as introduced - 80th Legislature (1997 - 1998) Posted on 12/15/2009 12:00am
Engrossments | ||
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Introduction | Posted on 01/26/1998 |
1.1 A bill for an act 1.2 relating to taxation; making policy changes to income, 1.3 franchise, and property taxes; giving certain powers 1.4 to the commissioner of revenue; amending Minnesota 1.5 Statutes 1996, sections 290.06, subdivision 2c; 1.6 290.067, subdivision 2a; 290.091, subdivision 2; 1.7 290.0921, subdivision 3a; 290.10; 290.191, 1.8 subdivisions 1, 6, and 11; and 290A.03, subdivision 3; 1.9 Minnesota Statutes 1997 Supplement, sections 270.67, 1.10 subdivision 2; 272.115, subdivisions 4 and 5; 275.70, 1.11 by adding a subdivision; 289A.02, subdivision 7; 1.12 289A.19, subdivision 2; 290.01, subdivisions 19, 19a, 1.13 19b, 19c, 19f, and 31; 290.0671, subdivision 1; 1.14 290.091, subdivision 6; 290.371, subdivision 2; 1.15 290A.03, subdivision 15; and 291.005, subdivision 1; 1.16 repealing Minnesota Statutes 1996, sections 289A.50, 1.17 subdivision 6; and 290.191, subdivision 8. 1.18 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 1.19 ARTICLE 1 1.20 INCOME AND FRANCHISE TAXES 1.21 Section 1. Minnesota Statutes 1997 Supplement, section 1.22 289A.19, subdivision 2, is amended to read: 1.23 Subd. 2. [CORPORATE FRANCHISE AND MINING COMPANY TAXES.] 1.24 Corporations or mining companies shall receive an extension of 1.25 seven months for filing the return of a corporation subject to 1.26 tax under chapter 290 or for filing the return of a mining 1.27 company subject to tax under sections 298.01 and 298.015if:. 1.28 Interest on any balance of tax not paid when the regularly 1.29 required return is due must be paid at the rate specified in 1.30 section 270.75, from the date such payment should have been made 1.31 if no extension was granted, until the date of payment of such 2.1 tax. 2.2 If a corporation or mining company does not: 2.3 (1)the corporation or mining company payspay at least 90 2.4 percent of the amount of tax shown on the return on or before 2.5 the regular due date of the return, the penalty prescribed by 2.6 section 289A.60, subdivision 1, shall be imposed on the unpaid 2.7 balance of tax; or 2.8 (2) pay the balance due shown on the regularly required 2.9 returnis paidon or before the extended due date of the return;2.10and2.11(3) interest on any balance due is paid at the rate2.12specified in section 270.75 from the regular due date of the2.13return until the tax is paid, the penalty prescribed by section 2.14 289A.60, subdivision 1, shall be imposed on the unpaid balance 2.15 of tax from the original due date of the return. 2.16 Sec. 2. Minnesota Statutes 1997 Supplement, section 2.17 290.01, subdivision 19a, is amended to read: 2.18 Subd. 19a. [ADDITIONS TO FEDERAL TAXABLE INCOME.] For 2.19 individuals, estates, and trusts, there shall be added to 2.20 federal taxable income: 2.21 (1)(i) interest income on obligations of any state other 2.22 than Minnesota or a political or governmental subdivision, 2.23 municipality, or governmental agency or instrumentality of any 2.24 state other than Minnesota exempt from federal income taxes 2.25 under the Internal Revenue Code or any other federal statute, 2.26 and 2.27 (ii) exempt-interest dividends as defined in section 2.28 852(b)(5) of the Internal Revenue Code, except the portion of 2.29 the exempt-interest dividends derived from interest income on 2.30 obligations of the state of Minnesota or its political or 2.31 governmental subdivisions, municipalities, governmental agencies 2.32 or instrumentalities, but only if the portion of the 2.33 exempt-interest dividends from such Minnesota sources paid to 2.34 all shareholders represents 95 percent or more of the 2.35 exempt-interest dividends that are paid by the regulated 2.36 investment company as defined in section 851(a) of the Internal 3.1 Revenue Code, or the fund of the regulated investment company as 3.2 defined in section 851(h) of the Internal Revenue Code, making 3.3 the payment; and 3.4 (iii) for the purposes of items (i) and (ii), interest on 3.5 obligations of an Indian tribal government described in section 3.6 7871(c) of the Internal Revenue Code shall be treated as 3.7 interest income on obligations of the state in which the tribe 3.8 is located; 3.9 (2) the amount of income taxes paid or accrued within the 3.10 taxable year under this chapter and income taxes paid to any 3.11 other state or to any province or territory of Canada, to the 3.12 extent allowed as a deduction under section 63(d) of the 3.13 Internal Revenue Code, but the addition may not be more than the 3.14 amount by which the itemized deductions as allowed under section 3.15 63(d) of the Internal Revenue Code exceeds the amount of the 3.16 standard deduction as defined in section 63(c) of the Internal 3.17 Revenue Code. For the purpose of this paragraph, the 3.18 disallowance of itemized deductions under section 68 of the 3.19 Internal Revenue Code of 1986, income tax is the last itemized 3.20 deduction disallowed; 3.21 (3) the capital gain amount of a lump sum distribution to 3.22 which the special tax under section 1122(h)(3)(B)(ii) of the Tax 3.23 Reform Act of 1986, Public Law Number 99-514, applies; 3.24 (4) the amount of income taxes paid or accrued within the 3.25 taxable year under this chapter and income taxes paid to any 3.26 other state or any province or territory of Canada, to the 3.27 extent allowed as a deduction in determining federal adjusted 3.28 gross income. For the purpose of this paragraph, income taxes 3.29 do not include the taxes imposed by sections 290.0922, 3.30 subdivision 1, paragraph (b), 290.9727, 290.9728, and 290.9729; 3.31 (5) the amount of loss or expense included in federal 3.32 taxable income under section 1366 of the Internal Revenue Code 3.33 flowing from a corporation that has a valid election in effect 3.34 for the taxable year under section 1362 of the Internal Revenue 3.35 Code, but which is not allowed to be an "S" corporation under 3.36 section 290.9725;and4.1 (6) the amount of any distributions in cash or property 4.2 made to a shareholder during the taxable year by a corporation 4.3 that has a valid election in effect for the taxable year under 4.4 section 1362 of the Internal Revenue Code, but which is not 4.5 allowed to be an "S" corporation under section 290.9725 to the 4.6 extent not already included in federal taxable income under 4.7 section 1368 of the Internal Revenue Code.; 4.8 (7) in the year stock of a corporation that had made a 4.9 valid election under section 1362 of the Internal Revenue Code 4.10 but was not an "S" corporation under section 290.9725 is sold or 4.11 disposed of in a transaction taxable under the Internal Revenue 4.12 Code, the amount of difference between the Minnesota basis of 4.13 the stock under subdivision 19f, paragraph (m), and the federal 4.14 basis if the Minnesota basis is lower than the shareholder's 4.15 federal basis; and 4.16 (8) the amount of expense, interest, or taxes disallowed 4.17 pursuant to section 290.10. 4.18 Sec. 3. Minnesota Statutes 1997 Supplement, section 4.19 290.01, subdivision 19b, is amended to read: 4.20 Subd. 19b. [SUBTRACTIONS FROM FEDERAL TAXABLE INCOME.] For 4.21 individuals, estates, and trusts, there shall be subtracted from 4.22 federal taxable income: 4.23 (1) interest income on obligations of any authority, 4.24 commission, or instrumentality of the United States to the 4.25 extent includable in taxable income for federal income tax 4.26 purposes but exempt from state income tax under the laws of the 4.27 United States; 4.28 (2) if included in federal taxable income, the amount of 4.29 any overpayment of income tax to Minnesota or to any other 4.30 state, for any previous taxable year, whether the amount is 4.31 received as a refund or as a credit to another taxable year's 4.32 income tax liability; 4.33 (3) the amount paid to others, less the credit allowed 4.34 under section 290.0674, not to exceed $1,625 for each dependent 4.35 in grades kindergarten to 6 and $2,500 for each dependent in 4.36 grades 7 to 12, for tuition, textbooks, and transportation of 5.1 each dependent in attending an elementary or secondary school 5.2 situated in Minnesota, North Dakota, South Dakota, Iowa, or 5.3 Wisconsin, wherein a resident of this state may legally fulfill 5.4 the state's compulsory attendance laws, which is not operated 5.5 for profit, and which adheres to the provisions of the Civil 5.6 Rights Act of 1964 and chapter 363. For the purposes of this 5.7 clause, "tuition" includes fees or tuition as defined in section 5.8 290.0674, subdivision 1, clause (1). As used in this clause, 5.9 "textbooks" includes books and other instructional materials and 5.10 equipment used in elementary and secondary schools in teaching 5.11 only those subjects legally and commonly taught in public 5.12 elementary and secondary schools in this state. Equipment 5.13 expenses qualifying for deduction includes expenses as defined 5.14 and limited in section 290.0674, subdivision 1, clause (3). 5.15 "Textbooks" does not include instructional books and materials 5.16 used in the teaching of religious tenets, doctrines, or worship, 5.17 the purpose of which is to instill such tenets, doctrines, or 5.18 worship, nor does it include books or materials for, or 5.19 transportation to, extracurricular activities including sporting 5.20 events, musical or dramatic events, speech activities, driver's 5.21 education, or similar programs; 5.22 (4) to the extent included in federal taxable income, 5.23 distributions from a qualified governmental pension plan, an 5.24 individual retirement account, simplified employee pension, or 5.25 qualified plan covering a self-employed person that represent a 5.26 return of contributions that were included in Minnesota gross 5.27 income in the taxable year for which the contributions were made 5.28 but were deducted or were not included in the computation of 5.29 federal adjusted gross income. The distribution shall be 5.30 allocated first to return of contributions until the 5.31 contributions included in Minnesota gross income have been 5.32 exhausted. This subtraction applies only to contributions made 5.33 in a taxable year prior to 1985; 5.34 (5) income as provided under section 290.0802; 5.35 (6) the amount of unrecovered accelerated cost recovery 5.36 system deductions allowed under subdivision 19g; 6.1 (7) to the extent included in federal adjusted gross 6.2 income, income realized on disposition of property exempt from 6.3 tax under section 290.491; 6.4 (8) to the extent not deducted in determining federal 6.5 taxable income, the amount paid for health insurance of 6.6 self-employed individuals as determined under section 162(l) of 6.7 the Internal Revenue Code, except that the 25 percent limit does 6.8 not apply. If the taxpayer deducted insurance payments under 6.9 section 213 of the Internal Revenue Code of 1986, the 6.10 subtraction under this clause must be reduced by the lesser of: 6.11 (i) the total itemized deductions allowed under section 6.12 63(d) of the Internal Revenue Code, less state, local, and 6.13 foreign income taxes deductible under section 164 of the 6.14 Internal Revenue Code and the standard deduction under section 6.15 63(c) of the Internal Revenue Code; or 6.16 (ii) the lesser of (A) the amount of insurance qualifying 6.17 as "medical care" under section 213(d) of the Internal Revenue 6.18 Code to the extent not deducted under section 162(1) of the 6.19 Internal Revenue Code or excluded from income or (B) the total 6.20 amount deductible for medical care under section 213(a); 6.21 (9) the exemption amount allowed under Laws 1995, chapter 6.22 255, article 3, section 2, subdivision 3; 6.23 (10) to the extent included in federal taxable income, 6.24 postservice benefits for youth community service under section 6.25 121.707 for volunteer service under United States Code, title 6.26 42, section 5011(d), as amended;and6.27 (11) to the extent not subtracted under clause (1), the 6.28 amount of income or gain included in federal taxable income 6.29 under section 1366 of the Internal Revenue Code flowing from a 6.30 corporation that has a valid election in effect for the taxable 6.31 year under section 1362 of the Internal Revenue Code which is 6.32 not allowed to be an "S" corporation under section 290.9725; and 6.33 (12) in the year stock of a corporation that had made a 6.34 valid election under section 1362 of the Internal Revenue Code 6.35 but was not an "S" corporation under section 290.9725 is sold or 6.36 disposed of in a transaction taxable under the Internal Revenue 7.1 Code, the amount of difference between the Minnesota basis of 7.2 the stock under subdivision 19f, paragraph (m), and the federal 7.3 basis if the Minnesota basis is higher than the shareholder's 7.4 federal basis. 7.5 Sec. 4. Minnesota Statutes 1997 Supplement, section 7.6 290.01, subdivision 19f, is amended to read: 7.7 Subd. 19f. [BASIS MODIFICATIONS AFFECTING GAIN OR LOSS ON 7.8 DISPOSITION OF PROPERTY.] (a) For individuals, estates, and 7.9 trusts, the basis of property is its adjusted basis for federal 7.10 income tax purposes except as set forth in paragraphs (f), (g), 7.11 and (m). For corporations, the basis of property is its 7.12 adjusted basis for federal income tax purposes, without regard 7.13 to the time when the property became subject to tax under this 7.14 chapter or to whether out-of-state losses or items of tax 7.15 preference with respect to the property were not deductible 7.16 under this chapter, except that the modifications to the basis 7.17 for federal income tax purposes set forth in paragraphs (b) to 7.18 (j) are allowed to corporations, and the resulting modifications 7.19 to federal taxable income must be made in the year in which gain 7.20 or loss on the sale or other disposition of property is 7.21 recognized. 7.22 (b) The basis of property shall not be reduced to reflect 7.23 federal investment tax credit. 7.24 (c) The basis of property subject to the accelerated cost 7.25 recovery system under section 168 of the Internal Revenue Code 7.26 shall be modified to reflect the modifications in depreciation 7.27 with respect to the property provided for in subdivision 19e. 7.28 For certified pollution control facilities for which 7.29 amortization deductions were elected under section 169 of the 7.30 Internal Revenue Code of 1954, the basis of the property must be 7.31 increased by the amount of the amortization deduction not 7.32 previously allowed under this chapter. 7.33 (d) For property acquired before January 1, 1933, the basis 7.34 for computing a gain is the fair market value of the property as 7.35 of that date. The basis for determining a loss is the cost of 7.36 the property to the taxpayer less any depreciation, 8.1 amortization, or depletion, actually sustained before that 8.2 date. If the adjusted cost exceeds the fair market value of the 8.3 property, then the basis is the adjusted cost regardless of 8.4 whether there is a gain or loss. 8.5 (e) The basis is reduced by the allowance for amortization 8.6 of bond premium if an election to amortize was made pursuant to 8.7 Minnesota Statutes 1986, section 290.09, subdivision 13, and the 8.8 allowance could have been deducted by the taxpayer under this 8.9 chapter during the period of the taxpayer's ownership of the 8.10 property. 8.11 (f) For assets placed in service before January 1, 1987, 8.12 corporations, partnerships, or individuals engaged in the 8.13 business of mining ores other than iron ore or taconite 8.14 concentrates subject to the occupation tax under chapter 298 8.15 must use the occupation tax basis of property used in that 8.16 business. 8.17 (g) For assets placed in service before January 1, 1990, 8.18 corporations, partnerships, or individuals engaged in the 8.19 business of mining iron ore or taconite concentrates subject to 8.20 the occupation tax under chapter 298 must use the occupation tax 8.21 basis of property used in that business. 8.22 (h) In applying the provisions of sections 301(c)(3)(B), 8.23 312(f) and (g), and 316(a)(1) of the Internal Revenue Code, the 8.24 dates December 31, 1932, and January 1, 1933, shall be 8.25 substituted for February 28, 1913, and March 1, 1913, 8.26 respectively. 8.27 (i) In applying the provisions of section 362(a) and (c) of 8.28 the Internal Revenue Code, the date December 31, 1956, shall be 8.29 substituted for June 22, 1954. 8.30 (j) The basis of property shall be increased by the amount 8.31 of intangible drilling costs not previously allowed due to 8.32 differences between this chapter and the Internal Revenue Code. 8.33 (k) The adjusted basis of any corporate partner's interest 8.34 in a partnership is the same as the adjusted basis for federal 8.35 income tax purposes modified as required to reflect the basis 8.36 modifications set forth in paragraphs (b) to (j). The adjusted 9.1 basis of a partnership in which the partner is an individual, 9.2 estate, or trust is the same as the adjusted basis for federal 9.3 income tax purposes modified as required to reflect the basis 9.4 modifications set forth in paragraphs (f) and (g). 9.5 (l) The modifications contained in paragraphs (b) to (j) 9.6 also apply to the basis of property that is determined by 9.7 reference to the basis of the same property in the hands of a 9.8 different taxpayer or by reference to the basis of different 9.9 property. 9.10 (m) If a corporation has a valid election in effect for the 9.11 taxable year under section 1362 of the Internal Revenue Code, 9.12 but is not allowed to be an "S" corporation under section 9.13 290.9725, and the corporation is liquidated or the individual 9.14 shareholder disposes of the stockand there is no capital loss9.15reflected in federal adjusted gross income because of the fact9.16that corporate losses have exhausted the shareholders' basis for9.17federal purposes, the shareholders shall be entitled to a9.18capital loss commensurate to their Minnesota basis for the9.19stock, the Minnesota basis in the shareholder's stock in the 9.20 corporation shall be computed as if the corporation were not an 9.21 "S" corporation for federal tax purposes. 9.22 Sec. 5. Minnesota Statutes 1996, section 290.06, 9.23 subdivision 2c, is amended to read: 9.24 Subd. 2c. [SCHEDULES OF RATES FOR INDIVIDUALS, ESTATES, 9.25 AND TRUSTS.] (a) The income taxes imposed by this chapter upon 9.26 married individuals filing joint returns and surviving spouses 9.27 as defined in section 2(a) of the Internal Revenue Code must be 9.28 computed by applying to their taxable net income the following 9.29 schedule of rates: 9.30 (1) On the first $19,910, 6 percent; 9.31 (2) On all over $19,910, but not over $79,120, 8 percent; 9.32 (3) On all over $79,120, 8.5 percent. 9.33 Married individuals filing separate returns, estates, and 9.34 trusts must compute their income tax by applying the above rates 9.35 to their taxable income, except that the income brackets will be 9.36 one-half of the above amounts. 10.1 (b) The income taxes imposed by this chapter upon unmarried 10.2 individuals must be computed by applying to taxable net income 10.3 the following schedule of rates: 10.4 (1) On the first $13,620, 6 percent; 10.5 (2) On all over $13,620, but not over $44,750, 8 percent; 10.6 (3) On all over $44,750, 8.5 percent. 10.7 (c) The income taxes imposed by this chapter upon unmarried 10.8 individuals qualifying as a head of household as defined in 10.9 section 2(b) of the Internal Revenue Code must be computed by 10.10 applying to taxable net income the following schedule of rates: 10.11 (1) On the first $16,770, 6 percent; 10.12 (2) On all over $16,770, but not over $67,390, 8 percent; 10.13 (3) On all over $67,390, 8.5 percent. 10.14 (d) In lieu of a tax computed according to the rates set 10.15 forth in this subdivision, the tax of any individual taxpayer 10.16 whose taxable net income for the taxable year is less than an 10.17 amount determined by the commissioner must be computed in 10.18 accordance with tables prepared and issued by the commissioner 10.19 of revenue based on income brackets of not more than $100. The 10.20 amount of tax for each bracket shall be computed at the rates 10.21 set forth in this subdivision, provided that the commissioner 10.22 may disregard a fractional part of a dollar unless it amounts to 10.23 50 cents or more, in which case it may be increased to $1. 10.24 (e) An individual who is not a Minnesota resident for the 10.25 entire year must compute the individual's Minnesota income tax 10.26 as provided in this subdivision. After the application of the 10.27 nonrefundable credits provided in this chapter, the tax 10.28 liability must then be multiplied by a fraction in which: 10.29 (1) The numerator is the individual's Minnesota source 10.30 federal adjusted gross income as defined in section 62 of the 10.31 Internal Revenue Code disregarding income or loss flowing from a 10.32 corporation having a valid election for the taxable year under 10.33 section 1362 of the Internal Revenue Code but which is not an 10.34 "S" corporation under section 290.9725 and increased by the 10.35 addition required for interest income from non-Minnesota state 10.36 and municipal bonds under section 290.01, subdivision 19a, 11.1 clause (1), after applying the allocation and assignability 11.2 provisions of section 290.081, clause (a), or 290.17; and 11.3 (2) the denominator is the individual's federal adjusted 11.4 gross income as defined in section 62 of the Internal Revenue 11.5 Code of 1986, as amended through April 15, 1995,increased by 11.6 theaddition required for interest income from non-Minnesota11.7state and municipal bonds under section 290.01, subdivision 19a,11.8clause (1)amounts specified in section 290.01, subdivision 19a, 11.9 clauses (1), (5), (6), and (7), and reduced by the amounts 11.10 specified in section 290.01, subdivision 19b, clauses (1), (11), 11.11 and (12). 11.12 Sec. 6. Minnesota Statutes 1996, section 290.091, 11.13 subdivision 2, is amended to read: 11.14 Subd. 2. [DEFINITIONS.] For purposes of the tax imposed by 11.15 this section, the following terms have the meanings given: 11.16 (a) "Alternative minimum taxable income" means the sum of 11.17 the following for the taxable year: 11.18 (1) the taxpayer's federal alternative minimum taxable 11.19 income as defined in section 55(b)(2) of the Internal Revenue 11.20 Code; 11.21 (2) the taxpayer's itemized deductions allowed in computing 11.22 federal alternative minimum taxable income, but excluding the 11.23 Minnesota charitable contribution deduction and the medical 11.24 expense deduction; 11.25 (3) for depletion allowances computed under section 613A(c) 11.26 of the Internal Revenue Code, with respect to each property (as 11.27 defined in section 614 of the Internal Revenue Code), to the 11.28 extent not included in federal alternative minimum taxable 11.29 income, the excess of the deduction for depletion allowable 11.30 under section 611 of the Internal Revenue Code for the taxable 11.31 year over the adjusted basis of the property at the end of the 11.32 taxable year (determined without regard to the depletion 11.33 deduction for the taxable year); 11.34 (4) to the extent not included in federal alternative 11.35 minimum taxable income, the amount of the tax preference for 11.36 intangible drilling cost under section 57(a)(2) of the Internal 12.1 Revenue Code determined without regard to subparagraph (E); 12.2 (5) to the extent not included in federal alternative 12.3 minimum taxable income, the amount of interest income as 12.4 provided by section 290.01, subdivision 19a, clause (1); 12.5 (6) amounts added to federal taxable income as provided by 12.6 section 290.01, subdivision 19a, clauses (5), (6), and (7); 12.7 less the sum of the amounts determined under the following 12.8 clauses (1) to(3)(4): 12.9 (1) interest income as defined in section 290.01, 12.10 subdivision 19b, clause (1); 12.11 (2) an overpayment of state income tax as provided by 12.12 section 290.01, subdivision 19b, clause (2), to the extent 12.13 included in federal alternative minimum taxable income;and12.14 (3) the amount of investment interest paid or accrued 12.15 within the taxable year on indebtedness to the extent that the 12.16 amount does not exceed net investment income, as defined in 12.17 section 163(d)(4) of the Internal Revenue Code. Interest does 12.18 not include amounts deducted in computing federal adjusted gross 12.19 income; and 12.20 (4) amounts subtracted from federal taxable income as 12.21 provided by section 290.01, subdivision 19b, clauses (11) and 12.22 (12). 12.23 In the case of an estate or trust, alternative minimum 12.24 taxable income must be computed as provided in section 59(c) of 12.25 the Internal Revenue Code. 12.26 (b) "Investment interest" means investment interest as 12.27 defined in section 163(d)(3) of the Internal Revenue Code. 12.28 (c) "Tentative minimum tax" equals seven percent of 12.29 alternative minimum taxable income after subtracting the 12.30 exemption amount determined under subdivision 3. 12.31 (d) "Regular tax" means the tax that would be imposed under 12.32 this chapter (without regard to this section and section 12.33 290.032), reduced by the sum of the nonrefundable credits 12.34 allowed under this chapter. 12.35 (e) "Net minimum tax" means the minimum tax imposed by this 12.36 section. 13.1 (f) "Minnesota charitable contribution deduction" means a 13.2 charitable contribution deduction under section 170 of the 13.3 Internal Revenue Code to or for the use of an entity described 13.4 in section 290.21, subdivision 3, clauses (a) to (e). When the 13.5 federal deduction for charitable contributions is limited under 13.6 section 170(b) of the Internal Revenue Code, the allowable 13.7 contributions in the year of contribution are deemed to be first 13.8 contributions to entities described in section 290.21, 13.9 subdivision 3, clauses (a) to (e). 13.10 Sec. 7. Minnesota Statutes 1997 Supplement, section 13.11 290.091, subdivision 6, is amended to read: 13.12 Subd. 6. [CREDIT FOR PRIOR YEARS' LIABILITY.] (a) A credit 13.13 is allowed against the tax imposed by this chapter on 13.14 individuals, trusts, and estates equal to the minimum tax credit 13.15 for the taxable year. The minimum tax credit equals the 13.16 adjusted net minimum tax for taxable years beginning after 13.17 December 31, 1988, reduced by the minimum tax credits allowed in 13.18 a prior taxable year. The credit may not exceed the excess (if 13.19 any) for the taxable year of 13.20 (1) the regular tax, over 13.21 (2) the greater of (i) the tentative alternative minimum 13.22 tax, or (ii) zero. 13.23 (b) The adjusted net minimum tax for a taxable year equals 13.24 the lesser of the net minimum tax or the excess (if any) of 13.25 (1) the tentative minimum tax, over 13.26 (2) seven percent of the sum of 13.27 (i) adjusted gross income as defined in section 62 of the 13.28 Internal Revenue Code, 13.29 (ii) interest income as defined in section 290.01, 13.30 subdivision 19a, clause (1), 13.31 (iii) the amount added to federal taxable income as 13.32 provided by section 290.01, subdivision 19a, clauses (5), (6), 13.33 and (7), 13.34 (iv) interest on specified private activity bonds, as 13.35 defined in section 57(a)(5) of the Internal Revenue Code, to the 13.36 extent not included under clause (ii), 14.1(iv)(v) depletion as defined in section 57(a)(1), 14.2 determined without regard to the last sentence of paragraph (1), 14.3 of the Internal Revenue Code, less 14.4(v)(vi) the deductions allowed in computing alternative 14.5 minimum taxable income provided in subdivision 2, paragraph (a), 14.6 clause (2) of the first series of clauses and clauses (1), 14.7 (2),and(3), and (4) of the second series of clauses, and 14.8(vi)(vii) the exemption amount determined under 14.9 subdivision 3. 14.10 In the case of an individual who is not a Minnesota 14.11 resident for the entire year, adjusted net minimum tax must be 14.12 multiplied by the fraction defined in section 290.06, 14.13 subdivision 2c, paragraph (e). In the case of a trust or 14.14 estate, adjusted net minimum tax must be multiplied by the 14.15 fraction defined under subdivision 4, paragraph (b). 14.16 Sec. 8. Minnesota Statutes 1996, section 290.10, is 14.17 amended to read: 14.18 290.10 [NONDEDUCTIBLE ITEMS.] 14.19 Except as provided in section 290.17, subdivision 4, 14.20 paragraph (i), in computing the net income of acorporation14.21 taxpayer no deduction shall in any case be allowed for expenses, 14.22 interest and taxes connected with or allocable against the 14.23 production or receipt of all income not included in the measure 14.24 of the tax imposed by this chapter, except that for corporations 14.25 engaged in the business of mining or producing iron ore, the 14.26 mining of which is subject to the occupation tax imposed by 14.27 section 298.01, subdivision 4, this shall not prevent the 14.28 deduction of expenses and other items to the extent that the 14.29 expenses and other items are allowable under this chapter and 14.30 are not deductible, capitalizable, retainable in basis, or taken 14.31 into account by allowance or otherwise in computing the 14.32 occupation tax and do not exceed the amounts taken for federal 14.33 income tax purposes for that year. Occupation taxes imposed 14.34 under chapter 298, royalty taxes imposed under chapter 299, or 14.35 depletion expenses may not be deducted under this clause. 14.36 Sec. 9. Minnesota Statutes 1996, section 290.191, 15.1 subdivision 1, is amended to read: 15.2 Subdivision 1. [GENERAL RULE.] (a) Except as otherwise 15.3 provided in section 290.17, subdivision 5, the net income from a 15.4 trade or business carried on partly within and partly without 15.5 this state must be apportioned to this state as provided in this 15.6 section. 15.7 (b) For purposes of this section, "state" means a state of 15.8 the United States, the District of Columbia, the commonwealth of 15.9 Puerto Rico, or any territory or possession of the United States 15.10 or any foreign country. 15.11 (c) For purposes of this section, "commercial domicile" 15.12 means the headquarters of the trade or business, that is, the 15.13 place from which the trade or business is principally managed 15.14 and directed. If a taxpayer is organized under the laws of a 15.15 foreign country, or of the Commonwealth of Puerto Rico, or any 15.16 territory or possession of the United States, the taxpayer's 15.17 commercial domicile is the state that the taxpayer has declared 15.18 to be its home state under the International Banking Act of 15.19 1978; or, if the taxpayer has not made such a declaration or is 15.20 not required to make such a declaration, its commercial domicile 15.21 for the purpose of this section is the state of the United 15.22 States or the District of Columbia to which the greatest number 15.23 of employees are regularly connected or out of which they are 15.24 working, irrespective of where the services of the employees are 15.25 performed, as of the last day of the taxable year. 15.26 Sec. 10. Minnesota Statutes 1996, section 290.191, 15.27 subdivision 6, is amended to read: 15.28 Subd. 6. [DETERMINATION OF RECEIPTS FACTOR FOR FINANCIAL 15.29 INSTITUTIONS.] (a) For purposes of this section, the rules in 15.30 this subdivisionand subdivision 8apply in determining the 15.31 receipts factor for financial institutions. 15.32 (b) "Receipts" for this purpose means gross income, 15.33 including net taxable gain on disposition of assets, including 15.34 securities and money market instruments, when derived from 15.35 transactions and activities in the regular course of the 15.36 taxpayer's trade or business. 16.1 (c) "Money market instruments" means federal funds sold and 16.2 securities purchased under agreements to resell, commercial 16.3 paper, banker's acceptances, and purchased certificates of 16.4 deposit and similar instruments to the extent that the 16.5 instruments are reflected as assets under generally accepted 16.6 accounting principles. 16.7 (d) "Securities" means United States Treasury securities, 16.8 obligations of United States government agencies and 16.9 corporations, obligations of state and political subdivisions, 16.10 corporate stock, bonds, and other securities, participations in 16.11 securities backed by mortgages held by United States or state 16.12 government agencies, loan-backed securities and similar 16.13 investments to the extent the investments are reflected as 16.14 assets under generally accepted accounting principles. 16.15 (e) Receipts from the lease or rental of real or tangible 16.16 personal property, including both finance leases and true 16.17 leases, must be attributed to this state if the property is 16.18 located in this state. Receipts from the lease or rental of 16.19 tangible personal property that is characteristically moving 16.20 property, including, but not limited to, motor vehicles, rolling 16.21 stock, aircraft, vessels, or mobile equipment are included in 16.22 the numerator of the receipts factor to the extent that the 16.23 property is used in this state. The extent of the use of moving 16.24 property is determined as follows: 16.25 (1) A motor vehicle is used wholly in the state in which it 16.26 is registered. 16.27 (2) The extent that rolling stock is used in this state is 16.28 determined by multiplying the receipts from the lease or rental 16.29 of the rolling stock by a fraction, the numerator of which is 16.30 the miles traveled within this state by the leased or rented 16.31 rolling stock and the denominator of which is the total miles 16.32 traveled by the leased or rented rolling stock. 16.33 (3) The extent that an aircraft is used in this state is 16.34 determined by multiplying the receipts from the lease or rental 16.35 of the aircraft by a fraction, the numerator of which is the 16.36 number of landings of the aircraft in this state and the 17.1 denominator of which is the total number of landings of the 17.2 aircraft. 17.3 (4) The extent that a vessel, mobile equipment, or other 17.4 mobile property is used in the state is determined by 17.5 multiplying the receipts from the lease or rental of property by 17.6 a fraction, the numerator of which is the number of days during 17.7 the taxable year the property was in this state and the 17.8 denominator of which is the total days in the taxable year. 17.9 (f) Interest income and other receipts from assets in the 17.10 nature of loans that are secured primarily by real estate or 17.11 tangible personal property must be attributed to this state if 17.12 the security property is located in this state under the 17.13 principles stated in paragraph (e). 17.14 (g) Interest income and other receipts from consumer loans 17.15 not secured by real or tangible personal property that are made 17.16 to residents of this state, whether at a place of business, by 17.17 traveling loan officer, by mail, by telephone or other 17.18 electronic means, must be attributed to this state. 17.19 (h) Interest income and other receipts from commercial 17.20 loans and installment obligations that are unsecured by real or 17.21 tangible personal property or secured by intangible property 17.22 must be attributed to this state if theproceeds of the loan are17.23to be applied in this state. If it cannot be determined where17.24the funds are to be applied, the income and receipts are17.25attributed to the state in which the office of the borrower from17.26which the application would be made in the regular course of17.27business is located. If this cannot be determined, the17.28transaction is disregarded in the apportionment17.29formulaborrower's commercial domicile is located in this state. 17.30 (i) Interest income and other receipts from a participating 17.31 financial institution's portion of participation and syndication 17.32 loans must be attributed under paragraphs (e) to (h). A 17.33 participation loan is an arrangement in which a lender makes a 17.34 loan to a borrower and then sells, assigns, or otherwise 17.35 transfers all or a part of the loan to a purchasing financial 17.36 institution. A syndication loan is a loan transaction involving 18.1 multiple financial institutions in which all the lenders are 18.2 named as parties to the loan documentation, are known to the 18.3 borrower, and have privity of contract with the borrower. 18.4 (j) Interest income and other receipts including service 18.5 charges from financial institution credit card and travel and 18.6 entertainment credit card receivables and credit card holders' 18.7 fees must be attributed to the state to which the card charges 18.8 and fees are regularly billed. 18.9 (k) The receipts factor includes net gains (but not less 18.10 than zero) from the sale of credit card receivables, the 18.11 numerator of which is determined by multiplying the net gains by 18.12 a fraction, the numerator of which is the amount in the 18.13 numerator of the receipts factor under paragraph (j) and the 18.14 denominator of which is the taxpayer's total amount of interest 18.15 and fees or penalties in the nature of interest from credit card 18.16 receivables and fees charged to cardholders. 18.17 (1) The receipts factor includes all credit card issuer's 18.18 reimbursement fees, the numerator of which is determined by 18.19 multiplying the reimbursement fees by a fraction, the numerator 18.20 of which is the amount included in the numerator of the receipts 18.21 factor under paragraph (j) and the denominator of which is the 18.22 total amount of interest and fees or penalties in the nature of 18.23 interest from credit card receivables and fees charged to 18.24 cardholders. 18.25 (m) Merchant discount income derived from financial 18.26 institution credit card holder transactions with a merchant must 18.27 be attributed to the statein which the merchant is located. In18.28the case of merchants located within and outside the state, only18.29receipts from merchant discounts attributable to sales made from18.30locations within the state are attributed to this state. It is18.31presumed, subject to rebuttal, that the location of a merchant18.32is the address shown on the invoice submitted by the merchant to18.33the taxpayerof the merchant's commercial domicile. 18.34 (n) The receipts from the servicing of loans are included 18.35 in the receipts factor and are attributed to this state as 18.36 follows: 19.1 (1) The numerator of the receipts factor includes loan 19.2 servicing fees derived from loans secured by real estate or 19.3 tangible personal property multiplied by a fraction, the 19.4 numerator of which is the amount included in the numerator of 19.5 the receipts factor under paragraph (f) and the denominator of 19.6 which is the total amount of interest and fees or penalties in 19.7 the nature of interest from loans secured by real estate and 19.8 tangible personal property. 19.9 (2) The numerator of the receipts factor includes loan 19.10 servicing fees derived from consumer loans not secured by real 19.11 estate or tangible personal property multiplied by a fraction, 19.12 the numerator of which is the amount included in the numerator 19.13 of the receipts factor under paragraph (g) and the denominator 19.14 of which is the total amount of interest and fees or penalties 19.15 in the nature of interest from loans not secured by real estate 19.16 and tangible personal property. 19.17 (3) The numerator of the receipts factor includes loan 19.18 servicing fees derived from commercial loans and installment 19.19 obligations that are unsecured by real or tangible personal 19.20 property or secured by intangible property multiplied by a 19.21 fraction, the numerator of which is the amount included in the 19.22 numerator of the receipts factor under paragraph (h) and the 19.23 denominator of which is the total amount of interest and fees or 19.24 penalties in the nature of interest from commercial loans and 19.25 installment obligations that are unsecured by real or tangible 19.26 personal property or secured by intangible property. 19.27 (4) The numerator of the receipts factor includes loan 19.28 servicing fees derived from financial institution credit card 19.29 and travel and entertainment credit card receivables and credit 19.30 cardholders' fees multiplied by a fraction, the numerator of 19.31 which is the amount included in the numerator of the receipts 19.32 factor under paragraph (j) and the denominator of which is the 19.33 total amount of interest and fees or penalties in the nature of 19.34 interest from financial institution credit card and travel and 19.35 entertainment credit card receivables and credit cardholders' 19.36 fees. 20.1 (5) If the taxpayer receives loan servicing fees for 20.2 servicing either the secured or the unsecured loans of the 20.3 unrelated third party, the receipts are attributed under the 20.4 principles in paragraph (o). 20.5(l)(o) Receipts from the performance of fiduciary and 20.6 other services must be attributed to the state in which the 20.7 services are received. For the purposes of this section, 20.8 services provided to a corporation, partnership, or trust must 20.9 be attributed to a state where it has a fixed place of doing 20.10 business. If the state where the services are received is not 20.11 readily determinable or is a state where the corporation, 20.12 partnership, or trust does not have a fixed place of doing 20.13 business, the services shall be deemed to be received at the 20.14 location of the office of the customer from which the services 20.15 were ordered in the regular course of the customer's trade or 20.16 business. If the ordering office cannot be determined, the 20.17 services shall be deemed to be received at the office of the 20.18 customer to which the services are billed. 20.19(m)(p) Receipts from the issuance of travelers checks and 20.20 money orders must be attributed to the state in which the checks 20.21 and money orders are purchased. 20.22(n)(q) Receipts from investments of a financial 20.23 institution in securities and from money market instrumentsmust20.24be apportioned to this state based on the ratio that total20.25deposits from this state, its residents, including any business20.26with an office or other place of business in this state, its20.27political subdivisions, agencies, and instrumentalities bear to20.28the total deposits from all states, their residents, their20.29political subdivisions, agencies, and instrumentalities. In the20.30case of an unregulated financial institution subject to this20.31section, these receipts are apportioned to this state based on20.32the ratio that its gross business income, excluding such20.33receipts, earned from sources within this state bears to gross20.34business income, excluding such receipts, earned from sources20.35within all states. For purposes of this subdivision, deposits20.36made by this state, its residents, its political subdivisions,21.1agencies, and instrumentalities must be attributed to this21.2state, whether or not the deposits are accepted or maintained by21.3the taxpayer at locationsare attributed to this state if the 21.4 investments are properly assigned to a regular place of business 21.5 of the taxpayer within this state. 21.6 The taxpayer has the burden of proving that investments of 21.7 a financial institution in securities and from money market 21.8 instruments are properly assigned to a regular place of business 21.9 outside this state. Where the day-to-day decisions regarding an 21.10 investment occur at more than one regular place of business, the 21.11 investment is considered to be located at the regular place of 21.12 business of the taxpayer where the investment or trading 21.13 policies and guidelines with respect to the investment are 21.14 established. 21.15(o)(r) A financial institution's interest in property 21.16 described in section 290.015, subdivision 3, paragraph (b), is 21.17 included in the receipts factor in the same manner as assets in 21.18 the nature of securities or money market instruments are 21.19 included in paragraph(n)(q). 21.20 Sec. 11. Minnesota Statutes 1996, section 290.191, 21.21 subdivision 11, is amended to read: 21.22 Subd. 11. [FINANCIAL INSTITUTIONS; PROPERTY FACTOR.] (a) 21.23 For financial institutions, the property factor includes, as 21.24 well as tangible property, intangible property as set forth in 21.25 this subdivision. 21.26 (b) Intangible personal property must be included at its 21.27 tax basis for federal income tax purposes. 21.28 (c) Goodwill must not be included in the property factor. 21.29 (d) Coin and currencylocated in this state must be21.30attributed to this statemust not be included in the property 21.31 factor. 21.32 (e) Lease financing receivables must be attributed to this 21.33 state ifand to the extent that the property is locatedthe 21.34 receivables are properly assigned to a regular place of business 21.35 of the taxpayer within this state. 21.36 (f) Assets in the nature of loansthat are secured by real22.1or tangible personal propertymust be attributed to this state 22.2 ifand to the extent that the security property is locatedthe 22.3 loans are properly assigned to a regular place of business of 22.4 the taxpayer within this state. 22.5 (g)Assets in the nature of consumer loans and installment22.6obligations that are unsecured or secured by intangible property22.7must be attributed to this state if the loan was made to a22.8resident of this state.22.9(h) Assets in the nature of commercial loan and installment22.10obligations that are unsecured by real or tangible personal22.11property or secured by intangible property must be attributed to22.12this state if the proceeds of the loan are to be applied in this22.13state. If it cannot be determined where the funds are to be22.14applied, the assets must be attributed to the state in which22.15there is located the office of the borrower from which the22.16application would be made in the regular course of business. If22.17this cannot be determined, the transaction is disregarded in the22.18apportionment formula.22.19(i)A participating financial institution's portion of 22.20 participation and syndication loans must be attributed under 22.21 paragraphs (e)to (h)and (f). 22.22(j)(h) Financial institution credit card and travel and 22.23 entertainment credit card receivables must be attributed to the 22.24 stateto which the credit card charges and fees are regularly22.25billedif the receivables are properly assigned to a regular 22.26 place of business of the taxpayer within the state. 22.27(k)(i) Receivables arising from merchant discount income 22.28 derived from financial institution credit card holder 22.29 transactions with a merchant are attributed to the statein22.30which the merchant is located. In the case of merchants located22.31within and without the state, only receivables from merchant22.32discounts attributable to sales made from locations within the22.33state are attributed to this state. It is presumed, subject to22.34rebuttal, that the location of a merchant is the address shown22.35on the invoice submitted by the merchant to the taxpayerif the 22.36 receivables are properly assigned to a regular place of business 23.1 of the taxpayer within the state. 23.2(l)(j) Assets in the nature of securities and money market 23.3 instrumentsare apportioned to this state based upon the ratio23.4that total deposits from this state, its residents, its23.5political subdivisions, agencies and instrumentalities bear to23.6the total deposits from all states, their residents, their23.7political subdivisions, agencies and instrumentalities. In the23.8case of an unregulated financial institution, the assets are23.9apportioned to this state based upon the ratio that its gross23.10business income earned from sources within this state bears to23.11gross business income earned from sources within all states.23.12For purposes of this paragraph, deposits made by this state, its23.13residents, its political subdivisions, agencies, and23.14instrumentalities are attributed to this state, whether or not23.15the deposits are accepted or maintained by the taxpayer at23.16locations within this statemust not be included in the property 23.17 factor. 23.18(m)(k) A financial institution's interest in any property 23.19 described in section 290.015, subdivision 3, paragraph (b),is23.20included in the property factor in the same manner as assets in23.21the nature of securities or money market instruments are23.22included under paragraph (1)must not be included in the 23.23 property factor. 23.24 (l) For the purposes of paragraphs (e) to (i), loan assets 23.25 and receivables are properly assigned in this state if the 23.26 preponderance of substantive contact occurred in this state. In 23.27 determining where the preponderance of substantive contact 23.28 occurred, the following consideration should be given: 23.29 (1) solicitation; 23.30 (2) investigation; 23.31 (3) negotiation; 23.32 (4) approval; and 23.33 (5) administration. 23.34 Sec. 12. Minnesota Statutes 1997 Supplement, section 23.35 290.371, subdivision 2, is amended to read: 23.36 Subd. 2. [EXEMPTIONS.] A corporation is not required to 24.1 file a notice of business activities report if: 24.2 (1) by the end of an accounting period for which it was 24.3 otherwise required to file a notice of business activities 24.4 report under this section, it had received a certificate of 24.5 authority to do business in this state; 24.6 (2) a timely return has been filed under section 289A.08; 24.7 (3) the corporation is exempt from taxation under this 24.8 chapter pursuant to section 290.05; or 24.9 (4) the corporation's activities in Minnesota, or the 24.10 interests in property which it owns, consist solely of 24.11 activities or property exempted from jurisdiction to tax under 24.12 section 290.015, subdivision 3, paragraph (b); or24.13(5) the corporation is an "S" corporation under section24.14290.9725. 24.15 Sec. 13. [REPEALER.] 24.16 Minnesota Statutes 1996, sections 289A.50, subdivision 6; 24.17 and 290.191, subdivision 8, are repealed. 24.18 Sec. 14. [EFFECTIVE DATES.] 24.19 Section 1 is effective for extensions received under 24.20 Minnesota Statutes, section 289A.19, subdivision 2, for tax 24.21 years beginning after December 31, 1996. The change in section 24.22 2 made by clause (7) is effective for tax years beginning after 24.23 December 31, 1996. The change in section 2 made by clause (8) 24.24 is effective for tax years beginning after December 31, 1997. 24.25 Sections 3, 4, 6, and 7 are effective for tax years beginning 24.26 after December 31, 1996. Section 5 is effective for tax years 24.27 beginning after December 31, 1996, except the change in 24.28 denominator for Minnesota Statutes, section 290.01, subdivision 24.29 19b, clause (1), is effective for tax years beginning after 24.30 December 31, 1997. Section 8 is effective for tax years 24.31 beginning after December 31, 1997. Sections 9 to 12 are 24.32 effective for tax years beginning after December 31, 1998. 24.33 Section 13 is effective for tax years beginning after December 24.34 31, 1997, except that the repeal of Minnesota Statutes, section 24.35 290.191, subdivision 8, is effective for tax years beginning 24.36 after December 31, 1998. 25.1 ARTICLE 2 25.2 FEDERAL UPDATE 25.3 Section 1. Minnesota Statutes 1997 Supplement, section 25.4 289A.02, subdivision 7, is amended to read: 25.5 Subd. 7. [INTERNAL REVENUE CODE.] Unless specifically 25.6 defined otherwise, "Internal Revenue Code" means the Internal 25.7 Revenue Code of 1986, as amended through December 31,1996, and25.8includes the provisions of section 1(a) and (b) of Public Law25.9Number 104-1171997. 25.10 Sec. 2. Minnesota Statutes 1997 Supplement, section 25.11 290.01, subdivision 19, is amended to read: 25.12 Subd. 19. [NET INCOME.] The term "net income" means the 25.13 federal taxable income, as defined in section 63 of the Internal 25.14 Revenue Code of 1986, as amended through the date named in this 25.15 subdivision, incorporating any elections made by the taxpayer in 25.16 accordance with the Internal Revenue Code in determining federal 25.17 taxable income for federal income tax purposes, and with the 25.18 modifications provided in subdivisions 19a to 19f. 25.19 In the case of a regulated investment company or a fund 25.20 thereof, as defined in section 851(a) or 851(h) of the Internal 25.21 Revenue Code, federal taxable income means investment company 25.22 taxable income as defined in section 852(b)(2) of the Internal 25.23 Revenue Code, except that: 25.24 (1) the exclusion of net capital gain provided in section 25.25 852(b)(2)(A) of the Internal Revenue Code does not apply; 25.26 (2) the deduction for dividends paid under section 25.27 852(b)(2)(D) of the Internal Revenue Code must be applied by 25.28 allowing a deduction for capital gain dividends and 25.29 exempt-interest dividends as defined in sections 852(b)(3)(C) 25.30 and 852(b)(5) of the Internal Revenue Code; and 25.31 (3) the deduction for dividends paid must also be applied 25.32 in the amount of any undistributed capital gains which the 25.33 regulated investment company elects to have treated as provided 25.34 in section 852(b)(3)(D) of the Internal Revenue Code. 25.35 The net income of a real estate investment trust as defined 25.36 and limited by section 856(a), (b), and (c) of the Internal 26.1 Revenue Code means the real estate investment trust taxable 26.2 income as defined in section 857(b)(2) of the Internal Revenue 26.3 Code. 26.4 The net income of a designated settlement fund as defined 26.5 in section 468B(d) of the Internal Revenue Code means the gross 26.6 income as defined in section 468B(b) of the Internal Revenue 26.7 Code. 26.8 The Internal Revenue Code of 1986, as amended through 26.9 December 31, 1986, shall be in effect for taxable years 26.10 beginning after December 31, 1986. The provisions of sections 26.11 10104, 10202, 10203, 10204, 10206, 10212, 10221, 10222, 10223, 26.12 10226, 10227, 10228, 10611, 10631, 10632, and 10711 of the 26.13 Omnibus Budget Reconciliation Act of 1987, Public Law Number 26.14 100-203, the provisions of sections 1001, 1002, 1003, 1004, 26.15 1005, 1006, 1008, 1009, 1010, 1011, 1011A, 1011B, 1012, 1013, 26.16 1014, 1015, 1018, 2004, 3041, 4009, 6007, 6026, 6032, 6137, 26.17 6277, and 6282 of the Technical and Miscellaneous Revenue Act of 26.18 1988, Public Law Number 100-647, the provisions of sections 26.19 7811, 7816, and 7831 of the Omnibus Budget Reconciliation Act of 26.20 1989, Public Law Number 101-239,andthe provisions of sections 26.21 1305, 1704(r), and 1704(e)(1) of the Small Business Job 26.22 Protection Act, Public Law Number 104-188, and the provisions of 26.23 sections 975 and 1604(d)(2) and (e) of the Taxpayer Relief Act 26.24 of 1997, Public Law Number 105-34, shall be effective at the 26.25 time they become effective for federal income tax purposes. 26.26 The Internal Revenue Code of 1986, as amended through 26.27 December 31, 1987, shall be in effect for taxable years 26.28 beginning after December 31, 1987. The provisions of sections 26.29 4001, 4002, 4011, 5021, 5041, 5053, 5075, 6003, 6008, 6011, 26.30 6030, 6031, 6033, 6057, 6064, 6066, 6079, 6130, 6176, 6180, 26.31 6182, 6280, and 6281 of the Technical and Miscellaneous Revenue 26.32 Act of 1988, Public Law Number 100-647, the provisions of 26.33 sections 7815 and 7821 of the Omnibus Budget Reconciliation Act 26.34 of 1989, Public Law Number 101-239, and the provisions of 26.35 section 11702 of the Revenue Reconciliation Act of 1990, Public 26.36 Law Number 101-508, shall become effective at the time they 27.1 become effective for federal tax purposes. 27.2 The Internal Revenue Code of 1986, as amended through 27.3 December 31, 1988, shall be in effect for taxable years 27.4 beginning after December 31, 1988. The provisions of sections 27.5 7101, 7102, 7104, 7105, 7201, 7202, 7203, 7204, 7205, 7206, 27.6 7207, 7210, 7211, 7301, 7302, 7303, 7304, 7601, 7621, 7622, 27.7 7641, 7642, 7645, 7647, 7651, and 7652 of the Omnibus Budget 27.8 Reconciliation Act of 1989, Public Law Number 101-239, the 27.9 provision of section 1401 of the Financial Institutions Reform, 27.10 Recovery, and Enforcement Act of 1989, Public Law Number 101-73, 27.11 the provisions of sections 11701 and 11703 of the Revenue 27.12 Reconciliation Act of 1990, Public Law Number 101-508, and the 27.13 provisions of sections 1702(g) and 1704(f)(2)(A) and (B) of the 27.14 Small Business Job Protection Act, Public Law Number 104-188, 27.15 shall become effective at the time they become effective for 27.16 federal tax purposes. 27.17 The Internal Revenue Code of 1986, as amended through 27.18 December 31, 1989, shall be in effect for taxable years 27.19 beginning after December 31, 1989. The provisions of sections 27.20 11321, 11322, 11324, 11325, 11403, 11404, 11410, and 11521 of 27.21 the Revenue Reconciliation Act of 1990, Public Law Number 27.22 101-508, and the provisions of sections 13224 and 13261 of the 27.23 Omnibus Budget Reconciliation Act of 1993, Public Law Number 27.24 103-66, shall become effective at the time they become effective 27.25 for federal purposes. 27.26 The Internal Revenue Code of 1986, as amended through 27.27 December 31, 1990, shall be in effect for taxable years 27.28 beginning after December 31, 1990. 27.29 The provisions of section 13431 of the Omnibus Budget 27.30 Reconciliation Act of 1993, Public Law Number 103-66, shall 27.31 become effective at the time they became effective for federal 27.32 purposes. 27.33 The Internal Revenue Code of 1986, as amended through 27.34 December 31, 1991, shall be in effect for taxable years 27.35 beginning after December 31, 1991. 27.36 The provisions of sections 1936 and 1937 of the 28.1 Comprehensive National Energy Policy Act of 1992, Public Law 28.2 Number 102-486,andthe provisions of sections 13101, 13114, 28.3 13122, 13141, 13150, 13151, 13174, 13239, 13301, and 13442 of 28.4 the Omnibus Budget Reconciliation Act of 1993, Public Law Number 28.5 103-66, and the provisions of section 1604(a)(1), (2), and (3) 28.6 of the Taxpayer Relief Act of 1997, Public Law Number 105-34, 28.7 shall become effective at the time they become effective for 28.8 federal purposes. 28.9 The Internal Revenue Code of 1986, as amended through 28.10 December 31, 1992, shall be in effect for taxable years 28.11 beginning after December 31, 1992. 28.12 The provisions of sections 13116, 13121, 13206, 13210, 28.13 13222, 13223, 13231, 13232, 13233, 13239, 13262, and 13321 of 28.14 the Omnibus Budget Reconciliation Act of 1993, Public Law Number 28.15 103-66,andthe provisions of sections 1703(a), 1703(d), 28.16 1703(i), 1703(l), and 1703(m) of the Small Business Job 28.17 Protection Act, Public Law Number 104-188, and the provision of 28.18 section 1604(c) of the Taxpayer Relief Act of 1997, Public Law 28.19 Number 105-34, shall become effective at the time they become 28.20 effective for federal purposes. 28.21 The Internal Revenue Code of 1986, as amended through 28.22 December 31, 1993, shall be in effect for taxable years 28.23 beginning after December 31, 1993. 28.24 The provision of section 741 of Legislation to Implement 28.25 Uruguay Round of General Agreement on Tariffs and Trade, Public 28.26 Law Number 103-465, the provisions of sections 1, 2, and 3, of 28.27 the Self-Employed Health Insurance Act of 1995, Public Law 28.28 Number 104-7, the provision of section 501(b)(2) of the Health 28.29 Insurance Portability and Accountability Act, Public Law Number 28.30 104-191,andthe provisions of sections 1604 and 1704(p)(1) and 28.31 (2) of the Small Business Job Protection Act, Public Law Number 28.32 104-188, and the provisions of sections 1011, 1211(b)(1), and 28.33 1602(f)(1) of the Taxpayer Relief Act of 1997, Public Law Number 28.34 105-34, shall become effective at the time they become effective 28.35 for federal purposes. 28.36 The Internal Revenue Code of 1986, as amended through 29.1 December 31, 1994, shall be in effect for taxable years 29.2 beginning after December 31, 1994. 29.3 The provisions of sections 1119(a), 1120, 1121, 1202(a), 29.4 1444, 1449(b), 1602(a), 1610(a), 1613, and 1805 of the Small 29.5 Business Job Protection Act, Public Law Number 104-188,andthe 29.6 provision of section 511 of the Health Insurance Portability and 29.7 Accountability Act, Public Law Number 104-191, and the 29.8 provisions of sections 1061, 1174, 1601(i)(2) and 1602(f)(2) and 29.9 (3) of the Taxpayer Relief Act of 1997, Public Law Number 29.10 105-35, shall become effective at the time they become effective 29.11 for federal purposes. 29.12 The Internal Revenue Code of 1986, as amended through March 29.13 22, 1996, is in effect for taxable years beginning after 29.14 December 31, 1995. 29.15 The provisions of sections 1113(a), 1117, 1206(a), 1313(a), 29.16 1402(a), 1403(a), 1443, 1450, 1501(a), 1605, 1611(a), 1612, 29.17 1616, 1617, 1704(l), and 1704(m) of the Small Business Job 29.18 Protection Act, Public Law Number 104-188,andthe provisions of 29.19 Public Law Number 104-117, and the provisions of sections 313(a) 29.20 and (b)(1), 602(a), 913(b), 941, 961, 971, 1001(a) and (b), 29.21 1002, 1003, 1012(b)(1) and (c)(1) and (2), 1013, 1014, 1061, 29.22 1062(b), 1081, 1084(b), 1086, 1087, 1111(a), 1131(b) and (c), 29.23 1211(b)(1), 1213(c), 1308(b), 1530(c)(2), 1601(f)(5)(A) and (h), 29.24 and 1604(d)(1) of the Taxpayer Relief Act of 1997, Public Law 29.25 Number 105-35, shall become effective at the time they become 29.26 effective for federal purposes. 29.27 The Internal Revenue Code of 1986, as amended through 29.28 December 31, 1996, shall be in effect for taxable years 29.29 beginning after December 31, 1996. 29.30 The provisions of sections 202(a) and (b), 221(a), 312, 29.31 313, 913(a), 934, 962, 1004, 1005, 1052, 1063, 1084(a) and (c), 29.32 1089, 1112, 1131(b) and (c), 1171, 1204, 1271(a) and (b), 29.33 1305(a), 1306, 1307, 1308(a), 1309, 1501(b), 1502(b), 1504(a), 29.34 1505(c), 1527, 1528, 1530, 1601(d), (e), (f), and (i) and 29.35 1602(a) and (c) of the Taxpayer Relief Act of 1997, Public Law 29.36 Number 105-35, shall become effective at the time they become 30.1 effective for federal purposes. 30.2 The Internal Revenue Code of 1986, as amended through 30.3 December 31, 1997, shall be in effect for taxable years 30.4 beginning after December 31, 1997. 30.5 Except as otherwise provided, references to the Internal 30.6 Revenue Code in subdivisions 19a to 19g mean the code in effect 30.7 for purposes of determining net income for the applicable year. 30.8 Sec. 3. Minnesota Statutes 1997 Supplement, section 30.9 290.01, subdivision 19a, is amended to read: 30.10 Subd. 19a. [ADDITIONS TO FEDERAL TAXABLE INCOME.] For 30.11 individuals, estates, and trusts, there shall be added to 30.12 federal taxable income: 30.13 (1)(i) interest income on obligations of any state other 30.14 than Minnesota or a political or governmental subdivision, 30.15 municipality, or governmental agency or instrumentality of any 30.16 state other than Minnesota exempt from federal income taxes 30.17 under the Internal Revenue Code or any other federal statute, 30.18 and 30.19 (ii) exempt-interest dividends as defined in section 30.20 852(b)(5) of the Internal Revenue Code, except the portion of 30.21 the exempt-interest dividends derived from interest income on 30.22 obligations of the state of Minnesota or its political or 30.23 governmental subdivisions, municipalities, governmental agencies 30.24 or instrumentalities, but only if the portion of the 30.25 exempt-interest dividends from such Minnesota sources paid to 30.26 all shareholders represents 95 percent or more of the 30.27 exempt-interest dividends that are paid by the regulated 30.28 investment company as defined in section 851(a) of the Internal 30.29 Revenue Code, or the fund of the regulated investment company as 30.30 defined in section 851(h) of the Internal Revenue Code, making 30.31 the payment; and 30.32 (iii) for the purposes of items (i) and (ii), interest on 30.33 obligations of an Indian tribal government described in section 30.34 7871(c) of the Internal Revenue Code shall be treated as 30.35 interest income on obligations of the state in which the tribe 30.36 is located; 31.1 (2) the amount of income taxes paid or accrued within the 31.2 taxable year under this chapter and income taxes paid to any 31.3 other state or to any province or territory of Canada, to the 31.4 extent allowed as a deduction under section 63(d) of the 31.5 Internal Revenue Code, but the addition may not be more than the 31.6 amount by which the itemized deductions as allowed under section 31.7 63(d) of the Internal Revenue Code exceeds the amount of the 31.8 standard deduction as defined in section 63(c) of the Internal 31.9 Revenue Code. For the purpose of this paragraph, the 31.10 disallowance of itemized deductions under section 68 of the 31.11 Internal Revenue Code of 1986, income tax is the last itemized 31.12 deduction disallowed; 31.13 (3) the capital gain amount of a lump sum distribution to 31.14 which the special tax under section 1122(h)(3)(B)(ii) of the Tax 31.15 Reform Act of 1986, Public Law Number 99-514, applies; 31.16 (4) the amount of income taxes paid or accrued within the 31.17 taxable year under this chapter and income taxes paid to any 31.18 other state or any province or territory of Canada, to the 31.19 extent allowed as a deduction in determining federal adjusted 31.20 gross income. For the purpose of this paragraph, income taxes 31.21 do not include the taxes imposed by sections 290.0922, 31.22 subdivision 1, paragraph (b), 290.9727, 290.9728, and 290.9729; 31.23 (5) the amount of loss or expense included in federal 31.24 taxable income under section 1366 of the Internal Revenue Code 31.25 flowing from a corporation that has a valid election in effect 31.26 for the taxable year under section 1362 of the Internal Revenue 31.27 Code, but which is not allowed to be an "S" corporation under 31.28 section 290.9725;and31.29 (6) the amount of any distributions in cash or property 31.30 made to a shareholder during the taxable year by a corporation 31.31 that has a valid election in effect for the taxable year under 31.32 section 1362 of the Internal Revenue Code, but which is not 31.33 allowed to be an "S" corporation under section 290.9725 to the 31.34 extent not already included in federal taxable income under 31.35 section 1368 of the Internal Revenue Code.; and 31.36 (7) the amount of a partner's pro rata share of net income 32.1 which does not flow through to the partner because the 32.2 partnership elected to pay the tax on the income under section 32.3 6242(a)(2) of the Internal Revenue Code. 32.4 Sec. 4. Minnesota Statutes 1997 Supplement, section 32.5 290.01, subdivision 19c, is amended to read: 32.6 Subd. 19c. [CORPORATIONS; ADDITIONS TO FEDERAL TAXABLE 32.7 INCOME.] For corporations, there shall be added to federal 32.8 taxable income: 32.9 (1) the amount of any deduction taken for federal income 32.10 tax purposes for income, excise, or franchise taxes based on net 32.11 income or related minimum taxes paid by the corporation to 32.12 Minnesota, another state, a political subdivision of another 32.13 state, the District of Columbia, or any foreign country or 32.14 possession of the United States; 32.15 (2) interest not subject to federal tax upon obligations 32.16 of: the United States, its possessions, its agencies, or its 32.17 instrumentalities; the state of Minnesota or any other state, 32.18 any of its political or governmental subdivisions, any of its 32.19 municipalities, or any of its governmental agencies or 32.20 instrumentalities; the District of Columbia; or Indian tribal 32.21 governments; 32.22 (3) exempt-interest dividends received as defined in 32.23 section 852(b)(5) of the Internal Revenue Code; 32.24 (4) the amount of any net operating loss deduction taken 32.25 for federal income tax purposes under section 172 or 832(c)(10) 32.26 of the Internal Revenue Code or operations loss deduction under 32.27 section 810 of the Internal Revenue Code; 32.28 (5) the amount of any special deductions taken for federal 32.29 income tax purposes under sections 241 to 247 of the Internal 32.30 Revenue Code; 32.31 (6) losses from the business of mining, as defined in 32.32 section 290.05, subdivision 1, clause (a), that are not subject 32.33 to Minnesota income tax; 32.34 (7) the amount of any capital losses deducted for federal 32.35 income tax purposes under sections 1211 and 1212 of the Internal 32.36 Revenue Code; 33.1 (8) the amount of any charitable contributions deducted for 33.2 federal income tax purposes under section 170 of the Internal 33.3 Revenue Code; 33.4 (9) the exempt foreign trade income of a foreign sales 33.5 corporation under sections 921(a) and 291 of the Internal 33.6 Revenue Code; 33.7 (10) the amount of percentage depletion deducted under 33.8 sections 611 through 614 and 291 of the Internal Revenue Code; 33.9 (11) for certified pollution control facilities placed in 33.10 service in a taxable year beginning before December 31, 1986, 33.11 and for which amortization deductions were elected under section 33.12 169 of the Internal Revenue Code of 1954, as amended through 33.13 December 31, 1985, the amount of the amortization deduction 33.14 allowed in computing federal taxable income for those 33.15 facilities; 33.16 (12) the amount of any deemed dividend from a foreign 33.17 operating corporation determined pursuant to section 290.17, 33.18 subdivision 4, paragraph (g);and33.19 (13) the amount of any environmental tax paid under section 33.20 59(a) of the Internal Revenue Code.; and 33.21 (14) the amount of a partner's pro rata share of net income 33.22 which does not flow through to the partner because the 33.23 partnership elected to pay the tax on the income under section 33.24 6242(a)(2) of the Internal Revenue Code. 33.25 Sec. 5. Minnesota Statutes 1997 Supplement, section 33.26 290.01, subdivision 31, is amended to read: 33.27 Subd. 31. [INTERNAL REVENUE CODE.] Unless specifically 33.28 defined otherwise, "Internal Revenue Code" means the Internal 33.29 Revenue Code of 1986, as amended through December 31,1996, and33.30includes the provisions of section 1(a) and (b) of Public Law33.31Number 104-1171997. 33.32 Sec. 6. Minnesota Statutes 1996, section 290.06, 33.33 subdivision 2c, is amended to read: 33.34 Subd. 2c. [SCHEDULES OF RATES FOR INDIVIDUALS, ESTATES, 33.35 AND TRUSTS.] (a) The income taxes imposed by this chapter upon 33.36 married individuals filing joint returns and surviving spouses 34.1 as defined in section 2(a) of the Internal Revenue Code must be 34.2 computed by applying to their taxable net income the following 34.3 schedule of rates: 34.4 (1) On the first $19,910, 6 percent; 34.5 (2) On all over $19,910, but not over $79,120, 8 percent; 34.6 (3) On all over $79,120, 8.5 percent. 34.7 Married individuals filing separate returns, estates, and 34.8 trusts must compute their income tax by applying the above rates 34.9 to their taxable income, except that the income brackets will be 34.10 one-half of the above amounts. 34.11 (b) The income taxes imposed by this chapter upon unmarried 34.12 individuals must be computed by applying to taxable net income 34.13 the following schedule of rates: 34.14 (1) On the first $13,620, 6 percent; 34.15 (2) On all over $13,620, but not over $44,750, 8 percent; 34.16 (3) On all over $44,750, 8.5 percent. 34.17 (c) The income taxes imposed by this chapter upon unmarried 34.18 individuals qualifying as a head of household as defined in 34.19 section 2(b) of the Internal Revenue Code must be computed by 34.20 applying to taxable net income the following schedule of rates: 34.21 (1) On the first $16,770, 6 percent; 34.22 (2) On all over $16,770, but not over $67,390, 8 percent; 34.23 (3) On all over $67,390, 8.5 percent. 34.24 (d) In lieu of a tax computed according to the rates set 34.25 forth in this subdivision, the tax of any individual taxpayer 34.26 whose taxable net income for the taxable year is less than an 34.27 amount determined by the commissioner must be computed in 34.28 accordance with tables prepared and issued by the commissioner 34.29 of revenue based on income brackets of not more than $100. The 34.30 amount of tax for each bracket shall be computed at the rates 34.31 set forth in this subdivision, provided that the commissioner 34.32 may disregard a fractional part of a dollar unless it amounts to 34.33 50 cents or more, in which case it may be increased to $1. 34.34 (e) An individual who is not a Minnesota resident for the 34.35 entire year must compute the individual's Minnesota income tax 34.36 as provided in this subdivision. After the application of the 35.1 nonrefundable credits provided in this chapter, the tax 35.2 liability must then be multiplied by a fraction in which: 35.3 (1) The numerator is the individual's Minnesota source 35.4 federal adjusted gross income as defined in section 62 of the 35.5 Internal Revenue Code increased by theadditionadditions 35.6 requiredfor interest income from non-Minnesota state and35.7municipal bondsunder section 290.01, subdivision 19a,clause35.8 clauses (1) and (7), after applying the allocation and 35.9 assignability provisions of section 290.081, clause (a), or 35.10 290.17; and 35.11 (2) the denominator is the individual's federal adjusted 35.12 gross income as defined in section 62 of the Internal Revenue 35.13 Code of 1986,as amended through April 15, 1995,increased by 35.14 theaddition required for interest income from non-Minnesota35.15state and municipal bondsamounts specified under section 35.16 290.01, subdivision 19a,clauseclauses (1) and (7). 35.17 Sec. 7. Minnesota Statutes 1996, section 290.067, 35.18 subdivision 2a, is amended to read: 35.19 Subd. 2a. [INCOME.] (a) For purposes of this section, 35.20 "income" means the sum of the following: 35.21 (1) federal adjusted gross income as defined in section 62 35.22 of the Internal Revenue Code; and 35.23 (2) the sum of the following amounts to the extent not 35.24 included in clause (1): 35.25 (i) all nontaxable income; 35.26 (ii) the amount of a passive activity loss that is not 35.27 disallowed as a result of section 469, paragraph (i) or (m) of 35.28 the Internal Revenue Code and the amount of passive activity 35.29 loss carryover allowed under section 469(b) of the Internal 35.30 Revenue Code; 35.31 (iii) an amount equal to the total of any discharge of 35.32 qualified farm indebtedness of a solvent individual excluded 35.33 from gross income under section 108(g) of the Internal Revenue 35.34 Code; 35.35 (iv) cash public assistance and relief; 35.36 (v) any pension or annuity (including railroad retirement 36.1 benefits, all payments received under the federal Social 36.2 Security Act, supplemental security income, and veterans 36.3 benefits), which was not exclusively funded by the claimant or 36.4 spouse, or which was funded exclusively by the claimant or 36.5 spouse and which funding payments were excluded from federal 36.6 adjusted gross income in the years when the payments were made; 36.7 (vi) interest received from the federal or a state 36.8 government or any instrumentality or political subdivision 36.9 thereof; 36.10 (vii) workers' compensation; 36.11 (viii) nontaxable strike benefits; 36.12 (ix) the gross amounts of payments received in the nature 36.13 of disability income or sick pay as a result of accident, 36.14 sickness, or other disability, whether funded through insurance 36.15 or otherwise; 36.16 (x) a lump sum distribution under section 402(e)(3) of the 36.17 Internal Revenue Code; 36.18 (xi) contributions made by the claimant to an individual 36.19 retirement account, including a qualified voluntary employee 36.20 contribution; simplified employee pension plan; self-employed 36.21 retirement plan; cash or deferred arrangement plan under section 36.22 401(k) of the Internal Revenue Code; or deferred compensation 36.23 plan under section 457 of the Internal Revenue Code; and 36.24 (xii) nontaxable scholarship or fellowship grants. 36.25 In the case of an individual who files an income tax return 36.26 on a fiscal year basis, the term "federal adjusted gross income" 36.27 means federal adjusted gross income reflected in the fiscal year 36.28 ending in the next calendar year. Federal adjusted gross income 36.29 may not be reduced by the amount of a net operating loss 36.30 carryback or carryforward or a capital loss carryback or 36.31 carryforward allowed for the year. 36.32 (b) "Income" does not include: 36.33 (1) amounts excluded pursuant to the Internal Revenue Code, 36.34 sections 101(a),and 102, and 121; 36.35 (2) amounts of any pension or annuity that were exclusively 36.36 funded by the claimant or spouse if the funding payments were 37.1 not excluded from federal adjusted gross income in the years 37.2 when the payments were made; 37.3 (3) surplus food or other relief in kind supplied by a 37.4 governmental agency; 37.5 (4) relief granted under chapter 290A; and 37.6 (5) child support payments received under a temporary or 37.7 final decree of dissolution or legal separation. 37.8 Sec. 8. Minnesota Statutes 1997 Supplement, section 37.9 290.0671, subdivision 1, is amended to read: 37.10 Subdivision 1. [CREDIT ALLOWED.] An individual is allowed 37.11 a credit against the tax imposed by this chapter equal to a 37.12 percentage of the credit for which the individual is eligible 37.13 under section 32 of the Internal Revenue Code disregarding the 37.14 supplemental child credit of clause (m)[(n)]. The percentage is 37.15 15 for individuals without a qualifying child, and 25 for 37.16 individuals with at least one qualifying child. For purposes of 37.17 this section, "qualifying child" has the meaning given in 37.18 section 32(c)(3) of the Internal Revenue Code. 37.19 For a nonresident or part-year resident, the credit 37.20 determined under section 32 of the Internal Revenue Code must be 37.21 allocated based on the percentage calculated under section 37.22 290.06, subdivision 2c, paragraph (e). 37.23 For a person who was a resident for the entire tax year and 37.24 has earned income not subject to tax under this chapter, the 37.25 credit must be allocated based on the ratio of federal adjusted 37.26 gross income reduced by the earned income not subject to tax 37.27 under this chapter over federal adjusted gross income. 37.28 Sec. 9. Minnesota Statutes 1996, section 290.0921, 37.29 subdivision 3a, is amended to read: 37.30 Subd. 3a. [EXEMPTIONS.] The following entities are exempt 37.31 from the tax imposed by this section: 37.32 (1) cooperatives taxable under subchapter T of the Internal 37.33 Revenue Code or organized under chapter 308 or a similar law of 37.34 another state; 37.35 (2) corporations subject to tax under section 60A.15, 37.36 subdivision 1; 38.1 (3) real estate investment trusts; 38.2 (4) regulated investment companies or a fund thereof;and38.3 (5) entities having a valid election in effect under 38.4 section 860D(b) of the Internal Revenue Code.; and 38.5 (6) small corporations exempt from the federal alternative 38.6 minimum tax under section 55(e) of the Internal Revenue Code. 38.7 Sec. 10. Minnesota Statutes 1996, section 290A.03, 38.8 subdivision 3, is amended to read: 38.9 Subd. 3. [INCOME.] (1) "Income" means the sum of the 38.10 following: 38.11 (a) federal adjusted gross income as defined in the 38.12 Internal Revenue Code; and 38.13 (b) the sum of the following amounts to the extent not 38.14 included in clause (a): 38.15 (i) all nontaxable income; 38.16 (ii) the amount of a passive activity loss that is not 38.17 disallowed as a result of section 469, paragraph (i) or (m) of 38.18 the Internal Revenue Code and the amount of passive activity 38.19 loss carryover allowed under section 469(b) of the Internal 38.20 Revenue Code; 38.21 (iii) an amount equal to the total of any discharge of 38.22 qualified farm indebtedness of a solvent individual excluded 38.23 from gross income under section 108(g) of the Internal Revenue 38.24 Code; 38.25 (iv) cash public assistance and relief; 38.26 (v) any pension or annuity (including railroad retirement 38.27 benefits, all payments received under the federal Social 38.28 Security Act, supplemental security income, and veterans 38.29 benefits), which was not exclusively funded by the claimant or 38.30 spouse, or which was funded exclusively by the claimant or 38.31 spouse and which funding payments were excluded from federal 38.32 adjusted gross income in the years when the payments were made; 38.33 (vi) interest received from the federal or a state 38.34 government or any instrumentality or political subdivision 38.35 thereof; 38.36 (vii) workers' compensation; 39.1 (viii) nontaxable strike benefits; 39.2 (ix) the gross amounts of payments received in the nature 39.3 of disability income or sick pay as a result of accident, 39.4 sickness, or other disability, whether funded through insurance 39.5 or otherwise; 39.6 (x) a lump sum distribution under section 402(e)(3) of the 39.7 Internal Revenue Code; 39.8 (xi) contributions made by the claimant to an individual 39.9 retirement account, including a qualified voluntary employee 39.10 contribution; simplified employee pension plan; self-employed 39.11 retirement plan; cash or deferred arrangement plan under section 39.12 401(k) of the Internal Revenue Code; or deferred compensation 39.13 plan under section 457 of the Internal Revenue Code; and 39.14 (xii) nontaxable scholarship or fellowship grants. 39.15 In the case of an individual who files an income tax return 39.16 on a fiscal year basis, the term "federal adjusted gross income" 39.17 shall mean federal adjusted gross income reflected in the fiscal 39.18 year ending in the calendar year. Federal adjusted gross income 39.19 shall not be reduced by the amount of a net operating loss 39.20 carryback or carryforward or a capital loss carryback or 39.21 carryforward allowed for the year. 39.22 (2) "Income" does not include 39.23 (a) amounts excluded pursuant to the Internal Revenue Code, 39.24 sections 101(a),and 102, and 121; 39.25 (b) amounts of any pension or annuity which was exclusively 39.26 funded by the claimant or spouse and which funding payments were 39.27 not excluded from federal adjusted gross income in the years 39.28 when the payments were made; 39.29 (c) surplus food or other relief in kind supplied by a 39.30 governmental agency; 39.31 (d) relief granted under this chapter; or 39.32 (e) child support payments received under a temporary or 39.33 final decree of dissolution or legal separation. 39.34 (3) The sum of the following amounts may be subtracted from 39.35 income: 39.36 (a) for the claimant's first dependent, the exemption 40.1 amount multiplied by 1.4; 40.2 (b) for the claimant's second dependent, the exemption 40.3 amount multiplied by 1.3; 40.4 (c) for the claimant's third dependent, the exemption 40.5 amount multiplied by 1.2; 40.6 (d) for the claimant's fourth dependent, the exemption 40.7 amount multiplied by 1.1; 40.8 (e) for the claimant's fifth dependent, the exemption 40.9 amount; and 40.10 (f) if the claimant or claimant's spouse was disabled or 40.11 attained the age of 65 on or before December 31 of the year for 40.12 which the taxes were levied or rent paid, the exemption amount. 40.13 For purposes of this subdivision, the "exemption amount" 40.14 means the exemption amount under section 151(d) of the Internal 40.15 Revenue Code for the taxable year for which the income is 40.16 reported. 40.17 Sec. 11. Minnesota Statutes 1997 Supplement, section 40.18 290A.03, subdivision 15, is amended to read: 40.19 Subd. 15. [INTERNAL REVENUE CODE.] "Internal Revenue Code" 40.20 means the Internal Revenue Code of 1986, as amended through 40.21 December 31,19961997. 40.22 Sec. 12. Minnesota Statutes 1997 Supplement, section 40.23 291.005, subdivision 1, is amended to read: 40.24 Subdivision 1. Unless the context otherwise clearly 40.25 requires, the following terms used in this chapter shall have 40.26 the following meanings: 40.27 (1) "Federal gross estate" means the gross estate of a 40.28 decedent as valued and otherwise determined for federal estate 40.29 tax purposes by federal taxing authorities pursuant to the 40.30 provisions of the Internal Revenue Code. 40.31 (2) "Minnesota gross estate" means the federal gross estate 40.32 of a decedent after (a) excluding therefrom any property 40.33 included therein which has its situs outside Minnesota and (b) 40.34 including therein any property omitted from the federal gross 40.35 estate which is includable therein, has its situs in Minnesota, 40.36 and was not disclosed to federal taxing authorities. 41.1 (3) "Personal representative" means the executor, 41.2 administrator or other person appointed by the court to 41.3 administer and dispose of the property of the decedent. If 41.4 there is no executor, administrator or other person appointed, 41.5 qualified, and acting within this state, then any person in 41.6 actual or constructive possession of any property having a situs 41.7 in this state which is included in the federal gross estate of 41.8 the decedent shall be deemed to be a personal representative to 41.9 the extent of the property and the Minnesota estate tax due with 41.10 respect to the property. 41.11 (4) "Resident decedent" means an individual whose domicile 41.12 at the time of death was in Minnesota. 41.13 (5) "Nonresident decedent" means an individual whose 41.14 domicile at the time of death was not in Minnesota. 41.15 (6) "Situs of property" means, with respect to real 41.16 property, the state or country in which it is located; with 41.17 respect to tangible personal property, the state or country in 41.18 which it was normally kept or located at the time of the 41.19 decedent's death; and with respect to intangible personal 41.20 property, the state or country in which the decedent was 41.21 domiciled at death. 41.22 (7) "Commissioner" means the commissioner of revenue or any 41.23 person to whom the commissioner has delegated functions under 41.24 this chapter. 41.25 (8) "Internal Revenue Code" means the United States 41.26 Internal Revenue Code of 1986, as amended through December 31, 41.271996, and includes the provisions of section 1(a)(4) of Public41.28Law Number 104-1171997. 41.29 Sec. 13. [EFFECTIVE DATES.] 41.30 Sections 1, 3, 4, and 6 to 10 are effective for tax years 41.31 beginning after December 31, 1997. Sections 5, 11, and 12 are 41.32 effective at the same time federal changes made by the Taxpayer 41.33 Relief Act of 1997, Public Law Number 105-34, which are 41.34 incorporated into Minnesota Statutes, chapters 290, 290A, and 41.35 291 by these sections become effective for federal tax purposes. 41.36 ARTICLE 3 42.1 PROPERTY TAXES 42.2 Section 1. Minnesota Statutes 1997 Supplement, section 42.3 272.115, subdivision 4, is amended to read: 42.4 Subd. 4. [ELIGIBILITY FOR HOMESTEAD STATUS.] No real 42.5 estate sold or transferredon or after January 1, 1993,for 42.6 which a certificate of real estate value is required under 42.7subdivision 1this section shall be classified as a homestead, 42.8 unless(1)a certificate of value has been filed with the county 42.9 auditor in accordance with this section, or (2) the real estate42.10was conveyed by the federal government, the state, a political42.11subdivision of the state, or combination of them to a person42.12otherwise eligible to receive homestead classification of the42.13property. 42.14 This subdivision shall apply to any real estate taxes that 42.15 are payable the year or years following the sale or transfer of 42.16 the property. 42.17 Sec. 2. Minnesota Statutes 1997 Supplement, section 42.18 272.115, subdivision 5, is amended to read: 42.19 Subd. 5. [EXEMPTION FOR GOVERNMENT BODIES.] A certificate 42.20 of real estate value is not required when the real estate is 42.21 being conveyed toor by a public authority or agency of the42.22federal government,thestate ofMinnesota department of 42.23 transportation, a political subdivision of the state, or any 42.24 combination of them, for highway or roadway right-of-way 42.25 purposes, provided that theauthority,agency,or governmental 42.26 unit has agreed to file a list of the real estate conveyedby or42.27 to theauthority,agency,or governmental unit with the 42.28 commissioner of revenue by June 1 of the year following the year 42.29 of the conveyance. 42.30 Sec. 3. Minnesota Statutes 1997 Supplement, section 42.31 275.70, is amended by adding a subdivision to read: 42.32 Subd. 6. [MATCHING FUND REQUIREMENTS.] The special levy 42.33 provided in subdivision 5, clause (8), does not include the 42.34 increased direct and indirect costs related to general increases 42.35 in program costs where there is no mandated increase regarding 42.36 the matching fund requirements. Specifically, but without 43.1 limitation, the following provisions apply to the special levy 43.2 authorization in subdivision 5, clause (8): (1) increases in 43.3 direct or indirect income maintenance administrative costs are 43.4 not included; (2) increases for social services and social 43.5 services administration are included, but only to the extent 43.6 that the minimum local share amount needed to receive community 43.7 social service aids exceeds the amount levied for social 43.8 services and social services administration for the taxes 43.9 payable year 1997; and (3) increases in county costs for Title 43.10 IV-E Foster Care Services over the amount levied for the taxes 43.11 payable year 1997 are included to the extent the amount from 43.12 both years represents the local matching fund requirement for 43.13 the federal grant. 43.14 Sec. 4. [EFFECTIVE DATE.] 43.15 Sections 1 and 2 are effective for real estate sales and 43.16 transfers occurring on or after July 1, 1998. Section 3 is 43.17 effective for taxes payable in 1998 and 1999. 43.18 ARTICLE 4 43.19 COLLECTIONS 43.20 Section 1. Minnesota Statutes 1997 Supplement, section 43.21 270.67, subdivision 2, is amended to read: 43.22 Subd. 2. [EXTENSION AGREEMENTS.] When any portion of any 43.23 tax payable to the commissioner of revenue together with 43.24 interest and penalty thereon, if any, has not been paid, the 43.25 commissioner may extend the time for payment for a further 43.26 period. When the authority of this section is invoked, the 43.27 extension shall be evidenced by written agreement signed by the 43.28 taxpayer and the commissioner, stating the amount of the tax 43.29 with penalty and interest, if any, and providing for the payment 43.30 of the amount in installments. The agreement may contain a 43.31 confession of judgment for the amount and for any unpaid portion 43.32 thereof and shall provide that the commissioner may forthwith 43.33 enter judgment against the taxpayer in the district court of the 43.34 county of residence as shown upon the taxpayer's tax return for 43.35 the unpaid portion of the amount specified in the extension 43.36 agreement. The agreement shall provide that it can be 44.1 terminated, after notice by the commissioner, if information 44.2 provided by the taxpayer prior to the agreement was inaccurate 44.3 or incomplete, collection of the tax covered by the agreement is 44.4 in jeopardy, there is a subsequent change in the taxpayer's 44.5 financial condition, the taxpayer has failed to make a payment 44.6 due under the agreement, or has failed to pay any other tax or 44.7 file a tax return coming due after the agreement. The notice 44.8 must be given at least 14 calendar days prior to termination, 44.9 and shall advise the taxpayer of the right to request a 44.10 reconsideration from the commissioner of whether termination is 44.11 reasonable and appropriate under the circumstances. A request 44.12 for reconsideration does not stay collection action beyond the 44.13 14-day notice period. If the commissioner has reason to believe 44.14 that collection of the tax covered by the agreement is in 44.15 jeopardy, the commissioner may proceed under sections 270.70, 44.16 subdivision 2, paragraph (b), and 270.274, and terminate the 44.17 agreement without regard to the 14-day period. The commissioner 44.18 may accept other collateral the commissioner considers 44.19 appropriate to secure satisfaction of the tax liability. The 44.20 principal sum specified in the agreement shall bear interest at 44.21 the rate specified in section 270.75 on all unpaid portions 44.22 thereof until the same has been fully paid or the unpaid portion 44.23 thereof has been entered as a judgment. The judgment shall bear 44.24 interest at the rate specified in section 270.75. If it appears 44.25 to the commissioner that the tax reported by the taxpayer is in 44.26 excess of the amount actually owing by the taxpayer, the 44.27 extension agreement or the judgment entered pursuant thereto 44.28 shall be corrected. If after making the extension agreement or 44.29 entering judgment with respect thereto, the commissioner 44.30 determines that the tax as reported by the taxpayer is less than 44.31 the amount actually due, the commissioner shall assess a further 44.32 tax in accordance with the provisions of law applicable to the 44.33 tax. The authority granted to the commissioner by this section 44.34 is in addition to any other authority granted to the 44.35 commissioner by law to extend the time of payment or the time 44.36 for filing a return and shall not be construed in limitation 45.1 thereof. 45.2 Sec. 2. [EFFECTIVE DATE.] 45.3 Section 1 is effective the day following final enactment.