SF 552

as introduced - 88th Legislature (2013 - 2014) Posted on 04/24/2013 01:30pm

A bill for an act
relating to taxation; providing for tax law modernization and reform; establishing
a property tax rebate; reducing state business property tax; establishing a fourth
tier income tax; lowering the sales tax rate and broadening the tax base; lowering
the corporate franchise tax rate and simplifying the tax by eliminating certain
tax preferences; providing for local government aid and county program aid;
appropriating money; amending Minnesota Statutes 2012, sections 256.9658,
subdivision 3; 270C.03, subdivision 1; 270C.33, subdivision 6; 275.025,
subdivisions 1, 4; 289A.08, subdivision 3; 289A.56, subdivision 4; 289A.60, by
adding a subdivision; 290.01, subdivisions 7, 19b, 19c, 19d; 290.06, subdivisions
1, 2c, 2d, 22, by adding a subdivision; 290.0921, subdivision 3; 290.095,
subdivision 2; 290.17, subdivisions 1, 4; 290.191, subdivision 5; 290.21,
subdivision 4; 290A.03, subdivision 13; 297A.61, subdivisions 3, 4, 10, 17a, 25,
27, 31, 38, 45, by adding subdivisions; 297A.62, subdivisions 1, 1a; 297A.64,
subdivision 1; 297A.65; 297A.66, by adding a subdivision; 297A.67, subdivisions
7, 8; 297A.68, subdivisions 2, 5; 297A.70, subdivisions 5, 13, 14; 297A.75,
subdivisions 1, 2, 3; 297A.815, subdivision 3; 297F.05, subdivisions 1, 3, 4;
297F.25, subdivision 1; 298.01, subdivision 3b; 477A.011, subdivisions 34, 36,
by adding subdivisions; 477A.013, subdivisions 8, 9; 477A.03, subdivisions 2a,
2b; proposing coding for new law in Minnesota Statutes, chapters 270C; 297A;
repealing Minnesota Statutes 2012, sections 289A.40, subdivision 6; 290.01,
subdivision 6b; 290.0921, subdivision 7; 297A.68, subdivisions 9, 10, 11, 22, 35;
297A.70, subdivisions 10, 11, 12; 297A.96; 477A.011, subdivisions 2a, 27, 29,
31, 32, 33, 39, 40, 41, 42; 477A.0124, subdivision 1; 477A.013, subdivisions 11,
12; 477A.0133; 477A.0134; Minnesota Rules, part 8130.0500, subpart 2.

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

ARTICLE 1

INCOME AND FRANCHISE TAXES

Section 1.

Minnesota Statutes 2012, section 289A.08, subdivision 3, is amended to read:

Subd. 3.

Corporations.

(a) A corporation that is subject to the state's jurisdiction to
tax under section 290.014, subdivision 5, must file a return deleted text begin , except that a foreign operating
corporation as defined in section 290.01, subdivision 6b, is not required to file a return deleted text end .

(b) Members of a unitary business that are required to file a combined report on one
return must designate a member of the unitary business to be responsible for tax matters,
including the filing of returns, the payment of taxes, additions to tax, penalties, interest,
or any other payment, and for the receipt of refunds of taxes or interest paid in excess of
taxes lawfully due. The designated member must be a member of the unitary business that
is filing the single combined report and either:

(1) a corporation that is subject to the taxes imposed by chapter 290; or

(2) a corporation that is not subject to the taxes imposed by chapter 290:

(i) Such corporation consents by filing the return as a designated member under this
clause to remit taxes, penalties, interest, or additions to tax due from the members of the
unitary business subject to tax, and receive refunds or other payments on behalf of other
members of the unitary business. The member designated under this clause is a "taxpayer"
for the purposes of this chapter and chapter 270C, and is liable for any liability imposed
on the unitary business under this chapter and chapter 290.

(ii) If the state does not otherwise have the jurisdiction to tax the member designated
under this clause, consenting to be the designated member does not create the jurisdiction
to impose tax on the designated member, other than as described in item (i).

(iii) The member designated under this clause must apply for a business tax account
identification number.

(c) The commissioner shall adopt rules for the filing of one return on behalf of the
members of an affiliated group of corporations that are required to file a combined report.
All members of an affiliated group that are required to file a combined report must file one
return on behalf of the members of the group under rules adopted by the commissioner.

(d) If a corporation claims on a return that it has paid tax in excess of the amount of
taxes lawfully due, that corporation must include on that return information necessary for
payment of the tax in excess of the amount lawfully due by electronic means.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxable years beginning after
December 31, 2012.
new text end

Sec. 2.

Minnesota Statutes 2012, section 290.01, subdivision 7, is amended to read:

Subd. 7.

Resident.

(a) The term "resident" means any individual domiciled
in Minnesota, except that an individual is not a "resident" for the period of time that
the individual is a "qualified individual" as defined in section 911(d)(1) of the Internal
Revenue Code, if the qualified individual notifies the county within three months of
moving out of the country that homestead status be revoked for the Minnesota residence
of the qualified individual, and the property is not classified as a homestead while the
individual remains a qualified individual.

(b) "Resident" also means any individual domiciled outside the state who maintains
a place of abode in the state and spends in the aggregate more than one-half of the tax
year in Minnesota, unless:

(1) the individual or the spouse of the individual is in the armed forces of the United
States; or

(2) the individual is covered under the reciprocity provisions in section 290.081.

For purposes of this subdivision, presence within the state for any part of a calendar
day constitutes a day spent in the state. Individuals shall keep adequate records to
substantiate the days spent outside the state.

The term "abode" means a dwelling maintained by an individual, whether or not
owned by the individual and whether or not occupied by the individual, and includes a
dwelling place owned or leased by the individual's spouse.

(c) Neither the commissioner nor any court shall consider charitable contributions
made by an individual within or without the state in determining if the individual is
domiciled in Minnesota.

new text begin (d) "Part-year resident" means an individual domiciled outside the state, who is not a
resident of the state under paragraph (b), who maintains a place of abode in the state for
more than one-half of the tax year, and spends in the aggregate more than 60 days in the
state during the period the individual was domiciled outside the state unless:
new text end

new text begin (1) the individual or spouse of the individual is in the armed forces of the United
States; or
new text end

new text begin (2) the individual is covered under the reciprocity provisions in section 290.081.
new text end

new text begin For the purposes of this paragraph, a day spent in Minnesota for the primary purpose
of receiving medical treatment by the taxpayer, or the spouse, child, or parent of the
taxpayer, is not treated as a day spent in Minnesota. Medical treatment is treatment as
defined in section 213(d)(1)(A) of the Internal Revenue Code.
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, 2012, except days spent in Minnesota prior to the date of enactment are not
counted as days spent in Minnesota for purposes of paragraph (d).
new text end

Sec. 3.

Minnesota Statutes 2012, section 290.01, subdivision 19b, is amended to read:

Subd. 19b.

Subtractions from federal taxable income.

For individuals, estates,
and trusts, there shall be subtracted from federal taxable income:

(1) net interest income on obligations of any authority, commission, or
instrumentality of the United States to the extent includable in taxable income for federal
income tax purposes but exempt from state income tax under the laws of the United States;

(2) if included in federal taxable income, the amount of any overpayment of income
tax to Minnesota or to any other state, for any previous taxable year, whether the amount
is received as a refund or as a credit to another taxable year's income tax liability;

(3) the amount paid to others, less the amount used to claim the credit allowed under
section 290.0674, not to exceed $1,625 for each qualifying child in grades kindergarten
to 6 and $2,500 for each qualifying child in grades 7 to 12, for tuition, textbooks, and
transportation of each qualifying child in attending an elementary or secondary school
situated in Minnesota, North Dakota, South Dakota, Iowa, or Wisconsin, wherein a
resident of this state may legally fulfill the state's compulsory attendance laws, which
is not operated for profit, and which adheres to the provisions of the Civil Rights Act
of 1964 and chapter 363A. For the purposes of this clause, "tuition" includes fees or
tuition as defined in section 290.0674, subdivision 1, clause (1). As used in this clause,
"textbooks" includes books and other instructional materials and equipment purchased
or leased for use in elementary and secondary schools in teaching only those subjects
legally and commonly taught in public elementary and secondary schools in this state.
Equipment expenses qualifying for deduction includes expenses as defined and limited in
section 290.0674, subdivision 1, clause (3). "Textbooks" does not include instructional
books and materials used in the teaching of religious tenets, doctrines, or worship, the
purpose of which is to instill such tenets, doctrines, or worship, nor does it include books
or materials for, or transportation to, extracurricular activities including sporting events,
musical or dramatic events, speech activities, driver's education, or similar programs. No
deduction is permitted for any expense the taxpayer incurred in using the taxpayer's or
the qualifying child's vehicle to provide such transportation for a qualifying child. For
purposes of the subtraction provided by this clause, "qualifying child" has the meaning
given in section 32(c)(3) of the Internal Revenue Code;

(4) income as provided under section 290.0802;

(5) to the extent included in federal adjusted gross income, income realized on
disposition of property exempt from tax under section 290.491;

(6) to the extent not deducted or not deductible pursuant to section 408(d)(8)(E)
of the Internal Revenue Code in determining federal taxable income by an individual
who does not itemize deductions for federal income tax purposes for the taxable year, an
amount equal to 50 percent of the excess of charitable contributions over $500 allowable
as a deduction for the taxable year under section 170(a) of the Internal Revenue Code,
under the provisions of Public Law 109-1 and Public Law 111-126;

(7) for individuals who are allowed a federal foreign tax credit for taxes that do not
qualify for a credit under section 290.06, subdivision 22, an amount equal to the carryover
of subnational foreign taxes for the taxable year, but not to exceed the total subnational
foreign taxes reported in claiming the foreign tax credit. For purposes of this clause,
"federal foreign tax credit" means the credit allowed under section 27 of the Internal
Revenue Code, and "carryover of subnational foreign taxes" equals the carryover allowed
under section 904(c) of the Internal Revenue Code minus national level foreign taxes to
the extent they exceed the federal foreign tax credit;

(8) in each of the five tax years immediately following the tax year in which an
addition is required under subdivision 19a, clause (7), or 19c, clause deleted text begin (15) deleted text end new text begin (14) new text end , in the case
of a shareholder of a corporation that is an S corporation, an amount equal to one-fifth of the
delayed depreciation. For purposes of this clause, "delayed depreciation" means the amount
of the addition made by the taxpayer under subdivision 19a, clause (7), or subdivision 19c,
clause deleted text begin (15) deleted text end new text begin (14) new text end , in the case of a shareholder of an S corporation, minus the positive value
of any net operating loss under section 172 of the Internal Revenue Code generated for the
tax year of the addition. The resulting delayed depreciation cannot be less than zero;

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

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

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

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

(13) in each of the five tax years immediately following the tax year in which an
addition is required under subdivision 19a, clause (8), or 19c, clause deleted text begin (16) deleted text end new text begin (15) new text end , in the case
of a shareholder of a corporation that is an S corporation, an amount equal to one-fifth of
the addition made by the taxpayer under subdivision 19a, clause (8), or 19c, clause deleted text begin (16)
deleted text end new text begin (15) new text end , in the case of a shareholder of a corporation that is an S corporation, minus the
positive value of any net operating loss under section 172 of the Internal Revenue Code
generated for the tax year of the addition. If the net operating loss exceeds the addition for
the tax year, a subtraction is not allowed under this clause;

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

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

(16) to the extent included in federal taxable income, discharge of indebtedness
income resulting from reacquisition of business indebtedness included in federal taxable
income under section 108(i) of the Internal Revenue Code. This subtraction applies only
to the extent that the income was included in net income in a prior year as a result of the
addition under section 290.01, subdivision 19a, clause (16); and

(17) the amount of the net operating loss allowed under section 290.095, subdivision
11, paragraph (c).

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxable years beginning after
December 31, 2012.
new text end

Sec. 4.

Minnesota Statutes 2012, 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 and 965 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;

deleted text begin (11) the amount of any deemed dividend from a foreign operating corporation
determined pursuant to section 290.17, subdivision 4, paragraph (g). The deemed dividend
shall be reduced by the amount of the addition to income required by clauses (20), (21),
(22), and (23);
deleted text end

deleted text begin (12) deleted text end new text begin (11) new text end 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;

deleted text begin (13) deleted text end new text begin (12) new text end the amount of net income excluded under section 114 of the Internal
Revenue Code;

deleted text begin (14) deleted text end new text begin (13) new text end 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 Division C, title III, section 303(b) of Public Law 110-343;

deleted text begin (15) deleted text end new text begin (14) new text end 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;

deleted text begin (16) deleted text end new text begin (15) new text end 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;

deleted text begin (17) deleted text end new text begin (16) new text end 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 (18) deleted text end new text begin (17) new text end for taxable years beginning before January 1, 2013, the exclusion allowed
under section 139A of the Internal Revenue Code for federal subsidies for prescription
drug plans;

deleted text begin (19) deleted text end new text begin (18) new text end the amount of expenses disallowed under section 290.10, subdivision 2;

deleted text begin (20) 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:
deleted text end

deleted 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;
deleted text end

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

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

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

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

deleted 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.
deleted text end

deleted 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;
deleted text end

deleted text begin (21) except as already included in the taxpayer's taxable income pursuant to clause
(20), 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:
deleted text end

deleted 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;
deleted text end

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

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

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

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

deleted 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.
deleted text end

deleted 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;
deleted text end

deleted text begin (22) 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;
deleted text end

deleted text begin (23) 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;
deleted text end

deleted text begin (24) deleted text end new text begin (19) new text end for taxable years beginning before January 1, 2010, the additional amount
allowed as a deduction for donation of computer technology and equipment under section
170(e)(6) of the Internal Revenue Code, to the extent deducted from taxable income; and

deleted text begin (25) deleted text end new text begin (20) new text end discharge of indebtedness income resulting from reacquisition of business
indebtedness and deferred under section 108(i) of the Internal Revenue Code.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxable years beginning after
December 31, 2012.
new text end

Sec. 5.

Minnesota Statutes 2012, 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 work opportunity 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 (9), 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 deleted text begin section 290.01, deleted text end subdivision 19c,
clause (1), in a prior taxable year;

deleted text begin (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, 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;
deleted text end

deleted text begin (11) deleted text end new text begin (10) new text end 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;

deleted text begin (12) deleted text end new text begin (11) new text end the amount of disability 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;

deleted text begin (13) deleted text end new text begin (12) new text end 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;

deleted text begin (14) deleted text end new text begin (13) new text end 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;

deleted text begin (15) deleted text end new text begin (14) new text end 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;

deleted text begin (16) deleted text end new text begin (15) new text end 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 Division C, title III, section 303(b) of Public Law 110-343;

deleted text begin (17) deleted text end new text begin (16) new text end in each of the five tax years immediately following the tax year in which an
addition is required under subdivision 19c, clause deleted text begin (15) deleted text end new text begin (14) new text end , 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 deleted text begin (15) deleted text end new text begin (14) new text end . The
resulting delayed depreciation cannot be less than zero;

deleted text begin (18) deleted text end new text begin (17) new text end in each of the five tax years immediately following the tax year in which an
addition is required under subdivision 19c, clause deleted text begin (16) deleted text end new text begin (15) new text end , an amount equal to one-fifth
of the amount of the addition; and

deleted text begin (19) deleted text end new text begin (18) new text end to the extent included in federal taxable income, discharge of indebtedness
income resulting from reacquisition of business indebtedness included in federal taxable
income under section 108(i) of the Internal Revenue Code. This subtraction applies only
to the extent that the income was included in net income in a prior year as a result of the
addition under deleted text begin section 290.01, deleted text end subdivision 19c, clause deleted text begin (25) deleted text end new text begin (20) 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, 2012.
new text end

Sec. 6.

Minnesota Statutes 2012, section 290.06, subdivision 1, is amended to read:

Subdivision 1.

Computation, corporations.

The franchise tax imposed upon
corporations shall be computed by applying to their taxable income the rate of deleted text begin 9.8 deleted text end new text begin 8.4
new text end percent.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxable years beginning after
December 31, 2012.
new text end

Sec. 7.

Minnesota Statutes 2012, 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 $35,480 new text end , 5.35 percent;

(2) On all over deleted text begin $25,680 deleted text end new text begin $35,480 new text end , but not over deleted text begin $102,030 deleted text end new text begin $140,960 new text end , 7.05 percent;

(3) On all over deleted text begin $102,030 deleted text end new text begin $140,960 new text end , new text begin but not over $250,000, new text end 7.85 percent deleted text begin . deleted text end new text begin ;
new text end

new text begin (4) On all over $250,000, 9.85 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 $24,270 new text end , 5.35 percent;

(2) On all over deleted text begin $17,570 deleted text end new text begin $24,270 new text end , but not over deleted text begin $57,710 deleted text end new text begin $79,730 new text end , 7.05 percent;

(3) On all over deleted text begin $57,710 deleted text end new text begin $79,730 new text end , new text begin but not over $150,000, new text end 7.85 percent deleted text begin . deleted text end new text begin ;
new text end

new text begin (4) On all over $150,000, 9.85 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 $29,880 new text end , 5.35 percent;

(2) On all over deleted text begin $21,630 deleted text end new text begin $29,880 new text end , but not over deleted text begin $86,910 deleted text end new text begin $120,070 new text end , 7.05 percent;

(3) On all over deleted text begin $86,910 deleted text end new text begin $120,070 new text end , new text begin but not over $200,000, new text end 7.85 percent deleted text begin . deleted text end new text begin ;
new text end

new text begin (4) On all over $200,000, 9.85 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), (9), (12),
(13), and (16) to (18), 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 (8), (9), (13),
(14), (16), and (17), 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), (9), (12), (13), and (16) to
(18), and reduced by the amounts specified in section 290.01, subdivision 19b, clauses (1),
(8), (9), (13), (14), (16), and (17).

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxable years beginning after
December 31, 2012.
new text end

Sec. 8.

Minnesota Statutes 2012, 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 2013 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 2012 new text end ,
and before January 1, deleted text begin 2001 deleted text end new text begin 2014 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 "2012" new text end shall be substituted for the word "1992." For
deleted text begin 2001 deleted text end new text begin 2014 new text end , 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 2012 new text end , to the 12 months ending on August 31, deleted text begin 2000 deleted text end new text begin 2013 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 2012 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, 2013.
new text end

Sec. 9.

Minnesota Statutes 2012, section 290.06, subdivision 22, is amended to read:

Subd. 22.

Credit for taxes paid to another state.

(a) A taxpayer who is liable for
taxes based on net income to another state, as provided in paragraphs (b) through (f),
upon income allocated or apportioned to Minnesota, is entitled to a credit for the tax paid
to another state if the tax is actually paid in the taxable year or a subsequent taxable
year. A taxpayer who is a resident of this state pursuant to section 290.01, subdivision
7, paragraph (b) new text begin or (d) new text end , and who is subject to income tax as a resident in the state of
the individual's domicile is not allowed this credit unless the state of domicile does not
allow a similar credit.

(b) For an individual, estate, or trust, the credit is determined by multiplying the tax
payable under this chapter by the ratio derived by dividing the income subject to tax in the
other state that is also subject to tax in Minnesota while a resident of Minnesota by the
taxpayer's federal adjusted gross income, as defined in section 62 of the Internal Revenue
Code, modified by the addition required by section 290.01, subdivision 19a, clause (1),
and the subtraction allowed by section 290.01, subdivision 19b, clause (1), to the extent
the income is allocated or assigned to Minnesota under sections 290.081 and 290.17.

(c) If the taxpayer is an athletic team that apportions all of its income under section
290.17, subdivision 5, the credit is determined by multiplying the tax payable under this
chapter by the ratio derived from dividing the total net income subject to tax in the other
state by the taxpayer's Minnesota taxable income.

(d) The credit determined under paragraph (b) or (c) shall not exceed the amount of
tax so paid to the other state on the gross income earned within the other state subject to
tax under this chapter, nor shall the allowance of the credit reduce the taxes paid under
this chapter to an amount less than what would be assessed if such income amount was
excluded from taxable net income.

(e) In the case of the tax assessed on a lump-sum distribution under section
290.032, the credit allowed under paragraph (a) is the tax assessed by the other state on
the lump-sum distribution that is also subject to tax under section 290.032, and shall
not exceed the tax assessed under section 290.032. To the extent the total lump-sum
distribution defined in section 290.032, subdivision 1, includes lump-sum distributions
received in prior years or is all or in part an annuity contract, the reduction to the tax on
the lump-sum distribution allowed under section 290.032, subdivision 2, includes tax paid
to another state that is properly apportioned to that distribution.

(f) If a Minnesota resident reported an item of income to Minnesota and is assessed
tax in such other state on that same income after the Minnesota statute of limitations
has expired, the taxpayer shall receive a credit for that year under paragraph (a),
notwithstanding any statute of limitations to the contrary. The claim for the credit must
be submitted within one year from the date the taxes were paid to the other state. The
taxpayer must submit sufficient proof to show entitlement to a credit.

(g) For the purposes of this subdivision, a resident shareholder of a corporation
treated as an "S" corporation under section 290.9725, must be considered to have paid
a tax imposed on the shareholder in an amount equal to the shareholder's pro rata share
of any net income tax paid by the S corporation to another state. For the purposes of the
preceding sentence, the term "net income tax" means any tax imposed on or measured by
a corporation's net income.

(h) For the purposes of this subdivision, a resident partner of an entity taxed as a
partnership under the Internal Revenue Code must be considered to have paid a tax imposed
on the partner in an amount equal to the partner's pro rata share of any net income tax paid
by the partnership to another state. For purposes of the preceding sentence, the term "net
income" tax means any tax imposed on or measured by a partnership's net income.

(i) For the purposes of this subdivision, "another state":

(1) includes:

(i) the District of Columbia; and

(ii) a province or territory of Canada; but

(2) excludes Puerto Rico and the several territories organized by Congress.

(j) The limitations on the credit in paragraphs (b), (c), and (d), are imposed on a
state by state basis.

(k) For a tax imposed by a province or territory of Canada, the tax for purposes of
this subdivision is the excess of the tax over the amount of the foreign tax credit allowed
under section 27 of the Internal Revenue Code. In determining the amount of the foreign
tax credit allowed, the net income taxes imposed by Canada on the income are deducted
first. Any remaining amount of the allowable foreign tax credit reduces the provincial or
territorial tax that qualifies for the credit under this subdivision.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxable years beginning after
December 31, 2012.
new text end

Sec. 10.

Minnesota Statutes 2012, section 290.06, is amended by adding a subdivision
to read:

new text begin Subd. 36. new text end

new text begin Homestead property tax rebate. new text end

new text begin (a) A credit is allowed against the tax
imposed on an individual under subdivision 2c or section 290.091 equal to the lesser of
100 percent of the qualified property tax or $500.
new text end

new text begin (b) "Qualified property tax" means property taxes payable in the year as determined
in section 290A.03, subdivision 13, and deductible by the individual under section 164 of
the Internal Revenue Code, except that the requirement that the taxpayer own and occupy
the property on January 2 of the year that the taxes are payable does not apply.
new text end

new text begin (c) To claim the credit, a taxpayer must provide a copy of the statement of property
taxes payable or any other information the commissioner requires.
new text end

new text begin (d) If the amount of the credit under this section exceeds the taxpayer's tax, the
commissioner shall refund the excess.
new text end

new text begin (e) An amount sufficient to pay refunds under this section is appropriated to the
commissioner of revenue from the general fund.
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, 2012.
new text end

Sec. 11.

Minnesota Statutes 2012, section 290.0921, subdivision 3, is amended to read:

Subd. 3.

Alternative minimum taxable income.

"Alternative minimum taxable
income" is Minnesota net income as defined in section 290.01, subdivision 19, and
includes the adjustments and tax preference items in sections 56, 57, 58, and 59(d), (e),
(f), and (h) of the Internal Revenue Code. If a corporation files a separate company
Minnesota tax return, the minimum tax must be computed on a separate company basis.
If a corporation is part of a tax group filing a unitary return, the minimum tax must be
computed on a unitary basis. The following adjustments must be made.

(1) For purposes of the depreciation adjustments under section 56(a)(1) and
56(g)(4)(A) of the Internal Revenue Code, the basis for depreciable property placed in
service in a taxable year beginning before January 1, 1990, is the adjusted basis for federal
income tax purposes, including any modification made in a taxable year under section
290.01, subdivision 19e, or Minnesota Statutes 1986, section 290.09, subdivision 7,
paragraph (c).

For taxable years beginning after December 31, 2000, the amount of any remaining
modification made under section 290.01, subdivision 19e, or Minnesota Statutes 1986,
section 290.09, subdivision 7, paragraph (c), not previously deducted is a depreciation
allowance in the first taxable year after December 31, 2000.

(2) The portion of the depreciation deduction allowed for federal income tax
purposes under section 168(k) of the Internal Revenue Code that is required as an addition
under section 290.01, subdivision 19c, clause deleted text begin (15) deleted text end new text begin (14) new text end , is disallowed in determining
alternative minimum taxable income.

(3) The subtraction for depreciation allowed under section 290.01, subdivision
19d, clause deleted text begin (17) deleted text end new text begin (16) new text end , is allowed as a depreciation deduction in determining alternative
minimum taxable income.

(4) The alternative tax net operating loss deduction under sections 56(a)(4) and 56(d)
of the Internal Revenue Code does not apply.

(5) The special rule for certain dividends under section 56(g)(4)(C)(ii) of the Internal
Revenue Code does not apply.

(6) The special rule for dividends from section 936 companies under section
56(g)(4)(C)(iii) does not apply.

(7) The tax preference for depletion under section 57(a)(1) of the Internal Revenue
Code does not apply.

(8) The tax preference for intangible drilling costs under section 57(a)(2) of the
Internal Revenue Code must be calculated without regard to subparagraph (E) and the
subtraction under section 290.01, subdivision 19d, clause (4).

(9) The tax preference for tax exempt interest under section 57(a)(5) of the Internal
Revenue Code does not apply.

(10) The tax preference for charitable contributions of appreciated property under
section 57(a)(6) of the Internal Revenue Code does not apply.

(11) For purposes of calculating the tax preference for accelerated depreciation or
amortization on certain property placed in service before January 1, 1987, under section
57(a)(7) of the Internal Revenue Code, the deduction allowable for the taxable year is the
deduction allowed under section 290.01, subdivision 19e.

For taxable years beginning after December 31, 2000, the amount of any remaining
modification made under section 290.01, subdivision 19e, not previously deducted is a
depreciation or amortization allowance in the first taxable year after December 31, 2004.

(12) For purposes of calculating the adjustment for adjusted current earnings in
section 56(g) of the Internal Revenue Code, the term "alternative minimum taxable
income" as it is used in section 56(g) of the Internal Revenue Code, means alternative
minimum taxable income as defined in this subdivision, determined without regard to the
adjustment for adjusted current earnings in section 56(g) of the Internal Revenue Code.

(13) For purposes of determining the amount of adjusted current earnings under
section 56(g)(3) of the Internal Revenue Code, no adjustment shall be made under section
56(g)(4) of the Internal Revenue Code with respect to (i) the amount of foreign dividend
gross-up subtracted as provided in section 290.01, subdivision 19d, clause (1), (ii) the
amount of refunds of income, excise, or franchise taxes subtracted as provided in section
290.01, subdivision 19d, clause (9) deleted text begin , or (iii) the amount of royalties, fees or other like
income subtracted as provided in section 290.01, subdivision 19d, clause (10) deleted text end .

(14) Alternative minimum taxable income excludes the income from operating in a
job opportunity building zone as provided under section 469.317.

(15) Alternative minimum taxable income excludes the income from operating in a
biotechnology and health sciences industry zone as provided under section 469.337.

Items of tax preference must not be reduced below zero as a result of the
modifications in this subdivision.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxable years beginning after
December 31, 2012.
new text end

Sec. 12.

Minnesota Statutes 2012, section 290.095, subdivision 2, is amended to read:

Subd. 2.

Defined and limited.

(a) The term "net operating loss" as used in this
section shall mean a net operating loss as defined in section 172(c) of the Internal Revenue
Code, with the modifications specified in subdivision 4. The deductions provided in
section 290.21 deleted text begin and the modification provided in section 290.01, subdivision 19d, clause
(10), deleted text end cannot be used in the determination of a net operating loss.

(b) The term "net operating loss deduction" as used in this section means the
aggregate of the net operating loss carryovers to the taxable year, computed in accordance
with subdivision 3. The provisions of section 172(b) of the Internal Revenue Code relating
to the carryback of net operating losses, do not apply.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxable years beginning after
December 31, 2012.
new text end

Sec. 13.

Minnesota Statutes 2012, section 290.17, subdivision 1, is amended to read:

Subdivision 1.

Scope of allocation rules.

(a) The income of resident individuals
is not subject to allocation outside this state. The allocation rules apply to nonresident
individuals, estates, trusts, nonresident partners of partnerships, nonresident shareholders
of corporations treated as "S" corporations under section 290.9725, and all corporations
not having such an election in effect. If a partnership or corporation would not otherwise
be subject to the allocation rules, but conducts a trade or business that is part of a
unitary business involving another legal entity that is subject to the allocation rules, the
partnership or corporation is subject to the allocation rules.

(b) Expenses, losses, and other deductions (referred to collectively in this paragraph
as "deductions") must be allocated along with the item or class of gross income to which
they are definitely related for purposes of assignment under this section or apportionment
under section 290.191, 290.20, or 290.36. Deductions definitely related to any item of gross
income assigned under subdivision 2, paragraph (e), are assigned to the taxpayer's domicile.

(c) In the case of an individual who is a resident for only part of a taxable year,
the individual's income, gains, losses, and deductions from the distributive share of a
partnership, S corporation, trust, or estate are not subject to allocation outside this state
to the extent of the distributive share multiplied by a ratio, the numerator of which is
the number of days the individual was a resident of this state during the tax year of the
partnership, S corporation, trust, or estate, and the denominator of which is the number of
days in the taxable year of the partnership, S corporation, trust, or estate.

new text begin (d) In the case of an individual who is a part-year resident as defined in section
290.01, subdivision 7, paragraph (d), income is assigned or allocated under subdivisions
2 and 3, except a pro rata share of income recognized while the individual maintains an
abode in Minnesota and not assigned or allocated to the state under subdivision 2 or 3 is
also assigned to the state.
new text end

new text begin For the purposes of this paragraph, "pro rata share" means the income not assigned to the
state under subdivision 2 or 3 multiplied by the ratio of the number of days physically
present in Minnesota while domiciled in another state during the tax year over the number
of days the individual maintains an abode in Minnesota while domiciled in another state.
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, 2012.
new text end

Sec. 14.

Minnesota Statutes 2012, section 290.17, subdivision 4, is amended to read:

Subd. 4.

Unitary business principle.

(a) If a trade or business conducted wholly
within this state or partly within and partly without this state is part of a unitary business,
the entire income of the unitary business is subject to apportionment pursuant to section
290.191. Notwithstanding subdivision 2, paragraph (c), none of the income of a unitary
business is considered to be derived from any particular source and none may be allocated
to a particular place except as provided by the applicable apportionment formula. The
provisions of this subdivision do not apply to business income subject to subdivision 5,
income of an insurance company, or income of an investment company determined under
section 290.36.

(b) The term "unitary business" means business activities or operations which
result in a flow of value between them. The term may be applied within a single legal
entity or between multiple entities and without regard to whether each entity is a sole
proprietorship, a corporation, a partnership or a trust.

(c) Unity is presumed whenever there is unity of ownership, operation, and use,
evidenced by centralized management or executive force, centralized purchasing,
advertising, accounting, or other controlled interaction, but the absence of these
centralized activities will not necessarily evidence a nonunitary business. Unity is also
presumed when business activities or operations are of mutual benefit, dependent upon or
contributory to one another, either individually or as a group.

(d) Where a business operation conducted in Minnesota is owned by a business
entity that carries on business activity outside the state different in kind from that
conducted within this state, and the other business is conducted entirely outside the state, it
is presumed that the two business operations are unitary in nature, interrelated, connected,
and interdependent unless it can be shown to the contrary.

(e) Unity of ownership is not deemed to exist when a corporation is involved unless
that corporation is a member of a group of two or more business entities and more than 50
percent of the voting stock of each member of the group is directly or indirectly owned
by a common owner or by common owners, either corporate or noncorporate, or by one
or more of the member corporations of the group. For this purpose, the term "voting
stock" shall include membership interests of mutual insurance holding companies formed
under section 66A.40.

(f) The net income and apportionment factors under section 290.191 or 290.20 of
foreign corporations and other foreign entities which are part of a unitary business shall not
be included in the net income or the apportionment factors of the unitary business new text begin ; except
that the income and apportionment factors of a foreign corporation, foreign partnership, or
other foreign entity, that is included in the federal taxable income, as defined in section
63 of the Internal Revenue Code as amended through the date named in section 290.01,
subdivision 19, of a domestic corporation, domestic entity, or individual, must be included
in determining net income and the factors to be used in the apportionment of net income
pursuant to section 290.191 or 290.20 new text end . A foreign corporation or other foreign entity which
is new text begin not part of a unitary business and which is new text end required to file a return under this chapter shall
file on a separate return basis. deleted text begin The net income and apportionment factors under section
290.191 or 290.20 of foreign operating corporations shall not be included in the net income
or the apportionment factors of the unitary business except as provided in paragraph (g).
deleted text end

deleted text begin (g) The adjusted net income of a foreign operating corporation shall be deemed to
be paid as a dividend on the last day of its taxable year to each shareholder thereof, in
proportion to each shareholder's ownership, with which such corporation is engaged in
a unitary business. Such deemed dividend shall be treated as a dividend under section
290.21, subdivision 4.
deleted text end

deleted text begin Dividends actually paid by a foreign operating corporation to a corporate shareholder
which is a member of the same unitary business as the foreign operating corporation shall
be eliminated from the net income of the unitary business in preparing a combined report
for the unitary business. The adjusted net income of a foreign operating corporation
shall be its net income adjusted as follows:
deleted text end

deleted text begin (1) any taxes paid or accrued to a foreign country, the commonwealth of Puerto
Rico, or a United States possession or political subdivision of any of the foregoing shall
be a deduction; and
deleted text end

deleted text begin (2) the subtraction from federal taxable income for payments received from foreign
corporations or foreign operating corporations under section 290.01, subdivision 19d,
clause (10), shall not be allowed.
deleted text end

deleted text begin If a foreign operating corporation incurs a net loss, neither income nor deduction from
that corporation shall be included in determining the net income of the unitary business.
deleted text end

deleted text begin (h) deleted text end new text begin (g) new text end For purposes of determining the net income of a unitary business and the
factors to be used in the apportionment of net income pursuant to section 290.191 or
290.20, there must be included only the income and apportionment factors of domestic
corporations or other domestic entities deleted text begin other than foreign operating corporations deleted text end that are
determined to be part of the unitary business pursuant to this subdivision, notwithstanding
that foreign corporations or other foreign entities might be included in the unitary
business new text begin ; except that the income and apportionment factors of a foreign corporation,
foreign partnership, or other foreign entity, that is included in the federal taxable income,
as defined in section 63 of the Internal Revenue Code as amended through the date
named in section 290.01, subdivision 19, of a domestic corporation, domestic entity, or
individual, must be included in determining net income and the factors to be used in the
apportionment of net income pursuant to section 290.191 or 290.20 new text end .

deleted text begin (i) Deductions for expenses, interest, or taxes otherwise allowable under this chapter
that are connected with or allocable against dividends, deemed dividends described
in paragraph (g), or royalties, fees, or other like income described in section 290.01,
subdivision 19d, clause (10), shall not be disallowed.
deleted text end

deleted text begin (j) deleted text end new text begin (h) new text end Each corporation or other entity, except a sole proprietorship, that is part of
a unitary business must file combined reports as the commissioner determines. On the
reports, all intercompany transactions between entities included pursuant to paragraph deleted text begin (h)
deleted text end new text begin (g) new text end must be eliminated and the entire net income of the unitary business determined in
accordance with this subdivision is apportioned among the entities by using each entity's
Minnesota factors for apportionment purposes in the numerators of the apportionment
formula and the total factors for apportionment purposes of all entities included pursuant to
paragraph deleted text begin (h) deleted text end new text begin (g) new text end in the denominators of the apportionment formula. new text begin All sales of the unitary
business made within this state pursuant to section 290.191 or 290.20 must be included
on the combined report of a corporation or other entity that is a member of the unitary
business and is subject to the jurisdiction of this state to impose tax under this chapter.
new text end

deleted text begin (k) deleted text end new text begin (i) new text end If a corporation has been divested from a unitary business and is included in a
combined report for a fractional part of the common accounting period of the combined
report:

(1) its income includable in the combined report is its income incurred for that part
of the year determined by proration or separate accounting; and

(2) its sales, property, and payroll included in the apportionment formula must
be prorated or accounted for separately.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxable years beginning after
December 31, 2012.
new text end

Sec. 15.

Minnesota Statutes 2012, section 290.191, subdivision 5, is amended to read:

Subd. 5.

Determination of sales factor.

For purposes of this section, the following
rules apply in determining the sales factor.

(a) The sales factor includes all sales, gross earnings, or receipts received in the
ordinary course of the business, except that the following types of income are not included
in the sales factor:

(1) interest;

(2) dividends;

(3) sales of capital assets as defined in section 1221 of the Internal Revenue Code;

(4) sales of property used in the trade or business, except sales of leased property of
a type which is regularly sold as well as leased; new text begin and
new text end

(5) sales of debt instruments as defined in section 1275(a)(1) of the Internal Revenue
Code or sales of stock deleted text begin ; and deleted text end new text begin .
new text end

deleted text begin (6) royalties, fees, or other like income of a type which qualify for a subtraction from
federal taxable income under section 290.01, subdivision 19d, clause (10).
deleted text end

(b) Sales of tangible personal property are made within this state if the property is
received by a purchaser at a point within this state, and the taxpayer is taxable in this state,
regardless of the f.o.b. point, other conditions of the sale, or the ultimate destination
of the property.

(c) Tangible personal property delivered to a common or contract carrier or foreign
vessel for delivery to a purchaser in another state or nation is a sale in that state or nation,
regardless of f.o.b. point or other conditions of the sale.

(d) Notwithstanding paragraphs (b) and (c), when intoxicating liquor, wine,
fermented malt beverages, cigarettes, or tobacco products are sold to a purchaser who is
licensed by a state or political subdivision to resell this property only within the state of
ultimate destination, the sale is made in that state.

(e) Sales made by or through a corporation that is qualified as a domestic
international sales corporation under section 992 of the Internal Revenue Code are not
considered to have been made within this state.

(f) Sales, rents, royalties, and other income in connection with real property is
attributed to the state in which the property is located.

(g) Receipts from the lease or rental of tangible personal property, including finance
leases and true leases, must be attributed to this state if the property is located in this
state and to other states if the property is not located in this state. Receipts from the
lease or rental of moving property including, but not limited to, motor vehicles, rolling
stock, aircraft, vessels, or mobile equipment are included in the numerator of the receipts
factor to the extent that the property is used in this state. The extent of the use of moving
property is determined as follows:

(1) A motor vehicle is used wholly in the state in which it is registered.

(2) The extent that rolling stock is used in this state is determined by multiplying
the receipts from the lease or rental of the rolling stock by a fraction, the numerator of
which is the miles traveled within this state by the leased or rented rolling stock and the
denominator of which is the total miles traveled by the leased or rented rolling stock.

(3) The extent that an aircraft is used in this state is determined by multiplying the
receipts from the lease or rental of the aircraft by a fraction, the numerator of which is
the number of landings of the aircraft in this state and the denominator of which is the
total number of landings of the aircraft.

(4) The extent that a vessel, mobile equipment, or other mobile property is used in
the state is determined by multiplying the receipts from the lease or rental of the property
by a fraction, the numerator of which is the number of days during the taxable year the
property was in this state and the denominator of which is the total days in the taxable year.

(h) Royalties and other income not described in paragraph (a), clause (6), received
for the use of or for the privilege of using intangible property, including patents,
know-how, formulas, designs, processes, patterns, copyrights, trade names, service names,
franchises, licenses, contracts, customer lists, or similar items, must be attributed to the
state in which the property is used by the purchaser. If the property is used in more
than one state, the royalties or other income must be apportioned to this state pro rata
according to the portion of use in this state. If the portion of use in this state cannot be
determined, the royalties or other income must be excluded from both the numerator
and the denominator. Intangible property is used in this state if the purchaser uses the
intangible property or the rights therein in the regular course of its business operations in
this state, regardless of the location of the purchaser's customers.

(i) Sales of intangible property are made within the state in which the property is
used by the purchaser. If the property is used in more than one state, the sales must be
apportioned to this state pro rata according to the portion of use in this state. If the
portion of use in this state cannot be determined, the sale must be excluded from both the
numerator and the denominator of the sales factor. Intangible property is used in this
state if the purchaser used the intangible property in the regular course of its business
operations in this state.

(j) Receipts from the performance of services must be attributed to the state where
the services are received. For the purposes of this section, receipts from the performance
of services provided to a corporation, partnership, or trust may only be attributed to a state
where it has a fixed place of doing business. If the state where the services are received is
not readily determinable or is a state where the corporation, partnership, or trust receiving
the service does not have a fixed place of doing business, the services shall be deemed
to be received at the location of the office of the customer from which the services were
ordered in the regular course of the customer's trade or business. If the ordering office
cannot be determined, the services shall be deemed to be received at the office of the
customer to which the services are billed.

(k) For the purposes of this subdivision and subdivision 6, paragraph (l), receipts
from management, distribution, or administrative services performed by a corporation
or trust for a fund of a corporation or trust regulated under United States Code, title 15,
sections 80a-1 through 80a-64, must be attributed to the state where the shareholder of
the fund resides. Under this paragraph, receipts for services attributed to shareholders are
determined on the basis of the ratio of: (1) the average of the outstanding shares in the
fund owned by shareholders residing within Minnesota at the beginning and end of each
year; and (2) the average of the total number of outstanding shares in the fund at the
beginning and end of each year. Residence of the shareholder, in the case of an individual,
is determined by the mailing address furnished by the shareholder to the fund. Residence
of the shareholder, when the shares are held by an insurance company as a depositor for
the insurance company policyholders, is the mailing address of the policyholders. In
the case of an insurance company holding the shares as a depositor for the insurance
company policyholders, if the mailing address of the policyholders cannot be determined
by the taxpayer, the receipts must be excluded from both the numerator and denominator.
Residence of other shareholders is the mailing address of the shareholder.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxable years beginning after
December 31, 2012.
new text end

Sec. 16.

Minnesota Statutes 2012, section 290.21, subdivision 4, is amended to read:

Subd. 4.

Dividends received from another corporation.

(a)(1) Eighty percent
of dividends received by a corporation during the taxable year from another corporation,
in which the recipient owns 20 percent or more of the stock, by vote and value, not
including stock described in section 1504(a)(4) of the Internal Revenue Code when the
corporate stock with respect to which dividends are paid does not constitute the stock in
trade of the taxpayer or would not be included in the inventory of the taxpayer, or does not
constitute property held by the taxpayer primarily for sale to customers in the ordinary
course of the taxpayer's trade or business, or when the trade or business of the taxpayer
does not consist principally of the holding of the stocks and the collection of the income
and gains therefrom; and

(2)(i) the remaining 20 percent of dividends if the dividends received are the stock in
an affiliated company transferred in an overall plan of reorganization and the dividend
is eliminated in consolidation under Treasury Department Regulation 1.1502-14(a), as
amended through December 31, 1989;

(ii) the remaining 20 percent of dividends if the dividends are received from a
corporation which is subject to tax under section 290.36 and which is a member of an
affiliated group of corporations as defined by the Internal Revenue Code and the dividend
is eliminated in consolidation under Treasury Department Regulation 1.1502-14(a), as
amended through December 31, 1989, or is deducted under an election under section
243(b) of the Internal Revenue Code; or

(iii) the remaining 20 percent of the dividends if the dividends are received from a
property and casualty insurer as defined under section 60A.60, subdivision 8, which is a
member of an affiliated group of corporations as defined by the Internal Revenue Code
and either: (A) the dividend is eliminated in consolidation under Treasury Regulation
1.1502-14(a), as amended through December 31, 1989; or (B) the dividend is deducted
under an election under section 243(b) of the Internal Revenue Code.

(b) Seventy percent of dividends received by a corporation during the taxable year
from another corporation in which the recipient owns less than 20 percent of the stock,
by vote or value, not including stock described in section 1504(a)(4) of the Internal
Revenue Code when the corporate stock with respect to which dividends are paid does not
constitute the stock in trade of the taxpayer, or does not constitute property held by the
taxpayer primarily for sale to customers in the ordinary course of the taxpayer's trade or
business, or when the trade or business of the taxpayer does not consist principally of the
holding of the stocks and the collection of income and gain therefrom.

(c) The dividend deduction provided in this subdivision shall be allowed only with
respect to dividends that are included in a corporation's Minnesota taxable net income
for the taxable year.

The dividend deduction provided in this subdivision does not apply to a dividend
from a corporation which, for the taxable year of the corporation in which the distribution
is made or for the next preceding taxable year of the corporation, is a corporation exempt
from tax under section 501 of the Internal Revenue Code.

new text begin The dividend deduction provided in this subdivision does not apply to a dividend
received from a real estate investment trust, as defined in section 856 of the Internal
Revenue Code.
new text end

The dividend deduction provided in this subdivision applies to the amount of
regulated investment company dividends only to the extent determined under section
854(b) of the Internal Revenue Code.

The dividend deduction provided in this subdivision shall not be allowed with
respect to any dividend for which a deduction is not allowed under the provisions of
section 246(c) of the Internal Revenue Code.

(d) If dividends received by a corporation that does not have nexus with Minnesota
under the provisions of Public Law 86-272 are included as income on the return of
an affiliated corporation permitted or required to file a combined report under section
290.17, subdivision 4, or 290.34, subdivision 2, then for purposes of this subdivision the
determination as to whether the trade or business of the corporation consists principally
of the holding of stocks and the collection of income and gains therefrom shall be made
with reference to the trade or business of the affiliated corporation having a nexus with
Minnesota.

(e) The deduction provided by this subdivision does not apply if the dividends are
paid by a FSC as defined in section 922 of the Internal Revenue Code.

(f) If one or more of the members of the unitary group whose income is included on
the combined report received a dividend, the deduction under this subdivision for each
member of the unitary business required to file a return under this chapter is the product
of: (1) 100 percent of the dividends received by members of the group; (2) the percentage
allowed pursuant to paragraph (a) or (b); and (3) the percentage of the taxpayer's business
income apportionable to this state for the taxable year under section 290.191 or 290.20.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxable years beginning after
December 31, 2012.
new text end

Sec. 17.

Minnesota Statutes 2012, section 290A.03, subdivision 13, is amended to read:

Subd. 13.

Property taxes payable.

"Property taxes payable" means the property tax
exclusive of special assessments, penalties, and interest payable on a claimant's homestead
after deductions made under sections 273.135, 273.1384, 273.1391, 273.42, subdivision 2,
and any other state paid property tax credits in any calendar year new text begin other than the rebate
allowed under section 290.06, subdivision 36 new text end , and after any refund claimed and allowable
under section 290A.04, subdivision 2h, that is first payable in the year that the property
tax is payable. In the case of a claimant who makes ground lease payments, "property
taxes payable" includes the amount of the payments directly attributable to the property
taxes assessed against the parcel on which the house is located. No apportionment or
reduction of the "property taxes payable" shall be required for the use of a portion of the
claimant's homestead for a business purpose if the claimant does not deduct any business
depreciation expenses for the use of a portion of the homestead in the determination of
federal adjusted gross income. For homesteads which are manufactured homes as defined
in section 273.125, subdivision 8, and for homesteads which are park trailers taxed as
manufactured homes under section 168.012, subdivision 9, "property taxes payable" shall
also include 17 percent of the gross rent paid in the preceding year for the site on which the
homestead is located. When a homestead is owned by two or more persons as joint tenants
or tenants in common, such tenants shall determine between them which tenant may claim
the property taxes payable on the homestead. If they are unable to agree, the matter shall
be referred to the commissioner of revenue whose decision shall be final. Property taxes
are considered payable in the year prescribed by law for payment of the taxes.

In the case of a claim relating to "property taxes payable," the claimant must have
owned and occupied the homestead on January 2 of the year in which the tax is payable
and (i) the property must have been classified as homestead property pursuant to section
273.124, on or before December 15 of the assessment year to which the "property taxes
payable" relate; or (ii) the claimant must provide documentation from the local assessor
that application for homestead classification has been made on or before December 15
of the year in which the "property taxes payable" were payable and that the assessor has
approved the application.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective beginning with refunds based on
property taxes payable in 2013.
new text end

Sec. 18.

Minnesota Statutes 2012, section 298.01, subdivision 3b, is amended to read:

Subd. 3b.

Deductions.

(a) For purposes of determining taxable income under
subdivision 3, the deductions from gross income include only those expenses necessary
to convert raw ores to marketable quality. Such expenses include costs associated with
refinement but do not include expenses such as transportation, stockpiling, marketing, or
marine insurance that are incurred after marketable ores are produced, unless the expenses
are included in gross income. The allowable deductions from a mine or plant that mines
and produces more than one mineral, metal, or energy resource must be determined
separately for the purposes of computing the deduction in section 290.01, subdivision 19c,
clause (9). These deductions may be combined on one occupation tax return to arrive at
the deduction from gross income for all production.

(b) The provisions of section 290.01, subdivisions 19c, clauses (6) and (9), and 19d,
clauses (7) and deleted text begin (11) deleted text end new text begin (10) new text end , are not used to determine taxable income.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxable years beginning after
December 31, 2012.
new text end

Sec. 19. new text begin REPEALER.
new text end

new text begin Minnesota Statutes 2012, sections 290.01, subdivision 6b; and 290.0921, subdivision
7, new text end new text begin are repealed.
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, 2012.
new text end

ARTICLE 2

PROPERTY TAXES

Section 1.

Minnesota Statutes 2012, 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.

new text begin For taxes payable in 2014 and 2015, new text end the state general levy deleted text begin base deleted text end amount new text begin against
commercial-industrial property, exclusive of adjustments for errors or changes in a
preceding year, new text end is deleted text begin $592,000,000 for taxes payable in 2002 deleted text end new text begin $798,561,534 new text end . new text begin For taxes payable
in 2016 and subsequent years, the levy amount against commercial-industrial property
is increased each year by multiplying the levy amount against commercial-industrial
property for the prior year, exclusive of adjustments for errors or changes in a preceding
year, by the sum of one plus one-half of the rate of inflation.
new text end

new text begin For taxes payable in 2014, the state general levy amount against seasonal residential
recreational property, exclusive of adjustments for errors or changes in a preceding year, is
the product of $42,029,554 times the sum of one plus the rate of inflation.
new text end

For taxes payable in new text begin 2015 and new text end subsequent years, the new text begin state general new text end levy deleted text begin base deleted text end amount
new text begin against seasonal residential recreational property, exclusive of adjustments for errors
or changes in a preceding year, new text end is increased each year by multiplying the levy deleted text begin base
deleted text end amount new text begin against seasonal residential recreational property new text end for the prior year new text begin , exclusive of
adjustments for errors or changes in a preceding year, new text end by the sum of one plus the rate of
deleted text begin 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 deleted text end new text begin inflation new text end .

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
new text begin determined under subdivision 4, new text end 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.

new text begin For the purposes of this section, "rate of inflation" means 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.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxes payable in 2014 and
thereafter.
new text end

Sec. 2.

Minnesota Statutes 2012, 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 deleted text end The
state general tax must be levied by applying a uniform rate to all commercial-industrial tax
capacity and deleted text begin five percent of the state general tax must be levied by applying deleted text end a uniform
rate to all seasonal residential recreational tax capacity. 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 deleted text begin rate deleted text end new text begin rates new text end to each county auditor that shall be used in spreading taxes.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxes payable in 2014 and
thereafter.
new text end

Sec. 3.

Minnesota Statutes 2012, section 477A.011, subdivision 34, is amended to read:

Subd. 34.

City revenue need.

deleted text begin (a) For a city with a population equal to or greater
than 2,500, deleted text end "City revenue need" is the deleted text begin greater of 285 or the deleted text end sum of (1) deleted text begin 5.0734098 times
the pre-1940 housing percentage deleted text end new text begin the city's public safety and streets need factor new text end ; plus (2)
deleted text begin 19.141678 times the population decline percentage deleted text end new text begin the city's pre-1970 housing need
factor new text end ; plus (3) deleted text begin 2504.06334 times the road accidents factor; plus (4) 355.0547; minus
(5) the metropolitan area factor; minus (6) 49.10638 times the household size deleted text end new text begin the city's
exempt parcels need factor new text end .

deleted text begin (b) For a city with a population less than 2,500, "city revenue need" is the sum of
(1) 2.387 times the pre-1940 housing percentage; plus (2) 2.67591 times the commercial
industrial percentage; plus (3) 3.16042 times the population decline percentage; plus (4)
1.206 times the transformed population; minus (5) 62.772.
deleted text end

deleted text begin (c) For a city with a population of 2,500 or more and a population in one of the most
recently available five years that was less than 2,500, "city revenue need" is the sum of (1)
its city revenue need calculated under paragraph (a) multiplied by its transition factor;
plus (2) its city revenue need calculated under the formula in paragraph (b) multiplied
by the difference between one and its transition factor. For purposes of this paragraph, a
city's "transition factor" is equal to 0.2 multiplied by the number of years that the city's
population estimate has been 2,500 or more. This provision only applies for aids payable
in calendar years 2006 to 2008 to cities with a 2002 population of less than 2,500. It
applies to any city for aids payable in 2009 and thereafter.
deleted text end

deleted text begin (d) The city revenue need cannot be less than zero.
deleted text end

deleted text begin (e) For calendar year 2005 and subsequent years, the city revenue need for a city,
as determined in paragraphs (a) to (d), is multiplied by the ratio of the annual implicit
price deflator for government consumption expenditures and gross investment for state
and local governments as prepared by the United States Department of Commerce, for
the most recently available year to the 2003 implicit price deflator for state and local
government purchases.
deleted text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for aid payable in 2014 and thereafter.
new text end

Sec. 4.

Minnesota Statutes 2012, section 477A.011, subdivision 36, is amended to read:

Subd. 36.

City aid base.

(a) Except as otherwise provided in this subdivision,
"city aid base" is zero.

(b) The city aid base for any city with a population less than 500 is increased by
$40,000 for aids payable in calendar year 1995 and thereafter, and the maximum amount
of total aid it may receive under section 477A.013, subdivision 9, paragraph (c), is also
increased by $40,000 for aids payable in calendar year 1995 only, provided that:

(i) the average total tax capacity rate for taxes payable in 1995 exceeds 200 percent;

(ii) the city portion of the tax capacity rate exceeds 100 percent; and

(iii) its city aid base is less than $60 per capita.

(c) The city aid base for a city is increased by $20,000 in 1998 and thereafter and
the maximum amount of total aid it may receive under section 477A.013, subdivision 9,
paragraph (c), is also increased by $20,000 in calendar year 1998 only, provided that:

(i) the city has a population in 1994 of 2,500 or more;

(ii) the city is located in a county, outside of the metropolitan area, which contains a
city of the first class;

(iii) the city's net tax capacity used in calculating its 1996 aid under section
477A.013 is less than $400 per capita; and

(iv) at least four percent of the total net tax capacity, for taxes payable in 1996, of
property located in the city is classified as railroad property.

(d) The city aid base for a city is increased by $200,000 in 1999 and thereafter and
the maximum amount of total aid it may receive under section 477A.013, subdivision 9,
paragraph (c), is also increased by $200,000 in calendar year 1999 only, provided that:

(i) the city was incorporated as a statutory city after December 1, 1993;

(ii) its city aid base does not exceed $5,600; and

(iii) the city had a population in 1996 of 5,000 or more.

(e) The city aid base for a city is increased by $150,000 for aids payable in 2000 and
thereafter, and the maximum amount of total aid it may receive under section 477A.013,
subdivision 9, paragraph (c), is also increased by $150,000 in calendar year 2000 only,
provided that:

(1) the city has a population that is greater than 1,000 and less than 2,500;

(2) its commercial and industrial percentage for aids payable in 1999 is greater
than 45 percent; and

(3) the total market value of all commercial and industrial property in the city
for assessment year 1999 is at least 15 percent less than the total market value of all
commercial and industrial property in the city for assessment year 1998.

(f) The city aid base for a city is increased by $200,000 in 2000 and thereafter, and
the maximum amount of total aid it may receive under section 477A.013, subdivision 9,
paragraph (c), is also increased by $200,000 in calendar year 2000 only, provided that:

(1) the city had a population in 1997 of 2,500 or more;

(2) the net tax capacity of the city used in calculating its 1999 aid under section
477A.013 is less than $650 per capita;

(3) the pre-1940 housing percentage of the city used in calculating 1999 aid under
section 477A.013 is greater than 12 percent;

(4) the 1999 local government aid of the city under section 477A.013 is less than
20 percent of the amount that the formula aid of the city would have been if the need
increase percentage was 100 percent; and

(5) the city aid base of the city used in calculating aid under section 477A.013
is less than $7 per capita.

(g) The city aid base for a city is increased by $102,000 in 2000 and thereafter, and
the maximum amount of total aid it may receive under section 477A.013, subdivision 9,
paragraph (c), is also increased by $102,000 in calendar year 2000 only, provided that:

(1) the city has a population in 1997 of 2,000 or more;

(2) the net tax capacity of the city used in calculating its 1999 aid under section
477A.013 is less than $455 per capita;

(3) the net levy of the city used in calculating 1999 aid under section 477A.013 is
greater than $195 per capita; and

(4) the 1999 local government aid of the city under section 477A.013 is less than
38 percent of the amount that the formula aid of the city would have been if the need
increase percentage was 100 percent.

(h) The city aid base for a city is increased by $32,000 in 2001 and thereafter, and
the maximum amount of total aid it may receive under section 477A.013, subdivision 9,
paragraph (c), is also increased by $32,000 in calendar year 2001 only, provided that:

(1) the city has a population in 1998 that is greater than 200 but less than 500;

(2) the city's revenue need used in calculating aids payable in 2000 was greater
than $200 per capita;

(3) the city net tax capacity for the city used in calculating aids available in 2000
was equal to or less than $200 per capita;

(4) the city aid base of the city used in calculating aid under section 477A.013
is less than $65 per capita; and

(5) the city's formula aid for aids payable in 2000 was greater than zero.

(i) The city aid base for a city is increased by $7,200 in 2001 and thereafter, and
the maximum amount of total aid it may receive under section 477A.013, subdivision 9,
paragraph (c), is also increased by $7,200 in calendar year 2001 only, provided that:

(1) the city had a population in 1998 that is greater than 200 but less than 500;

(2) the city's commercial industrial percentage used in calculating aids payable in
2000 was less than ten percent;

(3) more than 25 percent of the city's population was 60 years old or older according
to the 1990 census;

(4) the city aid base of the city used in calculating aid under section 477A.013
is less than $15 per capita; and

(5) the city's formula aid for aids payable in 2000 was greater than zero.

(j) The city aid base for a city is increased by $45,000 in 2001 and thereafter and
by an additional $50,000 in calendar years 2002 to 2011, and the maximum amount of
total aid it may receive under section 477A.013, subdivision 9, paragraph (c), is also
increased by $45,000 in calendar year 2001 only, and by $50,000 in calendar year 2002
only, provided that:

(1) the net tax capacity of the city used in calculating its 2000 aid under section
477A.013 is less than $810 per capita;

(2) the population of the city declined more than two percent between 1988 and 1998;

(3) the net levy of the city used in calculating 2000 aid under section 477A.013 is
greater than $240 per capita; and

(4) the city received less than $36 per capita in aid under section 477A.013,
subdivision 9, for aids payable in 2000.

(k) deleted text begin The city aid base for a city with a population of 10,000 or more which is located
outside of the seven-county metropolitan area is increased in 2002 and thereafter, and the
maximum amount of total aid it may receive under section 477A.013, subdivision 9,
paragraph (b) or (c), is also increased in calendar year 2002 only, by an amount equal to
the lesser of:
deleted text end

deleted text begin (1)(i) the total population of the city, as determined by the United States Bureau of
the Census, in the 2000 census, (ii) minus 5,000, (iii) times 60; or
deleted text end

deleted text begin (2) $2,500,000.
deleted text end

deleted text begin (l) deleted text end The city aid base is increased by $50,000 in 2002 and thereafter, and the
maximum amount of total aid it may receive under section 477A.013, subdivision 9,
paragraph (c), is also increased by $50,000 in calendar year 2002 only, provided that:

(1) the city is located in the seven-county metropolitan area;

(2) its population in 2000 is between 10,000 and 20,000; and

(3) its commercial industrial percentage, as calculated for city aid payable in 2001,
was greater than 25 percent.

deleted text begin (m) deleted text end new text begin (l) new text end The city aid base for a city is increased by $150,000 in calendar years 2002
to 2011 and by an additional $75,000 in calendar years 2009 to 2014 and the maximum
amount of total aid it may receive under section 477A.013, subdivision 9, paragraph (c), is
also increased by $150,000 in calendar year 2002 only and by $75,000 in calendar year
2009 only, provided that:

(1) the city had a population of at least 3,000 but no more than 4,000 in 1999;

(2) its home county is located within the seven-county metropolitan area;

(3) its pre-1940 housing percentage is less than 15 percent; and

(4) its city net tax capacity per capita for taxes payable in 2000 is less than $900
per capita.

deleted text begin (n) deleted text end new text begin (m) new text end The city aid base for a city is increased by $200,000 beginning in calendar
year 2003 and the maximum amount of total aid it may receive under section 477A.013,
subdivision 9, paragraph (c), is also increased by $200,000 in calendar year 2003 only,
provided that the city qualified for an increase in homestead and agricultural credit aid
under Laws 1995, chapter 264, article 8, section 18.

deleted text begin (o) The city aid base for a city is increased by $200,000 in 2004 only and the
maximum amount of total aid it may receive under section 477A.013, subdivision 9, is
also increased by $200,000 in calendar year 2004 only, if the city is the site of a nuclear
dry cask storage facility.
deleted text end

deleted text begin (p) deleted text end new text begin (n) new text end The city aid base for a city is increased by $10,000 in 2004 and thereafter
and the maximum total aid it may receive under section 477A.013, subdivision 9, is also
increased by $10,000 in calendar year 2004 only, if the city was included in a federal
major disaster designation issued on April 1, 1998, and its pre-1940 housing stock was
decreased by more than 40 percent between 1990 and 2000.

deleted text begin (q) deleted text end new text begin (o) new text end The city aid base for a city is increased by $30,000 in 2009 and thereafter
and the maximum total aid it may receive under section 477A.013, subdivision 9, is also
increased by $25,000 in calendar year 2006 only if the city had a population in 2003
of at least 1,000 and has a state park for which the city provides rescue services and
which comprised at least 14 percent of the total geographic area included within the
city boundaries in 2000.

deleted text begin (r) deleted text end new text begin (p) new text end The city aid base for a city is increased by $80,000 in 2009 and thereafter and
the minimum and maximum amount of total aid it may receive under section 477A.013,
subdivision 9, is also increased by $80,000 in calendar year 2009 only, if:

(1) as of May 1, 2006, at least 25 percent of the tax capacity of the city is proposed
to be placed in trust status as tax-exempt Indian land;

(2) the placement of the land is being challenged administratively or in court; and

(3) due to the challenge, the land proposed to be placed in trust is still on the tax
rolls as of May 1, 2006.

deleted text begin (s) deleted text end new text begin (q) new text end The city aid base for a city is increased by $100,000 in 2007 and thereafter
and the minimum and maximum total amount of aid it may receive under this section is
also increased in calendar year 2007 only, provided that:

(1) the city has a 2004 estimated population greater than 200 but less than 2,000;

(2) its city net tax capacity for aids payable in 2006 was less than $300 per capita;

(3) the ratio of its pay 2005 tax levy compared to its city net tax capacity for aids
payable in 2006 was greater than 110 percent; and

(4) it is located in a county where at least 15,000 acres of land are classified as
tax-exempt Indian reservations according to the 2004 abstract of tax-exempt property.

deleted text begin (t) The city aid base for a city is increased by $30,000 in 2009 only, and the
maximum total aid it may receive under section 477A.013, subdivision 9, is also increased
by $30,000 in calendar year 2009, only if the city had a population in 2005 of less than
3,000 and the city's boundaries as of 2007 were formed by the consolidation of two cities
and one township in 2002.
deleted text end

deleted text begin (u) deleted text end new text begin (r) new text end The city aid base for a city is increased by $100,000 in 2009 and thereafter,
and the maximum total aid it may receive under section 477A.013, subdivision 9, is also
increased by $100,000 in calendar year 2009 only, if the city had a city net tax capacity for
aids payable in 2007 of less than $150 per capita and the city experienced flooding on
March 14, 2007, that resulted in evacuation of at least 40 homes.

deleted text begin (v) The city aid base for a city is increased by $100,000 in 2009 to 2013, and the
maximum total aid it may receive under section 477A.013, subdivision 9, is also increased
by $100,000 in calendar year 2009 only, if the city:
deleted text end

deleted text begin (1) is located outside of the Minneapolis-St. Paul standard metropolitan statistical
area;
deleted text end

deleted text begin (2) has a 2005 population greater than 7,000 but less than 8,000; and
deleted text end

deleted text begin (3) has a 2005 net tax capacity per capita of less than $500.
deleted text end

deleted text begin (w) The city aid base is increased by $25,000 in calendar years 2009 to 2013 and the
maximum amount of total aid it may receive under section 477A.013, subdivision 9, is
increased by $25,000 in calendar year 2009 only, provided that:
deleted text end

deleted text begin (1) the city is located in the seven-county metropolitan area;
deleted text end

deleted text begin (2) its population in 2006 is less than 200; and
deleted text end

deleted text begin (3) the percentage of its housing stock built before 1940, according to the 2000
United States Census, is greater than 40 percent.
deleted text end

deleted text begin (x) The city aid base is increased by $90,000 in calendar year 2009 only and the
minimum and maximum total amount of aid it may receive under section 477A.013,
subdivision 9, is also increased by $90,000 in calendar year 2009 only, provided that the
city is located in the seven-county metropolitan area, has a 2006 population between 5,000
and 7,000 and has a 1997 population of over 7,000.
deleted text end

deleted text begin (y) In calendar year 2010 only, the city aid base for a city is increased by $225,000 if
it was eligible for a $450,000 payment in calendar year 2008 under Minnesota Statutes
2006, section 477A.011, subdivision 36, paragraph (e), and the second half of the payment
under that paragraph in December 2008 was canceled due to the governor's unallotment.
The payment under this paragraph is not subject to any aid reductions under section
477A.0134 or any future unallotment of the city aid under section 16A.152.
deleted text end

deleted text begin (z) In calendar year 2013 only, the total aid the city may receive under section
477A.013 is increased by $12,000 if:
deleted text end

deleted text begin (1) the city's 2010 population is less than 100 and its population growth between
2000 and 2010 was more than 55 percent; and
deleted text end

deleted text begin (2) its commercial industrial percentage as defined in subdivision 32, based on
assessments for calendar year 2010, payable in 2011, is greater than 15 percent.
deleted text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for aid payable in 2014 and thereafter.
new text end

Sec. 5.

Minnesota Statutes 2012, section 477A.011, is amended by adding a
subdivision to read:

new text begin Subd. 44. new text end

new text begin Public safety and streets need factor. new text end

new text begin "Public safety and streets need
factor" for a city means a dollar amount, rounded to the nearest cent, that is equal to
the sum of:
new text end

new text begin (1) $200; plus
new text end

new text begin (2) $0.15 times the first 1,000 of the city's population; plus
new text end

new text begin (3) $0.0008 times the next 99,000 of the city's population; plus
new text end

new text begin (4) $0.00025 times the city's population over 100,000.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for aid payable in 2014 and thereafter.
new text end

Sec. 6.

Minnesota Statutes 2012, section 477A.011, is amended by adding a
subdivision to read:

new text begin Subd. 45. new text end

new text begin Pre-1970 housing need factor. new text end

new text begin "Pre-1970 housing need factor" for a city
means a dollar amount, rounded to the nearest cent, that is equal to:
new text end

new text begin (1) 100; times
new text end

new text begin (2) the quotient of the 2010 federal census count of all housing units in the city built
before 1970 divided by the 2010 federal census count of all housing units in the city; times
new text end

new text begin (3) $1.30.
new text end

new text begin Housing units includes both occupied and vacant housing units as defined by the 2010
federal census.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for aid payable in 2014 and thereafter.
new text end

Sec. 7.

Minnesota Statutes 2012, section 477A.011, is amended by adding a
subdivision to read:

new text begin Subd. 46. new text end

new text begin Exempt parcels need factor. new text end

new text begin (a) "Exempt parcels need factor" for a city
means a dollar amount, rounded to the nearest cent, that is equal to:
new text end

new text begin (1) 100; times
new text end

new text begin (2) the quotient of the number of tax-exempt parcels in the city divided by the
total number of parcels in the city; times
new text end

new text begin (3) $65.
new text end

new text begin The number of tax-exempt parcels in the city is determined by the commissioner of revenue
using information from the abstract of assessment of exempt real property under section
273.18 for assessment year 2010. The total number of parcels in the city is determined by
the commissioner of revenue using information from the abstract of assessment of exempt
real property for assessment year 2010, and from information on taxable properties
submitted to the commissioner by county and local officials for assessment year 2010.
new text end

new text begin (b) The numerator in paragraph (a) excludes:
new text end

new text begin (1) city-owned public service enterprise parcels used for municipal light and
water plants, telephone systems, municipal liquor stores, airport leaseholds, fee-based
parking lots and structures, or other purposes that were included in category 0850 for the
assessment year 2010 abstract of assessment of exempt real property;
new text end

new text begin (2) city-owned nonenterprise parcels used for airport, library, fire department,
seasonal leases, unfinished sale or rental projects, skyways, parking lots and structures,
recreational, railway, or other purposes that were included in category 0860 of the
assessment year 2010 abstract of assessment of exempt real property; and
new text end

new text begin (3) parcels with a building value under $5,000.
new text end

new text begin (c) The exempt parcels need factor for a city cannot exceed $130.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for aid payable in 2014 and thereafter.
new text end

Sec. 8.

Minnesota Statutes 2012, section 477A.013, subdivision 8, is amended to read:

Subd. 8.

City formula aid.

The formula aid for a city is equal to deleted text begin the sum of (1) its city
jobs base, (2) its small city aid base, and (3) the need increase percentage multiplied by the
average of deleted text end its unmet need deleted text begin for the most recently available two years deleted text end new text begin times the funding ratio new text end .

No city may have a formula aid amount less than zero. The deleted text begin need increase percentage
deleted text end new text begin funding ratio new text end must be the same for all cities.

The applicable deleted text begin need increase percentage deleted text end new text begin funding ratio new text end must be calculated by the
Department of Revenue so that the total of the aid under subdivision 9 equals the total
amount available for aid under section 477A.03. new text begin Notwithstanding the definitions of
population in section 477A.011, subdivision 3, city net tax capacity in section 477A.011,
subdivision 20, and tax effort rate in section 477A.011, subdivision 35, new text end data used in
calculating aids to cities under sections 477A.011 to 477A.013 shall be the most recently
available data as of January 1 in the year in which the aid is calculated deleted text begin except that the
data used to compute "net levy" in subdivision 9 is the data most recently available at
the time of the aid computation deleted text end .

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for aid payable in 2014 and thereafter.
new text end

Sec. 9.

Minnesota Statutes 2012, section 477A.013, subdivision 9, is amended to read:

Subd. 9.

City aid distribution.

(a) deleted text begin In calendar year 2013 and thereafter, deleted text end Each
new text begin year, a new text end city shall receive an aid distribution equal to the sum of (1) the city formula aid
under subdivision 8, and (2) its city aid base.

(b) For aids payable in deleted text begin 2013 and deleted text end 2014 deleted text begin only, the total aid in the previous year for
any city shall mean the amount of aid it was certified to receive for aids payable in 2012
under this section. For aids payable in 2015 deleted text end and thereafter, the total aid in the previous
year for any city means the amount of aid it was certified to receive under this section in
the previous payable year.

(c) For aids payable in deleted text begin 2010 and thereafter, the total aid for any city shall not exceed
the sum of (1) ten percent of the city's net levy for the year prior to the aid distribution
plus (2) its total aid in the previous year. For aids payable in 2009 and thereafter, the total
aid for any city with a population of 2,500 or more may not be less than its total aid under
this section in the previous year minus the lesser of $10 multiplied by its population, or ten
percent of its net levy in the year prior to the aid distribution deleted text end new text begin 2014 only, the minimum aid
for a city that received an aid payment under this section of greater than zero in 2013 is the
sum of that aid amount plus $30 per capita new text end .

(d) For aids payable in deleted text begin 2010 and thereafter, the total aid for a city with a population
less than 2,500 must not be less than the amount it was certified to receive in the previous
year minus the lesser of deleted text end new text begin 2015 and thereafter, a calendar year aid amount under this section
certified for payment to a city cannot increase or decrease from the amount under this
section that it was certified to receive in the previous aid payable year, by more than
new text end $10 multiplied by its population deleted text begin , or five percent of its 2003 certified aid amount. For
aids payable in 2009 only, the total aid for a city with a population less than 2,500 must
not be less than what it received under this section in the previous year unless its total
aid in calendar year 2008 was aid under section 477A.011, subdivision 36, paragraph
(s), in which case its minimum aid is zero deleted text end .

(e) A city's aid loss under this section may not exceed $300,000 in any year in
which the total city aid appropriation under section 477A.03, subdivision 2a, is equal or
greater than the appropriation under that subdivision in the previous year deleted text begin , unless the
city has an adjustment in its city net tax capacity under the process described in section
469.174, subdivision 28 deleted text end .

deleted text begin (f) If a city's net tax capacity used in calculating aid under this section has decreased
in any year by more than 25 percent from its net tax capacity in the previous year due to
property becoming tax-exempt Indian land, the city's maximum allowed aid increase
under paragraph (c) shall be increased by an amount equal to (1) the city's tax rate in the
year of the aid calculation, multiplied by (2) the amount of its net tax capacity decrease
resulting from the property becoming tax exempt.
deleted text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for aid payable in 2014 and thereafter.
new text end

Sec. 10.

Minnesota Statutes 2012, section 477A.03, subdivision 2a, is amended to read:

Subd. 2a.

Cities.

For aids payable in deleted text begin 2013 deleted text end new text begin 2014 new text end and thereafter, the total aid paid
under section 477A.013 deleted text begin , subdivision 9, deleted text end is deleted text begin $426,438,012 deleted text end new text begin $506,438,012 new text end .

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for aid payable in 2014 and thereafter.
new text end

Sec. 11.

Minnesota Statutes 2012, section 477A.03, subdivision 2b, is amended to read:

Subd. 2b.

Counties.

(a) For aids payable in deleted text begin 2013 deleted text end new text begin 2014 new text end and thereafter, the total aid
payable under section 477A.0124, subdivision 3, is deleted text begin $80,795,000 deleted text end new text begin $100,795,000 new text end . Each
calendar year, $500,000 new text begin of this appropriation new text end shall be retained by the commissioner
of revenue to make reimbursements to the commissioner of management and budget
for payments made under section 611.27. deleted text begin For calendar year 2004, the amount shall
be in addition to the payments authorized under section 477A.0124, subdivision 1.
For calendar year 2005 and subsequent years, the amount shall be deducted from the
appropriation under this paragraph. deleted text end The reimbursements shall be to defray the additional
costs associated with court-ordered counsel under section 611.27. Any retained amounts
not used for reimbursement in a year shall be included in the next distribution of county
need aid that is certified to the county auditors for the purpose of property tax reduction
for the next taxes payable year.

(b) For aids payable in deleted text begin 2013 deleted text end new text begin 2014 new text end and thereafter, the total aid under section
477A.0124, subdivision 4, is deleted text begin $84,909,575 deleted text end new text begin $104,909,575 new text end . The commissioner of
management and budget shall bill the commissioner of revenue for the cost of preparation
of local impact notes as required by section 3.987, not to exceed $207,000 in new text begin each new text end fiscal
year deleted text begin 2004 and thereafter deleted text end . The commissioner of education shall bill the commissioner of
revenue for the cost of preparation of local impact notes for school districts as required
by section 3.987, not to exceed $7,000 in new text begin each new text end fiscal year deleted text begin 2004 and thereafter deleted text end . The
commissioner of revenue shall deduct the amounts billed under this paragraph from
the appropriation under this paragraph. The amounts deducted are appropriated to the
commissioner of management and budget and the commissioner of education for the
preparation of local impact notes.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for aid payable in 2014 and thereafter.
new text end

Sec. 12. new text begin REPEALER.
new text end

new text begin Minnesota Statutes 2012, sections 477A.011, subdivisions 2a, 27, 29, 31, 32, 33, 39,
40, 41, and 42; 477A.0124, subdivision 1; 477A.013, subdivisions 11 and 12; 477A.0133;
and 477A.0134, new text end new text begin are repealed.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for aid payable in 2014 and thereafter.
new text end

ARTICLE 3

SALES AND USE TAXES

Section 1.

Minnesota Statutes 2012, section 289A.56, subdivision 4, is amended to read:

Subd. 4.

deleted text begin Capital equipment and certain deleted text end Building materials refunds; refunds to
purchasers.

Notwithstanding subdivision 3, for refunds payable under deleted text begin sections 297A.75,
subdivision 1, and deleted text end new text begin section new text end 289A.50, subdivision 2a, interest is computed from 90 days
after the refund claim is filed with the commissioner.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for sales and purchases after June
30, 2015.
new text end

Sec. 2.

Minnesota Statutes 2012, section 297A.61, subdivision 3, is amended to read:

Subd. 3.

Sale and purchase.

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

(b) Sale and purchase include:

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

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

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

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

(1) prepared food sold by the retailer;

(2) soft drinks;

(3) candy;

(4) dietary supplements; and

(5) all food sold through vending machines.

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

(f) A sale and a purchase includes new text begin :
new text end

new text begin (1) new text end the transfer for a consideration of prewritten computer software whether
delivered electronically, by load and leave, or otherwise deleted text begin . deleted text end new text begin ;
new text end

new text begin (2) the receipt of custom computer software whether delivered electronically, by
load and leave, or otherwise; and
new text end

new text begin (3) the right to access and use of custom and prewritten computer software, for
a consideration, where possession of the software is maintained by the seller or third
party, regardless of whether the consideration is paid on a per use, per user, per license,
subscription, or some other basis.
new text end

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

(1) the privilege of admission to places of amusement, new text begin amusement events,
exhibitions, selling events, new text end recreational areas, or athletic events, new text begin including seat licenses,
the rental of box seats and suites, new text end and the making available of amusement devices, tanning
facilities, reducing salons, steam baths, Turkish baths, health clubs, and spas or athletic
facilities new text begin . The term "exhibitions" includes, but is not limited to, trade shows, boat shows,
home shows, garden shows, and other similar events. The term "selling events" includes,
but is not limited to, flea markets, estate sales, auctions, and other similar events new text end ;

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

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

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

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

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

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

(5) delivery of aggregate materials by a third party, excluding delivery of aggregate
material used in road construction; and delivery of concrete block by a third party if the
delivery would be subject to the sales tax if provided by the seller of the concrete block new text begin .
For purposes of this clause, "road construction" means construction of:
new text end

new text begin (i) public roads;
new text end

new text begin (ii) cartways; and
new text end

new text begin (iii) private roads in townships located outside of the seven-county metropolitan area
up to the point of the emergency response location sign new text end ; and

(6) services as provided in this clause:

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

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

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

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

(v) pet grooming services;

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

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

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

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

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

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

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

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

(k) A sale and a purchase includes the rental of a vehicle by a motor vehicle dealer
to a customer when (1) the vehicle is rented by the customer for a consideration, or (2)
the motor vehicle dealer is reimbursed pursuant to a service contract as defined in section
59B.02, subdivision 11.

new text begin (l) A sale and a purchase includes the furnishing for a consideration of specified
digital products or other digital products and granting the right for a consideration to use
specified digital products or other digital products on a temporary or permanent basis and
regardless of whether the purchaser is required to make continued payments for such
right. Wherever the term "tangible personal property" is used in this chapter, other than in
subdivisions 10 and 38, the provisions also apply to specified digital products, or other
digital products, unless specifically provided otherwise or the context indicates otherwise.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for sales and purchases made after
December 31, 2013.
new text end

Sec. 3.

Minnesota Statutes 2012, section 297A.61, is amended by adding a subdivision
to read:

new text begin Subd. 3a. new text end

new text begin Sales of services. new text end

new text begin A sale and purchase includes the furnishing for
consideration of any service.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for sales and purchases made after
December 31, 2013.
new text end

Sec. 4.

Minnesota Statutes 2012, section 297A.61, subdivision 4, is amended to read:

Subd. 4.

Retail sale.

(a) A "retail sale" means new text begin :
new text end

new text begin (1) new text end any sale, lease, or rental new text begin of tangible personal property new text end for any purpose, other than
resale, sublease, or subrent of items by the purchaser in the normal course of business as
defined in subdivision 21 deleted text begin . deleted text end new text begin ;
new text end

new text begin (2) any sale of a service in the normal course of business as defined in subdivision
21, and a sale of a service is not considered a sale for resale. This includes the sale of
custom computer software, information services, and data processing services; and
new text end

new text begin (3) any sale of a service enumerated in subdivision 3, for any purpose other than
resale by the purchaser in the normal course of business as defined in subdivision 21, other
than the sale of custom computer software, information service, and data processing
services, notwithstanding clause (2).
new text end

(b) A sale of property used by the owner only by leasing it to others or by holding it
in an effort to lease it, and put to no use by the owner other than resale after the lease or
effort to lease, is a sale of property for resale.

(c) A sale of master computer software that is purchased and used to make copies for
sale or lease is a sale of property for resale.

(d) A sale of building materials, supplies, and equipment to owners, contractors,
subcontractors, or builders for the erection of buildings or the alteration, repair, or
improvement of real property is a retail sale in whatever quantity sold, whether the sale is
for purposes of resale in the form of real property or otherwise.

(e) A sale of carpeting, linoleum, or similar floor covering to a person who provides
for installation of the floor covering is a retail sale and not a sale for resale since a sale of
floor covering which includes installation is a contract for the improvement of real property.

(f) A sale of shrubbery, plants, sod, trees, and similar items to a person who provides
for installation of the items is a retail sale and not a sale for resale since a sale of
shrubbery, plants, sod, trees, and similar items that includes installation is a contract for
the improvement of real property.

(g) A sale of tangible personal property that is awarded as prizes is a retail sale and
is not considered a sale of property for resale.

(h) A sale of tangible personal property utilized or employed in the furnishing or
providing of services under subdivision 3, paragraph (g), clause (1), including, but not
limited to, property given as promotional items, is a retail sale and is not considered a
sale of property for resale.

(i) A sale of tangible personal property used in conducting lawful gambling under
chapter 349 or the State Lottery under chapter 349A, including, but not limited to, property
given as promotional items, is a retail sale and is not considered a sale of property for resale.

(j) A sale of machines, equipment, or devices that are used to furnish, provide, or
dispense goods or services, including, but not limited to, coin-operated devices, is a retail
sale and is not considered a sale of property for resale.

(k) In the case of a lease, a retail sale occurs (1) when an obligation to make a lease
payment becomes due under the terms of the agreement or the trade practices of the
lessor or (2) in the case of a lease of a motor vehicle, as defined in section 297B.01,
subdivision 11, but excluding vehicles with a manufacturer's gross vehicle weight rating
greater than 10,000 pounds and rentals of vehicles for not more than 28 days, at the time
the lease is executed.

(l) In the case of a conditional sales contract, a retail sale occurs upon the transfer of
title or possession of the tangible personal property.

(m) A sale of a bundled transaction in which one or more of the products included
in the bundle is a taxable product is a retail sale, except that if one of the products
is a telecommunication service, ancillary service, Internet access, or audio or video
programming service, and the seller has maintained books and records identifying through
reasonable and verifiable standards the portions of the price that are attributable to the
distinct and separately identifiable products, then the products are not considered part of a
bundled transaction. For purposes of this paragraph:

(1) the books and records maintained by the seller must be maintained in the regular
course of business, and do not include books and records created and maintained by the
seller primarily for tax purposes;

(2) books and records maintained in the regular course of business include, but are
not limited to, financial statements, general ledgers, invoicing and billing systems and
reports, and reports for regulatory tariffs and other regulatory matters; and

(3) books and records are maintained primarily for tax purposes when the books
and records identify taxable and nontaxable portions of the price, but the seller maintains
other books and records that identify different prices attributable to the distinct products
included in the same bundled transaction.

new text begin (n) A sale of specified digital products or other digital products to an end user with
or without rights of permanent use and regardless of whether rights of use are conditioned
upon continued payment by the purchaser is a retail sale. When a digital code has been
purchased that relates to specified digital products or other digital products, the subsequent
receipt of or access to the related specified digital products or other digital products
is not a retail sale.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for sales and purchases made after
December 31, 2013.
new text end

Sec. 5.

Minnesota Statutes 2012, 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:

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

(2) property which is subject to an ad valorem property tax;

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

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

new text begin (5) specified digital products, or other digital products, transferred electronically,
except that prewritten computer software delivered electronically is tangible personal
property.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for sales and purchases made after
December 31, 2013.
new text end

Sec. 6.

Minnesota Statutes 2012, section 297A.61, subdivision 17a, is amended to read:

Subd. 17a.

Delivered electronically.

"Delivered electronically" means delivered
to the purchaser by means other than tangible storage media new text begin and, unless the context
indicates otherwise, applies to the delivery of computer software new text end . new text begin Computer software is
not considered delivered electronically to a purchaser simply because the purchaser has
access to the product.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for sales and purchases the day
following final enactment.
new text end

Sec. 7.

Minnesota Statutes 2012, section 297A.61, subdivision 25, is amended to read:

Subd. 25.

Cable television service.

"Cable television service" means the
transmission of video, audio, or other programming service to purchasers, and the
subscriber interaction, if any, required for the selection or use of the programming service,
regardless of whether the programming is transmitted over facilities owned or operated by
the cable service provider or over facilities owned or operated by one or more dealers of
communications services. The term includes point-to-multipoint distribution services by
which programming is transmitted or broadcast by microwave or other equipment directly
to the subscriber's premises. The term includes basic, extended, premium, pay-per-view,
deleted text begin digital, deleted text end and music services.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for sales and purchases made after
December 31, 2013.
new text end

Sec. 8.

Minnesota Statutes 2012, section 297A.61, subdivision 27, is amended to read:

Subd. 27.

Direct satellite service.

"Direct satellite service" means new text begin the transmission
of video, audio, or other new text end programming new text begin services new text end transmitted or broadcast by satellite directly
to the subscriber's premises without the use of ground receiving or distribution equipment,
except at the subscriber's premises or in the uplink process to the satellite. new text begin The term also
includes any subscriber interaction required for the selection or use of the programming
service as well as any point-to-multipoint distribution services transmitted or broadcast by
satellite or other equipment directly to the subscriber. The term includes any and all service
packages and formats as well as pay-per-view, digital video recorder, and music services.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for sales and purchases made after
December 31, 2013.
new text end

Sec. 9.

Minnesota Statutes 2012, section 297A.61, subdivision 31, is amended to read:

Subd. 31.

Prepared food.

"Prepared food" means food that meets either of the
following conditions:

(1) the food is sold with eating utensils provided by the seller, including plates,
knives, forks, spoons, glasses, cups, napkins, or straws; or

(2) the food is sold in a heated state or heated by the seller or two or more food
ingredients are mixed or combined by the seller for sale as a single item, except for:

(i) bakery items, including, but not limited to, bread, rolls, buns, biscuits, bagels,
croissants, pastries, donuts, danish, cakes, tortes, pies, tarts, muffins, bars, cookies, tortillas;

deleted text begin (ii) ready-to-eat meat and seafood in an unheated state sold by weight;
deleted text end

deleted text begin (iii) deleted text end new text begin (ii) new text end eggs, fish, meat, poultry, and foods containing these raw animal foods
requiring cooking by the consumer as recommended by the Food and Drug Administration
in chapter 3, part 401.11 of its food code so as to prevent food borne illnesses; or

deleted text begin (iv) deleted text end new text begin (iii) new text end food that is only sliced, repackaged, or pasteurized by the seller.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for sales and purchases made after
December 31, 2013.
new text end

Sec. 10.

Minnesota Statutes 2012, section 297A.61, subdivision 38, is amended to read:

Subd. 38.

Bundled transaction.

(a) "Bundled transaction" means the retail sale
of two or more products when the products are otherwise distinct and identifiable, and
the products are sold for one nonitemized price. As used in this subdivision, "product"
includes tangible personal property, services, intangibles, and digital goods new text begin , including
specified digital products or other digital products new text end , but does not include real property or
services to real property. A bundled transaction does not include the sale of any products
in which the sales price varies, or is negotiable, based on the selection by the purchaser of
the products included in the transaction.

(b) For purposes of this subdivision, "distinct and identifiable" products does not
include:

(1) packaging and other materials, such as containers, boxes, sacks, bags, and
bottles, wrapping, labels, tags, and instruction guides, that accompany the retail sale of the
products and are incidental or immaterial to the retail sale. Examples of packaging that are
incidental or immaterial include grocery sacks, shoe boxes, dry cleaning garment bags,
and express delivery envelopes and boxes;

(2) a promotional product provided free of charge with the required purchase of
another product. A promotional product is provided free of charge if the sales price of
another product, which is required to be purchased in order to receive the promotional
product, does not vary depending on the inclusion of the promotional product; and

(3) items included in the definition of sales price.

(c) For purposes of this subdivision, the term "one nonitemized price" does not
include a price that is separately identified by product on binding sales or other supporting
sales-related documentation made available to the customer in paper or electronic form
including but not limited to an invoice, bill of sale, receipt, contract, service agreement,
lease agreement, periodic notice of rates and services, rate card, or price list.

(d) A transaction that otherwise meets the definition of a bundled transaction is
not a bundled transaction if it is:

(1) the retail sale of tangible personal property and a service and the tangible
personal property is essential to the use of the service, and is provided exclusively in
connection with the service, and the true object of the transaction is the service;

(2) the retail sale of services if one service is provided that is essential to the use or
receipt of a second service and the first service is provided exclusively in connection with
the second service and the true object of the transaction is the second service;

(3) a transaction that includes taxable products and nontaxable products and the
purchase price or sales price of the taxable products is de minimis; or

(4) the retail sale of exempt tangible personal property and taxable tangible personal
property if:

(i) the transaction includes food and food ingredients, drugs, durable medical
equipment, mobility enhancing equipment, over-the-counter drugs, prosthetic devices,
or medical supplies; and

(ii) the seller's purchase price or sales price of the taxable tangible personal property is
50 percent or less of the total purchase price or sales price of the bundled tangible personal
property. Sellers must not use a combination of the purchase price and sales price of the
tangible personal property when making the 50 percent determination for a transaction.

(e) For purposes of this subdivision, "purchase price" means the measure subject to
use tax on purchases made by the seller, and "de minimis" means that the seller's purchase
price or sales price of the taxable products is ten percent or less of the total purchase
price or sales price of the bundled products. Sellers shall use either the purchase price
or the sales price of the products to determine if the taxable products are de minimis.
Sellers must not use a combination of the purchase price and sales price of the products
to determine if the taxable products are de minimis. Sellers shall use the full term of a
service contract to determine if the taxable products are de minimis.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for sales and purchases made after
December 31, 2013.
new text end

Sec. 11.

Minnesota Statutes 2012, section 297A.61, subdivision 45, is amended to read:

Subd. 45.

Ring tone.

"Ring tone" means a digitized sound file that is downloaded
onto a device and that may be used to alert the customer deleted text begin of a telecommunication service
deleted text end with respect to a communication. new text begin A ring tone does not include ring back tones or other
digital audio files that are not stored on the purchaser's communication device.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for sales and purchases made after
December 31, 2013.
new text end

Sec. 12.

Minnesota Statutes 2012, section 297A.61, is amended by adding a
subdivision to read:

new text begin Subd. 49. new text end

new text begin Service. new text end

new text begin "Service" means all activities engaged in for a fee, retainer,
commission, or other consideration, as distinguished from sales and purchases of tangible
personal property. In determining what is a service, the intended use, or the principal or
ultimate objective of the contracting parties, shall not be controlling.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for sales and purchases made after
December 31, 2013.
new text end

Sec. 13.

Minnesota Statutes 2012, section 297A.61, is amended by adding a
subdivision to read:

new text begin Subd. 50. new text end

new text begin Digital audio works. new text end

new text begin "Digital audio works" means works that result from
a fixation of a series of musical, spoken, or other sounds, that are transferred electronically.
Digital audio works includes such items as the following which may either be prerecorded
or live: songs, music, readings of books or other written materials, speeches, ring tones, or
other sound recordings. Digital audio works does not include audio greeting cards sent by
electronic mail. Unless the context provides otherwise, in this chapter digital audio works
includes the digital code, or a subscription to or access to a digital code, for receiving,
accessing, or otherwise obtaining digital audio works.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for sales and purchases made after
December 31, 2013.
new text end

Sec. 14.

Minnesota Statutes 2012, section 297A.61, is amended by adding a
subdivision to read:

new text begin Subd. 51. new text end

new text begin Digital audio-visual works. new text end

new text begin "Digital audio-visual works" means a series
of related images which, when shown in succession, impart an impression of motion,
together with accompanying sounds, if any, that are transferred electronically. Digital
audio-visual works includes such items as motion pictures, movies, musical videos, news
and entertainment, and live events. Digital audio-visual works does not include video
greeting cards sent by electronic mail. Unless the context provides otherwise, in this
chapter digital audio-visual works includes the digital code, or a subscription to or access to
a digital code, for receiving, accessing, or otherwise obtaining digital audio-visual works.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for sales and purchases made after
December 31, 2013.
new text end

Sec. 15.

Minnesota Statutes 2012, section 297A.61, is amended by adding a
subdivision to read:

new text begin Subd. 52. new text end

new text begin Digital books. new text end

new text begin "Digital books" means any literary works, other than
digital audio-visual works or digital audio works, expressed in words, numbers, or other
verbal or numerical symbols or indicia so long as the product is generally recognized in
the ordinary and usual sense as a "book." It includes works of fiction and nonfiction and
short stories. It does not include periodicals, magazines, newspapers, or other news or
information products, chat rooms, or weblogs. Unless the context provides otherwise, in
this chapter digital books includes the digital code, or a subscription to or access to a
digital code, for receiving, accessing, or otherwise obtaining digital books.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for sales and purchases made after
December 31, 2013.
new text end

Sec. 16.

Minnesota Statutes 2012, section 297A.61, is amended by adding a
subdivision to read:

new text begin Subd. 53. new text end

new text begin Digital code. new text end

new text begin "Digital code" means a code which provides a purchaser
with a right to obtain one or more specified digital products or other digital products.
A digital code may be transferred electronically, such as through electronic mail, or it
may be transferred on a tangible medium, such as on a plastic card, a piece of paper or
invoice, or imprinted on another product. A digital code is not a code that represents a
stored monetary value that is deducted from a total as it is used by the purchaser, and it
is not a code that represents a redeemable card, gift card, or gift certificate that entitles
the holder to select a digital product of an indicated cash value. The end user of a digital
code is any purchaser except one who receives the contractual right to redistribute a digital
product which is the subject of the transaction.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for sales and purchases made after
December 31, 2013.
new text end

Sec. 17.

Minnesota Statutes 2012, section 297A.61, is amended by adding a
subdivision to read:

new text begin Subd. 54. new text end

new text begin Other digital products. new text end

new text begin "Other digital products" means the following
items when transferred electronically:
new text end

new text begin (1) greeting cards;
new text end

new text begin (2) finished artwork available for reproduction, display, or similar purposes;
new text end

new text begin (3) video or electronic games;
new text end

new text begin (4) periodicals;
new text end

new text begin (5) magazines;
new text end

new text begin (6) newspapers; and
new text end

new text begin (7) other news or information products.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for sales and purchases made after
December 31, 2013.
new text end

Sec. 18.

Minnesota Statutes 2012, section 297A.61, is amended by adding a
subdivision to read:

new text begin Subd. 55. new text end

new text begin Specified digital products. new text end

new text begin "Specified digital products" means
digital audio works, digital audio-visual works, and digital books that are transferred
electronically to a customer.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for sales and purchases made after
December 31, 2013.
new text end

Sec. 19.

Minnesota Statutes 2012, section 297A.61, is amended by adding a
subdivision to read:

new text begin Subd. 56. new text end

new text begin Transferred electronically. new text end

new text begin "Transferred electronically" means obtained
by the purchaser by means other than tangible storage media. For purposes of this
subdivision, it is not necessary that a copy of the product be physically transferred to
the purchaser. A product will be considered to have been transferred electronically to a
purchaser if the purchaser has access to the product.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for sales and purchases made after
December 31, 2013.
new text end

Sec. 20.

Minnesota Statutes 2012, section 297A.62, subdivision 1, is amended to read:

Subdivision 1.

Generally.

Except as otherwise provided in subdivision 3 or in this
chapter, a sales tax of deleted text begin 6.5 deleted text end new text begin 5.266 new text end percent is imposed on the gross receipts from retail sales
as defined in section 297A.61, subdivision 4, made in this state or to a destination in this
state by a person who is required to have or voluntarily obtains a permit under section
297A.83, subdivision 1.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for sales and purchases made after
December 31, 2013.
new text end

Sec. 21.

Minnesota Statutes 2012, section 297A.62, subdivision 1a, is amended to read:

Subd. 1a.

Constitutionally required sales tax increase.

Except as otherwise
provided in subdivision 3 or in this chapter, an additional sales tax of deleted text begin 0.375 deleted text end new text begin 0.234 new text end percent,
as required under the Minnesota Constitution, article XI, section 15, is imposed on the gross
receipts from retail sales as defined in section 297A.61, subdivision 4, made in this state or
to a destination in this state by a person who is required to have or voluntarily obtains a
permit under section 297A.83, subdivision 1. This additional tax expires July 1, 2034.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for sales and purchases made after
December 31, 2013.
new text end

Sec. 22.

Minnesota Statutes 2012, section 297A.64, subdivision 1, is amended to read:

Subdivision 1.

Tax imposed.

A tax is imposed on the lease or rental in this state
for not more than 28 days of a passenger automobile as defined in section 168.002,
subdivision 24, a van as defined in section 168.002, subdivision 40, or a pickup truck as
defined in section 168.002, subdivision 26. The rate of tax is deleted text begin 6.2 deleted text end new text begin 9.05 new text end percent of the sales
price. The tax applies whether or not the vehicle is licensed in the state.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for sales and purchases made after
May 31, 2013.
new text end

Sec. 23.

Minnesota Statutes 2012, section 297A.65, is amended to read:

297A.65 LOTTERY TICKETS; IN LIEU TAX.

Sales of state lottery tickets are exempt from the tax imposed under section
297A.62. The State Lottery must on or before the 20th day of each month transmit to
the commissioner of revenue an amount equal to the gross receipts from the sale of
lottery tickets for the previous month multiplied by deleted text begin the deleted text end new text begin a new text end tax rate deleted text begin under section 297A.62,
subdivision 1 deleted text end new text begin of 6.5 percent new text end . The resulting payment is in lieu of the sales tax that otherwise
would be imposed by this chapter. The commissioner shall deposit the money transmitted
as provided by section 297A.94 and the money must be treated as other proceeds of the
sales tax. For purposes of this section, "gross receipts" means the proceeds of the sale
of tickets before deduction of a commission or other compensation paid to the vendor or
retailer for selling tickets.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for sales and purchases made after
December 31, 2013.
new text end

Sec. 24.

Minnesota Statutes 2012, section 297A.66, is amended by adding a
subdivision to read:

new text begin Subd. 4a. new text end

new text begin Solicitor. new text end

new text begin (a) A retailer is presumed to have a solicitor in this state if it
enters into an agreement with a resident under which the resident, for a commission or
other consideration, directly or indirectly refers potential customers, whether by a link
on an Internet Web site, or otherwise, to the seller. This paragraph only applies if the
total gross receipts from sales to customers located in the state who were referred to the
retailer by all residents with this type of agreement with the retailer is at least $10,000 in
the 12-month period ending on the last day of the most recent calendar quarter before the
calendar quarter in which the sale is made.
new text end

new text begin (b) The presumption under paragraph (a) may be rebutted by proof that the resident
with whom the retailer has an agreement did not engage in any solicitation in the state
on behalf of the retailer that would satisfy the nexus requirements of the United States
Constitution during the 12-month period in question. Nothing in this section shall be
construed to narrow the scope of the terms affiliate, agent, salesperson, canvasser, or other
representative for purposes of subdivision 1, paragraph (a).
new text end

new text begin (c) For purposes of this subdivision, "resident" includes an individual who is a
resident of this state, as defined in section 290.01, or a business that owns tangible
personal property located in this state or has one or more employees providing services
for it in this state.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for sales and purchases made after
December 31, 2013.
new text end

Sec. 25.

Minnesota Statutes 2012, section 297A.67, subdivision 7, is amended to read:

Subd. 7.

Drugs; medical devices.

(a) Sales of the following drugs and medical
devices for human use are exempt:

(1) new text begin prescription new text end drugs deleted text begin , including over-the-counter drugs deleted text end ;

(2) single-use finger-pricking devices for the extraction of blood and other single-use
devices and single-use diagnostic agents used in diagnosing, monitoring, or treating
diabetes;

(3) insulin and medical oxygen for human use, regardless of whether prescribed
or sold over the counter;

(4) prosthetic devices;

(5) durable medical equipment for home use only;

(6) mobility enhancing equipment;

(7) prescription corrective eyeglasses; and

(8) kidney dialysis equipment, including repair and replacement parts.

(b) For purposes of this subdivision:

(1) "Drug" means a compound, substance, or preparation, and any component of
a compound, substance, or preparation, other than food and food ingredients, dietary
supplements, or alcoholic beverages that is:

(i) recognized in the official United States Pharmacopoeia, official Homeopathic
Pharmacopoeia of the United States, or official National Formulary, and supplement
to any of them;

(ii) intended for use in the diagnosis, cure, mitigation, treatment, or prevention
of disease; or

(iii) intended to affect the structure or any function of the body.

(2) "Durable medical equipment" means equipment, including repair and
replacement parts, but not including mobility enhancing equipment, that:

(i) can withstand repeated use;

(ii) is primarily and customarily used to serve a medical purpose;

(iii) generally is not useful to a person in the absence of illness or injury; and

(iv) is not worn in or on the body.

For purposes of this clause, "repair and replacement parts" includes all components
or attachments used in conjunction with the durable medical equipment, but does not
include repair and replacement parts which are for single patient use only.

(3) "Mobility enhancing equipment" means equipment, including repair and
replacement parts, but not including durable medical equipment, that:

(i) is primarily and customarily used to provide or increase the ability to move from
one place to another and that is appropriate for use either in a home or a motor vehicle;

(ii) is not generally used by persons with normal mobility; and

(iii) does not include any motor vehicle or equipment on a motor vehicle normally
provided by a motor vehicle manufacturer.

deleted text begin (4) "Over-the-counter drug" means a drug that contains a label that identifies the
product as a drug as required by Code of Federal Regulations, title 21, section 201.66. The
label must include a "drug facts" panel or a statement of the active ingredients with a list of
those ingredients contained in the compound, substance, or preparation. Over-the-counter
drugs do not include grooming and hygiene products, regardless of whether they otherwise
meet the definition. "Grooming and hygiene products" are soaps, cleaning solutions,
shampoo, toothpaste, mouthwash, antiperspirants, and suntan lotions and sunscreens.
deleted text end

deleted text begin (5) deleted text end new text begin (4) new text end "Prescribed" and "prescription" means a direction in the form of an order,
formula, or recipe issued in any form of oral, written, electronic, or other means of
transmission by a duly licensed health care professional.

deleted text begin (6) deleted text end new text begin (5) new text end "Prosthetic device" means a replacement, corrective, or supportive device,
including repair and replacement parts, worn on or in the body to:

(i) artificially replace a missing portion of the body;

(ii) prevent or correct physical deformity or malfunction; or

(iii) support a weak or deformed portion of the body.

Prosthetic device does not include corrective eyeglasses.

deleted text begin (7) deleted text end new text begin (6) new text end "Kidney dialysis equipment" means equipment that:

(i) is used to remove waste products that build up in the blood when the kidneys are
not able to do so on their own; and

(ii) can withstand repeated use, including multiple use by a single patient,
notwithstanding the provisions of clause (2).

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for sales and purchases made after
December 31, 2013.
new text end

Sec. 26.

Minnesota Statutes 2012, section 297A.67, subdivision 8, is amended to read:

Subd. 8.

Clothing.

(a) new text begin An item of new text end clothing is exempt new text begin if the item is sold for a price
equal to or less than $100 new text end . For purposes of this subdivision, "clothing" means all human
wearing apparel suitable for general use.

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

(c) Clothing does not include the following:

(1) belt buckles sold separately;

(2) costume masks sold separately;

(3) patches and emblems sold separately;

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

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

(6) clothing accessories or equipment;

(7) sports or recreational equipment;

(8) protective equipment; and

(9) fur clothing as defined in section 297A.61, subdivision 46.

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

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for sales and purchases made after
December 31, 2013.
new text end

Sec. 27.

Minnesota Statutes 2012, section 297A.68, subdivision 2, is amended to read:

Subd. 2.

Materials consumed in industrial production.

(a) Materials stored, used,
or consumed in industrial production of new text begin tangible new text end personal property intended to be sold
ultimately at retail new text begin , new text end are exempt, whether or not the item so used becomes an ingredient
or constituent part of the property produced. Materials that qualify for this exemption
include, but are not limited to, the following:

(1) chemicals, including chemicals used for cleaning food processing machinery
and equipment;

(2) materials, including chemicals, fuels, and electricity purchased by persons
engaged in industrial production to treat waste generated as a result of the production
process;

(3) fuels, electricity, gas, and steam used or consumed in the production process,
except that electricity, gas, or steam used for space heating, cooling, or lighting is exempt
if (i) it is in excess of the average climate control or lighting for the production area, and
(ii) it is necessary to produce that particular product;

(4) petroleum products and lubricants;

(5) packaging materials, including returnable containers used in packaging food
and beverage products;

(6) accessory tools, equipment, and other items that are separate detachable units
with an ordinary useful life of less than 12 months used in producing a direct effect upon
the product; and

(7) the following materials, tools, and equipment used in metal-casting: crucibles,
thermocouple protection sheaths and tubes, stalk tubes, refractory materials, molten metal
filters and filter boxes, degassing lances, and base blocks.

(b) This exemption does not include:

(1) machinery, equipment, implements, tools, accessories, appliances, contrivances
and furniture and fixtures, except those listed in paragraph (a), clause (6); and

(2) petroleum and special fuels used in producing or generating power for propelling
ready-mixed concrete trucks on the public highways of this state.

(c) Industrial production includes, but is not limited to, research, development,
design or production of any tangible personal property, manufacturing, processing (other
than by restaurants and consumers) of agricultural products (whether vegetable or animal),
commercial fishing, refining, smelting, reducing, brewing, distilling, printing, mining,
quarrying, lumbering, generating electricity, the production of road building materials,
and the research, development, design, or production of computer software. Industrial
production does not include painting, cleaning, repairing or similar processing of property
except as part of the original manufacturing process.

(d) Industrial production does not include:

(1) the furnishing of services listed in section 297A.61, subdivision 3, paragraph (g),
clause (6), items (i) to (vi) and (viii); or

(2) the transportation, transmission, or distribution of petroleum, liquefied gas,
natural gas, water, or steam, in, by, or through pipes, lines, tanks, mains, or other means of
transporting those products. For purposes of this paragraph, "transportation, transmission,
or distribution" does not include blending of petroleum or biodiesel fuel as defined
in section 239.77.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for sales and purchases made after
December 31, 2013.
new text end

Sec. 28.

Minnesota Statutes 2012, section 297A.68, subdivision 5, is amended to read:

Subd. 5.

Capital equipment.

(a) Capital equipment is exempt. deleted text begin The tax must be
imposed and collected as if the rate under section 297A.62, subdivision 1, applied, and
then refunded in the manner provided in section 297A.75.
deleted text end

"Capital equipment" means machinery and equipment purchased or leased, and used
in this state by the purchaser or lessee primarily for manufacturing, fabricating, mining,
or refining tangible personal property to be sold ultimately at retail if the machinery and
equipment are essential to the integrated production process of manufacturing, fabricating,
mining, or refining. Capital equipment also includes machinery and equipment
used primarily to electronically transmit results retrieved by a customer of an online
computerized data retrieval system.

(b) Capital equipment includes, but is not limited to:

(1) machinery and equipment used to operate, control, or regulate the production
equipment;

(2) machinery and equipment used for research and development, design, quality
control, and testing activities;

(3) environmental control devices that are used to maintain conditions such as
temperature, humidity, light, or air pressure when those conditions are essential to and are
part of the production process;

(4) materials and supplies used to construct and install machinery or equipment;

(5) repair and replacement parts, including accessories, whether purchased as spare
parts, repair parts, or as upgrades or modifications to machinery or equipment;

(6) materials used for foundations that support machinery or equipment;

(7) materials used to construct and install special purpose buildings used in the
production process;

(8) ready-mixed concrete equipment in which the ready-mixed concrete is mixed
as part of the delivery process regardless if mounted on a chassis, repair parts for
ready-mixed concrete trucks, and leases of ready-mixed concrete trucks; and

(9) machinery or equipment used for research, development, design, or production
of computer software.

(c) Capital equipment does not include the following:

(1) motor vehicles taxed under chapter 297B;

(2) machinery or equipment used to receive or store raw materials;

(3) building materials, except for materials included in paragraph (b), clauses (6)
and (7);

(4) machinery or equipment used for nonproduction purposes, including, but not
limited to, the following: plant security, fire prevention, first aid, and hospital stations;
support operations or administration; pollution control; and plant cleaning, disposal of
scrap and waste, plant communications, space heating, cooling, lighting, or safety;

(5) farm machinery and aquaculture production equipment as defined by section
297A.61, subdivisions 12 and 13;

(6) machinery or equipment purchased and installed by a contractor as part of an
improvement to real property;

(7) machinery and equipment used by restaurants in the furnishing, preparing, or
serving of prepared foods as defined in section 297A.61, subdivision 31;

(8) machinery and equipment used to furnish the services listed in section 297A.61,
subdivision 3, paragraph (g), clause (6), items (i) to (vi) and (viii);

(9) machinery or equipment used in the transportation, transmission, or distribution
of petroleum, liquefied gas, natural gas, water, or steam, in, by, or through pipes, lines,
tanks, mains, or other means of transporting those products. This clause does not apply to
machinery or equipment used to blend petroleum or biodiesel fuel as defined in section
239.77; or

(10) any other item that is not essential to the integrated process of manufacturing,
fabricating, mining, or refining.

(d) For purposes of this subdivision:

(1) "Equipment" means independent devices or tools separate from machinery but
essential to an integrated production process, including computers and computer software,
used in operating, controlling, or regulating machinery and equipment; and any subunit or
assembly comprising a component of any machinery or accessory or attachment parts of
machinery, such as tools, dies, jigs, patterns, and molds.

(2) "Fabricating" means to make, build, create, produce, or assemble components or
property to work in a new or different manner.

(3) "Integrated production process" means a process or series of operations through
which tangible personal property is manufactured, fabricated, mined, or refined. For
purposes of this clause, (i) manufacturing begins with the removal of raw materials
from inventory and ends when the last process prior to loading for shipment has been
completed; (ii) fabricating begins with the removal from storage or inventory of the
property to be assembled, processed, altered, or modified and ends with the creation
or production of the new or changed product; (iii) mining begins with the removal of
overburden from the site of the ores, minerals, stone, peat deposit, or surface materials and
ends when the last process before stockpiling is completed; and (iv) refining begins with
the removal from inventory or storage of a natural resource and ends with the conversion
of the item to its completed form.

(4) "Machinery" means mechanical, electronic, or electrical devices, including
computers and computer software, that are purchased or constructed to be used for the
activities set forth in paragraph (a), beginning with the removal of raw materials from
inventory through completion of the product, including packaging of the product.

(5) "Machinery and equipment used for pollution control" means machinery and
equipment used solely to eliminate, prevent, or reduce pollution resulting from an activity
described in paragraph (a).

(6) "Manufacturing" means an operation or series of operations where raw materials
are changed in form, composition, or condition by machinery and equipment and which
results in the production of a new article of tangible personal property. For purposes of
this subdivision, "manufacturing" includes the generation of electricity or steam to be
sold at retail.

(7) "Mining" means the extraction of minerals, ores, stone, or peat.

(8) "Online data retrieval system" means a system whose cumulation of information
is equally available and accessible to all its customers.

(9) "Primarily" means machinery and equipment used 50 percent or more of the time
in an activity described in paragraph (a).

(10) "Refining" means the process of converting a natural resource to an intermediate
or finished product, including the treatment of water to be sold at retail.

(11) This subdivision does not apply to telecommunications equipment as
provided in subdivision 35, and does not apply to wire, cable, fiber, poles, or conduit
for telecommunications services.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for sales and purchases made after
June 30, 2015.
new text end

Sec. 29.

Minnesota Statutes 2012, section 297A.70, subdivision 5, is amended to read:

Subd. 5.

Veterans groups.

Sales to an organization of military service veterans or
an auxiliary unit of an organization of military service veterans are exempt if:

(1) the organization or auxiliary unit is organized within the state of Minnesota
and is exempt from federal taxation under section 501(c), clause (19), of the Internal
Revenue Code; and

(2) the tangible personal property deleted text begin is deleted text end new text begin or services are new text end for charitable, civic, educational,
or nonprofit uses and not for social, recreational, pleasure, or profit uses.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for sales and purchases made after
December 31, 2013.
new text end

Sec. 30.

Minnesota Statutes 2012, section 297A.70, subdivision 13, is amended to read:

Subd. 13.

Fund-raising sales by or for nonprofit groups.

(a) The following
sales by the specified organizations for fund-raising purposes are exempt, subject to the
limitations listed in paragraph (b):

(1) all sales made by a nonprofit organization that exists solely for the purpose of
providing educational or social activities for young people primarily age 18 and under;

(2) all sales made by an organization that is a senior citizen group or association of
groups if (i) in general it limits membership to persons age 55 or older; (ii) it is organized
and operated exclusively for pleasure, recreation, and other nonprofit purposes; and (iii)
no part of its net earnings inures to the benefit of any private shareholders;

(3) the sale or use of tickets or admissions to a golf tournament held in Minnesota if
the beneficiary of the tournament's net proceeds qualifies as a tax-exempt organization
under section 501(c)(3) of the Internal Revenue Code; and

(4) sales of candy sold for fund-raising purposes by a nonprofit organization that
provides educational and social activities primarily for young people age 18 and under.

(b) The exemptions listed in paragraph (a) are limited in the following manner:

(1) the exemption under paragraph (a), clauses (1) and (2), applies only if the gross
annual receipts of the organization from fund-raising do not exceed $10,000; and

(2) the exemption under paragraph (a), clause (1), does not apply if the sales are
derived from admission charges or from activities for which the money must be deposited
with the school district treasurer under section 123B.49, subdivision 2, or be recorded in
the same manner as other revenues or expenditures of the school district under section
123B.49, subdivision 4.

(c) Sales of tangible personal property new text begin and services new text end are exempt if the entire proceeds,
less the necessary expenses for obtaining the property new text begin or services new text end , will be contributed to
a registered combined charitable organization described in section 43A.50, to be used
exclusively for charitable, religious, or educational purposes, and the registered combined
charitable organization has given its written permission for the sale. Sales that occur over
a period of more than 24 days per year are not exempt under this paragraph.

(d) For purposes of this subdivision, a club, association, or other organization of
elementary or secondary school students organized for the purpose of carrying on sports,
educational, or other extracurricular activities is a separate organization from the school
district or school for purposes of applying the $10,000 limit.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for sales and purchases made after
December 31, 2013.
new text end

Sec. 31.

Minnesota Statutes 2012, section 297A.70, subdivision 14, is amended to read:

Subd. 14.

Fund-raising events sponsored by nonprofit groups.

(a) Sales of
tangible personal property new text begin or services new text end at, and admission charges for fund-raising events
sponsored by, a nonprofit organization are exempt if:

(1) all gross receipts are recorded as such, in accordance with generally accepted
accounting practices, on the books of the nonprofit organization; and

(2) the entire proceeds, less the necessary expenses for the event, will be used solely
and exclusively for charitable, religious, or educational purposes. Exempt sales include
the sale of prepared food, candy, and soft drinks at the fund-raising event.

(b) This exemption is limited in the following manner:

(1) it does not apply to admission charges for events involving bingo or other
gambling activities or to charges for use of amusement devices involving bingo or other
gambling activities;

(2) all gross receipts are taxable if the profits are not used solely and exclusively for
charitable, religious, or educational purposes;

(3) it does not apply unless the organization keeps a separate accounting record,
including receipts and disbursements from each fund-raising event that documents all
deductions from gross receipts with receipts and other records;

(4) it does not apply to any sale made by or in the name of a nonprofit corporation as
the active or passive agent of a person that is not a nonprofit corporation;

(5) all gross receipts are taxable if fund-raising events exceed 24 days per year;

(6) it does not apply to fund-raising events conducted on premises leased for more
than five days but less than 30 days; and

(7) it does not apply if the risk of the event is not borne by the nonprofit organization
and the benefit to the nonprofit organization is less than the total amount of the state and
local tax revenues forgone by this exemption.

(c) For purposes of this subdivision, a "nonprofit organization" means any unit of
government, corporation, society, association, foundation, or institution organized and
operated for charitable, religious, educational, civic, fraternal, and senior citizens' or
veterans' purposes, no part of the net earnings of which inures to the benefit of a private
individual.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for sales and purchases made after
December 31, 2013.
new text end

Sec. 32.

new text begin [297A.715] SERVICE EXEMPTIONS.
new text end

new text begin Subdivision 1. new text end

new text begin Scope. new text end

new text begin To the extent provided in this section, the gross receipts from
sales of and use of services listed in this section are specifically exempted from the taxes
imposed by this chapter.
new text end

new text begin Subd. 2. new text end

new text begin Agriculture and forestry support. new text end

new text begin Agriculture and forestry support
services are exempt. Agriculture and forestry support services include services such
as aerial dusting or spraying; soil preparation activity or crop production services such
as plowing, fertilizing, seed bed preparation, planting, cultivating, and crop protection
services; mechanical harvesting, picking, and combining of crops, threshing, and related
activities; postharvest activities, such as crop cleaning, sun-drying, shelling, fumigating,
curing, sorting, grading, packing, and cooling; breeding services for livestock and
working animals; dairy herd improvement activities; livestock spraying; sheep dipping
and shearing; branding; hoof trimming; and support activities related to timber production
and forest protection, such as estimating timber, forest firefighting, and forest pest control.
new text end

new text begin Subd. 3. new text end

new text begin Bank services provided to a person other than a natural person. new text end

new text begin Bank
services when provided to a person other than a natural person are exempt. Bank services
include services such as automated teller machine services; monthly maintenance; safe
deposit box rental; issuing credit cards, money orders, travelers' checks, and certified
checks; cashing checks, transmitting or transferring money, including wire-transfers,
accepting deposits, and clearinghouse and reserve services; lending and brokerage;
investments; extending credit or arranging loans; sales financing; handling stop payment
orders, overdrafts, and returned deposits; providing statements of account; and accepting
payment by a particular method.
new text end

new text begin Subd. 4. new text end

new text begin Brokerage and investment counseling provided to a person other
than a natural person. new text end

new text begin Brokerage and investment counseling services when provided to
a person other than a natural person are exempt. Brokerage and investment counseling
services include services such as underwriting securities issues; making markets for
securities and commodities; acting as agents or brokers between buyers and sellers of
securities and commodities, providing securities and commodity exchange services; and
other services, such as managing portfolios of assets; providing investment advice; trust,
fiduciary, and custody services; and facilitating the buying and selling of stocks, stock
options, bonds, or commodity contracts.
new text end

new text begin Subd. 5. new text end

new text begin Cemetery grounds maintenance. new text end

new text begin Cemetery grounds maintenance
services are exempt. In addition to the exemption for lawn care and related services used
in the maintenance of cemetery grounds provided by section 297A.67, subdivision 25,
charges for cemetery grounds maintenance services include charges for services such as
opening and closing graves; constructing and installing concrete forms at grave sites;
placing memorials; maintaining the irrigation system; and maintaining equipment and
tools necessary for cemetery maintenance. For purposes of this exemption, "cemetery"
means a cemetery for human burial.
new text end

new text begin Subd. 6. new text end

new text begin Construction labor; real property. new text end

new text begin Labor services for construction or
improvement of real property are exempt. Labor services for construction or improvement
of real property include construction work on buildings and engineering projects such as
highways, bridges, and utility systems; services by building equipment contractors, such
as plumbing and heating; and services by specialty trade contractors needed to complete
the basic structure of buildings, such as masons, glazers, roofers, foundation cement
pourers, electricians, and plumbers, whether new work, additions, alterations, or repairs.
These labor services also include demolition of buildings and structures; preparation of
sites, such as under a "land clearing contract" for removal of trees, bushes, and shrubs,
including the removal of roots and stumps, to develop a site, as described in section
297A.68, subdivision 40; land subdivision; and services performed under a construction
contract for the installation of shrubbery, plants, sod, trees, bushes, and similar items.
new text end

new text begin Subd. 7. new text end

new text begin Education services. new text end

new text begin Education services provided by establishments such as
schools, colleges, universities, and training centers, that are primarily engaged in furnishing
academic courses and associated course work, including vocational and technical training,
and that provide instruction and training in a wide variety of subjects, are exempt.
new text end

new text begin Subd. 8. new text end

new text begin Funeral and cremation services. new text end

new text begin Funeral and cremation services
for humans are exempt. Charges for funeral and cremation services include charges
for services such as preparing the dead for burial, interment, or cremation services;
conducting funerals; providing facilities for wakes, visitation, and memorial services;
cremation; arranging transportation for the dead; and basic services provided by funeral
director and staff.
new text end

new text begin Subd. 9. new text end

new text begin Health care and medical services. new text end

new text begin Health care and medical services
for humans, provided by a health care facility or health care professional, are exempt.
Health care and medical services include services such as the following: services provided
by medical and diagnostic laboratories; the transportation of patients; medical rescue
services; services provided to hospital inpatients, including food services; outpatient
services; physical therapy; psychiatric and mental health services; psychological services;
vocational services provided to a patient; social work services provided to a patient; and
services such as collecting, storing, and distributing blood and blood products.
new text end

new text begin Subd. 10. new text end

new text begin Installation services. new text end

new text begin Installation services are exempt except when the
installation is part of the sales price of a taxable good under section 297A.61, subdivision
7, or when the installation is a sale and a purchase under section 297A.61, subdivision 3,
paragraph (j).
new text end

new text begin Subd. 11. new text end

new text begin Insurance company commissions for policy sales. new text end

new text begin Insurance company
commissions paid to an insurance agent for the service of selling an insurance policy
are exempt.
new text end

new text begin Subd. 12. new text end

new text begin Mining support. new text end

new text begin Mining support services are exempt. Mining support
services are those services which are required for the mining and quarrying of minerals,
and for the extraction of oil and gas. Mining support services include services such
as drilling; taking core samples and making geological observations at prospective
sites; excavating slush pits and cellars; sinking shafts; removing overburden; tunneling;
blasting; boring and testing; draining and pumping an excavation site; and such oil and
gas operations as spudding in; well surveying; running, cutting, and pulling casings,
tubes, and rods; cementing and shooting wells; perforating well casings; acidizing and
chemically treating wells; and cleaning out, bailing, and swabbing wells.
new text end

new text begin Subd. 13. new text end

new text begin Public services. new text end

new text begin Services that are provided by government for a fee
are exempt. Services that are provided by government for a fee include such services
as issuing, renewing, and reinstating licenses and permits; inspection and certification
of property, goods, and services, operations, and standards; and various other services
provided by local, regional, state, and federal government agencies or officials; except
services which are specifically enumerated in this chapter as being taxable services, even
though provided by a government.
new text end

new text begin Subd. 14. new text end

new text begin Public transit service; student transportation. new text end

new text begin (a) Public transit
services are exempt. Public transit services include use of bus, light rail, and other transit
systems provided using regular routes and schedules; and include "special transportation
services" by specially equipped vehicles, as defined in section 174.29.
new text end

new text begin (b) Providing students with transportation services by school bus to and from school,
college, university, and private career school is exempt; and transporting students under
the Head Start Act, as defined in section 169.448, subdivision 3, is exempt. For purposes
of this subdivision, a "school" is as defined in section 120A.22, subdivision 4; and "private
career school" means a school licensed under section 141.25.
new text end

new text begin Subd. 15. new text end

new text begin Real estate services. new text end

new text begin Real estate services provided by a licensed real
estate broker, a licensed real estate salesperson, a licensed real estate closing agent, or a
closing agent, as defined in chapter 82, are exempt; and real estate services provided by a
licensed real estate appraiser, as defined in chapter 82B, are exempt.
new text end

new text begin Subd. 16. new text end

new text begin Social assistance services. new text end

new text begin (a) Social assistance services, such as
the services provided by day care; nursing homes; residential care facilities for people
with intellectual and developmental disabilities, mental illness, or substance abuse
problems; adoption agencies; and foster care, are exempt. Social assistance services
include services such as life skills training; crisis intervention services; drug prevention
services; emergency and relief services; rehabilitation counseling services; group and
family support services; and assistance in daily living provided to ill, disabled, or infirm
persons, such as grooming, dressing, transfer assistance, light housekeeping, preparing
meals, performing errands, and providing companionship.
new text end

new text begin (b) If a service is available to the general public, the fact that the service is provided
to someone who is also receiving social assistance services does not mean that the service
is a social assistance service.
new text end

new text begin Subd. 17. new text end

new text begin Storage of farm products and storage of refrigerated food. new text end

new text begin Storage of
farm products and storage of refrigerated food, including grain elevator storage services,
are exempt.
new text end

new text begin Subd. 18. new text end

new text begin Veterinary services provided to a person other than a natural person.
new text end

new text begin Services of practicing veterinary medicine, as that term is used in chapter 156, and provided
to persons other than natural persons, are exempt. This includes veterinary services for
animals kept for economic reasons, including livestock, laboratory animals, working
animals, animals to be sold at retail in the normal course of business, and sport animals.
new text end

new text begin Subd. 19. new text end

new text begin Waste management services. new text end

new text begin Waste management services, meaning the
collection, transportation, processing, treatment, and disposal of solid and hazardous
waste, are exempt. Waste management services include the hauling of waste materials;
operating materials recovery facilities; providing remediation services, meaning the
cleanup of contaminated buildings, mine sites, soil, or ground water; and providing septic
pumping and sewer cleaning.
new text end

new text begin Subd. 20. new text end

new text begin Miscellaneous services. new text end

new text begin The following services are exempt:
new text end

new text begin (1) coin-operated laundry facilities operated by a customer;
new text end

new text begin (2) residential parking and parking at a meter;
new text end

new text begin (3) security services performed within the jurisdiction served by off-duty licensed
peace officers as defined in section 626.84, subdivision 1;
new text end

new text begin (4) services provided by a nonprofit organization for monitoring and electronic
surveillance of persons placed on in-home detention pursuant to court order or under the
direction of the Minnesota Department of Corrections;
new text end

new text begin (5) horse boarding services; and
new text end

new text begin (6) related-party services as follows:
new text end

new text begin (i) services performed by an employee for an employer;
new text end

new text begin (ii) services performed by a partnership or association for another partnership or
association if one of the entities owns or controls more than 80 percent of the voting power
of the equity interest in the other entity; and
new text end

new text begin (iii) services performed between members of an affiliated group of corporations. For
purposes of this item, "affiliated group of corporations" means those entities that would be
classified as members of an affiliated group as defined under United States Code, title 26,
section 1504, disregarding the exclusions in section 1504(b).
new text end

new text begin Subd. 21. new text end

new text begin Definition; natural person. new text end

new text begin "Natural person," as used in this section,
means a living human being.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for sales and purchases made after
December 31, 2013.
new text end

Sec. 33.

Minnesota Statutes 2012, section 297A.75, subdivision 1, is amended to read:

Subdivision 1.

Tax collected.

The tax on the gross receipts from the sale of the
following exempt items must be imposed and collected as if the sale were taxable and the
rate under section 297A.62, subdivision 1, applied. The exempt items include:

deleted text begin (1) capital equipment exempt under section 297A.68, subdivision 5;
deleted text end

deleted text begin (2) deleted text end new text begin (1) new text end building materials for an agricultural processing facility exempt under section
297A.71, subdivision 13;

deleted text begin (3) deleted text end new text begin (2) new text end building materials for mineral production facilities exempt under section
297A.71, subdivision 14;

deleted text begin (4) deleted text end new text begin (3) new text end building materials for correctional facilities under section 297A.71,
subdivision 3;

deleted text begin (5) deleted text end new text begin (4) new text end building materials used in a residence for disabled veterans exempt under
section 297A.71, subdivision 11;

deleted text begin (6) deleted text end new text begin (5) new text end elevators and building materials exempt under section 297A.71, subdivision
12;

deleted text begin (7) deleted text end new text begin (6) new text end building materials for the Long Lake Conservation Center exempt under
section 297A.71, subdivision 17;

deleted text begin (8) deleted text end new text begin (7) new text end materials and supplies for qualified low-income housing under section
297A.71, subdivision 23;

deleted text begin (9) deleted text end new text begin (8) new text end materials, supplies, and equipment for municipal electric utility facilities
under section 297A.71, subdivision 35;

deleted text begin (10) deleted text end new text begin (9) new text end equipment and materials used for the generation, transmission, and
distribution of electrical energy and an aerial camera package exempt under section
297A.68, subdivision 37;

deleted text begin (11) deleted text end new text begin (10) new text end commuter rail vehicle and repair parts under section 297A.70, subdivision
3, paragraph (a), clause (10);

deleted text begin (12) deleted text end new text begin (11) new text end materials, supplies, and equipment for construction or improvement of
projects and facilities under section 297A.71, subdivision 40;

deleted text begin (13) deleted text end new text begin (12) new text end materials, supplies, and equipment for construction or improvement of a
meat processing facility exempt under section 297A.71, subdivision 41;

deleted text begin (14) deleted text end new text begin (13) new text end materials, supplies, and equipment for construction, improvement, or
expansion of an aerospace defense manufacturing facility exempt under section 297A.71,
subdivision 42;

deleted text begin (15) deleted text end new text begin (14) new text end enterprise information technology equipment and computer software for
use in a qualified data center exempt under section 297A.68, subdivision 42; and

deleted text begin (16) deleted text end new text begin (15) new text end materials, supplies, and equipment for qualifying capital projects under
section 297A.71, subdivision 44.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for sales and purchases made after
June 30, 2015.
new text end

Sec. 34.

Minnesota Statutes 2012, section 297A.75, subdivision 2, is amended to read:

Subd. 2.

Refund; eligible persons.

Upon application on forms prescribed by the
commissioner, a refund equal to the tax paid on the gross receipts of the exempt items
must be paid to the applicant. Only the following persons may apply for the refund:

(1) for subdivision 1, clauses (1) deleted text begin to (3) deleted text end new text begin and (2) new text end , the applicant must be the purchaser;

(2) for subdivision 1, clauses deleted text begin (4) deleted text end new text begin (3) new text end and deleted text begin (7) deleted text end new text begin (6) new text end , the applicant must be the
governmental subdivision;

(3) for subdivision 1, clause deleted text begin (5) deleted text end new text begin (4) new text end , the applicant must be the recipient of the
benefits provided in United States Code, title 38, chapter 21;

(4) for subdivision 1, clause deleted text begin (6) deleted text end new text begin (5) new text end , the applicant must be the owner of the
homestead property;

(5) for subdivision 1, clause deleted text begin (8) deleted text end new text begin (7) new text end , the owner of the qualified low-income housing
project;

(6) for subdivision 1, clause deleted text begin (9) deleted text end new text begin (8) new text end , the applicant must be a municipal electric utility
or a joint venture of municipal electric utilities;

(7) for subdivision 1, clauses deleted text begin (10) deleted text end new text begin (9), (12) new text end , (13), new text begin and new text end (14), deleted text begin and (15), deleted text end the owner
of the qualifying business; and

(8) for subdivision 1, clauses new text begin (10), new text end (11), deleted text begin (12), deleted text end and deleted text begin (16) deleted text end new text begin (15) new text end , the applicant must be
the governmental entity that owns or contracts for the project or facility.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for sales and purchases made after
June 30, 2015.
new text end

Sec. 35.

Minnesota Statutes 2012, section 297A.75, subdivision 3, is amended to read:

Subd. 3.

Application.

(a) The application must include sufficient information
to permit the commissioner to verify the tax paid. If the tax was paid by a contractor,
subcontractor, or builder, under subdivision 1, clause new text begin (3), new text end (4), (5), (6), (7), (8), (9), (10),
(11), (12), (13), (14), new text begin or new text end (15), deleted text begin or (16), deleted text end the contractor, subcontractor, or builder must
furnish to the refund applicant a statement including the cost of the exempt items and the
taxes paid on the items unless otherwise specifically provided by this subdivision. The
provisions of sections 289A.40 and 289A.50 apply to refunds under this section.

deleted text begin (b) An applicant may not file more than two applications per calendar year for
refunds for taxes paid on capital equipment exempt under section 297A.68, subdivision 5.
deleted text end

deleted text begin (c) deleted text end new text begin (b) new text end Total refunds for purchases of items in section 297A.71, subdivision 40,
must not exceed $5,000,000 in fiscal years 2010 and 2011. Applications for refunds for
purchases of items in sections 297A.70, subdivision 3, paragraph (a), clause (11), and
297A.71, subdivision 40, must not be filed until after June 30, 2009.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for sales and purchases after June
30, 2015.
new text end

Sec. 36.

Minnesota Statutes 2012, section 297A.815, subdivision 3, is amended to read:

Subd. 3.

Motor vehicle lease sales tax revenue.

(a) For purposes of this
subdivision, "net revenue" means an amount equal to:

(1) the revenues, including interest and penalties deleted text begin , deleted text end new text begin that would have been new text end collected
under this section deleted text begin , deleted text end during the fiscal year new text begin if the rate had been 6.875 percent new text end ; less

(2) in fiscal year 2011, $30,100,000; in fiscal year 2012, $31,100,000; and in fiscal
year 2013 and following fiscal years, $32,000,000.

(b) On or before June 30 of each fiscal year, the commissioner of revenue shall
estimate the amount of the revenues and subtraction under paragraph (a) for the current
fiscal year.

(c) On or after July 1 of the subsequent fiscal year, the commissioner of management
and budget shall transfer the net revenue as estimated in paragraph (b) from the general
fund, as follows:

(1) 50 percent to the greater Minnesota transit account; and

(2) 50 percent to the county state-aid highway fund. Notwithstanding any other law
to the contrary, the commissioner of transportation shall allocate the funds transferred
under this clause to the counties in the metropolitan area, as defined in section 473.121,
subdivision 4, excluding the counties of Hennepin and Ramsey, so that each county shall
receive of such amount the percentage that its population, as defined in section 477A.011,
subdivision 3, estimated or established by July 15 of the year prior to the current calendar
year, bears to the total population of the counties receiving funds under this clause.

(d) For fiscal years 2010 and 2011, the amount under paragraph (a), clause (1), must
be calculated using the following percentages of the total revenues:

(1) for fiscal year 2010, 83.75 percent; and

(2) for fiscal year 2011, 93.75 percent.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for sales and purchases made after
December 31, 2013.
new text end

Sec. 37. new text begin REVISOR'S INSTRUCTION.
new text end

new text begin In Minnesota Rules, part 8130.9700, the revisor of statutes shall remove the last
sentence in subpart 3, item B, that reads "Use of equipment on a time-sharing basis,
where access to the equipment is only by means of remote access facilities, is not taxable
leasing of such equipment."
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for sales and purchases made after
December 31, 2013.
new text end

Sec. 38. new text begin REPEALER.
new text end

new text begin (a) new text end new text begin Minnesota Statutes 2012, sections 289A.40, subdivision 6; 297A.68, subdivisions
9, 10, 11, 22, and 35; 297A.70, subdivisions 10, 11, and 12; and 297A.96, new text end new text begin are repealed.
new text end

new text begin (b) new text end new text begin Minnesota Rules, part 8130.0500, subpart 2, new text end new text begin is repealed.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for sales and purchases made after
December 31, 2013.
new text end

ARTICLE 4

MISCELLANEOUS

Section 1.

Minnesota Statutes 2012, section 256.9658, subdivision 3, is amended to read:

Subd. 3.

Fee imposed.

(a) A fee is imposed upon the sale of cigarettes in this
state, upon having cigarettes in possession in this state with intent to sell, upon any
person engaged in business as a distributor, and upon the use or storage by consumers
of cigarettes. The fee is imposed at the following rates:

(1) on cigarettes weighing not more than three pounds per thousand, 37.5 mills on
each cigarette; and

(2) on cigarettes weighing more than three pounds per thousand, 75 mills on each
cigarette.

(b) A fee is imposed upon all tobacco products in this state and upon any person
engaged in business as a distributor deleted text begin in an amount equal to the liability for tax under section
297F.05, subdivision 3 deleted text end new text begin at the rate of 35 percent of the wholesale sales price of the tobacco
products new text end , or on a consumer of tobacco products deleted text begin equal to the tax under section 297F.05,
subdivision 4 deleted text end new text begin at the rate of 35 percent of the cost to the consumer of the tobacco products new text end .
Liability for the fee is in addition to the tax under section 297F.05, subdivision 3 or 4.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective July 1, 2013.
new text end

Sec. 2.

Minnesota Statutes 2012, section 270C.03, subdivision 1, is amended to read:

Subdivision 1.

Powers and duties.

The commissioner shall have and exercise
the following powers and duties:

(1) administer and enforce the assessment and collection of taxes;

(2) make determinations, corrections, and assessments with respect to taxes,
including interest, additions to taxes, and assessable penalties;

(3) new text begin disallow the tax effects of a transaction that does not have economic substance;
new text end

new text begin (4) new text end use statistical or other sampling techniques consistent with generally accepted
auditing standards in examining returns or records and making assessments;

deleted text begin (4) deleted text end new text begin (5) new text end investigate the tax laws of other states and countries, and formulate and
submit to the legislature such legislation as the commissioner may deem expedient
to prevent evasions of state revenue laws and to secure just and equal taxation and
improvement in the system of state revenue laws;

deleted text begin (5) deleted text end new text begin (6) new text end consult and confer with the governor upon the subject of taxation, the
administration of the laws in regard thereto, and the progress of the work of the
department, and furnish the governor, from time to time, such assistance and information
as the governor may require relating to tax matters;

deleted text begin (6) deleted text end new text begin (7) new text end execute and administer any agreement with the secretary of the treasury or the
Bureau of Alcohol, Tobacco, Firearms and Explosives in the Department of Justice of the
United States or a representative of another state regarding the exchange of information
and administration of the state revenue laws;

deleted text begin (7) deleted text end new text begin (8) new text end require town, city, county, and other public officers to report information
as to the collection of taxes received from licenses and other sources, and such other
information as may be needful in the work of the commissioner, in such form as the
commissioner may prescribe;

deleted text begin (8) deleted text end new text begin (9) new text end authorize the use of unmarked motor vehicles to conduct seizures or criminal
investigations pursuant to the commissioner's authority;

deleted text begin (9) deleted text end new text begin (10) new text end maintain toll-free telephone access for taxpayer assistance for calls from
locations within the state; and

deleted text begin (10) deleted text end new text begin (11) new text end exercise other powers and authority and perform other duties required of or
imposed upon the commissioner by law.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxable years beginning after
December 31, 2012.
new text end

Sec. 3.

Minnesota Statutes 2012, section 270C.33, subdivision 6, is amended to read:

Subd. 6.

Assessment presumed valid.

new text begin (a) new text end A return or assessment of tax made
by the commissioner is prima facie correct and valid. The taxpayer has the burden of
establishing its incorrectness or invalidity in any related action or proceeding.

new text begin (b) To overcome the presumption that an order of the commissioner that disallows
the tax effects of a transaction because the commissioner determined the transaction does
not have economic substance pursuant to section 270C.03, subdivision 1, clause (3),
is prima facie correct and valid, the taxpayer must prove the transaction has economic
substance with clear and convincing evidence.
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, 2012.
new text end

Sec. 4.

new text begin [270C.331] ECONOMIC SUBSTANCE.
new text end

new text begin Subdivision 1. new text end

new text begin Economic substance. new text end

new text begin (a) For purposes of disallowing the tax effects
of a transaction that does not have economic substance pursuant to section 270C.03,
subdivision 1, clause (3), a transaction shall be treated as having economic substance
only if:
new text end

new text begin (1) the transaction changes in a meaningful way, apart from tax effects, the taxpayer's
economic position; and
new text end

new text begin (2) the taxpayer has a substantial purpose, apart from tax effects, for entering into
the transaction.
new text end

new text begin (b) In determining whether the requirements of paragraph (a), clauses (1) and (2)
are met, the potential for profit of a transaction shall be taken into account only if the
present value of the reasonable expected pretax profit from the transaction is substantial in
relation to the present value of the expected net tax benefits that would be allowed if the
transaction was respected. Fees and other transaction expenses shall be taken into account
as expenses in determining pretax profit.
new text end

new text begin (c) For purposes of paragraph (a), clause (2), achieving a financial accounting benefit
shall not be taken into account as a purpose for entering into a transaction if the origin of
such financial accounting benefit is a reduction of federal, state, or local tax.
new text end

new text begin Subd. 2. new text end

new text begin Apart from tax effects. new text end

new text begin For purposes of this section, "apart from tax
effects" means apart from the state and local tax effects arising from the application of the
laws of any state or local unit of government to the form of the transaction, the federal tax
effects resulting from the transaction, or both.
new text end

new text begin Subd. 3. new text end

new text begin Transaction. new text end

new text begin For purposes of this section and section 270C.03, subdivision
1, clause (3), "transaction" includes a series of transactions.
new text end

new text begin Subd. 4. new text end

new text begin Personal transactions of individuals. new text end

new text begin In the case of an individual,
subdivision 1 shall only apply to transactions entered into in connection with a trade or
business or an activity engaged in for the production of income.
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, 2012.
new text end

Sec. 5.

Minnesota Statutes 2012, section 289A.60, is amended by adding a subdivision
to read:

new text begin Subd. 27a. new text end

new text begin Noneconomic substance transaction understatement penalty. new text end

new text begin (a) If a
transaction is disallowed pursuant to section 270C.03, subdivision 1, clause (3), a penalty
equal to 20 percent of the amount of the disclosed noneconomic substance transaction
understatement must be added to the tax. This subdivision applies to any income or item
that is attributable to any transaction disallowed pursuant to section 270C.03, subdivision
1, clause (3).
new text end

new text begin (b) If a transaction is disallowed pursuant to section 270C.03, subdivision 1, clause
(3), a penalty equal to 40 percent of the amount of the nondisclosed noneconomic
substance transaction understatement must be added to the tax. This subdivision applies to
any income or item that is attributable to any transaction disallowed pursuant to section
270C.03, subdivision 1, clause (3).
new text end

new text begin (c) For purposes of this subdivision, the term "disclosed noneconomic substance
transaction" means a transaction that fails to meet the criteria for having economic
substance as described in section 270C.03, subdivision 1, clause (3), with respect to which
the relevant facts affecting the tax treatment are adequately disclosed in the return or in a
statement attached to the return.
new text end

new text begin (d) For purposes of this subdivision, "nondisclosed noneconomic substance
transaction" means a transaction that fails to meet the criteria for having economic
substance as described in section 270C.03, subdivision 1, clause (3), with respect to which
the relevant facts affecting the tax treatment are not adequately disclosed in the return
nor in a statement attached to the return.
new text end

new text begin (e) In no event shall any amendment or supplement to a return of tax be taken into
account for purposes of this subdivision to reduce the noneconomic substance transaction
understatement if the amendment or supplement is filed after the date the taxpayer is first
contacted by the commissioner regarding examination of the return.
new text end

new text begin (f) For purposes of this subdivision, "understatement" means the product of:
new text end

new text begin (1) the amount of the increase, if any, in taxable income that results from a difference
between the proper tax treatment of an item to which section 270C.03, subdivision 1,
clause (3), applies and the taxpayer's treatment of that item as shown on the taxpayer's
tax return. For purposes of this clause, any reduction of the excess of deductions allowed
for the taxable year over gross income for that year, and any reduction in the amount of
capital losses which would, without regard to section 1211 of the Internal Revenue Code,
be allowed for that year, must be treated as an increase in taxable income; and
new text end

new text begin (2) the highest rate of tax imposable on the taxpayer under section 290.06 determined
without regard to the understatement.
new text end

new text begin (g) If the noneconomic substance transaction understatement penalty is imposed
under this subdivision, the noneconomic substance transaction understatement penalty
applies in lieu of the penalties imposed under subdivision 27.
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, 2012.
new text end

Sec. 6.

Minnesota Statutes 2012, section 297F.05, subdivision 1, is amended to read:

Subdivision 1.

Rates; cigarettes.

A tax is imposed upon the sale of cigarettes in
this state, upon having cigarettes in possession in this state with intent to sell, upon any
person engaged in business as a distributor, and upon the use or storage by consumers, at
the following rates:

(1) on cigarettes weighing not more than three pounds per thousand, deleted text begin 24 deleted text end new text begin 71 new text end mills on
each such cigarette; and

(2) on cigarettes weighing more than three pounds per thousand, deleted text begin 48 deleted text end new text begin 142 new text end mills on
each such cigarette.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective July 1, 2013.
new text end

Sec. 7.

Minnesota Statutes 2012, section 297F.05, subdivision 3, is amended to read:

Subd. 3.

Rates; tobacco products.

A tax is imposed upon all tobacco products in
this state and upon any person engaged in business as a distributor, at the rate of deleted text begin 35 deleted text end new text begin 55
new text end percent of the wholesale sales price of the tobacco products. The tax is imposed at the
time the distributor:

(1) brings, or causes to be brought, into this state from outside the state tobacco
products for sale;

(2) makes, manufactures, or fabricates tobacco products in this state for sale in
this state; or

(3) ships or transports tobacco products to retailers in this state, to be sold by those
retailers.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective July 1, 2013.
new text end

Sec. 8.

Minnesota Statutes 2012, section 297F.05, subdivision 4, is amended to read:

Subd. 4.

Use tax; tobacco products.

A tax is imposed upon the use or storage by
consumers of tobacco products in this state, and upon such consumers, at the rate of deleted text begin 35 deleted text end new text begin 55
new text end percent of the cost to the consumer of the tobacco products.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective July 1, 2013.
new text end

Sec. 9.

Minnesota Statutes 2012, section 297F.25, subdivision 1, is amended to read:

Subdivision 1.

Imposition.

(a) A tax is imposed on distributors on the sale of
cigarettes by a cigarette distributor to a retailer or cigarette subjobber for resale in this
state. The tax is equal to 6.5 percent of the weighted average retail price and must be
expressed in cents per pack rounded to the nearest one-tenth of a cent. The weighted
average retail price must be determined annually, with new rates published by November
1, and effective for sales on or after January 1 of the following year. The weighted average
retail price must be established by surveying cigarette retailers statewide in a manner
and time determined by the commissioner. The commissioner shall make an inflation
adjustment in accordance with the Consumer Price Index for all urban consumers inflation
indicator as published in the most recent state budget forecast. The commissioner shall use
the inflation factor for the calendar year in which the new tax rate takes effect. If the survey
indicates that the average retail price of cigarettes has not increased relative to the average
retail price in the previous year's survey, then the commissioner shall not make an inflation
adjustment. The determination of the commissioner pursuant to this subdivision is not a
"rule" and is not subject to the Administrative Procedure Act contained in chapter 14. For
packs of cigarettes with other than 20 cigarettes, the tax must be adjusted proportionally.

(b) Notwithstanding paragraph (a), deleted text begin and in lieu of a survey of cigarette retailers, the
tax calculation of the weighted average retail price for the sales of cigarettes from August
1, 2011, through December 31, 2011, shall be calculated by: (1) increasing the average
retail price per pack of 20 cigarettes from the most recent survey by the percentage change
in a weighted average of the presumed legal prices for cigarettes during the year after
completion of that survey, as reported and published by the Department of Commerce
under section 325D.371; (2) subtracting the sales tax included in the retail price; and (3)
adjusting for expected inflation. The rate must be published by May 1 and is effective for
sales after July 31. If the weighted average of the presumed legal prices indicates that
the average retail price of cigarettes has not increased relative to the average retail price
in the most recent survey, then no inflation adjustment must be made deleted text end new text begin for any period that
a rate change in section 297F.05, subdivision 1, or 256.9658, subdivision 3, paragraph
(a), is enacted after the current effective January 1 rate and prior to the following January
1, the commissioner of revenue shall make a proportionate adjustment to the sales tax
rate new text end . For packs of cigarettes with other than 20 cigarettes, the new text begin sales new text end tax must be adjusted
proportionally.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective July 1, 2013.
new text end

Sec. 10. new text begin FLOOR STOCKS TAX.
new text end

new text begin (a) A floor stocks cigarette tax is imposed on every person engaged in the business
in this state as a distributor, retailer, subjobber, vendor, manufacturer, or manufacturer's
representative of cigarettes, on the stamped cigarettes and unaffixed stamps in the person's
possession or under the person's control at 12:01 a.m. on July 1, 2013. The tax is imposed
at the following rates:
new text end

new text begin (1) on cigarettes weighing not more than three pounds per thousand, 47 mills on
each cigarette; and
new text end

new text begin (2) on cigarettes weighing more than three pounds per thousand, 94 mills on each
cigarette.
new text end

new text begin (b) Each distributor, on or before July 10, 2013, shall file a return with the
commissioner of revenue, in the form the commissioner prescribes, showing the stamped
cigarettes and unaffixed stamps on hand at 12:01 a.m. on July 1, 2013, and the amount of
tax due on the cigarettes and unaffixed stamps.
new text end

new text begin (c) Each retailer, subjobber, vendor, manufacturer, or manufacturer's representative,
on or before July 10, 2013, shall file a return with the commissioner of revenue, in the
form the commissioner prescribes, showing the cigarettes on hand at 12:01 a.m. on July 1,
2013, and the amount of tax due on the cigarettes.
new text end

new text begin (d) The tax imposed by this section is due and payable on or before August 7, 2013,
and after that date bears interest at the rate of one percent per month
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective July 1, 2013.
new text end