardless of the location   zone, you are exempt from the minimum 
the destination state.                          of the purchaser’s customers.                   fee. Enter zero on line 21 of M8A and on 
                                                                                                line 2 of Form M8.
Receipts from leasing or renting tangible       If the property is used in more than one 
personal property, including ﬁnance leases      state, then the sales or royalties must be ap-  M8A, line 19—Adjustments
and true leases, are attributed to the state in portioned to Minnesota pro rata based on        In some cases the property, payroll and sales 
which the property is located. Receipts from    the portion of use within this state.           used for computing the minimum fee will 
the lease or rental of moving property are 
attributed to Minnesota to the extent the       If you cannot determine the portion of          be different than those used for apportion-
moving property is used in Minnesota.           use in Minnesota, then exclude the sales        ment. The following adjustments should be 
                                                or royalties from both the numerator and        made to your Minnesota factors on line 19.
The extent of use is determined as follows:
                                                denominator of the sales factor.                Add: All tangible property owned or rented 
•	 A	motor	vehicle	is	used	wholly	in	the	                                                       that is not included on line 6 of M8A. Some 
  state in which it is registered.              Personal services                               examples include construction in progress, 
•	Receipts from rolling stock are assigned to   Receipts from the performance of personal       idle property, any nonbusiness property or 
  Minnesota in the ratio of miles traveled in   services are attributed to the state in which   rent expense. The amounts should be deter-
  Minnesota to total miles traveled.            the services are received.                      mined in the same manner as the amounts 
•	 Receipts	from	aircraft	are	assigned	to	      Receipts from services provided to a cor-       on lines 1–5.
  Minnesota in the ratio of landings in         poration, partnership or trust may only be 
                                                                                                Subtract: 
  Minnesota to total landings.                  attributed to a state in which it has a ﬁxed 
•	 Receipts	from	vessels,	mobile	equipment	     place of doing business.                        •	 JOBZ	zone	minimum	fee	adjustment	
                                                                                                from Schedule JOBZ (enclose a copy of 
  and other mobile property are assigned        If you can’t determine where the service 
  to Minnesota in the ratio of days the         was received, or if it was received in a state  Schedule JOBZ).
  property is in Minnesota to the total days    where the corporation, partnership or trust     •	 Any	amounts	included	on	lines	6,	10	or	
  of the tax year.                              doesn’t have a ﬁxed place of business, use      14 that represent your share of the factors 
                                                the location of the ofﬁce of the customer       passed through from partnerships. 
Intangible property                             from which the service was ordered.             •	 For	inancial	institutions	only,	the	
Sales of intangible property are attributed 
                                                If you can’t determine the ordering ofﬁce,      amount of intangible property listed on 
to the state in which the property is used by 
                                                use the ofﬁce location to which the service     line 4.
the purchaser. 
                                                was billed.                                     •	 The	reduction	of	property	owned	for	a	
Royalties, fees and similar income not                                                          short taxable year. To determine, multiply 
qualifying for the foreign royalty subtrac-                                                     the sum of line 1 and line 2 by a fraction: 
                                                Minimum fee
tion, received for the use of or the privilege                                                  the numerator is 365 minus the number 
of using intangible property (such as pat-      M8A, lines 19–21                                of days in the tax year; the denominator 
ents, copyrights, trade names, franchises or    S corporations are subject to a minimum 
similar items) are attributed to the state in   fee if the sum of its Minnesota source prop-    is 365.
which the property is used by the purchaser.    erty, payroll and sales or receipts is at least Enclose a schedule showing the computa-
                                                $500,000.                                       tion and pass-through information of any 
                                                                                                adjustments listed on M8A, line 19.

                                                                                                                                          9

- 10 -

CORRECTED FINAL -- 04/15/10

Completing Schedule KS

Complete and provide Schedule KS to KS, line 2 • Enter the amount from line 2 of federal
each nonresident shareholder and any Determine the state income tax deducted Form 4562 on line 2 of your Minnesota
Minnesota shareholder who has adjust- in arriving at ordinary income or net rental Form 4562.
income of the S corporation. • Subtract $600,000 from line 3 of federal
ments to income.
Form 4562, and enter the result on line 3
Do not include the minimum fee, the
of your Minnesota Form 4562.
built-in gains tax, capital gains tax, LIFO
Purpose recapture tax or excess net passive income • Enter the information from lines 6 and 7
An S corporation must provide each non- of federal Form 4562 on lines 6 and 7 of
tax in this amount.
resident shareholder, and any Minnesota your Minnesota Form 4562. However, if
shareholder with adjustments to income, Enter the shareholder’s pro rata share of this you have section 179 expensing from a
with enough information for them to com- amount on line 2. ﬂow through entity, use the amount from
plete a Minnesota income tax return and line 10 of Schedule KPC instead of the
determine their correct Minnesota tax. KS, line 3 amount from line 12 of federal Schedule
Expenses or interest deducted on your fed- K-1.
Schedule KS is used to provide sharehold- eral return that relate to income not taxed • Enter line 10 of federal Form 4562 on line
ers with the information they need to ﬁle a by Minnesota must be added back to the 10 of your Minnesota Form 4562.
Minnesota income tax return. The sched- shareholder’s Minnesota income.
ule shows each shareholder their speciﬁc • Recalculate lines 4, 5, 8, 9, 11 and 12 of
share of the S corporation’s income, credits Enter the shareholder’s pro rata share of any your Minnesota Form 4562. The result on
and modiﬁcations. Be sure to provide the federal deductions that are attributable to line 12 of Minnesota Form 4562 cannot
shareholder a copy of both the front and income not taxed by Minnesota, other than be more than line 1 of that form.
back of the completed Schedule KS and the U.S. government bond interest or other
Enter the shareholder’s pro rata share of the
instructions. federal obligations.
amount on line 12 of the Minnesota Form
If there are no modiﬁcations or credits and If you had expenses attributable to interest 4562 on line 4 of Schedule KS.
there are no nonresident shareholders, you or mutual fund dividends from U.S. bonds,
do not have to provide Schedule KS. see line 9 of Schedule KS. Do not include KS, line 5
these expenses on line 3. If you chose on your federal return the
You must enclose with your Form M8 cop- special depreciation allowance for certain
ies of the Schedules KS and attachments Enclose an explanation or statement show- qualiﬁed property, your shareholders must
issued to your shareholders and copies of ing your computation. add back 80 percent of the bonus deprecia-
your federal Schedules K and K-1. tion to Minnesota.
KS, line 4
If you are required to amend your federal Minnesota did not adopt the extension of Follow the steps below to determine the
S corporation return or you have been the increased federal section 179 expensing shareholder’s share to enter on line 5 of
audited by the IRS, you must ﬁle Form for tax year 2009. If, during the year, your Schedule KS:
M8X and Schedules KS, if appropriate. See total investment in qualifying property was
1 Add line 14 and line 25 of
Reporting federal changes on page 3. more than $200,000 or if you elected more
your federal Form 4562 .......
than $25,000 in section 179 expensing, your
Line instructions shareholders must add back to Minnesota 2 Total of any bonus depreciation
Enter the name, address and identifying 80 percent of the difference between the amounts passed through to the
number of the shareholder. A $50 penalty will expensing allowed for federal and for state S corporation as a partner of a
be assessed for each incorrect tax ID number tax purposes. Your shareholders will be al- partnership (from line 8 of
used for a shareholder after being notiﬁed by lowed to subtract their share of the addition Schedule KPC) ..............
the department that the number is incorrect. in equal parts over the next ﬁve years when
3 Add steps 1 and 2 ............
they ﬁle their state tax returns.
Calculate lines 1–17 the same for all resident 4 Multiply step 3 by the share-
and nonresident shareholders. Calculate lines If you completed federal Form 4562 to
holder’s percentage of stock
18–32 for nonresident shareholders only. claim the section 179 expensing for federal
ownership ..................
tax purposes, you must also complete lines
1 through 12 on a separate federal Form Enter the result from step 4 on line 5 of the
All shareholders— 4562 to determine the amount you need to shareholder’s Schedule KS.
lines 1–17 add back for Minnesota purposes.
Federal bonus depreciation subtraction.
KS, line 1 Recalculate line 12 of your Minnesota Form For ﬁve years following the addback year,
Determine the interest you received from all 4562 using the same information from your shareholders may be able to subtract
non-Minnesota state and municipal bonds. your federal Form 4562 and the following one-ﬁfth of the addback on their Minnesota
Include the Minnesota portion of exempt- modiﬁcations: income tax return. See the instructions for
interest dividends if less than 95 percent Form M1 for details.
of the exempt-interest dividends are from • Subtract $225,000 from line 1 of federal
Minnesota state and municipal bonds. Form 4562, and enter the result on line 1
of your Minnesota Form 4562.
Enter the shareholder’s pro rata share of this
amount on line 1.
Continued 10

- 11 -

CORRECTED FINAL -- 04/15/10

KS (continued)

KS, line 6 KS, line 13 not reduce the adjusted basis by the current
If you are an employer who provides Enter the shareholder’s pro rata share of the year’s depletion. Figure the excess amount
prescription drug coverage to your retirees, JOBZ jobs credit that is passed through to separately for each property. If the deple-
include on line 6 the shareholder’s pro rata the shareholders. tion deduction for any property does not
share of the federal tax-exempt subsidies exceed the adjusted basis at year-end, do not
you received for continuing these pension KS, line 14 include a tax preference amount for that
beneﬁts. If, for regular tax purposes, you elected property.
the optional 60-month write-off under
KS, line 7 IRC section 59(e) for all property in this
Enter the shareholder’s pro rata share of any category, skip lines 14–16. No adjustments Nonresident shareholders
ﬁnes, fees and penalties that were deducted are necessary. —lines 18–32
a business expenses paid to a government KS, line 18
Intangible drilling costs (IDCs) from oil, gas
entity or nongovernment regulatory body as The Minnesota source gross income is
and geothermal wells are a tax preference
a result of a violation of law, or the inves- used to determine whether a nonresident
item to the extent that the excess IDCs ex-
tigation of any potential violation of law. shareholder is required to ﬁle a Minnesota
ceed 65 percent of the net income from the
This does not include amounts identiﬁed income tax return or has the option to elect
wells. The tax preference item is computed
in a court order or settlement agreement as composite income tax.
separately for oil and gas properties and for
restitution or as an amount paid to come
geothermal properties.
into compliance with the law. Enter the shareholder’s pro rata share of the
Enter the shareholder’s pro rata share of S corporation’s Minnesota source gross in-
KS, line 8 the following: IDCs allowed for regular tax come. Minnesota source gross income is the
Enter the shareholder’s pro rata share of purposes under section 263(c), (but not total amounts apportioned to Minnesota
any discharge of indebtedness income from including any section 263(c) deduction that are included on line 6 of federal Form
reacquisition of business debt that was for nonproductive wells) less the amount 1120S, and lines 17, 19 and 20a of Form
deferred federally by the S corporation. that would be allowed had the IDCs been 8825 and (other than losses), 3a, 4, 5a, 6, 7,
Your shareholders will be allowed to sub- amortized over a 120-month period start- 8a, 9 and 10 of Schedule K (1120S).
tract in future years the amount they added ing with the month the well was placed in
back. production. KS, lines 19–28
From the nonresident shareholder’s federal
Schedule K-1 (1120S), enter the Minnesota
KS, line 9 KS, line 15
Interest earned on certain direct federal Gross income from oil, gas and geothermal portion of the amounts on lines 19–28.
obligations is taxable on the federal return, properties are used in determining if the All income of a Minnesota resident is taxed
but is not taxable on the state return. excess IDCs exceed 65 percent of the net by Minnesota, regardless of the source.
income from the wells.
Determine the net interest you received
from primary obligations issued by the U.S. Enter the shareholder’s pro rata share of the Composite income tax and
government, such as savings bonds and aggregate amount of gross income within
nonresident withholding
treasury notes, that are held directly by the the meaning of section 613(a) from all oil,
S corporation. Do not include obligations gas and geothermal properties that was KS, line 30
where the U.S. government is only a guaran- received or accrued during the tax year. When determining the shareholder’s share
of the S corporation’s Minnesota source
tor. Be sure to subtract any investment in- distributive income, you must make adjust-
terest and other expenses you deducted on KS, line 16
Deductions allocable to oil, gas and geo- ments for any items you passed through to
the federal return that relate to this income. the shareholder on lines 1 through 10 of the
thermal properties are used in determining
Enter the shareholder’s pro rata share of this if the excess IDCs exceed 65 percent of the shareholder’s Schedule KS.
amount on line 9. net income from the wells. Follow the steps below to determine line 30:
Enter the shareholder’s pro rata share of
KS, line 10 1 The difference between the share-
Enter the shareholder’s pro rata share of any deductions allocable to oil, gas and holder’s federal section 179
the amounts from lines 17 and line 30 of geothermal properties. Do not include any deduction from box 11 of
Schedule JOBZ. deductions for nonproductive wells. federal Schedule K-1 (1120S)
and line 4 of the shareholder’s
KS, line 11 KS, line 17 Schedule KS . . . . . . . . . . . . . . .
Enter the shareholder’s pro rata share of the In the case of oil wells and other wells of
enterprise zone credit that is passed through nonintegrated oil companies, enter the 2 Line 5 of the shareholder’s
to the shareholders. shareholder’s pro rata share of the amount Schedule KS . . . . . . . . . . . . . . .
by which the depletion deduction exceeds 3 Add step 1 and step 2 .......
KS, line 12 the adjusted basis of the property at the end 4 Multiply step 3 by 80% (.80) .
Enter the shareholder’s pro rata share of the of the tax year.
employer transit pass credit that is passed In computing the year-end adjusted basis,
through to the shareholders. use the rules of section 1016. However, do Continued
11

- 12 -

CORRECTED FINAL -- 04/15/10

KS (continued)

5 Line 6 of the shareholder’s KS, line 31 KS, line 32
Schedule KS . . . . . . . . . . . . . . . Composite income tax Nonresident withholding
6 Add step 4 and step 5 ....... Nonresident shareholders must pay tax if Nonresident shareholders who are not
their Minnesota gross income is more than included in the composite income tax may
7 Multiply step 6 by line 18 of
the minimum ﬁling requirement for the be subject to withholding. See Nonresident
M8A .....................
year ($9,350 for 2009). withholding on page 3 to determine if your
8 Combine lines 19–28 of the nonresident shareholders are subject to
shareholder’s Schedule KS .... Skip this line if the nonresident shareholder
Minnesota withholding.
did not elect the S corporation to pay com-
9 Combine step 7 and step 8 ...
posite income tax on his or her behalf. To determine the amount of tax to withhold
10 JOBZ subtraction from line 10 for each nonresident shareholder, follow the
of shareholder’s Schedule KS . To determine the amount of composite
steps below:
income tax to pay on behalf of each electing
11 To the extent allowed by law,
shareholder, follow the steps below: 1 Multiply line 30 of Schedule
enter one-ﬁfth of the shareholder’s
KS by 7.85% (.0785) .........
share of the federal bonus depre- 1 Multiply line 30 of Schedule
ciation that was added back in a KS by 7.85% (.0785) ......... 2 Add lines 11, 12 and 13 of
Schedule KS . . . . . . . . . . . . . . . .
year the shareholder elected to be 2 Add lines 11, 12 and 13 of
included in composite income Schedule KS . . . . . . . . . . . . . . . . 3 Subtract step 2 from step 1 ....
tax .......................
3 Subtract step 2 from step 1 .... The result in step 3 is the amount you are
12 To the extent allowed by law, required to withhold from the nonresident
enter one-ﬁfth of the shareholder’s The result in step 3 is the amount you are
shareholder, unless the individual submits
share of the section 179 expensing required to pay on behalf of the electing
Form AWC, Alternative Withholding Certiﬁ-
that was added back in a year the shareholder. Enter this amount on line 31 of
cate.
shareholder elected to be included the shareholder’s Schedule KS and check the
in composite income tax ..... box to indicate the shareholder’s election to If the individual submits Form AWC, with-
13 Add steps 10, 11 and 12 ..... be included. hold the amount from line 6 of the certiﬁ-
cate. Check the box provided on line 32 of
14 Subtract step 13 from step 9 . If the shareholder elects to be included
the shareholder’s Schedule KS and also on
in composite income tax but has zero tax
line 4 of Form M8. Be sure to enclose a copy
Enter the result from step 14 on line 30 of due, enter zero on line 31. Even though the
of the certiﬁcate when you ﬁle your return.
the shareholder’s Schedule KS. This amount amount may be zero, be sure to check the
is the shareholder’s adjusted Minnesota box to indicate the election. If the individual submits a false or fraudu-
source distributive income. lent Form AWC, the department may
Once you have completed all the KS sched-
require you to withhold the maximum
ules for your electing nonresident share-
percentage from that individual in the
holders, add the amounts on line 31 of all
future, even if an exemption certiﬁcate is
the schedules and enter the total on line 3 of
submitted.
Form M8. This is the amount of compos-
ite income tax you are required to pay on Be sure to inform your shareholders that
behalf of your electing shareholders. they must include their Schedule KS when
they ﬁle their Form M1 to claim the Min-
nesota withholding. If the schedule is not
included, the department will disallow the
withholding and assess the tax or reduce
their refund.

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