SF 1504

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

  1.1                          A bill for an act 
  1.2             relating to taxation; adding requirements for foreign 
  1.3             operating corporations; increasing certain individual 
  1.4             income tax rates; providing a throwback rule for the 
  1.5             corporate franchise tax; reducing the deduction for 
  1.6             dividends received by corporations; increasing tobacco 
  1.7             tax rates; accelerating payment of certain taxes; 
  1.8             amending Minnesota Statutes 2002, sections 289A.20, 
  1.9             subdivision 4; 289A.60, subdivision 15; 290.01, 
  1.10            subdivision 6b; 290.06, subdivisions 2c, 2d; 290.17, 
  1.11            subdivision 4; 290.191, subdivision 5; 290.21, 
  1.12            subdivision 4; 297F.05, subdivisions 1, 3, 4; 297F.08, 
  1.13            subdivision 7; 297F.09, subdivisions 1, 2, by adding a 
  1.14            subdivision; 297G.09, by adding a subdivision; Laws 
  1.15            2001, First Special Session chapter 5, article 12, 
  1.16            section 95, as amended.  
  1.17  BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
  1.18                             ARTICLE 1
  1.19         INDIVIDUAL INCOME TAX AND CORPORATE FRANCHISE TAX
  1.20     Section 1.  Minnesota Statutes 2002, section 290.01, 
  1.21  subdivision 6b, is amended to read: 
  1.22     Subd. 6b.  [FOREIGN OPERATING CORPORATION.] The term 
  1.23  "foreign operating corporation," when applied to a corporation, 
  1.24  means a domestic corporation with the following characteristics: 
  1.25     (1) it is part of a unitary business at least one member of 
  1.26  which is taxable in this state; 
  1.27     (2) it is not a foreign sales corporation under section 922 
  1.28  of the Internal Revenue Code, as amended through December 31, 
  1.29  1999, for the taxable year; and 
  1.30     (3) either (i) the average of the percentages of its 
  1.31  property and payrolls assigned to locations inside outside the 
  2.1   United States and the District of Columbia, excluding the 
  2.2   commonwealth of Puerto Rico and possessions of the United 
  2.3   States, as determined under section 290.191 or 290.20, is 20 80 
  2.4   percent or less greater and it has at least $2,000,000 of 
  2.5   property and $1,000,000 of payroll as determined under sections 
  2.6   290.191 or 290.20; or (ii) it has in effect a valid election 
  2.7   under section 936 of the Internal Revenue Code. 
  2.8      [EFFECTIVE DATE.] This section is effective for tax years 
  2.9   beginning after December 31, 2002. 
  2.10     Sec. 2.  Minnesota Statutes 2002, section 290.06, 
  2.11  subdivision 2c, is amended to read: 
  2.12     Subd. 2c.  [SCHEDULES OF RATES FOR INDIVIDUALS, ESTATES, 
  2.13  AND TRUSTS.] (a) The income taxes imposed by this chapter upon 
  2.14  married individuals filing joint returns and surviving spouses 
  2.15  as defined in section 2(a) of the Internal Revenue Code must be 
  2.16  computed by applying to their taxable net income the following 
  2.17  schedule of rates: 
  2.18     (1) On the first $25,680 $27,780, 5.35 percent; 
  2.19     (2) On all over $25,680 $27,780, but not 
  2.20  over $102,030 $110,390, 7.05 percent; 
  2.21     (3) On all over $102,030 $110,390, but not over $200,000, 
  2.22  7.85 percent; 
  2.23     (4) On all over $200,000, 8.625 percent for the taxable 
  2.24  year 2003, and 9.4 percent for taxable years beginning after 
  2.25  December 31, 2003. 
  2.26     Married individuals filing separate returns, estates, and 
  2.27  trusts must compute their income tax by applying the above rates 
  2.28  to their taxable income, except that the income brackets will be 
  2.29  one-half of the above amounts.  
  2.30     (b) The income taxes imposed by this chapter upon unmarried 
  2.31  individuals must be computed by applying to taxable net income 
  2.32  the following schedule of rates: 
  2.33     (1) On the first $17,570 $19,010, 5.35 percent; 
  2.34     (2) On all over $17,570 $19,010, but not 
  2.35  over $57,710 $62,440, 7.05 percent; 
  2.36     (3) On all over $57,710 $62,440, but not over $113,120, 
  3.1   7.85 percent; 
  3.2      (4) On all over $113,120, 8.625 percent for the taxable 
  3.3   year 2003, and 9.4 percent for taxable years beginning after 
  3.4   December 31, 2003. 
  3.5      (c) The income taxes imposed by this chapter upon unmarried 
  3.6   individuals qualifying as a head of household as defined in 
  3.7   section 2(b) of the Internal Revenue Code must be computed by 
  3.8   applying to taxable net income the following schedule of rates: 
  3.9      (1) On the first $21,630 $23,400, 5.35 percent; 
  3.10     (2) On all over $21,630 $23,400, but not 
  3.11  over $86,910 $94,030, 7.05 percent; 
  3.12     (3) On all over $86,910 $94,030, but not over $170,340, 
  3.13  7.85 percent; 
  3.14     (4) On all over $170,340, 8.625 percent for the taxable 
  3.15  year 2003, and 9.4 percent for tax years beginning after 
  3.16  December 31, 2003. 
  3.17     (d) In lieu of a tax computed according to the rates set 
  3.18  forth in this subdivision, the tax of any individual taxpayer 
  3.19  whose taxable net income for the taxable year is less than an 
  3.20  amount determined by the commissioner must be computed in 
  3.21  accordance with tables prepared and issued by the commissioner 
  3.22  of revenue based on income brackets of not more than $100.  The 
  3.23  amount of tax for each bracket shall be computed at the rates 
  3.24  set forth in this subdivision, provided that the commissioner 
  3.25  may disregard a fractional part of a dollar unless it amounts to 
  3.26  50 cents or more, in which case it may be increased to $1. 
  3.27     (e) An individual who is not a Minnesota resident for the 
  3.28  entire year must compute the individual's Minnesota income tax 
  3.29  as provided in this subdivision.  After the application of the 
  3.30  nonrefundable credits provided in this chapter, the tax 
  3.31  liability must then be multiplied by a fraction in which:  
  3.32     (1) the numerator is the individual's Minnesota source 
  3.33  federal adjusted gross income as defined in section 62 of the 
  3.34  Internal Revenue Code and increased by the additions required 
  3.35  under section 290.01, subdivision 19a, clauses (1) and (6), and 
  3.36  reduced by the Minnesota assignable portion of the subtraction 
  4.1   for United States government interest under section 290.01, 
  4.2   subdivision 19b, clause (1), after applying the allocation and 
  4.3   assignability provisions of section 290.081, clause (a), or 
  4.4   290.17; and 
  4.5      (2) the denominator is the individual's federal adjusted 
  4.6   gross income as defined in section 62 of the Internal Revenue 
  4.7   Code of 1986, increased by the amounts specified in section 
  4.8   290.01, subdivision 19a, clauses (1) and (6), and reduced by the 
  4.9   amounts specified in section 290.01, subdivision 19b, clause (1).
  4.10     [EFFECTIVE DATE AND INSTRUCTIONS TO COMMISSIONER.] This 
  4.11  section is effective for taxable years beginning after December 
  4.12  31, 2002.  The commissioner must adjust the withholding tables 
  4.13  under section 290.92, subdivision 2a, clause (3), by July 1, 
  4.14  2003, to reflect the changes made in this section. 
  4.15     Sec. 3.  Minnesota Statutes 2002, section 290.06, 
  4.16  subdivision 2d, is amended to read: 
  4.17     Subd. 2d.  [INFLATION ADJUSTMENT OF BRACKETS.] (a) For 
  4.18  taxable years beginning after December 31, 2000 2003, the 
  4.19  minimum and maximum dollar amounts for each rate bracket for 
  4.20  which a tax is imposed in subdivision 2c shall be adjusted for 
  4.21  inflation by the percentage determined under paragraph (b).  For 
  4.22  the purpose of making the adjustment as provided in this 
  4.23  subdivision all of the rate brackets provided in subdivision 2c 
  4.24  shall be the rate brackets as they existed for taxable years 
  4.25  beginning after December 31, 1999 2002, and before January 
  4.26  1, 2001 2004.  The rate applicable to any rate bracket must not 
  4.27  be changed is the rate under subdivision 2c.  The dollar amounts 
  4.28  setting forth the tax shall be adjusted to reflect the changes 
  4.29  in the rate brackets.  The rate brackets as adjusted must be 
  4.30  rounded to the nearest $10 amount.  If the rate bracket ends in 
  4.31  $5, it must be rounded up to the nearest $10 amount.  
  4.32     (b) The commissioner shall adjust the rate brackets and by 
  4.33  the percentage determined pursuant to the provisions of section 
  4.34  1(f) of the Internal Revenue Code, except that in section 
  4.35  1(f)(3)(B) the word "1999" "2002" shall be substituted for the 
  4.36  word "1992."  For 2001 2004, the commissioner shall then 
  5.1   determine the percent change from the 12 months ending on August 
  5.2   31, 1999 2002, to the 12 months ending on August 31, 2000 2003, 
  5.3   and in each subsequent year, from the 12 months ending on August 
  5.4   31, 1999 2002, to the 12 months ending on August 31 of the year 
  5.5   preceding the taxable year.  The determination of the 
  5.6   commissioner pursuant to this subdivision shall not be 
  5.7   considered a "rule" and shall not be subject to the 
  5.8   Administrative Procedure Act contained in chapter 14.  
  5.9      No later than December 15 of each year, the commissioner 
  5.10  shall announce the specific percentage that will be used to 
  5.11  adjust the tax rate brackets. 
  5.12     [EFFECTIVE DATE.] This section is effective for taxable 
  5.13  years beginning after December 31, 2002. 
  5.14     Sec. 4.  Minnesota Statutes 2002, section 290.17, 
  5.15  subdivision 4, is amended to read: 
  5.16     Subd. 4.  [UNITARY BUSINESS PRINCIPLE.] (a) If a trade or 
  5.17  business conducted wholly within this state or partly within and 
  5.18  partly without this state is part of a unitary business, the 
  5.19  entire income of the unitary business is subject to 
  5.20  apportionment pursuant to section 290.191.  Notwithstanding 
  5.21  subdivision 2, paragraph (c), none of the income of a unitary 
  5.22  business is considered to be derived from any particular source 
  5.23  and none may be allocated to a particular place except as 
  5.24  provided by the applicable apportionment formula.  The 
  5.25  provisions of this subdivision do not apply to business income 
  5.26  subject to subdivision 5, income of an insurance company, or 
  5.27  income of an investment company determined under section 290.36. 
  5.28     (b) The term "unitary business" means business activities 
  5.29  or operations which result in a flow of value between them.  The 
  5.30  term may be applied within a single legal entity or between 
  5.31  multiple entities and without regard to whether each entity is a 
  5.32  sole proprietorship, a corporation, a partnership or a trust.  
  5.33     (c) Unity is presumed whenever there is unity of ownership, 
  5.34  operation, and use, evidenced by centralized management or 
  5.35  executive force, centralized purchasing, advertising, 
  5.36  accounting, or other controlled interaction, but the absence of 
  6.1   these centralized activities will not necessarily evidence a 
  6.2   nonunitary business.  Unity is also presumed when business 
  6.3   activities or operations are of mutual benefit, dependent upon 
  6.4   or contributory to one another, either individually or as a 
  6.5   group. 
  6.6      (d) Where a business operation conducted in Minnesota is 
  6.7   owned by a business entity that carries on business activity 
  6.8   outside the state different in kind from that conducted within 
  6.9   this state, and the other business is conducted entirely outside 
  6.10  the state, it is presumed that the two business operations are 
  6.11  unitary in nature, interrelated, connected, and interdependent 
  6.12  unless it can be shown to the contrary.  
  6.13     (e) Unity of ownership is not deemed to exist when a 
  6.14  corporation is involved unless that corporation is a member of a 
  6.15  group of two or more business entities and more than 50 percent 
  6.16  of the voting stock of each member of the group is directly or 
  6.17  indirectly owned by a common owner or by common owners, either 
  6.18  corporate or noncorporate, or by one or more of the member 
  6.19  corporations of the group.  For this purpose, the term "voting 
  6.20  stock" shall include membership interests of mutual insurance 
  6.21  holding companies formed under section 60A.077.  
  6.22     (f) The net income and apportionment factors under section 
  6.23  290.191 or 290.20 of foreign corporations and other foreign 
  6.24  entities which are part of a unitary business shall not be 
  6.25  included in the net income or the apportionment factors of the 
  6.26  unitary business.  A foreign corporation or other foreign entity 
  6.27  which is required to file a return under this chapter shall file 
  6.28  on a separate return basis.  The net income and apportionment 
  6.29  factors under section 290.191 or 290.20 of foreign operating 
  6.30  corporations shall not be included in the net income or the 
  6.31  apportionment factors of the unitary business except as provided 
  6.32  in paragraph (g). 
  6.33     (g) The adjusted net income of a foreign operating 
  6.34  corporation shall be deemed to be paid as a dividend on the last 
  6.35  day of its taxable year to each shareholder thereof, in 
  6.36  proportion to each shareholder's ownership, with which such 
  7.1   corporation is engaged in a unitary business.  Such deemed 
  7.2   dividend shall be treated as a dividend under section 290.21, 
  7.3   subdivision 4.  The dividend received deduction shall not be 
  7.4   allowed on dividends, interest, royalties, or capital gains 
  7.5   received by the foreign operating corporation included in the 
  7.6   deemed dividend. 
  7.7      Dividends actually paid by a foreign operating corporation 
  7.8   to a corporate shareholder which is a member of the same unitary 
  7.9   business as the foreign operating corporation shall be 
  7.10  eliminated from the net income of the unitary business in 
  7.11  preparing a combined report for the unitary business.  The 
  7.12  adjusted net income of a foreign operating corporation shall be 
  7.13  its net income adjusted as follows: 
  7.14     (1) any taxes paid or accrued to a foreign country, the 
  7.15  commonwealth of Puerto Rico, or a United States possession or 
  7.16  political subdivision of any of the foregoing shall be a 
  7.17  deduction; and 
  7.18     (2) the subtraction from federal taxable income for 
  7.19  payments received from foreign corporations or foreign operating 
  7.20  corporations under section 290.01, subdivision 19d, clause (10), 
  7.21  shall not be allowed. 
  7.22     If a foreign operating corporation incurs a net loss, 
  7.23  neither income nor deduction from that corporation shall be 
  7.24  included in determining the net income of the unitary business. 
  7.25     (h) For purposes of determining the net income of a unitary 
  7.26  business and the factors to be used in the apportionment of net 
  7.27  income pursuant to section 290.191 or 290.20, there must be 
  7.28  included only the income and apportionment factors of domestic 
  7.29  corporations or other domestic entities other than foreign 
  7.30  operating corporations that are determined to be part of the 
  7.31  unitary business pursuant to this subdivision, notwithstanding 
  7.32  that foreign corporations or other foreign entities might be 
  7.33  included in the unitary business.  
  7.34     (i) Deductions for expenses, interest, or taxes otherwise 
  7.35  allowable under this chapter that are connected with or 
  7.36  allocable against dividends, deemed dividends described in 
  8.1   paragraph (g), or royalties, fees, or other like income 
  8.2   described in section 290.01, subdivision 19d, clause (10), shall 
  8.3   not be disallowed. 
  8.4      (j) Each corporation or other entity, except a sole 
  8.5   proprietorship, that is part of a unitary business must file 
  8.6   combined reports as the commissioner determines.  On the 
  8.7   reports, all intercompany transactions between entities included 
  8.8   pursuant to paragraph (h) must be eliminated and the entire net 
  8.9   income of the unitary business determined in accordance with 
  8.10  this subdivision is apportioned among the entities by using each 
  8.11  entity's Minnesota factors for apportionment purposes in the 
  8.12  numerators of the apportionment formula and the total factors 
  8.13  for apportionment purposes of all entities included pursuant to 
  8.14  paragraph (h) in the denominators of the apportionment formula. 
  8.15     (k) If a corporation has been divested from a unitary 
  8.16  business and is included in a combined report for a fractional 
  8.17  part of the common accounting period of the combined report:  
  8.18     (1) its income includable in the combined report is its 
  8.19  income incurred for that part of the year determined by 
  8.20  proration or separate accounting; and 
  8.21     (2) its sales, property, and payroll included in the 
  8.22  apportionment formula must be prorated or accounted for 
  8.23  separately. 
  8.24     [EFFECTIVE DATE.] This section is effective for tax years 
  8.25  beginning after December 31, 2002. 
  8.26     Sec. 5.  Minnesota Statutes 2002, section 290.191, 
  8.27  subdivision 5, is amended to read: 
  8.28     Subd. 5.  [DETERMINATION OF SALES FACTOR.] For purposes of 
  8.29  this section, the following rules apply in determining the sales 
  8.30  factor.  
  8.31     (a) The sales factor includes all sales, gross earnings, or 
  8.32  receipts received in the ordinary course of the business, except 
  8.33  that the following types of income are not included in the sales 
  8.34  factor: 
  8.35     (1) interest; 
  8.36     (2) dividends; 
  9.1      (3) sales of capital assets as defined in section 1221 of 
  9.2   the Internal Revenue Code; 
  9.3      (4) sales of property used in the trade or business, except 
  9.4   sales of leased property of a type which is regularly sold as 
  9.5   well as leased; 
  9.6      (5) sales of debt instruments as defined in section 
  9.7   1275(a)(1) of the Internal Revenue Code or sales of stock; and 
  9.8      (6) royalties, fees, or other like income of a type which 
  9.9   qualify for a subtraction from federal taxable income under 
  9.10  section 290.01, subdivision 19(d)(11).  
  9.11     (b) Sales of tangible personal property are made within 
  9.12  this state if the property is received by a purchaser at a point 
  9.13  within this state, and the taxpayer is taxable in this state, 
  9.14  regardless of the f.o.b. point, other conditions of the sale, or 
  9.15  the ultimate destination of the property. 
  9.16     (c) Tangible personal property delivered to a common or 
  9.17  contract carrier or foreign vessel for delivery to a purchaser 
  9.18  in another state or nation is a sale in that state or nation, 
  9.19  regardless of f.o.b. point or other conditions of the sale.  If 
  9.20  the taxpayer is not taxable in the state of the delivery and the 
  9.21  property is shipped from an office, factory, warehouse, or other 
  9.22  place of storage in this state, sales of tangible personal 
  9.23  property outside this state are attributed to this state 
  9.24  regardless of the terms of shipping, delivery, or other 
  9.25  conditions of sale. 
  9.26     (d) Notwithstanding paragraphs (b) and (c), when 
  9.27  intoxicating liquor, wine, fermented malt beverages, cigarettes, 
  9.28  or tobacco products are sold to a purchaser who is licensed by a 
  9.29  state or political subdivision to resell this property only 
  9.30  within the state of ultimate destination, the sale is made in 
  9.31  that state.  
  9.32     (e) Sales made by or through a corporation that is 
  9.33  qualified as a domestic international sales corporation under 
  9.34  section 992 of the Internal Revenue Code are not considered to 
  9.35  have been made within this state.  
  9.36     (f) Sales, rents, royalties, and other income in connection 
 10.1   with real property is attributed to the state in which the 
 10.2   property is located.  
 10.3      (g) Receipts from the lease or rental of tangible personal 
 10.4   property, including finance leases and true leases, must be 
 10.5   attributed to this state if the property is located in this 
 10.6   state and to other states if the property is not located in this 
 10.7   state.  Receipts from the lease or rental of moving property 
 10.8   including, but not limited to, motor vehicles, rolling stock, 
 10.9   aircraft, vessels, or mobile equipment are included in the 
 10.10  numerator of the receipts factor to the extent that the property 
 10.11  is used in this state.  The extent of the use of moving property 
 10.12  is determined as follows: 
 10.13     (1) A motor vehicle is used wholly in the state in which it 
 10.14  is registered.  
 10.15     (2) The extent that rolling stock is used in this state is 
 10.16  determined by multiplying the receipts from the lease or rental 
 10.17  of the rolling stock by a fraction, the numerator of which is 
 10.18  the miles traveled within this state by the leased or rented 
 10.19  rolling stock and the denominator of which is the total miles 
 10.20  traveled by the leased or rented rolling stock. 
 10.21     (3) The extent that an aircraft is used in this state is 
 10.22  determined by multiplying the receipts from the lease or rental 
 10.23  of the aircraft by a fraction, the numerator of which is the 
 10.24  number of landings of the aircraft in this state and the 
 10.25  denominator of which is the total number of landings of the 
 10.26  aircraft. 
 10.27     (4) The extent that a vessel, mobile equipment, or other 
 10.28  mobile property is used in the state is determined by 
 10.29  multiplying the receipts from the lease or rental of the 
 10.30  property by a fraction, the numerator of which is the number of 
 10.31  days during the taxable year the property was in this state and 
 10.32  the denominator of which is the total days in the taxable year.  
 10.33     (h) Royalties and other income not described in paragraph 
 10.34  (a), clause (6), received for the use of or for the privilege of 
 10.35  using intangible property, including patents, know-how, 
 10.36  formulas, designs, processes, patterns, copyrights, trade names, 
 11.1   service names, franchises, licenses, contracts, customer lists, 
 11.2   or similar items, must be attributed to the state in which the 
 11.3   property is used by the purchaser.  If the property is used in 
 11.4   more than one state, the royalties or other income must be 
 11.5   apportioned to this state pro rata according to the portion of 
 11.6   use in this state.  If the portion of use in this state cannot 
 11.7   be determined, the royalties or other income must be excluded 
 11.8   from both the numerator and the denominator.  Intangible 
 11.9   property is used in this state if the purchaser uses the 
 11.10  intangible property or the rights therein in the regular course 
 11.11  of its business operations in this state, regardless of the 
 11.12  location of the purchaser's customers. 
 11.13     (i) Sales of intangible property are made within the state 
 11.14  in which the property is used by the purchaser.  If the property 
 11.15  is used in more than one state, the sales must be apportioned to 
 11.16  this state pro rata according to the portion of use in this 
 11.17  state.  If the portion of use in this state cannot be 
 11.18  determined, the sale must be excluded from both the numerator 
 11.19  and the denominator of the sales factor.  Intangible property is 
 11.20  used in this state if the purchaser used the intangible property 
 11.21  in the regular course of its business operations in this state. 
 11.22     (j) Receipts from the performance of services must be 
 11.23  attributed to the state where the services are received.  For 
 11.24  the purposes of this section, receipts from the performance of 
 11.25  services provided to a corporation, partnership, or trust may 
 11.26  only be attributed to a state where it has a fixed place of 
 11.27  doing business.  If the state where the services are received is 
 11.28  not readily determinable or is a state where the corporation, 
 11.29  partnership, or trust receiving the service does not have a 
 11.30  fixed place of doing business, the services shall be deemed to 
 11.31  be received at the location of the office of the customer from 
 11.32  which the services were ordered in the regular course of the 
 11.33  customer's trade or business.  If the ordering office cannot be 
 11.34  determined, the services shall be deemed to be received at the 
 11.35  office of the customer to which the services are billed.  If the 
 11.36  taxpayer is not taxable in the state of the purchaser, the sale 
 12.1   is attributed to this state if the greater proportion of the 
 12.2   service is performed in this state. 
 12.3      [EFFECTIVE DATE.] This section is effective for taxable 
 12.4   years beginning after December 31, 2002. 
 12.5      Sec. 6.  Minnesota Statutes 2002, section 290.21, 
 12.6   subdivision 4, is amended to read: 
 12.7      Subd. 4.  (a)(1) Eighty ..... percent of dividends received 
 12.8   by a corporation during the taxable year from another 
 12.9   corporation, in which the recipient owns 20 percent or more of 
 12.10  the stock, by vote and value, not including stock described in 
 12.11  section 1504(a)(4) of the Internal Revenue Code when the 
 12.12  corporate stock with respect to which dividends are paid does 
 12.13  not constitute the stock in trade of the taxpayer or would not 
 12.14  be included in the inventory of the taxpayer, or does not 
 12.15  constitute property held by the taxpayer primarily for sale to 
 12.16  customers in the ordinary course of the taxpayer's trade or 
 12.17  business, or when the trade or business of the taxpayer does not 
 12.18  consist principally of the holding of the stocks and the 
 12.19  collection of the income and gains therefrom; and 
 12.20     (2)(i) the remaining 20 ... percent of dividends if the 
 12.21  dividends received are the stock in an affiliated company 
 12.22  transferred in an overall plan of reorganization and the 
 12.23  dividend is eliminated in consolidation under Treasury 
 12.24  Department Regulation 1.1502-14(a), as amended through December 
 12.25  31, 1989; 
 12.26     (ii) the remaining 20 ... percent of dividends if the 
 12.27  dividends are received from a corporation which is subject to 
 12.28  tax under section 290.36 and which is a member of an affiliated 
 12.29  group of corporations as defined by the Internal Revenue Code 
 12.30  and the dividend is eliminated in consolidation under Treasury 
 12.31  Department Regulation 1.1502-14(a), as amended through December 
 12.32  31, 1989, or is deducted under an election under section 243(b) 
 12.33  of the Internal Revenue Code; or 
 12.34     (iii) the remaining 20 ... percent of the dividends if the 
 12.35  dividends are received from a property and casualty insurer as 
 12.36  defined under section 60A.60, subdivision 8, which is a member 
 13.1   of an affiliated group of corporations as defined by the 
 13.2   Internal Revenue Code and either:  (A) the dividend is 
 13.3   eliminated in consolidation under Treasury Regulation 
 13.4   1.1502-14(a), as amended through December 31, 1989; or (B) the 
 13.5   dividend is deducted under an election under section 243(b) of 
 13.6   the Internal Revenue Code. 
 13.7      (b) Seventy ...... percent of dividends received by a 
 13.8   corporation during the taxable year from another corporation in 
 13.9   which the recipient owns less than 20 percent of the stock, by 
 13.10  vote or value, not including stock described in section 
 13.11  1504(a)(4) of the Internal Revenue Code when the corporate stock 
 13.12  with respect to which dividends are paid does not constitute the 
 13.13  stock in trade of the taxpayer, or does not constitute property 
 13.14  held by the taxpayer primarily for sale to customers in the 
 13.15  ordinary course of the taxpayer's trade or business, or when the 
 13.16  trade or business of the taxpayer does not consist principally 
 13.17  of the holding of the stocks and the collection of income and 
 13.18  gain therefrom.  
 13.19     (c) The dividend deduction provided in this subdivision 
 13.20  shall be allowed only with respect to dividends that are 
 13.21  included in a corporation's Minnesota taxable net income for the 
 13.22  taxable year. 
 13.23     The dividend deduction provided in this subdivision does 
 13.24  not apply to a dividend from a corporation which, for the 
 13.25  taxable year of the corporation in which the distribution is 
 13.26  made or for the next preceding taxable year of the corporation, 
 13.27  is a corporation exempt from tax under section 501 of the 
 13.28  Internal Revenue Code. 
 13.29     The dividend deduction provided in this subdivision applies 
 13.30  to the amount of regulated investment company dividends only to 
 13.31  the extent determined under section 854(b) of the Internal 
 13.32  Revenue Code. 
 13.33     The dividend deduction provided in this subdivision shall 
 13.34  not be allowed with respect to any dividend for which a 
 13.35  deduction is not allowed under the provisions of section 246(c) 
 13.36  of the Internal Revenue Code. 
 14.1      (d) If dividends received by a corporation that does not 
 14.2   have nexus with Minnesota under the provisions of Public Law 
 14.3   Number 86-272 are included as income on the return of an 
 14.4   affiliated corporation permitted or required to file a combined 
 14.5   report under section 290.34, subdivision 2, then for purposes of 
 14.6   this subdivision the determination as to whether the trade or 
 14.7   business of the corporation consists principally of the holding 
 14.8   of stocks and the collection of income and gains therefrom shall 
 14.9   be made with reference to the trade or business of the 
 14.10  affiliated corporation having a nexus with Minnesota. 
 14.11     (e) The deduction provided by this subdivision does not 
 14.12  apply if the dividends are paid by a FSC as defined in section 
 14.13  922 of the Internal Revenue Code. 
 14.14     (f) If one or more of the members of the unitary group 
 14.15  whose income is included on the combined report received a 
 14.16  dividend, the deduction under this subdivision for each member 
 14.17  of the unitary business required to file a return under this 
 14.18  chapter is the product of:  (1) 100 percent of the dividends 
 14.19  received by members of the group; (2) the percentage allowed 
 14.20  pursuant to paragraph (a) or (b); and (3) the percentage of the 
 14.21  taxpayer's business income apportionable to this state for the 
 14.22  taxable year under section 290.191 or 290.20. 
 14.23     [EFFECTIVE DATE.] This section is effective for taxable 
 14.24  years beginning after December 31, 2002. 
 14.25                             ARTICLE 2
 14.26                      TOBACCO AND EXCISE TAXES
 14.27     Section 1.  Minnesota Statutes 2002, section 289A.20, 
 14.28  subdivision 4, is amended to read: 
 14.29     Subd. 4.  [SALES AND USE TAX.] (a) The taxes imposed by 
 14.30  chapter 297A are due and payable to the commissioner monthly on 
 14.31  or before the 20th day of the month following the month in which 
 14.32  the taxable event occurred, or following another reporting 
 14.33  period as the commissioner prescribes or as allowed under 
 14.34  section 289A.18, subdivision 4, paragraph (f), except that use 
 14.35  taxes due on an annual use tax return as provided under section 
 14.36  289A.11, subdivision 1, are payable by April 15 following the 
 15.1   close of the calendar year. 
 15.2      (b) For a fiscal year ending before July 1, 2002, A vendor 
 15.3   having a liability of $120,000 or more during a fiscal year 
 15.4   ending June 30 must remit the June liability for the next year 
 15.5   in the following manner: 
 15.6      (1) Two business days before June 30 of the year, the 
 15.7   vendor must remit 75 85 percent of the estimated June liability 
 15.8   to the commissioner.  
 15.9      (2) On or before August 20 of the year, the vendor must pay 
 15.10  any additional amount of tax not remitted in June. 
 15.11     (c) A vendor having a liability of $120,000 or more during 
 15.12  a fiscal year ending June 30 must remit all liabilities on 
 15.13  returns due for periods beginning in the subsequent calendar 
 15.14  year by electronic means on or before the 20th day of the month 
 15.15  following the month in which the taxable event occurred, or on 
 15.16  or before the 20th day of the month following the month in which 
 15.17  the sale is reported under section 289A.18, subdivision 4, 
 15.18  except for 75 85 percent of the estimated June liability, which 
 15.19  is due two business days before June 30.  The remaining amount 
 15.20  of the June liability is due on August 20.  
 15.21     [EFFECTIVE DATE.] This section is effective for payments 
 15.22  made after December 31, 2003. 
 15.23     Sec. 2.  Minnesota Statutes 2002, section 289A.60, 
 15.24  subdivision 15, is amended to read: 
 15.25     Subd. 15.  [ACCELERATED PAYMENT OF JUNE SALES TAX 
 15.26  LIABILITY; PENALTY FOR UNDERPAYMENT.] If a vendor is required by 
 15.27  law to submit an estimation of June sales tax liabilities and 62 
 15.28  85 percent payment by a certain date, the vendor shall pay a 
 15.29  penalty equal to ten percent of the amount of actual June 
 15.30  liability required to be paid in June less the amount remitted 
 15.31  in June.  The penalty must not be imposed, however, if the 
 15.32  amount remitted in June equals the lesser of 62 85 percent of 
 15.33  the preceding May's liability or 62 85 percent of the average 
 15.34  monthly liability for the previous calendar year. 
 15.35     [EFFECTIVE DATE.] This section is effective for payments 
 15.36  made after December 31, 2003. 
 16.1      Sec. 3.  Minnesota Statutes 2002, section 297F.05, 
 16.2   subdivision 1, is amended to read: 
 16.3      Subdivision 1.  [RATES; CIGARETTES.] A tax is imposed upon 
 16.4   the sale of cigarettes in this state, upon having cigarettes in 
 16.5   possession in this state with intent to sell, upon any person 
 16.6   engaged in business as a distributor, and upon the use or 
 16.7   storage by consumers, at the following rates, subject to the 
 16.8   discount provided in this chapter: 
 16.9      (1) on cigarettes weighing not more than three pounds per 
 16.10  thousand, 24 74 mills on each such cigarette; and 
 16.11     (2) on cigarettes weighing more than three pounds per 
 16.12  thousand, 48 148 mills on each such cigarette. 
 16.13     [EFFECTIVE DATE.] This section is effective July 1, 2003. 
 16.14     Sec. 4.  Minnesota Statutes 2002, section 297F.05, 
 16.15  subdivision 3, is amended to read: 
 16.16     Subd. 3.  [RATES; TOBACCO PRODUCTS.] A tax is imposed upon 
 16.17  all tobacco products in this state and upon any person engaged 
 16.18  in business as a distributor, at the rate of 35 74 percent of 
 16.19  the wholesale sales price of the tobacco products.  The tax is 
 16.20  imposed at the time the distributor: 
 16.21     (1) brings, or causes to be brought, into this state from 
 16.22  outside the state tobacco products for sale; 
 16.23     (2) makes, manufactures, or fabricates tobacco products in 
 16.24  this state for sale in this state; or 
 16.25     (3) ships or transports tobacco products to retailers in 
 16.26  this state, to be sold by those retailers. 
 16.27     [EFFECTIVE DATE.] This section is effective July 1, 2003. 
 16.28     Sec. 5.  Minnesota Statutes 2002, section 297F.05, 
 16.29  subdivision 4, is amended to read: 
 16.30     Subd. 4.  [USE TAX; TOBACCO PRODUCTS.] A tax is imposed 
 16.31  upon the use or storage by consumers of tobacco products in this 
 16.32  state, and upon such consumers, at the rate of 35 74 percent of 
 16.33  the cost to the consumer of the tobacco products. 
 16.34     [EFFECTIVE DATE.] This section is effective July 1, 2003. 
 16.35     Sec. 6.  Minnesota Statutes 2002, section 297F.08, 
 16.36  subdivision 7, is amended to read: 
 17.1      Subd. 7.  [PRICE OF STAMPS.] The commissioner shall sell 
 17.2   stamps to any person licensed as a distributor at a discount 
 17.3   of 1.0 0.32 percent from the face amount of the stamps for the 
 17.4   first $1,500,000 of such stamps purchased in any fiscal year; 
 17.5   and at a discount of 0.6 0.19 percent on the remainder of such 
 17.6   stamps purchased in any fiscal year.  The commissioner shall not 
 17.7   sell stamps to any other person.  The commissioner may prescribe 
 17.8   the method of shipment of the stamps to the distributor as well 
 17.9   as the quantities of stamps purchased. 
 17.10     [EFFECTIVE DATE.] This section is effective July 1, 2003. 
 17.11     Sec. 7.  Minnesota Statutes 2002, section 297F.09, 
 17.12  subdivision 1, is amended to read: 
 17.13     Subdivision 1.  [MONTHLY RETURN; CIGARETTE DISTRIBUTOR.] On 
 17.14  or before the 18th day of each calendar month, a distributor 
 17.15  with a place of business in this state shall file a return with 
 17.16  the commissioner showing the quantity of cigarettes manufactured 
 17.17  or brought in from outside the state or purchased during the 
 17.18  preceding calendar month and the quantity of cigarettes sold or 
 17.19  otherwise disposed of in this state and outside this state 
 17.20  during that month.  A licensed distributor outside this state 
 17.21  shall in like manner file a return showing the quantity of 
 17.22  cigarettes shipped or transported into this state during the 
 17.23  preceding calendar month.  Returns must be made in the form and 
 17.24  manner prescribed by the commissioner and must contain any other 
 17.25  information required by the commissioner.  The return must be 
 17.26  accompanied by a remittance for the full unpaid tax liability 
 17.27  shown by it.  The return for the May liability and 85 percent of 
 17.28  the estimated June liability is due on the date payment of the 
 17.29  tax is due. 
 17.30     [EFFECTIVE DATE.] This section is effective January 1, 2004.
 17.31     Sec. 8.  Minnesota Statutes 2002, section 297F.09, 
 17.32  subdivision 2, is amended to read: 
 17.33     Subd. 2.  [MONTHLY RETURN; TOBACCO PRODUCTS DISTRIBUTOR.] 
 17.34  On or before the 18th day of each calendar month, a distributor 
 17.35  with a place of business in this state shall file a return with 
 17.36  the commissioner showing the quantity and wholesale sales price 
 18.1   of each tobacco product: 
 18.2      (1) brought, or caused to be brought, into this state for 
 18.3   sale; and 
 18.4      (2) made, manufactured, or fabricated in this state for 
 18.5   sale in this state, during the preceding calendar month.  
 18.6   Every licensed distributor outside this state shall in like 
 18.7   manner file a return showing the quantity and wholesale sales 
 18.8   price of each tobacco product shipped or transported to 
 18.9   retailers in this state to be sold by those retailers, during 
 18.10  the preceding calendar month.  Returns must be made in the form 
 18.11  and manner prescribed by the commissioner and must contain any 
 18.12  other information required by the commissioner.  The return must 
 18.13  be accompanied by a remittance for the full tax liability shown, 
 18.14  less 1.5 one percent of the liability as compensation to 
 18.15  reimburse the distributor for expenses incurred in the 
 18.16  administration of this chapter.  The return for the May 
 18.17  liability and 85 percent of the estimated June liability is due 
 18.18  on the date payment of the tax is due. 
 18.19     [EFFECTIVE DATE.] This section is effective July 1, 2003. 
 18.20     Sec. 9.  Minnesota Statutes 2002, section 297F.09, is 
 18.21  amended by adding a subdivision to read: 
 18.22     Subd. 10.  [ACCELERATED TAX PAYMENT; CIGARETTE OR TOBACCO 
 18.23  PRODUCTS DISTRIBUTOR.] A cigarette or tobacco products 
 18.24  distributor having a liability of $120,000 or more during a 
 18.25  fiscal year ending June 30, shall remit the June liability for 
 18.26  the next year in the following manner:  
 18.27     (a) Two business days before June 30 of the year, the 
 18.28  distributor shall remit the actual May liability and 85 percent 
 18.29  of the estimated June liability to the commissioner and file the 
 18.30  return in the form and manner prescribed by the commissioner. 
 18.31     (b) On or before August 18 of the year, the distributor 
 18.32  shall submit a return showing the actual June liability and pay 
 18.33  any additional amount of tax not remitted in June.  A penalty is 
 18.34  imposed equal to ten percent of the amount of June liability 
 18.35  required to be paid in June, less the amount remitted in June.  
 18.36  However, the penalty is not imposed if the amount remitted in 
 19.1   June equals the lesser of:  
 19.2      (1) 85 percent of the actual June liability; or 
 19.3      (2) 85 percent of the preceding May's liability. 
 19.4      [EFFECTIVE DATE.] This section is effective for taxpayers 
 19.5   having a liability of $120,000 or more during the fiscal year 
 19.6   ending June 30, 2003, and each fiscal year thereafter, and for 
 19.7   accelerated payments becoming due in 2004 and thereafter. 
 19.8      Sec. 10.  Minnesota Statutes 2002, section 297G.09, is 
 19.9   amended by adding a subdivision to read: 
 19.10     Subd. 9.  [ACCELERATED TAX PAYMENT; PENALTY.] A person 
 19.11  liable for tax under this chapter having a liability of $120,000 
 19.12  or more during a fiscal year ending June 30, shall remit the 
 19.13  June liability for the next year in the following manner:  
 19.14     (a) Two business days before June 30 of the year, the 
 19.15  taxpayer shall remit the actual May liability and 85 percent of 
 19.16  the estimated June liability to the commissioner and file the 
 19.17  return in the form and manner prescribed by the commissioner. 
 19.18     (b) On or before August 18 of the year, the taxpayer shall 
 19.19  submit a return showing the actual June liability and pay any 
 19.20  additional amount of tax not remitted in June.  A penalty is 
 19.21  imposed equal to ten percent of the amount of June liability 
 19.22  required to be paid in June less the amount remitted in June.  
 19.23  However, the penalty is not imposed if the amount remitted in 
 19.24  June equals the lesser of:  
 19.25     (1) 85 percent of the actual June liability; or 
 19.26     (2) 85 percent of the preceding May liability. 
 19.27     [EFFECTIVE DATE.] This section is effective for taxpayers 
 19.28  having a liability of $120,000 or more during the fiscal year 
 19.29  ending June 30, 2003, and each fiscal year thereafter, and for 
 19.30  accelerated payments becoming due in 2004 and thereafter. 
 19.31     Sec. 11.  Laws 2001, First Special Session chapter 5, 
 19.32  article 12, section 95, as amended by Laws 2002, chapter 377, 
 19.33  article 3, section 24, is amended to read: 
 19.34     Sec. 95.  [REPEALER.] 
 19.35     (a) Minnesota Statutes 2000, sections 297A.61, subdivision 
 19.36  16; 297A.68, subdivision 21; and 297A.71, subdivision 2, are 
 20.1   repealed effective for sales and purchases occurring after June 
 20.2   30, 2001, except that the repeal of section 297A.61, subdivision 
 20.3   16, paragraph (d), is effective for sales and purchases 
 20.4   occurring after July 31, 2001. 
 20.5      (b) Minnesota Statutes 2000, sections 297A.62, subdivision 
 20.6   2, and 297A.64, subdivision 1, are repealed effective for sales 
 20.7   and purchases made after December 31, 2005. 
 20.8      (c) Minnesota Statutes 2000, section 297A.71, subdivision 
 20.9   15, is repealed effective for sales and purchases made after 
 20.10  June 30, 2002. 
 20.11     (d) Minnesota Statutes 2000, section 289A.60, subdivision 
 20.12  15, is repealed effective for liabilities after January 1, 2004. 
 20.13     (e) Minnesota Statutes 2000, section 297A.71, subdivision 
 20.14  16, is repealed effective for sales and purchases occurring 
 20.15  after December 31, 2002. 
 20.16     Sec. 12.  [FLOOR STOCKS TAX.] 
 20.17     Subdivision 1.  [CIGARETTES.] (a) A floor stocks tax is 
 20.18  imposed on every person engaged in business in this state as a 
 20.19  distributor, retailer, subjobber, vendor, manufacturer, or 
 20.20  manufacturer's representative of cigarettes, on the stamped 
 20.21  cigarettes and unaffixed stamps in the person's possession or 
 20.22  under the person's control at 12:01 a.m. on July 1, 2003.  The 
 20.23  tax is imposed at the following rates, subject to the discounts 
 20.24  in Minnesota Statutes, section 297F.08, subdivision 7: 
 20.25     (1) on cigarettes weighing not more than three pounds per 
 20.26  thousand, 50 mills on each cigarette; and 
 20.27     (2) on cigarettes weighing more than three pounds per 
 20.28  thousand, 100 mills on each cigarette. 
 20.29     (b) Each distributor, by July 8, 2003, shall file a report 
 20.30  with the commissioner of revenue, in the form the commissioner 
 20.31  prescribes, showing the stamped cigarettes and unaffixed stamps 
 20.32  on hand at 12:01 a.m. on July 1, 2003, and the amount of tax due 
 20.33  on the cigarettes and unaffixed stamps.  The tax imposed by this 
 20.34  section is due and payable by August 1, 2003, and after that 
 20.35  date bears interest as provided in Minnesota Statutes, section 
 20.36  270.75.  Each retailer, subjobber, vendor, manufacturer, or 
 21.1   manufacturer's representative shall file a return with the 
 21.2   commissioner, in the form the commissioner prescribes, showing 
 21.3   the cigarettes on hand at 12:01 a.m. on July 1, 2003, and pay 
 21.4   the tax due on them by August 1, 2003.  Tax not paid by the due 
 21.5   date bears interest as provided in Minnesota Statutes, section 
 21.6   270.75. 
 21.7      Subd. 2.  [TOBACCO PRODUCTS.] A floor stocks tax is imposed 
 21.8   on every person engaged in business in this state as a 
 21.9   distributor of tobacco products, at the rate of 39 percent of 
 21.10  the wholesale sales price of each tobacco product in the 
 21.11  person's possession or under the person's control at 12:01 a.m. 
 21.12  on July 1, 2003, and the amount of tax due on them.  The tax 
 21.13  imposed by this section, less the discount provided in Minnesota 
 21.14  Statutes, section 297F.09, subdivision 2, is due and payable by 
 21.15  August 1, 2003, and thereafter bears interest as provided in 
 21.16  Minnesota Statutes, section 270.75. 
 21.17     Subd. 3.  [AUDIT AND ENFORCEMENT.] The tax imposed by this 
 21.18  section is subject to the audit, assessment, and collection 
 21.19  provisions applicable to the taxes imposed under Minnesota 
 21.20  Statutes, chapter 297F.  The commissioner of revenue shall 
 21.21  deposit the revenue from the tax imposed under this section in 
 21.22  the health care access fund in the state treasury. 
 21.23     [EFFECTIVE DATE.] This section is effective July 1, 2003.