SF 2031

as introduced - 86th Legislature (2009 - 2010) Posted on 02/09/2010 11:33pm

A bill for an act
relating to taxation; providing an exemption for pass-through income; expanding
sales tax base; exempting certain purchases from sales tax; amending Minnesota
Statutes 2008, sections 290.01, subdivision 19b; 297A.61, subdivision 3;
297A.67, subdivision 8; 297A.70, subdivision 2.

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

Section 1.

Minnesota Statutes 2008, 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) net 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 not deducted or not deductible pursuant to section 408(d)(8)(E)
of the Internal Revenue Code 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 over $500 allowable
as a deduction for the taxable year under section 170(a) of the Internal Revenue Code and
under the provisions of Public Law 109-1;

(7) 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;

(8) 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;

(9) in each of the five tax years immediately following the tax year in which an
addition is required under subdivision 19a, clause (7), or 19c, clause (15), in the case
of a shareholder of a corporation that is an S corporation, 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), or
subdivision 19c, clause (15), in the case of a shareholder of 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. The resulting delayed depreciation cannot be
less than zero;

(10) job opportunity building zone income as provided under section 469.316;

(11) to the extent included in federal taxable income, the amount of compensation
paid to members of the Minnesota National Guard or other reserve components of the
United States military for active service performed in Minnesota, excluding compensation
for services performed under the Active Guard Reserve (AGR) program. For purposes of
this clause, "active service" means (i) state active service as defined in section 190.05,
subdivision 5a, clause (1); (ii) federally funded state active service as defined in section
190.05, subdivision 5b; or (iii) federal active service as defined in section 190.05,
subdivision 5c, but "active service" excludes service performed in accordance with section
190.08, subdivision 3;

(12) to the extent included in federal taxable income, the amount of compensation
paid to Minnesota residents who are members of the armed forces of the United States or
United Nations for active duty performed outside Minnesota under United States Code,
title 10, section 101(d); United States Code, title 32, section 101(12); or the authority of
the United Nations;

(13) an amount, not to exceed $10,000, equal to qualified expenses related to a
qualified donor's donation, while living, of one or more of the qualified donor's organs
to another person for human organ transplantation. For purposes of this clause, "organ"
means all or part of an individual's liver, pancreas, kidney, intestine, lung, or bone marrow;
"human organ transplantation" means the medical procedure by which transfer of a human
organ is made from the body of one person to the body of another person; "qualified
expenses" means unreimbursed expenses for both the individual and the qualified donor
for (i) travel, (ii) lodging, and (iii) lost wages net of sick pay, except that such expenses
may be subtracted under this clause only once; and "qualified donor" means the individual
or the individual's dependent, as defined in section 152 of the Internal Revenue Code. An
individual may claim the subtraction in this clause for each instance of organ donation for
transplantation during the taxable year in which the qualified expenses occur;

(14) 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 (16), 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 (16), 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;

(15) to the extent included in federal taxable income, compensation paid to a service
member as defined in United States Code, title 10, section 101(a)(5), for military service
as defined in the Servicemembers Civil Relief Act, Public Law 108-189, section 101(2);

(16) international economic development zone income as provided under section
469.325; deleted text begin and
deleted text end

(17) to the extent included in federal taxable income, the amount of national service
educational awards received from the National Service Trust under United States Code,
title 42, sections 12601 to 12604, for service in an approved Americorps National Service
program deleted text begin . deleted text end new text begin ; and new text end

new text begin (18) an amount equal to 20 percent of an individual's pass-through income, not
to exceed $500,000. For purposes of this clause, pass-through income means (i) a
partner's or shareholder's total of all nonpassive income as reported on Schedule K-1
from all partnerships, S corporations, or limited liability companies in which the partner
or shareholder shares an ownership interest, reduced by (ii) the total of all nonpassive
losses claimed by the partner or shareholder on Schedule K-1 from all partnerships, S
corporations, or limited liability companies in which the partner or shareholder shares an
ownership interest.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxable years beginning after
December 31, 2009.
new text end

Sec. 2.

Minnesota Statutes 2008, section 297A.61, subdivision 3, is amended to read:

Subd. 3.

Sale and purchase.

(a) "Sale" and "purchase" include, but are not limited
to, each of the transactions listed in this subdivision.

(b) Sale and purchase include:

(1) any transfer of title or possession, or both, of tangible personal property, whether
absolutely or conditionally, for a consideration in money or by exchange or barter; and

(2) the leasing of or the granting of a license to use or consume, for a consideration
in money or by exchange or barter, tangible personal property, other than a manufactured
home used for residential purposes for a continuous period of 30 days or more.

(c) Sale and purchase include the production, fabrication, printing, or processing of
tangible personal property for a consideration for consumers who furnish either directly or
indirectly the materials used in the production, fabrication, printing, or processing.

(d) Sale and purchase include the preparing for a consideration of food.
Notwithstanding section 297A.67, subdivision 2, taxable food includes, but is not limited
to, the following:

(1) prepared food sold by the retailer;

(2) soft drinks;

(3) candy;

(4) dietary supplements; and

(5) all food sold through vending machines.

(e) A sale and a purchase includes the furnishing for a consideration of electricity,
gas, water, or steam for use or consumption within this state.

(f) A sale and a purchase includes the transfer for a consideration of prewritten
computer software whether delivered electronically, by load and leave, or otherwise.

(g) A sale and a purchase includes the furnishing for a consideration of the following
services:

(1) the privilege of admission to places of amusement, recreational areas, or athletic
events, and the making available of amusement devices, tanning facilities, reducing
salons, steam baths, Turkish baths, health clubs, and spas or athletic facilities;

(2) lodging and related services by a hotel, rooming house, resort, campground,
motel, or trailer camp, including furnishing the guest of the facility with access to
telecommunication services, and the granting of any similar license to use real property
in a specific facility, other than the renting or leasing of it for a continuous period of
30 days or more under an enforceable written agreement that may not be terminated
without prior notice;

(3) nonresidential parking services, whether on a contractual, hourly, or other
periodic basis, except for parking at a meter;

(4) the granting of membership in a club, association, or other organization if:

(i) the club, association, or other organization makes available for the use of its
members sports and athletic facilities, without regard to whether a separate charge is
assessed for use of the facilities; and

(ii) use of the sports and athletic facility is not made available to the general public
on the same basis as it is made available to members.

Granting of membership means both onetime initiation fees and periodic membership
dues. Sports and athletic facilities include golf courses; tennis, racquetball, handball, and
squash courts; basketball and volleyball facilities; running tracks; exercise equipment;
swimming pools; and other similar athletic or sports facilities;

(5) delivery of aggregate materials by a third party, excluding delivery of aggregate
material used in road construction, and delivery of concrete block by a third party if
the delivery would be subject to the sales tax if provided by the seller of the concrete
block; and

(6) services as provided in this clause:

(i) laundry and dry cleaning services including cleaning, pressing, repairing, altering,
and storing clothes, linen services and supply, cleaning and blocking hats, and carpet,
drapery, upholstery, and industrial cleaning. Laundry and dry cleaning services do not
include services provided by coin operated facilities operated by the customer;

(ii) motor vehicle washing, waxing, and cleaning services, including services
provided by coin operated facilities operated by the customer, and rustproofing,
undercoating, and towing of motor vehicles;

(iii) building and residential cleaning, maintenance, and disinfecting services and
pest control and exterminating services;

(iv) detective, security, burglar, fire alarm, and armored car services; but not
including services performed within the jurisdiction they serve by off-duty licensed peace
officers as defined in section 626.84, subdivision 1, or services provided by a nonprofit
organization for monitoring and electronic surveillance of persons placed on in-home
detention pursuant to court order or under the direction of the Minnesota Department
of Corrections;

(v) pet grooming services;

(vi) lawn care, fertilizing, mowing, spraying and sprigging services; garden planting
and maintenance; tree, bush, and shrub pruning, bracing, spraying, and surgery; indoor
plant care; tree, bush, shrub, and stump removal, except when performed as part of a land
clearing contract as defined in section 297A.68, subdivision 40; and tree trimming for
public utility lines. Services performed under a construction contract for the installation of
shrubbery, plants, sod, trees, bushes, and similar items are not taxable;

(vii) massages, except when provided by a licensed health care facility or
professional or upon written referral from a licensed health care facility or professional for
treatment of illness, injury, or disease; deleted text begin and deleted text end

(viii) the furnishing of lodging, board, and care services for animals in kennels and
other similar arrangements, but excluding veterinary and horse boarding services deleted text begin . deleted text end new text begin ; new text end

new text begin (ix) accounting, financial planning, and brokerage services; and
new text end

new text begin (x) legal services.
new text end

In applying the provisions of this chapter, the terms "tangible personal property"
and "retail sale" include taxable services listed in clause (6), items (i) to (vi) and (viii),
and the provision of these taxable services, unless specifically provided otherwise.
Services performed by an employee for an employer are not taxable. Services performed
by a partnership or association for another partnership or association are not taxable if
one of the entities owns or controls more than 80 percent of the voting power of the
equity interest in the other entity. Services performed between members of an affiliated
group of corporations are not taxable. For purposes of the preceding sentence, "affiliated
group of corporations" means those entities that would be classified as members of an
affiliated group as defined under United States Code, title 26, section 1504, disregarding
the exclusions in section 1504(b).

For purposes of clause (5), "road construction" means construction of (1) public
roads, (2) cartways, and (3) private roads in townships located outside of the seven-county
metropolitan area up to the point of the emergency response location sign.

(h) A sale and a purchase includes the furnishing for a consideration of tangible
personal property or taxable services by the United States or any of its agencies or
instrumentalities, or the state of Minnesota, its agencies, instrumentalities, or political
subdivisions.

(i) A sale and a purchase includes the furnishing for a consideration of
telecommunications services, ancillary services associated with telecommunication
services, cable television services, direct satellite services, and ring tones.
Telecommunication services include, but are not limited to, the following services,
as defined in section 297A.669: air-to-ground radiotelephone service, mobile
telecommunication service, postpaid calling service, prepaid calling service, prepaid
wireless calling service, and private communication services. The services in this
paragraph are taxed to the extent allowed under federal law.

(j) A sale and a purchase includes the furnishing for a consideration of installation if
the installation charges would be subject to the sales tax if the installation were provided
by the seller of the item being installed.

(k) A sale and a purchase includes the rental of a vehicle by a motor vehicle dealer
to a customer when (1) the vehicle is rented by the customer for a consideration, or (2)
the motor vehicle dealer is reimbursed pursuant to a service contract as defined in section
65B.29, subdivision 1, clause (1).

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for sales and purchases made on
or after January 1, 2010.
new text end

Sec. 3.

Minnesota Statutes 2008, section 297A.67, subdivision 8, is amended to read:

Subd. 8.

Clothing.

(a) new text begin Certain new text end clothing is exempt. For purposes of this subdivision,
"clothing" means all human wearing apparel suitable for general use new text begin that has a retail
value of less than $100 new text end .

(b) Clothing includes, but is not limited to, aprons, household and shop; athletic
supporters; baby receiving blankets; bathing suits and caps; beach capes and coats; belts
and suspenders; boots; coats and jackets; costumes; children and adult diapers, including
disposable; ear muffs; footlets; formal wear; garters and garter belts; girdles; gloves and
mittens for general use; hats and caps; hosiery; insoles for shoes; lab coats; neckties;
overshoes; pantyhose; rainwear; rubber pants; sandals; scarves; shoes and shoe laces;
slippers; sneakers; socks and stockings; steel-toed boots; underwear; uniforms, athletic
and nonathletic; and wedding apparel.

(c) Clothing does not include the following:

(1) belt buckles sold separately;

(2) costume masks sold separately;

(3) patches and emblems sold separately;

(4) sewing equipment and supplies, including but not limited to, knitting needles,
patterns, pins, scissors, sewing machines, sewing needles, tape measures, and thimbles;

(5) sewing materials that become part of clothing, including but not limited to,
buttons, fabric, lace, thread, yarn, and zippers;

(6) clothing accessories or equipment;

(7) sports or recreational equipment; and

(8) protective equipment.

Clothing also does not include "fur clothing" as defined in section 297A.61, subdivision 46.

For purposes of this subdivision, "clothing accessories or equipment" means
incidental items worn on the person or in conjunction with clothing. Clothing accessories
and equipment include, but are not limited to, briefcases; cosmetics; hair notions, including
barrettes, hair bows, and hairnets; handbags; handkerchiefs; jewelry; nonprescription
sunglasses; umbrellas; wallets; watches; and wigs and hairpieces. "Sports or recreational
equipment" means items designed for human use and worn in conjunction with an athletic
or recreational activity that are not suitable for general use. Sports and recreational
equipment includes, but is not limited to, ballet and tap shoes; cleated or spiked athletic
shoes; gloves, including, but not limited to, baseball, bowling, boxing, hockey, and golf
gloves; goggles; hand and elbow guards; life preservers and vests; mouth guards; roller
and ice skates; shin guards; shoulder pads; ski boots; waders; and wetsuits and fins.
"Protective equipment" means items for human wear and designed as protection of the
wearer against injury or disease or as protection against damage or injury of other persons
or property but not suitable for general use. Protective equipment includes, but is not
limited to, breathing masks; clean room apparel and equipment; ear and hearing protectors;
face shields; finger guards; hard hats; helmets; paint or dust respirators; protective gloves;
safety glasses and goggles; safety belts; tool belts; and welders gloves and masks.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for sales and purchases made on
or after January 1, 2010.
new text end

Sec. 4.

Minnesota Statutes 2008, section 297A.70, subdivision 2, is amended to read:

Subd. 2.

Sales to government.

(a) All sales, except those listed in paragraph (b),
to the following governments and political subdivisions, or to the listed agencies or
instrumentalities of governments and political subdivisions, are exempt:

(1) the United States and its agencies and instrumentalities;

(2) school districts, the University of Minnesota, state universities, community
colleges, technical colleges, state academies, the Perpich Minnesota Center for Arts
Education, and an instrumentality of a political subdivision that is accredited as an
optional/special function school by the North Central Association of Colleges and Schools;

(3) deleted text begin hospitals and nursing homes owned and operated by political subdivisions of the
state of tangible personal property and taxable services used at or by hospitals and nursing
homes deleted text end new text begin all political subdivisions of the state new text end ;

deleted text begin (4) the Metropolitan Council, for its purchases of vehicles and repair parts to equip
operations provided for in section 473.4051; deleted text end

deleted text begin (5) deleted text end new text begin (4) new text end other states or political subdivisions of other states, if the sale would be
exempt from taxation if it occurred in that state; and

deleted text begin (6) deleted text end new text begin (5) new text end sales to public libraries, public library systems, multicounty, multitype library
systems as defined in section 134.001, county law libraries under chapter 134A, state
agency libraries, the state library under section 480.09, and the Legislative Reference
Library.

(b) This exemption does not apply to the sales of the following products and services:

deleted text begin (1) building, construction, or reconstruction materials purchased by a contractor
or a subcontractor as a part of a lump-sum contract or similar type of contract with a
guaranteed maximum price covering both labor and materials for use in the construction,
alteration, or repair of a building or facility;
deleted text end

deleted text begin (2) construction materials purchased by tax exempt entities or their contractors to
be used in constructing buildings or facilities which will not be used principally by the
tax exempt entities;
deleted text end

deleted text begin (3) deleted text end new text begin (1) new text end the leasing of a motor vehicle as defined in section 297B.01, subdivision 11,
except for leases entered into by the United States or its agencies or instrumentalities; or

deleted text begin (4) deleted text end new text begin (2) new text end lodging as defined under section 297A.61, subdivision 3, paragraph (g), clause
(2), and prepared food, candy, and soft drinks, except for lodging, prepared food, candy,
and soft drinks purchased directly by the United States or its agencies or instrumentalities.

(c) As used in this subdivision, "school districts" means public school entities and
districts of every kind and nature organized under the laws of the state of Minnesota, and
any instrumentality of a school district, as defined in section 471.59.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for sales and purchases made after
June 30, 2009.
new text end