HF 660

as introduced - 84th Legislature (2005 - 2006) Posted on 12/15/2009 12:00am

A bill for an act
relating to taxes; changing income, franchise,
withholding, sales and use, gross revenues, insurance,
property, and solid waste management taxes; providing
a dairy investment credit; increasing the sales factor
percentage in apportioning net income to this state;
changing property tax refund provisions; providing for
taxation of cigarettes and liquor; conforming
provisions to changes in the Internal Revenue Code;
providing for designation of an international economic
development zone; changing disposition of certain
general fund balance; requiring state contracts be
with vendors that have registered to collect use
taxes; changing provisions relating to the state
elections campaign fund; changing certain city aid
payments; authorizing tax credits for purposes of
biotechnology and health sciences industry zone;
appropriating money; amending Minnesota Statutes 2004,
sections 10A.31, subdivisions 1, 3, 4; 16C.03, by
adding a subdivision; 270A.03, subdivision 7; 272.02,
by adding a subdivision; 273.1384, subdivision 1;
289A.02, subdivision 7; 289A.20, subdivision 2;
289A.50, subdivision 1; 290.01, subdivisions 6, 6b,
19, 19a, 19b, 19c, 19d, 29, 31; 290.032, subdivisions
1, 2; 290.06, subdivision 2c, by adding subdivisions;
290.067, subdivisions 1, 2a; 290.0671, subdivision 1;
290.0672, subdivisions 1, 2; 290.0675, subdivision 1;
290.091, subdivision 2; 290.0921, subdivision 3;
290.0922, subdivisions 2, 3; 290.191, subdivisions 2,
3; 290.92, by adding a subdivision; 290A.03,
subdivisions 3, 11, 15; 295.53, subdivision 1;
297A.61, subdivisions 4, 7; 297A.67, by adding a
subdivision; 297A.68, subdivisions 2, 5, by adding a
subdivision; 297F.14, subdivision 4; 297H.13,
subdivision 2; 297I.01, by adding a subdivision;
469.335; 473.843, subdivision 2; Laws 2001, First
Special Session chapter 5, article 12, section 95;
proposing coding for new law in Minnesota Statutes,
chapters 295; 297A; 297F; 469; repealing Minnesota
Statutes 2004, sections 10A.322, subdivision 4;
16A.1522, subdivision 4; 290.06, subdivision 23.

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

ARTICLE 1

INCOME AND CORPORATE FRANCHISE TAXES

Section 1.

Minnesota Statutes 2004, section 289A.20,
subdivision 2, is amended to read:

Subd. 2.

Withholding from wages, entertainer withholding,
withholding from payments to out-of-state contractors, and
withholding by partnerships and small business corporations.

(a) A tax required to be deducted and withheld during the
quarterly period must be paid on or before the last day of the
month following the close of the quarterly period, unless an
earlier time for payment is provided. A tax required to be
deducted and withheld from compensation of an entertainer and
from a payment to an out-of-state contractor must be paid on or
before the date the return for such tax must be filed under
section 289A.18, subdivision 2. Taxes required to be deducted
and withheld by partnerships deleted text begin and deleted text end new text begin , new text end S corporations new text begin , and trusts
new text end must be paid on deleted text begin or before the date the return must be filed
under section 289A.18, subdivision 2 deleted text end new text begin a quarterly basis as
estimated taxes under section 289A.25 for partnerships and
trusts and under section 289A.26 for S corporations new text end .

(b) An employer who, during the previous quarter, withheld
more than $1,500 of tax under section 290.92, subdivision 2a or
3, or 290.923, subdivision 2, must deposit tax withheld under
those sections with the commissioner within the time allowed to
deposit the employer's federal withheld employment taxes under
Code of Federal Regulations, title 26, section 31.6302-1, as
amended through December 31, 2001, without regard to the safe
harbor or de minimis rules in subparagraph (f) or the one-day
rule in subsection (c), clause (3). Taxpayers must submit a
copy of their federal notice of deposit status to the
commissioner upon request by the commissioner.

(c) The commissioner may prescribe by rule other return
periods or deposit requirements. In prescribing the reporting
period, the commissioner may classify payors according to the
amount of their tax liability and may adopt an appropriate
reporting period for the class that the commissioner judges to
be consistent with efficient tax collection. In no event will
the duration of the reporting period be more than one year.

(d) If less than the correct amount of tax is paid to the
commissioner, proper adjustments with respect to both the tax
and the amount to be deducted must be made, without interest, in
the manner and at the times the commissioner prescribes. If the
underpayment cannot be adjusted, the amount of the underpayment
will be assessed and collected in the manner and at the times
the commissioner prescribes.

(e) If the aggregate amount of the tax withheld during a
fiscal year ending June 30 under section 290.92, subdivision 2a
or 3, is equal to or exceeds the amounts established for
remitting federal withheld taxes pursuant to the regulations
promulgated under section 6302(h) of the Internal Revenue Code,
the employer must remit each required deposit for wages paid in
the subsequent calendar year by electronic means.

(f) A third-party bulk filer as defined in section 290.92,
subdivision 30, paragraph (a), clause (2), who remits
withholding deposits must remit all deposits by electronic means
as provided in paragraph (e), regardless of the aggregate amount
of tax withheld during a fiscal year for all of the employers.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for tax years
beginning after December 31, 2005.
new text end

Sec. 2.

Minnesota Statutes 2004, section 290.01,
subdivision 6b, is amended to read:

Subd. 6b.

Foreign operating corporation.

The term
"foreign operating corporation," when applied to a corporation,
means a domestic corporation with the following characteristics:

(1) it is part of a unitary business at least one member of
which is taxable in this state;

(2) it is not a foreign sales corporation under section 922
of the Internal Revenue Code, as amended through December 31,
1999, for the taxable year; deleted text begin and
deleted text end

(3) deleted text begin either deleted text end (i) the average of the percentages of its
property and payrolls new text begin , including the pro rata share of its
unitary partnerships' property and payrolls, new text end assigned to
locations deleted text begin inside deleted text end new text begin outside new text end the United States deleted text begin and the District of
Columbia, excluding the commonwealth of Puerto Rico and
possessions of the United States deleted text end , new text begin where the United States
includes the District of Columbia and excludes the commonwealth
of Puerto Rico and possessions of the United States, new text end as
determined under section 290.191 or 290.20, is deleted text begin 20 deleted text end new text begin 80 new text end percent or
deleted text begin less deleted text end new text begin more new text end ; or (ii) it has in effect a valid election under
section 936 of the Internal Revenue Code new text begin ; and
new text end

new text begin (4) it has $1,000,000 of payroll and $2,000,000 of
property, as determined under section 290.191 or 290.20, that
are located outside the United States. If the domestic
corporation does not have payroll as determined under section
290.191 or 290.20, but it or its partnerships have paid
$1,000,000 for work, performed directly for the domestic
corporation or the partnerships, outside the United States, then
paragraph (3)(i) shall not require payrolls to be included in
the average calculation new text end .

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for tax years
beginning after December 31, 2004.
new text end

Sec. 3.

Minnesota Statutes 2002, section 290.06, is
amended by adding a subdivision to read:

new text begin Subd. 29. new text end

new text begin Dairy investment credit. new text end

new text begin (a) A dairy
investment credit is allowed against the tax due under this
chapter equal to ten percent of the amount paid or incurred by
the taxpayer, on the first $300,000 of qualifying expenditures
made in the qualifying period.
new text end

new text begin (b) "Qualifying expenditures" means for purposes of this
subdivision the amount spent for the acquisition, construction,
or improvement of buildings or facilities, or the acquisition of
equipment, for dairy animal housing, confinement, animal
feeding, milk production, and waste management, including the
following, if related to dairy animals:
new text end

new text begin (1) freestall barns;
new text end

new text begin (2) fences;
new text end

new text begin (3) watering facilities;
new text end

new text begin (4) feed storage and handling equipment;
new text end

new text begin (5) milking parlors;
new text end

new text begin (6) robotic equipment;
new text end

new text begin (7) scales;
new text end

new text begin (8) milk storage and cooling facilities;
new text end

new text begin (9) bulk tanks;
new text end

new text begin (10) manure pumping and storage facilities;
new text end

new text begin (11) digesters; and
new text end

new text begin (12) equipment used to produce energy.
new text end

new text begin Qualified expenditures only include amounts that are capitalized
and deducted under either section 167 or 179 of the Internal
Revenue Code in computing federal taxable income.
new text end

new text begin (c) The credit is limited to the liability for tax, as
computed under this chapter for the taxable year. If the amount
of the credit determined under this section for any taxable year
exceeds this limitation, the excess is a dairy investment credit
carryover to each of the 15 succeeding taxable years. The
entire amount of the excess unused credit for the taxable year
is carried first to the earliest of the taxable years to which
the credit may be carried and then to each successive year to
which the credit may be carried. The amount of the unused
credit which may be added under this paragraph shall not exceed
the taxpayer's liability for tax less the dairy investment
credit for the taxable year.
new text end

new text begin (d) The qualifying period is that time after December 31,
2005, and before January 1, 2012.
new text end

new text begin (e) The $30,000 maximum credit applies at the entity level
for partnerships, S corporations, trusts, and estates as well as
at the individual level. In the case of married individuals,
the credit is limited to $30,000 for a married couple.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for tax years
beginning after December 31, 2005.
new text end

Sec. 4.

Minnesota Statutes 2004, section 290.0672,
subdivision 1, is amended to read:

Subdivision 1.

Definitions.

(a) For purposes of this
section, the following terms have the meanings given.

(b) "Long-term care insurance" means a policy that:

(1) qualifies for a deduction under section 213 of the
Internal Revenue Code, disregarding the 7.5 percent income test;
or meets the requirements given in section 62A.46; or provides
similar coverage issued under the laws of another jurisdiction;
and

(2) has a lifetime long-term care benefit limit of not less
than $100,000; and

(3) has been offered in compliance with the inflation
protection requirements of section 62S.23.

(c) "Qualified beneficiary" means the taxpayer or the
taxpayer's spouse.

deleted text begin (d) "Premiums deducted in determining federal taxable
income" means the lesser of (1) long-term care insurance
premiums that qualify as deductions under section 213 of the
Internal Revenue Code; and (2) the total amount deductible for
medical care under section 213 of the Internal Revenue Code.
deleted text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for tax years
beginning after December 31, 2004.
new text end

Sec. 5.

Minnesota Statutes 2004, section 290.0672,
subdivision 2, is amended to read:

Subd. 2.

Credit.

A taxpayer is allowed a credit against
the tax imposed by this chapter for long-term care insurance
policy premiums paid during the tax year. The credit for each
policy equals 25 percent of premiums paid deleted text begin to the extent not
deducted in determining federal taxable income deleted text end . A taxpayer may
claim a credit for only one policy for each qualified
beneficiary. A maximum of $100 applies to each qualified
beneficiary. The maximum total credit allowed per year is $200
for married couples filing joint returns and $100 for all other
filers. For a nonresident or part-year resident, the credit
determined under this section must be allocated based on the
percentage calculated under section 290.06, subdivision 2c,
paragraph (e).

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for tax years
beginning after December 31, 2004.
new text end

Sec. 6.

Minnesota Statutes 2004, section 290.191,
subdivision 2, is amended to read:

Subd. 2.

Apportionment formula of general application.

new text begin (a) new text end Except for those trades or businesses required to use a
different formula under subdivision 3 or section 290.36, and for
those trades or businesses that receive permission to use some
other method under section 290.20 or under subdivision 4, a
trade or business required to apportion its net income must
apportion its income to this state on the basis of the
percentage obtained by taking the sum of:

(1) deleted text begin 75 deleted text end new text begin the new text end percent new text begin for the sales factor under paragraph (b)
new text end of the percentage which the sales made within this state in
connection with the trade or business during the tax period are
of the total sales wherever made in connection with the trade or
business during the tax period;

(2) deleted text begin 12.5 deleted text end new text begin the new text end percent new text begin for the property factor under
paragraph (b) new text end of the percentage which the total tangible
property used by the taxpayer in this state in connection with
the trade or business during the tax period is of the total
tangible property, wherever located, used by the taxpayer in
connection with the trade or business during the tax period; and

(3) deleted text begin 12.5 deleted text end new text begin the new text end percent new text begin for the payroll factor under paragraph
(b) new text end of the percentage which the taxpayer's total payrolls paid
or incurred in this state or paid in respect to labor performed
in this state in connection with the trade or business during
the tax period are of the taxpayer's total payrolls paid or
incurred in connection with the trade or business during the tax
period.

new text begin (b) For purposes of paragraph (a) and subdivision 3, the
following percentages apply for the taxable years specified:
new text end

new text begin Taxable years new text end new text begin Sales factor new text end new text begin Property new text end new text begin Payroll
beginning new text end new text begin percent new text end new text begin factor new text end new text begin factor
during calendar new text end new text begin percent new text end new text begin percent
year
2007 new text end new text begin 78 new text end new text begin 11 new text end new text begin 11
2008 new text end new text begin 81 new text end new text begin 9.5 new text end new text begin 9.5
2009 new text end new text begin 84 new text end new text begin 8 new text end new text begin 8
2010 new text end new text begin 87 new text end new text begin 6.5 new text end new text begin 6.5
2011 new text end new text begin 90 new text end new text begin 5 new text end new text begin 5
2012 new text end new text begin 93 new text end new text begin 3.5 new text end new text begin 3.5
2013 new text end new text begin 96 new text end new text begin 2 new text end new text begin 2
2014 and later new text end new text begin 100 new text end new text begin 0 new text end new text begin 0
calendar years
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for tax years
beginning after December 31, 2006.
new text end

Sec. 7.

Minnesota Statutes 2004, section 290.191,
subdivision 3, is amended to read:

Subd. 3.

Apportionment formula for financial
institutions.

Except for an investment company required to
apportion its income under section 290.36, a financial
institution that is required to apportion its net income must
apportion its net income to this state on the basis of the
percentage obtained by taking the sum of:

(1) deleted text begin 75 deleted text end new text begin the new text end percent new text begin for the sales factor under subdivision
2, paragraph (b), new text end of the percentage which the receipts from
within this state in connection with the trade or business
during the tax period are of the total receipts in connection
with the trade or business during the tax period, from wherever
derived;

(2) deleted text begin 12.5 deleted text end new text begin the new text end percent new text begin for the property factor under
subdivision 2, paragraph (b), new text end of the percentage which the sum of
the total tangible property used by the taxpayer in this state
and the intangible property owned by the taxpayer and attributed
to this state in connection with the trade or business during
the tax period is of the sum of the total tangible property,
wherever located, used by the taxpayer and the intangible
property owned by the taxpayer and attributed to all states in
connection with the trade or business during the tax period; and

(3) deleted text begin 12.5 deleted text end new text begin the new text end percent new text begin for the payroll factor under
subdivision 2, paragraph (b), new text end of the percentage which the
taxpayer's total payrolls paid or incurred in this state or paid
in respect to labor performed in this state in connection with
the trade or business during the tax period are of the
taxpayer's total payrolls paid or incurred in connection with
the trade or business during the tax period.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for tax years
beginning after December 31, 2006.
new text end

Sec. 8.

Minnesota Statutes 2004, section 290.92, is
amended by adding a subdivision to read:

new text begin Subd. 31. new text end

new text begin Payments to persons who are not employees;
withholding. new text end

new text begin Any person engaged in a trade or business who in
the course of such trade or business makes payments to an
individual, who is not an employee of the person, for work
described in industry code numbers 23 through 238990 of the
North American Industry Classification System, shall deduct from
the payment and withhold two percent of the amount as Minnesota
withholding tax when the amount paid to that individual by the
same person during the calendar year exceeds $600. For purposes
of this section, a payment to any person that is subject to
withholding under this subdivision must be treated as if the
payment was a wage paid by an employer to an employee. Every
individual who is to receive a payment that is subject to
withholding under this subdivision shall furnish the contracting
person with a statement, containing the name, address, and
Social Security account number of the person receiving the
payment.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for payments
made after July 31, 2005.
new text end

ARTICLE 2

FEDERAL UPDATE

Section 1.

Minnesota Statutes 2004, section 289A.02,
subdivision 7, is amended to read:

Subd. 7.

Internal revenue code.

Unless specifically
defined otherwise, "Internal Revenue Code" means the Internal
Revenue Code of 1986, as amended through deleted text begin June 15, 2003 deleted text end new text begin December
31, 2004 new text end .

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective the day
following final enactment.
new text end

Sec. 2.

Minnesota Statutes 2004, section 290.01,
subdivision 19, is amended to read:

Subd. 19.

Net income.

The term "net income" means the
federal taxable income, as defined in section 63 of the Internal
Revenue Code of 1986, as amended through the date named in this
subdivision, incorporating new text begin the federal effective dates of
changes to the Internal Revenue Code and new text end any elections made by
the taxpayer in accordance with the Internal Revenue Code in
determining federal taxable income for federal income tax
purposes, and with the modifications provided in subdivisions
19a to 19f.

In the case of a regulated investment company or a fund
thereof, as defined in section 851(a) or 851(g) of the Internal
Revenue Code, federal taxable income means investment company
taxable income as defined in section 852(b)(2) of the Internal
Revenue Code, except that:

(1) the exclusion of net capital gain provided in section
852(b)(2)(A) of the Internal Revenue Code does not apply;

(2) the deduction for dividends paid under section
852(b)(2)(D) of the Internal Revenue Code must be applied by
allowing a deduction for capital gain dividends and
exempt-interest dividends as defined in sections 852(b)(3)(C)
and 852(b)(5) of the Internal Revenue Code; and

(3) the deduction for dividends paid must also be applied
in the amount of any undistributed capital gains which the
regulated investment company elects to have treated as provided
in section 852(b)(3)(D) of the Internal Revenue Code.

The net income of a real estate investment trust as defined
and limited by section 856(a), (b), and (c) of the Internal
Revenue Code means the real estate investment trust taxable
income as defined in section 857(b)(2) of the Internal Revenue
Code.

The net income of a designated settlement fund as defined
in section 468B(d) of the Internal Revenue Code means the gross
income as defined in section 468B(b) of the Internal Revenue
Code.

deleted text begin The provisions of sections 1113(a), 1117, 1206(a), 1313(a),
1402(a), 1403(a), 1443, 1450, 1501(a), 1605, 1611(a), 1612,
1616, 1617, 1704(l), and 1704(m) of the Small Business Job
Protection Act, Public Law 104-188, the provisions of Public Law
104-117, the provisions of sections 313(a) and (b)(1), 602(a),
913(b), 941, 961, 971, 1001(a) and (b), 1002, 1003, 1012, 1013,
1014, 1061, 1062, 1081, 1084(b), 1086, 1087, 1111(a), 1131(b)
and (c), 1211(b), 1213, 1530(c)(2), 1601(f)(5) and (h), and
1604(d)(1) of the Taxpayer Relief Act of 1997, Public Law
105-34, the provisions of section 6010 of the Internal Revenue
Service Restructuring and Reform Act of 1998, Public Law
105-206, the provisions of section 4003 of the Omnibus
Consolidated and Emergency Supplemental Appropriations Act,
1999, Public Law 105-277, and the provisions of section 318 of
the Consolidated Appropriation Act of 2001, Public Law 106-554,
shall become effective at the time they become effective for
federal purposes.
deleted text end

The Internal Revenue Code of 1986, as amended through
December 31, deleted text begin 1996 deleted text end new text begin 2004 new text end , shall be in effect for taxable years
beginning after December 31, 1996. new text begin The provisions of Public Law
109-1, shall be effective for tax years beginning after December
31, 2003.
new text end

deleted text begin The provisions of sections 202(a) and (b), 221(a), 225,
312, 313, 913(a), 934, 962, 1004, 1005, 1052, 1063, 1084(a) and
(c), 1089, 1112, 1171, 1204, 1271(a) and (b), 1305(a), 1306,
1307, 1308, 1309, 1501(b), 1502(b), 1504(a), 1505, 1527, 1528,
1530, 1601(d), (e), (f), and (i) and 1602(a), (b), (c), and (e)
of the Taxpayer Relief Act of 1997, Public Law 105-34, the
provisions of sections 6004, 6005, 6012, 6013, 6015, 6016, 7002,
and 7003 of the Internal Revenue Service Restructuring and
Reform Act of 1998, Public Law 105-206, the provisions of
section 3001 of the Omnibus Consolidated and Emergency
Supplemental Appropriations Act, 1999, Public Law 105-277, the
provisions of section 3001 of the Miscellaneous Trade and
Technical Corrections Act of 1999, Public Law 106-36, and the
provisions of section 316 of the Consolidated Appropriation Act
of 2001, Public Law 106-554, shall become effective at the time
they become effective for federal purposes.
deleted text end

deleted text begin The Internal Revenue Code of 1986, as amended through
December 31, 1997, shall be in effect for taxable years
beginning after December 31, 1997.
deleted text end

deleted text begin The provisions of sections 5002, 6009, 6011, and 7001 of
the Internal Revenue Service Restructuring and Reform Act of
1998, Public Law 105-206, the provisions of section 9010 of the
Transportation Equity Act for the 21st Century, Public Law
105-178, the provisions of sections 1004, 4002, and 5301 of the
Omnibus Consolidation and Emergency Supplemental Appropriations
Act, 1999, Public Law 105-277, the provision of section 303 of
the Ricky Ray Hemophilia Relief Fund Act of 1998, Public Law
105-369, the provisions of sections 532, 534, 536, 537, and 538
of the Ticket to Work and Work Incentives Improvement Act of
1999, Public Law 106-170, the provisions of the Installment Tax
Correction Act of 2000, Public Law 106-573, and the provisions
of section 309 of the Consolidated Appropriation Act of 2001,
Public Law 106-554, shall become effective at the time they
become effective for federal purposes.
deleted text end

deleted text begin The Internal Revenue Code of 1986, as amended through
December 31, 1998, shall be in effect for taxable years
beginning after December 31, 1998.
deleted text end

deleted text begin The provisions of the FSC Repeal and Extraterritorial
Income Exclusion Act of 2000, Public Law 106-519, and the
provision of section 412 of the Job Creation and Worker
Assistance Act of 2002, Public Law 107-147, shall become
effective at the time it became effective for federal purposes.
deleted text end

deleted text begin The Internal Revenue Code of 1986, as amended through
December 31, 1999, shall be in effect for taxable years
beginning after December 31, 1999. The provisions of sections
306 and 401 of the Consolidated Appropriation Act of 2001,
Public Law 106-554, and the provision of section 632(b)(2)(A) of
the Economic Growth and Tax Relief Reconciliation Act of 2001,
Public Law 107-16, and provisions of sections 101 and 402 of the
Job Creation and Worker Assistance Act of 2002, Public Law
107-147, shall become effective at the same time it became
effective for federal purposes.
deleted text end

deleted text begin The Internal Revenue Code of 1986, as amended through
December 31, 2000, shall be in effect for taxable years
beginning after December 31, 2000. The provisions of sections
659a and 671 of the Economic Growth and Tax Relief
Reconciliation Act of 2001, Public Law 107-16, the provisions of
sections 104, 105, and 111 of the Victims of Terrorism Tax
Relief Act of 2001, Public Law 107-134, and the provisions of
sections 201, 403, 413, and 606 of the Job Creation and Worker
Assistance Act of 2002, Public Law 107-147, shall become
effective at the same time it became effective for federal
purposes.
deleted text end

deleted text begin The Internal Revenue Code of 1986, as amended through March
15, 2002, shall be in effect for taxable years beginning after
December 31, 2001.
deleted text end

deleted text begin The provisions of sections 101 and 102 of the Victims of
Terrorism Tax Relief Act of 2001, Public Law 107-134, shall
become effective at the same time it becomes effective for
federal purposes.
deleted text end

deleted text begin The Internal Revenue Code of 1986, as amended through June
15, 2003, shall be in effect for taxable years beginning after
December 31, 2002. The provisions of section 201 of the Jobs
and Growth Tax Relief and Reconciliation Act of 2003, H.R. 2, if
it is enacted into law, are effective at the same time it became
effective for federal purposes.
deleted text end

Except as otherwise provided, references to the Internal
Revenue Code in subdivisions deleted text begin 19a deleted text end new text begin 19 new text end to deleted text begin 19g deleted text end new text begin 19f new text end mean the code in
effect for purposes of determining net income for the applicable
year.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective the day
following final enactment.
new text end

Sec. 3.

Minnesota Statutes 2004, section 290.01,
subdivision 19a, is amended to read:

Subd. 19a.

Additions to federal taxable income.

For
individuals, estates, and trusts, there shall be added to
federal taxable income:

(1)(i) interest income on obligations of any state other
than Minnesota or a political or governmental subdivision,
municipality, or governmental agency or instrumentality of any
state other than Minnesota exempt from federal income taxes
under the Internal Revenue Code or any other federal statute;
and

(ii) exempt-interest dividends as defined in section
852(b)(5) of the Internal Revenue Code, except the portion of
the exempt-interest dividends derived from interest income on
obligations of the state of Minnesota or its political or
governmental subdivisions, municipalities, governmental agencies
or instrumentalities, but only if the portion of the
exempt-interest dividends from such Minnesota sources paid to
all shareholders represents 95 percent or more of the
exempt-interest dividends that are paid by the regulated
investment company as defined in section 851(a) of the Internal
Revenue Code, or the fund of the regulated investment company as
defined in section 851(g) of the Internal Revenue Code, making
the payment; and

(iii) for the purposes of items (i) and (ii), interest on
obligations of an Indian tribal government described in section
7871(c) of the Internal Revenue Code shall be treated as
interest income on obligations of the state in which the tribe
is located;

(2) the amount of income new text begin or sales and use new text end taxes paid or
accrued within the taxable year under this chapter and income new text begin or
sales and use new text end taxes paid to any other state or to any province
or territory of Canada, to the extent allowed as a deduction
under section 63(d) of the Internal Revenue Code, but the
addition may not be more than the amount by which the itemized
deductions as allowed under section 63(d) of the Internal
Revenue Code exceeds the amount of the standard deduction as
defined in section 63(c) of the Internal Revenue Code new text begin of 1986,
as amended through June 15, 2003 new text end . For the purpose of this
paragraph, the disallowance of itemized deductions under section
68 of the Internal Revenue Code of 1986, income new text begin or sales and use
new text end tax is the last itemized deduction disallowed;

(3) the capital gain amount of a lump sum distribution to
which the special tax under section 1122(h)(3)(B)(ii) of the Tax
Reform Act of 1986, Public Law 99-514, applies;

(4) the amount of income taxes paid or accrued within the
taxable year under this chapter and income taxes paid to any
other state or any province or territory of Canada, to the
extent allowed as a deduction in determining federal adjusted
gross income. For the purpose of this paragraph, income taxes
do not include the taxes imposed by sections 290.0922,
subdivision 1, paragraph (b), 290.9727, 290.9728, and 290.9729;

(5) the amount of expense, interest, or taxes disallowed
pursuant to section 290.10;

(6) the amount of a partner's pro rata share of net income
which does not flow through to the partner because the
partnership elected to pay the tax on the income under section
6242(a)(2) of the Internal Revenue Code; deleted text begin and
deleted text end

(7) 80 percent of the depreciation deduction allowed under
section 168(k) of the Internal Revenue Code. For purposes of
this clause, if the taxpayer has an activity that in the taxable
year generates a deduction for depreciation under section 168(k)
and the activity generates a loss for the taxable year that the
taxpayer is not allowed to claim for the taxable year, "the
depreciation allowed under section 168(k)" for the taxable year
is limited to excess of the depreciation claimed by the activity
under section 168(k) over the amount of the loss from the
activity that is not allowed in the taxable year. In succeeding
taxable years when the losses not allowed in the taxable year
are allowed, the depreciation under section 168(k) is allowed new text begin ;
new text end

new text begin (8) 80 percent of the amount by which the deduction allowed
by section 179 of the Internal Revenue Code exceeds the
deduction allowable by section 179 of the Internal Revenue Code
of 1986, as amended through December 31, 2003;
new text end

new text begin (9) to the extent deducted in computing federal taxable
income, the amount of the deduction allowable under section 199
of the Internal Revenue Code; and
new text end

new text begin (10) to the extent deducted in computing federal taxable
income, the amount by which the standard deduction allowed under
section 63(c) of the Internal Revenue Code exceeds the standard
deduction allowable under section 63(c) of the Internal Revenue
Code of 1986, as amended through December 31, 2003 new text end .

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for tax years
beginning after December 31, 2004, except the changes in clause
(2) are effective for tax years beginning after December 31,
2003.
new text end

Sec. 4.

Minnesota Statutes 2004, 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) 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. 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 included in federal taxable income,
postservice benefits for youth community service under section
124D.42 for volunteer service under United States Code, title
42, sections 12601 to 12604;

(7) to the extent not deducted 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
new text begin over $500 new text end allowable as a deduction for the taxable year under
section 170(a) of the Internal Revenue Code deleted text begin over $500 deleted text end new text begin and under
the provisions of Public Law 109-1 new text end ;

(8) for taxable years beginning before January 1, 2008, the
amount of the federal small ethanol producer credit allowed
under section 40(a)(3) of the Internal Revenue Code which is
included in gross income under section 87 of the Internal
Revenue Code;

(9) 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;

(10) in each of the five tax years immediately following
the tax year in which an addition is required under subdivision
19a, clause (7), 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), 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; deleted text begin and
deleted text end

(11) job opportunity building zone income as provided under
section 469.316 deleted text begin . deleted text end new text begin ;
new text end

new text begin (12) 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 (17), 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 (17), 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;
and
new text end

new text begin (13) 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 Service Member Civil Relief Act, Public Law
108-189, section 101(2), and compensation paid for state active
service as defined in section 190.05, subdivision 5a, clauses
(1) and (3), or federally funded state active service as defined
in section 190.05, subdivision 5b. This subtraction does not
apply to retirement income as defined in section 290.17,
subdivision 2, paragraph (a), clause (3).
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for tax years
beginning after December 31, 2004, except the change to clause
(7) is effective for tax years beginning after December 31, 2003.
new text end

Sec. 5.

Minnesota Statutes 2004, section 290.01,
subdivision 19c, is amended to read:

Subd. 19c.

Corporations; additions to federal taxable
income.

For corporations, there shall be added to federal
taxable income:

(1) the amount of any deduction taken for federal income
tax purposes for income, excise, or franchise taxes based on net
income or related minimum taxes, including but not limited to
the tax imposed under section 290.0922, paid by the corporation
to Minnesota, another state, a political subdivision of another
state, the District of Columbia, or any foreign country or
possession of the United States;

(2) interest not subject to federal tax upon obligations
of: the United States, its possessions, its agencies, or its
instrumentalities; the state of Minnesota or any other state,
any of its political or governmental subdivisions, any of its
municipalities, or any of its governmental agencies or
instrumentalities; the District of Columbia; or Indian tribal
governments;

(3) exempt-interest dividends received as defined in
section 852(b)(5) of the Internal Revenue Code;

(4) the amount of any net operating loss deduction taken
for federal income tax purposes under section 172 or 832(c)(10)
of the Internal Revenue Code or operations loss deduction under
section 810 of the Internal Revenue Code;

(5) the amount of any special deductions taken for federal
income tax purposes under sections 241 to 247 of the Internal
Revenue Code;

(6) losses from the business of mining, as defined in
section 290.05, subdivision 1, clause (a), that are not subject
to Minnesota income tax;

(7) the amount of any capital losses deducted for federal
income tax purposes under sections 1211 and 1212 of the Internal
Revenue Code;

(8) the exempt foreign trade income of a foreign sales
corporation under sections 921(a) and 291 of the Internal
Revenue Code;

(9) the amount of percentage depletion deducted under
sections 611 through 614 and 291 of the Internal Revenue Code;

(10) for certified pollution control facilities placed in
service in a taxable year beginning before December 31, 1986,
and for which amortization deductions were elected under section
169 of the Internal Revenue Code of 1954, as amended through
December 31, 1985, the amount of the amortization deduction
allowed in computing federal taxable income for those
facilities;

(11) the amount of any deemed dividend from a foreign
operating corporation determined pursuant to section 290.17,
subdivision 4, paragraph (g);

(12) the amount of any environmental tax paid under section
59(a) of the Internal Revenue Code;

(13) the amount of a partner's pro rata share of net income
which does not flow through to the partner because the
partnership elected to pay the tax on the income under section
6242(a)(2) of the Internal Revenue Code;

(14) the amount of net income excluded under section 114 of
the Internal Revenue Code;

(15) any increase in subpart F income, as defined in
section 952(a) of the Internal Revenue Code, for the taxable
year when subpart F income is calculated without regard to the
provisions of section 614 of Public Law 107-147; deleted text begin and
deleted text end

(16) 80 percent of the depreciation deduction allowed under
section 168(k) of the Internal Revenue Code. For purposes of
this clause, if the taxpayer has an activity that in the taxable
year generates a deduction for depreciation under section 168(k)
and the activity generates a loss for the taxable year that the
taxpayer is not allowed to claim for the taxable year, "the
depreciation allowed under section 168(k)" for the taxable year
is limited to excess of the depreciation claimed by the activity
under section 168(k) over the amount of the loss from the
activity that is not allowed in the taxable year. In succeeding
taxable years when the losses not allowed in the taxable year
are allowed, the depreciation under section 168(k) is allowed new text begin ;
new text end

new text begin (17) 80 percent of the amount by which the deduction
allowed by section 179 of the Internal Revenue Code exceeds the
deduction allowable by section 179 of the Internal Revenue Code
of 1986, as amended through December 31, 2003; and
new text end

new text begin (18) to the extent deducted in computing federal taxable
income, the amount of the deduction allowable under section 199
of the Internal Revenue Code new text end .

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for tax years
beginning after December 31, 2004.
new text end

Sec. 6.

Minnesota Statutes 2004, section 290.01,
subdivision 19d, is amended to read:

Subd. 19d.

Corporations; modifications decreasing federal
taxable income.

For corporations, there shall be subtracted
from federal taxable income after the increases provided in
subdivision 19c:

(1) the amount of foreign dividend gross-up added to gross
income for federal income tax purposes under section 78 of the
Internal Revenue Code;

(2) the amount of salary expense not allowed for federal
income tax purposes due to claiming the federal jobs credit
under section 51 of the Internal Revenue Code;

(3) any dividend (not including any distribution in
liquidation) paid within the taxable year by a national or state
bank to the United States, or to any instrumentality of the
United States exempt from federal income taxes, on the preferred
stock of the bank owned by the United States or the
instrumentality;

(4) amounts disallowed for intangible drilling costs due to
differences between this chapter and the Internal Revenue Code
in taxable years beginning before January 1, 1987, as follows:

(i) to the extent the disallowed costs are represented by
physical property, an amount equal to the allowance for
depreciation under Minnesota Statutes 1986, section 290.09,
subdivision 7, subject to the modifications contained in
subdivision 19e; and

(ii) to the extent the disallowed costs are not represented
by physical property, an amount equal to the allowance for cost
depletion under Minnesota Statutes 1986, section 290.09,
subdivision 8;

(5) the deduction for capital losses pursuant to sections
1211 and 1212 of the Internal Revenue Code, except that:

(i) for capital losses incurred in taxable years beginning
after December 31, 1986, capital loss carrybacks shall not be
allowed;

(ii) for capital losses incurred in taxable years beginning
after December 31, 1986, a capital loss carryover to each of the
15 taxable years succeeding the loss year shall be allowed;

(iii) for capital losses incurred in taxable years
beginning before January 1, 1987, a capital loss carryback to
each of the three taxable years preceding the loss year, subject
to the provisions of Minnesota Statutes 1986, section 290.16,
shall be allowed; and

(iv) for capital losses incurred in taxable years beginning
before January 1, 1987, a capital loss carryover to each of the
five taxable years succeeding the loss year to the extent such
loss was not used in a prior taxable year and subject to the
provisions of Minnesota Statutes 1986, section 290.16, shall be
allowed;

(6) an amount for interest and expenses relating to income
not taxable for federal income tax purposes, if (i) the income
is taxable under this chapter and (ii) the interest and expenses
were disallowed as deductions under the provisions of section
171(a)(2), 265 or 291 of the Internal Revenue Code in computing
federal taxable income;

(7) in the case of mines, oil and gas wells, other natural
deposits, and timber for which percentage depletion was
disallowed pursuant to subdivision 19c, clause (11), a
reasonable allowance for depletion based on actual cost. In the
case of leases the deduction must be apportioned between the
lessor and lessee in accordance with rules prescribed by the
commissioner. In the case of property held in trust, the
allowable deduction must be apportioned between the income
beneficiaries and the trustee in accordance with the pertinent
provisions of the trust, or if there is no provision in the
instrument, on the basis of the trust's income allocable to
each;

(8) for certified pollution control facilities placed in
service in a taxable year beginning before December 31, 1986,
and for which amortization deductions were elected under section
169 of the Internal Revenue Code of 1954, as amended through
December 31, 1985, an amount equal to the allowance for
depreciation under Minnesota Statutes 1986, section 290.09,
subdivision 7;

(9) amounts included in federal taxable income that are due
to refunds of income, excise, or franchise taxes based on net
income or related minimum taxes paid by the corporation to
Minnesota, another state, a political subdivision of another
state, the District of Columbia, or a foreign country or
possession of the United States to the extent that the taxes
were added to federal taxable income under section 290.01,
subdivision 19c, clause (1), in a prior taxable year;

(10) 80 percent of royalties, fees, or other like income
accrued or received from a foreign operating corporation or a
foreign corporation which is part of the same unitary business
as the receiving corporation;

(11) income or gains from the business of mining as defined
in section 290.05, subdivision 1, clause (a), that are not
subject to Minnesota franchise tax;

(12) the amount of handicap access expenditures in the
taxable year which are not allowed to be deducted or capitalized
under section 44(d)(7) of the Internal Revenue Code;

(13) the amount of qualified research expenses not allowed
for federal income tax purposes under section 280C(c) of the
Internal Revenue Code, but only to the extent that the amount
exceeds the amount of the credit allowed under section 290.068;

(14) the amount of salary expenses not allowed for federal
income tax purposes due to claiming the Indian employment credit
under section 45A(a) of the Internal Revenue Code;

(15) the amount of any refund of environmental taxes paid
under section 59A of the Internal Revenue Code;

(16) for taxable years beginning before January 1, 2008,
the amount of the federal small ethanol producer credit allowed
under section 40(a)(3) of the Internal Revenue Code which is
included in gross income under section 87 of the Internal
Revenue Code;

(17) for a corporation whose foreign sales corporation, as
defined in section 922 of the Internal Revenue Code, constituted
a foreign operating corporation during any taxable year ending
before January 1, 1995, and a return was filed by August 15,
1996, claiming the deduction under section 290.21, subdivision
4, for income received from the foreign operating corporation,
an amount equal to 1.23 multiplied by the amount of income
excluded under section 114 of the Internal Revenue Code,
provided the income is not income of a foreign operating
company;

(18) any decrease in subpart F income, as defined in
section 952(a) of the Internal Revenue Code, for the taxable
year when subpart F income is calculated without regard to the
provisions of section 614 of Public Law 107-147; deleted text begin and
deleted text end

(19) in each of the five tax years immediately following
the tax year in which an addition is required under subdivision
19c, clause (16), 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 19c, clause (16). The resulting
delayed depreciation cannot be less than zero new text begin ; and
new text end

new text begin (20) in each of the five tax years immediately following
the tax year in which an addition is required under subdivision
19c, clause (17), an amount equal to one-fifth of the amount of
the addition new text end .

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for tax years
beginning after December 31, 2004.
new text end

Sec. 7.

Minnesota Statutes 2004, section 290.01,
subdivision 31, is amended to read:

Subd. 31.

Internal revenue code.

Unless specifically
defined otherwise, "Internal Revenue Code" means the Internal
Revenue Code of 1986, as amended through deleted text begin June 15, 2003 deleted text end new text begin December
31, 2004 new text end .

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective the day
following final enactment except the changes incorporated by
federal changes are effective at the same times as the changes
were effective for federal purposes.
new text end

Sec. 8.

Minnesota Statutes 2004, section 290.032,
subdivision 1, is amended to read:

Subdivision 1.

Imposition.

There is hereby imposed as an
addition to the annual income tax for a taxable year of a
taxpayer in the classes described in section 290.03 a tax with
respect to any distribution received by such taxpayer that is
treated as a lump sum distribution under section deleted text begin 402(d) of the
Internal Revenue Code deleted text end new text begin 1401(c)(2) of the Small Business Job
Protection Act, Public Law 104-188 new text end and that is subject to tax
for such taxable year under section deleted text begin 402(d) of the Internal
Revenue Code deleted text end new text begin 1401(c)(2) of the Small Business Job Protection
Act, Public Law 104-188 new text end .

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for tax years
beginning after December 31, 1999.
new text end

Sec. 9.

Minnesota Statutes 2004, section 290.032,
subdivision 2, is amended to read:

Subd. 2.

Computation.

The amount of tax imposed by
subdivision 1 shall be computed in the same way as the tax
imposed under section 402(d) of the Internal Revenue Code new text begin of
1986, as amended through December 31, 1995 new text end , except that the
initial separate tax shall be an amount equal to five times the
tax which would be imposed by section 290.06, subdivision 2c, if
the recipient was an unmarried individual, and the taxable net
income was an amount equal to one-fifth of the excess of

(i) the total taxable amount of the lump sum distribution
for the year, over

(ii) the minimum distribution allowance, and except that
references in section 402(d) of the Internal Revenue Code new text begin of
1986, as amended through December 31, 1995, new text end to paragraph (1)(A)
thereof shall instead be references to subdivision 1, and the
excess, if any, of the subtraction base amount over federal
taxable income for a qualified individual as provided under
section 290.0802, subdivision 2.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for tax years
beginning after December 31, 1999.
new text end

Sec. 10.

Minnesota Statutes 2004, section 290.06,
subdivision 2c, is amended to read:

Subd. 2c.

Schedules of rates for individuals, estates,
and trusts.

(a) The income taxes imposed by this chapter upon
married individuals filing joint returns and surviving spouses
as defined in section 2(a) of the Internal Revenue Code must be
computed by applying to their taxable net income the following
schedule of rates:

(1) On the first $25,680, 5.35 percent;

(2) On all over $25,680, but not over $102,030, 7.05
percent;

(3) On all over $102,030, 7.85 percent.

Married individuals filing separate returns, estates, and
trusts must compute their income tax by applying the above rates
to their taxable income, except that the income brackets will be
one-half of the above amounts.

(b) The income taxes imposed by this chapter upon unmarried
individuals must be computed by applying to taxable net income
the following schedule of rates:

(1) On the first $17,570, 5.35 percent;

(2) On all over $17,570, but not over $57,710, 7.05
percent;

(3) On all over $57,710, 7.85 percent.

(c) The income taxes imposed by this chapter upon unmarried
individuals qualifying as a head of household as defined in
section 2(b) of the Internal Revenue Code must be computed by
applying to taxable net income the following schedule of rates:

(1) On the first $21,630, 5.35 percent;

(2) On all over $21,630, but not over $86,910, 7.05
percent;

(3) On all over $86,910, 7.85 percent.

(d) In lieu of a tax computed according to the rates set
forth in this subdivision, the tax of any individual taxpayer
whose taxable net income for the taxable year is less than an
amount determined by the commissioner must be computed in
accordance with tables prepared and issued by the commissioner
of revenue based on income brackets of not more than $100. The
amount of tax for each bracket shall be computed at the rates
set forth in this subdivision, provided that the commissioner
may disregard a fractional part of a dollar unless it amounts to
50 cents or more, in which case it may be increased to $1.

(e) An individual who is not a Minnesota resident for the
entire year must compute the individual's Minnesota income tax
as provided in this subdivision. After the application of the
nonrefundable credits provided in this chapter, the tax
liability must then be multiplied by a fraction in which:

(1) the numerator is the individual's Minnesota source
federal adjusted gross income as defined in section 62 of the
Internal Revenue Code and increased by the additions required
under section 290.01, subdivision 19a, clauses (1), (5), deleted text begin and
deleted text end (6), new text begin (7), (8), and (9), new text end and reduced by the subtraction under
section 290.01, subdivision 19b, clause (11), and the Minnesota
assignable portion of the subtraction for United States
government interest under section 290.01, subdivision 19b,
clause (1), new text begin and the subtractions under clauses (10), (11), (12),
and (13), new text end after applying the allocation and assignability
provisions of section 290.081, clause (a), or 290.17; and

(2) the denominator is the individual's federal adjusted
gross income as defined in section 62 of the Internal Revenue
Code of 1986, increased by the amounts specified in section
290.01, subdivision 19a, clauses (1), (5), deleted text begin and deleted text end (6), new text begin (7), (8),
and (9), new text end and reduced by the amounts specified in section 290.01,
subdivision 19b, clauses (1) deleted text begin and deleted text end new text begin , (10), new text end (11) new text begin , (12), and (13) new text end .

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for tax years
beginning after December 31, 2004.
new text end

Sec. 11.

Minnesota Statutes 2004, section 290.067,
subdivision 2a, is amended to read:

Subd. 2a.

Income.

(a) For purposes of this section,
"income" means the sum of the following:

(1) federal adjusted gross income as defined in section 62
of the Internal Revenue Code; and

(2) the sum of the following amounts to the extent not
included in clause (1):

(i) all nontaxable income;

(ii) the amount of a passive activity loss that is not
disallowed as a result of section 469, paragraph (i) or (m) of
the Internal Revenue Code and the amount of passive activity
loss carryover allowed under section 469(b) of the Internal
Revenue Code;

(iii) an amount equal to the total of any discharge of
qualified farm indebtedness of a solvent individual excluded
from gross income under section 108(g) of the Internal Revenue
Code;

(iv) cash public assistance and relief;

(v) any pension or annuity (including railroad retirement
benefits, all payments received under the federal Social
Security Act, supplemental security income, and veterans
benefits), which was not exclusively funded by the claimant or
spouse, or which was funded exclusively by the claimant or
spouse and which funding payments were excluded from federal
adjusted gross income in the years when the payments were made;

(vi) interest received from the federal or a state
government or any instrumentality or political subdivision
thereof;

(vii) workers' compensation;

(viii) nontaxable strike benefits;

(ix) the gross amounts of payments received in the nature
of disability income or sick pay as a result of accident,
sickness, or other disability, whether funded through insurance
or otherwise;

(x) a lump sum distribution under section 402(e)(3) of the
Internal Revenue Code new text begin of 1986, as amended through December 31,
1995 new text end ;

(xi) contributions made by the claimant to an individual
retirement account, including a qualified voluntary employee
contribution; simplified employee pension plan; self-employed
retirement plan; cash or deferred arrangement plan under section
401(k) of the Internal Revenue Code; or deferred compensation
plan under section 457 of the Internal Revenue Code; deleted text begin and
deleted text end

(xii) nontaxable scholarship or fellowship grants new text begin ;
new text end

new text begin (xiii) the amount of deduction allowed under section 199 of
the Internal Revenue Code; and
new text end

new text begin (xiv) the amount of deduction allowed under section 220 or
223 of the Internal Revenue Code new text end .

In the case of an individual who files an income tax return
on a fiscal year basis, the term "federal adjusted gross income"
means federal adjusted gross income reflected in the fiscal year
ending in the next calendar year. Federal adjusted gross income
may not be reduced by the amount of a net operating loss
carryback or carryforward or a capital loss carryback or
carryforward allowed for the year.

(b) "Income" does not include:

(1) amounts excluded pursuant to the Internal Revenue Code,
sections 101(a) and 102;

(2) amounts of any pension or annuity that were exclusively
funded by the claimant or spouse if the funding payments were
not excluded from federal adjusted gross income in the years
when the payments were made;

(3) surplus food or other relief in kind supplied by a
governmental agency;

(4) relief granted under chapter 290A;

(5) child support payments received under a temporary or
final decree of dissolution or legal separation; and

(6) restitution payments received by eligible individuals
and excludable interest as defined in section 803 of the
Economic Growth and Tax Relief Reconciliation Act of 2001,
Public Law 107-16.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for tax years
beginning after December 31, 2003.
new text end

Sec. 12.

Minnesota Statutes 2004, section 290.0675,
subdivision 1, is amended to read:

Subdivision 1.

Definitions.

(a) For purposes of this
section the following terms have the meanings given.

(b) "Earned income" means the sum of the following, to the
extent included in Minnesota taxable income:

(1) earned income as defined in section 32(c)(2) of the
Internal Revenue Code;

(2) income received from a retirement pension,
profit-sharing, stock bonus, or annuity plan; and

(3) Social Security benefits as defined in section 86(d)(1)
of the Internal Revenue Code.

(c) "Taxable income" means net income as defined in section
290.01, subdivision 19.

(d) "Earned income of lesser-earning spouse" means the
earned income of the spouse with the lesser amount of earned
income as defined in paragraph (b) for the taxable year minus
the sum of (i) the amount for one exemption under section 151(d)
of the Internal Revenue Code and (ii) one-half the amount of the
standard deduction under section 63(c)(2)(A) and (4) of the
Internal Revenue Code new text begin of 1986, as amended through December 31,
2003 new text end .

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for tax years
beginning after December 31, 2004.
new text end

Sec. 13.

Minnesota Statutes 2004, section 290.091,
subdivision 2, is amended to read:

Subd. 2.

Definitions.

For purposes of the tax imposed by
this section, the following terms have the meanings given:

(a) "Alternative minimum taxable income" means the sum of
the following for the taxable year:

(1) the taxpayer's federal alternative minimum taxable
income as defined in section 55(b)(2) of the Internal Revenue
Code;

(2) the taxpayer's itemized deductions allowed in computing
federal alternative minimum taxable income, but excluding:

(i) the charitable contribution deduction under section 170
of the Internal Revenue Code to the extent that the deduction
exceeds 1.0 percent of adjusted gross income, as defined in
section 62 of the Internal Revenue Code;

(ii) the medical expense deduction;

(iii) the casualty, theft, and disaster loss deduction; and

(iv) the impairment-related work expenses of a disabled
person;

(3) for depletion allowances computed under section 613A(c)
of the Internal Revenue Code, with respect to each property (as
defined in section 614 of the Internal Revenue Code), to the
extent not included in federal alternative minimum taxable
income, the excess of the deduction for depletion allowable
under section 611 of the Internal Revenue Code for the taxable
year over the adjusted basis of the property at the end of the
taxable year (determined without regard to the depletion
deduction for the taxable year);

(4) to the extent not included in federal alternative
minimum taxable income, the amount of the tax preference for
intangible drilling cost under section 57(a)(2) of the Internal
Revenue Code determined without regard to subparagraph (E);

(5) to the extent not included in federal alternative
minimum taxable income, the amount of interest income as
provided by section 290.01, subdivision 19a, clause (1); and

(6) the amount of addition required by section 290.01,
subdivision 19a, deleted text begin clause deleted text end new text begin clauses new text end (7) new text begin , (8), and (9) new text end ;

less the sum of the amounts determined under the following:

(1) interest income as defined in section 290.01,
subdivision 19b, clause (1);

(2) an overpayment of state income tax as provided by
section 290.01, subdivision 19b, clause (2), to the extent
included in federal alternative minimum taxable income;

(3) the amount of investment interest paid or accrued
within the taxable year on indebtedness to the extent that the
amount does not exceed net investment income, as defined in
section 163(d)(4) of the Internal Revenue Code. Interest does
not include amounts deducted in computing federal adjusted gross
income; and

(4) amounts subtracted from federal taxable income as
provided by section 290.01, subdivision 19b, clauses (10) deleted text begin and deleted text end new text begin ,
new text end (11) new text begin , (12), and (13) new text end .

In the case of an estate or trust, alternative minimum
taxable income must be computed as provided in section 59(c) of
the Internal Revenue Code.

(b) "Investment interest" means investment interest as
defined in section 163(d)(3) of the Internal Revenue Code.

(c) "Tentative minimum tax" equals 6.4 percent of
alternative minimum taxable income after subtracting the
exemption amount determined under subdivision 3.

(d) "Regular tax" means the tax that would be imposed under
this chapter (without regard to this section and section
290.032), reduced by the sum of the nonrefundable credits
allowed under this chapter.

(e) "Net minimum tax" means the minimum tax imposed by this
section.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for tax years
beginning after December 31, 2004.
new text end

Sec. 14.

Minnesota Statutes 2004, section 290A.03,
subdivision 3, is amended to read:

Subd. 3.

Income.

(1) "Income" means the sum of the
following:

(a) federal adjusted gross income as defined in the
Internal Revenue Code; and

(b) the sum of the following amounts to the extent not
included in clause (a):

(i) all nontaxable income;

(ii) the amount of a passive activity loss that is not
disallowed as a result of section 469, paragraph (i) or (m) of
the Internal Revenue Code and the amount of passive activity
loss carryover allowed under section 469(b) of the Internal
Revenue Code;

(iii) an amount equal to the total of any discharge of
qualified farm indebtedness of a solvent individual excluded
from gross income under section 108(g) of the Internal Revenue
Code;

(iv) cash public assistance and relief;

(v) any pension or annuity (including railroad retirement
benefits, all payments received under the federal Social
Security Act, supplemental security income, and veterans
benefits), which was not exclusively funded by the claimant or
spouse, or which was funded exclusively by the claimant or
spouse and which funding payments were excluded from federal
adjusted gross income in the years when the payments were made;

(vi) interest received from the federal or a state
government or any instrumentality or political subdivision
thereof;

(vii) workers' compensation;

(viii) nontaxable strike benefits;

(ix) the gross amounts of payments received in the nature
of disability income or sick pay as a result of accident,
sickness, or other disability, whether funded through insurance
or otherwise;

(x) a lump sum distribution under section 402(e)(3) of the
Internal Revenue Code new text begin of 1986, as amended through December 31,
1995 new text end ;

(xi) contributions made by the claimant to an individual
retirement account, including a qualified voluntary employee
contribution; simplified employee pension plan; self-employed
retirement plan; cash or deferred arrangement plan under section
401(k) of the Internal Revenue Code; or deferred compensation
plan under section 457 of the Internal Revenue Code; deleted text begin and
deleted text end

(xii) nontaxable scholarship or fellowship grants new text begin ;
new text end

new text begin (xiii) the amount of deduction allowed under section 199 of
the Internal Revenue Code; and
new text end

new text begin (xiv) the amount of deduction allowed under section 220 or
223 of the Internal Revenue Code new text end .

In the case of an individual who files an income tax return
on a fiscal year basis, the term "federal adjusted gross income"
shall mean federal adjusted gross income reflected in the fiscal
year ending in the calendar year. Federal adjusted gross income
shall not be reduced by the amount of a net operating loss
carryback or carryforward or a capital loss carryback or
carryforward allowed for the year.

(2) "Income" does not include:

(a) amounts excluded pursuant to the Internal Revenue Code,
sections 101(a) and 102;

(b) amounts of any pension or annuity which was exclusively
funded by the claimant or spouse and which funding payments were
not excluded from federal adjusted gross income in the years
when the payments were made;

(c) surplus food or other relief in kind supplied by a
governmental agency;

(d) relief granted under this chapter;

(e) child support payments received under a temporary or
final decree of dissolution or legal separation; or

(f) restitution payments received by eligible individuals
and excludable interest as defined in section 803 of the
Economic Growth and Tax Relief Reconciliation Act of 2001,
Public Law 107-16.

(3) The sum of the following amounts may be subtracted from
income:

(a) for the claimant's first dependent, the exemption
amount multiplied by 1.4;

(b) for the claimant's second dependent, the exemption
amount multiplied by 1.3;

(c) for the claimant's third dependent, the exemption
amount multiplied by 1.2;

(d) for the claimant's fourth dependent, the exemption
amount multiplied by 1.1;

(e) for the claimant's fifth dependent, the exemption
amount; and

(f) if the claimant or claimant's spouse was disabled or
attained the age of 65 on or before December 31 of the year for
which the taxes were levied or rent paid, the exemption amount.

For purposes of this subdivision, the "exemption amount"
means the exemption amount under section 151(d) of the Internal
Revenue Code for the taxable year for which the income is
reported.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for property
tax refunds based on household income for 2004 and thereafter.
new text end

Sec. 15.

Minnesota Statutes 2004, section 290A.03,
subdivision 15, is amended to read:

Subd. 15.

Internal revenue code.

"Internal Revenue Code"
means the Internal Revenue Code of 1986, as amended through deleted text begin June
15, 2003 deleted text end new text begin December 31, 2004 new text end .

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for property
tax refunds based on property taxes payable on or after December
31, 2004, and rent paid on or after December 31, 2003.
new text end

ARTICLE 3

SALES, USE, AND SPECIAL TAXES

Section 1.

Minnesota Statutes 2004, section 16C.03, is
amended by adding a subdivision to read:

new text begin Subd. 18. new text end

new text begin Contracts with foreign vendors. new text end

new text begin (a) The
commissioner and other agencies to which this section applies
and the legislative branch of government shall, subject to
paragraph (d), cancel a contract for goods or services from a
vendor or an affiliate of a vendor or suspend or debar a vendor
or an affiliate of a vendor from future contracts upon
notification from the commissioner of revenue that the vendor or
an affiliate of the vendor has not registered to collect the
sales and use tax imposed under chapter 297A on its sales in
Minnesota or to a destination in Minnesota. This subdivision
shall not apply to state colleges and universities, the courts,
and any agency in the judicial branch of government. For
purposes of this subdivision, the term "affiliate" means any
person or entity that is controlled by, or is under common
control of, a vendor through stock ownership or other
affiliation.
new text end

new text begin (b) Beginning January 1, 2006, each vendor or affiliate of
a vendor selling goods or services, subject to tax under chapter
297A, to an agency or the legislature must provide its Minnesota
sales and use tax business identification number, upon request,
to show that the vendor is registered to collect Minnesota sales
or use tax.
new text end

new text begin (c) The commissioner of revenue shall periodically provide
to the commissioner and the legislative branch a list of vendors
who have not registered to collect Minnesota sales and use tax
and who are subject to being suspended or debarred as vendors or
having their contracts canceled.
new text end

new text begin (d) The provisions of this subdivision may be waived by the
commissioner or the legislative branch when the vendor is the
single source of such goods or services, in the event of an
emergency, or when it is in the best interests of the state as
determined by the commissioner in consultation with the
commissioner of revenue. Such consultation is not a disclosure
violation under chapter 270B.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for all
contracts entered into after December 31, 2005.
new text end

Sec. 2.

Minnesota Statutes 2004, section 295.53,
subdivision 1, is amended to read:

Subdivision 1.

Exemptions.

(a) The following payments
are excluded from the gross revenues subject to the hospital,
surgical center, or health care provider taxes under sections
295.50 to 295.59:

(1) payments received for services provided under the
Medicare program, including payments received from the
government, and organizations governed by sections 1833 and 1876
of title XVIII of the federal Social Security Act, United States
Code, title 42, section 1395, and enrollee deductibles,
coinsurance, and co-payments, whether paid by the Medicare
enrollee or by a Medicare supplemental coverage as defined in
section 62A.011, subdivision 3, clause (10), or by Medicaid
payments under title XIX of the federal Social Security Act.
Payments for services not covered by Medicare are taxable;

(2) payments received for home health care services;

(3) payments received from hospitals or surgical centers
for goods and services on which liability for tax is imposed
under section 295.52 or the source of funds for the payment is
exempt under clause (1), (7), (10), or (14);

(4) payments received from health care providers for goods
and services on which liability for tax is imposed under this
chapter or the source of funds for the payment is exempt under
clause (1), (7), (10), or (14);

(5) amounts paid for legend drugs, other than nutritional
products, to a wholesale drug distributor who is subject to tax
under section 295.52, subdivision 3, reduced by reimbursements
received for legend drugs otherwise exempt under this chapter;

(6) payments received by a health care provider or the
wholly owned subsidiary of a health care provider for care
provided outside Minnesota;

(7) payments received from the chemical dependency fund
under chapter 254B;

(8) payments received in the nature of charitable donations
that are not designated for providing patient services to a
specific individual or group;

(9) payments received for providing patient services
incurred through a formal program of health care research
conducted in conformity with federal regulations governing
research on human subjects. Payments received from patients or
from other persons paying on behalf of the patients are subject
to tax;

(10) payments received from any governmental agency for
services benefiting the public, not including payments made by
the government in its capacity as an employer or insurer or
payments made by the government for services provided under
general assistance medical care, the MinnesotaCare program, or
the medical assistance program governed by title XIX of the
federal Social Security Act, United States Code, title 42,
sections 1396 to 1396v;

(11) government payments received by the commissioner of
human services for state-operated services;

(12) payments received by a health care provider for
hearing aids and related equipment or prescription eyewear
delivered outside of Minnesota;

(13) payments received by an educational institution from
student tuition, student activity fees, health care service
fees, government appropriations, donations, or grants, and for
services identified in and provided under an individualized
education plan as defined in section 256B.0625 or Code of
Federal Regulations, chapter 34, section 300.340(a). Fee for
service payments and payments for extended coverage are taxable;
deleted text begin and
deleted text end

(14) payments received under the federal Employees Health
Benefits Act, United States Code, title 5, section 8909(f), as
amended by the Omnibus Reconciliation Act of 1990 new text begin ; and
new text end

new text begin (15) payments received under the federal Tricare program,
Code of Federal Regulations, title 32, section 199.17(a)(7).
Enrollee deductibles, coinsurance, and co-payments are subject
to tax new text end .

(b) Payments received by wholesale drug distributors for
legend drugs sold directly to veterinarians or veterinary bulk
purchasing organizations are excluded from the gross revenues
subject to the wholesale drug distributor tax under sections
295.50 to 295.59.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for gross
revenues received under the federal Tricare program after
December 31, 2004.
new text end

Sec. 3.

new text begin [295.75] LIQUOR GROSS RECEIPTS TAX.
new text end

new text begin Subdivision 1. new text end

new text begin Definitions. new text end

new text begin (a) For purposes of this
section, the following terms have the meanings given.
new text end

new text begin (b) "Commissioner" means the commissioner of revenue.
new text end

new text begin (c) "Gross receipts" means the total amount received, in
money or by barter or exchange, for all liquor sales at retail
as measured by the sales price, but does not include any taxes
imposed directly on the consumer that are separately stated on
the invoice, bill of sale, or similar document given to the
purchaser.
new text end

new text begin (d) "Liquor" means:
new text end

new text begin (1) intoxicating liquor, as defined in section 340A.101,
subdivision 14;
new text end

new text begin (2) beverage containing intoxicating liquor; and
new text end

new text begin (3) 3.2 percent malt liquor, as defined in section
340A.101, subdivision 19, when sold at an on-sale or off-sale
municipal liquor store or other establishment licensed to sell
any type of intoxicating liquor.
new text end

new text begin (e) "Liquor retailer" means a retailer that sells liquor.
new text end

new text begin (f) "Retail sale" has the meaning given in section 297A.61,
subdivision 4.
new text end

new text begin Subd. 2. new text end

new text begin Gross receipts tax imposed. new text end

new text begin A tax is imposed on
each liquor retailer equal to 2.5 percent of gross receipts from
retail sales in Minnesota of liquor.
new text end

new text begin Subd. 3. new text end

new text begin Use tax imposed; credit for taxes paid. new text end

new text begin (a) A
person that receives liquor for use or storage in Minnesota,
other than from a liquor retailer that paid the tax under
subdivision 2, is subject to tax at the rate imposed under
subdivision 2. Liability for the tax is incurred when the
person has possession of the liquor in Minnesota. The tax must
be remitted to the commissioner in the same manner prescribed
for the taxes imposed under chapter 297A.
new text end

new text begin (b) A person that has paid taxes to another jurisdiction on
the same transaction and is subject to tax under this section is
entitled to a credit for the tax legally due and paid to another
jurisdiction to the extent of the lesser of (1) the tax actually
paid to the other jurisdiction, or (2) the amount of tax imposed
by Minnesota on the transaction subject to tax in the other
jurisdiction.
new text end

new text begin Subd. 4. new text end

new text begin Tax collection required. new text end

new text begin A liquor retailer with
nexus in Minnesota, who is not subject to tax under subdivision
2, is required to collect the tax imposed under subdivision 3
from the purchaser of the liquor and give the purchaser a
receipt for the tax paid. The tax collected must be remitted to
the commissioner in the same manner prescribed for the taxes
imposed under chapter 297A.
new text end

new text begin Subd. 5. new text end

new text begin Taxes paid to another jurisdiction; credit. new text end

new text begin A
liquor retailer that has paid taxes to another jurisdiction
measured by gross receipts and is subject to tax under this
section on the same gross receipts is entitled to a credit for
the tax legally due and paid to another jurisdiction to the
extent of the lesser of (1) the tax actually paid to the other
jurisdiction, or (2) the amount of tax imposed by Minnesota on
the gross receipts subject to tax in the other taxing
jurisdictions.
new text end

new text begin Subd. 6. new text end

new text begin Exemptions. new text end

new text begin All of the exemptions applicable to
the taxes imposed under chapter 297A are applicable to the taxes
imposed under this section.
new text end

new text begin Subd. 7. new text end

new text begin Sourcing of sales. new text end

new text begin All of the provisions of
section 297A.668 apply to the taxes imposed by this section.
new text end

new text begin Subd. 8. new text end

new text begin Payment; reporting. new text end

new text begin A liquor retailer shall
report the tax on a return prescribed by the commissioner of
revenue, and shall remit the tax with the return. The return
and the tax must be filed and paid using the filing cycle and
due dates provided for taxes imposed under chapter 297A.
new text end

new text begin Subd. 9. new text end

new text begin Administration. new text end

new text begin Unless specifically provided
otherwise by this section, the audit, assessment, refund,
penalty, interest, enforcement, collection remedies, appeal, and
administrative provisions of chapters 270 and 289A that are
applicable to taxes imposed under chapter 297A apply to taxes
imposed under this section.
new text end

new text begin Subd. 10. new text end

new text begin Interest on overpayments. new text end

new text begin Interest must be
paid on an overpayment refunded or credited to the taxpayer from
the date of payment of the tax until the date the refund is paid
or credited. For purposes of this subdivision, the date of
payment is the due date of the return or the date of actual
payment of the tax, whichever is later.
new text end

new text begin Subd. 11. new text end

new text begin Deposit of revenues. new text end

new text begin The commissioner shall
deposit all revenues, including penalties and interest, derived
from the tax imposed by this section in the general fund.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for sales and
purchases occurring on or after January 1, 2006.
new text end

Sec. 4.

Minnesota Statutes 2004, section 297A.61,
subdivision 4, is amended to read:

Subd. 4.

Retail sale.

(a) A "retail sale" means any
sale, lease, or rental for any purpose other than resale,
sublease, or subrent.

(b) A sale of property used by the owner only by leasing it
to others or by holding it in an effort to lease it, and put to
no use by the owner other than resale after the lease or effort
to lease, is a sale of property for resale.

(c) A sale of master computer software that is purchased
and used to make copies for sale or lease is a sale of property
for resale.

(d) A sale of building materials, supplies, and equipment
to owners, contractors, subcontractors, or builders for the
erection of buildings or the alteration, repair, or improvement
of real property is a retail sale in whatever quantity sold,
whether the sale is for purposes of resale in the form of real
property or otherwise.

(e) A sale of carpeting, linoleum, or similar floor
covering to a person who provides for installation of the floor
covering is a retail sale and not a sale for resale since a sale
of floor covering which includes installation is a contract for
the improvement of real property.

(f) A sale of shrubbery, plants, sod, trees, and similar
items to a person who provides for installation of the items is
a retail sale and not a sale for resale since a sale of
shrubbery, plants, sod, trees, and similar items that includes
installation is a contract for the improvement of real property.

(g) A sale of tangible personal property that is awarded as
prizes is a retail sale and is not considered a sale of property
for resale.

(h) A sale of tangible personal property utilized or
employed in the furnishing or providing of services under
subdivision 3, paragraph (g), clause (1), including, but not
limited to, property given as promotional items, is a retail
sale and is not considered a sale of property for resale.

(i) A sale of tangible personal property used in conducting
lawful gambling under chapter 349 or the state lottery under
chapter 349A, including, but not limited to, property given as
promotional items, is a retail sale and is not considered a sale
of property for resale.

(j) A sale of machines, equipment, or devices that are used
to furnish, provide, or dispense goods or services, including,
but not limited to, coin-operated devices, is a retail sale and
is not considered a sale of property for resale.

(k) In the case of a lease, a retail sale occurs new text begin (1) new text end when
an obligation to make a lease payment becomes due under the
terms of the agreement or the trade practices of the lessor new text begin or
(2) in the case of a lease of a motor vehicle, as defined in
section 297B.01, subdivision 5, but excluding vehicles with a
manufacturer's gross vehicle weight rating greater than 10,000
pounds and rentals of vehicles for not more than 28 days, at the
time the lease is executed new text end .

(l) In the case of a conditional sales contract, a retail
sale occurs upon the transfer of title or possession of the
tangible personal property.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for leases
entered into after June 30, 2005.
new text end

Sec. 5.

Minnesota Statutes 2004, section 297A.61,
subdivision 7, is amended to read:

Subd. 7.

Sales price.

(a) "Sales price" means the
measure subject to sales tax, and means the total amount of
consideration, including cash, credit, personal property, and
services, for which personal property or services are sold,
leased, or rented, valued in money, whether received in money or
otherwise, without any deduction for the following:

(1) the seller's cost of the property sold;

(2) the cost of materials used, labor or service cost,
interest, losses, all costs of transportation to the seller, all
taxes imposed on the seller, and any other expenses of the
seller;

(3) charges by the seller for any services necessary to
complete the sale, other than delivery and installation charges;

(4) delivery charges;

(5) installation charges; and

(6) the value of exempt property given to the purchaser
when taxable and exempt personal property have been bundled
together and sold by the seller as a single product or piece of
merchandise.

(b) Sales price does not include:

(1) discounts, including cash, terms, or coupons, that are
not reimbursed by a third party and that are allowed by the
seller and taken by a purchaser on a sale;

(2) interest, financing, and carrying charges from credit
extended on the sale of personal property or services, if the
amount is separately stated on the invoice, bill of sale, or
similar document given to the purchaser; and

(3) any taxes legally imposed directly on the consumer that
are separately stated on the invoice, bill of sale, or similar
document given to the purchaser.

new text begin (c) In the case of a lease of a motor vehicle, as defined
in subdivision 4, paragraph (k), clause (2), that is taxable
under this chapter, "sales price" means the total amount to be
paid by the lessee under the lease agreement at the time the
lease is executed. If the total amount of the consideration for
the lease includes amounts that are not calculated at the time
the lease is executed, "sales price" includes these amounts at
the time the amounts are billed to the lessee. In the case of
an open-ended lease, "sales price" means the total amount to be
paid during the initial term of the lease, and then, for each
subsequent renewal period, the total amount to be paid during
the subsequent terms of the lease.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for leases
entered into after June 30, 2005.
new text end

Sec. 6.

Minnesota Statutes 2004, section 297A.67, is
amended by adding a subdivision to read:

new text begin Subd. 32. new text end

new text begin Cigarettes. new text end

new text begin Cigarettes upon which a tax has
been imposed under section 297F.25 are exempt.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for sales and
purchases made after July 31, 2005.
new text end

Sec. 7.

Minnesota Statutes 2004, section 297A.68,
subdivision 2, is amended to read:

Subd. 2.

Materials consumed in industrial production.

(a) Materials stored, used, or consumed in industrial production
of personal property intended to be sold ultimately at retail
are exempt, whether or not the item so used becomes an
ingredient or constituent part of the property produced.
Materials that qualify for this exemption include, but are not
limited to, the following:

(1) chemicals, including chemicals used for cleaning food
processing machinery and equipment;

(2) materials, including chemicals, fuels, and electricity
purchased by persons engaged in industrial production to treat
waste generated as a result of the production process;

(3) fuels, electricity, gas, and steam used or consumed in
the production process, except that electricity, gas, or steam
used for space heating, cooling, or lighting is exempt if (i) it
is in excess of the average climate control or lighting for the
production area, and (ii) it is necessary to produce that
particular product;

(4) petroleum products and lubricants;

(5) packaging materials, including returnable containers
used in packaging food and beverage products;

(6) accessory tools, equipment, and other items that are
separate detachable units with an ordinary useful life of less
than 12 months used in producing a direct effect upon the
product; and

(7) the following materials, tools, and equipment used in
metalcasting: crucibles, thermocouple protection sheaths and
tubes, stalk tubes, refractory materials, molten metal filters
and filter boxes, degassing lances, and base blocks.

(b) This exemption does not include:

(1) machinery, equipment, implements, tools, accessories,
appliances, contrivances and furniture and fixtures, except
those listed in paragraph (a), clause (6); and

(2) petroleum and special fuels used in producing or
generating power for propelling ready-mixed concrete trucks on
the public highways of this state.

(c) Industrial production includes, but is not limited to,
research, development, design or production of any tangible
personal property, manufacturing, processing (other than by
restaurants and consumers) of agricultural products (whether
vegetable or animal), commercial fishing, refining, smelting,
reducing, brewing, distilling, printing, mining, quarrying,
lumbering, generating electricity, the production of road
building materials, and the research, development, design, or
production of computer software. Industrial production does not
include painting, cleaning, repairing or similar processing of
property except as part of the original manufacturing process.
new text begin Industrial production does not include 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.
For purposes of this paragraph, "transportation, transmission,
or distribution" does not include blending of petroleum or
biodiesel fuel as defined in section 239.77.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for sales and
purchases made after June 30, 2005.
new text end

Sec. 8.

Minnesota Statutes 2004, section 297A.68,
subdivision 5, is amended to read:

Subd. 5.

Capital equipment.

(a) Capital equipment is
exempt. 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.

"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 to electronically transmit results retrieved by a
customer of an on-line 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 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; deleted text begin or
deleted text end

(7) new text begin 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
new text end

new text begin (8) new text end 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) "On-line 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.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for sales and
purchases made after June 30, 2005.
new text end

Sec. 9.

new text begin [297A.82] MOTOR VEHICLE LEASES.
new text end

new text begin Subdivision 1. new text end

new text begin Motor vehicle lease price; payment. new text end

new text begin (a)
In the case of a lease of a motor vehicle as provided in section
297A.61, subdivision 4, paragraph (k), clause (2), the tax is
imposed on the total amount to be paid by the lessee under the
lease agreement. The lessor shall collect the tax in full at
the time the lease is executed or, if the tax is included in the
lease and the lease is assigned, the tax is due from the
original lessor at the time the lease is assigned. The total
amount to be paid by the lessee under the lease agreement equals
the agreed-upon value of the vehicle less manufacturer's
rebates, the stated residual value of the leased vehicle, and
the total value allowed for a vehicle owned by the lessee taken
in trade by the lessor, plus the price of any taxable goods and
services included in the lease and the rent charge as provided
by Code of Federal Regulations, title 12, section 213.4,
excluding any rent charge related to the capitalization of the
tax.
new text end

new text begin (b) If the total amount paid by the lessee for use of the
leased vehicle includes amounts that are not calculated at the
time the lease is executed, the tax is imposed and must be
collected by the lessor at the time the amounts are paid by the
lessee. In the case of a lease which by its terms may be
renewed, the sales tax is due and payable on the total amount to
be paid during the initial term of the lease, and then for each
subsequent renewal period on the total amount to be paid during
the renewal period.
new text end

new text begin (c) If a lease is canceled or rescinded on or before 90
days of its execution or if a vehicle is returned to the
manufacturer under section 325F.665, the lessor may file a claim
for a refund of the total tax paid minus the amount of tax due
for the period the vehicle is used by the lessee.
new text end

new text begin Subd. 2. new text end

new text begin Lease of motor vehicles. new text end

new text begin When the lease of a
motor vehicle as defined in section 297A.61, subdivision 4,
paragraph (k), clause (2), originates in another state, the
sales tax under subdivision 1 shall be calculated by the lessor
on the total amount that is due under the lease agreement after
the vehicle is required to be registered in Minnesota. If the
total amount to be paid by the lessee under the lease agreement
has already been subjected to tax by another state, a credit for
taxes paid in the other state is allowed as provided in section
297A.80.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin Subdivision 1 of this section is
effective for leases entered into after June 30, 2005.
Subdivision 2 of this section is effective for vehicles
registering in Minnesota after June 30, 2005.
new text end

Sec. 10.

Minnesota Statutes 2004, section 297F.14,
subdivision 4, is amended to read:

Subd. 4.

Bad debt.

deleted text begin The commissioner may adopt rules
providing a refund of the tax paid under this chapter if the tax
paid qualifies as a bad debt under section 166(a) of the
Internal Revenue Code. deleted text end new text begin For any reporting period, a taxpayer may
offset against taxes payable under this chapter the amount of
taxes previously paid under this chapter that is attributable to
a bad debt. The taxes must have been included in a transaction
the consideration for which was a debt owed to the taxpayer and
which became uncollectible, but only in proportion to the
portion of debt that became uncollectible. To qualify for
offset under this subdivision, the debt must have qualified as a
bad debt under section 166(a) of the Internal Revenue Code. The
taxpayer may claim the offset within the time period prescribed
in section 297F.17, subdivision 6. If the taxpayer is no longer
liable for taxes imposed under this chapter, the commissioner
shall refund to the taxpayer the amount of the taxes
attributable to the bad debt. Any recovery of the tax claimed
as a refund or credit must be reported to the commissioner on
the tax return for the month in which the recovery is made. If
the taxpayer is no longer required to file returns under this
chapter, the taxpayer must reimburse the commissioner for tax
recovered in the month following the recovery.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for claims
filed on or after July 1, 2005.
new text end

Sec. 11.

new text begin [297F.25] CIGARETTE SALES TAX.
new text end

new text begin Subdivision 1. new text end

new text begin Imposition. new text end

new text begin A tax is imposed on
distributors on the sale of cigarettes by a cigarette
distributor to a retailer or cigarette subjobber for resale in
this state. The tax is equal to 6.5 percent of the weighted
average retail price. The weighted average retail price must be
expressed in cents per pack when rounded to the nearest
one-tenth of a cent. The weighted average retail price must be
determined annually, with new rates published by May 1, and
effective for sales on or after July 1. The weighted average
retail price must be established by surveying cigarette
retailers statewide in a manner and time determined by the
commissioner. The determination of the commissioner pursuant to
this subdivision is not a "rule" and is not subject to the
Administrative Procedure Act contained in chapter 14. As of
August 1, 2005, the tax is 21 cents per pack of 20 cigarettes.
For packs of cigarettes with other than 20 cigarettes, the tax
must be adjusted proportionally.
new text end

new text begin Subd. 2. new text end

new text begin Payment. new text end

new text begin Each taxpayer must remit payments of
the taxes to the commissioner on the same dates prescribed under
section 297F.09, subdivision 1, for cigarette tax returns,
including the accelerated remittance of the June liability.
new text end

new text begin Subd. 3. new text end

new text begin Return. new text end

new text begin A taxpayer must file a return with the
commissioner on the same dates prescribed under section 297F.09,
subdivision 1, for cigarette tax returns. Notwithstanding any
other provisions of this chapter, the tax due on the return is
based upon actual stamps purchased during the reporting period.
new text end

new text begin Subd. 4. new text end

new text begin Form of return. new text end

new text begin The return must contain the
information and be in the form prescribed by the commissioner.
new text end

new text begin Subd. 5. new text end

new text begin Tax as debt. new text end

new text begin The tax that is required to be
paid by the distributor is a debt from the retailer or cigarette
subjobber to the distributor recoverable at law in the same
manner as other debts. A cigarette retailer or subjobber must
pay the tax imposed under subdivision 1 to the distributor
before the 12th day of the month following the month in which
the cigarettes were purchased from the distributor.
new text end

new text begin Subd. 6. new text end

new text begin Sales tax stamp. new text end

new text begin Payment of the tax imposed
under section 297F.05 and by this section must be evidenced by a
dual-purpose single stamp affixed to each package.
new text end

new text begin Subd. 7. new text end

new text begin Administration. new text end

new text begin The stamping, audit,
assessment, interest, penalty, appeal, refund, and collection
provisions applicable to the taxes imposed under this chapter
apply to taxes imposed under this section.
new text end

new text begin Subd. 8. new text end

new text begin Deposit of revenues. new text end

new text begin Notwithstanding the
provisions of section 297F.10, the commissioner shall deposit
all revenues, including penalties and interest, derived from the
tax imposed by this section, in the general fund.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for all sales
made on or after August 1, 2005.
new text end

Sec. 12.

Minnesota Statutes 2004, section 297H.13,
subdivision 2, is amended to read:

Subd. 2.

Allocation of revenues.

(a) new text begin The commissioner of
revenue shall deduct from the proceeds of the taxes imposed
under this chapter an amount that equals the direct and indirect
costs of the Department of Revenue to administer this chapter.
This amount is annually appropriated to the commissioner of
revenue.
new text end

new text begin (b) new text end deleted text begin $22,000,000 deleted text end new text begin $33,760,000 new text end , or deleted text begin 50 deleted text end new text begin 70 new text end percent, whichever
is greater, of the new text begin balance of the new text end amounts remitted under this
chapter must be credited to the environmental fund established
in section 16A.531, subdivision 1.

deleted text begin (b) deleted text end new text begin (c) new text end The remainder must be deposited into the general
fund.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for amounts
remitted on or after July 1, 2005.
new text end

Sec. 13.

Minnesota Statutes 2004, section 297I.01, is
amended by adding a subdivision to read:

new text begin Subd. 6a. new text end

new text begin Direct business. new text end

new text begin (a) "Direct business" means
all insurance provided by an insurance company or its agents,
and specifically includes stop-loss insurance purchased in
connection with a self-insurance plan for employee health
benefits or for other purposes, but excludes:
new text end

new text begin (1) reinsurance in which an insurance company assumes the
liability of another insurance company; and
new text end

new text begin (2) self-insurance.
new text end

new text begin (b) For purposes of this subdivision, an insurance company
includes a nonprofit health service corporation, health
maintenance organization, and community integrated service
network.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for insurance
premiums received after December 31, 2005.
new text end

Sec. 14.

Minnesota Statutes 2004, section 473.843,
subdivision 2, is amended to read:

Subd. 2.

Disposition of proceeds.

new text begin (a) The commissioner
of revenue shall deduct from the proceeds of the fees imposed
under this section an amount that equals the direct and indirect
costs of the Department of Revenue to administer this section.
This amount is annually appropriated to the commissioner of
revenue.
new text end

new text begin (b) new text end The new text begin remainder of the new text end proceeds of the fees imposed under
this section, including interest and penalties, must be
deposited as follows:

(1) three-fourths of the proceeds must be deposited in the
environmental fund for metropolitan landfill abatement for the
purposes described in section 473.844; and

(2) one-fourth of the proceeds must be deposited in the
metropolitan landfill contingency action trust account in the
remediation fund established in sections 116.155 and 473.845.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for amounts
remitted on or after July 1, 2005.
new text end

Sec. 15.

Laws 2001, First Special Session chapter 5,
article 12, section 95, is amended to read:

Sec. 95 new text begin REPEALER.
new text end

(a) Minnesota Statutes 2000, sections 297A.61, subdivision
16; 297A.68, subdivision 21; and 297A.71, subdivisions 2 and 16,
are repealed effective for sales and purchases occurring after
June 30, 2001, except that the repeal of section 297A.61,
subdivision 16, paragraph (d), is effective for sales and
purchases occurring after July 31, 2001.

(b) Minnesota Statutes 2000, deleted text begin sections deleted text end new text begin section new text end 297A.62,
subdivision 2, a deleted text begin nd 297A.64, subdivision 1, are deleted text end new text begin is new text end repealed
effective for sales and purchases made after December 31, 2005.

(c) Minnesota Statutes 2000, section 297A.71, subdivision
15, is repealed effective for sales and purchases made after
June 30, 2002.

(d) Minnesota Statutes 2000, section 289A.60, subdivision
15, is repealed effective for liabilities after January 1, 2003.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective the day
following final enactment.
new text end

Sec. 16. new text begin FLOOR STOCKS TAX.
new text end

new text begin Subdivision 1. new text end

new text begin Cigarettes. new text end

new text begin A floor stocks cigarette
sales tax is imposed on every person engaged in the business in
this state as a distributor, retailer, subjobber, vendor,
manufacturer, or manufacturer's representative of cigarettes, on
the stamped cigarettes and unaffixed stamps in the person's
possession or under the person's control at 12:01 a.m. on August
1, 2005. The tax is imposed at the rate of 21 cents per pack of
20 cigarettes. For packs of cigarettes with other than 20
cigarettes, the tax shall be adjusted proportionally.
new text end

new text begin Each distributor, by August 10, 2005, shall file a return
with the commissioner, in the form the commissioner prescribes,
showing the stamped cigarettes and unaffixed stamps on hand at
12:01 a.m. on August 1, 2005, and the amount of tax due on the
cigarettes and unaffixed stamps. The tax imposed by this
section is due and payable by September 7, 2005, and after that
date bears interest at the rate of one percent a month.
new text end

new text begin Each retailer, subjobber, vendor, manufacturer, or
manufacturer's representative, by August 10, 2005, shall file a
return with the commissioner, in the form the commissioner
prescribes, showing the cigarettes on hand at 12:01 a.m. on
August 1, 2005, and the amount of tax due on the cigarettes.
The tax imposed by this section is due and payable by September
7, 2005, and after that date bears interest at the rate of one
percent a month.
new text end

new text begin Subd. 2. new text end

new text begin Audit and enforcement. new text end

new text begin The tax imposed by this
section is subject to the audit, assessment, penalty, and
collection provisions applicable to the taxes imposed under
Minnesota Statutes, chapter 297F. The commissioner may require
a distributor to receive and maintain copies of floor stocks tax
returns filed by all persons requesting a credit for returned
cigarettes.
new text end

new text begin Subd. 3. new text end

new text begin Deposit of proceeds. new text end

new text begin The revenue from the tax
imposed under this section shall be deposited by the
commissioner in the state treasury and credited to the general
fund.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective August 1, 2005.
new text end

ARTICLE 4

INTERNATIONAL ECONOMIC DEVELOPMENT ZONE

Section 1.

Minnesota Statutes 2004, section 272.02, is
amended by adding a subdivision to read:

new text begin Subd. 68. new text end

new text begin International economic development zone
property. new text end

new text begin (a) Improvements to real property, and personal
property, classified under section 273.13, subdivision 24, and
located within the international economic development zone
designated under section 469.322, are exempt from ad valorem
taxes levied under chapter 275, if the improvements are:
new text end

new text begin (1) part of a regional distribution center as defined in
section 469.321; or
new text end

new text begin (2) occupied by a qualified business as defined in section
469.321, that uses the improvements primarily in freight
forwarding operations.
new text end

new text begin (b) The exemption applies beginning for the first
assessment year after designation of the international economic
development zone. The exemption applies to each assessment year
that begins during the duration of the international economic
development zone. To be exempt under paragraph (a), clause (2),
the property must be occupied by July 1 of the assessment year
by a qualified business that has signed the business subsidy
agreement by July 1 of the assessment year.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective beginning for
property taxes payable in 2008.
new text end

Sec. 2.

Minnesota Statutes 2004, 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) 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. 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 included in federal taxable income,
postservice benefits for youth community service under section
124D.42 for volunteer service under United States Code, title
42, sections 12601 to 12604;

(7) to the extent not deducted 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
allowable as a deduction for the taxable year under section
170(a) of the Internal Revenue Code over $500;

(8) for taxable years beginning before January 1, 2008, the
amount of the federal small ethanol producer credit allowed
under section 40(a)(3) of the Internal Revenue Code which is
included in gross income under section 87 of the Internal
Revenue Code;

(9) 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;

(10) in each of the five tax years immediately following
the tax year in which an addition is required under subdivision
19a, clause (7), 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), 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; deleted text begin and
deleted text end

(11) job opportunity building zone income as provided under
section 469.316 new text begin ; and
new text end

new text begin (12) international economic development zone income as
provided under section 469.325 new text end .

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for tax years
beginning after December 31, 2006.
new text end

Sec. 3.

Minnesota Statutes 2004, section 290.01,
subdivision 29, is amended to read:

Subd. 29.

Taxable income.

The term "taxable income"
means:

(1) for individuals, estates, and trusts, the same as
taxable net income;

(2) for corporations, the taxable net income less

(i) the net operating loss deduction under section 290.095;

(ii) the dividends received deduction under section 290.21,
subdivision 4;

(iii) the exemption for operating in a job opportunity
building zone under section 469.317; deleted text begin and
deleted text end

(iv) the exemption for operating in a biotechnology and
health sciences industry zone under section 469.337 new text begin ; and
new text end

new text begin (v) the exemption for operating in an international
economic development zone under section 469.326 new text end .

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for tax years
beginning after December 31, 2006.
new text end

Sec. 4.

Minnesota Statutes 2004, section 290.06,
subdivision 2c, is amended to read:

Subd. 2c.

Schedules of rates for individuals, estates,
and trusts.

(a) The income taxes imposed by this chapter upon
married individuals filing joint returns and surviving spouses
as defined in section 2(a) of the Internal Revenue Code must be
computed by applying to their taxable net income the following
schedule of rates:

(1) On the first $25,680, 5.35 percent;

(2) On all over $25,680, but not over $102,030, 7.05
percent;

(3) On all over $102,030, 7.85 percent.

Married individuals filing separate returns, estates, and
trusts must compute their income tax by applying the above rates
to their taxable income, except that the income brackets will be
one-half of the above amounts.

(b) The income taxes imposed by this chapter upon unmarried
individuals must be computed by applying to taxable net income
the following schedule of rates:

(1) On the first $17,570, 5.35 percent;

(2) On all over $17,570, but not over $57,710, 7.05
percent;

(3) On all over $57,710, 7.85 percent.

(c) The income taxes imposed by this chapter upon unmarried
individuals qualifying as a head of household as defined in
section 2(b) of the Internal Revenue Code must be computed by
applying to taxable net income the following schedule of rates:

(1) On the first $21,630, 5.35 percent;

(2) On all over $21,630, but not over $86,910, 7.05
percent;

(3) On all over $86,910, 7.85 percent.

(d) In lieu of a tax computed according to the rates set
forth in this subdivision, the tax of any individual taxpayer
whose taxable net income for the taxable year is less than an
amount determined by the commissioner must be computed in
accordance with tables prepared and issued by the commissioner
of revenue based on income brackets of not more than $100. The
amount of tax for each bracket shall be computed at the rates
set forth in this subdivision, provided that the commissioner
may disregard a fractional part of a dollar unless it amounts to
50 cents or more, in which case it may be increased to $1.

(e) An individual who is not a Minnesota resident for the
entire year must compute the individual's Minnesota income tax
as provided in this subdivision. After the application of the
nonrefundable credits provided in this chapter, the tax
liability must then be multiplied by a fraction in which:

(1) the numerator is the individual's Minnesota source
federal adjusted gross income as defined in section 62 of the
Internal Revenue Code and increased by the additions required
under section 290.01, subdivision 19a, clauses (1), (5), and
(6), and reduced by the subtraction under section 290.01,
subdivision 19b, deleted text begin clause deleted text end new text begin clauses new text end (11) new text begin and (12) new text end , and the Minnesota
assignable portion of the subtraction for United States
government interest under section 290.01, subdivision 19b,
clause (1), after applying the allocation and assignability
provisions of section 290.081, clause (a), or 290.17; and

(2) the denominator is the individual's federal adjusted
gross income as defined in section 62 of the Internal Revenue
Code of 1986, increased by the amounts specified in section
290.01, subdivision 19a, clauses (1), (5), and (6), and reduced
by the amounts specified in section 290.01, subdivision 19b,
clauses (1) deleted text begin and deleted text end new text begin , new text end (11) new text begin , and (12) new text end .

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for tax years
beginning after December 31, 2006.
new text end

Sec. 5.

Minnesota Statutes 2004, section 290.06, is
amended by adding a subdivision to read:

new text begin Subd. 32. new text end

new text begin International economic development zone job
credit. new text end

new text begin A taxpayer that is a qualified business, as defined in
section 469.321, subdivision 6, is allowed a credit as
determined under section 469.327 against the tax imposed by this
chapter.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective the day
following final enactment.
new text end

Sec. 6.

Minnesota Statutes 2004, section 290.067,
subdivision 1, is amended to read:

Subdivision 1.

Amount of credit.

(a) A taxpayer may take
as a credit against the tax due from the taxpayer and a spouse,
if any, under this chapter an amount equal to the dependent care
credit for which the taxpayer is eligible pursuant to the
provisions of section 21 of the Internal Revenue Code subject to
the limitations provided in subdivision 2 except that in
determining whether the child qualified as a dependent, income
received as a Minnesota family investment program grant or
allowance to or on behalf of the child must not be taken into
account in determining whether the child received more than half
of the child's support from the taxpayer, and the provisions of
section 32(b)(1)(D) of the Internal Revenue Code do not apply.

(b) If a child who has not attained the age of six years at
the close of the taxable year is cared for at a licensed family
day care home operated by the child's parent, the taxpayer is
deemed to have paid employment-related expenses. If the child
is 16 months old or younger at the close of the taxable year,
the amount of expenses deemed to have been paid equals the
maximum limit for one qualified individual under section 21(c)
and (d) of the Internal Revenue Code. If the child is older
than 16 months of age but has not attained the age of six years
at the close of the taxable year, the amount of expenses deemed
to have been paid equals the amount the licensee would charge
for the care of a child of the same age for the same number of
hours of care.

(c) If a married couple:

(1) has a child who has not attained the age of one year at
the close of the taxable year;

(2) files a joint tax return for the taxable year; and

(3) does not participate in a dependent care assistance
program as defined in section 129 of the Internal Revenue Code,
in lieu of the actual employment related expenses paid for that
child under paragraph (a) or the deemed amount under paragraph
(b), the lesser of (i) the combined earned income of the couple
or (ii) the amount of the maximum limit for one qualified
individual under section 21(c) and (d) of the Internal Revenue
Code will be deemed to be the employment related expense paid
for that child. The earned income limitation of section 21(d)
of the Internal Revenue Code shall not apply to this deemed
amount. These deemed amounts apply regardless of whether any
employment-related expenses have been paid.

(d) If the taxpayer is not required and does not file a
federal individual income tax return for the tax year, no credit
is allowed for any amount paid to any person unless:

(1) the name, address, and taxpayer identification number
of the person are included on the return claiming the credit; or

(2) if the person is an organization described in section
501(c)(3) of the Internal Revenue Code and exempt from tax under
section 501(a) of the Internal Revenue Code, the name and
address of the person are included on the return claiming the
credit.

In the case of a failure to provide the information required
under the preceding sentence, the preceding sentence does not
apply if it is shown that the taxpayer exercised due diligence
in attempting to provide the information required.

In the case of a nonresident, part-year resident, or a
person who has earned income not subject to tax under this
chapter including earned income excluded pursuant to section
290.01, subdivision 19b, deleted text begin clause deleted text end new text begin clauses new text end (11) new text begin and (12) new text end , the
credit determined under section 21 of the Internal Revenue Code
must be allocated based on the ratio by which the earned income
of the claimant and the claimant's spouse from Minnesota sources
bears to the total earned income of the claimant and the
claimant's spouse.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for tax years
beginning after December 31, 2006.
new text end

Sec. 7.

Minnesota Statutes 2004, section 290.0671,
subdivision 1, is amended to read:

Subdivision 1.

Credit allowed.

(a) An individual is
allowed a credit against the tax imposed by this chapter equal
to a percentage of earned income. To receive a credit, a
taxpayer must be eligible for a credit under section 32 of the
Internal Revenue Code.

(b) For individuals with no qualifying children, the credit
equals 1.9125 percent of the first $4,620 of earned income. The
credit is reduced by 1.9125 percent of earned income or modified
adjusted gross income, whichever is greater, in excess of
$5,770, but in no case is the credit less than zero.

(c) For individuals with one qualifying child, the credit
equals 8.5 percent of the first $6,920 of earned income and 8.5
percent of earned income over $12,080 but less than $13,450.
The credit is reduced by 5.73 percent of earned income or
modified adjusted gross income, whichever is greater, in excess
of $15,080, but in no case is the credit less than zero.

(d) For individuals with two or more qualifying children,
the credit equals ten percent of the first $9,720 of earned
income and 20 percent of earned income over $14,860 but less
than $16,800. The credit is reduced by 10.3 percent of earned
income or modified adjusted gross income, whichever is greater,
in excess of $17,890, but in no case is the credit less than
zero.

(e) For a nonresident or part-year resident, the credit
must be allocated based on the percentage calculated under
section 290.06, subdivision 2c, paragraph (e).

(f) For a person who was a resident for the entire tax year
and has earned income not subject to tax under this chapter,
including income excluded under section 290.01, subdivision 19b,
clause (11) new text begin or (12) new text end , the credit must be allocated based on the
ratio of federal adjusted gross income reduced by the earned
income not subject to tax under this chapter over federal
adjusted gross income.

(g) For tax years beginning after December 31, 2001, and
before December 31, 2004, the $5,770 in paragraph (b), the
$15,080 in paragraph (c), and the $17,890 in paragraph (d),
after being adjusted for inflation under subdivision 7, are each
increased by $1,000 for married taxpayers filing joint returns.

(h) For tax years beginning after December 31, 2004, and
before December 31, 2007, the $5,770 in paragraph (b), the
$15,080 in paragraph (c), and the $17,890 in paragraph (d),
after being adjusted for inflation under subdivision 7, are each
increased by $2,000 for married taxpayers filing joint returns.

(i) For tax years beginning after December 31, 2007, and
before December 31, 2010, the $5,770 in paragraph (b), the
$15,080 in paragraph (c), and the $17,890 in paragraph (d),
after being adjusted for inflation under subdivision 7, are each
increased by $3,000 for married taxpayers filing joint returns.
For tax years beginning after December 31, 2008, the $3,000 is
adjusted annually for inflation under subdivision 7.

(j) The commissioner shall construct tables showing the
amount of the credit at various income levels and make them
available to taxpayers. The tables shall follow the schedule
contained in this subdivision, except that the commissioner may
graduate the transition between income brackets.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for tax years
beginning after December 31, 2006.
new text end

Sec. 8.

Minnesota Statutes 2004, section 290.091,
subdivision 2, is amended to read:

Subd. 2.

Definitions.

For purposes of the tax imposed by
this section, the following terms have the meanings given:

(a) "Alternative minimum taxable income" means the sum of
the following for the taxable year:

(1) the taxpayer's federal alternative minimum taxable
income as defined in section 55(b)(2) of the Internal Revenue
Code;

(2) the taxpayer's itemized deductions allowed in computing
federal alternative minimum taxable income, but excluding:

(i) the charitable contribution deduction under section 170
of the Internal Revenue Code to the extent that the deduction
exceeds 1.0 percent of adjusted gross income, as defined in
section 62 of the Internal Revenue Code;

(ii) the medical expense deduction;

(iii) the casualty, theft, and disaster loss deduction; and

(iv) the impairment-related work expenses of a disabled
person;

(3) for depletion allowances computed under section 613A(c)
of the Internal Revenue Code, with respect to each property (as
defined in section 614 of the Internal Revenue Code), to the
extent not included in federal alternative minimum taxable
income, the excess of the deduction for depletion allowable
under section 611 of the Internal Revenue Code for the taxable
year over the adjusted basis of the property at the end of the
taxable year (determined without regard to the depletion
deduction for the taxable year);

(4) to the extent not included in federal alternative
minimum taxable income, the amount of the tax preference for
intangible drilling cost under section 57(a)(2) of the Internal
Revenue Code determined without regard to subparagraph (E);

(5) to the extent not included in federal alternative
minimum taxable income, the amount of interest income as
provided by section 290.01, subdivision 19a, clause (1); and

(6) the amount of addition required by section 290.01,
subdivision 19a, clause (7);

less the sum of the amounts determined under the following:

(1) interest income as defined in section 290.01,
subdivision 19b, clause (1);

(2) an overpayment of state income tax as provided by
section 290.01, subdivision 19b, clause (2), to the extent
included in federal alternative minimum taxable income;

(3) the amount of investment interest paid or accrued
within the taxable year on indebtedness to the extent that the
amount does not exceed net investment income, as defined in
section 163(d)(4) of the Internal Revenue Code. Interest does
not include amounts deducted in computing federal adjusted gross
income; and

(4) amounts subtracted from federal taxable income as
provided by section 290.01, subdivision 19b, clauses (10) deleted text begin and deleted text end new text begin ,
new text end (11) new text begin , and (12) new text end .

In the case of an estate or trust, alternative minimum
taxable income must be computed as provided in section 59(c) of
the Internal Revenue Code.

(b) "Investment interest" means investment interest as
defined in section 163(d)(3) of the Internal Revenue Code.

(c) "Tentative minimum tax" equals 6.4 percent of
alternative minimum taxable income after subtracting the
exemption amount determined under subdivision 3.

(d) "Regular tax" means the tax that would be imposed under
this chapter (without regard to this section and section
290.032), reduced by the sum of the nonrefundable credits
allowed under this chapter.

(e) "Net minimum tax" means the minimum tax imposed by this
section.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for tax years
beginning after December 31, 2006.
new text end

Sec. 9.

Minnesota Statutes 2004, section 290.0921,
subdivision 3, is amended to read:

Subd. 3.

Alternative minimum taxable income.

"Alternative minimum taxable income" is Minnesota net income as
defined in section 290.01, subdivision 19, and includes the
adjustments and tax preference items in sections 56, 57, 58, and
59(d), (e), (f), and (h) of the Internal Revenue Code. If a
corporation files a separate company Minnesota tax return, the
minimum tax must be computed on a separate company basis. If a
corporation is part of a tax group filing a unitary return, the
minimum tax must be computed on a unitary basis. The following
adjustments must be made.

(1) For purposes of the depreciation adjustments under
section 56(a)(1) and 56(g)(4)(A) of the Internal Revenue Code,
the basis for depreciable property placed in service in a
taxable year beginning before January 1, 1990, is the adjusted
basis for federal income tax purposes, including any
modification made in a taxable year under section 290.01,
subdivision 19e, or Minnesota Statutes 1986, section 290.09,
subdivision 7, paragraph (c).

For taxable years beginning after December 31, 2000, the
amount of any remaining modification made under section 290.01,
subdivision 19e, or Minnesota Statutes 1986, section 290.09,
subdivision 7, paragraph (c), not previously deducted is a
depreciation allowance in the first taxable year after December
31, 2000.

(2) The portion of the depreciation deduction allowed for
federal income tax purposes under section 168(k) of the Internal
Revenue Code that is required as an addition under section
290.01, subdivision 19c, clause (16), is disallowed in
determining alternative minimum taxable income.

(3) The subtraction for depreciation allowed under section
290.01, subdivision 19d, clause (19), is allowed as a
depreciation deduction in determining alternative minimum
taxable income.

(4) The alternative tax net operating loss deduction under
sections 56(a)(4) and 56(d) of the Internal Revenue Code does
not apply.

(5) The special rule for certain dividends under section
56(g)(4)(C)(ii) of the Internal Revenue Code does not apply.

(6) The special rule for dividends from section 936
companies under section 56(g)(4)(C)(iii) does not apply.

(7) The tax preference for depletion under section 57(a)(1)
of the Internal Revenue Code does not apply.

(8) The tax preference for intangible drilling costs under
section 57(a)(2) of the Internal Revenue Code must be calculated
without regard to subparagraph (E) and the subtraction under
section 290.01, subdivision 19d, clause (4).

(9) The tax preference for tax exempt interest under
section 57(a)(5) of the Internal Revenue Code does not apply.

(10) The tax preference for charitable contributions of
appreciated property under section 57(a)(6) of the Internal
Revenue Code does not apply.

(11) For purposes of calculating the tax preference for
accelerated depreciation or amortization on certain property
placed in service before January 1, 1987, under section 57(a)(7)
of the Internal Revenue Code, the deduction allowable for the
taxable year is the deduction allowed under section 290.01,
subdivision 19e.

For taxable years beginning after December 31, 2000, the
amount of any remaining modification made under section 290.01,
subdivision 19e, not previously deducted is a depreciation or
amortization allowance in the first taxable year after December
31, 2004.

(12) For purposes of calculating the adjustment for
adjusted current earnings in section 56(g) of the Internal
Revenue Code, the term "alternative minimum taxable income" as
it is used in section 56(g) of the Internal Revenue Code, means
alternative minimum taxable income as defined in this
subdivision, determined without regard to the adjustment for
adjusted current earnings in section 56(g) of the Internal
Revenue Code.

(13) For purposes of determining the amount of adjusted
current earnings under section 56(g)(3) of the Internal Revenue
Code, no adjustment shall be made under section 56(g)(4) of the
Internal Revenue Code with respect to (i) the amount of foreign
dividend gross-up subtracted as provided in section 290.01,
subdivision 19d, clause (1), (ii) the amount of refunds of
income, excise, or franchise taxes subtracted as provided in
section 290.01, subdivision 19d, clause (10), or (iii) the
amount of royalties, fees or other like income subtracted as
provided in section 290.01, subdivision 19d, clause (11).

(14) Alternative minimum taxable income excludes the income
from operating in a job opportunity building zone as provided
under section 469.317.

(15) Alternative minimum taxable income excludes the income
from operating in a biotechnology and health sciences industry
zone as provided under section 469.337.

new text begin (16) Alternative minimum taxable income excludes the income
from operating in an international economic development zone as
provided under section 469.326.
new text end

Items of tax preference must not be reduced below zero as a
result of the modifications in this subdivision.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for tax years
beginning after December 31, 2006.
new text end

Sec. 10.

Minnesota Statutes 2004, section 290.0922,
subdivision 2, is amended to read:

Subd. 2.

Exemptions.

The following entities are exempt
from the tax imposed by this section:

(1) corporations exempt from tax under section 290.05;

(2) real estate investment trusts;

(3) regulated investment companies or a fund thereof; and

(4) entities having a valid election in effect under
section 860D(b) of the Internal Revenue Code;

(5) town and farmers' mutual insurance companies;

(6) cooperatives organized under chapter 308A that provide
housing exclusively to persons age 55 and over and are
classified as homesteads under section 273.124, subdivision 3;
deleted text begin and
deleted text end

(7) an entity, if for the taxable year all of its property
is located in a job opportunity building zone designated under
section 469.314 and all of its payroll is a job opportunity
building zone payroll under section 469.310 new text begin ; and
new text end

new text begin (8) an entity, if for the taxable year all of its property
is located in an international economic development zone
designated under section 469.322, and all of its payroll is
international economic development zone payroll under section
469.321 new text end .

Entities not specifically exempted by this subdivision are
subject to tax under this section, notwithstanding section
290.05.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for tax years
beginning after December 31, 2006.
new text end

Sec. 11.

Minnesota Statutes 2004, section 290.0922,
subdivision 3, is amended to read:

Subd. 3.

Definitions.

(a) "Minnesota sales or receipts"
means the total sales apportioned to Minnesota pursuant to
section 290.191, subdivision 5, the total receipts attributed to
Minnesota pursuant to section 290.191, subdivisions 6 to 8,
and/or the total sales or receipts apportioned or attributed to
Minnesota pursuant to any other apportionment formula applicable
to the taxpayer.

(b) "Minnesota property" means total Minnesota tangible
property as provided in section 290.191, subdivisions 9 to 11,
any other tangible property located in Minnesota, but does not
include property located in a job opportunity building zone
designated under section 469.314 new text begin , new text end or property of a qualified
business located in a biotechnology and health sciences industry
zone designated under section 469.334 new text begin , or property of a
qualified business located in the international economic
development zone designated under section 469.322 new text end . Intangible
property shall not be included in Minnesota property for
purposes of this section. Taxpayers who do not utilize tangible
property to apportion income shall nevertheless include
Minnesota property for purposes of this section. On a return
for a short taxable year, the amount of Minnesota property
owned, as determined under section 290.191, shall be included in
Minnesota property based on a fraction in which the numerator is
the number of days in the short taxable year and the denominator
is 365.

(c) "Minnesota payrolls" means total Minnesota payrolls as
provided in section 290.191, subdivision 12, but does not
include job opportunity building zone payrolls under section
469.310, subdivision 8, or biotechnology and health sciences
industry zone deleted text begin payroll deleted text end new text begin payrolls new text end under section 469.330,
subdivision 8 new text begin , or international economic development zone
payrolls under section 469.321, subdivision 9 new text end . Taxpayers who do
not utilize payrolls to apportion income shall nevertheless
include Minnesota payrolls for purposes of this section.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for tax years
beginning after December 31, 2006.
new text end

Sec. 12.

Minnesota Statutes 2004, section 297A.68, is
amended by adding a subdivision to read:

new text begin Subd. 40. new text end

new text begin International economic development zones. new text end

new text begin (a)
Purchases of tangible personal property or taxable services by a
qualified business, as defined in section 469.321, are exempt if
the property or services are primarily used or consumed in the
international economic development zone designated under section
469.322.
new text end

new text begin (b) Purchase and use of construction materials, supplies,
and equipment incorporated into the construction of improvements
to real property in the international economic development zone
are exempt if the improvements after completion of construction
are to be used as a regional distribution center as defined in
section 469.321 or otherwise used in the conduct of freight
forwarding activities of a qualified business as defined in
section 469.321. This exemption applies regardless of whether
the purchases are made by the business or a contractor.
new text end

new text begin (c) The exemptions under this subdivision apply to a local
sales and use tax, regardless of whether the local tax is
imposed on sales taxable under this chapter or in another law,
ordinance, or charter provision.
new text end

new text begin (d) The exemption in paragraph (a) applies to sales during
the duration of the zone, if the purchase was made and delivery
received after the business signs the business subsidy agreement
required under chapter 469. The exemption in paragraph (b)
applies to sales made before the end of the duration of the
zone, if the purchase and delivery were made after June 30, 2006.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective the day
following final enactment.
new text end

Sec. 13.

new text begin [469.321] DEFINITIONS.
new text end

new text begin Subdivision 1. new text end

new text begin Scope. new text end

new text begin For purposes of sections 469.321
to 469.328, the following terms have the meanings given.
new text end

new text begin Subd. 2. new text end

new text begin Foreign trade zone. new text end

new text begin "Foreign trade zone" means
a foreign trade zone designated pursuant to United States Code,
title 19, section 81a, for the right to use the powers provided
in United States Code, title 19, sections 81a to 81u, or a
subzone authorized by the foreign trade zone.
new text end

new text begin Subd. 3. new text end

new text begin Foreign trade zone authority. new text end

new text begin "Foreign trade
zone authority" means the Greater Metropolitan Foreign Trade
Zone Commission number 119, a joint powers authority created by
the county of Hennepin, the cities of Minneapolis and
Bloomington, and the Metropolitan Airports Commission, under the
authority of section 469.059, 469.101, or 471.59, which includes
any other political subdivisions that enter into the authority
after its creation.
new text end

new text begin Subd. 4. new text end

new text begin International economic development zone or
zone. new text end

new text begin An "international economic development zone" or "zone" is
a zone so designated under section 469.322.
new text end

new text begin Subd. 5. new text end

new text begin Person. new text end

new text begin "Person" includes an individual,
corporation, partnership, limited liability company,
association, or any other entity.
new text end

new text begin Subd. 6. new text end

new text begin Qualified business. new text end

new text begin (a) "Qualified business"
means a person who has signed a business subsidy agreement as
required under sections 116J.993 to 116J.995 and 469.323,
subdivision 4, carrying on a trade or business at a place of
business located within the international economic development
zone that is:
new text end

new text begin (1)(i) engaged in the furtherance of international export
or import of goods as a freight forwarder; and (ii) certified by
the foreign trade zone authority as a trade or business that
furthers the purpose of developing international distribution
capacity and capability; or
new text end

new text begin (2) the owner or operator of a regional distribution center.
new text end

new text begin (b) A qualified business must pay each employee total
compensation, including benefits not mandated by law, that on an
annualized basis is equal to at least 110 percent of the federal
poverty guidelines for a family of four.
new text end

new text begin Subd. 7. new text end

new text begin Regional distribution center. new text end

new text begin A "regional
distribution center" is a distribution center developed within a
foreign trade zone. The regional distribution center must have
as its primary purpose, the facilitation of the gathering of
freight for the purpose of centralizing the functions necessary
for the shipment of freight in international commerce,
including, but not limited to, security and customs functions.
new text end

new text begin Subd. 8. new text end

new text begin International economic development zone
percentage or zone percentage. new text end

new text begin "International economic
development zone percentage" or "zone percentage" means the
following fraction reduced to a percentage:
new text end

new text begin (1) the numerator of the fraction is:
new text end

new text begin (i) the ratio of the taxpayer's property factor under
section 290.191 located in the zone for the taxable year which
is land, buildings, machinery and equipment, inventories, and
other tangible personal property that is a regional distribution
center or is used in the furtherance of the taxpayer's freight
forwarding operations over the property factor numerator
determined under section 290.191, plus
new text end

new text begin (ii) the ratio of the taxpayer's international economic
development zone payroll factor under subdivision 9 over the
payroll factor numerator determined under section 290.191; and
new text end

new text begin (2) the denominator of the fraction is two.
new text end

new text begin When calculating the zone percentage for a business that is
part of a unitary business as defined under section 290.17,
subdivision 4, the denominator of the payroll and property
factors is the Minnesota payroll and property of the unitary
business as reported on the combined report under section
290.17, subdivision 4, paragraph (j).
new text end

new text begin Subd. 9. new text end

new text begin International economic development zone payroll
factor or international economic development zone payroll.
new text end

new text begin "International economic development zone payroll factor" or
"international economic development zone payroll" is that
portion of the payroll factor under section 290.191 used to
operate a regional distribution center, or used in the
furtherance of the taxpayer's freight forwarding operations that
represents:
new text end

new text begin (1) wages or salaries paid to an individual for services
performed in the international economic development zone; or
new text end

new text begin (2) wages or salaries paid to individuals working from
offices within the international economic development zone, if
their employment requires them to work outside the zone and the
work is incidental to the work performed by the individual
within the zone. However, in no case does zone payroll include
wages paid for work performed outside the zone of an employee
who performs more than ten percent of total services for the
employer outside the zone.
new text end

new text begin Subd. 10. new text end

new text begin Freight forwarder. new text end

new text begin "Freight forwarder" is a
business that, for compensation, ensures that goods produced or
sold by another business move from point of origin to point of
destination.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective the day
following final enactment.
new text end

Sec. 14.

new text begin [469.3215] APPLICATION FOR DESIGNATION.
new text end

new text begin Subdivision 1. new text end

new text begin Who may apply. new text end

new text begin One or more local
government units, or a joint powers board under section 471.59,
acting on behalf of two or more units, may apply for designation
of an area as an international economic development zone. All
or part of the area proposed for designation as a zone must be
located within the boundaries of each of the governmental
units. A local government unit may not submit or have submitted
on its behalf more than one application for designation of an
international economic development zone.
new text end

new text begin Subd. 2. new text end

new text begin Application content. new text end

new text begin (a) The application must
include:
new text end

new text begin (1) a resolution or ordinance adopted by each of the cities
or towns and the counties in which the zone is located, agreeing
to provide all of the local tax exemptions provided under
section 469.315;
new text end

new text begin (2) an agreement by the applicant to treat incentives
provided under the zone designation as business subsidies under
sections 116J.993 to 116J.995 and to comply with the
requirements of that law; and
new text end

new text begin (3) supporting evidence to allow the authority to evaluate
the application.
new text end

new text begin (b) Applications must be submitted to the authority no
later than December 31, 2005.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective the day
following final enactment.
new text end

Sec. 15.

new text begin [469.322] DESIGNATION OF INTERNATIONAL ECONOMIC
DEVELOPMENT ZONE.
new text end

new text begin (a) An area designated as a foreign trade zone may be
designated by the foreign trade zone authority as an
international economic development zone if within the zone a
regional distribution center is being developed pursuant to
section 469.323. The zone must consist of contiguous area of
not less than 500 acres and not more than 1,000 acres. The
designation authority under this section is limited to one zone.
new text end

new text begin (b) In making the designation, the foreign trade zone
authority, in consultation with the Minnesota Department of
Transportation, the Minnesota Department of Employment and
Economic Development, the Minnesota Department of Revenue, and
the Metropolitan Council, shall consider access to major
transportation routes, consistency with current state
transportation and air cargo planning, adequacy of the size of
the site, access to airport facilities, present and future
capacity at the designated airport, the capability to meet
integrated present and future air cargo, security, and
inspection services, and access to other infrastructure and
financial incentives to maximize the security, efficiency, and
volume of Minnesota's export shipments. The border of the
international economic development zone must be no more than 60
miles distant or 90 minutes drive time from the border of the
Minneapolis-St. Paul International Airport.
new text end

new text begin (c) Prior to a final site designation, the foreign trade
zone authority, in consultation with the applicant, must conduct
a transportation impact study based on the regional model and
utilizing traffic forecasting and assignments. The results must
be used to evaluate the effects of the proposed use on the
transportation system and identify any needed improvements. If
the site is in the metropolitan area the study must also
evaluate the effect of the transportation impacts on the
Metropolitan Transportation System plan as well as the
comprehensive plans of the municipalities that would be
affected. The cost of the study must be paid by the applicant.
new text end

new text begin (d) Final zone designation must be made by June 30, 2006.
new text end

new text begin (e) Duration of the zone is a 12-year period beginning on
January 1, 2007.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective the day
following final enactment.
new text end

Sec. 16.

new text begin [469.323] FOREIGN TRADE ZONE AUTHORITY POWERS.
new text end

new text begin Subdivision 1. new text end

new text begin Development of regional distribution
center. new text end

new text begin The foreign trade zone authority shall be responsible
for creating a development plan for the regional distribution
center. The regional distribution center must be developed with
the purpose of expanding, on a regional basis, international
distribution capacity and capability. The foreign trade zone
authority shall consult only with municipalities that have
indicated to the authority an interest in locating the
international economic development zone within their boundaries,
as well as interested businesses, potential financiers, and
appropriate state and federal agencies.
new text end

new text begin Subd. 2. new text end

new text begin Business plan. new text end

new text begin Before designation of an
international economic development zone under section 469.322,
the governing body of the foreign trade zone authority shall
prepare a business plan. The plan must establish performance
goals for the zone. These goals must set out, at a minimum, the
amount of investment, the number of jobs, and the amount of
freight handled expected to be attained at the end of three-,
five-, and ten-year periods by the zone. The plan also must
include an analysis of the economic feasibility of the regional
distribution center once it becomes operational and of the
operations of freight forwarders and other businesses that
choose to locate within the boundaries of the zone. The
analysis must provide profitability models that:
new text end

new text begin (1) include the benefits of the incentives;
new text end

new text begin (2) estimate the amount of time needed to achieve
profitability; and
new text end

new text begin (3) analyze the length of time incentives will be necessary
to the economic viability of the regional distribution center.
new text end

new text begin If the governing body of the foreign trade authority
determines that the models do not establish the economic
feasibility of the project, the regional distribution center
does not meet the development requirements of this section and
section 469.322.
new text end

new text begin Subd. 3. new text end

new text begin Port authority powers. new text end

new text begin The governing body of
the foreign trade zone authority may establish a port authority
that has the same powers as a port authority established under
section 469.049. If the foreign trade zone authority
establishes a port authority, the governing body of the foreign
trade zone authority shall exercise all powers granted to a city
by sections 469.048 to 469.068 or other law.
new text end

new text begin Subd. 4. new text end

new text begin Business subsidy law. new text end

new text begin Tax exemptions and job
credits provided under this section are business subsidies paid
by the affected local government for the purpose of sections
116J.871 and 116J.993 to 116J.995.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective the day
following final enactment.
new text end

Sec. 17.

new text begin [469.324] TAX INCENTIVES IN INTERNATIONAL
ECONOMIC DEVELOPMENT ZONE.
new text end

new text begin Subdivision 1. new text end

new text begin Availability. new text end

new text begin Qualified businesses that
operate in an international economic development zone,
individuals who invest in a regional distribution center or
qualified businesses that operate in an international economic
development zone, and property located in an international
economic development zone qualify for:
new text end

new text begin (1) exemption from individual income taxes as provided
under section 469.325;
new text end

new text begin (2) exemption from corporate franchise taxes as provided
under section 469.326;
new text end

new text begin (3) exemption from the state sales and use tax and any
local sales and use taxes on qualifying purchases as provided in
section 297A.68, subdivision 40;
new text end

new text begin (4) exemption from the property tax as provided in section
272.02, subdivision 68; and
new text end

new text begin (5) the jobs credit allowed under section 469.327.
new text end

Sec. 18.

new text begin [469.325] INDIVIDUAL INCOME TAX EXEMPTION.
new text end

new text begin Subdivision 1. new text end

new text begin Application. new text end

new text begin An individual, estate, or
trust operating a trade or business in the international
economic development zone, and an individual making a qualifying
investment in a qualified business operating in the
international economic development zone, qualifies for the
exemptions from taxes imposed under chapter 290, as provided in
this section. The exemptions provided under this section apply
only to the extent that the income otherwise would be taxable
under chapter 290. Subtractions under this section from federal
taxable income, alternative minimum taxable income, or any other
base subject to tax are limited to the amount that otherwise
would be included in the tax base absent the exemption under
this section. This section applies only to tax years beginning
during the duration of the zone.
new text end

new text begin Subd. 2. new text end

new text begin Rents. new text end

new text begin An individual, estate, or trust is
exempt from the taxes imposed under chapter 290 on net rents
derived from real or tangible personal property used by a
qualified business and located in the zone for the taxable year
in which the zone was designated an international economic
development zone. If tangible personal property was used both
within and outside of the zone by the qualified business, the
exemption amount for the net rental income must be multiplied by
a fraction, the numerator of which is the number of days the
property was used in the zone and the denominator of which is
the total days the property is rented by a qualified business.
new text end

new text begin Subd. 3. new text end

new text begin Business income. new text end

new text begin An individual, estate, or
trust is exempt from the taxes imposed under chapter 290 on net
income from the operation of a qualified business in the
international economic development zone. If the trade or
business is carried on within and outside of the zone and the
individual is not a resident of Minnesota, the exemption must be
apportioned based on the zone percentage for the taxable year.
If the trade or business is carried on within or outside of the
zone and the individual is a resident of Minnesota, the
exemption must be apportioned based on the zone percentage for
the taxable year, except the ratios under section 469.321,
subdivision 8, clause (1), items (i) and (ii), must use the
denominators of the property and payroll factors determined
under section 290.191. No subtraction is allowed under this
section in excess of 20 percent of the sum of the international
economic development zone payroll and the adjusted basis of the
property at the time that the property is first used in the
international economic development zone by the business.
new text end

new text begin Subd. 4. new text end

new text begin Capital gains. new text end

new text begin (a) An individual, estate, or
trust is exempt from the taxes imposed under chapter 290 on:
new text end

new text begin (1) net gain derived on a sale or exchange of real property
located in the international economic development zone and used
by a qualified business. If the property was held by the
individual, estate, or trust during a period when the zone was
not designated, the gain must be prorated based on the
percentage of time, measured in calendar days, that the real
property was held by the individual during the period the zone
designation was in effect to the total period of time the real
property was held by the individual;
new text end

new text begin (2) net gain derived on a sale or exchange of tangible
personal property used by a qualified business in the
international economic development zone. If the property was
held by the individual, estate, or trust during a period when
the zone was not designated, the gain must be prorated based on
the percentage of time, measured in calendar days, that the
property was held by the individual during the period the zone
designation was in effect to the total period of time the
property was held by the individual, estate, or trust. If the
tangible personal property was used outside of the zone during
the period of the zone's designation, the exemption must be
multiplied by a fraction, the numerator of which is the number
of days the property was used in the zone during the time of the
designation and the denominator of which is the total days the
property was held during the time of the designation; and
new text end

new text begin (3) net gain derived on a sale of an ownership interest in
a qualified business operating in the international economic
development zone, meeting the requirements of paragraph (b).
The exemption on the gain must be multiplied by the zone
percentage of the business for the taxable year prior to the
sale.
new text end

new text begin (b) A qualified business meets the requirements of
paragraph (a), clause (3), if it is a corporation, an S
corporation, or a partnership, and for the taxable year its
international economic development zone percentage exceeds 25
percent. For purposes of paragraph (a), clause (3), the zone
percentage must be calculated by modifying the ratios under
section 469.321, subdivision 8, clause (1), items (i) and (ii),
to use the denominators of the property and payroll factors
determined under section 290.191. Upon the request of an
individual, estate, or trust holding an ownership interest in
the entity, the entity must certify to the owner, in writing,
the international economic development zone percentage needed to
determine the exemption.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for tax years
beginning after December 31, 2006.
new text end

Sec. 19.

new text begin [469.326] CORPORATE FRANCHISE TAX EXEMPTION.
new text end

new text begin (a) A qualified business is exempt from taxation under
section 290.02, the alternative minimum tax under section
290.0921, and the minimum fee under section 290.0922, on the
portion of its income attributable to operations within the
international economic development zone. This exemption is
determined as follows:
new text end

new text begin (1) for purposes of the tax imposed under section 290.02,
by multiplying its taxable net income by its zone percentage and
subtracting the result in determining taxable income;
new text end

new text begin (2) for purposes of the alternative minimum tax under
section 290.0921, by multiplying its alternative minimum taxable
income by its zone percentage and reducing alternative minimum
taxable income by this amount; and
new text end

new text begin (3) for purposes of the minimum fee under section 290.0922,
by excluding property and payroll in the zone from the
computations of the fee or by exempting the entity under section
290.0922, subdivision 2, clause (8).
new text end

new text begin (b) No subtraction is allowed under this section in excess
of 20 percent of the sum of the corporation's international
economic development zone payroll and the adjusted basis of the
zone property at the time that the property is first used in the
international economic development zone by the corporation.
new text end

new text begin (c) This section applies only to tax years beginning during
the duration of the international economic development zone.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for tax years
beginning after December 31, 2006.
new text end

Sec. 20.

new text begin [469.327] JOBS CREDIT.
new text end

new text begin Subdivision 1. new text end

new text begin Credit allowed. new text end

new text begin A qualified business is
allowed a credit against the taxes imposed under chapter 290.
The credit equals seven percent of the:
new text end

new text begin (1) lesser of:
new text end

new text begin (i) zone payroll for the taxable year, less the zone
payroll for the base year; or
new text end

new text begin (ii) total Minnesota payroll for the taxable year, less
total Minnesota payroll for the base year; minus
new text end

new text begin (2) $30,000 multiplied by the number of full-time
equivalent employees that the qualified business employs in the
international economic development zone for the taxable year,
minus the number of full-time equivalent employees the business
employed in the zone in the base year, but not less than zero.
new text end

new text begin Subd. 2. new text end

new text begin Definitions. new text end

new text begin (a) For purposes of this section,
the following terms have the meanings given.
new text end

new text begin (b) "Base year" means the taxable year beginning during the
calendar year in which the zone designation was made under
section 469.322, paragraph (d).
new text end

new text begin (c) "Full-time equivalent employees" means the equivalent
of annualized expected hours of work equal to 2,080 hours.
new text end

new text begin (d) "Minnesota payroll" means the wages or salaries
attributed to Minnesota under section 290.191, subdivision 12,
for the qualified business or the unitary business of which the
qualified business is a part, whichever is greater.
new text end

new text begin (e) "Zone payroll" means wages or salaries used to
determine the zone payroll factor for the qualified business,
less the amount of compensation attributable to any employee
that exceeds $100,000.
new text end

new text begin Subd. 3. new text end

new text begin Inflation adjustment. new text end

new text begin For taxable years
beginning after December 31, 2004, the dollar amounts in
subdivisions 1, clause (2); and 2, paragraph (e), are annually
adjusted for inflation. The commissioner of revenue shall
adjust the amounts by the percentage determined under section
290.06, subdivision 2d, for the taxable year.
new text end

new text begin Subd. 4. new text end

new text begin Refundable. new text end

new text begin If the amount of the credit exceeds
the liability for tax under chapter 290, the commissioner of
revenue shall refund the excess to the qualified business.
new text end

new text begin Subd. 5. new text end

new text begin Appropriation. new text end

new text begin An amount sufficient to pay the
refunds authorized by this section is appropriated to the
commissioner of revenue from the general fund.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for tax years
beginning after December 31, 2006.
new text end

Sec. 21.

new text begin [469.328] REPAYMENT OF TAX BENEFITS.
new text end

new text begin Subdivision 1. new text end

new text begin Repayment obligation. new text end

new text begin A person must repay
the amount of the tax reduction received under section 469.324,
subdivision 1, clauses (1) to (5), or credit received under
section 469.327, during the two years immediately before it
ceased to operate in the zone as a qualified business, if the
person ceased to operate its facility located within the zone,
ceased to be in compliance with the terms of the business
subsidy agreement, or otherwise ceases to be or is not a
qualified business.
new text end

new text begin Subd. 2. new text end

new text begin Disposition of repayment. new text end

new text begin The repayment must be
paid to the state to the extent it represents a state tax
reduction and to the county to the extent it represents a
property tax reduction. Any amount repaid to the state must be
deposited in the general fund. Any amount repaid to the county
for the property tax exemption must be distributed to the local
governments with authority to levy taxes in the zone in the same
manner provided for distribution of payment of delinquent
property taxes. Any repayment of local sales or use taxes must
be repaid to the jurisdiction imposing the local sales or use
tax.
new text end

new text begin Subd. 3. new text end

new text begin Repayment procedures. new text end

new text begin (a) For the repayment of
taxes imposed under chapter 290 or 297A or local taxes collected
pursuant to section 297A.99, a person must file an amended
return with the commissioner of revenue and pay any taxes
required to be repaid within 30 days after ceasing to be a
qualified business. The amount required to be repaid is
determined by calculating the tax for the period for which
repayment is required without regard to the tax reductions and
credits allowed under section 469.324.
new text end

new text begin (b) For the repayment of property taxes, the county auditor
shall prepare a tax statement for the person, applying the
applicable tax extension rates for each payable year and provide
a copy to the business. The person must pay the taxes to the
county treasurer within 30 days after receipt of the tax
statement. The taxpayer may appeal the valuation and
determination of the property tax to the tax court within 30
days after receipt of the tax statement.
new text end

new text begin (c) The provisions of chapters 270 and 289A relating to the
commissioner of revenue's authority to audit, assess, and
collect the tax and to hear appeals are applicable to the
repayment required under paragraphs (a) and (b). The
commissioner may impose civil penalties as provided in chapter
289A, and the additional tax and penalties are subject to
interest at the rate provided in section 270.75, from 30 days
after ceasing to do business in the zone until the date the tax
is paid.
new text end

new text begin (d) If a property tax is not repaid under paragraph (c),
the county treasurer shall add the amount required to be repaid
to the property taxes assessed against the property for payment
in the year following the year in which the treasurer discovers
that the person ceased to operate in the international economic
development zone.
new text end

new text begin (e) For determining the tax required to be repaid, a tax
reduction is deemed to have been received on the date that the
tax would have been due if the person had not been entitled to
the tax reduction.
new text end

new text begin (f) The commissioner of revenue may assess the repayment of
taxes under paragraph (d) at any time within two years after the
person ceases to be a qualified business, or within any period
of limitations for the assessment of tax under section 289A.38,
whichever is later.
new text end

new text begin Subd. 4. new text end

new text begin Waiver authority. new text end

new text begin The commissioner of revenue
may waive all or part of a repayment, if, in consultation with
the foreign trade zone authority and appropriate officials from
the state and local government units, including the commissioner
of employment and economic development, determines that
requiring repayment of the tax is not in the best interest of
the state or local government and the business ceased operating
as a result of circumstances beyond its control, including, but
not limited to:
new text end

new text begin (1) a natural disaster;
new text end

new text begin (2) unforeseen industry trends; or
new text end

new text begin (3) loss of a major supplier or customer.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective the day
following final enactment.
new text end

Sec. 22.

new text begin [469.329] REPORTING REQUIREMENTS.
new text end

new text begin An applicant receiving designation of an international
economic development zone under section 469.322 must annually
report to the commissioner of employment and economic
development on its progress in meeting the zone performance
goals under the business plan for the zone and the applicant's
compliance with the business subsidy law under sections 116J.993
to 116J.995.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective the day
following final enactment.
new text end

ARTICLE 5

MISCELLANEOUS

Section 1.

Minnesota Statutes 2004, section 10A.31,
subdivision 1, is amended to read:

Subdivision 1.

Designation.

An individual resident of
this state who files an income tax return or deleted text begin a renter and
homeowner deleted text end property tax refund return with the commissioner of
revenue may designate on their original return that deleted text begin $5 be paid
from the general fund of the state deleted text end new text begin $1 to $25, or $1 to $50 if
the return is filed jointly, be added to the tax or deducted
from the refund that would otherwise be payable by or to the
individual and paid new text end into the state elections campaign fund. deleted text begin If
a husband and wife file a joint return, each spouse may
designate that $5 be paid. No individual is allowed to
designate $5 more than once in any year. deleted text end The taxpayer may
designate that the amount be paid into the account of a
political party or into the general account. new text begin Designations made
under this section are not eligible for refund under section
290.06, subdivision 23.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective beginning with
designations made on income tax returns filed for tax years
beginning after December 31, 2004, and property tax refund
returns based on property taxes payable in 2006 or rent
constituting property taxes paid in 2005.
new text end

Sec. 2.

Minnesota Statutes 2004, section 10A.31,
subdivision 3, is amended to read:

Subd. 3.

Form.

The commissioner of revenue must provide
on deleted text begin the first page of deleted text end the income tax form and the renter and
homeowner property tax refund return a space for the individual
to indicate a wish to pay deleted text begin $5 ($10 deleted text end new text begin $1 to $25, or $1 to $50 new text end if
filing a joint return deleted text begin ) from the general fund of the state deleted text end new text begin , new text end to
finance election campaigns. The form must also contain language
prepared by the commissioner that permits the individual to
direct the deleted text begin state to pay the $5 (or $10 if filing a joint return)
deleted text end new text begin designation new text end to: (1) one of the major political parties; (2) any
minor political party that qualifies under subdivision 3a; or
(3) all qualifying candidates as provided by subdivision 7. deleted text begin The
renter and homeowner property tax refund return must include
instructions that the individual filing the return may designate
$5 on the return only if the individual has not designated $5 on
the income tax return.
deleted text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective beginning with
designations made on income tax returns filed for tax years
beginning after December 31, 2004, and property tax refund
returns based on property taxes payable in 2006 or rent
constituting property taxes paid in 2005.
new text end

Sec. 3.

Minnesota Statutes 2004, section 10A.31,
subdivision 4, is amended to read:

Subd. 4.

Appropriation.

deleted text begin (a) deleted text end The amounts designated by
individuals for the state elections campaign fund, less three
percent, deleted text begin are appropriated from the general fund, deleted text end must be
transferred and credited to the appropriate account in the state
elections campaign fund deleted text begin , and are annually appropriated deleted text end for
distribution as set forth in subdivisions 5, 5a, 6, and 7. The
remaining three percent must be deleted text begin kept deleted text end new text begin deposited new text end in the general
fund for administrative costs.

deleted text begin (b) In addition to the amounts in paragraph (a), $1,500,000
for each general election is appropriated from the general fund
for transfer to the general account of the state elections
campaign fund.
deleted text end

deleted text begin Of this appropriation, $65,000 each fiscal year must be set
aside to pay assessments made by the Office of Administrative
Hearings under section 211B.37. Amounts remaining after all
assessments have been paid must be canceled to the general
account.
deleted text end

new text begin EFFECTIVE DATE. new text end

new text begin The changes to paragraph (a) are
effective beginning with designations made on income tax returns
filed for tax years beginning after December 31, 2004, and
property tax refund returns based on property taxes payable in
2006 or rent constituting property taxes paid in 2005. The
changes to paragraph (b) are effective for appropriations for
general elections occurring after December 31, 2004.
new text end

Sec. 4.

Minnesota Statutes 2004, section 270A.03,
subdivision 7, is amended to read:

Subd. 7.

Refund.

"Refund" means an individual income tax
refund deleted text begin or political contribution refund, pursuant to chapter
290 deleted text end , or a property tax credit or refund, pursuant to chapter
290A, or a sustainable forest tax payment to a claimant under
chapter 290C.

For purposes of this chapter, lottery prizes, as set forth
in section 349A.08, subdivision 8, and amounts granted to
persons by the legislature on the recommendation of the joint
senate-house of representatives Subcommittee on Claims shall be
treated as refunds.

In the case of a joint property tax refund payable to
spouses under chapter 290A, the refund shall be considered as
belonging to each spouse in the proportion of the total refund
that equals each spouse's proportion of the total income
determined under section 290A.03, subdivision 3. In the case of
a joint income tax refund under chapter 289A, the refund shall
be considered as belonging to each spouse in the proportion of
the total refund that equals each spouse's proportion of the
total taxable income determined under section 290.01,
subdivision 29. The commissioner shall remit the entire refund
to the claimant agency, which shall, upon the request of the
spouse who does not owe the debt, determine the amount of the
refund belonging to that spouse and refund the amount to that
spouse. For court fines, fees, and surcharges and court-ordered
restitution under section 611A.04, subdivision 2, the notice
provided by the commissioner of revenue under section 270A.07,
subdivision 2, paragraph (b), serves as the appropriate legal
notice to the spouse who does not owe the debt.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for political
contribution refund claims based on contributions made on or
after July 1, 2005.
new text end

Sec. 5.

Minnesota Statutes 2004, section 273.1384,
subdivision 1, is amended to read:

Subdivision 1.

Residential homestead market value
credit.

Each county auditor shall determine a homestead credit
for each class 1a, 1b, 1c, and 2a homestead property within the
county equal to 0.4 percent of the new text begin first $76,000 of new text end market value
of the property deleted text begin . The amount of homestead credit for a homestead
may not exceed $304 and is reduced by deleted text end new text begin minus new text end .09 percent of the
market value in excess of $76,000. new text begin The credit amount may not be
less than zero. new text end In the case of an agricultural or resort
homestead, only the market value of the house, garage, and
immediately surrounding one acre of land is eligible in
determining the property's homestead credit. In the case of a
property which is classified as part homestead and part
nonhomestead, new text begin (i) new text end the credit shall apply only to the homestead
portion of the property deleted text begin . deleted text end new text begin , but (ii) if a portion of a property is
classified as nonhomestead solely because not all the owners
occupy the property, or solely because both spouses do not
occupy the property, the credit amount shall be initially
computed as if that nonhomestead portion were also in the
homestead class and then prorated to the owner-occupant's
percentage of ownership or prorated to one-half if both spouses
do not occupy the property.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxes
payable in 2006 and thereafter.
new text end

Sec. 6.

Minnesota Statutes 2004, section 289A.50,
subdivision 1, is amended to read:

Subdivision 1.

General right to refund.

(a) Subject to
the requirements of this section and section 289A.40, a taxpayer
who has paid a tax in excess of the taxes lawfully due and who
files a written claim for refund will be refunded or credited
the overpayment of the tax determined by the commissioner to be
erroneously paid.

(b) The claim must specify the name of the taxpayer, the
date when and the period for which the tax was paid, the kind of
tax paid, the amount of the tax that the taxpayer claims was
erroneously paid, the grounds on which a refund is claimed, and
other information relative to the payment and in the form
required by the commissioner. An income tax, estate tax, or
corporate franchise tax return, or amended return claiming an
overpayment constitutes a claim for refund.

(c) When, in the course of an examination, and within the
time for requesting a refund, the commissioner determines that
there has been an overpayment of tax, the commissioner shall
refund or credit the overpayment to the taxpayer and no demand
is necessary. If the overpayment exceeds $1, the amount of the
overpayment must be refunded to the taxpayer. If the amount of
the overpayment is less than $1, the commissioner is not
required to refund. In these situations, the commissioner does
not have to make written findings or serve notice by mail to the
taxpayer.

(d) If the amount allowable as a credit for withholding,
estimated taxes, or dependent care exceeds the tax against which
the credit is allowable, the amount of the excess is considered
an overpayment. deleted text begin The refund allowed by section 290.06,
subdivision 23, is also considered an overpayment. deleted text end The
requirements of section 270.10, subdivision 1, do not apply to
the refunding of such an overpayment shown on the original
return filed by a taxpayer.

(e) If the entertainment tax withheld at the source exceeds
by $1 or more the taxes, penalties, and interest reported in the
return of the entertainment entity or imposed by section
290.9201, the excess must be refunded to the entertainment
entity. If the excess is less than $1, the commissioner need
not refund that amount.

(f) If the surety deposit required for a construction
contract exceeds the liability of the out-of-state contractor,
the commissioner shall refund the difference to the contractor.

(g) An action of the commissioner in refunding the amount
of the overpayment does not constitute a determination of the
correctness of the return of the taxpayer.

(h) There is appropriated from the general fund to the
commissioner of revenue the amount necessary to pay refunds
allowed under this section.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for political
contribution refund claims based on contributions made on or
after July 1, 2005.
new text end

Sec. 7.

Minnesota Statutes 2004, section 290.01,
subdivision 6, is amended to read:

Subd. 6.

Taxpayer.

The term "taxpayer" means any person
or corporation subject to a tax imposed by this chapter. deleted text begin For
purposes of section 290.06, subdivision 23, the term "taxpayer"
means an individual eligible to vote in Minnesota under section
201.014.
deleted text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for political
contribution refund claims based on contributions that are made
on or after July 1, 2005.
new text end

Sec. 8.

Minnesota Statutes 2004, section 290A.03,
subdivision 11, is amended to read:

Subd. 11.

Rent constituting property taxes.

new text begin (a) new text end "Rent
constituting property taxes" means deleted text begin 19 deleted text end new text begin the new text end percent new text begin specified in
paragraph (b) new text end of the gross rent actually paid in cash, or its
equivalent, or the portion of rent paid in lieu of property
taxes, in any calendar year by a claimant for the right of
occupancy of the claimant's Minnesota homestead in the calendar
year, and which rent constitutes the basis, in the succeeding
calendar year of a claim for relief under this chapter by the
claimant.

new text begin (b) For rent paid in 2005, the percent is 16 percent; and
for rent paid in 2006, and thereafter, the percent is 15 percent.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for rent
constituting property taxes payable based on rent paid after
December 31, 2004.
new text end

Sec. 9.

Minnesota Statutes 2004, section 469.335, is
amended to read:

469.335 APPLICATION FOR TAX BENEFITS.

(a) To claim a tax credit or exemption against a state tax
under section 469.336, clauses (2) through (5), a business must
apply to the commissioner for a tax credit certificate. As a
condition of its application, the business must agree to furnish
information to the commissioner that is sufficient to verify the
eligibility for any credits or exemptions claimed. The total
amount of the state tax credits and exemptions allowed for the
specified period may not exceed the amount of the tax credit
certificates provided by the commissioner to the business. The
commissioner must verify to the commissioner of revenue the
amount of tax exemptions or credits for which each business is
eligible.

(b) A tax credit certificate issued under this section may
specify the particular tax exemptions or credits against a state
tax that the qualified business is eligible to claim under
section 469.336, clauses (2) through (5), and the amount of each
exemption or credit allowed.

(c) The commissioner may issue $1,000,000 of tax credits or
exemptions in fiscal year 2004. Any tax credits or exemptions
not awarded in fiscal year 2004 may be awarded in fiscal year
2005. new text begin The commissioner may issue $1,000,000 in tax credits or
exemptions in fiscal year 2006. Any tax credits or exemptions
not awarded in fiscal year 2006 may be awarded in fiscal year
2007.
new text end

(d) A qualified business must use the tax credits or tax
exemptions granted under this section by the later of the end of
the state fiscal year or the taxpayer's tax year in which the
credits or exemptions are granted.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective the day
following final enactment.
new text end

Sec. 10. new text begin 2005 CITY AID PAYMENTS.
new text end

new text begin In 2005 and 2006, market value credit reimbursements for
each city payable under Minnesota Statutes, section 273.1384,
are reduced by the dollar amount of the 2003 reduction in market
value credit reimbursements for that city due to Laws 2003,
First Special Session chapter 21, article 5, section 12. No
city's 2005 or 2006 market value credit reimbursements are
reduced to less than zero under this section. To the extent
sufficient information is available on each payment date, the
commissioner shall pay the annual 2005 and 2006 market value
credit reimbursement amounts, after reduction under this
section, to cities in equal installments on the dates specified
in Minnesota Statutes, section 273.1384.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective the day
following final enactment.
new text end

Sec. 11. new text begin REPEALER.
new text end

new text begin (a) Minnesota Statutes 2004, section 10A.322, subdivision
4, is repealed effective July 1, 2005.
new text end

new text begin (b) Minnesota Statutes 2004, section 16A.1522, subdivision
4, is repealed effective the day following final enactment.
new text end

new text begin (c) Minnesota Statutes 2004, section 290.06, subdivision
23, is repealed effective for contributions made after June 30,
2005.
new text end