1.1 	A bill for an act
1.2 	relating to taxation; providing a federal update; modifying computation of net 
1.3 	income and payment of corporate franchise tax refunds;amending Minnesota 
1.4 	Statutes 2008, sections 289A.02, subdivision 7; 290.01, subdivisions 19, 19a, 
1.5 	19c, 19d, 31, by adding a subdivision; 290.067, subdivision 2a; 290A.03, 
1.6 	subdivisions 3, 15; 291.005, subdivision 1.
1.7 	BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:

1.8 	Section 1. Minnesota Statutes 2008, section 289A.02, subdivision 7, is amended to 
1.9 	read:
1.10 		Subd. 7.Internal Revenue Code. Unless specifically defined otherwise, "Internal 
1.11 	Revenue Code" means the Internal Revenue Code of 1986, as amended through February 
1.12 	13, 2008 December 31, 2008.

1.13 	EFFECTIVE DATE. This section is effective the day following final enactment, 
1.14 	except the changes incorporated by federal changes are effective at the same time as the 
1.15 	changes were effective for federal purposes.

1.16 	Sec. 2. Minnesota Statutes 2008, section 290.01, subdivision 19, is amended to read:
1.17 		Subd. 19. Net income. The term "net income" means the federal taxable income, 
1.18 	as defined in section 63 of the Internal Revenue Code of 1986, as amended through the 
1.19 	date named in this subdivision, incorporating the federal effective dates of changes to the 
1.20 	Internal Revenue Code and any elections made by the taxpayer in accordance with the 
1.21 	Internal Revenue Code in determining federal taxable income for federal income tax 
1.22 	purposes, and with the modifications provided in subdivisions 19a to 19f. 
1.23 	In the case of a regulated investment company or a fund thereof, as defined in section 
1.24 	851(a) or 851(g) of the Internal Revenue Code, federal taxable income means investment 
2.1 	company taxable income as defined in section 852(b)(2) of the Internal Revenue Code, 
2.2 	except that: 
2.3 	(1) the exclusion of net capital gain provided in section 852(b)(2)(A) of the Internal 
2.4 	Revenue Code does not apply; 
2.5 	(2) the deduction for dividends paid under section 852(b)(2)(D) of the Internal 
2.6 	Revenue Code must be applied by allowing a deduction for capital gain dividends and 
2.7 	exempt-interest dividends as defined in sections 852(b)(3)(C) and 852(b)(5) of the Internal 
2.8 	Revenue Code; and 
2.9 	(3) the deduction for dividends paid must also be applied in the amount of any 
2.10 	undistributed capital gains which the regulated investment company elects to have treated 
2.11 	as provided in section 852(b)(3)(D) of the Internal Revenue Code. 
2.12 	The net income of a real estate investment trust as defined and limited by section 
2.13 	856(a), (b), and (c) of the Internal Revenue Code means the real estate investment trust 
2.14 	taxable income as defined in section 857(b)(2) of the Internal Revenue Code. 
2.15 	The net income of a designated settlement fund as defined in section 468B(d) of 
2.16 	the Internal Revenue Code means the gross income as defined in section 468B(b) of the 
2.17 	Internal Revenue Code. 
2.18 	The Internal Revenue Code of 1986, as amended through February 13, 2008
2.19 	December 31, 2008, shall be in effect for taxable years beginning after December 31, 1996. 
2.20 	Except as otherwise provided, references to the Internal Revenue Code in 
2.21 	subdivisions 19 to 19f mean the code in effect for purposes of determining net income for 
2.22 	the applicable year. 

2.23 	EFFECTIVE DATE. This section is effective for taxable years beginning after 
2.24 	December 31, 2007.

2.25 	Sec. 3. Minnesota Statutes 2008, section 290.01, subdivision 19a, is amended to read:
2.26 		Subd. 19a. Additions to federal taxable income. For individuals, estates, and 
2.27 	trusts, there shall be added to federal taxable income: 
2.28 	(1)(i) interest income on obligations of any state other than Minnesota or a political 
2.29 	or governmental subdivision, municipality, or governmental agency or instrumentality 
2.30 	of any state other than Minnesota exempt from federal income taxes under the Internal 
2.31 	Revenue Code or any other federal statute; and 
2.32 	(ii) exempt-interest dividends as defined in section 852(b)(5) of the Internal Revenue 
2.33 	Code, except the portion of the exempt-interest dividends derived from interest income 
2.34 	on obligations of the state of Minnesota or its political or governmental subdivisions, 
2.35 	municipalities, governmental agencies or instrumentalities, but only if the portion of the 
3.1 	exempt-interest dividends from such Minnesota sources paid to all shareholders represents 
3.2 	95 percent or more of the exempt-interest dividends that are paid by the regulated 
3.3 	investment company as defined in section 851(a) of the Internal Revenue Code, or the 
3.4 	fund of the regulated investment company as defined in section 851(g) of the Internal 
3.5 	Revenue Code, making the payment; and 
3.6 	(iii) for the purposes of items (i) and (ii), interest on obligations of an Indian tribal 
3.7 	government described in section 7871(c) of the Internal Revenue Code shall be treated as 
3.8 	interest income on obligations of the state in which the tribe is located; 
3.9 	(2) the amount of income or sales and use taxes paid or accrued within the taxable 
3.10 	year under this chapter and the amount of taxes based on net income paid or sales and 
3.11 	use taxes paid to any other state or to any province or territory of Canada, to the extent 
3.12 	allowed as a deduction under section 63(d) of the Internal Revenue Code, but the addition 
3.13 	may not be more than the amount by which the itemized deductions as allowed under 
3.14 	section 63(d) of the Internal Revenue Code exceeds the amount of the standard deduction 
3.15 	as defined in section 63(c) of the Internal Revenue Code, disregarding the amount allowed 
3.16 	under section 63(c)(1)(C) of the Internal Revenue Code. For the purpose of this paragraph, 
3.17 	the disallowance of itemized deductions under section 68 of the Internal Revenue Code of 
3.18 	1986, income or sales and use tax is the last itemized deduction disallowed; 
3.19 	(3) the capital gain amount of a lump-sum distribution to which the special tax under 
3.20 	section 1122(h)(3)(B)(ii) of the Tax Reform Act of 1986, Public Law 99-514, applies; 
3.21 	(4) the amount of income taxes paid or accrued within the taxable year under this 
3.22 	chapter and taxes based on net income paid to any other state or any province or territory 
3.23 	of Canada, to the extent allowed as a deduction in determining federal adjusted gross 
3.24 	income. For the purpose of this paragraph, income taxes do not include the taxes imposed 
3.25 	by sections 290.0922, subdivision 1, paragraph (b), 290.9727, 290.9728, and 290.9729; 
3.26 	(5) the amount of expense, interest, or taxes disallowed pursuant to section 290.10 
3.27 	other than expenses or interest used in computing net interest income for the subtraction 
3.28 	allowed under subdivision 19b, clause (1); 
3.29 	(6) the amount of a partner's pro rata share of net income which does not flow 
3.30 	through to the partner because the partnership elected to pay the tax on the income under 
3.31 	section 6242(a)(2) of the Internal Revenue Code; 
3.32 	(7) 80 percent of the depreciation deduction allowed under section 168(k) of the 
3.33 	Internal Revenue Code. For purposes of this clause, if the taxpayer has an activity that 
3.34 	in the taxable year generates a deduction for depreciation under section 168(k) and the 
3.35 	activity generates a loss for the taxable year that the taxpayer is not allowed to claim for 
3.36 	the taxable year, "the depreciation allowed under section 168(k)" for the taxable year is 
4.1 	limited to excess of the depreciation claimed by the activity under section 168(k) over the 
4.2 	amount of the loss from the activity that is not allowed in the taxable year. In succeeding 
4.3 	taxable years when the losses not allowed in the taxable year are allowed, the depreciation 
4.4 	under section 168(k) is allowed; 
4.5 	(8) 80 percent of the amount by which the deduction allowed by section 179 of the 
4.6 	Internal Revenue Code exceeds the deduction allowable by section 179 of the Internal 
4.7 	Revenue Code of 1986, as amended through December 31, 2003; 
4.8 	(9) to the extent deducted in computing federal taxable income, the amount of the 
4.9 	deduction allowable under section 199 of the Internal Revenue Code; 
4.10 	(10) the exclusion allowed under section 139A of the Internal Revenue Code for 
4.11 	federal subsidies for prescription drug plans; 
4.12 	(11) the amount of expenses disallowed under section 290.10, subdivision 2;
4.13 	(12) for taxable years beginning after December 31, 2006, and before January 1, 
4.14 	2008, the amount deducted for qualified tuition and related expenses under section 222 of 
4.15 	the Internal Revenue Code, to the extent deducted from gross income; and
4.16 	(13) for taxable years beginning after December 31, 2006, and before January 1, 
4.17 	2008, the amount deducted for certain expenses of elementary and secondary school 
4.18 	teachers under section 62(a)(2)(D) of the Internal Revenue Code, to the extent deducted 
4.19 	from gross income.; and
4.20 	(14) the additional standard deduction for property taxes payable that is allowable 
4.21 	under section 63(c)(1)(C) of the Internal Revenue Code.

4.22 	EFFECTIVE DATE. This section is effective for taxable years beginning after 
4.23 	December 31, 2007.

4.24 	Sec. 4. Minnesota Statutes 2008, section 290.01, subdivision 19c, is amended to read:
4.25 		Subd. 19c. Corporations; additions to federal taxable income. For corporations, 
4.26 	there shall be added to federal taxable income: 
4.27 	(1) the amount of any deduction taken for federal income tax purposes for income, 
4.28 	excise, or franchise taxes based on net income or related minimum taxes, including but not 
4.29 	limited to the tax imposed under section 290.0922, paid by the corporation to Minnesota, 
4.30 	another state, a political subdivision of another state, the District of Columbia, or any 
4.31 	foreign country or possession of the United States; 
4.32 	(2) interest not subject to federal tax upon obligations of: the United States, its 
4.33 	possessions, its agencies, or its instrumentalities; the state of Minnesota or any other 
4.34 	state, any of its political or governmental subdivisions, any of its municipalities, or any 
5.1 	of its governmental agencies or instrumentalities; the District of Columbia; or Indian 
5.2 	tribal governments; 
5.3 	(3) exempt-interest dividends received as defined in section 852(b)(5) of the Internal 
5.4 	Revenue Code; 
5.5 	(4) the amount of any net operating loss deduction taken for federal income tax 
5.6 	purposes under section 172 or 832(c)(10) of the Internal Revenue Code or operations loss 
5.7 	deduction under section 810 of the Internal Revenue Code; 
5.8 	(5) the amount of any special deductions taken for federal income tax purposes 
5.9 	under sections 241 to 247 and 965 of the Internal Revenue Code; 
5.10 	(6) losses from the business of mining, as defined in section 290.05, subdivision 1, 
5.11 	clause (a), that are not subject to Minnesota income tax; 
5.12 	(7) the amount of any capital losses deducted for federal income tax purposes under 
5.13 	sections 1211 and 1212 of the Internal Revenue Code; 
5.14 	(8) the exempt foreign trade income of a foreign sales corporation under sections 
5.15 	921(a) and 291 of the Internal Revenue Code; 
5.16 	(9) the amount of percentage depletion deducted under sections 611 through 614 and 
5.17 	291 of the Internal Revenue Code; 
5.18 	(10) for certified pollution control facilities placed in service in a taxable year 
5.19 	beginning before December 31, 1986, and for which amortization deductions were elected 
5.20 	under section 169 of the Internal Revenue Code of 1954, as amended through December 
5.21 	31, 1985, the amount of the amortization deduction allowed in computing federal taxable 
5.22 	income for those facilities; 
5.23 	(11) the amount of any deemed dividend from a foreign operating corporation 
5.24 	determined pursuant to section 290.17, subdivision 4, paragraph (g). The deemed dividend 
5.25 	shall be reduced by the amount of the addition to income required by clauses (20), (21), 
5.26 	(22), and (23); 
5.27 	(12) the amount of a partner's pro rata share of net income which does not flow 
5.28 	through to the partner because the partnership elected to pay the tax on the income under 
5.29 	section 6242(a)(2) of the Internal Revenue Code; 
5.30 	(13) the amount of net income excluded under section 114 of the Internal Revenue 
5.31 	Code; 
5.32 	(14) any increase in subpart F income, as defined in section 952(a) of the Internal 
5.33 	Revenue Code, for the taxable year when subpart F income is calculated without regard 
5.34 	to the provisions of section 103 of Public Law 109-222 Division C, title III, section 
5.35 	303(a)(1)-(2) of Public Law 110-343; 
6.1 	(15) 80 percent of the depreciation deduction allowed under section 168(k)(1)(A) 
6.2 	and (k)(4)(A) of the Internal Revenue Code. For purposes of this clause, if the taxpayer 
6.3 	has an activity that in the taxable year generates a deduction for depreciation under 
6.4 	section 168(k)(1)(A) and (k)(4)(A) and the activity generates a loss for the taxable year 
6.5 	that the taxpayer is not allowed to claim for the taxable year, "the depreciation allowed 
6.6 	under section 168(k)(1)(A) and (k)(4)(A)" for the taxable year is limited to excess of the 
6.7 	depreciation claimed by the activity under section 168(k)(1)(A) and (k)(4)(A) over the 
6.8 	amount of the loss from the activity that is not allowed in the taxable year. In succeeding 
6.9 	taxable years when the losses not allowed in the taxable year are allowed, the depreciation 
6.10 	under section 168(k)(1)(A) and (k)(4)(A) is allowed; 
6.11 	(16) 80 percent of the amount by which the deduction allowed by section 179 of the 
6.12 	Internal Revenue Code exceeds the deduction allowable by section 179 of the Internal 
6.13 	Revenue Code of 1986, as amended through December 31, 2003; 
6.14 	(17) to the extent deducted in computing federal taxable income, the amount of the 
6.15 	deduction allowable under section 199 of the Internal Revenue Code; 
6.16 	(18) the exclusion allowed under section 139A of the Internal Revenue Code for 
6.17 	federal subsidies for prescription drug plans; 
6.18 	(19) the amount of expenses disallowed under section 290.10, subdivision 2;
6.19 	(20) an amount equal to the interest and intangible expenses, losses, and costs paid, 
6.20 	accrued, or incurred by any member of the taxpayer's unitary group to or for the benefit 
6.21 	of a corporation that is a member of the taxpayer's unitary business group that qualifies 
6.22 	as a foreign operating corporation. For purposes of this clause, intangible expenses and 
6.23 	costs include:
6.24 	(i) expenses, losses, and costs for, or related to, the direct or indirect acquisition, 
6.25 	use, maintenance or management, ownership, sale, exchange, or any other disposition of 
6.26 	intangible property;
6.27 	(ii) losses incurred, directly or indirectly, from factoring transactions or discounting 
6.28 	transactions;
6.29 	(iii) royalty, patent, technical, and copyright fees;
6.30 	(iv) licensing fees; and
6.31 	(v) other similar expenses and costs. 
6.32 	For purposes of this clause, "intangible property" includes stocks, bonds, patents, patent 
6.33 	applications, trade names, trademarks, service marks, copyrights, mask works, trade 
6.34 	secrets, and similar types of intangible assets.
6.35 	This clause does not apply to any item of interest or intangible expenses or costs paid, 
6.36 	accrued, or incurred, directly or indirectly, to a foreign operating corporation with respect 
7.1 	to such item of income to the extent that the income to the foreign operating corporation 
7.2 	is income from sources without the United States as defined in subtitle A, chapter 1, 
7.3 	subchapter N, part 1, of the Internal Revenue Code;
7.4 	(21) except as already included in the taxpayer's taxable income pursuant to clause 
7.5 	(20), any interest income and income generated from intangible property received or 
7.6 	accrued by a foreign operating corporation that is a member of the taxpayer's unitary 
7.7 	group. For purposes of this clause, income generated from intangible property includes:
7.8 	(i) income related to the direct or indirect acquisition, use, maintenance or 
7.9 	management, ownership, sale, exchange, or any other disposition of intangible property;
7.10 	(ii) income from factoring transactions or discounting transactions;
7.11 	(iii) royalty, patent, technical, and copyright fees;
7.12 	(iv) licensing fees; and
7.13 	(v) other similar income.
7.14 	For purposes of this clause, "intangible property" includes stocks, bonds, patents, patent 
7.15 	applications, trade names, trademarks, service marks, copyrights, mask works, trade 
7.16 	secrets, and similar types of intangible assets. 
7.17 	This clause does not apply to any item of interest or intangible income received or accrued 
7.18 	by a foreign operating corporation with respect to such item of income to the extent that 
7.19 	the income is income from sources without the United States as defined in subtitle A, 
7.20 	chapter 1, subchapter N, part 1, of the Internal Revenue Code;
7.21 	(22) the dividends attributable to the income of a foreign operating corporation that 
7.22 	is a member of the taxpayer's unitary group in an amount that is equal to the dividends 
7.23 	paid deduction of a real estate investment trust under section 561(a) of the Internal 
7.24 	Revenue Code for amounts paid or accrued by the real estate investment trust to the 
7.25 	foreign operating corporation; 
7.26 	(23) the income of a foreign operating corporation that is a member of the taxpayer's 
7.27 	unitary group in an amount that is equal to gains derived from the sale of real or personal 
7.28 	property located in the United States; and
7.29 	(24) for taxable years beginning after December 31, 2006, and before January 1, 
7.30 	2008, the additional amount allowed as a deduction for donation of computer technology 
7.31 	and equipment under section 170(e)(6) of the Internal Revenue Code, to the extent 
7.32 	deducted from taxable income. 

7.33 	EFFECTIVE DATE. This section is effective for taxable years beginning after 
7.34 	December 31, 2007.

8.1 	Sec. 5. Minnesota Statutes 2008, section 290.01, subdivision 19d, is amended to read:
8.2 		Subd. 19d. Corporations; modifications decreasing federal taxable income. For 
8.3 	corporations, there shall be subtracted from federal taxable income after the increases 
8.4 	provided in subdivision 19c: 
8.5 	(1) the amount of foreign dividend gross-up added to gross income for federal 
8.6 	income tax purposes under section 78 of the Internal Revenue Code; 
8.7 	(2) the amount of salary expense not allowed for federal income tax purposes due to 
8.8 	claiming the work opportunity credit under section 51 of the Internal Revenue Code; 
8.9 	(3) any dividend (not including any distribution in liquidation) paid within the 
8.10 	taxable year by a national or state bank to the United States, or to any instrumentality of 
8.11 	the United States exempt from federal income taxes, on the preferred stock of the bank 
8.12 	owned by the United States or the instrumentality; 
8.13 	(4) amounts disallowed for intangible drilling costs due to differences between 
8.14 	this chapter and the Internal Revenue Code in taxable years beginning before January 
8.15 	1, 1987, as follows: 
8.16 	(i) to the extent the disallowed costs are represented by physical property, an amount 
8.17 	equal to the allowance for depreciation under Minnesota Statutes 1986, section 290.09, 
8.18 	subdivision 7, subject to the modifications contained in subdivision 19e; and 
8.19 	(ii) to the extent the disallowed costs are not represented by physical property, an 
8.20 	amount equal to the allowance for cost depletion under Minnesota Statutes 1986, section 
8.21 	290.09, subdivision 8; 
8.22 	(5) the deduction for capital losses pursuant to sections 1211 and 1212 of the 
8.23 	Internal Revenue Code, except that: 
8.24 	(i) for capital losses incurred in taxable years beginning after December 31, 1986, 
8.25 	capital loss carrybacks shall not be allowed; 
8.26 	(ii) for capital losses incurred in taxable years beginning after December 31, 1986, 
8.27 	a capital loss carryover to each of the 15 taxable years succeeding the loss year shall be 
8.28 	allowed; 
8.29 	(iii) for capital losses incurred in taxable years beginning before January 1, 1987, a 
8.30 	capital loss carryback to each of the three taxable years preceding the loss year, subject to 
8.31 	the provisions of Minnesota Statutes 1986, section 290.16, shall be allowed; and 
8.32 	(iv) for capital losses incurred in taxable years beginning before January 1, 1987, 
8.33 	a capital loss carryover to each of the five taxable years succeeding the loss year to the 
8.34 	extent such loss was not used in a prior taxable year and subject to the provisions of 
8.35 	Minnesota Statutes 1986, section 290.16, shall be allowed; 
9.1 	(6) an amount for interest and expenses relating to income not taxable for federal 
9.2 	income tax purposes, if (i) the income is taxable under this chapter and (ii) the interest and 
9.3 	expenses were disallowed as deductions under the provisions of section 171(a)(2), 265 or 
9.4 	291 of the Internal Revenue Code in computing federal taxable income; 
9.5 	(7) in the case of mines, oil and gas wells, other natural deposits, and timber for 
9.6 	which percentage depletion was disallowed pursuant to subdivision 19c, clause (9), a 
9.7 	reasonable allowance for depletion based on actual cost. In the case of leases the deduction 
9.8 	must be apportioned between the lessor and lessee in accordance with rules prescribed 
9.9 	by the commissioner. In the case of property held in trust, the allowable deduction must 
9.10 	be apportioned between the income beneficiaries and the trustee in accordance with the 
9.11 	pertinent provisions of the trust, or if there is no provision in the instrument, on the basis 
9.12 	of the trust's income allocable to each; 
9.13 	(8) for certified pollution control facilities placed in service in a taxable year 
9.14 	beginning before December 31, 1986, and for which amortization deductions were elected 
9.15 	under section 169 of the Internal Revenue Code of 1954, as amended through December 
9.16 	31, 1985, an amount equal to the allowance for depreciation under Minnesota Statutes 
9.17 	1986, section 290.09, subdivision 7; 
9.18 	(9) amounts included in federal taxable income that are due to refunds of income, 
9.19 	excise, or franchise taxes based on net income or related minimum taxes paid by the 
9.20 	corporation to Minnesota, another state, a political subdivision of another state, the 
9.21 	District of Columbia, or a foreign country or possession of the United States to the extent 
9.22 	that the taxes were added to federal taxable income under section 290.01, subdivision 19c, 
9.23 	clause (1), in a prior taxable year; 
9.24 	(10) 80 percent of royalties, fees, or other like income accrued or received from a 
9.25 	foreign operating corporation or a foreign corporation which is part of the same unitary 
9.26 	business as the receiving corporation, unless the income resulting from such payments or 
9.27 	accruals is income from sources within the United States as defined in subtitle A, chapter 
9.28 	1, subchapter N, part 1, of the Internal Revenue Code; 
9.29 	(11) income or gains from the business of mining as defined in section 290.05, 
9.30 	subdivision 1, clause (a), that are not subject to Minnesota franchise tax; 
9.31 	(12) the amount of disability access expenditures in the taxable year which are not 
9.32 	allowed to be deducted or capitalized under section 44(d)(7) of the Internal Revenue Code; 
9.33 	(13) the amount of qualified research expenses not allowed for federal income tax 
9.34 	purposes under section 280C(c) of the Internal Revenue Code, but only to the extent that 
9.35 	the amount exceeds the amount of the credit allowed under section 290.068; 
10.1 	(14) the amount of salary expenses not allowed for federal income tax purposes due 
10.2 	to claiming the Indian employment credit under section 45A(a) of the Internal Revenue 
10.3 	Code; 
10.4 	(15) for taxable years beginning before January 1, 2008, the amount of the federal 
10.5 	small ethanol producer credit allowed under section 40(a)(3) of the Internal Revenue Code 
10.6 	which is included in gross income under section 87 of the Internal Revenue Code; 
10.7 	(16) for a corporation whose foreign sales corporation, as defined in section 922 
10.8 	of the Internal Revenue Code, constituted a foreign operating corporation during any 
10.9 	taxable year ending before January 1, 1995, and a return was filed by August 15, 1996, 
10.10 	claiming the deduction under section 290.21, subdivision 4, for income received from 
10.11 	the foreign operating corporation, an amount equal to 1.23 multiplied by the amount of 
10.12 	income excluded under section 114 of the Internal Revenue Code, provided the income is 
10.13 	not income of a foreign operating company; 
10.14 	(17) any decrease in subpart F income, as defined in section 952(a) of the Internal 
10.15 	Revenue Code, for the taxable year when subpart F income is calculated without regard 
10.16 	to the provisions of section 103 of Public Law 109-222 Division C, title III, section 
10.17 	303(a)(1)-(2) of Public Law 110-343; 
10.18 	(18) in each of the five tax years immediately following the tax year in which an 
10.19 	addition is required under subdivision 19c, clause (15), an amount equal to one-fifth of 
10.20 	the delayed depreciation. For purposes of this clause, "delayed depreciation" means the 
10.21 	amount of the addition made by the taxpayer under subdivision 19c, clause (15). The 
10.22 	resulting delayed depreciation cannot be less than zero; and 
10.23 	(19) in each of the five tax years immediately following the tax year in which an 
10.24 	addition is required under subdivision 19c, clause (16), an amount equal to one-fifth of the 
10.25 	amount of the addition. 

10.26 	EFFECTIVE DATE. This section is effective for taxable years beginning after 
10.27 	December 31, 2007.

10.28 	Sec. 6. Minnesota Statutes 2008, section 290.01, is amended by adding a subdivision 
10.29 	to read:
10.30 		Subd. 19h.Certain preferred stock losses. A taxpayer must compute net income 
10.31 	by treating losses from the sale or transfer of certain preferred stock, which the taxpayer 
10.32 	treated as ordinary losses pursuant to Division A, title III, section 301 of Public Law 
10.33 	110-343, as capital losses. The amount of net income under subdivision 19, taxable net 
10.34 	income under subdivision 22, taxable income under subdivision 29, the numerator and 
10.35 	denominator in section 290.06, subdivision 2c, paragraph (e), individual alternative 
11.1 	minimum taxable income under section 290.091, subdivision 2, corporate alternative 
11.2 	minimum taxable income under section 290.0921, subdivision 3, and net operating losses 
11.3 	under section 290.095 must be computed for each taxable year as if those losses had been 
11.4 	treated by the taxpayer as capital losses under the Internal Revenue Code, including the 
11.5 	limitations under section 1211 of the Internal Revenue Code.

11.6 	EFFECTIVE DATE. This section is effective at the same time as Division A, title 
11.7 	III, section 301 of Public Law 110-343, is effective and applies to losses incurred after 
11.8 	December 31, 2007.

11.9 	Sec. 7. Minnesota Statutes 2008, section 290.01, subdivision 31, is amended to read:
11.10 		Subd. 31.Internal Revenue Code. Unless specifically defined otherwise, "Internal 
11.11 	Revenue Code" means the Internal Revenue Code of 1986, as amended through February 
11.12 	13, 2008 December 31, 2008. Internal Revenue Code also includes any uncodified 
11.13 	provision in federal law that relates to provisions of the Internal Revenue Code that are 
11.14 	incorporated into Minnesota law.

11.15 	EFFECTIVE DATE. This section is effective the day following final enactment, 
11.16 	except the changes incorporated by federal changes are effective at the same time as the 
11.17 	changes were effective for federal purposes.

11.18 	Sec. 8. Minnesota Statutes 2008, section 290.067, subdivision 2a, is amended to read:
11.19 		Subd. 2a.Income. (a) For purposes of this section, "income" means the sum of 
11.20 	the following:
11.21 	(1) federal adjusted gross income as defined in section 62 of the Internal Revenue 
11.22 	Code; and
11.23 	(2) the sum of the following amounts to the extent not included in clause (1):
11.24 	(i) all nontaxable income;
11.25 	(ii) the amount of a passive activity loss that is not disallowed as a result of section 
11.26 	469, paragraph (i) or (m) of the Internal Revenue Code and the amount of passive activity 
11.27 	loss carryover allowed under section 469(b) of the Internal Revenue Code;
11.28 	(iii) an amount equal to the total of any discharge of qualified farm indebtedness 
11.29 	of a solvent individual excluded from gross income under section 108(g) of the Internal 
11.30 	Revenue Code;
11.31 	(iv) cash public assistance and relief;
11.32 	(v) any pension or annuity (including railroad retirement benefits, all payments 
11.33 	received under the federal Social Security Act, supplemental security income, and veterans 
12.1 	benefits), which was not exclusively funded by the claimant or spouse, or which was 
12.2 	funded exclusively by the claimant or spouse and which funding payments were excluded 
12.3 	from federal adjusted gross income in the years when the payments were made;
12.4 	(vi) interest received from the federal or a state government or any instrumentality 
12.5 	or political subdivision thereof;
12.6 	(vii) workers' compensation;
12.7 	(viii) nontaxable strike benefits;
12.8 	(ix) the gross amounts of payments received in the nature of disability income or 
12.9 	sick pay as a result of accident, sickness, or other disability, whether funded through 
12.10 	insurance or otherwise;
12.11 	(x) a lump-sum distribution under section 402(e)(3) of the Internal Revenue Code of 
12.12 	1986, as amended through December 31, 1995;
12.13 	(xi) contributions made by the claimant to an individual retirement account, 
12.14 	including a qualified voluntary employee contribution; simplified employee pension plan; 
12.15 	self-employed retirement plan; cash or deferred arrangement plan under section 401(k) 
12.16 	of the Internal Revenue Code; or deferred compensation plan under section 457 of the 
12.17 	Internal Revenue Code;
12.18 	(xii) nontaxable scholarship or fellowship grants;
12.19 	(xiii) the amount of deduction allowed under section 199 of the Internal Revenue 
12.20 	Code; and
12.21 	(xiv) the amount of deduction allowed under section 220 or 223 of the Internal 
12.22 	Revenue Code.; and
12.23 	(xv) the amount of tuition expenses required to be added to income under section 
12.24 	290.01, subdivision 19a, clause (13).
12.25 	In the case of an individual who files an income tax return on a fiscal year basis, the 
12.26 	term "federal adjusted gross income" means federal adjusted gross income reflected in the 
12.27 	fiscal year ending in the next calendar year. Federal adjusted gross income may not be 
12.28 	reduced by the amount of a net operating loss carryback or carryforward or a capital loss 
12.29 	carryback or carryforward allowed for the year.
12.30 	(b) "Income" does not include:
12.31 	(1) amounts excluded pursuant to the Internal Revenue Code, sections 101(a) and 
12.32 	102;
12.33 	(2) amounts of any pension or annuity that were exclusively funded by the claimant 
12.34 	or spouse if the funding payments were not excluded from federal adjusted gross income 
12.35 	in the years when the payments were made;
12.36 	(3) surplus food or other relief in kind supplied by a governmental agency;
13.1 	(4) relief granted under chapter 290A;
13.2 	(5) child support payments received under a temporary or final decree of dissolution 
13.3 	or legal separation; and
13.4 	(6) restitution payments received by eligible individuals and excludable interest as 
13.5 	defined in section 803 of the Economic Growth and Tax Relief Reconciliation Act of 
13.6 	2001, Public Law 107-16.

13.7 	EFFECTIVE DATE. This section is effective for taxable years beginning after 
13.8 	December 31, 2007.

13.9 	Sec. 9. Minnesota Statutes 2008, section 290A.03, subdivision 3, is amended to read:
13.10 		Subd. 3.Income. (1) "Income" means the sum of the following:
13.11 	(a) federal adjusted gross income as defined in the Internal Revenue Code; and
13.12 	(b) the sum of the following amounts to the extent not included in clause (a):
13.13 	(i) all nontaxable income;
13.14 	(ii) the amount of a passive activity loss that is not disallowed as a result of section 
13.15 	469, paragraph (i) or (m) of the Internal Revenue Code and the amount of passive activity 
13.16 	loss carryover allowed under section 469(b) of the Internal Revenue Code;
13.17 	(iii) an amount equal to the total of any discharge of qualified farm indebtedness 
13.18 	of a solvent individual excluded from gross income under section 108(g) of the Internal 
13.19 	Revenue Code;
13.20 	(iv) cash public assistance and relief;
13.21 	(v) any pension or annuity (including railroad retirement benefits, all payments 
13.22 	received under the federal Social Security Act, Supplemental Security Income, and 
13.23 	veterans benefits), which was not exclusively funded by the claimant or spouse, or which 
13.24 	was funded exclusively by the claimant or spouse and which funding payments were 
13.25 	excluded from federal adjusted gross income in the years when the payments were made;
13.26 	(vi) interest received from the federal or a state government or any instrumentality 
13.27 	or political subdivision thereof;
13.28 	(vii) workers' compensation;
13.29 	(viii) nontaxable strike benefits;
13.30 	(ix) the gross amounts of payments received in the nature of disability income or 
13.31 	sick pay as a result of accident, sickness, or other disability, whether funded through 
13.32 	insurance or otherwise;
13.33 	(x) a lump-sum distribution under section 402(e)(3) of the Internal Revenue Code of 
13.34 	1986, as amended through December 31, 1995;
14.1 	(xi) contributions made by the claimant to an individual retirement account, 
14.2 	including a qualified voluntary employee contribution; simplified employee pension plan; 
14.3 	self-employed retirement plan; cash or deferred arrangement plan under section 401(k) 
14.4 	of the Internal Revenue Code; or deferred compensation plan under section 457 of the 
14.5 	Internal Revenue Code;
14.6 	(xii) nontaxable scholarship or fellowship grants;
14.7 	(xiii) the amount of deduction allowed under section 199 of the Internal Revenue 
14.8 	Code; and
14.9 	(xiv) the amount of deduction allowed under section 220 or 223 of the Internal 
14.10 	Revenue Code.; and
14.11 	(xv) the amount of tuition expenses required to be added to income under section 
14.12 	290.01, subdivision 19a, clause (13).
14.13 	In the case of an individual who files an income tax return on a fiscal year basis, the 
14.14 	term "federal adjusted gross income" shall mean federal adjusted gross income reflected 
14.15 	in the fiscal year ending in the calendar year. Federal adjusted gross income shall not be 
14.16 	reduced by the amount of a net operating loss carryback or carryforward or a capital loss 
14.17 	carryback or carryforward allowed for the year.
14.18 	(2) "Income" does not include:
14.19 	(a) amounts excluded pursuant to the Internal Revenue Code, sections 101(a) and 
14.20 	102;
14.21 	(b) amounts of any pension or annuity which was exclusively funded by the claimant 
14.22 	or spouse and which funding payments were not excluded from federal adjusted gross 
14.23 	income in the years when the payments were made;
14.24 	(c) surplus food or other relief in kind supplied by a governmental agency;
14.25 	(d) relief granted under this chapter;
14.26 	(e) child support payments received under a temporary or final decree of dissolution 
14.27 	or legal separation; or
14.28 	(f) restitution payments received by eligible individuals and excludable interest as 
14.29 	defined in section 803 of the Economic Growth and Tax Relief Reconciliation Act of 
14.30 	2001, Public Law 107-16.
14.31 	(3) The sum of the following amounts may be subtracted from income:
14.32 	(a) for the claimant's first dependent, the exemption amount multiplied by 1.4;
14.33 	(b) for the claimant's second dependent, the exemption amount multiplied by 1.3;
14.34 	(c) for the claimant's third dependent, the exemption amount multiplied by 1.2;
14.35 	(d) for the claimant's fourth dependent, the exemption amount multiplied by 1.1;
14.36 	(e) for the claimant's fifth dependent, the exemption amount; and
15.1 	(f) if the claimant or claimant's spouse was disabled or attained the age of 65 
15.2 	on or before December 31 of the year for which the taxes were levied or rent paid, the 
15.3 	exemption amount.
15.4 	For purposes of this subdivision, the "exemption amount" means the exemption 
15.5 	amount under section 151(d) of the Internal Revenue Code for the taxable year for which 
15.6 	the income is reported.

15.7 	EFFECTIVE DATE. This section is effective for property tax refunds based on 
15.8 	property taxes payable after December 31, 2008, and rent paid after December 31, 2007, 
15.9 	and thereafter.

15.10 	Sec. 10. Minnesota Statutes 2008, section 290A.03, subdivision 15, is amended to read:
15.11 		Subd. 15.Internal Revenue Code.  "Internal Revenue Code" means the Internal 
15.12 	Revenue Code of 1986, as amended through February 13, 2008 December 31, 2008.

15.13 	EFFECTIVE DATE. This section is effective for property tax refunds based on 
15.14 	property taxes payable after December 31, 2008, and rent paid after December 31, 2007, 
15.15 	and thereafter.

15.16 	Sec. 11. Minnesota Statutes 2008, section 291.005, subdivision 1, is amended to read:
15.17 		Subdivision 1.Scope. Unless the context otherwise clearly requires, the following 
15.18 	terms used in this chapter shall have the following meanings:
15.19 	(1) "Federal gross estate" means the gross estate of a decedent as valued and 
15.20 	otherwise determined for federal estate tax purposes by federal taxing authorities pursuant 
15.21 	to the provisions of the Internal Revenue Code.
15.22 	(2) "Minnesota gross estate" means the federal gross estate of a decedent after (a) 
15.23 	excluding therefrom any property included therein which has its situs outside Minnesota, 
15.24 	and (b) including therein any property omitted from the federal gross estate which is 
15.25 	includable therein, has its situs in Minnesota, and was not disclosed to federal taxing 
15.26 	authorities.
15.27 	(3) "Personal representative" means the executor, administrator or other person 
15.28 	appointed by the court to administer and dispose of the property of the decedent. If there 
15.29 	is no executor, administrator or other person appointed, qualified, and acting within this 
15.30 	state, then any person in actual or constructive possession of any property having a situs in 
15.31 	this state which is included in the federal gross estate of the decedent shall be deemed 
15.32 	to be a personal representative to the extent of the property and the Minnesota estate tax 
15.33 	due with respect to the property.
16.1 	(4) "Resident decedent" means an individual whose domicile at the time of death 
16.2 	was in Minnesota.
16.3 	(5) "Nonresident decedent" means an individual whose domicile at the time of 
16.4 	death was not in Minnesota.
16.5 	(6) "Situs of property" means, with respect to real property, the state or country in 
16.6 	which it is located; with respect to tangible personal property, the state or country in which 
16.7 	it was normally kept or located at the time of the decedent's death; and with respect to 
16.8 	intangible personal property, the state or country in which the decedent was domiciled 
16.9 	at death.
16.10 	(7) "Commissioner" means the commissioner of revenue or any person to whom the 
16.11 	commissioner has delegated functions under this chapter.
16.12 	(8) "Internal Revenue Code" means the United States Internal Revenue Code of 
16.13 	1986, as amended through February 13, 2008 December 31, 2008.
16.14 	(9) "Minnesota adjusted taxable estate" means federal adjusted taxable estate as 
16.15 	defined by section 2011(b)(3) of the Internal Revenue Code, increased by the amount of 
16.16 	deduction for state death taxes allowed under section 2058 of the Internal Revenue Code.

16.17 	EFFECTIVE DATE. This section is effective the day following final enactment, 
16.18 	except the changes incorporated by federal changes are effective at the same time as the 
16.19 	changes were effective for federal purposes.

16.20 	Sec. 12. WITHHOLDING ON DIFFERENTIAL PAY.
 16.21 	The commissioner must not assess tax, penalty, or interest against an employer for 
16.22 	failing to withhold tax from differential wages, as defined in section 3401(h)(2) of the 
16.23 	Internal Revenue Code, paid before January 1, 2010, to an employee who has been called 
16.24 	to active duty in the military services.

16.25 	EFFECTIVE DATE. This section is effective the day following final enactment 
16.26 	and applies to any failure to withhold that occurs after December 31, 2008, but before 
16.27 	January 1, 2010.

16.28 	Sec. 13. PAYMENT OF CORPORATE FRANCHISE TAX REFUNDS.
 16.29 	(a) In paying refunds during fiscal year 2009 of overpayments of corporate franchise 
16.30 	tax, the commissioner of revenue shall delay paying a sufficient number of these refunds 
16.31 	until fiscal year 2010 so that $15,795,000 less in refunds is paid in fiscal year 2009 than 
16.32 	otherwise would have been paid. Refunds delayed by the commissioner under this section 
16.33 	are deemed to be due on July 1, 2009, if the law otherwise would provide an earlier date.
17.1 	(b) In paying refunds during fiscal year 2011 of overpayments of corporate franchise 
17.2 	tax, the commissioner of revenue shall delay paying a sufficient number of these refunds 
17.3 	until fiscal year 2012 so that $7,100,000 less in refunds is paid in fiscal year 2011 than 
17.4 	otherwise would have been paid. Refunds delayed by the commissioner under this section 
17.5 	are deemed to be due on July 1, 2011, if the law otherwise would provide an earlier date.
17.6 	(c) In carrying out the requirement in paragraphs (a) and (b), the commissioner shall, 
17.7 	to the maximum extent possible, minimize delaying the payment of refunds that would 
17.8 	result in payment of additional interest by the state.

17.9 	EFFECTIVE DATE. This section is effective for fiscal years 2009 and 2011 only.