Content by Jim Duffy and Michelle DiVita

Minnesota (and other states) generally impose income tax on companies engaged in multi-state business on that portion of a company‘s income that is attributable to Minnesota. Minnesota makes this determination based on the percentage of sales a company makes within the state of Minnesota. Under Minnesota law, receipts from performance of services are attributed to the state where the services are received. If the location where services are received is not readily determinable, Minnesota applies a cascading set of sourcing rules that looks to the customer’s location or billing address.

In Humana Market Point, Inc. v. Commissioner of Revenue (11/21/2024), Humana, a Minnesota based corporation, entered into a contract with an affiliate that is located in Wisconsin to provide medical and drug insurance products and pharmacy benefits management services to the Wisconsin company’s plan members. The question before the court was whether the services were received by the affiliate business in Wisconsin or by plan members of the affiliate who were located in Minnesota. Generally speaking, Humana argued that the plan members of the Wisconsin affiliate should not be treated as the service recipients essentially because they were the customers of its customer (i.e. an indirect recipient of services) and as the party to the service contract, the Wisconsin affiliate received the services.

Based on the facts of the case and certain stipulations by the parties, the court disagreed with that argument and ruled that the sales would be treated as made within Minnesota and income would be apportioned accordingly. A similar conclusion was reached by the Maine Supreme Court in the 2023 Express Scripts case where the court ruled that sales occurred where patients picked up their prescriptions, not where the clients that hired Express Scripts to handle their prescriptions were based.

Bottom Line: Companies engaging in multi-state business should examine the facts of the Humana case to determine if it impacts how they allocate income for Minnesota state tax purposes.

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