Minnesota Legislature
HF 2160
as introduced - 80th Legislature (1997 - 1998) Posted on 12/15/2009 12:00am
KEY: stricken = removed, old language.
underscored = added, new language.
1.1 A bill for an act 1.2 relating to property taxes; reducing the statewide 1.3 general education levy; extending the first tier 1.4 homestead bracket; reducing class rates for certain 1.5 properties; establishing a business activities tax; 1.6 amending Minnesota Statutes 1996, sections 124A.23, 1.7 subdivision 1; 273.13, subdivisions 22, 24, 25, and 1.8 31; 273.1398, subdivisions 1, 1a, 8, and by adding a 1.9 subdivision; 276A.06, subdivision 9; 290.06, 1.10 subdivision 1; 290A.04, subdivisions 2 and 6; 473F.08, 1.11 subdivision 8a; 477A.011, subdivision 37, and by 1.12 adding a subdivision; and 477A.013, subdivisions 8 and 1.13 9; proposing coding for new law in Minnesota Statutes, 1.14 chapter 290; repealing Minnesota Statutes 1996, 1.15 sections 124.2134; 273.13, subdivision 32; 290.0921; 1.16 and 290.0922. 1.17 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 1.18 ARTICLE 1 1.19 PROPERTY TAX REFORM 1.20 Section 1. Minnesota Statutes 1996, section 124A.23, 1.21 subdivision 1, is amended to read: 1.22 Subdivision 1. [GENERAL EDUCATION TAX RATE.] The 1.23 commissioner shall establish the general education tax rate by 1.24 July 1 of each year for levies payable in the following year. 1.25 The general education tax capacity rate shall be a rate, rounded 1.26 up to the nearest tenth of a percent, that, when applied to the 1.27 adjusted net tax capacity for all districts, raises the amount 1.28 specified in this subdivision. The general education tax rate 1.29 shall be the rate that raises$1,054,000,000 for fiscal year1.301996 and $1,359,000,000$1,259,000,000 for fiscal year19971999 1.31 and later fiscal years. The general education tax rate may not 2.1 be changed due to changes or corrections made to a district's 2.2 adjusted net tax capacity after the tax rate has been 2.3 established. 2.4 Sec. 2. Minnesota Statutes 1996, section 273.13, 2.5 subdivision 22, is amended to read: 2.6 Subd. 22. [CLASS 1.] (a) Except as provided in subdivision 2.7 23, real estate which is residential and used for homestead 2.8 purposes is class 1. The market value of class 1a property must 2.9 be determined based upon the value of the house, garage, and 2.10 land. 2.11 The first$72,000$115,000 of market value of class 1a 2.12 property has a net class rate of one percent of its market value 2.13 and a gross class rate of 2.17 percent of its market value.For2.14taxes payable in 1992, the market value of class 1a property2.15that exceeds $72,000 but does not exceed $115,000 has a class2.16rate of two percent of its market value; and the market value of2.17class 1a property that exceeds $115,000 has a class rate of 2.52.18percent of its market value. For taxes payable in 1993 and2.19thereafter,The market value of class 1a property that exceeds 2.20$72,000$115,000 has a class rate of two percent. 2.21 (b) Class 1b property includes homestead real estate or 2.22 homestead manufactured homes used for the purposes of a 2.23 homestead by 2.24 (1) any blind person, or the blind person and the blind 2.25 person's spouse; or 2.26 (2) any person, hereinafter referred to as "veteran," who: 2.27 (i) served in the active military or naval service of the 2.28 United States; and 2.29 (ii) is entitled to compensation under the laws and 2.30 regulations of the United States for permanent and total 2.31 service-connected disability due to the loss, or loss of use, by 2.32 reason of amputation, ankylosis, progressive muscular 2.33 dystrophies, or paralysis, of both lower extremities, such as to 2.34 preclude motion without the aid of braces, crutches, canes, or a 2.35 wheelchair; and 2.36 (iii) has acquired a special housing unit with special 3.1 fixtures or movable facilities made necessary by the nature of 3.2 the veteran's disability, or the surviving spouse of the 3.3 deceased veteran for as long as the surviving spouse retains the 3.4 special housing unit as a homestead; or 3.5 (3) any person who: 3.6 (i) is permanently and totally disabled and 3.7 (ii) receives 90 percent or more of total income from 3.8 (A) aid from any state as a result of that disability; or 3.9 (B) supplemental security income for the disabled; or 3.10 (C) workers' compensation based on a finding of total and 3.11 permanent disability; or 3.12 (D) social security disability, including the amount of a 3.13 disability insurance benefit which is converted to an old age 3.14 insurance benefit and any subsequent cost of living increases; 3.15 or 3.16 (E) aid under the federal Railroad Retirement Act of 1937, 3.17 United States Code Annotated, title 45, section 228b(a)5; or 3.18 (F) a pension from any local government retirement fund 3.19 located in the state of Minnesota as a result of that 3.20 disability; or 3.21 (G) pension, annuity, or other income paid as a result of 3.22 that disability from a private pension or disability plan, 3.23 including employer, employee, union, and insurance plans and 3.24 (iii) has household income as defined in section 290A.03, 3.25 subdivision 5, of $50,000 or less; or 3.26 (4) any person who is permanently and totally disabled and 3.27 whose household income as defined in section 290A.03, 3.28 subdivision 5, is 150 percent or less of the federal poverty 3.29 level. 3.30 Property is classified and assessed under clause (4) only 3.31 if the government agency or income-providing source certifies, 3.32 upon the request of the homestead occupant, that the homestead 3.33 occupant satisfies the disability requirements of this paragraph. 3.34 Property is classified and assessed pursuant to clause (1) 3.35 only if the commissioner of economic security certifies to the 3.36 assessor that the homestead occupant satisfies the requirements 4.1 of this paragraph. 4.2 Permanently and totally disabled for the purpose of this 4.3 subdivision means a condition which is permanent in nature and 4.4 totally incapacitates the person from working at an occupation 4.5 which brings the person an income. The first $32,000 market 4.6 value of class 1b property has a net class rate of .45 percent 4.7 of its market value and a gross class rate of .87 percent of its 4.8 market value. The remaining market value of class 1b property 4.9 has a gross or net class rate using the rates for class 1 or 4.10 class 2a property, whichever is appropriate, of similar market 4.11 value. 4.12 (c) Class 1c property is commercial use real property that 4.13 abuts a lakeshore line and is devoted to temporary and seasonal 4.14 residential occupancy for recreational purposes but not devoted 4.15 to commercial purposes for more than 250 days in the year 4.16 preceding the year of assessment, and that includes a portion 4.17 used as a homestead by the owner, which includes a dwelling 4.18 occupied as a homestead by a shareholder of a corporation that 4.19 owns the resort or a partner in a partnership that owns the 4.20 resort, even if the title to the homestead is held by the 4.21 corporation or partnership. For purposes of this clause, 4.22 property is devoted to a commercial purpose on a specific day if 4.23 any portion of the property, excluding the portion used 4.24 exclusively as a homestead, is used for residential occupancy 4.25 and a fee is charged for residential occupancy. Class 1c 4.26 property has a class rate of one percent of total market value 4.27 for taxes payable in 1993 and thereafter with the following 4.28 limitation: the area of the property must not exceed 100 feet 4.29 of lakeshore footage for each cabin or campsite located on the 4.30 property up to a total of 800 feet and 500 feet in depth, 4.31 measured away from the lakeshore. 4.32 Sec. 3. Minnesota Statutes 1996, section 273.13, 4.33 subdivision 24, is amended to read: 4.34 Subd. 24. [CLASS 3.] (a) Commercial and industrial 4.35 property and utility real and personal property, except class 5 4.36 property as identified in subdivision 31, clause (1), is class 5.1 3a. It has a class rate of three percent of the first $100,000 5.2 of market valuefor taxes payable in 1993 and thereafter,and 5.35.06four percent of the market value over $100,000. In the 5.4 case of state-assessed commercial, industrial, and utility 5.5 property owned by one person or entity, only one parcel has a 5.6 reduced class rate on the first $100,000 of market value. In 5.7 the case of other commercial, industrial, and utility property 5.8 owned by one person or entity, only one parcel in each county 5.9 has a reduced class rate on the first $100,000 of market value, 5.10 except that: 5.11 (1) if the market value of the parcel is less than 5.12 $100,000, and additional parcels are owned by the same person or 5.13 entity in the same city or town within that county, the reduced 5.14 class rate shall be applied up to a combined total market value 5.15 of $100,000 for all parcels owned by the same person or entity 5.16 in the same city or town within the county; 5.17 (2) in the case of grain, fertilizer, and feed elevator 5.18 facilities, as defined in section 18C.305, subdivision 1, or 5.19 232.21, subdivision 8, the limitation to one parcel per owner 5.20 per county for the reduced class rate shall not apply, but there 5.21 shall be a limit of $100,000 of preferential value per site of 5.22 contiguous parcels owned by the same person or entity. Only the 5.23 value of the elevator portion of each parcel shall qualify for 5.24 treatment under this clause. For purposes of this subdivision, 5.25 contiguous parcels include parcels separated only by a railroad 5.26 or public road right-of-way; and 5.27 (3) in the case of property owned by a nonprofit charitable 5.28 organization that qualifies for tax exemption under section 5.29 501(c)(3) of the Internal Revenue Code of 1986, as amended 5.30 through December 31, 1993, if the property is used as a business 5.31 incubator, the limitation to one parcel per owner per county for 5.32 the reduced class rate shall not apply, provided that the 5.33 reduced rate applies only to the first $100,000 of value per 5.34 parcel owned by the organization. As used in this clause, a 5.35 "business incubator" is a facility used for the development of 5.36 nonretail businesses, offering access to equipment, space, 6.1 services, and advice to the tenant businesses, for the purpose 6.2 of encouraging economic development, diversification, and job 6.3 creation in the area served by the organization. 6.4 To receive the reduced class rate on additional parcels 6.5 under clause (1), (2), or (3), the taxpayer must notify the 6.6 county assessor that the taxpayer owns more than one parcel that 6.7 qualifies under clause (1), (2), or (3). 6.8 (b) Employment property defined in section 469.166, during 6.9 the period provided in section 469.170, shall constitute class 6.10 3b and has a class rate of 2.3 percent of the first $50,000 of 6.11 market value and 3.6 percent of the remainder, except that for 6.12 employment property located in a border city enterprise zone 6.13 designated pursuant to section 469.168, subdivision 4, paragraph 6.14 (c), the class rate of the first $100,000 of market value and 6.15 the class rate of the remainder is determined under paragraph 6.16 (a), unless the governing body of the city designated as an 6.17 enterprise zone determines that a specific parcel shall be 6.18 assessed pursuant to the first clause of this sentence. The 6.19 governing body may provide for assessment under the first clause 6.20 of the preceding sentence only for property which is located in 6.21 an area which has been designated by the governing body for the 6.22 receipt of tax reductions authorized by section 469.171, 6.23 subdivision 1. 6.24 (c) Structures which are (i) located on property classified 6.25 as class 3a, (ii) constructed under an initial building permit 6.26 issued after January 2, 1996, (iii) located in a transit zone as 6.27 defined under section 473.3915, subdivision 3, (iv) located 6.28 within the boundaries of a school district, and (v) not 6.29 primarily used for retail or transient lodging purposes, shall 6.30 have a class rate offour3.5 percent on that portion of the 6.31 market value in excess of $100,000 and any market value under 6.32 $100,000 that does not qualify for the three percent class rate 6.33 under paragraph (a). As used in item (v), a structure is 6.34 primarily used for retail or transient lodging purposes if over 6.35 50 percent of its square footage is used for those purposes. 6.36 The four percent rate shall also apply to improvements to 7.1 existing structures that meet the requirements of items (i) to 7.2 (v) if the improvements are constructed under an initial 7.3 building permit issued after January 2, 1996, even if the 7.4 remainder of the structure was constructed prior to January 2, 7.5 1996. For the purposes of this paragraph, a structure shall be 7.6 considered to be located in a transit zone if any portion of the 7.7 structure lies within the zone. If any property once eligible 7.8 for treatment under this paragraph ceases to remain eligible due 7.9 to revisions in transit zone boundaries, the property shall 7.10 continue to receive treatment under this paragraph for a period 7.11 of three years. 7.12 Sec. 4. Minnesota Statutes 1996, section 273.13, 7.13 subdivision 25, is amended to read: 7.14 Subd. 25. [CLASS 4.] (a) Class 4a is residential real 7.15 estate containing four or more units and used or held for use by 7.16 the owner or by the tenants or lessees of the owner as a 7.17 residence for rental periods of 30 days or more. Class 4a also 7.18 includes hospitals licensed under sections 144.50 to 144.56, 7.19 other than hospitals exempt under section 272.02, and contiguous 7.20 property used for hospital purposes, without regard to whether 7.21 the property has been platted or subdivided. Class 4a property 7.22 in a city with a population of 5,000 or less, that is (1) 7.23 located outside of the metropolitan area, as defined in section 7.24 473.121, subdivision 2, or outside any county contiguous to the 7.25 metropolitan area, and (2) whose city boundary is at least 15 7.26 miles from the boundary of any city with a population greater 7.27 than 5,000 has a class rate of 2.3 percent of market valuefor7.28taxes payable in 1996 and thereafter. All other class 4a 7.29 property has a class rate of3.42.8 percent of market valuefor7.30taxes payable in 1996 and thereafter. For purposes of this 7.31 paragraph, population has the same meaning given in section 7.32 477A.011, subdivision 3. 7.33 (b) Class 4b includes: 7.34 (1) residential real estate containing less than four 7.35 units, other than seasonal residential, and recreational; 7.36 (2) manufactured homes not classified under any other 8.1 provision; 8.2 (3) a dwelling, garage, and surrounding one acre of 8.3 property on a nonhomestead farm classified under subdivision 23, 8.4 paragraph (b). 8.5 Class 4b property has a class rate of 2.8 percent of market 8.6 value for taxes payable in 1992, 2.5 percent of market value for 8.7 taxes payable in 1993, and 2.3 percent of market value for taxes 8.8 payable in 1994 and thereafter. 8.9 (c) Class 4c property includes: 8.10 (1) a structure that is: 8.11 (i) situated on real property that is used for housing for 8.12 the elderly or for low- and moderate-income families as defined 8.13 in Title II, as amended through December 31, 1990, of the 8.14 National Housing Act or the Minnesota housing finance agency law 8.15 of 1971, as amended, or rules promulgated by the agency and 8.16 financed by a direct federal loan or federally insured loan made 8.17 pursuant to Title II of the Act; or 8.18 (ii) situated on real property that is used for housing the 8.19 elderly or for low- and moderate-income families as defined by 8.20 the Minnesota housing finance agency law of 1971, as amended, or 8.21 rules adopted by the agency pursuant thereto and financed by a 8.22 loan made by the Minnesota housing finance agency pursuant to 8.23 the provisions of the act. 8.24 This clause applies only to property of a nonprofit or 8.25 limited dividend entity. Property is classified as class 4c 8.26 under this clause for 15 years from the date of the completion 8.27 of the original construction or substantial rehabilitation, or 8.28 for the original term of the loan. 8.29 (2) a structure that is: 8.30 (i) situated upon real property that is used for housing 8.31 lower income families or elderly or handicapped persons, as 8.32 defined in section 8 of the United States Housing Act of 1937, 8.33 as amended; and 8.34 (ii) owned by an entity which has entered into a housing 8.35 assistance payments contract under section 8 which provides 8.36 assistance for 100 percent of the dwelling units in the 9.1 structure, other than dwelling units intended for management or 9.2 maintenance personnel. Property is classified as class 4c under 9.3 this clause for the term of the housing assistance payments 9.4 contract, including all renewals, or for the term of its 9.5 permanent financing, whichever is shorter; and 9.6 (3) a qualified low-income building as defined in section 9.7 42(c)(2) of the Internal Revenue Code of 1986, as amended 9.8 through December 31, 1990, that (i) receives a low-income 9.9 housing credit under section 42 of the Internal Revenue Code of 9.10 1986, as amended through December 31, 1990; or (ii) meets the 9.11 requirements of that section and receives public financing, 9.12 except financing provided under sections 469.174 to 469.179, 9.13 which contains terms restricting the rents; or (iii) meets the 9.14 requirements of section 273.1317. Classification pursuant to 9.15 this clause is limited to a term of 15 years. The public 9.16 financing received must be from at least one of the following 9.17 sources: government issued bonds exempt from taxes under 9.18 section 103 of the Internal Revenue Code of 1986, as amended 9.19 through December 31, 1993, the proceeds of which are used for 9.20 the acquisition or rehabilitation of the building; programs 9.21 under section 221(d)(3), 202, or 236, of Title II of the 9.22 National Housing Act; rental housing program funds under Section 9.23 8 of the United States Housing Act of 1937 or the market rate 9.24 family graduated payment mortgage program funds administered by 9.25 the Minnesota housing finance agency that are used for the 9.26 acquisition or rehabilitation of the building; public financing 9.27 provided by a local government used for the acquisition or 9.28 rehabilitation of the building, including grants or loans from 9.29 federal community development block grants, HOME block grants, 9.30 or residential rental bonds issued under chapter 474A; or other 9.31 rental housing program funds provided by the Minnesota housing 9.32 finance agency for the acquisition or rehabilitation of the 9.33 building. 9.34 For all properties described in clauses (1), (2), and (3) 9.35 and in paragraph (d), the market value determined by the 9.36 assessor must be based on the normal approach to value using 10.1 normal unrestricted rents unless the owner of the property 10.2 elects to have the property assessed under Laws 1991, chapter 10.3 291, article 1, section 55. If the owner of the property elects 10.4 to have the market value determined on the basis of the actual 10.5 restricted rents, as provided in Laws 1991, chapter 291, article 10.6 1, section 55, the property will be assessed at the rate 10.7 provided for class 4a or class 4b property, as appropriate. 10.8 Properties described in clauses (1)(ii), (3), and (4) may apply 10.9 to the assessor for valuation under Laws 1991, chapter 291, 10.10 article 1, section 55. The land on which these structures are 10.11 situated has the class rate given in paragraph (b) if the 10.12 structure contains fewer than four units, and the class rate 10.13 given in paragraph (a) if the structure contains four or more 10.14 units. This clause applies only to the property of a nonprofit 10.15 or limited dividend entity. 10.16 (4) a parcel of land, not to exceed one acre, and its 10.17 improvements or a parcel of unimproved land, not to exceed one 10.18 acre, if it is owned by a neighborhood real estate trust and at 10.19 least 60 percent of the dwelling units, if any, on all land 10.20 owned by the trust are leased to or occupied by lower income 10.21 families or individuals. This clause does not apply to any 10.22 portion of the land or improvements used for nonresidential 10.23 purposes. For purposes of this clause, a lower income family is 10.24 a family with an income that does not exceed 65 percent of the 10.25 median family income for the area, and a lower income individual 10.26 is an individual whose income does not exceed 65 percent of the 10.27 median individual income for the area, as determined by the 10.28 United States Secretary of Housing and Urban Development. For 10.29 purposes of this clause, "neighborhood real estate trust" means 10.30 an entity which is certified by the governing body of the 10.31 municipality in which it is located to have the following 10.32 characteristics: 10.33 (a) it is a nonprofit corporation organized under chapter 10.34 317A; 10.35 (b) it has as its principal purpose providing housing for 10.36 lower income families in a specific geographic community 11.1 designated in its articles or bylaws; 11.2 (c) it limits membership with voting rights to residents of 11.3 the designated community; and 11.4 (d) it has a board of directors consisting of at least 11.5 seven directors, 60 percent of whom are members with voting 11.6 rights and, to the extent feasible, 25 percent of whom are 11.7 elected by resident members of buildings owned by the trust; and 11.8 (5) except as provided in subdivision 22, paragraph (c), 11.9 real property devoted to temporary and seasonal residential 11.10 occupancy for recreation purposes, including real property 11.11 devoted to temporary and seasonal residential occupancy for 11.12 recreation purposes and not devoted to commercial purposes for 11.13 more than 250 days in the year preceding the year of 11.14 assessment. For purposes of this clause, property is devoted to 11.15 a commercial purpose on a specific day if any portion of the 11.16 property is used for residential occupancy, and a fee is charged 11.17 for residential occupancy. Class 4c also includes commercial 11.18 use real property used exclusively for recreational purposes in 11.19 conjunction with class 4c property devoted to temporary and 11.20 seasonal residential occupancy for recreational purposes, up to 11.21 a total of two acres, provided the property is not devoted to 11.22 commercial recreational use for more than 250 days in the year 11.23 preceding the year of assessment and is located within two miles 11.24 of the class 4c property with which it is used. Class 4c 11.25 property classified in this clause also includes the remainder 11.26 of class 1c resorts. Owners of real property devoted to 11.27 temporary and seasonal residential occupancy for recreation 11.28 purposes and all or a portion of which was devoted to commercial 11.29 purposes for not more than 250 days in the year preceding the 11.30 year of assessment desiring classification as class 1c or 4c, 11.31 must submit a declaration to the assessor designating the cabins 11.32 or units occupied for 250 days or less in the year preceding the 11.33 year of assessment by January 15 of the assessment year. Those 11.34 cabins or units and a proportionate share of the land on which 11.35 they are located will be designated class 1c or 4c as otherwise 11.36 provided. The remainder of the cabins or units and a 12.1 proportionate share of the land on which they are located will 12.2 be designated as class 3a. The first $100,000 of the market 12.3 value of the remainder of the cabins or units and a 12.4 proportionate share of the land on which they are located shall 12.5 have a class rate of three percent. The owner of property 12.6 desiring designation as class 1c or 4c property must provide 12.7 guest registers or other records demonstrating that the units 12.8 for which class 1c or 4c designation is sought were not occupied 12.9 for more than 250 days in the year preceding the assessment if 12.10 so requested. The portion of a property operated as a (1) 12.11 restaurant, (2) bar, (3) gift shop, and (4) other nonresidential 12.12 facility operated on a commercial basis not directly related to 12.13 temporary and seasonal residential occupancy for recreation 12.14 purposes shall not qualify for class 1c or 4c; 12.15 (6) real property up to a maximum of one acre of land owned 12.16 by a nonprofit community service oriented organization; provided 12.17 that the property is not used for a revenue-producing activity 12.18 for more than six days in the calendar year preceding the year 12.19 of assessment and the property is not used for residential 12.20 purposes on either a temporary or permanent basis. For purposes 12.21 of this clause, a "nonprofit community service oriented 12.22 organization" means any corporation, society, association, 12.23 foundation, or institution organized and operated exclusively 12.24 for charitable, religious, fraternal, civic, or educational 12.25 purposes, and which is exempt from federal income taxation 12.26 pursuant to section 501(c)(3), (10), or (19) of the Internal 12.27 Revenue Code of 1986, as amended through December 31, 1990. For 12.28 purposes of this clause, "revenue-producing activities" shall 12.29 include but not be limited to property or that portion of the 12.30 property that is used as an on-sale intoxicating liquor or 3.2 12.31 percent malt liquor establishment licensed under chapter 340A, a 12.32 restaurant open to the public, bowling alley, a retail store, 12.33 gambling conducted by organizations licensed under chapter 349, 12.34 an insurance business, or office or other space leased or rented 12.35 to a lessee who conducts a for-profit enterprise on the 12.36 premises. Any portion of the property which is used for 13.1 revenue-producing activities for more than six days in the 13.2 calendar year preceding the year of assessment shall be assessed 13.3 as class 3a. The use of the property for social events open 13.4 exclusively to members and their guests for periods of less than 13.5 24 hours, when an admission is not charged nor any revenues are 13.6 received by the organization shall not be considered a 13.7 revenue-producing activity; 13.8 (7) post-secondary student housing of not more than one 13.9 acre of land that is owned by a nonprofit corporation organized 13.10 under chapter 317A and is used exclusively by a student 13.11 cooperative, sorority, or fraternity for on-campus housing or 13.12 housing located within two miles of the border of a college 13.13 campus; and 13.14 (8) manufactured home parks as defined in section 327.14, 13.15 subdivision 3. 13.16 Class 4c property has a class rate of 2.3 percent of market 13.17 value, except that (i) for each parcel of seasonal residential 13.18 recreational property not used for commercial purposes under 13.19 clause (5) the first $72,000 of market value on each parcel has 13.20 a class rate of 1.75 percent for taxes payable in 1997 and 1.5 13.21 percent for taxes payable in 1998 and thereafter, and the market 13.22 value of each parcel that exceeds $72,000 has a class rate of 13.23 2.5 percent, and (ii) manufactured home parks assessed under 13.24 clause (8) have a class rate of two percent for taxes payable in 13.25 1996, and thereafter. 13.26 (d) Class 4d property includes: 13.27 (1) a structure that is: 13.28 (i) situated on real property that is used for housing for 13.29 the elderly or for low and moderate income families as defined 13.30 by the Farmers Home Administration; 13.31 (ii) located in a municipality of less than 10,000 13.32 population; and 13.33 (iii) financed by a direct loan or insured loan from the 13.34 Farmers Home Administration. Property is classified under this 13.35 clause for 15 years from the date of the completion of the 13.36 original construction or for the original term of the loan. 14.1 The class rates in paragraph (c), clauses (1), (2), and (3) 14.2 and this clause apply to the properties described in them, only 14.3 in proportion to occupancy of the structure by elderly or 14.4 handicapped persons or low and moderate income families as 14.5 defined in the applicable laws unless construction of the 14.6 structure had been commenced prior to January 1, 1984; or the 14.7 project had been approved by the governing body of the 14.8 municipality in which it is located prior to June 30, 1983; or 14.9 financing of the project had been approved by a federal or state 14.10 agency prior to June 30, 1983. For those properties, 4c or 4d 14.11 classification is available only for those units meeting the 14.12 requirements of section 273.1318. 14.13 Classification under this clause is only available to 14.14 property of a nonprofit or limited dividend entity. 14.15 In the case of a structure financed or refinanced under any 14.16 federal or state mortgage insurance or direct loan program 14.17 exclusively for housing for the elderly or for housing for the 14.18 handicapped, a unit shall be considered occupied so long as it 14.19 is actually occupied by an elderly or handicapped person or, if 14.20 vacant, is held for rental to an elderly or handicapped person. 14.21 (2) For taxes payable in 1992, 1993, and 1994, only, 14.22 buildings and appurtenances, together with the land upon which 14.23 they are located, leased by the occupant under the community 14.24 lending model lease-purchase mortgage loan program administered 14.25 by the Federal National Mortgage Association, provided the 14.26 occupant's income is no greater than 60 percent of the county or 14.27 area median income, adjusted for family size and the building 14.28 consists of existing single family or duplex housing. The lease 14.29 agreement must provide for a portion of the lease payment to be 14.30 escrowed as a nonrefundable down payment on the housing. To 14.31 qualify under this clause, the taxpayer must apply to the county 14.32 assessor by May 30 of each year. The application must be 14.33 accompanied by an affidavit or other proof required by the 14.34 assessor to determine qualification under this clause. 14.35 (3) Qualifying buildings and appurtenances, together with 14.36 the land upon which they are located, leased for a period of up 15.1 to five years by the occupant under a lease-purchase program 15.2 administered by the Minnesota housing finance agency or a 15.3 housing and redevelopment authority authorized under sections 15.4 469.001 to 469.047, provided the occupant's income is no greater 15.5 than 80 percent of the county or area median income, adjusted 15.6 for family size, and the building consists of two or less 15.7 dwelling units. The lease agreement must provide for a portion 15.8 of the lease payment to be escrowed as a nonrefundable down 15.9 payment on the housing. The administering agency shall verify 15.10 the occupants income eligibility and certify to the county 15.11 assessor that the occupant meets the income criteria under this 15.12 paragraph. To qualify under this clause, the taxpayer must 15.13 apply to the county assessor by May 30 of each year. For 15.14 purposes of this section, "qualifying buildings and 15.15 appurtenances" shall be defined as one or two unit residential 15.16 buildings which are unoccupied and have been abandoned and 15.17 boarded for at least six months. 15.18 Class 4d property has a class rate of two percent of market 15.19 value except that property classified under clause (3), shall 15.20 have the same class rate as class 1a property. 15.21 (e) Residential rental property that would otherwise be 15.22 assessed as class 4 property under paragraph (a); paragraph (b), 15.23 clauses (1) and (3); paragraph (c), clause (1), (2), (3), or 15.24 (4), is assessed at the class rate applicable to it under 15.25 Minnesota Statutes 1988, section 273.13, if it is found to be a 15.26 substandard building under section 273.1316. Residential rental 15.27 property that would otherwise be assessed as class 4 property 15.28 under paragraph (d) is assessed at 2.3 percent of market value 15.29 if it is found to be a substandard building under section 15.30 273.1316. 15.31 (f) Class 4e property consists of the residential portion 15.32 of any structure located within a city that was converted from 15.33 nonresidential use to residential use, provided that: 15.34 (1) the structure had formerly been used as a warehouse; 15.35 (2) the structure was originally constructed prior to 1940; 15.36 (3) the conversion was done after December 31, 1995, but 16.1 before January 1, 2003; and 16.2 (4) the conversion involved an investment of at least 16.3 $25,000 per residential unit. 16.4 Class 4e property has a class rate of 2.3 percent, provided 16.5 that a structure is eligible for class 4e classification only in 16.6 the 12 assessment years immediately following the conversion. 16.7 Sec. 5. Minnesota Statutes 1996, section 273.13, 16.8 subdivision 31, is amended to read: 16.9 Subd. 31. [CLASS 5.] Class 5 property includes: 16.10 (1) tools, implements, and machinery of an electric 16.11 generating, transmission, or distribution system or a pipeline 16.12 system transporting or distributing water, gas, crude oil, or 16.13 petroleum products or mains and pipes used in the distribution 16.14 of steam or hot or chilled water for heating or cooling 16.15 buildings, which are fixtures; 16.16 (2) unmined iron ore and low-grade iron-bearing formations 16.17 as defined in section 273.14; and 16.18 (3) all other property not otherwise classified. 16.19 Class 5 property has a class rate of5.06four percent of 16.20 market value. 16.21 Sec. 6. Minnesota Statutes 1996, section 273.1398, 16.22 subdivision 1, is amended to read: 16.23 Subdivision 1. [DEFINITIONS.] (a) In this section, the 16.24 terms defined in this subdivision have the meanings given them. 16.25 (b) "Unique taxing jurisdiction" means the geographic area 16.26 subject to the same set of local tax rates. 16.27 (c) "Previous net tax capacity" means the product of the 16.28 appropriate net class rates for the year previous to the year in 16.29 which the aid is payable, and estimated market values for the 16.30 assessment two years prior to that in which aid is payable. 16.31 "Total previous net tax capacity" means the previous net tax 16.32 capacities for all property within the unique taxing 16.33 jurisdiction. The total previous net tax capacity shall be 16.34 reduced by the sum of (1) the unique taxing jurisdiction's 16.35 previous net tax capacity of commercial-industrial property as 16.36 defined in section 473F.02, subdivision 3, or 276A.02, 17.1 subdivision 3, multiplied by the ratio determined pursuant to 17.2 section 473F.08, subdivision 6, or 276A.06, subdivision 7, for 17.3 the municipality, as defined in section 473F.02, subdivision 8, 17.4 or 276A.06, subdivision 7, in which the unique taxing 17.5 jurisdiction is located, (2) the previous net tax capacity of 17.6 the captured value of tax increment financing districts as 17.7 defined in section 469.177, subdivision 2, and (3) the previous 17.8 net tax capacity of transmission lines deducted from a local 17.9 government's total net tax capacity under section 273.425. 17.10 Previous net tax capacity cannot be less than zero. 17.11 (d) "Equalized market values" are market values that have 17.12 been equalized by dividing the assessor's estimated market value 17.13 for the second year prior to that in which the aid is payable by 17.14 the assessment sales ratios determined by class in the 17.15 assessment sales ratio study conducted by the department of 17.16 revenue pursuant to section 124.2131 in the second year prior to 17.17 that in which the aid is payable. The equalized market values 17.18 shall equal the unequalized market values divided by the 17.19 assessment sales ratio. 17.20 (e) "Equalized school levies" means the amounts levied for: 17.21 (1) general education under section 124A.23, subdivision 2; 17.22 (2) supplemental revenue under section 124A.22, subdivision 17.23 8a; 17.24 (3) transition revenue under section 124A.22, subdivision 17.25 13c; 17.26 (4) basic transportation under section 124.226, subdivision 17.27 1; and 17.28 (5) referendum revenue under section 124A.03. 17.29 (f) "Current local tax rate" means the quotient derived by 17.30 dividing the taxes levied within a unique taxing jurisdiction 17.31 for taxes payable in the year prior to that for which aids are 17.32 being calculated by the total previous net tax capacity of the 17.33 unique taxing jurisdiction. 17.34 (g) For purposes of calculating and allocating homestead 17.35 and agricultural credit aid authorized pursuant to subdivision 2 17.36 and the disparity reduction aid authorized in subdivision 3, 18.1 "gross taxes levied on all properties," "gross taxes," or "taxes 18.2 levied" means the total net tax capacity based taxes levied on 18.3 all properties except that levied on the captured value of tax 18.4 increment districts as defined in section 469.177, subdivision 18.5 2, and that levied on the portion of commercial industrial 18.6 properties' assessed value or gross tax capacity, as defined in 18.7 section 473F.02, subdivision 3, subject to the areawide tax as 18.8 provided in section 473F.08, subdivision 6, in a unique taxing 18.9 jurisdiction. "Gross taxes" are before any reduction for 18.10 disparity reduction aid but "taxes levied" are after any 18.11 reduction for disparity reduction aid. Gross taxes levied or 18.12 taxes levied cannot be less than zero. 18.13 "Taxes levied" excludes equalized school levies. 18.14 (h) "Household adjustment factor" means the number of 18.15 households for the second most recent year preceding that in 18.16 which the aids are payable divided by the number of households 18.17 for the third most recent year. The household adjustment factor 18.18 cannot be less than one. 18.19 (i) "Growth adjustment factor" means the household 18.20 adjustment factor in the case of counties. In the case of 18.21 cities, towns, school districts, and special taxing districts, 18.22 the growth adjustment factor equals one. The growth adjustment 18.23 factor cannot be less than one. 18.24 (j) "Homestead and agricultural credit base" means the 18.25 previous year's certified homestead and agricultural credit aid 18.26 determined under subdivision 2 less any permanent aid reduction 18.27 in the previous year to homestead and agricultural credit aid. 18.28 (k) "Net tax capacity adjustment" means (1) the tax base 18.29 differential defined in subdivision 1a, multiplied by (2) the 18.30 unique taxing jurisdiction's current local tax rate. The net 18.31 tax capacity adjustment cannot be less than zero. 18.32 (l) "Fiscal disparity adjustment" means a taxing 18.33 jurisdiction's fiscal disparity distribution levy under section 18.34 473F.08, subdivision 3, clause (a), or 276A.06, subdivision 3, 18.35 clause (a), for taxes payable in the year prior to that for 18.36 which aids are being calculated, multiplied by the ratio of the 19.1 tax base differential percent referenced in subdivision 1a for 19.2 the highest class rate for class 3 property for taxes payable in 19.3 the yearprior to thatfor which aids are being calculated to 19.4 the highest class rate for class 3 property for taxes payable in 19.5 thesecond prioryear prior to that for which aids are being 19.6 calculated. In the case of school districts, the fiscal 19.7 disparity distribution levy shall exclude that part of the levy 19.8 attributable to equalized school levies. 19.9 Sec. 7. Minnesota Statutes 1996, section 273.1398, 19.10 subdivision 1a, is amended to read: 19.11 Subd. 1a. [TAX BASE DIFFERENTIAL.] (a) For aids payable in 19.12 1997, the tax base differential is 0.25 percent of the 19.13 assessment year 1995 taxable market value of class 4c 19.14 noncommercial seasonal recreational residential property up to 19.15 $72,000. 19.16 (b) For aids payable in 1998, the tax base differential is 19.170.25 percentthe sum of the following percentages of the 19.18 assessment year 1996 taxable market value of the following 19.19 classes of property, excluding that portion of any property's 19.20 value which is captured value of a tax increment financing 19.21 district as defined in section 469.177, subdivision 2: 19.22 (i) 0.25 percent of class 4c noncommercial seasonal 19.23 recreational residential property up to $72,000.; 19.24 (ii) one percent of all class 1a residential homestead 19.25 property between $72,000 and $115,000 in value; 19.26 (iii) one percent of the house, garage, and one acre 19.27 portion of class 2a agricultural homestead property between 19.28 $72,000 and $115,000 in value; 19.29 (iv) 0.6 percent of all class 3a 19.30 commercial/industrial/public utility property which has a class 19.31 rate of 4.6 percent for taxes payable in 1997; and 19.32 (v) 0.6 percent of all class 4a apartment property which 19.33 has a class rate of 3.4 percent for taxes payable in 1997. 19.34 For properties lying within the area defined in section 19.35 473F.02, subdivision 2, the value of properties in clauses (iv) 19.36 and (v) must be reduced by the ratio determined under section 20.1 473F.08, subdivision 6. 20.2 For properties lying within the area defined in section 20.3 276A.01, subdivision 2, the value of properties in clauses (iv) 20.4 and (v) must be reduced by the ratio determined under section 20.5 276A.06, subdivision 7. 20.6 Sec. 8. Minnesota Statutes 1996, section 273.1398, is 20.7 amended by adding a subdivision to read: 20.8 Subd. 2e. [STATE GENERAL EDUCATION HOMESTEAD AND 20.9 AGRICULTURAL CREDIT AID.] (a) Each year, a state general 20.10 education homestead and agricultural credit aid adjustment shall 20.11 be computed for each school district in the state equal to (1) 20.12 the district's current local tax rate for equalized school 20.13 levies multiplied by the tax rate differential defined in 20.14 subdivision 1a, plus (2) an amount computed analogously to the 20.15 fiscal disparity adjustment, utilizing the portion of the levy 20.16 attributable to equalized school levies. The sum of the amounts 20.17 determined for each district shall be the state general 20.18 education homestead and agricultural credit aid adjustment. 20.19 (b) The state general education homestead and agricultural 20.20 credit aid adjustment for the current year shall be added to the 20.21 sum of the adjustment amounts from previous years to derive 20.22 total state general education homestead and agricultural credit 20.23 aid. By June 25 of each year, the commissioner of revenue shall 20.24 certify to the commissioner of children, families, and learning 20.25 the amount of total state general education homestead and 20.26 agricultural credit aid for taxes payable in the following 20.27 year. The amount certified shall be subtracted from the general 20.28 education levy amount stated in section 124A.23, subdivision 1, 20.29 in determining the general education tax rate. 20.30 Sec. 9. Minnesota Statutes 1996, section 273.1398, 20.31 subdivision 8, is amended to read: 20.32 Subd. 8. [APPROPRIATION.] An amount sufficient to pay the 20.33 aids and credits provided under this section for the state, 20.34 school districts, intermediate school districts, or any group of 20.35 school districts levying as a single taxing entity, is annually 20.36 appropriated from the general fund to the commissioner of 21.1 children, families, and learning. An amount sufficient to pay 21.2 the aids and credits provided under this section for counties, 21.3 cities, towns, and special taxing districts is annually 21.4 appropriated from the general fund to the commissioner of 21.5 revenue. A jurisdiction's aid amount may be increased or 21.6 decreased based on any prior year adjustments for homestead 21.7 credit or other property tax credit or aid programs. 21.8 Sec. 10. Minnesota Statutes 1996, section 276A.06, 21.9 subdivision 9, is amended to read: 21.10 Subd. 9. [FISCAL DISPARITIES ADJUSTMENT.] In any year in 21.11 which the highest class rate for class 3a property changes from 21.12 the rate in the previous year, the following adjustments shall 21.13 be made to the procedures described in sections 276A.04 to 21.14 276A.06: 21.15 (1) An initial contribution tax capacity shall be 21.16 determined for each municipality based on the previous year's 21.17 class rates. 21.18 (2)Each jurisdiction's distribution tax capacity shall be21.19determined based upon the areawide tax base determined by21.20summing the tax capacities computed under clause (1) for all21.21municipalities and apportioning the resulting sum pursuant to21.22section 276A.05, subdivision 5.21.23(3) Each jurisdiction's distribution levy shall be21.24determined by applying the procedures described in subdivision21.253, clause (a), to the distribution tax capacity determined21.26pursuant to clause (2).21.27(4)Each municipality's final contribution tax capacity 21.28 shall be determined equal to its initial contribution tax 21.29 capacity multiplied by the ratio of thenewhighest class rate 21.30 for class 3a property for the forthcoming tax year to the 21.31previous year'shighest class rate for class 3a property in the 21.32 current year. 21.33(5) For the purposes of computing education aids and any21.34other state aids requiring the addition of the fiscal21.35disparities distribution tax capacity to the local tax capacity,21.36each municipality's final distribution tax capacity shall be22.1determined equal to its initial distribution tax capacity22.2multiplied by the ratio of the new highest class rate for class22.33a property to the previous year's highest class rate for class22.43a property.22.5(6) The areawide tax rate shall be determined by dividing22.6the sum of the amounts determined in clause (3) by the sum of22.7the values determined in clause (4).22.8(7) The final contribution tax capacity determined in22.9clause (4) shall also be used to determine the portion of each22.10commercial-industrial property's tax capacity subject to the22.11areawide tax rate pursuant to subdivision 7.22.12 (3) All other computations shall be made as described in 22.13 sections 276A.04 to 276A.06, using the final contribution tax 22.14 capacity amounts determined in paragraph (2). 22.15 Sec. 11. Minnesota Statutes 1996, section 290A.04, 22.16 subdivision 2, is amended to read: 22.17 Subd. 2. [HOMEOWNERS.] A claimant whose property taxes 22.18 payable are in excess of the percentage of the household income 22.19 stated below shall pay an amount equal to the percent of income 22.20 shown for the appropriate household income level along with the 22.21 percent to be paid by the claimant of the remaining amount of 22.22 property taxes payable. The state refund equals the amount of 22.23 property taxes payable that remain, up to the state refund 22.24 amount shown below except that in the case of an agricultural 22.25 homestead the state refund shall not exceed $500. 22.26PercentPercentMaximum22.27Household Incomeof IncomePaid byState22.28ClaimantRefund22.29$0 to 1,0291.2 percent18 percent$44022.301,030 to 2,0591.3 percent18 percent$44022.312,060 to 3,0991.4 percent20 percent$44022.323,100 to 4,1291.6 percent20 percent$44022.334,130 to 5,1591.7 percent20 percent$44022.345,160 to 7,2291.9 percent25 percent$44022.357,230 to 8,2592.1 percent25 percent$44022.368,260 to 9,2892.2 percent25 percent$44022.379,290 to 10,3192.3 percent30 percent$44022.3810,320 to 11,3492.4 percent30 percent$44022.3911,350 to 12,3892.5 percent30 percent$44022.4012,390 to 14,4492.6 percent30 percent$44022.4114,450 to 15,4792.8 percent35 percent$44022.4215,480 to 16,5093.0 percent35 percent$44022.4316,510 to 17,5493.2 percent40 percent$44022.4417,550 to 21,6693.3 percent40 percent$44022.4521,670 to 24,7693.4 percent45 percent$44022.4624,770 to 30,9593.5 percent45 percent$44023.130,960 to 36,1193.5 percent45 percent$44023.236,120 to 41,2793.7 percent50 percent$44023.341,280 to 58,8294.0 percent50 percent$44023.458,830 to 59,8594.0 percent50 percent$31023.559,860 to 60,8894.0 percent50 percent$21023.660,890 to 61,9294.0 percent50 percent$10023.7 Percent Percent Maximum 23.8 Household Income of Income Paid by State 23.9 Claimant Refund 23.10 $0 to 5,619 1.2 percent 18 percent $1,000 23.11 5,620 to 7,879 1.5 percent 18 percent $1,000 23.12 7,880 to 8,999 1.6 percent 18 percent $1,000 23.13 9,000 to 10,119 1.6 percent 18 percent $1,000 23.14 10,120 to 11,239 1.8 percent 20 percent $1,000 23.15 11,240 to 12,359 1.8 percent 20 percent $1,000 23.16 12,360 to 13,499 2.0 percent 20 percent $1,000 23.17 13,500 to 15,739 2.0 percent 20 percent $1,000 23.18 15,740 to 16,859 2.2 percent 25 percent $1,000 23.19 16,860 to 17,979 2.2 percent 25 percent $1,000 23.20 17,980 to 19,119 2.4 percent 31 percent $1,000 23.21 19,120 to 23,599 2.6 percent 31 percent $1,000 23.22 23,600 to 27,624 2.7 percent 37 percent $1,000 23.23 27,625 to 31,749 2.8 percent 37 percent $1,000 23.24 31,750 to 35,874 2.9 percent 37 percent $1,000 23.25 35,875 to 39,999 3.0 percent 37 percent $1,000 23.26 40,000 to 44,999 3.1 percent 43 percent $1,000 23.27 45,000 to 49,999 3.2 percent 43 percent $1,000 23.28 50,000 to 54,999 3.3 percent 46 percent $1,000 23.29 55,000 to 59,999 3.4 percent 50 percent $1,000 23.30 60,000 to 64,999 3.6 percent 50 percent $1,000 23.31 65,000 to 69,999 3.8 percent 50 percent $1,000 23.32 70,000 to 76,999 4.0 percent 50 percent $1,000 23.33 77,000 to 77,999 4.0 percent 50 percent $1,000 23.34 78,000 to 78,999 4.0 percent 50 percent $ 500 23.35 79,000 to 79,999 4.0 percent 50 percent $ 250 23.36 The payment made to a claimant shall be the amount of the 23.37 state refund calculated under this subdivision. No payment is 23.38 allowed if the claimant's household income is$61,930$80,000 or 23.39 more. 23.40 Sec. 12. Minnesota Statutes 1996, section 290A.04, 23.41 subdivision 6, is amended to read: 23.42 Subd. 6. [INFLATION ADJUSTMENT.] Beginning for property 23.43 tax refunds payable in calendar year19961998, the commissioner 23.44 shall annually adjust the dollar amounts of the income 23.45 thresholds and the maximum refunds under subdivisions 2 and 2a 23.46 for inflation. The commissioner shall make the inflation 23.47 adjustments in accordance with section 290.06, subdivision 2d, 23.48 except that for purposes of this subdivision the percentage 23.49 increase shall be determined from the year ending on August 31, 23.50 1994, to the year ending on August 31 of the year preceding that 23.51 in which the refund is payable. The commissioner shall not 23.52 adjust the dollar amounts under subdivision 2 for refunds that 24.1 are payable in calendar year 1998. Beginning for refunds 24.2 payable in 1999, the base year for adjustments of the dollar 24.3 amounts in subdivision 2 is the year ending August 31, 1997. 24.4 The commissioner shall use the appropriate percentage increase 24.5 to annually adjust the income thresholds and maximum refunds 24.6 under subdivisions 2 and 2a for inflation without regard to 24.7 whether or not the income tax brackets are adjusted for 24.8 inflation in that year. The commissioner shall round the 24.9 thresholds and the maximum amounts, as adjusted to the nearest 24.10 $10 amount. If the amount ends in $5, the commissioner shall 24.11 round it up to the next $10 amount. 24.12 The commissioner shall annually announce the adjusted 24.13 refund schedule at the same time provided under section 290.06. 24.14 The determination of the commissioner under this subdivision is 24.15 not a rule under the administrative procedure act. 24.16 Sec. 13. Minnesota Statutes 1996, section 473F.08, 24.17 subdivision 8a, is amended to read: 24.18 Subd. 8a. [FISCAL DISPARITIES ADJUSTMENT.] In any year in 24.19 which the highest class rate for class 3a property changes from 24.20 the rate in the previous year, the following adjustments shall 24.21 be made to the procedures described in sections 473F.06 to 24.22 473F.08. 24.23 (1) An initial contribution tax capacity shall be 24.24 determined for each municipality based on the previous year's 24.25 class rates. 24.26 (2)Each jurisdiction's distribution tax capacity shall be24.27determined based upon the areawide tax base determined by24.28summing the tax capacities computed under clause (1) for all24.29municipalities and apportioning the resulting sum pursuant to24.30section 473F.07, subdivision 5.24.31(3) Each jurisdiction's distribution levy shall be24.32determined by applying the procedures described in subdivision24.333, clause (a), to the distribution tax capacity determined24.34pursuant to clause (2).24.35(4)Each municipality's final contribution tax capacity 24.36 shall be determined equal to its initial contribution tax 25.1 capacity multiplied by the ratio of the new highest class rate 25.2 for class 3a property for the forthcoming tax year to the 25.3previous year'shighest class rate for class 3a property in the 25.4 current year. 25.5(5) For the purposes of computing education aids and any25.6other state aids requiring the addition of the fiscal25.7disparities distribution tax capacity to the local tax capacity,25.8each municipality's final distribution tax capacity shall be25.9determined equal to its initial distribution tax capacity25.10multiplied by the ratio of the new highest class rate for class25.113a property to the previous year's highest class rate for class25.123a property.25.13(6) The areawide tax rate shall be determined by dividing25.14the sum of the amounts determined in clause (3) by the sum of25.15the values determined in clause (4).25.16(7) The final contribution tax capacity determined in25.17clause (4) shall also be used to determined the portion of each25.18commercial/industrial property's tax capacity subject to the25.19areawide tax rate pursuant to subdivision 6.25.20 (3) All other computations shall be made as described in 25.21 sections 473.06 to 473F.08, using the final contribution tax 25.22 capacity amounts determined in paragraph (2). 25.23 Sec. 14. Minnesota Statutes 1996, section 477A.011, 25.24 subdivision 37, is amended to read: 25.25 Subd. 37. [BASE REDUCTION PERCENTAGE.] "Base reduction 25.26 percentage" is (1) the difference between the amount available 25.27 for city aid under section 477A.03 for the year for which aid is 25.28 being calculated and the amount available for city aid under 25.29 section 477A.03 for calendar year19941997, (2) divided by the 25.30 sum of the city aid base for all cities and (3) multiplied by 25.31 100. The reduction percentage for any year may not be less than 25.32 the reduction percentage from the previous year. For aid paid 25.33 in calendar year 1994, the reduction percentage is zero. The 25.34 reduction percentage may not be more than 100 percent. 25.35 Sec. 15. Minnesota Statutes 1996, section 477A.011, is 25.36 amended by adding a subdivision to read: 26.1 Subd. 38. [GUARANTEED AID.] "Guaranteed aid" for a city is 26.2 equal to the city's city aid base multiplied by the difference 26.3 between 100 percent and the base reduction percentage. 26.4 Sec. 16. Minnesota Statutes 1996, section 477A.013, 26.5 subdivision 8, is amended to read: 26.6 Subd. 8. [CITY FORMULA AID.] In calendar year19941998 26.7 and subsequent years, the formula aid for a city is equal to the 26.8 need increase percentage multiplied by the difference between 26.9 (1) the city's revenue need multiplied by its population, and 26.10 (2) the sum of the city's net tax capacity multiplied by the tax 26.11 effort rate and the city's guaranteed aid. No city may have a 26.12 formula aid amount less than zero. The need increase percentage 26.13 must be the same for all cities. 26.14Notwithstanding the prior sentence, in 1995 only, the need26.15increase percentage for a city shall be twice the need increase26.16percentage applicable to other cities if:26.17(1) the city, in 1992 or 1993, transferred an amount from26.18governmental funds to their sewer and water fund, and26.19(2) the amount transferred exceeded their net levy for26.20taxes payable in the year in which the transfer occurred.26.21The applicable need increase percentage or percentages must26.22be calculated by the department of revenue so that the total of26.23the aid under subdivision 9 equals the total amount available26.24for aid under section 477A.03.26.25 Sec. 17. Minnesota Statutes 1996, section 477A.013, 26.26 subdivision 9, is amended to read: 26.27 Subd. 9. [CITY AID DISTRIBUTION.] (a) In calendar year 26.2819941998 and thereafter, each city shall receive an aid 26.29 distribution equal to the sum of (1) the city formula aid under 26.30 subdivision 8, and (2) itscity aid baseguaranteed aid. 26.31 (b) The percentage increase for a first class city in 26.32 calendar year 1995 and thereafter shall not exceed the 26.33 percentage increase in the sum of the aid to all cities under 26.34 this section in the current calendar year compared to the sum of 26.35 the aid to all cities in the previous year. 26.36 (c) The total aid for any city, except a first class city, 27.1 shall not exceed the sum of (1) ten percent of the city's net 27.2 levy for the year prior to the aid distribution plus (2) its 27.3 total aid in the previous year before any increases or decreases 27.4 under sections 16A.711, subdivision 5, and 477A.0132. 27.5(d) Notwithstanding paragraph (c), in 1995 only, for cities27.6which in 1992 or 1993 transferred an amount from governmental27.7funds to their sewer and water fund in an amount greater than27.8their net levy for taxes payable in the year in which the27.9transfer occurred, the total aid shall not exceed the sum of (1)27.1020 percent of the city's net levy for the year prior to the aid27.11distribution plus (2) its total aid in the previous year before27.12any increases or decreases under sections 16A.711, subdivision27.135, and 477A.0132.27.14 Sec. 18. [REPEALER.] 27.15 Minnesota Statutes 1996, sections 124.2134; and 273.13, 27.16 subdivision 32, are repealed. 27.17 Sec. 19. [EFFECTIVE DATE.] 27.18 Article 1 is effective for taxes payable in 1998 and 27.19 subsequent years and for aids payable in 1998 and subsequent 27.20 years. 27.21 ARTICLE 2 27.22 BUSINESS ACTIVITY TAX 27.23 Section 1. Minnesota Statutes 1996, section 290.06, 27.24 subdivision 1, is amended to read: 27.25 Subdivision 1. [COMPUTATION, CORPORATIONS.] The franchise 27.26 tax imposed upon corporations shall be computed by applying to 27.27 their taxable income the rate of9.87.5 percent. 27.28 Sec. 2. [290.9401] [BUSINESS ACTIVITY TAX IMPOSED.] 27.29 In addition to the taxes imposed by this chapter, a tax 27.30 applies to a firm's tax base. The commissioner shall, by 27.31 September 30, 1997, set the rate of the tax to equal the 27.32 estimated sum of: 27.33 (1) the proceeds of the tax imposed under section 290.0921 27.34 for the 1997 taxable year; 27.35 (2) the proceeds of the tax imposed under section 290.0922 27.36 for the 1997 taxable year; 28.1 (3) the proceeds of the tax imposed under this subdivision 28.2 for the 1997 taxable year; plus 28.3 (4) the amount by which payments under section 273.1398, 28.4 subdivisions 2 and 2e, were increased due to the class rate 28.5 change on class 3 commercial-industrial property for aids 28.6 payable in 1998. 28.7 As used in this paragraph, "proceeds of the tax imposed for 28.8 the 1997 taxable year" means the proceeds of the specified tax 28.9 from all taxpayers during taxable years beginning after December 28.10 31, 1996, and before January 1, 1998. 28.11 Sec. 3. [290.9402] [DEFINITIONS.] 28.12 Subdivision 1. [SCOPE.] For purposes of sections 290.9401 28.13 to 290.9407, the following terms have the meanings given. 28.14 Subd. 2. [BUSINESS ACTIVITY.] "Business activity" means 28.15 sale or rental of property or the performance of services in 28.16 this state to realize a gain, benefit, or advantage, whether 28.17 direct or indirect. Business activity includes activity in 28.18 intrastate, interstate, and foreign commerce. It does not 28.19 include services provided by an employee to the employee's 28.20 employer, service as the director of a corporation, or a casual 28.21 transaction. Although an activity may be incidental to another 28.22 of the firm's business activities, each activity is a business 28.23 activity for purposes of the tax. 28.24 Subd. 3. [BUSINESS INCOME.] "Business income" means net 28.25 income. For a firm other than a corporation, net income is 28.26 limited to the portion derived from business activity. 28.27 Subd. 4. [CASUAL TRANSACTION.] "Casual transaction" means 28.28 a transaction that (1) is not made in the ordinary course of 28.29 repeated or successive transactions of a like character by the 28.30 firm, and (2) is not incidental to the firm's regular business 28.31 activity. 28.32 Subd. 5. [COMPENSATION.] (a) "Compensation" means all 28.33 payments made to or for the benefit of employees, officers, or 28.34 directors of the firm. 28.35 (b) Compensation specifically includes, but is not limited 28.36 to: 29.1 (1) wages, salaries, bonuses, commissions, and other 29.2 payments to employees, officers, or directors; 29.3 (2) payments to state and federal unemployment compensation 29.4 funds; 29.5 (3) payments, including self-insurance, for workers' 29.6 compensation; 29.7 (4) payments to individuals not currently working; 29.8 (5) payments to dependents and heirs of individuals because 29.9 of current or past labor service provided by those individuals; 29.10 (6) payments to a pension, retirement, profit-sharing, or 29.11 deferred compensation program; 29.12 (7) payments for insurance, including self-insurance, for 29.13 which employees are beneficiaries, including payments for health 29.14 and welfare and noninsured benefit plans and payment of fees for 29.15 administration of plans. 29.16 (c) Compensation does not include: 29.17 (1) discounts on the price of the firm's merchandise or 29.18 services sold to employees, officers, or directors that are not 29.19 available to other customers; or 29.20 (2) payments to independent contractors. 29.21 Subd. 6. [FIRM.] "Firm" means a corporation, individual, 29.22 partnership, limited liability company, trust, nonprofit 29.23 corporation, joint venture, association, receiver, estate, or 29.24 other person engaged in business activity. 29.25 Subd. 7. [PROPERTY.] "Property" includes all property, 29.26 whether tangible or intangible, or whether real, personal, or 29.27 mixed. 29.28 Sec. 4. [290.9403] [BUSINESSES SUBJECT TO TAX.] 29.29 Subdivision 1. [TAXABLE BUSINESSES.] The tax imposed by 29.30 sections 290.9401 to 290.9407 applies to a firm engaged in 29.31 business activity in Minnesota, unless an exemption under 29.32 subdivisions 2 to 4 applies. 29.33 Subd. 2. [FOREIGN INSURANCE COMPANIES.] An insurance 29.34 company as defined in section 290.05, subdivision 1, clause (c), 29.35 is exempt. 29.36 Subd. 3. [GOVERNMENT ENTITIES.] A governmental entity, as 30.1 defined in section 290.05, subdivision 1, clause (b), is exempt. 30.2 Subd. 4. [OTHER EXEMPT ENTITIES.] An organization exempt 30.3 from taxation under Subchapter F of the Internal Revenue Code is 30.4 exempt, except to the extent of tax base from activities 30.5 generating: 30.6 (1) unrelated business income, as defined in sections 511 30.7 to 515 of the Internal Revenue Code; 30.8 (2) taxable income of farmers' cooperatives under section 30.9 521 of the Internal Revenue Code; 30.10 (3) taxable income of political organizations under section 30.11 527 of the Internal Revenue Code; and 30.12 (4) taxable income of homeowners associations under section 30.13 528 of the Internal Revenue Code. 30.14 Sec. 5. [290.9404] [TAX BASE.] 30.15 Subdivision 1. [GENERAL RULE.] The tax base of a firm for 30.16 the taxable year equals the sum of the firm's business income 30.17 and the amounts in subdivision 2, less 30.18 (1) the amounts in subdivision 3; 30.19 (2) the capital acquisition deduction under subdivision 4; 30.20 and 30.21 (3) the exemption amount under subdivision 5. 30.22 All amounts are the amounts paid or accrued for the taxable 30.23 year under the firm's method of accounting for federal income 30.24 tax purposes. 30.25 Subd. 2. [ADDITIONS.] The following amounts are added to 30.26 business income to determine tax base: 30.27 (1) the amount of the additions to federal taxable income 30.28 under section 290.01, subdivision 19c, clauses (1), (2), (3), 30.29 (4), (5), (8), (10), and (11); and 30.30 (2) the amount of the following, to the extent deducted or 30.31 excluded in computing federal taxable income and not added under 30.32 clause (1): 30.33 (i) depreciation, amortization, or immediate or accelerated 30.34 write-off of the cost of tangible assets; 30.35 (ii) royalties; 30.36 (iii) dividends, except dividends representing reduction of 31.1 premiums to policyholders of insurance companies; and 31.2 (iv) interest including amounts paid, credited, or reserved 31.3 by insurance companies as amounts necessary to fulfill the 31.4 policy and other contract liability requirements of sections 805 31.5 and 809 of the Internal Revenue Code; 31.6 (3) the amount of compensation; and 31.7 (4) capital gains of individuals from business activity to 31.8 the extent excluded in computing federal taxable income. 31.9 Subd. 3. [SUBTRACTIONS.] To the extent included in federal 31.10 taxable income, the following amounts are subtracted from income 31.11 to determine tax base: 31.12 (1) dividends received or deemed received, including the 31.13 foreign dividend gross-up; 31.14 (2) interest except amounts paid, credited, or reserved by 31.15 insurance companies as amounts necessary to fulfill the policy 31.16 and other contract liability requirements of sections 805 and 31.17 809 of the Internal Revenue Code; 31.18 (3) royalties; and 31.19 (4) any capital loss not deducted in computing federal 31.20 taxable income. 31.21 Subd. 4. [CAPITAL ACQUISITION DEDUCTION.] (a) The capital 31.22 acquisition deduction equals the amount paid or accrued for the 31.23 taxable year of the cost of tangible assets qualifying for 31.24 depreciation, amortization, or immediate or accelerated 31.25 deduction under the Internal Revenue Code. Costs include 31.26 fabrication and installation costs. The deduction is the full 31.27 amount paid or accrued, regardless of the amount allowed by 31.28 federal law for the taxable year. 31.29 (b) If the capital acquisition deduction exceeds the net 31.30 amount under subdivisions 1 to 3 for the taxable year, the rest 31.31 is a carryover capital acquisition deduction to the next three 31.32 taxable years. The entire amount must be taken in the earliest 31.33 of the taxable years to which it may be carried. 31.34 Subd. 5. [EXEMPTION.] The exemption amount is $500,000. 31.35 The exemption must be deducted after computation of tax base 31.36 under subdivisions 1 to 4, but before apportionment under 32.1 section 290.9405 for multistate businesses. 32.2 Subd. 6. [SPECIAL RULES FOR FINANCIAL INSTITUTIONS.] The 32.3 tax base of a financial institution is the amount calculated 32.4 under subdivisions 1 to 4, except that the addition under 32.5 subdivision 2, clause (2), item (iv), and the subtraction under 32.6 subdivision 3, clause (2), do not apply. 32.7 Sec. 6. [290.9405] [MULTISTATE FIRMS.] 32.8 Subdivision 1. [SCOPE.] The tax base of a firm from 32.9 business activity carried on partly within and partly without 32.10 Minnesota must be apportioned to Minnesota as provided in this 32.11 section. 32.12 Subd. 2. [DEFINITIONS.] The definitions under section 32.13 290.191 apply for purposes of this section. 32.14 Subd. 3. [APPORTIONMENT FORMULA.] (a) A firm must 32.15 apportion its tax base to Minnesota as follows. The total tax 32.16 base, after deducting the capital acquisition deduction and 32.17 exemption, must be multiplied by the percentage that the firm's 32.18 sales made within Minnesota during the taxable year are of the 32.19 firm's total sales wherever made. 32.20 (b) A financial institution must apportion its tax base 32.21 under paragraph (a) using the receipts factor for financial 32.22 institutions. 32.23 Subd. 4. [RULES FOR UNITARY BUSINESSES.] (a) If a business 32.24 activity conducted wholly within this state or partly within 32.25 this state is part of a unitary business, the entire tax base of 32.26 the unitary business is subject to apportionment under this 32.27 section. The provisions of section 290.17 apply to determine if 32.28 a business activity is part of a unitary business. 32.29 (b) Each firm that is part of a unitary business must file 32.30 combined reports as the commissioner determines. On the 32.31 reports, all intercompany transactions between domestic firms 32.32 that are part of the unitary business must be eliminated. The 32.33 entire tax base of the unitary business must be apportioned 32.34 among the firms by using each firm's Minnesota sales factor in 32.35 the numerator of the apportionment formula and the total sales 32.36 factor of all firms in the unitary business in the denominator 33.1 of the apportionment formula. 33.2 (c) The tax base and apportionment factors of foreign firms 33.3 which are part of a unitary business are not included in the tax 33.4 base and apportionment factors of the unitary business. A 33.5 foreign firm must file on a separate return basis. 33.6 Sec. 7. [290.9406] [CREDITS.] 33.7 Subdivision 1. [INSURANCE PREMIUMS TAX.] The amount of 33.8 premium tax paid by the firm under sections 60A.15 and 299F.21 33.9 to 299F.26 during the taxable year is a credit against the tax 33.10 under section 290.9401. 33.11 Subd. 2. [MINNESOTACARE TAX.] The amount of gross revenue 33.12 tax paid by the firm under sections 295.50 to 295.58 during the 33.13 taxable year is a credit against the tax under section 290.9401. 33.14 Sec. 8. [290.9407] [ADMINISTRATION.] 33.15 The commissioner of revenue shall prescribe forms and 33.16 instructions for payment of the tax. The tax is due and payable 33.17 at the same times and under the same rules provided for the 33.18 franchise tax on corporations. 33.19 Sec. 9. [REPEALER.] 33.20 Minnesota Statutes 1996, sections 290.0921; and 290.0922, 33.21 are repealed. 33.22 Sec. 10. [EFFECTIVE DATE.] 33.23 This article is effective for taxable years beginning after 33.24 December 31, 1997.