as introduced - 83rd Legislature (2003 - 2004) Posted on 12/15/2009 12:00am
Engrossments | ||
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Introduction | Posted on 03/15/2004 |
1.1 A bill for an act 1.2 relating to taxes; changing definition of foreign 1.3 operating corporation; providing for apportionment of 1.4 income for purposes of income, franchise, and 1.5 occupation taxes; providing a subtraction from income 1.6 for certain military service; providing for payment of 1.7 sales taxes on leases of motor vehicles; defining 1.8 industrial production and capital equipment for 1.9 purposes of sales and use taxes; providing for 1.10 collection of a sales tax on cigarettes; requiring 1.11 state contracts be with vendors that have registered 1.12 to collect sales taxes; providing for apportionment of 1.13 the market value homestead credit; increasing the 1.14 amount of tax incentives for biotechnology and health 1.15 sciences industry zone; providing for allocation of 1.16 revenues; providing for a funds transfer; 1.17 appropriating money; amending Minnesota Statutes 2002, 1.18 sections 16C.03, by adding a subdivision; 273.1384, 1.19 subdivision 1; 290.01, subdivision 6b; 290.191, 1.20 subdivisions 2, 3; 297A.61, subdivision 4; 297A.67, by 1.21 adding a subdivision; 298.01, subdivisions 3, 4; 1.22 Minnesota Statutes 2003 Supplement, sections 16A.152, 1.23 subdivision 2; 290.01, subdivision 19b; 297A.61, 1.24 subdivision 7; 297A.68, subdivisions 2, 5; 469.335; 1.25 proposing coding for new law in Minnesota Statutes, 1.26 chapter 297F. 1.27 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 1.28 ARTICLE 1 1.29 INCOME, FRANCHISE, AND OCCUPATION TAXES 1.30 Section 1. Minnesota Statutes 2002, section 290.01, 1.31 subdivision 6b, is amended to read: 1.32 Subd. 6b. [FOREIGN OPERATING CORPORATION.] The term 1.33 "foreign operating corporation," when applied to a corporation, 1.34 means a domestic corporation with the following characteristics: 1.35 (1) it is part of a unitary business at least one member of 1.36 which is taxable in this state; 2.1 (2) it is not a foreign sales corporation under section 922 2.2 of the Internal Revenue Code, as amended through December 31, 2.3 1999, for the taxable year;and2.4 (3) it has $2,000,000 of property and $1,000,000 of payroll 2.5 as determined under sections 290.191 and 290.20; and 2.6 (4) either: 2.7 (i) the average of the percentages of its property and 2.8 payrolls assigned to locationsinsideoutside the United 2.9 Statesand the District of Columbia, excluding the commonwealth2.10of Puerto Rico and possessions of the United States, as 2.11 determined under section 290.191 or 290.20, is2080 percent or 2.12lessmore; or 2.13 (ii) 80 percent or more of its property is assigned to 2.14 locations outside of the United States under section 290.191 or 2.15 290.20; or 2.16 (iii) 80 percent or more of its payroll is assigned to 2.17 locations outside of the United States, as determined under 2.18 section 290.191 or 290.20; or 2.19 (iv) it has in effect a valid election under section 936 of 2.20 the Internal Revenue Code. 2.21 [EFFECTIVE DATE.] This section is effective for tax years 2.22 beginning after December 31, 2003. 2.23 Sec. 2. Minnesota Statutes 2003 Supplement, section 2.24 290.01, subdivision 19b, is amended to read: 2.25 Subd. 19b. [SUBTRACTIONS FROM FEDERAL TAXABLE INCOME.] For 2.26 individuals, estates, and trusts, there shall be subtracted from 2.27 federal taxable income: 2.28 (1) interest income on obligations of any authority, 2.29 commission, or instrumentality of the United States to the 2.30 extent includable in taxable income for federal income tax 2.31 purposes but exempt from state income tax under the laws of the 2.32 United States; 2.33 (2) if included in federal taxable income, the amount of 2.34 any overpayment of income tax to Minnesota or to any other 2.35 state, for any previous taxable year, whether the amount is 2.36 received as a refund or as a credit to another taxable year's 3.1 income tax liability; 3.2 (3) the amount paid to others, less the amount used to 3.3 claim the credit allowed under section 290.0674, not to exceed 3.4 $1,625 for each qualifying child in grades kindergarten to 6 and 3.5 $2,500 for each qualifying child in grades 7 to 12, for tuition, 3.6 textbooks, and transportation of each qualifying child in 3.7 attending an elementary or secondary school situated in 3.8 Minnesota, North Dakota, South Dakota, Iowa, or Wisconsin, 3.9 wherein a resident of this state may legally fulfill the state's 3.10 compulsory attendance laws, which is not operated for profit, 3.11 and which adheres to the provisions of the Civil Rights Act of 3.12 1964 and chapter 363A. For the purposes of this clause, 3.13 "tuition" includes fees or tuition as defined in section 3.14 290.0674, subdivision 1, clause (1). As used in this clause, 3.15 "textbooks" includes books and other instructional materials and 3.16 equipment purchased or leased for use in elementary and 3.17 secondary schools in teaching only those subjects legally and 3.18 commonly taught in public elementary and secondary schools in 3.19 this state. Equipment expenses qualifying for deduction 3.20 includes expenses as defined and limited in section 290.0674, 3.21 subdivision 1, clause (3). "Textbooks" does not include 3.22 instructional books and materials used in the teaching of 3.23 religious tenets, doctrines, or worship, the purpose of which is 3.24 to instill such tenets, doctrines, or worship, nor does it 3.25 include books or materials for, or transportation to, 3.26 extracurricular activities including sporting events, musical or 3.27 dramatic events, speech activities, driver's education, or 3.28 similar programs. For purposes of the subtraction provided by 3.29 this clause, "qualifying child" has the meaning given in section 3.30 32(c)(3) of the Internal Revenue Code; 3.31 (4) income as provided under section 290.0802; 3.32 (5) to the extent included in federal adjusted gross 3.33 income, income realized on disposition of property exempt from 3.34 tax under section 290.491; 3.35 (6) to the extent included in federal taxable income, 3.36 postservice benefits for youth community service under section 4.1 124D.42 for volunteer service under United States Code, title 4.2 42, sections 12601 to 12604; 4.3 (7) to the extent not deducted in determining federal 4.4 taxable income by an individual who does not itemize deductions 4.5 for federal income tax purposes for the taxable year, an amount 4.6 equal to 50 percent of the excess of charitable contributions 4.7 allowable as a deduction for the taxable year under section 4.8 170(a) of the Internal Revenue Code over $500; 4.9 (8) for taxable years beginning before January 1, 2008, the 4.10 amount of the federal small ethanol producer credit allowed 4.11 under section 40(a)(3) of the Internal Revenue Code which is 4.12 included in gross income under section 87 of the Internal 4.13 Revenue Code; 4.14 (9) for individuals who are allowed a federal foreign tax 4.15 credit for taxes that do not qualify for a credit under section 4.16 290.06, subdivision 22, an amount equal to the carryover of 4.17 subnational foreign taxes for the taxable year, but not to 4.18 exceed the total subnational foreign taxes reported in claiming 4.19 the foreign tax credit. For purposes of this clause, "federal 4.20 foreign tax credit" means the credit allowed under section 27 of 4.21 the Internal Revenue Code, and "carryover of subnational foreign 4.22 taxes" equals the carryover allowed under section 904(c) of the 4.23 Internal Revenue Code minus national level foreign taxes to the 4.24 extent they exceed the federal foreign tax credit; 4.25 (10) in each of the five tax years immediately following 4.26 the tax year in which an addition is required under subdivision 4.27 19a, clause (7), an amount equal to one-fifth of the delayed 4.28 depreciation. For purposes of this clause, "delayed 4.29 depreciation" means the amount of the addition made by the 4.30 taxpayer under subdivision 19a, clause (7), minus the positive 4.31 value of any net operating loss under section 172 of the 4.32 Internal Revenue Code generated for the tax year of the 4.33 addition. The resulting delayed depreciation cannot be less 4.34 than zero;and4.35 (11) job opportunity building zone income as provided under 4.36 section 469.316; and 5.1 (12) the amount of compensation paid for state active 5.2 service as defined in section 190.05, subdivision 5a, clauses 5.3 (1) and (3), or federally funded state active service as defined 5.4 in section 190.05, subdivision 5b. 5.5 [EFFECTIVE DATE.] This section is effective for tax years 5.6 beginning after December 31, 2003. 5.7 Sec. 3. Minnesota Statutes 2002, section 290.191, 5.8 subdivision 2, is amended to read: 5.9 Subd. 2. [APPORTIONMENT FORMULA OF GENERAL APPLICATION.] 5.10 Except for those trades or businesses required to use a 5.11 different formula under subdivision 3 or section 290.36, and for 5.12 those trades or businesses that receive permission to use some 5.13 other method under section 290.20 or under subdivision 4, a 5.14 trade or business required to apportion its net income must 5.15 apportion its income to this state on the basis of the 5.16 percentage obtained by taking the sum of: 5.17 (1) 75 percent of the percentage which the sales made 5.18 within this state in connection with the trade or business 5.19 during the tax period are of the total sales wherever made in 5.20 connection with the trade or business during the tax period; 5.21 (2) 12.5 percent of the percentage which the total tangible 5.22 property used by the taxpayer in this state in connection with 5.23 the trade or business during the tax period is of the total 5.24 tangible property, wherever located, used by the taxpayer in 5.25 connection with the trade or business during the tax period; and 5.26 (3) 12.5 percent of the percentage which the taxpayer's 5.27 total payrolls paid or incurred in this state or paid in respect 5.28 to labor performed in this state in connection with the trade or 5.29 business during the tax period are of the taxpayer's total 5.30 payrolls paid or incurred in connection with the trade or 5.31 business during the tax period. 5.32 For tax years beginning after December 31, 2004, but before 5.33 January 1, 2006, the apportionment percentage in clause (1) 5.34 shall be 78 percent and the apportionment percentages in clauses 5.35 (2) and (3) shall be 11 percent. 5.36 For tax years beginning after December 31, 2005, but before 6.1 January 1, 2007, the apportionment percentage in clause (1) 6.2 shall be 81 percent and the apportionment percentages in clauses 6.3 (2) and (3) shall be 9.5 percent. 6.4 For tax years beginning after December 31, 2006, but before 6.5 January 1, 2008, the apportionment percentage in clause (1) 6.6 shall be 84 percent and the apportionment percentages in clauses 6.7 (2) and (3) shall be 8 percent. 6.8 For tax years beginning after December 31, 2007, but before 6.9 January 1, 2009, the apportionment percentage in clause (1) 6.10 shall be 87 percent and the apportionment percentages in clauses 6.11 (2) and (3) shall be 6.5 percent. 6.12 For tax years beginning after December 31, 2008, but before 6.13 January 1, 2010, the apportionment percentage in clause (1) 6.14 shall be 90 percent and the apportionment percentages in clauses 6.15 (2) and (3) shall be 5 percent. 6.16 For tax years beginning after December 31, 2009, but before 6.17 January 1, 2011, the apportionment percentage in clause (1) 6.18 shall be 93 percent and the apportionment percentages in clauses 6.19 (2) and (3) shall be 3.5 percent. 6.20 For tax years beginning after December 31, 2010, but before 6.21 January 1, 2012, the apportionment percentage in clause (1) 6.22 shall be 96 percent and the apportionment percentages in clauses 6.23 (2) and (3) shall be 2 percent. 6.24 For tax years beginning after December 31, 2011, the 6.25 apportionment percentage in clause (1) shall be 100 percent and 6.26 the apportionment percentages in clauses (2) and (3) shall be 6.27 zero percent. 6.28 [EFFECTIVE DATE.] This section is effective the day 6.29 following final enactment. 6.30 Sec. 4. Minnesota Statutes 2002, section 290.191, 6.31 subdivision 3, is amended to read: 6.32 Subd. 3. [APPORTIONMENT FORMULA FOR FINANCIAL 6.33 INSTITUTIONS.] Except for an investment company required to 6.34 apportion its income under section 290.36, a financial 6.35 institution that is required to apportion its net income must 6.36 apportion its net income to this state on the basis of the 7.1 percentage obtained by taking the sum of: 7.2 (1) 75 percent of the percentage which the receipts from 7.3 within this state in connection with the trade or business 7.4 during the tax period are of the total receipts in connection 7.5 with the trade or business during the tax period, from wherever 7.6 derived; 7.7 (2) 12.5 percent of the percentage which the sum of the 7.8 total tangible property used by the taxpayer in this state and 7.9 the intangible property owned by the taxpayer and attributed to 7.10 this state in connection with the trade or business during the 7.11 tax period is of the sum of the total tangible property, 7.12 wherever located, used by the taxpayer and the intangible 7.13 property owned by the taxpayer and attributed to all states in 7.14 connection with the trade or business during the tax period; and 7.15 (3) 12.5 percent of the percentage which the taxpayer's 7.16 total payrolls paid or incurred in this state or paid in respect 7.17 to labor performed in this state in connection with the trade or 7.18 business during the tax period are of the taxpayer's total 7.19 payrolls paid or incurred in connection with the trade or 7.20 business during the tax period. 7.21 For tax years beginning after December 31, 2004, but before 7.22 January 1, 2006, the apportionment percentage in clause (1) 7.23 shall be 78 percent and the apportionment percentages in clauses 7.24 (2) and (3) shall be 11 percent. 7.25 For tax years beginning after December 31, 2005, but before 7.26 January 1, 2007, the apportionment percentage in clause (1) 7.27 shall be 81 percent and the apportionment percentages in clauses 7.28 (2) and (3) shall be 9.5 percent. 7.29 For tax years beginning after December 31, 2006, but before 7.30 January 1, 2008, the apportionment percentage in clause (1) 7.31 shall be 84 percent and the apportionment percentages in clauses 7.32 (2) and (3) shall be 8 percent. 7.33 For tax years beginning after December 31, 2007, but before 7.34 January 1, 2009, the apportionment percentage in clause (1) 7.35 shall be 87 percent and the apportionment percentages in clauses 7.36 (2) and (3) shall be 6.5 percent. 8.1 For tax years beginning after December 31, 2008, but before 8.2 January 1, 2010, the apportionment percentage in clause (1) 8.3 shall be 90 percent and the apportionment percentages in clauses 8.4 (2) and (3) shall be 5 percent. 8.5 For tax years beginning after December 31, 2009, but before 8.6 January 1, 2011, the apportionment percentage in clause (1) 8.7 shall be 93 percent and the apportionment percentages in clauses 8.8 (2) and (3) shall be 3.5 percent. 8.9 For tax years beginning after December 31, 2010, but before 8.10 January 1, 2012, the apportionment percentage in clause (1) 8.11 shall be 96 percent and the apportionment percentages in clauses 8.12 (2) and (3) shall be 2 percent. 8.13 For tax years beginning after December 31, 2011, the 8.14 apportionment percentage in clause (1) shall be 100 percent and 8.15 the apportionment percentages in clauses (2) and (3) shall be 8.16 zero percent. 8.17 [EFFECTIVE DATE.] This section is effective the day 8.18 following final enactment. 8.19 Sec. 5. Minnesota Statutes 2002, section 298.01, 8.20 subdivision 3, is amended to read: 8.21 Subd. 3. [OCCUPATION TAX; OTHER ORES.] Every person 8.22 engaged in the business of mining or producing ores in this 8.23 state, except iron ore or taconite concentrates, shall pay an 8.24 occupation tax to the state of Minnesota as provided in this 8.25 subdivision. The tax is determined in the same manner as the 8.26 tax imposed by section 290.02, except that sections 290.05, 8.27 subdivision 1, clause (a),and290.17, subdivision 4, and 8.28 290.191, subdivision 2, do not apply. A person subject to 8.29 occupation tax under this section shall apportion its net income 8.30 on the basis of the percentage obtained by taking the sum of: 8.31 (1) 75 percent of the percentage which the sales made 8.32 within this state in connection with the trade or business 8.33 during the tax period are of the total sales wherever made in 8.34 connection with the trade or business during the tax period; 8.35 (2) 12.5 percent of the percentage which the total tangible 8.36 property used by the taxpayer in this state in connection with 9.1 the trade or business during the tax period is of the total 9.2 tangible property, wherever located, used by the taxpayer in 9.3 connection with the trade or business during the tax period; and 9.4 (3) 12.5 percent of the percentage which the taxpayer's 9.5 total payrolls paid or incurred in this state or paid in respect 9.6 to labor performed in this state in connection with the trade or 9.7 business during the tax period are of the taxpayer's total 9.8 payrolls paid or incurred in connection with the trade or 9.9 business during the tax period. 9.10 The tax is in addition to all other taxes. 9.11 [EFFECTIVE DATE.] This section is effective for tax years 9.12 beginning after December 31, 2004. 9.13 Sec. 6. Minnesota Statutes 2002, section 298.01, 9.14 subdivision 4, is amended to read: 9.15 Subd. 4. [OCCUPATION TAX; IRON ORE; TACONITE 9.16 CONCENTRATES.] A person engaged in the business of mining or 9.17 producing of iron ore, taconite concentrates or direct reduced 9.18 ore in this state shall pay an occupation tax to the state of 9.19 Minnesota. The tax is determined in the same manner as the tax 9.20 imposed by section 290.02, except that sections 290.05, 9.21 subdivision 1, clause (a),and290.17, subdivision 4, and 9.22 290.191, subdivision 2, do not apply. A person subject to 9.23 occupation tax under this section shall apportion its net income 9.24 on the basis of the percentage obtained by taking the sum of: 9.25 (1) 75 percent of the percentage which the sales made 9.26 within this state in connection with the trade or business 9.27 during the tax period are of the total sales wherever made in 9.28 connection with the trade or business during the tax period; 9.29 (2) 12.5 percent of the percentage which the total tangible 9.30 property used by the taxpayer in this state in connection with 9.31 the trade or business during the tax period is of the total 9.32 tangible property, wherever located, used by the taxpayer in 9.33 connection with the trade or business during the tax period; and 9.34 (3) 12.5 percent of the percentage which the taxpayer's 9.35 total payrolls paid or incurred in this state or paid in respect 9.36 to labor performed in this state in connection with the trade or 10.1 business during the tax period are of the taxpayer's total 10.2 payrolls paid or incurred in connection with the trade or 10.3 business during the tax period. 10.4 The tax is in addition to all other taxes. 10.5 [EFFECTIVE DATE.] This section is effective for tax years 10.6 beginning after December 31, 2004. 10.7 ARTICLE 2 10.8 SALES TAXES 10.9 Section 1. Minnesota Statutes 2002, section 16C.03, is 10.10 amended by adding a subdivision to read: 10.11 Subd. 18. [CONTRACTS WITH FOREIGN VENDORS.] (a) The 10.12 commissioner and other agencies to which this section applies 10.13 and the legislative branch of government shall not contract for 10.14 goods or services from a vendor or an affiliate of the vendor 10.15 which has not registered to collect the sales and use tax 10.16 imposed under chapter 297A on its sales in Minnesota or to a 10.17 destination in Minnesota. A vendor that sells tangible personal 10.18 property or provides services subject to tax under chapter 297A 10.19 to an agency or the legislature, and each affiliate of that 10.20 vendor, is regarded as a "retailer maintaining a place of 10.21 business in this state" and is required to collect the Minnesota 10.22 sales or use tax under chapter 297A. This subdivision does not 10.23 apply to state colleges and universities, the courts, and any 10.24 agency in the judicial branch of government. For purposes of 10.25 this subdivision, the term "affiliate" means any person or 10.26 entity that is controlled by, or is under common control of, a 10.27 vendor through stock ownership or other affiliation. 10.28 (b) Beginning on or after January 1, 2005, each vendor or 10.29 affiliate of a vendor that is offered a contract to sell goods 10.30 or services subject to tax under chapter 297A to an agency or 10.31 the legislature must submit to the agency or legislature 10.32 certification that the vendor is registered to collect Minnesota 10.33 sales or use tax and acknowledging that the contract may be 10.34 declared void if the certification is false. 10.35 (c) An agency or the legislature is exempted from the 10.36 provisions of this subdivision in the event of an emergency or 11.1 when the vendor is the sole source of such goods or services. 11.2 [EFFECTIVE DATE.] This section is effective for all 11.3 contracts entered into after December 31, 2004. 11.4 Sec. 2. Minnesota Statutes 2002, section 297A.61, 11.5 subdivision 4, is amended to read: 11.6 Subd. 4. [RETAIL SALE.] (a) A "retail sale" means any 11.7 sale, lease, or rental for any purpose other than resale, 11.8 sublease, or subrent. 11.9 (b) A sale of property used by the owner only by leasing it 11.10 to others or by holding it in an effort to lease it, and put to 11.11 no use by the owner other than resale after the lease or effort 11.12 to lease, is a sale of property for resale. 11.13 (c) A sale of master computer software that is purchased 11.14 and used to make copies for sale or lease is a sale of property 11.15 for resale. 11.16 (d) A sale of building materials, supplies, and equipment 11.17 to owners, contractors, subcontractors, or builders for the 11.18 erection of buildings or the alteration, repair, or improvement 11.19 of real property is a retail sale in whatever quantity sold, 11.20 whether the sale is for purposes of resale in the form of real 11.21 property or otherwise. 11.22 (e) A sale of carpeting, linoleum, or similar floor 11.23 covering to a person who provides for installation of the floor 11.24 covering is a retail sale and not a sale for resale since a sale 11.25 of floor covering which includes installation is a contract for 11.26 the improvement of real property. 11.27 (f) A sale of shrubbery, plants, sod, trees, and similar 11.28 items to a person who provides for installation of the items is 11.29 a retail sale and not a sale for resale since a sale of 11.30 shrubbery, plants, sod, trees, and similar items that includes 11.31 installation is a contract for the improvement of real property. 11.32 (g) A sale of tangible personal property that is awarded as 11.33 prizes is a retail sale and is not considered a sale of property 11.34 for resale. 11.35 (h) A sale of tangible personal property utilized or 11.36 employed in the furnishing or providing of services under 12.1 subdivision 3, paragraph (g), clause (1), including, but not 12.2 limited to, property given as promotional items, is a retail 12.3 sale and is not considered a sale of property for resale. 12.4 (i) A sale of tangible personal property used in conducting 12.5 lawful gambling under chapter 349 or the state lottery under 12.6 chapter 349A, including, but not limited to, property given as 12.7 promotional items, is a retail sale and is not considered a sale 12.8 of property for resale. 12.9 (j) A sale of machines, equipment, or devices that are used 12.10 to furnish, provide, or dispense goods or services, including, 12.11 but not limited to, coin-operated devices, is a retail sale and 12.12 is not considered a sale of property for resale. 12.13 (k) Except as provided in subdivision 7, paragraph (c), in 12.14 the case of a lease, a retail sale occurs when an obligation to 12.15 make a lease payment becomes due under the terms of the 12.16 agreement or the trade practices of the lessor. 12.17 (l) In the case of a conditional sales contract, a retail 12.18 sale occurs upon the transfer of title or possession of the 12.19 tangible personal property. 12.20 [EFFECTIVE DATE.] This section is effective for leases 12.21 entered into after June 30, 2004. 12.22 Sec. 3. Minnesota Statutes 2003 Supplement, section 12.23 297A.61, subdivision 7, is amended to read: 12.24 Subd. 7. [SALES PRICE.] (a) "Sales price" means the 12.25 measure subject to sales tax, and means the total amount of 12.26 consideration, including cash, credit, personal property, and 12.27 services, for which personal property or services are sold, 12.28 leased, or rented, valued in money, whether received in money or 12.29 otherwise, without any deduction for the following: 12.30 (1) the seller's cost of the property sold; 12.31 (2) the cost of materials used, labor or service cost, 12.32 interest, losses, all costs of transportation to the seller, all 12.33 taxes imposed on the seller, and any other expenses of the 12.34 seller; 12.35 (3) charges by the seller for any services necessary to 12.36 complete the sale, other than delivery and installation charges; 13.1 (4) delivery charges; 13.2 (5) installation charges; and 13.3 (6) the value of exempt property given to the purchaser 13.4 when taxable and exempt personal property have been bundled 13.5 together and sold by the seller as a single product or piece of 13.6 merchandise. 13.7 (b) Sales price does not include: 13.8 (1) discounts, including cash, terms, or coupons, that are 13.9 not reimbursed by a third party and that are allowed by the 13.10 seller and taken by a purchaser on a sale; 13.11 (2) interest, financing, and carrying charges from credit 13.12 extended on the sale of personal property or services, if the 13.13 amount is separately stated on the invoice, bill of sale, or 13.14 similar document given to the purchaser; and 13.15 (3) any taxes legally imposed directly on the consumer that 13.16 are separately stated on the invoice, bill of sale, or similar 13.17 document given to the purchaser. 13.18 (c) In the case of a lease of a motor vehicle, as defined 13.19 in section 297B.01, subdivision 5, that is taxable under this 13.20 chapter, the sales tax shall be collected by the vendor at the 13.21 time the lease is consummated and shall be calculated by the 13.22 vendor on the basis of the total amount to be paid by the lessee 13.23 under the lease agreement. If the total amount of the 13.24 consideration for the lease includes amounts that are not 13.25 calculated at the time the lease is executed, the tax shall be 13.26 calculated and collected by the vendor at the time such amounts 13.27 are billed to the lessee. In the case of an open-ended lease, 13.28 the sales tax shall be calculated by the vendor on the basis of 13.29 the total amount to be paid during the initial term of the 13.30 lease, and then for each subsequent renewal period as it becomes 13.31 due. 13.32 [EFFECTIVE DATE.] This section is effective for leases 13.33 entered into after June 30, 2004. 13.34 Sec. 4. Minnesota Statutes 2002, section 297A.67, is 13.35 amended by adding a subdivision to read: 13.36 Subd. 32. [CIGARETTES.] Cigarettes upon which a tax has 14.1 been imposed under section 297F.25 are exempt. 14.2 [EFFECTIVE DATE.] This section is effective for sales and 14.3 purchases made after July 31, 2004. 14.4 Sec. 5. Minnesota Statutes 2003 Supplement, section 14.5 297A.68, subdivision 2, is amended to read: 14.6 Subd. 2. [MATERIALS CONSUMED IN INDUSTRIAL PRODUCTION.] 14.7 (a) Materials stored, used, or consumed in industrial production 14.8 of personal property intended to be sold ultimately at retail 14.9 are exempt, whether or not the item so used becomes an 14.10 ingredient or constituent part of the property produced. 14.11 Materials that qualify for this exemption include, but are not 14.12 limited to, the following: 14.13 (1) chemicals, including chemicals used for cleaning food 14.14 processing machinery and equipment; 14.15 (2) materials, including chemicals, fuels, and electricity 14.16 purchased by persons engaged in industrial production to treat 14.17 waste generated as a result of the production process; 14.18 (3) fuels, electricity, gas, and steam used or consumed in 14.19 the production process, except that electricity, gas, or steam 14.20 used for space heating, cooling, or lighting is exempt if (i) it 14.21 is in excess of the average climate control or lighting for the 14.22 production area, and (ii) it is necessary to produce that 14.23 particular product; 14.24 (4) petroleum products and lubricants; 14.25 (5) packaging materials, including returnable containers 14.26 used in packaging food and beverage products; 14.27 (6) accessory tools, equipment, and other items that are 14.28 separate detachable units with an ordinary useful life of less 14.29 than 12 months used in producing a direct effect upon the 14.30 product; and 14.31 (7) the following materials, tools, and equipment used in 14.32 metalcasting: crucibles, thermocouple protection sheaths and 14.33 tubes, stalk tubes, refractory materials, molten metal filters 14.34 and filter boxes, degassing lances, and base blocks. 14.35 (b) This exemption does not include: 14.36 (1) machinery, equipment, implements, tools, accessories, 15.1 appliances, contrivances and furniture and fixtures, except 15.2 those listed in paragraph (a), clause (6); and 15.3 (2) petroleum and special fuels used in producing or 15.4 generating power for propelling ready-mixed concrete trucks on 15.5 the public highways of this state. 15.6 (c) Industrial production includes, but is not limited to, 15.7 research, development, design or production of any tangible 15.8 personal property, manufacturing, processing (other than by 15.9 restaurants and consumers) of agricultural products (whether 15.10 vegetable or animal), commercial fishing, refining, smelting, 15.11 reducing, brewing, distilling, printing, mining, quarrying, 15.12 lumbering, generating electricity, the production of road 15.13 building materials, and the research, development, design, or 15.14 production of computer software. Industrial production does not 15.15 include painting, cleaning, repairing or similar processing of 15.16 property except as part of the original manufacturing process. 15.17 Industrial production does not include the transportation, 15.18 transmission, or distribution of petroleum, liquefied gas, 15.19 natural gas, water, or steam, in, by, or through pipes, lines, 15.20 tanks, mains, or other means of transporting those products. 15.21 [EFFECTIVE DATE.] This section is effective for sales and 15.22 purchases made after June 30, 2004. 15.23 Sec. 6. Minnesota Statutes 2003 Supplement, section 15.24 297A.68, subdivision 5, is amended to read: 15.25 Subd. 5. [CAPITAL EQUIPMENT.] (a) Capital equipment is 15.26 exempt. The tax must be imposed and collected as if the rate 15.27 under section 297A.62, subdivision 1, applied, and then refunded 15.28 in the manner provided in section 297A.75. 15.29 "Capital equipment" means machinery and equipment purchased 15.30 or leased, and used in this state by the purchaser or lessee 15.31 primarily for manufacturing, fabricating, mining, or refining 15.32 tangible personal property to be sold ultimately at retail if 15.33 the machinery and equipment are essential to the integrated 15.34 production process of manufacturing, fabricating, mining, or 15.35 refining. Capital equipment also includes machinery and 15.36 equipment used to electronically transmit results retrieved by a 16.1 customer of an on-line computerized data retrieval system. 16.2 (b) Capital equipment includes, but is not limited to: 16.3 (1) machinery and equipment used to operate, control, or 16.4 regulate the production equipment; 16.5 (2) machinery and equipment used for research and 16.6 development, design, quality control, and testing activities; 16.7 (3) environmental control devices that are used to maintain 16.8 conditions such as temperature, humidity, light, or air pressure 16.9 when those conditions are essential to and are part of the 16.10 production process; 16.11 (4) materials and supplies used to construct and install 16.12 machinery or equipment; 16.13 (5) repair and replacement parts, including accessories, 16.14 whether purchased as spare parts, repair parts, or as upgrades 16.15 or modifications to machinery or equipment; 16.16 (6) materials used for foundations that support machinery 16.17 or equipment; 16.18 (7) materials used to construct and install special purpose 16.19 buildings used in the production process; 16.20 (8) ready-mixed concrete equipment in which the ready-mixed 16.21 concrete is mixed as part of the delivery process regardless if 16.22 mounted on a chassis and leases of ready-mixed concrete trucks; 16.23 and 16.24 (9) machinery or equipment used for research, development, 16.25 design, or production of computer software. 16.26 (c) Capital equipment does not include the following: 16.27 (1) motor vehicles taxed under chapter 297B; 16.28 (2) machinery or equipment used to receive or store raw 16.29 materials; 16.30 (3) building materials, except for materials included in 16.31 paragraph (b), clauses (6) and (7); 16.32 (4) machinery or equipment used for nonproduction purposes, 16.33 including, but not limited to, the following: plant security, 16.34 fire prevention, first aid, and hospital stations; support 16.35 operations or administration; pollution control; and plant 16.36 cleaning, disposal of scrap and waste, plant communications, 17.1 space heating, cooling, lighting, or safety; 17.2 (5) farm machinery and aquaculture production equipment as 17.3 defined by section 297A.61, subdivisions 12 and 13; 17.4 (6) machinery or equipment purchased and installed by a 17.5 contractor as part of an improvement to real property;or17.6 (7) machinery or equipment used in the transportation, 17.7 transmission, or distribution of petroleum, liquefied gas, 17.8 natural gas, water, or steam, in, by, or through pipes, lines, 17.9 tanks, mains, or other means of transporting those products; or 17.10 (8) any other item that is not essential to the integrated 17.11 process of manufacturing, fabricating, mining, or refining. 17.12 (d) For purposes of this subdivision: 17.13 (1) "Equipment" means independent devices or tools separate 17.14 from machinery but essential to an integrated production 17.15 process, including computers and computer software, used in 17.16 operating, controlling, or regulating machinery and equipment; 17.17 and any subunit or assembly comprising a component of any 17.18 machinery or accessory or attachment parts of machinery, such as 17.19 tools, dies, jigs, patterns, and molds. 17.20 (2) "Fabricating" means to make, build, create, produce, or 17.21 assemble components or property to work in a new or different 17.22 manner. 17.23 (3) "Integrated production process" means a process or 17.24 series of operations through which tangible personal property is 17.25 manufactured, fabricated, mined, or refined. For purposes of 17.26 this clause, (i) manufacturing begins with the removal of raw 17.27 materials from inventory and ends when the last process prior to 17.28 loading for shipment has been completed; (ii) fabricating begins 17.29 with the removal from storage or inventory of the property to be 17.30 assembled, processed, altered, or modified and ends with the 17.31 creation or production of the new or changed product; (iii) 17.32 mining begins with the removal of overburden from the site of 17.33 the ores, minerals, stone, peat deposit, or surface materials 17.34 and ends when the last process before stockpiling is completed; 17.35 and (iv) refining begins with the removal from inventory or 17.36 storage of a natural resource and ends with the conversion of 18.1 the item to its completed form. 18.2 (4) "Machinery" means mechanical, electronic, or electrical 18.3 devices, including computers and computer software, that are 18.4 purchased or constructed to be used for the activities set forth 18.5 in paragraph (a), beginning with the removal of raw materials 18.6 from inventory through completion of the product, including 18.7 packaging of the product. 18.8 (5) "Machinery and equipment used for pollution control" 18.9 means machinery and equipment used solely to eliminate, prevent, 18.10 or reduce pollution resulting from an activity described in 18.11 paragraph (a). 18.12 (6) "Manufacturing" means an operation or series of 18.13 operations where raw materials are changed in form, composition, 18.14 or condition by machinery and equipment and which results in the 18.15 production of a new article of tangible personal property. For 18.16 purposes of this subdivision, "manufacturing" includes the 18.17 generation of electricity or steam to be sold at retail. 18.18 (7) "Mining" means the extraction of minerals, ores, stone, 18.19 or peat. 18.20 (8) "On-line data retrieval system" means a system whose 18.21 cumulation of information is equally available and accessible to 18.22 all its customers. 18.23 (9) "Primarily" means machinery and equipment used 50 18.24 percent or more of the time in an activity described in 18.25 paragraph (a). 18.26 (10) "Refining" means the process of converting a natural 18.27 resource to an intermediate or finished product, including the 18.28 treatment of water to be sold at retail. 18.29 [EFFECTIVE DATE.] This section is effective for sales and 18.30 purchases made after June 30, 2004. 18.31 Sec. 7. [297F.25] [CIGARETTE WHOLESALE TAX.] 18.32 Subdivision 1. [IMPOSITION.] A tax is imposed on the sale 18.33 of cigarettes by a cigarette distributor to a retailer or 18.34 cigarette subjobber for resale in this state. The tax is equal 18.35 to 6.5 percent of: 18.36 (1) 112 percent of the distributor's gross invoice price, 19.1 before any discounts and including the full face value of any 19.2 cigarette stamps and the fee imposed under section 297F.24, of 19.3 the cigarettes sold to a retailer; or 19.4 (2) 112 percent of the cost of the retailer, as defined in 19.5 section 325D.32, subdivision 11, and any fees imposed under 19.6 section 297F.24 of the cigarettes sold to a cigarette subjobber. 19.7 Subd. 2. [TAX COLLECTION REQUIRED.] A cigarette 19.8 distributor must collect the tax imposed under subdivision 1 19.9 from the retailer or cigarette subjobber and the tax must be 19.10 stated and charged separately. The tax collected must be 19.11 remitted to the commissioner in the manner prescribed by 19.12 subdivision 4. 19.13 Subd. 3. [PAYMENT.] Each taxpayer must remit payments of 19.14 the taxes to the commissioner on the same dates prescribed under 19.15 section 297F.09, subdivision 1, for cigarette tax returns, 19.16 including the accelerated remittance of the June liability. 19.17 Subd. 4. [RETURN.] A taxpayer must file a return with the 19.18 commissioner on the same dates prescribed under section 297F.09, 19.19 subdivision 1, for cigarette tax returns. 19.20 Subd. 5. [FORM OF RETURN.] The return must contain the 19.21 information and be in the form prescribed by the commissioner. 19.22 Subd. 6. [TAX AS DEBT.] The tax that is required to be 19.23 collected by the distributor is a debt from the retailer or 19.24 cigarette subjobber to the distributor recoverable at law in the 19.25 same manner as other debts. 19.26 Subd. 7. [ADMINISTRATION.] The audit, assessment, 19.27 interest, appeal, refund, and collection provisions applicable 19.28 to the taxes imposed under this chapter apply to taxes imposed 19.29 under this section. 19.30 Subd. 8. [DEPOSIT OF REVENUES.] Notwithstanding the 19.31 provisions of section 297F.10, the commissioner shall deposit 19.32 all revenues, including penalties and interest, derived from the 19.33 tax imposed by this section, in the general fund. 19.34 [EFFECTIVE DATE.] This section is effective for all sales 19.35 made on or after August 1, 2004. 19.36 Sec. 8. [FLOOR STOCKS TAX.] 20.1 Subdivision 1. [CIGARETTES.] A floor stocks tax is imposed 20.2 on every retailer or cigarette subjobber, on the stamped 20.3 cigarettes in the retailer's or cigarette subjobber's possession 20.4 or under the retailer's or cigarette subjobber's control, at 20.5 12:01 a.m. on July 31, 2004. The tax is imposed at the 20.6 following rates: 20.7 (1) on cigarettes weighing not more than three pounds per 20.8 thousand, 13.5 mills on each cigarette; and 20.9 (2) on cigarettes weighing more than three pounds per 20.10 thousand, 27 mills on each cigarette. 20.11 Each retailer shall file a return with the commissioner, in the 20.12 form the commissioner prescribes, showing the cigarettes on hand 20.13 at 12:01 a.m. on August 1, 2004, and pay the tax due thereon by 20.14 September 1, 2004. Tax not paid by the due date bears interest 20.15 at the rate of one percent a month. 20.16 Subd. 2. [AUDIT AND ENFORCEMENT.] The tax imposed by this 20.17 section is subject to the audit, assessment, and collection 20.18 provisions applicable to the taxes imposed under Minnesota 20.19 Statutes, chapter 297F. The commissioner may require a 20.20 distributor to receive and maintain copies of floor stocks tax 20.21 returns filed by all retailers requesting a credit for returned 20.22 cigarettes. 20.23 Subd. 3. [DEPOSIT OF PROCEEDS.] Notwithstanding the 20.24 provisions of section 297F.10, the revenue from the tax imposed 20.25 under this section shall be deposited by the commissioner in the 20.26 general fund. 20.27 [EFFECTIVE DATE.] This section is effective the day 20.28 following final enactment. 20.29 ARTICLE 3 20.30 MISCELLANEOUS 20.31 Section 1. Minnesota Statutes 2003 Supplement, section 20.32 16A.152, subdivision 2, is amended to read: 20.33 Subd. 2. [ADDITIONAL REVENUES; PRIORITY.] (a) If on the 20.34 basis of a forecast of general fund revenues and expenditures, 20.35 the commissioner of finance determines that there will be a 20.36 positive unrestricted budgetary general fund balance at the 21.1 close of the biennium, the commissioner of finance must allocate 21.2 money to the following accounts and purposes in priority order: 21.3 (1) the cash flow account established in subdivision 1 21.4 until that account reaches $350,000,000;and21.5 (2) the budget reserve account established in subdivision 21.6 1a until that account reaches $653,000,000; 21.7 (3) the amount necessary to increase the aid payment 21.8 schedule for school district aids and credits payments in 21.9 section 127A.45 to not more than 90 percent; and 21.10 (4) the amount necessary to eliminate all or a portion of 21.11 the property tax revenue recognition shift in section 123B.75, 21.12 subdivision 5. 21.13 (b) The amounts necessary to meet the requirements of this 21.14 section are appropriated from the general fund within two weeks 21.15 after the forecast is released or, in the case of transfers 21.16 under paragraph (a), clauses (3) and (4), as necessary to meet 21.17 the appropriations schedules otherwise established in statute. 21.18 (c) To the extent that a positive unrestricted budgetary 21.19 general fund balance is projected, appropriations under this 21.20 section must be made before any transfer is made under section 21.21 16A.1522. 21.22 (d) The commissioner of finance shall certify the total 21.23 dollar amount of the reductions under paragraph (a), clauses (3) 21.24 and (4), to the commissioner of education. The commissioner of 21.25 education shall increase the aid payment percentage and reduce 21.26 the property tax shift percentage by these amounts and apply 21.27 those reductions to the current fiscal year and thereafter. 21.28 [EFFECTIVE DATE.] This section is effective the day 21.29 following final enactment. 21.30 Sec. 2. Minnesota Statutes 2002, section 273.1384, 21.31 subdivision 1, is amended to read: 21.32 Subdivision 1. [RESIDENTIAL HOMESTEAD MARKET VALUE 21.33 CREDIT.] Each county auditor shall determine a homestead credit 21.34 for each class 1a, 1b, 1c, and 2a homestead property within the 21.35 county equal to 0.4 percent of the market value of the 21.36 property. The amount of homestead credit for a homestead may 22.1 not exceed $304 and is reduced by .09 percent of the market 22.2 value in excess of $76,000. In the case of an agricultural or 22.3 resort homestead, only the market value of the house, garage, 22.4 and immediately surrounding one acre of land is eligible in 22.5 determining the property's homestead credit. In the case ofa22.6property which is classified as part homestead and part22.7nonhomestead, the credit shall apply only to the homestead22.8portion of the property.homestead property that consists of 22.9 only a portion of a single residence, residential unit, duplex, 22.10 or triplex because all owners or both spouses do not occupy the 22.11 property, the credit is determined as if the residence, 22.12 residential unit, duplex, or triplex were the homestead, and 22.13 then is multiplied either by the occupant's percentage of 22.14 ownership or by 50 percent if both spouses do not occupy the 22.15 property. 22.16 [EFFECTIVE DATE.] This section is effective for taxes 22.17 payable in 2005 and thereafter. 22.18 Sec. 3. Minnesota Statutes 2003 Supplement, section 22.19 469.335, is amended to read: 22.20 469.335 [APPLICATION FOR TAX BENEFITS.] 22.21 (a) To claim a tax credit or exemption against a state tax 22.22 under section 469.336, clauses (2) through (5), a business must 22.23 apply to the commissioner for a tax credit certificate. As a 22.24 condition of its application, the business must agree to furnish 22.25 information to the commissioner that is sufficient to verify the 22.26 eligibility for any credits or exemptions claimed. The total 22.27 amount of the state tax credits and exemptions allowed for the 22.28 specified period may not exceed the amount of the tax credit 22.29 certificates provided by the commissioner to the business. The 22.30 commissioner must verify to the commissioner of revenue the 22.31 amount of tax exemptions or credits for which each business is 22.32 eligible. 22.33 (b) A tax credit certificate issued under this section may 22.34 specify the particular tax exemptions or credits against a state 22.35 tax that the qualified business is eligible to claim under 22.36 section 469.336, clauses (2) through (5), and the amount of each 23.1 exemption or credit allowed. 23.2 (c) The commissioner may issue$1,000,000$2,000,000 of tax 23.3 credits or exemptions in fiscal year 2004. Any tax credits or 23.4 exemptions not awarded in fiscal year 2004 may be awarded in 23.5 fiscal year 2005. 23.6 (d) A qualified business must use the tax credits or tax 23.7 exemptions granted under this section by the later of the end of 23.8 the state fiscal year or the taxpayer's tax year in which the 23.9 credits or exemptions are granted. 23.10 [EFFECTIVE DATE.] This section is effective the day 23.11 following final enactment. 23.12 Sec. 4. [FUNDS TRANSFER.] 23.13 On July 2, 2004, the commissioner of finance shall transfer 23.14 $350,000,000 from the general fund budget reserve account under 23.15 Minnesota Statutes, section 16A.152, subdivision 1a, to the cash 23.16 flow reserve account under Minnesota Statutes, section 16A.152, 23.17 subdivision 1.