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HF 5147

Income and corporate franchise tax provisions modified, and addition for pharmaceutical marketing expenses required.

2025-2026 Regular Session Introduced by Robert Bierman

Minnesota will add back to state income the federal deduction for direct-to-consumer pharmaceutical marketing, increasing tax liability starting in 2027.

Introduction and first reading, referred to Taxes
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Bill Summary · HF 5147

Overview

HF 5147 proposes to modify Minnesota income and corporate franchise tax provisions by creating an add-back for certain pharmaceutical marketing expenses. Specifically, amounts deducted for direct-to-consumer (DTC) pharmaceutical marketing under the Internal Revenue Code would be added back to taxable income for Minnesota tax purposes. The added-back amount would apply to both individual income tax (section 290.0131) and corporate franchise tax (section 290.0133). The effective date for the new treatment is for tax years beginning after December 31, 2026.

Purpose and intent

  • Align Minnesota tax treatment with federal deductions for DTC pharmaceutical marketing by disallowing (adding back) those deductions at the state level.
  • Increase taxable income for Minnesota purposes for taxpayers that incur DTC pharmaceutical marketing expenses, thereby potentially increasing state tax liability for affected taxpayers.
  • Provide a consistent rule across individual and corporate taxation regarding pharmaceutical marketing deductions.

Key provisions and changes

  • Addition of Subdivision 21 to Minnesota Statutes 2024, § 290.0131 (Definition and Allocation):

    • Defines “direct-to-consumer pharmaceutical marketing” (DTC marketing) as advertising and promotional activities directed at U.S. consumers intended to promote the use, purchase, or prescription of prescription drugs or biologics. This includes TV, radio, print, digital, social media advertising, and patient-directed outreach or disease awareness campaigns funded by a pharmaceutical manufacturer and linked to a specific product.
    • Defines “pharmaceutical manufacturer” as a person/entity engaged in production, preparation, propagation, compounding, or processing of prescription drugs or biologics.
    • Provides that the amount deducted under § 162 of the Internal Revenue Code for DTC pharmaceutical marketing is an addition for Minnesota tax purposes.
    • Effective date: Applies to taxable years beginning after December 31, 2026.

  • Addition of Subdivision 16 to Minnesota Statutes 2024, § 290.0133 (Corporate tax context):

    • Mirrors the above addition-back rule for DTC pharmaceutical marketing deductions in the corporate franchise tax context.
    • The amount deducted under § 162 of the Internal Revenue Code for DTC pharmaceutical marketing is added back to Minnesota corporate taxable income.
    • Effective date: Applies to taxable years beginning after December 31, 2026.

Who is affected

  • Taxpayers claiming DTC pharmaceutical marketing deductions on their federal (Internal Revenue Code) returns, including:
    • Individuals with income affected by itemized or claimed deductions where DTC marketing expenses are deductible under federal law.
    • Corporate entities subject to Minnesota corporate franchise tax that have DTC pharmaceutical marketing deductions on federal returns.
  • Pharmaceutical manufacturers that incur and claim DTC marketing deductions on their federal tax returns, as those deductions would be added back for Minnesota tax purposes.

Procedural and timeline aspects

  • Effective for taxable years beginning after December 31, 2026.
  • Applies as an addition to Minnesota adjusted gross income (for individuals) and to Minnesota corporate taxable income (for corporations) for the amount of DTC marketing deductions allowed under § 162 of the Internal Revenue Code.
  • Requires taxpayers and preparers to identify DTC marketing deductions on federal returns and adjust Minnesota tax filings accordingly starting in 2027 tax year onward.

Practical considerations

  • Potential impact on state revenue due to increased taxable income for taxpayers with DTC marketing deductions.
  • Administrative effort for Minnesota Department of Revenue to enforce the add-back and verify DTC marketing deductions align with the federal definition.
  • Stakeholders likely include pharmaceutical manufacturers, marketing firms, health policy groups, and taxpayers with DTC marketing expenses.

Compiled from official sources — confirm details with the bill’s official record.

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