SF 1209

2nd Engrossment - 84th Legislature (2005 - 2006) Posted on 12/15/2009 12:00am

A bill for an act
relating to taxation; requiring withholding; conforming with certain federal
income tax changes; prohibiting state contracts with certain vendors; providing
for taxation of liquor and rented vehicles; modifying certain sales tax exemptions;
defining "direct business" for purposes of insurance taxes; modifying the
homestead market value credit; amending Minnesota Statutes 2004, sections
16C.03, by adding a subdivision; 273.1384, subdivision 1; 289A.20, subdivision
2; 290.01, subdivisions 19, 19a, 19b, 19c, 19d, 31; 290.06, subdivision
2c; 290.067, subdivision 2a; 290.091, subdivision 2; 290.92, by adding a
subdivision; 290A.03, subdivisions 3, 15; 297A.68, subdivisions 2, 5; 297I.01,
by adding a subdivision; Laws 2001, First Special Session chapter 5, article 12,
section 95; proposing coding for new law in Minnesota Statutes, chapter 295.

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

ARTICLE 1

INCOME AND CORPORATE FRANCHISE TAXES

Section 1.

Minnesota Statutes 2004, section 289A.20, subdivision 2, is amended to
read:

Subd. 2.

Withholding from wages, entertainer withholding, withholding from
payments to out-of-state contractors, and withholding by partnerships and small
business corporations.

(a) A tax required to be deducted and withheld during the
quarterly period must be paid on or before the last day of the month following the close of
the quarterly period, unless an earlier time for payment is provided. A tax required to be
deducted and withheld from compensation of an entertainer and from a payment to an
out-of-state contractor must be paid on or before the date the return for such tax must be
filed under section 289A.18, subdivision 2. Taxes required to be deducted and withheld
by partnerships deleted text begin and deleted text end new text begin , new text end S corporations new text begin , and trusts new text end must be paid on deleted text begin or before the date the
return must be filed under section 289A.18, subdivision 2 deleted text end new text begin a quarterly basis as estimated
taxes under section 289A.25 for partnerships and trusts and under section 289A.26 for S
corporations new text end .

(b) An employer who, during the previous quarter, withheld more than $1,500 of
tax under section 290.92, subdivision 2a or 3, or 290.923, subdivision 2, must deposit tax
withheld under those sections with the commissioner within the time allowed to deposit
the employer's federal withheld employment taxes under Code of Federal Regulations,
title 26, section 31.6302-1, as amended through December 31, 2001, without regard to the
safe harbor or de minimis rules in subparagraph (f) or the one-day rule in subsection (c),
clause (3). Taxpayers must submit a copy of their federal notice of deposit status to the
commissioner upon request by the commissioner.

(c) The commissioner may prescribe by rule other return periods or deposit
requirements. In prescribing the reporting period, the commissioner may classify payors
according to the amount of their tax liability and may adopt an appropriate reporting
period for the class that the commissioner judges to be consistent with efficient tax
collection. In no event will the duration of the reporting period be more than one year.

(d) If less than the correct amount of tax is paid to the commissioner, proper
adjustments with respect to both the tax and the amount to be deducted must be made,
without interest, in the manner and at the times the commissioner prescribes. If the
underpayment cannot be adjusted, the amount of the underpayment will be assessed and
collected in the manner and at the times the commissioner prescribes.

(e) If the aggregate amount of the tax withheld during a fiscal year ending June 30
under section 290.92, subdivision 2a or 3, is equal to or exceeds the amounts established
for remitting federal withheld taxes pursuant to the regulations promulgated under section
6302(h) of the Internal Revenue Code, the employer must remit each required deposit for
wages paid in the subsequent calendar year by electronic means.

(f) A third-party bulk filer as defined in section 290.92, subdivision 30, paragraph
(a), clause (2), who remits withholding deposits must remit all deposits by electronic
means as provided in paragraph (e), regardless of the aggregate amount of tax withheld
during a fiscal year for all of the employers.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for tax years beginning after
December 31, 2005.
new text end

Sec. 2.

Minnesota Statutes 2004, section 290.92, is amended by adding a subdivision
to read:

new text begin Subd. 31. new text end

new text begin Payments to persons who are not employees; withholding. new text end

new text begin Any person
engaged in a trade or business who in the course of such trade or business makes payments
to an individual, who is not an employee of the person, for work described in industry
code numbers 23 through 238990 of the North American Industry Classification System,
shall deduct from the payment and withhold two percent of the amount as Minnesota
withholding tax when the amount paid to that individual by the same person during the
calendar year exceeds $600. For purposes of this section, a payment to any person that
is subject to withholding under this subdivision must be treated as if the payment was a
wage paid by an employer to an employee. Every individual who is to receive a payment
that is subject to withholding under this subdivision shall furnish the contracting person
with a statement, containing the name, address, and Social Security account number of
the person receiving the payment.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for payments made after July 31,
2005.
new text end

ARTICLE 2

FEDERAL UPDATE

Section 1.

Minnesota Statutes 2004, section 290.01, subdivision 19, is amended to read:

Subd. 19.

Net income.

The term "net income" means the federal taxable income, as
defined in section 63 of the Internal Revenue Code of 1986, as amended through the date
named in this subdivision, incorporating any elections made by the taxpayer in accordance
with the Internal Revenue Code in determining federal taxable income for federal income
tax purposes, and with the modifications provided in subdivisions 19a to 19f.

In the case of a regulated investment company or a fund thereof, as defined in section
851(a) or 851(g) of the Internal Revenue Code, federal taxable income means investment
company taxable income as defined in section 852(b)(2) of the Internal Revenue Code,
except that:

(1) the exclusion of net capital gain provided in section 852(b)(2)(A) of the Internal
Revenue Code does not apply;

(2) the deduction for dividends paid under section 852(b)(2)(D) of the Internal
Revenue Code must be applied by allowing a deduction for capital gain dividends and
exempt-interest dividends as defined in sections 852(b)(3)(C) and 852(b)(5) of the Internal
Revenue Code; and

(3) the deduction for dividends paid must also be applied in the amount of any
undistributed capital gains which the regulated investment company elects to have treated
as provided in section 852(b)(3)(D) of the Internal Revenue Code.

The net income of a real estate investment trust as defined and limited by section
856(a), (b), and (c) of the Internal Revenue Code means the real estate investment trust
taxable income as defined in section 857(b)(2) of the Internal Revenue Code.

The net income of a designated settlement fund as defined in section 468B(d) of
the Internal Revenue Code means the gross income as defined in section 468B(b) of the
Internal Revenue Code.

The provisions of sections 1113(a), 1117, 1206(a), 1313(a), 1402(a), 1403(a), 1443,
1450, 1501(a), 1605, 1611(a), 1612, 1616, 1617, 1704(l), and 1704(m) of the Small
Business Job Protection Act, Public Law 104-188, the provisions of Public Law 104-117,
the provisions of sections 313(a) and (b)(1), 602(a), 913(b), 941, 961, 971, 1001(a) and
(b), 1002, 1003, 1012, 1013, 1014, 1061, 1062, 1081, 1084(b), 1086, 1087, 1111(a),
1131(b) and (c), 1211(b), 1213, 1530(c)(2), 1601(f)(5) and (h), and 1604(d)(1) of the
Taxpayer Relief Act of 1997, Public Law 105-34, the provisions of section 6010 of the
Internal Revenue Service Restructuring and Reform Act of 1998, Public Law 105-206, the
provisions of section 4003 of the Omnibus Consolidated and Emergency Supplemental
Appropriations Act, 1999, Public Law 105-277, and the provisions of section 318 of the
Consolidated Appropriation Act of 2001, Public Law 106-554, shall become effective at
the time they become effective for federal purposes.

The Internal Revenue Code of 1986, as amended through December 31, 1996, shall
be in effect for taxable years beginning after December 31, 1996.

The provisions of sections 202(a) and (b), 221(a), 225, 312, 313, 913(a), 934, 962,
1004, 1005, 1052, 1063, 1084(a) and (c), 1089, 1112, 1171, 1204, 1271(a) and (b), 1305(a),
1306, 1307, 1308, 1309, 1501(b), 1502(b), 1504(a), 1505, 1527, 1528, 1530, 1601(d), (e),
(f), and (i) and 1602(a), (b), (c), and (e) of the Taxpayer Relief Act of 1997, Public Law
105-34, the provisions of sections 6004, 6005, 6012, 6013, 6015, 6016, 7002, and 7003 of
the Internal Revenue Service Restructuring and Reform Act of 1998, Public Law 105-206,
the provisions of section 3001 of the Omnibus Consolidated and Emergency Supplemental
Appropriations Act, 1999, Public Law 105-277, the provisions of section 3001 of the
Miscellaneous Trade and Technical Corrections Act of 1999, Public Law 106-36, and the
provisions of section 316 of the Consolidated Appropriation Act of 2001, Public Law
106-554, shall become effective at the time they become effective for federal purposes.

The Internal Revenue Code of 1986, as amended through December 31, 1997, shall
be in effect for taxable years beginning after December 31, 1997.

The provisions of sections 5002, 6009, 6011, and 7001 of the Internal Revenue
Service Restructuring and Reform Act of 1998, Public Law 105-206, the provisions of
section 9010 of the Transportation Equity Act for the 21st Century, Public Law 105-178,
the provisions of sections 1004, 4002, and 5301 of the Omnibus Consolidation and
Emergency Supplemental Appropriations Act, 1999, Public Law 105-277, the provision
of section 303 of the Ricky Ray Hemophilia Relief Fund Act of 1998, Public Law
105-369, the provisions of sections 532, 534, 536, 537, and 538 of the Ticket to Work
and Work Incentives Improvement Act of 1999, Public Law 106-170, the provisions of
the Installment Tax Correction Act of 2000, Public Law 106-573, and the provisions of
section 309 of the Consolidated Appropriation Act of 2001, Public Law 106-554, shall
become effective at the time they become effective for federal purposes.

The Internal Revenue Code of 1986, as amended through December 31, 1998, shall
be in effect for taxable years beginning after December 31, 1998.

The provisions of the FSC Repeal and Extraterritorial Income Exclusion Act of
2000, Public Law 106-519, and the provision of section 412 of the Job Creation and
Worker Assistance Act of 2002, Public Law 107-147, shall become effective at the time
it became effective for federal purposes.

The Internal Revenue Code of 1986, as amended through December 31, 1999,
shall be in effect for taxable years beginning after December 31, 1999. The provisions
of sections 306 and 401 of the Consolidated Appropriation Act of 2001, Public Law
106-554, and the provision of section 632(b)(2)(A) of the Economic Growth and Tax
Relief Reconciliation Act of 2001, Public Law 107-16, and provisions of sections 101 and
402 of the Job Creation and Worker Assistance Act of 2002, Public Law 107-147, shall
become effective at the same time it became effective for federal purposes.

The Internal Revenue Code of 1986, as amended through December 31, 2000,
shall be in effect for taxable years beginning after December 31, 2000. The provisions
of sections 659a and 671 of the Economic Growth and Tax Relief Reconciliation Act of
2001, Public Law 107-16, the provisions of sections 104, 105, and 111 of the Victims of
Terrorism Tax Relief Act of 2001, Public Law 107-134, and the provisions of sections 201,
403, 413, and 606 of the Job Creation and Worker Assistance Act of 2002, Public Law
107-147, shall become effective at the same time it became effective for federal purposes.

The Internal Revenue Code of 1986, as amended through March 15, 2002, shall be
in effect for taxable years beginning after December 31, 2001.

The provisions of sections 101 and 102 of the Victims of Terrorism Tax Relief Act
of 2001, Public Law 107-134, shall become effective at the same time it becomes effective
for federal purposes.

The Internal Revenue Code of 1986, as amended through June 15, 2003, shall be in
effect for taxable years beginning after December 31, 2002 new text begin , provided that the provisions
of the American Jobs Creation Act of 2004, Public Law 108-435, are effective at the same
time they became effective for federal income tax purposes new text end . The provisions of section 201
of the Jobs and Growth Tax Relief and Reconciliation Act of 2003, H.R. 2, if it is enacted
into law, are effective at the same time it became effective for federal purposes.

Except as otherwise provided, references to the Internal Revenue Code in
subdivisions 19a to 19g mean the code in effect for purposes of determining net income
for the applicable year.

Sec. 2.

Minnesota Statutes 2004, section 290.01, subdivision 19a, is amended to read:

Subd. 19a.

Additions to federal taxable income.

For individuals, estates, and
trusts, there shall be added to federal taxable income:

(1)(i) interest income on obligations of any state other than Minnesota or a political
or governmental subdivision, municipality, or governmental agency or instrumentality
of any state other than Minnesota exempt from federal income taxes under the Internal
Revenue Code or any other federal statute; and

(ii) exempt-interest dividends as defined in section 852(b)(5) of the Internal Revenue
Code, except the portion of the exempt-interest dividends derived from interest income
on obligations of the state of Minnesota or its political or governmental subdivisions,
municipalities, governmental agencies or instrumentalities, but only if the portion of the
exempt-interest dividends from such Minnesota sources paid to all shareholders represents
95 percent or more of the exempt-interest dividends that are paid by the regulated
investment company as defined in section 851(a) of the Internal Revenue Code, or the
fund of the regulated investment company as defined in section 851(g) of the Internal
Revenue Code, making the payment; and

(iii) for the purposes of items (i) and (ii), interest on obligations of an Indian tribal
government described in section 7871(c) of the Internal Revenue Code shall be treated as
interest income on obligations of the state in which the tribe is located;

(2) the amount of income new text begin or sales and use new text end taxes paid or accrued within the taxable
year under this chapter and income new text begin or sales and use new text end taxes paid to any other state or to any
province or territory of Canada, to the extent allowed as a deduction under section 63(d)
of the Internal Revenue Code new text begin of 1986, as amended through June 15, 2003 new text end , but the addition
may not be more than the amount by which the itemized deductions as allowed under
section 63(d) of the Internal Revenue Code exceeds the amount of the standard deduction
as defined in section 63(c) of the Internal Revenue Code. For the purpose of this paragraph,
the disallowance of itemized deductions under section 68 of the Internal Revenue Code of
1986, income new text begin or sales and use new text end tax is the last itemized deduction disallowed;

(3) the capital gain amount of a lump sum distribution to which the special tax under
section 1122(h)(3)(B)(ii) of the Tax Reform Act of 1986, Public Law 99-514, applies;

(4) the amount of income taxes paid or accrued within the taxable year under this
chapter and income taxes paid to any other state or any province or territory of Canada,
to the extent allowed as a deduction in determining federal adjusted gross income. For
the purpose of this paragraph, income taxes do not include the taxes imposed by sections
290.0922, subdivision 1, paragraph (b), 290.9727, 290.9728, and 290.9729;

(5) the amount of expense, interest, or taxes disallowed pursuant to section 290.10;

(6) the amount of a partner's pro rata share of net income which does not flow
through to the partner because the partnership elected to pay the tax on the income under
section 6242(a)(2) of the Internal Revenue Code; deleted text begin and
deleted text end

(7) 80 percent of the depreciation deduction allowed under section 168(k) of the
Internal Revenue Code. For purposes of this clause, if the taxpayer has an activity that
in the taxable year generates a deduction for depreciation under section 168(k) and the
activity generates a loss for the taxable year that the taxpayer is not allowed to claim for
the taxable year, "the depreciation allowed under section 168(k)" for the taxable year is
limited to excess of the depreciation claimed by the activity under section 168(k) over the
amount of the loss from the activity that is not allowed in the taxable year. In succeeding
taxable years when the losses not allowed in the taxable year are allowed, the depreciation
under section 168(k) is allowed new text begin ;
new text end

new text begin (8) 80 percent of the amount by which the deduction allowed by section 179 of the
Internal Revenue Code exceeds the deduction allowable by section 179 of the Internal
Revenue Code of 1986, as amended through December 31, 2003; and
new text end

new text begin (9) to the extent deducted in computing federal taxable income, the amount of the
deduction allowable under section 199 of the Internal Revenue Code new text end .

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for tax years beginning after
December 31, 2004, except the changes in clause (2) are effective for tax years beginning
after December 31, 2003.
new text end

Sec. 3.

Minnesota Statutes 2004, section 290.01, subdivision 19b, is amended to read:

Subd. 19b.

Subtractions from federal taxable income.

For individuals, estates,
and trusts, there shall be subtracted from federal taxable income:

(1) interest income on obligations of any authority, commission, or instrumentality
of the United States to the extent includable in taxable income for federal income tax
purposes but exempt from state income tax under the laws of the United States;

(2) if included in federal taxable income, the amount of any overpayment of income
tax to Minnesota or to any other state, for any previous taxable year, whether the amount
is received as a refund or as a credit to another taxable year's income tax liability;

(3) the amount paid to others, less the amount used to claim the credit allowed under
section 290.0674, not to exceed $1,625 for each qualifying child in grades kindergarten
to 6 and $2,500 for each qualifying child in grades 7 to 12, for tuition, textbooks, and
transportation of each qualifying child in attending an elementary or secondary school
situated in Minnesota, North Dakota, South Dakota, Iowa, or Wisconsin, wherein a
resident of this state may legally fulfill the state's compulsory attendance laws, which
is not operated for profit, and which adheres to the provisions of the Civil Rights Act
of 1964 and chapter 363A. For the purposes of this clause, "tuition" includes fees or
tuition as defined in section 290.0674, subdivision 1, clause (1). As used in this clause,
"textbooks" includes books and other instructional materials and equipment purchased
or leased for use in elementary and secondary schools in teaching only those subjects
legally and commonly taught in public elementary and secondary schools in this state.
Equipment expenses qualifying for deduction includes expenses as defined and limited in
section 290.0674, subdivision 1, clause (3). "Textbooks" does not include instructional
books and materials used in the teaching of religious tenets, doctrines, or worship, the
purpose of which is to instill such tenets, doctrines, or worship, nor does it include books
or materials for, or transportation to, extracurricular activities including sporting events,
musical or dramatic events, speech activities, driver's education, or similar programs. For
purposes of the subtraction provided by this clause, "qualifying child" has the meaning
given in section 32(c)(3) of the Internal Revenue Code;

(4) income as provided under section 290.0802;

(5) to the extent included in federal adjusted gross income, income realized on
disposition of property exempt from tax under section 290.491;

(6) to the extent included in federal taxable income, postservice benefits for youth
community service under section 124D.42 for volunteer service under United States
Code, title 42, sections 12601 to 12604;

(7) to the extent not deducted in determining federal taxable income by an individual
who does not itemize deductions for federal income tax purposes for the taxable year,
an amount equal to 50 percent of the excess of charitable contributions allowable as a
deduction for the taxable year under section 170(a) of the Internal Revenue Code over
$500;

(8) for taxable years beginning before January 1, 2008, the amount of the federal
small ethanol producer credit allowed under section 40(a)(3) of the Internal Revenue Code
which is included in gross income under section 87 of the Internal Revenue Code;

(9) for individuals who are allowed a federal foreign tax credit for taxes that do not
qualify for a credit under section 290.06, subdivision 22, an amount equal to the carryover
of subnational foreign taxes for the taxable year, but not to exceed the total subnational
foreign taxes reported in claiming the foreign tax credit. For purposes of this clause,
"federal foreign tax credit" means the credit allowed under section 27 of the Internal
Revenue Code, and "carryover of subnational foreign taxes" equals the carryover allowed
under section 904(c) of the Internal Revenue Code minus national level foreign taxes to
the extent they exceed the federal foreign tax credit;

(10) in each of the five tax years immediately following the tax year in which an
addition is required under subdivision 19a, clause (7), an amount equal to one-fifth of
the delayed depreciation. For purposes of this clause, "delayed depreciation" means the
amount of the addition made by the taxpayer under subdivision 19a, clause (7), minus the
positive value of any net operating loss under section 172 of the Internal Revenue Code
generated for the tax year of the addition. The resulting delayed depreciation cannot be
less than zero; deleted text begin and
deleted text end

(11) job opportunity building zone income as provided under section 469.316 new text begin ; and
new text end

new text begin (12) in each of the five tax years immediately following the tax year in which an
addition is required under subdivision 19a, clause (8), or 19c, clause (17), in the case of a
shareholder of a corporation that is an S corporation, an amount equal to one-fifth of the
addition made by the taxpayer under subdivision 19a, clause (8), or 19c, clause (17), in the
case of a shareholder of a corporation that is an S corporation, minus the positive value of
any net operating loss under section 172 of the Internal Revenue Code generated for the
tax year of the addition. If the net operating loss exceeds the addition for the tax year, a
subtraction is not allowed under this clause new text end .

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for tax years beginning after
December 31, 2004.
new text end

Sec. 4.

Minnesota Statutes 2004, section 290.01, subdivision 19c, is amended to read:

Subd. 19c.

Corporations; additions to federal taxable income.

For corporations,
there shall be added to federal taxable income:

(1) the amount of any deduction taken for federal income tax purposes for income,
excise, or franchise taxes based on net income or related minimum taxes, including but not
limited to the tax imposed under section 290.0922, paid by the corporation to Minnesota,
another state, a political subdivision of another state, the District of Columbia, or any
foreign country or possession of the United States;

(2) interest not subject to federal tax upon obligations of: the United States, its
possessions, its agencies, or its instrumentalities; the state of Minnesota or any other
state, any of its political or governmental subdivisions, any of its municipalities, or any
of its governmental agencies or instrumentalities; the District of Columbia; or Indian
tribal governments;

(3) exempt-interest dividends received as defined in section 852(b)(5) of the Internal
Revenue Code;

(4) the amount of any net operating loss deduction taken for federal income tax
purposes under section 172 or 832(c)(10) of the Internal Revenue Code or operations loss
deduction under section 810 of the Internal Revenue Code;

(5) the amount of any special deductions taken for federal income tax purposes
under sections 241 to 247 of the Internal Revenue Code;

(6) losses from the business of mining, as defined in section 290.05, subdivision 1,
clause (a), that are not subject to Minnesota income tax;

(7) the amount of any capital losses deducted for federal income tax purposes under
sections 1211 and 1212 of the Internal Revenue Code;

(8) the exempt foreign trade income of a foreign sales corporation under sections
921(a) and 291 of the Internal Revenue Code;

(9) the amount of percentage depletion deducted under sections 611 through 614 and
291 of the Internal Revenue Code;

(10) for certified pollution control facilities placed in service in a taxable year
beginning before December 31, 1986, and for which amortization deductions were elected
under section 169 of the Internal Revenue Code of 1954, as amended through December
31, 1985, the amount of the amortization deduction allowed in computing federal taxable
income for those facilities;

(11) the amount of any deemed dividend from a foreign operating corporation
determined pursuant to section 290.17, subdivision 4, paragraph (g);

(12) the amount of any environmental tax paid under section 59(a) of the Internal
Revenue Code;

(13) the amount of a partner's pro rata share of net income which does not flow
through to the partner because the partnership elected to pay the tax on the income under
section 6242(a)(2) of the Internal Revenue Code;

(14) the amount of net income excluded under section 114 of the Internal Revenue
Code;

(15) any increase in subpart F income, as defined in section 952(a) of the Internal
Revenue Code, for the taxable year when subpart F income is calculated without regard to
the provisions of section 614 of Public Law 107-147; deleted text begin and
deleted text end

(16) 80 percent of the depreciation deduction allowed under section 168(k) of the
Internal Revenue Code. For purposes of this clause, if the taxpayer has an activity that
in the taxable year generates a deduction for depreciation under section 168(k) and the
activity generates a loss for the taxable year that the taxpayer is not allowed to claim for
the taxable year, "the depreciation allowed under section 168(k)" for the taxable year is
limited to excess of the depreciation claimed by the activity under section 168(k) over the
amount of the loss from the activity that is not allowed in the taxable year. In succeeding
taxable years when the losses not allowed in the taxable year are allowed, the depreciation
under section 168(k) is allowed new text begin ;
new text end

new text begin (17) 80 percent of the amount by which the deduction allowed by section 179 of the
Internal Revenue Code exceeds the deduction allowable by section 179 of the Internal
Revenue Code of 1986, as amended through December 31, 2003; and
new text end

new text begin (18) to the extent deducted in computing federal taxable income, the amount of the
deduction allowable under section 199 of the Internal Revenue Code new text end .

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for tax years beginning after
December 31, 2004.
new text end

Sec. 5.

Minnesota Statutes 2004, section 290.01, subdivision 19d, is amended to read:

Subd. 19d.

Corporations; modifications decreasing federal taxable income.

For
corporations, there shall be subtracted from federal taxable income after the increases
provided in subdivision 19c:

(1) the amount of foreign dividend gross-up added to gross income for federal
income tax purposes under section 78 of the Internal Revenue Code;

(2) the amount of salary expense not allowed for federal income tax purposes due to
claiming the federal jobs credit under section 51 of the Internal Revenue Code;

(3) any dividend (not including any distribution in liquidation) paid within the
taxable year by a national or state bank to the United States, or to any instrumentality of
the United States exempt from federal income taxes, on the preferred stock of the bank
owned by the United States or the instrumentality;

(4) amounts disallowed for intangible drilling costs due to differences between
this chapter and the Internal Revenue Code in taxable years beginning before January
1, 1987, as follows:

(i) to the extent the disallowed costs are represented by physical property, an amount
equal to the allowance for depreciation under Minnesota Statutes 1986, section 290.09,
subdivision 7, subject to the modifications contained in subdivision 19e; and

(ii) to the extent the disallowed costs are not represented by physical property, an
amount equal to the allowance for cost depletion under Minnesota Statutes 1986, section
290.09, subdivision 8;

(5) the deduction for capital losses pursuant to sections 1211 and 1212 of the
Internal Revenue Code, except that:

(i) for capital losses incurred in taxable years beginning after December 31, 1986,
capital loss carrybacks shall not be allowed;

(ii) for capital losses incurred in taxable years beginning after December 31, 1986,
a capital loss carryover to each of the 15 taxable years succeeding the loss year shall be
allowed;

(iii) for capital losses incurred in taxable years beginning before January 1, 1987, a
capital loss carryback to each of the three taxable years preceding the loss year, subject to
the provisions of Minnesota Statutes 1986, section 290.16, shall be allowed; and

(iv) for capital losses incurred in taxable years beginning before January 1, 1987,
a capital loss carryover to each of the five taxable years succeeding the loss year to the
extent such loss was not used in a prior taxable year and subject to the provisions of
Minnesota Statutes 1986, section 290.16, shall be allowed;

(6) an amount for interest and expenses relating to income not taxable for federal
income tax purposes, if (i) the income is taxable under this chapter and (ii) the interest and
expenses were disallowed as deductions under the provisions of section 171(a)(2), 265 or
291 of the Internal Revenue Code in computing federal taxable income;

(7) in the case of mines, oil and gas wells, other natural deposits, and timber for
which percentage depletion was disallowed pursuant to subdivision 19c, clause (11), a
reasonable allowance for depletion based on actual cost. In the case of leases the deduction
must be apportioned between the lessor and lessee in accordance with rules prescribed
by the commissioner. In the case of property held in trust, the allowable deduction must
be apportioned between the income beneficiaries and the trustee in accordance with the
pertinent provisions of the trust, or if there is no provision in the instrument, on the basis
of the trust's income allocable to each;

(8) for certified pollution control facilities placed in service in a taxable year
beginning before December 31, 1986, and for which amortization deductions were elected
under section 169 of the Internal Revenue Code of 1954, as amended through December
31, 1985, an amount equal to the allowance for depreciation under Minnesota Statutes
1986, section 290.09, subdivision 7;

(9) amounts included in federal taxable income that are due to refunds of income,
excise, or franchise taxes based on net income or related minimum taxes paid by the
corporation to Minnesota, another state, a political subdivision of another state, the
District of Columbia, or a foreign country or possession of the United States to the extent
that the taxes were added to federal taxable income under section 290.01, subdivision 19c,
clause (1), in a prior taxable year;

(10) 80 percent of royalties, fees, or other like income accrued or received from a
foreign operating corporation or a foreign corporation which is part of the same unitary
business as the receiving corporation;

(11) income or gains from the business of mining as defined in section 290.05,
subdivision 1, clause (a), that are not subject to Minnesota franchise tax;

(12) the amount of handicap access expenditures in the taxable year which are not
allowed to be deducted or capitalized under section 44(d)(7) of the Internal Revenue Code;

(13) the amount of qualified research expenses not allowed for federal income tax
purposes under section 280C(c) of the Internal Revenue Code, but only to the extent that
the amount exceeds the amount of the credit allowed under section 290.068;

(14) the amount of salary expenses not allowed for federal income tax purposes due
to claiming the Indian employment credit under section 45A(a) of the Internal Revenue
Code;

(15) the amount of any refund of environmental taxes paid under section 59A of the
Internal Revenue Code;

(16) for taxable years beginning before January 1, 2008, the amount of the federal
small ethanol producer credit allowed under section 40(a)(3) of the Internal Revenue Code
which is included in gross income under section 87 of the Internal Revenue Code;

(17) for a corporation whose foreign sales corporation, as defined in section 922
of the Internal Revenue Code, constituted a foreign operating corporation during any
taxable year ending before January 1, 1995, and a return was filed by August 15, 1996,
claiming the deduction under section 290.21, subdivision 4, for income received from
the foreign operating corporation, an amount equal to 1.23 multiplied by the amount of
income excluded under section 114 of the Internal Revenue Code, provided the income is
not income of a foreign operating company;

(18) any decrease in subpart F income, as defined in section 952(a) of the Internal
Revenue Code, for the taxable year when subpart F income is calculated without regard to
the provisions of section 614 of Public Law 107-147; deleted text begin and
deleted text end

(19) in each of the five tax years immediately following the tax year in which an
addition is required under subdivision 19c, clause (16), an amount equal to one-fifth of
the delayed depreciation. For purposes of this clause, "delayed depreciation" means the
amount of the addition made by the taxpayer under subdivision 19c, clause (16). The
resulting delayed depreciation cannot be less than zero new text begin ; and
new text end

new text begin (20) in each of the five tax years immediately following the tax year in which an
addition is required under subdivision 19c, clause (17), an amount equal to one-fifth of the
amount of the addition new text end .

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for tax years beginning after
December 31, 2004.
new text end

Sec. 6.

Minnesota Statutes 2004, section 290.01, subdivision 31, is amended to read:

Subd. 31.

Internal revenue code.

Unless specifically defined otherwise, "Internal
Revenue Code" means the Internal Revenue Code of 1986, as amended through June 15,
2003 new text begin , and as further amended by the American Jobs Creation Act of 2004, Public Law
108-435 new text end .

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective the day following final enactment
except the changes incorporated by federal changes are effective at the same times as the
changes were effective for federal purposes.
new text end

Sec. 7.

Minnesota Statutes 2004, section 290.06, subdivision 2c, is amended to read:

Subd. 2c.

Schedules of rates for individuals, estates, and trusts.

(a) The income
taxes imposed by this chapter upon married individuals filing joint returns and surviving
spouses as defined in section 2(a) of the Internal Revenue Code must be computed by
applying to their taxable net income the following schedule of rates:

(1) On the first $25,680, 5.35 percent;

(2) On all over $25,680, but not over $102,030, 7.05 percent;

(3) On all over $102,030, 7.85 percent.

Married individuals filing separate returns, estates, and trusts must compute their
income tax by applying the above rates to their taxable income, except that the income
brackets will be one-half of the above amounts.

(b) The income taxes imposed by this chapter upon unmarried individuals must be
computed by applying to taxable net income the following schedule of rates:

(1) On the first $17,570, 5.35 percent;

(2) On all over $17,570, but not over $57,710, 7.05 percent;

(3) On all over $57,710, 7.85 percent.

(c) The income taxes imposed by this chapter upon unmarried individuals qualifying
as a head of household as defined in section 2(b) of the Internal Revenue Code must be
computed by applying to taxable net income the following schedule of rates:

(1) On the first $21,630, 5.35 percent;

(2) On all over $21,630, but not over $86,910, 7.05 percent;

(3) On all over $86,910, 7.85 percent.

(d) In lieu of a tax computed according to the rates set forth in this subdivision, the
tax of any individual taxpayer whose taxable net income for the taxable year is less than
an amount determined by the commissioner must be computed in accordance with tables
prepared and issued by the commissioner of revenue based on income brackets of not
more than $100. The amount of tax for each bracket shall be computed at the rates set
forth in this subdivision, provided that the commissioner may disregard a fractional part of
a dollar unless it amounts to 50 cents or more, in which case it may be increased to $1.

(e) An individual who is not a Minnesota resident for the entire year must compute
the individual's Minnesota income tax as provided in this subdivision. After the
application of the nonrefundable credits provided in this chapter, the tax liability must
then be multiplied by a fraction in which:

(1) the numerator is the individual's Minnesota source federal adjusted gross income
as defined in section 62 of the Internal Revenue Code and increased by the additions
required under section 290.01, subdivision 19a, clauses (1), (5), deleted text begin and deleted text end (6), new text begin (7), (8), and
(9), new text end and reduced by the subtraction under section 290.01, subdivision 19b, clause (11), and
the Minnesota assignable portion of the subtraction for United States government interest
under section 290.01, subdivision 19b, clause (1), new text begin and the subtractions under clauses
(10), (11), and (12), new text end after applying the allocation and assignability provisions of section
290.081, clause (a), or 290.17; and

(2) the denominator is the individual's federal adjusted gross income as defined in
section 62 of the Internal Revenue Code of 1986, increased by the amounts specified in
section 290.01, subdivision 19a, clauses (1), (5), deleted text begin and deleted text end (6), new text begin (7), (8), and (9), new text end and reduced by
the amounts specified in section 290.01, subdivision 19b, clauses (1) deleted text begin and deleted text end new text begin , (10), new text end (11) new text begin ,
and (12) new text end .

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for tax years beginning after
December 31, 2004.
new text end

Sec. 8.

Minnesota Statutes 2004, section 290.067, subdivision 2a, is amended to read:

Subd. 2a.

Income.

(a) For purposes of this section, "income" means the sum of
the following:

(1) federal adjusted gross income as defined in section 62 of the Internal Revenue
Code; and

(2) the sum of the following amounts to the extent not included in clause (1):

(i) all nontaxable income;

(ii) the amount of a passive activity loss that is not disallowed as a result of section
469, paragraph (i) or (m) of the Internal Revenue Code and the amount of passive activity
loss carryover allowed under section 469(b) of the Internal Revenue Code;

(iii) an amount equal to the total of any discharge of qualified farm indebtedness
of a solvent individual excluded from gross income under section 108(g) of the Internal
Revenue Code;

(iv) cash public assistance and relief;

(v) any pension or annuity (including railroad retirement benefits, all payments
received under the federal Social Security Act, supplemental security income, and veterans
benefits), which was not exclusively funded by the claimant or spouse, or which was
funded exclusively by the claimant or spouse and which funding payments were excluded
from federal adjusted gross income in the years when the payments were made;

(vi) interest received from the federal or a state government or any instrumentality
or political subdivision thereof;

(vii) workers' compensation;

(viii) nontaxable strike benefits;

(ix) the gross amounts of payments received in the nature of disability income or
sick pay as a result of accident, sickness, or other disability, whether funded through
insurance or otherwise;

(x) a lump sum distribution under section 402(e)(3) of the Internal Revenue Code
new text begin of 1986, as amended through December 31, 1995 new text end ;

(xi) contributions made by the claimant to an individual retirement account,
including a qualified voluntary employee contribution; simplified employee pension plan;
self-employed retirement plan; cash or deferred arrangement plan under section 401(k)
of the Internal Revenue Code; or deferred compensation plan under section 457 of the
Internal Revenue Code; deleted text begin and
deleted text end

(xii) nontaxable scholarship or fellowship grants new text begin ; and
new text end

new text begin (xiii) the amount of deduction allowed under section 199 of the Internal Revenue
Code new text end .

In the case of an individual who files an income tax return on a fiscal year basis, the
term "federal adjusted gross income" means federal adjusted gross income reflected in the
fiscal year ending in the next calendar year. Federal adjusted gross income may not be
reduced by the amount of a net operating loss carryback or carryforward or a capital loss
carryback or carryforward allowed for the year.

(b) "Income" does not include:

(1) amounts excluded pursuant to the Internal Revenue Code, sections 101(a) and
102;

(2) amounts of any pension or annuity that were exclusively funded by the claimant
or spouse if the funding payments were not excluded from federal adjusted gross income
in the years when the payments were made;

(3) surplus food or other relief in kind supplied by a governmental agency;

(4) relief granted under chapter 290A;

(5) child support payments received under a temporary or final decree of dissolution
or legal separation; and

(6) restitution payments received by eligible individuals and excludable interest as
defined in section 803 of the Economic Growth and Tax Relief Reconciliation Act of
2001, Public Law 107-16.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for tax years beginning after
December 31, 2003.
new text end

Sec. 9.

Minnesota Statutes 2004, section 290.091, subdivision 2, is amended to read:

Subd. 2.

Definitions.

For purposes of the tax imposed by this section, the following
terms have the meanings given:

(a) "Alternative minimum taxable income" means the sum of the following for
the taxable year:

(1) the taxpayer's federal alternative minimum taxable income as defined in section
55(b)(2) of the Internal Revenue Code;

(2) the taxpayer's itemized deductions allowed in computing federal alternative
minimum taxable income, but excluding:

(i) the charitable contribution deduction under section 170 of the Internal Revenue
Code to the extent that the deduction exceeds 1.0 percent of adjusted gross income, as
defined in section 62 of the Internal Revenue Code;

(ii) the medical expense deduction;

(iii) the casualty, theft, and disaster loss deduction; and

(iv) the impairment-related work expenses of a disabled person;

(3) for depletion allowances computed under section 613A(c) of the Internal
Revenue Code, with respect to each property (as defined in section 614 of the Internal
Revenue Code), to the extent not included in federal alternative minimum taxable income,
the excess of the deduction for depletion allowable under section 611 of the Internal
Revenue Code for the taxable year over the adjusted basis of the property at the end of the
taxable year (determined without regard to the depletion deduction for the taxable year);

(4) to the extent not included in federal alternative minimum taxable income, the
amount of the tax preference for intangible drilling cost under section 57(a)(2) of the
Internal Revenue Code determined without regard to subparagraph (E);

(5) to the extent not included in federal alternative minimum taxable income, the
amount of interest income as provided by section 290.01, subdivision 19a, clause (1); and

(6) the amount of addition required by section 290.01, subdivision 19a, deleted text begin clause
deleted text end new text begin clauses new text end (7) new text begin , (8), and (9) new text end ;

less the sum of the amounts determined under the following:

(1) interest income as defined in section 290.01, subdivision 19b, clause (1);

(2) an overpayment of state income tax as provided by section 290.01, subdivision
19b, clause (2), to the extent included in federal alternative minimum taxable income;

(3) the amount of investment interest paid or accrued within the taxable year on
indebtedness to the extent that the amount does not exceed net investment income, as
defined in section 163(d)(4) of the Internal Revenue Code. Interest does not include
amounts deducted in computing federal adjusted gross income; and

(4) amounts subtracted from federal taxable income as provided by section 290.01,
subdivision 19b, clauses (10) deleted text begin and deleted text end new text begin , new text end (11) new text begin , and (12) new text end .

In the case of an estate or trust, alternative minimum taxable income must be
computed as provided in section 59(c) of the Internal Revenue Code.

(b) "Investment interest" means investment interest as defined in section 163(d)(3)
of the Internal Revenue Code.

(c) "Tentative minimum tax" equals 6.4 percent of alternative minimum taxable
income after subtracting the exemption amount determined under subdivision 3.

(d) "Regular tax" means the tax that would be imposed under this chapter (without
regard to this section and section 290.032), reduced by the sum of the nonrefundable
credits allowed under this chapter.

(e) "Net minimum tax" means the minimum tax imposed by this section.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for tax years beginning after
December 31, 2004.
new text end

Sec. 10.

Minnesota Statutes 2004, section 290A.03, subdivision 3, is amended to read:

Subd. 3.

Income.

(1) "Income" means the sum of the following:

(a) federal adjusted gross income as defined in the Internal Revenue Code; and

(b) the sum of the following amounts to the extent not included in clause (a):

(i) all nontaxable income;

(ii) the amount of a passive activity loss that is not disallowed as a result of section
469, paragraph (i) or (m) of the Internal Revenue Code and the amount of passive activity
loss carryover allowed under section 469(b) of the Internal Revenue Code;

(iii) an amount equal to the total of any discharge of qualified farm indebtedness
of a solvent individual excluded from gross income under section 108(g) of the Internal
Revenue Code;

(iv) cash public assistance and relief;

(v) any pension or annuity (including railroad retirement benefits, all payments
received under the federal Social Security Act, supplemental security income, and veterans
benefits), which was not exclusively funded by the claimant or spouse, or which was
funded exclusively by the claimant or spouse and which funding payments were excluded
from federal adjusted gross income in the years when the payments were made;

(vi) interest received from the federal or a state government or any instrumentality
or political subdivision thereof;

(vii) workers' compensation;

(viii) nontaxable strike benefits;

(ix) the gross amounts of payments received in the nature of disability income or
sick pay as a result of accident, sickness, or other disability, whether funded through
insurance or otherwise;

(x) a lump sum distribution under section 402(e)(3) of the Internal Revenue Code
new text begin of 1986, as amended through December 31, 1995 new text end ;

(xi) contributions made by the claimant to an individual retirement account,
including a qualified voluntary employee contribution; simplified employee pension plan;
self-employed retirement plan; cash or deferred arrangement plan under section 401(k)
of the Internal Revenue Code; or deferred compensation plan under section 457 of the
Internal Revenue Code; deleted text begin and
deleted text end

(xii) nontaxable scholarship or fellowship grants new text begin ; and
new text end

new text begin (xiii) the amount of deduction allowed under section 199 of the Internal Revenue
Code new text end .

In the case of an individual who files an income tax return on a fiscal year basis, the
term "federal adjusted gross income" shall mean federal adjusted gross income reflected
in the fiscal year ending in the calendar year. Federal adjusted gross income shall not be
reduced by the amount of a net operating loss carryback or carryforward or a capital loss
carryback or carryforward allowed for the year.

(2) "Income" does not include:

(a) amounts excluded pursuant to the Internal Revenue Code, sections 101(a) and
102;

(b) amounts of any pension or annuity which was exclusively funded by the claimant
or spouse and which funding payments were not excluded from federal adjusted gross
income in the years when the payments were made;

(c) surplus food or other relief in kind supplied by a governmental agency;

(d) relief granted under this chapter;

(e) child support payments received under a temporary or final decree of dissolution
or legal separation; or

(f) restitution payments received by eligible individuals and excludable interest as
defined in section 803 of the Economic Growth and Tax Relief Reconciliation Act of
2001, Public Law 107-16.

(3) The sum of the following amounts may be subtracted from income:

(a) for the claimant's first dependent, the exemption amount multiplied by 1.4;

(b) for the claimant's second dependent, the exemption amount multiplied by 1.3;

(c) for the claimant's third dependent, the exemption amount multiplied by 1.2;

(d) for the claimant's fourth dependent, the exemption amount multiplied by 1.1;

(e) for the claimant's fifth dependent, the exemption amount; and

(f) if the claimant or claimant's spouse was disabled or attained the age of 65 on
or before December 31 of the year for which the taxes were levied or rent paid, the
exemption amount.

For purposes of this subdivision, the "exemption amount" means the exemption
amount under section 151(d) of the Internal Revenue Code for the taxable year for which
the income is reported.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for property tax refunds based on
household income for 2004 and thereafter.
new text end

Sec. 11.

Minnesota Statutes 2004, section 290A.03, subdivision 15, is amended to read:

Subd. 15.

Internal revenue code.

"Internal Revenue Code" means the Internal
Revenue Code of 1986, as amended through June 15, 2003 new text begin , and as further amended by the
American Jobs Creation Act of 2004, Public Law 108-435 new text end .

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for property tax refunds based on
property taxes payable on or after December 31, 2004, and rent paid on or after December
31, 2003.
new text end

ARTICLE 3

SALES, USE, AND SPECIAL TAXES

Section 1.

Minnesota Statutes 2004, section 16C.03, is amended by adding a
subdivision to read:

new text begin Subd. 18. new text end

new text begin Contracts with foreign vendors. new text end

new text begin (a) The commissioner and other
agencies to which this section applies and the legislative branch of government shall,
subject to paragraph (d), cancel a contract for goods or services from a vendor or an
affiliate of a vendor or suspend or debar a vendor or an affiliate of a vendor from future
contracts upon notification from the commissioner of revenue that the vendor or an
affiliate of the vendor has not registered to collect the sales and use tax imposed under
chapter 297A on its sales in Minnesota or to a destination in Minnesota. This subdivision
shall not apply to state colleges and universities, the courts, and any agency in the judicial
branch of government. For purposes of this subdivision, the term "affiliate" means any
person or entity that is controlled by, or is under common control of, a vendor through
stock ownership or other affiliation.
new text end

new text begin (b) Beginning January 1, 2006, each vendor or affiliate of a vendor selling goods or
services, subject to tax under chapter 297A, to an agency or the legislature must provide
its Minnesota sales and use tax business identification number, upon request, to show that
the vendor is registered to collect Minnesota sales or use tax.
new text end

new text begin (c) The commissioner of revenue shall periodically provide to the commissioner
and the legislative branch a list of vendors who have not registered to collect Minnesota
sales and use tax and who are subject to being suspended or debarred as vendors or having
their contracts canceled.
new text end

new text begin (d) The provisions of this subdivision may be waived by the commissioner or the
legislative branch when the vendor is the single source of such goods or services, in the
event of an emergency, or when it is in the best interests of the state as determined by the
commissioner in consultation with the commissioner of revenue. Such consultation is not
a disclosure violation under chapter 270B.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for all contracts entered into after
December 31, 2005.
new text end

Sec. 2.

new text begin [295.75] LIQUOR GROSS RECEIPTS TAX.
new text end

new text begin Subdivision 1. new text end

new text begin Definitions. new text end

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

new text begin (b) "Commissioner" means the commissioner of revenue.
new text end

new text begin (c) "Gross receipts" means the total amount received, in money or by barter or
exchange, for all liquor sales at retail as measured by the sales price, but does not include
any taxes imposed directly on the consumer that are separately stated on the invoice, bill
of sale, or similar document given to the purchaser.
new text end

new text begin (d) "Liquor" means:
new text end

new text begin (1) intoxicating liquor, as defined in section 340A.101, subdivision 14;
new text end

new text begin (2) beverage containing intoxicating liquor; and
new text end

new text begin (3) 3.2 percent malt liquor, as defined in section 340A.101, subdivision 19, when
sold at an on-sale or off-sale municipal liquor store or other establishment licensed to sell
any type of intoxicating liquor.
new text end

new text begin (e) "Liquor retailer" means a retailer that sells liquor.
new text end

new text begin (f) "Retail sale" has the meaning given in section 297A.61, subdivision 4.
new text end

new text begin Subd. 2. new text end

new text begin Gross receipts tax imposed. new text end

new text begin A tax is imposed on each liquor retailer equal
to 2.5 percent of gross receipts from retail sales in Minnesota of liquor.
new text end

new text begin Subd. 3. new text end

new text begin Use tax imposed; credit for taxes paid. new text end

new text begin (a) A person that receives liquor
for use or storage in Minnesota, other than from a liquor retailer that paid the tax under
subdivision 2, is subject to tax at the rate imposed under subdivision 2. Liability for the
tax is incurred when the person has possession of the liquor in Minnesota. The tax must
be remitted to the commissioner in the same manner prescribed for the taxes imposed
under chapter 297A.
new text end

new text begin (b) A person that has paid taxes to another jurisdiction on the same transaction and
is subject to tax under this section is entitled to a credit for the tax legally due and paid
to another jurisdiction to the extent of the lesser of (1) the tax actually paid to the other
jurisdiction, or (2) the amount of tax imposed by Minnesota on the transaction subject to
tax in the other jurisdiction.
new text end

new text begin Subd. 4. new text end

new text begin Tax collection required. new text end

new text begin A liquor retailer with nexus in Minnesota, who
is not subject to tax under subdivision 2, is required to collect the tax imposed under
subdivision 3 from the purchaser of the liquor and give the purchaser a receipt for the
tax paid. The tax collected must be remitted to the commissioner in the same manner
prescribed for the taxes imposed under chapter 297A.
new text end

new text begin Subd. 5. new text end

new text begin Taxes paid to another jurisdiction; credit. new text end

new text begin A liquor retailer that has
paid taxes to another jurisdiction measured by gross receipts and is subject to tax under
this section on the same gross receipts is entitled to a credit for the tax legally due and
paid to another jurisdiction to the extent of the lesser of (1) the tax actually paid to the
other jurisdiction, or (2) the amount of tax imposed by Minnesota on the gross receipts
subject to tax in the other taxing jurisdictions.
new text end

new text begin Subd. 6. new text end

new text begin Exemptions. new text end

new text begin All of the exemptions applicable to the taxes imposed under
chapter 297A are applicable to the taxes imposed under this section.
new text end

new text begin Subd. 7. new text end

new text begin Sourcing of sales. new text end

new text begin All of the provisions of section 297A.668 apply to
the taxes imposed by this section.
new text end

new text begin Subd. 8. new text end

new text begin Payment; reporting. new text end

new text begin A liquor retailer shall report the tax on a return
prescribed by the commissioner of revenue, and shall remit the tax with the return. The
return and the tax must be filed and paid using the filing cycle and due dates provided for
taxes imposed under chapter 297A.
new text end

new text begin Subd. 9. new text end

new text begin Administration. new text end

new text begin Unless specifically provided otherwise by this section,
the audit, assessment, refund, penalty, interest, enforcement, collection remedies, appeal,
and administrative provisions of chapters 270 and 289A that are applicable to taxes
imposed under chapter 297A apply to taxes imposed under this section.
new text end

new text begin Subd. 10. new text end

new text begin Interest on overpayments. new text end

new text begin Interest must be paid on an overpayment
refunded or credited to the taxpayer from the date of payment of the tax until the date the
refund is paid or credited. For purposes of this subdivision, the date of payment is the due
date of the return or the date of actual payment of the tax, whichever is later.
new text end

new text begin Subd. 11. new text end

new text begin Deposit of revenues. new text end

new text begin The commissioner shall deposit all revenues,
including penalties and interest, derived from the tax imposed by this section in the
general fund.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for sales and purchases occurring on
or after January 1, 2006.
new text end

Sec. 3.

Minnesota Statutes 2004, section 297A.68, subdivision 2, is amended to read:

Subd. 2.

Materials consumed in industrial production.

(a) Materials stored, used,
or consumed in industrial production of personal property intended to be sold ultimately at
retail are exempt, whether or not the item so used becomes an ingredient or constituent
part of the property produced. Materials that qualify for this exemption include, but
are not limited to, the following:

(1) chemicals, including chemicals used for cleaning food processing machinery
and equipment;

(2) materials, including chemicals, fuels, and electricity purchased by persons
engaged in industrial production to treat waste generated as a result of the production
process;

(3) fuels, electricity, gas, and steam used or consumed in the production process,
except that electricity, gas, or steam used for space heating, cooling, or lighting is exempt
if (i) it is in excess of the average climate control or lighting for the production area, and
(ii) it is necessary to produce that particular product;

(4) petroleum products and lubricants;

(5) packaging materials, including returnable containers used in packaging food
and beverage products;

(6) accessory tools, equipment, and other items that are separate detachable units
with an ordinary useful life of less than 12 months used in producing a direct effect upon
the product; and

(7) the following materials, tools, and equipment used in metalcasting: crucibles,
thermocouple protection sheaths and tubes, stalk tubes, refractory materials, molten metal
filters and filter boxes, degassing lances, and base blocks.

(b) This exemption does not include:

(1) machinery, equipment, implements, tools, accessories, appliances, contrivances
and furniture and fixtures, except those listed in paragraph (a), clause (6); and

(2) petroleum and special fuels used in producing or generating power for propelling
ready-mixed concrete trucks on the public highways of this state.

(c) Industrial production includes, but is not limited to, research, development,
design or production of any tangible personal property, manufacturing, processing
(other than by restaurants and consumers) of agricultural products (whether vegetable or
animal), commercial fishing, refining, smelting, reducing, brewing, distilling, printing,
mining, quarrying, lumbering, generating electricity, the production of road building
materials, and the research, development, design, or production of computer software.
Industrial production does not include painting, cleaning, repairing or similar processing
of property except as part of the original manufacturing process. new text begin Industrial production
does not include the transportation, transmission, or distribution of petroleum, liquefied
gas, natural gas, water, or steam, in, by, or through pipes, lines, tanks, mains, or other
means of transporting those products. For purposes of this paragraph, "transportation,
transmission, or distribution" does not include blending of petroleum or biodiesel fuel as
defined in section 239.77.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for sales and purchases made after
June 30, 2005.
new text end

Sec. 4.

Minnesota Statutes 2004, section 297A.68, subdivision 5, is amended to read:

Subd. 5.

Capital equipment.

(a) Capital equipment is exempt. The tax must be
imposed and collected as if the rate under section 297A.62, subdivision 1, applied, and
then refunded in the manner provided in section 297A.75.

"Capital equipment" means machinery and equipment purchased or leased, and used
in this state by the purchaser or lessee primarily for manufacturing, fabricating, mining,
or refining tangible personal property to be sold ultimately at retail if the machinery and
equipment are essential to the integrated production process of manufacturing, fabricating,
mining, or refining. Capital equipment also includes machinery and equipment used to
electronically transmit results retrieved by a customer of an on-line computerized data
retrieval system.

(b) Capital equipment includes, but is not limited to:

(1) machinery and equipment used to operate, control, or regulate the production
equipment;

(2) machinery and equipment used for research and development, design, quality
control, and testing activities;

(3) environmental control devices that are used to maintain conditions such as
temperature, humidity, light, or air pressure when those conditions are essential to and are
part of the production process;

(4) materials and supplies used to construct and install machinery or equipment;

(5) repair and replacement parts, including accessories, whether purchased as spare
parts, repair parts, or as upgrades or modifications to machinery or equipment;

(6) materials used for foundations that support machinery or equipment;

(7) materials used to construct and install special purpose buildings used in the
production process;

(8) ready-mixed concrete equipment in which the ready-mixed concrete is mixed as
part of the delivery process regardless if mounted on a chassis and leases of ready-mixed
concrete trucks; and

(9) machinery or equipment used for research, development, design, or production
of computer software.

(c) Capital equipment does not include the following:

(1) motor vehicles taxed under chapter 297B;

(2) machinery or equipment used to receive or store raw materials;

(3) building materials, except for materials included in paragraph (b), clauses (6)
and (7);

(4) machinery or equipment used for nonproduction purposes, including, but not
limited to, the following: plant security, fire prevention, first aid, and hospital stations;
support operations or administration; pollution control; and plant cleaning, disposal of
scrap and waste, plant communications, space heating, cooling, lighting, or safety;

(5) farm machinery and aquaculture production equipment as defined by section
297A.61, subdivisions 12 and 13;

(6) machinery or equipment purchased and installed by a contractor as part of an
improvement to real property; deleted text begin or
deleted text end

(7) new text begin machinery or equipment used in the transportation, transmission, or distribution
of petroleum, liquefied gas, natural gas, water, or steam, in, by, or through pipes, lines,
tanks, mains, or other means of transporting those products. This clause does not apply to
machinery or equipment used to blend petroleum or biodiesel fuel as defined in section
239.77; or
new text end

new text begin (8) new text end any other item that is not essential to the integrated process of manufacturing,
fabricating, mining, or refining.

(d) For purposes of this subdivision:

(1) "Equipment" means independent devices or tools separate from machinery but
essential to an integrated production process, including computers and computer software,
used in operating, controlling, or regulating machinery and equipment; and any subunit or
assembly comprising a component of any machinery or accessory or attachment parts of
machinery, such as tools, dies, jigs, patterns, and molds.

(2) "Fabricating" means to make, build, create, produce, or assemble components or
property to work in a new or different manner.

(3) "Integrated production process" means a process or series of operations through
which tangible personal property is manufactured, fabricated, mined, or refined. For
purposes of this clause, (i) manufacturing begins with the removal of raw materials
from inventory and ends when the last process prior to loading for shipment has been
completed; (ii) fabricating begins with the removal from storage or inventory of the
property to be assembled, processed, altered, or modified and ends with the creation
or production of the new or changed product; (iii) mining begins with the removal of
overburden from the site of the ores, minerals, stone, peat deposit, or surface materials and
ends when the last process before stockpiling is completed; and (iv) refining begins with
the removal from inventory or storage of a natural resource and ends with the conversion
of the item to its completed form.

(4) "Machinery" means mechanical, electronic, or electrical devices, including
computers and computer software, that are purchased or constructed to be used for the
activities set forth in paragraph (a), beginning with the removal of raw materials from
inventory through completion of the product, including packaging of the product.

(5) "Machinery and equipment used for pollution control" means machinery and
equipment used solely to eliminate, prevent, or reduce pollution resulting from an activity
described in paragraph (a).

(6) "Manufacturing" means an operation or series of operations where raw materials
are changed in form, composition, or condition by machinery and equipment and which
results in the production of a new article of tangible personal property. For purposes of
this subdivision, "manufacturing" includes the generation of electricity or steam to be
sold at retail.

(7) "Mining" means the extraction of minerals, ores, stone, or peat.

(8) "On-line data retrieval system" means a system whose cumulation of information
is equally available and accessible to all its customers.

(9) "Primarily" means machinery and equipment used 50 percent or more of the time
in an activity described in paragraph (a).

(10) "Refining" means the process of converting a natural resource to an intermediate
or finished product, including the treatment of water to be sold at retail.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for sales and purchases made after
June 30, 2005.
new text end

Sec. 5.

Minnesota Statutes 2004, section 297I.01, is amended by adding a subdivision
to read:

new text begin Subd. 6a. new text end

new text begin Direct business. new text end

new text begin (a) "Direct business" means all insurance provided
by an insurance company or its agents, and specifically includes stop-loss insurance
purchased in connection with a self-insurance plan for employee health benefits or for
other purposes, but excludes:
new text end

new text begin (1) reinsurance in which an insurance company assumes the liability of another
insurance company; and
new text end

new text begin (2) self-insurance.
new text end

new text begin (b) For purposes of this subdivision, an insurance company includes a nonprofit
health service corporation, health maintenance organization, and community integrated
service network.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for insurance premiums received
after December 31, 2005.
new text end

Sec. 6.

Laws 2001, First Special Session chapter 5, article 12, section 95, is amended
to read:

Sec. 95 new text begin REPEALER.
new text end

(a) Minnesota Statutes 2000, sections 297A.61, subdivision 16; 297A.68, subdivision
21; and 297A.71, subdivisions 2 and 16, are repealed effective for sales and purchases
occurring after June 30, 2001, except that the repeal of section 297A.61, subdivision 16,
paragraph (d), is effective for sales and purchases occurring after July 31, 2001.

(b) Minnesota Statutes 2000, deleted text begin sections deleted text end new text begin section new text end 297A.62, subdivision 2, deleted text begin and 297A.64,
subdivision 1, are deleted text end new text begin is new text end repealed effective for sales and purchases made after December
31, 2005.

(c) Minnesota Statutes 2000, section 297A.71, subdivision 15, is repealed effective
for sales and purchases made after June 30, 2002.

(d) Minnesota Statutes 2000, section 289A.60, subdivision 15, is repealed effective
for liabilities after January 1, 2003.

new text begin EFFECTIVE DATE. new text end

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

ARTICLE 4

MISCELLANEOUS

Section 1.

Minnesota Statutes 2004, section 273.1384, subdivision 1, is amended to
read:

Subdivision 1.

Residential homestead market value credit.

Each county auditor
shall determine a homestead credit for each class 1a, 1b, 1c, and 2a homestead property
within the county equal to 0.4 percent of the new text begin first $76,000 of new text end market value of the property deleted text begin .
The amount of homestead credit for a homestead may not exceed $304 and is reduced by
deleted text end new text begin minus new text end .09 percent of the market value in excess of $76,000. new text begin The credit amount may not be
less than zero. new text end In the case of an agricultural or resort homestead, only the market value of
the house, garage, and immediately surrounding one acre of land is eligible in determining
the property's homestead credit. In the case of a property which is classified as part
homestead and part nonhomestead, new text begin (i) new text end the credit shall apply only to the homestead portion
of the property deleted text begin . deleted text end new text begin , but (ii) if a portion of a property is classified as nonhomestead solely
because not all the owners occupy the property, or solely because both spouses do not
occupy the property, the credit amount shall be initially computed as if that nonhomestead
portion were also in the homestead class and then prorated to the owner-occupant's
percentage of ownership or prorated to one-half if both spouses do not occupy the property.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxes payable in 2006 and
thereafter.
new text end

Sec. 2. new text begin CITY AID PAYMENTS.
new text end

new text begin In 2005 and 2006, market value credit reimbursements for each city payable
under Minnesota Statutes, section 273.1384, are reduced by the dollar amount of the
2003 reduction in market value credit reimbursements for that city due to Laws 2003,
First Special Session chapter 21, article 5, section 12. No city's market value credit
reimbursements are reduced to less than zero under this section. To the extent sufficient
information is available on each payment date, the commissioner shall pay the annual 2005
and 2006 market value credit reimbursement amounts, after reduction under this section, to
cities in equal installments on the dates specified in Minnesota Statutes, section 273.1384.
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