HF5147

Purpose

• Change Minnesota tax treatment to require adding back certain direct-to-consumer pharmaceutical marketing expenses to the Minnesota taxable income. In other words, expenses that a company would deduct on federal taxes for direct-to-consumer marketing would be treated as income for Minnesota tax purposes, increasing the tax base.

Key Definitions

• direct-to-consumer pharmaceutical marketing: Advertising or promotional activities aimed at consumers in the United States intended to promote the use, purchase, or prescription of a prescription drug or biologic. This includes TV, radio, print, digital, and social media ads, as well as patient-directed outreach and disease awareness campaigns funded by a pharmaceutical manufacturer and linked to a specific product.
• pharmaceutical marketing expenses: The set of expenses defined by the bill for direct-to-consumer marketing activities.
• pharmaceutical manufacturer: a person or entity involved in the production, preparation, propagation, compounding, or processing of prescription drugs or biologics.

Main Provisions

• Adds a new subdivision to Minnesota Statutes 2024 section 290.0131 to define “Pharmaceutical marketing expenses,” with the above terms and definitions.
• Requires that the amount deducted under Section 162 of the Internal Revenue Code for direct-to-consumer pharmaceutical marketing is an addition (i.e., added back) to Minnesota taxable income.

Tax Treatment and Changes to Law

• Resulting change: Direct-to-consumer pharmaceutical marketing expenses that people or companies deduct on federal taxes under IRC Section 162 are not deductible for Minnesota tax purposes. Instead, the amount must be added back to Minnesota taxable income.
• This affects how both individuals (if applicable) and corporations calculate Minnesota taxable income when they have DTC pharmaceutical marketing deductions claimed federally.

Significance and Implications

• Increases Minnesota's taxable income base for entities engaging in DTC marketing by eliminating the federal deduction for these expenses at the state level.
• Creates a clear, definitional framework for what counts as direct-to-consumer pharmaceutical marketing and who qualifies as a pharmaceutical manufacturer for purposes of this rule.

Relevant Terms - direct-to-consumer pharmaceutical marketing - direct-to-consumer advertising - DTC marketing - pharmaceutical marketing expenses - disease awareness campaigns - patient-directed outreach - television advertising - radio advertising - print advertising - digital advertising - social media advertising - pharmaceutical manufacturer - Minnesota Statutes 290.0131 - Section 162 of the Internal Revenue Code - addition to income - Minnesota taxable income - corporate franchise tax - individual income tax