1.1 	A bill for an act
1.2 	relating to taxation; conforming certain provisions to federal law; increasing the 
1.3 	standard deduction for married joint filers; modifying the alternative minimum 
1.4 	tax; providing for taxation of certain compensation paid to nonresidents; 
1.5 	conforming to federal tax code; adjusting tax liability for certain filers; requiring 
1.6 	certain refunds; modifying income tax rates; appropriating money; amending 
1.7 	Minnesota Statutes 2004, sections 290.06, subdivision 2d; 290.091, subdivision 
1.8 	3; 290.17, subdivision 2; Minnesota Statutes 2005 Supplement, sections 
1.9 	289A.02, subdivision 7; 290.01, subdivisions 19, 19a, 31; 290.06, subdivision 
1.10 	2c; 290.0675, subdivision 1; 290.091, subdivision 2; 290A.03, subdivision 15.
1.11 	BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:

1.12 	Section 1. Minnesota Statutes 2005 Supplement, section 289A.02, subdivision 7, 
1.13 	is amended to read:
1.14 		Subd. 7.Internal Revenue Code. Unless specifically defined otherwise, "Internal 
1.15 	Revenue Code" means the Internal Revenue Code of 1986, as amended through April 
1.16 	15 December 31, 2005.

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

1.18 	Sec. 2. Minnesota Statutes 2005 Supplement, section 290.01, subdivision 19, is 
1.19 	amended to read:
1.20 		Subd. 19.Net income. The term "net income" means the federal taxable income, 
1.21 	as defined in section 63 of the Internal Revenue Code of 1986, as amended through the 
1.22 	date named in this subdivision, incorporating the federal effective dates of changes to the 
1.23 	Internal Revenue Code and any elections made by the taxpayer in accordance with the 
1.24 	Internal Revenue Code in determining federal taxable income for federal income tax 
1.25 	purposes, and with the modifications provided in subdivisions 19a to 19f.
2.1 	In the case of a regulated investment company or a fund thereof, as defined in section 
2.2 	851(a) or 851(g) of the Internal Revenue Code, federal taxable income means investment 
2.3 	company taxable income as defined in section 852(b)(2) of the Internal Revenue Code, 
2.4 	except that:
2.5 	(1) the exclusion of net capital gain provided in section 852(b)(2)(A) of the Internal 
2.6 	Revenue Code does not apply;
2.7 	(2) the deduction for dividends paid under section 852(b)(2)(D) of the Internal 
2.8 	Revenue Code must be applied by allowing a deduction for capital gain dividends and 
2.9 	exempt-interest dividends as defined in sections 852(b)(3)(C) and 852(b)(5) of the Internal 
2.10 	Revenue Code; and
2.11 	(3) the deduction for dividends paid must also be applied in the amount of any 
2.12 	undistributed capital gains which the regulated investment company elects to have treated 
2.13 	as provided in section 852(b)(3)(D) of the Internal Revenue Code.
2.14 	The net income of a real estate investment trust as defined and limited by section 
2.15 	856(a), (b), and (c) of the Internal Revenue Code means the real estate investment trust 
2.16 	taxable income as defined in section 857(b)(2) of the Internal Revenue Code.
2.17 	The net income of a designated settlement fund as defined in section 468B(d) of 
2.18 	the Internal Revenue Code means the gross income as defined in section 468B(b) of the 
2.19 	Internal Revenue Code.
2.20 	The Internal Revenue Code of 1986, as amended through April 15 December 31, 
2.21 	2005, shall be in effect for taxable years beginning after December 31, 1996.
2.22 	Except as otherwise provided, references to the Internal Revenue Code in 
2.23 	subdivisions 19 to 19f mean the code in effect for purposes of determining net income for 
2.24 	the applicable year.

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

2.26 	Sec. 3. Minnesota Statutes 2005 Supplement, section 290.01, subdivision 19a, is 
2.27 	amended to read:
2.28 		Subd. 19a.Additions to federal taxable income. For individuals, estates, and 
2.29 	trusts, there shall be added to federal taxable income:
2.30 	(1)(i) interest income on obligations of any state other than Minnesota or a political 
2.31 	or governmental subdivision, municipality, or governmental agency or instrumentality 
2.32 	of any state other than Minnesota exempt from federal income taxes under the Internal 
2.33 	Revenue Code or any other federal statute; and
2.34 	(ii) exempt-interest dividends as defined in section 852(b)(5) of the Internal Revenue 
2.35 	Code, except the portion of the exempt-interest dividends derived from interest income 
3.1 	on obligations of the state of Minnesota or its political or governmental subdivisions, 
3.2 	municipalities, governmental agencies or instrumentalities, but only if the portion of the 
3.3 	exempt-interest dividends from such Minnesota sources paid to all shareholders represents 
3.4 	95 percent or more of the exempt-interest dividends that are paid by the regulated 
3.5 	investment company as defined in section 851(a) of the Internal Revenue Code, or the 
3.6 	fund of the regulated investment company as defined in section 851(g) of the Internal 
3.7 	Revenue Code, making the payment; and
3.8 	(iii) for the purposes of items (i) and (ii), interest on obligations of an Indian tribal 
3.9 	government described in section 7871(c) of the Internal Revenue Code shall be treated as 
3.10 	interest income on obligations of the state in which the tribe is located;
3.11 	(2) the amount of income or sales and use taxes paid or accrued within the taxable 
3.12 	year under this chapter and the amount of taxes based on net income paid or sales and 
3.13 	use taxes paid to any other state or to any province or territory of Canada, to the extent 
3.14 	allowed as a deduction under section 63(d) of the Internal Revenue Code, but the addition 
3.15 	may not be more than the amount by which the itemized deductions as allowed under 
3.16 	section 63(d) of the Internal Revenue Code exceeds the amount of the standard deduction 
3.17 	as defined in section 63(c) of the Internal Revenue Code minus the addition which would 
3.18 	have been required under clause (10) if the taxpayer had claimed the standard deduction. 
3.19 	For the purpose of this paragraph, the disallowance of itemized deductions under section 
3.20 	68 of the Internal Revenue Code of 1986, income or sales and use tax is the last itemized 
3.21 	deduction disallowed;
3.22 	(3) the capital gain amount of a lump sum distribution to which the special tax under 
3.23 	section 1122(h)(3)(B)(ii) of the Tax Reform Act of 1986, Public Law 99-514, applies;
3.24 	(4) the amount of income taxes paid or accrued within the taxable year under this 
3.25 	chapter and taxes based on net income paid to any other state or any province or territory 
3.26 	of Canada, to the extent allowed as a deduction in determining federal adjusted gross 
3.27 	income. For the purpose of this paragraph, income taxes do not include the taxes imposed 
3.28 	by sections 290.0922, subdivision 1, paragraph (b), 290.9727, 290.9728, and 290.9729;
3.29 	(5) the amount of expense, interest, or taxes disallowed pursuant to section 290.10
3.30 	other than expenses or interest used in computing net interest income for the subtraction 
3.31 	allowed under subdivision 19b, clause (1);
3.32 	(6) the amount of a partner's pro rata share of net income which does not flow 
3.33 	through to the partner because the partnership elected to pay the tax on the income under 
3.34 	section 6242(a)(2) of the Internal Revenue Code;
3.35 	(7) 80 percent of the depreciation deduction allowed under section 168(k) of the 
3.36 	Internal Revenue Code. For purposes of this clause, if the taxpayer has an activity that 
4.1 	in the taxable year generates a deduction for depreciation under section 168(k) and the 
4.2 	activity generates a loss for the taxable year that the taxpayer is not allowed to claim for 
4.3 	the taxable year, "the depreciation allowed under section 168(k)" for the taxable year is 
4.4 	limited to excess of the depreciation claimed by the activity under section 168(k) over the 
4.5 	amount of the loss from the activity that is not allowed in the taxable year. In succeeding 
4.6 	taxable years when the losses not allowed in the taxable year are allowed, the depreciation 
4.7 	under section 168(k) is allowed;
4.8 	(8) 80 percent of the amount by which the deduction allowed by section 179 of the 
4.9 	Internal Revenue Code exceeds the deduction allowable by section 179 of the Internal 
4.10 	Revenue Code of 1986, as amended through December 31, 2003;
4.11 	(9) to the extent deducted in computing federal taxable income, the amount of the 
4.12 	deduction allowable under section 199 of the Internal Revenue Code; and
4.13 	(10) for tax years beginning after December 31, 2004, to the extent deducted in 
4.14 	computing federal taxable income, the amount by which the standard deduction allowed 
4.15 	under section 63(c) of the Internal Revenue Code exceeds the standard deduction 
4.16 	allowable under section 63(c) of the Internal Revenue Code of 1986, as amended through 
4.17 	December 31, 2003; and
4.18 	(11)(10) the exclusion allowed under section 139A of the Internal Revenue Code 
4.19 	for federal subsidies for prescription drug plans.

4.20 	EFFECTIVE DATE. This section is effective for taxable years beginning after 
4.21 	December 31, 2005.

4.22 	Sec. 4. Minnesota Statutes 2005 Supplement, section 290.01, subdivision 31, is 
4.23 	amended to read:
4.24 		Subd. 31.Internal Revenue Code. Unless specifically defined otherwise, "Internal 
4.25 	Revenue Code" means the Internal Revenue Code of 1986, as amended through April 
4.26 	15 December 31, 2005.

4.27 	EFFECTIVE DATE. This section is effective the day following final enactment, 
4.28 	except the changes incorporated by federal changes are effective at the same times as the 
4.29 	changes were effective for federal purposes.

4.30 	Sec. 5. Minnesota Statutes 2005 Supplement, section 290.06, subdivision 2c, is 
4.31 	amended to read:
4.32 		Subd. 2c.Schedules of rates for individuals, estates, and trusts. (a) The income 
4.33 	taxes imposed by this chapter upon married individuals filing joint returns and surviving 
5.1 	spouses as defined in section 2(a) of the Internal Revenue Code must be computed by 
5.2 	applying to their taxable net income the following schedule of rates:
5.3 	(1) On the first $25,680 $29,980, 5.35 percent;
5.4 	(2) On all over $25,680 $29,980, but not over $102,030 $119,100, 7.05 percent;
5.5 	(3) On all over $102,030 $119,100, but not over $270,000, 7.85 percent.; and
5.6 	(4) On all over $270,000, 8.15 percent.
5.7 	Married individuals filing separate returns, estates, and trusts must compute their 
5.8 	income tax by applying the above rates to their taxable income, except that the income 
5.9 	brackets will be one-half of the above amounts.
5.10 	(b) The income taxes imposed by this chapter upon unmarried individuals must be 
5.11 	computed by applying to taxable net income the following schedule of rates:
5.12 	(1) On the first $17,570 $20,510, 5.35 percent;
5.13 	(2) On all over $17,570 $20,510, but not over $57,710 $67,360, 7.05 percent;
5.14 	(3) On all over $57,710 $67,360, but not over $180,000, 7.85 percent.; and
5.15 	(4) On all over $180,000, 8.15 percent.
5.16 	(c) The income taxes imposed by this chapter upon unmarried individuals qualifying 
5.17 	as a head of household as defined in section 2(b) of the Internal Revenue Code must be 
5.18 	computed by applying to taxable net income the following schedule of rates:
5.19 	(1) On the first $21,630 $25,250, 5.35 percent;
5.20 	(2) On all over $21,630 $25,250, but not over $86,910 $101,450, 7.05 percent;
5.21 	(3) On all over $86,910 $101,450, but not over $229,500, 7.85 percent.; and
5.22 	(4) On all over $229,500, 8.15 percent.
5.23 	(d) In lieu of a tax computed according to the rates set forth in this subdivision, the 
5.24 	tax of any individual taxpayer whose taxable net income for the taxable year is less than 
5.25 	an amount determined by the commissioner must be computed in accordance with tables 
5.26 	prepared and issued by the commissioner of revenue based on income brackets of not 
5.27 	more than $100. The amount of tax for each bracket shall be computed at the rates set 
5.28 	forth in this subdivision, provided that the commissioner may disregard a fractional part of 
5.29 	a dollar unless it amounts to 50 cents or more, in which case it may be increased to $1.
5.30 	(e) An individual who is not a Minnesota resident for the entire year must compute 
5.31 	the individual's Minnesota income tax as provided in this subdivision. After the 
5.32 	application of the nonrefundable credits provided in this chapter, the tax liability must 
5.33 	then be multiplied by a fraction in which:
5.34 	(1) the numerator is the individual's Minnesota source federal adjusted gross income 
5.35 	as defined in section 62 of the Internal Revenue Code and increased by the additions 
5.36 	required under section 290.01, subdivision 19a, clauses (1), (5), (6), (7), (8), and (9), 
6.1 	and reduced by the Minnesota assignable portion of the subtraction for United States 
6.2 	government interest under section 290.01, subdivision 19b, clause (1), and the subtractions 
6.3 	under section 290.01, subdivision 19b, clauses (9), (10), (14), (15), and (16), after applying 
6.4 	the allocation and assignability provisions of section 290.081, clause (a), or 290.17; and
6.5 	(2) the denominator is the individual's federal adjusted gross income as defined in 
6.6 	section 62 of the Internal Revenue Code of 1986, increased by the amounts specified in 
6.7 	section 290.01, subdivision 19a, clauses (1), (5), (6), (7), (8), and (9), and reduced by the 
6.8 	amounts specified in section 290.01, subdivision 19b, clauses (1), (9), (10), (14), (15), 
6.9 	and (16).
6.10 	(f) If in a taxable year the taxable net income of a taxpayer exceeds the amount to 
6.11 	which the rate of 8.15 percent applies, but the average of the taxpayer's taxable net income 
6.12 	for that year and the preceding year does not exceed that threshold amount, the rate of 
6.13 	8.15 percent does not apply for that taxable year.

6.14 	EFFECTIVE DATE. This section is effective for taxable years beginning after 
6.15 	December 31, 2005.

6.16 	Sec. 6. Minnesota Statutes 2004, section 290.06, subdivision 2d, is amended to read:
6.17 		Subd. 2d.Inflation adjustment of brackets. (a) For taxable years beginning after 
6.18 	December 31, 2000 2006, the minimum and maximum dollar amounts for each rate 
6.19 	bracket for which a tax is imposed in subdivision 2c shall be adjusted for inflation by the 
6.20 	percentage determined under paragraph (b). For the purpose of making the adjustment as 
6.21 	provided in this subdivision all of the rate brackets provided in subdivision 2c shall be the 
6.22 	rate brackets as they existed for taxable years beginning after December 31, 1999 2005, 
6.23 	and before January 1, 2001 2007. The rate applicable to any rate bracket must not be 
6.24 	changed. The dollar amounts setting forth the tax shall be adjusted to reflect the changes 
6.25 	in the rate brackets. The rate brackets as adjusted must be rounded to the nearest $10 
6.26 	amount. If the rate bracket ends in $5, it must be rounded up to the nearest $10 amount.
6.27 	(b) The commissioner shall adjust the rate brackets and by the percentage determined 
6.28 	pursuant to the provisions of section 1(f) of the Internal Revenue Code, except that in 
6.29 	section 1(f)(3)(B) the word "1999" "2005" shall be substituted for the word "1992." For 
6.30 	2001, the commissioner shall then determine the percent change from the 12 months 
6.31 	ending on August 31, 1999 2005, to the 12 months ending on August 31, 2000 2006, and 
6.32 	in each subsequent year, from the 12 months ending on August 31, 1999 2005, to the 12 
6.33 	months ending on August 31 of the year preceding the taxable year. The determination of 
6.34 	the commissioner pursuant to this subdivision shall not be considered a "rule" and shall 
6.35 	not be subject to the Administrative Procedure Act contained in chapter 14.
7.1 	No later than December 15 of each year, the commissioner shall announce the 
7.2 	specific percentage that will be used to adjust the tax rate brackets.

7.3 	EFFECTIVE DATE. This section is effective for taxable years beginning after 
7.4 	December 31, 2005.

7.5 	Sec. 7. Minnesota Statutes 2005 Supplement, section 290.0675, subdivision 1, is 
7.6 	amended to read:
7.7 		Subdivision 1.Definitions. (a) For purposes of this section the following terms 
7.8 	have the meanings given.
7.9 	(b) "Earned income" means the sum of the following, to the extent included in 
7.10 	Minnesota taxable income:
7.11 	(1) earned income as defined in section 32(c)(2) of the Internal Revenue Code;
7.12 	(2) income received from a retirement pension, profit-sharing, stock bonus, or 
7.13 	annuity plan; and
7.14 	(3) Social Security benefits as defined in section 86(d)(1) of the Internal Revenue 
7.15 	Code.
7.16 	(c) "Taxable income" means net income as defined in section 290.01, subdivision 19.
7.17 	(d) "Earned income of lesser-earning spouse" means the earned income of the 
7.18 	spouse with the lesser amount of earned income as defined in paragraph (b) for the taxable 
7.19 	year minus the sum of (i) the amount for one exemption under section 151(d) of the 
7.20 	Internal Revenue Code and (ii) one-half the amount of the standard deduction under 
7.21 	section 63(c)(2)(A) and (4) of the Internal Revenue Code minus one-half of any addition 
7.22 	required under section 290.01, subdivision 19a, clause (10), and one-half of the addition 
7.23 	which would have been required under section 290.01, subdivision 19a, clause (10), if the 
7.24 	taxpayer had claimed the standard deduction.

7.25 	EFFECTIVE DATE. This section is effective for taxable years beginning after 
7.26 	December 31, 2005.

7.27 	Sec. 8. Minnesota Statutes 2005 Supplement, section 290.091, subdivision 2, is 
7.28 	amended to read:
7.29 		Subd. 2.Definitions. For purposes of the tax imposed by this section, the following 
7.30 	terms have the meanings given:
7.31 	(a) "Alternative minimum taxable income" means the sum of the following for 
7.32 	the taxable year:
8.1 	(1) the taxpayer's federal alternative minimum taxable income as defined in section 
8.2 	55(b)(2) of the Internal Revenue Code;
8.3 	(2) the taxpayer's itemized deductions allowed in computing federal alternative 
8.4 	minimum taxable income, but excluding:
8.5 	(i) the charitable contribution deduction under section 170 of the Internal Revenue 
8.6 	Code:
8.7 	(A) for taxable years beginning before January 1, 2006, to the extent that the 
8.8 	deduction exceeds 1.0 percent of adjusted gross income;
8.9 	(B) for taxable years beginning after December 31, 2005, to the full extent of the 
8.10 	deduction.
8.11 	For purposes of this clause, "adjusted gross income" has the meaning given in 
8.12 	section 62 of the Internal Revenue Code;
8.13 	(ii) the medical expense deduction;
8.14 	(iii) the casualty, theft, and disaster loss deduction; and
8.15 	(iv) the impairment-related work expenses of a disabled person;
8.16 	(3) for depletion allowances computed under section 613A(c) of the Internal 
8.17 	Revenue Code, with respect to each property (as defined in section 614 of the Internal 
8.18 	Revenue Code), to the extent not included in federal alternative minimum taxable income, 
8.19 	the excess of the deduction for depletion allowable under section 611 of the Internal 
8.20 	Revenue Code for the taxable year over the adjusted basis of the property at the end of the 
8.21 	taxable year (determined without regard to the depletion deduction for the taxable year);
8.22 	(4) to the extent not included in federal alternative minimum taxable income, the 
8.23 	amount of the tax preference for intangible drilling cost under section 57(a)(2) of the 
8.24 	Internal Revenue Code determined without regard to subparagraph (E);
8.25 	(5) to the extent not included in federal alternative minimum taxable income, the 
8.26 	amount of interest income as provided by section 290.01, subdivision 19a, clause (1); and
8.27 	(6) the amount of addition required by section 290.01, subdivision 19a, clauses 
8.28 	(7), (8), and (9);
8.29 	less the sum of the amounts determined under the following:
8.30 	(1) interest income as defined in section 290.01, subdivision 19b, clause (1);
8.31 	(2) an overpayment of state income tax as provided by section 290.01, subdivision 
8.32 	19b, clause (2), to the extent included in federal alternative minimum taxable income;
8.33 	(3) the amount of investment interest paid or accrued within the taxable year on 
8.34 	indebtedness to the extent that the amount does not exceed net investment income, as 
8.35 	defined in section 163(d)(4) of the Internal Revenue Code. Interest does not include 
8.36 	amounts deducted in computing federal adjusted gross income; and
9.1 	(4) amounts subtracted from federal taxable income as provided by section 290.01, 
9.2 	subdivision 19b, clauses (9) to (16); and 
9.3 	(5) the amount of the exemption allowed the taxpayer under section 151(c) of the 
9.4 	Internal Revenue Code.
9.5 	In the case of an estate or trust, alternative minimum taxable income must be 
9.6 	computed as provided in section 59(c) of the Internal Revenue Code.
9.7 	(b) "Investment interest" means investment interest as defined in section 163(d)(3) 
9.8 	of the Internal Revenue Code.
9.9 	(c) "Tentative minimum tax" equals 6.4 percent of alternative minimum taxable 
9.10 	income after subtracting the exemption amount determined under subdivision 3.
9.11 	(d) "Regular tax" means the tax that would be imposed under this chapter (without 
9.12 	regard to this section and section 290.032), reduced by the sum of the nonrefundable 
9.13 	credits allowed under this chapter.
9.14 	(e) "Net minimum tax" means the minimum tax imposed by this section.

9.15 	EFFECTIVE DATE. This section is effective for taxable years beginning after 
9.16 	December 31, 2005.

9.17 	Sec. 9. Minnesota Statutes 2004, section 290.091, subdivision 3, is amended to read:
9.18 		Subd. 3.Exemption amount. (a) For purposes of computing the alternative 
9.19 	minimum tax, the exemption amount is the exemption determined under section 55(d) 
9.20 	of the Internal Revenue Code, as amended through December 31, 1992, except that 
9.21 	alternative minimum taxable income as determined under this section must be substituted 
9.22 	in the computation of the phase out under section 55(d)(3) $67,250 for married individuals 
9.23 	filing joint returns; $33,625 for married individuals filing separate returns; and $50,435 for 
9.24 	single individuals or head of household filers.
9.25 	(b) The exemption amount determined under this subdivision is reduced by an 
9.26 	amount equal to 25 percent of the amount by which the alternative minimum income 
9.27 	exceeds $252,160 for married individuals filing joint returns; $126,080 for married 
9.28 	individuals filing separate returns; and $189,120 for single individuals and head of 
9.29 	household filers.
9.30 	(c) For taxable years beginning after December 31, 2006, the exemption amounts in 
9.31 	paragraph (a) and the income amounts in paragraph (b), must be adjusted for inflation. 
9.32 	The commissioner shall make the inflation adjustments in accordance with section 1(f) of 
9.33 	the Internal Revenue Code, except that for the purposes of this subdivision, the percentage 
9.34 	increase must be determined from the year starting September 1, 2005, and ending August 
9.35 	31, 2006, as the base year for adjusting for inflation for the tax year beginning after 
10.1 	December 31, 2006. The determination of the commissioner under this subdivision is not 
10.2 	a rule under the Administrative Procedure Act.

10.3 	EFFECTIVE DATE. This section is effective for taxable years beginning after 
10.4 	December 31, 2005.

10.5 	Sec. 10. Minnesota Statutes 2004, section 290.17, subdivision 2, is amended to read:
10.6 		Subd. 2.Income not derived from conduct of a trade or business. The income of 
10.7 	a taxpayer subject to the allocation rules that is not derived from the conduct of a trade or 
10.8 	business must be assigned in accordance with paragraphs (a) to (f):
10.9 	(a)(1) Subject to paragraphs (a)(2), and (a)(3), and (a)(4), income from wages as 
10.10 	defined in section 3401(a) and (f) of the Internal Revenue Code is assigned to this state if, 
10.11 	and to the extent that, the work of the employee is performed within it; all other income 
10.12 	from such sources is treated as income from sources without this state.
10.13 	Severance pay shall be considered income from labor or personal or professional 
10.14 	services.
10.15 	(2) In the case of an individual who is a nonresident of Minnesota and who is an 
10.16 	athlete or entertainer, income from compensation for labor or personal services performed 
10.17 	within this state shall be determined in the following manner:
10.18 	(i) The amount of income to be assigned to Minnesota for an individual who is a 
10.19 	nonresident salaried athletic team employee shall be determined by using a fraction in 
10.20 	which the denominator contains the total number of days in which the individual is under 
10.21 	a duty to perform for the employer, and the numerator is the total number of those days 
10.22 	spent in Minnesota. For purposes of this paragraph, off-season training activities, unless 
10.23 	conducted at the team's facilities as part of a team imposed program, are not included in 
10.24 	the total number of duty days. Bonuses earned as a result of play during the regular season 
10.25 	or for participation in championship, play-off, or all-star games must be allocated under 
10.26 	the formula. Signing bonuses are not subject to allocation under the formula if they are 
10.27 	not conditional on playing any games for the team, are payable separately from any other 
10.28 	compensation, and are nonrefundable; and
10.29 	(ii) The amount of income to be assigned to Minnesota for an individual who is a 
10.30 	nonresident, and who is an athlete or entertainer not listed in clause (i), for that person's 
10.31 	athletic or entertainment performance in Minnesota shall be determined by assigning to 
10.32 	this state all income from performances or athletic contests in this state.
10.33 	(3) For purposes of this section, amounts received by a nonresident as "retirement 
10.34 	income" as defined in section (b)(1) of the State Income Taxation of Pension Income 
10.35 	Act, Public Law 104-95, are not considered income derived from carrying on a trade 
11.1 	or business or from wages or other compensation for work an employee performed in 
11.2 	Minnesota, and are not taxable under this chapter.
11.3 	(4) Wages, otherwise assigned to this state under clause (1) and not qualifying under 
11.4 	clause (3), are not taxable under this chapter if the following conditions are met:
11.5 	(i) the recipient was not a resident of this state for any part of the taxable year in 
11.6 	which the wages were received; and
11.7 	(ii) the wages are for work performed while the recipient was a resident of this state.
11.8 	(b) Income or gains from tangible property located in this state that is not employed 
11.9 	in the business of the recipient of the income or gains must be assigned to this state.
11.10 	(c) Income or gains from intangible personal property not employed in the business 
11.11 	of the recipient of the income or gains must be assigned to this state if the recipient of the 
11.12 	income or gains is a resident of this state or is a resident trust or estate.
11.13 	Gain on the sale of a partnership interest is allocable to this state in the ratio of the 
11.14 	original cost of partnership tangible property in this state to the original cost of partnership 
11.15 	tangible property everywhere, determined at the time of the sale. If more than 50 percent 
11.16 	of the value of the partnership's assets consists of intangibles, gain or loss from the sale 
11.17 	of the partnership interest is allocated to this state in accordance with the sales factor of 
11.18 	the partnership for its first full tax period immediately preceding the tax period of the 
11.19 	partnership during which the partnership interest was sold.
11.20 	Gain on the sale of goodwill or income from a covenant not to compete that is 
11.21 	connected with a business operating all or partially in Minnesota is allocated to this state 
11.22 	to the extent that the income from the business in the year preceding the year of sale was 
11.23 	assignable to Minnesota under subdivision 3.
11.24 	When an employer pays an employee for a covenant not to compete, the income 
11.25 	allocated to this state is in the ratio of the employee's service in Minnesota in the calendar 
11.26 	year preceding leaving the employment of the employer over the total services performed 
11.27 	by the employee for the employer in that year.
11.28 	(d) Income from winnings on a bet made by an individual while in Minnesota is 
11.29 	assigned to this state. In this paragraph, "bet" has the meaning given in section  609.75, 
11.30 	subdivision 2, as limited by section  609.75, subdivision 3, clauses (1), (2), and (3). 
11.31 	(e) All items of gross income not covered in paragraphs (a) to (d) and not part of the 
11.32 	taxpayer's income from a trade or business shall be assigned to the taxpayer's domicile.
11.33 	(f) For the purposes of this section, working as an employee shall not be considered 
11.34 	to be conducting a trade or business.

11.35 	EFFECTIVE DATE. This section is effective for taxable years beginning after 
11.36 	December 31, 2005.

12.1 	Sec. 11. Minnesota Statutes 2005 Supplement, section 290A.03, subdivision 15, 
12.2 	is amended to read:
12.3 		Subd. 15.Internal Revenue Code. "Internal Revenue Code" means the Internal 
12.4 	Revenue Code of 1986, as amended through April 15 December 31, 2005.

12.5 	EFFECTIVE DATE. This section is effective for property taxes payable on or after 
12.6 	December 31, 2005, and rent paid on or after December 31, 2004.

12.7 	Sec. 12. NET INCOME; FEDERAL CONFORMITY.
 12.8 	For taxable years beginning after December 31, 2004, and before December 31, 
12.9 	2006, the definition of "net income" in Minnesota Statutes, section 290.01, subdivision 19, 
12.10 	must be interpreted by the Department of Revenue to conform to the position taken by 
12.11 	the Internal Revenue Service in Revenue Notice 2005-68.

12.12 	Sec. 13. MARRIED JOINT FILERS; TAXABLE YEAR 2005.
 12.13 	For taxable years beginning after December 31, 2004, and before January 1, 2006, 
12.14 	the liability for tax under Minnesota Statutes, chapter 290, must be determined as if the 
12.15 	addition to federal taxable income under Minnesota Statutes 2005 Supplement, section 
12.16 	290.01, subdivision 19a, clause (10), did not apply.

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

12.18 	Sec. 14. REFUNDS.
 12.19 	The commissioner of revenue must review individual income tax returns that may be 
12.20 	subject to section 13 and adjust the tax liability accordingly. If the tax paid for the taxable 
12.21 	year beginning after December 31, 2004, and before January 1, 2006, by any taxpayer 
12.22 	under Minnesota Statutes, chapter 290, as amended through December 31, 2005, to the 
12.23 	commissioner of revenue is greater than the tax liability determined under section 13, 
12.24 	the commissioner must pay the taxpayer a refund of the difference. If the tax paid for 
12.25 	that taxable year by any taxpayer under Minnesota Statutes, chapter 290, as amended 
12.26 	through December 31, 2005, is less than the tax liability determined under section 13, no 
12.27 	additional payment is required of the taxpayer. The refunds issued under this section are 
12.28 	not subject to accrual of interest.

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

12.30 	Sec. 15. APPROPRIATION.
 13.1 	The amount necessary to issue refunds under section 14 and the administrative costs 
13.2 	associated with the issuance of refunds is appropriated from the Tax Relief Account under 
13.3 	Minnesota Statutes, section 16A.1522, subdivision 4, to the commissioner of revenue. 
13.4 	Notwithstanding Minnesota Statutes, section 16A.285, the commissioner of revenue may 
13.5 	not use this appropriation for any purpose other than administering the refunds under 
13.6 	section 13. This is a onetime appropriation and may not be added to the agency's budget 
13.7 	base.

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