Minnesota Humana Ruling Spotlights Tax Sourcing Difficulties

A recent loss for Humana Inc. in Minnesota highlights new dilemmas that have arisen as many states shift to taxing income based on where the benefit is received rather than where the work is done.

The Minnesota Supreme Court ruled Sept. 24 that the state can “look through” the direct customer to the ultimate customer to determine where Humana’s services were received for purposes of the state’s corporate franchise tax.

Minnesota and the majority of other states have shifted from cost-of-performance to market-based sourcing over the last 20 years, meaning they now look to where the customer receives the benefit ...