HF 4103

as introduced - 85th Legislature (2007 - 2008) Posted on 12/15/2009 12:00am

A bill for an act
relating to taxation; modifying the treatment of foreign income and operations
under the corporation franchise tax; authorizing grants; eliminating foreign
operating corporations; defining tax havens; taxing certain development
subsidies; reducing the corporate franchise tax rate; repealing the job opportunity
building zone, the international economic development zone, and biotechnology
and health sciences industry zone programs; repealing the airline industry job
credit, the research credit, and the bovine testing credit; repealing the corporate
alternative minimum tax; eliminating property tax exemptions for certain airport
property; appropriating money; amending Minnesota Statutes 2006, sections
275.025, subdivisions 1, 2; 290.01, subdivisions 5, 19c, as amended, 19d, as
amended, 29, by adding subdivisions; 290.06, subdivisions 1, 2c, as amended;
290.067, subdivision 1; 290.0671, subdivision 1; 290.091, subdivision 2;
290.0922, subdivision 3; 290.17, subdivision 4; 297B.03; Minnesota Statutes
2007 Supplement, section 290.01, subdivision 19b, as amended; proposing
coding for new law in Minnesota Statutes, chapter 116J; repealing Minnesota
Statutes 2006, sections 272.02, subdivision 83; 290.01, subdivision 6b; 290.06,
subdivisions 29, 30, 31, 32, 33; 290.068; 290.0921; 290.191, subdivision 4;
297A.68, subdivisions 37, 38, 41; 469.311; 469.312; 469.313; 469.314; 469.315;
469.316; 469.317; 469.318; 469.3201; 469.321, subdivisions 2, 3, 4, 5, 6, 7, 8, 9,
10; 469.3215; 469.322; 469.323; 469.324; 469.325; 469.326; 469.327; 469.328;
469.329; 469.330; 469.331; 469.332; 469.333, subdivision 1; 469.337; 469.338;
469.339; Minnesota Statutes 2007 Supplement, sections 272.02, subdivision 64;
469.321, subdivision 1; 469.333, subdivision 2; 469.334; 469.335; 469.336;
Laws 2005, First Special Session chapter 3, article 10, section 23, as amended.

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

Section 1.

new text begin [116J.576] JOB OPPORTUNITY BUILDING ZONES PHASEOUT;
GRANT AUTHORITY.
new text end

new text begin Subdivision 1. new text end

new text begin Voiding of business subsidy agreements. new text end

new text begin (a) Effective 30 days
after enactment of this act, a party to a business subsidy agreement, which it entered to
become a qualified business under section 469.310, subdivision 11, may elect to void the
agreement, beginning for obligations under the agreement that apply to periods after July
1, 2008, or after the effective date of its election, whichever is later. The tax incentives
provided under the job opportunity building zone program remain available as otherwise
provided by the effective dates of this act.
new text end

new text begin (b) A business that has accepted a grant under subdivision 3 may not void its
business subsidy agreement.
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, unless the context clearly indicates otherwise.
new text end

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

new text begin (c) "Tax incentives" means the tax incentives under the job opportunity building
zone program, as listed in section 469.315.
new text end

new text begin (d) "Zone" means a job opportunity building zone, designated under section 469.314.
new text end

new text begin (e) "Zone payroll" has the meaning given in section 469.310, subdivision 8.
new text end

new text begin Subd. 3. new text end

new text begin Grants. new text end

new text begin (a) The commissioner may make grants, upon application by
qualified businesses under the job opportunity building zone program, to mitigate or
to partially compensate for the effects of the repeal of the tax incentives of the job
opportunity building zone program. In determining whether to award a grant and in setting
the amount of the grant, the commissioner may take into account the following factors:
new text end

new text begin (1) the present value of the applicant business's tax incentives that were eliminated
as a result of this act;
new text end

new text begin (2) the evidence that the business would not have invested in, expanded, or located
its zone business facilities in Minnesota if the tax incentives had not been provided;
new text end

new text begin (3) reliable estimates or projections of reduced profits of the applicant business,
whether from higher taxes following the repeal of tax incentives, other higher costs, or
lower revenues, resulting from locating in the zone, as compared with a location outside
of Minnesota at which the business considered locating the facility qualifying for the
tax incentives;
new text end

new text begin (4) the number of additional full-time equivalent employees that the business created
as a result of locating or expanding in the zone;
new text end

new text begin (5) the performance by the business under its business subsidy agreement;
new text end

new text begin (6) the likelihood that the business will cease operations in the zone unless it
receives a grant;
new text end

new text begin (7) the hardship imposed on the business as a result of repeal of the tax incentives;
and
new text end

new text begin (8) whether a grant is necessary to retain the business in an area with substantial
economic distress, measured by high unemployment, low income, declining tax base,
or similar factors.
new text end

new text begin (b) The commissioner shall not pay a grant to a business that meets one or more of
the following conditions:
new text end

new text begin (1) the business has voided its obligations under the business subsidy agreement
under subdivision 1;
new text end

new text begin (2) the commissioner has reason to believe the business would have invested,
expanded, or located in the zone or at another location in Minnesota, excluding the
metropolitan area, as defined in section 473.121, whether or not the tax incentives
provided under the job opportunity building zone program were available; or
new text end

new text begin (3) the business is in substantial violation of its business subsidy agreement.
new text end

new text begin (c) The commissioner shall not make a grant to a business in excess of the smallest
of the following amounts:
new text end

new text begin (1) the present value of the applicant business's tax incentives that were eliminated
as a result of this act;
new text end

new text begin (2) the present value of the 20 percent of the summation of the business's estimated
zone payroll factors for calendar years 2009 through 2015; or
new text end

new text begin (3) $25,000 for each additional full-time equivalent employee of the business who
was hired as a result of the business's location or expansion in the zone.
new text end

new text begin Subd. 4. new text end

new text begin Applications; timing of payments. new text end

new text begin (a) The commissioner shall specify
the form, procedures, required information, and timing for applications by businesses for
the grants under subdivision 3. These actions are not a rule under and are exempt from the
requirements of chapter 14, the Administrative Procedures Act.
new text end

new text begin (b) The commissioner shall pay the grants in two equal installments on August 1,
2009 and August 1, 2010.
new text end

new text begin (c) The commissioner's determinations of the eligibility for and the amount of the
grant are final and are not subject to judicial review. The grants are intended to mitigate the
effects of or to partially compensate businesses for the state's exercise of its constitutional
power to repeal the tax incentives, but are not a legal entitlement of a business.
new text end

new text begin Subd. 5. new text end

new text begin Appropriation. new text end

new text begin (a) $10,000,000 is appropriated from the general fund for
fiscal year 2010 to the commissioner to make grants under this section.
new text end

new text begin (b) If the commissioner determines the appropriation under paragraph (a) is
insufficient to fully fund the grants under this section, the commissioner may certify to
the commissioner of revenue the additional amount needed by September 15, 2009. The
commissioner of revenue shall add the amount certified to the levy under section 275.025
to be spread on commercial-industrial tax capacity for taxes payable in 2010. The amount
of revenues attributable to the levy is appropriated to the commissioner to make grants
under this section.
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 2006, section 275.025, subdivision 1, is amended to read:

Subdivision 1.

Levy amount.

The state general levy is levied against
commercial-industrial property and seasonal residential recreational property, as defined
in this section. The state general levy base amount is $592,000,000 for taxes payable in
2002. For taxes payable in subsequent years, the levy base amount is increased each year
by multiplying the levy base amount for the prior year by the sum of one plus the rate of
increase, if any, in the implicit price deflator for government consumption expenditures
and gross investment for state and local governments prepared by the Bureau of Economic
Analysts of the United States Department of Commerce for the 12-month period ending
March 31 of the year prior to the year the taxes are payable. The tax under this section is
not treated as a local tax rate under section 469.177 and is not the levy of a governmental
unit under chapters 276A and 473F.

new text begin In setting the rate, the commissioner shall exclude the tax capacity of property
described in section 473.625 from the tax base. new text end The commissioner shall increase or
decrease the preliminary or final rate for a year as necessary to account for errors and tax
base changes that affected a preliminary or final rate for either of the two preceding years.
Adjustments are allowed to the extent that the necessary information is available to the
commissioner at the time the rates for a year must be certified, and for the following
reasons:

(1) an erroneous report of taxable value by a local official;

(2) an erroneous calculation by the commissioner; and

(3) an increase or decrease in taxable value for commercial-industrial or seasonal
residential recreational property reported on the abstracts of tax lists submitted under
section 275.29 that was not reported on the abstracts of assessment submitted under
section 270C.89 for the same year.

The commissioner may, but need not, make adjustments if the total difference in the tax
levied for the year would be less than $100,000.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective beginning for property taxes payable
in 2009.
new text end

Sec. 3.

Minnesota Statutes 2006, section 275.025, subdivision 2, is amended to read:

Subd. 2.

Commercial-industrial tax capacity.

For the purposes of this section,
"commercial-industrial tax capacity" means the tax capacity of all taxable property
classified as class 3 or class 5(1) under section 273.13, except for electric generation
attached machinery under class 3 deleted text begin and property described in section 473.625 deleted text end . County
commercial-industrial tax capacity amounts are not adjusted for the captured net tax
capacity of a tax increment financing district under section 469.177, subdivision 2, the
net tax capacity of transmission lines deducted from a local government's total net tax
capacity under section 273.425, or fiscal disparities contribution and distribution net
tax capacities under chapter 276A or 473F.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective beginning for taxes payable in 2009.
new text end

Sec. 4.

Minnesota Statutes 2006, section 290.01, subdivision 5, is amended to read:

Subd. 5.

Domestic corporation.

The term "domestic" when applied to a corporation
means a corporation:

(1) created or organized in the United States, or under the laws of the United States
or of any state, the District of Columbia, or any political subdivision of any of the
foregoing but not including the Commonwealth of Puerto Rico, or any possession of
the United States;

(2) which qualifies as a DISC, as defined in section 992(a) of the Internal Revenue
Code; deleted text begin or
deleted text end

(3) which qualifies as a FSC, as defined in section 922 of the Internal Revenue Code new text begin ;
new text end

new text begin (4) which is incorporated in a tax haven;
new text end

new text begin (5) which is engaged in activity in a tax haven sufficient for the tax haven to impose
a net income tax under United States constitutional standards and section 290.015; or
new text end

new text begin (6) which has the average of its property, payroll, and sales factors, as defined under
section 290.191, within the 50 states of the United States and the District of Columbia of
20 percent or more new text end .

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxable years beginning after
December 31, 2007.
new text end

Sec. 5.

Minnesota Statutes 2006, section 290.01, is amended by adding a subdivision
to read:

new text begin Subd. 5c. new text end

new text begin Tax haven. new text end

new text begin (a) "Tax haven" means a foreign jurisdiction designated
under this subdivision.
new text end

new text begin (b) The commissioner may designate a foreign jurisdiction as a tax haven by revenue
notice if the jurisdiction has:
new text end

new text begin (1) no or a nominal effective tax on income of a corporation; and
new text end

new text begin (2) corporate, business, bank, or tax secrecy rules or practices that, in the judgment
of the commissioner, unreasonably restrict the ability of the United States, and thereby
the state of Minnesota, to obtain information relevant to the enforcement of taxes on
corporations based on net income. These rules or practices may be either formal laws,
regulations, or rules or be informal government and business practices that have the effect
of inhibiting access by law enforcement and tax administration authorities.
new text end

new text begin (c) The following foreign jurisdictions are deemed to be tax havens, unless the
commissioner, by revenue notice, revokes the listing of a jurisdiction:
new text end

new text begin (1) Anguilla;
new text end

new text begin (2) Antigua and Barbuda;
new text end

new text begin (3) Aruba;
new text end

new text begin (4) Bahamas;
new text end

new text begin (5) Barbados;
new text end

new text begin (6) Belize;
new text end

new text begin (7) Bermuda;
new text end

new text begin (8) British Virgin Islands;
new text end

new text begin (9) Cayman Islands;
new text end

new text begin (10) Cook Islands;
new text end

new text begin (11) Dominica;
new text end

new text begin (12) Gibraltar;
new text end

new text begin (13) Grenada;
new text end

new text begin (14) Guernsey-Sark-Alderney;
new text end

new text begin (15) Isle of Man;
new text end

new text begin (16) Jersey;
new text end

new text begin (17) Latvia;
new text end

new text begin (18) Liechtenstein;
new text end

new text begin (19) Luxembourg;
new text end

new text begin (20) Nauru;
new text end

new text begin (21) Netherlands Antilles;
new text end

new text begin (22) Panama;
new text end

new text begin (23) Samoa;
new text end

new text begin (24) Saint Kitts and Nevis;
new text end

new text begin (25) Saint Lucia;
new text end

new text begin (26) Saint Vincent and Grenadines;
new text end

new text begin (27) Turks and Caicos; and
new text end

new text begin (28) Vanuatu.
new text end

new text begin (d) The commissioner shall revoke a foreign jurisdiction's listing under paragraph
(b) or (c), as applicable, if the United States enters into a tax treaty or other agreement
with the foreign jurisdiction that provides for prompt, obligatory, and automatic exchange
of information with the United States government relevant to enforcing the provisions of
federal tax laws and the treaty or other agreement was in effect for the taxable year.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxable years beginning after
December 31, 2007.
new text end

Sec. 6.

Minnesota Statutes 2007 Supplement, section 290.01, subdivision 19b, as
amended by Laws 2008, chapter 154, article 3, section 3, is amended to read:

Subd. 19b.

Subtractions from federal taxable income.

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

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

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

(3) the amount paid to others, less the amount used to claim the credit allowed under
section 290.0674, not to exceed $1,625 for each qualifying child in grades kindergarten
to 6 and $2,500 for each qualifying child in grades 7 to 12, for tuition, textbooks, and
transportation of each qualifying child in attending an elementary or secondary school
situated in Minnesota, North Dakota, South Dakota, Iowa, or Wisconsin, wherein a
resident of this state may legally fulfill the state's compulsory attendance laws, which
is not operated for profit, and which adheres to the provisions of the Civil Rights Act
of 1964 and chapter 363A. For the purposes of this clause, "tuition" includes fees or
tuition as defined in section 290.0674, subdivision 1, clause (1). As used in this clause,
"textbooks" includes books and other instructional materials and equipment purchased
or leased for use in elementary and secondary schools in teaching only those subjects
legally and commonly taught in public elementary and secondary schools in this state.
Equipment expenses qualifying for deduction includes expenses as defined and limited in
section 290.0674, subdivision 1, clause (3). "Textbooks" does not include instructional
books and materials used in the teaching of religious tenets, doctrines, or worship, the
purpose of which is to instill such tenets, doctrines, or worship, nor does it include books
or materials for, or transportation to, extracurricular activities including sporting events,
musical or dramatic events, speech activities, driver's education, or similar programs. For
purposes of the subtraction provided by this clause, "qualifying child" has the meaning
given in section 32(c)(3) of the Internal Revenue Code;

(4) income as provided under section 290.0802;

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

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

(7) deleted text begin 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; deleted text end

deleted text begin (8) deleted text end 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;

deleted text begin (9) deleted text end new text begin (8) new text end in each of the five tax years immediately following the tax year in which an
addition is required under subdivision 19a, clause (7), or 19c, clause deleted text begin (15) deleted text end new text begin (13) new text end , in the case
of a shareholder of a corporation that is an S corporation, an amount equal to one-fifth
of the delayed depreciation. For purposes of this clause, "delayed depreciation" means
the amount of the addition made by the taxpayer under subdivision 19a, clause (7), or
subdivision 19c, clause deleted text begin (15) deleted text end new text begin (13) new text end , in the case of a shareholder of an S corporation, minus
the positive value of any net operating loss under section 172 of the Internal Revenue
Code generated for the tax year of the addition. The resulting delayed depreciation
cannot be less than zero;

deleted text begin (10) job opportunity building zone income as provided under section 469.316;
deleted text end

deleted text begin (11) deleted text end new text begin (9) new text end to the extent included in federal taxable income, the amount of compensation
paid to members of the Minnesota National Guard or other reserve components of the
United States military for active service performed in Minnesota, excluding compensation
for services performed under the Active Guard Reserve (AGR) program. For purposes of
this clause, "active service" means (i) state active service as defined in section 190.05,
subdivision 5a, clause (1); (ii) federally funded state active service as defined in section
190.05, subdivision 5b; or (iii) federal active service as defined in section 190.05,
subdivision 5c, but "active service" excludes services performed exclusively for purposes
of basic combat training, advanced individual training, annual training, and periodic
inactive duty training; special training periodically made available to reserve members;
and service performed in accordance with section 190.08, subdivision 3;

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

deleted text begin (13) deleted text end new text begin (11) new text end an amount, not to exceed $10,000, equal to qualified expenses related to a
qualified donor's donation, while living, of one or more of the qualified donor's organs
to another person for human organ transplantation. For purposes of this clause, "organ"
means all or part of an individual's liver, pancreas, kidney, intestine, lung, or bone marrow;
"human organ transplantation" means the medical procedure by which transfer of a human
organ is made from the body of one person to the body of another person; "qualified
expenses" means unreimbursed expenses for both the individual and the qualified donor
for (i) travel, (ii) lodging, and (iii) lost wages net of sick pay, except that such expenses
may be subtracted under this clause only once; and "qualified donor" means the individual
or the individual's dependent, as defined in section 152 of the Internal Revenue Code. An
individual may claim the subtraction in this clause for each instance of organ donation for
transplantation during the taxable year in which the qualified expenses occur;

deleted text begin (14) deleted text end new text begin (12) new text end 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 deleted text begin (16) deleted text end new text begin (14) new text end , 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
deleted text begin (16) deleted text end new text begin (14) new text end , 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; new text begin and new text end

deleted text begin (15) deleted text end new text begin (13) new text end to the extent included in federal taxable income, compensation paid to a
nonresident who is 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) deleted text begin ; and deleted text end

deleted text begin (16) international economic development zone income as provided under section
469.325 deleted text end .

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxable years beginning after
December 31, 2007.
new text end

Sec. 7.

Minnesota Statutes 2006, section 290.01, subdivision 19c, as amended by Laws
2008, chapter 154, article 4, section 4, 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 and 965 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) deleted text begin the amount of any deemed dividend from a foreign operating corporation
determined pursuant to section 290.17, subdivision 4, paragraph (g); deleted text end

deleted text begin (12) deleted text end 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 (13) deleted text end new text begin (12) new text end the amount of net income excluded under section 114 of the Internal
Revenue Code;

deleted text begin (14) 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 103 of Public Law 109-222;
deleted text end

deleted text begin (15) deleted text end new text begin (13) new text end 80 percent of the depreciation deduction allowed under section
168(k)(1)(A) and (k)(4)(A) 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)(1)(A) and (k)(4)(A) 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)(1)(A) and (k)(4)(A)" for the taxable year is limited to excess
of the depreciation claimed by the activity under section 168(k)(1)(A) and (k)(4)(A)
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)(1)(A) and (k)(4)(A) is allowed;

deleted text begin (16) deleted text end new text begin (14) new text end 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;

deleted text begin (17) deleted text end new text begin (15) new text end to the extent deducted in computing federal taxable income, the amount of
the deduction allowable under section 199 of the Internal Revenue Code;

deleted text begin (18) deleted text end new text begin (16) new text end the exclusion allowed under section 139A of the Internal Revenue Code
for federal subsidies for prescription drug plans; and

deleted text begin (19) deleted text end new text begin (17) new text end for taxable years beginning after December 31, 2006, and before January 1,
2008, the additional amount allowed as a deduction for donation of computer technology
and equipment under section 170(e)(6) of the Internal Revenue Code, to the extent
deducted from taxable income.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxable years beginning after
December 31, 2008, except the repeal of clauses (11) and (14) is effective for taxable
years beginning after December 31, 2007.
new text end

Sec. 8.

Minnesota Statutes 2006, section 290.01, subdivision 19d, as amended by Laws
2008, chapter 154, article 11, section 12, 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 work opportunity 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 (9), 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) deleted text begin 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; deleted text end

deleted text begin (11) deleted text end 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;

deleted text begin (12) deleted text end new text begin (11) new text end the amount of disability 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;

deleted text begin (13) deleted text end new text begin (12) new text end the amount of qualified research expenses not allowed for federal income
tax purposes under section 280C(c) of the Internal Revenue Code deleted text begin , but only to the extent
that the amount exceeds the amount of the credit allowed under section 290.068 deleted text end ;

deleted text begin (14) deleted text end new text begin (13) new text end 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;

deleted text begin (15) 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;
deleted text end

deleted text begin (16) deleted text end new text begin (14) new text end 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;

deleted text begin (17) 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 103 of Public Law 109-222;
deleted text end

deleted text begin (16) deleted text end new text begin (15) new text end in each of the five tax years immediately following the tax year in which an
addition is required under subdivision 19c, clause deleted text begin (15) deleted text end new text begin (13) new text end , 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 deleted text begin (15) deleted text end new text begin (13) new text end . The
resulting delayed depreciation cannot be less than zero; and

deleted text begin (17) deleted text end new text begin (16) new text end 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
amount of the addition.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxable years beginning after
December 31, 2008, provided that for taxable years beginning after December 31,
2007, and before January 1, 2008, the subtraction under clause (10) is not allowed to
foreign operating corporations and is limited to income paid to the corporation by a
foreign corporation that is part of the unitary business for the use of or privilege of using
outside of the United States patents, copyrights, secret processes and formulas, good will,
know-how, trademarks, trade brands, franchises, and other like property and is further
limited to the extent those items are included in the corporation's federal taxable income
for the taxable year.
new text end

Sec. 9.

Minnesota Statutes 2006, 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; new text begin and
new text end

(ii) the dividends received deduction under section 290.21, subdivision 4; new text begin plus new text end

(iii) deleted text begin the exemption for operating in a job opportunity building zone under section
deleted text end deleted text begin 469.317 deleted text end deleted text begin ; deleted text end new text begin Minnesota development subsidies.
new text end

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

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

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxable years beginning after
December 31, 2008.
new text end

Sec. 10.

Minnesota Statutes 2006, section 290.01, is amended by adding a subdivision
to read:

new text begin Subd. 33. new text end

new text begin Minnesota development subsidies. new text end

new text begin "Minnesota development subsidies"
means the amount deducted by the taxpayer in computing federal taxable income for
the taxable year, as property taxes, business expenses or otherwise, that is attributable
to property taxes paid by the taxpayer, either directly or indirectly through a lease or
otherwise, on property located in a tax increment financing district, as defined in section
469.174, or that receives an abatement under sections 469.1813 to 469.1815, if the
owner of the property or a related party entered into a development agreement with the
authority or political subdivision or derived a benefit from the abatement. A benefit of an
abatement includes direct payments and access or use of public improvements financed
with the abatement.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxable years beginning after
December 31, 2008.
new text end

Sec. 11.

Minnesota Statutes 2006, section 290.06, subdivision 1, is amended to read:

Subdivision 1.

Computation, corporations.

The franchise tax imposed upon
corporations shall be computed by applying to their taxable income the rate of deleted text begin 9.8 deleted text end new text begin 8.8 new text end
percent.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxable years beginning after
December 31, 2008.
new text end

Sec. 12.

Minnesota Statutes 2006, section 290.06, subdivision 2c, as amended by Laws
2008, chapter 154, article 4, section 6, 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), (6), (7), (8), (9), (11),
and (12) and reduced by the Minnesota assignable portion of the subtraction for United
States government interest under section 290.01, subdivision 19b, clause (1), and the
subtractions under section 290.01, subdivision 19b, clauses (9), deleted text begin (10), (14), (15) deleted text end new text begin (12) new text end , and
deleted text begin (16) deleted text end new text begin (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), (6), (7), (8), (9), (11), and (12) and
reduced by the amounts specified in section 290.01, subdivision 19b, clauses (1), (9),
deleted text begin (10), (14), (15) deleted text end new text begin (12) new text end , and deleted text begin (16) deleted text end new text begin (13) new text end .

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxable years beginning after
December 31, 2008.
new text end

Sec. 13.

Minnesota Statutes 2006, 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 deleted text begin including earned income excluded pursuant to section
290.01, subdivision 19b, clause (10) or (16) deleted 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.

For residents of Minnesota, the subtractions for military pay under section 290.01,
subdivision 19b, clauses (11) and (12), are not considered "earned income not subject to
tax under this chapter."

For residents of Minnesota, the exclusion of combat pay under section 112 of the
Internal Revenue Code is not considered "earned income not subject to tax under this
chapter."

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxable years beginning after
December 31, 2008.
new text end

Sec. 14.

Minnesota Statutes 2006, 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 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 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 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 deleted text begin , including income excluded under section 290.01,
subdivision 19b, clause (10) or (16) deleted 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. For purposes of this paragraph, the
subtractions for military pay under section 290.01, subdivision 19b, clauses (11) and (12),
are not considered "earned income not subject to tax under this chapter."

For the purposes of this paragraph, the exclusion of combat pay under section 112
of the Internal Revenue Code is not considered "earned income not subject to tax under
this chapter."

(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 taxable years beginning after
December 31, 2008.
new text end

Sec. 15.

Minnesota Statutes 2006, 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:

(A) for taxable years beginning before January 1, 2006, to the extent that the
deduction exceeds 1.0 percent of adjusted gross income;

(B) for taxable years beginning after December 31, 2005, to the full extent of the
deduction.

For purposes of this clause, "adjusted gross income" has the meaning given 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, clauses
(7), (8), and (9);

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 (9) to deleted text begin (16) deleted text end new text begin (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 taxable years beginning after
December 31, 2008.
new text end

Sec. 16.

Minnesota Statutes 2006, 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 deleted text begin ,
but does not include: (1) property located in a job opportunity building zone designated
under section 469.314, (2) property of a qualified business located in a biotechnology and
health sciences industry zone designated under section 469.334, or (3) for taxable years
beginning during the duration of the zone, property of a qualified business located in the
international economic development zone designated under section 469.322 deleted 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 deleted text begin , but does not include: (1) job opportunity building zone payrolls
under section 469.310, subdivision 8, (2) biotechnology and health sciences industry zone
payrolls under section 469.330, subdivision 8, or (3) for taxable years beginning during
the duration of the zone, international economic development zone payrolls under section
469.321, subdivision 9 deleted 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 taxable years beginning after
December 31, 2008.
new text end

Sec. 17.

Minnesota Statutes 2006, section 290.17, subdivision 4, is amended to read:

Subd. 4.

Unitary business principle.

(a) If a trade or business conducted wholly
within this state or partly within and partly without this state is part of a unitary business,
the entire income of the unitary business is subject to apportionment pursuant to section
290.191. Notwithstanding subdivision 2, paragraph (c), none of the income of a unitary
business is considered to be derived from any particular source and none may be allocated
to a particular place except as provided by the applicable apportionment formula. The
provisions of this subdivision do not apply to business income subject to subdivision 5,
income of an insurance company, or income of an investment company determined under
section 290.36.

(b) The term "unitary business" means business activities or operations which
result in a flow of value between them. The term may be applied within a single legal
entity or between multiple entities and without regard to whether each entity is a sole
proprietorship, a corporation, a partnership or a trust.

(c) Unity is presumed whenever there is unity of ownership, operation, and use,
evidenced by centralized management or executive force, centralized purchasing,
advertising, accounting, or other controlled interaction, but the absence of these
centralized activities will not necessarily evidence a nonunitary business. Unity is also
presumed when business activities or operations are of mutual benefit, dependent upon or
contributory to one another, either individually or as a group.

(d) Where a business operation conducted in Minnesota is owned by a business
entity that carries on business activity outside the state different in kind from that
conducted within this state, and the other business is conducted entirely outside the state, it
is presumed that the two business operations are unitary in nature, interrelated, connected,
and interdependent unless it can be shown to the contrary.

(e) Unity of ownership is not deemed to exist when a corporation is involved unless
that corporation is a member of a group of two or more business entities and more than 50
percent of the voting stock of each member of the group is directly or indirectly owned
by a common owner or by common owners, either corporate or noncorporate, or by one
or more of the member corporations of the group. For this purpose, the term "voting
stock" shall include membership interests of mutual insurance holding companies formed
under section 66A.40.

(f) The net income and apportionment factors under section 290.191 or 290.20 of
foreign corporations and other foreign entities which are part of a unitary business shall
not be included in the net income or the apportionment factors of the unitary business.
A foreign corporation or other foreign entity which is required to file a return under this
chapter shall file on a separate return basis. deleted text begin The net income and apportionment factors
under section 290.191 or 290.20 of foreign operating corporations shall not be included in
the net income or the apportionment factors of the unitary business except as provided in
paragraph (g). deleted text end

(g) deleted text begin The adjusted net income of a foreign operating corporation shall be deemed to
be paid as a dividend on the last day of its taxable year to each shareholder thereof, in
proportion to each shareholder's ownership, with which such corporation is engaged in
a unitary business. Such deemed dividend shall be treated as a dividend under section
290.21, subdivision 4. deleted text end

deleted text begin Dividends actually paid by a foreign operating corporation to a corporate shareholder
which is a member of the same unitary business as the foreign operating corporation shall
be eliminated from the net income of the unitary business in preparing a combined report
for the unitary business. The adjusted net income of a foreign operating corporation
shall be its net income adjusted as follows:
deleted text end

deleted text begin (1) any taxes paid or accrued to a foreign country, the commonwealth of Puerto
Rico, or a United States possession or political subdivision of any of the foregoing shall
be a deduction; and
deleted text end

deleted text begin (2) the subtraction from federal taxable income for payments received from foreign
corporations or foreign operating corporations under section deleted text begin 290.01, subdivision 19d deleted text end ,
clause (10), shall not be allowed.
deleted text end

deleted text begin If a foreign operating corporation incurs a net loss, neither income nor deduction
from that corporation shall be included in determining the net income of the unitary
business.
deleted text end

deleted text begin (h) deleted text end For purposes of determining the net income of a unitary business and the factors
to be used in the apportionment of net income pursuant to section 290.191 or 290.20, there
must be included only the income and apportionment factors of domestic corporations or
other domestic entities deleted text begin other than foreign operating corporations deleted text end that are determined to
be part of the unitary business pursuant to this subdivision, notwithstanding that foreign
corporations or other foreign entities might be included in the unitary business.

deleted text begin (i) deleted text end new text begin (h) new text end Deductions for expenses, interest, or taxes otherwise allowable under
this chapter that are connected with or allocable against dividends deleted text begin , deemed dividends
described in paragraph (g), or royalties, fees, or other like income described in section
290.01, subdivision 19d, clause (10), deleted text end shall not be disallowed.

deleted text begin (j) deleted text end new text begin (i) new text end Each corporation or other entity, except a sole proprietorship, that is part of
a unitary business must file combined reports as the commissioner determines. On the
reports, all intercompany transactions between entities included pursuant to paragraph
(h) must be eliminated and the entire net income of the unitary business determined in
accordance with this subdivision is apportioned among the entities by using each entity's
Minnesota factors for apportionment purposes in the numerators of the apportionment
formula and the total factors for apportionment purposes of all entities included pursuant
to paragraph (h) in the denominators of the apportionment formula.

deleted text begin (k) deleted text end new text begin (j) new text end If a corporation has been divested from a unitary business and is included in a
combined report for a fractional part of the common accounting period of the combined
report:

(1) its income includable in the combined report is its income incurred for that part
of the year determined by proration or separate accounting; and

(2) its sales, property, and payroll included in the apportionment formula must
be prorated or accounted for separately.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxable years beginning after
December 31, 2007.
new text end

Sec. 18.

Minnesota Statutes 2006, section 297B.03, is amended to read:

297B.03 EXEMPTIONS.

There is specifically exempted from the provisions of this chapter and from
computation of the amount of tax imposed by it the following:

(1) purchase or use, including use under a lease purchase agreement or installment
sales contract made pursuant to section 465.71, of any motor vehicle by the United States
and its agencies and instrumentalities and by any person described in and subject to the
conditions provided in section 297A.67, subdivision 11;

(2) purchase or use of any motor vehicle by any person who was a resident of
another state or country at the time of the purchase and who subsequently becomes a
resident of Minnesota, provided the purchase occurred more than 60 days prior to the date
such person began residing in the state of Minnesota and the motor vehicle was registered
in the person's name in the other state or country;

(3) purchase or use of any motor vehicle by any person making a valid election to be
taxed under the provisions of section 297A.90;

(4) purchase or use of any motor vehicle previously registered in the state of
Minnesota when such transfer constitutes a transfer within the meaning of section 118,
331, 332, 336, 337, 338, 351, 355, 368, 721, 731, 1031, 1033, or 1563(a) of the Internal
Revenue Code of 1986, as amended through December 31, 1999;

(5) purchase or use of any vehicle owned by a resident of another state and leased
to a Minnesota-based private or for-hire carrier for regular use in the transportation of
persons or property in interstate commerce provided the vehicle is titled in the state of
the owner or secured party, and that state does not impose a sales tax or sales tax on
motor vehicles used in interstate commerce;

(6) purchase or use of a motor vehicle by a private nonprofit or public educational
institution for use as an instructional aid in automotive training programs operated by the
institution. "Automotive training programs" includes motor vehicle body and mechanical
repair courses but does not include driver education programs;

(7) purchase of a motor vehicle for use as an ambulance by an ambulance service
licensed under section 144E.10;

(8) purchase of a motor vehicle by or for a public library, as defined in section
134.001, subdivision 2, as a bookmobile or library delivery vehicle;

(9) purchase of a ready-mixed concrete truck;

(10) purchase or use of a motor vehicle by a town for use exclusively for road
maintenance, including snowplows and dump trucks, but not including automobiles,
vans, or pickup trucks;

(11) purchase or use of a motor vehicle by a corporation, society, association,
foundation, or institution organized and operated exclusively for charitable, religious,
or educational purposes, except a public school, university, or library, but only if the
vehicle is:

(i) a truck, as defined in section 168.011, a bus, as defined in section 168.011, or a
passenger automobile, as defined in section 168.011, if the automobile is designed and
used for carrying more than nine persons including the driver; and

(ii) intended to be used primarily to transport tangible personal property or
individuals, other than employees, to whom the organization provides service in
performing its charitable, religious, or educational purpose; new text begin and
new text end

(12) purchase of a motor vehicle for use by a transit provider exclusively to provide
transit service is exempt if the transit provider is either (i) receiving financial assistance or
reimbursement under section 174.24 or 473.384, or (ii) operating under section 174.29,
473.388, or 473.405 deleted text begin ; deleted text end new text begin . new text end

deleted text begin (13) purchase or use of a motor vehicle by a qualified business, as defined in section
469.310, located in a job opportunity building zone, if the motor vehicle is principally
garaged in the job opportunity building zone and is primarily used as part of or in direct
support of the person's operations carried on in the job opportunity building zone. The
exemption under this clause applies to sales, if the purchase was made and delivery
received during the duration of the job opportunity building zone. The exemption under
this clause also applies to any local sales and use tax. deleted text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for sales and purchases made after
September 30, 2008.
new text end

Sec. 19. new text begin REPEALER.
new text end

new text begin (a) new text end new text begin Minnesota Statutes 2006, sections 272.02, subdivision 83; 290.01, subdivision
6b; 290.06, subdivisions 29, 30, 31, 32, and 33; 290.068; 290.0921; 290.191, subdivision
4; 297A.68, subdivisions 37, 38, and 41; 469.311; 469.312; 469.313; 469.314; 469.315;
469.316; 469.317; 469.318; 469.3201; 469.321, subdivisions 2, 3, 4, 5, 6, 7, 8, 9, and 10;
469.3215; 469.322; 469.323; 469.324; 469.325; 469.326; 469.327; 469.328; 469.329;
469.330; 469.331; 469.332; 469.333, subdivision 1; 469.337; 469.338; and 469.339, new text end new text begin are
repealed.
new text end

new text begin (b) new text end new text begin Minnesota Statutes 2007 Supplement, sections 272.02, subdivision 64; 469.321,
subdivision 1; 469.333, subdivision 2; 469.334; 469.335; and 469.336, new text end new text begin are repealed.
new text end

new text begin (c) new text end new text begin Laws 2005, First Special Session chapter 3, article 10, section 23, as amended by
Laws 2006, chapter 259, article 13, section 16, as amended by Laws 2008, chapter 154,
article 9, section 20, new text end new text begin is repealed.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin The provisions of this section relating to income and
corporate franchise tax are effective for taxable years beginning after December 31, 2008,
except the repeal of Minnesota Statutes, section 290.01, subdivision 6b, is effective for
taxable years beginning after December 31, 2007, and except that the repeal of Minnesota
Statutes, section 290.0921, subdivision 8, is effective for taxable years beginning after
December 31, 2010; the provisions relating to sales taxation are effective for sales and
purchases made after September 30, 2008, but do not apply to binding written contracts
entered into before that date if the sale or purchase is completed by March 31, 2009; and
the provisions affecting property taxes are effective beginning for taxes payable in 2010.
new text end