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Reporting Requirement: Interest-Dividends on Federally Tax-Exempt Municipal Bonds

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Reporting Requirement
If you are a company that distributes payments of interest-dividends on federally tax-exempt municipal bonds, you are required to file information returns with the Minnesota Department of Revenue for all payments of $10 or more that were made to Minnesota residents or to individuals with a Minnesota address.

If you distribute any payments of interest-dividends on federally tax-exempt municipal bonds, complete the online reporting registration form. Complete the form even if you did not make payments to an individual with a Minnesota address. Even though you may not be required to submit information returns to Minnesota for the current year, be sure to complete the registration information so we can keep you updated on any future law changes regarding this requirement.

M.S. 289A.12, subd. 14 and Revenue Notice 91-17, Reporting Required of Regulated Investment Companies of Federally Tax-Exempt Interest Dividends.

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Submitting Information Returns
Information returns for payments of interest-dividends you made must be electronically transmitted to the department by June 1 of the following year, using our secure EDE system. You must provide this information separately from other interest or dividend information returns that are generally due each year on March 31.

Before you can use the EDE system, you must have a user ID, which is different from any Minnesota tax ID you may have. Complete the online reporting registration form to receive a user ID and temporary password.

If you already have a user ID, additional information will be provided when you complete the online reporting registration form.

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Frequently Asked Questions
Why do we need to provide you with reports when you receive 1099-INT data from the IRS?

The 1099-INT forms indicate which companies and possibly which funds distribute federally tax-exempt interest-dividends to individual taxpayers. However, we also need the percentage of the mutual fund portfolio income distribution that is attributable to bonds issued by Minnesota. This percentage will help us determine the taxpayer’s correct amount of the interest-dividends to include as income on the Minnesota income tax return.

Why do we need to complete the reporting registration form if we have no clients in Minnesota?

We contacted you and others using information that was available to us. At this point, we don’t know which of the recipients of Minnesota’s reporting requirement letter are required to transmit information returns. Through our online reporting registration form we are electronically capturing your information and responses, so that in the future we know which companies to contact. If we don’t hear from you through the online reporting registration form, we may be contacting you again.

If we use a third-party clearing firm, why do we need to complete the reporting registration form?

We ask that all Regulated Investment Companies who paid exempt interest-dividends from a mutual fund and those who received a letter from us to complete our online reporting registration form.

If your Clearing Firm only reports interest income from bonds, such as the State of Minnesota; City of Madison, WI; King County, WA, etc., you should answer NO to the second and third questions on our form. We do not need your Clearing Firm’s information under those circumstances.

However, if you sell mutual funds that pay federally tax-exempt interest-dividends to an individual and you use a Clearing Firm to report them, answer YES to the second and third questions. Be sure to complete the requested information regarding your Clearing Firm on the second part of our form. We expect the Clearing Firm will submit the appropriate file with taxpayer information.

The information requested in our online reporting registration form provides a cross-reference of reporting relationships between Investment Companies and Clearing Firms. If we are missing information from a particular Investment Company, we will be able to contact the particular Clearing Firm to request the information.

Do the requirements also apply to payment of exempt-interest dividends from Unit Investment Trusts (UITs)?

Yes, all Regulated Investment Companies paying $10 or more in exempt-interest dividends to an individual who is a resident of Minnesota must transmit information returns to us.

According to M.S. 289A.12, subd. 14, the term "Regulated Investment Company" means regulated investment company as defined in section 851(a) of the Internal Revenue Code. IRC section 851(a) states that any corporation registered under the Investment Company Act of 1940 is a "regulated investment company.” The U.S. Securities and Exchange Commission states that Unit Investment Trusts (UITs) are regulated under the Investment Company Act of 1940.

As a fiduciary account provider (i.e. a state’s return equivalent to Form 1041), does Minnesota’s reporting requirement for interest-dividends on federally tax-exempt municipal bonds apply to me?

Trusts are not required to report exempt-interest dividends paid to beneficiaries under M.S. 289A.12, subd. 14 because trusts are not Regulated Investment Companies. However, trusts are required to report to the beneficiary — and show on the Minnesota fiduciary return — the amount of addition which the beneficiary must include on their Minnesota return under M.S. 289A.12, subd. 3(b). That provision requires that the fiduciary provide to the beneficiary a "statement containing the information required to be shown on the return." On the Minnesota fiduciary return and instructions, the requirement to report Minnesota modifications to beneficiaries receiving distributions is clearly stated. (See Form M2, line 23, and related instructions and Schedule KF, line 1.) If trusts were required to report under M.S. 289A.12, subd. 14, it would duplicate the requirement under M.S. 289A.12, subd. 3(b).

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Questions?
If you have a municipal bond reporting question, write to us at Revenue.MunicipalBondReporting@state.mn.us or call 651-556-5071.