SF 1194

as introduced - 83rd Legislature (2003 - 2004) Posted on 12/15/2009 12:00am

  1.1                          A bill for an act 
  1.2             relating to tax reform; providing a revenue-neutral 
  1.3             means of "sharing the burden" of the budget deficit; 
  1.4             increasing the progressivity of the income tax; 
  1.5             reducing taxes on medical care and supplies; 
  1.6             increasing the working family credit; increasing the 
  1.7             dependent care credit; establishing a child tax 
  1.8             credit; increasing property tax relief; eliminating 
  1.9             the sales tax on local government purchases; reducing 
  1.10            the sales tax exemption for capital equipment 
  1.11            purchases; repealing the hospitals and health care 
  1.12            providers tax; amending Minnesota Statutes 2002, 
  1.13            sections 290.01, subdivision 19b; 290.06, subdivision 
  1.14            2c; 290.067, subdivision 2; 290.0671, subdivision 1; 
  1.15            290A.04, subdivisions 1, 3, 4, by adding a 
  1.16            subdivision; 297A.67, subdivisions 2, 7, 17; 297A.68, 
  1.17            subdivisions 5, 28; 297A.70, subdivisions 1, 2, 3; 
  1.18            297A.75, subdivision 1; proposing coding for new law 
  1.19            in Minnesota Statutes, chapter 290; repealing 
  1.20            Minnesota Statutes 2002, sections 295.50; 295.51; 
  1.21            295.52; 295.53; 295.54; 295.55; 295.56; 295.57; 
  1.22            295.58; 295.581; 295.582. 
  1.23  BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
  1.24     Section 1.  [PURPOSE.] 
  1.25     To address the state budget deficit, the governor has 
  1.26  expressed a willingness to have all Minnesotans share the 
  1.27  burden, as long as it does not involve a tax increase.  The 
  1.28  proposed budget would have a harsh impact on students, working 
  1.29  families whose wages are not sufficient to meet basic needs, 
  1.30  people who cannot afford health care, and seniors and others 
  1.31  struggling to pay rapidly rising property taxes.  Consequently, 
  1.32  it is appropriate for the state to reform Minnesota's 
  1.33  increasingly regressive state and local tax code.  This reform 
  1.34  would provide significant tax relief to people hit hardest by 
  2.1   the budget cuts, and property tax relief to mitigate the higher 
  2.2   property taxes resulting from state shifts to schools and local 
  2.3   government.  These tax cuts would be funded through income taxes 
  2.4   based on ability to pay, providing a revenue-neutral tax reform. 
  2.5      Sec. 2.  Minnesota Statutes 2002, section 290.01, 
  2.6   subdivision 19b, is amended to read: 
  2.7      Subd. 19b.  [SUBTRACTIONS FROM FEDERAL TAXABLE INCOME.] For 
  2.8   individuals, estates, and trusts, there shall be subtracted from 
  2.9   federal taxable income: 
  2.10     (1) interest income on obligations of any authority, 
  2.11  commission, or instrumentality of the United States to the 
  2.12  extent includable in taxable income for federal income tax 
  2.13  purposes but exempt from state income tax under the laws of the 
  2.14  United States; 
  2.15     (2) if included in federal taxable income, the amount of 
  2.16  any overpayment of income tax to Minnesota or to any other 
  2.17  state, for any previous taxable year, whether the amount is 
  2.18  received as a refund or as a credit to another taxable year's 
  2.19  income tax liability; 
  2.20     (3) the amount paid to others, less the amount used to 
  2.21  claim the credit allowed under section 290.0674, not to exceed 
  2.22  $1,625 for each qualifying child in grades kindergarten to 6 and 
  2.23  $2,500 for each qualifying child in grades 7 to 12, for tuition, 
  2.24  textbooks, and transportation of each qualifying child in 
  2.25  attending an elementary or secondary school situated in 
  2.26  Minnesota, North Dakota, South Dakota, Iowa, or Wisconsin, 
  2.27  wherein a resident of this state may legally fulfill the state's 
  2.28  compulsory attendance laws, which is not operated for profit, 
  2.29  and which adheres to the provisions of the Civil Rights Act of 
  2.30  1964 and chapter 363.  For the purposes of this clause, 
  2.31  "tuition" includes fees or tuition as defined in section 
  2.32  290.0674, subdivision 1, clause (1).  As used in this clause, 
  2.33  "textbooks" includes books and other instructional materials and 
  2.34  equipment purchased or leased for use in elementary and 
  2.35  secondary schools in teaching only those subjects legally and 
  2.36  commonly taught in public elementary and secondary schools in 
  3.1   this state.  Equipment expenses qualifying for deduction 
  3.2   includes expenses as defined and limited in section 290.0674, 
  3.3   subdivision 1, clause (3).  "Textbooks" does not include 
  3.4   instructional books and materials used in the teaching of 
  3.5   religious tenets, doctrines, or worship, the purpose of which is 
  3.6   to instill such tenets, doctrines, or worship, nor does it 
  3.7   include books or materials for, or transportation to, 
  3.8   extracurricular activities including sporting events, musical or 
  3.9   dramatic events, speech activities, driver's education, or 
  3.10  similar programs.  For purposes of the subtraction provided by 
  3.11  this clause, "qualifying child" has the meaning given in section 
  3.12  32(c)(3) of the Internal Revenue Code; 
  3.13     (4) income as provided under section 290.0802; 
  3.14     (5) to the extent included in federal adjusted gross 
  3.15  income, income realized on disposition of property exempt from 
  3.16  tax under section 290.491; 
  3.17     (6) to the extent not deducted in determining federal 
  3.18  taxable income or used to claim the long-term care insurance 
  3.19  credit under section 290.0672, the amount paid for health 
  3.20  insurance of self-employed individuals as determined under 
  3.21  section 162(l) of the Internal Revenue Code, except that the 
  3.22  percent limit does not apply for the individual, the 
  3.23  individual's spouse, and dependents.  If the individual deducted 
  3.24  insurance payments under section 213 of the Internal Revenue 
  3.25  Code of 1986, the subtraction under this clause must be reduced 
  3.26  by the lesser of: 
  3.27     (i) the total itemized deductions allowed under section 
  3.28  63(d) of the Internal Revenue Code, less state, local, and 
  3.29  foreign income taxes deductible under section 164 of the 
  3.30  Internal Revenue Code and the standard deduction under section 
  3.31  63(c) of the Internal Revenue Code; or 
  3.32     (ii) the lesser of (A) the amount of insurance qualifying 
  3.33  as "medical care" under section 213(d) of the Internal Revenue 
  3.34  Code to the extent not deducted under section 162(1) of the 
  3.35  Internal Revenue Code or excluded from income or (B) the total 
  3.36  amount deductible for medical care under section 213(a); 
  4.1      (7) the exemption amount allowed under Laws 1995, chapter 
  4.2   255, article 3, section 2, subdivision 3; 
  4.3      (8) to the extent included in federal taxable income, 
  4.4   postservice benefits for youth community service under section 
  4.5   124D.42 for volunteer service under United States Code, title 
  4.6   42, sections 12601 to 12604; 
  4.7      (9) to the extent not deducted in determining federal 
  4.8   taxable income by an individual who does not itemize deductions 
  4.9   for federal income tax purposes for the taxable year, an amount 
  4.10  equal to 50 percent of the excess of charitable contributions 
  4.11  allowable as a deduction for the taxable year under section 
  4.12  170(a) of the Internal Revenue Code over $500; 
  4.13     (10) for taxable years beginning before January 1, 2008, 
  4.14  the amount of the federal small ethanol producer credit allowed 
  4.15  under section 40(a)(3) of the Internal Revenue Code which is 
  4.16  included in gross income under section 87 of the Internal 
  4.17  Revenue Code; 
  4.18     (11) for individuals who are allowed a federal foreign tax 
  4.19  credit for taxes that do not qualify for a credit under section 
  4.20  290.06, subdivision 22, an amount equal to the carryover of 
  4.21  subnational foreign taxes for the taxable year, but not to 
  4.22  exceed the total subnational foreign taxes reported in claiming 
  4.23  the foreign tax credit.  For purposes of this clause, "federal 
  4.24  foreign tax credit" means the credit allowed under section 27 of 
  4.25  the Internal Revenue Code, and "carryover of subnational foreign 
  4.26  taxes" equals the carryover allowed under section 904(c) of the 
  4.27  Internal Revenue Code minus national level foreign taxes to the 
  4.28  extent they exceed the federal foreign tax credit; and 
  4.29     (12) in each of the five tax years immediately following 
  4.30  the tax year in which an addition is required under subdivision 
  4.31  19a, clause (7), an amount equal to one-fifth of the delayed 
  4.32  depreciation.  For purposes of this clause, "delayed 
  4.33  depreciation" means the amount of the addition made by the 
  4.34  taxpayer under subdivision 19a, clause (7), minus the positive 
  4.35  value of any net operating loss under section 172 of the 
  4.36  Internal Revenue Code generated for the tax year of the 
  5.1   addition.  The resulting delayed depreciation cannot be less 
  5.2   than zero. 
  5.3      [EFFECTIVE DATE.] This section is effective for taxable 
  5.4   years beginning after December 31, 2002. 
  5.5      Sec. 3.  Minnesota Statutes 2002, section 290.06, 
  5.6   subdivision 2c, is amended to read: 
  5.7      Subd. 2c.  [SCHEDULES OF RATES FOR INDIVIDUALS, ESTATES, 
  5.8   AND TRUSTS.] (a) The income taxes imposed by this chapter upon 
  5.9   married individuals filing joint returns and surviving spouses 
  5.10  as defined in section 2(a) of the Internal Revenue Code must be 
  5.11  computed by applying to their taxable net income the following 
  5.12  schedule of rates: 
  5.13     (1) On the first $25,680, 5.35 percent; 
  5.14     (2) On all over $25,680, but not over $102,030, 7.05 eight 
  5.15  percent; 
  5.16     (3) On all over $102,030, 7.85 9.85 percent. 
  5.17     Married individuals filing separate returns, estates, and 
  5.18  trusts must compute their income tax by applying the above rates 
  5.19  to their taxable income, except that the income brackets will be 
  5.20  one-half of the above amounts.  
  5.21     (b) The income taxes imposed by this chapter upon unmarried 
  5.22  individuals must be computed by applying to taxable net income 
  5.23  the following schedule of rates: 
  5.24     (1) On the first $17,570, 5.35 percent; 
  5.25     (2) On all over $17,570, but not over $57,710, 7.05 eight 
  5.26  percent; 
  5.27     (3) On all over $57,710, 7.85 9.85 percent. 
  5.28     (c) The income taxes imposed by this chapter upon unmarried 
  5.29  individuals qualifying as a head of household as defined in 
  5.30  section 2(b) of the Internal Revenue Code must be computed by 
  5.31  applying to taxable net income the following schedule of rates: 
  5.32     (1) On the first $21,630, 5.35 percent; 
  5.33     (2) On all over $21,630, but not over $86,910, 7.05 eight 
  5.34  percent; 
  5.35     (3) On all over $86,910, 7.85 9.85 percent. 
  5.36     (d) In lieu of a tax computed according to the rates set 
  6.1   forth in this subdivision, the tax of any individual taxpayer 
  6.2   whose taxable net income for the taxable year is less than an 
  6.3   amount determined by the commissioner must be computed in 
  6.4   accordance with tables prepared and issued by the commissioner 
  6.5   of revenue based on income brackets of not more than $100.  The 
  6.6   amount of tax for each bracket shall be computed at the rates 
  6.7   set forth in this subdivision, provided that the commissioner 
  6.8   may disregard a fractional part of a dollar unless it amounts to 
  6.9   50 cents or more, in which case it may be increased to $1. 
  6.10     (e) An individual who is not a Minnesota resident for the 
  6.11  entire year must compute the individual's Minnesota income tax 
  6.12  as provided in this subdivision.  After the application of the 
  6.13  nonrefundable credits provided in this chapter, the tax 
  6.14  liability must then be multiplied by a fraction in which:  
  6.15     (1) the numerator is the individual's Minnesota source 
  6.16  federal adjusted gross income as defined in section 62 of the 
  6.17  Internal Revenue Code and increased by the additions required 
  6.18  under section 290.01, subdivision 19a, clauses (1) and (6), and 
  6.19  reduced by the Minnesota assignable portion of the subtraction 
  6.20  for United States government interest under section 290.01, 
  6.21  subdivision 19b, clause (1), after applying the allocation and 
  6.22  assignability provisions of section 290.081, clause (a), or 
  6.23  290.17; and 
  6.24     (2) the denominator is the individual's federal adjusted 
  6.25  gross income as defined in section 62 of the Internal Revenue 
  6.26  Code of 1986, increased by the amounts specified in section 
  6.27  290.01, subdivision 19a, clauses (1) and (6), and reduced by the 
  6.28  amounts specified in section 290.01, subdivision 19b, clause (1).
  6.29     Sec. 4.  Minnesota Statutes 2002, section 290.067, 
  6.30  subdivision 2, is amended to read: 
  6.31     Subd. 2.  [LIMITATIONS.] The credit for expenses incurred 
  6.32  for the care of each dependent shall not exceed $720 $1,440 in 
  6.33  any taxable year, and the total credit for all dependents of a 
  6.34  claimant shall not exceed $1,440 $2,880 in a taxable year.  The 
  6.35  maximum total credit shall be reduced according to the amount of 
  6.36  the income of the claimant and a spouse, if any, as follows:  
  7.1      income up to $18,040, $720 $1,440 maximum for one 
  7.2   dependent, $1,440 $2,880 for all dependents; 
  7.3      income over $18,040, the maximum credit for one dependent 
  7.4   shall be reduced by $18 for every $350 of additional income, $36 
  7.5   for all dependents. 
  7.6      The commissioner shall construct and make available to 
  7.7   taxpayers tables showing the amount of the credit at various 
  7.8   levels of income and expenses.  The tables shall follow the 
  7.9   schedule contained in this subdivision, except that the 
  7.10  commissioner may graduate the transitions between expenses and 
  7.11  income brackets.  
  7.12     Sec. 5.  Minnesota Statutes 2002, section 290.0671, 
  7.13  subdivision 1, is amended to read: 
  7.14     Subdivision 1.  [CREDIT ALLOWED.] (a) An individual is 
  7.15  allowed a credit against the tax imposed by this chapter equal 
  7.16  to a percentage of earned income.  To receive a credit, a 
  7.17  taxpayer must be eligible for a credit under section 32 of the 
  7.18  Internal Revenue Code.  
  7.19     (b) For individuals with no qualifying children, the credit 
  7.20  equals 1.9125 3.825 percent of the first $4,620 of earned income.
  7.21  The credit is reduced by 1.9125 percent of earned income or 
  7.22  modified adjusted gross income, whichever is greater, in excess 
  7.23  of $5,770, but in no case is the credit less than zero. 
  7.24     (c) For individuals with one qualifying child, the credit 
  7.25  equals 8.5 17 percent of the first $6,920 of earned income and 
  7.26  8.5 17 percent of earned income over $12,080 but less than 
  7.27  $13,450. The credit is reduced by 5.73 percent of earned income 
  7.28  or modified adjusted gross income, whichever is greater, in 
  7.29  excess of $15,080, but in no case is the credit less than zero. 
  7.30     (d) For individuals with two or more qualifying children, 
  7.31  the credit equals ten 20 percent of the first $9,720 of earned 
  7.32  income and 20 percent of earned income over $14,860 but less 
  7.33  than $16,800.  The credit is reduced by 10.3 percent of earned 
  7.34  income or modified adjusted gross income, whichever is greater, 
  7.35  in excess of $17,890, but in no case is the credit less than 
  7.36  zero. 
  8.1      (e) For a nonresident or part-year resident, the credit 
  8.2   must be allocated based on the percentage calculated under 
  8.3   section 290.06, subdivision 2c, paragraph (e). 
  8.4      (f) For a person who was a resident for the entire tax year 
  8.5   and has earned income not subject to tax under this chapter, the 
  8.6   credit must be allocated based on the ratio of federal adjusted 
  8.7   gross income reduced by the earned income not subject to tax 
  8.8   under this chapter over federal adjusted gross income. 
  8.9      (g) For tax years beginning after December 31, 2001, and 
  8.10  before December 31, 2004 2002, the $5,770 in paragraph (b) is 
  8.11  increased to $6,770, the $15,080 in paragraph (c) is increased 
  8.12  to $16,080, and the $17,890 in paragraph (d) is increased to 
  8.13  $18,890 for married taxpayers filing joint returns. 
  8.14     (h) For tax years beginning after December 31, 2004 2002, 
  8.15  and before December 31, 2007 2005, the $5,770 in paragraph (b) 
  8.16  is increased to $7,770, the $15,080 in paragraph (c) is 
  8.17  increased to $17,080, and the $17,890 in paragraph (d) is 
  8.18  increased to $19,890 for married taxpayers filing joint returns. 
  8.19     (i) For tax years beginning after December 31, 2007 2005, 
  8.20  and before December 31, 2010, the $5,770 in paragraph (b) is 
  8.21  increased to $8,770, the $15,080 in paragraph (c) is increased 
  8.22  to $18,080 and the $17,890 in paragraph (d) is increased to 
  8.23  $20,890 for married taxpayers filing joint returns. 
  8.24     (j) The commissioner shall construct tables showing the 
  8.25  amount of the credit at various income levels and make them 
  8.26  available to taxpayers.  The tables shall follow the schedule 
  8.27  contained in this subdivision, except that the commissioner may 
  8.28  graduate the transition between income brackets. 
  8.29     Sec. 6.  [290.0676] [CHILD CREDIT.] 
  8.30     Subdivision 1.  [CREDIT.] A taxpayer may take as a credit 
  8.31  against the tax due from the taxpayer and a spouse, if any, 
  8.32  under this chapter, an amount equal to $....... for each 
  8.33  dependent that the taxpayer is entitled to claim and has not 
  8.34  attained the age of 17 years at the close of the taxable year. 
  8.35     Subd. 2.  [LIMITATIONS.] The credit amount shall be reduced 
  8.36  according to the amount of the income of the claimant and a 
  9.1   spouse, if any, as follows: 
  9.2             Income            Credit Amount Each Dependent
  9.3           $0 to  $60,000                $.......
  9.4      $60,001 to  $70,000                $.......
  9.5      $70,001 to  $80,000                $.......
  9.6      $80,001 to  $90,000                $.......
  9.7      $90,001 to $100,000                $.......
  9.8     $100,001   and above                      $0
  9.9      Subd. 3.  [INCOME.] For purposes of this section, "income" 
  9.10  means income as defined in section 290.067, subdivisions 2a and 
  9.11  2b. 
  9.12     Subd. 4.  [CREDIT TO BE REFUNDABLE.] If the amount of the 
  9.13  credit allowed under this section exceeds the taxpayer's tax 
  9.14  liability under this chapter, the excess amount of the credit 
  9.15  shall be refunded to the taxpayer. 
  9.16     [EFFECTIVE DATE.] This section is effective for taxable 
  9.17  years beginning after December 31, 2003. 
  9.18     Sec. 7.  Minnesota Statutes 2002, section 290A.04, 
  9.19  subdivision 1, is amended to read: 
  9.20     Subdivision 1.  [REFUND.] A refund shall be allowed each 
  9.21  claimant in the amount that property taxes payable or rent 
  9.22  constituting property taxes exceed exceeds the greater of (1) 
  9.23  the percentage of the household income of the claimant specified 
  9.24  in subdivision 2 or 2a in the year for which the taxes were 
  9.25  levied or in the year in which the rent was paid as specified in 
  9.26  subdivision 2 or 2a or (2) the percentage of household income 
  9.27  specified in subdivision 2k.  If the amount of property taxes 
  9.28  payable or rent constituting property taxes is equal to or less 
  9.29  than the percentage of the household income of the claimant 
  9.30  specified in subdivision 2 or 2a and subdivision 2k in the year 
  9.31  for which the taxes were levied or in the year in which the rent 
  9.32  was paid, the claimant shall not be eligible for a state refund 
  9.33  pursuant to this section. 
  9.34     [EFFECTIVE DATE.] This section is effective for claims 
  9.35  based on property taxes payable in 2004 and rent paid in 2003, 
  9.36  and thereafter. 
 10.1      Sec. 8.  Minnesota Statutes 2002, section 290A.04, is 
 10.2   amended by adding a subdivision to read: 
 10.3      Subd. 2k.  [ALTERNATIVE REFUND COMPUTATION.] A claimant who 
 10.4   is either a homeowner or renter may be eligible for a refund 
 10.5   equal to the amount of property taxes payable or rent 
 10.6   constituting property taxes that exceeds the amount equal to (1) 
 10.7   the property taxes payable, (2) minus the percentage of income 
 10.8   that applies to the claimant's income shown in this subdivision, 
 10.9   (3) plus ten percent of the remaining property taxes payable or 
 10.10  rent constituting property taxes for any claimant. 
 10.11              Household Income           Percent of Income
 10.12                $0  to  $ 5,000               1 percent
 10.13           $ 5,001  to  $10,000               2 percent
 10.14           $10,001  to  $15,000               2.5 percent
 10.15           $15,001  to  $20,000               3 percent
 10.16           $20,001  to  $30,000               4 percent
 10.17           $30,001  to  $40,000               5 percent
 10.18           $40,001  to  $70,000               6 percent
 10.19  If the refund computed under this subdivision exceeds the refund 
 10.20  computed under subdivision 2 or 2a, the claimant shall receive 
 10.21  the refund under this subdivision in lieu of a refund under 
 10.22  subdivision 2 or 2a. 
 10.23     [EFFECTIVE DATE.] This section is effective for claims 
 10.24  based on property taxes payable in 2004 and rent paid in 2003, 
 10.25  and thereafter. 
 10.26     Sec. 9.  Minnesota Statutes 2002, section 290A.04, 
 10.27  subdivision 3, is amended to read: 
 10.28     Subd. 3.  [TABLE.] The commissioner of revenue shall 
 10.29  construct and make available to taxpayers a comprehensive table 
 10.30  showing the property taxes to be paid and refund allowed at 
 10.31  various levels of income and assessment.  The table shall follow 
 10.32  the schedule of income percentages, maximums and other 
 10.33  provisions specified in subdivision 2 subdivisions 2, 2a, and 
 10.34  2k, except that the commissioner may graduate the transition 
 10.35  between income brackets in subdivisions 2 and 2a.  All refunds 
 10.36  shall be computed in accordance with tables prepared and issued 
 11.1   by the commissioner of revenue.  
 11.2      The commissioner shall include on the form an appropriate 
 11.3   space or method for the claimant to identify if the property 
 11.4   taxes paid are for a manufactured home, as defined in section 
 11.5   273.125, subdivision 8, paragraph (c), or a park trailer taxed 
 11.6   as a manufactured home under section 168.012, subdivision 9. 
 11.7      [EFFECTIVE DATE.] This section is effective for claims 
 11.8   based on property taxes payable in 2004 and rent paid in 2003, 
 11.9   and thereafter. 
 11.10     Sec. 10.  Minnesota Statutes 2002, section 290A.04, 
 11.11  subdivision 4, is amended to read: 
 11.12     Subd. 4.  [INFLATION ADJUSTMENT.] Beginning for property 
 11.13  tax refunds payable in calendar year 2002, the commissioner 
 11.14  shall annually adjust the dollar amounts of the income 
 11.15  thresholds and the maximum refunds under subdivisions 2 and 2a 
 11.16  for inflation.  The commissioner shall make the inflation 
 11.17  adjustments in accordance with section 1(f) of the Internal 
 11.18  Revenue Code, except that for purposes of this subdivision the 
 11.19  percentage increase shall be determined from the year ending on 
 11.20  June 30, 2000, to the year ending on June 30 of the year 
 11.21  preceding that in which the refund is payable.  Beginning for 
 11.22  property tax refunds payable in calendar year 2005, the 
 11.23  commissioner shall annually adjust the income thresholds in 
 11.24  subdivision 2k in a similar manner, except that the percentage 
 11.25  increase shall be determined from the year ending on August 31, 
 11.26  2003, to the year ending on August 31 of the year preceding that 
 11.27  in which the refund is payable.  The commissioner shall use the 
 11.28  appropriate percentage increase to annually adjust the income 
 11.29  thresholds and maximum refunds under subdivisions 2 and, 2a, and 
 11.30  2k for inflation without regard to whether or not the income tax 
 11.31  brackets are adjusted for inflation in that year.  The 
 11.32  commissioner shall round the thresholds and the maximum amounts, 
 11.33  as adjusted to the nearest $10 amount.  If the amount ends in 
 11.34  $5, the commissioner shall round it up to the next $10 amount.  
 11.35     The commissioner shall annually announce the adjusted 
 11.36  refund schedule at the same time provided under section 290.06.  
 12.1   The determination of the commissioner under this subdivision is 
 12.2   not a rule under the Administrative Procedure Act. 
 12.3      Sec. 11.  Minnesota Statutes 2002, section 297A.67, 
 12.4   subdivision 2, is amended to read: 
 12.5      Subd. 2.  [FOOD AND FOOD INGREDIENTS.] Food and food 
 12.6   ingredients are exempt.  For purposes of this subdivision, 
 12.7   "food" and "food ingredients" mean substances, whether in 
 12.8   liquid, concentrated, solid, frozen, dried, or dehydrated form, 
 12.9   that are sold for ingestion or chewing by humans and are 
 12.10  consumed for their taste or nutritional value.  Food and food 
 12.11  ingredients do not include candy, soft drinks, food sold through 
 12.12  vending machines, and prepared foods.  Food and food ingredients 
 12.13  do not include alcoholic beverages, dietary supplements, and 
 12.14  tobacco.  For purposes of this subdivision, "alcoholic 
 12.15  beverages" means beverages that are suitable for human 
 12.16  consumption and contain one-half of one percent or more of 
 12.17  alcohol by volume.  For purposes of this subdivision, "tobacco" 
 12.18  means cigarettes, cigars, chewing or pipe tobacco, or any other 
 12.19  item that contains tobacco.  For purposes of this subdivision, 
 12.20  "dietary supplements" means any product, other than tobacco, 
 12.21  intended to supplement the diet that: 
 12.22     (1) contains one or more of the following dietary 
 12.23  ingredients: 
 12.24     (i) a vitamin; 
 12.25     (ii) a mineral; 
 12.26     (iii) (ii) an herb or other botanical; 
 12.27     (iv) (iii) an amino acid; 
 12.28     (v) (iv) a dietary substance for use by humans to 
 12.29  supplement the diet by increasing the total dietary intake; and 
 12.30     (vi) (v) a concentrate, metabolite, constituent, extract, 
 12.31  or combination of any ingredient described in items (i) to (v); 
 12.32     (2) is intended for ingestion in tablet, capsule, powder, 
 12.33  softgel, gelcap, or liquid form, or if not intended for 
 12.34  ingestion in such form, is not represented as conventional food 
 12.35  and is not represented for use as a sole item of a meal or of 
 12.36  the diet; and 
 13.1      (3) is required to be labeled as a dietary supplement, 
 13.2   identifiable by the supplement facts box found on the label and 
 13.3   as required pursuant to Code of Federal Regulations, title 21, 
 13.4   section 101.36. 
 13.5      [EFFECTIVE DATE.] This section is effective for sales and 
 13.6   purchases made on or after July 1, 2003. 
 13.7      Sec. 12.  Minnesota Statutes 2002, section 297A.67, 
 13.8   subdivision 7, is amended to read: 
 13.9      Subd. 7.  [MEDICINES; MEDICAL DEVICES.] (a) Prescribed 
 13.10  Drugs and medicine, and insulin, intended for internal or 
 13.11  external use, in the cure, mitigation, treatment, or prevention 
 13.12  of illness or disease in human beings are exempt.  "Prescribed 
 13.13  Drugs and medicine" includes over-the-counter drugs or medicine 
 13.14  prescribed by a licensed health care professional. 
 13.15     (b) Nonprescription medicines consisting principally 
 13.16  (determined by the weight of all ingredients) of analgesics that 
 13.17  are approved by the United States Food and Drug Administration 
 13.18  for internal use by human beings are exempt.  For purposes of 
 13.19  this subdivision, "principally" means greater than 50 percent 
 13.20  analgesics by weight Contraceptives and birth control supplies, 
 13.21  including, but not limited to, contraceptive foams, gels, 
 13.22  diaphragms, intrauterine devices, condoms, and pregnancy test 
 13.23  kits are exempt.  
 13.24     (c) Prescription glasses, hospital beds, fever 
 13.25  thermometers, bandages, gauze pads and strips, bedpans, 
 13.26  telephone devices for hearing-impaired, reusable finger-pricking 
 13.27  devices for the extraction of blood, blood glucose monitoring 
 13.28  machines, and other diagnostic agents used in diagnosing, 
 13.29  monitoring, or treating diabetes, and therapeutic and prosthetic 
 13.30  devices are exempt.  "Therapeutic devices" means devices that 
 13.31  are attached or applied to the human body to cure, heal, or 
 13.32  alleviate injury, illness, or disease, either directly or by 
 13.33  administering a curative agent.  "Prosthetic devices" means 
 13.34  devices that replace injured, diseased, or missing parts of the 
 13.35  human body, either temporarily or permanently.  
 13.36     Sec. 13.  Minnesota Statutes 2002, section 297A.67, 
 14.1   subdivision 17, is amended to read: 
 14.2      Subd. 17.  [FEMININE PERSONAL HYGIENE PRODUCTS.] Items used 
 14.3   for personal hygiene of human beings, including, but not limited 
 14.4   to, soap, laundry detergent, hand and body lotions or cream, 
 14.5   toothpaste, deodorant, toilet paper, facial tissues, incontinent 
 14.6   pads, sanitary napkins, tampons, or similar items used 
 14.7   for feminine hygiene, but not including cosmetics, are exempt.  
 14.8      [EFFECTIVE DATE.] This section is effective for sales and 
 14.9   purchases made on or after July 1, 2003. 
 14.10     Sec. 14.  Minnesota Statutes 2002, section 297A.68, 
 14.11  subdivision 5, is amended to read: 
 14.12     Subd. 5.  [CAPITAL EQUIPMENT.] (a) The rate of sales tax on 
 14.13  capital equipment is exempt 3.25 percent.  The tax must be 
 14.14  imposed and collected as if the rate under section 297A.62, 
 14.15  subdivision 1, applied, and then the difference refunded in the 
 14.16  manner provided in section 297A.75. 
 14.17     "Capital equipment" means machinery and equipment purchased 
 14.18  or leased, and used in this state by the purchaser or lessee 
 14.19  primarily for manufacturing, fabricating, mining, or refining 
 14.20  tangible personal property to be sold ultimately at retail if 
 14.21  the machinery and equipment are essential to the integrated 
 14.22  production process of manufacturing, fabricating, mining, or 
 14.23  refining.  Capital equipment also includes machinery and 
 14.24  equipment used to electronically transmit results retrieved by a 
 14.25  customer of an online computerized data retrieval system. 
 14.26     (b) Capital equipment includes, but is not limited to: 
 14.27     (1) machinery and equipment used to operate, control, or 
 14.28  regulate the production equipment; 
 14.29     (2) machinery and equipment used for research and 
 14.30  development, design, quality control, and testing activities; 
 14.31     (3) environmental control devices that are used to maintain 
 14.32  conditions such as temperature, humidity, light, or air pressure 
 14.33  when those conditions are essential to and are part of the 
 14.34  production process; 
 14.35     (4) materials and supplies used to construct and install 
 14.36  machinery or equipment; 
 15.1      (5) repair and replacement parts, including accessories, 
 15.2   whether purchased as spare parts, repair parts, or as upgrades 
 15.3   or modifications to machinery or equipment; 
 15.4      (6) materials used for foundations that support machinery 
 15.5   or equipment; 
 15.6      (7) materials used to construct and install special purpose 
 15.7   buildings used in the production process; and 
 15.8      (8) ready-mixed concrete trucks in which the ready-mixed 
 15.9   concrete is mixed as part of the delivery process.  
 15.10     (c) Capital equipment does not include the following: 
 15.11     (1) motor vehicles taxed under chapter 297B; 
 15.12     (2) machinery or equipment used to receive or store raw 
 15.13  materials; 
 15.14     (3) building materials, except for materials included in 
 15.15  paragraph (b), clauses (6) and (7); 
 15.16     (4) machinery or equipment used for nonproduction purposes, 
 15.17  including, but not limited to, the following:  plant security, 
 15.18  fire prevention, first aid, and hospital stations; support 
 15.19  operations or administration; pollution control; and plant 
 15.20  cleaning, disposal of scrap and waste, plant communications, 
 15.21  space heating, cooling, lighting, or safety; 
 15.22     (5) farm machinery and aquaculture production equipment as 
 15.23  defined by section 297A.61, subdivisions 12 and 13; 
 15.24     (6) machinery or equipment purchased and installed by a 
 15.25  contractor as part of an improvement to real property; or 
 15.26     (7) any other item that is not essential to the integrated 
 15.27  process of manufacturing, fabricating, mining, or refining. 
 15.28     (d) For purposes of this subdivision: 
 15.29     (1) "Equipment" means independent devices or tools separate 
 15.30  from machinery but essential to an integrated production 
 15.31  process, including computers and computer software, used in 
 15.32  operating, controlling, or regulating machinery and equipment; 
 15.33  and any subunit or assembly comprising a component of any 
 15.34  machinery or accessory or attachment parts of machinery, such as 
 15.35  tools, dies, jigs, patterns, and molds.  
 15.36     (2) "Fabricating" means to make, build, create, produce, or 
 16.1   assemble components or property to work in a new or different 
 16.2   manner. 
 16.3      (3) "Machinery" means mechanical, electronic, or electrical 
 16.4   devices, including computers and computer software, that are 
 16.5   purchased or constructed to be used for the activities set forth 
 16.6   in paragraph (a), beginning with the removal of raw materials 
 16.7   from inventory through completion of the product, including 
 16.8   packaging of the product. 
 16.9      (4) "Machinery and equipment used for pollution control" 
 16.10  means machinery and equipment used solely to eliminate, prevent, 
 16.11  or reduce pollution resulting from an activity described in 
 16.12  paragraph (a).  
 16.13     (5) "Manufacturing" means an operation or series of 
 16.14  operations where raw materials are changed in form, composition, 
 16.15  or condition by machinery and equipment and which results in the 
 16.16  production of a new article of tangible personal property.  For 
 16.17  purposes of this subdivision, "manufacturing" includes the 
 16.18  generation of electricity or steam to be sold at retail. 
 16.19     (6) "Mining" means the extraction of minerals, ores, stone, 
 16.20  or peat. 
 16.21     (7) "Online data retrieval system" means a system whose 
 16.22  cumulation of information is equally available and accessible to 
 16.23  all its customers. 
 16.24     (8) "Primarily" means machinery and equipment used 50 
 16.25  percent or more of the time in an activity described in 
 16.26  paragraph (a). 
 16.27     (9) "Refining" means the process of converting a natural 
 16.28  resource to a product, including the treatment of water to be 
 16.29  sold at retail. 
 16.30     [EFFECTIVE DATE.] This section is effective for sales and 
 16.31  purchases made on or after July 1, 2003. 
 16.32     Sec. 15.  Minnesota Statutes 2002, section 297A.68, 
 16.33  subdivision 28, is amended to read: 
 16.34     Subd. 28.  [MEDICAL SUPPLIES.] Medical supplies purchased 
 16.35  by a licensed health care facility or licensed health care 
 16.36  professional to provide medical treatment to residents or 
 17.1   patients are exempt.  The exemption does not apply to medical 
 17.2   equipment or components of medical equipment, laboratory 
 17.3   supplies, radiological supplies, and other items used in 
 17.4   providing medical services.  For purposes of this subdivision, 
 17.5   "medical supplies" means adhesive and nonadhesive bandages, 
 17.6   gauze pads and strips, cotton applicators, antiseptics, 
 17.7   nonprescription drugs, eye solution, stethoscopes, scalpels, and 
 17.8   other similar supplies used directly on the resident or patient 
 17.9   in providing medical services. 
 17.10     Sec. 16.  Minnesota Statutes 2002, section 297A.70, 
 17.11  subdivision 1, is amended to read: 
 17.12     Subdivision 1.  [SCOPE.] (a) To the extent provided in this 
 17.13  section, the gross receipts from sales of items to or by, and 
 17.14  storage, distribution, use, or consumption of items by the 
 17.15  organizations or units of government listed in this section are 
 17.16  specifically exempted from the taxes imposed by this chapter. 
 17.17     (b) Notwithstanding any law to the contrary enacted before 
 17.18  1992, only sales to governments and political subdivisions 
 17.19  listed in this section are exempt from the taxes imposed by this 
 17.20  chapter.  
 17.21     (c) "Sales" includes purchases under an installment 
 17.22  contract or lease purchase agreement under section 465.71. 
 17.23     [EFFECTIVE DATE.] This section is effective for sales and 
 17.24  purchases made after June 30, 2003. 
 17.25     Sec. 17.  Minnesota Statutes 2002, section 297A.70, 
 17.26  subdivision 2, is amended to read: 
 17.27     Subd. 2.  [SALES TO GOVERNMENT.] (a) All sales, except 
 17.28  those listed in paragraph (b), to the following governments and 
 17.29  political subdivisions, or to the listed agencies or 
 17.30  instrumentalities of governments and political subdivisions, are 
 17.31  exempt: 
 17.32     (1) the United States and its agencies and 
 17.33  instrumentalities; 
 17.34     (2) school districts, the University of Minnesota, state 
 17.35  universities, community colleges, technical colleges, state 
 17.36  academies, and the Perpich Minnesota center for arts education, 
 18.1   and an instrumentality of a political subdivision that is 
 18.2   accredited as an optional/special function school by the North 
 18.3   Central Association of Colleges and Schools; 
 18.4      (3) hospitals and nursing homes owned and operated by 
 18.5   political subdivisions of the state of tangible personal 
 18.6   property and taxable services used at or by hospitals and 
 18.7   nursing homes political subdivisions of a state and their 
 18.8   agencies and instrumentalities; 
 18.9      (4) the metropolitan council, for its purchases of vehicles 
 18.10  and repair parts to equip operations provided for in section 
 18.11  473.4051; 
 18.12     (5) other states or political subdivisions of other states, 
 18.13  if the sale would be exempt from taxation if it occurred in that 
 18.14  state; and 
 18.15     (6) (5) sales to public libraries, public library systems, 
 18.16  multicounty, multitype library systems as defined in section 
 18.17  134.001, county law libraries under chapter 134A, state agency 
 18.18  libraries, the state library under section 480.09, and the 
 18.19  legislative reference library.  
 18.20     (b) This exemption does not apply to the sales of the 
 18.21  following products and services: 
 18.22     (1) building, construction, or reconstruction materials 
 18.23  purchased by a contractor or a subcontractor as a part of a 
 18.24  lump-sum contract or similar type of contract with a guaranteed 
 18.25  maximum price covering both labor and materials for use in the 
 18.26  construction, alteration, or repair of a building or facility; 
 18.27     (2) construction materials purchased by tax exempt entities 
 18.28  or their contractors to be used in constructing buildings or 
 18.29  facilities which will not be used principally by the tax exempt 
 18.30  entities; 
 18.31     (3) the leasing of a motor vehicle as defined in section 
 18.32  297B.01, subdivision 5, except for:  (i) leases entered into by 
 18.33  the United States or its agencies or instrumentalities, or (ii) 
 18.34  leases of motor vehicles exempt from tax under chapter 297B 
 18.35  entered into by a political subdivision or its agencies and 
 18.36  instrumentalities; or 
 19.1      (4) meals and lodging as defined under section 297A.61, 
 19.2   subdivision 3, paragraphs (d) and (g), clause (2), except for 
 19.3   meals and lodging purchased directly by the United States or its 
 19.4   agencies or instrumentalities; or 
 19.5      (5) items purchased or sold by a local government for the 
 19.6   provision of goods or services by a political subdivision or its 
 19.7   agencies and instrumentalities if (i) the goods or services are 
 19.8   generally provided by a private business, and (ii) the purchases 
 19.9   would be taxable if made by a private business engaged in the 
 19.10  same activity. 
 19.11     (c) As used in this subdivision, "school districts" means 
 19.12  public school entities and districts of every kind and nature 
 19.13  organized under the laws of the state of Minnesota, and any 
 19.14  instrumentality of a school district, as defined in section 
 19.15  471.59.  For purposes of paragraph (b), clause (5), "goods or 
 19.16  services generally provided by a private business" include, but 
 19.17  are not limited to, goods or services generally provided by 
 19.18  liquor stores, gas and electric utilities, golf courses, 
 19.19  marinas, health and fitness centers, campgrounds, cafes, and 
 19.20  laundromats.  "Goods or services generally provided by a private 
 19.21  business" do not include housing services, sewer and water 
 19.22  services, wastewater treatment, ambulance and other public 
 19.23  safety services, correctional services, chore or homemaking 
 19.24  services provided to elderly or disabled individuals, or road 
 19.25  and street maintenance or lighting. 
 19.26     [EFFECTIVE DATE.] This section is effective for sales and 
 19.27  purchases made after June 30, 2003. 
 19.28     Sec. 18.  Minnesota Statutes 2002, section 297A.70, 
 19.29  subdivision 3, is amended to read: 
 19.30     Subd. 3.  [SALES OF CERTAIN GOODS AND SERVICES TO 
 19.31  GOVERNMENT.] (a) The following sales to or use by the 
 19.32  specified persons, governments, and political subdivisions of 
 19.33  the state are exempt: 
 19.34     (1) repair and replacement parts for emergency rescue 
 19.35  vehicles, fire trucks, and fire apparatus to a political 
 19.36  subdivision; 
 20.1      (2) machinery and equipment, except for motor vehicles, 
 20.2   used directly for mixed municipal solid waste management 
 20.3   services at a solid waste disposal facility as defined in 
 20.4   section 115A.03, subdivision 10; 
 20.5      (3) chore and homemaking services to a political 
 20.6   subdivision of the state to be provided to elderly or disabled 
 20.7   individuals; 
 20.8      (4) (2) telephone services to the department of 
 20.9   administration that are used to provide telecommunications 
 20.10  services through the intertechnologies revolving fund; 
 20.11     (5) (3) firefighter personal protective equipment as 
 20.12  defined in paragraph (b), if purchased or authorized by and for 
 20.13  the use of an organized fire department, fire protection 
 20.14  district, or fire company regularly charged with the 
 20.15  responsibility of providing fire protection to the state or a 
 20.16  political subdivision; 
 20.17     (6) (4) bullet-resistant body armor that provides the 
 20.18  wearer with ballistic and trauma protection, if purchased by a 
 20.19  law enforcement agency of the state or a political subdivision 
 20.20  of the state, or a licensed peace officer, as defined in section 
 20.21  626.84, subdivision 1; and 
 20.22     (7) (5) motor vehicles purchased or leased by political 
 20.23  subdivisions of the state if the vehicles are exempt from 
 20.24  registration under section 168.012, subdivision 1, paragraph 
 20.25  (b), exempt from taxation under section 473.448, or exempt from 
 20.26  the motor vehicle sales tax under section 297B.03, clause (12);. 
 20.27     (8) equipment designed to process, dewater, and recycle 
 20.28  biosolids for wastewater treatment facilities of political 
 20.29  subdivisions, and materials incidental to installation of that 
 20.30  equipment; and 
 20.31     (9) sales to a town of gravel and of machinery, equipment, 
 20.32  and accessories, except motor vehicles, used exclusively for 
 20.33  road and bridge maintenance, and leases by a town of motor 
 20.34  vehicles exempt from tax under section 297B.03, clause (10). 
 20.35     (b) For purposes of this subdivision, "firefighters 
 20.36  personal protective equipment" means helmets, including face 
 21.1   shields, chin straps, and neck liners; bunker coats and pants, 
 21.2   including pant suspenders; boots; gloves; head covers or hoods; 
 21.3   wildfire jackets; protective coveralls; goggles; self-contained 
 21.4   breathing apparatus; canister filter masks; personal alert 
 21.5   safety systems; spanner belts; optical or thermal imaging search 
 21.6   devices; and all safety equipment required by the Occupational 
 21.7   Safety and Health Administration. 
 21.8      [EFFECTIVE DATE.] This section is effective for sales and 
 21.9   purchases made after June 30, 2003. 
 21.10     Sec. 19.  Minnesota Statutes 2002, section 297A.75, 
 21.11  subdivision 1, is amended to read: 
 21.12     Subdivision 1.  [TAX COLLECTED.] The tax on the gross 
 21.13  receipts from the sale of the following exempt items must be 
 21.14  imposed and collected as if the sale were taxable and the rate 
 21.15  under section 297A.62, subdivision 1, applied.  The exempt items 
 21.16  include: 
 21.17     (1) capital equipment exempt under section 297A.68, 
 21.18  subdivision 5; 
 21.19     (2) building materials for an agricultural processing 
 21.20  facility exempt under section 297A.71, subdivision 13; 
 21.21     (3) building materials for mineral production facilities 
 21.22  exempt under section 297A.71, subdivision 14; 
 21.23     (4) building materials for correctional facilities under 
 21.24  section 297A.71, subdivision 3; 
 21.25     (5) building materials used in a residence for disabled 
 21.26  veterans exempt under section 297A.71, subdivision 11; 
 21.27     (6) chair lifts, ramps, elevators, and associated building 
 21.28  materials exempt under section 297A.71, subdivision 12; 
 21.29     (7) building materials for the Long Lake Conservation 
 21.30  Center exempt under section 297A.71, subdivision 17; 
 21.31     (8) materials, supplies, fixtures, furnishings, and 
 21.32  equipment for a county law enforcement and family service center 
 21.33  under section 297A.71, subdivision 26; and 
 21.34     (9) materials and supplies for qualified low-income housing 
 21.35  under section 297A.71, subdivision 23. 
 21.36     [EFFECTIVE DATE.] This section is effective for sales and 
 22.1   purchases made on or after July 1, 2003. 
 22.2      Sec. 20.  [REPEALER.] 
 22.3      Minnesota Statutes 2002, sections 295.50; 295.51; 295.52; 
 22.4   295.53; 295.54; 295.55; 295.56; 295.57; 295.58; 295.581; 
 22.5   295.582; and 295.59, are repealed for taxable years beginning 
 22.6   after December 31, 2003.