SF 3550

1st Engrossment - 84th Legislature (2005 - 2006) Posted on 12/15/2009 12:00am

A bill for an act
relating to taxation; conforming certain provisions to federal law; increasing the
standard deduction for married joint filers; modifying the alternative minimum
tax; providing for taxation of certain compensation paid to nonresidents;
conforming to federal tax code; adjusting tax liability for certain filers; requiring
certain refunds; modifying income tax rates; appropriating money; amending
Minnesota Statutes 2004, sections 290.06, subdivision 2d; 290.091, subdivision
3; 290.17, subdivision 2; Minnesota Statutes 2005 Supplement, sections
289A.02, subdivision 7; 290.01, subdivisions 19, 19a, 31; 290.06, subdivision
2c; 290.0675, subdivision 1; 290.091, subdivision 2; 290A.03, subdivision 15.

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

Section 1.

Minnesota Statutes 2005 Supplement, section 289A.02, subdivision 7,
is amended to read:

Subd. 7.

Internal Revenue Code.

Unless specifically defined otherwise, "Internal
Revenue Code" means the Internal Revenue Code of 1986, as amended through deleted text begin April
15 deleted text end new text begin December 31 new text end , 2005.

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

Subd. 19.

Net income.

The term "net income" means the federal taxable income,
as defined in section 63 of the Internal Revenue Code of 1986, as amended through the
date named in this subdivision, incorporating the federal effective dates of changes to the
Internal Revenue Code and any elections made by the taxpayer in accordance with the
Internal Revenue Code in determining federal taxable income for federal income tax
purposes, and with the modifications provided in subdivisions 19a to 19f.

In the case of a regulated investment company or a fund thereof, as defined in section
851(a) or 851(g) of the Internal Revenue Code, federal taxable income means investment
company taxable income as defined in section 852(b)(2) of the Internal Revenue Code,
except that:

(1) the exclusion of net capital gain provided in section 852(b)(2)(A) of the Internal
Revenue Code does not apply;

(2) the deduction for dividends paid under section 852(b)(2)(D) of the Internal
Revenue Code must be applied by allowing a deduction for capital gain dividends and
exempt-interest dividends as defined in sections 852(b)(3)(C) and 852(b)(5) of the Internal
Revenue Code; and

(3) the deduction for dividends paid must also be applied in the amount of any
undistributed capital gains which the regulated investment company elects to have treated
as provided in section 852(b)(3)(D) of the Internal Revenue Code.

The net income of a real estate investment trust as defined and limited by section
856(a), (b), and (c) of the Internal Revenue Code means the real estate investment trust
taxable income as defined in section 857(b)(2) of the Internal Revenue Code.

The net income of a designated settlement fund as defined in section 468B(d) of
the Internal Revenue Code means the gross income as defined in section 468B(b) of the
Internal Revenue Code.

The Internal Revenue Code of 1986, as amended through deleted text begin April 15 deleted text end new text begin December 31 new text end ,
2005, shall be in effect for taxable years beginning after December 31, 1996.

Except as otherwise provided, references to the Internal Revenue Code in
subdivisions 19 to 19f mean the code in effect for purposes of determining net income for
the applicable year.

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 2005 Supplement, section 290.01, subdivision 19a, is
amended to read:

Subd. 19a.

Additions to federal taxable income.

For individuals, estates, and
trusts, there shall be added to federal taxable income:

(1)(i) interest income on obligations of any state other than Minnesota or a political
or governmental subdivision, municipality, or governmental agency or instrumentality
of any state other than Minnesota exempt from federal income taxes under the Internal
Revenue Code or any other federal statute; and

(ii) exempt-interest dividends as defined in section 852(b)(5) of the Internal Revenue
Code, except the portion of the exempt-interest dividends derived from interest income
on obligations of the state of Minnesota or its political or governmental subdivisions,
municipalities, governmental agencies or instrumentalities, but only if the portion of the
exempt-interest dividends from such Minnesota sources paid to all shareholders represents
95 percent or more of the exempt-interest dividends that are paid by the regulated
investment company as defined in section 851(a) of the Internal Revenue Code, or the
fund of the regulated investment company as defined in section 851(g) of the Internal
Revenue Code, making the payment; and

(iii) for the purposes of items (i) and (ii), interest on obligations of an Indian tribal
government described in section 7871(c) of the Internal Revenue Code shall be treated as
interest income on obligations of the state in which the tribe is located;

(2) the amount of income or sales and use taxes paid or accrued within the taxable
year under this chapter and the amount of taxes based on net income paid or sales and
use taxes paid to any other state or to any province or territory of Canada, to the extent
allowed as a deduction under section 63(d) of the Internal Revenue Code, but the addition
may not be more than the amount by which the itemized deductions as allowed under
section 63(d) of the Internal Revenue Code deleted text begin exceeds the amount of the standard deduction
deleted text end deleted text begin as defined in section 63(c) of the Internal Revenue Code minus the addition which would
deleted text end deleted text begin have been required under clause (10) if the taxpayer had claimed the standard deduction deleted text end .
For the purpose of this paragraph, the disallowance of itemized deductions under section
68 of the Internal Revenue Code of 1986, income or sales and use tax is the last itemized
deduction disallowed;

(3) the capital gain amount of a lump sum distribution to which the special tax under
section 1122(h)(3)(B)(ii) of the Tax Reform Act of 1986, Public Law 99-514, applies;

(4) the amount of income taxes paid or accrued within the taxable year under this
chapter and taxes based on net income paid to any other state or any province or territory
of Canada, to the extent allowed as a deduction in determining federal adjusted gross
income. For the purpose of this paragraph, income taxes do not include the taxes imposed
by sections 290.0922, subdivision 1, paragraph (b), 290.9727, 290.9728, and 290.9729;

(5) the amount of expense, interest, or taxes disallowed pursuant to section 290.10
other than expenses or interest used in computing net interest income for the subtraction
allowed under subdivision 19b, clause (1);

(6) 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;

(7) 80 percent of the depreciation deduction allowed under section 168(k) 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) 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)" for the taxable year is
limited to excess of the depreciation claimed by the activity under section 168(k) 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) is allowed;

(8) 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;

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

deleted text begin (10) for tax years beginning after December 31, 2004, to the extent deducted in
computing federal taxable income, the amount by which the standard deduction allowed
under section 63(c) of the Internal Revenue Code exceeds the standard deduction
allowable under section 63(c) of the Internal Revenue Code of 1986, as amended through
December 31, 2003; and
deleted text end

deleted text begin (11) deleted text end new text begin (10) new text end the exclusion allowed under section 139A of the Internal Revenue Code
for federal subsidies for prescription drug plans.

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. 4.

Minnesota Statutes 2005 Supplement, section 290.01, subdivision 31, is
amended to read:

Subd. 31.

Internal Revenue Code.

Unless specifically defined otherwise, "Internal
Revenue Code" means the Internal Revenue Code of 1986, as amended through deleted text begin April
15 deleted text end new text begin December 31 new text end , 2005.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective the day following final enactment,
except the changes incorporated by federal changes are effective at the same times as the
changes were effective for federal purposes.
new text end

Sec. 5.

Minnesota Statutes 2005 Supplement, section 290.06, subdivision 2c, is
amended to read:

Subd. 2c.

Schedules of rates for individuals, estates, and trusts.

(a) The income
taxes imposed by this chapter upon married individuals filing joint returns and surviving
spouses as defined in section 2(a) of the Internal Revenue Code must be computed by
applying to their taxable net income the following schedule of rates:

(1) On the first deleted text begin $25,680 deleted text end new text begin $29,980 new text end , 5.35 percent;

(2) On all over deleted text begin $25,680 deleted text end new text begin $29,980 new text end , but not over deleted text begin $102,030 deleted text end new text begin $119,100 new text end , 7.05 percent;

(3) On all over deleted text begin $102,030 deleted text end new text begin $119,100, but not over $270,000 new text end , 7.85 percent deleted text begin . deleted text end new text begin ; and
new text end

new text begin (4) On all over $270,000, 8.15 percent.
new text end

Married individuals filing separate returns, estates, and trusts must compute their
income tax by applying the above rates to their taxable income, except that the income
brackets will be one-half of the above amounts.

(b) The income taxes imposed by this chapter upon unmarried individuals must be
computed by applying to taxable net income the following schedule of rates:

(1) On the first deleted text begin $17,570 deleted text end new text begin $20,510 new text end , 5.35 percent;

(2) On all over deleted text begin $17,570 deleted text end new text begin $20,510 new text end , but not over deleted text begin $57,710 deleted text end new text begin $67,360 new text end , 7.05 percent;

(3) On all over deleted text begin $57,710 deleted text end new text begin $67,360, but not over $180,000 new text end , 7.85 percent deleted text begin . deleted text end new text begin ; and
new text end

new text begin (4) On all over $180,000, 8.15 percent.
new text end

(c) The income taxes imposed by this chapter upon unmarried individuals qualifying
as a head of household as defined in section 2(b) of the Internal Revenue Code must be
computed by applying to taxable net income the following schedule of rates:

(1) On the first deleted text begin $21,630 deleted text end new text begin $25,250 new text end , 5.35 percent;

(2) On all over deleted text begin $21,630 deleted text end new text begin $25,250 new text end , but not over deleted text begin $86,910 deleted text end new text begin $101,450 new text end , 7.05 percent;

(3) On all over deleted text begin $86,910 deleted text end new text begin $101,450, but not over $229,500 new text end , 7.85 percent deleted text begin . deleted text end new text begin ; and
new text end

new text begin (4) On all over $229,500, 8.15 percent.
new text end

(d) In lieu of a tax computed according to the rates set forth in this subdivision, the
tax of any individual taxpayer whose taxable net income for the taxable year is less than
an amount determined by the commissioner must be computed in accordance with tables
prepared and issued by the commissioner of revenue based on income brackets of not
more than $100. The amount of tax for each bracket shall be computed at the rates set
forth in this subdivision, provided that the commissioner may disregard a fractional part of
a dollar unless it amounts to 50 cents or more, in which case it may be increased to $1.

(e) An individual who is not a Minnesota resident for the entire year must compute
the individual's Minnesota income tax as provided in this subdivision. After the
application of the nonrefundable credits provided in this chapter, the tax liability must
then be multiplied by a fraction in which:

(1) the numerator is the individual's Minnesota source federal adjusted gross income
as defined in section 62 of the Internal Revenue Code and increased by the additions
required under section 290.01, subdivision 19a, clauses (1), (5), (6), (7), (8), and (9),
and reduced by the Minnesota assignable portion of the subtraction for United States
government interest under section 290.01, subdivision 19b, clause (1), and the subtractions
under section 290.01, subdivision 19b, clauses (9), (10), (14), (15), and (16), after applying
the allocation and assignability provisions of section 290.081, clause (a), or 290.17; and

(2) the denominator is the individual's federal adjusted gross income as defined in
section 62 of the Internal Revenue Code of 1986, increased by the amounts specified in
section 290.01, subdivision 19a, clauses (1), (5), (6), (7), (8), and (9), and reduced by the
amounts specified in section 290.01, subdivision 19b, clauses (1), (9), (10), (14), (15),
and (16).

new text begin (f) If in a taxable year the taxable net income of a taxpayer exceeds the amount to
which the rate of 8.15 percent applies, but the average of the taxpayer's taxable net income
for that year and the preceding year does not exceed that threshold amount, the rate of
8.15 percent does not apply for that taxable year.
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. 6.

Minnesota Statutes 2004, section 290.06, subdivision 2d, is amended to read:

Subd. 2d.

Inflation adjustment of brackets.

(a) For taxable years beginning after
December 31, deleted text begin 2000 deleted text end new text begin 2006 new text end , the minimum and maximum dollar amounts for each rate
bracket for which a tax is imposed in subdivision 2c shall be adjusted for inflation by the
percentage determined under paragraph (b). For the purpose of making the adjustment as
provided in this subdivision all of the rate brackets provided in subdivision 2c shall be the
rate brackets as they existed for taxable years beginning after December 31, deleted text begin 1999 deleted text end new text begin 2005 new text end ,
and before January 1, deleted text begin 2001 deleted text end new text begin 2007 new text end . The rate applicable to any rate bracket must not be
changed. The dollar amounts setting forth the tax shall be adjusted to reflect the changes
in the rate brackets. The rate brackets as adjusted must be rounded to the nearest $10
amount. If the rate bracket ends in $5, it must be rounded up to the nearest $10 amount.

(b) The commissioner shall adjust the rate brackets and by the percentage determined
pursuant to the provisions of section 1(f) of the Internal Revenue Code, except that in
section 1(f)(3)(B) the word deleted text begin "1999" deleted text end new text begin "2005" new text end shall be substituted for the word "1992." For
2001, the commissioner shall then determine the percent change from the 12 months
ending on August 31, deleted text begin 1999 deleted text end new text begin 2005 new text end , to the 12 months ending on August 31, deleted text begin 2000 deleted text end new text begin 2006 new text end , and
in each subsequent year, from the 12 months ending on August 31, deleted text begin 1999 deleted text end new text begin 2005 new text end , to the 12
months ending on August 31 of the year preceding the taxable year. The determination of
the commissioner pursuant to this subdivision shall not be considered a "rule" and shall
not be subject to the Administrative Procedure Act contained in chapter 14.

No later than December 15 of each year, the commissioner shall announce the
specific percentage that will be used to adjust the tax rate brackets.

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 290.0675, subdivision 1, is
amended to read:

Subdivision 1.

Definitions.

(a) For purposes of this section the following terms
have the meanings given.

(b) "Earned income" means the sum of the following, to the extent included in
Minnesota taxable income:

(1) earned income as defined in section 32(c)(2) of the Internal Revenue Code;

(2) income received from a retirement pension, profit-sharing, stock bonus, or
annuity plan; and

(3) Social Security benefits as defined in section 86(d)(1) of the Internal Revenue
Code.

(c) "Taxable income" means net income as defined in section 290.01, subdivision 19.

(d) "Earned income of lesser-earning spouse" means the earned income of the
spouse with the lesser amount of earned income as defined in paragraph (b) for the taxable
year minus the sum of (i) the amount for one exemption under section 151(d) of the
Internal Revenue Code and (ii) one-half the amount of the standard deduction under
section 63(c)(2)(A) and (4) of the Internal Revenue Code deleted text begin minus one-half of any addition
required under section 290.01, subdivision 19a, clause (10), and one-half of the addition
which would have been required under section 290.01, subdivision 19a, clause (10), if the
taxpayer had claimed the standard deduction deleted 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 290.091, subdivision 2, is
amended to read:

Subd. 2.

Definitions.

For purposes of the tax imposed by this section, the following
terms have the meanings given:

(a) "Alternative minimum taxable income" means the sum of the following for
the taxable year:

(1) the taxpayer's federal alternative minimum taxable income as defined in section
55(b)(2) of the Internal Revenue Code;

(2) the taxpayer's itemized deductions allowed in computing federal alternative
minimum taxable income, but excluding:

(i) the charitable contribution deduction under section 170 of the Internal Revenue
Code:

(A) for taxable years beginning before January 1, 2006, to the extent that the
deduction exceeds 1.0 percent of adjusted gross income;

(B) for taxable years beginning after December 31, 2005, to the full extent of the
deduction.

For purposes of this clause, "adjusted gross income" has the meaning given in
section 62 of the Internal Revenue Code;

(ii) the medical expense deduction;

(iii) the casualty, theft, and disaster loss deduction; and

(iv) the impairment-related work expenses of a disabled person;

(3) for depletion allowances computed under section 613A(c) of the Internal
Revenue Code, with respect to each property (as defined in section 614 of the Internal
Revenue Code), to the extent not included in federal alternative minimum taxable income,
the excess of the deduction for depletion allowable under section 611 of the Internal
Revenue Code for the taxable year over the adjusted basis of the property at the end of the
taxable year (determined without regard to the depletion deduction for the taxable year);

(4) to the extent not included in federal alternative minimum taxable income, the
amount of the tax preference for intangible drilling cost under section 57(a)(2) of the
Internal Revenue Code determined without regard to subparagraph (E);

(5) to the extent not included in federal alternative minimum taxable income, the
amount of interest income as provided by section 290.01, subdivision 19a, clause (1); and

(6) the amount of addition required by section 290.01, subdivision 19a, clauses
(7), (8), and (9);

less the sum of the amounts determined under the following:

(1) interest income as defined in section 290.01, subdivision 19b, clause (1);

(2) an overpayment of state income tax as provided by section 290.01, subdivision
19b, clause (2), to the extent included in federal alternative minimum taxable income;

(3) the amount of investment interest paid or accrued within the taxable year on
indebtedness to the extent that the amount does not exceed net investment income, as
defined in section 163(d)(4) of the Internal Revenue Code. Interest does not include
amounts deducted in computing federal adjusted gross income; deleted text begin and
deleted text end

(4) amounts subtracted from federal taxable income as provided by section 290.01,
subdivision 19b, clauses (9) to (16) new text begin ; and
new text end

new text begin (5) the amount of the exemption allowed the taxpayer under section 151(c) of the
Internal Revenue Code new text end .

In the case of an estate or trust, alternative minimum taxable income must be
computed as provided in section 59(c) of the Internal Revenue Code.

(b) "Investment interest" means investment interest as defined in section 163(d)(3)
of the Internal Revenue Code.

(c) "Tentative minimum tax" equals 6.4 percent of alternative minimum taxable
income after subtracting the exemption amount determined under subdivision 3.

(d) "Regular tax" means the tax that would be imposed under this chapter (without
regard to this section and section 290.032), reduced by the sum of the nonrefundable
credits allowed under this chapter.

(e) "Net minimum tax" means the minimum tax imposed by this section.

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 290.091, subdivision 3, is amended to read:

Subd. 3.

Exemption amount.

new text begin (a) new text end For purposes of computing the alternative
minimum tax, the exemption amount is deleted text begin the exemption determined under section 55(d)
of the Internal Revenue Code, as amended through December 31, 1992, except that
alternative minimum taxable income as determined under this section must be substituted
in the computation of the phase out under section 55(d)(3) deleted text end new text begin $67,250 for married individuals
filing joint returns; $33,625 for married individuals filing separate returns; and $50,435 for
single individuals or head of household filers new text end .

new text begin (b) The exemption amount determined under this subdivision is reduced by an
amount equal to 25 percent of the amount by which the alternative minimum income
exceeds $252,160 for married individuals filing joint returns; $126,080 for married
individuals filing separate returns; and $189,120 for single individuals and head of
household filers.
new text end

new text begin (c) For taxable years beginning after December 31, 2006, the exemption amounts in
paragraph (a) and the income amounts in paragraph (b), must be adjusted for inflation.
The commissioner shall make the inflation adjustments in accordance with section 1(f) of
the Internal Revenue Code, except that for the purposes of this subdivision, the percentage
increase must be determined from the year starting September 1, 2005, and ending August
31, 2006, as the base year for adjusting for inflation for the tax year beginning after
December 31, 2006. The determination of the commissioner under this subdivision is not
a rule under the Administrative Procedure Act.
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. 10.

Minnesota Statutes 2004, 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) deleted text begin , deleted text end new text begin and new text end (a)(3), deleted text begin and (a)(4), deleted text end 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.

deleted text begin (4) Wages, otherwise assigned to this state under clause (1) and not qualifying under
clause (3), are not taxable under this chapter if the following conditions are met:
deleted text end

deleted text begin (i) the recipient was not a resident of this state for any part of the taxable year in
which the wages were received; and
deleted text end

deleted text begin (ii) the wages are for work performed while the recipient was a resident of this state.
deleted text end

(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 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
assignable 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 for taxable years beginning after
December 31, 2005.
new text end

Sec. 11.

Minnesota Statutes 2005 Supplement, section 290A.03, subdivision 15,
is amended to read:

Subd. 15.

Internal Revenue Code.

"Internal Revenue Code" means the Internal
Revenue Code of 1986, as amended through deleted text begin April 15 deleted text end new text begin December 31 new text end , 2005.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for property taxes payable on or after
December 31, 2005, and rent paid on or after December 31, 2004.
new text end

Sec. 12. new text begin NET INCOME; FEDERAL CONFORMITY.
new text end

new text begin For taxable years beginning after December 31, 2004, and before December 31,
2006, the definition of "net income" in Minnesota Statutes, section 290.01, subdivision 19,
must be interpreted by the Department of Revenue to conform to the position taken by
the Internal Revenue Service in Revenue Notice 2005-68.
new text end

Sec. 13. new text begin MARRIED JOINT FILERS; TAXABLE YEAR 2005.
new text end

new text begin For taxable years beginning after December 31, 2004, and before January 1, 2006,
the liability for tax under Minnesota Statutes, chapter 290, must be determined as if the
addition to federal taxable income under Minnesota Statutes 2005 Supplement, section
290.01, subdivision 19a, clause (10), did not apply.
new text end

new text begin EFFECTIVE DATE. new text end

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

Sec. 14. new text begin REFUNDS.
new text end

new text begin The commissioner of revenue must review individual income tax returns that may be
subject to section 13 and adjust the tax liability accordingly. If the tax paid for the taxable
year beginning after December 31, 2004, and before January 1, 2006, by any taxpayer
under Minnesota Statutes, chapter 290, as amended through December 31, 2005, to the
commissioner of revenue is greater than the tax liability determined under section 13,
the commissioner must pay the taxpayer a refund of the difference. If the tax paid for
that taxable year by any taxpayer under Minnesota Statutes, chapter 290, as amended
through December 31, 2005, is less than the tax liability determined under section 13, no
additional payment is required of the taxpayer. The refunds issued under this section are
not subject to accrual of interest.
new text end

new text begin EFFECTIVE DATE. new text end

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

Sec. 15. new text begin APPROPRIATION.
new text end

new text begin The amount necessary to issue refunds under section 14 and the administrative costs
associated with the issuance of refunds is appropriated from the Tax Relief Account under
Minnesota Statutes, section 16A.1522, subdivision 4, to the commissioner of revenue.
Notwithstanding Minnesota Statutes, section 16A.285, the commissioner of revenue may
not use this appropriation for any purpose other than administering the refunds under
section 13. This is a onetime appropriation and may not be added to the agency's budget
base.
new text end

new text begin EFFECTIVE DATE. new text end

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