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Last Updated: 12/23/2014

How Nonresident Income is Taxed by Minnesota

Minnesota taxes all of the income recognized for federal purposes received by a taxpayer while a legal resident of the state. In addition, certain income received by nonresidents is assigned to Minnesota for tax purposes.

The table below shows how Minnesota taxes nonresident income. Exceptions are covered in the footnotes. View the statute (M.S. 290.17) .

Nonresident Income

Type of Income Taxed by Minnesota?
Wages, salaries, tips, commissions, bonuses, severance pay, annual leave, stock options​ Yes, if the services were performed or the income earned in Minnesota *​
Interest, dividends ​ No*​
State refunds, alimony received, unemployment compensation ​ No​
Qualified pensions, IRA distributions, annuities, deferred compensation plans​ No​
Nonqualified plans, such as stock options ​ Yes, if earned in Minnesota *​
Capital gains and losses from the sale of intangible assets (such as stock) ​ No​
Capital gains and losses from the sale of tangible assets not used in a trade or business ​ Yes, for property located in Minnesota ​
Covenant not to compete, goodwill​ Generally, yes​
Gain on the sale of a partnership interest.​ Yes, for partnerships located in Minnesota
Business income from a sole proprietorship​ Yes, to the extent the activities are conducted within Minnesota **​
Rent and royalty income ​ Yes, for property located in Minnesota**​
Installment sales​ Yes, if the capital assets were located in Minnesota, but only the gain on the sale is assigned to Minnesota, not the interest.​
Like-kind exchanges​ No, if no gain or loss is recognized on the federal return (IRC section 1031), none would be recognized on the Minnesota return, even if the replacement was located outside of Minnesota​
Partnership, S Corporation income or loss ​ Yes, to the extent the activities are conducted within Minnesota**​
Farm income or loss ​ Yes, to the extent the activities are conducted within Minnesota**​
Gambling Winnings​ ​
From American Indian casinos ​ Yes, from casinos located in Minnesota ​
From Minnesota lottery ​ Yes, from tickets purchased in Minnesota ​
From charitable or lawful gambling, or pari-mutuel wagering ​ Yes, from gambling done in Minnesota ​

*For tax years 2000-2007 only – Taxpayers who receive compensation from their employer in a year in which they are not residents (full or part-year) are not required to assign the income to Minnesota under M.S. 290.17, subd. 2 (4)(c).  This provision was repealed for tax year 2008 and beyond.

**If activities conducted partly within Minnesota, use the three-factor formula of sales, property and payroll. See Schedule M4A of Form M4, Corporation Franchise Tax Return for an example of the three-factor formula.

***Business flow-through income, including interest, is apportioned to Minnesota when the business is
located here.