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Minnesota Legislature

Office of the Revisor of Statutes

Key: (1) language to be deleted (2) new language

  

                         Laws of Minnesota 1989 

                         CHAPTER 28-H.F.No. 214 
           An act relating to taxation; making technical 
          corrections and clarifications to individual income 
          and corporate franchise taxes; updating references to 
          the Internal Revenue Code; imposing a tax and 
          providing for withholding of certain payments to 
          nonresidents; requiring surety payment by out-of-state 
          contractors; amending Minnesota Statutes 1988, 
          sections 290.01, subdivisions 4, 7, 19, 19a, 19b, 19c, 
          19d, 19e, and 19f; 290.06, subdivisions 2c and 22; 
          290.067, subdivision 1; 290.0802, subdivisions 1 and 
          2; 290.095, subdivision 9; 290.17, subdivisions 1 and 
          2; 290.311, subdivision 1; 290.92, by adding 
          subdivisions; and 291.005, subdivision 1; proposing 
          coding for new law in Minnesota Statutes, chapter 290; 
          repealing Minnesota Statutes 1988, section 290.01, 
          subdivision 6a. 
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
     Section 1.  Minnesota Statutes 1988, section 290.01, 
subdivision 4, is amended to read: 
    Subd. 4.  [CORPORATION.] The term "corporation" shall 
include every entity which is a corporation under section 
7701(a)(3) or is treated as a corporation under section 
851(q) 851(h) or 7704 of the Internal Revenue Code of 1986, as 
amended through December 31, 1987 1988, and financial 
institutions.  A corporation's franchise is its authorization to 
exist and conduct business, whether created by legislation, by 
executive order, by a governmental agency, by contract or other 
private action, or by some combination thereof.  Every 
corporation is deemed to have a corporate franchise.  An entity 
described in section 646(b) of the Tax Reform Act of 1986, 
Public Law Number 99-514, as amended by section 1006(k) of the 
Technical and Miscellaneous Revenue Act of 1988, Public Law 
Number 100-647, shall be classified in the same manner for 
purposes of this chapter as it is for federal income tax 
purposes. 
    Sec. 2.  Minnesota Statutes 1988, section 290.01, 
subdivision 7, is amended to read: 
    Subd. 7.  [RESIDENT.] The term "resident" means (1) 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 of 1986, as amended through December 31, 
1987, unless, during that period, a Minnesota homestead 
application is filed for property in which the individual has an 
interest; and (2) 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 the individual or the spouse of the individual is in the 
armed forces of the United States, or 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. 
    Sec. 3.  Minnesota Statutes 1988, section 290.01, 
subdivision 19, is amended to read: 
    Subd. 19.  [NET INCOME.] The term "net income" means the 
federal taxable income, as defined in section 63 of the Internal 
Revenue Code of 1986, as amended through the date named in this 
subdivision, incorporating any elections made by the taxpayer in 
accordance with the Internal Revenue Code in determining federal 
taxable income for federal income tax purposes, and with the 
modifications provided in subdivisions 19a to 19f.  
     In the case of a regulated investment company or a fund 
thereof, as defined in section 851(a) or 851(q) 851(h) of the 
Internal Revenue Code, federal taxable income means investment 
company taxable income as defined in section 852(b)(2) of the 
Internal Revenue Code, except that:  
     (1) the exclusion of net capital gain provided in section 
852(b)(2)(A) of the Internal Revenue Code does not apply; and 
     (2) the deduction for dividends paid under section 
852(b)(2)(D) of the Internal Revenue Code must be applied by 
allowing a deduction for capital gain dividends and 
exempt-interest dividends as defined in sections 852(b)(3)(C) 
and 852(b)(5) of the Internal Revenue Code.  
     The Internal Revenue Code of 1986, as amended through 
December 31, 1986, shall be in effect for taxable years 
beginning after December 31, 1986.  The provisions of sections 
10104, 10202, 10203, 10204, 10206, 10212, 10221, 10222, 10223, 
10226, 10227, 10228, 10611, 10631, 10632, and 10711 of the 
Omnibus Budget Reconciliation Act of 1987, Public Law Number 
100-203, and the provisions of sections 1001, 1002, 1003, 1004, 
1005, 1006, 1008, 1009, 1010, 1011, 1011A, 1011B, 1012, 1013, 
1014, 1015, 1018, 2004, 3041, 4009, 6007, 6026, 6032, 6137, 
6277, and 6282 of the Technical and Miscellaneous Revenue Act of 
1988, Public Law Number 100-647, shall be effective at the time 
they become effective for federal income tax purposes.  
    The Internal Revenue Code of 1986, as amended through 
December 31, 1987, shall be in effect for taxable years 
beginning after December 31, 1987.  The provisions of sections 
4001, 4002, 4011, 5021, 5041, 5053, 5075, 6003, 6008, 6011, 
6030, 6031, 6033, 6057, 6064, 6066, 6079, 6130, 6176, 6180, 
6182, 6280, and 6281 of the Technical and Miscellaneous Revenue 
Act of 1988, Public Law Number 100-647, shall become effective 
at the time they become effective for federal tax purposes. 
    The Internal Revenue Code of 1986, as amended through 
December 31, 1988, shall be in effect for taxable years 
beginning after December 31, 1988. 
    Except as otherwise provided, references to the Internal 
Revenue Code in subdivisions 19a to 19f 19g mean the code in 
effect for purposes of determining net income for the applicable 
year. 
    Sec. 4.  Minnesota Statutes 1988, section 290.01, 
subdivision 19a, is amended to read: 
    Subd. 19a.  [ADDITIONS TO FEDERAL TAXABLE INCOME.] For 
individuals, estates, and trusts, there shall be added to 
federal taxable income: 
     (1)(i) interest income on obligations of any state other 
than Minnesota or a political or governmental subdivision, 
municipality, or governmental agency or instrumentality of any 
state other than Minnesota exempt from federal income taxes 
under the Internal Revenue Code or any other federal statute, 
and 
     (ii) exempt-interest dividends as defined in section 
852(b)(5) of the Internal Revenue Code of 1986, except the 
portion of the exempt-interest dividends derived from interest 
income on obligations of the state of Minnesota or its political 
or governmental subdivisions, municipalities, governmental 
agencies or instrumentalities, but only if the portion of the 
exempt-interest dividends from such Minnesota sources paid to 
all shareholders represents 95 percent or more of the 
exempt-interest dividends that are paid by the regulated 
investment company as defined in section 851(a) of the Internal 
Revenue Code of 1986, or the fund of the regulated investment 
company as defined in section 851(q) 851(h) of the Internal 
Revenue Code of 1986, making the payment; and 
     (2) the amount of income taxes paid or accrued within the 
taxable year under this chapter and income taxes paid to any 
other state or to any province or territory of Canada, to the 
extent allowed as a deduction under section 63(d) of the 
Internal Revenue Code, but the addition may not be more than the 
amount by which the itemized deductions as allowed under section 
63(d) of the Internal Revenue Code exceeds the amount of the 
standard deduction as defined in section 63(c) of the Internal 
Revenue Code; and 
    (3) the capital gain amount of a lump sum distribution to 
which the special tax under section 1122(h)(3)(B)(ii) of the Tax 
Reform Act of 1986, Public Law Number 99-514, applies. 
    Sec. 5.  Minnesota Statutes 1988, 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) 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 not to exceed $650 for each 
dependent in grades kindergarten to 6 and $1,000 for each 
dependent in grades 7 to 12, for tuition, textbooks, and 
transportation of each dependent 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 363.  As used in this 
clause, "textbooks" includes books and other instructional 
materials and equipment used in elementary and secondary schools 
in teaching only those subjects legally and commonly taught in 
public elementary and secondary schools in this state.  
"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.  In order to qualify for the 
subtraction under this clause the taxpayer must elect to itemize 
deductions under section 63(e) of the Internal Revenue Code of 
1986, as amended through December 31, 1987; 
    (4) to the extent included in federal taxable income, 
distributions from a qualified governmental pension plan, an 
individual retirement account, simplified employee pension, or 
qualified plan covering a self-employed person that represent a 
return of contributions that were included in Minnesota gross 
income in the taxable year for which the contributions were made 
but were deducted or were not included in the computation of 
federal adjusted gross income.  The distribution shall be 
allocated first to return of contributions until the 
contributions included in Minnesota gross income have been 
exhausted.  This subtraction applies only to contributions made 
in a taxable year prior to 1985; 
    (5) income as provided under section 290.0802; and 
    (6) the amount of unrecovered accelerated cost recovery 
system deductions allowed under subdivision 19g.; and 
     (7) to the extent included in federal adjusted gross 
income, income realized on disposition of property exempt from 
tax under section 290.491. 
    Sec. 6.  Minnesota Statutes 1988, 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 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; or the District of Columbia; 
    (3) exempt-interest dividends received as defined in 
section 852(b)(5) of the Internal Revenue Code of 1986, as 
amended through December 31, 1987; 
    (4) the amount of any windfall profits tax deducted under 
section 164 or 471 of the Internal Revenue Code of 1986, as 
amended through December 31, 1987; 
    (5) the amount of any net operating loss deduction taken 
for federal income tax purposes under section 172 of the 
Internal Revenue Code of 1986, as amended through December 31, 
1987; 
    (6) the amount of any special deductions taken for federal 
income tax purposes under sections 241 to 247 of the Internal 
Revenue Code of 1986, as amended through December 31, 1987; 
    (7) losses from the business of mining, as defined in 
section 290.05, subdivision 1, clause (a), that are not subject 
to Minnesota income tax; 
    (8) the amount of any capital losses deducted for federal 
income tax purposes under sections 1211 and 1212 of the Internal 
Revenue Code of 1986, as amended through December 31, 1987; 
    (9) the amount of any charitable contributions deducted for 
federal income tax purposes under section 170 of the Internal 
Revenue Code of 1986, as amended through December 31, 1987; 
    (10) the exempt foreign trade income of a foreign sales 
corporation under sections 921(a) and 291 of the Internal 
Revenue Code of 1986, as amended through December 31, 1987; 
    (11) the amount of percentage depletion deducted under 
sections 611 through 614 and 291 of the Internal Revenue Code of 
1986, as amended through December 31, 1987; 
    (12) 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; and 
    (13) the amount of any deemed dividend from a foreign 
operating corporation determined pursuant to section 290.17, 
subdivision 4, paragraph (g). 
    Sec. 7.  Minnesota Statutes 1988, 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 decrease in salary expense for federal income tax 
purposes due to claiming the federal jobs credit under section 
51 of the Internal Revenue Code; 
     (3) any dividend (not including any distribution in 
liquidation) paid within the taxable year by a national or state 
bank to the United States, or to any instrumentality of the 
United States exempt from federal income taxes, on the preferred 
stock of the bank owned by the United States or the 
instrumentality; 
     (4) amounts disallowed for intangible drilling costs due to 
differences between this chapter and the Internal Revenue Code 
in taxable years beginning before January 1, 1987, as follows: 
     (i) to the extent the disallowed costs are represented by 
physical property, an amount equal to the allowance for 
depreciation under Minnesota Statutes 1986, section 290.09, 
subdivision 7, subject to the modifications contained in 
subdivision 19e; and 
     (ii) to the extent the disallowed costs are not represented 
by physical property, an amount equal to the allowance for cost 
depletion under Minnesota Statutes 1986, section 290.09, 
subdivision 8; 
    (5) the deduction for capital losses pursuant to sections 
1211 and 1212 of the Internal Revenue Code of 1986, as amended 
through December 31, 1987, 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 of 1986, as 
amended through December 31, 1987, in computing federal taxable 
income; 
     (7) in the case of mines, oil and gas wells, other natural 
deposits, and timber for which percentage depletion was 
disallowed pursuant to subdivision 19c, clause (11), a 
reasonable allowance for depletion based on actual cost.  In the 
case of leases the deduction must be apportioned between the 
lessor and lessee in accordance with rules prescribed by the 
commissioner.  In the case of property held in trust, the 
allowable deduction must be apportioned between the income 
beneficiaries and the trustee in accordance with the pertinent 
provisions of the trust, or if there is no provision in the 
instrument, on the basis of the trust's income allocable to 
each; 
     (8) for certified pollution control facilities placed in 
service in a taxable year beginning before December 31, 1986, 
and for which amortization deductions were elected under section 
169 of the Internal Revenue Code of 1954, as amended through 
December 31, 1985, an amount equal to the allowance for 
depreciation under Minnesota Statutes 1986, section 290.09, 
subdivision 7; 
     (9) the amount included in federal taxable income 
attributable to the credits provided in Minnesota Statutes 1986, 
section 273.1314, subdivision 9, or Minnesota Statutes, section 
469.171, subdivision 6; 
     (10) amounts included in federal taxable income that are 
due to refunds of income, excise, or franchise taxes based on 
net income or related minimum taxes paid by the corporation to 
Minnesota, another state, a political subdivision of another 
state, the District of Columbia, or a foreign country or 
possession of the United States to the extent that the taxes 
were added to federal taxable income under section 290.01, 
subdivision 19c, clause (1), in a prior taxable year; and 
     (11) the following percentage 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: 
      Taxable Year 
      Beginning After .......... Percentage 
      December 31, 1988 ........ 50 percent 
      December 31, 1990 ........ 80 percent.
    Sec. 8.  Minnesota Statutes 1988, section 290.01, 
subdivision 19e, is amended to read: 
    Subd. 19e.  [DEPRECIATION MODIFICATIONS FOR CORPORATIONS.] 
In the case of corporations, a modification shall be made for 
the accelerated cost recovery system.  The allowable deduction 
for the accelerated cost recovery system is the same amount as 
provided in section 168 of the Internal Revenue Code with the 
following modifications.  The modifications apply to taxable 
years beginning after December 31, 1986, and to property for 
which deductions under the Tax Reform Act of 1986, Public Law 
Number 99-514, are elected or apply.  
     (a) For property placed in service after December 31, 1980, 
and before January 1, 1987, 40 percent of the allowance pursuant 
to section 168 of the Internal Revenue Code of 1954, as amended 
through December 31, 1985, for 15-, 18-, or 19-year real 
property shall not be allowed and for all other property 20 
percent shall not be allowed.  
     (b) For property placed in service after December 31, 1987, 
no modification shall be made. 
     (c) For property placed in service after July 31, 1986, and 
before January 1, 1987, for which the taxpayer elects the 
deduction pursuant to section 203 of the Tax Reform Act of 1986, 
Public Law Number 99-514, and for property placed in service 
after December 31, 1986, and before January 1, 1988, 15 percent 
of the allowance pursuant to section 168 of the Internal Revenue 
Code of 1986 shall not be allowed.  
     (d) For property placed in service after December 31, 1980, 
and before January 1, 1987, for which the taxpayer elects to use 
the straight line method provided in section 168(b)(3), (f)(12), 
or (j)(1) or a method provided in section 168(e)(2) of the 
Internal Revenue Code of 1986, as amended through December 31, 
1986, but excluding property for which the taxpayer elects the 
deduction pursuant to section 203 of the Tax Reform Act of 1986, 
Public Law Number 99-514, the modifications provided in 
paragraph (a) do not apply. 
    (e) For property subject to the modifications contained in 
paragraphs (a) and (c) and Minnesota Statutes 1986, section 
290.09, subdivision 7, clause (c), the following modification 
shall be made after the entire amount of the allowable deduction 
has been allowed for federal tax purposes for that property 
under the provisions of section 168 of the Internal Revenue Code 
of 1986, as amended through December 31, 1987.  The remaining 
depreciable basis in those assets for Minnesota purposes, 
including the amount of any basis reduction to reflect the 
investment tax credit for federal purposes under sections 48(q) 
and 49(d) of the Internal Revenue Code of 1986, as amended 
through December 31, 1987, shall be a depreciation allowance 
computed using the straight line method over the following 
number of years: 
    (1) three-year property, one year; 
    (2) five-year and seven-year property, two years; 
    (3) ten-year property, five years; and 
    (4) all other property, seven years.  
    (f) For property placed in service after December 31, 1987, 
the remaining depreciable basis for Minnesota purposes that is 
attributable to the basis reduction for federal purposes to 
reflect the investment tax credit under sections 48(q) and 49(d) 
of the Internal Revenue Code of 1986, as amended through 
December 31, 1987, shall be allowed as a deduction in the first 
taxable year after the entire amount of the allowable deduction 
for that property under the provisions of section 168 of the 
Internal Revenue Code of 1986, has been allowed, except that 
where the straight line method provided in section 168(b)(3) is 
used, the deduction provided in this clause shall be allowed in 
the last taxable year in which an allowance for depreciation is 
allowed for that property.  
    (g) For qualified timber property for which the taxpayer 
made an election under section 194 of the Internal Revenue Code 
of 1986, the remaining depreciable basis for Minnesota purposes 
is allowed as a deduction in the first taxable year after the 
entire allowable deduction has been allowed for federal tax 
purposes. 
    (h) The basis of property to which section 168 of the 
Internal Revenue Code applies is its basis as provided in this 
chapter including the modifications provided in this subdivision 
and in Minnesota Statutes 1986, section 290.09, subdivision 7, 
paragraph (c).  The recapture tax provisions provided in 
sections 1245 and 1250 of the Internal Revenue Code of 1986, as 
amended through December 31, 1987, apply but must be calculated 
using the basis provided in the preceding sentence.  
    (i) The basis of an asset acquired in an exchange of 
assets, including an involuntary conversion, is the same as its 
federal basis under the provisions of the Internal Revenue Code 
of 1986, except that the difference in basis due to the 
modifications in this subdivision and in Minnesota Statutes 
1986, section 290.09, subdivision 7, paragraph (c), is a 
deduction as provided in paragraph (e). 
    Sec. 9.  Minnesota Statutes 1988, section 290.01, 
subdivision 19f, is amended to read: 
    Subd. 19f.  [BASIS MODIFICATIONS AFFECTING GAIN OR LOSS ON 
DISPOSITION OF PROPERTY.] (a) For individuals, estates, and 
trusts, the basis of property is its adjusted basis for federal 
income tax purposes except as set forth in paragraphs (f) and 
(g).  For corporations, the basis of property is its adjusted 
basis for federal income tax purposes, without regard to the 
time when the property became subject to tax under this chapter 
or to whether out-of-state losses or items of tax preference 
with respect to the property were not deductible under this 
chapter, except that the modifications to the basis for federal 
income tax purposes set forth in paragraphs (b) to (j) are 
allowed to corporations, and the resulting modifications to 
federal taxable income must be made in the year in which gain or 
loss on the sale or other disposition of property is recognized. 
     (b) The basis of property shall not be reduced to reflect 
federal investment tax credit.  
     (c) The basis of property subject to the accelerated cost 
recovery system under section 168 of the Internal Revenue Code 
shall be modified to reflect the modifications in depreciation 
with respect to the property provided for in subdivision 19e.  
For certified pollution control facilities for which 
amortization deductions were elected under section 169 of the 
Internal Revenue Code of 1954, the basis of the property must be 
increased by the amount of the amortization deduction not 
previously allowed under this chapter. 
     (d) For property acquired before January 1, 1933, the basis 
for computing a gain is the fair market value of the property as 
of that date.  The basis for determining a loss is the cost of 
the property to the taxpayer less any depreciation, 
amortization, or depletion, actually sustained before that 
date.  If the adjusted cost exceeds the fair market value of the 
property, then the basis is the adjusted cost regardless of 
whether there is a gain or loss.  
     (e) The basis is reduced by the allowance for amortization 
of bond premium if an election to amortize was made pursuant to 
Minnesota Statutes 1986, section 290.09, subdivision 13, and the 
allowance could have been deducted by the taxpayer under this 
chapter during the period of the taxpayer's ownership of the 
property.  
     (f) For assets placed in service before January 1, 1987, 
corporations, partnerships, or individuals engaged in the 
business of mining ores other than iron ore or taconite 
concentrates subject to the occupation tax under chapter 298 
must use the occupation tax basis of property used in that 
business. 
     (g) For assets placed in service before January 1, 1990, 
corporations, partnerships, or individuals engaged in the 
business of mining iron ore or taconite concentrates subject to 
the occupation tax under chapter 298 must use the occupation tax 
basis of property used in that business.  
    (h) In applying the provisions of sections 301(c)(3)(B), 
312(f) and (g), and 316(a)(1) of the Internal Revenue Code of 
1986, as amended through December 31, 1987, the dates December 
31, 1932, and January 1, 1933, shall be substituted for February 
28, 1913, and March 1, 1913, respectively.  
    (i) In applying the provisions of section 362(a) and (c) of 
the Internal Revenue Code of 1986, as amended through December 
31, 1987, the date December 31, 1956, shall be substituted for 
June 22, 1954.  
    (j) The basis of property shall be increased by the amount 
of intangible drilling costs not previously allowed due to 
differences between this chapter and the Internal Revenue Code.  
    (k) The adjusted basis of any corporate partner's interest 
in a partnership is the same as the adjusted basis for federal 
income tax purposes modified as required to reflect the basis 
modifications set forth in paragraphs (b) to (j).  The adjusted 
basis of a partnership in which the partner is an individual, 
estate, or trust is the same as the adjusted basis for federal 
income tax purposes modified as required to reflect the basis 
modifications set forth in paragraphs (f) and (g).  
    (l) The modifications contained in paragraphs (b) to (j) 
also apply to the basis of property that is determined by 
reference to the basis of the same property in the hands of a 
different taxpayer or by reference to the basis of different 
property.  
     Sec. 10.  Minnesota Statutes 1988, 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 of 1986 
as amended through December 31, 1987, must be computed by 
applying to their taxable net income the following schedule of 
rates: 
     if taxable income is:               the tax is:
       not over $19,000             6 percent
       over $19,000                 $1,140 plus 8 percent of
                                    the excess over $19,000 
plus an amount computed using the following schedule of rates: 
     if taxable income is:               the tax is: 
       over $75,500, but not        0.5 percent of the 
       over $165,000                excess over $75,500 
       over $165,000                $447.50. 
    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.  In the case of married 
individuals filing separately, the additional 0.5 percent tax 
provided in this subdivision shall be applied to taxable income 
over $37,750, but not over $127,500.  
    (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: 
     if taxable income is:               the tax is:
       not over $13,000             6 percent
       over $13,000                 $780 plus 8 percent
                                    of the excess over $13,000 
plus an amount computed using the following schedule of rates: 
     if taxable income is:               the tax is: 
       over $42,700, but not         0.5 percent of the 
       over $93,000                  excess over $42,700 
       over $93,000                  $251.50.  
     (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 of 1986, as amended 
through December 31, 1987, must be computed by applying to 
taxable net income the following schedule of rates: 
     if taxable income is:               the tax is:
       not over $16,000             6 percent
       over $16,000                 $960 plus 8 percent
                                    of the excess over $16,000 
 plus an amount computed using the following schedule of rates: 
     if taxable income is:               the tax is: 
       over $64,300, but not        0.5 percent of the 
       over $135,000                excess over $64,300 
       over $135,000                $353.50. 
     (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 of 1986, as amended through December 31, 
1987, 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, as amended through December 31, 1987, increased by 
the addition required for interest income from non-Minnesota 
state and municipal bonds under section 290.01, subdivision 19a, 
clause (1). 
    (f) Any individual who has income which is included in the 
computation of federal adjusted gross income but is not subject 
to tax by Minnesota other than income specifically allowed as a 
subtraction under section 290.01, subdivision 19b, shall compute 
the tax in the same manner described in paragraph (e).  The 
numerator of the fraction under paragraph (e) is the 
individual's Minnesota source federal adjusted gross income 
reduced by the income not subject to Minnesota tax and the 
denominator is the federal adjusted gross income. 
    Sec. 11.  Minnesota Statutes 1988, 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 on or measured by net income to 
another state or province or territory of Canada, 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 or province or territory of Canada 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 7a 7, clause (b) (2), 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 or province or territory of Canada 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 of 1986, as amended through 
December 31, 1987 1988, 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, paragraph 
(a) (c), 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 or province or 
territory of Canada 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 or 
province or territory of Canada on the gross income earned 
within the other state or province or territory of Canada 
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 or province 
or territory of Canada 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 or province or 
territory of Canada 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 or province or territory of 
Canada.  The taxpayer must submit sufficient proof to show 
entitlement to a credit. 
    Sec. 12.  Minnesota Statutes 1988, section 290.067, 
subdivision 1, is amended to read: 
    Subdivision 1.  [AMOUNT OF CREDIT.] A taxpayer may take as 
a credit against the tax due from the taxpayer and a spouse, if 
any, under this chapter an amount equal to the dependent care 
credit for which the taxpayer is eligible pursuant to the 
provisions of section 21 of the Internal Revenue Code subject to 
the limitations provided in subdivision 2. except that in 
determining whether the child qualified as a dependent, income 
received as an aid to families with dependent children grant or 
allowance to or on behalf of the child must not be taken into 
account in determining whether the child received more than half 
of the child's support from the taxpayer. 
    If the taxpayer is not required and does not file a federal 
individual income tax return for the tax year, no credit is 
allowed for any amount paid to any person unless: 
    (1) the name, address, and taxpayer identification number 
of the person are included on the return claiming the credit; or 
    (2) if the person is an organization described in section 
501(c)(3) of the Internal Revenue Code and exempt from tax under 
section 501(a) of the Internal Revenue Code, the name and 
address of the person are included on the return claiming the 
credit.  
In the case of a failure to provide the information required 
under the preceding sentence, the preceding sentence does not 
apply if it is shown that the taxpayer exercised due diligence 
in attempting to provide the information required. 
    In the case of a nonresident or, part-year resident, or 
person whose tax is computed under section 290.06, subdivision 
2c, paragraph (f), the credit determined under section 21 of the 
Internal Revenue Code must be allocated based on the ratio by 
which the earned income of the claimant and the claimant's 
spouse from Minnesota sources bears to the total earned income 
of the claimant and the claimant's spouse. 
    Sec. 13.  Minnesota Statutes 1988, section 290.0802, 
subdivision 1, is amended to read: 
    Subdivision 1.  [DEFINITIONS.] For purposes of this 
section, the following terms have the meanings given. 
    (a) "Adjusted gross income" means federal adjusted gross 
income as used in section 22(d) of the Internal Revenue Code for 
the taxable year plus the ordinary income portion of a lump sum 
distribution as defined in section 407(e) 402(e) of the Internal 
Revenue Code. 
    (b) "Disability income" means disability income as defined 
in section 22(c)(2)(B)(iii) of the Internal Revenue Code. 
    (c) "Internal Revenue Code" means the Internal Revenue Code 
of 1986, as amended through December 31, 1987. 
    (d) "Nontaxable retirement and disability benefits" means 
the amount of pension, annuity, or disability benefits that 
would be included in the reduction under section 22(c)(3) of the 
Internal Revenue Code, but excluding tier one railroad 
retirement benefits. 
    (e) "Qualified individual" means a qualified individual as 
defined in section 22(b) of the Internal Revenue Code. 
    Sec. 14.  Minnesota Statutes 1988, section 290.0802, 
subdivision 2, is amended to read: 
    Subd. 2.  [SUBTRACTION.] (a) A qualified individual is 
allowed a subtraction from federal taxable income equal to the 
lesser of federal taxable income or for the individual's 
subtraction base amount.  The excess of the subtraction base 
amount over federal the taxable net income computed without 
regard to the subtraction for the elderly or disabled under 
section 290.01, subdivision 19b, clause (5), may be used to 
reduce the amount of a lump sum distribution subject to tax 
under section 290.032. 
    (b)(1) The initial subtraction base amount equals 
    (i) $10,000 for a married taxpayer filing a joint return if 
a spouse is a qualified individual, 
    (ii) $8,000 for a single taxpayer, and 
    (iii) $5,000 for a married taxpayer filing a separate 
federal return. 
    (2) The qualified individual's initial subtraction base 
amount, then, must be reduced by the sum of nontaxable 
retirement and disability benefits and one-half of the amount of 
adjusted gross income in excess of the following thresholds: 
    (i) $15,000 for a married taxpayer filing a joint return if 
both spouses are qualified individuals, 
    (ii) $12,000 for a single taxpayer or for a married couple 
filing a joint return if only one spouse is a qualified 
individual, and 
    (iii) $7,500 for a married taxpayer filing a separate 
federal return. 
    (3) In the case of a qualified individual who is under the 
age of 65, the maximum amount of the subtraction base may not 
exceed the taxpayer's disability income. 
     (4) The resulting amount is the subtraction base amount. 
    Sec. 15.  Minnesota Statutes 1988, section 290.095, 
subdivision 9, is amended to read: 
    Subd. 9.  [SPECIAL PERIOD OF LIMITATION WITH RESPECT TO NET 
OPERATING LOSS CARRYBACKS.] For the purposes of sections 290.46 
and 290.50 if the claim for refund relates to an overpayment 
attributable to a net operating loss carryback under this 
section, in lieu of the period of limitation prescribed in 
sections 290.46 and 290.50, the period shall be that period 
which ends with the expiration of the 15th day of the 46th month 
following the end of the taxable year of the net operating loss 
which results in such carryback, plus any extension of time 
granted for filing the return, but only if the return was filed 
within the extended time.  During this extended period, for 
taxable years beginning before January 1, 1985, married 
individuals who elected to file separate returns or a combined 
return may change their election and file a joint return.  
    Sec. 16.  Minnesota Statutes 1988, 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 having a 
valid election in effect under section 1362 of the Internal 
Revenue Code of 1986, as amended through December 31, 1987, 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, 
290.35, or 290.36.  Deductions not definitely related to any 
item or class of gross income are assigned to the taxpayer's 
domicile. 
    (c) The application of the allocation rules as they apply 
to income, gains, losses, deductions, or credits of (1) a 
partner's distributable share from a partnership under section 
290.31, subdivision 4; (2) a shareholder's distributable share 
from an S corporation provided in section 1366 of the Internal 
Revenue Code of 1986, as amended through December 31, 1988; (3) 
a beneficiary's distributable share from an estate or trust as 
provided in section 290.23, subdivision 9; or (4) the 
shareholders of regulated investment companies, real estate 
investment trusts, and real estate mortgage investment conduits 
as provided in subchapter M of the Internal Revenue Code of 
1988, as amended through December 31, 1988, shall be determined 
by the resident status of the partner, beneficiary, or 
shareholder at the end of the taxable year of the partnership, 
estate or trust, or corporation. 
    Sec. 17.  Minnesota Statutes 1988, section 290.17, 
subdivision 2, is amended to read: 
    Subd. 2.  [INCOME NOT DERIVED FROM CONDUCT OF A TRADE OR 
BUSINESS.] The income of a taxpayer subject to the allocation 
rules that is not derived from the conduct of a trade or 
business must be assigned in accordance with paragraphs (a) to 
(f):  
    (a)(1) Subject to paragraphs (a)(2) and (a)(3), income from 
labor or personal or professional services is assigned to this 
state if, and to the extent that, the labor or services are 
performed within it; all other income from such sources is 
treated as income from sources without this state.  
    Severance pay shall be considered income from labor or 
personal or professional services. 
    (2) In the case of an individual who is a nonresident of 
Minnesota and who is an athlete or entertainer, income from 
compensation for labor or personal services performed within 
this state shall be determined in the following manner:  
    (i) The amount of income to be assigned to Minnesota for an 
individual who is a nonresident salaried athletic team employee 
shall be determined by using a fraction in which the denominator 
contains the total number of days in which the individual is 
under a duty to perform for the employer, and the numerator is 
the total number of those days spent in Minnesota; and 
    (ii) The amount of income to be assigned to Minnesota for 
an individual who is a nonresident, and who is an athlete or 
entertainer not listed in clause (i), for that person's athletic 
or entertainment performance in Minnesota shall be determined by 
assigning to this state all income from performances or athletic 
contests in this state.  
     (3) For purposes of this section, amounts received by a 
nonresident from the United States, its agencies or 
instrumentalities, the Federal Reserve Bank, the state of 
Minnesota or any of its political or governmental subdivisions, 
or a Minnesota volunteer firefighters' relief association, by 
way of payment as a pension, public employee retirement benefit, 
or any combination of these, or as a retirement or survivor's 
benefit made from a plan qualifying under section 401, 403, 408, 
or 409, or as defined in section 403(b) or 457 of the Internal 
Revenue Code of 1986, as amended through December 31, 1987, are 
not considered income derived from carrying on a trade or 
business or from performing personal or professional services in 
Minnesota, and are not taxable under this chapter.  
     (b) Income or gains from tangible property located in this 
state that is not employed in the business of the recipient of 
the income or gains must be assigned to this state. 
    (c) Except upon the sale of a partnership interest or the 
sale of stock of an S corporation, income or gains from 
intangible personal property not employed in the business of the 
recipient of the income or gains must be assigned to this state 
if the recipient of the income or gains is a resident of this 
state or is a resident trust or estate.  
    Gain on the sale of a partnership interest is allocable to 
this state in the ratio of the original cost of partnership 
tangible property in this state to the original cost of 
partnership tangible property everywhere, determined at the time 
of the sale.  If more than 50 percent of the value of the 
partnership's assets consists of intangibles, gain or loss from 
the sale of the partnership interest is allocated to this state 
in accordance with the sales factor of the partnership for its 
first full tax period immediately preceding the tax period of 
the partnership during which the partnership interest was sold. 
    Gain on the sale of stock held in an S corporation is 
allocable to this state in the ratio of the original cost of 
tangible property of the S corporation within this state to the 
original cost of tangible property of the S corporation 
everywhere. 
    Gain on the sale of goodwill or income from a covenant not 
to compete that is connected with a business operating all or 
partially in Minnesota is allocated to this state to the extent 
that the income from the business in the year preceding the year 
of sale was assignable to Minnesota under subdivision 3.  
    (d) Income from the operation of a farm shall be assigned 
to this state if the farm is located within this state and to 
other states only if the farm is not located in this state.  
    (e) Income from winnings on Minnesota pari-mutuel betting 
tickets and lawful gambling as defined in section 349.12, 
subdivision 2, conducted within the boundaries of the state of 
Minnesota shall be assigned to this state.  
    (f) All items of gross income not covered in paragraphs (a) 
to (e) and not part of the taxpayer's income from a trade or 
business shall be assigned to the taxpayer's domicile. 
    Sec. 18.  Minnesota Statutes 1988, section 290.311, 
subdivision 1, is amended to read: 
    Subdivision 1.  [PARTNERS.] (a) Partner's modifications.  
In determining gross income and Minnesota taxable income of a 
partner, any modification described in section 290.01, 
subdivisions 20 19 to 20f 19f, which relates to an item of 
partnership income, gain, loss or deduction shall be made in 
accordance with the partner's distributive share, for federal 
income tax purposes, of the item to which the modification 
relates. 
    (b) Character of items.  Each item of partnership income, 
gain, loss, or deduction shall have the same character for a 
partner under this section which it has for federal income tax 
purposes.  Where an item is not characterized for federal income 
tax purposes, it shall have the same character for a partner as 
if realized directly from the source from which realized by the 
partnership, or incurred in the same manner as incurred by the 
partnership. 
    (c) Minnesota tax avoidance or evasion.  Where a partner's 
distributive share of an item of partnership income, gain, loss 
or deduction is determined for federal income tax purposes by 
special provision in the partnership agreement with respect to 
such item, and where the effect of such provision is the 
avoidance or evasion of tax under this section, the partner's 
distributive share of such item, and any modifications required 
with respect thereto shall be determined as if the partnership 
agreement made no special provision with respect to such item. 
    Sec. 19.  Minnesota Statutes 1988, section 290.92, is 
amended by adding a subdivision to read: 
    Subd. 4b.  [WITHHOLDING BY PARTNERSHIPS.] (a) A partnership 
shall deduct and withhold a tax as provided in paragraph (b) 
when the partnership pays or credits amounts to any of its 
nonresident individual partners on account of their distributive 
shares of partnership income for a taxable year of the 
partnership. 
    (b) The amount of tax withheld is determined by multiplying 
the partner's distributive share allocable to Minnesota under 
section 290.17, paid or credited during the taxable year by the 
highest rate used to determine the income tax liability for an 
individual under section 290.06, subdivision 2c, except that the 
amount of tax withheld may be determined based on tables 
provided by the commissioner if the partner submits a 
withholding exemption certificate under subdivision 5. 
    (c) A partnership required to deduct and withhold tax under 
this subdivision shall file a return with the commissioner.  The 
tax required to be deducted and withheld during that year must 
be paid with the return.  The return and payment is due on or 
before the due date specified for filing the partnership return 
under section 290.42. 
    (d) A partnership required to withhold and remit tax under 
this subdivision is liable for payment of the tax to the 
commissioner, and a person having control of or responsibility 
for the withholding of the tax or the filing of returns due 
under this subdivision is personally liable for the tax due.  
The commissioner may reduce or abate the tax withheld under this 
subdivision if the partnership had reasonable cause to believe 
that no tax was due under this section. 
    (e) Notwithstanding paragraph (a), a partnership is not 
required to deduct and withhold tax for a nonresident partner if:
     (1) the partner elects to have the tax due paid as part of 
the partnership's composite return under section 290.39, 
subdivision 5; 
     (2) the partner has Minnesota assignable federal adjusted 
gross income from the partnership of less than $1,000; or 
     (3) the partnership is liquidated or terminated, the income 
was generated by a transaction related to the termination or 
liquidation, and no cash or other property was distributed in 
the current or prior taxable year. 
    (f) For purposes of subdivisions 6, paragraph (1)(c), 6a, 
7, 11, and 15, a partnership is considered an employer.  
    Sec. 20.  Minnesota Statutes 1988, section 290.92, is 
amended by adding a subdivision to read: 
    Subd. 4c.  [WITHHOLDING BY SMALL BUSINESS CORPORATIONS.] 
(a) A corporation having a valid election in effect under 
section 290.9725 shall deduct and withhold a tax as provided in 
paragraph (b) when it pays or credits amounts to any of its 
nonresident individual shareholders as dividends or as their 
share of the corporations's undistributed taxable income for the 
taxable year. 
    (b) The amount of tax withheld is determined by multiplying 
the amount of dividends or undistributed income allocable to 
Minnesota under section 290.17, paid or credited to a 
nonresident shareholder during the taxable year by the highest 
rate used to determine the income tax liability of an individual 
under section 290.06, subdivision 2c, except that the amount of 
tax withheld may be determined based on tables provided by the 
commissioner if the shareholder submits a withholding exemption 
certificate under subdivision 5. 
    (c) A corporation required to deduct and withhold tax under 
this subdivision shall file a return with the commissioner.  The 
tax required to be deducted and withheld during that year must 
be paid with the return.  The return and payment is due on or 
before the due date specified for filing the corporate income 
tax return under section 290.42. 
    (d) A corporation required to withhold and remit tax under 
this section is liable for payment of the tax to the 
commissioner, and a person having control of or responsibility 
for the withholding of the tax or the filing of returns due 
under this subdivision is personally liable for the tax due.  
    (e) Notwithstanding paragraph (a), a corporation is not 
required to deduct and withhold tax for a nonresident 
shareholder, if: 
     (1) the shareholder elects to have the tax due paid as part 
of the corporation's composite return under section 290.39, 
subdivision 5; 
     (2) the shareholder has Minnesota assignable federal 
adjusted gross income from the corporation of less than $1,000; 
or 
     (3) the corporation is liquidated or terminated, the income 
was generated by a transaction related to the termination or 
liquidation, and no cash or other property was distributed in 
the current or prior taxable year. 
    (f) For purposes of subdivisions 6, paragraph (1)(c), 6a, 
7, 11, and 15, a corporation is considered an employer. 
    Sec. 21.  [290.9201] [TAX ON NONRESIDENT ENTERTAINERS.] 
    Subdivision 1.  [DEFINITIONS.] (a) "Entertainer" means an 
individual who is not a resident of Minnesota or a state with 
which Minnesota has a reciprocal agreement under section 290.081 
who performs acts in Minnesota that amuse, entertain, or 
inform.  For purposes of this section, "entertainer" includes, 
but is not limited to, a musician, singer, dancer, comedian, 
thespian, athlete, and public speaker. 
    (b) Entertainment entity means either:  (1) an entertainer 
who is paid compensation for providing entertainment as an 
independent contractor, (2) a partnership that is paid 
compensation for entertainment provided by entertainers who are 
partners, or (3) a corporation that is paid compensation for 
entertainment provided by entertainers who are shareholders of 
the corporation. 
    Subd. 2.  [TAX ON ENTERTAINMENT.] Entertainment entities 
are subject to a tax in the amount of two percent of the total 
compensation received by them during the calendar year for 
entertainment performed in Minnesota. 
    Subd. 3.  [CREDIT AGAINST TAX.] Each calendar year an 
entertainment entity may take a nonrefundable credit of $100 
against the tax imposed by this section. 
    Subd. 4.  [FILING DATE OF ANNUAL RETURN.] (a) An 
entertainment entity subject to the tax imposed by this section 
shall file with the commissioner an annual return for the 
calendar year on or before April 15 following the close of the 
calendar year. 
    (b) The return must be in the form prescribed by the 
commissioner. 
    Subd. 5.  [PAYMENT OF TAX AND LIABILITY.] The tax imposed 
by this section is payable to the commissioner on the filing 
date and is the joint and several liability of the entertainer 
and the entertainment entity. 
    Subd. 6.  [EXEMPTION FROM INCOME TAX.] Compensation subject 
to the tax imposed under this section is not assignable to 
Minnesota under section 290.17. 
    Subd. 7.  [WITHHOLDING ON COMPENSATION OF ENTERTAINERS.] 
The tax on compensation of an entertainer must be withheld at a 
rate of two percent of all compensation paid to the 
entertainment entity by the person or corporation having legal 
control of the payment of the compensation.  The payor is liable 
to the state for the payment of the tax required to be deducted 
and withheld, and is not liable to a person for the amount of 
the payment.  The compensation subject to withholding under this 
section is not subject to the withholding provisions of section 
290.92, subdivision 2a, 3, or 28, except the provisions of 
section 290.92, subdivisions 6a, 7, 14, 15, and 18 shall apply 
to withholding under this section as if the withholding were 
upon wages. 
    Subd. 8.  [DEPOSIT OF ENTERTAINER WITHHOLDING.] (a) The 
person or corporation having legal control of the payment of 
compensation taxable under this section shall deposit the 
earnings tax with the commissioner, and shall file an 
entertainer withholding tax return with the commissioner, within 
30 days of each performance. 
     (b) The withholding tax return must be in the form 
prescribed by the commissioner. 
     Subd. 9.  [REFUNDS.] If there is an overpayment of the tax 
imposed by this section, refund of the overpayment or credit 
shall be made to the payor under rules prescribed by the 
commissioner, but only to the extent that the amount of the 
overpayment was not deducted and withheld under subdivision 7 by 
the payor.  An overpayment that is refunded bears interest at 
the rate specified in section 270.76, computed from the date of 
payment until the date the refund is paid to the payor. 
    Subd. 10.  [REFUNDS.] If the tax withheld at the source 
under subdivision 7 exceeds by $1 or more the taxes, penalties, 
and interest reported in the return of the entertainment entity 
or imposed by this section, the excess must be refunded to the 
entertainment entity.  If the excess is less than $1, the 
commissioner need not refund that amount.  If the excess to be 
refunded exceeds $10, the amount on the original return bears 
interest at the rate specified in section 270.76, computed from 
90 days after (1) the due date of the return of the employee 
taxpayer or (2) the date on which the return is filed, whichever 
is later, to the date the refund is paid to the taxpayer. 
    Sec. 22.  [290.9705] [SURETY DEPOSITS REQUIRED FOR 
CONSTRUCTION CONTRACTS.] 
    Subdivision 1.  [WITHHOLDING OF PAYMENTS TO OUT-OF-STATE 
CONTRACTORS.] (a) In this section, "person" means a person, 
corporation, or cooperative, the state of Minnesota and its 
political subdivisions, and a city, county, and school district 
in Minnesota. 
    (b) A person who in the regular course of business is 
hiring, contracting, or having a contract with a nonresident 
person or foreign corporation, as defined in Minnesota Statutes 
1986, section 290.01, subdivision 5, to perform construction 
work in Minnesota, shall deduct and withhold eight percent of 
every payment to the contractor if the contract exceeds or can 
reasonably be expected to exceed $100,000. 
    Subd. 2.  [REQUIREMENT TO DEPOSIT WITHHOLDINGS WITH 
COMMISSIONER.] A person required to withhold an amount under 
subdivision 1 shall deposit the amount withheld and file a 
return prescribed by the commissioner within 30 days of the 
payment to the contractor.  The payor is liable to the state for 
the amount required to be deducted and is not liable to a person 
for the amount of the payment.  
    Subd. 3.  [WAIVER OF WITHHOLDING.] The conditions in 
subdivisions 1 and 2 may be waived by the commissioner if (1) 
the contractor gives the commissioner a cash surety or a bond, 
secured by an insurance company licensed by Minnesota, 
conditioned that the contractor will comply with all applicable 
provisions of chapters 290 and 297A, or (2) the contractor has 
done construction work in Minnesota at any time during the three 
calendar years prior to entering the contract and has fully 
complied with all the provisions of chapters 290 and 297A for 
the three prior years. 
    Subd. 4.  [DEPOSITS USED AS SURETY FOR COMPLIANCE WITH 
INCOME AND SALES TAX PROVISIONS.] The amounts deposited with the 
commissioner under subdivisions 2 and 3 are considered a surety 
to guarantee payment of income, franchise, withholding, and 
sales and use taxes of the contractor.  The commissioner shall 
retain the money deposited until the commissioner determines the 
contractor's liability for state income, franchise, sales and 
use taxes, and taxes withheld under section 290.92.  If the 
deposit exceeds the liability, the commissioner shall refund the 
difference to the contractor with interest at the rate specified 
in section 270.76 computed from the dates the amounts were 
deposited with the commissioner.  
    Sec. 23.  Minnesota Statutes 1988, section 291.005, 
subdivision 1, is amended to read: 
    Subdivision 1.  Unless the context otherwise clearly 
requires, the following terms used in this chapter shall have 
the following meanings: 
    (1) "Federal gross estate" means the gross estate of a 
decedent as valued and otherwise determined for federal estate 
tax purposes by federal taxing authorities pursuant to the 
provisions of the Internal Revenue Code. 
    (2) "Minnesota gross estate" means the federal gross estate 
of a decedent after (a) excluding therefrom any property 
included therein which has its situs outside Minnesota and (b) 
including therein any property omitted from the federal gross 
estate which is includable therein, has its situs in Minnesota, 
and was not disclosed to federal taxing authorities.  
    (3) "Personal representative" means the executor, 
administrator or other person appointed by the court to 
administer and dispose of the property of the decedent.  If 
there is no executor, administrator or other person appointed, 
qualified, and acting within this state, then any person in 
actual or constructive possession of any property having a situs 
in this state which is included in the federal gross estate of 
the decedent shall be deemed to be a personal representative to 
the extent of the property and the Minnesota estate tax due with 
respect to the property. 
    (4) "Resident decedent" means an individual whose domicile 
at the time of death was in Minnesota. 
    (5) "Nonresident decedent" means an individual whose 
domicile at the time of death was not in Minnesota. 
    (6) "Situs of property" means, with respect to real 
property, the state or country in which it is located; with 
respect to tangible personal property, the state or country in 
which it was normally kept or located at the time of the 
decedent's death; and with respect to intangible personal 
property, the state or country in which the decedent was 
domiciled at death. 
    (7) "Commissioner" means the commissioner of revenue or any 
person to whom the commissioner has delegated functions under 
this chapter. 
    (8) "Internal Revenue Code" means the United States 
Internal Revenue Code of 1954 1986 as amended through December 
31, 1984 1988. 
    Sec. 24.  [FEDERAL CHANGES.] 
     The changes made by sections 1002, 1004, 1006, 1008, 1009, 
1011, 1014, 1018, 3041, 6002, 6026, and 6286 of the Technical 
and Miscellaneous Revenue Act of 1988, Public Law Number 
100-647, which affect the computation of Minnesota gross income 
as defined in Minnesota Statutes, section 290.01, subdivision 
20; lump sum distributions as allowed by Minnesota Statutes, 
section 290.032; accounting provision applied under Minnesota 
Statutes, section 290.07; contribution deduction allowed by 
Minnesota Statutes, sections 290.089 and 290.21; depreciation, 
amortization, and expensing provisions allowed under Minnesota 
Statutes, section 290.09; the recognition rules for 
distributions and reorganization rules provided by Minnesota 
Statutes, sections 290.13 to 290.139; and the grantor trust and 
reversionary interest rule exceptions and limitations under 
Minnesota Statutes, sections 290.23 and 290.25, for years 
beginning before January 1, 1987, shall be in effect at the same 
time they become effective for federal income tax purposes. 
     The additional statute of limitations to file amended 
returns allowing contributions to institutions of higher 
education and allowing an election to claim losses on deposits 
in certain insolvent financial institutions under provisions of 
sections 6001 and 1009 of the Technical and Miscellaneous 
Revenue Act of 1988, shall apply to Minnesota for the same 
period as the federal period applies plus an additional six 
months. 
     The waiver of the estimated tax penalties provided by 
section 1019 of the Technical and Miscellaneous Revenue Act of 
1988, shall also apply to Minnesota to the extent the 
underpayment was created or increased by any provisions of the 
changes due to applying the federal law changes. 
    Sec. 25.  [INSTRUCTION TO REVISOR.] 
     In the next edition of Minnesota Statutes, the revisor of 
statutes shall substitute the phrase "Internal Revenue Code of 
1986, as amended through December 31, 1988" for the words 
"Internal Revenue Code of 1986, as amended through December 31, 
1987" wherever it occurs in chapters 290, except in section 
290.01, subdivision 19, and 290A. 
    Sec. 26.  [REPEALER.] 
    Minnesota Statutes 1988, section 290.01, subdivision 6a, is 
repealed. 
    Sec. 27.  [EFFECTIVE DATE.] 
    Section 5 is effective for taxable years beginning after 
December 31, 1987.  Sections 2, 3, 4, and 10 to 18 are effective 
for taxable years beginning after December 31, 1988.  Sections 
19 to 21 are effective after December 31, 1989.  Section 22 is 
effective for contracts entered into after December 31, 1989.  
Section 23 is effective for dates of death after December 31, 
1988.  Section 1 and sections 6 to 9 are effective for taxable 
years beginning after December 31, 1986.  The part of section 17 
pertaining to goodwill and covenants not to compete are only in 
effect on contracts entered into after the day of final 
enactment. 
    Presented to the governor April 7, 1989 
    Signed by the governor April 7, 1989, 4:55 p.m.