1.1 	A bill for an act
1.2 	relating to human services; providing inflation
1.3 	adjustments for long-term care providers; changing
1.4 	certain income tax provisions; amending Minnesota
1.5 	Statutes 2004, sections 256B.431, by adding a
1.6 	subdivision; 256B.434, subdivision 4; 256B.5012, by
1.7 	adding a subdivision; 256B.765; 290.01, subdivisions
1.8 	6b, 19d; 290.17, subdivisions 2, 4.
1.9 	BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:

1.10 	Section 1. Minnesota Statutes 2004, section 256B.431, is
1.11 	amended by adding a subdivision to read:
1.12 		Subd. 41.Nursing facility rate increases beginning july
1.13 	1, 2005, and july 1, 2006. For the rate years beginning July 1,
1.14 	2005, and July 1, 2006, the commissioner shall provide nursing
1.15 	facilities reimbursed under this section, section 256B.434, or
1.16 	256B.440 with an adjustment to the total operating payment rate
1.17 	of five percent.  At least two-thirds of each year's adjustment
1.18 	must be used for increased costs of employee salaries and
1.19 	benefits and associated costs for FICA, the Medicare tax,
1.20 	workers' compensation premiums, and federal and state
1.21 	unemployment insurance.  Each facility receiving an adjustment
1.22 	shall report to the commissioner, in the form and manner
1.23 	specified by the commissioner, on how the additional funding was
1.24 	used.

1.25 	Sec. 2. Minnesota Statutes 2004, section 256B.434,
1.26 	subdivision 4, is amended to read:
1.27 		Subd. 4.Alternate rates for nursing facilities.  (a) For
2.1 	nursing facilities which have their payment rates determined
2.2 	under this section rather than section 256B.431, the
2.3 	commissioner shall establish a rate under this subdivision.  The
2.4 	nursing facility must enter into a written contract with the
2.5 	commissioner.
2.6 	(b) A nursing facility's case mix payment rate for the
2.7 	first rate year of a facility's contract under this section is
2.8 	the payment rate the facility would have received under section
2.9 	256B.431.
2.10 	(c) A nursing facility's case mix payment rates for the
2.11 	second and subsequent years of a facility's contract under this
2.12 	section are the previous rate year's contract payment rates plus
2.13 	an inflation adjustment and, for facilities reimbursed under
2.14 	this section or section 256B.431, an adjustment to include the
2.15 	cost of any increase in Health Department licensing fees for the
2.16 	facility taking effect on or after July 1, 2001.  The index for
2.17 	the inflation adjustment must be based on the change in the
2.18 	Consumer Price Index-All Items (United States City average)
2.19 	(CPI-U) forecasted by the commissioner of finance's national
2.20 	economic consultant, as forecasted in the fourth quarter of the
2.21 	calendar year preceding the rate year.  The inflation adjustment
2.22 	must be based on the 12-month period from the midpoint of the
2.23 	previous rate year to the midpoint of the rate year for which
2.24 	the rate is being determined.  For the rate years beginning on
2.25 	July 1, 1999, July 1, 2000, July 1, 2001, July 1, 2002, July 1,
2.26 	2003, and July 1, 2004, July 1, 2005, and July 1, 2006,this
2.27 	paragraph shall apply only to the property-related payment rate,
2.28 	except that adjustments to include the cost of any increase in
2.29 	Health Department licensing fees taking effect on or after July
2.30 	1, 2001, shall be provided.  In determining the amount of the
2.31 	property-related payment rate adjustment under this paragraph,
2.32 	the commissioner shall determine the proportion of the
2.33 	facility's rates that are property-related based on the
2.34 	facility's most recent cost report.
2.35 	(d) The commissioner shall develop additional
2.36 	incentive-based payments of up to five percent above the
3.1 	standard contract rate for achieving outcomes specified in each
3.2 	contract.  The specified facility-specific outcomes must be
3.3 	measurable and approved by the commissioner.  The commissioner
3.4 	may establish, for each contract, various levels of achievement
3.5 	within an outcome.  After the outcomes have been specified the
3.6 	commissioner shall assign various levels of payment associated
3.7 	with achieving the outcome.  Any incentive-based payment cancels
3.8 	if there is a termination of the contract.  In establishing the
3.9 	specified outcomes and related criteria the commissioner shall
3.10 	consider the following state policy objectives:
3.11 	(1) improved cost effectiveness and quality of life as
3.12 	measured by improved clinical outcomes;
3.13 	(2) successful diversion or discharge to community
3.14 	alternatives;
3.15 	(3) decreased acute care costs;
3.16 	(4) improved consumer satisfaction;
3.17 	(5) the achievement of quality; or
3.18 	(6) any additional outcomes proposed by a nursing facility
3.19 	that the commissioner finds desirable.

3.20 	Sec. 3. Minnesota Statutes 2004, section 256B.5012, is
3.21 	amended by adding a subdivision to read:
3.22 		Subd. 6.Icf/mr rate increases beginning january 1, 2006,
3.23 	and january 1, 2007. For the rate years beginning January 1,
3.24 	2006, and January 1, 2007, the commissioner shall provide
3.25 	facilities reimbursed under this section an adjustment to the
3.26 	total operating payment rate of three percent.  At least
3.27 	two-thirds of each year's adjustment must be used for increased
3.28 	costs of employee salaries and benefits and associated costs for
3.29 	FICA, the Medicare tax, workers' compensation premiums, and
3.30 	federal and state unemployment insurance.  Each facility
3.31 	receiving an adjustment shall report to the commissioner, in the
3.32 	form and manner specified by the commissioner, on how the
3.33 	additional funding was used.

3.34 	Sec. 4. Minnesota Statutes 2004, section 256B.765, is
3.35 	amended to read:
3.36 	256B.765 PROVIDER RATE INCREASES.
4.1 		Subdivision 1.Annual inflation adjustments. (a)
4.2 	Effective July 1, 2001, within the limits of appropriations
4.3 	specifically for this purpose, the commissioner shall provide an
4.4 	annual inflation adjustment for the providers listed
4.5 	in paragraph (c) subdivision 2.  The index for the inflation
4.6 	adjustment must be based on the change in the Employment Cost
4.7 	Index for Private Industry Workers - Total Compensation
4.8 	forecasted by Data Resources, Inc., as forecasted in the fourth
4.9 	quarter of the calendar year preceding the fiscal year.  The
4.10 	commissioner shall increase reimbursement or allocation rates by
4.11 	the percentage of this adjustment, and county boards shall
4.12 	adjust provider contracts as needed.
4.13 	(b) The commissioner of finance shall include an annual
4.14 	inflationary adjustment in reimbursement rates for the providers
4.15 	listed in paragraph (c) subdivision 2 using the inflation factor
4.16 	specified in paragraph (a) as a budget change request in each
4.17 	biennial detailed expenditure budget submitted to the
4.18 	legislature under section 16A.11.
4.19 	(c) Subd. 2.[ELIGIBLE PROVIDERS.] The annual adjustment
4.20 	under subdivision 1,paragraph (a),shall be provided for home
4.21 	and community-based waiver services for persons with mental
4.22 	retardation or related conditions under section 256B.501; home
4.23 	and community-based waiver services for the elderly under
4.24 	section 256B.0915; waivered services under community
4.25 	alternatives for disabled individuals under section 256B.49;
4.26 	community alternative care waivered services under section
4.27 	256B.49; traumatic brain injury waivered services under section
4.28 	256B.49; nursing services and home health services under section
4.29 	256B.0625, subdivision 6a; personal care services and nursing
4.30 	supervision of personal care services under section 256B.0625,
4.31 	subdivision 19a; private duty nursing services under section
4.32 	256B.0625, subdivision 7; day training and habilitation services
4.33 	for adults with mental retardation or related conditions under
4.34 	sections 252.40 to 252.46; physical therapy services under
4.35 	sections 256B.0625, subdivision 8, and 256D.03, subdivision 4;
4.36 	occupational therapy services under sections 256B.0625,
5.1 	subdivision 8a, and 256D.03, subdivision 4; speech-language
5.2 	therapy services under section 256D.03, subdivision 4, and
5.3 	Minnesota Rules, part 9505.0390; respiratory therapy services
5.4 	under section 256D.03, subdivision 4, and Minnesota Rules, part
5.5 	9505.0295; alternative care services under section 256B.0913;
5.6 	adult residential program grants under Minnesota Rules, parts
5.7 	9535.2000 to 9535.3000; adult and family community support
5.8 	grants under Minnesota Rules, parts 9535.1700 to 9535.1760;
5.9 	semi-independent living services under section 252.275 including
5.10 	SILS funding under county social services grants formerly funded
5.11 	under chapter 256I; and community support services for deaf and
5.12 	hard-of-hearing adults with mental illness who use or wish to
5.13 	use sign language as their primary means of communication.
5.14 		Subd. 3.Rate increase for biennium beginning july 1,
5.15 	2005. For the fiscal years beginning July 1, 2005, and July 1,
5.16 	2006, the commissioner shall increase reimbursement rates for
5.17 	the providers listed in subdivision 2 by three percent.  At
5.18 	least two-thirds of each year's adjustment must be used for
5.19 	increased costs of employee salaries and benefits and associated
5.20 	costs for FICA, the Medicare tax, workers' compensation
5.21 	premiums, and federal and state unemployment insurance.  Each
5.22 	provider receiving an adjustment shall report to the
5.23 	commissioner, in the form and manner specified by the
5.24 	commissioner, on how the additional funding was used.

5.25 	Sec. 5. Minnesota Statutes 2004, section 290.01,
5.26 	subdivision 6b, is amended to read:
5.27 		Subd. 6b.Foreign operating corporation.  The term
5.28 	"foreign operating corporation," when applied to a corporation,
5.29 	means a domestic corporation with the following characteristics:
5.30 	(1) it is part of a unitary business at least one member of
5.31 	which is taxable in this state;
5.32 	(2) it is not a foreign sales corporation under section 922
5.33 	of the Internal Revenue Code, as amended through December 31,
5.34 	1999, for the taxable year; and
5.35 	(3) either (i) the average of the percentages of its
5.36 	property and payrolls assigned to locations inside outside the
6.1 	United States and the District of Columbia, excluding the
6.2 	commonwealth of Puerto Rico and possessions of the United
6.3 	States,as determined under section 290.191 or 290.20, is 20 80 
6.4 	percent or less greater and it has at least $2,000,000 of
6.5 	property and $1,000,000 of payroll as determined under section
6.6 	290.191 or 290.20; or (ii) it has in effect a valid election
6.7 	under section 936 of the Internal Revenue Code.
6.8 	
EFFECTIVE DATE. This section is effective for tax years
6.9 	beginning after December 31, 2004.

6.10 	Sec. 6. Minnesota Statutes 2004, section 290.01,
6.11 	subdivision 19d, is amended to read:
6.12 		Subd. 19d.Corporations; modifications decreasing federal
6.13 	taxable income.  For corporations, there shall be subtracted
6.14 	from federal taxable income after the increases provided in
6.15 	subdivision 19c:
6.16 	(1) the amount of foreign dividend gross-up added to gross
6.17 	income for federal income tax purposes under section 78 of the
6.18 	Internal Revenue Code;
6.19 	(2) the amount of salary expense not allowed for federal
6.20 	income tax purposes due to claiming the federal jobs credit
6.21 	under section 51 of the Internal Revenue Code;
6.22 	(3) any dividend (not including any distribution in
6.23 	liquidation) paid within the taxable year by a national or state
6.24 	bank to the United States, or to any instrumentality of the
6.25 	United States exempt from federal income taxes, on the preferred
6.26 	stock of the bank owned by the United States or the
6.27 	instrumentality;
6.28 	(4) amounts disallowed for intangible drilling costs due to
6.29 	differences between this chapter and the Internal Revenue Code
6.30 	in taxable years beginning before January 1, 1987, as follows:
6.31 	(i) to the extent the disallowed costs are represented by
6.32 	physical property, an amount equal to the allowance for
6.33 	depreciation under Minnesota Statutes 1986, section 290.09,
6.34 	subdivision 7, subject to the modifications contained in
6.35 	subdivision 19e; and
6.36 	(ii) to the extent the disallowed costs are not represented
7.1 	by physical property, an amount equal to the allowance for cost
7.2 	depletion under Minnesota Statutes 1986, section 290.09,
7.3 	subdivision 8;
7.4 	(5) the deduction for capital losses pursuant to sections
7.5 	1211 and 1212 of the Internal Revenue Code, except that:
7.6 	(i) for capital losses incurred in taxable years beginning
7.7 	after December 31, 1986, capital loss carrybacks shall not be
7.8 	allowed;
7.9 	(ii) for capital losses incurred in taxable years beginning
7.10 	after December 31, 1986, a capital loss carryover to each of the
7.11 	15 taxable years succeeding the loss year shall be allowed;
7.12 	(iii) for capital losses incurred in taxable years
7.13 	beginning before January 1, 1987, a capital loss carryback to
7.14 	each of the three taxable years preceding the loss year, subject
7.15 	to the provisions of Minnesota Statutes 1986, section 290.16,
7.16 	shall be allowed; and
7.17 	(iv) for capital losses incurred in taxable years beginning
7.18 	before January 1, 1987, a capital loss carryover to each of the
7.19 	five taxable years succeeding the loss year to the extent such
7.20 	loss was not used in a prior taxable year and subject to the
7.21 	provisions of Minnesota Statutes 1986, section 290.16, shall be
7.22 	allowed;
7.23 	(6) an amount for interest and expenses relating to income
7.24 	not taxable for federal income tax purposes, if (i) the income
7.25 	is taxable under this chapter and (ii) the interest and expenses
7.26 	were disallowed as deductions under the provisions of section
7.27 	171(a)(2), 265 or 291 of the Internal Revenue Code in computing
7.28 	federal taxable income;
7.29 	(7) in the case of mines, oil and gas wells, other natural
7.30 	deposits, and timber for which percentage depletion was
7.31 	disallowed pursuant to subdivision 19c, clause (11), a
7.32 	reasonable allowance for depletion based on actual cost.  In the
7.33 	case of leases the deduction must be apportioned between the
7.34 	lessor and lessee in accordance with rules prescribed by the
7.35 	commissioner.  In the case of property held in trust, the
7.36 	allowable deduction must be apportioned between the income
8.1 	beneficiaries and the trustee in accordance with the pertinent
8.2 	provisions of the trust, or if there is no provision in the
8.3 	instrument, on the basis of the trust's income allocable to
8.4 	each;
8.5 	(8) for certified pollution control facilities placed in
8.6 	service in a taxable year beginning before December 31, 1986,
8.7 	and for which amortization deductions were elected under section
8.8 	169 of the Internal Revenue Code of 1954, as amended through
8.9 	December 31, 1985, an amount equal to the allowance for
8.10 	depreciation under Minnesota Statutes 1986, section 290.09,
8.11 	subdivision 7;
8.12 	(9) amounts included in federal taxable income that are due
8.13 	to refunds of income, excise, or franchise taxes based on net
8.14 	income or related minimum taxes paid by the corporation to
8.15 	Minnesota, another state, a political subdivision of another
8.16 	state, the District of Columbia, or a foreign country or
8.17 	possession of the United States to the extent that the taxes
8.18 	were added to federal taxable income under section 290.01,
8.19 	subdivision 19c, clause (1), in a prior taxable year;
8.20 	(10) 80 percent of royalties, fees, or other like income
8.21 	accrued or received from a foreign operating corporation or a
8.22 	foreign corporation which is part of the same unitary business
8.23 	as the receiving corporation;
8.24 	(11) income or gains from the business of mining as defined
8.25 	in section 290.05, subdivision 1, clause (a), that are not
8.26 	subject to Minnesota franchise tax;
8.27 	(12) (11) the amount of handicap access expenditures in the
8.28 	taxable year which are not allowed to be deducted or capitalized
8.29 	under section 44(d)(7) of the Internal Revenue Code;
8.30 	(13) (12) the amount of qualified research expenses not
8.31 	allowed for federal income tax purposes under section 280C(c) of
8.32 	the Internal Revenue Code, but only to the extent that the
8.33 	amount exceeds the amount of the credit allowed under section
8.34 	290.068;
8.35 	(14) (13) the amount of salary expenses not allowed for
8.36 	federal income tax purposes due to claiming the Indian
9.1 	employment credit under section 45A(a) of the Internal Revenue
9.2 	Code;
9.3 	(15) (14) the amount of any refund of environmental taxes
9.4 	paid under section 59A of the Internal Revenue Code;
9.5 	(16) (15) for taxable years beginning before January 1,
9.6 	2008, the amount of the federal small ethanol producer credit
9.7 	allowed under section 40(a)(3) of the Internal Revenue Code
9.8 	which is included in gross income under section 87 of the
9.9 	Internal Revenue Code;
9.10 	(17) (16) for a corporation whose foreign sales
9.11 	corporation, as defined in section 922 of the Internal Revenue
9.12 	Code, constituted a foreign operating corporation during any
9.13 	taxable year ending before January 1, 1995, and a return was
9.14 	filed by August 15, 1996, claiming the deduction under section
9.15 	290.21, subdivision 4, for income received from the foreign
9.16 	operating corporation, an amount equal to 1.23 multiplied by the
9.17 	amount of income excluded under section 114 of the Internal
9.18 	Revenue Code, provided the income is not income of a foreign
9.19 	operating company;
9.20 	(18) (17) any decrease in subpart F income, as defined in
9.21 	section 952(a) of the Internal Revenue Code, for the taxable
9.22 	year when subpart F income is calculated without regard to the
9.23 	provisions of section 614 of Public Law 107-147; and
9.24 	(19) (18) in each of the five tax years immediately
9.25 	following the tax year in which an addition is required under
9.26 	subdivision 19c, clause (16), an amount equal to one-fifth of
9.27 	the delayed depreciation.  For purposes of this clause, "delayed
9.28 	depreciation" means the amount of the addition made by the
9.29 	taxpayer under subdivision 19c, clause (16).  The resulting
9.30 	delayed depreciation cannot be less than zero.
9.31 	
EFFECTIVE DATE. This section is effective for tax years
9.32 	beginning after December 31, 2004.

9.33 	Sec. 7. Minnesota Statutes 2004, section 290.17,
9.34 	subdivision 2, is amended to read:
9.35 		Subd. 2.Income not derived from conduct of a trade or
9.36 	business.  The income of a taxpayer subject to the allocation
10.1 	rules that is not derived from the conduct of a trade or
10.2 	business must be assigned in accordance with paragraphs (a) to
10.3 	(f):
10.4 	(a)(1) Subject to paragraphs (a)(2),and (a)(3), and
10.5 	(a)(4),income from wages as defined in section 3401(a) and (f)
10.6 	of the Internal Revenue Code is assigned to this state if, and
10.7 	to the extent that, the work of the employee is performed within
10.8 	it; all other income from such sources is treated as income from
10.9 	sources without this state.
10.10 	Severance pay shall be considered income from labor or
10.11 	personal or professional services.
10.12 	(2) In the case of an individual who is a nonresident of
10.13 	Minnesota and who is an athlete or entertainer, income from
10.14 	compensation for labor or personal services performed within
10.15 	this state shall be determined in the following manner:
10.16 	(i) The amount of income to be assigned to Minnesota for an
10.17 	individual who is a nonresident salaried athletic team employee
10.18 	shall be determined by using a fraction in which the denominator
10.19 	contains the total number of days in which the individual is
10.20 	under a duty to perform for the employer, and the numerator is
10.21 	the total number of those days spent in Minnesota.  For purposes
10.22 	of this paragraph, off-season training activities, unless
10.23 	conducted at the team's facilities as part of a team imposed
10.24 	program, are not included in the total number of duty days.
10.25 	Bonuses earned as a result of play during the regular season or
10.26 	for participation in championship, play-off, or all-star games
10.27 	must be allocated under the formula.  Signing bonuses are not
10.28 	subject to allocation under the formula if they are not
10.29 	conditional on playing any games for the team, are payable
10.30 	separately from any other compensation, and are nonrefundable;
10.31 	and
10.32 	(ii) The amount of income to be assigned to Minnesota for
10.33 	an individual who is a nonresident, and who is an athlete or
10.34 	entertainer not listed in clause (i), for that person's athletic
10.35 	or entertainment performance in Minnesota shall be determined by
10.36 	assigning to this state all income from performances or athletic
11.1 	contests in this state.
11.2 	(3) For purposes of this section, amounts received by a
11.3 	nonresident as "retirement income" as defined in section (b)(1)
11.4 	of the State Income Taxation of Pension Income Act, Public Law
11.5 	104-95, are not considered income derived from carrying on a
11.6 	trade or business or from wages or other compensation for work
11.7 	an employee performed in Minnesota, and are not taxable under
11.8 	this chapter.
11.9 	(4) Wages, otherwise assigned to this state under clause
11.10 	(1) and not qualifying under clause (3), are not taxable under
11.11 	this chapter if the following conditions are met:
11.12 	(i) the recipient was not a resident of this state for any
11.13 	part of the taxable year in which the wages were received; and 
11.14 	(ii) the wages are for work performed while the recipient
11.15 	was a resident of this state.
11.16 	(b) Income or gains from tangible property located in this
11.17 	state that is not employed in the business of the recipient of
11.18 	the income or gains must be assigned to this state.
11.19 	(c) Income or gains from intangible personal property not
11.20 	employed in the business of the recipient of the income or gains
11.21 	must be assigned to this state if the recipient of the income or
11.22 	gains is a resident of this state or is a resident trust or
11.23 	estate.
11.24 	Gain on the sale of a partnership interest is allocable to
11.25 	this state in the ratio of the original cost of partnership
11.26 	tangible property in this state to the original cost of
11.27 	partnership tangible property everywhere, determined at the time
11.28 	of the sale.  If more than 50 percent of the value of the
11.29 	partnership's assets consists of intangibles, gain or loss from
11.30 	the sale of the partnership interest is allocated to this state
11.31 	in accordance with the sales factor of the partnership for its
11.32 	first full tax period immediately preceding the tax period of
11.33 	the partnership during which the partnership interest was sold.
11.34 	Gain on the sale of goodwill or income from a covenant not
11.35 	to compete that is connected with a business operating all or
11.36 	partially in Minnesota is allocated to this state to the extent
12.1 	that the income from the business in the year preceding the year
12.2 	of sale was assignable to Minnesota under subdivision 3.
12.3 	When an employer pays an employee for a covenant not to
12.4 	compete, the income allocated to this state is in the ratio of
12.5 	the employee's service in Minnesota in the calendar year
12.6 	preceding leaving the employment of the employer over the total
12.7 	services performed by the employee for the employer in that year.
12.8 	(d) Income from winnings on a bet made by an individual
12.9 	while in Minnesota is assigned to this state.  In this
12.10 	paragraph, "bet" has the meaning given in section 609.75,
12.11 	subdivision 2, as limited by section 609.75, subdivision 3,
12.12 	clauses (1), (2), and (3).
12.13 	(e) All items of gross income not covered in paragraphs (a)
12.14 	to (d) and not part of the taxpayer's income from a trade or
12.15 	business shall be assigned to the taxpayer's domicile.
12.16 	(f) For the purposes of this section, working as an
12.17 	employee shall not be considered to be conducting a trade or
12.18 	business.
12.19 	
EFFECTIVE DATE. This section is effective for tax years
12.20 	beginning after December 31, 2004.

12.21 	Sec. 8. Minnesota Statutes 2004, section 290.17,
12.22 	subdivision 4, is amended to read:
12.23 		Subd. 4.Unitary business principle.  (a) If a trade or
12.24 	business conducted wholly within this state or partly within and
12.25 	partly without this state is part of a unitary business, the
12.26 	entire income of the unitary business is subject to
12.27 	apportionment pursuant to section 290.191.  Notwithstanding
12.28 	subdivision 2, paragraph (c), none of the income of a unitary
12.29 	business is considered to be derived from any particular source
12.30 	and none may be allocated to a particular place except as
12.31 	provided by the applicable apportionment formula.  The
12.32 	provisions of this subdivision do not apply to business income
12.33 	subject to subdivision 5, income of an insurance company, or
12.34 	income of an investment company determined under section 290.36.
12.35 	(b) The term "unitary business" means business activities
12.36 	or operations which result in a flow of value between them.  The
13.1 	term may be applied within a single legal entity or between
13.2 	multiple entities and without regard to whether each entity is a
13.3 	sole proprietorship, a corporation, a partnership or a trust.
13.4 	(c) Unity is presumed whenever there is unity of ownership,
13.5 	operation, and use, evidenced by centralized management or
13.6 	executive force, centralized purchasing, advertising,
13.7 	accounting, or other controlled interaction, but the absence of
13.8 	these centralized activities will not necessarily evidence a
13.9 	nonunitary business.  Unity is also presumed when business
13.10 	activities or operations are of mutual benefit, dependent upon
13.11 	or contributory to one another, either individually or as a
13.12 	group.
13.13 	(d) Where a business operation conducted in Minnesota is
13.14 	owned by a business entity that carries on business activity
13.15 	outside the state different in kind from that conducted within
13.16 	this state, and the other business is conducted entirely outside
13.17 	the state, it is presumed that the two business operations are
13.18 	unitary in nature, interrelated, connected, and interdependent
13.19 	unless it can be shown to the contrary.
13.20 	(e) Unity of ownership is not deemed to exist when a
13.21 	corporation is involved unless that corporation is a member of a
13.22 	group of two or more business entities and more than 50 percent
13.23 	of the voting stock of each member of the group is directly or
13.24 	indirectly owned by a common owner or by common owners, either
13.25 	corporate or noncorporate, or by one or more of the member
13.26 	corporations of the group.  For this purpose, the term "voting
13.27 	stock" shall include membership interests of mutual insurance
13.28 	holding companies formed under section 60A.077.
13.29 	(f) The net income and apportionment factors under section
13.30 	290.191 or 290.20 of foreign corporations and other foreign
13.31 	entities which are part of a unitary business shall not be
13.32 	included in the net income or the apportionment factors of the
13.33 	unitary business.  A foreign corporation or other foreign entity
13.34 	which is required to file a return under this chapter shall file
13.35 	on a separate return basis.  The net income and apportionment
13.36 	factors under section 290.191 or 290.20 of foreign operating
14.1 	corporations shall not be included in the net income or the
14.2 	apportionment factors of the unitary business except as provided
14.3 	in paragraph (g).
14.4 	(g) The adjusted net income of a foreign operating
14.5 	corporation shall be deemed to be paid as a dividend on the last
14.6 	day of its taxable year to each shareholder thereof, in
14.7 	proportion to each shareholder's ownership, with which such
14.8 	corporation is engaged in a unitary business.  Such deemed
14.9 	dividend shall be treated as a dividend under section 290.21,
14.10 	subdivision 4. The dividends-received deduction must not be
14.11 	allowed on dividends, interest, royalties, or capital gains
14.12 	received by the foreign operating corporation included in the
14.13 	deemed dividend.
14.14 	Dividends actually paid by a foreign operating corporation
14.15 	to a corporate shareholder which is a member of the same unitary
14.16 	business as the foreign operating corporation shall be
14.17 	eliminated from the net income of the unitary business in
14.18 	preparing a combined report for the unitary business.  The
14.19 	adjusted net income of a foreign operating corporation shall be
14.20 	its net income adjusted as follows:
14.21 	(1) any taxes paid or accrued to a foreign country, the
14.22 	commonwealth of Puerto Rico, or a United States possession or
14.23 	political subdivision of any of the foregoing shall be a
14.24 	deduction; and
14.25 	(2) the subtraction from federal taxable income for
14.26 	payments received from foreign corporations or foreign operating
14.27 	corporations under section 290.01, subdivision 19d, clause (10),
14.28 	shall not be allowed.
14.29 	If a foreign operating corporation incurs a net loss,
14.30 	neither income nor deduction from that corporation shall be
14.31 	included in determining the net income of the unitary business.
14.32 	(h) For purposes of determining the net income of a unitary
14.33 	business and the factors to be used in the apportionment of net
14.34 	income pursuant to section 290.191 or 290.20, there must be
14.35 	included only the income and apportionment factors of domestic
14.36 	corporations or other domestic entities other than foreign
15.1 	operating corporations that are determined to be part of the
15.2 	unitary business pursuant to this subdivision, notwithstanding
15.3 	that foreign corporations or other foreign entities might be
15.4 	included in the unitary business.
15.5 	(i) Deductions for expenses, interest, or taxes otherwise
15.6 	allowable under this chapter that are connected with or
15.7 	allocable against dividends, deemed dividends described in
15.8 	paragraph (g), or royalties, fees, or other like income
15.9 	described in section 290.01, subdivision 19d, clause (10), shall
15.10 	not be disallowed.
15.11 	(j) Each corporation or other entity, except a sole
15.12 	proprietorship, that is part of a unitary business must file
15.13 	combined reports as the commissioner determines.  On the
15.14 	reports, all intercompany transactions between entities included
15.15 	pursuant to paragraph (h) must be eliminated and the entire net
15.16 	income of the unitary business determined in accordance with
15.17 	this subdivision is apportioned among the entities by using each
15.18 	entity's Minnesota factors for apportionment purposes in the
15.19 	numerators of the apportionment formula and the total factors
15.20 	for apportionment purposes of all entities included pursuant to
15.21 	paragraph (h) in the denominators of the apportionment formula.
15.22 	(k) If a corporation has been divested from a unitary
15.23 	business and is included in a combined report for a fractional
15.24 	part of the common accounting period of the combined report:
15.25 	(1) its income includable in the combined report is its
15.26 	income incurred for that part of the year determined by
15.27 	proration or separate accounting; and
15.28 	(2) its sales, property, and payroll included in the
15.29 	apportionment formula must be prorated or accounted for
15.30 	separately.
15.31 	
EFFECTIVE DATE. This section is effective for tax years
15.32 	beginning after December 31, 2004.