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How Minnesota Taxes Nonresident Income
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Minnesota taxes certain income that nonresidents receive. Nonresidents are subject to Minnesota income tax on income earned from Minnesota sources, such as wages for work performed in the state, or income from property or businesses in Minnesota.
Business Income vs. Nonbusiness Income
- Business income comes from trade or business activities, including rents, farming, sales or services.
- Nonbusiness income includes earning that do not come from business activities, such as wages.
If you own a business, or a share of a business through a partnership, S corporation, estate, or trust the classification of income as business or nonbusiness is determined at the entity level.
- Business income is subject to apportionment across states.
- Nonbusiness income is subject to assignment to specific states.
The combination of these amounts determines the income allocated to Minnesota. This applies to nonresident individuals.
You will receive one of the following schedules to help complete your Minnesota Individual Income Tax return:
- Schedule KPI, Partner's Share of Income, Credits and Modifications (KPI)
- Schedule KS, Shareholder's Share of Income, Credits and Modifications (KS)
- Schedule KF, Beneficiary's Share of Minnesota Taxable Income (KF)
Allocating Income to Minnesota
Use this information to determine if your income should be allocated to Minnesota.
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Wages, Investments, and Other Income| Type of Income | Is it assigned to Minnesota? |
|---|
| Wages, salaries, tips, commissions, bonuses, severance pay, annual leave, stock options | Yes, if the services were performed in Minnesota |
| Interest, dividends | No |
| State refunds, alimony received, unemployment compensation | No |
| Qualified pensions, IRA distributions, annuities, deferred compensation plans | No |
| Nonqualified plans | Yes, if the income was earned in Minnesota |
| Capital gains and losses from the sale of intangible assets, such as stock | No, if the sale solely served an investment function |
| 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 partnership interest | Yes, for partnerships with assets located in Minnesota or for partnerships with business activity in Minnesota in the full tax period prior to the sale |
| Installment sales | Yes, for capital assets located in Minnesota, but only if the gain, not interest, is assigned to Minnesota |
Gambling Winnings| Type of Gambling Income | Is it assigned to Minnesota? |
|---|
| From casinos or card clubs | Yes, from casinos or card clubs located in Minnesota |
| From Minnesota Lottery | Yes, if tickets were purchased in Minnesota |
| From charitable or lawful gambling, or pari-mutuel horse race wagering | Yes, if the gambling occurred in Minnesota |
Business Income| Type of income | is it allocated to Minnesota? |
|---|
| Income that does not come from a business activity | Assigned to applicable states. Refer to the Income Allocation for Nonresidents Not Engaged in Business Activities table |
| Interest, dividends | Yes, if earned as a result of carrying out a business activity or you receive a Minnesota Schedule KPI, KS, or KF |
| Capital gains and losses from the sale of intangible assets. | Yes, if earned in furthering of a business activity or you receive a Minnesota Schedule KPI, KS, or KF |
| Capital gains and losses from the sale of tangible assets used in a trade or business | Yes, if the asset was used in your trade or business or you receive a Minnesota Schedule KPI, KS, or KF |
| Covenant not to compete, goodwill | Generally, yes |
| Gain on the sale of a partnership interest | Yes, if the partnership has business activities in Minnesota |
| Business income from a sole proprietorship | Yes, if the business activities are conducted in Minnesota |
| Rent and royalty income | Yes, for property located or used in Minnesota or you receive a Minnesota Schedule KPI, KS, or KF |
| Installment sales | Yes, if related to the sale of assets or Minnesota business activities or you receive a Minnesota Schedule KPI, KS, or KF |
| Like-kind exchanges | Yes, gains are apportionable to Minnesota in the year recognized, using that year's apportionment rate |
| Partnership, S Corporation, or Fiduciary income or loss | Yes, if you receive a Minnesota Schedule KPI, KS, or KF |
| Farm income or loss | Yes, to the extent farming activities are conducted in Minnesota |
Note: This chart does not cover all scenarios for nonresident individuals receiving Minnesota-source income from a partnership, S corporation, trust, or estate. If you receive a Minnesota Schedule KPI, KS, or KF, you must report your Minnesota income on your individual income tax return, Form M1.
Minnesota Statutes
Minnesota Forms
