HF 10

as introduced - 87th Legislature (2011 - 2012) Posted on 01/10/2011 10:33am

A bill for an act
relating to taxation; allowing a subtraction for certain income; reducing corporate
franchise tax rates; allowing sales tax exemption for capital equipment at time
of purchase; amending Minnesota Statutes 2010, sections 290.01, subdivision
19b; 290.06, subdivision 1; 290.0921, subdivision 1; 297A.68, subdivision 5;
297A.75, subdivisions 1, 2.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:

Section 1.

Minnesota Statutes 2010, section 290.01, subdivision 19b, is amended to
read:

Subd. 19b.

Subtractions from federal taxable income.

For individuals, estates,
and trusts, there shall be subtracted from federal taxable income:

(1) net interest income on obligations of any authority, commission, or
instrumentality of the United States to the extent includable in taxable income for federal
income tax purposes but exempt from state income tax under the laws of the United States;

(2) if included in federal taxable income, the amount of any overpayment of income
tax to Minnesota or to any other state, for any previous taxable year, whether the amount
is received as a refund or as a credit to another taxable year's income tax liability;

(3) the amount paid to others, less the amount used to claim the credit allowed under
section 290.0674, not to exceed $1,625 for each qualifying child in grades kindergarten
to 6 and $2,500 for each qualifying child in grades 7 to 12, for tuition, textbooks, and
transportation of each qualifying child in attending an elementary or secondary school
situated in Minnesota, North Dakota, South Dakota, Iowa, or Wisconsin, wherein a
resident of this state may legally fulfill the state's compulsory attendance laws, which
is not operated for profit, and which adheres to the provisions of the Civil Rights Act
of 1964 and chapter 363A. For the purposes of this clause, "tuition" includes fees or
tuition as defined in section 290.0674, subdivision 1, clause (1). As used in this clause,
"textbooks" includes books and other instructional materials and equipment purchased
or leased for use in elementary and secondary schools in teaching only those subjects
legally and commonly taught in public elementary and secondary schools in this state.
Equipment expenses qualifying for deduction includes expenses as defined and limited in
section 290.0674, subdivision 1, clause (3). "Textbooks" does not include instructional
books and materials used in the teaching of religious tenets, doctrines, or worship, the
purpose of which is to instill such tenets, doctrines, or worship, nor does it include books
or materials for, or transportation to, extracurricular activities including sporting events,
musical or dramatic events, speech activities, driver's education, or similar programs. No
deduction is permitted for any expense the taxpayer incurred in using the taxpayer's or
the qualifying child's vehicle to provide such transportation for a qualifying child. For
purposes of the subtraction provided by this clause, "qualifying child" has the meaning
given in section 32(c)(3) of the Internal Revenue Code;

(4) income as provided under section 290.0802;

(5) to the extent included in federal adjusted gross income, income realized on
disposition of property exempt from tax under section 290.491;

(6) to the extent not deducted or not deductible pursuant to section 408(d)(8)(E)
of the Internal Revenue Code in determining federal taxable income by an individual
who does not itemize deductions for federal income tax purposes for the taxable year, an
amount equal to 50 percent of the excess of charitable contributions over $500 allowable
as a deduction for the taxable year under section 170(a) of the Internal Revenue Code,
under the provisions of Public Law 109-1 and Public Law 111-126;

(7) for individuals who are allowed a federal foreign tax credit for taxes that do not
qualify for a credit under section 290.06, subdivision 22, an amount equal to the carryover
of subnational foreign taxes for the taxable year, but not to exceed the total subnational
foreign taxes reported in claiming the foreign tax credit. For purposes of this clause,
"federal foreign tax credit" means the credit allowed under section 27 of the Internal
Revenue Code, and "carryover of subnational foreign taxes" equals the carryover allowed
under section 904(c) of the Internal Revenue Code minus national level foreign taxes to
the extent they exceed the federal foreign tax credit;

(8) in each of the five tax years immediately following the tax year in which an
addition is required under subdivision 19a, clause (7), or 19c, clause (15), in the case
of a shareholder of a corporation that is an S corporation, an amount equal to one-fifth
of the delayed depreciation. For purposes of this clause, "delayed depreciation" means
the amount of the addition made by the taxpayer under subdivision 19a, clause (7), or
subdivision 19c, clause (15), in the case of a shareholder of an S corporation, minus the
positive value of any net operating loss under section 172 of the Internal Revenue Code
generated for the tax year of the addition. The resulting delayed depreciation cannot be
less than zero;

(9) job opportunity building zone income as provided under section 469.316;

(10) to the extent included in federal taxable income, the amount of compensation
paid to members of the Minnesota National Guard or other reserve components of the
United States military for active service performed in Minnesota, excluding compensation
for services performed under the Active Guard Reserve (AGR) program. For purposes of
this clause, "active service" means (i) state active service as defined in section 190.05,
subdivision 5a, clause (1); (ii) federally funded state active service as defined in section
190.05, subdivision 5b; or (iii) federal active service as defined in section 190.05,
subdivision 5c, but "active service" excludes service performed in accordance with section
190.08, subdivision 3;

(11) to the extent included in federal taxable income, the amount of compensation
paid to Minnesota residents who are members of the armed forces of the United States or
United Nations for active duty performed outside Minnesota under United States Code,
title 10, section 101(d); United States Code, title 32, section 101(12); or the authority of
the United Nations;

(12) an amount, not to exceed $10,000, equal to qualified expenses related to a
qualified donor's donation, while living, of one or more of the qualified donor's organs
to another person for human organ transplantation. For purposes of this clause, "organ"
means all or part of an individual's liver, pancreas, kidney, intestine, lung, or bone marrow;
"human organ transplantation" means the medical procedure by which transfer of a human
organ is made from the body of one person to the body of another person; "qualified
expenses" means unreimbursed expenses for both the individual and the qualified donor
for (i) travel, (ii) lodging, and (iii) lost wages net of sick pay, except that such expenses
may be subtracted under this clause only once; and "qualified donor" means the individual
or the individual's dependent, as defined in section 152 of the Internal Revenue Code. An
individual may claim the subtraction in this clause for each instance of organ donation for
transplantation during the taxable year in which the qualified expenses occur;

(13) in each of the five tax years immediately following the tax year in which an
addition is required under subdivision 19a, clause (8), or 19c, clause (16), in the case of a
shareholder of a corporation that is an S corporation, an amount equal to one-fifth of the
addition made by the taxpayer under subdivision 19a, clause (8), or 19c, clause (16), in the
case of a shareholder of a corporation that is an S corporation, minus the positive value of
any net operating loss under section 172 of the Internal Revenue Code generated for the
tax year of the addition. If the net operating loss exceeds the addition for the tax year, a
subtraction is not allowed under this clause;

(14) to the extent included in federal taxable income, compensation paid to a service
member as defined in United States Code, title 10, section 101(a)(5), for military service
as defined in the Servicemembers Civil Relief Act, Public Law 108-189, section 101(2);

(15) international economic development zone income as provided under section
469.325;

(16) to the extent included in federal taxable income, the amount of national service
educational awards received from the National Service Trust under United States Code,
title 42, sections 12601 to 12604, for service in an approved Americorps National Service
program; deleted text begin and
deleted text end

(17) to the extent included in federal taxable income, discharge of indebtedness
income resulting from reacquisition of business indebtedness included in federal taxable
income under section 108(i) of the Internal Revenue Code. This subtraction applies only
to the extent that the income was included in net income in a prior year as a result of the
addition under section 290.01, subdivision 19a, clause (16) deleted text begin . deleted text end new text begin ; and
new text end

new text begin (18) an amount not less than zero and not to exceed the applicable percentage
multiplied by the distributive share of income or loss, as defined in sections 703(a) and
1366(a)(2) of the Internal Revenue Code, combined from all partnerships or S corporations
in which the taxpayer materially participates, as defined in section 469(h) of the Internal
Revenue Code, and that have employees or tangible property located in this state. As used
in this clause, the "applicable percentage" is:
new text end

new text begin (i) five percent for taxable year 2012;
new text end

new text begin (ii) ten percent for taxable year 2013;
new text end

new text begin (iii) 15 percent for taxable year 2014; and
new text end

new text begin (iv) 20 percent for taxable years beginning after December 31, 2014.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxable years beginning after
December 31, 2011.
new text end

Sec. 2.

Minnesota Statutes 2010, section 290.06, subdivision 1, is amended to read:

Subdivision 1.

Computation, corporations.

The franchise tax imposed upon
corporations shall be computed by applying to their taxable income the rate of new text begin :
new text end

new text begin (1) new text end 9.8 percent deleted text begin . deleted text end new text begin for taxable years beginning before January 1, 2012;
new text end

new text begin (2) 9.3 percent for taxable year 2012;
new text end

new text begin (3) 8.8 percent for taxable year 2013;
new text end

new text begin (4) 8.5 percent for taxable year 2014;
new text end

new text begin (5) 7.8 percent for taxable year 2015;
new text end

new text begin (6) 7.3 percent for taxable year 2016;
new text end

new text begin (7) 6.8 percent for taxable year 2017;
new text end

new text begin (8) 6.3 percent for taxable year 2018;
new text end

new text begin (9) 5.8 percent for taxable year 2019;
new text end

new text begin (10) 5.3 percent for taxable year 2020;
new text end

new text begin (11) 4.8 percent for taxable years beginning after December 31, 2020.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxable years beginning after
December 31, 2011.
new text end

Sec. 3.

Minnesota Statutes 2010, section 290.0921, subdivision 1, is amended to read:

Subdivision 1.

Tax imposed.

In addition to the taxes computed under this chapter
without regard to this section, the franchise tax imposed on corporations includes a tax
equal to the excess, if any, for the taxable year of:

(1) new text begin (i) new text end 5.8 percent of Minnesota alternative minimum taxable income new text begin for taxable
years beginning before January 1, 2012;
new text end

new text begin (ii) 5.5 percent of Minnesota alternative minimum taxable income for taxable year
2012;
new text end

new text begin (iii) 5.2 percent of Minnesota alternative minimum taxable income for taxable year
2013;
new text end

new text begin (iv) 4.9 percent of Minnesota alternative minimum taxable income for taxable year
2014;
new text end

new text begin (v) 4.6 percent of Minnesota alternative minimum taxable income for taxable year
2015;
new text end

new text begin (vi) 4.3 percent of Minnesota alternative minimum taxable income for taxable year
2016;
new text end

new text begin (vii) four percent of Minnesota alternative minimum taxable income for taxable
year 2017;
new text end

new text begin (viii) 3.7 percent of Minnesota alternative minimum taxable income for taxable
year 2018;
new text end

new text begin (ix) 3.4 percent of Minnesota alternative minimum taxable income for taxable year
2019;
new text end

new text begin (x) 3.1 percent of Minnesota alternative minimum taxable income for taxable year
2020;
new text end

new text begin (xi) 2.8 percent of Minnesota alternative minimum taxable income for taxable years
beginning after December 31, 2020 new text end ; over

(2) the tax imposed under section 290.06, subdivision 1, without regard to this
section.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxable years beginning after
December 31, 2011.
new text end

Sec. 4.

Minnesota Statutes 2010, section 297A.68, subdivision 5, is amended to read:

Subd. 5.

Capital equipment.

(a) Capital equipment is exempt. deleted text begin The tax must be
imposed and collected as if the rate under section 297A.62, subdivision 1, applied, and
then refunded in the manner provided in section 297A.75.
deleted text end

"Capital equipment" means machinery and equipment purchased or leased, and used
in this state by the purchaser or lessee primarily for manufacturing, fabricating, mining,
or refining tangible personal property to be sold ultimately at retail if the machinery and
equipment are essential to the integrated production process of manufacturing, fabricating,
mining, or refining. Capital equipment also includes machinery and equipment
used primarily to electronically transmit results retrieved by a customer of an online
computerized data retrieval system.

(b) Capital equipment includes, but is not limited to:

(1) machinery and equipment used to operate, control, or regulate the production
equipment;

(2) machinery and equipment used for research and development, design, quality
control, and testing activities;

(3) environmental control devices that are used to maintain conditions such as
temperature, humidity, light, or air pressure when those conditions are essential to and are
part of the production process;

(4) materials and supplies used to construct and install machinery or equipment;

(5) repair and replacement parts, including accessories, whether purchased as spare
parts, repair parts, or as upgrades or modifications to machinery or equipment;

(6) materials used for foundations that support machinery or equipment;

(7) materials used to construct and install special purpose buildings used in the
production process;

(8) ready-mixed concrete equipment in which the ready-mixed concrete is mixed
as part of the delivery process regardless if mounted on a chassis, repair parts for
ready-mixed concrete trucks, and leases of ready-mixed concrete trucks; and

(9) machinery or equipment used for research, development, design, or production
of computer software.

(c) Capital equipment does not include the following:

(1) motor vehicles taxed under chapter 297B;

(2) machinery or equipment used to receive or store raw materials;

(3) building materials, except for materials included in paragraph (b), clauses (6)
and (7);

(4) machinery or equipment used for nonproduction purposes, including, but not
limited to, the following: plant security, fire prevention, first aid, and hospital stations;
support operations or administration; pollution control; and plant cleaning, disposal of
scrap and waste, plant communications, space heating, cooling, lighting, or safety;

(5) farm machinery and aquaculture production equipment as defined by section
297A.61, subdivisions 12 and 13;

(6) machinery or equipment purchased and installed by a contractor as part of an
improvement to real property;

(7) machinery and equipment used by restaurants in the furnishing, preparing, or
serving of prepared foods as defined in section 297A.61, subdivision 31;

(8) machinery and equipment used to furnish the services listed in section 297A.61,
subdivision 3, paragraph (g), clause (6), items (i) to (vi) and (viii);

(9) machinery or equipment used in the transportation, transmission, or distribution
of petroleum, liquefied gas, natural gas, water, or steam, in, by, or through pipes, lines,
tanks, mains, or other means of transporting those products. This clause does not apply to
machinery or equipment used to blend petroleum or biodiesel fuel as defined in section
239.77; or

(10) any other item that is not essential to the integrated process of manufacturing,
fabricating, mining, or refining.

(d) For purposes of this subdivision:

(1) "Equipment" means independent devices or tools separate from machinery but
essential to an integrated production process, including computers and computer software,
used in operating, controlling, or regulating machinery and equipment; and any subunit or
assembly comprising a component of any machinery or accessory or attachment parts of
machinery, such as tools, dies, jigs, patterns, and molds.

(2) "Fabricating" means to make, build, create, produce, or assemble components or
property to work in a new or different manner.

(3) "Integrated production process" means a process or series of operations through
which tangible personal property is manufactured, fabricated, mined, or refined. For
purposes of this clause, (i) manufacturing begins with the removal of raw materials
from inventory and ends when the last process prior to loading for shipment has been
completed; (ii) fabricating begins with the removal from storage or inventory of the
property to be assembled, processed, altered, or modified and ends with the creation
or production of the new or changed product; (iii) mining begins with the removal of
overburden from the site of the ores, minerals, stone, peat deposit, or surface materials and
ends when the last process before stockpiling is completed; and (iv) refining begins with
the removal from inventory or storage of a natural resource and ends with the conversion
of the item to its completed form.

(4) "Machinery" means mechanical, electronic, or electrical devices, including
computers and computer software, that are purchased or constructed to be used for the
activities set forth in paragraph (a), beginning with the removal of raw materials from
inventory through completion of the product, including packaging of the product.

(5) "Machinery and equipment used for pollution control" means machinery and
equipment used solely to eliminate, prevent, or reduce pollution resulting from an activity
described in paragraph (a).

(6) "Manufacturing" means an operation or series of operations where raw materials
are changed in form, composition, or condition by machinery and equipment and which
results in the production of a new article of tangible personal property. For purposes of
this subdivision, "manufacturing" includes the generation of electricity or steam to be
sold at retail.

(7) "Mining" means the extraction of minerals, ores, stone, or peat.

(8) "Online data retrieval system" means a system whose cumulation of information
is equally available and accessible to all its customers.

(9) "Primarily" means machinery and equipment used 50 percent or more of the time
in an activity described in paragraph (a).

(10) "Refining" means the process of converting a natural resource to an intermediate
or finished product, including the treatment of water to be sold at retail.

(11) This subdivision does not apply to telecommunications equipment as
provided in subdivision 35, and does not apply to wire, cable, fiber, poles, or conduit
for telecommunications services.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for sales and purchases made after
June 30, 2011.
new text end

Sec. 5.

Minnesota Statutes 2010, section 297A.75, subdivision 1, is amended to read:

Subdivision 1.

Tax collected.

The tax on the gross receipts from the sale of the
following exempt items must be imposed and collected as if the sale were taxable and the
rate under section 297A.62, subdivision 1, applied. The exempt items include:

deleted text begin (1) capital equipment exempt under section 297A.68, subdivision 5;
deleted text end

deleted text begin (2) deleted text end new text begin (1) new text end building materials for an agricultural processing facility exempt under section
297A.71, subdivision 13;

deleted text begin (3) deleted text end new text begin (2) new text end building materials for mineral production facilities exempt under section
297A.71, subdivision 14;

deleted text begin (4) deleted text end new text begin (3) new text end building materials for correctional facilities under section 297A.71,
subdivision 3;

deleted text begin (5) deleted text end new text begin (4) new text end building materials used in a residence for disabled veterans exempt under
section 297A.71, subdivision 11;

deleted text begin (6) deleted text end new text begin (5) new text end elevators and building materials exempt under section 297A.71, subdivision
12; new text begin or
new text end

deleted text begin (7) deleted text end new text begin (6) new text end building materials for the Long Lake Conservation Center exempt under
section 297A.71, subdivision 17;

deleted text begin (8) deleted text end new text begin (7) new text end materials and supplies for qualified low-income housing under section
297A.71, subdivision 23;

deleted text begin (9) deleted text end new text begin (8) new text end materials, supplies, and equipment for municipal electric utility facilities
under section 297A.71, subdivision 35;

deleted text begin (10) deleted text end new text begin (9) new text end equipment and materials used for the generation, transmission, and
distribution of electrical energy and an aerial camera package exempt under section
297A.68, subdivision 37;

deleted text begin (11) deleted text end new text begin (10) new text end tangible personal property and taxable services and construction materials,
supplies, and equipment exempt under section 297A.68, subdivision 41;

deleted text begin (12) deleted text end new text begin (11) new text end commuter rail vehicle and repair parts under section 297A.70, subdivision
3, clause (11);

deleted text begin (13) deleted text end new text begin (12) new text end materials, supplies, and equipment for construction or improvement of
projects and facilities under section 297A.71, subdivision 40;

deleted text begin (14) deleted text end new text begin (13) new text end materials, supplies, and equipment for construction or improvement of a
meat processing facility exempt under section 297A.71, subdivision 41; and

deleted text begin (15) deleted text end new text begin (14) new text end materials, supplies, and equipment for construction, improvement, or
expansion of an aerospace defense manufacturing facility exempt under section 297A.71,
subdivision 42.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for sales and purchases made after
June 30, 2011.
new text end

Sec. 6.

Minnesota Statutes 2010, section 297A.75, subdivision 2, is amended to read:

Subd. 2.

Refund; eligible persons.

Upon application on forms prescribed by the
commissioner, a refund equal to the tax paid on the gross receipts of the exempt items
must be paid to the applicant. Only the following persons may apply for the refund:

(1) for subdivision 1, clauses (1) deleted text begin to (3) deleted text end new text begin and (2) new text end , the applicant must be the purchaser;

(2) for subdivision 1, clauses deleted text begin (4) deleted text end new text begin (3) new text end and deleted text begin (7) deleted text end new text begin (6) new text end , the applicant must be the
governmental subdivision;

(3) for subdivision 1, clause deleted text begin (5) deleted text end new text begin (4) new text end , the applicant must be the recipient of the
benefits provided in United States Code, title 38, chapter 21;

(4) for subdivision 1, clause deleted text begin (6) deleted text end new text begin (5) new text end , the applicant must be the owner of the
homestead property;

(5) for subdivision 1, clause deleted text begin (8) deleted text end new text begin (7) new text end , the owner of the qualified low-income housing
project;

(6) for subdivision 1, clause deleted text begin (9) deleted text end new text begin (8) new text end , the applicant must be a municipal electric utility
or a joint venture of municipal electric utilities;

(7) for subdivision 1, clauses deleted text begin (10), (11), (14), and (15) deleted text end new text begin (9), (10), (13), and (14) new text end ,
the owner of the qualifying business; and

(8) for subdivision 1, clauses new text begin (11) and new text end (12) deleted text begin and (13) deleted text end , the applicant must be the
governmental entity that owns or contracts for the project or facility.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for sales and purchases made after
June 30, 2011.
new text end