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SF 4078

as introduced - 91st Legislature (2019 - 2020) Posted on 03/06/2020 09:26am

KEY: stricken = removed, old language.
underscored = added, new language.

Current Version - as introduced

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A bill for an act
relating to taxation; modifying provisions related to state government; requiring
proposed tax expenditures to expire; establishing a legislative Tax Expenditure
Review Commission; providing appointments; requiring the governor's budget to
include performance data and recommendations on tax expenditures; modifying
the Department of Revenue tax expenditure report requirements; amending
Minnesota Statutes 2018, sections 3.192; 3.8853, subdivision 2; 16A.10, subdivision
1b; 16A.11, subdivision 3; 270C.11, subdivisions 2, 4, 6; 270C.13, subdivision 1;
proposing coding for new law in Minnesota Statutes, chapter 3.

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

Section 1.

Minnesota Statutes 2018, section 3.192, is amended to read:


3.192 REQUIREMENTS FOR NEW OR RENEWED TAX EXPENDITURES.

new text begin (a) new text endAny bill that creates, renews, or continues a tax expenditure must include a statement
of intent that clearly provides the purpose of the tax expenditure and a standard or goal
against which its effectiveness may be measured.

new text begin (b) new text endFor purposes of this section, "tax expenditure" has the meaning given in section
270C.11, subdivision 6.

new text begin (c) Any bill that creates, renews, or continues a tax expenditure must include an expiration
date for the tax expenditure that is no more than eight years from the day the provision takes
effect.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective beginning with the 2021 legislative
session.
new text end

Sec. 2.

Minnesota Statutes 2018, section 3.8853, subdivision 2, is amended to read:


Subd. 2.

Director; staff.

new text begin(a) new text endThe Legislative Budget Office Oversight Commission must
appoint a director and establish the director's duties. The director may hire staff necessary
to do the work of the office. The director serves in the unclassified service for a term of six
years and may not be removed during a term except for cause after a public hearing.

new text begin (b) The director and staff hired under this section must provide professional and technical
assistance to the Tax Expenditure Review Commission under section 3.8855.
new text end

Sec. 3.

new text begin [3.8855] TAX EXPENDITURE REVIEW COMMISSION.
new text end

new text begin Subdivision 1. new text end

new text begin Establishment. new text end

new text begin The Tax Expenditure Review Commission is created to
review Minnesota's tax expenditures and evaluate their effectiveness and fiscal impact.
new text end

new text begin Subd. 2. new text end

new text begin Definitions. new text end

new text begin For the purposes of this section, "significant tax expenditure,"
"tax," and "tax expenditure" have the meanings given in section 270C.11, subdivision 6.
new text end

new text begin Subd. 3. new text end

new text begin Membership. new text end

new text begin (a) The commission consists of:
new text end

new text begin (1) two senators appointed by the senate majority leader;
new text end

new text begin (2) two senators appointed by the senate minority leader;
new text end

new text begin (3) two representatives appointed by the speaker of the house; and
new text end

new text begin (4) two representatives appointed by the minority leader of the house of representatives.
new text end

new text begin (b) Each appointing authority must make appointments by January 31 of the regular
legislative session in the odd-numbered year.
new text end

new text begin (c) The commissioner of revenue or a designee is an ex officio, nonvoting member of
the commission. If the chair of the house or senate committee with primary jurisdiction over
taxes is not an appointed member, the chair is an ex officio, nonvoting member of the
commission.
new text end

new text begin Subd. 4. new text end

new text begin Duties. new text end

new text begin (a) The commission must review and evaluate Minnesota's tax
expenditures on a regular, rotating basis. The commission must establish a review schedule
that ensures each tax will be reviewed by the commission at least once every eight years.
The commission may review expenditures affecting similar constituencies or policy areas
in the same year, but the commission must review a subset of the tax expenditures within
each tax type each year. To the extent possible, the commission must review a similar
number of tax expenditures within each tax type each year. The commission may decide
not to review a tax expenditure that is adopted by reference to federal law.
new text end

new text begin (b) Before December 1 of the year a tax expenditure is included in a commission report,
the commission must hold a public hearing on the expenditure, including but not limited to
a presentation of the review components in subdivision 5.
new text end

new text begin Subd. 5. new text end

new text begin Components of review. new text end

new text begin When reviewing a tax expenditure, the commission
must at a minimum:
new text end

new text begin (1) provide an estimate of the annual revenue lost as a result of the expenditure;
new text end

new text begin (2) identify the purpose of the tax expenditure if none was identified in the enacting
legislation in accordance with section 3.192;
new text end

new text begin (3) estimate the measurable impacts and efficiency of the tax expenditure in
accomplishing the purpose of the expenditure;
new text end

new text begin (4) compare the effectiveness of the tax expenditure and a direct expenditure with the
same purpose;
new text end

new text begin (5) propose potential modifications to a tax expenditure to increase its efficiency or
effectiveness;
new text end

new text begin (6) estimate the amount by which the tax rate for the relevant tax could be reduced if
the revenue lost due to the tax expenditure were applied to a rate reduction;
new text end

new text begin (7) if the tax expenditure is a significant tax expenditure, estimate the incidence of the
tax expenditure and the effect of the expenditure on the incidence of the state's tax system;
and
new text end

new text begin (8) consider the cumulative fiscal impacts of other state and federal taxes providing
benefits to taxpayers for similar activities.
new text end

new text begin Subd. 6. new text end

new text begin Report to legislature. new text end

new text begin (a) By December 15 of each year, the commission must
submit a written report to the legislative committees with jurisdiction over tax policy. The
report must detail the results of the commission's review of tax expenditures in the previous
calendar year, including the review components detailed in subdivision 5.
new text end

new text begin (b) The report may include any additional information the commission deems relevant
to the review of an expenditure.
new text end

new text begin (c) The legislative committees with jurisdiction over tax policy must hold a public hearing
on the report during the regular legislative session in the year following the year in which
the report was submitted.
new text end

new text begin Subd. 7. new text end

new text begin Terms; vacancies. new text end

new text begin (a) Members of the commission serve a term beginning
upon appointment and ending at the beginning of the regular legislative session in the next
odd-numbered year. The appropriate appointing authority must fill a vacancy for a seat of
a current legislator for the remainder of the unexpired term. Members may be removed or
replaced at the pleasure of the appointing authority.
new text end

new text begin (b) If a commission member ceases to be a member of the legislative body from which
the member was appointed, the member vacates membership on the commission.
new text end

new text begin Subd. 8. new text end

new text begin Officers. new text end

new text begin The commission shall elect a chair and vice-chair as presiding officers.
The chair and vice-chair must alternate every two years between members of the house of
representatives and senate. The chair and vice-chair may not be from the same legislative
chamber.
new text end

new text begin Subd. 9. new text end

new text begin Staff. new text end

new text begin Legislative Budget Office staff hired under section 3.8853, subdivision
2, must provide professional and technical assistance to the commission as the commission
deems necessary, including assistance with the report under subdivision 6.
new text end

new text begin Subd. 10. new text end

new text begin Expenses. new text end

new text begin The members of the commission and its staff shall be reimbursed
for all expenses actually and necessarily incurred in the performance of their duties.
Reimbursement for expenses incurred shall be made in accordance with policies adopted
by the Legislative Coordinating Commission.
new text end

new text begin EFFECTIVE DATE; SPECIAL PROVISIONS. new text end

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

new text begin (b) Appointing authorities for the commission must make initial appointments by January
15, 2021. The speaker of the house must designate one member of the commission to convene
the first meeting of the commission by July 1, 2021. The first report of the commission
under Minnesota Statutes, section 3.8855, subdivision 6 is due on December 15, 2021.
new text end

Sec. 4.

Minnesota Statutes 2018, section 16A.10, subdivision 1b, is amended to read:


Subd. 1b.

Performance data format.

new text begin(a) new text endAgencies shall present performance data that
measures the performance of programs in meeting program goals and objectives. Measures
reported may include indicators of outputs, efficiency, outcomes, and other measures relevant
to understanding each program. Agencies shall present as much historical information as
needed to understand major trends and shall set targets for future performance issues where
feasible and appropriate. The information shall appropriately highlight agency performance
issues that would assist legislative review and decision making.

new text begin (b) The commissioner of revenue must present equivalent performance data on tax
expenditures as is required for programs in paragraph (a). For the purposes of this section,
"tax expenditure" has the meaning given in section 270C.11, subdivision 6, but is limited
to tax expenditures in effect in the current or immediately upcoming biennium.
new text end

Sec. 5.

Minnesota Statutes 2018, section 16A.11, subdivision 3, is amended to read:


Subd. 3.

Part two: detailed budget.

(a) Part two of the budget, the detailed budget
estimates both of expenditures and revenues, must contain any statements on the financial
plan which the governor believes desirable or which may be required by the legislature.
The detailed estimates shall include the governor's budget arranged in tabular form.

(b) Tables listing expenditures for the next biennium must show the appropriation base
for each year. The appropriation base is the amount appropriated for the second year of the
current biennium. The tables must separately show any adjustments to the base required by
current law or policies of the commissioner of management and budget. For forecasted
programs, the tables must also show the amount of the forecast adjustments, based on the
most recent forecast prepared by the commissioner of management and budget under section
16A.103. For all programs, the tables must show the amount of appropriation changes
recommended by the governor, after adjustments to the base and forecast adjustments, and
the total recommendation of the governor for that year.

(c) The detailed estimates must include a separate line listing the total cost of professional
and technical service contracts for the prior biennium and the projected costs of those
contracts for the current and upcoming biennium. They must also include a summary of the
personnel employed by the agency, reflected as full-time equivalent positions.

(d) The detailed estimates for internal service funds must include the number of full-time
equivalents by program; detail on any loans from the general fund, including dollar amounts
by program; proposed investments in technology or equipment of $100,000 or more; an
explanation of any operating losses or increases in retained earnings; and a history of the
rates that have been charged, with an explanation of any rate changes and the impact of the
rate changes on affected agencies.

new text begin (e) For each tax expenditure in effect in the current or immediately upcoming biennium,
the governor must recommend in part two of the budget whether the tax expenditure should
be continued or discontinued. The governor's recommendation must include a description
of the fiscal and policy effects of continuing or discontinuing the expenditure. For the
purposes of this paragraph, "significant tax expenditure" has the meaning given in section
270C.11, subdivision 6.
new text end

Sec. 6.

Minnesota Statutes 2018, section 270C.11, subdivision 2, is amended to read:


Subd. 2.

Preparation; submission.

The commissioner shall prepare a tax expenditure
budget for the state. The tax expenditure budget report shall be submitted to the legislature
by deleted text beginFebruarydeleted text endnew text begin Novembernew text end 1 of each even-numbered year.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for the tax expenditure budget due on
November 1, 2022, and thereafter.
new text end

Sec. 7.

Minnesota Statutes 2018, section 270C.11, subdivision 4, is amended to read:


Subd. 4.

Contents.

new text begin(a) new text endThe report shall detail for each tax expenditure itemnew text begin:
new text end

new text begin (1)new text end the amount of tax revenue forgonedeleted text begin,deleted text endnew text begin;
new text end

new text begin (2)new text end a citation of the statutory or other legal authority for the expendituredeleted text begin, anddeleted text endnew text begin;
new text end

new text begin (3)new text end the year in which it was enacted or the tax year in which it became effectivedeleted text begin.deleted text endnew text begin;
new text end

new text begin (4) the purpose of the expenditure, as identified in the enacting legislation in accordance
with section 3.192 or by the Tax Expenditure Review Commission;
new text end

new text begin (5) the incidence of the expenditure, if it is a significant tax expenditure; and
new text end

new text begin (6) the revenue-neutral amount by which the relevant tax rate could be reduced if the
expenditure were repealed.
new text end

new text begin (b)new text end The report may contain additional information which the commissioner considers
relevant to the legislature's consideration and review of individual tax expenditure items.
This may include, but is not limited todeleted text begin, statements of the intended purpose of the tax
expenditure,
deleted text end analysis of whether the expenditure is achieving that objective, and the effect
of the expenditure deleted text begindevicedeleted text end on the deleted text begindistribution of the tax burden anddeleted text end administration of the tax
system.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for the tax expenditure budgets due on
or after November 1, 2022.
new text end

Sec. 8.

Minnesota Statutes 2018, section 270C.11, subdivision 6, is amended to read:


Subd. 6.

Definitions.

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

(1) new text begin"business tax credit" means:
new text end

new text begin (i) a credit against the corporate franchise tax claimed by a C corporation; or
new text end

new text begin (ii) a credit against the individual income tax claimed by a pass-through entity that is
allocated to its partners, members, or shareholders;
new text end

new text begin (2) "pass-through entity" means a partnership, limited liability corporation, or S
corporation;
new text end

new text begin (3) "significant tax expenditure" means a tax expenditure, but excluding any tax
expenditure that:
new text end

new text begin (i) is incorporated into state law by reference to a federal definition of income;
new text end

new text begin (ii) results in a revenue reduction of less than $10,000,000 per biennium;
new text end

new text begin (iii) is a business tax credit; or
new text end

new text begin (iv) is a sales tax expenditure for a good or service that is exclusively used by businesses
and not end consumers;
new text end

new text begin (4) new text end"tax expenditure" means a tax provision which provides a gross income definition,
deduction, exemption, credit, or rate for certain persons, types of income, transactions, or
property that results in reduced tax revenuenew text begin, but excludes provisions used to mitigate tax
pyramiding
new text end; deleted text beginand
deleted text end

deleted text begin (2)deleted text endnew text begin (5)new text end "tax" means any tax of statewide application or any tax authorized by state law
to be levied by local governments generally. It does not include a special local tax levied
pursuant to special law or to a special local tax levied pursuant to general authority that is
no longer applicable to local governments generallydeleted text begin.deleted text endnew text begin; and
new text end

new text begin (6) "tax pyramiding" means imposing sales taxes under chapter 297A on intermediate
business to business transactions rather than sales to final consumers.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for tax expenditure budgets due on or
after November 1, 2022.
new text end

Sec. 9.

Minnesota Statutes 2018, section 270C.13, subdivision 1, is amended to read:


Subdivision 1.

Biennial report.

new text begin(a) new text endThe commissioner shall report to the legislature deleted text beginby
March 1 of each odd-numbered year
deleted text end on the overall incidence of the income tax, sales and
excise taxes, and property tax.

new text begin (b) The commissioner must submit the report:
new text end

new text begin (1) by March 1, 2021; and
new text end

new text begin (2) by March 1, 2024, and each even-numbered year thereafter.
new text end

new text begin (c) new text endThe report shall present information on the distribution of the tax burden as follows:
(1) for the overall income distribution, using a systemwide incidence measure such as the
Suits index or other appropriate measures of equality and inequality; (2) by income classes,
including at a minimum deciles of the income distribution; and (3) by other appropriate
taxpayer characteristics.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for the tax incidence reports due on or
after March 1, 2021.
new text end