1.1                          A bill for an act 
  1.2             relating to finance; reducing appropriations to state 
  1.3             agencies in the executive and legislative branches for 
  1.4             fiscal years 2004 and 2005; providing for a loan to 
  1.5             the general fund; requiring reports and 
  1.6             recommendations to bring the state budget into 
  1.7             compliance with generally accepted governmental 
  1.8             accounting principles; requiring disclosure of the 
  1.9             impact of inflation on state expenditures; reducing 
  1.10            the number of deputy and assistant commissioners in 
  1.11            state agencies; reducing the number of unclassified 
  1.12            positions in state agencies; reducing the upper limit 
  1.13            of salaries in state agencies; imposing limitations on 
  1.14            state agency spending; providing for a temporary delay 
  1.15            in certification of district judge vacancies; 
  1.16            requiring state contractors to register and collect 
  1.17            sales tax; changing definition of foreign operating 
  1.18            corporations; limiting income tax deductions; 
  1.19            allocating income for tax purposes; requiring payment 
  1.20            of sales tax on leases of motor vehicles; defining 
  1.21            industrial production and capital equipment; providing 
  1.22            for collection of sales tax on cigarettes; reduction 
  1.23            in appropriation; amending Minnesota Statutes 2002, 
  1.24            sections 15.06, subdivision 8; 16A.055, subdivision 1; 
  1.25            16A.103, subdivisions 1a, 1b; 16A.11, subdivision 2; 
  1.26            16B.03; 16C.03, by adding a subdivision; 43A.03, 
  1.27            subdivision 3; 43A.17, subdivisions 1, 4; 45.013; 
  1.28            116.03, subdivision 1; 116J.01, subdivision 5; 174.02, 
  1.29            subdivision 2; 241.01, subdivision 2; 272.01, by 
  1.30            adding a subdivision; 290.01, subdivision 6b; 290.17, 
  1.31            subdivisions 2, 4; 290.191, subdivisions 5, 6, 10, 11; 
  1.32            297A.61, subdivision 4; 297A.67, by adding a 
  1.33            subdivision; Minnesota Statutes 2003 Supplement, 
  1.34            sections 15.01; 15.06, subdivision 1; 15A.0815, 
  1.35            subdivision 2; 43A.08, subdivision 1; 84.01, 
  1.36            subdivision 3; 290.01, subdivisions 19c, 19d; 297A.61, 
  1.37            subdivision 7; 297A.68, subdivisions 2, 5; proposing 
  1.38            coding for new law in Minnesota Statutes, chapters 
  1.39            290; 297F; 465; repealing Minnesota Statutes 2002, 
  1.40            sections 43A.03, subdivision 4; 43A.08, subdivision 
  1.41            1b; 116J.01, subdivision 4; Minnesota Statutes 2003 
  1.42            Supplement, section 43A.08, subdivision 1a. 
  1.43  BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
  1.44                             ARTICLE 1
  2.1                            APPROPRIATIONS
  2.2   Section 1.  [STATE AGENCY APPROPRIATIONS.] 
  2.3      The dollar amounts shown in the columns marked 
  2.4   "APPROPRIATIONS" and shown in parentheses are subtracted from 
  2.5   the general fund appropriations for state agency operations in 
  2.6   the laws and to the state agencies indicated.  The figures 
  2.7   "2004" and "2005" used in this article mean that the 
  2.8   appropriation or appropriations listed under them are for the 
  2.9   fiscal years ending June 30, 2004, and June 30, 2005, 
  2.10  respectively.  The commissioner of finance, after notice to the 
  2.11  chairs of the senate Committee on Finance and the house of 
  2.12  representatives Committee on Ways and Means, may reallocate 
  2.13  these reductions among the listed agencies in the executive 
  2.14  branch in order to minimize disruption of state agency 
  2.15  operations or maximize the receipt of state revenue, or both.  
  2.16  Reductions may not be taken from appropriations for grants 
  2.17  unless specifically authorized by 2004 H.F. No. 2028 or other 
  2.18  law. 
  2.19                              SUMMARY 
  2.20                        (General Fund Only)
  2.21                            2004          2005           TOTAL
  2.22  APPROPRIATIONS       $(15,600,000)  $(26,564,000)  $(42,164,000)
  2.23  TRANSFERS IN              -0-        (39,447,000)   (39,447,000)
  2.24  TOTAL                $(15,600,000)  $(66,011,000)  $(81,611,000)
  2.25                                             APPROPRIATIONS 
  2.26                                         Available for the Year 
  2.27                                             Ending June 30 
  2.28                                            2004         2005 
  2.29  Sec. 2.  [2004 REDUCTION.]           (12,000,000)       -0-
  2.30  The commissioner of finance shall 
  2.31  reduce general fund appropriations to 
  2.32  executive branch agencies and 
  2.33  constitutional officers for state 
  2.34  agency operations, and to the 
  2.35  legislature, in the fiscal year ending 
  2.36  June 30, 2004, by a total of 
  2.37  $12,000,000.  This reduction does not 
  2.38  apply to the judicial branch or to the 
  2.39  Minnesota State Colleges and 
  2.40  Universities.  The reduction to 
  2.41  constitutional officers must be the 
  2.42  same percentage of each officer's 
  2.43  general fund appropriation.  No 
  2.44  reduction may be taken from 
  2.45  appropriations to the attorney 
  3.1   general.  The reduction to the 
  3.2   legislature must be $232,000 to the 
  3.3   senate and $258,000 to the house of 
  3.4   representatives.  The commissioner 
  3.5   shall base the reduction on the amount 
  3.6   carried forward from fiscal year 2003 
  3.7   to fiscal year 2004 under Laws 2003, 
  3.8   First Special Session chapter 1, 
  3.9   article 2, section 127.  No positions 
  3.10  in the classified service may be 
  3.11  eliminated.  
  3.12  Sec. 3.  [EDUCATION.] 
  3.13  Subdivision 1.  The reductions in this 
  3.14  section are from appropriations in Laws 
  3.15  2003, First Special Session chapter 9. 
  3.16  Subd. 2.  EDUCATION                      -0-         (1,137,000)
  3.17  Subd. 3.  FARIBAULT         
  3.18  STATE ACADEMIES                          -0-            (52,000)
  3.19  Subd. 4.  PERPICH CENTER    
  3.20  FOR ARTS EDUCATION                       -0-           (298,000)
  3.21  Sec. 4.  HIGHER EDUCATION
  3.22  SERVICES OFFICE                        (3,600,000)   (1,740,000)
  3.23  The reductions in this section are from 
  3.24  appropriations in Laws 2003, chapter 
  3.25  133. 
  3.26  $3,600,000 the first year and 
  3.27  $1,600,000 the second year are from the 
  3.28  appropriation for interstate 
  3.29  reciprocity. 
  3.30  Sec. 5.  [ENVIRONMENT, AGRICULTURE
  3.31  AND ECONOMIC DEVELOPMENT.]
  3.32  Subdivision 1.  The reductions in this 
  3.33  section are from the appropriations in 
  3.34  Laws 2003, chapter 128, article 1. 
  3.35  Subd. 2.  POLLUTION CONTROL 
  3.36  AGENCY                                   -0-           (468,000)
  3.37  Subd. 3.  OFFICE OF         
  3.38  ENVIRONMENTAL ASSISTANCE                 -0-           (220,000)
  3.39  Subd. 4.  ZOOLOGICAL BOARD               -0-           (328,000)
  3.40  Subd. 5.  NATURAL RESOURCES              -0-         (3,777,000)
  3.41  Subd. 6.  BOARD OF WATER 
  3.42  AND SOIL RESOURCES                       -0-           (212,000)
  3.43  Subd. 7.  AGRICULTURE                    -0-           (828,000)
  3.44  Subd. 8.  BOARD OF ANIMAL   
  3.45  HEALTH                                   -0-           (140,000)
  3.46  Sec. 6.  [ECONOMIC DEVELOPMENT.]
  3.47  Subdivision 1.  The reductions in this 
  3.48  section are from the appropriations in 
  3.49  Laws 2003, chapter 128, article 10. 
  3.50  Subd. 2.  EMPLOYMENT AND    
  3.51  ECONOMIC DEVELOPMENT                     -0-           (990,000)
  4.1   Subd. 3.  HOUSING FINANCE AGENCY         -0-         (1,047,000)
  4.2   Subd. 4.  LABOR AND INDUSTRY             -0-           (142,000)
  4.3   Sec. 7.  TRANSPORTATION                  -0-            (25,000)
  4.4   The reductions in this section are from 
  4.5   the appropriations in Laws 2003, First 
  4.6   Special Session chapter 19. 
  4.7   Sec. 8.  [STATE GOVERNMENT.]
  4.8   Subdivision 1.  The reductions in this 
  4.9   section are from the appropriations in 
  4.10  Laws 2003, First Special Session 
  4.11  chapter 1, article 1, and chapter 2. 
  4.12  Subd. 2.  GOVERNOR AND      
  4.13  LIEUTENANT GOVERNOR                      -0-           (180,000)
  4.14  Subd. 3.  STATE AUDITOR                  -0-           (415,000)
  4.15  Subd. 4.  ATTORNEY GENERAL               -0-         (1,128,000)
  4.16  Subd. 5.  SECRETARY OF STATE             -0-           (302,000)
  4.17  Subd. 6.  ADMINISTRATION                 -0-           (720,000)
  4.18  Subd. 7.  FINANCE                        -0-           (760,000)
  4.19  Subd. 8.  EMPLOYEE RELATIONS             -0-           (310,000)
  4.20  Subd. 9.  REVENUE                        -0-         (2,337,000)
  4.21  Subd. 10.  MILITARY AFFAIRS              -0-           (370,000)
  4.22  Subd. 11.  VETERANS AFFAIRS              -0-           (130,000)
  4.23  Subd. 12.  COMMERCE                      -0-           (578,000)
  4.24  Subd. 13.  HUMAN RIGHTS                  -0-           (175,000)
  4.25  Subd. 14.  PUBLIC SAFETY                 -0-         (2,617,000)
  4.26  Sec. 9.  [HEALTH AND HUMAN SERVICES.]
  4.27  Subdivision 1.  The reductions in this 
  4.28  section are from appropriations in Laws 
  4.29  2003, First Special Session chapter 14, 
  4.30  article 13C. 
  4.31  Subd. 2.  HUMAN SERVICES                 -0-         (3,835,000)
  4.32  Notwithstanding Minnesota Statutes, 
  4.33  section 295.581, by June 30, 2005, the 
  4.34  commissioner of finance shall transfer 
  4.35  from the unobligated balance in the 
  4.36  health care access fund to the general 
  4.37  fund the amount needed to eliminate any 
  4.38  negative unrestricted balance in the 
  4.39  general fund.  The amount transferred 
  4.40  is estimated to be $39,447,000.  By 
  4.41  July 5, 2005, the commissioner of 
  4.42  finance shall transfer the amount that 
  4.43  was actually transferred to the general 
  4.44  fund back to the health care access 
  4.45  fund. 
  4.46  Subd. 3.  HEALTH                         -0-         (1,153,000)
  5.1   Subd. 4.  VETERANS HOMES BOARD           -0-           (150,000)
  5.2      Sec. 10.  Minnesota Statutes 2003 Supplement, section 
  5.3   15.01, is amended to read: 
  5.4      15.01 [DEPARTMENTS OF THE STATE.] 
  5.5      The following agencies are designated as the departments of 
  5.6   the state government:  the Department of Administration; the 
  5.7   Department of Agriculture; the Department of Commerce; the 
  5.8   Department of Corrections; the Department of Education; the 
  5.9   Department of Economic Security; the Department of Employee 
  5.10  Relations; the Department of Employment and Economic 
  5.11  Development; the Department of Finance; the Department of 
  5.12  Health; the Department of Human Rights; the Department of Human 
  5.13  Services; the Department of Labor and Industry; the Department 
  5.14  of Military Affairs; the Department of Natural Resources; the 
  5.15  Department of Employee Relations; the Department of Public 
  5.16  Safety; the Department of Human Services; the Department of 
  5.17  Revenue; the Department of Transportation; the Department of 
  5.18  Veterans Affairs; and their successor departments. 
  5.19     Sec. 11.  Minnesota Statutes 2003 Supplement, section 
  5.20  15.06, subdivision 1, is amended to read: 
  5.21     Subdivision 1.  [APPLICABILITY.] This section applies to 
  5.22  the following departments or agencies:  the Departments of 
  5.23  Administration, Agriculture, Commerce, Corrections, Economic 
  5.24  Security, Education, Employee Relations, Employment and Economic 
  5.25  Development, Finance, Health, Human Rights, Human Services, 
  5.26  Labor and Industry, Natural Resources, Public Safety, Human 
  5.27  Services, Revenue, Transportation, and Veterans Affairs; the 
  5.28  Housing Finance and Pollution Control Agencies; the Office of 
  5.29  Commissioner of Iron Range Resources and Rehabilitation; the 
  5.30  Bureau of Mediation Services; and their successor departments 
  5.31  and agencies.  The heads of the foregoing departments or 
  5.32  agencies are "commissioners." 
  5.33     Sec. 12.  Minnesota Statutes 2002, section 15.06, 
  5.34  subdivision 8, is amended to read: 
  5.35     Subd. 8.  [NUMBER OF DEPUTY COMMISSIONERS.] Unless 
  5.36  specifically authorized by statute, other than section 43A.08, 
  6.1   subdivision 2, No department or agency specified in subdivision 
  6.2   1 shall have more than one deputy commissioner.  
  6.3      Sec. 13.  Minnesota Statutes 2003 Supplement, section 
  6.4   15A.0815, subdivision 2, is amended to read: 
  6.5      Subd. 2.  [GROUP I SALARY LIMITS.] The salaries for 
  6.6   positions in this subdivision may not exceed 95 percent of the 
  6.7   salary of the governor:  
  6.8      Commissioner of administration; 
  6.9      Commissioner of agriculture; 
  6.10     Commissioner of education; 
  6.11     Commissioner of commerce; 
  6.12     Commissioner of corrections; 
  6.13     Commissioner of economic security; 
  6.14     Commissioner of education; 
  6.15     Commissioner of employee relations; 
  6.16     Commissioner of employment and economic development; 
  6.17     Commissioner of finance; 
  6.18     Commissioner of health; 
  6.19     Executive director, Higher Education Services Office; 
  6.20     Commissioner, Housing Finance Agency; 
  6.21     Commissioner of human rights; 
  6.22     Commissioner of human services; 
  6.23     Executive director, State Board of Investment; 
  6.24     Commissioner of labor and industry; 
  6.25     Commissioner of natural resources; 
  6.26     Director of Office of Strategic and Long-Range Planning; 
  6.27     Commissioner, Pollution Control Agency; 
  6.28     Commissioner of public safety; 
  6.29     Commissioner of revenue; 
  6.30     Commissioner of employment and economic development; 
  6.31     Commissioner of transportation; and 
  6.32     Commissioner of veterans affairs. 
  6.33     Sec. 14.  Minnesota Statutes 2002, section 16A.055, 
  6.34  subdivision 1, is amended to read: 
  6.35     Subdivision 1.  [LIST.] (a) The commissioner shall:  
  6.36     (1) receive and record all money paid into the state 
  7.1   treasury and safely keep it until lawfully paid out; 
  7.2      (2) manage the state's financial affairs; 
  7.3      (3) keep the state's general account books according to 
  7.4   generally accepted government accounting principles; 
  7.5      (4) keep expenditure and revenue accounts according to 
  7.6   generally accepted government accounting principles; 
  7.7      (5) develop, provide instructions for, prescribe, and 
  7.8   manage a state uniform accounting system; 
  7.9      (6) provide to the state the expertise to ensure that all 
  7.10  state funds are accounted for under generally accepted 
  7.11  government accounting principles; and 
  7.12     (7) coordinate the development of, and maintain standards 
  7.13  for, internal auditing in state agencies and, in cooperation 
  7.14  with the commissioner of administration, report to the 
  7.15  legislature and the governor by January 31 of odd-numbered 
  7.16  years, on progress made. 
  7.17     (b) As part of the comprehensive annual financial report, 
  7.18  the commissioner shall list any laws that require the state's 
  7.19  general fund budget not to be reported in accordance with 
  7.20  generally accepted governmental accounting principles. 
  7.21     Sec. 15.  Minnesota Statutes 2002, section 16A.103, 
  7.22  subdivision 1a, is amended to read: 
  7.23     Subd. 1a.  [FORECAST PARAMETERS.] The forecast must assume 
  7.24  the continuation of current laws and reasonable estimates of 
  7.25  projected growth in the national and state economies and 
  7.26  affected populations.  Revenue must be estimated for all sources 
  7.27  provided for in current law.  Expenditures must be estimated for 
  7.28  all obligations imposed by law and those projected to occur as a 
  7.29  result of inflation and variables outside the control of the 
  7.30  legislature.  Expenditure estimates must not include an 
  7.31  allowance for inflation. 
  7.32     Sec. 16.  Minnesota Statutes 2002, section 16A.103, 
  7.33  subdivision 1b, is amended to read: 
  7.34     Subd. 1b.  [FORECAST VARIABLE.] In determining the rate of 
  7.35  inflation, the application of inflation, the amount of state 
  7.36  bonding as it affects debt service, the calculation of 
  8.1   investment income, and the other variables to be included in the 
  8.2   expenditure part of the forecast, the commissioner must consult 
  8.3   with the chairs and lead minority members of the senate State 
  8.4   Government Finance Committee and the house Ways and Means 
  8.5   Committee, and legislative fiscal staff.  This consultation must 
  8.6   occur at least three weeks before the forecast is to be 
  8.7   released.  No later than two weeks prior to the release of the 
  8.8   forecast, the commissioner must inform the chairs and lead 
  8.9   minority members of the senate State Government Finance 
  8.10  Committee and the house Ways and Means Committee, and 
  8.11  legislative fiscal staff of any changes in these variables from 
  8.12  the previous forecast. 
  8.13     Sec. 17.  Minnesota Statutes 2002, section 16A.11, 
  8.14  subdivision 2, is amended to read: 
  8.15     Subd. 2.  [PART ONE:  MESSAGE.] Part one of the budget, the 
  8.16  governor's message, shall include the governor's recommendations 
  8.17  on the financial policy of the state for the coming biennium, 
  8.18  describing the important features of the budget plan, embracing 
  8.19  a general budget summary setting forth the aggregate figures of 
  8.20  the budget so as to show the balanced relation between the total 
  8.21  proposed expenditures and the total anticipated income, with the 
  8.22  basis and factors on which the estimates are made, the amount to 
  8.23  be borrowed, and other means of financing the budget for the 
  8.24  coming biennium, compared with the corresponding figures for at 
  8.25  least the last two completed fiscal years and the current year.  
  8.26  The budget plan must include recommendations on how to bring the 
  8.27  budget into compliance with generally accepted governmental 
  8.28  accounting principles.  The budget plan shall be supported by 
  8.29  explanatory schedules or statements, classifying its 
  8.30  expenditures by agencies and funds, and the income by agencies, 
  8.31  sources, funds, and the proposed amount of new borrowing, as 
  8.32  well as proposed new tax or revenue sources.  The budget plan 
  8.33  shall be submitted for all special and dedicated funds, as well 
  8.34  as the general fund, and shall include the estimated amounts of 
  8.35  federal aids, for whatever purpose provided, together with 
  8.36  estimated expenditures from them.  
  9.1      Sec. 18.  Minnesota Statutes 2002, section 16B.03, is 
  9.2   amended to read: 
  9.3      16B.03 [APPOINTMENTS.] 
  9.4      The commissioner is authorized to appoint staff, including 
  9.5   two one deputy commissioners commissioner, in accordance with 
  9.6   chapter 43A.  
  9.7      Sec. 19.  Minnesota Statutes 2002, section 43A.03, 
  9.8   subdivision 3, is amended to read: 
  9.9      Subd. 3.  [ORGANIZATION.] The commissioner may appoint a 
  9.10  deputy commissioner in the unclassified service.  The department 
  9.11  shall be organized into two bureaus which shall be designated 
  9.12  the Personnel Bureau and the Labor Relations Bureau.  Each 
  9.13  bureau shall be responsible for administering the duties and 
  9.14  functions assigned to it by law.  When the duties of the bureaus 
  9.15  are not mandated by law, the commissioner may establish and 
  9.16  revise the assignments of either bureau.  Each bureau shall be 
  9.17  under the direction of a deputy commissioner.  
  9.18     Sec. 20.  Minnesota Statutes 2003 Supplement, section 
  9.19  43A.08, subdivision 1, is amended to read: 
  9.20     Subdivision 1.  [UNCLASSIFIED POSITIONS.] Unclassified 
  9.21  positions are held by employees who are: 
  9.22     (1) chosen by election or appointed to fill an elective 
  9.23  office; 
  9.24     (2) heads of agencies required by law to be appointed by 
  9.25  the governor or other elective officers, and the executive or 
  9.26  administrative heads of departments, bureaus, divisions, and 
  9.27  institutions specifically established by law in the unclassified 
  9.28  service; 
  9.29     (3) deputy and assistant agency heads and one confidential 
  9.30  secretary in the agencies listed in subdivision 1a and in the 
  9.31  Office of Strategic and Long-Range Planning section 15.06, 
  9.32  subdivision 1; 
  9.33     (4) the confidential secretary to each of the elective 
  9.34  officers of this state and, for the secretary of state and state 
  9.35  auditor, an additional deputy, clerk, or employee; 
  9.36     (5) intermittent help employed by the commissioner of 
 10.1   public safety to assist in the issuance of vehicle licenses; 
 10.2      (6) employees in the offices of the governor and of the 
 10.3   lieutenant governor and one confidential employee for the 
 10.4   governor in the Office of the Adjutant General; 
 10.5      (7) employees of the Washington, D.C., office of the state 
 10.6   of Minnesota; 
 10.7      (8) employees of the legislature and of legislative 
 10.8   committees or commissions; provided that employees of the 
 10.9   Legislative Audit Commission, except for the legislative 
 10.10  auditor, the deputy legislative auditors, and their confidential 
 10.11  secretaries, shall be employees in the classified service; 
 10.12     (9) presidents, vice-presidents, deans, other managers and 
 10.13  professionals in academic and academic support programs, 
 10.14  administrative or service faculty, teachers, research 
 10.15  assistants, and student employees eligible under terms of the 
 10.16  federal Economic Opportunity Act work study program in the 
 10.17  Perpich Center for Arts Education and the Minnesota State 
 10.18  Colleges and Universities, but not the custodial, clerical, or 
 10.19  maintenance employees, or any professional or managerial 
 10.20  employee performing duties in connection with the business 
 10.21  administration of these institutions; 
 10.22     (10) officers and enlisted persons in the National Guard; 
 10.23     (11) attorneys, legal assistants, and three confidential 
 10.24  employees appointed by the attorney general or employed with the 
 10.25  attorney general's authorization; 
 10.26     (12) judges and all employees of the judicial branch, 
 10.27  referees, receivers, jurors, and notaries public, except 
 10.28  referees and adjusters employed by the Department of Labor and 
 10.29  Industry; 
 10.30     (13) members of the State Patrol; provided that selection 
 10.31  and appointment of State Patrol troopers must be made in 
 10.32  accordance with applicable laws governing the classified 
 10.33  service; 
 10.34     (14) chaplains employed by the state; 
 10.35     (15) examination monitors and intermittent training 
 10.36  instructors employed by the Departments of Employee Relations 
 11.1   and Commerce and by professional examining boards and 
 11.2   intermittent staff employed by the technical colleges for the 
 11.3   administration of practical skills tests and for the staging of 
 11.4   instructional demonstrations; 
 11.5      (16) student workers; 
 11.6      (17) executive directors or executive secretaries appointed 
 11.7   by and reporting to any policy-making board or commission 
 11.8   established by statute; 
 11.9      (18) employees unclassified pursuant to other statutory 
 11.10  authority; 
 11.11     (19) intermittent help employed by the commissioner of 
 11.12  agriculture to perform duties relating to pesticides, 
 11.13  fertilizer, and seed regulation; 
 11.14     (20) the administrators and the deputy administrators at 
 11.15  the state academies for the deaf and the blind; and 
 11.16     (21) chief executive officers in the Department of Human 
 11.17  Services. 
 11.18     Sec. 21.  Minnesota Statutes 2002, section 43A.17, 
 11.19  subdivision 1, is amended to read: 
 11.20     Subdivision 1.  [SALARY LIMITS.] As used in subdivisions 1 
 11.21  to 9, "salary" means hourly, monthly, or annual rate of pay 
 11.22  including any lump-sum payments and cost-of-living adjustment 
 11.23  increases but excluding payments due to overtime worked, shift 
 11.24  or equipment differentials, work out of class as required by 
 11.25  collective bargaining agreements or plans established under 
 11.26  section 43A.18, and back pay on reallocation or other payments 
 11.27  related to the hours or conditions under which work is performed 
 11.28  rather than to the salary range or rate to which a class is 
 11.29  assigned.  For presidents of state universities, "salary" does 
 11.30  not include a housing allowance provided through a compensation 
 11.31  plan approved under section 43A.18, subdivision 3a. 
 11.32     The salary, as established in section 15A.0815, of the head 
 11.33  of a state agency in the executive branch is The upper limit on 
 11.34  the salaries of individual employees in the an agency listed in 
 11.35  section 15A.0815 is 88 percent of the salary of the agency head. 
 11.36  However, if an agency head is assigned a salary that is would 
 12.1   make the salary limit lower than the current salary of another 
 12.2   agency employee, the employee retains the salary, but may not 
 12.3   receive an increase in salary as long as the salary is 
 12.4   above that of the agency head the salary limit.  The 
 12.5   commissioner may grant exemptions from these upper limits as 
 12.6   provided in subdivisions 3 and 4. 
 12.7      Sec. 22.  Minnesota Statutes 2002, section 43A.17, 
 12.8   subdivision 4, is amended to read: 
 12.9      Subd. 4.  [EXCEPTIONS.] (a) The commissioner may without 
 12.10  regard to subdivision 1 establish special salary rates and plans 
 12.11  of compensation designed to attract and retain exceptionally 
 12.12  qualified doctors of medicine.  These rates and plans shall be 
 12.13  included in the commissioner's plan.  In establishing salary 
 12.14  rates and eligibility for nomination for payment at special 
 12.15  rates, the commissioner shall consider the standards of 
 12.16  eligibility established by national medical specialty boards 
 12.17  where appropriate.  The incumbents assigned to these special 
 12.18  ranges shall be excluded from the collective bargaining process. 
 12.19     (b) The commissioner may without regard to subdivision 1, 
 12.20  but subject to collective bargaining agreements or compensation 
 12.21  plans, establish special salary rates designed to attract and 
 12.22  retain exceptionally qualified employees in the following 
 12.23  positions: 
 12.24     (1) information systems staff; 
 12.25     (2) actuaries in the Departments of Health, Human Services, 
 12.26  and Commerce; and 
 12.27     (3) (2) epidemiologists in the Department of Health. 
 12.28     Sec. 23.  Minnesota Statutes 2002, section 45.013, is 
 12.29  amended to read: 
 12.30     45.013 [POWER TO APPOINT STAFF.] 
 12.31     The commissioner of commerce may appoint four one deputy 
 12.32  commissioners, four assistant commissioners, and an assistant to 
 12.33  the commissioner.  Those positions, as well as that of and a 
 12.34  confidential secretary, are in the unclassified service.  The 
 12.35  commissioner may appoint other employees necessary to carry out 
 12.36  the duties and responsibilities entrusted to the commissioner.  
 13.1      Sec. 24.  Minnesota Statutes 2003 Supplement, section 
 13.2   84.01, subdivision 3, is amended to read: 
 13.3      Subd. 3.  [EMPLOYEES; DELEGATION.] Subject to the 
 13.4   provisions of Laws 1969, chapter 1129, and to other applicable 
 13.5   laws The commissioner shall organize the department and employ 
 13.6   up to three assistant commissioners, each of whom shall serve at 
 13.7   the pleasure of the commissioner in the unclassified service, 
 13.8   one of whom shall have responsibility for coordinating and 
 13.9   directing the planning of every division within the agency, and 
 13.10  such other officers, employees, and agents as the commissioner 
 13.11  may deem necessary to discharge the functions of the department, 
 13.12  define the duties of such officers, employees, and agents and to 
 13.13  delegate to them any of the commissioner's powers, duties, and 
 13.14  responsibilities subject to the control of, and under the 
 13.15  conditions prescribed by, the commissioner.  Appointments to 
 13.16  exercise delegated power shall be by written order filed with 
 13.17  the secretary of state. 
 13.18     Sec. 25.  Minnesota Statutes 2002, section 116.03, 
 13.19  subdivision 1, is amended to read: 
 13.20     Subdivision 1.  [OFFICE.] (a) The office of commissioner of 
 13.21  the Pollution Control Agency is created and is under the 
 13.22  supervision and control of the commissioner, who is appointed by 
 13.23  the governor under the provisions of section 15.06. 
 13.24     (b) The commissioner may appoint a deputy commissioner and 
 13.25  assistant commissioners who shall be in the unclassified service.
 13.26     (c) The commissioner shall make all decisions on behalf of 
 13.27  the agency that are not required to be made by the agency under 
 13.28  section 116.02. 
 13.29     Sec. 26.  Minnesota Statutes 2002, section 116J.01, 
 13.30  subdivision 5, is amended to read: 
 13.31     Subd. 5.  [DEPARTMENTAL ORGANIZATION.] (a) The commissioner 
 13.32  shall organize the department as provided in section 15.06.  
 13.33     (b) The commissioner may establish divisions and offices 
 13.34  within the department.  The commissioner may employ four deputy 
 13.35  commissioners in the unclassified service.  One deputy must 
 13.36  direct the Minnesota Trade Office and must be experienced and 
 14.1   knowledgeable in matters of international trade.  One must 
 14.2   direct the Office of Tourism and be knowledgeable in matters of 
 14.3   tourism.  
 14.4      (c) The commissioner shall: 
 14.5      (1) employ assistants and other officers, employees, and 
 14.6   agents that the commissioner considers necessary to discharge 
 14.7   the functions of the commissioner's office; 
 14.8      (2) define the duties of the officers, employees, and 
 14.9   agents, and delegate to them any of the commissioner's powers, 
 14.10  duties, and responsibilities, subject to the commissioner's 
 14.11  control and under conditions prescribed by the commissioner.  
 14.12     (d) The commissioner shall ensure that there are at least 
 14.13  three trade and economic development officers in state offices 
 14.14  in nonmetropolitan areas of the state who will work with local 
 14.15  units of government on developing local trade and economic 
 14.16  development. 
 14.17     Sec. 27.  Minnesota Statutes 2002, section 174.02, 
 14.18  subdivision 2, is amended to read: 
 14.19     Subd. 2.  [UNCLASSIFIED POSITIONS.] The commissioner 
 14.20  may establish four positions in the unclassified service at 
 14.21  the appoint a deputy and assistant commissioner, assistant to 
 14.22  commissioner or and a personal secretary levels.  No more than 
 14.23  two of these positions shall be at the deputy commissioner level 
 14.24  in the unclassified service. 
 14.25     Sec. 28.  Minnesota Statutes 2002, section 241.01, 
 14.26  subdivision 2, is amended to read: 
 14.27     Subd. 2.  [DIVISIONS; DEPUTIES DEPUTY.] The commissioner of 
 14.28  corrections may appoint and employ no more than two a deputy 
 14.29  commissioners commissioner.  The commissioner may also appoint a 
 14.30  personal secretary, who shall serve at the commissioner's 
 14.31  pleasure in the unclassified civil service. 
 14.32     Sec. 29.  [SALARY ADJUSTMENTS.] 
 14.33     The salary limitations in section 21 are effective July 1, 
 14.34  2004, and each salary that exceeds the limitations in that 
 14.35  section must be reduced on that date to comply with the limit, 
 14.36  except that a salary set under a collective bargaining agreement 
 15.1   need not be reduced on July 1, 2004, but must not be increased 
 15.2   thereafter above the salary limit. 
 15.3      The salary of the director of the Higher Education Services 
 15.4   Office must be reduced effective July 1, 2004, to the level it 
 15.5   was at on July 1, 2003. 
 15.6      Sec. 30.  [SPENDING LIMITATIONS.] 
 15.7      An agency in the executive branch may not spend any money 
 15.8   for travel outside of the state during the fiscal year ending 
 15.9   June 30, 2005, except as follows: 
 15.10     (1) a state trooper pursuing a suspect; or 
 15.11     (2) a correctional employee escorting a prisoner. 
 15.12     An agency in the executive branch may not contract or pay 
 15.13  for meeting space outside state facilities, for food, or for 
 15.14  meeting facilitators or note-takers who are not state employees. 
 15.15     Sec. 31.  [DELAY IN CERTIFICATION OF DISTRICT COURT 
 15.16  VACANCIES.] 
 15.17     Notwithstanding Minnesota Statutes, section 2.722, 
 15.18  subdivision 4, paragraph (a), the supreme court may not certify 
 15.19  a vacancy in the position of judge of the district court before 
 15.20  June 30, 2005. 
 15.21     Sec. 32.  [REPEALER.] 
 15.22     (a) Minnesota Statutes 2002, sections 43A.03, subdivision 
 15.23  4; 43A.08, subdivision 1b; and 116J.01, subdivision 4, are 
 15.24  repealed. 
 15.25     (b) Minnesota Statutes 2003 Supplement, section 43A.08, 
 15.26  subdivision 1a, is repealed. 
 15.27     Sec. 33.  [EFFECTIVE DATE.] 
 15.28     This article is effective the day following final 
 15.29  enactment; except that sections 10 to 30 and 32 are effective 
 15.30  July 1, 2004. 
 15.31                             ARTICLE 2
 15.32                               TAXES
 15.33     Section 1.  Minnesota Statutes 2002, section 16C.03, is 
 15.34  amended by adding a subdivision to read: 
 15.35     Subd. 18.  [CONTRACTS WITH FOREIGN VENDORS.] (a) The 
 15.36  commissioner and other agencies to which this section applies 
 16.1   and the legislative branch of government shall not contract for 
 16.2   goods or services from a vendor or an affiliate of the vendor 
 16.3   which has not registered to collect the sales and use tax 
 16.4   imposed under chapter 297A on its sales in Minnesota or to a 
 16.5   destination in Minnesota.  A vendor that sells tangible personal 
 16.6   property or provides services subject to tax under chapter 297A 
 16.7   to an agency or the legislature, and each affiliate of that 
 16.8   vendor, is regarded as a "retailer maintaining a place of 
 16.9   business in this state" and is required to collect the Minnesota 
 16.10  sales or use tax under chapter 297A.  This subdivision does not 
 16.11  apply to state colleges and universities, the courts, and any 
 16.12  agency in the judicial branch of government.  For purposes of 
 16.13  this subdivision, the term "affiliate" means any person or 
 16.14  entity that is controlled by, or is under common control of, a 
 16.15  vendor through stock ownership or other affiliation. 
 16.16     (b) Beginning on or after January 1, 2005, each vendor or 
 16.17  affiliate of a vendor that is offered a contract to sell goods 
 16.18  or services subject to tax under chapter 297A to an agency or 
 16.19  the legislature must submit to the agency or legislature 
 16.20  certification that the vendor is registered to collect Minnesota 
 16.21  sales or use tax and acknowledging that the contract may be 
 16.22  declared void if the certification is false. 
 16.23     (c) An agency or the legislature is exempted from the 
 16.24  provisions of this subdivision in the event of an emergency or 
 16.25  when the vendor is the sole source of such goods or services. 
 16.26     <h>[EFFECTIVE DATE.]</h> This section is effective for all 
 16.27  contracts entered into after December 31, 2004. 
 16.28     Sec. 2.  Minnesota Statutes 2002, section 272.01, is 
 16.29  amended by adding a subdivision to read: 
 16.30     Subd. 5.  [EFFECTS OF TRANSFER OF INCOME TAX OWNERSHIP 
 16.31  INCIDENTS.] If property that is exempt from ad valorem taxes 
 16.32  under section 272.02, subdivision 3, 4, 5, 7, or 8, is leased or 
 16.33  otherwise subject to legal arrangements that permit an 
 16.34  individual, corporation, or other entity to claim the income tax 
 16.35  benefits of ownership, such as depreciation, cost recovery 
 16.36  allowances, or similar benefits, a tax is imposed for the 
 17.1   privilege of so using the property.  The tax is imposed in the 
 17.2   same amount and to the same extent as though the private 
 17.3   individual, corporation, or other entity was the owner of the 
 17.4   property.  Taxes under this subdivision must be paid and 
 17.5   administered in the manner provided for taxes imposed under 
 17.6   subdivision 2. 
 17.7      <h>[EFFECTIVE DATE.]</h> This section is effective beginning with 
 17.8   property taxes payable in 2005. 
 17.9      Sec. 3.  Minnesota Statutes 2002, section 290.01, 
 17.10  subdivision 6b, is amended to read: 
 17.11     Subd. 6b.  [FOREIGN OPERATING CORPORATION.] The term 
 17.12  "foreign operating corporation," when applied to a corporation, 
 17.13  means a domestic corporation with the following characteristics: 
 17.14     (1) it is part of a unitary business at least one member of 
 17.15  which is taxable in this state; 
 17.16     (2) it is not a foreign sales corporation under section 922 
 17.17  of the Internal Revenue Code, as amended through December 31, 
 17.18  1999, for the taxable year; and 
 17.19     (3) either (i) the average of the percentages of its 
 17.20  property and payrolls assigned to locations inside outside the 
 17.21  United States and the District of Columbia, excluding the 
 17.22  commonwealth of Puerto Rico and possessions of the United 
 17.23  States, as determined under section 290.191 or 290.20, is 20 80 
 17.24  percent or less greater and it has at least $2,000,000 of 
 17.25  property and $1,000,000 of payroll as determined under section 
 17.26  290.191 or 290.20; or (ii) it has in effect a valid election 
 17.27  under section 936 of the Internal Revenue Code. 
 17.28     <h>[EFFECTIVE DATE.]</h> This section is effective for tax years 
 17.29  beginning after December 31, 2003. 
 17.30     Sec. 4.  Minnesota Statutes 2003 Supplement, section 
 17.31  290.01, subdivision 19c, is amended to read: 
 17.32     Subd. 19c.  [CORPORATIONS; ADDITIONS TO FEDERAL TAXABLE 
 17.33  INCOME.] For corporations, there shall be added to federal 
 17.34  taxable income: 
 17.35     (1) the amount of any deduction taken for federal income 
 17.36  tax purposes for income, excise, or franchise taxes based on net 
 18.1   income or related minimum taxes, including but not limited to 
 18.2   the tax imposed under section 290.0922, paid by the corporation 
 18.3   to Minnesota, another state, a political subdivision of another 
 18.4   state, the District of Columbia, or any foreign country or 
 18.5   possession of the United States; 
 18.6      (2) interest not subject to federal tax upon obligations 
 18.7   of:  the United States, its possessions, its agencies, or its 
 18.8   instrumentalities; the state of Minnesota or any other state, 
 18.9   any of its political or governmental subdivisions, any of its 
 18.10  municipalities, or any of its governmental agencies or 
 18.11  instrumentalities; the District of Columbia; or Indian tribal 
 18.12  governments; 
 18.13     (3) exempt-interest dividends received as defined in 
 18.14  section 852(b)(5) of the Internal Revenue Code; 
 18.15     (4) the amount of any net operating loss deduction taken 
 18.16  for federal income tax purposes under section 172 or 832(c)(10) 
 18.17  of the Internal Revenue Code or operations loss deduction under 
 18.18  section 810 of the Internal Revenue Code; 
 18.19     (5) the amount of any special deductions taken for federal 
 18.20  income tax purposes under sections 241 to 247 of the Internal 
 18.21  Revenue Code; 
 18.22     (6) losses from the business of mining, as defined in 
 18.23  section 290.05, subdivision 1, clause (a), that are not subject 
 18.24  to Minnesota income tax; 
 18.25     (7) the amount of any capital losses deducted for federal 
 18.26  income tax purposes under sections 1211 and 1212 of the Internal 
 18.27  Revenue Code; 
 18.28     (8) the exempt foreign trade income of a foreign sales 
 18.29  corporation under sections 921(a) and 291 of the Internal 
 18.30  Revenue Code; 
 18.31     (9) the amount of percentage depletion deducted under 
 18.32  sections 611 through 614 and 291 of the Internal Revenue Code; 
 18.33     (10) for certified pollution control facilities placed in 
 18.34  service in a taxable year beginning before December 31, 1986, 
 18.35  and for which amortization deductions were elected under section 
 18.36  169 of the Internal Revenue Code of 1954, as amended through 
 19.1   December 31, 1985, the amount of the amortization deduction 
 19.2   allowed in computing federal taxable income for those 
 19.3   facilities; 
 19.4      (11) the amount of any deemed dividend from a foreign 
 19.5   operating corporation determined pursuant to section 290.17, 
 19.6   subdivision 4, paragraph (g); 
 19.7      (12) the amount of any environmental tax paid under section 
 19.8   59(a) of the Internal Revenue Code; 
 19.9      (13) the amount of a partner's pro rata share of net income 
 19.10  which does not flow through to the partner because the 
 19.11  partnership elected to pay the tax on the income under section 
 19.12  6242(a)(2) of the Internal Revenue Code; 
 19.13     (14) the amount of net income excluded under section 114 of 
 19.14  the Internal Revenue Code; 
 19.15     (15) any increase in subpart F income, as defined in 
 19.16  section 952(a) of the Internal Revenue Code, for the taxable 
 19.17  year when subpart F income is calculated without regard to the 
 19.18  provisions of section 614 of Public Law 107-147; and 
 19.19     (16) 80 percent of the depreciation deduction allowed under 
 19.20  section 168(k) of the Internal Revenue Code.  For purposes of 
 19.21  this clause, if the taxpayer has an activity that in the taxable 
 19.22  year generates a deduction for depreciation under section 168(k) 
 19.23  and the activity generates a loss for the taxable year that the 
 19.24  taxpayer is not allowed to claim for the taxable year, "the 
 19.25  depreciation allowed under section 168(k)" for the taxable year 
 19.26  is limited to excess of the depreciation claimed by the activity 
 19.27  under section 168(k) over the amount of the loss from the 
 19.28  activity that is not allowed in the taxable year.  In succeeding 
 19.29  taxable years when the losses not allowed in the taxable year 
 19.30  are allowed, the depreciation under section 168(k) is allowed; 
 19.31  and 
 19.32     (17) the excess of deductions over income attributable to 
 19.33  tax exempt property, as provided under section 290.0711. 
 19.34     <h>[EFFECTIVE DATE.]</h> This section is effective for leases and 
 19.35  service contracts or similar arrangements entered into after 
 19.36  February 5, 2004, and for taxable years beginning after December 
 20.1   31, 2003. 
 20.2      Sec. 5.  Minnesota Statutes 2003 Supplement, section 
 20.3   290.01, subdivision 19d, is amended to read: 
 20.4      Subd. 19d.  [CORPORATIONS; MODIFICATIONS DECREASING FEDERAL 
 20.5   TAXABLE INCOME.] For corporations, there shall be subtracted 
 20.6   from federal taxable income after the increases provided in 
 20.7   subdivision 19c:  
 20.8      (1) the amount of foreign dividend gross-up added to gross 
 20.9   income for federal income tax purposes under section 78 of the 
 20.10  Internal Revenue Code; 
 20.11     (2) the amount of salary expense not allowed for federal 
 20.12  income tax purposes due to claiming the federal jobs credit 
 20.13  under section 51 of the Internal Revenue Code; 
 20.14     (3) any dividend (not including any distribution in 
 20.15  liquidation) paid within the taxable year by a national or state 
 20.16  bank to the United States, or to any instrumentality of the 
 20.17  United States exempt from federal income taxes, on the preferred 
 20.18  stock of the bank owned by the United States or the 
 20.19  instrumentality; 
 20.20     (4) amounts disallowed for intangible drilling costs due to 
 20.21  differences between this chapter and the Internal Revenue Code 
 20.22  in taxable years beginning before January 1, 1987, as follows: 
 20.23     (i) to the extent the disallowed costs are represented by 
 20.24  physical property, an amount equal to the allowance for 
 20.25  depreciation under Minnesota Statutes 1986, section 290.09, 
 20.26  subdivision 7, subject to the modifications contained in 
 20.27  subdivision 19e; and 
 20.28     (ii) to the extent the disallowed costs are not represented 
 20.29  by physical property, an amount equal to the allowance for cost 
 20.30  depletion under Minnesota Statutes 1986, section 290.09, 
 20.31  subdivision 8; 
 20.32     (5) the deduction for capital losses pursuant to sections 
 20.33  1211 and 1212 of the Internal Revenue Code, except that: 
 20.34     (i) for capital losses incurred in taxable years beginning 
 20.35  after December 31, 1986, capital loss carrybacks shall not be 
 20.36  allowed; 
 21.1      (ii) for capital losses incurred in taxable years beginning
 21.2   after December 31, 1986, a capital loss carryover to each of the 
 21.3   15 taxable years succeeding the loss year shall be allowed; 
 21.4      (iii) for capital losses incurred in taxable years 
 21.5   beginning before January 1, 1987, a capital loss carryback to 
 21.6   each of the three taxable years preceding the loss year, subject 
 21.7   to the provisions of Minnesota Statutes 1986, section 290.16, 
 21.8   shall be allowed; and 
 21.9      (iv) for capital losses incurred in taxable years beginning
 21.10  before January 1, 1987, a capital loss carryover to each of the 
 21.11  five taxable years succeeding the loss year to the extent such 
 21.12  loss was not used in a prior taxable year and subject to the 
 21.13  provisions of Minnesota Statutes 1986, section 290.16, shall be 
 21.14  allowed; 
 21.15     (6) an amount for interest and expenses relating to income 
 21.16  not taxable for federal income tax purposes, if (i) the income 
 21.17  is taxable under this chapter and (ii) the interest and expenses 
 21.18  were disallowed as deductions under the provisions of section 
 21.19  171(a)(2), 265 or 291 of the Internal Revenue Code in computing 
 21.20  federal taxable income; 
 21.21     (7) in the case of mines, oil and gas wells, other natural 
 21.22  deposits, and timber for which percentage depletion was 
 21.23  disallowed pursuant to subdivision 19c, clause (11), a 
 21.24  reasonable allowance for depletion based on actual cost.  In the 
 21.25  case of leases the deduction must be apportioned between the 
 21.26  lessor and lessee in accordance with rules prescribed by the 
 21.27  commissioner.  In the case of property held in trust, the 
 21.28  allowable deduction must be apportioned between the income 
 21.29  beneficiaries and the trustee in accordance with the pertinent 
 21.30  provisions of the trust, or if there is no provision in the 
 21.31  instrument, on the basis of the trust's income allocable to 
 21.32  each; 
 21.33     (8) for certified pollution control facilities placed in 
 21.34  service in a taxable year beginning before December 31, 1986, 
 21.35  and for which amortization deductions were elected under section 
 21.36  169 of the Internal Revenue Code of 1954, as amended through 
 22.1   December 31, 1985, an amount equal to the allowance for 
 22.2   depreciation under Minnesota Statutes 1986, section 290.09, 
 22.3   subdivision 7; 
 22.4      (9) amounts included in federal taxable income that are due 
 22.5   to refunds of income, excise, or franchise taxes based on net 
 22.6   income or related minimum taxes paid by the corporation to 
 22.7   Minnesota, another state, a political subdivision of another 
 22.8   state, the District of Columbia, or a foreign country or 
 22.9   possession of the United States to the extent that the taxes 
 22.10  were added to federal taxable income under section 290.01, 
 22.11  subdivision 19c, clause (1), in a prior taxable year; 
 22.12     (10) 80 percent of royalties, fees, or other like income 
 22.13  accrued or received from a foreign operating corporation or a 
 22.14  foreign corporation which is part of the same unitary business 
 22.15  as the receiving corporation; 
 22.16     (11) income or gains from the business of mining as defined 
 22.17  in section 290.05, subdivision 1, clause (a), that are not 
 22.18  subject to Minnesota franchise tax; 
 22.19     (12) (11) the amount of handicap access expenditures in the 
 22.20  taxable year which are not allowed to be deducted or capitalized 
 22.21  under section 44(d)(7) of the Internal Revenue Code; 
 22.22     (13) (12) the amount of qualified research expenses not 
 22.23  allowed for federal income tax purposes under section 280C(c) of 
 22.24  the Internal Revenue Code, but only to the extent that the 
 22.25  amount exceeds the amount of the credit allowed under section 
 22.26  290.068; 
 22.27     (14) (13) the amount of salary expenses not allowed for 
 22.28  federal income tax purposes due to claiming the Indian 
 22.29  employment credit under section 45A(a) of the Internal Revenue 
 22.30  Code; 
 22.31     (15) (14) the amount of any refund of environmental taxes 
 22.32  paid under section 59A of the Internal Revenue Code; 
 22.33     (16) (15) for taxable years beginning before January 1, 
 22.34  2008, the amount of the federal small ethanol producer credit 
 22.35  allowed under section 40(a)(3) of the Internal Revenue Code 
 22.36  which is included in gross income under section 87 of the 
 23.1   Internal Revenue Code; 
 23.2      (17) (16) for a corporation whose foreign sales 
 23.3   corporation, as defined in section 922 of the Internal Revenue 
 23.4   Code, constituted a foreign operating corporation during any 
 23.5   taxable year ending before January 1, 1995, and a return was 
 23.6   filed by August 15, 1996, claiming the deduction under section 
 23.7   290.21, subdivision 4, for income received from the foreign 
 23.8   operating corporation, an amount equal to 1.23 multiplied by the 
 23.9   amount of income excluded under section 114 of the Internal 
 23.10  Revenue Code, provided the income is not income of a foreign 
 23.11  operating company; 
 23.12     (18) (17) any decrease in subpart F income, as defined in 
 23.13  section 952(a) of the Internal Revenue Code, for the taxable 
 23.14  year when subpart F income is calculated without regard to the 
 23.15  provisions of section 614 of Public Law 107-147; and 
 23.16     (19) (18) in each of the five tax years immediately 
 23.17  following the tax year in which an addition is required under 
 23.18  subdivision 19c, clause (16), an amount equal to one-fifth of 
 23.19  the delayed depreciation.  For purposes of this clause, "delayed 
 23.20  depreciation" means the amount of the addition made by the 
 23.21  taxpayer under subdivision 19c, clause (16).  The resulting 
 23.22  delayed depreciation cannot be less than zero; and 
 23.23     (19) amounts allowed as carryover subtractions attributable 
 23.24  to tax-exempt property, as provided under section 290.0711. 
 23.25     <h>[EFFECTIVE DATE.]</h> This section is effective for leases and 
 23.26  service contracts or similar arrangements entered into after 
 23.27  February 5, 2004, and for taxable years beginning after December 
 23.28  31, 2003. 
 23.29     Sec. 6.  [290.0711] [TAX EXEMPT PROPERTY; LIMITS ON TAX 
 23.30  BENEFITS.] 
 23.31     Subdivision 1.  [DEFINITIONS.] (a) For purposes of this 
 23.32  section, the following terms have the meanings given. 
 23.33     (b) "Tax exempt use property" has the meaning given in 
 23.34  section 168(h) of the Internal Revenue Code, except the 
 23.35  provisions of clause (2)(C)(ii) and paragraph (3) do not apply.  
 23.36  If tangible property is subject to a service contract or other 
 24.1   similar arrangement between a taxpayer or any related person and 
 24.2   any tax exempt entity, the contract or arrangement must be 
 24.3   treated in the same manner as if it is tax exempt property under 
 24.4   this subdivision. 
 24.5      (c) "Taxpayer" means a corporation, subject to the 
 24.6   corporate franchise tax under this chapter, that is claiming the 
 24.7   deduction on the federal return and any member of its unitary 
 24.8   group. 
 24.9      Subd. 2.  [ADDITION OF EXCESS DEDUCTIONS.] In computing 
 24.10  Minnesota taxable income, the taxpayer must add to federal 
 24.11  taxable income the excess of: 
 24.12     (1) the aggregate amount of deductions claimed in computing 
 24.13  federal taxable income with respect to tax exempt use property; 
 24.14  over 
 24.15     (2) the aggregate amount of income includable in federal 
 24.16  gross income of the taxpayer for the taxable year with respect 
 24.17  to tax exempt use property. 
 24.18     Subd. 3.  [CARRYOVER SUBTRACTION.] Unless otherwise 
 24.19  provided in this section, any addition under subdivision 2 may 
 24.20  be carried to a later taxable year and claimed as a subtraction 
 24.21  reducing the federal taxable income of the taxpayer to the 
 24.22  extent that income with respect to tax exempt use property 
 24.23  exceeds the amount of deductions claimed with respect to tax 
 24.24  exempt properties in computing federal taxable income for that 
 24.25  taxable year. 
 24.26     Subd. 4.  [SPECIAL RULES.] (a) The following rules apply to 
 24.27  the computation of the addition under subdivision 2. 
 24.28     (b) Subdivision 2 applies to deductions directly allocable 
 24.29  to any tax exempt use property and to a proper share of other 
 24.30  deductions that are not directly allocable to tax exempt. 
 24.31     (c) If property of a taxpayer ceases to be tax exempt use 
 24.32  property in the hands of the taxpayer, any unused carryover 
 24.33  under subdivision 3 with respect to the property is only 
 24.34  allowable as a subtraction for any taxable year to the extent of 
 24.35  any net income of the taxpayer that is allocable to the property 
 24.36  that ceased to be tax exempt property. 
 25.1      (d) If during the taxable year, a taxpayer disposes of the 
 25.2   taxpayer's entire interest in tax exempt use property, the 
 25.3   taxpayer may claim a subtraction for the lesser of: 
 25.4      (1) the amount of gain realized on the disposition and 
 25.5   includable in federal taxable income; or 
 25.6      (2) the amount of additions under subdivision 2 
 25.7   attributable to the property and not claimed in a later year 
 25.8   under subdivision 3. 
 25.9      <h>[EFFECTIVE DATE.]</h> This section is effective for leases and 
 25.10  service contracts or similar arrangements entered into after 
 25.11  February 5, 2004, and for taxable years beginning after December 
 25.12  31, 2003. 
 25.13     Sec. 7.  Minnesota Statutes 2002, section 290.17, 
 25.14  subdivision 2, is amended to read: 
 25.15     Subd. 2.  [INCOME NOT DERIVED FROM CONDUCT OF A TRADE OR 
 25.16  BUSINESS.] The income of a taxpayer subject to the allocation 
 25.17  rules that is not derived from the conduct of a trade or 
 25.18  business must be assigned in accordance with paragraphs (a) to 
 25.19  (f):  
 25.20     (a)(1) Subject to paragraphs (a)(2), (a)(3), and 
 25.21  (a)(4) clauses (2) and (3), income from wages as defined in 
 25.22  section 3401(a) and (f) of the Internal Revenue Code is assigned 
 25.23  to this state if, and to the extent that, the work of the 
 25.24  employee is performed within it; all other income from such 
 25.25  sources is treated as income from sources without this state.  
 25.26     Severance pay shall be considered income from labor or 
 25.27  personal or professional services. 
 25.28     (2) In the case of an individual who is a nonresident of 
 25.29  Minnesota and who is an athlete or entertainer, income from 
 25.30  compensation for labor or personal services performed within 
 25.31  this state shall be determined in the following manner:  
 25.32     (i) The amount of income to be assigned to Minnesota for an 
 25.33  individual who is a nonresident salaried athletic team employee 
 25.34  shall be determined by using a fraction in which the denominator 
 25.35  contains the total number of days in which the individual is 
 25.36  under a duty to perform for the employer, and the numerator is 
 26.1   the total number of those days spent in Minnesota.  For purposes 
 26.2   of this paragraph, off-season training activities, unless 
 26.3   conducted at the team's facilities as part of a team imposed 
 26.4   program, are not included in the total number of duty days.  
 26.5   Bonuses earned as a result of play during the regular season or 
 26.6   for participation in championship, play-off, or all-star games 
 26.7   must be allocated under the formula.  Signing bonuses are not 
 26.8   subject to allocation under the formula if they are not 
 26.9   conditional on playing any games for the team, are payable 
 26.10  separately from any other compensation, and are nonrefundable; 
 26.11  and 
 26.12     (ii) The amount of income to be assigned to Minnesota for 
 26.13  an individual who is a nonresident, and who is an athlete or 
 26.14  entertainer not listed in clause (i), for that person's athletic 
 26.15  or entertainment performance in Minnesota shall be determined by 
 26.16  assigning to this state all income from performances or athletic 
 26.17  contests in this state.  
 26.18     (3) For purposes of this section, amounts received by a 
 26.19  nonresident as "retirement income" as defined in section (b)(1) 
 26.20  of the State Income Taxation of Pension Income Act, Public Law 
 26.21  104-95, are not considered income derived from carrying on a 
 26.22  trade or business or from wages or other compensation for work 
 26.23  an employee performed in Minnesota, and are not taxable under 
 26.24  this chapter.  
 26.25     (4) Wages, otherwise assigned to this state under clause 
 26.26  (1) and not qualifying under clause (3), are not taxable under 
 26.27  this chapter if the following conditions are met: 
 26.28     (i) the recipient was not a resident of this state for any 
 26.29  part of the taxable year in which the wages were received; and 
 26.30     (ii) the wages are for work performed while the recipient 
 26.31  was a resident of this state. 
 26.32     (b) Income or gains from tangible property located in this 
 26.33  state that is not employed in the business of the recipient of 
 26.34  the income or gains must be assigned to this state. 
 26.35     (c) Income or gains from intangible personal property not 
 26.36  employed in the business of the recipient of the income or gains 
 27.1   must be assigned to this state if the recipient of the income or 
 27.2   gains is a resident of this state or is a resident trust or 
 27.3   estate.  
 27.4      Gain on the sale of a partnership interest is allocable to 
 27.5   this state in the ratio of the original cost of partnership 
 27.6   tangible property in this state to the original cost of 
 27.7   partnership tangible property everywhere, determined at the time 
 27.8   of the sale.  If more than 50 percent of the value of the 
 27.9   partnership's assets consists of intangibles, gain or loss from 
 27.10  the sale of the partnership interest is allocated to this state 
 27.11  in accordance with the sales factor of the partnership for its 
 27.12  first full tax period immediately preceding the tax period of 
 27.13  the partnership during which the partnership interest was sold. 
 27.14     Gain on the sale of goodwill or income from a covenant not 
 27.15  to compete that is connected with a business operating all or 
 27.16  partially in Minnesota is allocated to this state to the extent 
 27.17  that the income from the business in the year preceding the year 
 27.18  of sale was assignable to Minnesota under subdivision 3.  
 27.19     When an employer pays an employee for a covenant not to 
 27.20  compete, the income allocated to this state is in the ratio of 
 27.21  the employee's service in Minnesota in the calendar year 
 27.22  preceding leaving the employment of the employer over the total 
 27.23  services performed by the employee for the employer in that year.
 27.24     (d) Income from winnings on a bet made by an individual 
 27.25  while in Minnesota is assigned to this state.  In this 
 27.26  paragraph, "bet" has the meaning given in section 609.75, 
 27.27  subdivision 2, as limited by section 609.75, subdivision 3, 
 27.28  clauses (1), (2), and (3).  
 27.29     (e) All items of gross income not covered in paragraphs (a) 
 27.30  to (d) and not part of the taxpayer's income from a trade or 
 27.31  business shall be assigned to the taxpayer's domicile. 
 27.32     (f) For the purposes of this section, working as an 
 27.33  employee shall not be considered to be conducting a trade or 
 27.34  business. 
 27.35     <h>[EFFECTIVE DATE.]</h> This section is effective for tax years 
 27.36  beginning after December 31, 2003. 
 28.1      Sec. 8.  Minnesota Statutes 2002, section 290.17, 
 28.2   subdivision 4, is amended to read: 
 28.3      Subd. 4.  [UNITARY BUSINESS PRINCIPLE.] (a) If a trade or 
 28.4   business conducted wholly within this state or partly within and 
 28.5   partly without this state is part of a unitary business, the 
 28.6   entire income of the unitary business is subject to 
 28.7   apportionment pursuant to section 290.191.  Notwithstanding 
 28.8   subdivision 2, paragraph (c), none of the income of a unitary 
 28.9   business is considered to be derived from any particular source 
 28.10  and none may be allocated to a particular place except as 
 28.11  provided by the applicable apportionment formula.  The 
 28.12  provisions of this subdivision do not apply to business income 
 28.13  subject to subdivision 5, income of an insurance company, or 
 28.14  income of an investment company determined under section 290.36. 
 28.15     (b) The term "unitary business" means business activities 
 28.16  or operations which result in a flow of value between them.  The 
 28.17  term may be applied within a single legal entity or between 
 28.18  multiple entities and without regard to whether each entity is a 
 28.19  sole proprietorship, a corporation, a partnership or a trust.  
 28.20     (c) Unity is presumed whenever there is unity of ownership, 
 28.21  operation, and use, evidenced by centralized management or 
 28.22  executive force, centralized purchasing, advertising, 
 28.23  accounting, or other controlled interaction, but the absence of 
 28.24  these centralized activities will not necessarily evidence a 
 28.25  nonunitary business.  Unity is also presumed when business 
 28.26  activities or operations are of mutual benefit, dependent upon 
 28.27  or contributory to one another, either individually or as a 
 28.28  group. 
 28.29     (d) Where a business operation conducted in Minnesota is 
 28.30  owned by a business entity that carries on business activity 
 28.31  outside the state different in kind from that conducted within 
 28.32  this state, and the other business is conducted entirely outside 
 28.33  the state, it is presumed that the two business operations are 
 28.34  unitary in nature, interrelated, connected, and interdependent 
 28.35  unless it can be shown to the contrary.  
 28.36     (e) Unity of ownership is not deemed to exist when a 
 29.1   corporation is involved unless that corporation is a member of a 
 29.2   group of two or more business entities and more than 50 percent 
 29.3   of the voting stock of each member of the group is directly or 
 29.4   indirectly owned by a common owner or by common owners, either 
 29.5   corporate or noncorporate, or by one or more of the member 
 29.6   corporations of the group.  For this purpose, the term "voting 
 29.7   stock" shall include membership interests of mutual insurance 
 29.8   holding companies formed under section 60A.077.  
 29.9      (f) The net income and apportionment factors under section 
 29.10  290.191 or 290.20 of foreign corporations and other foreign 
 29.11  entities which are part of a unitary business shall not be 
 29.12  included in the net income or the apportionment factors of the 
 29.13  unitary business.  A foreign corporation or other foreign entity 
 29.14  which is required to file a return under this chapter shall file 
 29.15  on a separate return basis.  The net income and apportionment 
 29.16  factors under section 290.191 or 290.20 of foreign operating 
 29.17  corporations shall not be included in the net income or the 
 29.18  apportionment factors of the unitary business except as provided 
 29.19  in paragraph (g). 
 29.20     (g) The adjusted net income of a foreign operating 
 29.21  corporation shall be deemed to be paid as a dividend on the last 
 29.22  day of its taxable year to each shareholder thereof, in 
 29.23  proportion to each shareholder's ownership, with which such 
 29.24  corporation is engaged in a unitary business.  Such deemed 
 29.25  dividend shall be treated as a dividend under section 290.21, 
 29.26  subdivision 4.  The dividend received deduction shall not be 
 29.27  allowed on dividends, interest, royalties, or capital gains 
 29.28  received by the foreign operating corporation included in the 
 29.29  deemed dividend. 
 29.30     Dividends actually paid by a foreign operating corporation 
 29.31  to a corporate shareholder which is a member of the same unitary 
 29.32  business as the foreign operating corporation shall be 
 29.33  eliminated from the net income of the unitary business in 
 29.34  preparing a combined report for the unitary business.  The 
 29.35  adjusted net income of a foreign operating corporation shall be 
 29.36  its net income adjusted as follows: 
 30.1      (1) any taxes paid or accrued to a foreign country, the 
 30.2   commonwealth of Puerto Rico, or a United States possession or 
 30.3   political subdivision of any of the foregoing shall be a 
 30.4   deduction; and 
 30.5      (2) the subtraction from federal taxable income for 
 30.6   payments received from foreign corporations or foreign operating 
 30.7   corporations under section 290.01, subdivision 19d, clause (10), 
 30.8   shall not be allowed. 
 30.9      If a foreign operating corporation incurs a net loss, 
 30.10  neither income nor deduction from that corporation shall be 
 30.11  included in determining the net income of the unitary business. 
 30.12     (h) For purposes of determining the net income of a unitary 
 30.13  business and the factors to be used in the apportionment of net 
 30.14  income pursuant to section 290.191 or 290.20, there must be 
 30.15  included only the income and apportionment factors of domestic 
 30.16  corporations or other domestic entities other than foreign 
 30.17  operating corporations that are determined to be part of the 
 30.18  unitary business pursuant to this subdivision, notwithstanding 
 30.19  that foreign corporations or other foreign entities might be 
 30.20  included in the unitary business.  
 30.21     (i) Deductions for expenses, interest, or taxes otherwise 
 30.22  allowable under this chapter that are connected with or 
 30.23  allocable against dividends, deemed dividends described in 
 30.24  paragraph (g), or royalties, fees, or other like income 
 30.25  described in section 290.01, subdivision 19d, clause (10), shall 
 30.26  not be disallowed. 
 30.27     (j) Each corporation or other entity, except a sole 
 30.28  proprietorship, that is part of a unitary business must file 
 30.29  combined reports as the commissioner determines.  On the 
 30.30  reports, all intercompany transactions between entities included 
 30.31  pursuant to paragraph (h) must be eliminated and the entire net 
 30.32  income of the unitary business determined in accordance with 
 30.33  this subdivision is apportioned among the entities by using each 
 30.34  entity's Minnesota factors for apportionment purposes in the 
 30.35  numerators of the apportionment formula and the total factors 
 30.36  for apportionment purposes of all entities included pursuant to 
 31.1   paragraph (h) in the denominators of the apportionment formula. 
 31.2      (k) If a corporation has been divested from a unitary 
 31.3   business and is included in a combined report for a fractional 
 31.4   part of the common accounting period of the combined report:  
 31.5      (1) its income includable in the combined report is its 
 31.6   income incurred for that part of the year determined by 
 31.7   proration or separate accounting; and 
 31.8      (2) its sales, property, and payroll included in the 
 31.9   apportionment formula must be prorated or accounted for 
 31.10  separately. 
 31.11     <h>[EFFECTIVE DATE.]</h> This section is effective for tax years 
 31.12  beginning after December 31, 2003. 
 31.13     Sec. 9.  Minnesota Statutes 2002, section 290.191, 
 31.14  subdivision 5, is amended to read: 
 31.15     Subd. 5.  [DETERMINATION OF SALES FACTOR.] For purposes of 
 31.16  this section, the following rules apply in determining the sales 
 31.17  factor.  
 31.18     (a) The sales factor includes all sales, gross earnings, or 
 31.19  receipts received in the ordinary course of the business, except 
 31.20  that the following types of income are not included in the sales 
 31.21  factor: 
 31.22     (1) interest; 
 31.23     (2) dividends; 
 31.24     (3) sales of capital assets as defined in section 1221 of 
 31.25  the Internal Revenue Code; 
 31.26     (4) sales of property used in the trade or business, except 
 31.27  sales of leased property of a type which is regularly sold as 
 31.28  well as leased; 
 31.29     (5) sales of debt instruments as defined in section 
 31.30  1275(a)(1) of the Internal Revenue Code or sales of stock; and 
 31.31     (6) royalties, fees, or other like income of a type which 
 31.32  qualify for a subtraction from federal taxable income under 
 31.33  section 290.01, subdivision 19(d)(11); and 
 31.34     (7) lease or other payments received for tax exempt 
 31.35  property, as defined in and subject to section 290.0711.  
 31.36     (b) Sales of tangible personal property are made within 
 32.1   this state if the property is received by a purchaser at a point 
 32.2   within this state, and the taxpayer is taxable in this state, 
 32.3   regardless of the f.o.b. point, other conditions of the sale, or 
 32.4   the ultimate destination of the property. 
 32.5      (c) Tangible personal property delivered to a common or 
 32.6   contract carrier or foreign vessel for delivery to a purchaser 
 32.7   in another state or nation is a sale in that state or nation, 
 32.8   regardless of f.o.b. point or other conditions of the sale.  
 32.9      (d) Notwithstanding paragraphs (b) and (c), when 
 32.10  intoxicating liquor, wine, fermented malt beverages, cigarettes, 
 32.11  or tobacco products are sold to a purchaser who is licensed by a 
 32.12  state or political subdivision to resell this property only 
 32.13  within the state of ultimate destination, the sale is made in 
 32.14  that state.  
 32.15     (e) Sales made by or through a corporation that is 
 32.16  qualified as a domestic international sales corporation under 
 32.17  section 992 of the Internal Revenue Code are not considered to 
 32.18  have been made within this state.  
 32.19     (f) Sales, rents, royalties, and other income in connection 
 32.20  with real property is attributed to the state in which the 
 32.21  property is located.  
 32.22     (g) Receipts from the lease or rental of tangible personal 
 32.23  property, including finance leases and true leases, must be 
 32.24  attributed to this state if the property is located in this 
 32.25  state and to other states if the property is not located in this 
 32.26  state.  Receipts from the lease or rental of moving property 
 32.27  including, but not limited to, motor vehicles, rolling stock, 
 32.28  aircraft, vessels, or mobile equipment are included in the 
 32.29  numerator of the receipts factor to the extent that the property 
 32.30  is used in this state.  The extent of the use of moving property 
 32.31  is determined as follows: 
 32.32     (1) A motor vehicle is used wholly in the state in which it 
 32.33  is registered.  
 32.34     (2) The extent that rolling stock is used in this state is 
 32.35  determined by multiplying the receipts from the lease or rental 
 32.36  of the rolling stock by a fraction, the numerator of which is 
 33.1   the miles traveled within this state by the leased or rented 
 33.2   rolling stock and the denominator of which is the total miles 
 33.3   traveled by the leased or rented rolling stock. 
 33.4      (3) The extent that an aircraft is used in this state is 
 33.5   determined by multiplying the receipts from the lease or rental 
 33.6   of the aircraft by a fraction, the numerator of which is the 
 33.7   number of landings of the aircraft in this state and the 
 33.8   denominator of which is the total number of landings of the 
 33.9   aircraft. 
 33.10     (4) The extent that a vessel, mobile equipment, or other 
 33.11  mobile property is used in the state is determined by 
 33.12  multiplying the receipts from the lease or rental of the 
 33.13  property by a fraction, the numerator of which is the number of 
 33.14  days during the taxable year the property was in this state and 
 33.15  the denominator of which is the total days in the taxable year.  
 33.16     (h) Royalties and other income not described in paragraph 
 33.17  (a), clause (6), received for the use of or for the privilege of 
 33.18  using intangible property, including patents, know-how, 
 33.19  formulas, designs, processes, patterns, copyrights, trade names, 
 33.20  service names, franchises, licenses, contracts, customer lists, 
 33.21  or similar items, must be attributed to the state in which the 
 33.22  property is used by the purchaser.  If the property is used in 
 33.23  more than one state, the royalties or other income must be 
 33.24  apportioned to this state pro rata according to the portion of 
 33.25  use in this state.  If the portion of use in this state cannot 
 33.26  be determined, the royalties or other income must be excluded 
 33.27  from both the numerator and the denominator.  Intangible 
 33.28  property is used in this state if the purchaser uses the 
 33.29  intangible property or the rights therein in the regular course 
 33.30  of its business operations in this state, regardless of the 
 33.31  location of the purchaser's customers. 
 33.32     (i) Sales of intangible property are made within the state 
 33.33  in which the property is used by the purchaser.  If the property 
 33.34  is used in more than one state, the sales must be apportioned to 
 33.35  this state pro rata according to the portion of use in this 
 33.36  state.  If the portion of use in this state cannot be 
 34.1   determined, the sale must be excluded from both the numerator 
 34.2   and the denominator of the sales factor.  Intangible property is 
 34.3   used in this state if the purchaser used the intangible property 
 34.4   in the regular course of its business operations in this state. 
 34.5      (j) Receipts from the performance of services must be 
 34.6   attributed to the state where the services are received.  For 
 34.7   the purposes of this section, receipts from the performance of 
 34.8   services provided to a corporation, partnership, or trust may 
 34.9   only be attributed to a state where it has a fixed place of 
 34.10  doing business.  If the state where the services are received is 
 34.11  not readily determinable or is a state where the corporation, 
 34.12  partnership, or trust receiving the service does not have a 
 34.13  fixed place of doing business, the services shall be deemed to 
 34.14  be received at the location of the office of the customer from 
 34.15  which the services were ordered in the regular course of the 
 34.16  customer's trade or business.  If the ordering office cannot be 
 34.17  determined, the services shall be deemed to be received at the 
 34.18  office of the customer to which the services are billed. 
 34.19     <h>[EFFECTIVE DATE.]</h> This section is effective for leases and 
 34.20  service contracts or similar arrangements entered into after 
 34.21  February 5, 2004, and for taxable years beginning after December 
 34.22  31, 2003. 
 34.23     Sec. 10.  Minnesota Statutes 2002, section 290.191, 
 34.24  subdivision 6, is amended to read: 
 34.25     Subd. 6.  [DETERMINATION OF RECEIPTS FACTOR FOR FINANCIAL 
 34.26  INSTITUTIONS.] (a) For purposes of this section, the rules in 
 34.27  this subdivision and subdivision 8 apply in determining the 
 34.28  receipts factor for financial institutions.  
 34.29     (b) "Receipts" for this purpose means gross income, 
 34.30  including net taxable gain on disposition of assets, including 
 34.31  securities and money market instruments, when derived from 
 34.32  transactions and activities in the regular course of the 
 34.33  taxpayer's trade or business.  
 34.34     (c) "Money market instruments" means federal funds sold and 
 34.35  securities purchased under agreements to resell, commercial 
 34.36  paper, banker's acceptances, and purchased certificates of 
 35.1   deposit and similar instruments to the extent that the 
 35.2   instruments are reflected as assets under generally accepted 
 35.3   accounting principles.  
 35.4      (d) "Securities" means United States Treasury securities, 
 35.5   obligations of United States government agencies and 
 35.6   corporations, obligations of state and political subdivisions, 
 35.7   corporate stock, bonds, and other securities, participations in 
 35.8   securities backed by mortgages held by United States or state 
 35.9   government agencies, loan-backed securities and similar 
 35.10  investments to the extent the investments are reflected as 
 35.11  assets under generally accepted accounting principles.  
 35.12     (e) Receipts from the lease or rental of real or tangible 
 35.13  personal property, including both finance leases and true 
 35.14  leases, must be attributed to this state if the property is 
 35.15  located in this state.  Receipts from the lease or rental of 
 35.16  tangible personal property that is characteristically moving 
 35.17  property, including, but not limited to, motor vehicles, rolling 
 35.18  stock, aircraft, vessels, or mobile equipment are included in 
 35.19  the numerator of the receipts factor to the extent that the 
 35.20  property is used in this state.  The extent of the use of moving 
 35.21  property is determined as follows: 
 35.22     (1) A motor vehicle is used wholly in the state in which it 
 35.23  is registered. 
 35.24     (2) The extent that rolling stock is used in this state is 
 35.25  determined by multiplying the receipts from the lease or rental 
 35.26  of the rolling stock by a fraction, the numerator of which is 
 35.27  the miles traveled within this state by the leased or rented 
 35.28  rolling stock and the denominator of which is the total miles 
 35.29  traveled by the leased or rented rolling stock. 
 35.30     (3) The extent that an aircraft is used in this state is 
 35.31  determined by multiplying the receipts from the lease or rental 
 35.32  of the aircraft by a fraction, the numerator of which is the 
 35.33  number of landings of the aircraft in this state and the 
 35.34  denominator of which is the total number of landings of the 
 35.35  aircraft. 
 35.36     (4) The extent that a vessel, mobile equipment, or other 
 36.1   mobile property is used in the state is determined by 
 36.2   multiplying the receipts from the lease or rental of property by 
 36.3   a fraction, the numerator of which is the number of days during 
 36.4   the taxable year the property was in this state and the 
 36.5   denominator of which is the total days in the taxable year. 
 36.6      (f) Interest income and other receipts from assets in the 
 36.7   nature of loans that are secured primarily by real estate or 
 36.8   tangible personal property must be attributed to this state if 
 36.9   the security property is located in this state under the 
 36.10  principles stated in paragraph (e).  
 36.11     (g) Interest income and other receipts from consumer loans 
 36.12  not secured by real or tangible personal property that are made 
 36.13  to residents of this state, whether at a place of business, by 
 36.14  traveling loan officer, by mail, by telephone or other 
 36.15  electronic means, must be attributed to this state.  
 36.16     (h) Interest income and other receipts from commercial 
 36.17  loans and installment obligations that are unsecured by real or 
 36.18  tangible personal property or secured by intangible property 
 36.19  must be attributed to this state if the proceeds of the loan are 
 36.20  to be applied in this state.  If it cannot be determined where 
 36.21  the funds are to be applied, the income and receipts are 
 36.22  attributed to the state in which the office of the borrower from 
 36.23  which the application would be made in the regular course of 
 36.24  business is located.  If this cannot be determined, the 
 36.25  transaction is disregarded in the apportionment formula. 
 36.26     (i) Interest income and other receipts from a participating 
 36.27  financial institution's portion of participation and syndication 
 36.28  loans must be attributed under paragraphs (e) to (h).  A 
 36.29  participation loan is an arrangement in which a lender makes a 
 36.30  loan to a borrower and then sells, assigns, or otherwise 
 36.31  transfers all or a part of the loan to a purchasing financial 
 36.32  institution.  A syndication loan is a loan transaction involving 
 36.33  multiple financial institutions in which all the lenders are 
 36.34  named as parties to the loan documentation, are known to the 
 36.35  borrower, and have privity of contract with the borrower.  
 36.36     (j) Interest income and other receipts including service 
 37.1   charges from financial institution credit card and travel and 
 37.2   entertainment credit card receivables and credit card holders' 
 37.3   fees must be attributed to the state to which the card charges 
 37.4   and fees are regularly billed.  
 37.5      (k) Merchant discount income derived from financial 
 37.6   institution credit card holder transactions with a merchant must 
 37.7   be attributed to the state in which the merchant is located.  In 
 37.8   the case of merchants located within and outside the state, only 
 37.9   receipts from merchant discounts attributable to sales made from 
 37.10  locations within the state are attributed to this state.  It is 
 37.11  presumed, subject to rebuttal, that the location of a merchant 
 37.12  is the address shown on the invoice submitted by the merchant to 
 37.13  the taxpayer. 
 37.14     (l) Receipts from the performance of fiduciary and other 
 37.15  services must be attributed to the state in which the services 
 37.16  are received.  For the purposes of this section, services 
 37.17  provided to a corporation, partnership, or trust must be 
 37.18  attributed to a state where it has a fixed place of doing 
 37.19  business.  If the state where the services are received is not 
 37.20  readily determinable or is a state where the corporation, 
 37.21  partnership, or trust does not have a fixed place of doing 
 37.22  business, the services shall be deemed to be received at the 
 37.23  location of the office of the customer from which the services 
 37.24  were ordered in the regular course of the customer's trade or 
 37.25  business.  If the ordering office cannot be determined, the 
 37.26  services shall be deemed to be received at the office of the 
 37.27  customer to which the services are billed.  
 37.28     (m) Receipts from the issuance of travelers checks and 
 37.29  money orders must be attributed to the state in which the checks 
 37.30  and money orders are purchased.  
 37.31     (n) Receipts from investments of a financial institution in 
 37.32  securities and from money market instruments must be apportioned 
 37.33  to this state based on the ratio that total deposits from this 
 37.34  state, its residents, including any business with an office or 
 37.35  other place of business in this state, its political 
 37.36  subdivisions, agencies, and instrumentalities bear to the total 
 38.1   deposits from all states, their residents, their political 
 38.2   subdivisions, agencies, and instrumentalities.  In the case of 
 38.3   an unregulated financial institution subject to this section, 
 38.4   these receipts are apportioned to this state based on the ratio 
 38.5   that its gross business income, excluding such receipts, earned 
 38.6   from sources within this state bears to gross business income, 
 38.7   excluding such receipts, earned from sources within all states.  
 38.8   For purposes of this subdivision, deposits made by this state, 
 38.9   its residents, its political subdivisions, agencies, and 
 38.10  instrumentalities must be attributed to this state, whether or 
 38.11  not the deposits are accepted or maintained by the taxpayer at 
 38.12  locations within this state. 
 38.13     (o) A financial institution's interest in property 
 38.14  described in section 290.015, subdivision 3, paragraph (b), is 
 38.15  included in the receipts factor in the same manner as assets in 
 38.16  the nature of securities or money market instruments are 
 38.17  included in paragraph (n). 
 38.18     (p) Receipts from leases, service contracts, or other 
 38.19  arrangements for tax exempt property, as defined in and subject 
 38.20  to section 290.0711, are excluded from the receipts factor. 
 38.21     <h>[EFFECTIVE DATE.]</h> This section is effective for leases and 
 38.22  service contracts or similar arrangements entered into after 
 38.23  February 5, 2004, and for taxable years beginning after December 
 38.24  31, 2003. 
 38.25     Sec. 11.  Minnesota Statutes 2002, section 290.191, 
 38.26  subdivision 10, is amended to read: 
 38.27     Subd. 10.  [PROPERTY FACTOR; TANGIBLE PROPERTY.] (a) 
 38.28  Tangible property includes land, buildings, machinery and 
 38.29  equipment, inventories, and other tangible personal property 
 38.30  actually used by the taxpayer during the taxable year in 
 38.31  carrying on the business activities of the taxpayer.  Tangible 
 38.32  property which is separately allocated under section 290.17 is 
 38.33  not includable in the property factor.  
 38.34     (b) Cash on hand or in banks, shares of stock, notes, 
 38.35  bonds, accounts receivable, or other evidences of indebtedness, 
 38.36  special privileges, franchises, and goodwill, are specifically 
 39.1   excluded from the property factor, except as otherwise provided 
 39.2   for financial institutions in subdivision 11.  
 39.3      (c) The value of tangible property that is owned by the 
 39.4   taxpayer and that is to be used in the apportionment fraction is 
 39.5   the original cost adjusted for any later capital additions or 
 39.6   improvements and partial disposition by reason of sale, 
 39.7   exchange, or abandonment.  
 39.8      (d) For purposes of computing the property factor, United 
 39.9   States government property that is used by the taxpayer must be 
 39.10  considered owned by the taxpayer.  
 39.11     (e) Property that is rented by the taxpayer is valued at 
 39.12  eight times the net annual rental.  Net annual rental is the 
 39.13  annual rental paid by the taxpayer less any annual rental 
 39.14  received by the taxpayer from subrentals.  If the subrents taken 
 39.15  into account in determining the net annual rental produce a 
 39.16  negative or clearly inaccurate value for any item of property, 
 39.17  another method that will properly reflect the value of rented 
 39.18  property may be required by the commissioner or requested by the 
 39.19  taxpayer.  In no case, however, shall the value be less than an 
 39.20  amount which bears the same ratio to the annual rental paid by 
 39.21  the taxpayer for such property as the fair market value of that 
 39.22  portion of the property used by the taxpayer bears to the total 
 39.23  fair market value of the rented property.  Rents paid during the 
 39.24  year cannot be averaged.  
 39.25     (f) A person filing a combined report shall use this method 
 39.26  of calculating the property factor for all members of the group. 
 39.27     (g) Tax exempt property, as defined in and subject to 
 39.28  section 290.0711, is excluded from the property factor. 
 39.29     <h>[EFFECTIVE DATE.]</h> This section is effective for leases and 
 39.30  service contracts or similar arrangements entered into after 
 39.31  February 5, 2004, and for taxable years beginning after December 
 39.32  31, 2003. 
 39.33     Sec. 12.  Minnesota Statutes 2002, section 290.191, 
 39.34  subdivision 11, is amended to read: 
 39.35     Subd. 11.  [FINANCIAL INSTITUTIONS; PROPERTY FACTOR.] (a) 
 39.36  For financial institutions, the property factor includes, as 
 40.1   well as tangible property, intangible property as set forth in 
 40.2   this subdivision.  
 40.3      (b) Intangible personal property must be included at its 
 40.4   tax basis for federal income tax purposes.  
 40.5      (c) Goodwill must not be included in the property factor.  
 40.6      (d) Coin and currency located in this state must be 
 40.7   attributed to this state.  
 40.8      (e) Lease financing receivables must be attributed to this 
 40.9   state if and to the extent that the property is located within 
 40.10  this state.  
 40.11     (f) Assets in the nature of loans that are secured by real 
 40.12  or tangible personal property must be attributed to this state 
 40.13  if and to the extent that the security property is located 
 40.14  within this state.  
 40.15     (g) Assets in the nature of consumer loans and installment 
 40.16  obligations that are unsecured or secured by intangible property 
 40.17  must be attributed to this state if the loan was made to a 
 40.18  resident of this state.  
 40.19     (h) Assets in the nature of commercial loan and installment 
 40.20  obligations that are unsecured by real or tangible personal 
 40.21  property or secured by intangible property must be attributed to 
 40.22  this state if the proceeds of the loan are to be applied in this 
 40.23  state.  If it cannot be determined where the funds are to be 
 40.24  applied, the assets must be attributed to the state in which 
 40.25  there is located the office of the borrower from which the 
 40.26  application would be made in the regular course of business.  If 
 40.27  this cannot be determined, the transaction is disregarded in the 
 40.28  apportionment formula.  
 40.29     (i) A participating financial institution's portion of 
 40.30  participation and syndication loans must be attributed under 
 40.31  paragraphs (e) to (h).  
 40.32     (j) Financial institution credit card and travel and 
 40.33  entertainment credit card receivables must be attributed to the 
 40.34  state to which the credit card charges and fees are regularly 
 40.35  billed.  
 40.36     (k) Receivables arising from merchant discount income 
 41.1   derived from financial institution credit card holder 
 41.2   transactions with a merchant are attributed to the state in 
 41.3   which the merchant is located.  In the case of merchants located 
 41.4   within and without the state, only receivables from merchant 
 41.5   discounts attributable to sales made from locations within the 
 41.6   state are attributed to this state.  It is presumed, subject to 
 41.7   rebuttal, that the location of a merchant is the address shown 
 41.8   on the invoice submitted by the merchant to the taxpayer. 
 41.9      (l) Assets in the nature of securities and money market 
 41.10  instruments are apportioned to this state based upon the ratio 
 41.11  that total deposits from this state, its residents, its 
 41.12  political subdivisions, agencies and instrumentalities bear to 
 41.13  the total deposits from all states, their residents, their 
 41.14  political subdivisions, agencies and instrumentalities.  In the 
 41.15  case of an unregulated financial institution, the assets are 
 41.16  apportioned to this state based upon the ratio that its gross 
 41.17  business income earned from sources within this state bears to 
 41.18  gross business income earned from sources within all states.  
 41.19  For purposes of this paragraph, deposits made by this state, its 
 41.20  residents, its political subdivisions, agencies, and 
 41.21  instrumentalities are attributed to this state, whether or not 
 41.22  the deposits are accepted or maintained by the taxpayer at 
 41.23  locations within this state. 
 41.24     (m) A financial institution's interest in any property 
 41.25  described in section 290.015, subdivision 3, paragraph (b), is 
 41.26  included in the property factor in the same manner as assets in 
 41.27  the nature of securities or money market instruments are 
 41.28  included under paragraph (1).  
 41.29     (n) Tax exempt property, as defined in and subject to 
 41.30  section 290.0711, is excluded from the property factor. 
 41.31     <h>[EFFECTIVE DATE.]</h> This section is effective for leases and 
 41.32  service contracts or similar arrangements entered into after 
 41.33  February 5, 2004, and for taxable years beginning after December 
 41.34  31, 2003. 
 41.35     Sec. 13.  Minnesota Statutes 2002, section 297A.61, 
 41.36  subdivision 4, is amended to read: 
 42.1      Subd. 4.  [RETAIL SALE.] (a) A "retail sale" means any 
 42.2   sale, lease, or rental for any purpose other than resale, 
 42.3   sublease, or subrent.  
 42.4      (b) A sale of property used by the owner only by leasing it 
 42.5   to others or by holding it in an effort to lease it, and put to 
 42.6   no use by the owner other than resale after the lease or effort 
 42.7   to lease, is a sale of property for resale.  
 42.8      (c) A sale of master computer software that is purchased 
 42.9   and used to make copies for sale or lease is a sale of property 
 42.10  for resale.  
 42.11     (d) A sale of building materials, supplies, and equipment 
 42.12  to owners, contractors, subcontractors, or builders for the 
 42.13  erection of buildings or the alteration, repair, or improvement 
 42.14  of real property is a retail sale in whatever quantity sold, 
 42.15  whether the sale is for purposes of resale in the form of real 
 42.16  property or otherwise.  
 42.17     (e) A sale of carpeting, linoleum, or similar floor 
 42.18  covering to a person who provides for installation of the floor 
 42.19  covering is a retail sale and not a sale for resale since a sale 
 42.20  of floor covering which includes installation is a contract for 
 42.21  the improvement of real property. 
 42.22     (f) A sale of shrubbery, plants, sod, trees, and similar 
 42.23  items to a person who provides for installation of the items is 
 42.24  a retail sale and not a sale for resale since a sale of 
 42.25  shrubbery, plants, sod, trees, and similar items that includes 
 42.26  installation is a contract for the improvement of real property. 
 42.27     (g) A sale of tangible personal property that is awarded as 
 42.28  prizes is a retail sale and is not considered a sale of property 
 42.29  for resale. 
 42.30     (h) A sale of tangible personal property utilized or 
 42.31  employed in the furnishing or providing of services under 
 42.32  subdivision 3, paragraph (g), clause (1), including, but not 
 42.33  limited to, property given as promotional items, is a retail 
 42.34  sale and is not considered a sale of property for resale. 
 42.35     (i) A sale of tangible personal property used in conducting 
 42.36  lawful gambling under chapter 349 or the state lottery under 
 43.1   chapter 349A, including, but not limited to, property given as 
 43.2   promotional items, is a retail sale and is not considered a sale 
 43.3   of property for resale. 
 43.4      (j) A sale of machines, equipment, or devices that are used 
 43.5   to furnish, provide, or dispense goods or services, including, 
 43.6   but not limited to, coin-operated devices, is a retail sale and 
 43.7   is not considered a sale of property for resale. 
 43.8      (k) Except as provided in subdivision 7, paragraph (c), in 
 43.9   the case of a lease, a retail sale occurs when an obligation to 
 43.10  make a lease payment becomes due under the terms of the 
 43.11  agreement or the trade practices of the lessor. 
 43.12     (l) In the case of a conditional sales contract, a retail 
 43.13  sale occurs upon the transfer of title or possession of the 
 43.14  tangible personal property. 
 43.15     <h>[EFFECTIVE DATE.]</h> This section is effective for leases 
 43.16  entered into after June 30, 2004. 
 43.17     Sec. 14.  Minnesota Statutes 2003 Supplement, section 
 43.18  297A.61, subdivision 7, is amended to read: 
 43.19     Subd. 7.  [SALES PRICE.] (a) "Sales price" means the 
 43.20  measure subject to sales tax, and means the total amount of 
 43.21  consideration, including cash, credit, personal property, and 
 43.22  services, for which personal property or services are sold, 
 43.23  leased, or rented, valued in money, whether received in money or 
 43.24  otherwise, without any deduction for the following: 
 43.25     (1) the seller's cost of the property sold; 
 43.26     (2) the cost of materials used, labor or service cost, 
 43.27  interest, losses, all costs of transportation to the seller, all 
 43.28  taxes imposed on the seller, and any other expenses of the 
 43.29  seller; 
 43.30     (3) charges by the seller for any services necessary to 
 43.31  complete the sale, other than delivery and installation charges; 
 43.32     (4) delivery charges; 
 43.33     (5) installation charges; and 
 43.34     (6) the value of exempt property given to the purchaser 
 43.35  when taxable and exempt personal property have been bundled 
 43.36  together and sold by the seller as a single product or piece of 
 44.1   merchandise. 
 44.2      (b) Sales price does not include: 
 44.3      (1) discounts, including cash, terms, or coupons, that are 
 44.4   not reimbursed by a third party and that are allowed by the 
 44.5   seller and taken by a purchaser on a sale; 
 44.6      (2) interest, financing, and carrying charges from credit 
 44.7   extended on the sale of personal property or services, if the 
 44.8   amount is separately stated on the invoice, bill of sale, or 
 44.9   similar document given to the purchaser; and 
 44.10     (3) any taxes legally imposed directly on the consumer that 
 44.11  are separately stated on the invoice, bill of sale, or similar 
 44.12  document given to the purchaser. 
 44.13     (c) In the case of a lease of a motor vehicle, as defined 
 44.14  in section 297B.01, subdivision 5, that is taxable under this 
 44.15  chapter, the sales tax shall be collected by the vendor at the 
 44.16  time the lease is consummated and shall be calculated by the 
 44.17  vendor on the basis of the total amount to be paid by the lessee 
 44.18  under the lease agreement.  If the total amount of the 
 44.19  consideration for the lease includes amounts that are not 
 44.20  calculated at the time the lease is executed, the tax shall be 
 44.21  calculated and collected by the vendor at the time such amounts 
 44.22  are billed to the lessee.  In the case of an open-ended lease, 
 44.23  the sales tax shall be calculated by the vendor on the basis of 
 44.24  the total amount to be paid during the initial term of the 
 44.25  lease, and then for each subsequent renewal period as it becomes 
 44.26  due. 
 44.27     <h>[EFFECTIVE DATE.]</h> This section is effective for leases 
 44.28  entered into after June 30, 2004. 
 44.29     Sec. 15.  Minnesota Statutes 2002, section 297A.67, is 
 44.30  amended by adding a subdivision to read: 
 44.31     Subd. 32.  [CIGARETTES.] Cigarettes upon which a tax has 
 44.32  been imposed under section 297F.25 are exempt. 
 44.33     <h>[EFFECTIVE DATE.]</h> This section is effective for sales and 
 44.34  purchases made after July 31, 2004. 
 44.35     Sec. 16.  Minnesota Statutes 2003 Supplement, section 
 44.36  297A.68, subdivision 2, is amended to read: 
 45.1      Subd. 2.  [MATERIALS CONSUMED IN INDUSTRIAL PRODUCTION.] 
 45.2   (a) Materials stored, used, or consumed in industrial production 
 45.3   of personal property intended to be sold ultimately at retail 
 45.4   are exempt, whether or not the item so used becomes an 
 45.5   ingredient or constituent part of the property produced.  
 45.6   Materials that qualify for this exemption include, but are not 
 45.7   limited to, the following: 
 45.8      (1) chemicals, including chemicals used for cleaning food 
 45.9   processing machinery and equipment; 
 45.10     (2) materials, including chemicals, fuels, and electricity 
 45.11  purchased by persons engaged in industrial production to treat 
 45.12  waste generated as a result of the production process; 
 45.13     (3) fuels, electricity, gas, and steam used or consumed in 
 45.14  the production process, except that electricity, gas, or steam 
 45.15  used for space heating, cooling, or lighting is exempt if (i) it 
 45.16  is in excess of the average climate control or lighting for the 
 45.17  production area, and (ii) it is necessary to produce that 
 45.18  particular product; 
 45.19     (4) petroleum products and lubricants; 
 45.20     (5) packaging materials, including returnable containers 
 45.21  used in packaging food and beverage products; 
 45.22     (6) accessory tools, equipment, and other items that are 
 45.23  separate detachable units with an ordinary useful life of less 
 45.24  than 12 months used in producing a direct effect upon the 
 45.25  product; and 
 45.26     (7) the following materials, tools, and equipment used in 
 45.27  metalcasting:  crucibles, thermocouple protection sheaths and 
 45.28  tubes, stalk tubes, refractory materials, molten metal filters 
 45.29  and filter boxes, degassing lances, and base blocks. 
 45.30     (b) This exemption does not include: 
 45.31     (1) machinery, equipment, implements, tools, accessories, 
 45.32  appliances, contrivances and furniture and fixtures, except 
 45.33  those listed in paragraph (a), clause (6); and 
 45.34     (2) petroleum and special fuels used in producing or 
 45.35  generating power for propelling ready-mixed concrete trucks on 
 45.36  the public highways of this state. 
 46.1      (c) Industrial production includes, but is not limited to, 
 46.2   research, development, design or production of any tangible 
 46.3   personal property, manufacturing, processing (other than by 
 46.4   restaurants and consumers) of agricultural products (whether 
 46.5   vegetable or animal), commercial fishing, refining, smelting, 
 46.6   reducing, brewing, distilling, printing, mining, quarrying, 
 46.7   lumbering, generating electricity, the production of road 
 46.8   building materials, and the research, development, design, or 
 46.9   production of computer software.  Industrial production does not 
 46.10  include painting, cleaning, repairing or similar processing of 
 46.11  property except as part of the original manufacturing process.  
 46.12  Industrial production does not include the transportation, 
 46.13  transmission, or distribution of petroleum, liquefied gas, 
 46.14  natural gas, water, or steam, in, by, or through pipes, lines, 
 46.15  tanks, mains, or other means of transporting those products. 
 46.16     <h>[EFFECTIVE DATE.]</h> This section is effective for sales and 
 46.17  purchases made after June 30, 2004. 
 46.18     Sec. 17.  Minnesota Statutes 2003 Supplement, section 
 46.19  297A.68, subdivision 5, is amended to read: 
 46.20     Subd. 5.  [CAPITAL EQUIPMENT.] (a) Capital equipment is 
 46.21  exempt.  The tax must be imposed and collected as if the rate 
 46.22  under section 297A.62, subdivision 1, applied, and then refunded 
 46.23  in the manner provided in section 297A.75. 
 46.24     "Capital equipment" means machinery and equipment purchased 
 46.25  or leased, and used in this state by the purchaser or lessee 
 46.26  primarily for manufacturing, fabricating, mining, or refining 
 46.27  tangible personal property to be sold ultimately at retail if 
 46.28  the machinery and equipment are essential to the integrated 
 46.29  production process of manufacturing, fabricating, mining, or 
 46.30  refining.  Capital equipment also includes machinery and 
 46.31  equipment used to electronically transmit results retrieved by a 
 46.32  customer of an on-line computerized data retrieval system. 
 46.33     (b) Capital equipment includes, but is not limited to: 
 46.34     (1) machinery and equipment used to operate, control, or 
 46.35  regulate the production equipment; 
 46.36     (2) machinery and equipment used for research and 
 47.1   development, design, quality control, and testing activities; 
 47.2      (3) environmental control devices that are used to maintain 
 47.3   conditions such as temperature, humidity, light, or air pressure 
 47.4   when those conditions are essential to and are part of the 
 47.5   production process; 
 47.6      (4) materials and supplies used to construct and install 
 47.7   machinery or equipment; 
 47.8      (5) repair and replacement parts, including accessories, 
 47.9   whether purchased as spare parts, repair parts, or as upgrades 
 47.10  or modifications to machinery or equipment; 
 47.11     (6) materials used for foundations that support machinery 
 47.12  or equipment; 
 47.13     (7) materials used to construct and install special purpose 
 47.14  buildings used in the production process; 
 47.15     (8) ready-mixed concrete equipment in which the ready-mixed 
 47.16  concrete is mixed as part of the delivery process regardless if 
 47.17  mounted on a chassis and leases of ready-mixed concrete trucks; 
 47.18  and 
 47.19     (9) machinery or equipment used for research, development, 
 47.20  design, or production of computer software.  
 47.21     (c) Capital equipment does not include the following: 
 47.22     (1) motor vehicles taxed under chapter 297B; 
 47.23     (2) machinery or equipment used to receive or store raw 
 47.24  materials; 
 47.25     (3) building materials, except for materials included in 
 47.26  paragraph (b), clauses (6) and (7); 
 47.27     (4) machinery or equipment used for nonproduction purposes, 
 47.28  including, but not limited to, the following:  plant security, 
 47.29  fire prevention, first aid, and hospital stations; support 
 47.30  operations or administration; pollution control; and plant 
 47.31  cleaning, disposal of scrap and waste, plant communications, 
 47.32  space heating, cooling, lighting, or safety; 
 47.33     (5) farm machinery and aquaculture production equipment as 
 47.34  defined by section 297A.61, subdivisions 12 and 13; 
 47.35     (6) machinery or equipment purchased and installed by a 
 47.36  contractor as part of an improvement to real property; or 
 48.1      (7) machinery or equipment used in the transportation, 
 48.2   transmission, or distribution of petroleum, liquefied gas, 
 48.3   natural gas, water, or steam, in, by, or through pipes, lines, 
 48.4   tanks, mains, or other means of transporting those products; or 
 48.5      (8) any other item that is not essential to the integrated 
 48.6   process of manufacturing, fabricating, mining, or refining. 
 48.7      (d) For purposes of this subdivision: 
 48.8      (1) "Equipment" means independent devices or tools separate 
 48.9   from machinery but essential to an integrated production 
 48.10  process, including computers and computer software, used in 
 48.11  operating, controlling, or regulating machinery and equipment; 
 48.12  and any subunit or assembly comprising a component of any 
 48.13  machinery or accessory or attachment parts of machinery, such as 
 48.14  tools, dies, jigs, patterns, and molds.  
 48.15     (2) "Fabricating" means to make, build, create, produce, or 
 48.16  assemble components or property to work in a new or different 
 48.17  manner. 
 48.18     (3) "Integrated production process" means a process or 
 48.19  series of operations through which tangible personal property is 
 48.20  manufactured, fabricated, mined, or refined.  For purposes of 
 48.21  this clause, (i) manufacturing begins with the removal of raw 
 48.22  materials from inventory and ends when the last process prior to 
 48.23  loading for shipment has been completed; (ii) fabricating begins 
 48.24  with the removal from storage or inventory of the property to be 
 48.25  assembled, processed, altered, or modified and ends with the 
 48.26  creation or production of the new or changed product; (iii) 
 48.27  mining begins with the removal of overburden from the site of 
 48.28  the ores, minerals, stone, peat deposit, or surface materials 
 48.29  and ends when the last process before stockpiling is completed; 
 48.30  and (iv) refining begins with the removal from inventory or 
 48.31  storage of a natural resource and ends with the conversion of 
 48.32  the item to its completed form. 
 48.33     (4) "Machinery" means mechanical, electronic, or electrical 
 48.34  devices, including computers and computer software, that are 
 48.35  purchased or constructed to be used for the activities set forth 
 48.36  in paragraph (a), beginning with the removal of raw materials 
 49.1   from inventory through completion of the product, including 
 49.2   packaging of the product. 
 49.3      (5) "Machinery and equipment used for pollution control" 
 49.4   means machinery and equipment used solely to eliminate, prevent, 
 49.5   or reduce pollution resulting from an activity described in 
 49.6   paragraph (a).  
 49.7      (6) "Manufacturing" means an operation or series of 
 49.8   operations where raw materials are changed in form, composition, 
 49.9   or condition by machinery and equipment and which results in the 
 49.10  production of a new article of tangible personal property.  For 
 49.11  purposes of this subdivision, "manufacturing" includes the 
 49.12  generation of electricity or steam to be sold at retail. 
 49.13     (7) "Mining" means the extraction of minerals, ores, stone, 
 49.14  or peat. 
 49.15     (8) "On-line data retrieval system" means a system whose 
 49.16  cumulation of information is equally available and accessible to 
 49.17  all its customers. 
 49.18     (9) "Primarily" means machinery and equipment used 50 
 49.19  percent or more of the time in an activity described in 
 49.20  paragraph (a). 
 49.21     (10) "Refining" means the process of converting a natural 
 49.22  resource to an intermediate or finished product, including the 
 49.23  treatment of water to be sold at retail. 
 49.24     <h>[EFFECTIVE DATE.]</h> This section is effective for sales and 
 49.25  purchases made after June 30, 2004. 
 49.26     Sec. 18.  [297F.25] [CIGARETTE WHOLESALE TAX.] 
 49.27     Subdivision 1.  [IMPOSITION.] A tax is imposed on the sale 
 49.28  of cigarettes by a cigarette distributor to a retailer or 
 49.29  cigarette subjobber for resale in this state.  The tax is equal 
 49.30  to 6.5 percent of: 
 49.31     (1) 112 percent of the distributor's gross invoice price, 
 49.32  before any discounts and including the full face value of any 
 49.33  cigarette stamps and the fee imposed under section 297F.24, of 
 49.34  the cigarettes sold to a retailer; or 
 49.35     (2) 112 percent of the cost of the retailer, as defined in 
 49.36  section 325D.32, subdivision 11, and any fees imposed under 
 50.1   section 297F.24 of the cigarettes sold to a cigarette subjobber. 
 50.2      Subd. 2.  [TAX COLLECTION REQUIRED.] A cigarette 
 50.3   distributor must collect the tax imposed under subdivision 1 
 50.4   from the retailer or cigarette subjobber and the tax must be 
 50.5   stated and charged separately.  The tax collected must be 
 50.6   remitted to the commissioner in the manner prescribed by 
 50.7   subdivision 4. 
 50.8      Subd. 3.  [PAYMENT.] Each taxpayer must remit payments of 
 50.9   the taxes to the commissioner on the same dates prescribed under 
 50.10  section 297F.09, subdivision 1, for cigarette tax returns, 
 50.11  including the accelerated remittance of the June liability. 
 50.12     Subd. 4.  [RETURN.] A taxpayer must file a return with the 
 50.13  commissioner on the same dates prescribed under section 297F.09, 
 50.14  subdivision 1, for cigarette tax returns. 
 50.15     Subd. 5.  [FORM OF RETURN.] The return must contain the 
 50.16  information and be in the form prescribed by the commissioner. 
 50.17     Subd. 6.  [TAX AS DEBT.] The tax that is required to be 
 50.18  collected by the distributor is a debt from the retailer or 
 50.19  cigarette subjobber to the distributor recoverable at law in the 
 50.20  same manner as other debts. 
 50.21     Subd. 7.  [ADMINISTRATION.] The audit, assessment, 
 50.22  interest, appeal, refund, and collection provisions applicable 
 50.23  to the taxes imposed under this chapter apply to taxes imposed 
 50.24  under this section. 
 50.25     Subd. 8.  [DEPOSIT OF REVENUES.] Notwithstanding the 
 50.26  provisions of section 297F.10, the commissioner shall deposit 
 50.27  all revenues, including penalties and interest, derived from the 
 50.28  tax imposed by this section, in the general fund. 
 50.29     <h>[EFFECTIVE DATE.]</h> This section is effective for all sales 
 50.30  made on or after August 1, 2004. 
 50.31     Sec. 19.  [465.716] [TAX SHELTER TRANSACTION PROHIBITED.] 
 50.32     (a) No political subdivision may enter into a lease, 
 50.33  sublease, sale-leaseback, service contract, or similar 
 50.34  ownership, use, or legal arrangement governing property or 
 50.35  facilities of the political subdivision with a private person, 
 50.36  if the arrangement: 
 51.1      (1) is intended to transfer the tax title to the private 
 51.2   person, permitting it to claim the income tax benefits of 
 51.3   ownership, such as depreciation, cost recovery allowances, or 
 51.4   similar benefits under the federal or state income or corporate 
 51.5   income taxes; 
 51.6      (2) permits or requires the political subdivision to 
 51.7   continue operating or using the property or facilities for ten 
 51.8   or more years in substantially the same manner as it did prior 
 51.9   to the effective date of the arrangement; and 
 51.10     (3) considering the totality of the legal and financial 
 51.11  arrangements, does not impose the risk of loss, obsolescence, or 
 51.12  other incidents of equity ownership on the private person for a 
 51.13  period of 20 years or more. 
 51.14     (b) For purposes of this section, "political subdivision" 
 51.15  has the meaning given in section 465.719, subdivision 1. 
 51.16     (c) The political subdivision may rely on the 
 51.17  representations of the advisors to the private person in 
 51.18  determining whether an arrangement is intended to transfer tax 
 51.19  title to the property or facilities. 
 51.20     <h>[EFFECTIVE DATE.]</h> This section is effective the day 
 51.21  following final enactment. 
 51.22     Sec. 20.  [FLOOR STOCKS TAX.] 
 51.23     Subdivision 1.  [CIGARETTES.] A floor stocks tax is imposed 
 51.24  on every retailer or cigarette subjobber, on the stamped 
 51.25  cigarettes in the retailer's or cigarette subjobber's possession 
 51.26  or under the retailer's or cigarette subjobber's control, at 
 51.27  12:01 a.m. on July 31, 2004.  The tax is imposed at the 
 51.28  following rates: 
 51.29     (1) on cigarettes weighing not more than three pounds per 
 51.30  thousand, 13.5 mills on each cigarette; and 
 51.31     (2) on cigarettes weighing more than three pounds per 
 51.32  thousand, 27 mills on each cigarette. 
 51.33  Each retailer shall file a return with the commissioner, in the 
 51.34  form the commissioner prescribes, showing the cigarettes on hand 
 51.35  at 12:01 a.m. on August 1, 2004, and pay the tax due thereon by 
 51.36  September 1, 2004.  Tax not paid by the due date bears interest 
 52.1   at the rate of one percent a month. 
 52.2      Subd. 2.  [AUDIT AND ENFORCEMENT.] The tax imposed by this 
 52.3   section is subject to the audit, assessment, and collection 
 52.4   provisions applicable to the taxes imposed under Minnesota 
 52.5   Statutes, chapter 297F.  The commissioner may require a 
 52.6   distributor to receive and maintain copies of floor stocks tax 
 52.7   returns filed by all retailers requesting a credit for returned 
 52.8   cigarettes. 
 52.9      Subd. 3.  [DEPOSIT OF PROCEEDS.] Notwithstanding the 
 52.10  provisions of Minnesota Statutes, section 297F.10, the revenue 
 52.11  from the tax imposed under this section shall be deposited by 
 52.12  the commissioner in the general fund. 
 52.13     <h>[EFFECTIVE DATE.]</h> This section is effective the day 
 52.14  following final enactment. 
 52.15     Sec. 21.  [DEPARTMENT OF REVENUE.] 
 52.16     The appropriation to the Department of Revenue in Laws 
 52.17  2003, First Special Session chapter 1, article 1, is reduced by 
 52.18  $1,700,000.  The reduction in this section must not be used to 
 52.19  reduce tax compliance activities or the Tax Research Division.