HF 3939

as introduced - 90th Legislature (2017 - 2018) Posted on 03/15/2018 02:34pm

A bill for an act
relating to border city development zones; authorizing income and property tax
incentives to encourage homeownership and investment in zones; amending
Minnesota Statutes 2016, sections 272.0212, subdivisions 1, 4, 5; 290.0132, by
adding a subdivision; 290.0134, by adding a subdivision; 469.1731, subdivisions
1, 2; 469.1732, subdivision 1, by adding subdivisions; 469.1735, subdivision 2.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:

Section 1.

Minnesota Statutes 2016, section 272.0212, subdivision 1, is amended to read:

Subdivision 1.

Exemption.

All qualified property in a zone is exempt to the extent and
for a period up to the duration provided by the zone designation and under sections 469.1731
to 469.1735 deleted text begin . deleted text end new text begin , except qualified property that consists of homestead property exempt under
a homeowner incentive program is limited to a duration of five years.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective beginning for property taxes payable in
2020.
new text end

Sec. 2.

Minnesota Statutes 2016, section 272.0212, subdivision 4, is amended to read:

Subd. 4.

Definitions.

(a) For purposes of this section, the following terms have the
meanings given.

(b) "Qualified property" means new text begin :
new text end

new text begin (1) new text end class 1, 3, 4, and 5 property as defined in section 273.13 that is located in a zone and
is newly constructed after the zone was designated, including the land that contains the
improvements deleted text begin . deleted text end new text begin ; and
new text end

new text begin (2) class 1a or 1b property that is located in a zone and designated by the city as qualifying
under the homeowner incentive program under section 469.1732, subdivision 4.
new text end

(c) "Zone" means a border city development zone designated under the provisions of
section 469.1731.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective beginning for property taxes payable in
2020.
new text end

Sec. 3.

Minnesota Statutes 2016, section 272.0212, subdivision 5, is amended to read:

Subd. 5.

Finding required.

The exemption under this section is available to a parcel
only if the municipality determines that new text begin : (1) new text end the granting of the tax exemption is necessary
to enable a business to expand within a zone or to attract a business to a zone deleted text begin . deleted text end new text begin or (2) the
homestead property qualifies to participate in the city's homeowner incentive program under
section 469.1732, subdivision 4.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective the day following final enactment.
new text end

Sec. 4.

Minnesota Statutes 2016, section 290.0132, is amended by adding a subdivision
to read:

new text begin Subd. 27. new text end

new text begin Border city development zone tax incentives. new text end

new text begin (a) The border city homeowner
incentive subtraction allowed under section 469.1732, subdivision 4, is a subtraction.
new text end

new text begin (b) The amount of the border city development zone business income subtraction for
the taxable year under section 469.1732, subdivision 5, is a subtraction.
new text end

new text begin (c) Each year the commissioner must estimate the reduction in state tax revenues that
results from allowance of the subtractions under this subdivision and under section 290.0134,
subdivision 17, for each participating border city along with any tax credit certificates issued
for the taxable year under section 469.1735. The commissioner shall notify the commissioner
of employment and economic development of the amounts for each fiscal year and for each
border city in which the subtractions under this subdivision and section 290.0134, subdivision
17, reduce state revenues. The commissioner of employment and economic development
shall subtract the applicable amount for each border city from the city's available allocation
under section 469.169.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxable years beginning after December
31, 2018.
new text end

Sec. 5.

Minnesota Statutes 2016, section 290.0134, is amended by adding a subdivision
to read:

new text begin Subd. 17. new text end

new text begin Border city development zone business income. new text end

new text begin The amount of the border
city development zone business income subtraction for the taxable year under section
469.1732, subdivision 5, is a subtraction. The amount of the subtraction is subject to the
limits in sections 290.0132, subdivision 27, paragraph (c), and 469.1732, subdivision 5.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxable years beginning after December
31, 2018.
new text end

Sec. 6.

Minnesota Statutes 2016, section 469.1731, subdivision 1, is amended to read:

Subdivision 1.

Designation.

To encourage economic development, to revitalize the
designated areas, to expand tax base and economic activity, and to provide job creation,
growth, and retention, the following border cities may designate, by resolution, areas of the
city as development zones after a public hearing upon 30-day notice.

(a) The city of Breckenridge may designate all or any part of the city as a zone.

(b) The city of Dilworth may designate deleted text begin between one and six areas deleted text end new text begin all or any part new text end of the
city as deleted text begin zones containing not more than 100 acres in the aggregate deleted text end new text begin a zone new text end .

(c) The city of East Grand Forks may designate all or any part of the city as a zone.

(d) The city of Moorhead may designate deleted text begin between one and six areas deleted text end new text begin all or any part new text end of the
city as deleted text begin zones containing not more than 100 acres in the aggregate deleted text end new text begin a zone new text end .

(e) The city of Ortonville may designate deleted text begin between one and six areas deleted text end new text begin all or any part new text end of the
city as deleted text begin zones containing not more than 100 acres in the aggregate deleted text end new text begin a zone new text end .

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for zone designations made after June
30, 2018.
new text end

Sec. 7.

Minnesota Statutes 2016, section 469.1731, subdivision 2, is amended to read:

Subd. 2.

Development plan.

(a) Before designating a development zone, the city must
adopt a written development plan that addresses:

(1) evidence of adverse economic conditions within the area resulting from competition
with the bordering state or the 1997 floods or both;

(2) the viability of the development plan;

(3) public and private commitment to and other resources available for the area;

(4) how designation would relate to a development and revitalization plan for the city
as a whole; and

(5) how the local regulatory burden will be eased for businesses operating in the area.

(b) The development plan must include:

(1) a map of the proposed zone that indicates the geographic boundaries, the total area,
and the present use and conditions generally of land and structures within the area;

(2) evidence of community support and commitment from business interests;

(3) a description of the methods proposed to increase economic opportunity and
expansion, facilitate infrastructure improvement, and identify job opportunities; and

(4) the duration of the zone designation deleted text begin , not to exceed 15 years deleted text end .

new text begin (c) If the development plan or the designation of a zone does not include a duration limit
on the designation of a zone, the city must impose duration limits, not to exceed 15 years
or the maximum duration otherwise permitted by law for that tax incentive, on each tax
incentive provided to projects, businesses, or homeowners in the zone.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for zone designations made after June
30, 2018. A city may modify a previous zone designation to extend its duration under this
section.
new text end

Sec. 8.

Minnesota Statutes 2016, section 469.1732, subdivision 1, is amended to read:

Subdivision 1.

Authority.

new text begin (a) new text end A business that conducts business activity within a border
city development zone designated under section 469.1731 may qualify for the property tax
exemption under section 272.0212 deleted text begin and deleted text end new text begin , new text end the sales tax exemption under section 469.1734,
subdivision 6 new text begin , and the business income subtraction under subdivision 5 new text end .

new text begin (b) A homeowner who purchases, constructs, or substantially rehabilitates a home in a
border city development zone and qualifies under a homeowner incentive program under
subdivision 4 may qualify for the property tax incentive under section 272.0212 and the
income tax subtraction under subdivision 4, paragraph (c), and section 290.0132, subdivision
23.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective the day following final enactment.
new text end

Sec. 9.

Minnesota Statutes 2016, section 469.1732, is amended by adding a subdivision
to read:

new text begin Subd. 4. new text end

new text begin Homeowner incentive program. new text end

new text begin (a) A border city may establish a homeowner
incentive program to encourage purchase and rehabilitation of existing homes or construction
of new homes in border city development zones of the city.
new text end

new text begin (b) The city must establish the qualifying rules and requirements for owner occupants
to participate in the program, including the information that applicants must provide and
the form of the applications. This information must include data necessary for the city and
the commissioner of revenue to reliably estimate whether available allocations under section
469.169 or allocations reserved by the city for that purpose are sufficient to offset the revenue
loss from the income tax subtraction for applicants. To qualify a home must be:
new text end

new text begin (1) located in a zone;
new text end

new text begin (2) purchased and substantially rehabilitated or constructed after the program is
established; and
new text end

new text begin (3) occupied as a homestead, as defined in section 273.124, by the owner applicant.
new text end

new text begin Homeowners whom the city certifies to the commissioner of revenue for each taxable year
qualify for the income tax subtraction under paragraph (c) and section 290.0132, subdivision
23. Property certified by the city as qualifying under the program by July 1 of each year to
the assessor qualifies for the exemption under section 272.0212 for the following taxes
payable year. The subtraction and exemption are each limited to the four years immediately
following the first year in which the subtraction or exemption was provided.
new text end

new text begin (c) The federal taxable income of a homeowner, whom the border city certifies to the
commissioner of revenue as a qualifying homeowner for the taxable year, is a subtraction.
The maximum amount of the subtraction for a taxable year is limited to $500,000 for a
married joint filer and $250,000 for all other filers. Allowance of a subtraction under this
paragraph to an individual is limited to no more than ten taxable years. No more than one
subtraction is allowed for a home owned by a married couple and no more than two
subtractions are allowed for a home owned by individuals who are not married to each other.
new text end

new text begin (d) The reduction in state income tax revenues resulting from allowance of the subtraction
must not exceed the border city's available allocation for state tax reductions under section
469.169 and the estimated effect of the subtraction on state revenues, as provided in section
290.0132, subdivision 27, paragraph (c), reduces the city's allocation available for other
state tax reductions.
new text end

new text begin (e) The city must consult with the commissioner of revenue before establishing the
program and periodically thereafter, including before making a material change in its
administration, to ensure that the program complies with the law and that sufficient
allocations are available under section 469.169. The commissioner of revenue may specify
the forms or requirements for applications by participants to the city and for certification
by the city of each qualifying participant to the commissioner of revenue. Each year before
granting applications to participate in the program, the city, the commissioner, and the
commissioner of revenue shall consult to determine the amount of the city's allocation that
is available under section 469.169 to provide income tax reductions. The city must not
approve new applications, if the commissioner or the commissioner of revenue advises the
city that it has insufficient allocations to cover the income tax reductions. The city, the
commissioner, and the commissioner of revenue may adjust the certified amounts and the
reduction in the city's allocation under section 469.169 based on actual experience that
differs from the initial estimates.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective the day following final enactment.
new text end

Sec. 10.

Minnesota Statutes 2016, section 469.1732, is amended by adding a subdivision
to read:

new text begin Subd. 5. new text end

new text begin Business income subtraction. new text end

new text begin (a) An individual, partnership, S corporation,
or corporation that purchases, leases, rehabilitates, or makes leasehold improvements to
residential, public utility infrastructure, or commercial property for any business or
investment purposes as a border city development zone project that is approved by the city
or its authorized development authority is allowed a subtraction from federal taxable income
derived from the business or investment locations within the zone for ten taxable years
under the provisions of section 290.0132, subdivision 27, or 290.0134, subdivision 17. The
subtraction is subject to any limits or conditions that the city imposes in its business subsidy
agreement with the business and, in addition, is subject to the following limitations:
new text end

new text begin (1) the maximum amount of income that the taxpayer may subtract under this subdivision
for all border city development zones in the city is $500,000 for a taxable year;
new text end

new text begin (2) if the border city development zone project providing the subtraction is a physical
expansion of an existing building owned and used by the taxpayer for business or investment
purposes, the amount of the subtraction is limited to an amount equal to the income derived
from the business, or from the investment use of the building, during the taxable year
multiplied by a ratio equal to the square footage of the building added by the expansion,
divided by the total square footage of the building after the expansion. Substantial
rehabilitation of an existing structure owned by the taxpayer may qualify as an expansion.
The business subsidy agreement must specify the square footage of the existing building
and the expansion; and
new text end

new text begin (3) the taxpayer must have a certified subtraction amount for the taxable year, as provided
under paragraph (b).
new text end

new text begin (b) For each business approved for a subtraction under this subdivision, the city must
allocate, after consulting with the commissioner of revenue, a dollar amount of the resulting
state tax reduction that is estimated to result from allowance of the subtraction to the business
for each taxable year. The total amount for all taxable years must be deducted from the
border city's available allocation of state tax reductions under section 469.169. The city,
following instructions from the commissioner of revenue, shall convert the tax reductions
for each year to an allowed amount of the subtraction and shall certify that amount to the
taxpayer no later than the first day of March for the taxable year beginning during that
calendar year. The city, the commissioner, and the commissioner of revenue may adjust the
certified amounts and the reduction in the city's allocation under section 469.169 based on
actual experience that differs from the initial estimates.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective the day following final enactment and
applies to taxable years beginning after December 31, 2018.
new text end

Sec. 11.

Minnesota Statutes 2016, section 469.1735, subdivision 2, is amended to read:

Subd. 2.

City limitations.

(a) Each city may provide tax credit certificates to businesses
that apply and meet the requirements for the tax credit and exemption. The certificates that
each city may provide for the period covered by this section is limited to the amount specified
in this subdivision.

(b) The maximum amount of tax credit certificates each city may issue over the duration
of the program equals the amount of the allocation to the city under section 469.169 deleted text begin ,
subdivision 12 deleted text end .

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective the day following final enactment.
new text end