1.1 	A bill for an act
1.2 	relating to taxes; adding a fourth bracket to the
1.3 	income tax; increasing the cigarette tax; modifying
1.4 	the dedication of cigarette tax revenues; imposing a
1.5 	floor stocks tax; amending Minnesota Statutes 2004,
1.6 	sections 290.06, subdivision 2c; 297F.05, subdivision
1.7 	1; 297F.10, subdivision 1.
1.8 	BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:

1.9 	Section 1. Minnesota Statutes 2004, section 290.06,
1.10 	subdivision 2c, is amended to read:
1.11 		Subd. 2c.Schedules of rates for individuals, estates,
1.12 	and trusts.  (a) The income taxes imposed by this chapter upon
1.13 	married individuals filing joint returns and surviving spouses
1.14 	as defined in section 2(a) of the Internal Revenue Code must be
1.15 	computed by applying to their taxable net income the following
1.16 	schedule of rates:
1.17 	For taxable years beginning after December 31, 2004, and
1.18 	before January 1, 2006,
1.19 	(1) On the first $25,680, 5.35 percent;
1.20 	(2) On all over $25,680, but not over $102,030, 7.05
1.21 	percent;
1.22 	(3) On all over $102,030, but not over $250,000,7.85
1.23 	percent;
1.24 	(4) On all over $250,000, 8.325 percent; and 
1.25 	For taxable years beginning after December 31, 2005,
1.26 	(1) On the first $25,680, 5.35 percent;
2.1 	(2) On all over $25,680, but not over $102,030, 7.05
2.2 	percent;
2.3 	(3) On all over $102,030, but not over $250,000, 7.85
2.4 	percent;
2.5 	(4) On all over $250,000, 8.8 percent, for taxable years
2.6 	beginning before the fourth bracket termination year as defined
2.7 	in paragraph (f).  For the fourth bracket termination year and
2.8 	subsequent taxable years, the income included in this clause
2.9 	will be subject to the rate in clause (3).
2.10 	Married individuals filing separate returns, estates, and
2.11 	trusts must compute their income tax by applying the above rates
2.12 	to their taxable income, except that the income brackets will be
2.13 	one-half of the above amounts.
2.14 	(b) The income taxes imposed by this chapter upon unmarried
2.15 	individuals must be computed by applying to taxable net income
2.16 	the following schedule of rates:
2.17 	For taxable years beginning after December 31, 2004, and
2.18 	before January 1, 2006,
2.19 	(1) On the first $17,570, 5.35 percent;
2.20 	(2) On all over $17,570, but not over $57,710, 7.05
2.21 	percent;
2.22 	(3) On all over $57,710, but not over $166,665,7.85
2.23 	percent;
2.24 	(4) On all over $166,665, 8.325 percent; and 
2.25 	For taxable years beginning after December 31, 2005,
2.26 	(1) On the first $17,570, 5.35 percent;
2.27 	(2) On all over $17,570, but not over $57,710, 7.05
2.28 	percent;
2.29 	(3) On all over $57,710, but not over $166,665, 7.85
2.30 	percent;
2.31 	(4) On all over $166,665, 8.8 percent, for taxable years
2.32 	beginning before the fourth bracket termination year as defined
2.33 	in paragraph (f).  For the fourth bracket termination year and
2.34 	subsequent taxable years, the income included in this clause
2.35 	will be subject to the rate in clause (3).
2.36 	(c) The income taxes imposed by this chapter upon unmarried
3.1 	individuals qualifying as a head of household as defined in
3.2 	section 2(b) of the Internal Revenue Code must be computed by
3.3 	applying to taxable net income the following schedule of rates:
3.4 	For taxable years beginning after December 31, 2004, and
3.5 	before January 1, 2006,
3.6 	(1) On the first $21,630, 5.35 percent;
3.7 	(2) On all over $21,630, but not over $86,910, 7.05
3.8 	percent;
3.9 	(3) On all over $86,910, but not over $208,330,7.85
3.10 	percent;
3.11 	(4) On all over $208,330, 8.325 percent; and 
3.12 	For taxable years beginning after December 31, 2005,
3.13 	(1) On the first $21,630, 5.35 percent;
3.14 	(2) On all over $21,630, but not over $86,910, 7.05
3.15 	percent;
3.16 	(3) On all over $86,910, but not over $208,330, 7.85
3.17 	percent;
3.18 	(4) On all over $208,330, 8.8 percent, for taxable years
3.19 	beginning before the fourth bracket termination year as defined
3.20 	in paragraph (f).  For the fourth bracket termination year and
3.21 	subsequent years, the income included in this clause will be
3.22 	subject to the rate in clause (3).
3.23 	(d) In lieu of a tax computed according to the rates set
3.24 	forth in this subdivision, the tax of any individual taxpayer
3.25 	whose taxable net income for the taxable year is less than an
3.26 	amount determined by the commissioner must be computed in
3.27 	accordance with tables prepared and issued by the commissioner
3.28 	of revenue based on income brackets of not more than $100.  The
3.29 	amount of tax for each bracket shall be computed at the rates
3.30 	set forth in this subdivision, provided that the commissioner
3.31 	may disregard a fractional part of a dollar unless it amounts to
3.32 	50 cents or more, in which case it may be increased to $1.
3.33 	(e) An individual who is not a Minnesota resident for the
3.34 	entire year must compute the individual's Minnesota income tax
3.35 	as provided in this subdivision.  After the application of the
3.36 	nonrefundable credits provided in this chapter, the tax
4.1 	liability must then be multiplied by a fraction in which:
4.2 	(1) the numerator is the individual's Minnesota source
4.3 	federal adjusted gross income as defined in section 62 of the
4.4 	Internal Revenue Code and increased by the additions required
4.5 	under section 290.01, subdivision 19a, clauses (1), (5), and
4.6 	(6), and reduced by the subtraction under section 290.01,
4.7 	subdivision 19b, clause (11), and the Minnesota assignable
4.8 	portion of the subtraction for United States government interest
4.9 	under section 290.01, subdivision 19b, clause (1), after
4.10 	applying the allocation and assignability provisions of section
4.11 	290.081, clause (a), or 290.17; and
4.12 	(2) the denominator is the individual's federal adjusted
4.13 	gross income as defined in section 62 of the Internal Revenue
4.14 	Code of 1986, increased by the amounts specified in section
4.15 	290.01, subdivision 19a, clauses (1), (5), and (6), and reduced
4.16 	by the amounts specified in section 290.01, subdivision 19b,
4.17 	clauses (1) and (11).
4.18 	(f) In this subdivision, the fourth bracket termination
4.19 	year is the first taxable year beginning after the commissioner
4.20 	of finance has determined that there will be a positive
4.21 	unrestricted budgeting general fund balance at the close of the
4.22 	biennium that is sufficient to complete the allocations required
4.23 	under section 16A.152, subdivision 2, paragraph (a), clauses (1)
4.24 	and (2).
4.25 	
EFFECTIVE DATE. This section is effective for taxable
4.26 	years beginning after December 31, 2004.

4.27 	Sec. 2. Minnesota Statutes 2004, section 297F.05,
4.28 	subdivision 1, is amended to read:
4.29 		Subdivision 1.Rates; cigarettes.  A tax is imposed upon
4.30 	the sale of cigarettes in this state, upon having cigarettes in
4.31 	possession in this state with intent to sell, upon any person
4.32 	engaged in business as a distributor, and upon the use or
4.33 	storage by consumers, at the following rates:
4.34 	(1) on cigarettes weighing not more than three pounds per
4.35 	thousand, 24 36.5 mills on each such cigarette; and
4.36 	(2) on cigarettes weighing more than three pounds per
5.1 	thousand, 48 73 mills on each such cigarette.
5.2 	
EFFECTIVE DATE. This section is effective July 1, 2005.

5.3 	Sec. 3. Minnesota Statutes 2004, section 297F.10,
5.4 	subdivision 1, is amended to read:
5.5 		Subdivision 1.Tax and use tax on cigarettes.  Revenue
5.6 	received from cigarette taxes, as well as related penalties,
5.7 	interest, license fees, and miscellaneous sources of revenue
5.8 	shall be deposited by the commissioner in the state treasury and
5.9 	credited as follows:
5.10 	(1) the revenue produced by 3.25 3.38 mills of the tax on
5.11 	cigarettes weighing not more than three pounds a thousand and
5.12 	6.5 6.76 mills of the tax on cigarettes weighing more than three
5.13 	pounds a thousand must be credited to the Academic Health Center
5.14 	special revenue fund hereby created and is annually appropriated
5.15 	to the Board of Regents at the University of Minnesota for
5.16 	Academic Health Center funding at the University of Minnesota;
5.17 	and
5.18 	(2) the revenue produced by 1.25 1.30 mills of the tax on
5.19 	cigarettes weighing not more than three pounds a thousand and
5.20 	2.5 2.60 mills of the tax on cigarettes weighing more than three
5.21 	pounds a thousand must be credited to the medical education and
5.22 	research costs account hereby created in the special revenue
5.23 	fund and is annually appropriated to the commissioner of health
5.24 	for distribution under section 62J.692, subdivision 4; and
5.25 	(3) the balance of the revenues derived from taxes,
5.26 	penalties, and interest (under this chapter) and from license
5.27 	fees and miscellaneous sources of revenue shall be credited to
5.28 	the general fund.
5.29 	
EFFECTIVE DATE. This section is effective for revenues
5.30 	received for taxes subject to the rate increase in section 2, as
5.31 	determined by the commissioner of revenue.

5.32 	Sec. 4. FLOOR STOCKS TAX.
 5.33 		Subdivision 1.Cigarettes. (a) A floor stocks tax is
5.34 	imposed on every person engaged in business in this state as a
5.35 	distributor, retailer, subjobber, vendor, manufacturer, or
5.36 	manufacturer's representative of cigarettes, on the stamped
6.1 	cigarettes and unaffixed stamps in the person's possession or
6.2 	under the person's control at 12:01 a.m. on July 1, 2005.  The
6.3 	tax is imposed at the following rates:
6.4 	(1) on cigarettes weighing not more than three pounds per
6.5 	thousand, 12.5 mills on each cigarette; and 
6.6 	(2) on cigarettes weighing more than three pounds per
6.7 	thousand, 25 mills on each cigarette.
6.8 	(b) Each distributor, by July 8, 2005, shall file a report
6.9 	with the commissioner of revenue, in the form the commissioner
6.10 	prescribes, showing the stamped cigarettes and unaffixed stamps
6.11 	on hand at 12:01 a.m. on July 1, 2005, and the amount of tax due
6.12 	on the cigarettes and unaffixed stamps.  The tax imposed by this
6.13 	section is due and payable by August 1, 2005, and after that
6.14 	date bears interest as provided in Minnesota Statutes, section
6.15 	270.75.  Each retailer, subjobber, vendor, manufacturer, or
6.16 	manufacturer's representative shall file a return with the
6.17 	commissioner, in the form the commissioner prescribes, showing
6.18 	the cigarettes on hand at 12:01 a.m. on July 1, 2005, and pay
6.19 	the tax due on them by August 1, 2005.  Tax not paid by the due
6.20 	date bears interest as provided in Minnesota Statutes, section
6.21 	270.75.
6.22 		Subd. 2.Audit and enforcement. The tax imposed by this
6.23 	section is subject to the audit, assessment, and collection
6.24 	provisions applicable to the taxes imposed under Minnesota
6.25 	Statutes, chapter 297F.  The commissioner shall deposit the
6.26 	revenues from this tax in the general fund.
6.27 	
EFFECTIVE DATE. This section is effective July 1, 2005.