MN Department of Revenue
Agency background
The Department of Revenue is a named participant on GTAC and is tasked with developing recommendations on taxation of gas and oil mining or extraction, including helium. Minnesota Statutes already contain tax administration laws covering the assessment of taxes for iron, iron ore, and other non-ferrous minerals but do not contain provisions for taxing gas or oil mined or extracted in the state.
There are commonly two types of taxes collected on mining in Minnesota and nationally: A severance tax for removing the natural resource from the earth and an income tax. In Minnesota, the severance tax for non-ferrous minerals is known as the Gross Proceeds Tax and the income tax for all mining is known as the Occupation Tax. The scope of recommendations on taxation includes incorporating gas and oil into existing mining tax laws, aligning the exemptions for the newly created gas and oil taxes with exemptions in place for existing mining industries, and improving tax administration for both the taxpayer and Revenue. Rulemaking is not included in the scope of these recommendations. Rulemaking is not specifically included in the scope of these recommendations because the Department believes the draft statutory language is sufficient on its own. The Department already has rule making authority under Minnesota Statutes, section 270C.06, should it be determined rules are needed later.
Recommendation
Occupation Tax currently applies to all mining companies in the state of Minnesota. New statute definitions were created and existing statute definitions were modified to incorporate gas and oil in the Occupation Tax law.
Draft statutory language:
289A.02, subdivision 6; 298.001, subdivision 3a; section 298.001, subdivision 10a; section 298.001, subdivision 14; section 298.001; subdivision 15; section 298.001, subdivision 16; 298.01, subdivision 3; section 298.17
Rationale
The mining industry in Minnesota has had an Occupation Tax (in place of Corporate Income Tax) for many years. Incorporating gas and oil into existing Occupation Tax laws promotes consistent application of the Occupation Tax across all types of mining companies in Minnesota.
Recommendation
Gross Proceeds Tax applies to all mining companies that mine non-ferrous minerals, such as copper or nickel, in the state of Minnesota. New statute definitions were created and existing statutes were modified to incorporate gas and oil in the Gross Proceeds Tax law.
Draft statutory language:
289A.02, subdivision 6; 298.001, subdivision 3a; section 298.001, subdivision 10a; section 298.001, subdivision 14; section 298.001; subdivision 15; section 298.001, subdivision 16; 298.01, subdivision 3a; 298.01, subdivision 3b; 298.01, subdivision 4a; 298.01, subdivision 4b; 298.015; 298.015, subdivision1; 298.015, subdivision 2; 298.016; 298.016, subdivision 4; 298.016, subdivision 4a;
Rationale
Non-ferrous mining in Minnesota is subject to Gross Proceeds Tax (in place of Property Tax). Incorporating gas and oil into existing Gross Proceeds Tax laws promotes consistent application of the tax across all types of non-ferrous mining companies in Minnesota.
Currently, non-ferrous mining companies are subject to a Gross Proceeds Tax equal to 0.4% of the gross proceeds from mining in Minnesota. Current statutes are modified to allow for different tax rates for copper, nickel, other non-ferrous minerals, different types of gases— including but not limited to helium, and oil. No specific new rates have been included in this draft.
Draft statutory language: 298.015, subdivision 1Rationale
Incorporating different tax rates for the non-ferrous minerals, gases, and oil would provide comparable effective tax rates to be applied across the board. This will provide a uniform tax structure among the different types of gases, minerals, and oils to ensure a fair and consistent tax rate.
Statutory language is being proposed to require mining companies subject to the Gross Proceeds Tax to file an informational report by May 1 following the close of the calendar year.
Draft statutory language: 289A.12, subdivision 19; 289A.19, subdivision 2;Rationale
Revenue generated by the Gross Proceeds Tax is distributed to different parties under current Minnesota Statute 298.018. Currently, Minnesota law requires Gross Proceeds taxpayers to file an annual return by May 1 following the close of the calendar year. Taxpayers are granted an automatic seven-month extension, making the extended due date December 1. Distributions related to Gross Proceeds revenue must be made by December 15. This short timeframe does not allow Revenue sufficient time to verify the reported sales or revenue totals before the distribution date. Requiring the informational report, which would be due on the normal return due date of May 1, would allow Revenue an appropriate amount of time to verify sales or revenue totals before making the required distributions.
Current law provides certain exemptions and exclusions applicable to non-ferrous mining companies subject to the Gross Proceeds Tax. These exemptions and exclusions should be modified to include any oil and gas producers that become subject to the Gross Proceeds Tax.
Draft statutory language:
290.0134, subdivision 9; 290.0135; 290.05, subdivision 1; 290.923, subdivision 1; 297A.68, subdivision 5; 297A.71, subdivision 14; 298.01, subdivision 5; section 298.01, subdivision 6;
Rationale
All non-ferrous mining companies that are subject to Minnesota’s Gross Proceeds Tax should be treated the same regardless of what they mine, including oil and gas.
Current law establishes the method to distribute proceeds from non-ferrous metals and minerals. The legislature could decide to follow that method or choose to create a different distribution method for gas and oil tax proceeds. The recommendations exclude gas and oil proceeds from following the established distribution formula and creates two new subdivisions with blank distribution placeholders to allow the legislature to determine how proceeds from gas and oil shall be distributed in the state.
Draft statutory language:
section 298.018
Rationale
Distribution of proceeds is a policy decision. This recommendation ensures that policy makers establish a distribution formula they deem appropriate for gas and oil proceeds.