SF 2918

as introduced - 89th Legislature (2015 - 2016) Posted on 03/18/2016 11:17am

A bill for an act
relating to taxation; making technical and clarifying changes to property
tax, income tax, estate tax, and sales tax provisions; amending Minnesota
Statutes 2014, sections 273.13, subdivision 22; 290.17, subdivision 2; 291.016,
subdivision 3; 291.03, subdivision 9; 297A.61, subdivision 10.

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

Section 1.

Minnesota Statutes 2014, section 273.13, subdivision 22, is amended to read:

Subd. 22.

Class 1.

(a) Except as provided in subdivision 23 and in paragraphs (b)
and (c), real estate which is residential and used for homestead purposes is class 1a. In the
case of a duplex or triplex in which one of the units is used for homestead purposes, the
entire property is deemed to be used for homestead purposes. The market value of class 1a
property must be determined based upon the value of the house, garage, and land.

The first $500,000 of market value of class 1a property has a net classification rate
of one percent of its market value; and the market value of class 1a property that exceeds
$500,000 has a classification rate of 1.25 percent of its market value.

(b) Class 1b property includes homestead real estate or homestead manufactured
homes used for the purposes of a homestead by:

(1) any person who is blind as defined in section 256D.35, or the blind person and
the blind person's spouse;

(2) any person who is permanently and totally disabled or by the disabled person and
the disabled person's spouse; or

(3) the surviving spouse of a permanently and totally disabled veteran homesteading
a property classified under this paragraph for taxes payable in 2008.

Property is classified and assessed under clause (2) only if the government agency or
income-providing source certifies, upon the request of the homestead occupant, that the
homestead occupant satisfies the disability requirements of this paragraph, and that the
property is not eligible for the valuation exclusion under subdivision 34.

Property is classified and assessed under paragraph (b) only if the commissioner
of revenue or the county assessor certifies that the homestead occupant satisfies the
requirements of this paragraph.

Permanently and totally disabled for the purpose of this subdivision means a
condition which is permanent in nature and totally incapacitates the person from working
at an occupation which brings the person an income. The first $50,000 market value of
class 1b property has a net classification rate of .45 percent of its market value. The
remaining market value of class 1b property deleted text begin has a classification rate using the rates for deleted text end new text begin is
classified as new text end class 1a or class 2a property, whichever is appropriate deleted text begin , of similar market value deleted text end .

(c) Class 1c property is commercial use real and personal property that abuts public
water as defined in section 103G.005, subdivision 15, and is devoted to temporary and
seasonal residential occupancy for recreational purposes but not devoted to commercial
purposes for more than 250 days in the year preceding the year of assessment, and that
includes a portion used as a homestead by the owner, which includes a dwelling occupied
as a homestead by a shareholder of a corporation that owns the resort, a partner in a
partnership that owns the resort, or a member of a limited liability company that owns the
resort even if the title to the homestead is held by the corporation, partnership, or limited
liability company. For purposes of this paragraph, property is devoted to a commercial
purpose on a specific day if any portion of the property, excluding the portion used
exclusively as a homestead, is used for residential occupancy and a fee is charged for
residential occupancy. Class 1c property must contain three or more rental units. A "rental
unit" is defined as a cabin, condominium, townhouse, sleeping room, or individual camping
site equipped with water and electrical hookups for recreational vehicles. Class 1c property
must provide recreational activities such as the rental of ice fishing houses, boats and
motors, snowmobiles, downhill or cross-country ski equipment; provide marina services,
launch services, or guide services; or sell bait and fishing tackle. Any unit in which the
right to use the property is transferred to an individual or entity by deeded interest, or the
sale of shares or stock, no longer qualifies for class 1c even though it may remain available
for rent. A camping pad offered for rent by a property that otherwise qualifies for class 1c
is also class 1c, regardless of the term of the rental agreement, as long as the use of the
camping pad does not exceed 250 days. If the same owner owns two separate parcels that
are located in the same township, and one of those properties is classified as a class 1c
property and the other would be eligible to be classified as a class 1c property if it was
used as the homestead of the owner, both properties will be assessed as a single class 1c
property; for purposes of this sentence, properties are deemed to be owned by the same
owner if each of them is owned by a limited liability company, and both limited liability
companies have the same membership. The portion of the property used as a homestead
is class 1a property under paragraph (a). The remainder of the property is classified as
follows: the first $600,000 of market value is tier I, the next $1,700,000 of market value
is tier II, and any remaining market value is tier III. The classification rates for class 1c
are: tier I, 0.50 percent; tier II, 1.0 percent; and tier III, 1.25 percent. Owners of real and
personal property devoted to temporary and seasonal residential occupancy for recreation
purposes in which all or a portion of the property was devoted to commercial purposes for
not more than 250 days in the year preceding the year of assessment desiring classification
as class 1c, must submit a declaration to the assessor designating the cabins or units
occupied for 250 days or less in the year preceding the year of assessment by January 15 of
the assessment year. Those cabins or units and a proportionate share of the land on which
they are located must be designated as class 1c as otherwise provided. The remainder of
the cabins or units and a proportionate share of the land on which they are located must be
designated as class 3a commercial. The owner of property desiring designation as class
1c property must provide guest registers or other records demonstrating that the units for
which class 1c designation is sought were not occupied for more than 250 days in the
year preceding the assessment if so requested. The portion of a property operated as a
(1) restaurant, (2) bar, (3) gift shop, (4) conference center or meeting room, and (5) other
nonresidential facility operated on a commercial basis not directly related to temporary
and seasonal residential occupancy for recreation purposes does not qualify for class 1c.

(d) Class 1d property includes structures that meet all of the following criteria:

(1) the structure is located on property that is classified as agricultural property under
section 273.13, subdivision 23;

(2) the structure is occupied exclusively by seasonal farm workers during the time
when they work on that farm, and the occupants are not charged rent for the privilege of
occupying the property, provided that use of the structure for storage of farm equipment
and produce does not disqualify the property from classification under this paragraph;

(3) the structure meets all applicable health and safety requirements for the
appropriate season; and

(4) the structure is not salable as residential property because it does not comply
with local ordinances relating to location in relation to streets or roads.

The market value of class 1d property has the same classification rates as class
1a property under paragraph (a).

new text begin EFFECTIVE DATE. new text end

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

Sec. 2.

Minnesota Statutes 2014, section 290.17, subdivision 2, is amended to read:

Subd. 2.

Income not derived from conduct of a trade or business.

The income of
a taxpayer subject to the allocation rules that is not derived from the conduct of a trade or
business must be assigned in accordance with paragraphs (a) to (f):

(a)(1) Subject to paragraphs (a)(2) and (a)(3), income from wages as defined in
section 3401(a) and (f) of the Internal Revenue Code is assigned to this state if, and to the
extent that, the work of the employee is performed within it; all other income from such
sources is treated as income from sources without this state.

Severance pay shall be considered income from labor or personal or professional
services.

(2) In the case of an individual who is a nonresident of Minnesota and who is an
athlete or entertainer, income from compensation for labor or personal services performed
within this state shall be determined in the following manner:

(i) The amount of income to be assigned to Minnesota for an individual who is a
nonresident salaried athletic team employee shall be determined by using a fraction in
which the denominator contains the total number of days in which the individual is under
a duty to perform for the employer, and the numerator is the total number of those days
spent in Minnesota. For purposes of this paragraph, off-season training activities, unless
conducted at the team's facilities as part of a team imposed program, are not included in
the total number of duty days. Bonuses earned as a result of play during the regular season
or for participation in championship, play-off, or all-star games must be allocated under
the formula. Signing bonuses are not subject to allocation under the formula if they are
not conditional on playing any games for the team, are payable separately from any other
compensation, and are nonrefundable; and

(ii) The amount of income to be assigned to Minnesota for an individual who is a
nonresident, and who is an athlete or entertainer not listed in clause (i), for that person's
athletic or entertainment performance in Minnesota shall be determined by assigning to
this state all income from performances or athletic contests in this state.

(3) For purposes of this section, amounts received by a nonresident as "retirement
income" as defined in section (b)(1) of the State Income Taxation of Pension Income
Act, Public Law 104-95, are not considered income derived from carrying on a trade
or business or from wages or other compensation for work an employee performed in
Minnesota, and are not taxable under this chapter.

(b) Income or gains from tangible property located in this state that is not employed
in the business of the recipient of the income or gains must be assigned to this state.

(c) Income or gains from intangible personal property not employed in the business
of the recipient of the income or gains must be assigned to this state if the recipient of the
income or gains is a resident of this state or is a resident trust or estate.

Gain on the sale of a partnership interest is allocable to this state in the ratio of the
original cost of partnership tangible property in this state to the original cost of partnership
tangible property everywhere, determined at the time of the sale. If more than 50 percent
of the value of the partnership's assets consists of intangibles, gain or loss from the sale
of the partnership interest is allocated to this state in accordance with the sales factor of
the partnership for its first full tax period immediately preceding the tax period of the
partnership during which the partnership interest was sold.

Gain on the sale of an interest in a single member limited liability company that
is disregarded for federal income tax purposes is allocable to this state as if the single
member limited liability company did not exist and the assets of the limited liability
company are personally owned by the sole member.

Gain on the sale of goodwill or income from a covenant not to compete that is
connected with a business operating all or partially in Minnesota is allocated to this state
to the extent that the income from the business in the year preceding the year of sale was
deleted text begin assignable deleted text end new text begin allocable new text end to Minnesota under subdivision 3.

When an employer pays an employee for a covenant not to compete, the income
allocated to this state is in the ratio of the employee's service in Minnesota in the calendar
year preceding leaving the employment of the employer over the total services performed
by the employee for the employer in that year.

(d) Income from winnings on a bet made by an individual while in Minnesota is
assigned to this state. In this paragraph, "bet" has the meaning given in section 609.75,
subdivision 2, as limited by section 609.75, subdivision 3, clauses (1), (2), and (3).

(e) All items of gross income not covered in paragraphs (a) to (d) and not part of the
taxpayer's income from a trade or business shall be assigned to the taxpayer's domicile.

(f) For the purposes of this section, working as an employee shall not be considered
to be conducting a trade or business.

new text begin EFFECTIVE DATE. new text end

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

Sec. 3.

Minnesota Statutes 2014, section 291.016, subdivision 3, is amended to read:

Subd. 3.

Subtraction.

new text begin The following amounts, to the extent included in computing
the federal taxable estate, may be subtracted in computing the Minnesota taxable estate
but must not reduce the Minnesota taxable estate to less than zero:
new text end

new text begin (1) the value of property subject to an election under section 291.03, subdivision
1d; and
new text end

new text begin (2) new text end the value of qualified small business property under section 291.03, subdivision
9, and the value of qualified farm property under section 291.03, subdivision 10, or the
result of $5,000,000 minus the amount for the year of death listed in deleted text begin clauses (1) to (5)
deleted text end new text begin items (i) to (v) new text end , whichever is less deleted text begin , may be subtracted in computing the Minnesota taxable
estate but must not reduce the Minnesota taxable estate to less than zero deleted text end :

deleted text begin (1) deleted text end new text begin (i) new text end $1,200,000 for estates of decedents dying in 2014;

deleted text begin (2) deleted text end new text begin (ii) new text end $1,400,000 for estates of decedents dying in 2015;

deleted text begin (3) deleted text end new text begin (iii) new text end $1,600,000 for estates of decedents dying in 2016;

deleted text begin (4) deleted text end new text begin (iv) new text end $1,800,000 for estates of decedents dying in 2017; and

deleted text begin (5) deleted text end new text begin (v) new text end $2,000,000 for estates of decedents dying in 2018 and thereafter.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective retroactively for estates of decedents
dying after June 30, 2011.
new text end

Sec. 4.

Minnesota Statutes 2014, section 291.03, subdivision 9, is amended to read:

Subd. 9.

Qualified small business property.

Property satisfying all of the following
requirements is qualified small business property:

(1) The value of the property was included in the federal adjusted taxable estate.

(2) The property consists of the assets of a trade or business or shares of stock or other
ownership interests in a corporation or other entity engaged in a trade or business. Shares
of stock in a corporation or an ownership interest in another type of entity do not qualify
under this subdivision if the shares or ownership interests are traded on a public stock
exchange at any time during the three-year period ending on the decedent's date of death.
For purposes of this subdivision, an ownership interest includes the interest the decedent
is deemed to own under sections 2036, 2037, and 2038 of the Internal Revenue Code.

(3) During the taxable year that ended before the decedent's death, the trade or
business must not have been a passive activity within the meaning of section 469(c) of the
Internal Revenue Code, and the decedent or the decedent's spouse must have materially
participated in the trade or business within the meaning of section 469(h) of the Internal
Revenue Code, excluding section 469(h)(3) of the Internal Revenue Code and any other
provision provided by United States Treasury Department regulation that substitutes
material participation in prior taxable years for material participation in the taxable year
that ended before the decedent's death.

(4) The gross annual sales of the trade or business were $10,000,000 or less for the
last taxable year that ended before the date of the death of the decedent.

(5) The property does not deleted text begin consist of deleted text end new text begin include:
new text end

new text begin (i) new text end cash deleted text begin , deleted text end new text begin ;
new text end

new text begin (ii) new text end cash equivalents deleted text begin , deleted text end new text begin ;
new text end

new text begin (iii) new text end publicly traded securities deleted text begin , deleted text end new text begin ; new text end or

new text begin (iv) any new text end assets not used in the operation of the trade or business.

new text begin (6) new text end For property consisting of shares of stock or other ownership interests in an
entity, the value of deleted text begin cash, cash equivalents, publicly traded securities, or assets not used
in the operation of the trade or business held by the corporation or other entity deleted text end new text begin items
described in clause (5) new text end must be deleted text begin deducted from the value of the property qualifying under
this subdivision in proportion to the decedent's share of ownership of the entity on the date
of death deleted text end new text begin excluded in the valuation of the decedent's interest in the entity new text end .

deleted text begin (6) deleted text end new text begin (7) new text end The decedent continuously owned the property, including property the
decedent is deemed to own under sections 2036, 2037, and 2038 of the Internal Revenue
Code, for the three-year period ending on the date of death of the decedent. In the case of
a sole proprietor, if the property replaced similar property within the three-year period,
the replacement property will be treated as having been owned for the three-year period
ending on the date of death of the decedent.

deleted text begin (7) deleted text end new text begin (8) new text end For three years following the date of death of the decedent, the trade or business
is not a passive activity within the meaning of section 469(c) of the Internal Revenue Code,
and a family member materially participates in the operation of the trade or business within
the meaning of section 469(h) of the Internal Revenue Code, excluding section 469(h)(3)
of the Internal Revenue Code and any other provision provided by United States Treasury
Department regulation that substitutes material participation in prior taxable years for
material participation in the three years following the date of death of the decedent.

deleted text begin (8) deleted text end new text begin (9) new text end The estate and the qualified heir elect to treat the property as qualified small
business property and agree, in the form prescribed by the commissioner, to pay the
recapture tax under subdivision 11, if applicable.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective retroactively for estates of decedents
dying after June 30, 2011.
new text end

Sec. 5.

Minnesota Statutes 2014, section 297A.61, subdivision 10, is amended to read:

Subd. 10.

Tangible personal property.

(a) "Tangible personal property" means
personal property that can be seen, weighed, measured, felt, or touched, or that is in any
other manner perceptible to the senses. "Tangible personal property" includes, but is not
limited to, electricity, water, gas, steam, and prewritten computer software.

(b) Tangible personal property does not include:

deleted text begin (1) large ponderous machinery and equipment used in a business or production
activity which at common law would be considered to be real property;
deleted text end

deleted text begin (2) deleted text end new text begin (1) new text end property which is subject to an ad valorem property tax;

deleted text begin (3) deleted text end new text begin (2) new text end property described in section 272.02, subdivision 9, clauses (a) to (d);

deleted text begin (4) deleted text end new text begin (3) new text end property described in section 272.03, subdivision 2, clauses (3) and (5); and

deleted text begin (5) deleted text end new text begin (4) new text end specified digital products, or other digital products, transferred electronically.

new text begin EFFECTIVE DATE. new text end

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