SF 2979

as introduced - 84th Legislature (2005 - 2006) Posted on 12/15/2009 12:00am

A bill for an act
relating to taxation; providing a small business tax credit; providing a partial
exemption from the state general levy on business properties; modifying the
treatment of certain income from foreign operations; amending Minnesota
Statutes 2004, sections 273.1384, by adding a subdivision; 275.025, subdivision
2; 290.34, subdivision 1; Minnesota Statutes 2005 Supplement, sections 275.025,
subdivisions 1, 4; 289A.38, subdivision 6; 290.01, subdivisions 6b, 19c, 19d.

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

Section 1.

Minnesota Statutes 2004, section 273.1384, is amended by adding a
subdivision to read:

new text begin Subd. 2a. new text end

new text begin Small business market value credit. new text end

new text begin Commercial-industrial property
classified as class 3a or 3b is eligible for a small business market value credit. The credit
is equal to 0.4 percent of the first $150,000 of the market value of the property. The credit
under this subdivision is limited to $600 for each parcel of commercial-industrial property.
Utility property is not eligible for the credit under this subdivision.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxes levied in 2006, payable
in 2007, and thereafter.
new text end

Sec. 2.

Minnesota Statutes 2005 Supplement, section 275.025, subdivision 1, is
amended to read:

Subdivision 1.

Levy amount.

The state general levy is levied against
commercial-industrial property and seasonal residential recreational property, as defined
in this section. The state general levy base amount is deleted text begin $592,000,000 deleted text end new text begin $600,046,800 for
commercial-industrial tax capacity and $33,967,300 for seasonal residential recreational
tax capacity new text end for taxes payable in deleted text begin 2002 deleted text end new text begin 2007 new text end . For taxes payable in subsequent years,
the levy base amount is increased each year by multiplying the levy base amount for
the prior year by the sum of one plus the rate of increase, if any, in the implicit price
deflator for government consumption expenditures and gross investment for state and
local governments prepared by the Bureau of Economic Analysts of the United States
Department of Commerce for the 12-month period ending March 31 of the year prior to the
year the taxes are payable. The tax under this section is not treated as a local tax rate under
section 469.177 and is not the levy of a governmental unit under chapters 276A and 473F.

The commissioner shall increase or decrease the preliminary or final rate for a year
as necessary to account for errors and tax base changes that affected a preliminary or final
rate for either of the two preceding years. Adjustments are allowed to the extent that the
necessary information is available to the commissioner at the time the rates for a year must
be certified, and for the following reasons:

(1) an erroneous report of taxable value by a local official;

(2) an erroneous calculation by the commissioner; and

(3) an increase or decrease in taxable value for commercial-industrial or seasonal
residential recreational property reported on the abstracts of tax lists submitted under
section 275.29 that was not reported on the abstracts of assessment submitted under
section 270C.89 for the same year.

The commissioner may, but need not, make adjustments if the total difference in the tax
levied for the year would be less than $100,000.

Sec. 3.

Minnesota Statutes 2004, section 275.025, subdivision 2, is amended to read:

Subd. 2.

Commercial-industrial tax capacity.

For the purposes of this section,
"commercial-industrial tax capacity" means the tax capacity of all taxable property
classified as class 3 or class 5(1) under section 273.13, except for electric generation
attached machinery under class 3 and property described in section 473.625. new text begin The first
$150,000 of market value of each commercial-industrial property other than railroad or
utility property has a tax capacity for this purpose equal to 40 percent of its tax capacity
under section 273.13. new text end County commercial-industrial tax capacity amounts are not adjusted
for the captured net tax capacity of a tax increment financing district under section
469.177, subdivision 2, the net tax capacity of transmission lines deducted from a local
government's total net tax capacity under section 273.425, or fiscal disparities contribution
and distribution net tax capacities under chapter 276A or 473F.

Sec. 4.

Minnesota Statutes 2005 Supplement, section 275.025, subdivision 4, is
amended to read:

Subd. 4.

Apportionment and levy of state general tax.

deleted text begin Ninety-five percent of the
state general tax must be levied by applying a uniform rate to all commercial-industrial tax
capacity and five percent of the state general tax must be levied by applying a uniform
rate to all seasonal residential recreational tax capacity. deleted text end On or before October 1 each year,
the commissioner of revenue shall certify the preliminary state general levy rates to each
county auditor that must be used to prepare the notices of proposed property taxes for taxes
payable in the following year. By January 1 of each year, the commissioner shall certify
the final state general levy rate to each county auditor that shall be used in spreading taxes.

Sec. 5.

Minnesota Statutes 2005 Supplement, section 289A.38, subdivision 6, is
amended to read:

Subd. 6.

Omission in excess of 25 percent.

Additional taxes may be assessed
within 6-1/2 years after the due date of the return or the date the return was filed,
whichever is later, if:

(1) the taxpayer omits from deleted text begin gross deleted text end new text begin taxable new text end income an amount properly includable
in it that is in excess of 25 percent of the amount of deleted text begin gross deleted text end new text begin taxable new text end income deleted text begin stated in the
return deleted text end new text begin that would have been reported but for the omission new text end ;

(2) the taxpayer omits from a sales, use, or withholding tax return an amount of taxes
in excess of 25 percent of the taxes reported in the return; or

(3) the taxpayer omits from the gross estate assets in excess of 25 percent of the
gross estate reported in the return.

new text begin EFFECTIVE DATE. new text end

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

Sec. 6.

Minnesota Statutes 2005 Supplement, section 290.01, subdivision 6b, is
amended to read:

Subd. 6b.

Foreign operating corporation.

The term "foreign operating
corporation," when applied to a corporation, means a domestic corporation with the
following characteristics:

(1) it is part of a unitary business at least one member of which is taxable in this state;

(2) it is not a foreign sales corporation under section 922 of the Internal Revenue
Code, as amended through December 31, 1999, for the taxable year;

(3) new text begin either new text end (i) deleted text begin the average of the percentages of its property and payrolls, including
the pro rata share of its unitary partnerships' property and payrolls, assigned to locations
outside the United States, where the United States includes the District of Columbia and
excludes the commonwealth of Puerto Rico and possessions of the United States, as
determined under section 290.191 or 290.20, is 80 percent or more; or (ii) deleted text end it has in effect a
valid election under section 936 of the Internal Revenue Code; new text begin or (ii) at least 80 percent
of the gross income from all sources of the corporation in the tax year is active foreign
business income; new text end and

(4) deleted text begin it has $1,000,000 of payroll and $2,000,000 of property, as determined under
section 290.191 or 290.20, that are located outside the United States. If the domestic
corporation does not have payroll as determined under section 290.191 or 290.20, but it
or its partnerships have paid $1,000,000 for work, performed directly for the domestic
corporation or the partnerships, outside the United States, then paragraph (3)(i) shall not
require payrolls to be included in the average calculation deleted text end new text begin for purposes of this subdivision,
active foreign business income means gross income that is (i) derived from sources
without the United States, as defined in subtitle A, chapter 1, subchapter N, part 1, of the
Internal Revenue Code; and (ii) attributable to the active conduct of a trade or business in
a foreign country new text end .

new text begin EFFECTIVE DATE. new text end

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

Sec. 7.

Minnesota Statutes 2005 Supplement, section 290.01, subdivision 19c, is
amended to read:

Subd. 19c.

Corporations; additions to federal taxable income.

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

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

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

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

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

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

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

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

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

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

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

(11) the amount of any deemed dividend from a foreign operating corporation
determined pursuant to section 290.17, subdivision 4, paragraph (g) new text begin . The deemed dividend
shall be reduced by the amount of the addition to income required by clauses (19), (20),
(21), and (22) new text end ;

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

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

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

(15) 80 percent of the depreciation deduction allowed under section 168(k)(1)(A)
and (k)(4)(A) of the Internal Revenue Code. For purposes of this clause, if the taxpayer
has an activity that in the taxable year generates a deduction for depreciation under
section 168(k)(1)(A) and (k)(4)(A) and the activity generates a loss for the taxable year
that the taxpayer is not allowed to claim for the taxable year, "the depreciation allowed
under section 168(k)(1)(A) and (k)(4)(A)" for the taxable year is limited to excess of the
depreciation claimed by the activity under section 168(k)(1)(A) and (k)(4)(A) over the
amount of the loss from the activity that is not allowed in the taxable year. In succeeding
taxable years when the losses not allowed in the taxable year are allowed, the depreciation
under section 168(k)(1)(A) and (k)(4)(A) is allowed;

(16) 80 percent of the amount by which the deduction allowed by section 179 of the
Internal Revenue Code exceeds the deduction allowable by section 179 of the Internal
Revenue Code of 1986, as amended through December 31, 2003;

(17) to the extent deducted in computing federal taxable income, the amount of the
deduction allowable under section 199 of the Internal Revenue Code; deleted text begin and
deleted text end

(18) the exclusion allowed under section 139A of the Internal Revenue Code for
federal subsidies for prescription drug plans deleted text begin .
deleted text end

new text begin (19) an amount equal to the interest and intangible expenses, losses, and costs paid,
accrued, or incurred by any member of the taxpayer's unitary group to or for the benefit
of a corporation that is a member of the taxpayer's unitary business group that qualifies
as a foreign operating corporation. For purposes of this clause, intangible expenses and
costs include:
new text end

new text begin (i) expenses, losses, and costs for, or related to, the direct or indirect acquisition,
use, maintenance or management, ownership, sale, exchange, or any other disposition of
intangible property;
new text end

new text begin (ii) losses incurred, directly or indirectly, from factoring transactions or discounting
transactions;
new text end

new text begin (iii) royalty, patent, technical, and copyright fees;
new text end

new text begin (iv) licensing fees; and
new text end

new text begin (v) other similar expenses and costs. new text end .

new text begin For purposes of this clause, "intangible property" includes stocks, bonds, patents, patent
applications, trade names, trademarks, service marks, copyrights, mask works, trade
secrets, and similar types of intangible assets.
new text end

new text begin This clause does not apply to any item of interest or intangible expenses or costs paid,
accrued, or incurred, directly or indirectly, to a foreign operating corporation with respect
to such item of income to the extent that the income to the foreign operating corporation
is income from sources without the United States as defined in subtitle A, chapter 1,
subchapter N, part 1, of the Internal Revenue Code;
new text end

new text begin (20) except as already included in the taxpayer's taxable income pursuant to clause
(19), any interest income and income generated from intangible property received or
accrued by a foreign operating corporation that is a member of the taxpayer's unitary
group. For purposes of this clause, income generated from intangible property includes:
new text end

new text begin (i) income related to the direct or indirect acquisition, use, maintenance or
management, ownership, sale, exchange, or any other disposition of intangible property;
new text end

new text begin (ii) income from factoring transactions or discounting transactions;
new text end

new text begin (iii) royalty, patent, technical, and copyright fees;
new text end

new text begin (iv) licensing fees; and
new text end

new text begin (v) other similar income.
new text end

new text begin For purposes of this clause, "intangible property" includes stocks, bonds, patents, patent
applications, trade names, trademarks, service marks, copyrights, mask works, trade
secrets, and similar types of intangible assets.
new text end

new text begin This clause does not apply to any item of interest or intangible income received or accrued
by a foreign operating corporation with respect to such item of income to the extent that
the income is income from sources without the United States as defined in subtitle A,
chapter 1, subchapter N, part 1, of the Internal Revenue Code;
new text end

new text begin (21) the dividends attributable to the income of a foreign operating corporation that
is a member of the taxpayer's unitary group in an amount that is equal to the dividends
paid deduction of a real estate investment trust under section 561(a) of the Internal
Revenue Code for amounts paid or accrued by the real estate investment trust to the
foreign operating corporation; and
new text end

new text begin (22) the income of a foreign operating corporation that is a member of the taxpayer's
unitary group in an amount that is equal to gains derived from the sale of real or personal
property located in the United States.
new text end

new text begin EFFECTIVE DATE. new text end

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

Sec. 8.

Minnesota Statutes 2005 Supplement, section 290.01, subdivision 19d, is
amended to read:

Subd. 19d.

Corporations; modifications decreasing federal taxable income.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(10) 80 percent of royalties, fees, or other like income accrued or received from a
foreign operating corporation or a foreign corporation which is part of the same unitary
business as the receiving corporation new text begin , unless the income resulting from such payments or
accruals is income from sources within the United States as defined in subtitle A, chapter
1, subchapter N, part 1, of the Internal Revenue Code new text end ;

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

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

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

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

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

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

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

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

(19) in each of the five tax years immediately following the tax year in which an
addition is required under subdivision 19c, clause (15), an amount equal to one-fifth of
the delayed depreciation. For purposes of this clause, "delayed depreciation" means the
amount of the addition made by the taxpayer under subdivision 19c, clause (15). The
resulting delayed depreciation cannot be less than zero; and

(20) in each of the five tax years immediately following the tax year in which an
addition is required under subdivision 19c, clause (16), an amount equal to one-fifth of the
amount of the addition.

new text begin EFFECTIVE DATE. new text end

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

Sec. 9.

Minnesota Statutes 2004, section 290.34, subdivision 1, is amended to read:

Subdivision 1.

Business conducted in such a way as to create losses or improper
taxable net income.

new text begin (a) new text end When any corporation liable to taxation under this chapter
conducts its business in such a manner as, directly or indirectly, to benefit its members
or stockholders or any person or corporation interested in such business or to reduce the
income attributable to this state by selling the commodities or services in which it deals
at less than the fair price which might be obtained therefor, or buying such commodities
or services at more than the fair price for which they might have been obtained, or when
any corporation, a substantial portion of whose shares is owned directly or indirectly by
another corporation, deals in the commodities or services of the latter corporation in such
a manner as to create a loss or improper net income or to reduce the taxable net income
attributable to this state, the commissioner of revenue may determine the amount of its
income so as to reflect what would have been its reasonable taxable net income but for the
arrangements causing the understatement of its taxable net income or the overstatement of
its losses, having regard to the fair profits which, but for any agreement, arrangement, or
understanding, might have been or could have been obtained from such business.

new text begin (b) When any corporation engages in a transaction or series of transactions whose
primary business purpose is the avoidance of tax, or engages in a transaction or series of
transactions without economic substance, that transaction or series of transactions shall be
disregarded and the commissioner shall determine taxable net income without regard for
any such transaction or series of transactions.
new text end

Sec. 10. new text begin INTENT OF LEGISLATURE.
new text end

new text begin Section 9 does not change Minnesota law, but merely clarifies the legislature's
intention with respect to transactions without economic substance or business purpose.
new text end