I think I have the answer:   It is taxable income for Federal.  It is a refundable credit, even for non-residents.

Taxpayer pays federal tax and gets her capital returned.  So that is not a good tax result.

BUT, MN Dept of Revenue says that is is MN taxable income. They wrote to me:  The IRS has determined that the credit is taxable income. The Minnesota Department of Revenue will issue you a 1099-MISC in the amount of the credit and it needs to be reported on your federal 1040 as income. It is also income for Minnesota state income tax purposes and is considered Minnesota-sourced income.