1.1 	A bill for an act
1.2 	relating to taxation; requiring withholding;
1.3 	conforming with certain federal income tax changes;
1.4 	prohibiting state contracts with certain vendors;
1.5 	providing for taxation of liquor and rented vehicles;
1.6 	modifying certain sales tax exemptions; defining
1.7 	"direct business" for purposes of insurance taxes;
1.8 	modifying the homestead market value credit;
1.9 	appropriating money; amending Minnesota Statutes 2004,
1.10 	sections 16C.03, by adding a subdivision; 273.1384,
1.11 	subdivision 1; 289A.02, subdivision 7; 289A.20,
1.12 	subdivision 2; 290.01, subdivisions 19, as amended,
1.13 	19a, 19b, 19c, 19d, 31; 290.032, subdivisions 1, 2;
1.14 	290.06, subdivision 2c; 290.067, subdivision 2a;
1.15 	290.091, subdivision 2; 290.92, by adding a
1.16 	subdivision; 290A.03, subdivisions 3, 15; 297A.68,
1.17 	subdivisions 2, 5; 297I.01, by adding a subdivision;
1.18 	Laws 2001, First Special Session chapter 5, article
1.19 	12, section 95; proposing coding for new law in
1.20 	Minnesota Statutes, chapter 295.
1.21 	BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:

1.22 	ARTICLE 1
1.23 	INCOME AND CORPORATE FRANCHISE TAXES

1.24 	Section 1. Minnesota Statutes 2004, section 289A.20,
1.25 	subdivision 2, is amended to read:
1.26 		Subd. 2.Withholding from wages, entertainer withholding,
1.27 	withholding from payments to out-of-state contractors, and
1.28 	withholding by partnerships and small business corporations.
 1.29 	(a) A tax required to be deducted and withheld during the
1.30 	quarterly period must be paid on or before the last day of the
1.31 	month following the close of the quarterly period, unless an
1.32 	earlier time for payment is provided.  A tax required to be
1.33 	deducted and withheld from compensation of an entertainer and
2.1 	from a payment to an out-of-state contractor must be paid on or
2.2 	before the date the return for such tax must be filed under
2.3 	section 289A.18, subdivision 2.  Taxes required to be deducted
2.4 	and withheld by partnerships and ,S corporations, and trusts 
2.5 	must be paid on or before the date the return must be filed
2.6 	under section 289A.18, subdivision 2a quarterly basis as
2.7 	estimated taxes under section 289A.25 for partnerships and
2.8 	trusts and under section 289A.26 for S corporations.
2.9 	(b) An employer who, during the previous quarter, withheld
2.10 	more than $1,500 of tax under section 290.92, subdivision 2a or
2.11 	3, or 290.923, subdivision 2, must deposit tax withheld under
2.12 	those sections with the commissioner within the time allowed to
2.13 	deposit the employer's federal withheld employment taxes under
2.14 	Code of Federal Regulations, title 26, section 31.6302-1, as
2.15 	amended through December 31, 2001, without regard to the safe
2.16 	harbor or de minimis rules in subparagraph (f) or the one-day
2.17 	rule in subsection (c), clause (3).  Taxpayers must submit a
2.18 	copy of their federal notice of deposit status to the
2.19 	commissioner upon request by the commissioner.
2.20 	(c) The commissioner may prescribe by rule other return
2.21 	periods or deposit requirements.  In prescribing the reporting
2.22 	period, the commissioner may classify payors according to the
2.23 	amount of their tax liability and may adopt an appropriate
2.24 	reporting period for the class that the commissioner judges to
2.25 	be consistent with efficient tax collection.  In no event will
2.26 	the duration of the reporting period be more than one year.
2.27 	(d) If less than the correct amount of tax is paid to the
2.28 	commissioner, proper adjustments with respect to both the tax
2.29 	and the amount to be deducted must be made, without interest, in
2.30 	the manner and at the times the commissioner prescribes.  If the
2.31 	underpayment cannot be adjusted, the amount of the underpayment
2.32 	will be assessed and collected in the manner and at the times
2.33 	the commissioner prescribes.
2.34 	(e) If the aggregate amount of the tax withheld during a
2.35 	fiscal year ending June 30 under section 290.92, subdivision 2a
2.36 	or 3, is equal to or exceeds the amounts established for
3.1 	remitting federal withheld taxes pursuant to the regulations
3.2 	promulgated under section 6302(h) of the Internal Revenue Code,
3.3 	the employer must remit each required deposit for wages paid in
3.4 	the subsequent calendar year by electronic means.
3.5 	(f) A third-party bulk filer as defined in section 290.92,
3.6 	subdivision 30, paragraph (a), clause (2), who remits
3.7 	withholding deposits must remit all deposits by electronic means
3.8 	as provided in paragraph (e), regardless of the aggregate amount
3.9 	of tax withheld during a fiscal year for all of the employers.
3.10 	
EFFECTIVE DATE. This section is effective for tax years
3.11 	beginning after December 31, 2005.

3.12 	Sec. 2. Minnesota Statutes 2004, section 290.92, is
3.13 	amended by adding a subdivision to read:
3.14 		Subd. 31.Payments to persons who are not employees;
3.15 	withholding. Any person engaged in a trade or business who in
3.16 	the course of such trade or business makes payments to an
3.17 	individual, who is not an employee of the person, for work
3.18 	described in industry code numbers 23 through 238990 of the
3.19 	North American Industry Classification System, shall deduct from
3.20 	the payment and withhold two percent of the amount as Minnesota
3.21 	withholding tax when the amount paid to that individual by the
3.22 	same person during the calendar year exceeds $600.  For purposes
3.23 	of this section, a payment to any person that is subject to
3.24 	withholding under this subdivision must be treated as if the
3.25 	payment was a wage paid by an employer to an employee.  Every
3.26 	individual who is to receive a payment that is subject to
3.27 	withholding under this subdivision shall furnish the contracting
3.28 	person with a statement, containing the name, address, and
3.29 	Social Security account number of the person receiving the
3.30 	payment.
3.31 	
EFFECTIVE DATE. This section is effective for payments
3.32 	made after July 31, 2005.

3.33 	ARTICLE 2
3.34 	FEDERAL UPDATE

3.35 	Section 1. Minnesota Statutes 2004, section 289A.02,
3.36 	subdivision 7, is amended to read:
4.1 		Subd. 7.Internal revenue code.  Unless specifically
4.2 	defined otherwise, "Internal Revenue Code" means the Internal
4.3 	Revenue Code of 1986, as amended through June 15, 2003 December
4.4 	31, 2004.
4.5 	
EFFECTIVE DATE. This section is effective the day
4.6 	following final enactment.

4.7 	Sec. 2. Minnesota Statutes 2004, section 290.01,
4.8 	subdivision 19, as amended by Laws 2005, chapter 1, section 1,
4.9 	is amended to read:
4.10 		Subd. 19.Net income. The term "net income" means the
4.11 	federal taxable income, as defined in section 63 of the Internal
4.12 	Revenue Code of 1986, as amended through the date named in this
4.13 	subdivision, incorporating the federal effective dates of
4.14 	changes to the Internal Revenue Code and any elections made by
4.15 	the taxpayer in accordance with the Internal Revenue Code in
4.16 	determining federal taxable income for federal income tax
4.17 	purposes, and with the modifications provided in subdivisions
4.18 	19a to 19f.
4.19 	In the case of a regulated investment company or a fund
4.20 	thereof, as defined in section 851(a) or 851(g) of the Internal
4.21 	Revenue Code, federal taxable income means investment company
4.22 	taxable income as defined in section 852(b)(2) of the Internal
4.23 	Revenue Code, except that:
4.24 	(1) the exclusion of net capital gain provided in section
4.25 	852(b)(2)(A) of the Internal Revenue Code does not apply;
4.26 	(2) the deduction for dividends paid under section
4.27 	852(b)(2)(D) of the Internal Revenue Code must be applied by
4.28 	allowing a deduction for capital gain dividends and
4.29 	exempt-interest dividends as defined in sections 852(b)(3)(C)
4.30 	and 852(b)(5) of the Internal Revenue Code; and
4.31 	(3) the deduction for dividends paid must also be applied
4.32 	in the amount of any undistributed capital gains which the
4.33 	regulated investment company elects to have treated as provided
4.34 	in section 852(b)(3)(D) of the Internal Revenue Code.
4.35 	The net income of a real estate investment trust as defined
4.36 	and limited by section 856(a), (b), and (c) of the Internal
5.1 	Revenue Code means the real estate investment trust taxable
5.2 	income as defined in section 857(b)(2) of the Internal Revenue
5.3 	Code.
5.4 	The net income of a designated settlement fund as defined
5.5 	in section 468B(d) of the Internal Revenue Code means the gross
5.6 	income as defined in section 468B(b) of the Internal Revenue
5.7 	Code.
5.8 	The provisions of sections 1113(a), 1117, 1206(a), 1313(a),
5.9 	1402(a), 1403(a), 1443, 1450, 1501(a), 1605, 1611(a), 1612,
5.10 	1616, 1617, 1704(l), and 1704(m) of the Small Business Job
5.11 	Protection Act, Public Law 104-188, the provisions of Public Law
5.12 	104-117, the provisions of sections 313(a) and (b)(1), 602(a),
5.13 	913(b), 941, 961, 971, 1001(a) and (b), 1002, 1003, 1012, 1013,
5.14 	1014, 1061, 1062, 1081, 1084(b), 1086, 1087, 1111(a), 1131(b)
5.15 	and (c), 1211(b), 1213, 1530(c)(2), 1601(f)(5) and (h), and
5.16 	1604(d)(1) of the Taxpayer Relief Act of 1997, Public Law
5.17 	105-34, the provisions of section 6010 of the Internal Revenue
5.18 	Service Restructuring and Reform Act of 1998, Public Law
5.19 	105-206, the provisions of section 4003 of the Omnibus
5.20 	Consolidated and Emergency Supplemental Appropriations Act,
5.21 	1999, Public Law 105-277, and the provisions of section 318 of
5.22 	the Consolidated Appropriation Act of 2001, Public Law 106-554,
5.23 	shall become effective at the time they become effective for
5.24 	federal purposes.
5.25 	The Internal Revenue Code of 1986, as amended through
5.26 	December 31, 1996 2004, shall be in effect for taxable years
5.27 	beginning after December 31, 1996. The provisions of Public Law
5.28 	109-1, shall be effective for tax years beginning after December
5.29 	31, 2003.
5.30 	The provisions of sections 202(a) and (b), 221(a), 225,
5.31 	312, 313, 913(a), 934, 962, 1004, 1005, 1052, 1063, 1084(a) and
5.32 	(c), 1089, 1112, 1171, 1204, 1271(a) and (b), 1305(a), 1306,
5.33 	1307, 1308, 1309, 1501(b), 1502(b), 1504(a), 1505, 1527, 1528,
5.34 	1530, 1601(d), (e), (f), and (i) and 1602(a), (b), (c), and (e)
5.35 	of the Taxpayer Relief Act of 1997, Public Law 105-34, the
5.36 	provisions of sections 6004, 6005, 6012, 6013, 6015, 6016, 7002,
6.1 	and 7003 of the Internal Revenue Service Restructuring and
6.2 	Reform Act of 1998, Public Law 105-206, the provisions of
6.3 	section 3001 of the Omnibus Consolidated and Emergency
6.4 	Supplemental Appropriations Act, 1999, Public Law 105-277, the
6.5 	provisions of section 3001 of the Miscellaneous Trade and
6.6 	Technical Corrections Act of 1999, Public Law 106-36, and the
6.7 	provisions of section 316 of the Consolidated Appropriation Act
6.8 	of 2001, Public Law 106-554, shall become effective at the time
6.9 	they become effective for federal purposes.
6.10 	The Internal Revenue Code of 1986, as amended through
6.11 	December 31, 1997, shall be in effect for taxable years
6.12 	beginning after December 31, 1997.
6.13 	The provisions of sections 5002, 6009, 6011, and 7001 of
6.14 	the Internal Revenue Service Restructuring and Reform Act of
6.15 	1998, Public Law 105-206, the provisions of section 9010 of the
6.16 	Transportation Equity Act for the 21st Century, Public Law
6.17 	105-178, the provisions of sections 1004, 4002, and 5301 of the
6.18 	Omnibus Consolidation and Emergency Supplemental Appropriations
6.19 	Act, 1999, Public Law 105-277, the provision of section 303 of
6.20 	the Ricky Ray Hemophilia Relief Fund Act of 1998, Public Law
6.21 	105-369, the provisions of sections 532, 534, 536, 537, and 538
6.22 	of the Ticket to Work and Work Incentives Improvement Act of
6.23 	1999, Public Law 106-170, the provisions of the Installment Tax
6.24 	Correction Act of 2000, Public Law 106-573, and the provisions
6.25 	of section 309 of the Consolidated Appropriation Act of 2001,
6.26 	Public Law 106-554, shall become effective at the time they
6.27 	become effective for federal purposes.
6.28 	The Internal Revenue Code of 1986, as amended through
6.29 	December 31, 1998, shall be in effect for taxable years
6.30 	beginning after December 31, 1998.
6.31 	The provisions of the FSC Repeal and Extraterritorial
6.32 	Income Exclusion Act of 2000, Public Law 106-519, and the
6.33 	provision of section 412 of the Job Creation and Worker
6.34 	Assistance Act of 2002, Public Law 107-147, shall become
6.35 	effective at the time it became effective for federal purposes.
6.36 	The Internal Revenue Code of 1986, as amended through
7.1 	December 31, 1999, shall be in effect for taxable years
7.2 	beginning after December 31, 1999.  The provisions of sections
7.3 	306 and 401 of the Consolidated Appropriation Act of 2001,
7.4 	Public Law 106-554, and the provision of section 632(b)(2)(A) of
7.5 	the Economic Growth and Tax Relief Reconciliation Act of 2001,
7.6 	Public Law 107-16, and provisions of sections 101 and 402 of the
7.7 	Job Creation and Worker Assistance Act of 2002, Public Law
7.8 	107-147, shall become effective at the same time it became
7.9 	effective for federal purposes.
7.10 	The Internal Revenue Code of 1986, as amended through
7.11 	December 31, 2000, shall be in effect for taxable years
7.12 	beginning after December 31, 2000.  The provisions of sections
7.13 	659a and 671 of the Economic Growth and Tax Relief
7.14 	Reconciliation Act of 2001, Public Law 107-16, the provisions of
7.15 	sections 104, 105, and 111 of the Victims of Terrorism Tax
7.16 	Relief Act of 2001, Public Law 107-134, and the provisions of
7.17 	sections 201, 403, 413, and 606 of the Job Creation and Worker
7.18 	Assistance Act of 2002, Public Law 107-147, shall become
7.19 	effective at the same time it became effective for federal
7.20 	purposes.
7.21 	The Internal Revenue Code of 1986, as amended through March
7.22 	15, 2002, shall be in effect for taxable years beginning after
7.23 	December 31, 2001.
7.24 	The provisions of sections 101 and 102 of the Victims of
7.25 	Terrorism Tax Relief Act of 2001, Public Law 107-134, shall
7.26 	become effective at the same time it becomes effective for
7.27 	federal purposes.
7.28 	The Internal Revenue Code of 1986, as amended through June
7.29 	15, 2003, shall be in effect for taxable years beginning after
7.30 	December 31, 2002.  The provisions of section 201 of the Jobs
7.31 	and Growth Tax Relief and Reconciliation Act of 2003, H.R. 2, if
7.32 	it is enacted into law, are effective at the same time it became
7.33 	effective for federal purposes.  The provisions of the Act of
7.34 	January 7, 2005, Public Law 109-1, to accelerate the income tax
7.35 	benefits for charitable cash contributions for the relief of
7.36 	victims of the Indian Ocean tsunami, are effective at the same
8.1 	time it became effective for federal purposes and apply to the
8.2 	subtraction under subdivision 19b, clause (7).
8.3 	Except as otherwise provided, references to the Internal
8.4 	Revenue Code in subdivisions 19a 19 to 19g 19f mean the code in
8.5 	effect for purposes of determining net income for the applicable
8.6 	year.
8.7 	
EFFECTIVE DATE. This section is effective the day
8.8 	following final enactment.

8.9 	Sec. 3. Minnesota Statutes 2004, section 290.01,
8.10 	subdivision 19a, is amended to read:
8.11 		Subd. 19a.Additions to federal taxable income.  For
8.12 	individuals, estates, and trusts, there shall be added to
8.13 	federal taxable income:
8.14 	(1)(i) interest income on obligations of any state other
8.15 	than Minnesota or a political or governmental subdivision,
8.16 	municipality, or governmental agency or instrumentality of any
8.17 	state other than Minnesota exempt from federal income taxes
8.18 	under the Internal Revenue Code or any other federal statute;
8.19 	and
8.20 	(ii) exempt-interest dividends as defined in section
8.21 	852(b)(5) of the Internal Revenue Code, except the portion of
8.22 	the exempt-interest dividends derived from interest income on
8.23 	obligations of the state of Minnesota or its political or
8.24 	governmental subdivisions, municipalities, governmental agencies
8.25 	or instrumentalities, but only if the portion of the
8.26 	exempt-interest dividends from such Minnesota sources paid to
8.27 	all shareholders represents 95 percent or more of the
8.28 	exempt-interest dividends that are paid by the regulated
8.29 	investment company as defined in section 851(a) of the Internal
8.30 	Revenue Code, or the fund of the regulated investment company as
8.31 	defined in section 851(g) of the Internal Revenue Code, making
8.32 	the payment; and
8.33 	(iii) for the purposes of items (i) and (ii), interest on
8.34 	obligations of an Indian tribal government described in section
8.35 	7871(c) of the Internal Revenue Code shall be treated as
8.36 	interest income on obligations of the state in which the tribe
9.1 	is located;
9.2 	(2) the amount of income or sales and use taxes paid or
9.3 	accrued within the taxable year under this chapter and income or
9.4 	sales and use taxes paid to any other state or to any province
9.5 	or territory of Canada, to the extent allowed as a deduction
9.6 	under section 63(d) of the Internal Revenue Code of 1986, as
9.7 	amended through June 15, 2003, but the addition may not be more
9.8 	than the amount by which the itemized deductions as allowed
9.9 	under section 63(d) of the Internal Revenue Code exceeds the
9.10 	amount of the standard deduction as defined in section 63(c) of
9.11 	the Internal Revenue Code.  For the purpose of this paragraph,
9.12 	the disallowance of itemized deductions under section 68 of the
9.13 	Internal Revenue Code of 1986, income or sales and use tax is
9.14 	the last itemized deduction disallowed;
9.15 	(3) the capital gain amount of a lump sum distribution to
9.16 	which the special tax under section 1122(h)(3)(B)(ii) of the Tax
9.17 	Reform Act of 1986, Public Law 99-514, applies;
9.18 	(4) the amount of income taxes paid or accrued within the
9.19 	taxable year under this chapter and income taxes paid to any
9.20 	other state or any province or territory of Canada, to the
9.21 	extent allowed as a deduction in determining federal adjusted
9.22 	gross income.  For the purpose of this paragraph, income taxes
9.23 	do not include the taxes imposed by sections 290.0922,
9.24 	subdivision 1, paragraph (b), 290.9727, 290.9728, and 290.9729;
9.25 	(5) the amount of expense, interest, or taxes disallowed
9.26 	pursuant to section 290.10;
9.27 	(6) the amount of a partner's pro rata share of net income
9.28 	which does not flow through to the partner because the
9.29 	partnership elected to pay the tax on the income under section
9.30 	6242(a)(2) of the Internal Revenue Code; and 
9.31 	(7) 80 percent of the depreciation deduction allowed under
9.32 	section 168(k) of the Internal Revenue Code.  For purposes of
9.33 	this clause, if the taxpayer has an activity that in the taxable
9.34 	year generates a deduction for depreciation under section 168(k)
9.35 	and the activity generates a loss for the taxable year that the
9.36 	taxpayer is not allowed to claim for the taxable year, "the
10.1 	depreciation allowed under section 168(k)" for the taxable year
10.2 	is limited to excess of the depreciation claimed by the activity
10.3 	under section 168(k) over the amount of the loss from the
10.4 	activity that is not allowed in the taxable year.  In succeeding
10.5 	taxable years when the losses not allowed in the taxable year
10.6 	are allowed, the depreciation under section 168(k) is allowed;
10.7 	(8) 80 percent of the amount by which the deduction allowed
10.8 	by section 179 of the Internal Revenue Code exceeds the
10.9 	deduction allowable by section 179 of the Internal Revenue Code
10.10 	of 1986, as amended through December 31, 2003;
10.11 	(9) to the extent deducted in computing federal taxable
10.12 	income, the amount of the deduction allowable under section 199
10.13 	of the Internal Revenue Code; and 
10.14 	(10) the amount of any subsidy payment not included in
10.15 	federal gross income under section 139A of the Internal Revenue
10.16 	Code.
10.17 	
EFFECTIVE DATE. This section is effective for tax years
10.18 	beginning after December 31, 2004, except the changes in clause
10.19 	(2) are effective for tax years beginning after December 31,
10.20 	2003.

10.21 	Sec. 4. Minnesota Statutes 2004, section 290.01,
10.22 	subdivision 19b, is amended to read:
10.23 		Subd. 19b.Subtractions from federal taxable income.  For
10.24 	individuals, estates, and trusts, there shall be subtracted from
10.25 	federal taxable income:
10.26 	(1) interest income on obligations of any authority,
10.27 	commission, or instrumentality of the United States to the
10.28 	extent includable in taxable income for federal income tax
10.29 	purposes but exempt from state income tax under the laws of the
10.30 	United States;
10.31 	(2) if included in federal taxable income, the amount of
10.32 	any overpayment of income tax to Minnesota or to any other
10.33 	state, for any previous taxable year, whether the amount is
10.34 	received as a refund or as a credit to another taxable year's
10.35 	income tax liability;
10.36 	(3) the amount paid to others, less the amount used to
11.1 	claim the credit allowed under section 290.0674, not to exceed
11.2 	$1,625 for each qualifying child in grades kindergarten to 6 and
11.3 	$2,500 for each qualifying child in grades 7 to 12, for tuition,
11.4 	textbooks, and transportation of each qualifying child in
11.5 	attending an elementary or secondary school situated in
11.6 	Minnesota, North Dakota, South Dakota, Iowa, or Wisconsin,
11.7 	wherein a resident of this state may legally fulfill the state's
11.8 	compulsory attendance laws, which is not operated for profit,
11.9 	and which adheres to the provisions of the Civil Rights Act of
11.10 	1964 and chapter 363A.  For the purposes of this clause,
11.11 	"tuition" includes fees or tuition as defined in section
11.12 	290.0674, subdivision 1, clause (1).  As used in this clause,
11.13 	"textbooks" includes books and other instructional materials and
11.14 	equipment purchased or leased for use in elementary and
11.15 	secondary schools in teaching only those subjects legally and
11.16 	commonly taught in public elementary and secondary schools in
11.17 	this state.  Equipment expenses qualifying for deduction
11.18 	includes expenses as defined and limited in section 290.0674,
11.19 	subdivision 1, clause (3).  "Textbooks" does not include
11.20 	instructional books and materials used in the teaching of
11.21 	religious tenets, doctrines, or worship, the purpose of which is
11.22 	to instill such tenets, doctrines, or worship, nor does it
11.23 	include books or materials for, or transportation to,
11.24 	extracurricular activities including sporting events, musical or
11.25 	dramatic events, speech activities, driver's education, or
11.26 	similar programs.  For purposes of the subtraction provided by
11.27 	this clause, "qualifying child" has the meaning given in section
11.28 	32(c)(3) of the Internal Revenue Code;
11.29 	(4) income as provided under section 290.0802;
11.30 	(5) to the extent included in federal adjusted gross
11.31 	income, income realized on disposition of property exempt from
11.32 	tax under section 290.491;
11.33 	(6) to the extent included in federal taxable income,
11.34 	postservice benefits for youth community service under section
11.35 	124D.42 for volunteer service under United States Code, title
11.36 	42, sections 12601 to 12604;
12.1 	(7) to the extent not deducted in determining federal
12.2 	taxable income by an individual who does not itemize deductions
12.3 	for federal income tax purposes for the taxable year, an amount
12.4 	equal to 50 percent of the excess of charitable contributions
12.5 	allowable as a deduction for the taxable year under section
12.6 	170(a) of the Internal Revenue Code over $500;
12.7 	(8) for taxable years beginning before January 1, 2008, the
12.8 	amount of the federal small ethanol producer credit allowed
12.9 	under section 40(a)(3) of the Internal Revenue Code which is
12.10 	included in gross income under section 87 of the Internal
12.11 	Revenue Code;
12.12 	(9) for individuals who are allowed a federal foreign tax
12.13 	credit for taxes that do not qualify for a credit under section
12.14 	290.06, subdivision 22, an amount equal to the carryover of
12.15 	subnational foreign taxes for the taxable year, but not to
12.16 	exceed the total subnational foreign taxes reported in claiming
12.17 	the foreign tax credit.  For purposes of this clause, "federal
12.18 	foreign tax credit" means the credit allowed under section 27 of
12.19 	the Internal Revenue Code, and "carryover of subnational foreign
12.20 	taxes" equals the carryover allowed under section 904(c) of the
12.21 	Internal Revenue Code minus national level foreign taxes to the
12.22 	extent they exceed the federal foreign tax credit;
12.23 	(10) in each of the five tax years immediately following
12.24 	the tax year in which an addition is required under subdivision
12.25 	19a, clause (7), an amount equal to one-fifth of the delayed
12.26 	depreciation.  For purposes of this clause, "delayed
12.27 	depreciation" means the amount of the addition made by the
12.28 	taxpayer under subdivision 19a, clause (7), minus the positive
12.29 	value of any net operating loss under section 172 of the
12.30 	Internal Revenue Code generated for the tax year of the
12.31 	addition.  The resulting delayed depreciation cannot be less
12.32 	than zero; and 
12.33 	(11) job opportunity building zone income as provided under
12.34 	section 469.316; and 
12.35 	(12) in each of the five tax years immediately following
12.36 	the tax year in which an addition is required under subdivision
13.1 	19a, clause (8), or 19c, clause (17), in the case of a
13.2 	shareholder of a corporation that is an S corporation, an amount
13.3 	equal to one-fifth of the addition made by the taxpayer under
13.4 	subdivision 19a, clause (8), or 19c, clause (17), in the case of
13.5 	a shareholder of a corporation that is an S corporation, minus
13.6 	the positive value of any net operating loss under section 172
13.7 	of the Internal Revenue Code generated for the tax year of the
13.8 	addition.  If the net operating loss exceeds the addition for
13.9 	the tax year, a subtraction is not allowed under this clause.
13.10 	
EFFECTIVE DATE. This section is effective for tax years
13.11 	beginning after December 31, 2004.

13.12 	Sec. 5. Minnesota Statutes 2004, section 290.01,
13.13 	subdivision 19c, is amended to read:
13.14 		Subd. 19c.Corporations; additions to federal taxable
13.15 	income.  For corporations, there shall be added to federal
13.16 	taxable income:
13.17 	(1) the amount of any deduction taken for federal income
13.18 	tax purposes for income, excise, or franchise taxes based on net
13.19 	income or related minimum taxes, including but not limited to
13.20 	the tax imposed under section 290.0922, paid by the corporation
13.21 	to Minnesota, another state, a political subdivision of another
13.22 	state, the District of Columbia, or any foreign country or
13.23 	possession of the United States;
13.24 	(2) interest not subject to federal tax upon obligations
13.25 	of:  the United States, its possessions, its agencies, or its
13.26 	instrumentalities; the state of Minnesota or any other state,
13.27 	any of its political or governmental subdivisions, any of its
13.28 	municipalities, or any of its governmental agencies or
13.29 	instrumentalities; the District of Columbia; or Indian tribal
13.30 	governments;
13.31 	(3) exempt-interest dividends received as defined in
13.32 	section 852(b)(5) of the Internal Revenue Code;
13.33 	(4) the amount of any net operating loss deduction taken
13.34 	for federal income tax purposes under section 172 or 832(c)(10)
13.35 	of the Internal Revenue Code or operations loss deduction under
13.36 	section 810 of the Internal Revenue Code;
14.1 	(5) the amount of any special deductions taken for federal
14.2 	income tax purposes under sections 241 to 247 of the Internal
14.3 	Revenue Code;
14.4 	(6) losses from the business of mining, as defined in
14.5 	section 290.05, subdivision 1, clause (a), that are not subject
14.6 	to Minnesota income tax;
14.7 	(7) the amount of any capital losses deducted for federal
14.8 	income tax purposes under sections 1211 and 1212 of the Internal
14.9 	Revenue Code;
14.10 	(8) the exempt foreign trade income of a foreign sales
14.11 	corporation under sections 921(a) and 291 of the Internal
14.12 	Revenue Code;
14.13 	(9) the amount of percentage depletion deducted under
14.14 	sections 611 through 614 and 291 of the Internal Revenue Code;
14.15 	(10) for certified pollution control facilities placed in
14.16 	service in a taxable year beginning before December 31, 1986,
14.17 	and for which amortization deductions were elected under section
14.18 	169 of the Internal Revenue Code of 1954, as amended through
14.19 	December 31, 1985, the amount of the amortization deduction
14.20 	allowed in computing federal taxable income for those
14.21 	facilities;
14.22 	(11) the amount of any deemed dividend from a foreign
14.23 	operating corporation determined pursuant to section 290.17,
14.24 	subdivision 4, paragraph (g);
14.25 	(12) the amount of any environmental tax paid under section
14.26 	59(a) of the Internal Revenue Code;
14.27 	(13) the amount of a partner's pro rata share of net income
14.28 	which does not flow through to the partner because the
14.29 	partnership elected to pay the tax on the income under section
14.30 	6242(a)(2) of the Internal Revenue Code;
14.31 	(14) the amount of net income excluded under section 114 of
14.32 	the Internal Revenue Code;
14.33 	(15) any increase in subpart F income, as defined in
14.34 	section 952(a) of the Internal Revenue Code, for the taxable
14.35 	year when subpart F income is calculated without regard to the
14.36 	provisions of section 614 of Public Law 107-147; and 
15.1 	(16) 80 percent of the depreciation deduction allowed under
15.2 	section 168(k) of the Internal Revenue Code.  For purposes of
15.3 	this clause, if the taxpayer has an activity that in the taxable
15.4 	year generates a deduction for depreciation under section 168(k)
15.5 	and the activity generates a loss for the taxable year that the
15.6 	taxpayer is not allowed to claim for the taxable year, "the
15.7 	depreciation allowed under section 168(k)" for the taxable year
15.8 	is limited to excess of the depreciation claimed by the activity
15.9 	under section 168(k) over the amount of the loss from the
15.10 	activity that is not allowed in the taxable year.  In succeeding
15.11 	taxable years when the losses not allowed in the taxable year
15.12 	are allowed, the depreciation under section 168(k) is allowed;
15.13 	(17) 80 percent of the amount by which the deduction
15.14 	allowed by section 179 of the Internal Revenue Code exceeds the
15.15 	deduction allowable by section 179 of the Internal Revenue Code
15.16 	of 1986, as amended through December 31, 2003;
15.17 	(18) to the extent deducted in computing federal taxable
15.18 	income, the amount of the deduction allowable under section 199
15.19 	of the Internal Revenue Code; and 
15.20 	(19) the amount of any subsidy payment not included in
15.21 	federal gross income under section 139A of the Internal Revenue
15.22 	Code.
15.23 	
EFFECTIVE DATE. This section is effective for tax years
15.24 	beginning after December 31, 2004.

15.25 	Sec. 6. Minnesota Statutes 2004, section 290.01,
15.26 	subdivision 19d, is amended to read:
15.27 		Subd. 19d.Corporations; modifications decreasing federal
15.28 	taxable income.  For corporations, there shall be subtracted
15.29 	from federal taxable income after the increases provided in
15.30 	subdivision 19c:
15.31 	(1) the amount of foreign dividend gross-up added to gross
15.32 	income for federal income tax purposes under section 78 of the
15.33 	Internal Revenue Code;
15.34 	(2) the amount of salary expense not allowed for federal
15.35 	income tax purposes due to claiming the federal jobs credit
15.36 	under section 51 of the Internal Revenue Code;
16.1 	(3) any dividend (not including any distribution in
16.2 	liquidation) paid within the taxable year by a national or state
16.3 	bank to the United States, or to any instrumentality of the
16.4 	United States exempt from federal income taxes, on the preferred
16.5 	stock of the bank owned by the United States or the
16.6 	instrumentality;
16.7 	(4) amounts disallowed for intangible drilling costs due to
16.8 	differences between this chapter and the Internal Revenue Code
16.9 	in taxable years beginning before January 1, 1987, as follows:
16.10 	(i) to the extent the disallowed costs are represented by
16.11 	physical property, an amount equal to the allowance for
16.12 	depreciation under Minnesota Statutes 1986, section 290.09,
16.13 	subdivision 7, subject to the modifications contained in
16.14 	subdivision 19e; and
16.15 	(ii) to the extent the disallowed costs are not represented
16.16 	by physical property, an amount equal to the allowance for cost
16.17 	depletion under Minnesota Statutes 1986, section 290.09,
16.18 	subdivision 8;
16.19 	(5) the deduction for capital losses pursuant to sections
16.20 	1211 and 1212 of the Internal Revenue Code, except that:
16.21 	(i) for capital losses incurred in taxable years beginning
16.22 	after December 31, 1986, capital loss carrybacks shall not be
16.23 	allowed;
16.24 	(ii) for capital losses incurred in taxable years beginning
16.25 	after December 31, 1986, a capital loss carryover to each of the
16.26 	15 taxable years succeeding the loss year shall be allowed;
16.27 	(iii) for capital losses incurred in taxable years
16.28 	beginning before January 1, 1987, a capital loss carryback to
16.29 	each of the three taxable years preceding the loss year, subject
16.30 	to the provisions of Minnesota Statutes 1986, section 290.16,
16.31 	shall be allowed; and
16.32 	(iv) for capital losses incurred in taxable years beginning
16.33 	before January 1, 1987, a capital loss carryover to each of the
16.34 	five taxable years succeeding the loss year to the extent such
16.35 	loss was not used in a prior taxable year and subject to the
16.36 	provisions of Minnesota Statutes 1986, section 290.16, shall be
17.1 	allowed;
17.2 	(6) an amount for interest and expenses relating to income
17.3 	not taxable for federal income tax purposes, if (i) the income
17.4 	is taxable under this chapter and (ii) the interest and expenses
17.5 	were disallowed as deductions under the provisions of section
17.6 	171(a)(2), 265 or 291 of the Internal Revenue Code in computing
17.7 	federal taxable income;
17.8 	(7) in the case of mines, oil and gas wells, other natural
17.9 	deposits, and timber for which percentage depletion was
17.10 	disallowed pursuant to subdivision 19c, clause (11), a
17.11 	reasonable allowance for depletion based on actual cost.  In the
17.12 	case of leases the deduction must be apportioned between the
17.13 	lessor and lessee in accordance with rules prescribed by the
17.14 	commissioner.  In the case of property held in trust, the
17.15 	allowable deduction must be apportioned between the income
17.16 	beneficiaries and the trustee in accordance with the pertinent
17.17 	provisions of the trust, or if there is no provision in the
17.18 	instrument, on the basis of the trust's income allocable to
17.19 	each;
17.20 	(8) for certified pollution control facilities placed in
17.21 	service in a taxable year beginning before December 31, 1986,
17.22 	and for which amortization deductions were elected under section
17.23 	169 of the Internal Revenue Code of 1954, as amended through
17.24 	December 31, 1985, an amount equal to the allowance for
17.25 	depreciation under Minnesota Statutes 1986, section 290.09,
17.26 	subdivision 7;
17.27 	(9) amounts included in federal taxable income that are due
17.28 	to refunds of income, excise, or franchise taxes based on net
17.29 	income or related minimum taxes paid by the corporation to
17.30 	Minnesota, another state, a political subdivision of another
17.31 	state, the District of Columbia, or a foreign country or
17.32 	possession of the United States to the extent that the taxes
17.33 	were added to federal taxable income under section 290.01,
17.34 	subdivision 19c, clause (1), in a prior taxable year;
17.35 	(10) 80 percent of royalties, fees, or other like income
17.36 	accrued or received from a foreign operating corporation or a
18.1 	foreign corporation which is part of the same unitary business
18.2 	as the receiving corporation;
18.3 	(11) income or gains from the business of mining as defined
18.4 	in section 290.05, subdivision 1, clause (a), that are not
18.5 	subject to Minnesota franchise tax;
18.6 	(12) the amount of handicap access expenditures in the
18.7 	taxable year which are not allowed to be deducted or capitalized
18.8 	under section 44(d)(7) of the Internal Revenue Code;
18.9 	(13) the amount of qualified research expenses not allowed
18.10 	for federal income tax purposes under section 280C(c) of the
18.11 	Internal Revenue Code, but only to the extent that the amount
18.12 	exceeds the amount of the credit allowed under section 290.068;
18.13 	(14) the amount of salary expenses not allowed for federal
18.14 	income tax purposes due to claiming the Indian employment credit
18.15 	under section 45A(a) of the Internal Revenue Code;
18.16 	(15) the amount of any refund of environmental taxes paid
18.17 	under section 59A of the Internal Revenue Code;
18.18 	(16) for taxable years beginning before January 1, 2008,
18.19 	the amount of the federal small ethanol producer credit allowed
18.20 	under section 40(a)(3) of the Internal Revenue Code which is
18.21 	included in gross income under section 87 of the Internal
18.22 	Revenue Code;
18.23 	(17) for a corporation whose foreign sales corporation, as
18.24 	defined in section 922 of the Internal Revenue Code, constituted
18.25 	a foreign operating corporation during any taxable year ending
18.26 	before January 1, 1995, and a return was filed by August 15,
18.27 	1996, claiming the deduction under section 290.21, subdivision
18.28 	4, for income received from the foreign operating corporation,
18.29 	an amount equal to 1.23 multiplied by the amount of income
18.30 	excluded under section 114 of the Internal Revenue Code,
18.31 	provided the income is not income of a foreign operating
18.32 	company;
18.33 	(18) any decrease in subpart F income, as defined in
18.34 	section 952(a) of the Internal Revenue Code, for the taxable
18.35 	year when subpart F income is calculated without regard to the
18.36 	provisions of section 614 of Public Law 107-147; and 
19.1 	(19) in each of the five tax years immediately following
19.2 	the tax year in which an addition is required under subdivision
19.3 	19c, clause (16), an amount equal to one-fifth of the delayed
19.4 	depreciation.  For purposes of this clause, "delayed
19.5 	depreciation" means the amount of the addition made by the
19.6 	taxpayer under subdivision 19c, clause (16).  The resulting
19.7 	delayed depreciation cannot be less than zero; and 
19.8 	(20) in each of the five tax years immediately following
19.9 	the tax year in which an addition is required under subdivision
19.10 	19c, clause (17), an amount equal to one-fifth of the amount of
19.11 	the addition.
19.12 	
EFFECTIVE DATE. This section is effective for tax years
19.13 	beginning after December 31, 2004.

19.14 	Sec. 7. Minnesota Statutes 2004, section 290.01,
19.15 	subdivision 31, is amended to read:
19.16 		Subd. 31.Internal revenue code.  Unless specifically
19.17 	defined otherwise, "Internal Revenue Code" means the Internal
19.18 	Revenue Code of 1986, as amended through June 15, 2003 December
19.19 	31, 2004.
19.20 	
EFFECTIVE DATE. This section is effective the day
19.21 	following final enactment except the changes incorporated by
19.22 	federal changes are effective at the same times as the changes
19.23 	were effective for federal purposes.

19.24 	Sec. 8. Minnesota Statutes 2004, section 290.032,
19.25 	subdivision 1, is amended to read:
19.26 		Subdivision 1.Imposition.  There is hereby imposed as an
19.27 	addition to the annual income tax for a taxable year of a
19.28 	taxpayer in the classes described in section 290.03 a tax with
19.29 	respect to any distribution received by such taxpayer that is
19.30 	treated as a lump sum distribution under section 402(d) of the
19.31 	Internal Revenue Code 1401(c)(2) of the Small Business Job
19.32 	Protection Act, Public Law 104-188 and that is subject to tax
19.33 	for such taxable year under section 402(d) of the Internal
19.34 	Revenue Code 1401(c)(2) of the Small Business Job Protection
19.35 	Act, Public Law 104-188.
19.36 	
EFFECTIVE DATE. This section is effective for tax years
20.1 	beginning after December 31, 1999.

20.2 	Sec. 9. Minnesota Statutes 2004, section 290.032,
20.3 	subdivision 2, is amended to read:
20.4 		Subd. 2.Computation.  The amount of tax imposed by
20.5 	subdivision 1 shall be computed in the same way as the tax
20.6 	imposed under section 402(d) of the Internal Revenue Code of
20.7 	1986, as amended through December 31, 1995, except that the
20.8 	initial separate tax shall be an amount equal to five times the
20.9 	tax which would be imposed by section 290.06, subdivision 2c, if
20.10 	the recipient was an unmarried individual, and the taxable net
20.11 	income was an amount equal to one-fifth of the excess of
20.12 	(i) the total taxable amount of the lump sum distribution
20.13 	for the year, over
20.14 	(ii) the minimum distribution allowance, and except that
20.15 	references in section 402(d) of the Internal Revenue Code of
20.16 	1986, as amended through December 31, 1995,to paragraph (1)(A)
20.17 	thereof shall instead be references to subdivision 1, and the
20.18 	excess, if any, of the subtraction base amount over federal
20.19 	taxable income for a qualified individual as provided under
20.20 	section 290.0802, subdivision 2.
20.21 	
EFFECTIVE DATE. This section is effective for tax years
20.22 	beginning after December 31, 1999.

20.23 	Sec. 10. Minnesota Statutes 2004, section 290.06,
20.24 	subdivision 2c, is amended to read:
20.25 		Subd. 2c.Schedules of rates for individuals, estates,
20.26 	and trusts.  (a) The income taxes imposed by this chapter upon
20.27 	married individuals filing joint returns and surviving spouses
20.28 	as defined in section 2(a) of the Internal Revenue Code must be
20.29 	computed by applying to their taxable net income the following
20.30 	schedule of rates:
20.31 	(1) On the first $25,680, 5.35 percent;
20.32 	(2) On all over $25,680, but not over $102,030, 7.05
20.33 	percent;
20.34 	(3) On all over $102,030, 7.85 percent.
20.35 	Married individuals filing separate returns, estates, and
20.36 	trusts must compute their income tax by applying the above rates
21.1 	to their taxable income, except that the income brackets will be
21.2 	one-half of the above amounts.
21.3 	(b) The income taxes imposed by this chapter upon unmarried
21.4 	individuals must be computed by applying to taxable net income
21.5 	the following schedule of rates:
21.6 	(1) On the first $17,570, 5.35 percent;
21.7 	(2) On all over $17,570, but not over $57,710, 7.05
21.8 	percent;
21.9 	(3) On all over $57,710, 7.85 percent.
21.10 	(c) The income taxes imposed by this chapter upon unmarried
21.11 	individuals qualifying as a head of household as defined in
21.12 	section 2(b) of the Internal Revenue Code must be computed by
21.13 	applying to taxable net income the following schedule of rates:
21.14 	(1) On the first $21,630, 5.35 percent;
21.15 	(2) On all over $21,630, but not over $86,910, 7.05
21.16 	percent;
21.17 	(3) On all over $86,910, 7.85 percent.
21.18 	(d) In lieu of a tax computed according to the rates set
21.19 	forth in this subdivision, the tax of any individual taxpayer
21.20 	whose taxable net income for the taxable year is less than an
21.21 	amount determined by the commissioner must be computed in
21.22 	accordance with tables prepared and issued by the commissioner
21.23 	of revenue based on income brackets of not more than $100.  The
21.24 	amount of tax for each bracket shall be computed at the rates
21.25 	set forth in this subdivision, provided that the commissioner
21.26 	may disregard a fractional part of a dollar unless it amounts to
21.27 	50 cents or more, in which case it may be increased to $1.
21.28 	(e) An individual who is not a Minnesota resident for the
21.29 	entire year must compute the individual's Minnesota income tax
21.30 	as provided in this subdivision.  After the application of the
21.31 	nonrefundable credits provided in this chapter, the tax
21.32 	liability must then be multiplied by a fraction in which:
21.33 	(1) the numerator is the individual's Minnesota source
21.34 	federal adjusted gross income as defined in section 62 of the
21.35 	Internal Revenue Code and increased by the additions required
21.36 	under section 290.01, subdivision 19a, clauses (1), (5), and 
22.1 	(6), (7), (8), (9), and (10),and reduced by the subtraction
22.2 	under section 290.01, subdivision 19b, clause (11), and the
22.3 	Minnesota assignable portion of the subtraction for United
22.4 	States government interest under section 290.01, subdivision
22.5 	19b, clause (1), and the subtractions under clauses (10), (11),
22.6 	and (12),after applying the allocation and assignability
22.7 	provisions of section 290.081, clause (a), or 290.17; and
22.8 	(2) the denominator is the individual's federal adjusted
22.9 	gross income as defined in section 62 of the Internal Revenue
22.10 	Code of 1986, increased by the amounts specified in section
22.11 	290.01, subdivision 19a, clauses (1), (5), and (6), (7), (8),
22.12 	(9), and (10),and reduced by the amounts specified in section
22.13 	290.01, subdivision 19b, clauses (1) and , (10),(11), and (12).
22.14 	
EFFECTIVE DATE. This section is effective for tax years
22.15 	beginning after December 31, 2004.

22.16 	Sec. 11. Minnesota Statutes 2004, section 290.067,
22.17 	subdivision 2a, is amended to read:
22.18 		Subd. 2a.Income.  (a) For purposes of this section,
22.19 	"income" means the sum of the following:
22.20 	(1) federal adjusted gross income as defined in section 62
22.21 	of the Internal Revenue Code; and
22.22 	(2) the sum of the following amounts to the extent not
22.23 	included in clause (1):
22.24 	(i) all nontaxable income;
22.25 	(ii) the amount of a passive activity loss that is not
22.26 	disallowed as a result of section 469, paragraph (i) or (m) of
22.27 	the Internal Revenue Code and the amount of passive activity
22.28 	loss carryover allowed under section 469(b) of the Internal
22.29 	Revenue Code;
22.30 	(iii) an amount equal to the total of any discharge of
22.31 	qualified farm indebtedness of a solvent individual excluded
22.32 	from gross income under section 108(g) of the Internal Revenue
22.33 	Code;
22.34 	(iv) cash public assistance and relief;
22.35 	(v) any pension or annuity (including railroad retirement
22.36 	benefits, all payments received under the federal Social
23.1 	Security Act, supplemental security income, and veterans
23.2 	benefits), which was not exclusively funded by the claimant or
23.3 	spouse, or which was funded exclusively by the claimant or
23.4 	spouse and which funding payments were excluded from federal
23.5 	adjusted gross income in the years when the payments were made;
23.6 	(vi) interest received from the federal or a state
23.7 	government or any instrumentality or political subdivision
23.8 	thereof;
23.9 	(vii) workers' compensation;
23.10 	(viii) nontaxable strike benefits;
23.11 	(ix) the gross amounts of payments received in the nature
23.12 	of disability income or sick pay as a result of accident,
23.13 	sickness, or other disability, whether funded through insurance
23.14 	or otherwise;
23.15 	(x) a lump sum distribution under section 402(e)(3) of the
23.16 	Internal Revenue Code of 1986, as amended through December 31,
23.17 	1995;
23.18 	(xi) contributions made by the claimant to an individual
23.19 	retirement account, including a qualified voluntary employee
23.20 	contribution; simplified employee pension plan; self-employed
23.21 	retirement plan; cash or deferred arrangement plan under section
23.22 	401(k) of the Internal Revenue Code; or deferred compensation
23.23 	plan under section 457 of the Internal Revenue Code; and 
23.24 	(xii) nontaxable scholarship or fellowship grants; and 
23.25 	(xiii) the amount of deduction allowed under section 199 of
23.26 	the Internal Revenue Code.
23.27 	In the case of an individual who files an income tax return
23.28 	on a fiscal year basis, the term "federal adjusted gross income"
23.29 	means federal adjusted gross income reflected in the fiscal year
23.30 	ending in the next calendar year.  Federal adjusted gross income
23.31 	may not be reduced by the amount of a net operating loss
23.32 	carryback or carryforward or a capital loss carryback or
23.33 	carryforward allowed for the year.
23.34 	(b) "Income" does not include:
23.35 	(1) amounts excluded pursuant to the Internal Revenue Code,
23.36 	sections 101(a) and 102;
24.1 	(2) amounts of any pension or annuity that were exclusively
24.2 	funded by the claimant or spouse if the funding payments were
24.3 	not excluded from federal adjusted gross income in the years
24.4 	when the payments were made;
24.5 	(3) surplus food or other relief in kind supplied by a
24.6 	governmental agency;
24.7 	(4) relief granted under chapter 290A;
24.8 	(5) child support payments received under a temporary or
24.9 	final decree of dissolution or legal separation; and
24.10 	(6) restitution payments received by eligible individuals
24.11 	and excludable interest as defined in section 803 of the
24.12 	Economic Growth and Tax Relief Reconciliation Act of 2001,
24.13 	Public Law 107-16.
24.14 	
EFFECTIVE DATE. This section is effective for tax years
24.15 	beginning after December 31, 2003.

24.16 	Sec. 12. Minnesota Statutes 2004, section 290.091,
24.17 	subdivision 2, is amended to read:
24.18 		Subd. 2.Definitions.  For purposes of the tax imposed by
24.19 	this section, the following terms have the meanings given:
24.20 	(a) "Alternative minimum taxable income" means the sum of
24.21 	the following for the taxable year:
24.22 	(1) the taxpayer's federal alternative minimum taxable
24.23 	income as defined in section 55(b)(2) of the Internal Revenue
24.24 	Code;
24.25 	(2) the taxpayer's itemized deductions allowed in computing
24.26 	federal alternative minimum taxable income, but excluding:
24.27 	(i) the charitable contribution deduction under section 170
24.28 	of the Internal Revenue Code to the extent that the deduction
24.29 	exceeds 1.0 percent of adjusted gross income, as defined in
24.30 	section 62 of the Internal Revenue Code;
24.31 	(ii) the medical expense deduction;
24.32 	(iii) the casualty, theft, and disaster loss deduction; and
24.33 	(iv) the impairment-related work expenses of a disabled
24.34 	person;
24.35 	(3) for depletion allowances computed under section 613A(c)
24.36 	of the Internal Revenue Code, with respect to each property (as
25.1 	defined in section 614 of the Internal Revenue Code), to the
25.2 	extent not included in federal alternative minimum taxable
25.3 	income, the excess of the deduction for depletion allowable
25.4 	under section 611 of the Internal Revenue Code for the taxable
25.5 	year over the adjusted basis of the property at the end of the
25.6 	taxable year (determined without regard to the depletion
25.7 	deduction for the taxable year);
25.8 	(4) to the extent not included in federal alternative
25.9 	minimum taxable income, the amount of the tax preference for
25.10 	intangible drilling cost under section 57(a)(2) of the Internal
25.11 	Revenue Code determined without regard to subparagraph (E);
25.12 	(5) to the extent not included in federal alternative
25.13 	minimum taxable income, the amount of interest income as
25.14 	provided by section 290.01, subdivision 19a, clause (1); and
25.15 	(6) the amount of addition required by section 290.01,
25.16 	subdivision 19a, clause clauses (7), (8), (9), and (10);
25.17 	less the sum of the amounts determined under the following:
25.18 	(1) interest income as defined in section 290.01,
25.19 	subdivision 19b, clause (1);
25.20 	(2) an overpayment of state income tax as provided by
25.21 	section 290.01, subdivision 19b, clause (2), to the extent
25.22 	included in federal alternative minimum taxable income;
25.23 	(3) the amount of investment interest paid or accrued
25.24 	within the taxable year on indebtedness to the extent that the
25.25 	amount does not exceed net investment income, as defined in
25.26 	section 163(d)(4) of the Internal Revenue Code.  Interest does
25.27 	not include amounts deducted in computing federal adjusted gross
25.28 	income; and
25.29 	(4) amounts subtracted from federal taxable income as
25.30 	provided by section 290.01, subdivision 19b, clauses (10) and ,
25.31 	(11), and (12).
25.32 	In the case of an estate or trust, alternative minimum
25.33 	taxable income must be computed as provided in section 59(c) of
25.34 	the Internal Revenue Code.
25.35 	(b) "Investment interest" means investment interest as
25.36 	defined in section 163(d)(3) of the Internal Revenue Code.
26.1 	(c) "Tentative minimum tax" equals 6.4 percent of
26.2 	alternative minimum taxable income after subtracting the
26.3 	exemption amount determined under subdivision 3.
26.4 	(d) "Regular tax" means the tax that would be imposed under
26.5 	this chapter (without regard to this section and section
26.6 	290.032), reduced by the sum of the nonrefundable credits
26.7 	allowed under this chapter.
26.8 	(e) "Net minimum tax" means the minimum tax imposed by this
26.9 	section.
26.10 	
EFFECTIVE DATE. This section is effective for tax years
26.11 	beginning after December 31, 2004.

26.12 	Sec. 13. Minnesota Statutes 2004, section 290A.03,
26.13 	subdivision 3, is amended to read:
26.14 		Subd. 3.Income.  (1) "Income" means the sum of the
26.15 	following:
26.16 	(a) federal adjusted gross income as defined in the
26.17 	Internal Revenue Code; and
26.18 	(b) the sum of the following amounts to the extent not
26.19 	included in clause (a):
26.20 	(i) all nontaxable income;
26.21 	(ii) the amount of a passive activity loss that is not
26.22 	disallowed as a result of section 469, paragraph (i) or (m) of
26.23 	the Internal Revenue Code and the amount of passive activity
26.24 	loss carryover allowed under section 469(b) of the Internal
26.25 	Revenue Code;
26.26 	(iii) an amount equal to the total of any discharge of
26.27 	qualified farm indebtedness of a solvent individual excluded
26.28 	from gross income under section 108(g) of the Internal Revenue
26.29 	Code;
26.30 	(iv) cash public assistance and relief;
26.31 	(v) any pension or annuity (including railroad retirement
26.32 	benefits, all payments received under the federal Social
26.33 	Security Act, supplemental security income, and veterans
26.34 	benefits), which was not exclusively funded by the claimant or
26.35 	spouse, or which was funded exclusively by the claimant or
26.36 	spouse and which funding payments were excluded from federal
27.1 	adjusted gross income in the years when the payments were made;
27.2 	(vi) interest received from the federal or a state
27.3 	government or any instrumentality or political subdivision
27.4 	thereof;
27.5 	(vii) workers' compensation;
27.6 	(viii) nontaxable strike benefits;
27.7 	(ix) the gross amounts of payments received in the nature
27.8 	of disability income or sick pay as a result of accident,
27.9 	sickness, or other disability, whether funded through insurance
27.10 	or otherwise;
27.11 	(x) a lump sum distribution under section 402(e)(3) of the
27.12 	Internal Revenue Code of 1986, as amended through December 31,
27.13 	1995;
27.14 	(xi) contributions made by the claimant to an individual
27.15 	retirement account, including a qualified voluntary employee
27.16 	contribution; simplified employee pension plan; self-employed
27.17 	retirement plan; cash or deferred arrangement plan under section
27.18 	401(k) of the Internal Revenue Code; or deferred compensation
27.19 	plan under section 457 of the Internal Revenue Code; and 
27.20 	(xii) nontaxable scholarship or fellowship grants; and 
27.21 	(xiii) the amount of deduction allowed under section 199 of
27.22 	the Internal Revenue Code.
27.23 	In the case of an individual who files an income tax return
27.24 	on a fiscal year basis, the term "federal adjusted gross income"
27.25 	shall mean federal adjusted gross income reflected in the fiscal
27.26 	year ending in the calendar year.  Federal adjusted gross income
27.27 	shall not be reduced by the amount of a net operating loss
27.28 	carryback or carryforward or a capital loss carryback or
27.29 	carryforward allowed for the year.
27.30 	(2) "Income" does not include:
27.31 	(a) amounts excluded pursuant to the Internal Revenue Code,
27.32 	sections 101(a) and 102;
27.33 	(b) amounts of any pension or annuity which was exclusively
27.34 	funded by the claimant or spouse and which funding payments were
27.35 	not excluded from federal adjusted gross income in the years
27.36 	when the payments were made;
28.1 	(c) surplus food or other relief in kind supplied by a
28.2 	governmental agency;
28.3 	(d) relief granted under this chapter;
28.4 	(e) child support payments received under a temporary or
28.5 	final decree of dissolution or legal separation; or
28.6 	(f) restitution payments received by eligible individuals
28.7 	and excludable interest as defined in section 803 of the
28.8 	Economic Growth and Tax Relief Reconciliation Act of 2001,
28.9 	Public Law 107-16.
28.10 	(3) The sum of the following amounts may be subtracted from
28.11 	income:
28.12 	(a) for the claimant's first dependent, the exemption
28.13 	amount multiplied by 1.4;
28.14 	(b) for the claimant's second dependent, the exemption
28.15 	amount multiplied by 1.3;
28.16 	(c) for the claimant's third dependent, the exemption
28.17 	amount multiplied by 1.2;
28.18 	(d) for the claimant's fourth dependent, the exemption
28.19 	amount multiplied by 1.1;
28.20 	(e) for the claimant's fifth dependent, the exemption
28.21 	amount; and
28.22 	(f) if the claimant or claimant's spouse was disabled or
28.23 	attained the age of 65 on or before December 31 of the year for
28.24 	which the taxes were levied or rent paid, the exemption amount.
28.25 	For purposes of this subdivision, the "exemption amount"
28.26 	means the exemption amount under section 151(d) of the Internal
28.27 	Revenue Code for the taxable year for which the income is
28.28 	reported.
28.29 	
EFFECTIVE DATE. This section is effective for property
28.30 	tax refunds based on household income for 2004 and thereafter.

28.31 	Sec. 14. Minnesota Statutes 2004, section 290A.03,
28.32 	subdivision 15, is amended to read:
28.33 		Subd. 15.Internal revenue code.  "Internal Revenue Code"
28.34 	means the Internal Revenue Code of 1986, as amended through June
28.35 	15, 2003 December 31, 2004.
28.36 	
EFFECTIVE DATE. This section is effective for property
29.1 	tax refunds based on property taxes payable on or after December
29.2 	31, 2004, and rent paid on or after December 31, 2003.

29.3 	ARTICLE 3
29.4 	SALES, USE, AND SPECIAL TAXES

29.5 	Section 1. Minnesota Statutes 2004, section 16C.03, is
29.6 	amended by adding a subdivision to read:
29.7 		Subd. 18.Contracts with foreign vendors. (a) The
29.8 	commissioner and other agencies to which this section applies
29.9 	and the legislative branch of government shall, subject to
29.10 	paragraph (d), cancel a contract for goods or services from a
29.11 	vendor or an affiliate of a vendor or suspend or debar a vendor
29.12 	or an affiliate of a vendor from future contracts upon
29.13 	notification from the commissioner of revenue that the vendor or
29.14 	an affiliate of the vendor has not registered to collect the
29.15 	sales and use tax imposed under chapter 297A on its sales in
29.16 	Minnesota or to a destination in Minnesota.  This subdivision
29.17 	shall not apply to state colleges and universities, the courts,
29.18 	and any agency in the judicial branch of government.  For
29.19 	purposes of this subdivision, the term "affiliate" means any
29.20 	person or entity that is controlled by, or is under common
29.21 	control of, a vendor through stock ownership or other
29.22 	affiliation.
29.23 	(b) Beginning January 1, 2006, each vendor or affiliate of
29.24 	a vendor selling goods or services, subject to tax under chapter
29.25 	297A, to an agency or the legislature must provide its Minnesota
29.26 	sales and use tax business identification number, upon request,
29.27 	to show that the vendor is registered to collect Minnesota sales
29.28 	or use tax.
29.29 	(c) The commissioner of revenue shall periodically provide
29.30 	to the commissioner and the legislative branch a list of vendors
29.31 	who have not registered to collect Minnesota sales and use tax
29.32 	and who are subject to being suspended or debarred as vendors or
29.33 	having their contracts canceled.
29.34 	(d) The provisions of this subdivision may be waived by the
29.35 	commissioner or the legislative branch when the vendor is the
29.36 	single source of such goods or services, in the event of an
30.1 	emergency, or when it is in the best interests of the state as
30.2 	determined by the commissioner in consultation with the
30.3 	commissioner of revenue.  Such consultation is not a disclosure
30.4 	violation under chapter 270B.
30.5 	
EFFECTIVE DATE. This section is effective for all
30.6 	contracts entered into after December 31, 2005.

30.7 	Sec. 2. [295.75] LIQUOR GROSS RECEIPTS TAX.
30.8 		Subdivision 1.Definitions. (a) For purposes of this
30.9 	section, the following terms have the meanings given.
30.10 	(b) "Commissioner" means the commissioner of revenue.
30.11 	(c) "Gross receipts" means the total amount received, in
30.12 	money or by barter or exchange, for all liquor sales at retail
30.13 	as measured by the sales price, but does not include any taxes
30.14 	imposed directly on the consumer that are separately stated on
30.15 	the invoice, bill of sale, or similar document given to the
30.16 	purchaser.
30.17 	(d) "Liquor" means:
30.18 	(1) intoxicating liquor, as defined in section 340A.101,
30.19 	subdivision 14;
30.20 	(2) beverage containing intoxicating liquor; and 
30.21 	(3) 3.2 percent malt liquor, as defined in section
30.22 	340A.101, subdivision 19, when sold at an on-sale or off-sale
30.23 	municipal liquor store or other establishment licensed to sell
30.24 	any type of intoxicating liquor.
30.25 	(e) "Liquor retailer" means a retailer that sells liquor.
30.26 	(f) "Retail sale" has the meaning given in section 297A.61,
30.27 	subdivision 4.
30.28 		Subd. 2.Gross receipts tax imposed. A tax is imposed on
30.29 	each liquor retailer equal to 2.5 percent of gross receipts from
30.30 	retail sales in Minnesota of liquor.
30.31 		Subd. 3.Use tax imposed; credit for taxes paid. (a) A
30.32 	person that receives liquor for use or storage in Minnesota,
30.33 	other than from a liquor retailer that paid the tax under
30.34 	subdivision 2, is subject to tax at the rate imposed under
30.35 	subdivision 2.  Liability for the tax is incurred when the
30.36 	person has possession of the liquor in Minnesota.  The tax must
31.1 	be remitted to the commissioner in the same manner prescribed
31.2 	for the taxes imposed under chapter 297A.
31.3 	(b) A person that has paid taxes to another jurisdiction on
31.4 	the same transaction and is subject to tax under this section is
31.5 	entitled to a credit for the tax legally due and paid to another
31.6 	jurisdiction to the extent of the lesser of (1) the tax actually
31.7 	paid to the other jurisdiction, or (2) the amount of tax imposed
31.8 	by Minnesota on the transaction subject to tax in the other
31.9 	jurisdiction.
31.10 		Subd. 4.Tax collection required. A liquor retailer with
31.11 	nexus in Minnesota, who is not subject to tax under subdivision
31.12 	2, is required to collect the tax imposed under subdivision 3
31.13 	from the purchaser of the liquor and give the purchaser a
31.14 	receipt for the tax paid.  The tax collected must be remitted to
31.15 	the commissioner in the same manner prescribed for the taxes
31.16 	imposed under chapter 297A.
31.17 		Subd. 5.Taxes paid to another jurisdiction; credit. A
31.18 	liquor retailer that has paid taxes to another jurisdiction
31.19 	measured by gross receipts and is subject to tax under this
31.20 	section on the same gross receipts is entitled to a credit for
31.21 	the tax legally due and paid to another jurisdiction to the
31.22 	extent of the lesser of (1) the tax actually paid to the other
31.23 	jurisdiction, or (2) the amount of tax imposed by Minnesota on
31.24 	the gross receipts subject to tax in the other taxing
31.25 	jurisdictions.
31.26 		Subd. 6.Exemptions. All of the exemptions applicable to
31.27 	the taxes imposed under chapter 297A are applicable to the taxes
31.28 	imposed under this section.
31.29 		Subd. 7.Sourcing of sales. All of the provisions of
31.30 	section 297A.668 apply to the taxes imposed by this section.
31.31 		Subd. 8.Payment; reporting. A liquor retailer shall
31.32 	report the tax on a return prescribed by the commissioner of
31.33 	revenue, and shall remit the tax with the return.  The return
31.34 	and the tax must be filed and paid using the filing cycle and
31.35 	due dates provided for taxes imposed under chapter 297A.
31.36 		Subd. 9.Administration. Unless specifically provided
32.1 	otherwise by this section, the audit, assessment, refund,
32.2 	penalty, interest, enforcement, collection remedies, appeal, and
32.3 	administrative provisions of chapters 270 and 289A that are
32.4 	applicable to taxes imposed under chapter 297A apply to taxes
32.5 	imposed under this section.
32.6 		Subd. 10.Interest on overpayments. Interest must be
32.7 	paid on an overpayment refunded or credited to the taxpayer from
32.8 	the date of payment of the tax until the date the refund is paid
32.9 	or credited.  For purposes of this subdivision, the date of
32.10 	payment is the due date of the return or the date of actual
32.11 	payment of the tax, whichever is later.
32.12 		Subd. 11.Deposit of revenues. The commissioner shall
32.13 	deposit all revenues, including penalties and interest, derived
32.14 	from the tax imposed by this section in the general fund.
32.15 	
EFFECTIVE DATE. This section is effective for sales and
32.16 	purchases occurring on or after January 1, 2006.

32.17 	Sec. 3. Minnesota Statutes 2004, section 297A.68,
32.18 	subdivision 2, is amended to read:
32.19 		Subd. 2.Materials consumed in industrial production.
 32.20 	(a) Materials stored, used, or consumed in industrial production
32.21 	of personal property intended to be sold ultimately at retail
32.22 	are exempt, whether or not the item so used becomes an
32.23 	ingredient or constituent part of the property produced.
32.24 	Materials that qualify for this exemption include, but are not
32.25 	limited to, the following:
32.26 	(1) chemicals, including chemicals used for cleaning food
32.27 	processing machinery and equipment;
32.28 	(2) materials, including chemicals, fuels, and electricity
32.29 	purchased by persons engaged in industrial production to treat
32.30 	waste generated as a result of the production process;
32.31 	(3) fuels, electricity, gas, and steam used or consumed in
32.32 	the production process, except that electricity, gas, or steam
32.33 	used for space heating, cooling, or lighting is exempt if (i) it
32.34 	is in excess of the average climate control or lighting for the
32.35 	production area, and (ii) it is necessary to produce that
32.36 	particular product;
33.1 	(4) petroleum products and lubricants;
33.2 	(5) packaging materials, including returnable containers
33.3 	used in packaging food and beverage products;
33.4 	(6) accessory tools, equipment, and other items that are
33.5 	separate detachable units with an ordinary useful life of less
33.6 	than 12 months used in producing a direct effect upon the
33.7 	product; and
33.8 	(7) the following materials, tools, and equipment used in
33.9 	metalcasting:  crucibles, thermocouple protection sheaths and
33.10 	tubes, stalk tubes, refractory materials, molten metal filters
33.11 	and filter boxes, degassing lances, and base blocks.
33.12 	(b) This exemption does not include:
33.13 	(1) machinery, equipment, implements, tools, accessories,
33.14 	appliances, contrivances and furniture and fixtures, except
33.15 	those listed in paragraph (a), clause (6); and
33.16 	(2) petroleum and special fuels used in producing or
33.17 	generating power for propelling ready-mixed concrete trucks on
33.18 	the public highways of this state.
33.19 	(c) Industrial production includes, but is not limited to,
33.20 	research, development, design or production of any tangible
33.21 	personal property, manufacturing, processing (other than by
33.22 	restaurants and consumers) of agricultural products (whether
33.23 	vegetable or animal), commercial fishing, refining, smelting,
33.24 	reducing, brewing, distilling, printing, mining, quarrying,
33.25 	lumbering, generating electricity, the production of road
33.26 	building materials, and the research, development, design, or
33.27 	production of computer software.  Industrial production does not
33.28 	include painting, cleaning, repairing or similar processing of
33.29 	property except as part of the original manufacturing process.
33.30 	Industrial production does not include the transportation,
33.31 	transmission, or distribution of petroleum, liquefied gas,
33.32 	natural gas, water, or steam, in, by, or through pipes, lines,
33.33 	tanks, mains, or other means of transporting those products.
33.34 	For purposes of this paragraph, "transportation, transmission,
33.35 	or distribution" does not include blending of petroleum or
33.36 	biodiesel fuel as defined in section 239.77.
34.1 	
EFFECTIVE DATE. This section is effective for sales and
34.2 	purchases made after June 30, 2005.

34.3 	Sec. 4. Minnesota Statutes 2004, section 297A.68,
34.4 	subdivision 5, is amended to read:
34.5 		Subd. 5.Capital equipment.  (a) Capital equipment is
34.6 	exempt.  The tax must be imposed and collected as if the rate
34.7 	under section 297A.62, subdivision 1, applied, and then refunded
34.8 	in the manner provided in section 297A.75.
34.9 	"Capital equipment" means machinery and equipment purchased
34.10 	or leased, and used in this state by the purchaser or lessee
34.11 	primarily for manufacturing, fabricating, mining, or refining
34.12 	tangible personal property to be sold ultimately at retail if
34.13 	the machinery and equipment are essential to the integrated
34.14 	production process of manufacturing, fabricating, mining, or
34.15 	refining.  Capital equipment also includes machinery and
34.16 	equipment used to electronically transmit results retrieved by a
34.17 	customer of an on-line computerized data retrieval system.
34.18 	(b) Capital equipment includes, but is not limited to:
34.19 	(1) machinery and equipment used to operate, control, or
34.20 	regulate the production equipment;
34.21 	(2) machinery and equipment used for research and
34.22 	development, design, quality control, and testing activities;
34.23 	(3) environmental control devices that are used to maintain
34.24 	conditions such as temperature, humidity, light, or air pressure
34.25 	when those conditions are essential to and are part of the
34.26 	production process;
34.27 	(4) materials and supplies used to construct and install
34.28 	machinery or equipment;
34.29 	(5) repair and replacement parts, including accessories,
34.30 	whether purchased as spare parts, repair parts, or as upgrades
34.31 	or modifications to machinery or equipment;
34.32 	(6) materials used for foundations that support machinery
34.33 	or equipment;
34.34 	(7) materials used to construct and install special purpose
34.35 	buildings used in the production process;
34.36 	(8) ready-mixed concrete equipment in which the ready-mixed
35.1 	concrete is mixed as part of the delivery process regardless if
35.2 	mounted on a chassis and leases of ready-mixed concrete trucks;
35.3 	and
35.4 	(9) machinery or equipment used for research, development,
35.5 	design, or production of computer software.
35.6 	(c) Capital equipment does not include the following:
35.7 	(1) motor vehicles taxed under chapter 297B;
35.8 	(2) machinery or equipment used to receive or store raw
35.9 	materials;
35.10 	(3) building materials, except for materials included in
35.11 	paragraph (b), clauses (6) and (7);
35.12 	(4) machinery or equipment used for nonproduction purposes,
35.13 	including, but not limited to, the following:  plant security,
35.14 	fire prevention, first aid, and hospital stations; support
35.15 	operations or administration; pollution control; and plant
35.16 	cleaning, disposal of scrap and waste, plant communications,
35.17 	space heating, cooling, lighting, or safety;
35.18 	(5) farm machinery and aquaculture production equipment as
35.19 	defined by section 297A.61, subdivisions 12 and 13;
35.20 	(6) machinery or equipment purchased and installed by a
35.21 	contractor as part of an improvement to real property; or 
35.22 	(7) machinery or equipment used in the transportation,
35.23 	transmission, or distribution of petroleum, liquefied gas,
35.24 	natural gas, water, or steam, in, by, or through pipes, lines,
35.25 	tanks, mains, or other means of transporting those products.
35.26 	This clause does not apply to machinery or equipment used to
35.27 	blend petroleum or biodiesel fuel as defined in section 239.77;
35.28 	or 
35.29 	(8) any other item that is not essential to the integrated
35.30 	process of manufacturing, fabricating, mining, or refining.
35.31 	(d) For purposes of this subdivision:
35.32 	(1) "Equipment" means independent devices or tools separate
35.33 	from machinery but essential to an integrated production
35.34 	process, including computers and computer software, used in
35.35 	operating, controlling, or regulating machinery and equipment;
35.36 	and any subunit or assembly comprising a component of any
36.1 	machinery or accessory or attachment parts of machinery, such as
36.2 	tools, dies, jigs, patterns, and molds.
36.3 	(2) "Fabricating" means to make, build, create, produce, or
36.4 	assemble components or property to work in a new or different
36.5 	manner.
36.6 	(3) "Integrated production process" means a process or
36.7 	series of operations through which tangible personal property is
36.8 	manufactured, fabricated, mined, or refined.  For purposes of
36.9 	this clause, (i) manufacturing begins with the removal of raw
36.10 	materials from inventory and ends when the last process prior to
36.11 	loading for shipment has been completed; (ii) fabricating begins
36.12 	with the removal from storage or inventory of the property to be
36.13 	assembled, processed, altered, or modified and ends with the
36.14 	creation or production of the new or changed product; (iii)
36.15 	mining begins with the removal of overburden from the site of
36.16 	the ores, minerals, stone, peat deposit, or surface materials
36.17 	and ends when the last process before stockpiling is completed;
36.18 	and (iv) refining begins with the removal from inventory or
36.19 	storage of a natural resource and ends with the conversion of
36.20 	the item to its completed form.
36.21 	(4) "Machinery" means mechanical, electronic, or electrical
36.22 	devices, including computers and computer software, that are
36.23 	purchased or constructed to be used for the activities set forth
36.24 	in paragraph (a), beginning with the removal of raw materials
36.25 	from inventory through completion of the product, including
36.26 	packaging of the product.
36.27 	(5) "Machinery and equipment used for pollution control"
36.28 	means machinery and equipment used solely to eliminate, prevent,
36.29 	or reduce pollution resulting from an activity described in
36.30 	paragraph (a).
36.31 	(6) "Manufacturing" means an operation or series of
36.32 	operations where raw materials are changed in form, composition,
36.33 	or condition by machinery and equipment and which results in the
36.34 	production of a new article of tangible personal property.  For
36.35 	purposes of this subdivision, "manufacturing" includes the
36.36 	generation of electricity or steam to be sold at retail.
37.1 	(7) "Mining" means the extraction of minerals, ores, stone,
37.2 	or peat.
37.3 	(8) "On-line data retrieval system" means a system whose
37.4 	cumulation of information is equally available and accessible to
37.5 	all its customers.
37.6 	(9) "Primarily" means machinery and equipment used 50
37.7 	percent or more of the time in an activity described in
37.8 	paragraph (a).
37.9 	(10) "Refining" means the process of converting a natural
37.10 	resource to an intermediate or finished product, including the
37.11 	treatment of water to be sold at retail.
37.12 	
EFFECTIVE DATE. This section is effective for sales and
37.13 	purchases made after June 30, 2005.

37.14 	Sec. 5. Minnesota Statutes 2004, section 297I.01, is
37.15 	amended by adding a subdivision to read:
37.16 		Subd. 6a.Direct business. (a) "Direct business" means
37.17 	all insurance provided by an insurance company or its agents,
37.18 	and specifically includes stop-loss insurance purchased in
37.19 	connection with a self-insurance plan for employee health
37.20 	benefits or for other purposes, but excludes:
37.21 	(1) reinsurance in which an insurance company assumes the
37.22 	liability of another insurance company; and 
37.23 	(2) self-insurance.
37.24 	(b) For purposes of this subdivision, an insurance company
37.25 	includes a nonprofit health service corporation, health
37.26 	maintenance organization, and community integrated service
37.27 	network.
37.28 	
EFFECTIVE DATE. This section is effective for insurance
37.29 	premiums received after December 31, 2005.

37.30 	Sec. 6. Laws 2001, First Special Session chapter 5,
37.31 	article 12, section 95, is amended to read:
37.32 	Sec. 95REPEALER.
 37.33 	(a) Minnesota Statutes 2000, sections 297A.61, subdivision
37.34 	16; 297A.68, subdivision 21; and 297A.71, subdivisions 2 and 16,
37.35 	are repealed effective for sales and purchases occurring after
37.36 	June 30, 2001, except that the repeal of section 297A.61,
38.1 	subdivision 16, paragraph (d), is effective for sales and
38.2 	purchases occurring after July 31, 2001.
38.3 	(b) Minnesota Statutes 2000, sections section 297A.62,
38.4 	subdivision 2, and 297A.64, subdivision 1, are is repealed
38.5 	effective for sales and purchases made after December 31, 2005.
38.6 	(c) Minnesota Statutes 2000, section 297A.71, subdivision
38.7 	15, is repealed effective for sales and purchases made after
38.8 	June 30, 2002.
38.9 	(d) Minnesota Statutes 2000, section 289A.60, subdivision
38.10 	15, is repealed effective for liabilities after January 1, 2003.

38.11 	EFFECTIVE DATE. This section is effective the day
38.12 	following final enactment.

38.13 	ARTICLE 4
38.14 	MISCELLANEOUS

38.15 	Section 1. Minnesota Statutes 2004, section 273.1384,
38.16 	subdivision 1, is amended to read:
38.17 		Subdivision 1.Residential homestead market value
38.18 	credit.  Each county auditor shall determine a homestead credit
38.19 	for each class 1a, 1b, 1c, and 2a homestead property within the
38.20 	county equal to 0.4 percent of the first $76,000 of market value
38.21 	of the property.  The amount of homestead credit for a homestead
38.22 	may not exceed $304 and is reduced by minus.09 percent of the
38.23 	market value in excess of $76,000. The credit amount may not be
38.24 	less than zero.In the case of an agricultural or resort
38.25 	homestead, only the market value of the house, garage, and
38.26 	immediately surrounding one acre of land is eligible in
38.27 	determining the property's homestead credit.  In the case of a
38.28 	property which is classified as part homestead and part
38.29 	nonhomestead, (i) the credit shall apply only to the homestead
38.30 	portion of the property., but (ii) if a portion of a property is
38.31 	classified as nonhomestead solely because not all the owners
38.32 	occupy the property, or solely because both spouses do not
38.33 	occupy the property, the credit amount shall be initially
38.34 	computed as if that nonhomestead portion were also in the
38.35 	homestead class and then prorated to the owner-occupant's
38.36 	percentage of ownership or prorated to one-half if both spouses
39.1 	do not occupy the property.
39.2 	
EFFECTIVE DATE. This section is effective for taxes
39.3 	payable in 2006 and thereafter.

39.4 	Sec. 2. APPROPRIATION TO DEPARTMENT OF REVENUE FOR
39.5 	COMPLIANCE ACTIVITIES.
 39.6 	(a) $5,786,000 is appropriated from the general fund to the
39.7 	commissioner of revenue for fiscal year 2006 and $7,510,000 is
39.8 	appropriated from the general fund to the commissioner of
39.9 	revenue for fiscal year 2007.
39.10 	(b) $5,096,000 the first year and $6,190,000 the second
39.11 	year are for additional activities to identify and collect tax
39.12 	liabilities from individuals and businesses that currently do
39.13 	not pay all taxes owed.  This initiative is expected to result
39.14 	in new general fund revenues of $42,800,000 for the biennium
39.15 	ending June 30, 2007.
39.16 	(c) The department must report to the chairs of the house
39.17 	Ways and Means and senate Finance Committees by March 1, 2006,
39.18 	and January 15, 2007, on the following performance indicators:
39.19 	(1) the number of corporations noncompliant with the
39.20 	corporate tax system each year and the percentage and dollar
39.21 	amounts of valid tax liabilities collected;
39.22 	(2) the number of businesses noncompliant with the sales
39.23 	and use tax system and the percentage and dollar amount of the
39.24 	valid tax liabilities collected; and 
39.25 	(3) the number of individual noncompliant cases resolved
39.26 	and the percentage and dollar amounts of valid tax liabilities
39.27 	collected.
39.28 	The report must also identify base level expenditures and
39.29 	staff positions related to compliance and audit activities,
39.30 	including baseline information as of January 1, 2004.  The
39.31 	information must be provided at the budget activity level.
39.32 	(d) Of the amounts appropriated under paragraph (a),
39.33 	$690,000 the first year and $1,320,000 the second year are for
39.34 	additional activities to identify and collect tax liabilities
39.35 	from individuals and businesses that currently do not pay all
39.36 	taxes owed.  This initiative is expected to result in new
40.1 	general revenues of $25,200,000 for the biennium ending June 30,
40.2 	2007.

40.3 	Sec. 3. CITY AID PAYMENTS.
 40.4 	In 2005 and subsequent years, market value credit
40.5 	reimbursements for each city payable under Minnesota Statutes,
40.6 	section 273.1384, are reduced by the dollar amount of the 2003
40.7 	reduction in market value credit reimbursements for that city
40.8 	due to Laws 2003, First Special Session chapter 21, article 5,
40.9 	section 12.  No city's market value credit reimbursements are
40.10 	reduced to less than zero under this section.  To the extent
40.11 	sufficient information is available on each payment date, the
40.12 	commissioner shall pay the annual 2005 and subsequent year
40.13 	market value credit reimbursement amounts, after reduction under
40.14 	this section, to cities in equal installments on the dates
40.15 	specified in Minnesota Statutes, section 273.1384.

40.16 	EFFECTIVE DATE. This section is effective the day
40.17 	following final enactment.