The Minnesota Supreme Court held that the gain from a corporation’s sale of its majority interest in a limited liability company (LLC) was apportionable business income subject to Minnesota corporate income tax. The Court explained that the corporation conducted its business through operating subsidiaries that were owned by the LLC, and that the corporation and the subsidiaries formed a unitary business at the time of the sale. The Court rejected the corporation’s argument that Minnesota did not have a sufficient connection with the gain at issue. The Court stated that the “undisputed facts showed that the operating subsidiaries – the asset – had a sufficient connection to Minnesota,” that the business received one percent of its revenue from transactions with Minnesota customers, and that the value of the operating subsidiaries was based, in part, on the success of the corporation’s business operations, which included the revenue generated from Minnesota sales. The Court also rejected the corporation’s argument that the gain constituted nonbusiness income under the Minnesota statutes because it was “derived from a capital transaction that solely serves an investment function.” The Court stated that if “a taxpayer and the corporation that was the source of the income do not have a unitary business relationship, and if the income from the sale serves an investment function, rather than an operational function, Minnesota cannot apportion the income.” The Court concluded that the provision did not apply to the corporation and the operating subsidiaries because it was undisputed that they formed a unitary business.

YAM Special Holdings, Inc. v. Comm’r of Revenue, No. A20-0021 (Minn. Aug. 12, 2020)