1.1                          A bill for an act
  1.2             relating to taxation; sales and use taxes; changing 
  1.3             the time limit for refund claims in certain instances; 
  1.4             allowing claims to the commissioner for refunds in 
  1.5             certain instances; providing for the tax rate 
  1.6             reduction and exemption of replacement capital 
  1.7             equipment; providing an exemption from the use tax for 
  1.8             certain de minimis purchases; making the exemption for 
  1.9             farm machinery permanent; exempting certain materials 
  1.10            used in providing taxable services; extending the 
  1.11            duration of the sales tax advisory council; amending 
  1.12            Minnesota Statutes 1994, sections 289A.50, by adding a 
  1.13            subdivision; 297A.01, subdivision 16; 297A.02, 
  1.14            subdivision 5; 297A.14, by adding a subdivision; and 
  1.15            297A.25, by adding a subdivision; Minnesota Statutes 
  1.16            1995 Supplement, sections 289A.40, subdivision 1; and 
  1.17            297A.25, subdivision 59; Laws 1995, chapter 264, 
  1.18            article 2, section 42, subdivision 1; repealing 
  1.19            Minnesota Statutes 1994, section 297A.01, subdivision 
  1.20            20. 
  1.21  BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
  1.22     Section 1.  Minnesota Statutes 1995 Supplement, section 
  1.23  289A.40, subdivision 1, is amended to read: 
  1.24     Subdivision 1.  [TIME LIMIT; GENERALLY.] Unless otherwise 
  1.25  provided in this chapter, a claim for a refund of an overpayment 
  1.26  of state tax must be filed within 3-1/2 years from the date 
  1.27  prescribed for filing the return, plus any extension of time 
  1.28  granted for filing the return, but only if filed within the 
  1.29  extended time, or one year from the date of an order assessing 
  1.30  tax under section 289A.37, subdivision 1, upon payment in full 
  1.31  of the tax, penalties, and interest shown on the order, 
  1.32  whichever period expires later.  
  1.33     Claims for refund, except for taxes under chapter 297A, 
  2.1   filed after the 3-1/2 year period but within the one-year period 
  2.2   are limited to the amount of the tax, penalties, and interest on 
  2.3   the order and to issues determined by the order. 
  2.4      In the case of assessments under section 289A.38, 
  2.5   subdivision 5 or 6, claims for refund for taxes under chapter 
  2.6   297A filed after the 3-1/2 year period but within the one-year 
  2.7   period are limited to the amount of the tax, penalties, and 
  2.8   interest on the order that are due for the period before the 
  2.9   3-1/2 year period.  
  2.10     Sec. 2.  Minnesota Statutes 1994, section 289A.50, is 
  2.11  amended by adding a subdivision to read: 
  2.12     Subd. 2a.  [REFUND OF SALES TAX TO PURCHASERS.] If a vendor 
  2.13  has collected from a purchaser a tax on a transaction that is 
  2.14  not subject to the tax imposed by chapter 297A, the purchaser 
  2.15  may apply directly to the commissioner for a refund under this 
  2.16  section if: 
  2.17     (a) the purchaser is currently registered to collect and 
  2.18  remit the sales tax; and 
  2.19     (b) the amount of the refund applied for exceeds $500 in a 
  2.20  year. 
  2.21     The purchaser may not file more than two applications for 
  2.22  refund under this subdivision in a calendar year. 
  2.23     Sec. 3.  Minnesota Statutes 1994, section 297A.01, 
  2.24  subdivision 16, is amended to read: 
  2.25     Subd. 16.  [CAPITAL EQUIPMENT.] (a) Capital equipment means 
  2.26  machinery and equipment purchased or leased for use in this 
  2.27  state and used by the purchaser or lessee primarily for 
  2.28  manufacturing, fabricating, mining, or refining tangible 
  2.29  personal property to be sold ultimately at retail and for 
  2.30  electronically transmitting results retrieved by a customer of 
  2.31  an on-line computerized data retrieval system.  
  2.32     (b) Capital equipment includes all machinery and equipment 
  2.33  that is essential to the integrated production process.  Capital 
  2.34  equipment includes, but is not limited to: 
  2.35     (1) machinery and equipment used or required to operate, 
  2.36  control, or regulate the production equipment; 
  3.1      (2) machinery and equipment used for research and 
  3.2   development, design, quality control, and testing activities; 
  3.3      (3) environmental control devices that are used to maintain 
  3.4   conditions such as temperature, humidity, light, or air pressure 
  3.5   when those conditions are essential to and are part of the 
  3.6   production process; or 
  3.7      (4) materials and supplies necessary to construct and 
  3.8   install machinery or equipment; 
  3.9      (5) repair and replacement parts, including accessories, 
  3.10  whether purchased as spare parts, repair parts, or as upgrades 
  3.11  or modifications to machinery or equipment; 
  3.12     (6) replacement or enhanced software used or required to 
  3.13  operate, control, or regulate machinery or equipment; or 
  3.14     (7) materials used for foundations that support machinery 
  3.15  or equipment or special purpose buildings used in the production 
  3.16  process. 
  3.17     (c) Capital equipment does not include the following: 
  3.18     (1) repair or replacement parts, including accessories, 
  3.19  whether purchased as spare parts, repair parts, or as upgrades 
  3.20  or modifications, and whether purchased before or after the 
  3.21  machinery or equipment is placed into service.  Parts or 
  3.22  accessories are treated as capital equipment only to the extent 
  3.23  that they are a part of and are essential to the operation of 
  3.24  the machinery or equipment as initially purchased; 
  3.25     (2) motor vehicles taxed under chapter 297B; 
  3.26     (3) (2) machinery or equipment used to receive or store raw 
  3.27  materials; 
  3.28     (4) (3) building materials; 
  3.29     (5) (4) machinery or equipment used for nonproduction 
  3.30  purposes, including, but not limited to, the following:  
  3.31  machinery and equipment used for plant security, fire 
  3.32  prevention, first aid, and hospital stations; machinery and 
  3.33  equipment used in support operations or for administrative 
  3.34  purposes; machinery and equipment used solely for pollution 
  3.35  control, prevention, or abatement; and machinery and equipment 
  3.36  used in plant cleaning, disposal of scrap and waste, plant 
  4.1   communications, space heating, lighting, or safety; 
  4.2      (6) (5) "farm machinery" as defined by subdivision 15, and 
  4.3   "aquaculture production equipment" as defined by subdivision 19, 
  4.4   and "replacement capital equipment" as defined by subdivision 
  4.5   20; or 
  4.6      (7) (6) any other item that is not essential to the 
  4.7   integrated process of manufacturing, fabricating, mining, or 
  4.8   refining. 
  4.9      (d) For purposes of this subdivision: 
  4.10     (1) "Equipment" means independent devices or tools separate 
  4.11  from machinery but essential to an integrated production 
  4.12  process, including computers and software, used in operating, 
  4.13  controlling, or regulating machinery and equipment; and any 
  4.14  subunit or assembly comprising a component of any machinery or 
  4.15  accessory or attachment parts of machinery, such as tools, dies, 
  4.16  jigs, patterns, and molds. 
  4.17     (2) "Fabricating" means to make, build, create, produce, or 
  4.18  assemble components or property to work in a new or different 
  4.19  manner. 
  4.20     (3) "Machinery" means mechanical, electronic, or electrical 
  4.21  devices, including computers and software, that are purchased or 
  4.22  constructed to be used for the activities set forth in paragraph 
  4.23  (a), beginning with the removal of raw materials from inventory 
  4.24  through the completion of the product, including packaging of 
  4.25  the product. 
  4.26     (4) "Manufacturing" means an operation or series of 
  4.27  operations where raw materials are changed in form, composition, 
  4.28  or condition by machinery and equipment and which results in the 
  4.29  production of a new article of tangible personal property.  For 
  4.30  purposes of this subdivision, "manufacturing" includes the 
  4.31  generation of electricity or steam to be sold at retail. 
  4.32     (5) "Mining" means the extraction of minerals, ores, stone, 
  4.33  and peat. 
  4.34     (6) "On-line data retrieval system" means a system whose 
  4.35  cumulation of information is equally available and accessible to 
  4.36  all its customers. 
  5.1      (7) "Pollution control equipment" means machinery and 
  5.2   equipment used to eliminate, prevent, or reduce pollution 
  5.3   resulting from an activity described in paragraph (a). 
  5.4      (8) "Primarily" means machinery and equipment used 50 
  5.5   percent or more of the time in an activity described in 
  5.6   paragraph (a). 
  5.7      (9) "Refining" means the process of converting a natural 
  5.8   resource to a product, including the treatment of water to be 
  5.9   sold at retail. 
  5.10     (e) For purposes of this subdivision the requirement that 
  5.11  the machinery or equipment "must be used by the purchaser or 
  5.12  lessee" means that the person who purchases or leases the 
  5.13  machinery or equipment must be the one who uses it for the 
  5.14  qualifying purpose.  When a contractor buys and installs 
  5.15  machinery or equipment as part of an improvement to real 
  5.16  property, only the contractor is considered the purchaser. 
  5.17     (f) Notwithstanding prior provisions of this subdivision, 
  5.18  machinery and equipment purchased or leased to replace machinery 
  5.19  and equipment used in the mining or production of taconite shall 
  5.20  qualify as capital equipment. 
  5.21     Sec. 4.  Minnesota Statutes 1994, section 297A.02, 
  5.22  subdivision 5, is amended to read: 
  5.23     Subd. 5.  [REPLACEMENT CAPITAL EQUIPMENT.] Notwithstanding 
  5.24  the provisions of subdivision 1, the rate of excise tax imposed 
  5.25  upon retail sales of replacement capital equipment is: 
  5.26     for purchases after June 30, 1994, and prior to July 1, 
  5.27  1995, 5.0 percent, 
  5.28     for purchases after June 30, 1995, and prior to July 1, 
  5.29  1996, 4.0 percent, 
  5.30     for purchases after June 30, 1996, and prior to July 1, 
  5.31  1997, 3.8 3.0 percent, 
  5.32     for purchases after June 30, 1997, and prior to July 1, 
  5.33  1998, 2.9 1.5 percent, and 
  5.34     for purchases after June 30, 1998, 2.0 percent zero. 
  5.35     This subdivision shall cease to be operative on July 1, 
  5.36  2001, or on July 1 of the earliest year thereafter, if the total 
  6.1   employment in the manufacturing sector in this state, as 
  6.2   determined by the commissioner of economic security on the 
  6.3   preceding January 1, does not exceed by 4,500 the total 
  6.4   employment in the manufacturing sector in the state on January 
  6.5   1, 1994. 
  6.6      Sec. 5.  Minnesota Statutes 1994, section 297A.14, is 
  6.7   amended by adding a subdivision to read: 
  6.8      Subd. 4.  [DE MINIMIS EXEMPTION.] Purchases subject to use 
  6.9   tax under this section are exempt if (1) the purchase is made by 
  6.10  an individual for personal use, and (2) the total purchases that 
  6.11  are subject to the use tax do not exceed $770 in the calendar 
  6.12  year.  For purposes of this subdivision, "personal use" includes 
  6.13  purchases for gifts. 
  6.14     Sec. 6.  Minnesota Statutes 1995 Supplement, section 
  6.15  297A.25, subdivision 59, is amended to read: 
  6.16     Subd. 59.  [FARM MACHINERY.] From July 1, 1994, until June 
  6.17  30, 1996, The gross receipts from the sale of used farm 
  6.18  machinery are exempt. 
  6.19     Sec. 7.  Minnesota Statutes 1994, section 297A.25, is 
  6.20  amended by adding a subdivision to read: 
  6.21     Subd. 62.  [MATERIALS USED IN PROVIDING TAXABLE SERVICES.] 
  6.22     The gross receipts from the sale of and the storage, use, 
  6.23  or consumption of all materials, including chemicals, fuels, 
  6.24  petroleum products, lubricants, packaging materials, seeds, 
  6.25  trees, fertilizers, herbicides, electricity, gas and steam, used 
  6.26  or consumed in the provision of a taxable service intended to be 
  6.27  sold ultimately at retail, are exempt.  Materials, including 
  6.28  chemicals, fuels, and electricity purchased by persons engaged 
  6.29  in providing a taxable service to treat waste generated as a 
  6.30  result of providing the service are included in this exemption.  
  6.31  Machinery, equipment, implements, tools, accessories, 
  6.32  appliances, contrivances, furniture and fixtures, used in such 
  6.33  production and fuel, electricity, gas or steam used for space 
  6.34  heating or lighting, are not included within this exemption; 
  6.35  however, accessory tools, equipment and other short-lived items, 
  6.36  which are separate detachable units used in providing the 
  7.1   service, where such items have an ordinary useful life of less 
  7.2   than 12 months, are included within the exemption. 
  7.3      For purposes of this subdivision, "taxable service" means 
  7.4   the services listed in section 297A.01, subdivision 3, clause 
  7.5   (i), except for solid waste management services as described in 
  7.6   section 297A.45. 
  7.7      Sec. 8.  Laws 1995, chapter 264, article 2, section 42, 
  7.8   subdivision 1, is amended to read: 
  7.9      Subdivision 1.  [CREATION; MEMBERSHIP.] (a) A state 
  7.10  advisory council is established to study the general and motor 
  7.11  vehicle sales and use taxes under Minnesota Statutes 1994, 
  7.12  chapters 297A and 297B, and to make recommendations to the 1996 
  7.13  legislature and the 1997 legislature.  The study shall be 
  7.14  completed and Interim findings shall be reported to the 
  7.15  legislature by February 1, 1996.  The study shall be completed 
  7.16  and a final report submitted to the legislature by January 1, 
  7.17  1997. 
  7.18     (b) The advisory council consists of 17 members who serve 
  7.19  at the pleasure of the appointing authority as follows: 
  7.20     (1) ten legislators; five members of the senate, including 
  7.21  two members of the minority party, appointed by the subcommittee 
  7.22  on committees of the committee on rules and administration and 
  7.23  five members of the house of representatives, including two 
  7.24  members of the minority party, appointed by the speaker; 
  7.25     (2) the commissioner of revenue or the commissioner's 
  7.26  designee; and 
  7.27     (3) six members of the public; two appointed by the 
  7.28  subcommittee on committees of the committee on rules and 
  7.29  administration of the senate, two appointed by the speaker of 
  7.30  the house, and two appointed by the governor.  At least one 
  7.31  member of the public that is appointed by each entity must 
  7.32  represent a consumer interest group or other private citizen 
  7.33  group, public policy organization, or university department of 
  7.34  public policy or economics. 
  7.35     Sec. 9.  [REPEALER.] 
  7.36     Minnesota Statutes 1994, section 297A.01, subdivision 20, 
  8.1   is repealed. 
  8.2      Sec. 10.  [EFFECTIVE DATES.] 
  8.3      Sections 1 and 8 are effective the day after final 
  8.4   enactment.  Section 2 is effective for refunds applied for after 
  8.5   December 31, 1996.  Section 5 is effective for purchases made 
  8.6   after December 31, 1996.  Sections 3 and 9 are effective for 
  8.7   sales made after June 30, 1998.  Sections 4, 6, and 7 are 
  8.8   effective for sales made after June 30, 1996.