An S corporation must issue KS, Shareholder’s Share of Income, Credits and Modifications to all nonresident shareholders and resident shareholders with Minnesota modifications. In certain circumstances, the S corporation may also elect to pay the pass-through entity (PTE) tax on behalf of their shareholders. If the S corporation has nonresident individual shareholders, it may file a composite income tax on their behalf. If it has nonresident individual shareholders who will not be included in composite income tax or PTE tax, the S corporation is generally required to withhold income tax on behalf of such shareholders and remit it with the Minnesota S corporation return. Individual shareholders who are not included in composite income tax or do not elect the PTE tax to satisfy their filing requirement must also complete Form M1, Individual Income Tax. LIMITED LIABILITY COMPANY (LLC) Under Treasury Regulations the organizers of a limited liability company can choose how the limited liability company will be taxed. Generally, an LLC with one member may be taxed either as a corporation or as a sole proprietorship. LLCs with two or more members may be taxed either as a partnership or as a corporation. Note that for one member LLCs, this decision will also impact whether the LLC needs a tax identification number. The Minnesota Department of Revenue has indicated that a Minnesota limited liability company will receive the tax treatment for state purposes that it receives for federal purposes. Persons considering forming a limited liability company are advised to consult with a tax professional regarding the state and federal tax treatment of such an entity. NON-MINNESOTA BUSINESSES DOING BUSINESS IN MINNESOTA Non-Minnesota businesses that do business in Minnesota or own property in the state may be subject to taxation by the state if they have sufficient “nexus”“ or connection with Minnesota to justify imposition of Minnesota tax laws. Activities that create nexus include but are not limited to: • Having a place of business in Minnesota • Having employees or independent contractors conducting business in Minnesota • Owning or leasing real property, or tangible personal property, in Minnesota • Obtaining or regularly soliciting business from within Minnesota. Obtaining or soliciting business within Minnesota includes activities like selling products or services to customers in Minnesota who receive the product or service in Minnesota; engaging in transactions with customers in Minnesota that involve intangible property and result in income; leasing tangible personal property in Minnesota; and selling or leasing real property located in Minnesota. Methods of regularly soliciting business in Minnesota include direct mail and phone solicitation, and various forms of advertising, including print publications and radio and television. This issue can be complicated to resolve. Further information on the nexus standards and exceptions, and other requirements for non-Minnesota businesses may be obtained from the Minnesota Department of Revenue.
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