Minnesota Legislature
SF 2206
1st Engrossment - 84th Legislature (2005 - 2006) Posted on 12/15/2009 12:00am
KEY: stricken = removed, old language.
underscored = added, new language.
1.1 A bill for an act 1.2 relating to financing and operation of government in 1.3 this state; providing for allocation of additional 1.4 general fund revenues; modifying income tax rates and 1.5 providing an income tax credit; modifying taxation of 1.6 certain trusts; modifying taxation of certain 1.7 compensation paid to nonresidents; providing for 1.8 taxation of foreign operating corporations; changing 1.9 and providing certain sales and use tax exemptions; 1.10 modifying and authorizing certain local sales taxes; 1.11 modifying certain levies; changing and providing 1.12 property tax exemptions and value exclusions; 1.13 modifying the state general levy and providing for 1.14 deposit of revenues; providing for aids to local 1.15 governments; providing for an international economic 1.16 development zone; conveying certain powers and 1.17 providing tax incentives in the zone; clarifying the 1.18 effect of certain statements of taxpayer rights by 1.19 commissioner of revenue; limiting agricultural 1.20 processing zone property tax exemption in certain 1.21 circumstances; defining term "tax"; extending a 1.22 petrofund fee exemption; extending fiscal disparity 1.23 computation for city of Bloomington; conveying powers 1.24 and authority to and imposing duties and requirements 1.25 on certain local governments and authorities for 1.26 certain purposes; providing tax shelter and compliance 1.27 initiatives; providing for a property tax freeze; 1.28 providing for certain payments to certain cities and 1.29 counties; requiring studies; reducing appropriations; 1.30 appropriating money; amending Minnesota Statutes 2004, 1.31 sections 16A.152, subdivision 2; 123B.53, subdivision 1.32 5; 126C.01, by adding a subdivision; 127A.48, by 1.33 adding a subdivision; 254B.02, subdivision 3; 1.34 270.0603, subdivision 3; 270.0682, subdivision 1; 1.35 272.02, subdivisions 53, 64, by adding subdivisions; 1.36 272.0211, subdivisions 1, 2; 273.11, subdivision 1a; 1.37 275.025, subdivision 1; 275.065, subdivision 3; 1.38 289A.38, by adding a subdivision; 289A.60, by adding a 1.39 subdivision; 290.01, subdivisions 6b, 7b, 19a, 19d; 1.40 290.06, subdivisions 2c, 2d, by adding subdivisions; 1.41 290.17, subdivisions 2, 4; 297A.61, by adding a 1.42 subdivision; 297A.67, subdivisions 6, 7, 8, 29; 1.43 297A.68, subdivision 28, by adding a subdivision; 1.44 297A.71, subdivision 12, by adding a subdivision; 1.45 429.021, subdivision 1; 469.015, subdivision 4; 1.46 469.033, subdivision 6; 469.175, subdivision 2; 2.1 473F.08, subdivision 3a; 477A.011, subdivisions 34, 2.2 36; 477A.0124, subdivision 4; 477A.013, subdivisions 2.3 8, 9; 477A.03, subdivisions 2a, 2b; 645.44, by adding 2.4 a subdivision; Laws 1993, chapter 375, article 9, 2.5 section 46, subdivision 2, as amended; Laws 1994, 2.6 chapter 587, article 9, section 8, subdivision 1; Laws 2.7 2001, First Special Session chapter 5, article 12, 2.8 section 44, the effective date; Laws 2003, chapter 2.9 128, article 1, section 172; 2005 S.F. No. 467, 2.10 section 1, if enacted; proposing coding for new law in 2.11 Minnesota Statutes, chapters 289A; 469; 477A. 2.12 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 2.13 ARTICLE 1 2.14 INDIVIDUAL INCOME TAX 2.15 Section 1. Minnesota Statutes 2004, section 16A.152, 2.16 subdivision 2, is amended to read: 2.17 Subd. 2. [ADDITIONAL REVENUES; PRIORITY.] (a) If on the 2.18 basis of a forecast of general fund revenues and expenditures, 2.19 the commissioner of finance determines that there will be a 2.20 positive unrestricted budgetary general fund balance at the 2.21 close of the biennium, the commissioner of finance must allocate 2.22 money to the following accounts and purposes in priority order: 2.23 (1) the cash flow account established in subdivision 1 2.24 until that account reaches $350,000,000; 2.25 (2) the budget reserve account established in subdivision 2.26 1a until that account reaches $653,000,000; 2.27 (3) the amount necessary to increase the aid payment 2.28 schedule for school district aids and credits payments in 2.29 section 127A.45 to not more than 90 percent;and2.30 (4) the amount necessary to restore all or a portion of the 2.31 net aid reductions under section 127A.441 and to reduce the 2.32 property tax revenue recognition shift under section 123B.75, 2.33 subdivision 5, paragraph (c), and Laws 2003, First Special 2.34 Session chapter 9, article 5, section 34, as amended by Laws 2.35 2003, First Special Session chapter 23, section 20, by the same 2.36 amount; 2.37 (5) the amount necessary to eliminate requirements for 2.38 accelerated payments of June tax liabilities under sections 2.39 287.12; 287.29; 289A.20, subdivision 4; 297F.09, subdivision 10, 2.40 and 297G.09, subdivision 9; 2.41 (6) the amount necessary to provide that interest is 3.1 payable on claims for refunds of the sales tax paid on exempt 3.2 capital equipment from the date the claim is filed with the 3.3 commissioner and on other exempt items as provided in Minnesota 3.4 Statutes 2002, section 297A.75, subdivision 4; and 3.5 (7) the amount necessary to make payments of local 3.6 government aids and taconite aid reimbursements in four 3.7 installments in each of the months of March, July, September, 3.8 and November as provided in Minnesota Statutes 1980, section 3.9 477A.01. 3.10 (b) The amounts necessary to meet the requirements of this 3.11 section are appropriated from the general fund within two weeks 3.12 after the forecast is released or, in the case of transfers 3.13 under paragraph (a), clauses (3) and (4), as necessary to meet 3.14 the appropriations schedules otherwise established in statute. 3.15 (c) To the extent that a positive unrestricted budgetary 3.16 general fund balance is projected, appropriations under this 3.17 section must be made before any transfer is made under section 3.18 16A.1522. 3.19 (d) The commissioner of finance shall certify the total 3.20 dollar amount of the reductions under paragraph (a), clauses (3) 3.21 and (4), to the commissioner of education. The commissioner of 3.22 education shall increase the aid payment percentage and reduce 3.23 the property tax shift percentage by these amounts and apply 3.24 those reductions to the current fiscal year and thereafter. 3.25 Sec. 2. Minnesota Statutes 2004, section 290.01, 3.26 subdivision 7b, is amended to read: 3.27 Subd. 7b. [RESIDENT TRUST.] (a) Resident trust means a 3.28 trust, except a grantor type trust, which either (1) was created 3.29 by a will of a decedent who at death was domiciled in this state 3.30 or (2) is an irrevocable trust, the grantor of which was 3.31 domiciled in this state at the time the trust became 3.32 irrevocable. For the purpose of this subdivision, a trust is 3.33 considered irrevocable to the extent the grantor is not treated 3.34 as the owner thereof under sections 671 to 678 of the Internal 3.35 Revenue Code. The term "grantor type trust" means a trust where 3.36 the income or gains of the trust are taxable to the grantor or 4.1 others treated as substantial owners under sections 671 to 678 4.2 of the Internal Revenue Code. 4.3 (b)(1) A trust, other than a grantor type trust, that 4.4 became irrevocable before January 1, 1996, or that was 4.5 administered in Minnesota before January 1, 1996, is a resident 4.6 trust only if two or more of the following conditions are 4.7 satisfied: 4.8 (i) a majority of the discretionary decisions of the 4.9 trustees relative to the investment of trust assets are made in 4.10 Minnesota; 4.11 (ii) a majority of the discretionary decisions of the 4.12 trustees relative to the distributions of trust income and 4.13 principal are made in Minnesota; 4.14 (iii) the official books and records of the trust, 4.15 consisting of the original minutes of trustee meetings and the 4.16 original trust instruments, are located in Minnesota. 4.17 (2) For purposes of this paragraph, if the trustees 4.18 delegate decisions and actions to an agent or custodian, the 4.19 actions and decisions of the agent or custodian must not be 4.20 taken into account in determining whether the trust is 4.21 administered in Minnesota, if: 4.22 (i) the delegation was permitted under the trust agreement; 4.23 (ii) the trustees retain the power to revoke the delegation 4.24 on reasonable notice; and 4.25 (iii) the trustees monitor and evaluate the performance of 4.26 the agent or custodian on a regular basis as is reasonably 4.27 determined by the trustees. 4.28 [EFFECTIVE DATE.] This section is effective the day 4.29 following final enactment. 4.30 Sec. 3. Minnesota Statutes 2004, section 290.01, 4.31 subdivision 19a, as amended by 2005 S.F. No. 1683, article 2, 4.32 section 3, if enacted, is amended to read: 4.33 Subd. 19a. [ADDITIONS TO FEDERAL TAXABLE INCOME.] For 4.34 individuals, estates, and trusts, there shall be added to 4.35 federal taxable income: 4.36 (1)(i) interest income on obligations of any state other 5.1 than Minnesota or a political or governmental subdivision, 5.2 municipality, or governmental agency or instrumentality of any 5.3 state other than Minnesota exempt from federal income taxes 5.4 under the Internal Revenue Code or any other federal statute; 5.5 and 5.6 (ii) exempt-interest dividends as defined in section 5.7 852(b)(5) of the Internal Revenue Code, except the portion of 5.8 the exempt-interest dividends derived from interest income on 5.9 obligations of the state of Minnesota or its political or 5.10 governmental subdivisions, municipalities, governmental agencies 5.11 or instrumentalities, but only if the portion of the 5.12 exempt-interest dividends from such Minnesota sources paid to 5.13 all shareholders represents 95 percent or more of the 5.14 exempt-interest dividends that are paid by the regulated 5.15 investment company as defined in section 851(a) of the Internal 5.16 Revenue Code, or the fund of the regulated investment company as 5.17 defined in section 851(g) of the Internal Revenue Code, making 5.18 the payment; and 5.19 (iii) for the purposes of items (i) and (ii), interest on 5.20 obligations of an Indian tribal government described in section 5.21 7871(c) of the Internal Revenue Code shall be treated as 5.22 interest income on obligations of the state in which the tribe 5.23 is located; 5.24 (2) the amount of income or sales and use taxes paid or 5.25 accrued within the taxable year under this chapter and income or 5.26 sales and use taxes paid to any other state or to any province 5.27 or territory of Canada, to the extent allowed as a deduction 5.28 under section 63(d) of the Internal Revenue Code, but the 5.29 addition may not be more than the amount by which the itemized 5.30 deductions as allowed under section 63(d) of the Internal 5.31 Revenue Code exceeds the amount of the standard deduction as 5.32 defined in section 63(c) of the Internal Revenue Code of 1986, 5.33 as amended through June 15, 2003. For the purpose of this 5.34 paragraph, the disallowance of itemized deductions under section 5.35 68 of the Internal Revenue Code of 1986, income or sales and use 5.36 tax is the last itemized deduction disallowed; 6.1 (3) the capital gain amount of a lump sum distribution to 6.2 which the special tax under section 1122(h)(3)(B)(ii) of the Tax 6.3 Reform Act of 1986, Public Law 99-514, applies; 6.4 (4) the amount of income taxes paid or accrued within the 6.5 taxable year under this chapter and income taxes paid to any 6.6 other state or any province or territory of Canada, to the 6.7 extent allowed as a deduction in determining federal adjusted 6.8 gross income. For the purpose of this paragraph, income taxes 6.9 do not include the taxes imposed by sections 290.0922, 6.10 subdivision 1, paragraph (b), 290.9727, 290.9728, and 290.9729; 6.11 (5) the amount of expense, interest, or taxes disallowed 6.12 pursuant to section 290.10; 6.13 (6) the amount of a partner's pro rata share of net income 6.14 which does not flow through to the partner because the 6.15 partnership elected to pay the tax on the income under section 6.16 6242(a)(2) of the Internal Revenue Code; and 6.17 (7) 80 percent of the depreciation deduction allowed under 6.18 section 168(k) of the Internal Revenue Code. For purposes of 6.19 this clause, if the taxpayer has an activity that in the taxable 6.20 year generates a deduction for depreciation under section 168(k) 6.21 and the activity generates a loss for the taxable year that the 6.22 taxpayer is not allowed to claim for the taxable year, "the 6.23 depreciation allowed under section 168(k)" for the taxable year 6.24 is limited to excess of the depreciation claimed by the activity 6.25 under section 168(k) over the amount of the loss from the 6.26 activity that is not allowed in the taxable year. In succeeding 6.27 taxable years when the losses not allowed in the taxable year 6.28 are allowed, the depreciation under section 168(k) is allowed; 6.29 (8) 80 percent of the amount by which the deduction allowed 6.30 by section 179 of the Internal Revenue Code exceeds the 6.31 deduction allowable by section 179 of the Internal Revenue Code 6.32 of 1986, as amended through December 31, 2003; 6.33 (9) to the extent deducted in computing federal taxable 6.34 income, the amount of the deduction allowable under section 199 6.35 of the Internal Revenue Code; 6.36 (10)to the extent deducted in computing federal taxable7.1income, the amount by which the standard deduction allowed under7.2section 63(c) of the Internal Revenue Code exceeds the standard7.3deduction allowable under section 63(c) of the Internal Revenue7.4Code of 1986, as amended through December 31, 2003;7.5(11)the exclusion allowed under section 139A of the 7.6 Internal Revenue Code for federal subsidies for prescription 7.7 drug plans; and 7.8(12)(11) the deduction or exclusion allowed under section 7.9 223 of the Internal Revenue Code for contributions to health 7.10 savings accounts. 7.11 [EFFECTIVE DATE.] This section is effective for tax years 7.12 beginning after December 31, 2004. 7.13 Sec. 4. Minnesota Statutes 2004, section 290.06, 7.14 subdivision 2c, is amended to read: 7.15 Subd. 2c. [SCHEDULES OF RATES FOR INDIVIDUALS, ESTATES, 7.16 AND TRUSTS.] (a) The income taxes imposed by this chapter upon 7.17 married individuals filing joint returns and surviving spouses 7.18 as defined in section 2(a) of the Internal Revenue Code must be 7.19 computed by applying to their taxable net income the following 7.20 schedule of rates: 7.21 (1) On the first$25,680$29,070, 5.35 percent; 7.22 (2) On all over$25,680$29,070, but not 7.23 over$102,030$115,510, 7.05 percent; 7.24 (3) On all over$102,030$115,510, but not over $250,000, 7.25 7.85 percent; and 7.26 (4) On all over $250,000, 10.65 percent for taxable years 7.27 beginning after December 31, 2004, and before the fourth bracket 7.28 termination year as defined in paragraph (f). For the fourth 7.29 bracket termination year and subsequent taxable years, the 7.30 income included in this clause will be subject to the rate in 7.31 clause (3). 7.32 Married individuals filing separate returns, estates, and 7.33 trusts must compute their income tax by applying the above rates 7.34 to their taxable income, except that the income brackets will be 7.35 one-half of the above amounts. 7.36 (b) The income taxes imposed by this chapter upon unmarried 8.1 individuals must be computed by applying to taxable net income 8.2 the following schedule of rates: 8.3 (1) On the first$17,570$19,890, 5.35 percent; 8.4 (2) On all over$17,570$19,890, but not 8.5 over$57,710$65,330, 7.05 percent; 8.6 (3) On all over$57,710$65,330, but not over $166,665, 8.7 7.85 percent; and 8.8 (4) On all over $166,665, 10.65 percent for taxable years 8.9 beginning after December 31, 2004, and before the fourth bracket 8.10 termination year as defined in paragraph (f). For the fourth 8.11 bracket termination year and subsequent taxable years, the 8.12 income included in this clause will be subject to the rate in 8.13 clause (3). 8.14 (c) The income taxes imposed by this chapter upon unmarried 8.15 individuals qualifying as a head of household as defined in 8.16 section 2(b) of the Internal Revenue Code must be computed by 8.17 applying to taxable net income the following schedule of rates: 8.18 (1) On the first$21,630$24,490, 5.35 percent; 8.19 (2) On all over$21,630$24,490, but not 8.20 over$86,910$98,390, 7.05 percent; 8.21 (3) On all over$86,910$98,390, but not over $208,330, 8.22 7.85 percent; and 8.23 (4) On all over $208,330, 10.65 percent for taxable years 8.24 beginning after December 31, 2004, and before the fourth bracket 8.25 termination year as defined in paragraph (f). For the fourth 8.26 bracket termination year and subsequent taxable years, the 8.27 income included in this clause will be subject to the rate in 8.28 clause (3). 8.29 (d) In lieu of a tax computed according to the rates set 8.30 forth in this subdivision, the tax of any individual taxpayer 8.31 whose taxable net income for the taxable year is less than an 8.32 amount determined by the commissioner must be computed in 8.33 accordance with tables prepared and issued by the commissioner 8.34 of revenue based on income brackets of not more than $100. The 8.35 amount of tax for each bracket shall be computed at the rates 8.36 set forth in this subdivision, provided that the commissioner 9.1 may disregard a fractional part of a dollar unless it amounts to 9.2 50 cents or more, in which case it may be increased to $1. 9.3 (e) An individual who is not a Minnesota resident for the 9.4 entire year must compute the individual's Minnesota income tax 9.5 as provided in this subdivision. After the application of the 9.6 nonrefundable credits provided in this chapter, the tax 9.7 liability must then be multiplied by a fraction in which: 9.8 (1) the numerator is the individual's Minnesota source 9.9 federal adjusted gross income as defined in section 62 of the 9.10 Internal Revenue Code and increased by the additions required 9.11 under section 290.01, subdivision 19a, clauses (1), (5), and 9.12 (6), and reduced by the subtraction under section 290.01, 9.13 subdivision 19b, clause (11), and the Minnesota assignable 9.14 portion of the subtraction for United States government interest 9.15 under section 290.01, subdivision 19b, clause (1), after 9.16 applying the allocation and assignability provisions of section 9.17 290.081, clause (a), or 290.17; and 9.18 (2) the denominator is the individual's federal adjusted 9.19 gross income as defined in section 62 of the Internal Revenue 9.20 Code of 1986, increased by the amounts specified in section 9.21 290.01, subdivision 19a, clauses (1), (5), and (6), and reduced 9.22 by the amounts specified in section 290.01, subdivision 19b, 9.23 clauses (1) and (11). 9.24 (f) In this subdivision, the fourth bracket termination 9.25 year is the first taxable year beginning after the commissioner 9.26 of finance has determined that there will be a positive 9.27 unrestricted budgeting general fund balance at the close of the 9.28 biennium that is sufficient to complete the allocations required 9.29 under section 16A.152, subdivision 2. 9.30 [EFFECTIVE DATE.] This section is effective for taxable 9.31 years beginning after December 31, 2004. 9.32 Sec. 5. Minnesota Statutes 2004, section 290.06, 9.33 subdivision 2d, is amended to read: 9.34 Subd. 2d. [INFLATION ADJUSTMENT OF BRACKETS.] (a) For 9.35 taxable years beginning after December 31,20002005, the 9.36 minimum and maximum dollar amounts for each rate bracket for 10.1 which a tax is imposed in subdivision 2c shall be adjusted for 10.2 inflation by the percentage determined under paragraph (b). For 10.3 the purpose of making the adjustment as provided in this 10.4 subdivision all of the rate brackets provided in subdivision 2c 10.5 shall be the rate brackets as they existed for taxable years 10.6 beginning after December 31,19992004, and before January 10.7 1,20012006. The rate applicable to any rate bracket must not 10.8 be changed. The dollar amounts setting forth the tax shall be 10.9 adjusted to reflect the changes in the rate brackets. The rate 10.10 brackets as adjusted must be rounded to the nearest $10 amount. 10.11 If the rate bracket ends in $5, it must be rounded up to the 10.12 nearest $10 amount. 10.13 (b) The commissioner shall adjust the rate brackets and by 10.14 the percentage determined pursuant to the provisions of section 10.15 1(f) of the Internal Revenue Code, except that in section 10.16 1(f)(3)(B) the word "19992004" shall be substituted for the 10.17 word "1992." For20012006, the commissioner shall then 10.18 determine the percent change from the 12 months ending on August 10.19 31,19992004, to the 12 months ending on August 31,20002005, 10.20 and in each subsequent year, from the 12 months ending on August 10.21 31,19992004, to the 12 months ending on August 31 of the year 10.22 preceding the taxable year. The determination of the 10.23 commissioner pursuant to this subdivision shall not be 10.24 considered a "rule" and shall not be subject to the 10.25 Administrative Procedure Act contained in chapter 14. 10.26 No later than December 15 of each year, the commissioner 10.27 shall announce the specific percentage that will be used to 10.28 adjust the tax rate brackets. 10.29 Sec. 6. Minnesota Statutes 2004, section 290.06, is 10.30 amended by adding a subdivision to read: 10.31 Subd. 32. [DAIRY INVESTMENT CREDIT.] (a) A dairy 10.32 investment credit is allowed against the tax computed under this 10.33 chapter equal to the credit amount in the table, based on the 10.34 amount paid or incurred by the taxpayer in the tax year and 10.35 certified by the commissioner of agriculture under paragraph 10.36 (f), for qualifying expenditures: 11.1 Amount of 11.2 qualifying expenditures Credit amount 11.3 up to $500,000 ten percent of 11.4 qualifying expenditures 11.5 over $500,000, but not $50,000, plus nine percent 11.6 more than $600,000 of the amount of qualified 11.7 expenditures in excess of 11.8 $500,000 11.9 over $600,000, but not $59,000, plus seven percent 11.10 more than $700,000 of the amount of qualified 11.11 expenditures in excess of 11.12 $600,000 11.13 over $700,000, but not $66,000, plus five percent 11.14 more than $800,000 of the amount of qualified 11.15 expenditures in excess of 11.16 $700,000 11.17 over $800,000, but not $71,000, plus three percent 11.18 more than $900,000 of the amount of qualified 11.19 expenditures in excess of 11.20 $800,000 11.21 over $900,000, but not $74,000, plus one percent 11.22 more than $1,000,000 of the amount of qualified 11.23 expenditures in excess of 11.24 $900,000 11.25 $1,000,000 or more $75,000 11.26 (b) "Qualifying expenditures," for purposes of this 11.27 subdivision, means the expenses incurred for dairy animals for 11.28 the construction or improvement of buildings or facilities, or 11.29 the acquisition of equipment, for dairy animal housing, 11.30 confinement, animal feeding, milk production, and waste 11.31 management, including, but not limited to, the following: 11.32 (1) freestall barns; 11.33 (2) fences; 11.34 (3) watering facilities; 11.35 (4) feed storage and handling equipment; 11.36 (5) milking parlors; 11.37 (6) robotic equipment; 11.38 (7) scales; 11.39 (8) milk storage and cooling facilities; 11.40 (9) bulk tanks; 11.41 (10) manure handling equipment and storage facilities; 11.42 (11) digesters; 11.43 (12) equipment used to produce energy; and 11.44 (13) on-farm processing. 12.1 Qualifying expenditures only include amounts that are 12.2 capitalized and deducted under either section 167 or 179 of the 12.3 Internal Revenue Code in computing federal taxable income. 12.4 (c) The credit is limited to the liability for tax, as 12.5 computed under this section for the taxable year for which the 12.6 credit certificate is issued. If the amount of the credit 12.7 determined under this section for any taxable year exceeds this 12.8 limitation, the excess is a dairy investment credit carryover to 12.9 each of the 15 succeeding taxable years. The entire amount of 12.10 the excess unused credit for the taxable year is carried first 12.11 to the earliest of the taxable years to which the credit may be 12.12 carried and then to each successive year to which the credit may 12.13 be carried. The amount of the unused credit which may be added 12.14 under this paragraph shall not exceed the taxpayer's liability 12.15 for tax less the dairy investment credit for the taxable year. 12.16 (d) For a partnership or S corporation, the maximum amount 12.17 of the credit applies to the entity, not the individual partner 12.18 or shareholder. 12.19 (e) To be eligible for the dairy investment credit in this 12.20 subdivision, a taxpayer must apply to the commissioner of 12.21 agriculture for a tax credit certificate. The application must 12.22 be made on forms prescribed by the commissioner of agriculture 12.23 and must include a statement of the qualifying expenditures by 12.24 the taxpayer. 12.25 (f) The commissioner of agriculture shall certify credits 12.26 in the order the forms required under paragraph (e) are received 12.27 and approved by the commissioner of agriculture, until the 12.28 maximum credit amount for the taxable year has been reached. 12.29 The maximum credit amount is $900,000 for tax years beginning 12.30 after December 31, 2004, and before January 1, 2006; $2,000,000 12.31 for tax years beginning after December 31, 2005, and before 12.32 January 1, 2007; $3,500,000 for tax years beginning after 12.33 December 31, 2006, and before January 1, 2008; and $4,000,000 12.34 per year for tax years beginning after December 31, 2007. 12.35 Any eligible applications for which certificates are not 12.36 issued in a tax year because the commissioner of agriculture has 13.1 issued certificates totaling the maximum credit amount for that 13.2 tax year remain eligible for a credit certificate in subsequent 13.3 tax years, in the order in which the forms were received by the 13.4 commissioner of agriculture. 13.5 [EFFECTIVE DATE.] This section is effective for assets 13.6 placed in service in taxable years beginning after December 31, 13.7 2004. 13.8 Sec. 7. Minnesota Statutes 2004, section 290.17, 13.9 subdivision 2, is amended to read: 13.10 Subd. 2. [INCOME NOT DERIVED FROM CONDUCT OF A TRADE OR 13.11 BUSINESS.] The income of a taxpayer subject to the allocation 13.12 rules that is not derived from the conduct of a trade or 13.13 business must be assigned in accordance with paragraphs (a) to 13.14 (f): 13.15 (a)(1) Subject to paragraphs (a)(2),and (a)(3),and13.16(a)(4),income from wages as defined in section 3401(a) and (f) 13.17 of the Internal Revenue Code is assigned to this state if, and 13.18 to the extent that, the work of the employee is performed within 13.19 it; all other income from such sources is treated as income from 13.20 sources without this state. 13.21 Severance pay shall be considered income from labor or 13.22 personal or professional services. 13.23 (2) In the case of an individual who is a nonresident of 13.24 Minnesota and who is an athlete or entertainer, income from 13.25 compensation for labor or personal services performed within 13.26 this state shall be determined in the following manner: 13.27 (i) The amount of income to be assigned to Minnesota for an 13.28 individual who is a nonresident salaried athletic team employee 13.29 shall be determined by using a fraction in which the denominator 13.30 contains the total number of days in which the individual is 13.31 under a duty to perform for the employer, and the numerator is 13.32 the total number of those days spent in Minnesota. For purposes 13.33 of this paragraph, off-season training activities, unless 13.34 conducted at the team's facilities as part of a team imposed 13.35 program, are not included in the total number of duty days. 13.36 Bonuses earned as a result of play during the regular season or 14.1 for participation in championship, play-off, or all-star games 14.2 must be allocated under the formula. Signing bonuses are not 14.3 subject to allocation under the formula if they are not 14.4 conditional on playing any games for the team, are payable 14.5 separately from any other compensation, and are nonrefundable; 14.6 and 14.7 (ii) The amount of income to be assigned to Minnesota for 14.8 an individual who is a nonresident, and who is an athlete or 14.9 entertainer not listed in clause (i), for that person's athletic 14.10 or entertainment performance in Minnesota shall be determined by 14.11 assigning to this state all income from performances or athletic 14.12 contests in this state. 14.13 (3) For purposes of this section, amounts received by a 14.14 nonresident as "retirement income" as defined in section (b)(1) 14.15 of the State Income Taxation of Pension Income Act, Public Law 14.16 104-95, are not considered income derived from carrying on a 14.17 trade or business or from wages or other compensation for work 14.18 an employee performed in Minnesota, and are not taxable under 14.19 this chapter. 14.20(4) Wages, otherwise assigned to this state under clause14.21(1) and not qualifying under clause (3), are not taxable under14.22this chapter if the following conditions are met:14.23(i) the recipient was not a resident of this state for any14.24part of the taxable year in which the wages were received; and14.25(ii) the wages are for work performed while the recipient14.26was a resident of this state.14.27 (b) Income or gains from tangible property located in this 14.28 state that is not employed in the business of the recipient of 14.29 the income or gains must be assigned to this state. 14.30 (c) Income or gains from intangible personal property not 14.31 employed in the business of the recipient of the income or gains 14.32 must be assigned to this state if the recipient of the income or 14.33 gains is a resident of this state or is a resident trust or 14.34 estate. 14.35 Gain on the sale of a partnership interest is allocable to 14.36 this state in the ratio of the original cost of partnership 15.1 tangible property in this state to the original cost of 15.2 partnership tangible property everywhere, determined at the time 15.3 of the sale. If more than 50 percent of the value of the 15.4 partnership's assets consists of intangibles, gain or loss from 15.5 the sale of the partnership interest is allocated to this state 15.6 in accordance with the sales factor of the partnership for its 15.7 first full tax period immediately preceding the tax period of 15.8 the partnership during which the partnership interest was sold. 15.9 Gain on the sale of goodwill or income from a covenant not 15.10 to compete that is connected with a business operating all or 15.11 partially in Minnesota is allocated to this state to the extent 15.12 that the income from the business in the year preceding the year 15.13 of sale was assignable to Minnesota under subdivision 3. 15.14 When an employer pays an employee for a covenant not to 15.15 compete, the income allocated to this state is in the ratio of 15.16 the employee's service in Minnesota in the calendar year 15.17 preceding leaving the employment of the employer over the total 15.18 services performed by the employee for the employer in that year. 15.19 (d) Income from winnings on a bet made by an individual 15.20 while in Minnesota is assigned to this state. In this 15.21 paragraph, "bet" has the meaning given in section 609.75, 15.22 subdivision 2, as limited by section 609.75, subdivision 3, 15.23 clauses (1), (2), and (3). 15.24 (e) All items of gross income not covered in paragraphs (a) 15.25 to (d) and not part of the taxpayer's income from a trade or 15.26 business shall be assigned to the taxpayer's domicile. 15.27 (f) For the purposes of this section, working as an 15.28 employee shall not be considered to be conducting a trade or 15.29 business. 15.30 [EFFECTIVE DATE.] This section is effective for tax years 15.31 beginning after December 31, 2005. 15.32 ARTICLE 2 15.33 CORPORATE FRANCHISE TAX 15.34 Section 1. Minnesota Statutes 2004, section 290.01, 15.35 subdivision 6b, is amended to read: 15.36 Subd. 6b. [FOREIGN OPERATING CORPORATION.] The term 16.1 "foreign operating corporation," when applied to a corporation, 16.2 means a domestic corporation with the following characteristics: 16.3 (1) it is part of a unitary business at least one member of 16.4 which is taxable in this state; 16.5 (2) it is not a foreign sales corporation under section 922 16.6 of the Internal Revenue Code, as amended through December 31, 16.7 1999, for the taxable year; and 16.8 (3) either (i) the average of the percentages of its 16.9 property and payrolls assigned to locationsinsideoutside the 16.10 United Statesand the District of Columbia, excluding the16.11commonwealth of Puerto Rico and possessions of the United16.12States,as determined under section 290.191 or 290.20, is2080 16.13 percent orlessgreater and it has at least $2,000,000 of 16.14 property and $1,000,000 of payroll as determined under section 16.15 290.191 or 290.20; or (ii) it has in effect a valid election 16.16 under section 936 of the Internal Revenue Code. 16.17 [EFFECTIVE DATE.] This section is effective for tax years 16.18 beginning after December 31, 2004. 16.19 Sec. 2. Minnesota Statutes 2004, section 290.01, 16.20 subdivision 19d, is amended to read: 16.21 Subd. 19d. [CORPORATIONS; MODIFICATIONS DECREASING FEDERAL 16.22 TAXABLE INCOME.] For corporations, there shall be subtracted 16.23 from federal taxable income after the increases provided in 16.24 subdivision 19c: 16.25 (1) the amount of foreign dividend gross-up added to gross 16.26 income for federal income tax purposes under section 78 of the 16.27 Internal Revenue Code; 16.28 (2) the amount of salary expense not allowed for federal 16.29 income tax purposes due to claiming the federal jobs credit 16.30 under section 51 of the Internal Revenue Code; 16.31 (3) any dividend (not including any distribution in 16.32 liquidation) paid within the taxable year by a national or state 16.33 bank to the United States, or to any instrumentality of the 16.34 United States exempt from federal income taxes, on the preferred 16.35 stock of the bank owned by the United States or the 16.36 instrumentality; 17.1 (4) amounts disallowed for intangible drilling costs due to 17.2 differences between this chapter and the Internal Revenue Code 17.3 in taxable years beginning before January 1, 1987, as follows: 17.4 (i) to the extent the disallowed costs are represented by 17.5 physical property, an amount equal to the allowance for 17.6 depreciation under Minnesota Statutes 1986, section 290.09, 17.7 subdivision 7, subject to the modifications contained in 17.8 subdivision 19e; and 17.9 (ii) to the extent the disallowed costs are not represented 17.10 by physical property, an amount equal to the allowance for cost 17.11 depletion under Minnesota Statutes 1986, section 290.09, 17.12 subdivision 8; 17.13 (5) the deduction for capital losses pursuant to sections 17.14 1211 and 1212 of the Internal Revenue Code, except that: 17.15 (i) for capital losses incurred in taxable years beginning 17.16 after December 31, 1986, capital loss carrybacks shall not be 17.17 allowed; 17.18 (ii) for capital losses incurred in taxable years beginning 17.19 after December 31, 1986, a capital loss carryover to each of the 17.20 15 taxable years succeeding the loss year shall be allowed; 17.21 (iii) for capital losses incurred in taxable years 17.22 beginning before January 1, 1987, a capital loss carryback to 17.23 each of the three taxable years preceding the loss year, subject 17.24 to the provisions of Minnesota Statutes 1986, section 290.16, 17.25 shall be allowed; and 17.26 (iv) for capital losses incurred in taxable years beginning 17.27 before January 1, 1987, a capital loss carryover to each of the 17.28 five taxable years succeeding the loss year to the extent such 17.29 loss was not used in a prior taxable year and subject to the 17.30 provisions of Minnesota Statutes 1986, section 290.16, shall be 17.31 allowed; 17.32 (6) an amount for interest and expenses relating to income 17.33 not taxable for federal income tax purposes, if (i) the income 17.34 is taxable under this chapter and (ii) the interest and expenses 17.35 were disallowed as deductions under the provisions of section 17.36 171(a)(2), 265 or 291 of the Internal Revenue Code in computing 18.1 federal taxable income; 18.2 (7) in the case of mines, oil and gas wells, other natural 18.3 deposits, and timber for which percentage depletion was 18.4 disallowed pursuant to subdivision 19c, clause (11), a 18.5 reasonable allowance for depletion based on actual cost. In the 18.6 case of leases the deduction must be apportioned between the 18.7 lessor and lessee in accordance with rules prescribed by the 18.8 commissioner. In the case of property held in trust, the 18.9 allowable deduction must be apportioned between the income 18.10 beneficiaries and the trustee in accordance with the pertinent 18.11 provisions of the trust, or if there is no provision in the 18.12 instrument, on the basis of the trust's income allocable to 18.13 each; 18.14 (8) for certified pollution control facilities placed in 18.15 service in a taxable year beginning before December 31, 1986, 18.16 and for which amortization deductions were elected under section 18.17 169 of the Internal Revenue Code of 1954, as amended through 18.18 December 31, 1985, an amount equal to the allowance for 18.19 depreciation under Minnesota Statutes 1986, section 290.09, 18.20 subdivision 7; 18.21 (9) amounts included in federal taxable income that are due 18.22 to refunds of income, excise, or franchise taxes based on net 18.23 income or related minimum taxes paid by the corporation to 18.24 Minnesota, another state, a political subdivision of another 18.25 state, the District of Columbia, or a foreign country or 18.26 possession of the United States to the extent that the taxes 18.27 were added to federal taxable income under section 290.01, 18.28 subdivision 19c, clause (1), in a prior taxable year; 18.29 (10)80 percent of royalties, fees, or other like income18.30accrued or received from a foreign operating corporation or a18.31foreign corporation which is part of the same unitary business18.32as the receiving corporation;18.33(11)income or gains from the business of mining as defined 18.34 in section 290.05, subdivision 1, clause (a), that are not 18.35 subject to Minnesota franchise tax; 18.36(12)(11) the amount of handicap access expenditures in the 19.1 taxable year which are not allowed to be deducted or capitalized 19.2 under section 44(d)(7) of the Internal Revenue Code; 19.3(13)(12) the amount of qualified research expenses not 19.4 allowed for federal income tax purposes under section 280C(c) of 19.5 the Internal Revenue Code, but only to the extent that the 19.6 amount exceeds the amount of the credit allowed under section 19.7 290.068; 19.8(14)(13) the amount of salary expenses not allowed for 19.9 federal income tax purposes due to claiming the Indian 19.10 employment credit under section 45A(a) of the Internal Revenue 19.11 Code; 19.12(15)(14) the amount of any refund of environmental taxes 19.13 paid under section 59A of the Internal Revenue Code; 19.14(16)(15) for taxable years beginning before January 1, 19.15 2008, the amount of the federal small ethanol producer credit 19.16 allowed under section 40(a)(3) of the Internal Revenue Code 19.17 which is included in gross income under section 87 of the 19.18 Internal Revenue Code; 19.19(17)(16) for a corporation whose foreign sales 19.20 corporation, as defined in section 922 of the Internal Revenue 19.21 Code, constituted a foreign operating corporation during any 19.22 taxable year ending before January 1, 1995, and a return was 19.23 filed by August 15, 1996, claiming the deduction under section 19.24 290.21, subdivision 4, for income received from the foreign 19.25 operating corporation, an amount equal to 1.23 multiplied by the 19.26 amount of income excluded under section 114 of the Internal 19.27 Revenue Code, provided the income is not income of a foreign 19.28 operating company; 19.29(18)(17) any decrease in subpart F income, as defined in 19.30 section 952(a) of the Internal Revenue Code, for the taxable 19.31 year when subpart F income is calculated without regard to the 19.32 provisions of section 614 of Public Law 107-147; and 19.33(19)(18) in each of the five tax years immediately 19.34 following the tax year in which an addition is required under 19.35 subdivision 19c, clause (16), an amount equal to one-fifth of 19.36 the delayed depreciation. For purposes of this clause, "delayed 20.1 depreciation" means the amount of the addition made by the 20.2 taxpayer under subdivision 19c, clause (16). The resulting 20.3 delayed depreciation cannot be less than zero. 20.4 [EFFECTIVE DATE.] This section is effective for tax years 20.5 beginning after December 31, 2004. 20.6 Sec. 3. Minnesota Statutes 2004, section 290.17, 20.7 subdivision 4, is amended to read: 20.8 Subd. 4. [UNITARY BUSINESS PRINCIPLE.] (a) If a trade or 20.9 business conducted wholly within this state or partly within and 20.10 partly without this state is part of a unitary business, the 20.11 entire income of the unitary business is subject to 20.12 apportionment pursuant to section 290.191. Notwithstanding 20.13 subdivision 2, paragraph (c), none of the income of a unitary 20.14 business is considered to be derived from any particular source 20.15 and none may be allocated to a particular place except as 20.16 provided by the applicable apportionment formula. The 20.17 provisions of this subdivision do not apply to business income 20.18 subject to subdivision 5, income of an insurance company, or 20.19 income of an investment company determined under section 290.36. 20.20 (b) The term "unitary business" means business activities 20.21 or operations which result in a flow of value between them. The 20.22 term may be applied within a single legal entity or between 20.23 multiple entities and without regard to whether each entity is a 20.24 sole proprietorship, a corporation, a partnership or a trust. 20.25 (c) Unity is presumed whenever there is unity of ownership, 20.26 operation, and use, evidenced by centralized management or 20.27 executive force, centralized purchasing, advertising, 20.28 accounting, or other controlled interaction, but the absence of 20.29 these centralized activities will not necessarily evidence a 20.30 nonunitary business. Unity is also presumed when business 20.31 activities or operations are of mutual benefit, dependent upon 20.32 or contributory to one another, either individually or as a 20.33 group. 20.34 (d) Where a business operation conducted in Minnesota is 20.35 owned by a business entity that carries on business activity 20.36 outside the state different in kind from that conducted within 21.1 this state, and the other business is conducted entirely outside 21.2 the state, it is presumed that the two business operations are 21.3 unitary in nature, interrelated, connected, and interdependent 21.4 unless it can be shown to the contrary. 21.5 (e) Unity of ownership is not deemed to exist when a 21.6 corporation is involved unless that corporation is a member of a 21.7 group of two or more business entities and more than 50 percent 21.8 of the voting stock of each member of the group is directly or 21.9 indirectly owned by a common owner or by common owners, either 21.10 corporate or noncorporate, or by one or more of the member 21.11 corporations of the group. For this purpose, the term "voting 21.12 stock" shall include membership interests of mutual insurance 21.13 holding companies formed under section 60A.077. 21.14 (f) The net income and apportionment factors under section 21.15 290.191 or 290.20 of foreign corporations and other foreign 21.16 entities which are part of a unitary business shall not be 21.17 included in the net income or the apportionment factors of the 21.18 unitary business. A foreign corporation or other foreign entity 21.19 which is required to file a return under this chapter shall file 21.20 on a separate return basis. The net income and apportionment 21.21 factors under section 290.191 or 290.20 of foreign operating 21.22 corporations shall not be included in the net income or the 21.23 apportionment factors of the unitary business except as provided 21.24 in paragraph (g). 21.25 (g) The adjusted net income of a foreign operating 21.26 corporation shall be deemed to be paid as a dividend on the last 21.27 day of its taxable year to each shareholder thereof, in 21.28 proportion to each shareholder's ownership, with which such 21.29 corporation is engaged in a unitary business. Such deemed 21.30 dividend shall be treated as a dividend under section 290.21, 21.31 subdivision 4. The dividends-received deduction must not be 21.32 allowed on dividends, interest, royalties, or capital gains 21.33 received by the foreign operating corporation included in the 21.34 deemed dividend. 21.35 Dividends actually paid by a foreign operating corporation 21.36 to a corporate shareholder which is a member of the same unitary 22.1 business as the foreign operating corporation shall be 22.2 eliminated from the net income of the unitary business in 22.3 preparing a combined report for the unitary business. The 22.4 adjusted net income of a foreign operating corporation shall be 22.5 its net income adjusted as follows: 22.6 (1) any taxes paid or accrued to a foreign country, the 22.7 commonwealth of Puerto Rico, or a United States possession or 22.8 political subdivision of any of the foregoing shall be a 22.9 deduction; and 22.10 (2) the subtraction from federal taxable income for 22.11 payments received from foreign corporations or foreign operating 22.12 corporations under section 290.01, subdivision 19d, clause (10), 22.13 shall not be allowed. 22.14 If a foreign operating corporation incurs a net loss, 22.15 neither income nor deduction from that corporation shall be 22.16 included in determining the net income of the unitary business. 22.17 (h) For purposes of determining the net income of a unitary 22.18 business and the factors to be used in the apportionment of net 22.19 income pursuant to section 290.191 or 290.20, there must be 22.20 included only the income and apportionment factors of domestic 22.21 corporations or other domestic entities other than foreign 22.22 operating corporations that are determined to be part of the 22.23 unitary business pursuant to this subdivision, notwithstanding 22.24 that foreign corporations or other foreign entities might be 22.25 included in the unitary business. 22.26 (i) Deductions for expenses, interest, or taxes otherwise 22.27 allowable under this chapter that are connected with or 22.28 allocable against dividends, deemed dividends described in 22.29 paragraph (g), or royalties, fees, or other like income 22.30 described in section 290.01, subdivision 19d, clause (10), shall 22.31 not be disallowed. 22.32 (j) Each corporation or other entity, except a sole 22.33 proprietorship, that is part of a unitary business must file 22.34 combined reports as the commissioner determines. On the 22.35 reports, all intercompany transactions between entities included 22.36 pursuant to paragraph (h) must be eliminated and the entire net 23.1 income of the unitary business determined in accordance with 23.2 this subdivision is apportioned among the entities by using each 23.3 entity's Minnesota factors for apportionment purposes in the 23.4 numerators of the apportionment formula and the total factors 23.5 for apportionment purposes of all entities included pursuant to 23.6 paragraph (h) in the denominators of the apportionment formula. 23.7 (k) If a corporation has been divested from a unitary 23.8 business and is included in a combined report for a fractional 23.9 part of the common accounting period of the combined report: 23.10 (1) its income includable in the combined report is its 23.11 income incurred for that part of the year determined by 23.12 proration or separate accounting; and 23.13 (2) its sales, property, and payroll included in the 23.14 apportionment formula must be prorated or accounted for 23.15 separately. 23.16 [EFFECTIVE DATE.] This section is effective for tax years 23.17 beginning after December 31, 2004. 23.18 ARTICLE 3 23.19 SALES TAX 23.20 Section 1. Minnesota Statutes 2004, section 297A.61, is 23.21 amended by adding a subdivision to read: 23.22 Subd. 37. [EVENT SOUVENIR CLOTHING.] "Event souvenir 23.23 clothing" is clothing that is sold at a state-subsidized 23.24 facility and that bears a name, image, or logo of the 23.25 entertainer, athlete, or team that performs at the facility. As 23.26 used in this subdivision, a "state-subsidized facility" means 23.27 the Metrodome financed under section 473.581, the basketball 23.28 arena that receives payments from the Amateur Sports Commission 23.29 under section 473.556, subdivision 16, the hockey arena that 23.30 received a loan of state funds under Laws 1998, chapter 404, 23.31 section 23, subdivision 6, and the entertainment and convention 23.32 center that received a grant under Laws 1998, chapter 404, 23.33 section 23, subdivision 9. 23.34 [EFFECTIVE DATE.] This section is effective for sales after 23.35 June 30, 2005. 23.36 Sec. 2. Minnesota Statutes 2004, section 297A.67, 24.1 subdivision 6, is amended to read: 24.2 Subd. 6. [OTHER EXEMPT MEALS.] (a) Meals or drinks 24.3 purchased for and served exclusively to individuals who are 60 24.4 years of age or over and their spouses or to handicapped persons 24.5 and their spouses by governmental agencies, nonprofit 24.6 organizations, or churches, or pursuant to any program funded in 24.7 whole or in part through United States Code, title 42, sections 24.8 3001 through 3045, wherever delivered, prepared, or served, are 24.9 exempt. 24.10 (b) Meals or drinks purchased for and served exclusively to 24.11 children who are less than 14 years of age or disabled children 24.12 who are less than 16 years of age and who are attending a child 24.13 care or early childhood education program, are exempt if they 24.14 are: 24.15 (1) purchased by a nonprofit child care facility that is 24.16 exempt under section 297A.70, subdivision 4, and that primarily 24.17 serves families with income of 250 percent or less of federal 24.18 poverty guidelines; and 24.19 (2) prepared at the site of the child care facility. 24.20 [EFFECTIVE DATE.] This section is effective for sales after 24.21 December 31, 1997. 24.22 Sec. 3. Minnesota Statutes 2004, section 297A.67, 24.23 subdivision 7, is amended to read: 24.24 Subd. 7. [MEDICINESDRUGS; MEDICAL DEVICES.] 24.25 (a)PrescribedSales of the following drugs and medical devices 24.26 are exempt: 24.27 (1) drugsand medicine, and insulin, intendedforinternal24.28or external use, in the cure, mitigation, treatment, or24.29prevention of illness or disease inhumanbeings are exempt.24.30"Prescribed drugs and medicine" includesuse, including 24.31 over-the-counter drugsor medicine prescribed by a licensed24.32health care professional.24.33(b) Nonprescription medicines consisting principally24.34(determined by the weight of all ingredients) of analgesics that24.35are approved by the United States Food and Drug Administration24.36for internal use by human beings are exempt. For purposes of25.1this subdivision, "principally" means greater than 50 percent25.2analgesics by weight.25.3(c) Prescription glasses, hospital beds, fever25.4thermometers, reusable; 25.5 (2) single-use finger-pricking devices for the extraction 25.6 of blood, blood glucose monitoring machines,and 25.7 other single-use devices and single-use diagnostic agents used 25.8 in diagnosing, monitoring, or treating diabetes, and therapeutic25.9and; 25.10 (3) insulin and medical oxygen for human use, regardless of 25.11 whether prescribed or sold over the counter; 25.12 (4) prosthetic devicesare exempt. "Therapeutic devices"25.13means devices that are attached or applied to the human body to25.14cure, heal, or alleviate injury, illness, or disease, either25.15directly or by administering a curative agent. "Prosthetic25.16devices" means devices that replace injured, diseased, or25.17missing parts of the human body, either temporarily or25.18permanently; 25.19 (5) durable medical equipment for home use only; 25.20 (6) mobility enhancing equipment; and 25.21 (7) prescription corrective eyeglasses. 25.22 (b) For purposes of this subdivision: 25.23 (1) "Drug" means a compound, substance, or preparation, and 25.24 any component of a compound, substance, or preparation, other 25.25 than food and food ingredients, dietary supplements, or 25.26 alcoholic beverages that is: 25.27 (i) recognized in the official United States Pharmacopoeia, 25.28 official Homeopathic Pharmacopoeia of the United States, or 25.29 official National Formulary, and supplement to any of them; 25.30 (ii) intended for use in the diagnosis, cure, mitigation, 25.31 treatment, or prevention of disease; or 25.32 (iii) intended to affect the structure or any function of 25.33 the body. 25.34 (2) "Durable medical equipment" means equipment, including 25.35 repair and replacement parts, but not including mobility 25.36 enhancing equipment, that: 26.1 (i) can withstand repeated use; 26.2 (ii) is primarily and customarily used to serve a medical 26.3 purpose; 26.4 (iii) generally is not useful to a person in the absence of 26.5 illness or injury; and 26.6 (iv) is not worn in or on the body. 26.7 (3) "Mobility enhancing equipment" means equipment, 26.8 including repair and replacement parts, but not including 26.9 durable medical equipment, that: 26.10 (i) is primarily and customarily used to provide or 26.11 increase the ability to move from one place to another and that 26.12 is appropriate for use either in a home or a motor vehicle; 26.13 (ii) is not generally used by persons with normal mobility; 26.14 and 26.15 (iii) does not include any motor vehicle or equipment on a 26.16 motor vehicle normally provided by a motor vehicle manufacturer. 26.17 (4) "Over-the-counter drug" means a drug that contains a 26.18 label that identifies the product as a drug as required by Code 26.19 of Federal Regulations, title 21, section 201.66. The label 26.20 must include a "drug facts" panel or a statement of the active 26.21 ingredients with a list of those ingredients contained in the 26.22 compound, substance, or preparation. Over-the-counter drugs do 26.23 not include grooming and hygiene products, regardless of whether 26.24 they otherwise meet the definition. "Grooming and hygiene 26.25 products" are soaps, cleaning solutions, shampoo, toothpaste, 26.26 mouthwash, antiperspirants, and suntan lotions and sunscreens. 26.27 (5) "Prescribed" and "prescription" means a direction in 26.28 the form of an order, formula, or recipe issued in any form of 26.29 oral, written, electronic, or other means of transmission by a 26.30 duly licensed health care professional. 26.31 (6) "Prosthetic device" means a replacement, corrective, or 26.32 supportive device, including repair and replacement parts, worn 26.33 on or in the body to: 26.34 (i) artificially replace a missing portion of the body; 26.35 (ii) prevent or correct physical deformity or malfunction; 26.36 or 27.1 (iii) support a weak or deformed portion of the body. 27.2 Prosthetic device does not include corrective eyeglasses. 27.3 [EFFECTIVE DATE.] This section is effective for sales and 27.4 purchases made after June 30, 2005. 27.5 Sec. 4. Minnesota Statutes 2004, section 297A.67, 27.6 subdivision 8, is amended to read: 27.7 Subd. 8. [CLOTHING.] (a) Clothing is exempt. For purposes 27.8 of this subdivision, "clothing" means all human wearing apparel 27.9 suitable for general use. 27.10 (b) Clothing includes, but is not limited to, aprons, 27.11 household and shop; athletic supporters; baby receiving 27.12 blankets; bathing suits and caps; beach capes and coats; belts 27.13 and suspenders; boots; coats and jackets; costumes; children and 27.14 adult diapers, including disposable; ear muffs; footlets; formal 27.15 wear; garters and garter belts; girdles; gloves and mittens for 27.16 general use; hats and caps; hosiery; insoles for shoes; lab 27.17 coats; neckties; overshoes; pantyhose; rainwear; rubber pants; 27.18 sandals; scarves; shoes and shoe laces; slippers; sneakers; 27.19 socks and stockings; steel-toed boots; underwear; uniforms, 27.20 athletic and nonathletic; and wedding apparel. 27.21 (c) Clothing does not include the following: 27.22 (1) belt buckles sold separately; 27.23 (2) costume masks sold separately; 27.24 (3) patches and emblems sold separately; 27.25 (4) sewing equipment and supplies, including but not 27.26 limited to, knitting needles, patterns, pins, scissors, sewing 27.27 machines, sewing needles, tape measures, and thimbles; 27.28 (5) sewing materials that become part of clothing, 27.29 including but not limited to, buttons, fabric, lace, thread, 27.30 yarn, and zippers; 27.31 (6) clothing accessories or equipment; 27.32 (7) sports or recreational equipment;and27.33 (8) protective equipment; and 27.34 (9) event souvenir clothing. 27.35 Clothing also does not include apparel made from fur if a 27.36 uniform definition of "apparel made from fur" is developed by 28.1 the member states of the Streamlined Sales and Use Tax Agreement. 28.2 For purposes of this subdivision, "clothing accessories or 28.3 equipment" means incidental items worn on the person or in 28.4 conjunction with clothing. Clothing accessories and equipment 28.5 include, but are not limited to, briefcases; cosmetics; hair 28.6 notions, including barrettes, hair bows, and hairnets; handbags; 28.7 handkerchiefs; jewelry; nonprescription sunglasses; umbrellas; 28.8 wallets; watches; and wigs and hairpieces. "Sports or 28.9 recreational equipment" means items designed for human use and 28.10 worn in conjunction with an athletic or recreational activity 28.11 that are not suitable for general use. Sports and recreational 28.12 equipment includes, but is not limited to, ballet and tap shoes; 28.13 cleated or spiked athletic shoes; gloves, including, but not 28.14 limited to, baseball, bowling, boxing, hockey, and golf gloves; 28.15 goggles; hand and elbow guards; life preservers and vests; mouth 28.16 guards; roller and ice skates; shin guards; shoulder pads; ski 28.17 boots; waders; and wetsuits and fins. "Protective equipment" 28.18 means items for human wear and designed as protection of the 28.19 wearer against injury or disease or as protection against damage 28.20 or injury of other persons or property but not suitable for 28.21 general use. Protective equipment includes, but is not limited 28.22 to, breathing masks; clean room apparel and equipment; ear and 28.23 hearing protectors; face shields; finger guards; hard hats; 28.24 helmets; paint or dust respirators; protective gloves; safety 28.25 glasses and goggles; safety belts; tool belts; and welders 28.26 gloves and masks. 28.27 [EFFECTIVE DATE.] This section is effective for sales after 28.28 June 30, 2005. 28.29 Sec. 5. Minnesota Statutes 2004, section 297A.67, 28.30 subdivision 29, is amended to read: 28.31 Subd. 29. [SOLAR ENERGYEFFICIENTPRODUCTS.](a) A28.32residential lighting fixture or a compact fluorescent bulb is28.33exempt if it has an energy star label.28.34(b) The following products are exempt if they have an28.35energyguide label that indicates that the product meets or28.36exceeds the standards listed below:29.1(1) an electric heat pump hot water heater with an energy29.2factor of at least 1.9;29.3(2) a natural gas water heater with an energy factor of at29.4least 0.62;29.5(3) a propane gas or fuel oil water heater with an energy29.6factor of at least 0.62;29.7(4) a natural gas furnace with an annual fuel utilization29.8efficiency greater than 92 percent; and29.9(5) a propane gas or fuel oil furnace with an annual fuel29.10utilization efficiency greater than 92 percent.29.11(c)Aphotovoltaic devicesolar energy system, as defined 29.12 in section 216C.06, subdivision 17, is exempt.For purposes of29.13this subdivision, "photovoltaic device" means a solid-state29.14electrical device, such as a solar module, that converts light29.15directly into direct current electricity of voltage-current29.16characteristics that are a function of the characteristics of29.17the light source and the materials in and design of the device.29.18A "solar module" is a photovoltaic device that produces a29.19specified power output under defined test conditions, usually29.20composed of groups of solar cells connected in series, in29.21parallel, or in series-parallel combinations.29.22(d) For purposes of this subdivision, "energy star label"29.23means the label granted to certain products that meet United29.24States Environmental Protection Agency and United States29.25Department of Energy criteria for energy efficiency. For29.26purposes of this subdivision, "energyguide label" means the29.27label that the United States Federal Trade Commissioner requires29.28manufacturers to apply to certain appliances under United States29.29Code, title 16, part 305.29.30 [EFFECTIVE DATE.] This section is effective for sales and 29.31 purchases made on or after August 1, 2005. 29.32 Sec. 6. Minnesota Statutes 2004, section 297A.68, 29.33 subdivision 28, is amended to read: 29.34 Subd. 28. [MEDICAL SUPPLIES.] Medical supplies purchased 29.35 by a licensed health care facility or licensed health care 29.36 professional to provide medical treatment to residents or 30.1 patients are exempt. The exemption does not apply to durable 30.2 medical equipment or components of durable medical equipment, 30.3 laboratory supplies, radiological supplies, and other items used 30.4 in providing medical services. For purposes of this 30.5 subdivision, "medical supplies" means adhesive and nonadhesive 30.6 bandages, gauze pads and strips, cotton applicators, 30.7 antiseptics,nonprescription drugs,eye solution, and other 30.8 similar supplies used directly on the resident or patient in 30.9 providing medical services. 30.10 [EFFECTIVE DATE.] This section is effective for sales and 30.11 purchases made after June 30, 2005. 30.12 Sec. 7. Minnesota Statutes 2004, section 297A.71, 30.13 subdivision 12, is amended to read: 30.14 Subd. 12. [CHAIR LIFTS, RAMPS, ELEVATORS.]Chair lifts,30.15ramps, andElevators and building materials used to install or 30.16 constructthemchair lifts, ramps, and elevators are exempt, if 30.17 they are authorized by a physician and installed in or attached 30.18 to the owner's homestead. The tax must be imposed and collected 30.19 as if the rate under section 297A.62, subdivision 1, applied and 30.20 then refunded in the manner provided in section 297A.75. 30.21 [EFFECTIVE DATE.] This section is effective for sales and 30.22 purchases made after June 30, 2005. 30.23 Sec. 8. Minnesota Statutes 2004, section 297A.71, is 30.24 amended by adding a subdivision to read: 30.25 Subd. 33. [HYDROELECTRIC GENERATING FACILITY.] Materials 30.26 and supplies used or consumed in the construction of a 30.27 hydroelectric generating facility that meets the requirements of 30.28 this subdivision are exempt. To qualify for the exemption under 30.29 this subdivision, a hydroelectric generating facility must: 30.30 (1) utilize two turbine generators at a dam site existing 30.31 on March 31, 1994; 30.32 (2) be located on land within 1,500 feet of a 13.8 kilovolt 30.33 distribution circuit; and 30.34 (3) be eligible to receive a renewable energy production 30.35 incentive payment under section 216C.41. 30.36 [EFFECTIVE DATE.] This section is effective for sales made 31.1 after December 31, 2004, and on or before December 31, 2007. 31.2 Sec. 9. Laws 1993, chapter 375, article 9, section 46, 31.3 subdivision 2, as amended by Laws 1997, chapter 231, article 7, 31.4 section 40, and Laws 1998, chapter 389, article 8, section 30, 31.5 and Laws 2003 First Special Session chapter 21, article 8, 31.6 section 13, is amended to read: 31.7 Subd. 2. [USE OF REVENUES.] Revenues received from the tax 31.8 authorized by subdivision 1 may only be used by the city to pay 31.9 the cost of collecting the tax, and to pay for the following 31.10 projects or to secure or pay any principal, premium, or interest 31.11 on bonds issued in accordance with subdivision 3 for the 31.12 following projects. 31.13 (a) To pay all or a portion of the capital expenses of 31.14 construction, equipment and acquisition costs for the expansion 31.15 and remodeling of the St. Paul Civic Center complex, including 31.16 the demolition of the existing arena and the construction and 31.17 equipping of a new arena. 31.18 (b) The remainder of the funds must be spent for: 31.19 (1) capital projects to further residential, cultural, 31.20 commercial, and economic development in both downtown St. Paul 31.21 and St. Paul neighborhoods ; and 31.22 (2) capital and operating expenses of cultural 31.23 organizations in the city, provided that the amount spent under 31.24 this clause must equal ten percent of the total amount spent 31.25 under this paragraph in any year. 31.26 (c) The amount apportioned under paragraph (b) shall be no 31.27 less than 60 percent of the revenues derived from the tax each 31.28 year, except to the extent that a portion of that amount is 31.29 required to pay debt service on (1) bonds issued for the 31.30 purposes of paragraph (a) prior to March 1, 1998; or (2) bonds 31.31 issued for the purposes of paragraph (a) after March 1, 1998, 31.32 but only if the city council determines that 40 percent of the 31.33 revenues derived from the tax together with other revenues 31.34 pledged to the payment of the bonds, including the proceeds of 31.35 definitive bonds, is expected to exceed the annual debt service 31.36 on the bonds. 32.1 (d) If in any year more than 40 percent of the revenue 32.2 derived from the tax authorized by subdivision 1 is used to pay 32.3 debt service on the bonds issued for the purposes of paragraph 32.4 (a) and to fund a reserve for the bonds, the amount of the debt 32.5 service payment that exceeds 40 percent of the revenue must be 32.6 determined for that year. In any year when 40 percent of the 32.7 revenue produced by the sales tax exceeds the amount required to 32.8 pay debt service on the bonds and to fund a reserve for the 32.9 bonds under paragraph (a), the amount of the excess must be made 32.10 available for capital projects to further residential, cultural, 32.11 commercial, and economic development in the neighborhoods and 32.12 downtown until the cumulative amounts determined for all years 32.13 under the preceding sentence have been made available under this 32.14 sentence. The amount made available as reimbursement in the 32.15 preceding sentence is not included in the 60 percent determined 32.16 under paragraph (c). 32.17 (e) No revenues from the tax authorized by subdivision 1 32.18 may be used to pay principal, premium, or interest on any bonds 32.19 or other obligations except the bonds issued under subdivision 3. 32.20(e)(f) By January 15 of each odd-numbered year, the mayor 32.21 and the city council must report to the legislature on the use 32.22 of sales tax revenues during the preceding two-year period. 32.23 [EFFECTIVE DATE.] This section is effective the day 32.24 following final enactment. 32.25 Sec. 10. Laws 2001, First Special Session chapter 5, 32.26 article 12, section 44, the effective date, is amended to read: 32.27 [EFFECTIVE DATE.] This section is effective for sales and 32.28 purchases made after July 31, 2001, and before August 1, 2005. 32.29 Sec. 11. [COUNTY OF MOWER; SALES AND USE TAX.] 32.30 Subdivision 1. [SALES AND USE TAX 32.31 AUTHORIZED.] Notwithstanding Minnesota Statutes, section 32.32 477A.016, or any other provision of law or ordinance, the county 32.33 of Mower may, by resolution, impose a sales and use tax of up to 32.34 one-half percent for the purposes specified in subdivision 2. 32.35 Except as otherwise provided in this section, the provisions of 32.36 Minnesota Statutes, section 297A.99, govern the imposition, 33.1 administration, collection, and enforcement of the tax 33.2 authorized under this subdivision. 33.3 Subd. 2. [USE OF REVENUES.] The proceeds of the tax 33.4 imposed under this section must be solely used to pay for costs 33.5 associated with a Criminal Justice Center for Mower County. 33.6 Government functions to be located in the facility for which 33.7 proceeds of the tax may be used include, but are not limited to, 33.8 jail, law enforcement, dispatch, courts, court administration, 33.9 correctional services, and county attorney. 33.10 Authorized expenses include, but are not limited to, site 33.11 acquisition, infrastructure, construction, and professional fees 33.12 related to the project. 33.13 Subd. 3. [BONDING AUTHORITY.] (a) The county may issue 33.14 bonds under Minnesota Statutes, chapter 475, to finance the 33.15 capital expenditures and improvements authorized by the 33.16 referendum under subdivision 4. An election to approve the 33.17 bonds under Minnesota Statutes, section 475.58, is not required. 33.18 (b) The bonds are not included in computing any debt limits 33.19 applicable to the county, and the levy of taxes under Minnesota 33.20 Statutes, section 475.61, to pay principal and interest on the 33.21 bonds is not subject to levy limits. 33.22 Subd. 4. [REFERENDUM.] If the county of Mower proposes to 33.23 impose the tax authorized by this section, the question of 33.24 imposing the tax must be submitted to the voters at either a 33.25 special election held before January 1, 2006, or at the next 33.26 general election. 33.27 Subd. 5. [TERMINATION OF TAXES.] The tax imposed under 33.28 this section expires when the county board first determines that 33.29 the amount of revenues raised to pay for the Criminal Justice 33.30 Center project under subdivision 2 meet or exceed approved 33.31 project costs. Any funds remaining after completion of the 33.32 projects may be placed in the general funds of the county. The 33.33 county may rescind the tax imposed under this section at an 33.34 earlier time by ordinance. 33.35 [EFFECTIVE DATE.] This section is effective the day after 33.36 compliance by the governing body of the county of Mower with 34.1 Minnesota Statutes, section 645.021, subdivision 3. 34.2 Sec. 12. [CITY OF WORTHINGTON; TAXES AUTHORIZED.] 34.3 Subdivision 1. [SALES AND USE TAX.] Notwithstanding 34.4 Minnesota Statutes, section 477A.016, or any other provision of 34.5 law, ordinance, or city charter, if approved by the voters 34.6 pursuant to Minnesota Statutes, section 297A.99, at the next 34.7 general election, the city of Worthington may impose by 34.8 ordinance a sales and use tax of up to one-half of one percent 34.9 for the purpose specified in subdivision 3. Except as otherwise 34.10 provided in this section, the provisions of Minnesota Statutes, 34.11 section 297A.99, govern the imposition, administration, 34.12 collection, and enforcement of the tax authorized under this 34.13 subdivision. 34.14 Subd. 2. [EXCISE TAX AUTHORIZED.] Notwithstanding 34.15 Minnesota Statutes, section 477A.016, or any other provision of 34.16 law, ordinance, or city charter, the city of Worthington may 34.17 impose by ordinance, for the purposes specified in subdivision 34.18 3, an excise tax of up to $20 per motor vehicle, as defined by 34.19 ordinance, purchased or acquired from any person engaged within 34.20 the city in the business of selling motor vehicles at retail. 34.21 Subd. 3. [USE OF REVENUES.] Revenues received from taxes 34.22 authorized by subdivisions 1 and 2 must be used by the city to 34.23 pay the cost of collecting and administering the taxes and to 34.24 pay for the costs of a multipurpose city facility to include 34.25 meeting rooms, a swimming pool, and a senior citizen center, and 34.26 to make renovations to the Memorial Auditorium. Authorized 34.27 expenses include, but are not limited to, acquiring property and 34.28 paying construction expenses related to these improvements, and 34.29 paying debt service on bonds or other obligations issued to 34.30 finance acquisition and construction of these improvements. 34.31 Subd. 4. [BONDING AUTHORITY.] (a) If the tax authorized 34.32 under subdivision 1 is approved by the voters, the city may 34.33 issue bonds under Minnesota Statutes, chapter 475, to pay 34.34 capital and administrative expenses for the improvements 34.35 described in subdivision 3 in an amount that does not exceed 34.36 $7,800,000. An election to approve the bonds under Minnesota 35.1 Statutes, section 475.58, is not required. 35.2 (b) The debt represented by the bonds is not included in 35.3 computing any debt limitation applicable to the city, and any 35.4 levy of taxes under Minnesota Statutes, section 475.61, to pay 35.5 principal of and interest on the bonds is not subject to any 35.6 levy limitation. 35.7 Subd. 5. [TERMINATION OF TAXES.] The taxes imposed under 35.8 subdivisions 1 and 2 expire at the earlier of (1) ten years, or 35.9 (2) when the city council determines that the amount of revenue 35.10 received from the taxes to pay for the projects under 35.11 subdivision 3 equals or exceeds $7,800,000 plus the additional 35.12 amount needed to pay the costs related to issuance of bonds 35.13 under subdivision 4, including interest on the bonds. Any funds 35.14 remaining after completion of the project and retirement or 35.15 redemption of the bonds shall be placed in a capital project 35.16 fund of the city. The taxes imposed under subdivisions 1 and 2 35.17 may expire at an earlier time if the city so determines by 35.18 ordinance. 35.19 [EFFECTIVE DATE.] This section is effective the day after 35.20 the governing body of the city of Worthington and its chief 35.21 clerical officer timely comply with Minnesota Statutes, section 35.22 645.021, subdivisions 2 and 3. 35.23 ARTICLE 4 35.24 PROPERTY TAX AND AIDS 35.25 Section 1. Minnesota Statutes 2004, section 123B.53, 35.26 subdivision 5, is amended to read: 35.27 Subd. 5. [EQUALIZED DEBT SERVICE LEVY.] (a) The equalized 35.28 debt service levy of a district equals the sum of the first tier 35.29 equalized debt service levy and the second tier equalized debt 35.30 service levy. 35.31 (b) A district's first tier equalized debt service levy 35.32 equals the district's first tier debt service equalization 35.33 revenue times the lesser of one or the ratio of: 35.34 (1) the quotient derived by dividing theadjusteddebt 35.35 service net tax capacity of the district for the year before the 35.36 year the levy is certified by the adjusted pupil units in the 36.1 district for the school year ending in the year prior to the 36.2 year the levy is certified; to 36.3 (2) $3,200. 36.4 (c) A district's second tier equalized debt service levy 36.5 equals the district's second tier debt service equalization 36.6 revenue times the lesser of one or the ratio of: 36.7 (1) the quotient derived by dividing theadjusteddebt 36.8 service net tax capacity of the district for the year before the 36.9 year the levy is certified by the adjusted pupil units in the 36.10 district for the school year ending in the year prior to the 36.11 year the levy is certified; to 36.12 (2) $8,000. 36.13 [EFFECTIVE DATE.] This section is effective for taxes 36.14 payable in 2006. 36.15 Sec. 2. Minnesota Statutes 2004, section 126C.01, is 36.16 amended by adding a subdivision to read: 36.17 Subd. 2a. [DEBT SERVICE NET TAX CAPACITY.] A school 36.18 district's debt service net tax capacity means the net tax 36.19 capacity of the taxable property of the district as adjusted by 36.20 the commissioner of revenue under section 127A.48, subdivision 36.21 17. The debt service net tax capacity for any given calendar 36.22 year must be used to compute the debt service levy limitations 36.23 for levies certified in the succeeding calendar year and aid for 36.24 the school year beginning in the second succeeding calendar year. 36.25 [EFFECTIVE DATE.] This section is effective the day 36.26 following final enactment for computing taxes payable in 2006. 36.27 Sec. 3. Minnesota Statutes 2004, section 127A.48, is 36.28 amended by adding a subdivision to read: 36.29 Subd. 17. [DEBT SERVICE NET TAX CAPACITY.] To calculate 36.30 each district's debt service net tax capacity, the commissioner 36.31 of revenue must recompute the amounts in this section using an 36.32 alternative sales ratio comparing the sales price to the 36.33 estimated market value of the property. 36.34 [EFFECTIVE DATE.] This section is effective the day 36.35 following final enactment for computing taxes payable in 2006. 36.36 Sec. 4. Minnesota Statutes 2004, section 254B.02, 37.1 subdivision 3, is amended to read: 37.2 Subd. 3. [RESERVE ACCOUNT.] The commissioner shall 37.3 allocate money from the reserve account to counties that, during 37.4 the current fiscal year, have met or exceeded the base level of 37.5 expenditures for eligible chemical dependency services from 37.6 local money. The commissioner shall establish the base level 37.7 for fiscal year 1988 as the amount of local money used for 37.8 eligible services in calendar year 1986. In later years, the 37.9 base level must be increased in the same proportion as state 37.10 appropriations to implement Laws 1986, chapter 394, sections 8 37.11 to 20, are increased, except the base level shall not exceed 55 37.12 percent of the county allocation provided in subdivision 1 for 37.13 fiscal year 2006; 50 percent in fiscal year 2007; 45 percent in 37.14 fiscal year 2008; and 40 percent in fiscal year 2009. 37.15 Thereafter the maximum base level shall decrease by five percent 37.16 each year until the maximum county match is 15 percent. The 37.17 base level must be decreased if the fund balance from which 37.18 allocations are made under section 254B.02, subdivision 1, is 37.19 decreased in later years. The local match rate for the reserve 37.20 account is the same rate as applied to the initial allocation. 37.21 Reserve account payments must not be included when calculating 37.22 the county adjustments made according to subdivision 2. For 37.23 counties providing medical assistance or general assistance 37.24 medical care through managed care plans on January 1, 1996, the 37.25 base year is fiscal year 1995. For counties beginning provision 37.26 of managed care after January 1, 1996, the base year is the most 37.27 recent fiscal year before enrollment in managed care begins. 37.28 For counties providing managed care, the base level will be 37.29 increased or decreased in proportion to changes in the fund 37.30 balance from which allocations are made under subdivision 2, but 37.31 will be additionally increased or decreased in proportion to the 37.32 change in county adjusted population made in subdivision 1, 37.33 paragraphs (b) and (c). Effective July 1, 2001, at the end of 37.34 each biennium, any funds deposited in the reserve account funds 37.35 in excess of those needed to meet obligations incurred under 37.36 this section and sections 254B.06 and 254B.09 shall cancel to 38.1 the general fund. 38.2 Sec. 5. Minnesota Statutes 2004, section 272.02, 38.3 subdivision 53, is amended to read: 38.4 Subd. 53. [ELECTRIC GENERATION FACILITY; PERSONAL 38.5 PROPERTY.] Notwithstanding subdivision 9, clause (a), attached 38.6 machinery and other personal property which is part of a 3.2 38.7 megawatt run-of-the-river hydroelectric generation facility and 38.8 that meets the requirements of this subdivision is exempt. At 38.9 the time of construction, the facility must: 38.10 (1) utilize two turbine generators at a dam site existing 38.11 on March 31, 1994; 38.12 (2) be located onpublicly ownedlandandwithin 1,500 feet 38.13 of a 13.8 kilovolt distribution substation; and 38.14 (3) be eligible to receive a renewable energy production 38.15 incentive payment under section 216C.41. 38.16 Construction of the facility must be commenced after 38.17January 1, 2002December 31, 2004, and before January 1,200538.18 2007. Property eligible for this exemption does not include 38.19 electric transmission lines and interconnections or gas 38.20 pipelines and interconnections appurtenant to the property or 38.21 the facility. 38.22 [EFFECTIVE DATE.] This section is effective for taxes 38.23 levied in 2005, payable in 2006, and thereafter. 38.24 Sec. 6. Minnesota Statutes 2004, section 272.02, is 38.25 amended by adding a subdivision to read: 38.26 Subd. 68. [ELECTRIC GENERATION FACILITY PERSONAL 38.27 PROPERTY.] (a) Notwithstanding subdivision 9, clause (a), 38.28 attached machinery and other personal property which is part of 38.29 either a simple-cycle, combustion-turbine electric generation 38.30 facility, or a combined-cycle, combustion-turbine electric 38.31 generation facility that does not exceed 325 megawatts of 38.32 installed capacity and that meets the requirements of this 38.33 subdivision is exempt. At the time of construction, the 38.34 facility must: 38.35 (1) utilize either a simple-cycle or a combined-cycle 38.36 combustion-turbine generator fueled by natural gas; 39.1 (2) be connected to an existing 115-kilovolt high-voltage 39.2 electric transmission line that is within two miles of the 39.3 facility; 39.4 (3) be located on an underground natural gas storage 39.5 aquifer; 39.6 (4) be designed as either a peaking or intermediate load 39.7 facility; and 39.8 (5) have received, by resolution, the approval from the 39.9 governing body of the county for the exemption of personal 39.10 property under this subdivision. 39.11 (b) Construction of the facility must be commenced after 39.12 January 1, 2006, and before January 1, 2008. Property eligible 39.13 for this exemption does not include electric transmission lines 39.14 and interconnections or gas pipelines and interconnections 39.15 appurtenant to the property or the facility. 39.16 [EFFECTIVE DATE.] This section is effective for assessment 39.17 year 2005, taxes payable in 2006, and thereafter. 39.18 Sec. 7. Minnesota Statutes 2004, section 272.0211, 39.19 subdivision 1, is amended to read: 39.20 Subdivision 1. [EFFICIENCY DETERMINATION AND 39.21 CERTIFICATION.] An owner or operator of a new or existing 39.22 electric power generation facility, excluding wind energy 39.23 conversion systems, may apply to the commissioner of revenue for 39.24 a market value exclusion on the property as provided for in this 39.25 section. This exclusion shall apply only to the market value of 39.26 the equipment of the facility, and shall not apply to the 39.27 structures and the land upon which the facility is located. The 39.28 commissioner of revenue shall prescribe the forms and procedures 39.29 for this application. Upon receiving the application, the 39.30 commissioner of revenue shall request the commissioner of 39.31 commerce to make a determination of the efficiency of the 39.32 applicant's electric power generation facility.In calculating39.33the efficiency of a facility,The commissioner of commerce shall 39.34use a definition ofcalculate efficiencywhich calculates39.35efficiency as the sum of:39.36(1) the useful electrical power output; plus40.1(2) the useful thermal energy output; plus40.2(3) the fuel energy of the useful chemical products,40.3all divided by the total energy input to the facility, expressed40.4as a percentageas the ratio of useful energy outputs to energy 40.5 inputs, expressed as a percentage, based on the performance of 40.6 the facility's equipment during normal full load operation. The 40.7 commissioner must include in this formula the energy used in any 40.8 on-site preparation of materials necessary to convert the 40.9 materials into the fuel used to generate electricity, such as a 40.10 process to gasify petroleum coke. The commissioner shall use 40.11 thehigh heating valueHigher Heating Value (HHV) for all 40.12 substances in the commissioner's efficiency calculations, except 40.13 for wood for fuel in a biomass-eligible project under section 40.14 216B.2424; for these instances, the commissioner shall adjust 40.15 the heating value to allow for energy consumed for evaporation 40.16 of the moisture in the wood. The applicant shall provide the 40.17 commissioner of commerce with whatever information the 40.18 commissioner deems necessary to make the determination. Within 40.19 30 days of the receipt of the necessary information, the 40.20 commissioner of commerce shall certify the findings of the 40.21 efficiency determination to the commissioner of revenue and to 40.22 the applicant.The commissioner of commerce shall determine the40.23efficiency of the facility and certify the findings of that40.24determination to the commissioner of revenue every two years40.25thereafter from the date of the original certification.40.26 [EFFECTIVE DATE.] This section is effective for assessment 40.27 year 2005 and thereafter, for taxes payable in 2006 and 40.28 thereafter. 40.29 Sec. 8. Minnesota Statutes 2004, section 272.0211, 40.30 subdivision 2, is amended to read: 40.31 Subd. 2. [SLIDING SCALE EXCLUSION.] Based upon the 40.32 efficiency determination provided by the commissioner of 40.33 commerce as described in subdivision 1, the commissioner of 40.34 revenue shall subtractfiveeight percent of the taxable market 40.35 value of the qualifying property for each percentage point that 40.36 the efficiency of the specific facility, as determined by the 41.1 commissioner of commerce, is above3540 percent. The reduction 41.2 in taxable market value shall be reflected in the taxable market 41.3 value of the facility beginning with the assessment year 41.4 immediately following the determination. For a facility that is 41.5 assessed by the county in which the facility is located, the 41.6 commissioner of revenue shall certify to the assessor of that 41.7 county the percentage of the taxable market value of the 41.8 facility to be excluded. 41.9 [EFFECTIVE DATE.] This section is effective for assessment 41.10 year 2005 and thereafter, for taxes payable in 2006 and 41.11 thereafter. 41.12 Sec. 9. Minnesota Statutes 2004, section 273.11, 41.13 subdivision 1a, is amended to read: 41.14 Subd. 1a. [LIMITED MARKET VALUE.] In the case of all 41.15 property classified as agricultural homestead or nonhomestead, 41.16 residential homestead or nonhomestead, timber, or noncommercial 41.17 seasonal residential recreational, the assessor shall compare 41.18 the value with the taxable portion of the value determined in 41.19 the preceding assessment. 41.20 For assessment year 2002, the amount of the increase shall 41.21 not exceed the greater of (1) ten percent of the value in the 41.22 preceding assessment, or (2) 15 percent of the difference 41.23 between the current assessment and the preceding assessment. 41.24 For assessment year 2003, the amount of the increase shall 41.25 not exceed the greater of (1) 12 percent of the value in the 41.26 preceding assessment, or (2) 20 percent of the difference 41.27 between the current assessment and the preceding assessment. 41.28 For assessment year 2004, the amount of the increase shall 41.29 not exceed the greater of (1) 15 percent of the value in the 41.30 preceding assessment, or (2) 25 percent of the difference 41.31 between the current assessment and the preceding assessment. 41.32 For assessment year 2005, the amount of the increase shall 41.33 not exceed the greater of (1) 15 percent of the value in the 41.34 preceding assessment, or (2) 33 percent of the difference 41.35 between the current assessment and the preceding assessment. 41.36 For assessment year 2006, the amount of the increase shall 42.1 not exceed the greater of (1) 15 percent of the value in the 42.2 preceding assessment, or (2) 50 percent of the difference 42.3 between the current assessment and the preceding assessment. 42.4 This limitation shall not apply to increases in value due 42.5 to improvements. For purposes of this subdivision, the term 42.6 "assessment" means the value prior to any exclusion under 42.7 subdivision 16. 42.8 The provisions of this subdivision shall be in effect 42.9 through assessment year 2006 as provided in this subdivision. 42.10 For purposes of the assessment/sales ratio study conducted 42.11 under section 127A.48, and the computation of state aids paid 42.12 under chapters 122A, 123A, 123B, excluding section 123B.53, 42.13 124D, 125A, 126C, 127A, and 477A, market values and net tax 42.14 capacities determined under this subdivision and subdivision 16, 42.15 shall be used. 42.16 [EFFECTIVE DATE.] This section is effective the day 42.17 following final enactment for computing taxes payable in 2006. 42.18 Sec. 10. Minnesota Statutes 2004, section 275.025, 42.19 subdivision 1, is amended to read: 42.20 Subdivision 1. [LEVY AMOUNT.] (a) The state general levy 42.21 is levied against commercial-industrial property and seasonal 42.22 residential recreational property, as defined in this section. 42.23 The state general levy base amount is $592,000,000 for taxes 42.24 payable in 2002. For taxes payable in subsequent years on 42.25 seasonal residential recreational property, the levy base amount 42.26 is increased each year by multiplying the levy base amount 42.27 for that class of property for the prior year by the sum of one 42.28 plus the rate of increase, if any, in the implicit price 42.29 deflator for government consumption expenditures and gross 42.30 investment for state and local governments prepared by the 42.31 Bureau of Economic Analysts of the United States Department of 42.32 Commerce for the 12-month period ending March 31 of the year 42.33 prior to the year the taxes are payable. For taxes payable in 42.34 2006 and subsequent years on commercial-industrial property, the 42.35 tax is imposed under this subdivision at the rate of the tax 42.36 imposed under this subdivision for taxes payable in 2002. The 43.1 tax under this section is not treated as a local tax rate under 43.2 section 469.177 and is not the levy of a governmental unit under 43.3 chapters 276A and 473F. 43.4 (b) Beginning with taxes payable in 2008, and in each year 43.5 thereafter, the commissioner of finance shall deposit in the 43.6 education reserve account established in 2005 S.F. No. 1683, 43.7 article 4, section 73, if enacted, the increased amount of the 43.8 state general levy for that year over the state general levy 43.9 base amount for taxes payable in 2002. 43.10 (c) The commissioner shall increase or decrease the 43.11 preliminary or final rate for a year as necessary to account for 43.12 errors and tax base changes that affected a preliminary or final 43.13 rate for either of the two preceding years. Adjustments are 43.14 allowed to the extent that the necessary information is 43.15 available to the commissioner at the time the rates for a year 43.16 must be certified, and for the following reasons: 43.17 (1) an erroneous report of taxable value by a local 43.18 official; 43.19 (2) an erroneous calculation by the commissioner; and 43.20 (3) an increase or decrease in taxable value for 43.21 commercial-industrial or seasonal residential recreational 43.22 property reported on the abstracts of tax lists submitted under 43.23 section 275.29 that was not reported on the abstracts of 43.24 assessment submitted under section 270.11, subdivision 2, for 43.25 the same year. 43.26 The commissioner may, but need not, make adjustments if the 43.27 total difference in the tax levied for the year would be less 43.28 than $100,000. 43.29 [EFFECTIVE DATE.] This section is effective for taxes 43.30 payable in 2006 and subsequent years. 43.31 Sec. 11. Minnesota Statutes 2004, section 275.065, 43.32 subdivision 3, is amended to read: 43.33 Subd. 3. [NOTICE OF PROPOSED PROPERTY TAXES.] (a) The 43.34 county auditor shall prepare and the county treasurer shall 43.35 deliver after November 10 and on or before November 24 each 43.36 year, by first class mail to each taxpayer at the address listed 44.1 on the county's current year's assessment roll, a notice of 44.2 proposed property taxes. 44.3 (b) The commissioner of revenue shall prescribe the form of 44.4 the notice. 44.5 (c) The notice must inform taxpayers that it contains the 44.6 amount of property taxes each taxing authority proposes to 44.7 collect for taxes payable the following year. In the case of a 44.8 town, or in the case of the state general tax, the final tax 44.9 amount will be its proposed tax. In the case of taxing 44.10 authorities required to hold a public meeting under subdivision 44.11 6, the notice must clearly state that each taxing authority, 44.12 including regional library districts established under section 44.13 134.201, and including the metropolitan taxing districts as 44.14 defined in paragraph (i), but excluding all other special taxing 44.15 districts and towns, will hold a public meeting to receive 44.16 public testimony on the proposed budget and proposed or final 44.17 property tax levy, or, in case of a school district, on the 44.18 current budget and proposed property tax levy. It must clearly 44.19 state the time and place of each taxing authority's meeting, a 44.20 telephone number for the taxing authority that taxpayers may 44.21 call if they have questions related to the notice, and an 44.22 address where comments will be received by mail. 44.23 (d) The notice must state for each parcel: 44.24 (1) the market value of the property as determined under 44.25 section 273.11, and used for computing property taxes payable in 44.26 the following year and for taxes payable in the current year as 44.27 each appears in the records of the county assessor on November 1 44.28 of the current year; and, in the case of residential property, 44.29 whether the property is classified as homestead or 44.30 nonhomestead. The notice must clearly inform taxpayers of the 44.31 years to which the market values apply and that the values are 44.32 final values; 44.33 (2) the items listed below, shown separately by county, 44.34 city or town, and state general tax, net of the residential and 44.35 agricultural homestead credit under section 273.1384, voter 44.36 approved school levy, other local school levy, and the sum of 45.1 the special taxing districts, and as a total of all taxing 45.2 authorities: 45.3 (i) the actual tax for taxes payable in the current year; 45.4 and 45.5 (ii) the proposed tax amount. 45.6 If the county levy under clause (2) includes an amount for 45.7 a lake improvement district as defined under sections 103B.501 45.8 to 103B.581, the amount attributable for that purpose must be 45.9 separately stated from the remaining county levy amount. 45.10 In the case of a town or the state general tax, the final 45.11 tax shall also be its proposed tax unless the town changes its 45.12 levy at a special town meeting under section 365.52. If a 45.13 school district has certified under section 126C.17, subdivision 45.14 9, that a referendum will be held in the school district at the 45.15 November general election, the county auditor must note next to 45.16 the school district's proposed amount that a referendum is 45.17 pending and that, if approved by the voters, the tax amount may 45.18 be higher than shown on the notice. In the case of the city of 45.19 Minneapolis, the levy for the Minneapolis Library Board and the 45.20 levy for Minneapolis Park and Recreation shall be listed 45.21 separately from the remaining amount of the city's levy. In the 45.22 case of the city of St. Paul, the levy for the St. Paul Library 45.23 Agency must be listed separately from the remaining amount of 45.24 the city's levy. In the case of a parcel where tax increment or 45.25 the fiscal disparities areawide tax under chapter 276A or 473F 45.26 applies, the proposed tax levy on the captured value or the 45.27 proposed tax levy on the tax capacity subject to the areawide 45.28 tax must each be stated separately and not included in the sum 45.29 of the special taxing districts; and 45.30 (3) the increase or decrease between the total taxes 45.31 payable in the current year and the total proposed taxes, 45.32 expressed as a percentage. 45.33 For purposes of this section, the amount of the tax on 45.34 homesteads qualifying under the senior citizens' property tax 45.35 deferral program under chapter 290B is the total amount of 45.36 property tax before subtraction of the deferred property tax 46.1 amount. 46.2 (e) The notice must clearly state that the proposed or 46.3 final taxes do not include the following: 46.4 (1) special assessments; 46.5 (2) levies approved by the voters after the date the 46.6 proposed taxes are certified, including bond referenda and 46.7 school district levy referenda; 46.8 (3) a levy limit increase approved by the voters by the 46.9 first Tuesday after the first Monday in November of the levy 46.10 year as provided under section 275.73; 46.11 (4) amounts necessary to pay cleanup or other costs due to 46.12 a natural disaster occurring after the date the proposed taxes 46.13 are certified; 46.14 (5) amounts necessary to pay tort judgments against the 46.15 taxing authority that become final after the date the proposed 46.16 taxes are certified; and 46.17 (6) the contamination tax imposed on properties which 46.18 received market value reductions for contamination. 46.19 (f) Except as provided in subdivision 7, failure of the 46.20 county auditor to prepare or the county treasurer to deliver the 46.21 notice as required in this section does not invalidate the 46.22 proposed or final tax levy or the taxes payable pursuant to the 46.23 tax levy. 46.24 (g) If the notice the taxpayer receives under this section 46.25 lists the property as nonhomestead, and satisfactory 46.26 documentation is provided to the county assessor by the 46.27 applicable deadline, and the property qualifies for the 46.28 homestead classification in that assessment year, the assessor 46.29 shall reclassify the property to homestead for taxes payable in 46.30 the following year. 46.31 (h) In the case of class 4 residential property used as a 46.32 residence for lease or rental periods of 30 days or more, the 46.33 taxpayer must either: 46.34 (1) mail or deliver a copy of the notice of proposed 46.35 property taxes to each tenant, renter, or lessee; or 46.36 (2) post a copy of the notice in a conspicuous place on the 47.1 premises of the property. 47.2 The notice must be mailed or posted by the taxpayer by 47.3 November 27 or within three days of receipt of the notice, 47.4 whichever is later. A taxpayer may notify the county treasurer 47.5 of the address of the taxpayer, agent, caretaker, or manager of 47.6 the premises to which the notice must be mailed in order to 47.7 fulfill the requirements of this paragraph. 47.8 (i) For purposes of this subdivision, subdivisions 5a and 47.9 6, "metropolitan special taxing districts" means the following 47.10 taxing districts in the seven-county metropolitan area that levy 47.11 a property tax for any of the specified purposes listed below: 47.12 (1) Metropolitan Council under section 473.132, 473.167, 47.13 473.249, 473.325, 473.446, 473.521, 473.547, or 473.834; 47.14 (2) Metropolitan Airports Commission under section 473.667, 47.15 473.671, or 473.672; and 47.16 (3) Metropolitan Mosquito Control Commission under section 47.17 473.711. 47.18 For purposes of this section, any levies made by the 47.19 regional rail authorities in the county of Anoka, Carver, 47.20 Dakota, Hennepin, Ramsey, Scott, or Washington under chapter 47.21 398A shall be included with the appropriate county's levy and 47.22 shall be discussed at that county's public hearing. 47.23 (j) The governing body of a county, city, or school 47.24 district may, with the consent of the county auditor, include 47.25 supplemental information with the statement of proposed property 47.26 taxes about the impact of state aid increases or decreases on 47.27 property tax increases or decreases and on the level of services 47.28 provided in the affected jurisdiction. This supplemental 47.29 information may include information for the following year, the 47.30 current year, and for as many consecutive preceding years as 47.31 deemed appropriate by the governing body of the county, city, or 47.32 school district. It may include only information regarding: 47.33 (1) the impact of inflation as measured by the implicit 47.34 price deflator for state and local government purchases; 47.35 (2) population growth and decline; 47.36 (3) state or federal government action; and 48.1 (4) other financial factors that affect the level of 48.2 property taxation and local services that the governing body of 48.3 the county, city, or school district may deem appropriate to 48.4 include. 48.5 The information may be presented using tables, written 48.6 narrative, and graphic representations and may contain 48.7 instruction toward further sources of information or opportunity 48.8 for comment. 48.9 Sec. 12. Minnesota Statutes 2004, section 469.033, 48.10 subdivision 6, is amended to read: 48.11 Subd. 6. [OPERATION AREA AS TAXING DISTRICT, SPECIAL TAX.] 48.12 All of the territory included within the area of operation of 48.13 any authority shall constitute a taxing district for the purpose 48.14 of levying and collecting special benefit taxes as provided in 48.15 this subdivision. All of the taxable property, both real and 48.16 personal, within that taxing district shall be deemed to be 48.17 benefited by projects to the extent of the special taxes levied 48.18 under this subdivision. Subject to the consent by resolution of 48.19 the governing body of the city in and for which it was created, 48.20 an authority may levy a tax upon all taxable property within 48.21 that taxing district. The tax shall be extended, spread, and 48.22 included with and as a part of the general taxes for state, 48.23 county, and municipal purposes by the county auditor, to be 48.24 collected and enforced therewith, together with the penalty, 48.25 interest, and costs. As the tax, including any penalties, 48.26 interest, and costs, is collected by the county treasurer it 48.27 shall be accumulated and kept in a separate fund to be known as 48.28 the "housing and redevelopment project fund." The money in the 48.29 fund shall be turned over to the authority at the same time and 48.30 in the same manner that the tax collections for the city are 48.31 turned over to the city, and shall be expended only for the 48.32 purposes of sections 469.001 to 469.047. It shall be paid out 48.33 upon vouchers signed by the chair of the authority or an 48.34 authorized representative. The amount of the levy shall be an 48.35 amount approved by the governing body of the city, but shall not 48.36 exceed 0.0144 percent of taxable market value for the current 49.1 levy year, notwithstanding section 273.032. The authority shall 49.2 each year formulate and file a budget in accordance with the 49.3 budget procedure of the city in the same manner as required of 49.4 executive departments of the city or, if no budgets are required 49.5 to be filed, by August 1. The amount of the tax levy for the 49.6 following year shall be based on that budget. 49.7 Sec. 13. Minnesota Statutes 2004, section 473F.08, 49.8 subdivision 3a, is amended to read: 49.9 Subd. 3a. [BLOOMINGTON COMPUTATION.] Beginning in 1987 and 49.10 each subsequent year through 1998, the city of Bloomington shall 49.11 determine the interest payments for that year for the bonds 49.12 which have been sold for the highway improvements pursuant to 49.13 Laws 1986, chapter 391, section 2, paragraph (g). Effective for 49.14 property taxes payable in 1988 through property taxes payable in 49.15 1999, after the Hennepin County auditor has computed the 49.16 areawide portion of the levy for the city of Bloomington 49.17 pursuant to subdivision 3, clause (a), the auditor shall 49.18 annually add a dollar amount to the city of Bloomington's 49.19 areawide portion of the levy equal to the amount which has been 49.20 certified to the auditor by the city of Bloomington for the 49.21 interest payments for that year for the bonds which were sold 49.22 for highway improvements. The total areawide portion of the 49.23 levy for the city of Bloomington including the additional amount 49.24 for interest repayment certified pursuant to this subdivision 49.25 shall be certified by the Hennepin County auditor to the 49.26 administrative auditor pursuant to subdivision 5. The Hennepin 49.27 County auditor shall distribute to the city of Bloomington the 49.28 additional areawide portion of the levy computed pursuant to 49.29 this subdivision at the same time that payments are made to the 49.30 other counties pursuant to subdivision 7a. For property taxes 49.31 payable from the year20062014 through20152023, the Hennepin 49.32 County auditor shall adjust Bloomington's contribution to the 49.33 areawide gross tax capacity upward each year by a value equal to 49.34 ten percent of the total additional areawide levy distributed to 49.35 Bloomington under this subdivision from 1988 to 1999, divided by 49.36 the areawide tax rate for taxes payable in the previous year. 50.1 [EFFECTIVE DATE.] This section is effective the day 50.2 following final enactment. 50.3 Sec. 14. Minnesota Statutes 2004, section 477A.011, 50.4 subdivision 34, is amended to read: 50.5 Subd. 34. [CITY REVENUE NEED.] (a) For a city with a 50.6 population equal to or greater than 2,500, "city revenue need" 50.7 is the sum of (1) 5.0734098 times the pre-1940 housing 50.8 percentage; plus (2) 19.141678 times the population decline 50.9 percentage; plus (3) 2504.06334 times the road accidents factor; 50.10 plus (4) 355.0547; minus (5) the metropolitan area factor; minus 50.11 (6) 49.10638 times the household size. 50.12 (b) For a city with a population less than 2,500, "city 50.13 revenue need" is the sum of (1) 2.387 times the pre-1940 housing 50.14 percentage; plus (2) 2.67591 times the commercial industrial 50.15 percentage; plus (3) 3.16042 times the population decline 50.16 percentage; plus (4) 1.206 times the transformed population; 50.17 minus (5) 62.772. 50.18 (c) The city revenue need cannot be less than zero. 50.19 (d) For calendar year 2005 and subsequent years, the city 50.20 revenue need for a city, as determined in paragraphs (a) to (c), 50.21 is multiplied by the ratio of theannualmost recently available 50.22 first quarter implicit price deflator for government consumption 50.23 expenditures and gross investment for state and local 50.24 governments as prepared by the United States Department of 50.25 Commerce,for the most recently available yearto the2003first 50.26 quarter 2002 implicit price deflator for state and local 50.27 government purchases. 50.28 (e) For a city with a population of 2,500 or more and a 50.29 population in one of the most recently available five years that 50.30 was less than 2,500, "city revenue need" is the sum of (1) its 50.31 city revenue need calculated under paragraph (a) multiplied by 50.32 its transition factor; plus (2) its city revenue need calculated 50.33 under the formula in paragraph (b) multiplied by the difference 50.34 between one and its transition factor. For purposes of this 50.35 paragraph, a city's "transition factor" is equal to 0.2 50.36 multiplied by the number of years that the city's population 51.1 estimate has been 2,500 or more. This provision only applies 51.2 for aids payable in calendar years 2006 to 2008 to cities with a 51.3 2002 population of less than 2,500. It applies to any city for 51.4 aids payable in 2009 and thereafter. 51.5 [EFFECTIVE DATE.] This section is effective for aids 51.6 payable in 2006 and thereafter. 51.7 Sec. 15. Minnesota Statutes 2004, section 477A.011, 51.8 subdivision 36, as amended by Laws 2005, chapter 38, section 1, 51.9 is amended to read: 51.10 Subd. 36. [CITY AID BASE.] (a) Except as otherwise 51.11 provided in this subdivision, "city aid base" is zero. 51.12 (b) The city aid base for any city with a population less 51.13 than 500 is increased by $40,000 for aids payable in calendar 51.14 year 1995 and thereafter, and the maximum amount of total aid it 51.15 may receive under section 477A.013, subdivision 9, paragraph 51.16 (c), is also increased by $40,000 for aids payable in calendar 51.17 year 1995 only, provided that: 51.18 (i) the average total tax capacity rate for taxes payable 51.19 in 1995 exceeds 200 percent; 51.20 (ii) the city portion of the tax capacity rate exceeds 100 51.21 percent; and 51.22 (iii) its city aid base is less than $60 per capita. 51.23 (c) The city aid base for a city is increased by $20,000 in 51.24 1998 and thereafter and the maximum amount of total aid it may 51.25 receive under section 477A.013, subdivision 9, paragraph (c), is 51.26 also increased by $20,000 in calendar year 1998 only, provided 51.27 that: 51.28 (i) the city has a population in 1994 of 2,500 or more; 51.29 (ii) the city is located in a county, outside of the 51.30 metropolitan area, which contains a city of the first class; 51.31 (iii) the city's net tax capacity used in calculating its 51.32 1996 aid under section 477A.013 is less than $400 per capita; 51.33 and 51.34 (iv) at least four percent of the total net tax capacity, 51.35 for taxes payable in 1996, of property located in the city is 51.36 classified as railroad property. 52.1 (d) The city aid base for a city is increased by $200,000 52.2 in 1999 and thereafter and the maximum amount of total aid it 52.3 may receive under section 477A.013, subdivision 9, paragraph 52.4 (c), is also increased by $200,000 in calendar year 1999 only, 52.5 provided that: 52.6 (i) the city was incorporated as a statutory city after 52.7 December 1, 1993; 52.8 (ii) its city aid base does not exceed $5,600; and 52.9 (iii) the city had a population in 1996 of 5,000 or more. 52.10 (e) The city aid base for a city is increased by $450,000 52.11 in 1999 to 2008 and the maximum amount of total aid it may 52.12 receive under section 477A.013, subdivision 9, paragraph (c), is 52.13 also increased by $450,000 in calendar year 1999 only, provided 52.14 that: 52.15 (i) the city had a population in 1996 of at least 50,000; 52.16 (ii) its population had increased by at least 40 percent in 52.17 the ten-year period ending in 1996; and 52.18 (iii) its city's net tax capacity for aids payable in 1998 52.19 is less than $700 per capita. 52.20 (f) The city aid base for a city is increased by $150,000 52.21 for aids payable in 2000 and thereafter, and the maximum amount 52.22 of total aid it may receive under section 477A.013, subdivision 52.23 9, paragraph (c), is also increased by $150,000 in calendar year 52.24 2000 only, provided that: 52.25 (1) the city has a population that is greater than 1,000 52.26 and less than 2,500; 52.27 (2) its commercial and industrial percentage for aids 52.28 payable in 1999 is greater than 45 percent; and 52.29 (3) the total market value of all commercial and industrial 52.30 property in the city for assessment year 1999 is at least 15 52.31 percent less than the total market value of all commercial and 52.32 industrial property in the city for assessment year 1998. 52.33 (g) The city aid base for a city is increased by $200,000 52.34 in 2000 and thereafter, and the maximum amount of total aid it 52.35 may receive under section 477A.013, subdivision 9, paragraph 52.36 (c), is also increased by $200,000 in calendar year 2000 only, 53.1 provided that: 53.2 (1) the city had a population in 1997 of 2,500 or more; 53.3 (2) the net tax capacity of the city used in calculating 53.4 its 1999 aid under section 477A.013 is less than $650 per 53.5 capita; 53.6 (3) the pre-1940 housing percentage of the city used in 53.7 calculating 1999 aid under section 477A.013 is greater than 12 53.8 percent; 53.9 (4) the 1999 local government aid of the city under section 53.10 477A.013 is less than 20 percent of the amount that the formula 53.11 aid of the city would have been if the need increase percentage 53.12 was 100 percent; and 53.13 (5) the city aid base of the city used in calculating aid 53.14 under section 477A.013 is less than $7 per capita. 53.15 (h) The city aid base for a city is increased by $102,000 53.16 in 2000 and thereafter, and the maximum amount of total aid it 53.17 may receive under section 477A.013, subdivision 9, paragraph 53.18 (c), is also increased by $102,000 in calendar year 2000 only, 53.19 provided that: 53.20 (1) the city has a population in 1997 of 2,000 or more; 53.21 (2) the net tax capacity of the city used in calculating 53.22 its 1999 aid under section 477A.013 is less than $455 per 53.23 capita; 53.24 (3) the net levy of the city used in calculating 1999 aid 53.25 under section 477A.013 is greater than $195 per capita; and 53.26 (4) the 1999 local government aid of the city under section 53.27 477A.013 is less than 38 percent of the amount that the formula 53.28 aid of the city would have been if the need increase percentage 53.29 was 100 percent. 53.30 (i) The city aid base for a city is increased by $32,000 in 53.31 2001 and thereafter, and the maximum amount of total aid it may 53.32 receive under section 477A.013, subdivision 9, paragraph (c), is 53.33 also increased by $32,000 in calendar year 2001 only, provided 53.34 that: 53.35 (1) the city has a population in 1998 that is greater than 53.36 200 but less than 500; 54.1 (2) the city's revenue need used in calculating aids 54.2 payable in 2000 was greater than $200 per capita; 54.3 (3) the city net tax capacity for the city used in 54.4 calculating aids available in 2000 was equal to or less than 54.5 $200 per capita; 54.6 (4) the city aid base of the city used in calculating aid 54.7 under section 477A.013 is less than $65 per capita; and 54.8 (5) the city's formula aid for aids payable in 2000 was 54.9 greater than zero. 54.10 (j) The city aid base for a city is increased by $7,200 in 54.11 2001 and thereafter, and the maximum amount of total aid it may 54.12 receive under section 477A.013, subdivision 9, paragraph (c), is 54.13 also increased by $7,200 in calendar year 2001 only, provided 54.14 that: 54.15 (1) the city had a population in 1998 that is greater than 54.16 200 but less than 500; 54.17 (2) the city's commercial industrial percentage used in 54.18 calculating aids payable in 2000 was less than ten percent; 54.19 (3) more than 25 percent of the city's population was 60 54.20 years old or older according to the 1990 census; 54.21 (4) the city aid base of the city used in calculating aid 54.22 under section 477A.013 is less than $15 per capita; and 54.23 (5) the city's formula aid for aids payable in 2000 was 54.24 greater than zero. 54.25 (k) The city aid base for a city is increased by $45,000 in 54.26 2001 and thereafter and by an additional $50,000 in calendar 54.27 years 2002 to 2011, and the maximum amount of total aid it may 54.28 receive under section 477A.013, subdivision 9, paragraph (c), is 54.29 also increased by $45,000 in calendar year 2001 only, and by 54.30 $50,000 in calendar year 2002 only, provided that: 54.31 (1) the net tax capacity of the city used in calculating 54.32 its 2000 aid under section 477A.013 is less than $810 per 54.33 capita; 54.34 (2) the population of the city declined more than two 54.35 percent between 1988 and 1998; 54.36 (3) the net levy of the city used in calculating 2000 aid 55.1 under section 477A.013 is greater than $240 per capita; and 55.2 (4) the city received less than $36 per capita in aid under 55.3 section 477A.013, subdivision 9, for aids payable in 2000. 55.4 The city aid base for a city described in this paragraph is also 55.5 increased by $250,000 in calendar year 2006 and the maximum 55.6 amount of total aid it may receive under section 477A.013, 55.7 subdivision 9, paragraph (c), is also increased by $250,000 in 55.8 calendar year 2006 only. 55.9 (l) The city aid base for a city with a population of 55.10 10,000 or more which is located outside of the seven-county 55.11 metropolitan area is increased in 2002 and thereafter, and the 55.12 maximum amount of total aid it may receive under section 55.13 477A.013, subdivision 9, paragraph (b) or (c), is also increased 55.14 in calendar year 2002 only, by an amount equal to the lesser of: 55.15 (1)(i) the total population of the city,as determined by55.16the United States Bureau of the Census, in the 2000 census,(ii) 55.17 minus 5,000, (iii) times 60; or 55.18 (2) $2,500,000. 55.19 (m) The city aid base is increased by $50,000 in 2002 and 55.20 thereafter, and the maximum amount of total aid it may receive 55.21 under section 477A.013, subdivision 9, paragraph (c), is also 55.22 increased by $50,000 in calendar year 2002 only, provided that: 55.23 (1) the city is located in the seven-county metropolitan 55.24 area; 55.25 (2) its population in 2000 is between 10,000 and 20,000; 55.26 and 55.27 (3) its commercial industrial percentage, as calculated for 55.28 city aid payable in 2001, was greater than 25 percent. 55.29 (n) The city aid base for a city is increased by $150,000 55.30 in calendar years 2002 to 2011 and the maximum amount of total 55.31 aid it may receive under section 477A.013, subdivision 9, 55.32 paragraph (c), is also increased by $150,000 in calendar year 55.33 2002 only, provided that: 55.34 (1) the city had a population of at least 3,000 but no more 55.35 than 4,000 in 1999; 55.36 (2) its home county is located within the seven-county 56.1 metropolitan area; 56.2 (3) its pre-1940 housing percentage is less than 15 56.3 percent; and 56.4 (4) its city net tax capacity per capita for taxes payable 56.5 in 2000 is less than $900 per capita. 56.6 (o) The city aid base for a city is increased by $200,000 56.7 beginning in calendar year 2003 and the maximum amount of total 56.8 aid it may receive under section 477A.013, subdivision 9, 56.9 paragraph (c), is also increased by $200,000 in calendar year 56.10 2003 only, provided that the city qualified for an increase in 56.11 homestead and agricultural credit aid under Laws 1995, chapter 56.12 264, article 8, section 18. 56.13 (p) The city aid base for a city is increased by $200,000 56.14 in 2004 only and the maximum amount of total aid it may receive 56.15 under section 477A.013, subdivision 9, is also increased by 56.16 $200,000 in calendar year 2004 only, if the city is the site of 56.17 a nuclear dry cask storage facility. 56.18 (q) The city aid base for a city is increased by $10,000 in 56.19 2004 and thereafter and the maximum total aid it may receive 56.20 under section 477A.013, subdivision 9, is also increased by 56.21 $10,000 in calendar year 2004 only, if the city was included in 56.22 a federal major disaster designation issued on April 1, 1998, 56.23 and its pre-1940 housing stock was decreased by more than 40 56.24 percent between 1990 and 2000. 56.25 (r) The city aid base for a city is increased by $25,000 in 56.26 2006 only and the maximum total aid it may receive under section 56.27 477A.013, subdivision 9, is also increased by $25,000 in 2006 56.28 only, if the city (1) received no aid under section 477A.013 in 56.29 2004; (2) had a population in 2002 greater than 20,000 and less 56.30 than 50,000; and (3) had an adjusted net tax capacity of less 56.31 than $750 per capita for aids payable in 2004. 56.32 (s) The city aid base for a city is increased by $500,000 56.33 in calendar year 2006 and thereafter, and the maximum amount of 56.34 total aid the city may receive under section 477A.013, 56.35 subdivision 9, paragraph (c), is also increased by $500,000 in 56.36 calendar year 2006 only, provided that: 57.1 (1) the city is located outside of the seven-county 57.2 metropolitan area; 57.3 (2) the city's 2000 population is between 10,000 and 57.4 20,000; 57.5 (3) the net levy of the city used in calculating 2005 aid 57.6 under section 477A.013 is greater than $350 per capita; and 57.7 (4) the city's commercial industrial percentage under 57.8 subdivision 32, for aids payable in 2005, was at least 20 57.9 percent. 57.10 (t) The city aid base for a city is increased by $25,000 in 57.11 2006 only and the maximum total aid it may receive under section 57.12 477A.013, subdivision 9, is also increased by $25,000 in 57.13 calendar year 2006 only if the city had a population in 2003 of 57.14 at least 1,000 and has a state park for which the city provides 57.15 rescue services and which comprised at least 14 percent of the 57.16 total geographic area included within the city boundaries in 57.17 2000. 57.18 [EFFECTIVE DATE.] This section is effective beginning with 57.19 aids payable in 2006, except that the striking of paragraph (f) 57.20 is effective beginning with aids payable in 2004. 57.21 Sec. 16. Minnesota Statutes 2004, section 477A.0124, 57.22 subdivision 4, is amended to read: 57.23 Subd. 4. [COUNTY TAX-BASE EQUALIZATION AID.] (a) For 57.2420052006 and subsequent years, the money appropriated to county 57.25 tax-base equalization aid each calendar year, after the payment 57.26 under paragraph (f), shall be apportioned among the counties 57.27 according to each county's tax-base equalization aid factor. 57.28 (b) A county's tax-base equalization aid factor is equal to 57.29 the amount by which (i) $185 times the county's population, 57.30 exceeds (ii) 9.45 percent of the county's net tax capacity. 57.31 (c) In the case of a county with a population less than 57.32 10,000, the factor determined in paragraph (b) shall be 57.33 multiplied by a factor of three. 57.34 (d) In the case of a county with a population greater than 57.35 or equal to 10,000, but less than 12,500, the factor determined 57.36 in paragraph (b) shall be multiplied by a factor of two. 58.1 (e) In the case of a county with a population greater than 58.2 500,000, the factor determined in paragraph (b) shall be 58.3 multiplied by a factor of 0.25. 58.4 (f) Before the money appropriated to county base 58.5 equalization aid is apportioned among the counties as provided 58.6 in paragraph (a), an amount up to $73,259 is allocated annually 58.7 to Anoka County and up to $59,664 is annually allocated to 58.8 Washington County for the county to pay postretirement costs of 58.9 health insurance premiums for court employees. The allocation 58.10 under this paragraph is in addition to the allocations under 58.11 paragraphs (a) to (e). 58.12 [EFFECTIVE DATE.] This section is effective for aids 58.13 payable in 2006 and thereafter. 58.14 Sec. 17. Minnesota Statutes 2004, section 477A.013, 58.15 subdivision 8, is amended to read: 58.16 Subd. 8. [CITY FORMULA AID.] In calendar year 2004 and 58.17 subsequent years, the formula aid for a city is equal to the 58.18 need increase percentage multiplied by the difference between 58.19 (1) the city's revenue need multiplied by its population, and 58.20 (2)the sum ofthe city's net tax capacity multiplied by the tax 58.21 effort rate, and the taconite aids under sections 298.28 and58.22298.282, multiplied by the following percentages:58.23(i) zero percent for aids payable in 2004;58.24(ii) 25 percent for aids payable in 2005;58.25(iii) 50 percent for aids payable in 2006;58.26(iv) 75 percent for aids payable in 2007; and58.27(v) 100 percent for aids payable in 2008 and thereafter. 58.28 No city may have a formula aid amount less than zero. The need 58.29 increase percentage must be the same for all cities. 58.30 The applicable need increase percentage must be calculated 58.31 by the Department of Revenue so that the total of the aid under 58.32 subdivision 9 equals the total amount available for aid under 58.33 section 477A.03 after the subtraction under section 477A.014, 58.34 subdivisions 4 and 5. 58.35 [EFFECTIVE DATE.] This section is effective for aids 58.36 payable in 2006 and thereafter. 59.1 Sec. 18. Minnesota Statutes 2004, section 477A.013, 59.2 subdivision 9, is amended to read: 59.3 Subd. 9. [CITY AID DISTRIBUTION.] (a) In calendar year 59.4 2002 and thereafter, each city shall receive an aid distribution 59.5 equal to the sum of (1) the city formula aid under subdivision 59.6 8, and (2) its city aid base. 59.7 (b)The aid for a city in calendar year 2004 shall not59.8exceed the amount of its aid in calendar year 2003 after the59.9reductions under Laws 2003, First Special Session chapter 21,59.10article 5.59.11(c)For aids payable in 2005 and thereafter, the total aid 59.12 for any city shall not exceed the sum of (1)ten50 percent of 59.13 the city's net levy for the year prior to the aid distribution 59.14 plus (2) its total aid in the previous year. For aids payable 59.15 in 2005 and thereafter, the total aid for any city with a 59.16 population of 2,500 or more may not decrease from its total aid 59.17 under this section in the previous year by an amount greater 59.18 than ten percent of its net levy in the year prior to the aid 59.19 distribution. 59.20(d)(c)For aids payable in 2004 only, the total aid for a59.21city with a population less than 2,500 may not be less than the59.22amount it was certified to receive in 2003 minus the greater of59.23(1) the reduction to this aid payment in 2003 under Laws 2003,59.24First Special Session chapter 21, article 5, or (2) five percent59.25of its 2003 aid amount.For aids payable in 2005 and 59.26 thereafter, the total aid for a city with a population less than 59.27 2,500 must not be less than the amount it was certified to 59.28 receive in the previous year minus five percent of its 2003 59.29 certified aid amount. 59.30 (d) For aids payable in 2006 only, the total aid for a city 59.31 with a population less than 1,000 must not be less than 105 59.32 percent of the amount it was certified to receive in 2005. 59.33 [EFFECTIVE DATE.] This section is effective for aids 59.34 payable in 2006 and thereafter. 59.35 Sec. 19. [477A.0133] [COUNTY CRIMINAL JUSTICE AID.] 59.36 Subdivision 1. [PURPOSE.] County criminal justice aid is 60.1 provided for the sole purpose of reducing the reliance of county 60.2 criminal justice and corrections programs and associated costs 60.3 on local property taxes. 60.4 County criminal justice aids must be used to pay expenses 60.5 associated with criminal justice activities, specifically 60.6 probation and supervised release caseload reductions, chemical 60.7 dependency treatment, mental health programs, and assistance to 60.8 crime victims. 60.9 Subd. 2. [DEFINITIONS.] For the purposes of this section, 60.10 the following definitions apply: 60.11 (1) "population" means the population according to the most 60.12 recent federal census, or according to the state demographer's 60.13 most recent estimate if it has been issued subsequent to the 60.14 most recent federal census; and 60.15 (2) "Part I crimes" means the three-year average annual 60.16 number of Part I crimes reported for each county by the 60.17 Department of Public Safety for the most recent years 60.18 available. By July 1 of each year, the commissioner of public 60.19 safety shall certify to the commissioner of revenue the number 60.20 of Part I crimes reported for each county for the three most 60.21 recent calendar years available. 60.22 Subd. 3. [FORMULA.] Each calendar year, the commissioner 60.23 of revenue shall distribute county criminal justice aid to each 60.24 county in an amount determined according to the following 60.25 formula: 60.26 (1) one-half shall be distributed to each county in the 60.27 same proportion that the county's population is to the 60.28 population of all counties in the state; and 60.29 (2) one-half shall be distributed to each county in the 60.30 same proportion that the county's Part I crimes are to the total 60.31 Part I crimes for all counties in the state. 60.32 Subd. 4. [PAYMENT DATES.] The aid amounts for each 60.33 calendar year shall be paid as provided in section 477A.015. 60.34 Subd. 5. [REPORT.] By March 15 of each year following the 60.35 year in which criminal justice aids are received, each county 60.36 must file a report with the commissioner of revenue describing 61.1 how criminal justice aids were spent, and demonstrating that 61.2 they were used for criminal justice purposes. 61.3 Subd. 6. [ANNUAL APPROPRIATION.] Aid payments to counties 61.4 under this section are limited to $15,000,000 in 2006 and 2007 61.5 only. 61.6 Sec. 20. Minnesota Statutes 2004, section 477A.03, 61.7 subdivision 2a, is amended to read: 61.8 Subd. 2a. [CITIES.]For aids payable in 2004, the total61.9aids paid under section 477A.013, subdivision 9, are limited to61.10$429,000,000.For aids payable in2005 and thereafter2006, the 61.11 total aids paid under section 477A.013, subdivision 9, are 61.12 increased to$437,052,000$523,052,000. For aids payable in 61.13 2007 and subsequent years, the total aids paid under section 61.14 477A.013, subdivision 9, are increased by one plus the 61.15 percentage increase in the implicit price deflator for 61.16 government consumption expenditures and gross investment for 61.17 state and local governments prepared by the Bureau of Economic 61.18 Analysis of the United States Department of Commerce for the 61.19 12-month period ending March 31 of the previous year. The 61.20 percentage increase used in this subdivision shall be no less 61.21 than 2.5 percent and no greater than 5.0 percent. The total 61.22 aids paid under section 477A.013, subdivision 9, shall not 61.23 exceed the amount required for the need increase percentage to 61.24 equal one. It is the intention of the legislature that the 61.25 increased aid provided to cities be used to pay for public 61.26 safety functions. 61.27 [EFFECTIVE DATE.] This section is effective for aids 61.28 payable in 2006 and thereafter. 61.29 Sec. 21. Minnesota Statutes 2004, section 477A.03, 61.30 subdivision 2b, is amended to read: 61.31 Subd. 2b. [COUNTIES.] (a) For aids payable in calendar 61.32 year 2005 and thereafter, the total aids paid to counties under 61.33 section 477A.0124, subdivision 3, are limited to $100,500,000. 61.34 Each calendar year, $500,000 shall be retained by the 61.35 commissioner of revenue to make reimbursements to the 61.36 commissioner of finance for payments made under section 611.27. 62.1 For calendar year 2004, the amount shall be in addition to the 62.2 payments authorized under section 477A.0124, subdivision 1. For 62.3 calendar year 2005 and subsequent years, the amount shall be 62.4 deducted from the appropriation under this paragraph. The 62.5 reimbursements shall be to defray the additional costs 62.6 associated with court-ordered counsel under section 611.27. Any 62.7 retained amounts not used for reimbursement in a year shall be 62.8 included in the next distribution of county need aid that is 62.9 certified to the county auditors for the purpose of property tax 62.10 reduction for the next taxes payable year. 62.11 (b) For aids payable in 2005 andthereafter2006, the total 62.12 aids under section 477A.0124, subdivision 4, are limited to 62.13 $105,000,000. For aids payable in 2007 and thereafter, the 62.14 total aid under section 477A.0124, subdivision 4, is limited to 62.15 $105,132,923. The commissioner of finance shall bill the 62.16 commissioner of revenue for the cost of preparation of local 62.17 impact notes as required by section 3.987, not to exceed 62.18 $207,000 in fiscal year 2004 and thereafter. The commissioner 62.19 of education shall bill the commissioner of revenue for the cost 62.20 of preparation of local impact notes for school districts as 62.21 required by section 3.987, not to exceed $7,000 in fiscal year 62.22 2004 and thereafter. The commissioner of revenue shall deduct 62.23 the amounts billed under this paragraph from the appropriation 62.24 under this paragraph. The amounts deducted are appropriated to 62.25 the commissioner of finance and the commissioner of education 62.26 for the preparation of local impact notes. 62.27 [EFFECTIVE DATE.] This section is effective for aids 62.28 payable in 2007 and thereafter. 62.29 Sec. 22. Laws 1994, chapter 587, article 9, section 8, 62.30 subdivision 1, is amended to read: 62.31 Subdivision 1. [TAX LEVIES.] Notwithstanding Minnesota 62.32 Statutes, section 471.24, each of the following cities or towns 62.33 is authorized to levy a tax and make an appropriation not to 62.34 exceed$15,000$25,000 annually to the Lakeview Cemetery 62.35 Association, operated by the town of Iron Range, for cemetery 62.36 purposes: the city of Coleraine, the city of Bovey, and each 63.1 town which is a member of the cemetery association. 63.2 [EFFECTIVE DATE.] This section is effective for taxes 63.3 levied in 2005, payable in 2006, and thereafter. 63.4 Sec. 23. 2005 S.F. No. 467, section 1, the effective date, 63.5 if enacted, is amended to read: 63.6 [EFFECTIVE DATE.] This section is effective for taxes 63.7 levied in20052004, payable in20062005, and thereafter. 63.8 Sec. 24. [COURT AID ADJUSTMENT.] 63.9 For aids payable in 2005 only, the amount of court aid paid 63.10 to Anoka County under Minnesota Statutes, section 273.1398, 63.11 subdivision 4, is increased by $36,630 for aids payable in 2005 63.12 only and the amount paid to Washington County under Minnesota 63.13 Statutes, section 273.1398, subdivision 4, is increased by 63.14 $29,832 for aids payable in 2005 only. 63.15 [EFFECTIVE DATE.] This section is effective for aids 63.16 payable in 2005 only. 63.17 Sec. 25. [SUPREME COURT BUDGET.] 63.18 The district courts general fund appropriation is reduced 63.19 by $66,462 in fiscal year 2006 and $132,923 beginning in fiscal 63.20 year 2007 to fund the amount transferred to county tax base 63.21 equalization aid to fund the payments under Minnesota Statutes, 63.22 section 477A.0124, subdivision 4, paragraph (f), and section 20. 63.23 [EFFECTIVE DATE.] This section is effective the day 63.24 following final enactment. 63.25 Sec. 26. [CROW WING COUNTY SEWER DISTRICT; PILOT PROJECT.] 63.26 Subdivision 1. [POWERS.] In addition to the powers granted 63.27 in Minnesota Statutes, chapter 116A, the county board for Crow 63.28 Wing County, by resolution, may grant the following powers to a 63.29 sewer district created by the county board under Minnesota 63.30 Statutes, chapter 116A: 63.31 (1) provide that an authorized representative of the 63.32 district, after presentation of credentials, may enter at 63.33 reasonable times any premise to inspect or maintain an 63.34 individual sewage treatment system, as defined in Minnesota 63.35 Statutes, section 115.55, subdivision 1, paragraph (g); 63.36 (2) include areas of the county within the sewer district 64.1 that are not contiguous and establish different systems for 64.2 wastewater treatment in specific areas of the county; 64.3 (3) provide that each special service area that is managed 64.4 by the sewer system or combination thereof constitutes a system 64.5 under Minnesota Statutes, chapter 116A; 64.6 (4) delegate to the sewer district, by resolution, all or a 64.7 portion of its administrative and enforcement obligations with 64.8 respect to individual sewage treatment systems under Minnesota 64.9 Statutes, chapter 115, and rules adopted by the Pollution 64.10 Control Agency; 64.11 (5) modify any individual sewage treatment system to 64.12 provide reasonable access to it for inspection and maintenance; 64.13 and 64.14 (6) neither the approval nor the waiver of the county 64.15 board, nor confirmation by order of the district court, shall be 64.16 required for the sewer commission to exercise the powers set 64.17 forth in Minnesota Statutes, section 116A.24. 64.18 Subd. 2. [REPORT.] If the Crow Wing County Board exercises 64.19 the additional powers granted under subdivision 1, the county 64.20 shall provide a report by January 15, 2009, to the senate and 64.21 house committees with jurisdiction over environmental policy and 64.22 taxes on the establishment and operation of the sewer district. 64.23 The report must include: 64.24 (1) a description of the implementation of the additional 64.25 powers granted under subdivision 1; 64.26 (2) available information on the effectiveness of the 64.27 additional powers to control pollution in the county; and 64.28 (3) any recommendations for changes to Minnesota Statutes, 64.29 chapter 116A, to broaden the authority for sewer districts to 64.30 include any of the additional powers granted under subdivision 1. 64.31 [EFFECTIVE DATE.] This section is effective the day 64.32 following compliance with Minnesota Statutes, section 645.021, 64.33 subdivision 2. 64.34 Sec. 27. [DEVELOPMENT AUTHORIZED.] 64.35 Dakota County Regional Railroad Authority may exercise the 64.36 powers conferred by Minnesota Statutes, section 398A.04, to 65.1 plan, establish, acquire, develop, construct, purchase, enlarge, 65.2 extend, improve, maintain, equip, operate, regulate, and protect 65.3 a bus rapid transit system located within the Cedar Avenue 65.4 transitway corridor within Dakota County. The authority may 65.5 levy for this purpose under Minnesota Statutes, section 398A.04, 65.6 subdivision 8, to the extent the levy authority under that 65.7 subdivision is not required to be used for that levy year for 65.8 railroad purposes. 65.9 [EFFECTIVE DATE.] Pursuant to Minnesota Statutes, section 65.10 645.023, subdivision 1, paragraph (a), this section is effective 65.11 without local approval the day following final enactment. 65.12 Sec. 28. [CITY OF WHITE BEAR LAKE.] 65.13 Subdivision 1. [PAYMENT REQUIRED.] The commissioner of 65.14 revenue must make payments of $52,482 on each of July 20, 2005, 65.15 and December 26, 2005, to the city of White Bear Lake. 65.16 Subd. 2. [APPROPRIATION.] $104,964 is appropriated from 65.17 the general fund to the commissioner of revenue to make the 65.18 payments required in this section. 65.19 ARTICLE 5 65.20 INTERNATIONAL ECONOMIC DEVELOPMENT ZONE 65.21 Section 1. Minnesota Statutes 2004, section 272.02, is 65.22 amended by adding a subdivision to read: 65.23 Subd. 69. [INTERNATIONAL ECONOMIC DEVELOPMENT ZONE 65.24 PROPERTY.] (a) Improvements to real property, and personal 65.25 property, classified under section 273.13, subdivision 24, and 65.26 located within an international economic development zone 65.27 designated under section 469.322, are exempt from ad valorem 65.28 taxes levied under chapter 275, if the occupant of the property 65.29 is a qualified business, as defined in section 469.321. 65.30 (b) The exemption applies beginning for the first 65.31 assessment year after designation of the international economic 65.32 development zone. The exemption applies to each assessment year 65.33 that begins during the duration of the international economic 65.34 development zone and to property occupied by July 1 of the 65.35 assessment year by a qualified business. This exemption does 65.36 not apply to: 66.1 (1) the levy under section 475.61 or similar levy 66.2 provisions under any other law to pay general obligation bonds; 66.3 or 66.4 (2) a levy under section 126C.17, if the levy was approved 66.5 by the voters before the designation of the zone. 66.6 [EFFECTIVE DATE.] This section is effective beginning for 66.7 property taxes assessed in 2006, payable in 2007. 66.8 Sec. 2. Minnesota Statutes 2004, section 290.06, is 66.9 amended by adding a subdivision to read: 66.10 Subd. 33. [INTERNATIONAL ECONOMIC DEVELOPMENT ZONE JOB 66.11 CREDIT.] A taxpayer that is a qualified business, as defined in 66.12 section 469.321, subdivision 6, is allowed a credit as 66.13 determined under section 469.327 against the tax imposed by this 66.14 chapter. 66.15 [EFFECTIVE DATE.] This section is effective for taxable 66.16 years beginning after December 31, 2005. 66.17 Sec. 3. Minnesota Statutes 2004, section 297A.68, is 66.18 amended by adding a subdivision to read: 66.19 Subd. 40. [INTERNATIONAL ECONOMIC DEVELOPMENT ZONES.] (a) 66.20 Purchases of tangible personal property or taxable services by a 66.21 qualified business, as defined in section 469.321, are exempt if 66.22 the property or services are primarily used or consumed in an 66.23 international economic development zone designated under section 66.24 469.322. 66.25 (b) Purchase and use of construction materials and supplies 66.26 for construction of improvements to real property in an 66.27 international economic development zone are exempt if the 66.28 improvements after completion of construction are to be used in 66.29 the conduct of a qualified business, as defined in section 66.30 469.321. This exemption applies regardless of whether the 66.31 purchases are made by the business or a contractor. 66.32 (c) The exemptions under this subdivision apply to a local 66.33 sales and use tax, regardless of whether the local tax is 66.34 imposed on sales taxable under this chapter or in another law, 66.35 ordinance, or charter provision. 66.36 (d) This subdivision applies to sales, if the purchase was 67.1 made and delivery received during the period provided under 67.2 section 469.324, subdivision 2. 67.3 [EFFECTIVE DATE.] This section is effective for sales made 67.4 after December 31, 2005. 67.5 Sec. 4. [469.321] [DEFINITIONS.] 67.6 Subdivision 1. [SCOPE.] For purposes of sections 469.321 67.7 to 469.326, the following terms have the meanings given. 67.8 Subd. 2. [FOREIGN TRADE ZONE.] "Foreign trade zone" means 67.9 a foreign trade zone designated pursuant to United States Code, 67.10 title 19, section 81b, for the right to use the powers provided 67.11 in United States Code, title 19, sections 81a to 81u, or a 67.12 subzone authorized by the foreign trade zone. 67.13 Subd. 3. [FOREIGN TRADE ZONE AUTHORITY.] "Foreign trade 67.14 zone authority" means the Greater Metropolitan Foreign Trade 67.15 Zone Commission number 119, a joint powers authority created by 67.16 the county of Hennepin, the cities of Minneapolis and 67.17 Bloomington, and the Metropolitan Airports Commission, under the 67.18 authority of section 469.059, 469.101, or 471.59, which includes 67.19 any other political subdivisions that enter into the authority 67.20 after its creation. 67.21 Subd. 4. [INTERNATIONAL ECONOMIC DEVELOPMENT ZONE.] An 67.22 "international economic development zone" or "zone" is a zone so 67.23 designated under section 469.322. 67.24 Subd. 5. [PERSON.] "Person" includes an individual, 67.25 corporation, partnership, limited liability company, 67.26 association, or any other entity. 67.27 Subd. 6. [QUALIFIED BUSINESS.] (a) "Qualified business" 67.28 means a person carrying on a trade or business at a place of 67.29 business located within an international economic development 67.30 zone that is: 67.31 (1) engaged in the furtherance of international export or 67.32 import of goods; and 67.33 (2) certified by the foreign trade zone authority as a 67.34 trade or business that furthers the purpose of developing 67.35 international distribution capacity and capability. 67.36 (b) A person that relocates a trade or business from within 68.1 Minnesota but outside an international economic development zone 68.2 into an international economic development zone is not a 68.3 qualified business, unless the business: 68.4 (1)(i) increases full-time employment in the first full 68.5 year of operation within the international economic development 68.6 zone by at least 20 percent measured relative to the operations 68.7 that were relocated and maintains the required level of 68.8 employment for each year that tax incentives under section 68.9 469.324 are claimed; or 68.10 (ii) makes a capital investment in the property located 68.11 within a zone equal to at least ten percent of the gross 68.12 revenues of the operations that were relocated in the 68.13 immediately proceeding taxable year; and 68.14 (2) enters a binding written agreement with the foreign 68.15 trade zone authority that: 68.16 (i) pledges that the business will meet the requirements of 68.17 clause (1); 68.18 (ii) provides for repayment of all tax benefits enumerated 68.19 under section 469.324 to the business under the procedures in 68.20 section 469.328, if the requirements of clause (1) are not met 68.21 for the taxable year or for taxes payable during a year in which 68.22 the requirements were not met; and 68.23 (iii) contains any other terms the foreign trade zone 68.24 authority determines appropriate. 68.25 Clause (1) of this paragraph does not apply to a freight 68.26 forwarder. 68.27 (c) A qualified business must pay each employee total 68.28 compensation, including benefits not mandated by law, that on an 68.29 annualized basis is equal to at least 110 percent of the federal 68.30 poverty guidelines for a family of four. 68.31 Subd. 7. [REGIONAL DISTRIBUTION CENTER.] A "regional 68.32 distribution center" is a distribution center developed within a 68.33 foreign trade zone. The regional distribution center must have 68.34 as its primary purpose to facilitate gathering of freight for 68.35 the purpose of centralizing the functions necessary for the 68.36 shipment of freight in international commerce, including, but 69.1 not limited to, security and customs functions. 69.2 Subd. 8. [RELOCATE.] (a) "Relocate" means that a trade or 69.3 business: 69.4 (1) ceases one or more operations or functions at another 69.5 location in Minnesota and begins performing substantially the 69.6 same operations or functions at a location in an international 69.7 economic development zone; or 69.8 (2) reduces employment at another location in Minnesota 69.9 during a period starting one year before and ending one year 69.10 after it begins operations in an international economic 69.11 development zone and its employees in the international economic 69.12 development zone are engaged in the same line of business as the 69.13 employees at the location where it reduced employment. 69.14 (b) "Relocate" does not include an expansion by a business 69.15 that establishes a new facility that does not replace or 69.16 supplant an existing operation or employment, in whole or in 69.17 part. 69.18 (c) "Trade or business" includes any business entity that 69.19 is substantially similar in operation or ownership to the 69.20 business entity seeking to be a qualified business under this 69.21 section. 69.22 Subd. 9. [FREIGHT FORWARDER.] "Freight forwarder" is a 69.23 business that, for compensation, ensures that goods produced or 69.24 sold by another business move from point of origin to point of 69.25 destination. 69.26 [EFFECTIVE DATE.] This section is effective the day 69.27 following final enactment. 69.28 Sec. 5. [469.322] [DESIGNATION OF INTERNATIONAL ECONOMIC 69.29 DEVELOPMENT ZONE.] 69.30 (a) An area designated as a foreign trade zone may be 69.31 designated by the foreign trade zone authority as an 69.32 international economic development zone if within the zone a 69.33 regional distribution center is being developed pursuant to 69.34 section 469.323. The zone must be not less than 500 acres and 69.35 not more than 1,000 acres in size. 69.36 (b) In making the designation, the foreign trade zone 70.1 authority, in consultation with the Minnesota Department of 70.2 Transportation and the Metropolitan Council, shall consider 70.3 access to major transportation routes, consistency with current 70.4 state transportation and air cargo planning, adequacy of the 70.5 size of the site, access to airport facilities, present and 70.6 future capacity at the designated airport, the capability to 70.7 meet integrated present and future air cargo, security, and 70.8 inspection services, and access to other infrastructure and 70.9 financial incentives. The border of the international economic 70.10 development zone must be no more than 60 miles distant or 90 70.11 minutes drive time from the border of the Minneapolis-St. Paul 70.12 International Airport. The county in which the zone is located 70.13 must be a member of the foreign trade zone authority. 70.14 [EFFECTIVE DATE.] This section is effective the day 70.15 following final enactment. 70.16 Sec. 6. [469.323] [FOREIGN TRADE ZONE AUTHORITY POWERS.] 70.17 Subdivision 1. [DEVELOPMENT OF REGIONAL DISTRIBUTION 70.18 CENTER.] The foreign trade zone authority is responsible for 70.19 creating a development plan for the regional distribution 70.20 center. The regional distribution center must be developed with 70.21 the purpose of expanding, on a regional basis, international 70.22 distribution capacity and capability. The foreign trade zone 70.23 authority shall consult with municipalities that have indicated 70.24 to the authority an interest in locating the international 70.25 economic development zone within their boundaries and a 70.26 willingness to establish a tax increment financing district 70.27 coterminous with the boundaries of the zone, as well as 70.28 interested businesses, potential financiers, and appropriate 70.29 state and federal agencies. 70.30 Subd. 2. [BUSINESS PLAN.] Before designation of an 70.31 international economic development zone under section 469.322, 70.32 the governing body of the foreign trade zone authority shall 70.33 prepare a business plan. The plan must include an analysis of 70.34 the economic feasibility of the regional distribution center 70.35 once it becomes operational and of the operations of freight 70.36 forwarders and other businesses that choose to locate within the 71.1 boundaries of the zone. The analysis must provide profitability 71.2 models that: 71.3 (1) include the benefits of the incentives; 71.4 (2) estimate the amount of time needed to achieve 71.5 profitability; and 71.6 (3) analyze the length of time incentives will be necessary 71.7 to the economic viability of the regional distribution center. 71.8 If the governing body of the foreign trade authority 71.9 determines that the models do not establish the economic 71.10 feasibility of the project, the regional distribution center 71.11 does not meet the development requirements of this section and 71.12 section 469.322. 71.13 Subd. 3. [PORT AUTHORITY POWERS.] The governing body of 71.14 the foreign trade zone authority may establish a port authority 71.15 that has the same powers as a port authority established under 71.16 section 469.049. If the foreign trade zone authority 71.17 establishes a port authority, the governing body of the foreign 71.18 trade zone authority may exercise all powers granted to a city 71.19 by sections 469.048 to 469.068 within the area of the 71.20 international economic development zone, except it may not 71.21 impose or request imposition of a property tax levy under 71.22 section 469.053 by any city. 71.23 Subd. 4. [BUSINESS SUBSIDY LAW.] Tax exemptions, job 71.24 credits, and tax increment financing provided under this section 71.25 are business subsidies for the purpose of sections 116J.993 to 71.26 116J.995. 71.27 [EFFECTIVE DATE.] This section is effective the day 71.28 following final enactment. 71.29 Sec. 7. [469.324] [TAX INCENTIVES IN INTERNATIONAL 71.30 ECONOMIC DEVELOPMENT ZONE.] 71.31 Subdivision 1. [AVAILABILITY.] Qualified businesses that 71.32 operate in an international economic development zone, 71.33 individuals who invest in a regional distribution center, or 71.34 qualified businesses that operate in an international economic 71.35 development zone qualify for: 71.36 (1) exemption from the property tax as provided in section 72.1 272.02, subdivision 69; 72.2 (2) exemption from the state sales and use tax and any 72.3 local sales and use taxes on qualifying purchases as provided in 72.4 section 297A.68, subdivision 40; 72.5 (3) the jobs credit allowed under section 469.327; and 72.6 (4) tax increment financing as provided in this chapter. 72.7 Subd. 2. [DURATION.] (a) Except as provided in paragraph 72.8 (b), the tax incentives described in subdivision 1, clauses (1) 72.9 and (3), are available for no more than 12 consecutive taxable 72.10 years for any taxpayer that claims them. The tax incentives 72.11 described in subdivision 1, clause (2), are available for each 72.12 taxpayer that claims them for taxes otherwise payable on 72.13 transactions during a period of 12 years from the date when the 72.14 first exemption is claimed by that taxpayer under each 72.15 exemption. No exemptions described in subdivision 1, clauses 72.16 (1) to (4), are available after December 31, 2020. 72.17 (b) For taxpayers that are freight forwarders, the 72.18 durations provided under paragraph (a) are reduced to six years. 72.19 Subd. 3. [QUALIFICATION.] To receive the tax incentives 72.20 under this section, a qualified business must, by December 31 of 72.21 each year, certify to the commissioner of revenue the percentage 72.22 of its business activity within the zone that constitutes 72.23 international business activity for the year, measured by value 72.24 or volume of activity. If the percentage is less than 100 72.25 percent, the amount of the tax benefits provided under sections 72.26 290.06, subdivision 33, and 469.327 are reduced in proportion to 72.27 the percentage of business activity that is not international 72.28 business activity. The commissioner of revenue may audit the 72.29 business activities of a qualifying business to determine its 72.30 eligibility for tax benefits under this section. 72.31 Sec. 8. [469.325] [JOBS CREDIT.] 72.32 Subdivision 1. [CREDIT ALLOWED.] A qualified business is 72.33 allowed a credit against the taxes imposed under chapter 290. 72.34 The credit equals seven percent of the: 72.35 (1) lesser of: 72.36 (i) zone payroll for the taxable year, less the zone 73.1 payroll for the base year; or 73.2 (ii) total Minnesota payroll for the taxable year, less 73.3 total Minnesota payroll for the base year; minus 73.4 (2) $30,000 multiplied by the number of full-time 73.5 equivalent employees that the qualified business employs in the 73.6 international economic development zone for the taxable year, 73.7 minus the number of full-time equivalent employees the business 73.8 employed in the zone in the base year, but not less than zero. 73.9 Subd. 2. [DEFINITIONS.] (a) For purposes of this section, 73.10 the following terms have the meanings given. 73.11 (b) "Base year" means the taxable year beginning during the 73.12 calendar year prior to the calendar year in which the zone 73.13 designation took effect. 73.14 (c) "Full-time equivalent employees" means the equivalent 73.15 of annualized expected hours of work equal to 2,080 hours. 73.16 (d) "Minnesota payroll" means the wages or salaries 73.17 attributed to Minnesota under section 290.191, subdivision 12, 73.18 for the qualified business or the unitary business of which the 73.19 qualified business is a part, whichever is greater. 73.20 (e) "Zone payroll" means wages or salaries used to 73.21 determine the zone payroll factor for the qualified business, 73.22 less the amount of compensation attributable to any employee 73.23 that exceeds $70,000. 73.24 Subd. 3. [INFLATION ADJUSTMENT.] For taxable years 73.25 beginning after December 31, 2006, the dollar amounts in 73.26 subdivision 1, clause (2), and subdivision 2, paragraph (e), are 73.27 annually adjusted for inflation. The commissioner of revenue 73.28 shall adjust the amounts by the percentage determined under 73.29 section 290.06, subdivision 2d, for the taxable year. 73.30 Subd. 4. [REFUNDABLE.] If the amount of the credit exceeds 73.31 the liability for tax under chapter 290, the commissioner of 73.32 revenue shall refund the excess to the qualified business. 73.33 Subd. 5. [APPROPRIATION.] An amount sufficient to pay the 73.34 refunds authorized by this section is appropriated to the 73.35 commissioner of revenue from the general fund. 73.36 [EFFECTIVE DATE.] This section is effective for taxable 74.1 years beginning after December 31, 2005. 74.2 Sec. 9. [469.326] [REPAYMENT OF TAX BENEFITS.] 74.3 Subdivision 1. [REPAYMENT OBLIGATION.] A person must repay 74.4 the amount of the tax reduction received under section 469.324, 74.5 subdivision 1, clauses (2) and (3), and refund received under 74.6 section 469.327, during the two years immediately before it 74.7 ceased to operate in the zone, if the person ceased to operate 74.8 its facility located within the zone or otherwise ceases to be 74.9 or is not a qualified business. 74.10 Subd. 2. [DISPOSITION OF REPAYMENT.] The repayment must be 74.11 paid to the state to the extent it represents a state tax 74.12 reduction. Any amount repaid to the state must be deposited in 74.13 the general fund. Any repayment of local sales or use taxes 74.14 must be repaid to the jurisdiction imposing the local sales or 74.15 use tax. 74.16 Subd. 3. [REPAYMENT PROCEDURES.] (a) For the repayment of 74.17 taxes imposed under chapter 290 or 297A or local taxes collected 74.18 pursuant to section 297A.99, a person must file an amended 74.19 return with the commissioner of revenue and pay any taxes 74.20 required to be repaid within 30 days after ceasing to be a 74.21 qualified business. The amount required to be repaid is 74.22 determined by calculating the tax for the period for which 74.23 repayment is required without regard to the tax reductions 74.24 allowed under section 469.324. 74.25 (b) The provisions of chapters 270 and 289A relating to the 74.26 commissioner of revenue's authority to audit, assess, and 74.27 collect the tax and to hear appeals are applicable to the 74.28 repayment required under paragraph (a). The commissioner may 74.29 impose civil penalties as provided in chapter 289A, and the 74.30 additional tax and penalties are subject to interest at the rate 74.31 provided in section 270.75, from 30 days after ceasing to do 74.32 business in the zone until the date the tax is paid. 74.33 (c) For determining the tax required to be repaid, a tax 74.34 reduction is deemed to have been received on the date that the 74.35 tax would have been due if the person had not been entitled to 74.36 the tax reduction. 75.1 (d) The commissioner of revenue may assess the repayment of 75.2 taxes under paragraph (b) at any time within two years after the 75.3 person ceases to be a qualified business, or within any period 75.4 of limitations for the assessment of tax under section 289A.38, 75.5 whichever is later. 75.6 [EFFECTIVE DATE.] This section is effective the day 75.7 following final enactment. 75.8 Sec. 10. [469.327] [ADDITIONAL BENEFITS CONTINGENT ON JOBZ 75.9 DETERMINATIONS.] 75.10 Notwithstanding section 469.312, subdivision 3, the 75.11 governor may designate the international economic development 75.12 zone as a job opportunity building zone if the governor reports 75.13 to the tax committees of the senate and the house of 75.14 representatives the following information: 75.15 (1) the estimated cost of providing the additional tax 75.16 incentives provided under sections 469.310 to 469.320 to the 75.17 international economic development zone; and 75.18 (2) the estimated cost of tax expenditures projected to 75.19 have been obligated for all job opportunity building zone 75.20 projects that have been approved before June 1, 2005. 75.21 Sec. 11. [DEPARTMENT OF EMPLOYMENT AND ECONOMIC 75.22 DEVELOPMENT STUDY; INTERNATIONAL AIR FREIGHT.] 75.23 The commissioner of employment and economic development 75.24 must study and analyze the issue of whether the state would 75.25 benefit from more than one international economic development 75.26 zone as defined in Minnesota Statutes, section 469.321. The 75.27 commissioner shall solicit input on the issue from businesses, 75.28 communities, and economic development organizations. The 75.29 commissioner must report the results of the study and analysis 75.30 to the committees of the legislature having jurisdiction over 75.31 economic development issues by December 1, 2005, along with any 75.32 legislative recommendations. 75.33 ARTICLE 6 75.34 MISCELLANEOUS 75.35 Section 1. Minnesota Statutes 2004, section 270.0603, 75.36 subdivision 3, is amended to read: 76.1 Subd. 3. [DISTRIBUTION.] The appropriate statement 76.2 prepared in accordance with subdivisions 1 and 2 must be 76.3 distributed by the commissioner to all taxpayers contacted with 76.4 respect to the determination or collection of a tax, other than 76.5 the providing of tax forms. Failure to receive the statement 76.6 does not invalidate the determination or collection action, nor 76.7 does it affect, modify, or alter any statutory time limits 76.8 applicable to the determination or collection action, including 76.9 the time limit for filing a claim for refund. 76.10 [EFFECTIVE DATE.] This section is effective the day 76.11 following final enactment, except that for claims for refund, it 76.12 is effective for claims filed after August 31, 2005. 76.13 Sec. 2. Minnesota Statutes 2004, section 270.0682, 76.14 subdivision 1, is amended to read: 76.15 Subdivision 1. [BIENNIAL REPORT.] The commissioner of 76.16 revenue shall report to the legislature by March 1 of each 76.17 odd-numbered year on the overall incidence ofthe income tax,76.18sales and excise taxes, and property taxtaxes as defined in 76.19 section 645.44, subdivision 19. The report shall present 76.20 information on the distribution of the tax burden (1) for the 76.21 overall income distribution, using a systemwide incidence 76.22 measure such as the Suits index or other appropriate measures of 76.23 equality and inequality, (2) by income classes, including at a 76.24 minimum deciles of the income distribution, and (3) by other 76.25 appropriate taxpayer characteristics. 76.26 Sec. 3. Minnesota Statutes 2004, section 272.02, 76.27 subdivision 64, is amended to read: 76.28 Subd. 64. [JOB OPPORTUNITY BUILDING ZONE PROPERTY.] (a) 76.29 Improvements to real property, and personal property, classified 76.30 under section 273.13, subdivision 24, and located within a job 76.31 opportunity building zone, designated under section 469.314, are 76.32 exempt from ad valorem taxes levied under chapter 275. 76.33 (b) Improvements to real property, and tangible personal 76.34 property, of an agricultural production facility located within 76.35 an agricultural processing facility zone, designated under 76.36 section 469.314, is exempt from ad valorem taxes levied under 77.1 chapter 275. 77.2 (c) For property to qualify for exemption under paragraph 77.3 (a), the occupant must be a qualified business, as defined in 77.4 section 469.310. 77.5 (d) The exemption applies beginning for the first 77.6 assessment year after designation of the job opportunity 77.7 building zone by the commissioner of employment and economic 77.8 development. The exemption applies to each assessment year that 77.9 begins during the duration of the job opportunity building zone 77.10 and to property occupied by July 1 of the assessment year by a 77.11 qualified business. This exemption does not apply to: 77.12 (1) the levy under section 475.61 or similar levy 77.13 provisions under any other law to pay general obligation bonds; 77.14 or 77.15 (2) a levy under section 126C.17, if the levy was approved 77.16 by the voters before the designation of the job opportunity 77.17 building zone. 77.18 (e) This subdivision does not apply to captured net tax 77.19 capacity in a tax increment financing district to the extent 77.20 necessary to meet the debt repayment obligations of the 77.21 authority if the property is also located within an agricultural 77.22 processing zone. 77.23 [EFFECTIVE DATE.] This section is effective for taxes 77.24 payable in 2005 and thereafter. 77.25 Sec. 4. Minnesota Statutes 2004, section 429.021, 77.26 subdivision 1, is amended to read: 77.27 Subdivision 1. [IMPROVEMENTS AUTHORIZED.] The council of a 77.28 municipality shall have power to make the following improvements: 77.29 (1) To acquire, open, and widen any street, and to improve 77.30 the same by constructing, reconstructing, and maintaining 77.31 sidewalks, pavement, gutters, curbs, and vehicle parking strips 77.32 of any material, or by grading, graveling, oiling, or otherwise 77.33 improving the same, including the beautification thereof and 77.34 including storm sewers or other street drainage and connections 77.35 from sewer, water, or similar mains to curb lines. 77.36 (2) To acquire, develop, construct, reconstruct, extend, 78.1 and maintain storm and sanitary sewers and systems, including 78.2 outlets, holding areas and ponds, treatment plants, pumps, lift 78.3 stations, service connections, and other appurtenances of a 78.4 sewer system, within and without the corporate limits. 78.5 (3) To construct, reconstruct, extend, and maintain steam 78.6 heating mains. 78.7 (4) To install, replace, extend, and maintain street lights 78.8 and street lighting systems and special lighting systems. 78.9 (5) To acquire, improve, construct, reconstruct, extend, 78.10 and maintain water works systems, including mains, valves, 78.11 hydrants, service connections, wells, pumps, reservoirs, tanks, 78.12 treatment plants, and other appurtenances of a water works 78.13 system, within and without the corporate limits. 78.14 (6) To acquire, improve and equip parks, open space areas, 78.15 playgrounds, and recreational facilities within or without the 78.16 corporate limits. 78.17 (7) To plant trees on streets and provide for their 78.18 trimming, care, and removal. 78.19 (8) To abate nuisances and to drain swamps, marshes, and 78.20 ponds on public or private property and to fill the same. 78.21 (9) To construct, reconstruct, extend, and maintain dikes 78.22 and other flood control works. 78.23 (10) To construct, reconstruct, extend, and maintain 78.24 retaining walls and area walls. 78.25 (11) To acquire, construct, reconstruct, improve, alter, 78.26 extend, operate, maintain, and promote a pedestrian skyway 78.27 system. Such improvement may be made upon a petition pursuant 78.28 to section 429.031, subdivision 3. 78.29 (12) To acquire, construct, reconstruct, extend, operate, 78.30 maintain, and promote underground pedestrian concourses. 78.31 (13) To acquire, construct, improve, alter, extend, 78.32 operate, maintain, and promote public malls, plazas or 78.33 courtyards. 78.34 (14) To construct, reconstruct, extend, and maintain 78.35 district heating systems. 78.36 (15) To construct, reconstruct, alter, extend, operate, 79.1 maintain, and promote fire protection systems in existing 79.2 buildings, but only upon a petition pursuant to section 429.031, 79.3 subdivision 3. 79.4 (16) To acquire, construct, reconstruct, improve, alter, 79.5 extend, and maintain highway sound barriers. 79.6 (17) To improve, construct, reconstruct, extend, and 79.7 maintain gas and electric distribution facilities owned by a 79.8 municipal gas or electric utility. 79.9 (18) To purchase, install, and maintain signs, posts, and 79.10 other markers for addressing related to the operation of 79.11 enhanced 911 telephone service. 79.12 (19) To improve, construct, extend, and maintain facilities 79.13 for Internet access and other communications purposes, if the 79.14 council finds that: 79.15 (i) the facilities are necessary to make available Internet 79.16 access or other communications services that are not and will 79.17 not be available through other providers or the private market 79.18 in the reasonably foreseeable future; and 79.19 (ii) the service to be provided by the facilities will not 79.20 compete with service provided by private entities. 79.21 (20) To assess affected property owners for all or a 79.22 portion of the costs agreed to with an electric utility, 79.23 telecommunications carrier, or cable system operator to bury or 79.24 alter a new or existing distribution system within the public 79.25 right-of-way that exceeds the utility's design and construction 79.26 standards, or those set by law, tariff, or franchise, but only 79.27 upon petition under section 429.031, subdivision 3. 79.28 Sec. 5. Minnesota Statutes 2004, section 469.015, 79.29 subdivision 4, is amended to read: 79.30 Subd. 4. [EXCEPTIONS.] (a) An authority need not require 79.31 competitive bidding in the following circumstances: 79.32 (1) in the case of a contract for the acquisition of a 79.33 low-rent housing project: 79.34 (i) for which financial assistance is provided by the 79.35 federal government; 79.36 (ii) which does not require any direct loan or grant of 80.1 money from the municipality as a condition of the federal 80.2 financial assistance; and 80.3 (iii) for which the contract provides for the construction 80.4 of the project upon land that is either owned by the authority 80.5 for redevelopment purposes or not owned by the authority at the 80.6 time of the contract but the contract provides for the 80.7 conveyance or lease to the authority of the project or 80.8 improvements upon completion of construction; 80.9 (2) with respect to a structured parking facility: 80.10 (i) constructed in conjunction with, and directly above or 80.11 below, a development; and 80.12 (ii) financed with the proceeds of tax increment or parking 80.13 ramp general obligation or revenue bonds;and80.14 (3) until August 1, 2009, with respect to a facility built 80.15 for the purpose of facilitating the operation of public transit 80.16 or encouraging its use: 80.17 (i) constructed in conjunction with, and directly above or 80.18 below, a development; and 80.19 (ii) financed with the proceeds of parking ramp general 80.20 obligation or revenue bonds or with at least 60 percent of the 80.21 construction cost being financed with funding provided by the 80.22 federal government; and 80.23 (4) in the case of any building in which at least 75 80.24 percent of the usable square footage constitutes a housing 80.25 development project if: 80.26 (i) the project is financed with the proceeds of bonds 80.27 issued under section 469.034 or from nongovernmental sources; 80.28 (ii) the project is either located on land that is owned or 80.29 is being acquired by the authority only for development 80.30 purposes, or is not owned by the authority at the time the 80.31 contract is entered into but the contract provides for 80.32 conveyance or lease to the authority of the project or 80.33 improvements upon completion of construction; and 80.34 (iii) the authority finds and determines that elimination 80.35 of the public bidding requirements is necessary in order for the 80.36 housing development project to be economical and feasible. 81.1 (b) An authority need not require a performance bond for 81.2 the following projects: 81.3 (1) a contract described in paragraph (a), clause (1); 81.4 (2) a construction change order for a housing project in 81.5 which 30 percent of the construction has been completed; 81.6 (3) a construction contract for a single-family housing 81.7 project in which the authority acts as the general construction 81.8 contractor; or 81.9 (4) a services or materials contract for a housing project. 81.10 For purposes of this paragraph, "services or materials 81.11 contract" does not include construction contracts. 81.12 Sec. 6. Minnesota Statutes 2004, section 469.175, 81.13 subdivision 2, is amended to read: 81.14 Subd. 2. [CONSULTATIONS; COMMENT AND FILING.] (a) Before 81.15 formation of a tax increment financing district, the authority 81.16 shall provide the county auditor and clerk of the school board 81.17 with the proposed tax increment financing plan for the district 81.18 and the authority's estimate of the fiscal and economic 81.19 implications of the proposed tax increment financing district. 81.20 The authority must provide the proposed tax increment financing 81.21 plan and the information on the fiscal and economic implications 81.22 of the plan to the county auditor and the clerk of the school 81.23 district board at least 30 days before the public hearing 81.24 required by subdivision 3. The information on the fiscal and 81.25 economic implications may be included in or as part of the tax 81.26 increment financing plan. The county auditor and clerk of the 81.27 school board shall provide copies to the members of the boards, 81.28 as directed by their respective boards. The 30-day requirement 81.29 is waived if the boards of the county and school district submit 81.30 written comments on the proposal and any modification of the 81.31 proposal to the authority after receipt of the information. 81.32 (b) For purposes of this subdivision, "fiscal and economic 81.33 implications of the proposed tax increment financing district" 81.34 includes: 81.35 (1) an estimate of the total amount of tax increment that 81.36 will be generated over the life of the district; 82.1 (2) a description of the probable impact of the district on 82.2 city-provided services such as police and fire protection, 82.3 public infrastructure, and borrowing costs attributable to the 82.4 district; 82.5 (3) the estimated amount of tax increments over the life of 82.6 the district that would be attributable to school district 82.7 levies, assuming the school district's share of the total local 82.8 tax rate for all taxing jurisdictions remained the same; 82.9 (4) the estimated amount of tax increments over the life of 82.10 the district that would be attributable to county levies, 82.11 assuming the county's share of the total local tax rate for all 82.12 taxing jurisdictions remained the same; and 82.13 (5) any additional information requested by the county or 82.14 the school district that would enable it to determine additional 82.15 costs that will accrue to it due to the development proposed for 82.16 the district. 82.17 [EFFECTIVE DATE.] This section is effective for all 82.18 districts for which certification is requested after December 82.19 31, 2005. 82.20 Sec. 7. Minnesota Statutes 2004, section 645.44, is 82.21 amended by adding a subdivision to read: 82.22 Subd. 19. [FEE AND TAX.] (a) "Tax" means any fee, charge, 82.23 surcharge, or assessment imposed by a governmental entity on an 82.24 individual, person, entity, transaction, good, service, or other 82.25 thing. It excludes: 82.26 (1) a price that an individual or entity chooses 82.27 voluntarily to pay in return for receipt of goods or services 82.28 provided by the governmental entity; and 82.29 (2) a fine or penalty imposed for violation of a state or 82.30 local law or ordinance. 82.31 A government good or service does not include access to or the 82.32 authority to engage in private market transactions with a 82.33 nongovernmental party, such as licenses to engage in a trade, 82.34 profession, or business or to improve private property. 82.35 (b) For purposes of applying the laws of this state, a 82.36 "fee," "charge," or other similar term that satisfies the 83.1 functional requirements of paragraph (a) must be treated as a 83.2 tax for all purposes, regardless of whether the statute or law 83.3 names or describes it as a tax. The provisions of this 83.4 subdivision do not preempt or supersede limitations under law 83.5 that apply to fees, charges, or assessments. 83.6 (c) This subdivision is not intended to extend or limit the 83.7 application of article 4, section 18, of the Constitution of 83.8 Minnesota. 83.9 [EFFECTIVE DATE.] This section is effective the day 83.10 following final enactment. 83.11 Sec. 8. Laws 2003, chapter 128, article 1, section 172, is 83.12 amended to read: 83.13 Sec. 172. [TEMPORARY PETROFUND FEE EXEMPTION FOR MINNESOTA 83.14 COMMERCIAL AIRLINES.] 83.15 (a) A commercial airline providing regularly scheduled jet 83.16 service and with its corporate headquarters in Minnesota is 83.17 exempt from the fee established in Minnesota Statutes, section 83.18 115C.08, subdivision 3, until July 1,20052007, provided the 83.19 airline develops a plan approved by the commissioner of commerce 83.20 demonstrating that the savings from this exemption will go 83.21 towards minimizing job losses in Minnesota, and to support the 83.22 airline's efforts to avoid filing for federal bankruptcy 83.23 protections. 83.24 (b) A commercial airline exempted from the fee is 83.25 ineligible to receive reimbursement under Minnesota Statutes, 83.26 chapter 115C, until July 1,20052007. A commercial airline 83.27 that has a release during the fee exemption period is ineligible 83.28 to receive reimbursement under Minnesota Statutes, chapter 115C, 83.29 for the costs incurred in response to that release. 83.30 Sec. 9. [CITY OF ROSEMOUNT; TAX INCREMENT FINANCING.] 83.31 The city of Rosemount or a development authority of the 83.32 city may spend increment from its Downtown - Brockway Tax 83.33 Increment Financing (TIF) District to acquire parcels of 83.34 property that the Department of Transportation or Dakota County 83.35 acquired in connection with the realignment of marked Trunk 83.36 Highway 3, notwithstanding the limits under Minnesota Statutes, 84.1 section 469.1763, on the amount of increments that may be spent 84.2 outside of the district or Minnesota Statutes, section 469.176, 84.3 subdivision 4j, on the purposes for which increments may be 84.4 spent. 84.5 [EFFECTIVE DATE.] This section is effective upon local 84.6 approval by the governing body of the city of Rosemount under 84.7 Minnesota Statutes, section 645.021. 84.8 Sec. 10. [APPROPRIATION.] 84.9 (a) $125,000 in fiscal year 2006, $125,000 in fiscal year 84.10 2007, and $200,000 in each fiscal year thereafter, are 84.11 appropriated from the general fund to the commissioner of 84.12 revenue to make grants to one or more nonprofit organizations, 84.13 qualifying under section 501(c)(3) of the Internal Revenue Code 84.14 of 1986, to coordinate, facilitate, encourage, and aid in the 84.15 provision of taxpayer assistance services. 84.16 (b) "Taxpayer assistance services" mean accounting and tax 84.17 preparation services provided by volunteers to low-income and 84.18 disadvantaged Minnesota residents to help them file federal and 84.19 state income tax returns and Minnesota property tax refund 84.20 claims and to provide personal representation before the 84.21 Department of Revenue and Internal Revenue Service. 84.22 Sec. 11. [APPROPRIATION.] 84.23 $320,000 is appropriated from the general fund in fiscal 84.24 year 2006 only to the commissioner of employment and economic 84.25 development to be distributed to the city of Duluth to be used 84.26 by the city for grants to enterprises related to environmental 84.27 cleanup of Lake Superior and long-term community health care. 84.28 Sec. 12. [APPROPRIATION.] 84.29 The following amounts are appropriated to the commissioner 84.30 of natural resources and must be deposited in the clean water 84.31 legacy account in the environmental fund: 84.32 (1) $31,500,000 in fiscal year 2006; 84.33 (2) $3,000,000 in fiscal year 2007; and 84.34 (3) $40,000,000 in fiscal years 2008 and subsequent years, 84.35 but only after at least 50 percent of the Minnesota Total 84.36 Maximum Daily Loads (TMDLs) have been established and approved 85.1 by the Environmental Protection Agency under the federal Clean 85.2 Water Act. 85.3 Sec. 13. [APPROPRIATION; AID PAYMENT SHIFTS.] 85.4 In fiscal year 2008, $25,000,000 is appropriated from the 85.5 general fund to the commissioner of finance to be used to buy 85.6 back the aid payment shift provided in Minnesota Statutes, 85.7 section 16A.152, subdivision 2, clause (3). 85.8 Sec. 14. [DEFERRED MAINTENANCE AID.] 85.9 For fiscal years 2006 and 2007 only, a district's deferred 85.10 maintenance aid is equal to $13.25 multiplied times its adjusted 85.11 average daily membership for that year. 85.12 Sec. 15. [APPROPRIATIONS.] 85.13 Subdivision 1. [DEPARTMENT OF EDUCATION.] The sums 85.14 indicated in this section are appropriated from the general fund 85.15 to the Department of Education for the fiscal years designated. 85.16 Subd. 2. [DEFERRED MAINTENANCE AID.] For deferred 85.17 maintenance revenue under section 19, $10,574,000 in fiscal year 85.18 2006 and $10,416,000 in fiscal year 2007. 85.19 Sec. 16. [APPROPRIATION.] 85.20 $2,000,000 is appropriated from the general fund on a 85.21 onetime basis to the Higher Education Services Office. The 85.22 appropriation must be deposited into the Rochester higher 85.23 education development account. With the approval of the Higher 85.24 Education Services Office, money in this account may be used to 85.25 provide initial funding for academic program development for 85.26 upperclass and graduate students. This appropriation is 85.27 intended to be expended when matched by tax-deductible 85.28 contributions from individuals and corporate taxpayers. 85.29 ARTICLE 7 85.30 TAX SHELTER AND VOLUNTARY COMPLIANCE INITIATIVES 85.31 Section 1. [289A.121] [REGISTRATION OF TAX SHELTERS.] 85.32 Subdivision 1. [DEFINITIONS.] For the purposes of this 85.33 section, the following terms have the meanings given. 85.34 (a) "Abusive tax avoidance transaction" means a Minnesota 85.35 tax shelter or a reportable transaction. 85.36 (b) "Material advisor" has the meaning given in section 86.1 111(b)(1) of the Internal Revenue Code, and must be interpreted 86.2 in accordance with any regulations or rulings adopted or issued 86.3 by the Internal Revenue Service that govern that section. 86.4 (c) "Minnesota tax shelter" means a transaction which is 86.5 not a reportable transaction, which substantially reduces a tax 86.6 imposed under chapter 290 and has one or more of the following 86.7 characteristics: 86.8 (1) it is offered to the taxpayer under conditions of 86.9 confidentiality, as that term is defined in Treas. Reg. section 86.10 1.6011-4(3)(ii), and for which the taxpayer has paid a fee; 86.11 (2) the terms of the transaction offer the taxpayer or a 86.12 related party the right to a full or partial refund of fees if 86.13 all or part of the intended tax consequences of the transaction 86.14 are not realized, or if fees are contingent upon the taxpayer 86.15 realizing tax benefits; 86.16 (3) it is a transaction or a series of related transactions 86.17 that result in a corporation or a partnership with only 86.18 corporate partners claiming a reduction in net income in excess 86.19 of $10,000,000 in any combination of tax years; 86.20 (4) it is a transaction or a series of related transactions 86.21 that result in an individual, a partnership with one or more 86.22 corporate partners, S corporation, or trust claiming a reduction 86.23 in net income in excess of $4,000,000 in any combination of 86.24 taxable years, whether or not any losses flow through to one or 86.25 more shareholders or beneficiaries; or 86.26 (5) it is a transaction or series of related transactions, 86.27 identified as a Minnesota tax shelter in a rule promulgated by 86.28 the commissioner of revenue, entered into after the date the 86.29 rule becomes effective. 86.30 (d) "Reportable transaction" has the meaning given in 86.31 Treas. Reg. section 1.6011-4 between February 29, 2000, and 86.32 January 1, 2006. 86.33 Subd. 2. [REPORTS BY MATERIAL ADVISORS.] (a) On the first 86.34 day that a material advisor sells a Minnesota tax shelter or 86.35 reportable transaction, the material advisor must file with the 86.36 commissioner a copy of any federal tax shelter registration 87.1 information relating to reportable transactions if that 87.2 registration is applicable to any person subject to taxation 87.3 under chapter 290. 87.4 (b) On or before April 15, 2006, material advisors must 87.5 report to the commissioner all federal tax shelters used by a 87.6 person subject to tax under chapter 290 that the material 87.7 advisor offered for sale between February 28, 2000, and January 87.8 1, 2006, which were reportable transactions. 87.9 (c) On or before April 15, 2006, material advisors must 87.10 report to the commissioner all Minnesota tax shelters that the 87.11 material advisor offered for sale between February 28, 2000, and 87.12 January 1, 2006, if the transactions would have had to be 87.13 disclosed under subdivision 3 had it been in effect at that time. 87.14 (d) In addition to the requirements set forth in paragraphs 87.15 (a), (b), and (c), a material advisor must report to the 87.16 commissioner any transactions entered into on or after April 15, 87.17 2006, that become listed as reportable transactions or a 87.18 Minnesota tax shelter. 87.19 Subd. 3. [MAINTAINING PARTICIPANT LISTS.] Any person 87.20 organizing or selling Minnesota tax shelters or reportable 87.21 transactions must maintain a list of participants that are 87.22 subject to a tax imposed by this chapter. 87.23 Subd. 4. [REPORTING.] All persons, including material 87.24 advisors who organize or sell Minnesota tax shelters or 87.25 reportable transactions, must provide the following information 87.26 to the commissioner within 20 days from receiving a written 87.27 request from the commissioner to provide the information: 87.28 (1) legal name of the taxpayer; 87.29 (2) Minnesota tax identification number; 87.30 (3) federal tax identification number; and 87.31 (4) description of the Minnesota tax shelter or reportable 87.32 transaction. 87.33 Subd. 5. [DISCLOSURE STATEMENTS BY TAXPAYERS.] Every 87.34 person subject to taxation under this chapter who has 87.35 participated in a reportable transaction or a Minnesota tax 87.36 shelter which resulted in a tax decrease must file a disclosure 88.1 statement on a form prescribed by the commissioner. The form 88.2 must be filed with the tax return. 88.3 Sec. 2. Minnesota Statutes 2004, section 289A.38, is 88.4 amended by adding a subdivision to read: 88.5 Subd. 15. [VOLUNTARY COMPLIANCE 88.6 INITIATIVE.] Notwithstanding other limitations in the 88.7 subdivision, an amount of tax related to a reportable 88.8 transaction or a Minnesota tax shelter that is not reported in 88.9 the voluntary compliance initiative described in section 4 may 88.10 be assessed within eight and one-half years after the date the 88.11 return is filed. 88.12 Sec. 3. Minnesota Statutes 2004, section 289A.60, is 88.13 amended by adding a subdivision to read: 88.14 Subd. 26. [PENALTY FOR FAILURE TO REPORT A TAX 88.15 SHELTER.] (a) A penalty of $15,000 is imposed on a person who 88.16 fails to register a tax shelter as required under section 88.17 289A.121 on or before the date prescribed. 88.18 (b) A penalty of $10,000 is imposed on a person who fails 88.19 to report to the commissioner a Minnesota tax shelter or a 88.20 reportable transaction within 20 days of the date prescribed 88.21 under section 289A.121. For each day after the 20th day that 88.22 the person organizing or selling the Minnesota tax shelter or 88.23 reportable transaction failed to make the information required 88.24 in section 289A.121, subdivision 2, available to the 88.25 commissioner after the commissioner made a written request for 88.26 the list, an additional $10,000 penalty is imposed on that 88.27 person. 88.28 (c) A penalty is imposed on a person who fails to make a 88.29 report required by section 289A.121, subdivision 2, on or before 88.30 the date prescribed. The penalty is the greater of: 88.31 (1) $100,000; or 88.32 (2) 50 percent of the gross income that the person derived 88.33 from the activity. 88.34 (d) A penalty is imposed on a person who intentionally 88.35 disregards the requirement to maintain and provide information 88.36 required in section 289A.121. The penalty is the greater of: 89.1 (1) $100,000; or 89.2 (2) 75 percent of the gross income that the person derived 89.3 from the activity. 89.4 (e) A penalty of $15,000 is imposed on a person who fails 89.5 to provide a list required under section 289A.121, subdivision 89.6 4, which does not contain all the information required in that 89.7 section. 89.8 Sec. 4. [TAX SHELTER VOLUNTARY COMPLIANCE INITIATIVE.] 89.9 Subdivision 1. [COMMISSIONER TO INITIATE.] The 89.10 commissioner of revenue shall develop and administer a Minnesota 89.11 tax shelter voluntary compliance initiative for taxpayers 89.12 subject to Minnesota Statutes, section 289A.60, subdivision 26, 89.13 as provided in this chapter. 89.14 Subd. 2. [TERM; APPLICATION.] The Minnesota tax shelter 89.15 voluntary compliance initiative shall be conducted from July 1, 89.16 2005, to December 31, 2005, pursuant to Minnesota Statutes, 89.17 section 270.07. The Minnesota tax shelter voluntary compliance 89.18 initiative shall apply to tax liabilities and penalties 89.19 attributable to Minnesota tax shelters and reportable 89.20 transactions for tax years beginning before January 1, 2005. An 89.21 abusive tax avoidance transaction means a Minnesota tax shelter 89.22 or a reportable transaction as defined in Minnesota Statutes, 89.23 section 289A.121, subdivision 1. 89.24 Subd. 3. [IMPLEMENTATION.] The commissioner of revenue may 89.25 issue forms and instructions and take other actions necessary, 89.26 including the use of agreements pursuant to Minnesota Statutes, 89.27 section 270.67, to implement the Minnesota tax shelter voluntary 89.28 compliance initiative. 89.29 Subd. 4. [PERSONS NOT ELIGIBLE TO PARTICIPATE.] (a) Any 89.30 person is not eligible for participation in the Minnesota tax 89.31 shelter voluntary compliance initiative, if: 89.32 (1) the taxpayer was convicted of a crime in connection 89.33 with an abusive tax avoidance transaction or transactions; 89.34 (2) a criminal complaint was filed against the taxpayer in 89.35 connection with an abusive tax avoidance transaction or 89.36 transactions; 90.1 (3) the taxpayer is the subject of a criminal investigation 90.2 in connection with an abusive tax avoidance transaction or 90.3 transactions; or 90.4 (4) the taxpayer was eligible to participate in the 90.5 Internal Revenue Service's Offshore Voluntary Compliance 90.6 Initiative, as set forth in Revenue Procedure 2003-11. 90.7 Subd. 5. [ELIGIBLE PARTICIPANTS.] (a) Any person who is 90.8 not ineligible to participate in the Minnesota tax shelter 90.9 voluntary compliance initiative under subdivision 4, is eligible 90.10 to participate in the Minnesota tax shelter voluntary compliance 90.11 initiative. 90.12 (b) A person participating in the Minnesota tax shelter 90.13 voluntary compliance initiative waiving the right to an 90.14 administrative appeal, a claim for refund, or an action in 90.15 district court must do both of the following: 90.16 (1) the participating person must file an amended return 90.17 for each taxable year for which the taxpayer has filed a tax 90.18 return using an abusive tax avoidance transaction to underreport 90.19 the taxpayer's tax liability for that tax year. Each amended 90.20 return shall report all income from all sources, without regard 90.21 to the abusive tax avoidance transaction; and 90.22 (2) the participating person must pay taxes and interest 90.23 due in full, except that the commissioner of revenue may enter 90.24 into an installment payment agreement pursuant to Minnesota 90.25 Statutes, section 270.67, prior to taxpayer filing an amended 90.26 return. 90.27 (c) The commissioner of revenue shall abate all penalties 90.28 imposed under Minnesota Statutes, chapter 289A, which could have 90.29 been assessed in connection with the use of an abusive tax 90.30 avoidance transaction, for each taxable year for which the 90.31 taxpayer elects to participate in the Minnesota tax shelter 90.32 voluntary compliance initiative, to the extent those penalties 90.33 are a result of underreporting of tax liabilities attributable 90.34 to the use of abusive tax avoidance transactions, for which a 90.35 participating person files an amended return in compliance with 90.36 paragraph (b). 91.1 (d) No criminal action shall be brought against a taxpayer 91.2 for the taxable years reported under the Minnesota tax shelter 91.3 voluntary compliance initiative with respect to the issues for 91.4 which a taxpayer voluntarily complies under this chapter. 91.5 (e) A person filing an amended return under this paragraph 91.6 of the Minnesota tax shelter voluntary compliance initiative may 91.7 not file a claim for refund, an administrative appeal, or an 91.8 action in district court in regard to the amount of taxes or 91.9 interest paid with the amended return. 91.10 (f) A person participating in the Minnesota tax shelter 91.11 voluntary compliance initiative not waiving the right to an 91.12 administrative appeal, a claim for refund, or an action in 91.13 district court must do both of the following: 91.14 (1) the participating person must file an amended return 91.15 for each taxable year for which the taxpayer has filed a tax 91.16 return using an abusive tax avoidance transaction to underreport 91.17 the taxpayer's tax liability for that tax year. Each amended 91.18 return shall report all income from all sources, without regard 91.19 to the abusive tax avoidance transactions; and 91.20 (2) the participating person must pay taxes and interest 91.21 due in full, except that the commissioner of revenue may enter 91.22 into an installment payment agreement pursuant to Minnesota 91.23 Statutes, section 270.67, prior to taxpayer filing an amended 91.24 return. 91.25 (g) The commissioner of revenue shall abate all penalties 91.26 imposed under Minnesota Statutes, chapter 289A, except for the 91.27 penalty for intentional disregard of law or rules imposed under 91.28 Minnesota Statutes, section 289A.60, subdivision 5, which could 91.29 have been assessed in connection with the use of an abusive tax 91.30 avoidance transaction, for each taxable year for which the 91.31 taxpayer elects to participate in the Minnesota tax shelter 91.32 voluntary compliance initiative, to the extent those penalties 91.33 are a result of underreporting of tax liabilities attributable 91.34 to the use of abusive tax avoidance transactions, for which a 91.35 participating person files an amended return in compliance with 91.36 paragraph (b). 92.1 (h) No criminal action shall be brought against a taxpayer 92.2 for the taxable years reported under the Minnesota tax shelter 92.3 voluntary compliance initiative with respect to the issues for 92.4 which a taxpayer voluntarily complies under this chapter. 92.5 Sec. 5. [COMMISSIONER ORDERS AND PENALTIES.] 92.6 After December 31, 2005, the commissioner of revenue may 92.7 issue an order of assessment within the time period permitted 92.8 under Minnesota Statutes, section 289A.38, upon an amended 92.9 return filed under this chapter for an underreported amount of 92.10 tax, may impose penalties on an underreported amount of tax on 92.11 an amended return filed under this chapter, or initiate a 92.12 criminal action against any person based on any underreported 92.13 amount of tax on an amended return filed under this chapter. 92.14 A penalty is imposed upon any person who: 92.15 (1) is not ineligible to file an amended return pursuant to 92.16 this chapter; 92.17 (2) has engaged in abusive tax shelter transactions; and 92.18 (3) fails to voluntarily amend their tax returns for each 92.19 taxable year for which an amended return may be filed and the 92.20 person underreported income attributable to an abusive tax 92.21 shelter transaction. 92.22 The penalty is equal to 200 percent of the underreported tax 92.23 that is attributable to the abusive tax shelter transaction. 92.24 ARTICLE 8 92.25 PROPERTY TAX FREEZE 92.26 Section 1. [CITATION.] 92.27 This article may be cited as the "Truth and Fairness in 92.28 Taxation Act" (TAFTA) or the "State/Local Fiscal Relations: 92.29 Truth in Taxation Act." 92.30 Sec. 2. [STATEMENT OF PURPOSE.] 92.31 The legislature finds that the state of Minnesota is 92.32 continuing to experience a persistent budget deficit and that 92.33 reductions in state spending have resulted in increased burdens 92.34 on school districts, counties, cities, and other units of local 92.35 government. In order to maintain stability in state and local 92.36 fiscal relations, the purpose of this act is to prevent property 93.1 tax rate increases and to illuminate the impact of reductions in 93.2 revenue to school districts, counties, cities, and other units 93.3 of local government. 93.4 Sec. 3. [BENEFIT RATIO FOR RURAL SERVICE DISTRICTS.] 93.5 Notwithstanding Minnesota Statutes, section 272.67, 93.6 subdivision 6, the benefit ratio used for apportioning levies to 93.7 a rural service district for taxes payable in 2006 and any 93.8 subsequent year prior to the freeze termination year must not be 93.9 greater than that in effect for taxes payable in 2005. 93.10 Sec. 4. [PROHIBITION AGAINST INCURRING NEW DEBT.] 93.11 Subdivision 1. [ACTIONS PROHIBITED.] After May 31, 2006, 93.12 no municipality as defined in Minnesota Statutes, section 93.13 475.51, or any special taxing district as defined in Minnesota 93.14 Statutes, section 275.066, may sell obligations, certificates of 93.15 indebtedness, or capital notes under Minnesota Statutes, section 93.16 412.301, chapter 475, or any other law authorizing obligations, 93.17 certificates of indebtedness, capital notes, or other debt 93.18 instruments, or enter into installment purchase contracts or 93.19 lease purchase agreements under Minnesota Statutes, section 93.20 465.71, or any other law authorizing installment purchase 93.21 contracts or lease purchase agreements, if issuing those debt 93.22 instruments or entering into those contracts would require a 93.23 levy first becoming payable in 2007 or any subsequent year prior 93.24 to the freeze termination year. 93.25 Subd. 2. [EXCEPTIONS.] This prohibition does not apply to: 93.26 (1) refunding bonds sold to refund bonds originally sold 93.27 before June 1, 2006; 93.28 (2) obligations for which the amount of the levy first 93.29 becoming due in 2007 would not exceed the amount by which the 93.30 municipality's total debt service levy for taxes payable in 2007 93.31 prior to issuance of those obligations is less than the 93.32 municipality's total debt service levy for taxes payable in 93.33 2006; or 93.34 (3) obligations with respect to which the municipality 93.35 makes a finding at the time of the issuance of the obligations 93.36 that no levy will be required for taxes payable in 2007 or any 94.1 subsequent year prior to the freeze termination year or to pay 94.2 the debt service on the obligations because sufficient funds are 94.3 available from nonproperty tax sources to pay the debt service. 94.4 As used in clauses (2) and (3), "obligations" includes 94.5 certificates of indebtedness, capital notes, or other debt 94.6 instruments or installment purchase contracts or lease purchase 94.7 agreements. 94.8 Subd. 3. [DATE WHEN BONDS ARE DEEMED SOLD.] For purposes 94.9 of this section, bonds will be deemed to have been sold before 94.10 June 1, 2006, if: 94.11 (1) an agreement has been entered into between the 94.12 municipality and a purchaser or underwriter for the sale of the 94.13 bonds by that date; 94.14 (2) the issuing municipality is a party to a contract or 94.15 letter of understanding entered into before June 1, 2006, with 94.16 the federal government or the state government that requires the 94.17 municipality to pay for a project, and the project will be 94.18 funded with the proceeds of the bonds; or 94.19 (3) the proceeds of the bonds will be used to fund a 94.20 project or acquisition with respect to which the municipality 94.21 has entered into a contract with a builder or supplier before 94.22 June 1, 2006. 94.23 Sec. 5. [LEVY LIMITATION FOR TAXES PAYABLE IN 2007 AND 94.24 SUBSEQUENT YEARS.] 94.25 Subdivision 1. [PROPOSED LEVY.] Notwithstanding any other 94.26 law to the contrary, for purposes of the certification required 94.27 by Minnesota Statutes, section 275.065, subdivision 1, in 2006 94.28 and any subsequent year prior to the freeze termination year, no 94.29 taxing authority, other than a school district, shall certify to 94.30 the county auditor a proposed property tax levy or, in the case 94.31 of a township, a final property tax levy, greater than the levy 94.32 certified to the county auditor pursuant to Minnesota Statutes, 94.33 section 275.07, subdivision 1, in the prior year, except as 94.34 provided in this section. 94.35 Subd. 2. [FINAL LEVY.] Notwithstanding any other law to 94.36 the contrary, for purposes of the certification required by 95.1 Minnesota Statutes, section 275.07, subdivision 1, in 2006 and 95.2 any subsequent year prior to the freeze termination year, no 95.3 taxing authority, other than a school district, shall certify to 95.4 the county auditor a property tax levy greater than the amount 95.5 certified to the county auditor pursuant to Minnesota Statutes, 95.6 section 275.07, subdivision 1, in the prior year, except as 95.7 provided in this section. 95.8 Subd. 3. [DEBT SERVICE EXCEPTION.] If a levy for taxes 95.9 payable in 2007 or any subsequent year prior to the freeze 95.10 termination year, for debt service on obligations, certificates 95.11 of indebtedness, capital notes, or other debt instruments sold 95.12 prior to June 1, 2006, or to make payments on installment 95.13 purchase contracts or lease purchase agreements entered into 95.14 prior to June 1, 2006, exceeds the levy a taxing authority 95.15 certified pursuant to Minnesota Statutes, section 275.07, 95.16 subdivision 1, for taxes payable in 2006 for the same purpose, 95.17 the excess may be levied notwithstanding the limitations of 95.18 subdivisions 1 and 2. 95.19 Subd. 4. [ANNEXATION EXCEPTION.] The city tax rate for 95.20 taxes payable in 2007 or any subsequent year prior to the freeze 95.21 termination year on any property annexed under Minnesota 95.22 Statutes, chapter 414, may not be increased over the city or 95.23 township tax rate in effect on the property for taxes payable in 95.24 2006, notwithstanding any law, municipal board order, or 95.25 ordinance to the contrary. The limit on the annexing city's 95.26 levy under subdivisions 1 and 2 may be increased in excess of 95.27 that limit by an amount equal to the net tax capacity of the 95.28 property annexed times the city or township tax rate in effect 95.29 on that property for taxes payable in 2006. The levy limit of 95.30 the city or township from which the property was annexed shall 95.31 be reduced by the same amount. 95.32 Subd. 5. [SCHOOL DISTRICT EXCEPTIONS.] (a) For taxes 95.33 payable in 2007 and subsequent years prior to the freeze 95.34 termination year, no school district shall certify to the county 95.35 auditor a property tax levy that exceeds the maximum levy that 95.36 may be imposed by that district under 2005 S.F. No. 2267, if 96.1 enacted, except as provided in paragraph (b). 96.2 (b) A school district that is in statutory operating debt 96.3 under Minnesota Statutes, section 123B.81, and has an approved 96.4 plan under Minnesota Statutes, section 123B.83, that includes an 96.5 increase to its referendum allowance under Minnesota Statutes, 96.6 section 126C.17, is exempt from the levy freeze on referenda 96.7 according to this section. 96.8 Sec. 6. [FREEZE ON LOCAL MATCH REQUIREMENTS.] 96.9 Notwithstanding any other law to the contrary, the local 96.10 funding or local match required from any city, town, or county 96.11 for any state grant or program shall not be increased for 96.12 calendar year 2007 or any subsequent year prior to the freeze 96.13 termination year above the dollar amount of the local funding or 96.14 local match required for the same grant or program in 2006, 96.15 regardless of the level of state funding provided. Any local 96.16 match or local funding requirement that first becomes effective 96.17 after December 31, 2006, for new or changed state grants or 96.18 programs shall not be effective until the freeze has been 96.19 terminated for that taxing jurisdiction under section 14. 96.20 Nothing in this section shall affect the eligibility of a city, 96.21 town, or county for the receipt of state grants or program funds 96.22 in 2007 or any subsequent year prior to the freeze termination 96.23 year, or reduce the amount of state funding a city, town, or 96.24 county would otherwise receive in 2007 or any subsequent year 96.25 prior to the freeze termination year if the local match 96.26 requirements of the state grant or program were met in 2006. 96.27 Sec. 7. [SUSPENSION OF SALARY AND BUDGET APPEAL 96.28 AUTHORIZATION.] 96.29 After March 1, 2006, no county sheriff may exercise the 96.30 authority granted under Minnesota Statutes, section 387.20, 96.31 subdivision 7, and no county attorney may exercise the authority 96.32 granted under Minnesota Statutes, section 388.18, subdivision 6, 96.33 to the extent that the salary or budget increase sought in the 96.34 appeal would result in an increase in county expenditures in 96.35 calendar year 2007 or any subsequent year prior to the freeze 96.36 termination year. 97.1 Sec. 8. [SUSPENSION OF PUBLICATION AND HEARING 97.2 REQUIREMENTS.] 97.3 A local taxing authority is not required to comply with the 97.4 public advertisement notice of Minnesota Statutes, section 97.5 275.065, subdivision 5a, or the public hearing requirement of 97.6 Minnesota Statutes, section 275.065, subdivision 6, with respect 97.7 to taxes payable in 2007 and any subsequent year prior to the 97.8 freeze termination year. 97.9 Sec. 9. [TAX RATE FREEZE; REDUCTION OF LEVY.] 97.10 If in the course of determining local tax rates for taxes 97.11 payable in 2007 or any subsequent year prior to the freeze 97.12 termination year after reductions for disparity reduction aid 97.13 under Minnesota Statutes, section 275.08, subdivisions 1c and 97.14 1d, the county auditor finds the local tax rate exceeds that in 97.15 effect for taxes payable in 2006, the county auditor shall 97.16 reduce the local government's levy so that the local tax rate 97.17 does not exceed that in effect for taxes payable in 2006, 97.18 adjusted as provided in section 5. 97.19 Sec. 10. [PENSION LIABILITIES.] 97.20 Notwithstanding any other law or charter provision to the 97.21 contrary, no levy for taxes payable in 2007 or any subsequent 97.22 year prior to the freeze termination year for a local police and 97.23 fire relief association for the purpose of amortizing an 97.24 unfunded pension liability may exceed the levy for that purpose 97.25 for taxes payable in 2006. 97.26 Sec. 11. [DUTIES OF TOWNSHIP BOARD OF SUPERVISORS.] 97.27 Notwithstanding Minnesota Statutes, section 365.10, in 2006 97.28 the township board of supervisors shall adjust the levy and in 97.29 any subsequent year prior to the freeze termination year, the 97.30 township board of supervisors may adjust the expenditures of a 97.31 township below the level authorized by the electors to adjust 97.32 for any reduction in the previously authorized levy of the 97.33 township pursuant to section 5. 97.34 Sec. 12. [PROHIBITION ON NEW OR INCREASED FEES.] 97.35 After March 1, 2006, no municipality as defined in 97.36 Minnesota Statutes, section 475.51, or special taxing district 98.1 as defined in Minnesota Statutes, section 275.066, and no 98.2 executive branch state agency may impose a new fee or increase 98.3 the rate or amount of an existing fee. As used in this section, 98.4 a fee is any charge for goods, services, regulations, or 98.5 licensure, and includes charges for admission to or for use of 98.6 public facilities. 98.7 Sec. 13. [SAVINGS CLAUSE.] 98.8 Notwithstanding any provision in this article, nothing in 98.9 this article constitutes an impairment of any obligations, 98.10 certificates of indebtedness, capital notes, or other debt 98.11 instruments, including installment purchase contracts or lease 98.12 purchase agreements, issued before the date of final enactment 98.13 of this act, by a municipality as defined in Minnesota Statutes, 98.14 section 469.174, subdivision 6; a school district; or a special 98.15 taxing district as defined in Minnesota Statutes, section 98.16 275.066. 98.17 Sec. 14. [EFFECTIVE DATE; TERMINATION.] 98.18 (a) This article is effective the day following final 98.19 enactment and applies to taxes payable in 2007 and subsequent 98.20 years prior to the termination date provided in paragraph (b), 98.21 (c), (d), or (e) for the taxing jurisdiction described in each 98.22 of those paragraphs. 98.23 (b) For cities and towns, the termination date is the taxes 98.24 payable year that is the calendar year when local government 98.25 aids payable to cities under Minnesota Statutes, section 98.26 477A.013, are sufficient to fully fund the formula without any 98.27 reduction due to the limitation in Minnesota Statutes, section 98.28 477A.03. 98.29 (c) For counties, the termination date is the taxes payable 98.30 year when the total amount to be paid to all counties under 98.31 Minnesota Statutes, section 477A.0124, exceeds the amount paid 98.32 to all counties under Minnesota Statutes 2002, sections 273.138; 98.33 273.1398, subdivision 2, minus the amount certified under 98.34 Minnesota Statutes, section 273.1398, subdivision 4a, paragraph 98.35 (b), for counties in Judicial Districts One, Three, Six, and 98.36 Ten, and by 25 percent of the amount certified under Minnesota 99.1 Statutes, section 273.1398, subdivision 4a, paragraph (b), for 99.2 counties located in Judicial Districts Two and Four; 273.166; 99.3 477A.0121; and 477A.0122, increased by the rate of increase in 99.4 the annual implicit price deflator for government consumption 99.5 expenditures from 2003 to the current year. 99.6 (d) For school districts, the termination date is the taxes 99.7 payable year that is the year in which the state provides a real 99.8 state aid inflationary increase to the basic formula allowance 99.9 under Minnesota Statutes, section 126C.10, subdivision 2, over 99.10 the amount paid in the prior year. 99.11 (e) For special taxing districts, the termination date is 99.12 the 2009 taxes payable year.