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                         Laws of Minnesota 1987 

                        CHAPTER 268-H.F.No. 529 
           An act relating to the financing of government in 
          Minnesota; changing tax rates and bases; modifying the 
          methods of administering, collecting, and enforcing 
          taxes; changing the computation, administration, and 
          payment of aids, credits, and refunds; imposing taxes; 
          limiting taxing powers; transferring governmental 
          powers and duties; allocating bonding authority; 
          making entitlement allocations to the cities of 
          Minneapolis and St. Paul; repealing income tax rules; 
          providing for the conveyance of land in Becker county; 
          making technical corrections and clarifications; 
          imposing and increasing fees, interest, and penalties; 
          appropriating money; amending Minnesota Statutes 1986, 
          sections 10A.31, subdivisions 1 and 2; 16A.15, 
          subdivisions 1 and 6; 16A.1541; 16A.26; 16A.275; 
          16A.48, subdivision 1; 60A.15, subdivision 1; 60A.199, 
          subdivisions 1, 2, 3, 5, 7, 8, 9, 10, and 11; 60A.209, 
          subdivisions 1 and 3; 60C.06, by adding a subdivision; 
          61B.02, subdivision 1; 61B.03, subdivisions 8 and 10; 
          62E.02, subdivision 23; 67A.11, subdivision 3; 69.011, 
          subdivisions 1 and 2; 69.021, subdivisions 1, 2, and 3;
          69.54; 69.55; 79.34, subdivision 1, and by adding a 
          subdivision; 88.49, by adding a subdivision; 116C.63, 
          subdivision 4; 121.904, subdivisions 11a and 11b; 
          124.155, subdivision 2; 124.195, subdivision 2; 
          124.2131, subdivisions 1, 2, 3, 5, 6, 7, 8, and 11; 
          124.2139; 124.38, subdivision 8; 124A.02, subdivisions 
          3a, 8, and 11; 124A.035, subdivision 5; 124A.08, 
          subdivision 5; 134.33, subdivision 1; 134.34, 
          subdivisions 1 and 2; 176.129, subdivision 4a; 
          176A.08; 239.10; 270.066; 270.071, by adding a 
          subdivision; 270.074, subdivision 3; 270.075, 
          subdivision 1; 270.10, subdivisions 1 and 4; 270.11, 
          subdivisions 1 and 2; 270.12, subdivisions 2 and 3; 
          270.13; 270.72, subdivisions 1 and 2; 270.77; 270.80, 
          subdivision 2; 270.87; 270A.07, subdivision 1; 271.21, 
          subdivision 2; 272.01, subdivisions 2 and 3; 272.02, 
          subdivisions 1 and 1a; 272.115, subdivisions 2 and 4; 
          273.061, subdivisions 1, 8, and 9; 273.065; 273.11, 
          subdivision 8, and by adding a subdivision; 273.1102; 
          273.1103; 273.1104, subdivision 1; 273.12; 273.123, 
          subdivisions 1, 4, 5, and 7; 273.124, subdivisions 7, 
          8, 11, and 13; 273.13, subdivisions 15a, 22, 23, 24, 
          25, and 31; 273.1313, subdivisions 1, 2, and 3; 
          273.1314, subdivisions 9, 10, and by adding 
          subdivisions; 273.133, subdivision 3; 273.135, 
          subdivision 2; 273.1391, subdivision 2; 273.1392; 
          273.1393; 273.165, subdivision 2; 273.19, subdivisions 
          1, 3, 4, and by adding a subdivision; 273.33, 
          subdivision 2; 273.37, subdivision 2; 273.38; 273.42, 
          subdivision 2; 274.01, subdivision 1; 274.14; 274.16; 
          275.07, subdivision 1; 275.125, subdivisions 9, 9b, 
          15, and by adding a subdivision; 275.50, subdivision 
          2; 275.51, subdivisions 3h and 3i; 276.04; 276.11; 
          277.01; 278.05, subdivision 4; 279.01, subdivision 1; 
          279.06; 281.17; 282.014; 282.02; 282.241; 282.33, 
          subdivision 1; 287.05, subdivision 1; 287.09; 287.10; 
          287.12; 287.21, subdivision 1; 287.22; 290.01, 
          subdivisions 3, 4, 5, 7, 19, 20, 22, and by adding 
          subdivisions; 290.02; 290.03; 290.032, subdivisions 1 
          and 2; 290.05, subdivisions 1 and 2; 290.06, 
          subdivisions 1, 2c, 2d, and by adding subdivisions; 
          290.067, subdivisions 1, 2, and by adding 
          subdivisions; 290.068, subdivisions 1, 2, 3, 4, 5, and 
          6; 290.069, subdivisions 2a and 4b; 290.077, 
          subdivision 1; 290.081; 290.091, subdivisions 1, 2, 3, 
          4, and 5; 290.095, subdivisions 1, 2, 3, 4, 7, 9, and 
          11; 290.10; 290.12, subdivision 2; 290.131, 
          subdivision 1; 290.132, subdivision 1; 290.133, 
          subdivision 1; 290.134, subdivision 1; 290.135, 
          subdivision 1; 290.136, subdivision 1; 290.138, 
          subdivision 3; 290.14; 290.17; 290.171; 290.20, 
          subdivision 1, and by adding a subdivision; 290.21, 
          subdivisions 3, 4, and 8; 290.23, subdivisions 3 and 
          5; 290.31, subdivisions 2, 3, 5, and by adding a 
          subdivision; 290.34, subdivision 2; 290.35; 290.36; 
          290.37, subdivisions 1 and 3; 290.38; 290.39, 
          subdivision 3; 290.41, subdivisions 2 and 3; 290.42; 
          290.45, subdivisions 1 and 2; 290.46; 290.48, 
          subdivision 10; 290.491; 290.50, subdivision 1; 
          290.53, subdivisions 1, 2, 3a, 4, and by adding 
          subdivisions; 290.56, subdivisions 2, 3, and 4; 
          290.92, subdivisions 2a, 4a, 5, 5a, 6, 7, 9, 11, 12, 
          13, 14, 15, 18, 24, and 25; 290.93, subdivision 10; 
          290.934, subdivision 2; 290.9725; 290.9726, 
          subdivisions 1, 2, and 4; 290.974; 290A.03, 
          subdivisions 3, 8, 13, 14, and by adding a 
          subdivision; 290A.04, subdivision 2, and by adding 
          subdivisions; 290A.06; 290A.011, subdivision 2; 
          290A.18; 290A.19; 291.131, subdivisions 1, 2, 4, and 
          by adding a subdivision; 295.01, subdivision 10; 
          295.32; 295.34, subdivision 1; 295.365; 295.366, by 
          adding a subdivision; 295.39; 295.40; 295.41; 295.43; 
          296.02, by adding subdivisions; 296.025, by adding 
          subdivisions; 296.17, subdivisions 3, 7, and 11; 
          296.18, subdivision 7; 297.01, subdivisions 2, 4, 7, 
          10, and 14; 297.02, subdivisions 1 and 6; 297.03, 
          subdivisions 1, 5, and 6; 297.04, subdivisions 4, 6, 
          and 9; 297.07, subdivisions 1, 3, 4, and 5; 297.11, 
          subdivisions 3 and 5; 297.13, subdivision 1; 297.23, 
          subdivision 1; 297.26; 297.31, subdivisions 2, 3, and 
          7; 297.32, subdivisions 1, 2, and 8; 297.33, 
          subdivisions 4 and 5; 297.35, subdivisions 1, 3, 5, 
          and 8; 297.36; 297A.01, subdivisions 3, 4, 8, 11, 15, 
          and by adding a subdivision; 297A.07; 297A.14; 
          297A.151; 297A.18; 297A.211, subdivision 2, and by 
          adding a subdivision; 297A.25, subdivisions 3, 7, 11, 
          12, and by adding subdivisions; 297A.256; 297A.257, 
          subdivisions 1, 2, 2a, and by adding a subdivision; 
          297A.26, subdivision 1, and by adding a subdivision; 
          297A.27, subdivision 1; 297A.275; 297A.39, 
          subdivisions 1, 2, 4, and by adding a subdivision; 
          297A.43; 297B.03; 297B.031; 297B.10; 297C.02, 
          subdivisions 1 and 2; 297C.03, subdivision 1, and by 
          adding a subdivision; 297C.04; 297C.05, subdivision 2; 
          297C.06; 297C.09; 297D.02; 297D.07; 297D.09; 297D.10; 
          297D.12, subdivision 1; 297D.13; 298.01, subdivision 
          1, and by adding subdivisions; 298.026; 298.027; 
          298.028, subdivision 1; 298.03, subdivision 1; 
          298.031, subdivision 2; 298.08; 298.09, subdivision 1; 
          298.24, subdivision 1; 298.25; 298.28, subdivisions 4, 
          7, 10, and by adding a subdivision; 299F.21, 
          subdivisions 1, 2, and by adding subdivisions; 
          325D.30; 325D.32, subdivisions 4, 10, and 11; 325D.33, 
          subdivisions 1, 2, and by adding subdivisions; 
          325D.35; 325D.38, subdivision 1; 325D.40, subdivision 
          1; 325F.665, subdivision 3; 349.212, subdivisions 1, 
          4, and by adding a subdivision; 349.2121, subdivisions 
          4, 6, 7, and by adding subdivisions; 360.531, 
          subdivision 2; 360.654; 462C.11, subdivisions 2 and 3; 
          473.446, subdivision 1; 473F.02, subdivisions 4, 12, 
          and 17; 474A.02, subdivisions 1, 2, 3, 6, 7, 8, 12, 
          14, 16, 18, 19, 21, 26, and by adding subdivisions; 
          474A.03, subdivision 1, and by adding a subdivision; 
          474A.04, subdivisions 5, 6, and by adding a 
          subdivision; 474A.13, subdivisions 1, 4, and 5; 
          474A.14; 474A.15; 474A.16; 474A.17; 474A.18; 474A.20; 
          474A.21; 475.53, subdivision 4; 475.61, subdivision 3; 
          477A.012, subdivision 1; 477A.013; Laws 1985, First 
          Special Session chapter 14, article 3, section 18; 
          proposing coding for new law in Minnesota Statutes, 
          chapters 239; 270; 271; 272; 273; 275; 276; 290; 290A; 
          297; 297A; 297C; 298; 349; and 474A; repealing 
          Minnesota Statutes 1986, sections 13.58; 60A.15, 
          subdivision 2; 61A.49; 62E.11, subdivision 8; 62E.13, 
          subdivision 9; 69.021, subdivision 3a; 124.2131, 
          subdivision 4; 124.2137; 124.2139; 124.38, subdivision 
          10; 124A.031, subdivision 4; 270.75, subdivision 8; 
          270.89; 273.112, subdivision 9; 273.115; 273.116; 
          273.13, subdivisions 26, 27, 28, and 29; 273.1311; 
          273.1315; 273.135, subdivision 5; 273.1391, 
          subdivision 4; 282.021; 287.02; 290.01, subdivisions 
          20a, 20b, 20d, 20f, 21, and 24; 290.013; 290.06, 
          subdivisions 3f, 3g, and 11; 290.069, subdivisions 1, 
          2, 3, 5, 6, and 7; 290.07, subdivision 5; 290.071; 
          290.073; 290.075; 290.077, subdivision 3; 290.079; 
          290.08; 290.082; 290.085; 290.088; 290.089; 290.09; 
          290.095, subdivisions 8 and 10; 290.12, subdivision 4; 
          290.13; 290.139; 290.15; 290.16; 290.165; 290.17, 
          subdivision 1a; 290.175; 290.18; 290.19; 290.21, 
          subdivisions 5 and 6; 290.26, subdivision 2; 290.361; 
          290.531; 290.9726, subdivisions 3, 5, and 6; 290A.04, 
          subdivisions 2e and 2g; 294.21; 294.22; 294.23; 
          294.24; 294.25; 294.26; 295.32; 295.33; 295.34; 
          295.36; 295.365; 295.366; 296.04, subdivisions 1, 2, 
          3, and 4; 296.05; 296.07; 296.13; 296.17, subdivision 
          12; 296.22; 296.28; 297.07, subdivision 6; 297.23, 
          subdivision 5; 297.35, subdivisions 4, 6, and 7; 
          297A.25, subdivision 13; 297A.254; 297A.26, 
          subdivision 3; 297A.391; 297C.03, subdivisions 2 and 
          3; 297C.05, subdivision 4; 298.01, subdivision 1; 
          298.02; 298.026; 298.027; 298.028; 298.03; 298.031; 
          298.04; 298.28, subdivision 14; 298.40; 298.51; 298.52;
          298.53; 298.54; 298.55; 298.61; 298.62; 298.63; 
          298.64; 298.65; 298.66; 298.67; 299.01; 299.012; 
          299.013; 299.02; 299.03; 299.04; 299.05; 299.06; 
          299.07; 299.08; 299.09; 299.10; 299.11; 299.12; 
          299.13; 299.14; 325D.32, subdivision 12; 325D.41; 
          474A.02, subdivisions 5, 9, 10, 11, 13, 15, 17, 20, 
          22, 23, 24, 25, 27, 28, and 29; 474A.03, subdivisions 
          2 and 3; 474A.04, subdivisions 1, 2, 3, and 4; 
          474A.05; 474A.06; 474A.07; 474A.08; 474A.09; 474A.10; 
          474A.11; 474A.12; 474A.13, subdivisions 2 and 3; and 
          474A.19; Laws 1981, chapters 222, section 6; 223, 
          section 6, subdivision 3; Laws 1985, First Special 
          Session chapter 14, article 14, section 3; Laws 1986, 
          chapter 391, section 3; Laws 1986, First Special 
          Session chapter 1, article 5, section 8. 
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 

                               ARTICLE 1 
INCOME TAX 
    Section 1.  Minnesota Statutes 1986, section 10A.31, 
subdivision 1, is amended to read:  
    Subdivision 1.  Every individual resident of Minnesota who 
files an income tax return or a renter and homeowner property 
tax refund return with the commissioner of revenue may designate 
on their original return that $2 $5 shall be paid from the 
general fund of the state into the state elections campaign 
fund.  If a husband and wife file a joint return, each spouse 
may designate that $2 $5 shall be paid.  No individual shall be 
allowed to designate $2 $5 more than once in any year. 
    Sec. 2.  Minnesota Statutes 1986, section 10A.31, 
subdivision 2, is amended to read:  
    Subd. 2.  The taxpayer may designate that the $2 amount 
designated be paid into the account of a political party or into 
the general account. 
    Sec. 3.  Minnesota Statutes 1986, section 10A.31, 
subdivision 3, is amended to read:  
    Subd. 3.  The commissioner of the department of revenue 
shall provide on the first page of the income tax form and the 
renter and homeowner property tax refund return a space for the 
individual to indicate a wish to allocate $2 $5 ($4 $10 if 
filing a joint return) from the general fund of the state to 
finance the election campaigns of state candidates.  The form 
shall also contain language prepared by the commissioner which 
permits the individual to direct the state to allocate 
the $2 $5 (or $4 $10 if filing a joint return) to:  (i) one of 
the major political parties; (ii) any minor political party as 
defined in section 10A.01, subdivision 13, which qualifies under 
the provisions of subdivision 3a; or (iii) all qualifying 
candidates as provided by subdivision 7.  The renter and 
homeowner property tax refund return shall include instructions 
that the individual filing the return may designate $2 $5 on the 
return only if the individual has not designated $2 $5 on the 
income tax return. 
    Sec. 4.  Minnesota Statutes 1986, section 290.01, 
subdivision 3, is amended to read: 
    Subd. 3.  [PARTNERSHIP; PARTNER.] The term 
terms "partnership" includes a syndicate, group, pool, joint 
venture, or other unincorporated organization, through or by 
means of which any business, financial operation, or venture is 
carried on, and which is not, within the meaning of this 
chapter, a trust or estate or a corporation; and the 
term "partner" includes a member in a syndicate, group, pool, 
joint venture or organization have the meanings given in section 
7701(a)(2) of the Internal Revenue Code of 1986, as amended 
through December 31, 1986. 
    Sec. 5.  Minnesota Statutes 1986, section 290.01, is 
amended by adding a subdivision to read: 
    Subd. 3a.  [TRUST.] The term "trust" has the meaning given 
in the Internal Revenue Code of 1986, as amended through 
December 31, 1986. 
    Sec. 6.  Minnesota Statutes 1986, section 290.01, 
subdivision 4, is amended to read: 
    Subd. 4.  [CORPORATIONS.] The term "corporation" shall 
include joint stock companies and corporations existing under 
the laws of any state or country; partnerships, limited or 
otherwise, the organization of which is not interrupted by the 
death of a general partner or by a change in the ownership of 
the general partner's participating interest, and the management 
of which is centralized in one or more persons acting in a 
representative capacity; associations (other than ordinary 
partnerships) and common-law trusts organized or conducted for 
profit every entity which is a corporation under section 
7701(a)(3) of the Internal Revenue Code of 1986, as amended 
through December 31, 1986, 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, shall be classified in the same manner for purposes of 
this chapter as it is for federal income tax purposes. 
    Sec. 7.  Minnesota Statutes 1986, section 290.01, is 
amended by adding a subdivision to read: 
    Subd. 4a.  [FINANCIAL INSTITUTION.] (a) "Financial 
institution" means: 
    (1) a holding company; 
    (2) any regulated financial corporation; or 
    (3) any other corporation organized under the laws of the 
United States or organized under the laws of this state or any 
other state or country that is carrying on the business of a 
financial institution. 
    (b) "Holding company" means any corporation registered 
under the Federal Bank Holding Company Act of 1956, as amended, 
or registered as a savings and loan holding company under the 
Federal National Housing Act, as amended. 
    (c) "Regulated financial corporation" means an institution, 
the deposits or accounts of which are insured under the Federal 
Deposit Insurance Act or by the Federal Savings and Loan 
Insurance Corporation, any institution which is a member of a 
Federal Home Loan Bank, any other bank or thrift institution 
incorporated or organized under the laws of any state or any 
foreign country which is engaged in the business of receiving 
deposits, any corporation organized under the provisions of 
United States Code, title 12, sections 611 to 631 (Edge Act 
Corporations), and any agency of a foreign depository as defined 
in United States Code, title 12, section 3101. 
    (d) "Business of a financial institution" means: 
    (1) the business that a regulated financial corporation may 
be authorized to do under state or federal law or the business 
that its subsidiary is authorized to do by the proper regulatory 
authorities; 
    (2) the business that any corporation organized under the 
authority of the United States or organized under the laws of 
this state or any other state or country does or has authority 
to do which is substantially similar to the business which a 
corporation may be created to do under chapters 46 to 55 or any 
business which a corporation or its subsidiary is authorized to 
do by those laws; or 
    (3) the business that any corporation organized under the 
authority of the United States or organized under the laws of 
this state or any other state or country does or has authority 
to do if the corporation derives more than 50 percent of its 
gross income from lending activities (including discounting 
obligations) in substantial competition with the businesses 
described in clauses (1) and (2).  For purposes of this clause, 
the computation of the gross income of a corporation does not 
include income from nonrecurring, extraordinary items. 
    Sec. 8.  Minnesota Statutes 1986, section 290.01, 
subdivision 5, is amended to read:  
    Subd. 5.  [DOMESTIC AND FOREIGN CORPORATIONS.] The term 
"domestic" when applied to a corporation means a corporation 
created or organized in Minnesota or under its laws; and the 
term "foreign" when thus applied means a corporation other than 
a domestic corporation.  The existence of any domestic 
corporation shall be deemed the exercise by it of the privilege 
of existing as a corporation; the grant to any foreign 
corporation of the right to engage in transacting local business 
within this state shall be deemed the grant to it of the 
privilege of transacting such business within this state in 
corporate or organized form; and the transaction of the local 
business within this state by any foreign corporation shall be 
deemed the transaction of such business within this state in 
corporate or organized form. 
    Sec. 9.  Minnesota Statutes 1986, section 290.01, is 
amended by adding a subdivision to read: 
    Subd. 6a.  [ABODE.] For purposes of section 290.01, 
subdivision 7, 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. 10.  Minnesota Statutes 1986, section 290.01, 
subdivision 7, is amended to read:  
    Subd. 7.  [RESIDENT.] The term "resident" means (1) any 
individual domiciled in Minnesota and any other individual 
maintaining an abode therein during any portion of the tax year 
who shall not, during the whole of such tax year, have been 
domiciled outside the state, 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, 
1986, 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 is in the armed forces of the United 
States. 
     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. 
    Sec. 11.  Minnesota Statutes 1986, section 290.01, 
subdivision 19, is amended to read:  
    Subd. 19.  [NET INCOME.] The term "net income" means the 
gross federal taxable income, as defined in subdivision 20, less 
the following deductions to the extent allowed by section 
290.18, subdivision 1:  
    (a) for corporations, the deductions allowed by section 
290.09; 
    (b) for individuals, the deductions allowed in section 
290.088, without regard to sections 290.18, subdivision 1 if the 
taxpayer elects to compute the taxes under sections 290.06, 
subdivision 2c, paragraph (a) or (c); 290.089; and 290.09; and 
    (c) for estates and trusts, the deduction allowed by 
section 290.088, without regard to section 290.18, subdivision 1 
if the taxpayer elects to compute the taxes under section 
290.06, subdivision 2c, paragraph (c) 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. 
    The Internal Revenue Code of 1986, as amended through 
December 31, 1986, shall be in effect for taxable years 
beginning after December 31, 1986. 
    Except as otherwise provided, references to the Internal 
Revenue Code in subdivisions 19a to 19f mean the code in effect 
for purposes of determining net income for the applicable year. 
    Sec. 12.  Minnesota Statutes 1986, section 290.01, is 
amended by adding a subdivision 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)(A) 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 fund or series of 
funds 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 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. 
    Sec. 13.  Minnesota Statutes 1986, section 290.01, is 
amended by adding a subdivision 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; and 
    (3) the amount paid to others not to exceed $650 for each 
dependent in grades kindergarten to six and $1,000 for each 
dependent in grades seven 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, 1986. 
    Sec. 14.  Minnesota Statutes 1986, section 290.01, is 
amended by adding a subdivision 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 upon obligations of:  the United States, its 
possessions, its agencies, or its instrumentalities to the 
extent the obligations are not subject to federal tax; 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 as defined in section 
852(b)(5) of the Internal Revenue Code of 1986, as amended 
through December 31, 1986; 
    (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, 1986;  
    (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, 
1986;  
    (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, 1986; 
    (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, 1986; 
    (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, 1986; 
    (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, 1986; 
    (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, 1986; and 
    (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.
    Sec. 15.  Minnesota Statutes 1986, section 290.01, is 
amended by adding a subdivision 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, 1986, except that: 
    (i) capital loss carrybacks shall not be allowed; and 
    (ii) a capital loss carryover to each of the 15 taxable 
years succeeding the loss year 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 
265 or 291 of the Internal Revenue Code of 1986, as amended 
through December 31, 1986, 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. 
    Sec. 16.  Minnesota Statutes 1986, section 290.01, is 
amended by adding a subdivision 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 (b) 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, 1986.  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, 1986, 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, 1986, 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, 1986, 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. 17.  Minnesota Statutes 1986, section 290.01, is 
amended by adding a subdivision 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, 1986, 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, 1986, 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. 18.  Minnesota Statutes 1986, section 290.01, 
subdivision 20, is amended to read:  
    Subd. 20.  [GROSS INCOME.] For tax years beginning after 
December 31, 1986, the term "gross income" means the gross 
income as defined in section 61 of the Internal Revenue Code of 
1986, as amended through the date named in subdivision 19 for 
the applicable taxable year, plus any additional items of income 
taxable under this chapter but not taxable under the Internal 
Revenue Code, less any items included in federal gross income 
but of a character exempt from state income tax under the laws 
of the United States.  For tax years beginning before January 1, 
1987, except as otherwise provided in this chapter, the term 
"gross income," as applied to corporations includes every kind 
of compensation for labor or personal services of every kind 
from any private or public employment, office, position or 
services; income derived from the ownership or use of property; 
gains or profits derived from every kind of disposition of, or 
every kind of dealing in, property; income derived from the 
transaction of any trade or business; and income derived from 
any source.  
    For tax years beginning before January 1, 1987, the term 
"gross income" in its application to individuals, estates, and 
trusts shall mean the adjusted gross income as defined in the 
Internal Revenue Code of 1954, as amended through the date 
specified herein for the applicable taxable year, with the 
modifications specified in this subdivision and in Minnesota 
Statutes 1986, section 290.01, subdivisions 20a to 20f.  For 
estates and trusts the adjusted gross income for purposes of the 
preceding sentence shall be their federal taxable income as 
defined in the Internal Revenue Code of 1954, as amended through 
the date specified herein for the applicable taxable year, with 
the modifications specified in this subdivision and in Minnesota 
Statutes 1986, section 290.01, subdivisions 20a to 20f. 
    (i) The Internal Revenue Code of 1954, as amended through 
December 31, 1980, and as amended by sections 302(b) and 501 to 
509 of Public Law Number 97-34, shall be in effect for taxable 
years beginning after December 31, 1980 including the provisions 
of section 404 (relating to partial exclusions of dividends and 
interest received by individuals) of the Crude Oil Windfall 
Profit Tax Act of 1980, Public Law Number 96-223.  The 
provisions of Public Law Number 96-471 (relating to installment 
sales) sections 122, 123, 126, 201, 202, 203, 204, 211, 213, 
214, 251, 261, 264, 265, 311(g)(3), 313, 314(a)(1), 321(a), 501 
to 507, 811, and 812 of the Economic Recovery Tax Act of 1981, 
Public Law Number 97-34 and section 113 of Public Law Number 
97-119 shall be effective at the same time that they become 
effective for federal income tax purposes. 
    (ii) The Internal Revenue Code of 1954, as amended through 
December 31, 1981, shall be in effect for taxable years 
beginning after December 31, 1981.  The provisions of sections 
205(a), 214 to 222, 231, 232, 236, 247, 251, 252, 253, 265, 266, 
285, 288, and 335 of the Tax Equity and Fiscal Responsibility 
Act of 1982, Public Law Number 97-248, section 6(b)(2) and (3) 
of the Subchapter S Revision Act of 1982, Public Law Number 
97-354, section 517 of Public Law Number 97-424, sections 101(c) 
and (d), 102(a), (aa), (f)(4), (g), (j), (l), 103(c), 104(b)(3), 
105, 305(d), 306(a)(9) of Public Law Number 97-448, and sections 
101 and 102 of Public Law Number 97-473, and section 243 of the 
Tax Reform Act of 1986, Public Law Number 99-514, shall be 
effective at the same time that they become effective for 
federal income tax purposes.  The Payment-in-Kind Tax Treatment 
Act of 1983, Public Law Number 98-4, shall be effective at the 
same time that it becomes effective for federal income tax 
purposes. 
    (iii) (ii) The Internal Revenue Code of 1954, as amended 
through January 15, 1983, shall be in effect for taxable years 
beginning after December 31, 1982.  The provisions of sections 
905, 1708, and 1879(m) of the Tax Reform Act of 1986, Public Law 
Number 99-514, shall be effective at the same time that they 
become effective for federal income tax purposes. 
    (iv) (iii) The Internal Revenue Code of 1954, as amended 
through December 31, 1983, shall be in effect for taxable years 
beginning after December 31, 1983.  The provisions of sections 
13, 17, 25(b), 31, 32, 41 to 43, 52, 55, 56, 71 to 74, 77, 81, 
82, 91, 92, 94, 101 to 103, 105 to 108, 111 to 113, 147(c), 171, 
172, 174, 175, 179(a), 221, 223, 224, 421(b), 432, 481, 491, 
512, 522 to 524, 554 to 557, 561, 611(a), 621 to 623, 626 to 
628, 711(c), 712(d), 713(b), (e), (g), and (h), 721(a), (b), 
(d), (g), (i), (o), (p), (r), (t), and (w), 722(e), 1001, 1026, 
1061 to 1064, 1066, 1076, 1078, and 2638(b) of the Deficit 
Reduction Act of 1984, Public Law Number 98-369, and section 1 
of Public Law Number 98-611, and sections 1801, 1802, 1805 to 
1809, 1812, 1842, 1853 to 1855, 1866, 1869 to 1873, 1875, and 
1878(g) and (h) of the Tax Reform Act of 1986, Public Law Number 
99-514, shall be effective at the same time that they become 
effective for federal income tax purposes.  
    (v) (iv) The Internal Revenue Code of 1954, as amended 
through May 25, 1985, shall be in effect for taxable years 
beginning after December 31, 1984.  The provisions of sections 
101, 102, 103, 201, and 202 of Public Law Number 99-121 and 
sections 402, 403, 1803, 1804, 1852, and 1861 of the Tax Reform 
Act of 1986, Public Law Number 99-514, shall be effective at the 
same time that they become effective for federal income tax 
purposes.  
    (vi) (v) The Internal Revenue Code of 1954, as amended 
through December 31, 1985, shall be in effect for taxable years 
beginning after December 31, 1985.  
    The provisions of sections 121 to 123, 201, 202, 241, 401, 
405, 411 to 413, 653, 654, 804, 811, 822, 1001, 1003, 1122, 
1162, 1164, 1166, 1301, 1401, 1402, 1707, 1826, 1827, 1843, 
1867, 1868, 1879(f), and 1895 of the Tax Reform Act of 1986, 
Public Law Number 99-514, shall be effective at the same time 
that they become effective for federal income tax purposes. 
    References to the Internal Revenue Code of 1954 in 
subdivisions 20a, 20b, 20e, and 20f mean the code in effect for 
the purpose of defining gross income for the applicable taxable 
year.  
    Sec. 19.  Minnesota Statutes 1986, section 290.01, 
subdivision 22, is amended to read:  
    Subd. 22.  [TAXABLE NET INCOME.] For tax years beginning 
after December 31, 1986, the term "taxable net income" means:  
    (1) for resident individuals the same as net income;  
    (2) for individuals who were not residents of Minnesota for 
the entire year, the same as net income except that the tax is 
imposed only on the Minnesota apportioned share of that income 
as determined pursuant to section 290.06, subdivision 2c, 
paragraph (e); 
    (3) for all other taxpayers, the part of net income that is 
allocable to Minnesota by assignment or apportionment under one 
or more of sections 290.17, 290.191, 290.20, 290.35, and 290.36. 
    For tax years beginning before January 1, 1987, the term 
"taxable net income"  means the net income assignable to this 
state pursuant to sections 290.17 to 290.20.  For corporations, 
taxable net income is then reduced by the deductions contained 
in section 290.21.  
    Sec. 20.  Minnesota Statutes 1986, section 290.01, is 
amended by adding a subdivision to read: 
    Subd. 29.  [TAXABLE INCOME.] For tax years beginning after 
December 31, 1986, the term "taxable income" means:  
    (1) for individuals, estates, and trusts, the same as 
taxable net income;  
    (2) for corporations, the taxable net income less 
    (i) the net operating loss deduction under section 290.095; 
    (ii) the dividends received deduction under section 290.21, 
subdivision 4; 
    (iii) the charitable contribution deduction under section 
290.21, subdivision 3; and 
     (iv) the foreign royalty deduction under section 290.21, 
subdivision 8. 
    Sec. 21.  Minnesota Statutes 1986, section 290.01, is 
amended by adding a subdivision to read: 
    Subd. 30.  [REFERENCES TO THE INTERNAL REVENUE 
CODE.] Except when inappropriate, a reference in this chapter 
(1) to the Internal Revenue Code of 1954 includes a reference to 
the Internal Revenue Code of 1986, and (2) to the Internal 
Revenue Code of 1986 includes a reference to the provisions of 
law formerly known as the Internal Revenue Code of 1954. 
    Sec. 22.  [290.014] [JURISDICTION TO TAX IN GENERAL.] 
    Subdivision 1.  [RESIDENT INDIVIDUALS.] All net income of a 
resident individual is subject to tax under this chapter. 
    Subd. 2.  [NONRESIDENT INDIVIDUALS.] Income of a 
nonresident individual is subject to tax under this chapter and 
a nonresident individual is subject to the return filing 
requirements under this chapter to the extent that the income is:
    (1) allocable to this state under section 290.17, 290.191, 
or 290.20; 
    (2) taxed to the individual under the Internal Revenue Code 
of 1986, as amended through December 31, 1986, (or not taxed 
under the Internal Revenue Code by reason of its character but 
of a character which is taxable under this chapter) in the 
individual's capacity as a beneficiary of an estate with income 
allocable to this state under section 290.17, 290.191, or 290.20 
and the income, taking into account the income character 
provisions of section 662(b) of the Internal Revenue Code of 
1986, as amended through December 31, 1986, would be allocable 
to this state under section 290.17, 290.191, or 290.20 if 
realized by the individual directly from the source from which 
realized by the estate; 
    (3) taxed to the individual under the Internal Revenue Code 
of 1986, as amended through December 31, 1986, (or not taxed 
under the Internal Revenue Code by reason of its character but 
of a character that is taxable under this chapter) in the 
individual's capacity as a beneficiary or grantor or other 
person treated as a substantial owner of a trust with income 
allocable to this state under section 290.17, 290.191, or 290.20 
and the income, taking into account the income character 
provisions of section 652(b), 662(b), or 664(b) of the Internal 
Revenue Code of 1986, as amended through December 31, 1986, 
would be allocable to this state under section 290.17, 290.191, 
or 290.20 if realized by the individual directly from the source 
from which realized by the trust; 
    (4) taxed to the individual under the Internal Revenue Code 
of 1986, as amended through December 31, 1986, (or not taxed 
under the Internal Revenue Code by reason of its character but 
of a character which is taxable under this chapter) in the 
individual's capacity as a limited or general partner in a 
partnership with income allocable to this state under section 
290.17, 290.191, or 290.20 and the income, taking into account 
the income character provisions of section 702(b) of the 
Internal Revenue Code of 1986, as amended through December 31, 
1986, would be allocable to this state under section 290.17, 
290.191, or 290.20 if realized by the individual directly from 
the source from which realized by the partnership; or 
    (5) taxed to the individual under the Internal Revenue Code 
of 1986, as amended through December 31, 1986, (or not taxed 
under the Internal Revenue Code by reason of its character but 
of a character which is taxable under this chapter) in the 
individual's capacity as a shareholder of a corporation having a 
valid election in effect under section 1362 of the Internal 
Revenue Code of 1986, as amended through December 31, 1986, and 
income allocable to this state under section 290.17, 290.191, or 
290.20 and the income, taking into account the income character 
provisions of section 1366(b) of the Internal Revenue Code of 
1986, as amended through December 31, 1986, would be allocable 
to this state under section 290.17, 290.191, or 290.20 if 
realized by the individual directly from the source from which 
realized by the corporation. 
    Subd. 3.  [TRUSTS AND ESTATES.] A trust or estate, whether 
resident or nonresident, is subject to the return filing 
requirements under this chapter and the income of a trust or 
estate is subject to tax under this chapter to the extent that 
the income of the trust or estate is: 
    (1) allocable to this state under section 290.17, 290.191, 
or 290.20; 
    (2) taxed to the trust or estate under the Internal Revenue 
Code of 1986, as amended through December 31, 1986, (or not 
taxed under the Internal Revenue Code by reason of its character 
but of a character which is taxable under this chapter) in its 
capacity as a beneficiary of a trust or estate with income 
allocable to this state under section 290.17, 290.191, or 290.20 
and the income, taking into account the income character 
provisions of section 662(b) of the Internal Revenue Code of 
1986, as amended through December 31, 1986, would be allocable 
to this state under section 290.17, 290.191, or 290.20 if 
realized by the trust or beneficiary estate directly from the 
source from which realized by the distributing estate; 
    (3) taxed to the trust or estate under the Internal Revenue 
Code of 1986, as amended through December 31, 1986, (or not 
taxed under the Internal Revenue Code by reason of its character 
but of a character which is taxable under this chapter) in its 
capacity as a beneficiary or grantor or other person treated as 
a substantial owner of a trust with income allocable to this 
state under section 290.17, 290.191, or 290.20 and the income, 
taking into account the income character provisions of section 
652(b), 662(b), or 664(b) of the Internal Revenue Code of 1986, 
as amended through December 31, 1986, would be allocable to this 
state under section 290.17, 290.191, or 290.20 if realized by 
the beneficiary trust or estate directly from the source from 
which realized by the distributing trust; 
    (4) taxed to the trust or estate under the Internal Revenue 
Code of 1986, as amended through December 31, 1986, (or not 
taxed under the Internal Revenue Code by reason of its character 
but of a character which is taxable under this chapter) in its 
capacity as a limited or general partner in a partnership with 
income allocable to this state under section 290.17, 290.191, or 
290.20 and the income, taking into account the income character 
provisions of section 702(b) of the Internal Revenue Code of 
1986, as amended through December 31, 1986, would be allocable 
to this state under section 290.17, 290.191, or 290.20 if 
realized by the trust or estate directly from the source from 
which realized by the partnership; or 
    (5) taxed to the trust or estate under the Internal Revenue 
Code of 1986, as amended through December 31, 1986, (or not 
taxed under the Internal Revenue Code by reason of its character 
but of a character which is taxable under this chapter) in its 
capacity as a shareholder of a corporation having a valid 
election in effect under section 1362 of the Internal Revenue 
Code of 1986, as amended through December 31, 1986, and income 
allocable to this state under section 290.17, 290.191, or 290.20 
and the income, taking into account the income character 
provisions of section 1366(b) of the Internal Revenue Code of 
1986, as amended through December 31, 1986, would be allocable 
to this state under section 290.17, 290.191, or 290.20 if 
realized by the trust or estate directly from the source from 
which realized by the corporation. 
    Subd. 4.  [PARTNERSHIPS.] A partnership is not subject to 
tax under this chapter but is subject to the return filing 
requirements under this chapter and its partners are subject to 
tax under this chapter on their shares of partnership income to 
the extent that the income of the partnership is: 
    (1) allocable to this state under section 290.17, 290.191, 
or 290.20; 
    (2) taxed to the partnership under the Internal Revenue 
Code of 1986, as amended through December 31, 1986, (or not 
taxed under the Internal Revenue Code by reason of its character 
but of a character which is taxable under this chapter) in its 
capacity as a beneficiary of an estate with income allocable to 
this state under section 290.17, 290.191, or 290.20 and the 
income, taking into account the income character provisions of 
section 662(b) of the Internal Revenue Code of 1986, as amended 
through December 31, 1986, would be allocable to this state 
under section 290.17, 290.191, or 290.20 if realized by the 
partnership directly from the source from which realized by the 
estate; 
    (3) taxed to the partnership under the Internal Revenue 
Code of 1986, as amended through December 31, 1986, (or not 
taxed under the Internal Revenue Code by reason of its character 
but of a character which is taxable under this chapter) in its 
capacity as a beneficiary or grantor or other person treated as 
a substantial owner of a trust with income allocable to this 
state under section 290.17, 290.191, or 290.20 and the income, 
taking into account the income character provisions of section 
652(b), 662(b), or 664(b) of the Internal Revenue Code of 1986, 
as amended through December 31, 1986, would be allocable to this 
state under section 290.17, 290.191, or 290.20 if realized by 
the partnership directly from the source from which realized by 
the trust; or 
    (4) taxed to the partnership under the Internal Revenue 
Code of 1986, as amended through December 31, 1986, (or not 
taxed under the Internal Revenue Code by reason of its character 
but of a character which is taxable under this chapter) in its 
capacity as a limited or general partner in a partnership with 
income allocable to this state under section 290.17, 290.191, or 
290.20 and the income, taking into account the income character 
provisions of section 702(b) of the Internal Revenue Code of 
1986, as amended through December 31, 1986, would be allocable 
to this state under section 290.17, 290.191, or 290.20 if 
realized by the second tier partnership directly from the source 
from which realized by the first tier partnership. 
    Subd. 5.  [CORPORATIONS.] A corporation having a valid 
election in effect under section 1362 of the Internal Revenue 
Code of 1986, as amended through December 31, 1986, is not 
subject to tax under this chapter, except as provided in section 
290.9725, but its shareholders are, and it is subject to the 
return filing requirements.  Corporations are subject to the 
return filing requirements and to tax under this chapter if the 
corporation so exercises its franchise as to engage in such 
contacts with this state as to cause part of the income of the 
corporation to be:  
    (1) allocable to this state under section 290.17, 290.191, 
290.20, 290.35, or 290.36; 
    (2) taxed to the corporation under the Internal Revenue 
Code of 1986, as amended through December 31, 1986, (or not 
taxed under the Internal Revenue Code by reason of its character 
but of a character which is taxable under this chapter) in its 
capacity as a beneficiary of an estate with income allocable to 
this state under section 290.17, 290.191, or 290.20 and the 
income, taking into account the income character provisions of 
section 662(b) of the Internal Revenue Code of 1986, as amended 
through December 31, 1986, would be allocable to this state 
under section 290.17, 290.191, or 290.20 if realized by the 
corporation directly from the source from which realized by the 
estate;  
    (3) taxed to the corporation under the Internal Revenue 
Code of 1986, as amended through December 31, 1986, (or not 
taxed under the Internal Revenue Code by reason of its character 
but of a character which is taxable under this chapter) in its 
capacity as a beneficiary or grantor or other person treated as 
a substantial owner of a trust with income allocable to this 
state under section 290.17, 290.191, or 290.20 and the income, 
taking into account the income character provisions of section 
652(b), 662(b), or 664(b) of the Internal Revenue Code of 1986, 
as amended through December 31, 1986, would be allocable to this 
state under section 290.17, 290.191, or 290.20 if realized by 
the corporation directly from the source from which realized by 
the trust; or 
    (4) taxed to the corporation under the Internal Revenue 
Code of 1986, as amended through December 31, 1986, (or not 
taxed under the Internal Revenue Code by reason of its character 
but of a character which is taxable under this chapter) in its 
capacity as a limited or general partner in a partnership with 
income allocable to this state under section 290.17, 290.191, or 
290.20 and the income, taking into account the income character 
provisions of section 702(b) of the Internal Revenue Code of 
1986, as amended through December 31, 1986, would be allocable 
to this state under section 290.17, 290.191, or 290.20 if 
realized by the corporation directly from the source from which 
realized by the partnership. 
    Sec. 23.  [290.015] [MINIMUM CONTACTS REQUIRED FOR 
JURISDICTION TO TAX TRADE OR BUSINESS.] 
    Subdivision 1.  [GENERAL RULE.] A person, other than a 
resident individual, that conducts a trade or business with its 
principal place of business outside of Minnesota is subject to 
the taxes imposed by this chapter with respect to that trade or 
business if the trade or business makes sales or receives other 
income that is assignable or apportionable to this state under 
section 290.17, 290.191, 290.20, 290.35 or 290.36 without regard 
to physical presence in this state, except as provided in 
subdivision 3.  Activities that create jurisdiction to tax under 
this chapter include, but are not limited to: 
    (1) having a place of business in this state; 
    (2) having employees, representatives, or independent 
contractors conducting business activities in this state; 
    (3) regularly selling products or services of any kind or 
nature to customers in this state who receive the product or 
service in this state; 
    (4) regularly soliciting business from potential customers 
in this state; 
    (5) regularly performing services from outside this state 
which are consumed within this state; 
    (6) regularly engaging in transactions with customers in 
this state that involve intangible property, including loans but 
not property described in subdivision 3, paragraph (b), and 
result in income flowing to the person from within this state;  
    (7) owning or leasing tangible personal or real property 
located in this state; or 
    (8) if a financial institution, regularly soliciting and 
receiving deposits from customers in this state. 
    Subd. 2.  [PRESUMPTION.] A person is presumed, subject to 
rebuttal, to be engaged in regular solicitation within this 
state if it conducts transactions described in any of 
subdivision 1, clauses (3) to (6), with 20 or more residents of 
this state during any tax period or, if a financial institution, 
if the sum of its assets and the absolute value of its deposits 
attributable to sources within this state equals or exceeds 
$5,000,000.  Assets and deposits must be attributed to sources 
within this state by applying the principles established under 
section 290.191. 
    Subd. 3.  [EXCEPTIONS.] (a) A person is not subject to tax 
under this chapter if the person is engaged in the business of 
selling tangible personal property and taxation of that person 
under this chapter is precluded by Public Law Number 86-272, 
United States Code, title 15, sections 381 to 384.  
    (b) Ownership of an interest in the following types of 
property shall not be a factor in determining whether the owner 
is subject to tax under this chapter: 
    (1) an interest in a real estate mortgage investment 
conduit, a real estate investment trust, or a regulated 
investment company, as those terms are defined in the Internal 
Revenue Code of 1986, as amended through December 31, 1986; and 
    (2) an interest in a loan-backed security representing 
ownership in a pool of promissory notes or certificates of 
interest or participation in such notes which provide for 
payments in relation to payments or reasonable projections of 
payments on the notes. 
    Subd. 4.  [LIMITATIONS.] This section does not (1) subject 
a trade or business to any regulation, including any tax, of any 
local unit of government or subdivision of this state if the 
trade or business does not own or lease tangible or real 
property located within this state and has no employees or 
independent contractors present in this state to assist in the 
carrying on of the business; or (2) exclude a trade or business 
from the filing requirements of the notice of business 
activities report under section 290.371. 
    Subd. 5.  [DETERMINATION AT ENTITY LEVEL.] Determinations 
under this section with respect to trades or businesses 
conducted by a partnership, trust, estate, or corporation with 
an election in effect under section 1362 of the Internal Revenue 
Code, or any other entity, the income of which is or may be 
taxed to its owners or beneficiaries must be made with respect 
to the entity carrying on the trade or business and not with 
respect to owners or beneficiaries of the trade or business, the 
taxability of which under this chapter must be determined under 
section 290.014.  
    Sec. 24.  Minnesota Statutes 1986, section 290.02, is 
amended to read:  
    290.02 [EXCISE FRANCHISE TAX ON CORPORATIONS; IMPOSITION, 
MEASUREMENT MEASURED BY NET INCOME.] 
    An annual excise franchise tax is hereby imposed upon every 
domestic corporation for the privilege of existing as a 
corporation during any part of its taxable year, and upon every 
foreign corporation doing business within this state, except 
those included within section 290.03, including but not limited 
to railroad companies for the grant to it of the privilege of 
transacting or for the actual transaction by it of any local 
business within this state during any part of its taxable year, 
in corporate or organized form on the exercise of the corporate 
franchise to engage in contacts with this state that produce 
gross income attributable to sources within this state is 
imposed upon every corporation that so exercises its franchise 
during the taxable year.  
    Contacts within this state do not include transportation in 
interstate or foreign commerce, or both, by means of ships 
navigating within or through waters that are made international 
for navigation purposes by any treaty or agreement to which the 
United States is a party. 
    The tax so imposed shall be measured by such corporations' 
taxable net income and alternative minimum tax base for the 
taxable year for which the tax is imposed, and computed in the 
manner and at the rates provided in this chapter. 
    Sec. 25.  Minnesota Statutes 1986, section 290.03, is 
amended to read:  
    290.03 [INCOME TAX; IMPOSITION, CLASSES OF TAXPAYERS.] 
    An annual tax for each taxable year, computed in the manner 
and at the rates hereinafter provided, is hereby imposed upon 
the taxable net income for such year of the following classes of 
taxpayers: 
    (1) Foreign corporations not taxable under section 290.02 
which own property within this state or whose business within 
this state during the taxable year consists exclusively of 
foreign commerce, interstate commerce, or both; 
    Business within the state shall not be deemed to include 
transportation in interstate or foreign commerce, or both, by 
means of ships navigating within or through waters which are 
made international for navigation purposes by any treaty or 
agreement to which the United States is a party; 
    (2) Resident and nonresident individuals; 
    (3) (2) Estates of decedents, dying domiciled within or 
without this state; 
    (4) (3) Trusts (except those taxable as corporations) 
however created by residents or nonresidents or by domestic or 
foreign corporations. 
    Sec. 26.  Minnesota Statutes 1986, section 290.032, 
subdivision 1, is amended to read:  
    Subdivision 1.  There is hereby imposed as an addition to 
the annual income tax for a taxable year of a taxpayer in the 
classes described in section 290.03 a tax with respect to any 
distribution received by such taxpayer that is treated as a lump 
sum distribution under section 402(e) of the Internal Revenue 
Code of 1954 1986, as amended through December 31, 1985 1986, 
and that is subject to tax for such taxable year under section 
402(e) of the Internal Revenue Code of 1954 1986, as amended 
through December 31, 1985 1986. 
    Sec. 27.  Minnesota Statutes 1986, section 290.032, 
subdivision 2, is amended to read:  
    Subd. 2.  The amount of tax imposed by subdivision 1 shall 
be computed in the same way as the tax imposed under section 
402(e) of the Internal Revenue Code of 1954 1986, as amended 
through December 31, 1985 1986, except that the initial separate 
tax shall be an amount equal to ten five times the tax which 
would be imposed by section 290.06, subdivision 2c, if the 
recipient was an unmarried individual electing to deduct federal 
income taxes, and the taxable net income, excluding the credits 
allowed in section 290.06, subdivision 3f, was an amount equal 
to one-tenth one-fifth of the excess of 
    (i) the total taxable amount of the lump sum distribution 
for the year, over 
    (ii) the minimum distribution allowance, and except that 
references in section 402(e) of the Internal Revenue Code 
of 1954 1986, as amended through December 31, 1985 1986, to 
paragraph (1)(A) thereof shall instead be references to 
subdivision 1 of this section. 
    The amount of any distribution from a qualified pension or 
profit-sharing plan which is received as a lump sum distribution 
shall be reduced to the extent of any contribution:  
    (1) not previously allowed as a deduction by reason of a 
change in federal law which was not adopted by Minnesota for a 
taxable year beginning in 1974 or thereafter; or 
    (2) designated as an employee contribution but which the 
employing unit picks up and which is treated as an employer 
contribution and which was taxed on the Minnesota return but not 
the federal return in the year the contribution was made.  
    Sec. 28.  Minnesota Statutes 1986, section 290.05, 
subdivision 1, is amended to read:  
    Subdivision 1.  The following corporations, individuals, 
estates, trusts, and organizations shall be exempted from 
taxation under this chapter, provided that every such person or 
corporation claiming exemption under this chapter, in whole or 
in part, must establish to the satisfaction of the commissioner 
the taxable status of any income or activity: 
    (a) corporations, individuals, estates, and trusts engaged 
in the business of mining or producing iron ore and other ores 
the mining or production of which is subject to the occupation 
tax imposed by section 298.01; but if any such corporation, 
individual, estate, or trust engages in any other business or 
activity or has income from any property not used in such 
business it shall be subject to this tax computed on the net 
income from such property or such other business or activity.  
Royalty (as defined in section 299.02) shall not be considered 
as income from the business of mining or producing iron ore 
within the meaning of this section; 
    (b) the United States of America, the state of Minnesota or 
any political subdivision of either agencies or 
instrumentalities, whether engaged in the discharge of 
governmental or proprietary functions;  
    (c) mutual insurance companies or associations, including 
interinsurers and reciprocal underwriters, that are exempt as 
provided in the Revenue Act of 1936. 
    Sec. 29.  Minnesota Statutes 1986, section 290.05, 
subdivision 2, is amended to read:  
    Subd. 2.  Except as provided in subdivisions 1 and 3, 
organizations are exempted from taxation under this chapter if 
they are exempt from income taxation pursuant to Subchapter F of 
the Internal Revenue Code.  Township mutual insurance companies, 
as defined in chapter 67A, and nonprofit health service plan 
corporations, as defined in chapter 62C, are subject to taxation 
under chapter 290 unless they are exempt from taxation under 
subchapter F of the Internal Revenue Code of 1986. 
    Sec. 30.  Minnesota Statutes 1986, section 290.06, 
subdivision 1, is amended to read:  
    Subdivision 1.  [COMPUTATION, CORPORATIONS.] (a) The 
privilege and income taxes franchise tax imposed by this chapter 
upon corporations shall be computed by applying to their taxable 
net income in excess of the applicable deductions allowed under 
section 290.21 the following rates:  
    (1) On the first $25,000, for the first taxable year 
beginning after December 31, 1981 and before January 1, 1983 
nine percent and, for taxable years beginning after December 31, 
1982, six percent; provided that, in the case of a corporation 
having taxable net income allocated to this state pursuant to 
the provisions of section 290.19, 290.20, 290.35, or 290.36, the 
amount of income subject to this rate shall be that proportion 
of $25,000 which its income allocable to this state bears to its 
total taxable net income; and 
    (2) On the remainder, 12 rate of 9.5 percent adjusted as 
provided in paragraph (b). 
    (b) For taxable years beginning after December 31, 1989, 
the commissioner of revenue must adjust the rate provided in 
paragraph (a) as provided in this paragraph.  By December 15, 
1989, the commissioner shall prepare a forecast of revenues 
predicted to be raised for taxable years beginning in 1990 by 
the franchise tax on corporations under this chapter for taxable 
years beginning in 1990, including the tax under section 
290.092, computed as if the tax were imposed under section 
290.092, subdivisions 1 to 4, and the rate in effect in this 
subdivision were 9.5 percent.  The commissioner shall adjust the 
rate provided in paragraph (a) so that the amount forecast to be 
raised by the franchise tax on corporations under this chapter, 
including the tax under section 290.092, subdivision 5, is equal 
to the amount of the forecast computed as if the tax under 
section 290.092, subdivisions 1 to 4, were in effect.  
    Sec. 31.  Minnesota Statutes 1986, 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 who elect to deduct 
federal income taxes under section 290.088 must be computed by 
applying to their taxable net income the following schedule of 
rates: 
     If taxable net income is:           The tax is:      
       not over $875                1.5 percent 
       over $875 but not            $13 plus 2.0 percent of the 
       over $1,750                  excess over $875 
       over $1,750 but not          $31 plus 2.9 percent of the 
       over $3,500                  excess over $1,750 
       over $3,500 but not          $81 plus 4.8 percent of 
       over $5,375                  the excess over $3,500 
       over $5,375 but not          $171 plus 5.9 percent of 
       over $7,000                  the excess over $5,375 
       over $7,000 but not          $267 plus 6.1 percent of
       over $7,125                  the excess over $7,000 
       over $7,125 but not          $275 plus 7.2 percent of 
       over $8,875                  the excess over $7,125 
       over $8,875 but not          $401 plus 8.3 percent of 
       over $12,375                 the excess over $8,875 
       over $12,375 but not         $691 plus 9.3 percent of 
       over $14,000                 the excess over $12,375 
       over $14,000 but not         $842 plus 10 percent of 
       over $16,000                 the excess over $14,000 
       over $16,000 but not         $1,042 plus 11 percent 
       over $21,500                 of the excess over $16,000 
       over $21,500 but not         $1,647 plus 11.3 percent 
       over $22,125                 of the excess over $21,500 
       over $22,125 but not         $1,718 plus 12.3 percent 
       over $25,500                 of the excess over $22,125 
       over $25,500 but not         $2,133 plus 12.6 percent 
       over $28,500                 of the excess over $25,500 
       over $28,500 but not         $2,511 plus 13.7 percent 
       over $31,750                 of the excess over $28,500 
       over $31,750                 $2,957 plus 14.0 percent 
                                    of the excess over $31,750 
    (b) The income taxes imposed by this chapter upon all other 
married individuals filing joint returns must be computed by 
applying to their taxable net income the following schedule of 
rates: 
     If taxable net income is:           The tax is:  
       not over $1,200              1.7 percent 
       over $1,200 but not          $20 plus 2.1 percent of the 
       over $1,700                  excess over $1,200 
       over $1,700 but not          $31 plus 2.3 percent of the 
       over $2,700                  excess over $1,700 
       over $2,700 but not          $54 plus 3.3 percent of 
       over $5,600                  the excess over $2,700 
       over $5,600 but not          $150 plus 5.3 percent of 
       over $9,100                  the excess over $5,600 
       over $9,100 but not          $335 plus 6.8 percent of 
       over $12,600                 the excess over $9,100 
       over $12,600 but not         $573 plus 8.5 percent of 
       over $17,800                 the excess over $12,600 
       over $17,800 but not         $1,015 plus 9.3 percent of 
       over $30,800                 the excess over $17,800 
       over $30,800                 $2,224 plus 9.9 percent of 
                                    the excess over $30,800 
    (1) For taxable years beginning after December 31, 1986, 
and before January 1, 1988 
     if taxable income is:               the tax is:
       not over $4,000              4 percent
       over $4,000, but not         $160 plus 6 percent of the
       over $11,000                 excess over $4,000
       over $11,000, but not        $580 plus 8 percent of the
       over $21,000                 excess over $11,000
       over $21,000                 $1,380 plus 9 percent of
                                    the excess over $21,000
    (2) For taxable years beginning after December 31, 1987 
     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 equal to ten percent of the tax paid by the 
taxpayer under section 1(g) of the Internal Revenue Code of 
1986, as amended through December 31, 1986.  
    (c) (b) The income taxes imposed by this chapter upon 
unmarried individuals, married individuals filing separate 
returns, estates, and trusts that elect to deduct federal income 
taxes under section 290.088 must be computed by applying to 
taxable net income the following schedule of rates: 
     If taxable net income is:           The tax is:  
       not over $700                1.3 percent 
       over $700 but not            $9 plus 1.9 percent of the 
       over $1,400                  excess over $700 
       over $1,400 but not          $22 plus 3.2 percent of the 
       over $2,800                  excess over $1,400 
       over $2,800 but not          $67 plus 5.4 percent of 
       over $4,300                  the excess over $2,800 
       over $4,300 but not          $148 plus 6.9 percent of 
       over $5,700                  the excess over $4,300 
       over $5,700 but not          $245 plus 8.4 percent of 
       over $7,100                  the excess over $5,700 
       over $7,100 but not          $362 plus 9.8 percent of 
       over $9,900                  the excess over $7,100 
       over $9,900 but not          $637 plus 11.1 percent of 
       over $12,800                 the excess over $9,900 
       over $12,800 but not         $959 plus 12.4 percent of 
       over $15,400                 the excess over $12,800 
       over $15,400 but not         $1,281 plus 13.6 percent of 
       over $19,400                 the excess over $15,400 
       over $19,400                 $1,825 plus 14 percent 
                                    of the excess over $19,400 
    (1) For taxable years beginning after December 31, 1986, 
and before January 1, 1988 
     if taxable income is:               the tax is:
       not over $3,000              4 percent
       over $3,000, but not         $120 plus 6 percent
       over $9,000                  of the excess over $3,000
       over $9,000, but not         $480 plus 8 percent
       over $16,000                 of the excess over $9,000
       over $16,000                 $1,040 plus 9 percent
                                    of the excess over $16,000
    (2) For taxable years beginning after December 31, 1987 
     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 equal to ten percent of the tax paid by the 
taxpayer under section 1(g) of the Internal Revenue Code of 
1986, as amended through December 31, 1986.  
    (d) (c) The income taxes imposed by this chapter upon all 
other unmarried individuals, married individuals filing separate 
returns, estates, and trusts qualifying as a head of household 
as defined in section 2(b) of the Internal Revenue Code of 1986, 
as amended through December 31, 1986, must be computed by 
applying to taxable net income the following schedule of rates: 
     If taxable net income is:           The tax is:  
       not over $300                1 percent 
       over $300 but not            $3 plus 1.3 percent of the 
       over $600                    excess over $300 
       over $600 but not            $7 plus 1.6 percent of the 
       over $900                    excess over $600 
       over $900 but not            $12 plus 2.1 percent of 
       over $1,300                  the excess over $900 
       over $1,300 but not          $20 plus 2.7 percent of 
       over $2,000                  the excess over $1,300 
       over $2,000 but not          $39 plus 3.7 percent of 
       over $2,800                  the excess over $2,000 
       over $2,800 but not          $69 plus 4.5 percent of 
       over $4,300                  the excess over $2,800 
       over $4,300 but not          $136 plus 6.1 percent of 
       over $6,400                  the excess over $4,300 
       over $6,400 but not          $264 plus 7.5 percent of 
       over $9,400                  the excess over $6,400 
       over $9,400 but not          $489 plus 9.3 percent of 
       over $16,200                 the excess over $9,400 
       over $16,200                 $1,122 plus 9.9 percent 
                                    of the excess over $16,200 
    (1) For taxable years beginning after December 31, 1986, 
and before January 1, 1988 
     if taxable income is:               the tax is:
       not over $3,500              4 percent
       over $3,500, but not         $140 plus 6 percent
       over $10,000                 of the excess over $3,500
       over $10,000, but not        $530 plus 8 percent
       over $18,500                 of the excess over $10,000
       over $18,500                 $1,210 plus 9 percent
                                    of the excess over $18,500
    (2) For taxable years beginning after December 31, 1987 
     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 equal to ten percent of the tax paid by the 
taxpayer under section 1(g) of the Internal Revenue Code of 
1986, as amended through December 31, 1986.  
    (e) (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. 
    (f) (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 sourced 
federal adjusted gross income, computed as if the as defined in 
section 62 of the Internal Revenue Code of 1986, as amended 
through December 31, 1986, after applying the allocation and 
assignability provisions of section 290.081, clause (a), 290.17, 
subdivision 2, or 290.171 applied; 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, 1986. 
    Sec. 32.  Minnesota Statutes 1986, section 290.06, 
subdivision 2d, is amended to read:  
    Subd. 2d.  [INFLATION ADJUSTMENT OF BRACKETS.] (a) For 
taxable years beginning after December 31, 1985 1990, 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, 1984 1987, and before January 
1, 1986 1991.  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 by the 
percentage determined under pursuant to the provisions of 
section 1(f) of the Internal Revenue Code of 1954 1986, as 
amended through December 31, 1985 1986, except that in section 
1(f)(3)(B) the word "1984 1989" shall be substituted for the 
word "1983 1987."  For 1991, the commissioner shall then 
determine the percent change from the 12 months ending on 
September 30, 1984 August 31, 1989, to, for 1986, the 12 months 
ending on September 30, 1985 August 31, 1990, and in each 
subsequent year, from the 12 months ending on September 30, 1984 
August 31, 1989, to the 12 months ending on September 30 August 
31 of the preceding 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, the maximum standard deduction 
amount, and the personal credit amounts. 
    Sec. 33.  Minnesota Statutes 1986, section 290.06, is 
amended by adding a subdivision to read: 
    Subd. 20.  [ELDERLY AND DISABLED PERSONS.] An individual 
may take a credit against the tax due under this chapter equal 
to 40 percent of the credit for which the individual qualifies 
under section 22 of the Internal Revenue Code of 1986, as 
amended through December 31, 1986. 
    Sec. 34.  Minnesota Statutes 1986, section 290.06, is 
amended by adding a subdivision to read: 
     Subd. 21.  [ALTERNATIVE MINIMUM TAX.] (a) A corporation is 
allowed a credit for alternative minimum tax previously paid for 
any taxable year in which the corporation has no tax liability 
under section 290.092, and has an alternative minimum tax credit 
carryover from a previous year.  The credit shall be equal to 
the lesser of (1) the excess of the tax under section 290.06 for 
the taxable year over the amount computed under section 290.092, 
subdivision 1, clause (a), for the taxable year, or (2) the 
alternative minimum tax credit carryover to the taxable year. 
     (b) The tax imposed under section 290.092 for any taxable 
year is a credit for alternative minimum tax previously paid 
which is a carryover to each of the 15 taxable years succeeding 
the taxable year.  The entire amount of the alternative minimum 
tax credit must be carried to the earliest of the taxable years 
to which such amount may be carried.  The portion of the 
alternative minimum tax credit which is carried to each of the 
other taxable years to which the credit may be carried is the 
excess, if any, of the credit over the amount allowable under 
paragraph (a) for each of the taxable years to which the credit 
may be carried.  In each taxable year in which a credit is 
allowable under paragraph (a), the credit for alternative 
minimum tax previously paid must be used beginning with the 
earliest taxable year from which the credit may be carried. 
     Sec. 35.  Minnesota Statutes 1986, 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 of 1954, 
as amended through December 31, 1985, subject to the limitations 
provided in subdivision 2. 
    Sec. 36.  Minnesota Statutes 1986, section 290.067, 
subdivision 2, is amended to read:  
    Subd. 2.  [LIMITATIONS.] The credit for expenses incurred 
for the care of each dependent shall not exceed $720 in any 
taxable year, and the total credit for all dependents of a 
claimant shall not exceed $1,440 in a taxable year.  The maximum 
total credit shall be reduced according to the amount of the 
combined federal adjusted gross income, plus the ordinary income 
portion of any lump sum distribution under section 402(e) of the 
Internal Revenue Code of 1954, as amended through December 31, 
1985, of the claimant and a spouse, if any, as follows:  
    income up to $10,000 $12,200, $720 maximum for one 
dependent, $1,440 for all dependents;  
    income of $10,001 to $11,000, $660 maximum for one 
dependent, $1,320 for all dependents; 
    income over $11,000 $12,200, the maximum credit for one 
dependent shall be reduced by $10 $12 for every $200 of 
additional income, $20 $24 for all dependents;  
    for income of $24,001 and over, no credit shall be received.
    The commissioner shall construct and make available to 
taxpayers tables showing the amount of the credit at various 
levels of income and expenses.  The tables shall follow the 
schedule contained in this subdivision, except that the 
commissioner may graduate the transitions between expenses and 
income brackets.  
    Sec. 37.  Minnesota Statutes 1986, section 290.067, is 
amended by adding a subdivision to read: 
    Subd. 2a.  [INCOME.] For purposes of this section, "income" 
means the sum of the following: 
    (1) the greater of federal adjusted gross income as defined 
in section 62 of the Internal Revenue Code or zero; and 
    (2) the sum of the following amounts to the extent not 
included in clause (1): 
    (i) all nontaxable income; 
    (ii) the amount of a passive activity loss that is not 
disallowed as a result of section 469, paragraph (i) or (1) of 
the Internal Revenue Code and the amount of passive activity 
loss carryover allowed under section 469(b) of the Internal 
Revenue Code; 
    (iii) an amount equal to the total of any discharge of 
qualified farm indebtedness of a solvent individual excluded 
from gross income under section 108(g) of the Internal Revenue 
Code;  
     (iv) cash public assistance and relief;  
     (v) any pension or annuity (including railroad retirement 
benefits, all payments received under the federal Social 
Security Act, supplemental security income, and veterans 
benefits), which was not exclusively funded by the claimant or 
spouse, or which was funded exclusively by the claimant or 
spouse and which funding payments were excluded from federal 
adjusted gross income in the years when the payments were made; 
     (vi) interest received from the federal or a state 
government or any instrumentality or political subdivision 
thereof; 
    (vii) workers' compensation; 
    (viii) nontaxable strike benefits; 
    (ix) the gross amounts of payments received in the nature 
of disability income or sick pay as a result of accident, 
sickness, or other disability, whether funded through insurance 
or otherwise; 
    (x) the ordinary income portion of a lump sum distribution 
under section 402(e) of the Internal Revenue Code; and 
     (xi) contributions made by the claimant to an individual 
retirement account, including a qualified voluntary employee 
contribution; simplified employee pension plan; self-employed 
retirement plan; cash or deferred arrangement plan under section 
401(k) of the Internal Revenue Code; or deferred compensation 
plan under section 457 of the Internal Revenue Code. 
    Sec. 38.  Minnesota Statutes 1986, section 290.067, is 
amended by adding a subdivision to read: 
     Subd. 6.  For purposes of this section, "Internal Revenue 
Code" means the Internal Revenue Code of 1986, as amended 
through December 31, 1986. 
    Sec. 39.  Minnesota Statutes 1986, section 290.068, 
subdivision 1, is amended to read:  
    Subdivision 1.  [CREDIT ALLOWED.] In addition to the 
deduction provided in section 290.09, A corporation, other than 
a corporation with a valid election in effect under section 
290.9725, is allowed a credit against the tax imposed by this 
chapter for the taxable year equal to: 
    (a) 12.5 5 percent of the first $2 million of the excess 
(if any) of 
    (1) the qualified research expenses for the taxable year, 
over 
    (2) the base period research expenses; and 
    (b) 6.25 2.5 percent on all of such excess expenses over $2 
million. 
    Sec. 40.  Minnesota Statutes 1986, section 290.068, 
subdivision 2, is amended to read:  
    Subd. 2.  [DEFINITIONS.] For purposes of this section, the 
following terms have the meanings given.  
    (a) "Qualified research expenses" means (i) qualified 
research expenses as defined in section 30 41(b) and (e) of the 
Internal Revenue Code, except it shall not include expenses 
incurred for basic research conducted outside the state of 
Minnesota pursuant to section 30 41(e); or (ii) contributions to 
a nonprofit corporation established and operated pursuant to the 
provisions of chapter 317 for the purpose of promoting the 
establishment and expansion of business in this state, provided 
the contributions are invested by the nonprofit corporation for 
the purpose of providing funds for small, technologically 
innovative enterprises in Minnesota during the early stages of 
their development.  
    (b) "Qualified research" means qualified research as 
defined in section 30 41(d) of the Internal Revenue Code, except 
that the term shall not include qualified research conducted 
outside the state of Minnesota.  
    (c) "Base period research expenses" means base period 
research expenses as defined in section 30 41(c) of the Internal 
Revenue Code, except that "December 31, 1981" shall be 
substituted for "June 30, 1981" in subparagraph (B) of paragraph 
(2) and the definitions contained in clauses (a) and (b) shall 
apply.  
    (d) "Internal Revenue Code" means the Internal Revenue Code 
of 1954 1986, as amended through December 31, 1984 1986. 
    Sec. 41.  Minnesota Statutes 1986, section 290.068, 
subdivision 3, is amended to read:  
    Subd. 3.  [LIMITATION; CARRYBACK AND CARRYOVER.] (a)(1) The 
credit for the taxable year shall not exceed the liability for 
tax.  "Liability for tax" for purposes of this section means the 
tax imposed under this chapter for the taxable year reduced by 
the sum of the nonrefundable credits allowed under this chapter. 
    (2) In the case of a corporation which is a partner in a 
partnership, the credit allowed for the taxable year shall not 
exceed the lesser of the amount determined under clause (1) for 
the taxable year or an amount (separately computed with respect 
to the corporation's interest in the trade or business or 
entity) equal to the amount of tax attributable to that portion 
of taxable income which is allocable or apportionable to the 
corporation's interest in the trade or business or entity.  
    (b) If the amount of the credit determined under this 
section for any taxable year exceeds the limitation under clause 
(a), the excess shall be a research credit carryback to each of 
the three preceding taxable years and a research credit 
carryover to each of the 15 succeeding taxable years.  The 
entire amount of the excess unused credit for the taxable year 
shall be carried first to the earliest of the taxable years to 
which the credit may be carried and then to each successive year 
to which the credit may be carried.  The amount of the unused 
credit which may be added under this clause shall not exceed the 
taxpayer's liability for tax less the research credit for the 
taxable year.  
    For the purposes of sections 290.46 and 290.50, if the 
claim for refund relates to an overpayment attributable to a 
research and experimental expenditure credit carryback under 
this subdivision, in lieu of the period of limitation prescribed 
in sections 290.46 and 290.50, the period of limitation shall be 
that period which ends with the expiration of the 15th day of 
the 45th month following the end of the taxable year in which 
the research and experimental expenditure credit arises which 
results in the carryback, plus any extension of time granted for 
filing the return, but only if the return was filed within the 
extended time.  With respect to any portion of a credit 
carryback from a taxable year attributable to a loss carryback 
from a subsequent taxable year, the period of limitations shall 
be that period which ends with the expiration of the 15th day of 
the 45th month following the end of the subsequent taxable year, 
plus any extension of time granted for filing the return, but 
only if the return was filed within the extended time.  In any 
case in which a taxpayer is entitled to a refund in a carryback 
year due to the carryback of a research and experimental 
expenditure credit, interest shall be computed only from the end 
of the taxable year in which the credit arises.  With respect to 
any portion of a credit carryback from a taxable year 
attributable to a loss carryback from a subsequent taxable year, 
interest shall be computed from the end of the subsequent 
taxable year.  
    Sec. 42.  Minnesota Statutes 1986, section 290.068, 
subdivision 4, is amended to read:  
    Subd. 4.  [PARTNERSHIPS.] In the case of partnerships the 
credit shall be allocated in the same manner provided by section 
30 41(f)(2) of the Internal Revenue Code. 
    Sec. 43.  Minnesota Statutes 1986, section 290.068, 
subdivision 5, is amended to read:  
    Subd. 5.  [ADJUSTMENTS; ACQUISITIONS AND DISPOSITIONS.] If 
a taxpayer acquires or disposes of the major portion of a trade 
or business or the major portion of a separate unit of a trade 
or business in a transaction with another taxpayer, the 
taxpayer's qualified research expenses and base period shall be 
adjusted in the same manner provided by section 30 41(f)(3) of 
the Internal Revenue Code, except that "December 31, 1980" shall 
be substituted for "June 30, 1980."  
    Sec. 44.  Minnesota Statutes 1986, section 290.068, 
subdivision 6, is amended to read:  
    Subd. 6.  [ADDITIONAL CREDIT.] (a) For taxable years 
beginning after December 31, 1986, and before January 1, 1988, 
in addition to the credit allowed by subdivision 1, a credit 
shall be allowed against the tax imposed by this chapter for the 
taxable year equal to 12.5 five percent of the amount of 
qualified research expenses paid or incurred for qualified 
research performed by a Minnesota-domiciled corporation for or 
on behalf of one or more of its wholly-owned subsidiary 
corporations which has in effect during the taxable year a valid 
election under section 936 of the Internal Revenue Code, 
including any expenses paid or incurred that are attributable to 
a wholly-owned subsidiary corporation by reason of paragraph (h) 
of section 936 for purposes of determining each corporation's 
combined taxable income.  
    (b) The maximum credit allowed by clause (a) for the 
taxable year shall be the excess of 
    (1) the total amount of tax imposed by this chapter on all 
members of the unitary group for the taxable year, over 
    (2) the sum of (A) the total amount of tax which would be 
imposed on the unitary group, if the corporation or corporations 
with valid elections under section 936 of the Internal Revenue 
Code were excluded from the unitary group, plus (B) the tax, if 
any, which would be imposed on the corporation or corporations 
with valid elections under section 936 of the Internal Revenue 
Code without regard to the other members of the unitary group.  
    (c)(1) If the amount of the credit determined under clause 
(a) for any taxable year exceeds the limitation provided in 
clause (b), the excess shall be a research credit carryover to 
each of the 15 succeeding taxable years.  The entire amount of 
the excess unused credit for the taxable year shall be carried 
first to the earliest of the taxable years to which the credit 
may be carried and then to each successive year to which the 
credit may be carried. 
    (2) The amount of the unused credit which may be added 
under subparagraph (1) for any preceding taxable year shall not 
exceed the amount by which the limitation provided by clause (b) 
for the taxable year exceeds the sum of 
    (i) the credit allowable under this subdivision for the 
taxable year, and 
    (ii) the amounts, which, by reason of subparagraph (1), are 
added to the amount allowable for the taxable year and which are 
attributable to taxable years preceding the taxable year in 
which an excess credit arises.  
    Sec. 45.  Minnesota Statutes 1986, section 290.069, 
subdivision 2a, is amended to read:  
    Subd. 2a.  [RECAPTURE; TECHNOLOGY TRANSFER CREDIT.] (a) A 
corporation which receives a tax reduction pursuant to Minnesota 
Statutes 1986, section 290.069, subdivision 2 shall repay to the 
commissioner an amount of the tax reduction as specified in 
paragraph (b) if any of the following conditions occur within a 
three-year period after the date of transfer of the technology.  
    (1) The transferee ceases operations in the technology 
corridor project area.  
    (2) The transferee becomes a subsidiary or affiliate of the 
transferor.  
    (3) The transferee sells, transfers, or otherwise disposes 
of the rights to technology.  
    (4) The transferee fails to make the necessary payments or 
expenditures required by Minnesota Statutes 1986, section 
290.069, subdivision 2, paragraph (g).  
    (5) The transferee grants an interest to the transferor in 
violation of Minnesota Statutes 1986, section 290.069, 
subdivision 2, paragraph (h).  
    (b) The amount of the repayment is determined pursuant to 
the following schedule:  
Occurrence of event causing recapture     Repayment portion
Less than six months                          100 percent
Six months or more but less than 12 months    83-1/3 percent
12 months or more but less than 18 months     66-2/3 percent
18 months or more but less than 24 months     50 percent
24 months or more but less than 30 months     33-1/3 percent
30 months or more but less than 36 months     16-2/3 percent
    Sec. 46.  Minnesota Statutes 1986, section 290.069, 
subdivision 4b, is amended to read:  
    Subd. 4b.  [MULTISTATE BUSINESSES.] If a qualified small 
business is engaged in a business partly within and partly 
without the state, the credit allowable pursuant to subdivision 
2 for technology transferred to the business must be 
apportioned.  The credit determined pursuant to Minnesota 
Statutes 1986, section 290.069, subdivision 2 must be multiplied 
by the arithmetical average of the qualified small business' 
property and payrolls, determined as provided by section 290.19, 
subdivision 1, clauses (2)(a)(2) and (2)(a)(3), using data from 
the most recently available year.  After the technology is 
transferred, the qualified small business shall certify to the 
transferor taxpayer its factors under section 290.19, 
subdivision 1, clauses (2)(a)(2) and (2)(a)(3) for each of the 
succeeding two tax years.  If the factors for either of these 
years would result in at least a 25 percent change in the 
allowable credit, the taxpayer shall file an amended return 
repaying or claiming the difference in the credit.  The 
preceding sentence does not apply if the qualified small 
business ceases operations in Minnesota and the recapture 
provisions of subdivision 2a or 4a apply.  
    Sec. 47.  Minnesota Statutes 1986, section 290.077, 
subdivision 1, is amended to read:  
    Subdivision 1.  [INCLUSION IN GROSS INCOME.] 
Notwithstanding any other provision of law, income in respect of 
a decedent shall be included in gross income in accordance with 
the method set forth in section 691(a) of the Internal Revenue 
Code of 1954 1986, as amended through December 31, 1985 1986, 
shall be included in the gross income of the estate in the year 
any right to receive it is transferred to a nonresident by the 
personal representative of an estate.  The fair market value of 
the right at the date of the transfer shall be included in the 
gross income of the estate for the year in which the transfer 
occurs and the value of the right shall not be allowed as a 
deduction in computing the taxable net income of the estate.  
The estate shall not include the value of the right in its gross 
income and the personal representative shall be relieved of any 
further liability with respect to that right if the 
nonresident:  (1) includes the fair market value of the right 
(as of the date the right is received) in the nonresident's 
gross income for the year the right is received and pays the tax 
thereon; or (2) elects to include the amount received in payment 
of the right in the nonresident's gross income for the year in 
which the payment is received and pays the tax on it in the same 
manner as a resident of this state and files a bond with the 
commissioner of revenue during the year the right is received, 
in the form and in the amount as the commissioner considers 
necessary to assure payment of the tax.  A bond required under 
clause (2) shall be considered sufficient if in an amount 
equivalent to the tax that would be due if the method provided 
in clause (1) were followed.  
    Sec. 48.  Minnesota Statutes 1986, section 290.081, is 
amended to read:  
    290.081 [INCOME OF NONRESIDENTS, RECIPROCITY; CREDIT FOR 
TAXES PAID TO ANOTHER STATE.] 
    (a) The compensation received for the performance of 
personal or professional services within this state by an 
individual whose residence, place of abode, and place 
customarily returned to at least once a month is in another 
state, shall be excluded from gross income to the extent such 
compensation is subject to an income tax imposed by the state of 
residence; provided that such state allows a similar exclusion 
of compensation received by residents of Minnesota for services 
performed therein, or 
    (b) If any taxpayer who is a resident of this state, or a 
domestic corporation or corporation commercially domiciled 
therein, has become liable for taxes on or measured by net 
income to another state or a province or territory of Canada 
upon, if the taxpayer is an individual, or if the taxpayer is an 
athletic team and all of the team's income is apportioned to 
Minnesota, any income, or if it is a corporation, estate, or 
trust, upon income derived from the performance of personal or 
professional services within such other state or province or 
territory of Canada and subject to taxation under this chapter 
the taxpayer shall be entitled to a credit against the amount of 
taxes payable under this chapter, of such proportion thereof, as 
such gross income subject to taxation in such state or province 
or territory of Canada bears to the taxpayer's entire gross 
income subject to taxation under this chapter; provided (1) that 
such credit shall in no event exceed the amount of tax so paid 
to such other state or province or territory of Canada on the 
gross income earned within such other state or province or 
territory of Canada and subject to taxation under this chapter, 
and (2) the allowance of such credit shall not operate to reduce 
the taxes payable under this chapter to an amount less than 
would have been payable if the gross income earned in such other 
state or province or territory of Canada had been excluded in 
computing net income under this chapter.  A taxpayer who is a 
resident of this state pursuant to section 290.01, subdivision 
7a, clause (2), and 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. 
    (c) The commissioner shall by rule determine with respect 
to gross income earned in any other state the applicable clause 
of this section.  When it is deemed to be in the best interests 
of the people of this state, the commissioner may determine that 
the provisions of clause (a) shall not apply.  As long as the 
provisions of clause (a) apply between Minnesota and Wisconsin, 
the provisions of clause (a) shall apply to any individual who 
is domiciled in Wisconsin.  
    (d) "Tax So Paid" as used in this section means taxes on or 
measured by net income payable to another state or province or 
territory of Canada on income earned within the taxable year for 
which the credit is claimed, provided that such tax is actually 
paid in that taxable year, or subsequent taxable years. 
    For purposes of clause (b), where a Minnesota resident 
reported an item of income to Minnesota and is assessed tax in 
another state or a province or territory of Canada on that same 
item of income after the Minnesota statute of limitations has 
expired, the taxpayer shall be allowed to receive a credit for 
that year based on clause (b), notwithstanding the provisions of 
sections 290.49, 290.50, and 290.56.  For purposes of the 
preceding sentence, the burden of proof shall be on the taxpayer 
to show entitlement to a credit.  
    (e) For the purposes of clause (a), whenever the Wisconsin 
tax on Minnesota residents which would have been paid Wisconsin 
without clause (a) exceeds the Minnesota tax on Wisconsin 
residents which would have been paid Minnesota without clause 
(a), or vice versa, then the state with the net revenue loss 
resulting from clause (a) shall receive from the other state the 
amount of such loss.  This provision shall be effective for all 
years beginning after December 31, 1972.  The data used for 
computing the loss to either state shall be determined on or 
before September 30 of the year following the close of the 
previous calendar year. 
    Interest shall be payable on all delinquent balances 
relating to taxable years beginning after December 31, 1977.  
The commissioner of revenue is authorized to enter into 
agreements with the state of Wisconsin specifying the 
reciprocity payment due date, conditions constituting 
delinquency, interest rates, and a method for computing interest 
due on any delinquent amounts. 
    If an agreement cannot be reached as to the amount of the 
loss, the commissioner of revenue and the taxing official of the 
state of Wisconsin shall each appoint a member of a board of 
arbitration and these members shall appoint the third member of 
the board.  The board shall select one of its members as chair.  
Such board may administer oaths, take testimony, subpoena 
witnesses, and require their attendance, require the production 
of books, papers and documents, and hold hearings at such places 
as are deemed necessary.  The board shall then make a 
determination as to the amount to be paid the other state which 
determination shall be final and conclusive. 
    Notwithstanding the provisions of section 290.61, the 
commissioner may furnish copies of returns, reports, or other 
information to the taxing official of the state of Wisconsin, a 
member of the board of arbitration, or a consultant under joint 
contract with the states of Minnesota and Wisconsin for the 
purpose of making a determination as to the amount to be paid 
the other state under the provisions of this section.  Prior to 
the release of any information under the provisions of this 
section, the person to whom the information is to be released 
shall sign an agreement which provides that the person will 
protect the confidentiality of the returns and information 
revealed thereby to the extent that it is protected under the 
laws of the state of Minnesota. 
    Sec. 49.  Minnesota Statutes 1986, section 290.091, 
subdivision 1, is amended to read:  
    Subdivision 1.  [IMPOSITION OF TAX.] In addition to all 
other taxes imposed by this chapter a tax is imposed on 
individuals, estates, and trusts equal to the excess (if any) of 
    (a) an amount equal to four six percent of alternative 
minimum taxable income after subtracting the exemption amount, 
over 
    (b) the regular tax for the taxable year. 
    Sec. 50.  Minnesota Statutes 1986, section 290.091, 
subdivision 2, is amended to read: 
    Subd. 2.  [DEFINITIONS.] For purposes of the tax imposed by 
this section, the following terms have the meanings given: 
    (a) "Alternative minimum taxable income" means the sum of 
the following for the taxable year: 
    (1) the taxpayer's federal adjusted gross alternative 
minimum taxable income as defined in section 55(b)(2) of the 
Internal Revenue Code; 
    (2) the taxpayer's itemized deductions allowed in computing 
federal tax preference items alternative minimum taxable income, 
but excluding the portion of the charitable contribution 
deduction that constitutes an item of tax preference under 
section 57(a)(6) of the Internal Revenue Code; 
    (3) to the extent not included in federal alternative 
minimum taxable income, the amount of interest income as 
provided by section 290.01, subdivision 20a, clauses (1), (3), 
and (4) 19a, clause (1); less the sum of 
    (i) interest income as defined in section 290.01, 
subdivision 20b 19b, clause (1); 
    (ii) an overpayment of state income tax as provided by 
section 290.01, subdivision 20b 19b, clause (4) (2); and 
    (iii) the amount of investment interest paid or accrued 
within the taxable year on indebtedness to the extent that the 
amount does not exceed qualified net investment income, as 
defined in section 55(e)(5) 163(d)(4) of the Internal Revenue 
Code.  Interest does not include amounts deducted in computing 
federal adjusted gross income; and 
    (iv) to the extent included in the taxpayer's federal 
adjusted gross income, gain excluded from gross income under 
section 290.01, subdivision 20b, clause (13). 
    In the case of an estate or trust, adjusted gross 
alternative minimum taxable income must be modified computed as 
provided in section 55(e)(6)(B) 59(c) of the Internal Revenue 
Code and reduced by the deductions allowed under sections 
642(c), 651(a), and 661(a) of the Internal Revenue Code. 
    (b) "Federal tax preference items" means items as defined 
in sections 57, 58, and 443(d) of the Internal Revenue Code, 
modified as follows: 
    (1) The capital gain preference item shall be reduced 
    (i) where the gain would be modified because some or all of 
the assets have a higher basis for Minnesota purposes than for 
federal purposes; and 
    (ii) to the extent it includes gain excluded from gross 
income under section 290.01, subdivision 20b, clause (13).  
    (2) In the case of a nonresident individual, or an estate 
or trust, with a net operating loss that is a larger amount for 
Minnesota than for federal, the capital gain preference item 
shall be reduced to the extent it was reduced in the allowance 
of the net operating loss.  
    (3) Federal preference items from the business of mining or 
producing iron ore and other ores which are subject to the 
occupation tax and exempt from taxation under section 290.05, 
subdivision 1, shall not be a preference item for Minnesota.  
    (4) Other federal preference items to the extent not 
allowed in the computation of Minnesota gross income, as 
determined by the commissioner, are not preference items for 
Minnesota. 
    (c) "Internal Revenue Code" means the Internal Revenue Code 
of 1954 1986, as amended through December 31, 1985 1986. 
    (c) "Investment interest" means investment interest as 
defined in section 163(d)(3) of the Internal Revenue Code. 
    (d) "Regular tax" means the tax that would be imposed under 
this chapter (without regard to this section and section 
290.032), reduced by the sum of the nonrefundable credits 
allowed under this chapter.  
    Sec. 51.  Minnesota Statutes 1986, section 290.091, 
subdivision 3, is amended to read: 
    Subd. 3.  [EXEMPTION AMOUNT.] For purposes of computing the 
alternative minimum tax, the exemption amount is: 
    (a) $40,000 in the case of a married couple filing a joint 
return; 
    (b) $30,000 in the case of an individual who is not 
married, as defined in section 143 of the Internal Revenue Code; 
    (c) $20,000 in the case of 
    (1) an estate or trust or 
    (2) a married individual who files a separate tax 
return the exemption determined under section 55(d) of the 
Internal Revenue Code, except that alternative minimum taxable 
income as determined under this section must be substituted in 
the computation of the phase out under section 55(d)(3). 
    Sec. 52.  Minnesota Statutes 1986, section 290.091, 
subdivision 4, is amended to read:  
    Subd. 4.  [PART YEAR RESIDENTS; ESTATES AND TRUSTS.] (a) An 
individual who is not a Minnesota resident for the entire year 
must compute alternative minimum tax liability using a regular 
tax liability determined under section 290.06, subdivision 2c, 
paragraph (f) (e), without regard to the provision for 
allocation to Minnesota.  The resulting alternative minimum tax 
liability must be multiplied by the fraction defined in section 
290.06, subdivision 2c, paragraph (f) (e). 
    (b) In the case of an estate or trust, the alternative 
minimum tax liability must be computed by multiplying 
alternative minimum taxable income and the exemption amount by a 
fraction, the numerator of which is the amount of the taxpayer's 
alternative minimum taxable income allocated to this state 
pursuant to the provisions of sections 290.17 to 290.20, and the 
denominator of which is the taxpayer's total alternative minimum 
taxable income. 
    Sec. 53.  Minnesota Statutes 1986, section 290.091, 
subdivision 5, is amended to read:  
    Subd. 5.  [TAX BENEFIT RULE.] The tax benefit rule 
contained in section 58(h) 59(g) of the Internal Revenue Code 
applies to the computation of the tax under this section only to 
the extent that it determines if there is an item of tax 
preference for purposes of subdivision 2, clause (a)(2) (a)(1).  
    Sec. 54.  [290.092] [ALTERNATIVE MINIMUM TAX FOR 
CORPORATIONS.] 
    Subdivision 1.  [IMPOSITION OF TAX.] For taxable years 
beginning after December 31, 1986, and before January 1, 1990, 
in addition to the taxes computed under this chapter without 
regard to this section, the franchise tax imposed on 
corporations includes a tax equal to the excess, if any, of:  
    (1) .001 multiplied by the alternative minimum tax base, 
over 
    (2) the amount of tax computed under this chapter without 
regard to this section. 
    Subd. 2.  [EXEMPTIONS.] Corporations subject to tax under 
sections 290.05, subdivision 3; or 60A.15, subdivision 1 and 
290.35; real estate investment trusts; regulated investment 
companies; cooperatives taxable under subchapter T of the 
Internal Revenue Code of 1986 or organized under chapter 308 or 
a similar law of another state; and entities having a valid 
election in effect under section 1362 or 860D(b) of the Internal 
Revenue Code of 1986, as amended through December 31, 1986, are 
not subject to the tax imposed in subdivision 1 or subdivision 5.
    Subd. 3.  [ALTERNATIVE MINIMUM TAX BASE.] The alternative 
minimum tax base equals the sum of:  
    (1) the total amount of Minnesota sales and receipts;  
    (2) the amount of the taxpayer's total Minnesota property; 
and 
    (3) the taxpayer's total Minnesota payrolls; 
less the exemption amount, if any. 
    Subd. 4.  [DEFINITIONS.] (a) "Minnesota sales and receipts" 
means the total sales apportioned to Minnesota pursuant to 
section 290.191, subdivision 5, the total receipts attributed to 
Minnesota pursuant to section 290.191, subdivisions 6 to 8, 
and/or the total sales or receipts apportioned or attributed to 
Minnesota pursuant to any other apportionment formula applicable 
to the taxpayer. 
    (b) "Minnesota property" means total Minnesota tangible 
property as provided in section 290.191, subdivisions 9 to 11, 
and any other tangible property located in Minnesota.  
Intangible property shall not be included in Minnesota property 
for purposes of this section.  Taxpayers who do not utilize 
tangible property to apportion income shall nevertheless include 
Minnesota property for purposes of this section.  For the first 
five taxable years during which a corporation is subject to 
taxation under this chapter, the amount of its Minnesota 
property and payrolls shall be deemed to be zero for purposes of 
this section.  
    (c) "Minnesota payrolls" means total Minnesota payrolls as 
provided in section 290.191, subdivision 12.  Taxpayers who do 
not utilize payrolls to apportion income shall nevertheless 
include Minnesota payrolls for purposes of this section. 
    (d) The "exemption amount" equals the lesser of (1) the sum 
of the taxpayer's Minnesota sales and receipts, property, and 
payrolls or (2) $5,000,000 reduced by one-half of the amount of 
the taxpayer's total sales and receipts, property, and payrolls 
in excess of $10,000,000.  Total sales and receipts, property, 
and payroll means the total determined under section 290.191 as 
the denominator of the apportionment formula.  In the case of a 
unitary business, the amount must reflect the factors of the 
entire unitary business as reported on the combined report.  A 
corporation that has as its sole or primary business activity 
(1) the providing of professional services; (2) operation as a 
financial institution; (3) sales or management of real estate; 
or (4) operation as an insurance agency does not have an 
exemption amount.  
    Subd. 5.  [IMPOSITION OF TAX AFTER 1989.] For taxable years 
beginning after December 31, 1989, in addition to the taxes 
computed under this chapter without regard to this section, the 
franchise tax imposed on corporations includes a tax equal to 
the excess, if any, of:  
    (1) 40 percent of the tax imposed upon the corporation 
under section 55(a) of the Internal Revenue Code of 1986, as 
amended through December 31, 1986, apportioned to Minnesota 
under section 290.191.  In computing the amount of the liability 
under section 55(a) of the Internal Revenue Code of 1986, the 
regular federal tax liability under section 55(a)(2) of the 
Internal Revenue Code of 1986, must be determined using federal 
taxable income as modified by sections 290.01, subdivisions 19c 
and 19d, 290.095, and 290.21, and alternative minimum taxable 
income under section 56 of the Internal Revenue Code of 1986 
must be computed as if the section 290.095 restrictions on net 
operating losses applied. 
    (2) the amount of tax computed under this chapter without 
regard to this section.  
    Subd. 6.  [CREDITS.] In computing the tax under this 
section, the following credits are allowed:  
    (1) the enterprise zone credits allowed by section 
273.1314, subdivision 9; 
    (2) the credits for estimated taxes paid; and 
    (3) the research and development credit allowed by section 
290.068.  
    Sec. 55.  [290.093] [TAX COMPUTATION FOR MUTUAL SAVINGS 
BANKS CONDUCTING LIFE INSURANCE BUSINESS.] 
    Mutual savings banks as defined in section 594 of the 
Internal Revenue Code of 1986, as amended through December 31, 
1986, are subject to a tax consisting of the sum of the taxes 
determined under clauses (1) and (2):  
    (1) a tax computed on the taxable income determined without 
regard to any items of gross income or deductions properly 
allocable to the business of the life insurance department, at 
the rates and in the manner as if this section did not apply; 
and 
    (2) a tax computed on the income of the life insurance 
department determined without regard to any items of gross 
income or deductions not properly allocable to the department 
computed in the manner provided in section 290.35 and at the 
rate provided in section 290.06.  
    This section applies only if the life insurance department 
would, if it were treated as a separate corporation, qualify as 
a life insurance company under section 816 of the Internal 
Revenue Code of 1986, as amended through December 31, 1986. 
    Sec. 56.  Minnesota Statutes 1986, section 290.095, 
subdivision 1, is amended to read:  
    Subdivision 1.  [ALLOWANCE OF DEDUCTION.] (a) There shall 
be allowed as a deduction for the taxable year the amount of any 
net operating loss deduction as defined in subdivision 2, clause 
(b); provided, however, that the modifications specified in 
subdivision 4 shall be made in computing the taxable net income 
for the taxable year before the net operating loss deduction 
shall be allowed provided in section 172 of the Internal Revenue 
Code of 1986, as amended through December 31, 1986, subject to 
the limitations and modifications provided in this section. 
    (b) A net operating loss deduction shall be available under 
this section only to corporate taxpayers except as provided in 
that subdivisions 7, 9, and 11 hereof apply only to individuals, 
estates, and trusts.  
    Sec. 57.  Minnesota Statutes 1986, 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 the excess of 
the deductions of the kind provided for in section 290.09, 
permitted to be taken in computing a taxpayer's taxable net 
income, as that term is defined in section 290.01, subdivision 
22, over the gross income used in computing such taxable net 
income a net operating loss as defined in section 172(c) of the 
Internal Revenue Code of 1986, as amended through December 31, 
1986, with the modifications specified in subdivision 4.  The 
deductions provided in section 290.21 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 carrybacks 
and carryovers to the taxable year, computed in accordance with 
subdivision 3.  The provisions of section 172(b) of the Internal 
Revenue Code of 1986, as amended through December 31, 1986, 
relating to the carryback of net operating losses, do not apply. 
    Sec. 58.  Minnesota Statutes 1986, section 290.095, 
subdivision 3, is amended to read:  
    Subd. 3.  [CARRYOVER AND CARRYBACK.] (a) Except as provided 
in clause (d) or subdivision 8, A net operating loss for any 
taxable year shall be: 
    (1) A net operating loss carryback to each of the three 
taxable years preceding the taxable year of such loss, and 
    (2) a net operating loss carryover to each of the five 15 
taxable years following the taxable year of such loss. 
    (b) The entire amount of the net operating loss for any 
taxable year shall be carried to the earliest of the taxable 
years to which, by reason of subdivision 3, clause (a) or (d), 
such loss may be carried.  The portion of such loss which shall 
be carried to each of the other taxable years shall be the 
excess, if any, of the amount of such loss over the sum of the 
taxable net income, adjusted by the modifications specified in 
subdivision 4, for each of the prior taxable years to which such 
loss may be carried. 
    (c) Where a corporation does business both within and 
without Minnesota, and apportions its income under the 
provisions of section 290.19 290.191, the net operating loss 
deduction shall be allowed to the extent of the apportionment 
ratio of the loss year, or the year to which the loss is 
carried, whichever is smaller. 
    (d) Where a corporation files a combined report which 
reflects the entire unitary business as provided in section 
290.34, subdivision 2, the corporation shall not be allowed a 
net operating loss carryback to a year in which it did not file 
a combined report.  The number of taxable years for which a net 
operating loss carryover is allowed shall be increased by the 
number of taxable years for which a net operating loss carryback 
is not allowed under this clause No additional net operating 
loss deduction is allowed in a subsequent taxable year for the 
portion of a net operating loss deduction used to offset 
Minnesota income in a year in which the taxpayer is subject to 
the alternative minimum tax in section 290.092. 
    Sec. 59.  Minnesota Statutes 1986, section 290.095, 
subdivision 4, is amended to read:  
    Subd. 4.  [COMPUTATION AND MODIFICATIONS.] The following 
modifications shall be made in computing a net operating loss in 
any taxable year and also in computing the taxable net income 
for any taxable year before a net operating loss deduction shall 
be allowed: 
    (a) No deduction shall be allowed for or with respect to 
losses connected with income producing activities if the income 
therefrom would not be required to be either assignable to this 
state or included in computing the taxpayer's taxable net income.
    (b) A net operating loss deduction shall not be allowed. 
    (c) The amount deductible on account of losses from sales 
or exchanges of capital assets shall not exceed the amount 
includable on account of gains from sales or exchanges of 
capital assets.  The deduction for long-term capital gains 
provided by section 290.16, subdivision 4, shall not be allowed. 
    (d) Renegotiation of profits for a prior taxable year under 
the renegotiation laws of the United States of America, 
including renegotiation of the profits with a subcontractor, 
shall not enter into the computation. 
    (e) Federal income and excess profits taxes shall not be 
allowed as a deduction. 
    Sec. 60.  Minnesota Statutes 1986, section 290.095, 
subdivision 7, is amended to read: 
    Subd. 7.  [TENTATIVE CARRYBACK ADJUSTMENTS.] (a) 
Application for adjustment.  A taxpayer An individual, estate or 
trust may file an application for a tentative carryback 
adjustment of the tax for the prior taxable year affected by a 
loss or credit carryback from any taxable year.  The application 
shall be signed and verified as provided in section 290.37, 
subdivision 1, and shall be filed on or after the date of filing 
of the return for the taxable year from which the carryback 
results and within a period of 12 months from the end of such 
taxable year (or with respect to any portion of a credit 
carryback from a taxable year attributable to a loss carryback 
from a subsequent taxable year, the application shall be filed 
within a period of 12 months from the end of the subsequent 
taxable year), in the manner and form required by rules 
prescribed by the commissioner.  The application shall set forth 
in such detail and with such supporting data and explanation as 
such rules shall require: 
    (1) the amount of the loss or credit; 
    (2) the amount of the tax previously determined for the 
prior taxable year affected by such carryback; 
    (3) the amount of decrease in such tax, attributable to 
such carryback, such decrease being determined by applying the 
carryback in the manner provided by law to the items on the 
basis of which such tax was determined; 
    (4) the unpaid amount of such tax; 
    (5) such other information for purposes of carrying out the 
provisions of this subdivision as may be required by such rules. 
     An application under this subdivision shall not constitute 
a claim for refund until 90 days from the date on which the 
application was filed, at which time it will become a claim for 
refund under the provisions of section 290.50. 
     (b) Allowance of adjustments.  Within a period of 90 days 
from the date on which an application for a tentative carryback 
adjustment is filed under (a), or from the last day of the month 
in which falls the last date prescribed by law (including any 
extension of time granted the taxpayer) for filing the return 
for the taxable year from which such carryback results, 
whichever is the later, the commissioner shall make, to the 
extent the commissioner deems practicable in such period a 
limited examination of the application, to discover omissions 
and errors of computation therein, and shall determine the 
amount of the decrease in the tax attributable to such carryback 
upon the basis of the application and the examination, except 
that the commissioner may disallow, without further action, any 
application on finding that it contains errors of computation 
which the commissioner deems cannot be corrected by the 
commissioner within such 90-day period or material omissions.  
Such decrease shall be applied against any unpaid amount of tax 
decreased and any remainder shall, within such 90-day period, be 
either credited against any tax or installment thereof then due 
from the taxpayer, or refunded to the taxpayer. 
    (c) The provisions of this subdivision shall apply to net 
operating loss carrybacks as provided in subdivision 3 or 11; 
capital loss carrybacks as provided in section 290.16, 
subdivision 6; research credit carrybacks as provided in section 
290.068, subdivision 3 290.01, subdivisions 19, 19a, and 19b; 
and to any other carrybacks which may be provided in this 
chapter. 
    Sec. 61.  Minnesota Statutes 1986, 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 or as the result in the case of an individual of an 
adjustment of "federal adjusted gross income" because of the 
carryback under section 172 of the Internal Revenue Code of 
1954, as amended through December 31, 1985, 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 (or the 45th month, in the 
case of a corporation) following the end of the taxable year of 
the net operating loss which results in such carryback or 
adjustment of "federal adjusted gross income," 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. 62.  Minnesota Statutes 1986, section 290.095, 
subdivision 11, is amended to read:  
    Subd. 11.  [CARRYBACK OR CARRYOVER ADJUSTMENTS.] (a) For 
individuals the amount of a net operating loss that may be 
carried back or carried over shall be the same dollar amount 
allowable in the determination of federal adjusted gross 
income.  For, estates and trusts the amount of a net operating 
loss that may be carried back or carried over shall be the same 
dollar amount allowable in the determination of federal taxable 
income. 
    (b), provided that, notwithstanding any other provision, 
estates and trusts must apply the following adjustments to the 
amount of the net operating loss that may be carried back or 
carried over must be made for: 
    (1) Nonassignable income or losses for estates and trusts 
as required by section 290.17, subdivision 2. 
    (2) Adjustments to the determination of federal adjusted 
gross income that must be made because of changes in the 
Internal Revenue Code that have not yet been adopted by the 
legislature by updating the reference to the Internal Revenue 
Code contained in section 290.01, subdivision 20. 
    (3) Gains or losses which result from the sale or other 
disposition of property having a higher adjusted basis for 
Minnesota income tax purposes than for federal income tax 
purposes subject to the limitations contained in section 290.01, 
subdivision 20b, clauses (2) and (3). 
    (4) Interest, taxes, and other expenses Deductions not 
allowed allocable to Minnesota under section 290.10, clause (9), 
for estates and trusts 290.17. 
    (5) The modification for accelerated cost recovery system 
depreciation as provided in section 290.01, subdivision 20f. 
    (c)(1) (b) The net operating loss carryback or carryover 
applied as a deduction in the taxable year to which the net 
operating loss is carried back or carried over shall be equal to 
the net operating loss carryback or carryover applied in the 
taxable year in arriving at federal adjusted gross income (or 
federal taxable income for provided that trusts and estates) 
subject to must apply the following modifications contained in 
clause (b) and to the following modifications: 
    (A) (1) Increase the amount of carryback or carryover 
applied in the taxable year by the amount of losses and 
interest, taxes and other expenses not assignable or allowable 
to Minnesota incurred in the taxable year. 
    (B) (2) Decrease the amount of carryback or carryover 
applied in the taxable year by the amount of income not 
assignable to Minnesota earned in the taxable year. 
    (C) A taxpayer who is not a resident of Minnesota during 
any part of the taxable year and who has no income assignable to 
Minnesota during the taxable year shall apply no net operating 
loss carryback or carryover in the taxable year. 
    (2) The provisions of section 172(b) of the Internal 
Revenue Code of 1954 as amended through December 31, 1985 
(relating to carrybacks and carryovers) shall apply.  For 
estates and trusts, the net operating loss carryback or 
carryover to the next consecutive taxable year shall be the net 
operating loss carryback or carryover as calculated in 
clause (c)(1) (b) less the amount applied in the earlier taxable 
year(s).  No additional net operating loss carryback or 
carryover shall be allowed to estates and trusts if the entire 
amount has been used to offset Minnesota income in a year 
earlier than was possible on the federal return.  However, if a 
net operating loss carryback or carryover that was allowed to 
offset federal income in a year earlier than was possible on the 
Minnesota return, an estate or trust shall still be allowed to 
offset Minnesota income but only if the loss was assignable to 
Minnesota in the year the loss occurred. 
    (d) A net operating loss shall be allowed to be carried 
back or carried forward only to the extent that loss was 
assignable to Minnesota in the year the loss occurred or in the 
year to which the loss was carried over, whichever would allow 
more of the loss to be allowed for Minnesota purposes. 
    Sec. 63.  Minnesota Statutes 1986, section 290.10, is 
amended to read:  
    290.10 [NONDEDUCTIBLE ITEMS.] 
    Notwithstanding any other provision of law, in computing 
the net income of a corporation no deduction shall in any case 
be allowed for: 
    (1) personal, living or family expenses; 
    (2) amounts paid out for new buildings or for permanent 
improvements or betterments made to increase the value of any 
property or estate, except as otherwise provided in this chapter;
    (3) amounts expended in restoring property or in making 
good the exhaustion thereof for which an allowance is or has 
been made; 
    (4) premiums paid on any life insurance policy covering the 
life of the taxpayer or of any other person; 
    (5) the shrinkage in value, due to the lapse of time, of a 
life or terminable interest of any kind in property acquired by 
gift, devise, bequest or inheritance; 
    (6) losses from sales or exchanges of property, directly or 
indirectly, between persons as defined and as provided in 
section 267 of the Internal Revenue Code; 
    (7) in computing net income, no deduction shall be allowed 
under section 290.09, subdivision 2, relating to expenses 
incurred or under section 290.09, subdivision 3, relating to 
interest accrued as provided in section 267 of the Internal 
Revenue Code; 
    (8)(a) contributions by employees under the federal 
Railroad Retirement Act and the federal Social Security Act;  
(b) Payments to Minnesota or federal public employee retirement 
funds; (c) 60 percent of the amount of taxes imposed on 
self-employment income under section 1401 of the Internal 
Revenue Code.  Effective for taxable years beginning after 
December 31, 1989, no deduction is allowed for self-employment 
taxes where the taxpayer claimed a deduction for those taxes 
under section 164(f) of the Internal Revenue Code; 
    (9) expenses, interest and taxes connected with or 
allocable against the production or receipt of all income not 
included in the measure of the tax imposed by this chapter, 
except that for persons corporations engaged in the business of 
mining or producing iron ore, the mining of which is subject to 
the occupation tax imposed by section 298.01, subdivision 1, 
this shall not prevent a subtraction to the extent allowed under 
section 290.01, subdivision 20b, clause (10)(b), or the 
deduction by a corporate taxpayer of expenses and other items to 
the extent that the expenses and other items are allowable under 
section 290.09 this chapter and are not deductible, 
capitalizable, retainable in basis, or taken into account by 
allowance or otherwise in computing the occupation tax and do 
not exceed the amounts taken for federal income tax purposes for 
that year.  Occupation taxes imposed under chapter 298, royalty 
taxes imposed under chapter 299, or depletion expenses may not 
be deducted under this clause; 
    (10) in situations where this chapter provides for a 
subtraction from gross income of a specific dollar amount of an 
item of income assignable to this state, and within the measure 
of the tax imposed by this chapter, that portion of the federal 
income tax liability assessed upon such income subtracted, and 
any expenses attributable to earning such income, shall not be 
deductible in computing net income; 
    (11) amounts paid or accrued for such taxes and carrying 
charges as, under rules prescribed by the commissioner, are 
chargeable to capital account with respect to property, if the 
taxpayer elects, in accordance with such rules, to treat such 
taxes or charges as so chargeable; 
    (12) no deduction or credit shall be allowed for any amount 
paid or incurred during the taxable year in carrying on any 
trade or business if the trade or business (or the activities 
which comprise the trade or business) consists of trafficking in 
controlled substances (within the meaning of schedule I and II 
of the federal Controlled Substances Act) which is prohibited by 
federal law or the law of Minnesota.  
    For purposes of this section, reference to the Internal 
Revenue Code means the Internal Revenue Code of 1954, as amended 
through December 31, 1985. 
    Sec. 64.  Minnesota Statutes 1986, section 290.12, 
subdivision 2, is amended to read:  
    Subd. 2.  [ADJUSTMENTS.] For taxable years beginning before 
January 1, 1987, in computing the amount of gain or loss under 
subdivision 1 the basis of the property is its adjusted basis 
for federal income tax purposes, except as otherwise provided in 
this chapter.  In addition to other adjustments provided in this 
chapter, the adjusted basis of property for federal income tax 
purposes shall be increased by the amount of accelerated cost 
recovery system depreciation which was allowed for federal 
income tax purposes but not allowed for Minnesota income tax 
purposes under Minnesota Statutes 1986, section 290.01, 
subdivision 20f or 290.09, subdivision 7, paragraph (A)(c).  The 
basis shall be diminished by the allowance for amortization of 
bond premium if an election to amortize was made in accordance 
with Minnesota Statutes 1986, section 290.09, subdivision 13, 
which could, during the period of the taxpayer's ownership 
thereof, have been deducted by the taxpayer under this chapter 
in respect of such property.  In addition, if the property was 
acquired before January 1, 1933, the basis, if other than the 
fair market value as of such date, shall be diminished by the 
amount of exhaustion, wear and tear, obsolescence, amortization, 
or depletion actually sustained before such date.  In respect of 
any period since December 31, 1932, during which property was 
held by a person or an organization not subject to income 
taxation under this chapter, the basis of the property is its 
adjusted basis for federal income tax purposes, except as 
otherwise provided in this chapter. 
    Sec. 65.  Minnesota Statutes 1986, section 290.131, 
subdivision 1, is amended to read: 
    Subdivision 1.  [DISTRIBUTIONS OF PROPERTY.] For taxable 
years beginning before January 1, 1987, the effects on 
recipients of a distribution by a corporation shall be governed 
by the provisions of sections 301 to 307 of the Internal Revenue 
Code of 1954 1986, as amended through December 31, 1985 1986.  
However, in section 301(c)(3)(B) the date January 1, 1933 shall 
be substituted for March 1, 1913 when determining the amount of 
a distribution that is not taxable. 
    Sec. 66.  Minnesota Statutes 1986, section 290.132, 
subdivision 1, is amended to read: 
    Subdivision 1.  [TAXABILITY OF CORPORATION ON 
DISTRIBUTION.] For taxable years beginning before January 1, 
1987, no gain or loss shall be recognized to a corporation on 
the distribution, with respect to its stock as provided in 
section 311 of the Internal Revenue Code of 1954 1986, as 
amended through December 31, 1985 1986. 
    The effect on earnings and profits shall be determined 
according to the provisions of section 312 of the Internal 
Revenue Code of 1954 1986, as amended through December 31, 1985 
1986.  However, when determining earnings and profits in section 
312(f) and (g), the date December 31, 1932 shall be substituted 
for February 28, 1913, and January 1, 1933 shall be substituted 
for March 1, 1913.  
    Sec. 67.  Minnesota Statutes 1986, section 290.133, 
subdivision 1, is amended to read: 
    Subdivision 1.  [DIVIDEND DEFINED.] For taxable years 
beginning before January 1, 1987, for purposes of this chapter, 
the definitions provided in sections 316 to 318 of the Internal 
Revenue Code of 1954 1986, as amended through December 31, 1985 
1986, shall apply.  However, in section 316 (a)(1), "December 
31, 1932" shall be substituted for "February 28, 1913" when 
determining dividends. 
    Sec. 68.  Minnesota Statutes 1986, section 290.134, 
subdivision 1, is amended to read: 
    Subdivision 1.  [GAIN OR LOSS TO SHAREHOLDERS IN CORPORATE 
LIQUIDATIONS.] For taxable years beginning before January 1, 
1987, the effects on recipients of corporate liquidations shall 
be governed by the provisions of sections 331 to 334 of the 
Internal Revenue Code of 1954 1986, as amended through December 
31, 1985 1986.  However, in section 333(f)(2), the date December 
31, 1932, shall be substituted for February 28, 1913 when 
determining accumulated earnings and profits.  
    Sec. 69.  Minnesota Statutes 1986, section 290.135, 
subdivision 1, is amended to read:  
    Subdivision 1.  [GENERAL RULE.] For taxable years beginning 
before January 1, 1987, gain or loss shall be recognized to a 
corporation on the distribution of property in complete 
liquidation or on any distribution or sale of an interest in a 
partnership as provided in sections 336 to 346 and 386 of the 
Internal Revenue Code of 1954 1986, as amended through December 
31, 1985 1986.  
    Sec. 70.  Minnesota Statutes 1986, section 290.136, 
subdivision 1, is amended to read: 
    Subdivision 1.  [TRANSFER TO CORPORATION CONTROLLED BY 
TRANSFEROR.] For taxable years beginning before January 1, 1987, 
the provisions of sections 351 to 368 of the Internal Revenue 
Code of 1954 1986, as amended through December 31, 1985 1986, 
shall apply to corporate organizations and reorganizations.  
However, in section 362, the phrase "acquired in a taxable year 
beginning after December 31, 1956" shall be substituted for 
"acquired on or after June 22, 1954" when determining the 
property to which this section applies. 
    Sec. 71.  Minnesota Statutes 1986, section 290.138, 
subdivision 3, is amended to read: 
    Subd. 3.  [CARRYOVERS IN CERTAIN CORPORATE ACQUISITIONS.] 
The provisions of sections 381 and 382 of the Internal Revenue 
Code of 1954 1986, as amended through December 31, 1985 1986, 
shall apply to carryovers in certain corporate acquisitions and 
special limitations on net operating loss carryovers.  
    Sec. 72.  Minnesota Statutes 1986, section 290.14, is 
amended to read:  
    290.14 [GAIN OR LOSS ON DISPOSITION OF PROPERTY, BASIS.] 
    For taxable years beginning before January 1, 1987, except 
as otherwise provided in this chapter, the basis for determining 
the gain or loss from the sale or other disposition of property 
acquired on or after January 1, 1933, shall be its adjusted 
basis for federal income tax purposes, with the following 
exceptions: 
    (1) Corporations, partnerships, or individuals subject to 
the occupation tax under chapter 298, shall use the occupation 
tax basis; 
    (2) The basis of property subject to the provisions of 
section 1034 of the Internal Revenue Code of 1954, as amended 
through December 31, 1985 (relating to the rollover of gain on 
sale of principal residence) shall be increased by the amount of 
gain realized on the sale of a principal residence outside of 
Minnesota, while a nonresident of this state, which gain was not 
recognized because of the provisions of section 1034. 
    Sec. 73.  Minnesota Statutes 1986, section 290.17, is 
amended to read: 
    Subdivision 1.  [INCOME OF RESIDENT INDIVIDUALS SCOPE OF 
ALLOCATION RULES.] The gross income of individuals shall be 
their gross income as defined in section 290.01, subdivision 
20 (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, 1986, 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. 
    Subd. 1a.  [SUBSEQUENT ADJUSTMENT.] When a loss has been 
reduced by the amount of tax preference items pursuant to 
Minnesota Statutes 1983 Supplement, section 290.17, subdivision 
1, and the taxpayer subsequently sells or otherwise disposes of 
an asset in relation to which arose an item of tax preference 
which caused the reduction of the loss, the taxpayer may 
increase the basis of the asset by the amount of the tax 
preference item that was used to reduce the loss.  If the asset 
is a depletable asset, the taxpayer may elect to so increase its 
basis upon disposition or to reduce the amount of otherwise 
taxable income subsequently produced by that asset by the amount 
of the tax preference item.  
    Subd. 2.  [OTHER TAXPAYERS INCOME NOT DERIVED FROM CONDUCT 
OF A TRADE OR BUSINESS.] In the case of an individual who is not 
a full-year resident, this subdivision applies to determine what 
income is assignable to Minnesota for purposes of determining 
the numerator of the fraction used in section 290.06, 
subdivision 2c.  In the case of taxpayers not subject to the 
provisions of subdivision 1, items of gross income shall be 
assigned to this state or other states or countries in 
accordance with the following principles: 
    (1)(a) The entire income of all resident or domestic 
taxpayers from compensation for labor or personal services, or 
from a business consisting principally of the performance of 
personal or professional services, shall be assigned to this 
state, and the income of nonresident taxpayers from such sources 
shall be assigned to this state if, and to the extent that, the 
labor or services are performed within it; all other income from 
such sources shall be treated as income from sources without 
this state.  
    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.  
    (b) (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.  In order to 
eliminate the need to file state or provincial income tax 
returns in several states or provinces, Minnesota will exclude 
from income any income assigned to Minnesota under the 
provisions of this clause for a nonresident athlete who is 
employed by an athletic team whose operations are not based in 
this state and for a nonresident salaried entertainer who is 
employed by an entertainment organization whose operations are 
not based in this state if the state or province in which the 
athletic team or entertainment organization is based provides a 
similar income exclusion.  If the state or province in which the 
athletic team's or the entertainment organization's operations 
are based does not have an income tax on an individual's 
personal service income, it will be deemed that that state or 
province has a similar income exclusion.  As used in the 
preceding sentence, the term "province" means a province of 
Canada.; 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.  
    (2) 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.  
Income from winnings on Minnesota pari-mutuel betting tickets 
shall be assigned to this state.  Income and gains received from 
tangible property not employed in the business of the recipient 
of such income or gains, and from tangible property employed in 
the business of such recipient if such business consists 
principally of the holding of such property and the collection 
of the income and gains therefrom, shall be assigned to this 
state if such property has a situs within it, and to other 
states only if it has no situs in this state.  Income or gains 
from intangible personal property not employed in the business 
of the recipient of such income or gains, and from intangible 
personal property employed in the business of such recipient if 
such business consists principally of the holding of such 
property and the collection of the income and gains therefrom, 
wherever held, whether in trust, or otherwise, shall be assigned 
to this state if the recipient thereof is domiciled within this 
state or is a resident trust or estate. 
    (3) Income derived from carrying on a trade or business, 
including in the case of a business owned by natural persons the 
income imputable to the owner for the owner's services and the 
use of the owner's property therein, shall be assigned to this 
state if the trade or business is conducted wholly within this 
state, and to other states if conducted wholly without this 
state.  This provision shall not apply to business income 
subject to the provisions of clause (1). 
    (4) When a trade or business is carried on partly within 
and partly without this state, the entire income derived from 
such trade or business, including income from intangible 
property employed in such business and including, in the case of 
a business owned by natural persons, the income imputable to the 
owner for the owner's services and the use of the owner's 
property therein, shall be governed, except as otherwise 
provided in sections 290.35 and 290.36, by the provisions of 
section 290.19, notwithstanding any provisions of this 
subdivision to the contrary.  This shall not apply to business 
income subject to the provisions of clause (1), nor shall it 
apply to income from the operation of a farm which is subject to 
the provisions of clause (2).  For the purposes of this clause, 
a trade or business located in Minnesota is carried on partly 
within and partly without this state if tangible personal 
property is sold by such trade or business and delivered or 
shipped to a purchaser located outside the state of Minnesota. 
    If the trade or business carried on wholly or partly in 
Minnesota is part of a unitary business, the entire income of 
that unitary business shall be subject to apportionment under 
section 290.19 except for business income subject to the 
provisions of clause (1) and farm income subject to the 
provisions of clause (2).  The term "unitary business" shall 
mean business activities or operations which are of mutual 
benefit, dependent upon, or contributory to one another, 
individually or as a group.  Unity shall be 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 of 
ownership will not be deemed to exist when a corporation is 
involved unless that corporation is a member of a group of two 
or more corporations 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.  
    The entire income of a unitary business shall be subject to 
apportionment as provided in section 290.19.  None of the income 
of a unitary business shall be considered as derived from any 
particular source and none shall be allocated to any particular 
place except as provided by the applicable apportionment formula.
    In determining whether or not intangible property is 
employed in a unitary business carried on partly within and 
partly without this state so that income derived therefrom is 
subject to apportionment under section 290.19 the following 
rules and guidelines shall apply. 
    (a) Intangible property is employed in a business if the 
business entity owning intangible property holds it as a means 
of furthering the business operation of which a part is located 
within the territorial confines of this state. 
    (b) Where a business operation conducted in Minnesota, is 
owned by a business entity which carries on business activity 
outside of the state different in kind from that conducted 
within this state, and such other business is conducted entirely 
outside the state, it will be presumed that the two business 
operations are unitary in nature, interrelated, connected and 
interdependent unless it can be shown to the contrary. 
    (5) 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 thereof, or as a retirement or survivor's 
benefit made from a plan qualifying under section 401, 403, 404, 
408, or 409 of the Internal Revenue Code of 1954, as amended 
through December 31, 1985, 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. 
    (6) All other items of gross income shall be assigned to 
the taxpayer's domicile. 
    (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, 1986, 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, 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. 
    (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 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. 
    Subd. 3.  [TRADE OR BUSINESS INCOME; GENERAL RULE.] Income 
derived from carrying on a trade or business must be assigned to 
this state if the trade or business is conducted wholly within 
this state, assigned outside this state if conducted wholly 
without this state and apportioned between this state and other 
states and countries under this subdivision if conducted partly 
within and partly without this state.  For purposes of 
determining whether a trade or business is carried on 
exclusively within or without this state:  
    (a) A trade or business physically located exclusively 
within this state is nevertheless carried on partly within and 
partly without this state if any of the principles set forth in 
section 290.191 for the allocation of sales or receipts within 
or without this state when applied to the taxpayer's situation 
result in the allocation of any sales or receipts without this 
state.  
    (b) A trade or business physically located exclusively 
without this state is nevertheless carried on partly within and 
partly without this state if any of the principles set forth in 
section 290.191 for the allocation of sales or receipts within 
or without this state when applied to the taxpayer's situation 
result in the allocation of any sales or receipts without this 
state.  The jurisdiction to tax such a business under this 
chapter must be determined in accordance with sections 290.014 
and 290.015. 
    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 farm income 
subject to subdivision 5, paragraph (a), business income subject 
to subdivision 5, paragraph (b) or (c), income of an insurance 
company determined under section 290.35, or income of an 
investment company determined under section 290.36. 
    (b) The term "unitary business" means business activities 
or operations which are of mutual benefit, dependent upon, or 
contributory to one another, individually or as a group.  The 
term may be applied within a single legal entity or between 
multiple entities and without regard to whether each entity is 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. 
    (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.  
    (f) 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 
corporations or other entities created or organized in the 
United States or under the laws of the United States or of any 
state, the District of Columbia, the commonwealth of Puerto 
Rico, any possession of the United States, or any political 
subdivision of any the foregoing and of any FSC as defined in 
section 922 of the Internal Revenue Code of 1986, as amended 
through December 31, 1986, that are determined to be part of the 
unitary business pursuant to this subdivision, notwithstanding 
that other corporations or other entities organized in foreign 
countries might be included in the unitary business. 
    (g) Each corporation or other entity 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 (f) 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 (f) in the denominators 
of the apportionment formula. 
    Subd. 5.  [SPECIAL RULES.] Notwithstanding subdivisions 3 
and 4, all income from the operation of the following types of 
businesses must be allocated as follows:  
    (a) All income from the operation of a farm is assigned to 
this state if the farm is located within this state and no such 
income is assigned to this state if the farm is located without 
this state.  
    (b) Income from a trade or business consisting principally 
of the performance of personal or professional services is 
assigned to this state if, and to the extent that, the services 
are performed within this state.  
    (c) For athletic teams when the visiting team does not 
share in the gate receipts, all of the team's income is assigned 
to the state in which the team's operation is based. 
    Subd. 6.  [NONBUSINESS INCOME.] For a trade or business for 
which allocation of income within and without this state is 
required, if the taxpayer has any income not connected with the 
trade or business carried on partly within and partly without 
this state that income must be allocated under subdivision 2.  
Intangible property is employed in a trade or business if the 
owner of the property holds it as a means of furthering the 
trade or business. 
    Sec. 74.  Minnesota Statutes 1986, section 290.171, is 
amended to read: 
    290.171 [ENACTMENT OF MULTISTATE TAX COMPACT.] 
    The "multistate tax compact" is hereby enacted into law to 
the extent provided in this section and entered into with all 
jurisdictions legally joining therein, in the form substantially 
as follows:  

                         Article I.  Purposes. 
    The purposes of this compact are to:  
    1.  Facilitate proper determination of state and local tax 
liability of multistate taxpayers, including the equitable 
apportionment of tax bases and settlement of apportionment 
disputes.  
    2.  Promote uniformity or compatibility in significant 
components of tax systems.  
    3.  Facilitate taxpayer convenience and compliance in the 
filing of tax returns and in other phases of tax administration. 
    4.  Avoid duplicative taxation.  

                       Article II.  Definitions. 
     As used in this compact:  
     1.  "State" means a state of the United States, the 
District of Columbia, the Commonwealth of Puerto Rico, or any 
territory or possession of the United States.  
     2.  "Subdivision" means any governmental unit or special 
district of a state.  
     3.  "Taxpayer" means any corporation, partnership, firm, 
association, governmental unit or agency or person acting as a 
business entity in more than one state.  
     4.  "Income tax" means a tax imposed on or measured by net 
income including any tax imposed on or measured by an amount 
arrived at by deducting expenses from gross income, one or more 
forms of which expenses are not specifically and directly 
related to particular transactions.  
     5.  "Capital stock tax" means a tax measured in any way by 
the capital of a corporation considered in its entirety.  
     6.  "Gross receipts tax" means a tax, other than a sales 
tax, which is imposed on or measured by the gross volume of 
business, in terms of gross receipts or in other terms, and in 
the determination of which no deduction is allowed which would 
constitute the tax an income tax.  
     7.  "Sales tax" means a tax imposed with respect to the 
transfer for a consideration of ownership, possession or custody 
of tangible personal property or the rendering of services 
measured by the price of the tangible personal property 
transferred or services rendered and which is required by state 
or local law to be separately stated from the sales price by the 
seller, or which is customarily separately stated from the sales 
price, but does not include a tax imposed exclusively on the 
sale of a specifically identified commodity or article or class 
of commodities or articles.  
     8.  "Use tax" means a nonrecurring tax, other than a sales 
tax, which (a) is imposed on or with respect to the exercise or 
enjoyment of any right or power over tangible personal property 
incident to the ownership, possession or custody of that 
property or the leasing of that property from another including 
any consumption, keeping, retention, or other use of tangible 
personal property and (b) is complementary to a sales tax.  
     9.  "Tax" means an income tax, capital stock tax, gross 
receipts tax, sales tax, use tax, and any other tax which has a 
multistate impact, except that the provisions of articles III, 
IV and article V of this compact shall apply only to the taxes 
specifically designated therein and the provisions of article IX 
of this compact shall apply only in respect to determinations 
pursuant to article IV.  
 Article III.  Elements of Income Tax Laws. 
 Taxpayer Option, State and Local Taxes. 
    1.  Any taxpayer subject to an income tax whose income is 
subject to apportionment and allocation for tax purposes 
pursuant to the laws of a party state or pursuant to the laws of 
subdivisions in two or more party states may elect to apportion 
and allocate his income in the manner provided by the laws of 
such state or by the laws of such states and subdivisions 
without reference to this compact, or may elect to apportion and 
allocate in accordance with article IV.  This election for any 
tax year may be made in all party states or subdivisions thereof 
or in any one or more of the party states or subdivisions 
thereof without reference to the election made in the others. 
For the purposes of this paragraph, taxes imposed by 
subdivisions shall be considered separately from state taxes and 
the apportionment and allocation also may be applied to the 
entire tax base.  In no instance wherein article IV is employed 
for all subdivisions of a state may the sum of all 
apportionments and allocations to subdivisions within a state be 
greater than the apportionment and allocation that would be 
assignable to that state if the apportionment or allocation were 
being made with respect to a state income tax.  
 Taxpayer Option, Short Form. 
    2.  Each party state or any subdivision thereof which 
imposes an income tax shall provide by law that any taxpayer 
required to file a return, whose only activities within the 
taxing jurisdiction consist of sales and do not include owning 
or renting real estate or tangible personal property, and whose 
dollar volume of gross sales made during the tax year within the 
state or subdivision, as the case may be, is not in excess of 
$100,000 may elect to report and pay any tax due on the basis of 
a percentage of such volume, and shall adopt rates which shall 
produce a tax which reasonably approximates the tax otherwise 
due.  The commissioner of revenue, after consultation with the 
Multistate Tax Commission, not more than once in five years, may 
adjust the $100,000 figure in order to reflect such changes as 
may occur in the real value of the dollar, and such adjusted 
figure, upon adoption by the commissioner, shall replace the 
$100,000 figure specifically provided herein.  Each party state 
and subdivision thereof may make the same election available to 
taxpayers additional to those specified in this paragraph.  
 Coverage. 
    3.  Nothing in this article relates to the reporting or 
payment of any tax other than an income tax.  
 Article IV.  Division of Income. 
    1.  As used in this article, unless the context otherwise 
requires:  
    (a) "Business income" means income arising from 
transactions and activity in the regular course of the 
taxpayer's trade or business, and includes income from tangible 
and intangible property if the acquisition, management, and 
disposition of the property constitute integral parts of the 
taxpayer's regular trade or business operations.  
    (b) "Commercial domicile" means the principal place from 
which the trade or business of the taxpayer is directed or 
managed.  
    (c) "Compensation" means wages, salaries, commissions and 
any other form of remuneration paid to employees for personal 
services.  
    (d) "Financial organization" means any bank, trust company, 
savings bank, industrial bank, land bank, safe deposit company, 
private banker, savings and loan association, credit union, 
cooperative bank, small loan company, sales finance company, 
investment company, or any type of insurance company. 
    (e) "Nonbusiness income" means all income other than 
business income.  
    (f) "Public utility" means any business entity (1) which 
owns or operates any plant, equipment, property, franchise, or 
license for the transmission of communications, transportation 
of goods or persons, except by pipeline, or the production, 
transmission, sale, delivery, or furnishing of electricity, 
water or steam; and (2) whose rates of charges for goods or 
services have been established or approved by a federal, state 
or local government or governmental agency.  
    (g) "Sales" means all gross receipts of the taxpayer not 
allocated under paragraphs of this article.  
    (h) "State" means any state of the United States, the 
District of Columbia, the Commonwealth of Puerto Rico, any 
territory or possession of the United States, and any foreign 
country or political subdivision thereof.  
    (i) "This state" means the state in which the relevant tax 
return is filed or, in the case of application of this article 
to the apportionment and allocation of income for local tax 
purposes, the subdivision or local taxing district in which the 
relevant tax return is filed.  
    2.  Any taxpayer having income from business activity which 
is taxable both within and without this state, other than 
activity as a financial organization or public utility or the 
rendering of purely personal services by an individual or any 
income received by a Minnesota resident individual or income 
from the operation of a farm, shall allocate and apportion his 
net income as provided in this article.  If a taxpayer has 
income from business activity as a public utility but derives 
the greater percentage of his income from activities subject to 
this article, the taxpayer may elect to allocate and apportion 
his entire net income as provided in this article.  
    3.  For purposes of allocation and apportionment of income 
under this article, a taxpayer is taxable in another state if 
(1) in that state he is subject to a net income tax, a franchise 
tax measured by net income, a franchise tax for the privilege of 
doing business, or a corporate stock tax, or (2) that state has 
jurisdiction to subject the taxpayer to a net income tax 
regardless of whether, in fact, the state does or does not.  
    4.  All business income shall be apportioned to this state 
by multiplying the income by a fraction, the numerator of which 
is the property factor plus the payroll factor plus the sales 
factor, and the denominator of which is three.  
    5.  The property factor is a fraction, the numerator of 
which is the average value of the taxpayer's real and tangible 
personal property owned or rented and used in this state during 
the tax period and the denominator of which is the average value 
of all the taxpayer's real and tangible personal property owned 
or rented and used during the tax period.  
    6.  Property owned by the taxpayer is valued at its 
original cost.  Property rented by the taxpayer is valued at 
eight times the net annual rental rate.  Net annual rental rate 
is the annual rental rate paid by the taxpayer less any annual 
rental rate received by the taxpayer from subrentals.  
    7.  The average value of property shall be determined by 
averaging the values at the beginning and ending of the tax 
period but the tax administrator may require the averaging of 
monthly values during the tax period if reasonably required to 
reflect properly the average value of the taxpayer's property.  
    8.  The payroll factor is a fraction, the numerator of 
which is the total amount paid in this state during the tax 
period by the taxpayer for compensation and the denominator of 
which is the total compensation paid everywhere during the tax 
period.  
    9.  Compensation is paid in this state if:  
    (a) The individual's service is performed entirely within 
the state;  
    (b) The individual's service is performed both within and 
without the state, but the service performed without the state 
is incidental to the individual's service within the state; or 
    (c) Some of the service is performed in the state and (1) 
the base of operations or, if there is no base of operations, 
the place from which the service is directed or controlled is in 
the state, or (2) the base of operations or the place from which 
the service is directed or controlled is not in any state in 
which some part of the service is performed, but the 
individual's residence is in this state.  
    10.  The sales factor is a fraction, the numerator of which 
is the total sales of the taxpayer in this state during the tax 
period, and the denominator of which is the total sales of the 
taxpayer everywhere during the tax period.  
    11.  Sales of tangible personal property are in this state 
if:  
    (a) The property is delivered or shipped to a purchaser, 
other than the United States government, within this state 
regardless of the f.o.b. point or other conditions of the sale; 
or 
    (b) The property is shipped from an office, store, 
warehouse, factory, or other place of storage in this state and 
(1) the purchaser is the United States government or (2) the 
taxpayer is not taxable in the state of the purchaser.  
    12.  Sales, other than sales of tangible personal property, 
are in this state if:  
    (a) The income-producing activity is performed in this 
state; or 
    (b) The income-producing activity is performed both in and 
outside this state and a greater proportion of the 
income-producing activity is performed in this state than in any 
other state, based on costs of performance.  
    13.  If the allocation and apportionment provisions of this 
article do not fairly represent the extent of the taxpayer's 
business activity in this state, the taxpayer may petition for 
or the tax administrator may require, in respect to all or any 
part of the taxpayer's business activity, if reasonable:  
    (a) Separate accounting;  
    (b) The exclusion of any one or more of the factors;  
    (c) The inclusion of one or more additional factors which 
will fairly represent the taxpayer's business activity in this 
state; or 
    (d) The employment of any other method to effectuate an 
equitable allocation and apportionment of the taxpayer's income. 

            Article V.  Elements of Sales and Use Tax Laws. 

                              Tax Credit. 
    1.  Each purchaser liable for a use tax on tangible 
personal property shall be entitled to full credit for the 
combined amount or amounts of legally imposed sales or use taxes 
paid by him with respect to the same property to another state 
and any subdivision thereof.  The credit shall be applied first 
against the amount of any use tax due the state, and any unused 
portion of the credit shall then be applied against the amount 
of any use tax due a subdivision. 
    2.  Whenever a vendor receives and accepts in good faith 
from a purchaser a resale or other exemption certificate or 
other written evidence of exemption authorized by the 
appropriate state or subdivision taxing authority, the vendor 
shall be relieved of liability for a sales or use tax with 
respect to the transaction.  

                      Article VI.  The Commission. 

                      Organization and Management. 
    1.  (a) The multistate tax commission is hereby 
established.  It shall be composed of one "member" from each 
party state who shall be the head of the state agency charged 
with the administration of the types of taxes to which this 
compact applies.  If there is more than one such agency the 
state shall provide by law for the selection of the commission 
member from the heads of the relevant agencies.  State law may 
provide that a member of the commission be represented by an 
alternate but only if there is on file with the commission 
written notification of the designation and identity of the 
alternate.  The attorney general of each party state or his 
designee, or other counsel if the laws of the party state 
specifically provide, shall be entitled to attend the meetings 
of the commission, but shall not vote.  Such attorneys general, 
designees, or other counsel shall receive all notices of 
meetings required under paragraph 1(e) of this article.  
     (b) Each party state shall provide by law for the selection 
of representatives from its subdivisions affected by this 
compact to consult with the commission member from that state.  
     (c) Each member shall be entitled to one vote.  The 
commission shall not act unless a majority of the members are 
present, and no action shall be binding unless approved by a 
majority of the total number of members.  
     (d) The commission shall adopt an official seal to be used 
as it may provide.  
     (e) The commission shall hold an annual meeting and such 
other regular meetings as its bylaws may provide and such 
special meetings as its executive committee may determine.  The 
commission bylaws shall specify the dates of the annual and any 
other regular meetings, and shall provide for the giving of 
notice of annual, regular and special meetings.  Notices of 
special meetings shall include the reasons therefor and an 
agenda of the items to be considered.  
     (f) The commission shall elect annually, from among its 
members, a chairman, a vice chairman and a treasurer.  The 
commission shall appoint an executive director who shall serve 
at its pleasure, and it shall fix his duties and compensation. 
The executive director shall be secretary of the commission. The 
commission shall make provision for the bonding of such of its 
officers and employees as it may deem appropriate.  
     (g) Irrespective of the civil service, personnel or other 
merit system laws of any party state, the executive director 
shall appoint or discharge such personnel as may be necessary 
for the performance of the functions of the commission and shall 
fix their duties and compensation.  The commission bylaws shall 
provide for personnel policies and programs.  
     (h) The commission may borrow, accept or contract for the 
services of personnel from any state, the United States, or any 
other governmental entity.  
     (i) The commission may accept for any of its purposes and 
functions any and all donations and grants of money, equipment, 
supplies, materials and services, conditional or otherwise, from 
any governmental entity, and may utilize and dispose of the same.
     (j) The commission may establish one or more offices for 
the transacting of its business.  
     (k) The commission shall adopt bylaws for the conduct of 
its business.  The commission shall publish its bylaws in 
convenient form, and shall file a copy of the bylaws and any 
amendments thereto with the appropriate agency or officer in 
each of the party states.  
     (l) The commission annually shall make to the governor and 
legislature of each party state a report covering its activities 
for the preceding year.  Any donation or grant accepted by the 
commission or services borrowed shall be reported in the annual 
report of the commission, and shall include the nature, amount 
and conditions, if any, of the donation, gift, grant or services 
borrowed and the identity of the donor or lender.  The 
commission may make additional reports as it may deem desirable. 

                              Committees. 
     2.  (a) To assist in the conduct of its business when the 
full commission is not meeting, the commission shall have an 
executive committee of seven members, including the chairman, 
vice chairman, treasurer and four other members elected annually 
by the commission.  The executive committee, subject to the 
provisions of this compact and consistent with the policies of 
the commission, shall function as provided in the bylaws of the 
commission.  
     (b) The commission may establish advisory and technical 
committees, membership on which may include private persons and 
public officials, in furthering any of its activities.  Such 
committees may consider any matter of concern to the commission, 
including problems of special interest to any party state and 
problems dealing with particular types of taxes.  
     (c) The commission may establish such additional committees 
as its bylaws may provide.  

                                Powers. 
     3.  In addition to powers conferred elsewhere in this 
compact, the commission shall have power to:  
     (a) Study state and local tax systems and particular types 
of state and local taxes.  
     (b) Develop and recommend proposals for an increase in 
uniformity or compatibility of state and local tax laws with a 
view toward encouraging the simplification and improvement of 
state and local tax law and administration.  
     (c) Compile and publish information as in its judgment 
would assist the party states in implementation of the compact 
and taxpayers in complying with state and local tax laws.  
     (d) Do all things necessary and incidental to the 
administration of its functions pursuant to this compact.  

                                Finance. 
     4.  (a) The commission shall submit to the governor or 
designated officer or officers of each party state a budget of 
its estimated expenditures for such period as may be required by 
the laws of that state for presentation to the legislature 
thereof.  
     (b) Each of the commission's budgets of estimated 
expenditures shall contain specific recommendations of the 
amounts to be appropriated by each of the party states.  The 
total amount of appropriations requested under any such budget 
shall be apportioned among the party states as follows: 
one-tenth in equal shares; and the remainder in proportion to 
the amount of revenue collected by each party state and its 
subdivisions from income taxes, capital stock taxes, gross 
receipts taxes, sales and use taxes.  In determining such 
amounts, the commission shall employ such available public 
sources of information as, in its judgment, present the most 
equitable and accurate comparisons among the party states.  Each 
of the commission's budgets of estimated expenditures and 
requests for appropriations shall indicate the sources used in 
obtaining information employed in applying the formula contained 
in this paragraph.  
     (c) The commission shall not pledge the credit of any party 
state.  The commission may meet any of its obligations in whole 
or in part with funds available to it under paragraph 1(i) of 
this article, provided that the commission takes specific action 
setting aside such funds prior to incurring any obligation to be 
met in whole or in part in such manner.  Except where the 
commission makes use of funds available to it under paragraph 
1(i), the commission shall not incur any obligation prior to the 
allotment of funds by the party states adequate to meet the same.
     (d) The commission shall keep accurate accounts of all 
receipts and disbursements.  The receipts and disbursements of 
the commission shall be subject to the audit and accounting 
procedures established under its bylaws.  All receipts and 
disbursements of funds handled by the commission shall be 
audited yearly by a certified or licensed public accountant and 
the report of the audit shall be included in and become part of 
the annual report of the commission.  
     (e) The accounts of the commission shall be open at any 
reasonable time for inspection by duly constituted officers of 
the party states and by any persons authorized by the commission.
     (f) Nothing contained in this article shall be construed to 
prevent commission compliance with laws relating to audit or 
inspection of accounts by or on behalf of any government 
contributing to the support of the commission.  

              Article VII.  Uniform Regulations and Forms. 
     1.  Whenever any two or more party states, or subdivisions 
of party states, have uniform or similar provisions of law 
relating to an income tax, capital stock tax, gross receipts 
tax, sales or use tax, the commission may adopt uniform 
regulations for any phase of the administration of such law, 
including assertion of jurisdiction to tax, or prescribing 
uniform tax forms.  The commission may also act with respect to 
the provisions of article IV of this compact.  
     2.  Prior to the adoption of any regulation, the commission 
shall:  
     (a) As provided in its bylaws, hold at least one public 
hearing on due notice to all affected party states and 
subdivisions thereof and to all taxpayers and other persons who 
have made timely request of the commission for advance notice of 
its regulation-making proceedings.  
     (b) Afford all affected party states and subdivisions and 
interested persons an opportunity to submit relevant written 
data and views, which shall be considered fully by the 
commission.  
     3.  The commission shall submit any regulations adopted by 
it to the appropriate officials of all party states and 
subdivisions to which they might apply.  Each such state and 
subdivision shall consider any such regulation for adoption in 
accordance with its own laws and procedures.  

                   Article VIII.  Interstate Audits. 
     1.  Any party state or subdivision thereof desiring to make 
or participate in an audit of any accounts, books, papers, 
records or other documents may request the commission to perform 
the audit on its behalf.  In responding to the request, the 
commission shall have access to and may examine, at any 
reasonable time, such accounts, books, papers, records, and 
other documents and any relevant property or stock of 
merchandise.  The commission may enter into agreements with 
party states or their subdivisions for assistance in performance 
of the audit.  The commission shall make charges, to be paid by 
the state or local government or governments for which it 
performs the service, for any audits performed by it in order to 
reimburse itself for the actual costs incurred in making the 
audit.  
     2.  The commission may require the attendance of any person 
within the state where it is conducting an audit or part thereof 
at a time and place fixed by it within such state for the 
purpose of giving testimony with respect to any account, book, 
paper, document, other record, property or stock of merchandise 
being examined in connection with the audit.  If the person is 
not within the jurisdiction, he may be required to attend for 
such purpose at any time and place fixed by the commission 
within the state of which he is a resident, provided that such 
state has adopted this article.  
     3.  The commission may apply to any court having power to 
issue compulsory process for orders in aid of its powers and 
responsibilities pursuant to this article and any and all such 
courts shall have jurisdiction to issue such orders.  Failure of 
any person to obey any such order shall be punishable as 
contempt of the issuing court.  If the party or subject matter 
on account of which the commission seeks an order is within the 
jurisdiction of the court to which application is made, such 
application may be to a court in the state or subdivision on 
behalf of which the audit is being made or a court in the state 
in which the object of the order being sought is situated.  The 
provisions of this paragraph apply only to courts in a state 
that has adopted this article.  
     4.  The commission may decline to perform any audit 
requested if it finds that its available personnel or other 
resources are insufficient for the purpose or that, in the terms 
requested, the audit is impracticable of satisfactory 
performance.  If the commission, on the basis of its experience, 
has reason to believe that an audit of a particular taxpayer, 
either at a particular time or on a particular schedule, would 
be of interest to a number of party states or their 
subdivisions, it may offer to make the audit or audits, the 
offer to be contingent on sufficient participation therein as 
determined by the commission.  
     5.  Information obtained by any audit pursuant to this 
article shall be confidential and available only for tax 
purposes to party states, their subdivisions or the United 
States.  Availability of information shall be in accordance with 
the laws of the states or subdivisions on whose account the 
commission performs the audit, and only through the appropriate 
agencies or officers of such states or subdivisions.  Nothing in 
this article shall be construed to require any taxpayer to keep 
records for any period not otherwise required by law.  
     6.  Other arrangements made or authorized pursuant to law 
for cooperative audit by or on behalf of the party states or any 
of their subdivisions are not superseded or invalidated by this 
article.  
     7.  In no event shall the commission make any charge 
against a taxpayer for an audit.  
     8.  As used in this article, "tax," in addition to the 
meaning ascribed to it in article II, means any tax or license 
fee imposed in whole or in part for revenue purposes.  

                       Article IX.  Arbitration. 
     1.  Whenever the commission finds a need for settling 
disputes concerning apportionments and allocations by 
arbitration, it may adopt a regulation placing this article in 
effect, notwithstanding the provisions of article VII.  
     2.  The commission shall select and maintain an arbitration 
panel composed of officers and employees of state and local 
governments and private persons who shall be knowledgeable and 
experienced in matters of tax law and administration.  
    3.  Whenever a taxpayer who has elected to employ article 
IV, or whenever the laws of the party state states or 
subdivision subdivisions thereof are substantially identical 
with the relevant provisions of article IV, this chapter, the 
taxpayer, by written notice to the commission and to each party 
state or subdivision thereof that would be affected, may secure 
arbitration of an apportionment or allocation, if he is 
dissatisfied with the final administrative determination of the 
tax agency of the state or subdivision with respect thereto on 
the ground that it would subject him to double or multiple 
taxation by two or more party states or subdivisions thereof.  
Each party state and subdivision thereof hereby consents to the 
arbitration as provided herein, and agrees to be bound thereby.  
     4.  The arbitration board shall be composed of one person 
selected by the taxpayer, one by the agency or agencies 
involved, and one member of the commission's arbitration panel. 
If the agencies involved are unable to agree on the person to be 
selected by them, such person shall be selected by lot from the 
total membership of the arbitration panel.  The two persons 
selected for the board in the manner provided by the foregoing 
provisions of this paragraph shall jointly select the third 
member of the board.  If they are unable to agree on the 
selection, the third member shall be selected by lot from among 
the total membership of the arbitration panel.  No member of a 
board selected by lot shall be qualified to serve if he is an 
officer or employee or is otherwise affiliated with any party to 
the arbitration proceeding.  Residence within the jurisdiction 
of a party to the arbitration proceeding shall not constitute 
affiliation within the meaning of this paragraph.  
     5.  The board may sit in any state or subdivision party to 
the proceeding, in the state of the taxpayer's incorporation, 
residence or domicile, in any state where the taxpayer does 
business, or in any place that it finds most appropriate for 
gaining access to evidence relevant to the matter before it.  
     6.  The board shall give due notice of the times and places 
of its hearings.  The parties shall be entitled to be heard, to 
present evidence, and to examine and cross-examine witnesses. 
The board shall act by majority vote.  
     7.  The board shall have power to administer oaths, take 
testimony, subpoena and require the attendance of witnesses and 
the production of accounts, books, papers, records, and other 
documents, and issue commissions to take testimony.  Subpoenas 
may be signed by any member of the board.  In case of failure to 
obey a subpoena, and upon application by the board, any judge of 
a court of competent jurisdiction of the state in which the 
board is sitting or in which the person to whom the subpoena is 
directed may be found may make an order requiring compliance 
with the subpoena, and the court may punish failure to obey the 
order as a contempt.  The provisions of this paragraph apply 
only in states that have adopted this article.  
     8.  Unless the parties otherwise agree the expenses and 
other costs of the arbitration shall be assessed and allocated 
among the parties by the board in such manner as it may 
determine.  The commission shall fix a schedule of compensation 
for members of arbitration boards and of other allowable 
expenses and costs.  No officer or employee of a state or local 
government who serves as a member of a board shall be entitled 
to compensation therefor unless he is required on account of his 
service to forego the regular compensation attaching to his 
public employment, but any such board member shall be entitled 
to expenses.  
     9.  The board shall determine the disputed apportionment or 
allocation and any matters necessary thereto.  The 
determinations of the board shall be final for purposes of 
making the apportionment or allocation, but for no other purpose.
     10.  The board shall file with the commission and with each 
tax agency represented in the proceeding:  the determination of 
the board; the board's written statement of its reasons 
therefor; the record of the board's proceedings; and any other 
documents required by the arbitration rules of the commission to 
be filed.  
     11.  The commission shall publish the determinations of 
boards together with the statements of the reasons therefor.  
     12.  The commission shall adopt and publish rules of 
procedure and practice and shall file a copy of such rules and 
of any amendment thereto with the appropriate agency or officer 
in each of the party states.  
     13.  Nothing contained herein shall prevent at any time a 
written compromise of any matter or matters in dispute, if 
otherwise lawful, by the parties to the arbitration proceedings. 

              Article X.  Entry Into Force and Withdrawal. 
     1.  This compact shall become effective as to any other 
state upon its enactment.  The commission shall arrange for 
notification of all party states whenever there is a new 
enactment of the compact.  
     2.  Any party state may withdraw from this compact by 
enacting a statute repealing the same.  No withdrawal shall 
affect any liability already incurred by or chargeable to a 
party state prior to the time of such withdrawal.  
     3.  No proceeding commenced before an arbitration board 
prior to the withdrawal of a state and to which the withdrawing 
state or any subdivision thereof is a party shall be 
discontinued or terminated by the withdrawal, nor shall the 
board thereby lose jurisdiction over any of the parties to the 
proceeding necessary to make a binding determination therein.  

          Article XI.  Effect on Other Laws and Jurisdictions. 
     Nothing in this compact shall be construed to:  
     (a) Affect the power of any state or subdivision thereof to 
fix rates of taxation, except that a party state shall be 
obligated to implement article III 2 of this compact.  
     (b) Apply to any tax or fixed fee imposed for the 
registration of a motor vehicle or any tax on motor fuel, other 
than a sales tax, provided that the definition of "tax" in 
article VIII 9 may apply for the purposes of that article and 
the commission's powers of study and recommendation pursuant to 
article VI 3 may apply.  
     (c) Withdraw or limit the jurisdiction of any state or 
local court or administrative officer or body with respect to 
any person, corporation or other entity or subject matter, 
except to the extent that such jurisdiction is expressly 
conferred by or pursuant to this compact upon another agency or 
body.  
     (d) Supersede or limit the jurisdiction of any court of the 
United States.  

              Article XII.  Construction and Severability. 
     This compact shall be liberally construed so as to 
effectuate the purposes thereof.  The provisions of this compact 
shall be severable and if any phrase, clause, sentence, or 
provision of this compact is declared to be contrary to the 
constitution of any state or of the United States or the 
applicability thereof to any government, agency, person or 
circumstance is held invalid, the validity of the remainder of 
this compact and the applicability thereof to any government, 
agency, person or circumstance shall not be affected thereby. If 
this compact shall be held contrary to the constitution of any 
state participating therein, the compact shall remain in full 
force and effect as to the remaining party states and in full 
force and effect as to the state affected as to all severable 
matters.  
    Sec. 75.  [290.191] [APPORTIONMENT OF NET INCOME.] 
    Subdivision 1.  [GENERAL RULE.] Except as otherwise 
provided in section 290.17, subdivision 5, the net income from a 
trade or business carried on partly within and partly without 
this state must be apportioned to this state as provided in this 
section.  
    Subd. 2.  [APPORTIONMENT FORMULA OF GENERAL 
APPLICATION.] Except for those trades or businesses required to 
use a different formula under subdivision 3 or section 290.35 or 
290.36, and for those trades or businesses that receive 
permission to use some other method under section 290.20 or 
under subdivision 4, a trade or business required to apportion 
its net income must apportion its income to this state on the 
basis of the percentage obtained by taking the sum of:  
    (1) 70 percent of the percentage which the sales made 
within this state in connection with the trade or business 
during the tax period are of the total sales wherever made in 
connection with the trade or business during the tax period; 
    (2) 15 percent of the percentage which the total tangible 
property used by the taxpayer in this state in connection with 
the trade or business during the tax period is of the total 
tangible property, wherever located, used by the taxpayer in 
connection with the trade or business during the tax period; and 
    (3) 15 percent of the percentage which the taxpayer's total 
payrolls paid or incurred in this state or paid in respect to 
labor performed in this state in connection with the trade or 
business during the tax period are of the taxpayer's total 
payrolls paid or incurred in connection with the trade or 
business during the tax period.  
    Subd. 3.  [APPORTIONMENT FORMULA FOR FINANCIAL 
INSTITUTIONS.] Except for an investment company required to 
apportion its income under section 290.36, a financial 
institution that is required to apportion its net income must 
apportion its net income to this state on the basis of the 
percentage obtained by taking the sum of:  
    (1) 70 percent of the percentage which the receipts from 
within this state in connection with the trade or business 
during the tax period are of the total receipts in connection 
with the trade or business during the tax period, from wherever 
derived; 
    (2) 15 percent of the percentage which the sum of the total 
tangible property used by the taxpayer in this state and the 
intangible property owned by the taxpayer and attributed to this 
state in connection with the trade or business during the tax 
period is of the sum of the total tangible property, wherever 
located, used by the taxpayer and the intangible property owned 
by the taxpayer and attributed to all states in connection with 
the trade or business during the tax period; and 
    (3) 15 percent of the percentage which the taxpayer's total 
payrolls paid or incurred in this state or paid in respect to 
labor performed in this state in connection with the trade or 
business during the tax period are of the taxpayer's total 
payrolls paid or incurred in connection with the trade or 
business during the tax period.  
    Subd. 4.  [APPORTIONMENT FORMULA FOR CERTAIN MAIL ORDER 
BUSINESSES.] If the business consists exclusively of the selling 
of tangible personal property and services in response to orders 
received by United States mail or telephone, and 100 percent of 
the taxpayer's property and payroll is within Minnesota, then 
the taxpayer may apportion net income to Minnesota based solely 
upon the percentage that the sales made within this state in 
connection with the trade or business during the tax period are 
of the total sales wherever made in connection with the trade or 
business during the tax period.  Property and payroll factors 
are disregarded.  In determining eligibility for this 
subdivision, the sale not in the ordinary course of business of 
tangible or intangible assets used in conducting business 
activities must be disregarded.  This subdivision is repealed 
effective for taxable years beginning after December 31, 1988.  
    Subd. 5.  [DETERMINATION OF SALES FACTOR.] (a) For purposes 
of this section, the following rules apply in determining the 
sales factor.  
    (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, other than sales of tangible personal property, 
are made in this state if the property is used, or the benefits 
of the services are consumed, in this state.  If the property is 
used or the benefits of the services are consumed in more than 
one state, the sales must be apportioned pro rata according to 
the portion of use or consumption of benefits in this state. 
    Subd. 6.  [DETERMINATION OF RECEIPTS FACTOR FOR FINANCIAL 
INSTITUTIONS.] (a) For purposes of this section, the rules in 
this subdivision and subdivisions 7 and 8 apply in determining 
the receipts factor for financial institutions.  
     (b) "Receipts" for this purpose means gross income, 
including net taxable gain on disposition of assets, including 
securities and money market transactions, when derived from 
transactions and activities in the regular course of the 
taxpayer's trade or business.  
     (c) "Money market instruments" means federal funds sold and 
securities purchased under agreements to resell, commercial 
paper, banker's acceptances, and purchased certificates of 
deposit and similar instruments to the extent that the 
instruments are reflected as assets under generally accepted 
accounting principles.  
     (d) "Securities" means United States Treasury securities, 
obligations of United States government agencies and 
corporations, obligations of state and political subdivisions, 
corporate stock and other securities, participations in 
securities backed by mortgages held by United States or state 
government agencies, loan-backed securities and similar 
investments to the extent the investments are reflected as 
assets under generally accepted accounting principles.  
     (e) Receipts from the lease or rental of real or tangible 
personal property, including both finance leases and true 
leases, must be attributed to this state if the property is 
located in this state.  Tangible personal property that is 
characteristically moving property, such as motor vehicles, 
rolling stock, aircraft, vessels, mobile equipment, and the 
like, is considered to be located in a state if:  
     (1) the operation of the property is entirely within the 
state; or 
     (2) the operation of the property is in two or more states, 
but the principal base of operations from which the property is 
sent out is in the state.  
     (f) Interest income and other receipts from assets in the 
nature of loans that are secured primarily by real estate or 
tangible personal property must be attributed to this state if 
the security property is located in this state under the 
principles stated in paragraph (e).  
    (g) Interest income and other receipts from consumer loans 
not secured by real or tangible personal property that are made 
to residents of this state, whether at a place of business, by 
traveling loan officer, by mail, by telephone or other 
electronic means, must be attributed to this state.  
     (h) Interest income and other receipts from commercial 
loans and installment obligations not secured by real or 
tangible personal property must be attributed to this state if 
the proceeds of the loan are to be applied in this state.  If it 
cannot be determined where the funds are to be applied, the 
income and receipts are attributed to the state in which the 
business applied for the loan.  "Applied for" means initial 
inquiry (including customer assistance in preparing the loan 
application) or submission of a completed loan application, 
whichever occurs first.  
     (i) Interest income and other receipts from a participating 
financial institution's portion of participation loans must be 
attributed under paragraphs (e) to (h).  A participation loan is 
a loan in which more than one lender is a creditor to a common 
borrower.  
     (j) Interest income and other receipts including service 
charges from financial institution credit card and travel and 
entertainment credit card receivables and credit card holders' 
fees must be attributed to the state to which the card charges 
and fees are regularly billed.  
     (k) Merchant discount income derived from financial 
institution credit card holder transactions with a merchant must 
be attributed to the state in which the merchant is located.  In 
the case of merchants located within and outside the state, only 
receipts from merchant discounts attributable to sales made from 
locations within the state are attributed to this state.  It is 
presumed, subject to rebuttal, that the location of a merchant 
is the address shown on the invoice submitted by the merchant to 
the taxpayer.  
     (l) Receipts from the performance of fiduciary and other 
services must be attributed to the state in which the benefits 
of the services are consumed.  If the benefits are consumed in 
more than one state, the receipts from those benefits must be 
apportioned to this state pro rata according to the portion of 
the benefits consumed in this state. 
    (m) Receipts from the issuance of travelers checks and 
money orders must be attributed to the state in which the checks 
and money orders are purchased.  
    (n) Receipts from investments of a financial institution in 
securities of this state, its political subdivisions, agencies, 
and instrumentalities must be attributed to this state.  
    Subd. 7.  [RECEIPTS FROM INVESTMENTS IN NONSTATE 
SECURITIES; HOW APPORTIONED.] Receipts from investments of a 
financial institution in other securities and from money market 
instruments must be apportioned to this state based on the ratio 
that total deposits from this state, its residents, including 
any business with an office or other place of business in this 
state, its political subdivisions, agencies, and 
instrumentalities bear to the total deposits from all states, 
their residents, their political subdivisions, agencies, and 
instrumentalities.  In the case of an unregulated financial 
institution subject to this section, these receipts are 
apportioned to this state based on the ratio that its gross 
business income earned from sources within this state bears to 
gross business income earned from sources within all states.  
For purposes of this subdivision, deposits made by this state, 
its residents, its political subdivisions, agencies, and 
instrumentalities must be attributed to this state, whether or 
not the deposits are accepted or maintained by the taxpayer at 
locations within this state.  
    Subd. 8.  [DEPOSIT; DEFINITION.] (a) "Deposit," as used in 
subdivision 7, has the meanings in this subdivision.  
    (b) "Deposit" means the unpaid balance of money or its 
equivalent received or held by a financial institution in the 
usual course of business and for which it has given or is 
obligated to give credit, either conditionally or 
unconditionally, to a commercial, checking, savings, time, or 
thrift account whether or not advance notice is required to 
withdraw the credited funds, or which is evidenced by its 
certificate of deposit, thrift certificate, investment 
certificate, or certificate of indebtedness, or other similar 
name, or a check or draft drawn against a deposit account and 
certified by the financial institution, or a letter of credit or 
a traveler's check on which the financial institution is 
primarily liable.  However, without limiting the generality of 
the term "money or its equivalent," any such account or 
instrument must be regarded as evidencing the receipt of the 
equivalent of money when credited or issued in exchange for 
checks or drafts or for a promissory note upon which the person 
obtaining the credit or instrument is primarily or secondarily 
liable, or for a charge against a deposit account, or in 
settlement of checks, drafts, or other instruments forwarded to 
the bank for collection.  
    (c) "Deposit" means trust funds received or held by the 
financial institution, whether held in the trust department or 
held or deposited in any other department of the financial 
institution.  
    (d) "Deposit" means money received or held by a financial 
institution, or the credit given for money or its equivalent 
received or held by a financial institution, in the usual course 
of business for a special or specific purpose, regardless of the 
legal relationship so established.  Under this paragraph, 
"deposit" includes, but is not limited to, escrow funds, funds 
held as security for an obligation due to the financial 
institution or others, including funds held as dealers reserves, 
or for securities loaned by the bank, funds deposited by a 
debtor to meet maturing obligations, funds deposited as advance 
payment on subscriptions to United States government securities, 
funds held for distribution or purchase of securities, funds 
held to meet its acceptances or letters of credit, and withheld 
taxes.  It does not include funds received by the financial 
institution for immediate application to the reduction of an 
indebtedness to the receiving financial institution, or under 
condition that the receipt of the funds immediately reduces or 
extinguishes the indebtedness.  
    (e) "Deposit" means outstanding drafts, including advice or 
authorization to charge a financial institution's balance in 
another such institution, cashier's checks, money orders, or 
other officer's checks issued in the usual course of business 
for any purpose, but not including those issued in payment for 
services, dividends, or purchases or other costs or expenses of 
the financial institution itself.  
    (f) "Deposit" means money or its equivalent held as a 
credit balance by a financial institution on behalf of its 
customer if the entity is engaged in soliciting and holding such 
balances in the regular course of its business.  
    (g) Interinstitution fund transfers are not deposits.  
    Subd. 9.  [DETERMINATION OF PROPERTY FACTOR; GENERAL 
RULES.] For all taxpayers, the property factor includes tangible 
property, real, personal, and mixed, owned or rented, and used 
by the taxpayer in connection with the trade or business, as set 
forth in subdivision 10.  For financial institutions only, the 
property factor also includes intangible property, as set forth 
in subdivision 11.  For both tangible and intangible property, 
the property included in the property factor is the average of 
the total property used by the taxpayer in connection with its 
business during the tax period.  Such averages must be on a 
commensurate basis for property within and without the state.  
    Subd. 10.  [PROPERTY FACTOR; TANGIBLE PROPERTY.] (a) 
Tangible property includes land, buildings, machinery and 
equipment, inventories, and other tangible personal property 
actually used by the taxpayer during the taxable year in 
carrying on the business activities of the taxpayer.  Tangible 
property which is separately allocated under section 290.17 is 
not includable in the property factor.  
    (b) Cash on hand or in banks, shares of stock, notes, 
bonds, accounts receivable, or other evidences of indebtedness, 
special privileges, franchises, and goodwill, are specifically 
excluded from the property factor, except as otherwise provided 
for financial institutions in subdivision 11.  
    (c) The value of tangible property that is owned by the 
taxpayer and that is to be used in the apportionment fraction is 
the original cost adjusted for any later capital additions or 
improvements and partial disposition by reason of sale, 
exchange, or abandonment.  
     (d) For purposes of computing the property factor, United 
States government property that is used by the taxpayer must be 
considered owned by the taxpayer.  
    (e) Property that is rented by the taxpayer is valued at 
eight times the net annual rental.  Net annual rental is the 
annual rental paid by the taxpayer less any annual rental 
received by the taxpayer from subrentals.  If the subrents taken 
into account in determining the net annual rental produce a 
negative or clearly inaccurate value for any item of property, 
another method that will properly reflect the value of rented 
property may be required by the commissioner or requested by the 
taxpayer.  In no case, however, shall the value be less than an 
amount which bears the same ratio to the annual rental paid by 
the taxpayer for such property as the fair market value of that 
portion of the property used by the taxpayer bears to the total 
fair market value of the rented property.  Rents paid during the 
year cannot be averaged.  
    (f) A person filing a combined report shall use this method 
of calculating the property factor for all members of the group. 
    Subd. 11.  [FINANCIAL INSTITUTIONS; PROPERTY FACTOR.] (a) 
For financial institutions, the property factor includes, as 
well as tangible property, intangible property as set forth in 
this subdivision.  
    (b) Intangible personal property must be included at its 
tax basis for federal income tax purposes.  
     (c) Goodwill must not be included in the property factor.  
     (d) Coin and currency located in this state must be 
attributed to this state.  
    (e) Lease financing receivables must be attributed to this 
state if and to the extent that the property is located within 
this state.  
     (f) Assets in the nature of loans that are secured by real 
or tangible personal property must be attributed to this state 
if and to the extent that the security property is located 
within this state.  
     (g) Assets in the nature of consumer loans and installment 
obligations that are unsecured or secured by intangible property 
must be attributed to this state if the loan was made to a 
resident of this state.  
     (h) Assets in the nature of commercial loan and installment 
obligations that are unsecured or secured by intangible property 
must be attributed to this state if the loan proceeds of the 
loan are to be applied in this state.  If it cannot be 
determined where the funds are to be applied, the assets must be 
attributed to the state in which the business applied for the 
loan.  "Applied for" means initial inquiry (including customer 
assistance in preparing the loan application) or submission of a 
completed loan application, whichever occurs first.  
    (i) A participating financial institution's portion of a 
participation loan must be attributed under paragraphs (e) to 
(h).  
     (j) Financial institution credit card and travel and 
entertainment credit card receivables must be attributed to the 
state to which the credit card charges and fees are regularly 
billed.  
    (k) Receivables arising from merchant discount income 
derived from financial institution credit card holder 
transactions with a merchant are attributed to the state in 
which the merchant is located.  In the case of merchants located 
within and without the state, only receipts from merchant 
discounts attributable to sales made from locations within the 
state are attributed to this state.  It is presumed, subject to 
rebuttal, that the location of a merchant is the address shown 
on the invoice submitted by the merchant to the taxpayer. 
    (l) Assets in the nature of securities and money market 
instruments are apportioned to this state based upon the ratio 
that total deposits from this state, its residents, its 
political subdivisions, agencies and instrumentalities bear to 
the total deposits from all states, their residents, their 
political subdivisions, agencies and instrumentalities.  In the 
case of an unregulated financial institution subject to this 
regulation, the receipts are apportioned to this state based 
upon the ratio that its gross business income earned from 
sources within this state bears to gross business income earned 
from sources within all states.  For purposes of this 
subsection, deposits made by this state, its residents, its 
political subdivisions, agencies, and instrumentalities are 
attributed to this state, whether or not the deposits are 
accepted or maintained by the taxpayer at locations within this 
state. 
    Subd. 12.  [DETERMINATION OF PAYROLL FACTOR.] (a) The 
payroll factor must be determined in the same way for all 
taxpayers.  
    (b) Wages or salaries must be determined to be paid or 
incurred in this state if the individual with respect to whom 
the wages or salaries are paid is either employed within this 
state or is actually engaged in work in the territorial confines 
of this state, or if working without this state, is identified 
with or accountable to an office within this state.  
    (c) The wages or salaries paid to officers and employees 
working from offices within this state are considered payroll 
within this state even though the officer's and employee's 
employment requires them to spend working time without this 
state.  Officers and employees whose employment requires them to 
work without the state entirely and who are assigned to an 
office without the state, are not considered employees within 
the state for the purpose of apportionment even though their 
salaries are paid from the taxpayer's general offices within the 
state. 
    Sec. 76.  Minnesota Statutes 1986, section 290.20, 
subdivision 1, is amended to read: 
    Subdivision 1.  The methods prescribed by section 290.19 
290.191 shall be presumed to determine fairly and correctly the 
taxpayer's taxable net income allocable to this state.  Any 
taxpayer feeling aggrieved by the application of the methods so 
prescribed may petition the commissioner for determination of 
such net income by the use of some other method, including 
separate accounting.  Thereupon, the commissioner on finding 
that the application of the methods prescribed by section 290.19 
will be unjust to the taxpayer, may allow the use of the methods 
so petitioned for by the taxpayer, or may determine such net 
income by other methods if satisfied that such other methods 
will fairly reflect such net income.  A petition within the 
meaning of this section shall be deemed to have been filed by 
the taxpayer if the taxpayer's return uses a method other than 
the methods prescribed by section 290.19, and if such return 
shall have attached thereto a statement setting forth the 
reasons for the use of such other method If the methods 
prescribed by section 290.191 do not fairly reflect all or any 
part of taxable net income allocable to this state, the taxpayer 
may petition for or the commissioner may require the 
determination of net income by the use of another method, if 
that method fairly reflects net income.  These other methods may 
include: 
    (1) separate accounting; 
    (2) excluding any one or more of the factors; 
    (3) including one or more additional factors; or 
    (4) some other method.  
    Sec. 77.  Minnesota Statutes 1986, section 290.20, is 
amended by adding a subdivision to read: 
    Subd. 1a.  A petition within the meaning of this section 
must be filed by the taxpayer in the form required by the 
commissioner.  
    Sec. 78.  Minnesota Statutes 1986, section 290.21, 
subdivision 3, is amended to read:  
    Subd. 3.  An amount for contribution or gifts made within 
the taxable year: 
    (a) to or for the use of the state of Minnesota, or any of 
its political subdivisions for exclusively public purposes, 
    (b) to or for the use of any community chest, corporation, 
organization, trust, fund, association, or foundation located in 
and carrying on substantially all of its activities within this 
state, organized and operating exclusively for religious, 
charitable, public cemetery, scientific, literary, artistic, or 
educational purposes, or for the prevention of cruelty to 
children or animals, no part of the net earnings of which inures 
to the benefit of any private stockholder or individual, 
    (c) to a fraternal society, order, or association, 
operating under the lodge system located in and carrying on 
substantially all of their activities within this state if such 
contributions or gifts are to be used exclusively for the 
purposes specified in subdivision 3(b), or for or to posts or 
organizations of war veterans or auxiliary units or societies of 
such posts or organizations, if they are within the state and no 
part of their net income inures to the benefit of any private 
shareholder or individual, 
    (d) to or for the use of the United States of America for 
exclusively public purposes, and to or for the use of any 
community chest, corporation, trust, fund, association, or 
foundation, organized and operated exclusively for any of the 
purposes specified in subdivision 3(b) and (c) no part of the 
net earnings of which inures to the benefit of any private 
shareholder or individual, but not carrying on substantially all 
of their activities within this state, in an amount equal to the 
ratio of Minnesota taxable net income to total net income if the 
contribution or gift consists of real property located in 
Minnesota, 
    (e) the total deduction hereunder shall not exceed 15 
percent of the taxpayer's taxable net income less the deductions 
allowable under this section other than those for contributions 
or gifts, 
    (f) in the case of a corporation reporting its taxable 
income on the accrual basis, if:  (A) the board of directors 
authorizes a charitable contribution during any taxable year, 
and (B) payment of such contribution is made after the close of 
such taxable year and on or before the fifteenth day of the 
third month following the close of such taxable year; then the 
taxpayer may elect to treat such contribution as paid during 
such taxable year.  The election may be made only at the time of 
the filing of the return for such taxable year, and shall be 
signified in such manner as the commissioner shall by rules 
prescribe. 
    Sec. 79.  Minnesota Statutes 1986, section 290.21, 
subdivision 4, is amended to read:  
    Subd. 4.  (a) 85 80 percent of dividends received by a 
corporation during the taxable year from another corporation, 
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.  The remaining 15 
20 percent shall be allowed if the recipient owns 80 percent or 
more of all the voting stock of the other corporation and the 
dividends were paid from income arising out of business done in 
this state by the corporation paying the dividends.  If the 
dividends were declared from income arising out of business done 
within and without this state, then a proportion of the 
remainder shall be allowed as a deduction.  The proportion must 
be that which the amount of the taxable net income of the 
corporation paying the dividends assignable or allocable to this 
state bears to the entire net income of the corporation.  The 
amounts must be determined by the returns under this chapter of 
the corporation paying the dividends for the taxable year 
preceding their distribution.  The burden is on the taxpayer to 
show that the amount of remainder claimed as a deduction has 
been received from income arising out of business done in this 
state.  
    (b) If the trade or business of the taxpayer consists 
principally of the holding of the stocks and the collection of 
the income and gains therefrom, dividends received by a 
corporation during the taxable year from another corporation, if 
the recipient owns 80 percent or more of all the voting stock of 
the other corporation, from income arising out of business done 
in this state by the corporation paying the dividends.  If the 
dividends were declared from income arising out of business done 
within and without this state, then a proportion of the 
dividends shall be allowed as a deduction.  The proportion must 
be that which the amount of the taxable net income of the 
corporation paying the dividends assignable or allocable to this 
state bears to the entire net income of the corporation.  The 
amounts must be determined by the returns under this chapter of 
the corporation paying the dividends for the taxable year 
preceding their distribution.  The burden is on the taxpayer to 
show that the amount of dividends claimed as a deduction has 
been received from income arising out of business done in this 
state.  
    (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 of 1954 1986, as amended through December 
31, 1985 1986.  
    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 of 1954 1986, as amended through December 31, 1985 
1986. 
    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 of 1954 1986, as amended through 
December 31, 1985 1986.  
    (d) If dividends received by a corporation that does not 
have nexus with Minnesota under the provisions of Public Law 
Number 86-272 are included as income on the return of an 
affiliated corporation permitted or required to file a combined 
report under section 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) Dividends received by a corporation from another 
corporation which is organized under the laws of a foreign 
country or a political subdivision of a foreign country, if the 
dividends are paid from income arising from sources without the 
United States, the commonwealth of Puerto Rico, and the 
possessions of the United States.  The deduction provided by 
this clause subdivision does not apply if the corporate stock 
with respect to which dividends are paid constitutes the stock 
in trade of the taxpayer, or would be included in the inventory 
of the taxpayer, or constitutes property held by the taxpayer 
primarily for sale to customers in the ordinary course of the 
taxpayer's trade or business, or if the trade or business of the 
taxpayer consists principally of the holding of stocks and the 
collection of the income or gains therefrom, or if the dividends 
are paid by a FSC as defined in section 922 of the Internal 
Revenue Code of 1954 1986, as amended through December 
31, 1985.  No dividend may be deducted under this clause if it 
is deducted under clause (a) 1986. 
    Sec. 80.  Minnesota Statutes 1986, section 290.21, 
subdivision 8, is amended to read:  
    Subd. 8.  [FOREIGN SOURCE ROYALTIES.] (a) An amount equal 
to 35 percent of rentals, fees, and royalties accrued or 
received from a foreign corporation for the use of or for the 
privilege of using outside of the United States patents, 
copyrights, secret processes and formulas, good will, know-how, 
trademarks, trade brands, franchises, and other like property.  
Rentals, fees, or royalties deducted under this subdivision 
shall not be included in the taxpayer's apportionment factors 
under section 290.19, subdivision 1, clause (1)(a) or 
(2)(a)(1).  The preceding sentence shall not be construed to 
imply that nondeductible rentals, fees, and royalties from such 
properties are or were included in or excluded from the 
apportionment factors under any other provision of law.  
    (b) A corporation is allowed The deduction provided by this 
subdivision is allowed only if during the taxable year it the 
corporation receiving the income received or accrued at least 80 
percent of its gross income during the taxable year from sources 
as defined in clause (a) and from dividends received from 
foreign corporations.  A corporation's gross income for purposes 
of paragraphs (b) and (c) shall be computed without regard to 
the requirement of section 290.34, subdivision 2, that a 
combined report be filed reflecting the entire income of the 
unitary business.  
    (c) For purposes of this subdivision, a foreign corporation 
is (i) a corporation organized under the laws of a foreign 
country or the political subdivision of a foreign country or 
(ii) a corporation which for the taxable year derives at least 
80 percent of its gross income from sources without the United 
States, the commonwealth of Puerto Rico, and the possessions of 
the United States.  A foreign corporation does not include a 
DISC as defined in section 992(a) of the Internal Revenue Code 
of 1954, as amended through December 31, 1985, or a FSC as 
defined in section 922 of the Internal Revenue Code of 1954, as 
amended through December 31, 1985.  
    (d) The deduction provided in this subdivision is allowed 
only with respect to rentals, fees, and royalties that are 
included in a corporation's Minnesota taxable net income for the 
taxable year. 
    (e) In the case of a unitary business required to file a 
combined report, one or more members of which meet the 
requirements of paragraph (b) and received rentals, fees or 
royalties as defined in paragraph (a), 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 rentals, fees, and royalties as defined in 
paragraph (a) received by the members of the unitary business 
meeting the requirements of paragraph (b); (2) 35 percent; and 
(3) the percentage of business income of the unitary business 
apportionable to this state for the deducting corporation for 
the taxable year under this chapter. 
    Sec. 81.  Minnesota Statutes 1986, section 290.23, 
subdivision 3, is amended to read:  
    Subd. 3.  [UNUSED LOSS CARRYOVERS AND EXCESS DEDUCTIONS ON 
TERMINATION AVAILABLE TO BENEFICIARIES.] If on the termination 
of an estate or trust, the estate or trust has 
    (1) a net operating loss carryover under section 290.095, a 
capital loss carryover under section 290.01, subdivisions 20 to 
20f or any other loss or credit carryover allowed under this 
chapter; or 
    (2) for the last taxable year of the estate or trust 
deductions (other than the charitable deduction) in excess of 
gross income for such year, 
    then such carryover or such excess shall be allowed as a 
deduction, in accordance with rules prescribed by the 
commissioner, to the beneficiaries succeeding to the property of 
the estate or trust.  This provision does not apply to 
individuals, and carryovers and deductions must be reported as 
provided in section 290.01, subdivisions 19 to 19b. 
    Sec. 82.  Minnesota Statutes 1986, section 290.23, 
subdivision 5, is amended to read:  
    Subd. 5.  [DISTRIBUTABLE NET INCOME, INCOME, BENEFICIARY; 
DEFINED.] (1) For purposes of sections 290.22 through 290.25, 
the term "distributable net income" means the same as that term 
is defined in section 643(a) of the Internal Revenue Code 
of 1954 1986, as amended through December 31, 1985 1986 with the 
following modification:  
    There shall be included any tax-exempt interest to which 
section 290.01, subdivision 20b 19b, clause (1) applies, reduced 
by any amounts which would be deductible in respect of 
disbursements allocable to such interest but for the provisions 
of section 290.10(9) (relating to disallowance of certain 
deductions). 
    If the estate or trust is allowed a deduction under section 
642(c) of the Internal Revenue Code of 1954 1986, as amended 
through December 31, 1985 1986, the amount of the modification 
shall be reduced to the extent that the amount of income which 
is paid, permanently set aside, or to be used for the purposes 
specified in that section of the Internal Revenue Code is deemed 
to consist of items specified in the modification.  For this 
purpose, such amount shall (in the absence of specific 
provisions in the governing instrument) be deemed to consist of 
the same proportion of each class of items of income of the 
estate or trust as the total of each class bears to the total of 
all classes. 
    (2) The term "income," and the term "beneficiary" have the 
same meaning as those terms are defined in section 643(b) and 
(c) of the Internal Revenue Code of 1954 1986, as amended 
through December 31, 1985 1986.  The treatment of property 
distributed in kind and of multiple trusts shall be the same as 
provided in section 643 of the Internal Revenue Code of 1954 
1986, as amended through December 31, 1985 1986. 
    Sec. 83.  Minnesota Statutes 1986, section 290.31, 
subdivision 2, is amended to read:  
    Subd. 2.  [INCOME AND CREDITS OF PARTNER.] (1) In 
determining income tax, each partner shall take into account 
separately the partner's distributive share of the partnership's 
    (a) gains and losses from sales or exchanges of short-term 
capital assets as defined in section 290.16, subdivision 3, 
    (b) gains and losses from sales or exchanges of long-term 
capital assets as defined in section 290.16, subdivision 3, 
    (c) gains and losses from sales or exchanges of property 
described in section 1231 of the Internal Revenue Code of 1954 
1986, as amended through December 31, 1985 1986 (relating to 
certain property used in a trade or business and involuntary 
conversions), 
    (d) charitable contributions as defined in section 170(c) 
of the Internal Revenue Code of 1954 1986, as amended through 
December 31, 1985 1986, 
    (e) dividends with respect to which there is provided an 
exclusion under section 116 or a deduction under sections 241 to 
247 of the Internal Revenue Code of 1954 1986, as amended 
through December 31, 1985 1986, 
    (f) other items of income, gain, loss, deduction, or 
credit, to the extent provided by rules prescribed by the 
commissioner, and 
    (g) taxable net income or loss, exclusive of items 
requiring separate computation under other subparagraphs of this 
paragraph (1). 
    (2) The character of any item of income, gain, loss, 
deduction, or credit included in a partner's distributive share 
under paragraphs (a) through (f) of paragraph (1) shall be 
determined as if such item were realized directly from the 
source from which realized by the partnership, or incurred in 
the same manner as incurred by the partnership. 
    (3) In any case where it is necessary to determine the 
gross income of a partner for purposes of this chapter, such 
amount shall include the partner's distributive share of the 
gross income of the partnership. 
    Sec. 84.  Minnesota Statutes 1986, section 290.31, is 
amended by adding a subdivision to read: 
    Subd. 2a.  The provisions of subdivisions 2 and 5 do not 
apply to individuals, and items of income, gain, loss, or 
deduction must be reported as provided in section 290.01, 
subdivisions 19 to 19b. 
    Sec. 85.  Minnesota Statutes 1986, section 290.31, 
subdivision 3, is amended to read:  
    Subd. 3.  [PARTNERSHIP COMPUTATIONS.] The taxable net 
income of a partnership shall be computed in the same manner as 
in the case of an individual except that 
    (1) the items described in subdivision 2(1) shall be 
separately stated, and 
    (2) the following deductions shall not be allowed to the 
partnership: 
    (a) the deduction for taxes provided in section 164(a) of 
the Internal Revenue Code of 1954, as amended through December 
31, 1985, with respect to taxes, described in section 901 of the 
Internal Revenue Code of 1954, as amended through December 31, 
1985, paid or accrued to foreign countries and to possessions of 
the United States, 
    (b) the deduction for charitable contributions provided in 
section 290.21, subdivision 3 or section 170 of the Internal 
Revenue Code of 1954, as amended through December 31, 1985, 
    (c) the net operating loss deduction provided in section 
290.095, 
    (d) the additional itemized deductions for individuals 
provided in sections 211 to 223 of the Internal Revenue Code of 
1954, as amended through December 31, 1985, and, 
    (e) the deduction for depletion under section 290.09, 
subdivision 8 with respect to oil and gas wells as provided in 
section 703(a) of the Internal Revenue Code of 1986, as amended 
through December 31, 1986, except that, in the case of a 
corporate partner, the deduction for depletion shall be computed 
under section 290.01, subdivisions 19c and 19d. 
    Any election affecting the computation of taxable net 
income derived from a partnership shall be made by the 
partnership except as provided in section 703(b) of the Internal 
Revenue Code of 1954 1986, as amended through December 31, 1985 
1986. 
    Sec. 86.  Minnesota Statutes 1986, section 290.31, 
subdivision 5, is amended to read:  
    Subd. 5.  [DETERMINATION OF BASIS OF PARTNER'S INTEREST.] 
The adjusted basis of a partner's interest in a partnership 
shall, except as provided in the last paragraph of this 
subdivision, be the basis of such interest determined under 
section 722 or 742 of the Internal Revenue Code of 1954 1986, as 
amended through December 31, 1985 1986, relating to 
contributions to a partnership or transfers of partnership 
interests 
    (1) increased by the sum of the partner's distributive 
share for the taxable year and prior taxable years of 
    (a) net income of the partnership as determined under 
subdivision 3(1) and (2), 
    (b) income of the partnership exempt from tax under this 
chapter, 
    (c) the excess of the deductions for depletion over the 
basis of the property subject to depletion, and 
    (2) decreased (but not below zero) by distributions by the 
partnership as provided in section 733 of the Internal Revenue 
Code of 1954 1986, as amended through December 31, 1985 1986, 
and by the sum of the partner's distributive share for the 
taxable year and prior taxable years of 
    (a) losses of the partnership, and 
    (b) expenditures of the partnership not deductible in 
computing its taxable net income and not properly chargeable to 
capital account, and 
    (3) decreased, but not below zero, by the amount of the 
partner's deduction for depletion for any partnership oil and 
gas property to the extent the deduction does not exceed the 
proportionate share of the adjusted basis of the property 
allocated to the partner under section 613A(c)(7)(D) of the 
Internal Revenue Code of 1954 1986, as amended through December 
31, 1985 1986.  For corporate partners, the deduction for 
depletion with respect to oil and gas wells shall be computed as 
provided in section 290.09, subdivision 8 290.01, subdivisions 
19c and 19d. 
    The commissioner shall prescribe by rule the circumstances 
under which the adjusted basis of a partner's interest in a 
partnership may be determined by reference to the partner's 
proportionate share of the adjusted basis of partnership 
property upon a termination of the partnership.  
    Sec. 87.  Minnesota Statutes 1986, section 290.34, 
subdivision 2, is amended to read:  
    Subd. 2.  [AFFILIATED OR RELATED CORPORATIONS, COMBINED 
REPORT.] (a) When a corporation which is required to file an 
income tax return is affiliated with or related to any other 
corporation through stock ownership by the same interests or as 
parent or subsidiary corporations, or has its income regulated 
through contract or other arrangement, the commissioner of 
revenue may permit or require such combined report as, in the 
commissioner's opinion, is necessary in order to determine the 
taxable net income of any one of the affiliated or related 
corporations.  For purposes of computing either the arithmetic 
average or weighted apportionment formulas under section 290.19, 
subdivision 1 for each corporation involved, the numerator of 
the fraction shall be that corporation's sales, property, and 
payroll in Minnesota and the denominator shall be the total 
sales, payroll, and property of all the corporations shown on 
the combined report.  The combined report shall reflect the 
income of the entire unitary business as provided in section 
290.17, subdivision 2, clause (4).  The combined report shall 
reflect income only from corporations created or organized in 
the United States or under the laws of the United States or of 
any state, the District of Columbia, the commonwealth of Puerto 
Rico, any possession of the United States, or any political 
subdivision of any of the foregoing and from a FSC as defined in 
section 922 of the Internal Revenue Code of 1954, as amended 
through December 31, 1985.  All intercompany transactions 
between companies which are contained on the combined report 
shall be eliminated.  This subdivision shall not apply to 
insurance companies whose income is determined under section 
290.35 or to investment companies whose income is determined 
under section 290.36. 
    (b) If a corporation has been divested from the unitary 
group and is included in a combined report for a fractional part 
of the common accounting period that the report is based on, 
then the sales, property, and payroll attributed to the 
corporation in the apportionment formula must be prorated or 
separately accounted and must show for what part of the 
accounting period the corporation is included in the report. 
    (c) The combined report shall reflect the income of the 
entire unitary business as provided in section 290.17, 
subdivision 4.  If a corporation has been divested from the 
unitary group and is included in the combined report for a 
fractional part of the common accounting period that the 
combined report is based on, its income includable in the 
combined report is its income for that part of the year.  
    Sec. 88.  Minnesota Statutes 1986, section 290.35, is 
amended to read:  
    290.35 [INSURANCE COMPANIES; REPORT OF NET INCOME; 
COMPUTATION OF AMOUNT OF INCOME ALLOCABLE TO STATE.] 
    Subdivision 1.  [COMPUTATION OF TAXABLE NET INCOME.] The 
taxable net income of insurance companies taxable under this 
chapter shall be computed as follows: 
    Each such company shall report to the commissioner the net 
income returned by it for the taxable year to the United States 
under the provisions of the act of congress, known as the 
revenue act of 1936, or that it would be required to return as 
net income thereunder if it were in effect.  Notwithstanding the 
provisions of the Revenue Act of 1936, whether or not an 
insurance company is exempt from taxation must be determined 
under section 290.05. 
    Subd. 2.  [APPORTIONMENT OF TAXABLE NET INCOME.] The 
commissioner shall compute therefrom the taxable net income of 
such companies by assigning to this state that proportion 
thereof which the gross premiums collected by them during the 
taxable year from old and new business within this state bears 
to the total gross premiums collected by them during that year 
from their entire old and new business, including reinsurance 
premiums; provided, the commissioner shall add to the taxable 
net income so apportioned to this state the amount of any taxes 
on premiums paid by the company by virtue of any law of this 
state (other than the surcharge on premiums imposed by sections 
69.54 to 69.56) which shall have been deducted from gross income 
by the company in arriving at its total net income under the 
provisions of such act of congress. 
    (a) For purposes of determining the Minnesota apportionment 
percentage, premiums from reinsurance contracts assumed from 
companies domiciled in Minnesota and premiums in connection with 
property in or liability arising out of activity in, or in 
connection with the lives or health of Minnesota residents shall 
be assigned to Minnesota and premiums from reinsurance contracts 
assumed from companies domiciled outside of Minnesota and 
premiums in connection with property in or liability arising out 
of activity in, or in connection with the lives or health of 
non-Minnesota residents shall be assigned outside of Minnesota. 
    (b) The apportionment method prescribed by paragraph (a) 
shall be presumed to fairly and correctly determine the 
taxpayer's taxable net income.  If the method prescribed in 
paragraph (a) does not fairly reflect all or any part of taxable 
net income, the taxpayer may petition for or the commissioner 
may require the determination of taxable net income by use of 
another method if that method fairly reflects taxable net 
income.  A petition within the meaning of this section must be 
filed by the taxpayer on such form as the commissioner shall 
require. 
    Subd. 3.  [CREDIT.] An insurance company shall receive a 
credit against the tax equal to any taxes based on premiums paid 
by it that are attributable to the period for which the tax 
under this chapter is imposed by virtue of any law of this 
state, other than the surcharge on premiums imposed by sections 
69.54 to 69.56. 
    Subd. 4.  [NONPROFIT HEALTH SERVICE CORPORATION.] For 
purposes of this section, a nonprofit health service corporation 
is not an insurance company and the taxable income of a 
nonprofit health service corporation must be determined as 
provided under the Internal Revenue Code of 1986 and section 
290.01, subdivisions 19c and 19d. 
    Sec. 89.  Minnesota Statutes 1986, section 290.36, is 
amended to read: 
    290.36 [INVESTMENT COMPANIES; REPORT OF NET INCOME; 
COMPUTATION OF AMOUNT OF INCOME ALLOCABLE TO STATE.] 
    The taxable net income of investment companies shall be 
computed as follows: 
    Each investment company transacting business as such in 
this state shall report to the commissioner the net income 
returned by the company for the taxable year to the United 
States under the provisions of the Internal Revenue Code of 1954 
1986, as amended through December 31, 1985 1986, less the 
credits provided therein and subject to the adjustments required 
by this chapter.  The commissioner shall compute therefrom the 
taxable net income of the investment company by assigning to 
this state that proportion of such net income, less such credits 
which the aggregate of the gross payments collected by the 
company during the taxable year from old and new business upon 
investment contracts issued by the company and held by residents 
of this state, bears to the total amount of the gross payments 
collected during such year by the company from such business 
upon investment contracts issued by the company and held by 
persons residing within the state and elsewhere. 
    As used in this section, the term "investment company" 
means any person, copartnership, association, or corporation, 
whether local or foreign, coming within the purview of section 
54.26, and who or which is registered under the Investment 
Company Act of 1940 (United States Code, title 15, section 80a-1 
and following), as amended through December 31, 1986, and who or 
which solicits or receives payments to be made to itself and 
which issues therefor, or has issued therefor and has or shall 
have outstanding so-called bonds, shares, coupons, certificates 
of membership, or other evidences of obligation or agreement or 
pretended agreement to return to the holders or owners thereof 
money or anything of value at some future date; and as to whom 
the gross payments received during the taxable year in question 
upon outstanding investment contracts, plus interest and 
dividends earned on investment contracts determined by prorating 
the total dividends and interest for the taxable year in 
question in the same proportion that certificate reserves as 
defined by the Investment Company Act of 1940, as amended 
through December 31, 1986, is to total assets, shall be at least 
50 percent of the company's gross payments upon investment 
contracts plus gross income from all other sources except 
dividends from subsidiaries for the taxable year in question.  
The term "investment contract" shall mean any such so-called 
bonds, shares, coupons, certificates of membership, or other 
evidences of obligation or agreement or pretended agreement 
issued by an investment company.  
    Sec. 90.  Minnesota Statutes 1986, section 290.37, 
subdivision 1, is amended to read: 
    Subdivision 1.  [PERSONS MAKING RETURNS.] (a) The 
commissioner of revenue shall annually determine the gross 
income levels at which individuals, trusts, and estates shall be 
required to file a return for each taxable year.  A taxpayer 
shall file a return for each taxable year the taxpayer is 
required to file a return under section 6012 of the Internal 
Revenue Code of 1986, as amended through December 31, 1986, 
except that an individual who is not a Minnesota resident for 
any part of the year is not required to file a Minnesota income 
tax return if the individual's Minnesota gross income computed 
under section 290.06, subdivision 2c, clause (f)(1) derived from 
Minnesota sources under sections 290.081, paragraph (a), and 
290.17, is less than the filing requirements for an a single 
individual who is a full year resident of Minnesota with the 
same marital status and number of personal credits.  
    The decedent's final income tax return, and all other 
income tax returns for prior years where the decedent had gross 
income in excess of the minimum amount at which an individual is 
required to file and did not file, shall be filed by the 
decedent's personal representative, if any.  If there is no 
personal representative, the return or returns shall be filed by 
the transferees as defined in section 290.29, subdivision 3, who 
receive any property of the decedent. 
    The trustee or other fiduciary of property held in trust 
shall file a return with respect to the taxable net income of 
such trust if that exceeds an amount determined by the 
commissioner if such trust belongs to the class of taxable 
persons. 
    Every corporation shall file a return, if the corporation 
is subject to the state's jurisdiction to tax under section 
290.014, subdivision 5.  The return in the case of a corporation 
must be signed by a person designated by the corporation.  The 
commissioner may 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 if the affiliated 
group includes a corporation bank subject to tax under section 
290.361.  The return in the case of a corporation shall be 
signed by a person designated by the corporation this chapter.  
Members of an affiliated group that elect to file one return on 
behalf of the members of the group under rules adopted by the 
commissioner may modify or rescind the election by filing the 
form required by the commissioner.  
    The receivers, trustees in bankruptcy, or assignees 
operating the business or property of a taxpayer shall file a 
return with respect to the taxable net income of such taxpayer 
if a return is required. 
    (b) Such return shall (1) contain a written declaration 
that it is correct and complete, and (2) shall contain language 
prescribed by the commissioner providing a confession of 
judgment for the amount of the tax shown due thereon to the 
extent not timely paid. 
    (c) For purposes of this subdivision the term "gross income"
shall mean gross income as defined in section 61 of the Internal 
Revenue Code of 1954, as amended through December 31, 1985, 
modified and adjusted in accordance with the provisions of 
sections 290.01, subdivision 20b, clauses (1), (6), (7), and 
(8), 290.08, and 290.17. 
    Sec. 91.  Minnesota Statutes 1986, section 290.37, 
subdivision 3, is amended to read:  
    Subd. 3.  [INFORMATION INCLUDED IN RETURN.] The return 
provided for herein shall require a statement of the name of the 
taxpayer, or taxpayers, if the return be is a joint return, and 
the address of such the taxpayer in the same name or names and 
same address as the taxpayer has used in making the taxpayer's 
income tax return to the United States under the terms of the 
internal revenue code of 1954, and shall include the social 
security number of the taxpayer, or taxpayers, if a social 
security number has been issued by the United States with 
respect to said the taxpayers, and shall include the amount of 
the adjusted gross taxable income of such the taxpayer as the 
same it appears on said the federal return to the United 
States internal revenue service for the taxable year to 
which such the Minnesota state return is applicable; and the 
commissioner may require.  The taxpayer to shall attach to the 
taxpayer's Minnesota state income tax return a copy of the 
federal income tax return which the taxpayer has filed or is 
about to file for such the period. 
    Sec. 92.  [290.371] [NOTICE OF BUSINESS ACTIVITIES REPORT.] 
    Subdivision 1.  [REPORT REQUIRED.] Every corporation that, 
during any calendar year or fiscal accounting year ending after 
December 31, 1986, carried on any activity or owned or 
maintained any property in this state, unless specifically 
exempted under subdivision 3, must file a notice of business 
activities report, as provided in this section.  Filing of the 
report is not a factor in determining whether a corporation is 
subject to taxation under this chapter. 
    Subd. 2.  [ACTIVITIES.] Activities or property maintenance 
in this state which require corporations to file this report are:
    (1) the maintenance in this state of an office or other 
place of business; 
    (2) the maintenance of personnel in Minnesota, including 
the presence of employees, agents, representatives, or 
independent contractors in connection with the corporation's 
business, even though not residing in or regularly stationed in 
Minnesota;  
    (3) the ownership or maintenance of real property, tangible 
personal property, or intangible property used by the 
corporation in Minnesota; and 
    (4) any of the activities referred to in section 290.015, 
subdivision 1, clauses (3) to (8).  
    Subd. 3.  [EXEMPTIONS.] A corporation is not required to 
file a notice of business activities report if:  
    (1) by the end of an accounting period for which it was 
otherwise required to file a notice of business activities 
report under this section, it had received a certificate of 
authority to do business in this state; 
    (2) a timely return or report has been filed under section 
290.05, subdivision 4; or 290.37; or 
    (3) the corporation is exempt from taxation under this 
chapter pursuant to section 290.05, subdivision 1. 
    Subd. 4.  [ANNUAL FILING.] Every corporation not exempt 
under subdivision 3 must file annually a notice of business 
activities report, including such forms as the commissioner may 
require, with respect to all or any part of each of its calendar 
or fiscal accounting years beginning after December 31, 1986, on 
or before the 15th day of the fourth month after the close of 
the calendar or fiscal accounting year.  
    Subd. 5.  [FAILURE TO FILE TIMELY REPORT.] (a) Any 
corporation required to file a notice of business activities 
report does not have any cause of action upon which it may bring 
suit under Minnesota law unless the corporation has filed a 
notice of business activities report.  
    (b) The failure of a corporation to file a timely report 
prevents the use of the courts in this state for all contracts 
executed and all causes of action that arose at any time before 
the end of the last accounting period for which the corporation 
failed to file a required report.  
    (c) The court in which the issues arise has the power to 
excuse the corporation for its failure to file a report when 
due, and restore the corporation's cause of action under the 
laws of this state, if the corporation has paid all taxes, 
interest, and civil penalties due the state for all periods, or 
provided for payment of them by adequate security or bond 
approved by the commissioner.  
    Sec. 93.  Minnesota Statutes 1986, section 290.38, is 
amended to read:  
    290.38 [RETURNS OF MARRIED PERSONS.] 
    A husband and wife must file a joint Minnesota income tax 
return if they filed a joint federal income tax return.  If a 
joint return is made the tax shall be computed on the aggregate 
income and the liability with respect to the tax shall be joint 
and several.  If the husband and wife have elected to file 
separate federal income tax returns they must file separate 
Minnesota income tax returns.  This election to file a joint or 
separate returns must be changed if they change their election 
for federal purposes.  In the event taxpayers desire to change 
their election, such change shall be done in the manner and on 
such form as the commissioner shall prescribe by rule. 
    The determination of whether an individual is married is 
shall be made as of the close of that person's taxable year; 
except that if that person's spouse dies during the taxable year 
the determination is made as of the time of the death.  An 
individual who is legally separated from a spouse under a decree 
of divorce, dissolution, or of separate maintenance is not 
considered to be married under provisions of section 7703 of the 
Internal Revenue Code of 1986, as amended through December 31, 
1986.  
    In the case of the death of one spouse or both spouses the 
joint return with respect to the decedent may be made only by 
the personal representative of the decedent's estate; except 
that in the case of the death of one spouse the joint return may 
be made by the surviving spouse with respect to both the 
survivor and the decedent if (a) no return for the taxable year 
has been made by the decedent, (b) no personal representative 
has been appointed, and (c) no personal representative is 
appointed before the last day prescribed by law for filing the 
return of the surviving spouse.  If a personal representative of 
the estate of the decedent is appointed after the joint return 
has been filed by the surviving spouse, the personal 
representative may disaffirm such joint return by filing, within 
one year after the last day prescribed by law for filing the 
return of the surviving spouse, a separate return for the 
taxable year of the decedent with respect to which the joint 
return was made, in which case the return made by the survivor 
shall constitute the survivor's separate return provided that 
the election has been also disaffirmed for federal purposes. 
    Sec. 94.  Minnesota Statutes 1986, section 290.39, 
subdivision 3, is amended to read:  
    Subd. 3.  [SHORT FORM FORMS.] The commissioner shall 
provide for use a long form individual income tax return and may 
provide for use a short form individual income tax 
return which.  The returns shall be in the form and provide for 
items as the commissioner may prescribe which are consistent 
with the provisions of this chapter, notwithstanding any other 
law to the contrary.  The political checkoff provided in section 
10A.31 nongame wildlife checkoff provided in section 290.431 and 
the dependent care credit provided in section 290.067 shall be 
included on the short form.  
    Sec. 95.  Minnesota Statutes 1986, section 290.41, 
subdivision 2, is amended to read: 
    Subd. 2.  [BY PERSONS, CORPORATIONS, COOPERATIVES, 
GOVERNMENTAL ENTITIES OR SCHOOL DISTRICTS.] To the extent 
required by section 6041 of the Internal Revenue Code of 1986, 
as amended through December 31, 1986, every person, corporation, 
or cooperative, the state of Minnesota and its political 
subdivisions, and every city, county and school district in 
Minnesota, making payments in the regular course of a trade or 
business during the taxable year to any person or corporation of 
$600 or more on account of rents or royalties, or of $10 or more 
on account of interest, or $10 or more on account of dividends 
or patronage dividends, or $600 or more on account of either 
wages, salaries, commissions, fees, prizes, awards, pensions, 
annuities, or any other fixed or determinable gains, profits or 
income, not otherwise reportable under section 290.92, 
subdivision 7, or on account of earnings of $10 or more 
distributed to its members by savings, building and loan 
associations or credit unions chartered under the laws of this 
state or the United States, (a) shall make a return (except in 
cases where a valid agreement to participate in the combined 
federal and state information reporting system has been entered 
into, and such return is therefore filed only with the 
commissioner of internal revenue pursuant to the applicable 
filing and informational reporting requirements of the Internal 
Revenue Code of 1954 1986, as amended through December 31, 1985 
1986) in respect to such payments in excess of the amounts 
specified, giving the names and addresses of the persons to whom 
such payments were made, the amounts paid to each, and (b) shall 
make a return in respect to the total number of such payments 
and total amount of such payments, for each category of income 
specified, which were in excess of the amounts specified.  This 
subdivision shall not apply to the payment of interest or 
dividends to a person who was a nonresident of Minnesota for the 
entire year.  
    A person, corporation, or cooperative required to file 
returns under this subdivision on interest, dividends, or 
patronage dividend payments with respect to more than 50 payees 
for any calendar year must file all of these returns on magnetic 
media unless the person establishes to the satisfaction of the 
commissioner that compliance with this requirement would be an 
undue hardship.  
    Sec. 96.  Minnesota Statutes 1986, section 290.41, 
subdivision 3, is amended to read: 
    Subd. 3.  [BY BROKERS.] The commissioner of revenue may 
require every person doing business as a broker to furnish the 
commissioner with the name and address of each customer for whom 
they have transacted business, and with such details regarding 
gross proceeds and other information as to transactions of any 
customer as will enable the commissioner to determine whether 
all income tax due on profits or gains of such customers has 
been paid.  The provisions of section 6045 of the Internal 
Revenue Code of 1954 1986, as amended through December 31, 1985 
1986, which define terms and provide the requirements that a 
statement be furnished to the customer shall apply.  
    Sec. 97.  Minnesota Statutes 1986, section 290.42, is 
amended to read:  
    290.42 [FILING RETURNS, DATE.] 
    The returns required to be made under sections 290.37 to 
290.39 and 290.41, other than those under section 290.41, 
subdivisions 3 and 4, which shall be made within 30 days after 
demand therefor by the commissioner, shall be filed at the 
following times: 
    (1) Returns made on the basis of the calendar year shall be 
filed on the fifteenth day of April, following the close of the 
calendar year, except that returns of corporations shall be 
filed on the fifteenth day of March following the close of the 
calendar year; 
    (2) Returns made on the basis of the fiscal year shall be 
filed on the fifteenth day of the fourth month following the 
close of such fiscal year, except that returns of corporations 
shall be filed on the fifteenth day of the third month following 
the close of the fiscal year; 
    (3) Returns made for a fractional part of a year as an 
incident to a change from one taxable year to another shall be 
filed on the fifteenth day of the fourth month following the 
close of the period for which made, except that such returns of 
corporations shall be filed on the fifteenth day of the third 
month following the close of the period for which made; 
    (4) Other returns for a fractional part of a year shall be 
filed on the fifteenth day of the fourth month following the end 
of the month in which falls the last day of the period for which 
the return is made, except that such returns of corporations 
shall be filed on the fifteenth day of the third month following 
the end of the month in which falls the last day of the period 
for which the return is made: 
    In the case of a final return of a decedent for a 
fractional part of a year, such return shall be filed on the 
fifteenth day of the fourth month following the close of the 
12-month period which began with the first day of such 
fractional part of a year. 
    (4a) In the case of the return of a cooperative association 
such returns shall be filed on or before the fifteenth day of 
the ninth month following the close of the taxable year. 
    (4b) If a corporation has been divested from a unitary 
group and files a return for a fractional part of a year in 
which it was a member of a unitary business that files a 
combined report under section 290.34, subdivision 2, the 
divested corporation's return must be filed on the 15th day of 
the third month following the close of the common accounting 
period that includes the fractional year. 
    (5) If the due date for any return required under this 
chapter falls upon: 
    A Saturday, Sunday, or a legal holiday such return filed by 
the next succeeding day which is not a Saturday, Sunday, or 
legal holiday shall be considered to be timely filed.  The term 
"legal holiday" means any day made a holiday in Minnesota by 
section 645.44, subdivision 5 or by the laws of the United 
States.  
    (6) In case of sickness, absence, or other disability, or 
when, in the commissioner's judgment, good cause exists, the 
commissioner may extend the time for filing these returns for 
not more than six months, except as provided for corporations 
and except that where the failure is due to absence outside the 
United States the commissioner may extend the period as provided 
in section 6081 of the Internal Revenue Code of 1954, as amended 
through December 31, 1985.  The commissioner may require each 
taxpayer in any of such cases to file a tentative return at the 
time fixed for filing the regularly required return from the 
taxpayer, and to pay a tax on the basis of such tentative return 
at the times required for the payment of taxes on the basis of 
the regularly required return from such taxpayer.  The 
commissioner may grant an extension of up to seven months for 
filing the return of a corporation subject to tax under this 
chapter if the corporation files a tentative return at the time 
fixed for filing the regularly required return and pays the tax 
on the basis of the tentative return in accordance with this 
section and section 290.45. 
    (7) Every person making a return under section 290.41 
(except subdivisions 3 and 4) shall furnish to each person whose 
name is set forth in the return a written statement showing 
    (A) the name and address of the person making the return, 
and 
    (B) the aggregate amount of payments to the person shown on 
the return.  
    This written statement shall be furnished to the person on 
or before January 31 of the year following the calendar year for 
which the return was made.  A duplicate of this written 
statement shall be furnished to the commissioner on or before 
February 28 of the year following the calendar year for which 
the return was made.  
    Sec. 98.  Minnesota Statutes 1986, section 290.45, 
subdivision 1, is amended to read:  
    Subdivision 1.  [DATE DUE, INSTALLMENTS.] The tax imposed 
by this chapter shall be paid to the commissioner of revenue at 
the time fixed for filing the return on which the tax is based, 
except that at the election of estates the balance of tax due 
may be paid in two equal installments.  
    The first shall be paid at the time fixed for filing the 
return, and the second on or before six months thereafter. 
    If any installment is not paid on or before the date fixed 
for its payment the whole amount of the tax unpaid shall become 
due and payable.  They shall be paid to the commissioner or to 
the local officers designated by the commissioner with whom the 
return is filed as hereinbefore provided.  
    Sec. 99.  Minnesota Statutes 1986, section 290.45, 
subdivision 2, is amended to read:  
    Subd. 2.  [EXTENSIONS.] At the request of the taxpayer, and 
for good cause shown, the commissioner may extend the time for 
payment of the amount determined as the tax by the taxpayer, or 
any installment thereof, or any amount determined as a 
deficiency, for a period not to exceed six months from the date 
prescribed for the payment of the tax or an installment thereof. 
In such case the amount in respect of which the extension is 
granted shall be paid together with interest at the rate 
specified in section 270.75 on or before the date of the 
expiration of the period of the extension. 
    Sec. 100.  Minnesota Statutes 1986, section 290.46, is 
amended to read:  
    290.46 [EXAMINATION OF RETURNS; ASSESSMENTS, REFUNDS.] 
    The commissioner shall, as soon as practicable after the 
return is filed, examine the same and make any investigation or 
examination of the taxpayer's records and accounts that the 
commissioner may deem necessary for determining the correctness 
of the return.  The tax computed by the commissioner on the 
basis of such examination and investigation shall be the tax to 
be paid by such taxpayer.  If the tax found due shall be greater 
than the amount reported as due on the taxpayer's return, the 
commissioner shall assess a tax in the amount of such excess and 
the whole amount of such excess shall be paid to the 
commissioner within 60 days after notice of the amount and 
demand for its payment shall have been mailed to the taxpayer by 
the commissioner.  If the understatement of the tax on the 
return was false and fraudulent with intent to evade the tax, 
the installments of the tax shown by the taxpayer on the return 
which have not yet been paid shall be paid to the commissioner 
within 60 days after notice of the amount thereof and demand for 
payment shall have been mailed to the taxpayer by the 
commissioner.  If the amount of the tax found due by the 
commissioner shall be less than that reported as due on the 
taxpayer's return, the excess shall be refunded to the taxpayer 
in the manner provided by section 290.50 (except that no demand 
therefor shall be necessary), if the taxpayer has already paid 
the whole of such tax, or credited against any unpaid 
installment thereof; provided, that no refundment shall be made 
except as provided in section 290.50.  
    The commissioner , on examining returns of a taxpayer for 
more than one year, may issue one order covering the several 
years under consideration reflecting the aggregate refund or 
additional tax due. 
    The notices and demands provided for by sections 290.46 to 
290.48 shall be in such form as the commissioner may determine 
(including a statement) and shall contain a brief explanation of 
the computation of the tax and shall be sent by mail to the 
taxpayer at the address given in the return, or to the 
taxpayer's last known address. 
    In cases where there has been an overpayment of a 
self-assessed liability as shown on the return filed by the 
taxpayer, the commissioner may refund such overpayment to the 
taxpayer and no demand therefor shall be necessary; further, 
written findings by the commissioner, notice by mail to the 
taxpayer and certificate for refundment by the commissioner 
shall not be necessary and the provisions of section 270.10, in 
such case, shall not be applicable. 
    In the case of an individual, estate or trust, The 
commissioner may audit and adjust the taxpayer's computation 
of federal adjusted gross income (or federal taxable income for 
estates or trusts) to make it properly conform with the 
provisions of section 290.01, subdivision 20 subdivisions 19 to 
19e, or the items of federal tax preferences or federal credit 
amounts to make them properly conform with the provisions of 
this chapter.  In the case of an individual, the commissioner 
may audit and adjust the taxpayer's computation of itemized 
deductions to make them properly conform with the provisions of 
section 290.089. 
    Sec. 101.  Minnesota Statutes 1986, section 290.48, 
subdivision 10, is amended to read:  
    Subd. 10.  [PRESUMPTIONS WHERE OWNER OF LARGE AMOUNT OF 
CASH IS NOT IDENTIFIED.] (a) If the individual who is in 
physical possession of cash in excess of $10,000 does not claim 
such cash, or does not claim it belongs to another person whose 
identity the commissioner can readily ascertain and who 
acknowledges ownership of such cash, then, for purposes of 
subdivisions 3 and 4, it shall be presumed that the cash 
represents gross income of a single individual for the taxable 
year in which the possession occurs, and that the collection of 
tax will be jeopardized by delay.  
    (b) In the case of any assessment resulting from the 
application of clause (a), the entire amount of the cash shall 
be treated as taxable income for the taxable year in which the 
possession occurs, such income shall be treated as taxable at an 
eight percent rate, and except as provided in clause (c), the 
possessor of the cash shall be treated (solely with respect to 
the cash) as the taxpayer for purposes of this chapter and the 
assessment and collection of the tax.  
    (c) If, after an assessment resulting from the application 
of clause (a), the assessment is abated and replaced by an 
assessment against the owner of the cash, the later assessment 
shall be treated for purposes of all laws relating to lien, 
levy, and collection as relating back to the date of the 
original assessment.  
    (d) For purposes of this subdivision, the definitions 
contained in section 6867 of the Internal Revenue Code of 1954 
1986, as amended through December 31, 1985 1986, shall apply.  
    Sec. 102.  Minnesota Statutes 1986, section 290.491, is 
amended to read:  
    290.491 [TAX ON GAIN; DISCHARGE IN BANKRUPTCY.] 
    (a) Any tax due under this chapter on a gain realized on a 
forced sale pursuant to foreclosure of a mortgage or other 
security interest in agricultural production property, other 
real property, or equipment, used in a farm business that was 
owned and operated by the taxpayer shall be a dischargeable debt 
in a bankruptcy proceeding under United States Code, title 11, 
section 727. 
    (b) Income realized on a sale or exchange of agricultural 
production property, other real property, or equipment, used in 
a farm business that was owned and operated by the taxpayer 
shall be exempt from taxation under this chapter, if the 
taxpayer was insolvent at the time of the sale and the proceeds 
of the sale were used solely to discharge indebtedness secured 
by a mortgage, lien or other security interest on the property 
sold.  For purposes of this section, "insolvent" means insolvent 
as defined in section 108(d)(3) of the Internal Revenue Code of 
1954, as amended through December 31, 1985.  This paragraph 
applies only to the extent that the gain is includable in 
federal adjusted gross income or in the computation of the 
alternative minimum taxable income under section 290.091 for 
purposes of the alternative minimum tax.  The amount of the 
exemption is limited to the excess of the taxpayer's (1) 
liabilities over (2) the total assets and any exclusion claimed 
under section 108 of the Internal Revenue Code of 1954, as 
amended through December 31, 1985, determined immediately before 
application of this paragraph. 
    (c) For purposes of this section, any tax due under this 
chapter specifically includes, but is not limited to, tax 
imposed under sections 290.02 and 290.03 on income derived from 
a sale or exchange, whether constituting gain, discharge of 
indebtedness or recapture of depreciation deductions, or the 
alternative minimum tax imposed under section 290.091. 
    Sec. 103.  Minnesota Statutes 1986, section 290.50, 
subdivision 1, is amended to read: 
    Subdivision 1.  [PROCEDURE, TIME LIMIT.] (a) A taxpayer who 
has paid or from whom there has been collected an amount of tax 
for any year in excess of the amount legally due for that year, 
may file with the commissioner a claim for a refund of such 
excess.  Except as otherwise provided in this section, no claim 
or refund shall be allowed or made after 3-1/2 years from the 
date prescribed for filing the return (plus any extension of 
time granted for filing the return, but only if filed within the 
extended time) or after two years from the date of overpayment, 
whichever period is longer, unless before the expiration of the 
period a claim is filed by the taxpayer.  For this purpose an 
income tax return or amended return claiming an overpayment 
shall constitute a claim for refund. 
    (b) If no claim was filed, the credit or refund shall not 
exceed the amount which would be allowable if a claim was filed 
on the date the credit or refund is allowed. 
    (c) If a claim relates to an overpayment on account of a 
failure to deduct a loss due to a bad debt or to a security 
becoming worthless, the claim shall be allowed if filed within 
seven years from the date prescribed in section 290.42 for the 
filing of the return, and the refund or credit shall be limited 
to the amount of overpayment attributable to the loss. 
    (d) For purposes of this section, the prepayment of tax 
made through the withholding of tax at the source, or payment of 
estimated tax, prior to the due date of the tax are considered 
as having been paid on the last day prescribed by law for the 
payment of the tax by the taxpayer.  A return filed before the 
due date shall be considered as filed on the due date. 
    (e) Except as provided in sections 273.1314, subdivision 
10a, 290.92, subdivision 13, 290.93, subdivision 9, and 290.936, 
interest on the overpayment refunded or credited to the taxpayer 
shall be allowed at the rate specified in section 270.76 
computed from the date of payment of the tax until the date the 
refund is paid or credit is made to the taxpayer.  However, to 
the extent that the basis for the refund is a net operating loss 
carryback or a capital loss carryback, interest shall be 
computed only from the end of the taxable year in which the loss 
occurs. 
    (f) If a taxpayer reports a change in federal gross income, 
items of tax preference, deductions, credits, or a 
renegotiation, or files a copy of the taxpayer's amended federal 
return, within 90 days as provided by section 290.56, 
subdivision 2, a refund may be made of any overpayment within 
one year after such report or amended return is filed except as 
provided in subdivision 2. 
    (g) There is hereby appropriated from the general fund to 
the commissioner of revenue the amounts necessary to make 
payments of refunds allowed pursuant to this section. 
    Sec. 104.  Minnesota Statutes 1986, section 290.56, 
subdivision 2, is amended to read:  
    Subd. 2.  [CHANGE IN FEDERAL RETURN.] If the amount of 
gross income, items of tax preference, deductions, or credits 
for any year of any taxpayer as reported to the Internal Revenue 
Service is changed or corrected by the Commissioner of Internal 
Revenue or other officer of the United States or other competent 
authority, or where a renegotiation of a contract or subcontract 
with the United States results in a change in gross income, 
items of tax preference, deductions, or credits, such taxpayer 
shall report in writing to the commissioner, in such form as the 
commissioner may require, such change or correction, or the 
results of such renegotiation, within 90 days thereafter after 
the final determination of the change, correction, or 
renegotiation, and shall concede the accuracy of such 
determination or state wherein it is erroneous.  Any taxpayer 
filing an amended federal income tax return shall also file 
within 90 days thereafter a copy of such amended return with the 
commissioner of revenue. 
    Sec. 105.  Minnesota Statutes 1986, section 290.92, 
subdivision 2a, is amended to read:  
    Subd. 2a.  [COLLECTION AT SOURCE.] (1)  [DEDUCTIONS.] Every 
employer making payment of wages shall deduct and withhold upon 
such wages a tax as provided in this section. 
    (2)  [WITHHOLDING ON PAYROLL PERIOD.] The employer shall 
withhold the tax on the basis of each payroll period or as 
otherwise provided in this section. 
    (3)  [WITHHOLDING TABLES.] Unless the amount of tax to be 
withheld is determined as provided in subdivision 3, the amount 
of tax to be withheld for each individual shall be based upon 
tables to be prepared and distributed by the commissioner.  The 
tables shall be computed for the several permissible withholding 
periods and shall take account of exemptions allowed under this 
section; and the amounts computed for withholding shall be such 
that the amount withheld for any individual during the 
individual's taxable year shall approximate in the aggregate as 
closely as possible the tax which is levied and imposed under 
this chapter for that taxable year, upon the individual's 
salary, wages, or compensation for personal services of any kind 
for the employer, and shall take into consideration the 
deduction allowable under section 290.089, subdivision 3, and 
the personal credits allowed against the tax. 
    (4)  [MISCELLANEOUS PAYROLL PERIOD.] If wages are paid with 
respect to a period which is not a payroll period, the amount to 
be deducted and withheld shall be that applicable in the case of 
a miscellaneous payroll period containing a number of days, 
including Sundays and holidays, equal to the number of days in 
the period with respect to which such wages are paid. 
    (5)  [MISCELLANEOUS PAYROLL PERIOD.] (a) In any case in 
which wages are paid by an employer without regard to any 
payroll period or other period, the amount to be deducted and 
withheld shall be that applicable in the case of a miscellaneous 
payroll period containing a number of days equal to the number 
of days, including Sundays and holidays, which have elapsed 
since the date of the last payment of such wages by such 
employer during the calendar year, or the date of commencement 
of employment with such employer during such year, or January 1 
of such year, whichever is the later. 
    (b) In any case in which the period, or the time described 
in clause (a), in respect of any wages is less than one week, 
the commissioner, under rules prescribed by the commissioner, 
may authorize an employer to determine the amount to be deducted 
and withheld under the tables applicable in the case of a weekly 
payroll period, in which case the aggregate of the wages paid to 
the employee during the calendar week shall be considered the 
weekly wages. 
    (6)  [WAGES COMPUTED TO NEAREST DOLLAR.] If the wages 
exceed the highest bracket, in determining the amount to be 
deducted and withheld under this subdivision, the wages may, at 
the election of the employer, be computed to the nearest dollar. 
    (7)  [RULES ON WITHHOLDING.] The commissioner may, by rule, 
authorize employers: 
    (a) to estimate the wages which will be paid to any 
employee in any quarter of the calendar year; 
    (b) to determine the amount to be deducted and withheld 
upon each payment of wages to such employee during such quarter 
as if the appropriate average of the wages so estimated 
constituted the actual wages paid; and 
    (c) to deduct and withhold upon any payment of wages to 
such employee during such quarter such amount as may be 
necessary to adjust the amount actually deducted and withheld 
upon wages of such employee during such quarter to the amount 
required to be deducted and withheld during such quarter without 
regard to this paragraph (7). 
    (8)  [ADDITIONAL WITHHOLDING.] The commissioner is 
authorized to provide by rule for increases or decreases in the 
amount of withholding otherwise required under this section in 
cases where the employee requests the changes.  Such additional 
withholding shall for all purposes be considered tax required to 
be deducted and withheld under this section. 
    (9)  [TIPS.] In the case of tips which constitute wages, 
this subdivision shall be applicable only to such tips as are 
included in a written statement furnished to the employer 
pursuant to section 6053 of the Internal Revenue Code of 1954 
1986, as amended through December 31, 1985 1986, and only to the 
extent that the tax can be deducted and withheld by the 
employer, at or after the time such statement is so furnished 
and before the close of the calendar year in which such 
statement is furnished, from such wages of the employee 
(excluding tips, but including funds turned over by the employee 
to the employer for the purpose of such deduction and 
withholding) as are under the control of the employer; and an 
employer who is furnished by an employee a written statement of 
tips (received in a calendar month) pursuant to section 6053 of 
the Internal Revenue Code of 1954 1986 as amended through 
December 31, 1985 1986, to which subdivision 1 is applicable may 
deduct and withhold the tax with respect to such tips from any 
wages of the employee (excluding tips) under the employer's 
control, even though at the time such statement is furnished the 
total amount of the tips included in statements furnished to the 
employer as having been received by the employee in such 
calendar month in the course of employment by such employer is 
less than $20.  Such tax shall not at any time be deducted and 
withheld in an amount which exceeds the aggregate of such wages 
and funds as are under the control of the employer minus any tax 
required by other provisions of state or federal law to be 
collected from such wages and funds.  
    (10)  [VEHICLE FRINGE BENEFITS.] An employer shall not 
deduct and withhold any tax under this section with respect to 
any vehicle fringe benefit provided to an employee if the 
employer has so elected for federal purposes and the requirement 
of and the definition contained in section 3402(s) of the 
Internal Revenue Code of 1954 1986, as amended through December 
31, 1985 1986, are complied with. 
    Sec. 106.  Minnesota Statutes 1986, section 290.92, 
subdivision 4a, is amended to read:  
    Subd. 4a.  [TAX WITHHELD FROM NONRESIDENTS.] (1) ["WAGES" 
PAID TO NONRESIDENT EMPLOYEES.] For the purposes of this 
section:  The term "wages" means all remuneration taxable under 
this chapter including all remuneration paid to a nonresident 
employee for services performed in this state. 
    (2) ["EMPLOYER," "WAGES" AND "EMPLOYEE" CONCERNING 
NONRESIDENTS.] Notwithstanding any other provision of this 
section, under rules to be prescribed by the commissioner of 
revenue, for purposes of this section any person having control, 
receipt, custody, disposal or payment of compensation taxable 
under this chapter and earned by a nonresident for personal 
services, shall be deemed an employer, any compensation taxable 
under this chapter and earned by a nonresident for personal 
services shall be deemed wages, and a nonresident entitled to 
compensation taxable under this chapter and earned by the 
nonresident for personal services shall be deemed an employee. 
    When compensation for personal services is paid to a 
corporation in which all or substantially all of the 
shareholders are individual entertainers, performers or athletes 
who gave an entertainment or athletic performance in this state 
for which the compensation was paid, the compensation shall be 
deemed wages of the individual entertainers, performers or 
athletes and shall be subject to the provisions of this 
section.  Advance payments of compensation for personal services 
to be performed in Minnesota shall be deemed wages and subject 
to the provisions of this section.  The individual, and not the 
corporation, shall be subject to the Minnesota income tax as 
provided in this chapter on the compensation for personal 
services.  
    (3) [NONRESIDENTS, EMPLOYER'S DUTY.] The employer of any 
employee domiciled in a state with which Minnesota has 
reciprocity under section 290.081 is not required to withhold 
under this chapter from the wages earned by such employee in 
this state if the employee annually submits to the employer an 
affidavit of residency in the form prescribed by the 
commissioner.  The affidavit must be submitted by the later of 
    (i) 30 days after the employment date or 
    (ii) August 31 for calendar year 1987 and February 28 for 
subsequent calendar years.  
    Sec. 107.  Minnesota Statutes 1986, section 290.92, 
subdivision 5, is amended to read:  
    Subd. 5.  [EXEMPTIONS.] (1) [ENTITLEMENT.] An employee 
receiving wages shall on any day be entitled to claim 
withholding exemptions equal to the same number as the personal 
credits that the employee is entitled to claim under the 
provisions of section 290.06, subdivision 3f, (not including 
those credits that the taxpayer's spouse may claim) in a number 
not to exceed the number of withholding exemptions that the 
employee claims and that are allowable pursuant to section 
3402(f)(1), (m), and (n) of the Internal Revenue Code of 1986, 
as amended through December 31, 1986, for federal withholding 
purposes.  
    (2) [WITHHOLDING EXEMPTION CERTIFICATE.] The provisions 
concerning exemption certificates contained in section 
3402(f)(2) and (3) of the Internal Revenue Code of 1954 1986, as 
amended through December 31, 1985 1986, shall apply. 
    (3) [FORM OF CERTIFICATE.] Withholding exemption 
certificates shall be in such form and contain such information 
as the commissioner may by rule prescribe. 
    (4) [NUMBER MAY BE SAME AS THAT FOR FEDERAL PURPOSES.] 
Notwithstanding the provisions of this subdivision, an employee 
may elect to claim a number not to exceed the number of 
withholding exemptions that the employee claims and which are 
allowable for federal withholding purposes. 
    Sec. 108.  Minnesota Statutes 1986, section 290.92, 
subdivision 5a, is amended to read:  
    Subd. 5a.  [VERIFICATION OF WITHHOLDING EXEMPTIONS; 
APPEAL.] (1) An employer shall submit to the commissioner a copy 
of any withholding exemption certificate or any affidavit of 
residency received from an employee on which the employee claims 
any of the following:  
    (a) a total number of withholding exemptions in excess 
of 14 ten or a number prescribed by the commissioner, or 
    (b) a status that would exempt the employee from Minnesota 
withholding, including where the employee is a nonresident 
exempt from withholding under subdivision 4a, clause (3), except 
where the employer reasonably expects, at the time that the 
certificate is received, that the employee's wages under 
subdivision 1 from the employer will not then usually exceed 
$200 per week, or 
    (c) any number of withholding exemptions which the employer 
has reason to believe is in excess of the number to which the 
employee is entitled.  
    (2) Copies of exemption certificates and affidavits of 
residency required to be submitted by clause (1) shall be 
submitted to the commissioner within 30 days after receipt by 
the employer unless the employer is also required by federal law 
to submit copies to the Internal Revenue Service, in which case 
the employer may elect to submit the copies to the commissioner 
at the same time that the employer is required to submit them to 
the Internal Revenue Service.  
    (3) An employer who submits a copy of a withholding 
exemption certificate in accordance with clause (1) shall honor 
the certificate until notified by the commissioner that the 
certificate is invalid.  The commissioner shall mail a copy of 
any such notice to the employee.  Upon notification that a 
particular certificate is invalid, the employer shall not honor 
that certificate or any subsequent certificate unless instructed 
to do so by the commissioner.  The employer shall allow the 
employee the number of exemptions and compute the withholding 
tax as instructed by the commissioner in accordance with clause 
(4).  
    (4) The commissioner may require an employee to verify 
entitlement to the number of exemptions or to the exempt status 
claimed on the withholding exemption certificate or, to verify 
nonresidency.  The employee shall be allowed at least 30 days to 
submit the verification, after which time the commissioner 
shall, on the basis of the best information available to the 
commissioner, determine the employee's status and allow the 
employee the maximum number of withholding exemptions allowable 
under this chapter.  The commissioner shall mail a notice of 
this determination to the employee at the address listed on the 
exemption certificate in question or to the last known address 
of the employee.  Notwithstanding the provisions of section 
290.61, the commissioner may notify the employer of this 
determination and instruct the employer to withhold tax in 
accordance with the determination. 
    However, where the commissioner has reasonable grounds for 
believing that the employee is about to leave the state or that 
the collection of any tax due under this chapter will be 
jeopardized by delay, the commissioner may immediately notify 
the employee and the employer, notwithstanding section 290.61, 
that the certificate is invalid, and the employer must not honor 
that certificate or any subsequent certificate unless instructed 
to do so by the commissioner.  The employer shall allow the 
employee the number of exemptions and compute the withholding 
tax as instructed by the commissioner. 
    (5) The commissioner's determination under clause (4) shall 
be appealable to tax court in accordance with section 271.06, 
and shall remain in effect for withholding tax purposes pending 
disposition of any appeal. 
    Sec. 109.  Minnesota Statutes 1986, section 290.92, 
subdivision 6, is amended to read:  
    Subd. 6.  [RETURNS, DEPOSITS.] (1)(a) [RETURNS.] Every 
employer who is required to deduct and withhold tax under 
subdivision 2a or 3 shall file a return with the commissioner 
for each quarterly period, on or before the last day of the 
month following the close of each quarterly period, unless 
otherwise prescribed by the commissioner.  Any tax required to 
be deducted and withheld during the quarterly period shall be 
paid with the return unless an earlier time for payment is 
provided.  However, any return may be filed on or before the 
tenth day of the second calendar month following the period if 
the return shows timely deposits in full payment of the taxes 
due for that period.  For the purpose of the preceding sentence, 
a deposit which is not required to be made within the return 
period, may be made on or before the last day of the first 
calendar month following the close of the period.  Every 
employer, in preparing a quarterly return, shall take credit for 
monthly deposits previously made in accordance with this 
subdivision. 
    The return shall be in the form and contain the information 
prescribed by the commissioner.  The commissioner may grant a 
reasonable extension of time for filing the return, but no 
extension shall be granted for more than six months 60 days.  
    (b) [ADVANCE DEPOSITS REQUIRED IN CERTAIN CASES.] (i) 
Unless clause (ii) is applicable, if during any calendar month, 
other than the last month of the calendar quarter, the aggregate 
amount of the tax withheld during that quarter under subdivision 
2a or 3 exceeds $500, the employer shall deposit the aggregate 
amount with the commissioner within 15 days after the close of 
the calendar month.  (ii) If at the close of any eighth-monthly 
period the aggregate amount of undeposited taxes is $3,000 or 
more, the employer shall deposit the undeposited taxes with the 
commissioner within three banking days after the close of the 
eighth-monthly period.  For purposes of this subparagraph, the 
term "eighth-monthly period" means the first three days of a 
calendar month, the fourth day through the seventh day of a 
calendar month, the eighth day through the 11th day of a 
calendar month, the 12th day through the 15th day of a calendar 
month, the 16th day through the 19th day of a calendar month, 
the 20th day through the 22nd day of a calendar month, the 23rd 
day through the 25th day of a calendar month, or the portion of 
a calendar month following the 25th day of the month.  
    (c) [OTHER METHODS.] The commissioner may by rule prescribe 
other return periods or deposit requirements.  In prescribing 
the reporting period, the commissioner may classify employers 
according to the amount of their tax liability and may adopt an 
appropriate reporting period for each class which the 
commissioner deems to be consistent with efficient tax 
collection.  In no event shall the duration of the reporting 
period be more than one year. 
    (2) If less than the correct amount of tax is paid to the 
commissioner, proper adjustments, with respect to both the tax 
and the amount to be deducted, shall be made, without interest, 
in the manner and at the times as the commissioner prescribes.  
If the underpayment cannot be adjusted, the amount of the 
underpayment shall be assessed and collected in the manner and 
at the times as the commissioner prescribes. 
    (3) If any employer fails to make and file any return 
required by paragraph (1) at the time prescribed, or makes and 
files a false or fraudulent return, the commissioner shall make 
for the employer a return from the commissioner's own knowledge 
and from information the commissioner obtains through testimony, 
or otherwise, and assess a tax on the basis of it.  The amount 
of tax shown on it shall be paid to the commissioner at the 
times as the commissioner prescribes.  Any return or assessment 
made by the commissioner shall be prima facie correct and valid, 
and the employer shall have the burden of establishing its 
incorrectness or invalidity in any action or proceeding in 
respect to it. 
    (4)  The commissioner, in any case, on having reason to 
believe that the collection of the tax provided for in paragraph 
(1) of this subdivision, and any added penalties and interest, 
if any, will be jeopardized by delay, may immediately assess the 
tax, whether or not the time otherwise prescribed by law for 
making and filing the return and paying the tax has expired. 
    (5) Any assessment under this subdivision shall be made by 
recording the liability of the employer in the office of the 
commissioner in accordance with rules prescribed by the 
commissioner.  Upon request of the employer, the commissioner 
shall furnish the employer a copy of the record of assessment. 
    (6) Any assessment of tax under this subdivision shall be 
made within 3-1/2 years after the due date of the return 
required by paragraph (1), or the date the return was filed, 
whichever is later.  In the case of a false or fraudulent return 
or failure to file a return, the tax may be assessed at any 
time.  The tax may be assessed within 6-1/2 years after the due 
date of the return or the date the return was filed, whichever 
is later, where the employer omitted withholding tax from the 
return which is properly includable therein and the omitted 
withholding tax is in excess of 25 percent of the amount of 
withholding tax stated on the return. 
    (7)(a) Except as provided in (b) of this paragraph, every 
employer who fails to pay to or deposit with the commissioner 
any sum or sums required by this section to be deducted, 
withheld and paid, shall be personally and individually liable 
to the state for the sum or sums (and any added penalties and 
interest).  Any sum or sums deducted and withheld in accordance 
with the provisions of subdivision 2a or 3 shall be held to be a 
special fund in trust for the state of Minnesota. 
    (b) If the employer, in violation of this section, fails to 
deduct and withhold the tax under this section, and thereafter 
the taxes against which the tax may be credited are paid, the 
tax required to be deducted and withheld shall not be collected 
from the employer; but this does not relieve the employer from 
liability for any penalties and interest otherwise applicable 
for failure to deduct and withhold. 
    (8) Upon the failure of any employer to pay to or deposit 
with the commissioner, within the time provided by paragraph 
(1), (2), or (3) of this subdivision, any tax required to be 
withheld in accordance with the provisions of subdivision 2a or 
3, or if the commissioner has assessed a tax pursuant to 
paragraph (4), the tax shall become immediately due and payable, 
and the commissioner may deliver to the attorney general a 
certified statement of the tax, penalties and interest due from 
the employer.  The statement shall also give the address of the 
employer owing the tax, the period for which the tax is due, the 
date of the delinquency, and any other information required by 
the attorney general.  The attorney general shall institute 
legal action in the name of the state to recover the amount of 
the tax, penalties, interest and costs.  The commissioner's 
certified statement to the attorney general shall for all 
purposes and in all courts be prima facie evidence of the facts 
stated in it and that the amount shown in it is due from the 
employer named in the statement.  If an action is instituted, 
the court shall, upon application of the attorney general, 
appoint a receiver of the property and business of the 
delinquent employer for the purpose of impounding it as security 
for any judgment which has been or may be recovered.  Any action 
must be brought within five years after the date of assessment 
of any tax under this subdivision.  
    (8a) The period of time during which a tax must be assessed 
or collection proceedings commenced under this subdivision shall 
be suspended during the period from the date of filing of a 
petition in bankruptcy until 30 days after the commissioner of 
revenue receives notice that the bankruptcy proceedings have 
been closed or dismissed or the automatic stay has been 
terminated or has expired.  
    The suspension of the statute of limitations under this 
subdivision shall apply to the person against whom the petition 
in bankruptcy is filed and all other persons who may also be 
wholly or partially liable for the tax under this chapter.  
    (9) Either party to an action for the recovery of any tax, 
interest or penalties under this subdivision may appeal the 
judgment as in other civil cases. 
    (10) No suit shall lie to enjoin the assessment or 
collection of any tax imposed by this section, or the interest 
and penalties added to it. 
    Sec. 110.  Minnesota Statutes 1986, section 290.92, 
subdivision 15, is amended to read:  
    Subd. 15.  [PENALTIES.] (1) In the case of any failure to 
withhold a tax on wages, make and file quarterly returns or make 
payments to or deposits with the commissioner of amounts 
withheld, as required by this section, within the time 
prescribed by law, there shall be added to the tax a penalty 
equal to ten percent of the amount of tax that should have been 
properly withheld and paid over to or deposited with the 
commissioner if the failure is for not more than 30 days with an 
additional five percent for each additional 30 days or fraction 
thereof during which the failure continues, not exceeding 25 
percent in the aggregate.  The amount of the tax together with 
this amount shall bear interest at the rate specified in section 
270.75 from the time the tax should have been paid until paid.  
The amount added to the tax shall be collected at the same time 
and in the same manner and as a part of the tax unless the tax 
has been paid before the discovery of the negligence, in which 
case the amount added shall be collected in the same manner as 
the tax. 
    (2) If any employer required to withhold a tax on wages, 
make deposits, make and file quarterly returns and make payments 
to the commissioner of amounts withheld, as required by sections 
290.92 to 290.97, willfully fails to withhold the tax or make 
the deposits, files a false or fraudulent return, willfully 
fails to make the payment or deposit, or willfully attempts in 
any manner to evade or defeat the tax or the payment or deposit 
of it, there shall also be imposed on the employer as a penalty 
an amount equal to 50 percent of the amount of tax, less any 
amount paid or deposited by the employer on the basis of the 
false or fraudulent return or deposit, that should have been 
properly withheld and paid over or deposited with the 
commissioner.  The amount of the tax together with this amount 
shall bear interest at the rate specified in section 270.75 from 
the time the tax should have been paid until paid.  The penalty 
imposed by this paragraph shall be collected as a part of the 
tax, and shall be in addition to any other penalties civil and 
criminal, prescribed by this subdivision. 
    (3) If any person required under the provisions of 
subdivision 7 to furnish a statement to an employee or payee and 
a duplicate statement to the commissioner, or to furnish a 
reconciliation of the statements, and quarterly returns, to the 
commissioner, willfully furnishes a false or fraudulent 
statement to an employee or payee or a false or fraudulent 
duplicate statement or reconciliation of statements, and 
quarterly returns, to the commissioner, or willfully fails to 
furnish a statement or the reconciliation in the manner, at the 
time, and showing the information required by the provisions of 
subdivision 7, or rules prescribed by the commissioner 
thereunder, there shall be imposed on the person a penalty of 
$50 for each act or failure to act, but the total amount imposed 
on the delinquent person for all such failures during any 
calendar year shall not exceed $25,000.  The penalty imposed by 
this paragraph is due and payable within ten days after the 
mailing of a written demand therefor, and may be collected in 
the manner prescribed in subdivision 6, paragraph (8). 
    (4) In addition to any other penalties prescribed, any 
person required to withhold a tax on wages, file quarterly 
returns, and make payments or deposits to the commissioner of 
amounts withheld, as required by this section, who attempts to 
evade the tax by (i) willfully failing to withhold the tax, file 
the return, or make the payment or deposit, or (ii) willfully 
preparing or filing a false return, is guilty of a gross 
misdemeanor unless the tax involved exceeds $300, in which event 
the person is guilty of a felony. 
    (5) In lieu of any other penalty provided by law, except 
the penalty provided by paragraph (3), any person required under 
the provisions of subdivision 7 to furnish a statement of wages 
to an employee and a duplicate statement to the commissioner, 
who willfully furnishes a false or fraudulent statement of wages 
to an employee or a false or fraudulent duplicate statement of 
wages to the commissioner, or who willfully fails to furnish a 
statement in the manner, at the time, and showing the 
information required by the provisions of subdivision 7, or 
rules prescribed by the commissioner thereunder, is guilty of a 
gross misdemeanor. 
    (6) Any employee required to supply information to an 
employer under the provisions of subdivision 5, who willfully 
fails to supply information or willfully supplies false or 
fraudulent information thereunder which would require an 
increase in the tax to be deducted and withheld under 
subdivision 2a or 3, is guilty of a gross misdemeanor. 
    (7) The term "person," as used in this section, includes an 
officer or employee of a corporation, or a member or employee of 
a partnership, who as an officer, employee, or member is under a 
duty to perform the act in respect of which the violation occurs.
    (8) All payments received may, in the discretion of the 
commissioner of revenue, be credited first to the oldest 
liability not secured by a judgment or lien, but in all cases 
shall be credited first to penalties, next to interest, and then 
to the tax due. 
    (9) In addition to any other penalty provided by law, any 
employee who furnishes a withholding exemption certificate or a 
residency affidavit to an employer which the employee has reason 
to know contains a materially incorrect statement is liable to 
the commissioner of revenue for a penalty of $500 for each 
instance.  The penalty is immediately due and payable and may be 
collected in the same manner as any delinquent income tax. 
    (10) In addition to any other penalty provided by law, any 
employer who fails to submit a copy of a withholding exemption 
certificate or a residency affidavit required by subdivision 5a, 
clause (1)(a), (1)(b), or (2) is liable to the commissioner of 
revenue for a penalty of $50 for each instance.  The penalty is 
immediately due and payable and may be collected in the manner 
provided in subdivision 6, paragraph (8).  
    (11) Any person who willfully aids or assists in, or 
procures, counsels, or advises the preparation or presentation 
under, or in connection with any matter arising under this 
section, of a return, affidavit, claim, or other document, which 
is fraudulent or false as to any material matter, whether or not 
the falsity or fraud is with the knowledge or consent of the 
person authorized or required to present the return, affidavit, 
claim, or document, is guilty of a gross misdemeanor, unless the 
tax involved exceeds $300, in which event the actor is guilty of 
a felony.  
    (12) Notwithstanding the provisions of section 628.26, or 
any other provision of the criminal laws of this state, an 
indictment may be found and filed, upon any criminal offense 
specified in this subdivision, in the proper court within six 
years after the commission of the offense.  
    Sec. 111.  Minnesota Statutes 1986, section 290.93, 
subdivision 10, is amended to read:  
    Subd. 10.  [UNDERPAYMENT OF ESTIMATED TAX.] (1) In the case 
of any underpayment of estimated tax by an individual, except as 
provided in paragraph (5) or (6), there must be added to and 
become a part of the taxes imposed by this chapter, for the 
taxable year an amount determined at the rate specified in 
section 270.75 upon the amount of the underpayment for the 
period of the underpayment. 
    (2) For purposes of the preceding paragraph, the amount of 
underpayment shall be the excess of 
    (a) the amount of the installment required to be paid over 
    (b) the amount, if any, of the installment paid on or 
before the last day prescribed for such payment. 
    (3) The period of the underpayment shall run from the date 
the installment was required to be paid to whichever of the 
following dates is the earlier 
    (a) The 15th day of the fourth month following the close of 
the taxable year. 
    (b) With respect to any portion of the underpayment, the 
date on which such portion is paid.  For purposes of this 
subparagraph, a payment of estimated tax on any installment date 
shall be considered a payment of any unpaid required 
installments in the order in which the installments are required 
to be paid. 
    (4) The amount of any installment required to be paid shall 
be 25 percent of the required annual payment except as provided 
in paragraph (c).  The term "required annual payment" means the 
lesser of 
    (a) 80 90 percent (66-2/3 percent in the case of farmers 
referred to in subdivision 5, paragraph (2)), of the tax shown 
on the return for the taxable year or 80 90 percent (66-2/3 
percent in the case of farmers referred to above) of the tax for 
the year if no return is filed, or 
    (b) The total tax liability shown on the return of the 
individual for the preceding taxable year (if a return showing a 
liability for such taxes was filed by the individual for the 
preceding taxable year of 12 months), or 
    (c) An amount equal to the applicable percentage of the tax 
for the taxable year (after deducting personal credits) computed 
by placing on an annualized basis the taxable income and 
alternative minimum taxable income for the months in the taxable 
year ending before the month in which the installment is 
required to be paid.  The applicable percentage of the tax is 20 
22.5 percent in the case of the first installment, 40 45 percent 
for the second installment, 60 67.5 percent for the third 
installment, and 80 90 percent for the fourth installment.  For 
purposes of this subparagraph, the taxable income and 
alternative minimum taxable income shall be placed on an 
annualized basis by 
    (i) Multiplying by 12 (or in the case of a taxable year of 
less than 12 months, the number of months in the taxable year) 
the taxable income and alternative minimum taxable income 
computed for the months in the taxable year ending before the 
month in which the installment is required to be paid. 
    (ii) Dividing the resulting amount by the number of months 
in the taxable year ending before the month in which such 
installment date falls. 
    (5) No addition to the tax shall be imposed under this 
subdivision for any taxable year if:  
    (a) the individual did not have any liability for tax for 
the preceding taxable year, 
    (b) the preceding taxable year was a taxable year of 12 
months, and 
    (c) the individual was a resident of Minnesota throughout 
the preceding taxable year.  
    (6) No addition to the tax shall be imposed under this 
subdivision with respect to any underpayment to the extent the 
commissioner determines that the provisions of section 
6654(e)(3) of the Internal Revenue Code of 1954, as amended 
through December 31, 1985, apply. 
    (7) For the purposes of applying this subdivision, the 
estimated tax shall be computed without any reduction for the 
amount which the individual estimates as the individual's credit 
under section 290.92, subdivision 12 (relating to tax withheld 
at source on wages), and any other refundable credits which are 
allowed against income tax liability, and the amount of such 
credits for the taxable year shall be deemed a payment of 
estimated tax, and an equal part of such amounts shall be deemed 
paid on each installment date (determined under subdivisions 6 
and 7) for such taxable year, unless the taxpayer establishes 
the dates on which all amounts were actually withheld, in which 
case the amounts so withheld shall be deemed payments of 
estimated tax on the dates on which such amounts were actually 
withheld. 
    Sec. 112.  Minnesota Statutes 1986, section 290.934, 
subdivision 2, is amended to read:  
    Subd. 2.  [AMOUNT OF UNDERPAYMENT.] For purposes of 
subdivision 1, the amount of the underpayment shall be the 
excess of 
    (1) the amount of the installment tax shown on the return 
for the tax year or, if no return is filed, the tax for the tax 
year, over 
    (2) the amount, if any, of the installment paid on or 
before the last date prescribed for payment. 
    Sec. 113.  Minnesota Statutes 1986, section 290.9725, is 
amended to read:  
    290.9725 [ELECTION BY SMALL BUSINESS CORPORATION.] 
    Any corporation having a valid election in effect under 
section 1362 of the Internal Revenue Code of 1954 1986, as 
amended through December 31, 1985 1986, shall not be subject to 
the taxes imposed by this chapter, except the tax imposed under 
section 290.92: 
    (1) the corporation is subject to the tax imposed under 
section 290.92; and 
    (2) the corporation is subject to the tax imposed under 
section 290.02 in any tax period in which it recognizes income 
for federal income tax purposes under Internal Revenue Code, 
Section 1363(d), 1374, or 1375; the total amount of income 
recognized is the federal taxable income for the corporation 
within the meaning of section 290.01, subdivision 19; the 
provisions of sections 290.01, subdivisions 19a to 19f, and 
290.17 to 290.20, must be employed to determine the taxable net 
income of the corporation; and the taxable net income of the 
corporation is its taxable income, except that any net operating 
loss carryforward that arose in a year when there was no 
election in effect under Section 1362 of the Internal Revenue 
Code is allowed as a deduction. 
    Sec. 114.  Minnesota Statutes 1986, section 290.9726, 
subdivision 1, is amended to read:  
    Subdivision 1.  [GENERAL RULE.] The gross income of the 
shareholders of corporations described in section 290.9725 shall 
be computed under the provisions of section 290.01, subdivisions 
subdivision 20 to 20f.  
    Sec. 115.  Minnesota Statutes 1986, section 290.9726, 
subdivision 2, is amended to read:  
    Subd. 2.  [CHARACTER OF ITEMS DISTRIBUTED OR CONSIDERED 
DISTRIBUTED.] The character of any item of income, gain, loss, 
or deduction included in shareholder's income, for the period of 
time that the shareholder is not a resident of Minnesota, shall 
be assignable as provided in section 290.17, subdivision 
2, determined as if the item were realized directly from the 
source from which it was realized by the corporation or incurred 
in the same manner as incurred by the corporation.  
    Sec. 116.  Minnesota Statutes 1986, section 290.9726, 
subdivision 4, is amended to read:  
    Subd. 4.  [TREATMENT OF FAMILY GROUPS.] Any amount of 
taxable income apportioned or allocated to a shareholder may be 
apportioned reapportioned or allocated by the commissioner 
between or among shareholders of the corporation who are members 
of the shareholder's family, as defined in section 290.10, 
clause (6) reallocated under the provisions of section 1366(e) 
of the Internal Revenue Code of 1986, as amended through 
December 31, 1986, if the commissioner determines that the 
apportionment or allocation is it necessary in order 
to correctly reflect the value of services rendered to the 
corporation by the shareholders.  
    Sec. 117.  Minnesota Statutes 1986, section 290.974, is 
amended to read:  
    290.974 [RETURN OF S CORPORATION.] 
    Every S corporation shall make a return for each taxable 
year during which said election is in effect stating 
specifically the names and addresses of all persons owning stock 
in the corporation at any time during the taxable year, the 
number of shares of stock owned by each shareholder at all times 
during the taxable year, each shareholder's pro rata share of 
each item of the corporation for the taxable year, and such 
other information for the purposes of carrying out the 
provisions of sections 290.01, subdivisions 20 19 to 20f 19b and 
290.9725 as the commissioner may by forms and rules prescribe.  
    Sec. 118.  [290.9741] [ELECTION BY REMIC.] 
    An entity having a valid election as a Real Estate Mortgage 
Investment Conduit (REMIC) in effect under section 860D(b) of 
the Internal Revenue Code of 1986, as amended through December 
31, 1986, shall not be subject to the taxes imposed by this 
chapter except the tax imposed under section 290.92. 
    Sec. 119.  [290.9742] [REMIC INCOME TAXABLE TO HOLDERS OF 
INTERESTS.] 
    The income of a REMIC is taxable to the holders of 
interests in the REMIC as provided in sections 860A to 860G of 
the Internal Revenue Code of 1986, as amended through December 
31, 1986.  The income of the holders must be computed under the 
provisions of this chapter. 
    Sec. 120.  [ESTIMATED TAXES, EXCEPTION.] 
    Subdivision 1.  [CORPORATE MINIMUM TAX.] For taxable years 
beginning after December 31, 1986, but before January 1, 1988, 
the commissioner of revenue may not assess any penalties, 
interest, or additions to tax that are the result of the 
taxpayer's failure to make sufficient estimated tax payments due 
to the alternative minimum tax imposed by section 290.092.  This 
exception shall apply only to the extent that the corporation's 
liability for the alternative minimum tax increases the 
corporation's liability under the franchise tax imposed by 
section 290.02.  
    Subd. 2.  [CORPORATE INCOME DEFINITION.] No addition to 
tax, penalties or interest may be made under Minnesota Statutes, 
section 290.53 or 290.934 for any period before December 15, 
1987, with respect to an underpayment of estimated tax, to the 
extent the underpayment was created or increased by the 
enactment of changes in the definition of taxable income enacted 
as part of the Tax Reform Act of 1986, Public Law Number 99-514, 
and adopted by reference to federal law. 
    Subd. 3.  [INDIVIDUAL SUBTRACTIONS ELIMINATED.] No addition 
to tax, penalties, or interest may be made under Minnesota 
Statutes, section 290.53 or 290.93, for any period before 
January 15, 1988, with respect to an underpayment of estimated 
tax, to the extent that the underpayment was created or 
increased by elimination of the subtractions for pension income, 
military pay, or unemployment compensation.  
    Sec. 121.  [LUMP SUM DISTRIBUTIONS.] 
    If an individual elects to treat a lump sum distribution 
received after December 31, 1986, and before March 16, 1987, as 
if it were received in taxable year 1986 under section 1124 of 
the Tax Reform Act of 1986, Public Law Number 99-514, the 
individual shall treat the distribution as if it were received 
in taxable year 1986 for purposes of the lump sum distribution 
tax imposed under Minnesota Statutes 1986, section 290.032. 
    Sec. 122.  [ALTERNATIVE MINIMUM TAX.] 
    In taxable years beginning prior to January 1, 1988, for 
purposes of the tax imposed by Minnesota Statutes, section 
290.091, section 13208(a), of the Consolidated Omnibus Budget 
Reconciliation Act of 1985, Public Law Number 99-272, shall be 
effective at the same time that it became effective for federal 
income tax purposes.  The time limit for filing a claim or an 
amended return for the year 1982 shall be the same as the time 
provided under section 1896 of the Tax Reform Act of 1986, 
Public Law Number 99-514, for the filing of a similar claim or 
amended return for federal purposes.  
    Sec. 123.  [MINISTERS; MILITARY PERSONNEL.] 
    Mortgage interest and property taxes paid by a minister or 
by military personnel allocable to a parsonage allowance or an 
off base military allowance are deductible for all taxable years 
to the extent allowed by section 144 of the Tax Reform Act of 
1986, Public Law Number 99-514. 
    Sec. 124.  [DEPARTMENT OF REVENUE STUDY.] 
    The department of revenue shall study application of the 
income tax allocation and apportionment rules with respect to 
income from highly technologically related agricultural 
production.  The department must consider whether the following 
types of income are income from the operation of a farm:  
    (1) income of a taxpayer from an operation classified by 
the United States Department of Commerce Standard Industrial 
Classification as industrial, manufacturing, or distribution;  
    (2) income attributable to activities that occur prior to 
the commencement of the biological process creating the product 
or other value or after the biological process terminates;  
    (3) income attributable to testing; research; genetic or 
biological selection; genetic engineering; creation or licensing 
of patents, copyrights, trademarks, or other intellectual 
property; processing, packaging, grading, promotion, or 
distribution of products or value attributable thereto;  
    (4) income from any activity, which, if performed by 
another person not otherwise engaged in farming, would not in 
itself be farming; or 
    (5) income derived from the sale, exchange, or distribution 
of living livestock and poultry purchased or leased by the 
taxpayer.  
    The study shall also consider how income should be 
apportioned between farm and nonfarm activities, particularly if:
    (i) one or more activities or businesses of the taxpayer is 
wholly separate and unrelated to the taxpayer's farm income; or 
    (ii) a small proportion of the taxpayer's income is income 
from the operation of a farm. 
    In conducting the study the department shall solicit advice 
and comments from persons outside state government.  
    The department of revenue shall report to the committee on 
taxes and tax laws in the senate and the tax committee of the 
house of representatives by January 1, 1988.  The report must 
summarize the scope and methodology of the study, the 
conclusions reached, and recommendations for legislation, if any.
    Sec. 125.  [PURPOSE.] 
    It is the intent of the legislature to simplify Minnesota's 
income tax.  In order to simplify, many complicating provisions 
are repealed by this article and the revenue is used to fund 
income tax relief.  It is the clear intent of the legislature to 
eliminate all carryovers and basis adjustments of these 
complicating provisions and conform with federal tax law as 
quickly as possible. 
    Sec. 126.  [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, 1986" for the words 
"Internal Revenue Code of 1954 as amended through December 31, 
1985" wherever that phrase occurs in chapter 290, except in 
section 290.01, subdivisions 19(e) and 20, and in chapter 291. 
    Sec. 127.  [REPEALER.] 
    Minnesota Statutes 1986, sections 290.01, subdivisions 20a, 
20b, 20d, 20f, 21, and 24; 290.013; 290.06, subdivisions 3f, 3g, 
and 11; 290.069, subdivisions 1, 2, 3, 5, 6, and 7; 290.07, 
subdivision 5; 290.071; 290.073; 290.075; 290.077, subdivision 
3; 290.079; 290.08; 290.085; 290.088; 290.089; 290.09; 290.095, 
subdivisions 8 and 10; 290.12, subdivision 4; 290.13; 290.139; 
290.15; 290.16; 290.165; 290.17, subdivision 1a; 290.175; 290.18;
290.19; 290.21, subdivisions 5 and 6; 290.26, subdivision 2; 
290.361; and 290.9726, subdivisions 3, 5, and 6, are repealed. 
    Sec. 128.  [REPEAL OF RULES.] 
    The following parts of Minnesota Rules are repealed:  
8001.0500; 8001.0600; 8001.0700; 8002.0100; 8006.0100; 
8006.0200; 8007.0100; 8007.0400 to 8007.4000; 8008.0100 to 
8008.0500; 8009.0100 to 8009.2700; 8009.4000 to 8009.6500; 
8009.7000; 8010.0100 to 8010.0400; 8011.0100 to 8011.1000; 
8014.1000 to 8014.2000; 8017.0100; 8017.2000; 8017.3000; 
8023.0100 to 8023.0400; 8031.0200; 8031.0400; 8043.0100; 
8093.0200, subpart 4; and 8099.0100 to 8099.0400.  
    Sec. 129.  [EFFECTIVE DATE.] 
    Section 16 is effective the day following final enactment.  
Section 18 is effective for taxable years beginning after 
December 31, 1986, except as otherwise provided in clauses (i) 
to (v) of that section.  Section 58 is effective for losses 
incurred in taxable years beginning after December 31, 1986.  
Sections 64 to 72 are effective when the corresponding 
provisions of the Internal Revenue Code of 1986 are effective.  
Section 87, paragraph (b) and the provisions in paragraph (c) 
relating to divestment of a corporation from a unitary group and 
section 97 are effective for taxable years beginning after 
December 31, 1985.  The remainder of section 87 is effective for 
taxable years beginning after December 31, 1986.  Sections 98 
and 99 are effective for taxable years ending after the date of 
final enactment.  Section 104 is effective for final 
determinations made after the day after enactment of this act.  
Sections 105 to 110 are effective the day after final enactment. 
The repeal of Minnesota Statutes 1986, section 290.16, 
subdivision 4, in section 127, is effective for sales or 
exchanges occurring after December 31, 1986.  The remainder of 
this article is effective for taxable years beginning after 
December 31, 1986. 

                               ARTICLE 2

                            INSURANCE TAXES
    Section 1.  Minnesota Statutes 1986, section 60A.15, 
subdivision 1, is amended to read:  
    Subdivision 1.  [DOMESTIC AND FOREIGN COMPANIES OTHER THAN 
TOWN AND FARMERS' MUTUAL AND DOMESTIC MUTUALS OTHER THAN LIFE.] 
On or before April 15, June 15, and December 15 of each year, 
every domestic and foreign company, except including town and 
farmers' mutual insurance companies and domestic mutual 
insurance companies other than life, shall pay to the 
commissioner of revenue installments equal to one-third of the 
insurer's total estimated tax for the current year based on a 
sum equal to two percent of the gross premiums less return 
premiums on all direct business received by it in this state, or 
by its agents for it, in cash or otherwise, during such year, 
excepting premiums written for marine insurance as specified in 
subdivision 6.  Failure of a company to make payments of at 
least one-third of either (a) the total tax paid during the 
previous calendar year or (b) 80 percent of the actual tax for 
the current calendar year shall subject the company to the 
penalty and interest provided in this subdivision section. 
    Sec. 2.  Minnesota Statutes 1986, section 60A.199, 
subdivision 1, is amended to read:  
    Subdivision 1.  [EXAMINATION OF BOOKS AND RECORDS.] If the 
commissioner considers it necessary, the commissioner may 
examine the books and records of a surplus lines licensee to 
determine whether the licensee is conducting business in 
accordance with sections 60A.195 to 60A.209.  For the purposes 
of facilitating examinations, the licensee shall allow the 
commissioner free access at reasonable times to all of the 
licensee's books and records relating to the transactions to 
which sections 60A.195 to 60A.209 apply.  If an examination is 
conducted, the cost of the examination shall be paid by 
the insurer surplus line agent or agency. 
    Sec. 3.  Minnesota Statutes 1986, section 60A.199, 
subdivision 2, is amended to read:  
    Subd. 2.  [EXAMINATION OF RETURNS; ASSESSMENT; REFUNDS.] 
The commissioner of revenue shall, as soon as practicable after 
a return required by section 60A.198 is filed, examine it and 
make any investigation or examination of the company's 
licensee's records and accounts that the commissioner deems 
necessary for determining the correctness of the return.  The 
tax computed by the commissioner on the basis of the examination 
and investigation is the tax to be paid by the company 
licensee.  If the tax found due is greater than the amount 
reported due on the company's licensee's return, the 
commissioner shall assess a tax in the amount of the excess and 
the whole amount of the excess shall be paid to the commissioner 
within 60 days after notice of the amount and demand for its 
payment is mailed to the company licensee by the commissioner.  
If the understatement of the tax on the return was false and 
fraudulent with intent to evade the tax, the installments of the 
tax shown by the company on its return which are not paid shall 
be paid to the state treasurer within 60 days after notice of 
the amount thereof and demand for payment is mailed to the 
company by the commissioner.  If the amount of the tax found due 
by the commissioner is less than that reported due on 
the company's licensee's return, the excess shall be refunded to 
the company licensee in the manner provided by this section, 
except that no demand therefor is necessary, if the whole of the 
tax has been paid or credited against any unpaid installment 
thereof.  No refund shall be made except as provided in this 
section after the expiration of 3-1/2 years after the filing of 
the return.  
    If the commissioner examines returns of a company licensee 
for more than one year, the commissioner may issue one order 
covering the several years under consideration reflecting the 
aggregate refund or additional tax due.  
    The notices and demands provided for by this section shall 
be in the form the commissioner determines, including a 
statement, and shall contain a brief explanation of the 
computation of the tax and shall be sent by mail to the company 
licensee at the address given in its on the return.  If the 
address is not given, then they will be sent to the last known 
address. 
     At the request of the commissioner of revenue, the 
commissioner of commerce may examine and investigate the returns 
under section 60A.198 that the commissioner of revenue 
designates.  The commissioner of commerce shall report to the 
commissioner of revenue the results of the examination in the 
manner required by the commissioner of revenue. 
    Sec. 4.  Minnesota Statutes 1986, section 60A.199, 
subdivision 3, is amended to read:  
    Subd. 3.  [FAILURE TO FILE; FALSE OR FRAUDULENT RETURN.] If 
any company licensee required by section 60A.198 to file any 
return fails to do so within the time prescribed or makes, 
willfully or otherwise, an incorrect, false, or fraudulent 
return, it the licensee must, on the written demand of the 
commissioner of revenue, file the return, or corrected return, 
within 60 days after the mailing of the written demand and at 
the same time pay the whole tax, or additional tax, due on the 
basis thereof.  If the company licensee fails within that time 
to file the return, or corrected return, the commissioner shall 
make for it a return, or corrected return, from personal 
knowledge and from the information obtainable through testimony, 
or otherwise, and assess a tax on the basis thereof.  The tax 
assessed, less any payments theretofore made on account of the 
tax for the taxable year covered by the return, must be paid 
within 60 days after the commissioner has mailed to the company 
licensee a written notice of the amount thereof and demand 
for its payment.  Any return or assessment made by the 
commissioner on account of the failure of the company licensee 
to make a return, or a corrected return, is prima facie correct 
and valid, and the company licensee has the burden of 
establishing its incorrectness or invalidity in any action or 
proceeding in respect thereto.  
    Sec. 5.  Minnesota Statutes 1986, section 60A.199, 
subdivision 5, is amended to read:  
    Subd. 5.  [INTENT TO EVADE TAX; PENALTY.] If any company 
licensee with intent to evade the tax imposed by this chapter, 
fails to file any return required by this chapter or with such 
intent files a false or fraudulent return there shall also be 
imposed on it a penalty as provided in section 290.53, 
subdivision 3.  
    Sec. 6.  Minnesota Statutes 1986, section 60A.199, 
subdivision 7, is amended to read:  
    Subd. 7.  [COLLECTION OF TAX.] The tax required to be paid 
by section 60A.198 may be collected in any ordinary action at 
law by the commissioner of revenue against the company 
licensee.  In any action commenced pursuant to this section, 
upon the filing of an affidavit of default, the court 
administrator of the district court wherein the action was 
commenced shall enter judgment for the state for the amount 
demanded in the complaint together with costs and disbursements. 
    Sec. 7.  Minnesota Statutes 1986, section 60A.199, 
subdivision 8, is amended to read:  
    Subd. 8.  [REFUND PROCEDURE; TIME LIMIT; APPROPRIATION.] A 
company licensee which has paid, voluntarily or otherwise, or 
from which there was collected an amount of tax for any year in 
excess of the amount legally due for that year, may file with 
the commissioner of revenue a claim for a refund of the excess. 
Except as provided in subdivision 3, no claim or refund shall be 
allowed or made after 3-1/2 years from the date prescribed for 
filing the return (plus any extension of time granted for filing 
the return but only if filed within the extended time) or after 
two years from the date of overpayment, whichever period is 
longer, unless before the expiration of the period a claim is 
filed by the company licensee.  For this purpose, a return or 
amended return claiming an overpayment constitutes a claim for 
refund.  
    Upon the filing of a claim the commissioner shall examine 
the same it, shall make and file written findings thereon 
denying or allowing the claim in whole or in part, and shall 
mail a notice thereof to the company licensee at the address 
stated upon the return.  If the claim is allowed in whole or in 
part, the commissioner shall issue a certificate for a refund of 
the excess paid by the company licensee, with interest at the 
rate specified in section 270.76 computed from the date of the 
payment of the tax until the date the refund is paid or credit 
is made to the company licensee.  The commissioner of finance 
shall cause the refund to be paid as other state moneys are 
expended.  So much of the proceeds of the taxes as is necessary 
are appropriated for that purpose.  
    Sec. 8.  Minnesota Statutes 1986, section 60A.199, 
subdivision 9, is amended to read:  
    Subd. 9.  [DENIAL OF CLAIM; COURT PROCEEDINGS.] If the 
claim is denied in whole or in part, the commissioner shall mail 
an order of denial to the company licensee in the manner 
prescribed in this section.  An appeal from this order may be 
taken to the Minnesota tax court in the manner prescribed in 
section 271.06, or the company licensee may commence an action 
against the commissioner to recover the denied overpayment.  The 
action may be brought in the district court of the district in 
which lies the county of its principal place of business, or in 
the district court for Ramsey county.  The action in the 
district court shall be commenced within 18 months following the 
mailing of the order of denial to the company licensee.  If a 
claim for refund is filed by a company licensee and no order of 
denial is issued within six months of the filing, the company 
licensee may commence an action in the district court as in the 
case of a denial, but the action must be commenced within two 
years of the date that the claim for refund was filed.  
    Sec. 9.  Minnesota Statutes 1986, section 60A.199, 
subdivision 10, is amended to read:  
    Subd. 10.  [CONSENT TO EXTEND TIME.] If the commissioner 
and the company licensee have, within the periods prescribed in 
subdivision 1 by this section, consented in writing to any 
extension of time for the assessment of the tax, the period 
within which a claim for refund may be filed, or a refund may be 
made or allowed, if no claim is filed, is the period within 
which the commissioner and the company licensee have consented 
to an extension for the assessment of the tax and six months 
thereafter, the period within which a claim for refund may be 
filed shall not expire prior to two years after the tax was paid.
    Sec. 10.  Minnesota Statutes 1986, section 60A.199, 
subdivision 11, is amended to read:  
    Subd. 11.  [OVERPAYMENT; REFUNDS.] If the amount determined 
to be an overpayment exceeds the taxes imposed by section 
60A.198, the amount of excess shall be considered an 
overpayment.  An amount paid as tax shall constitute an 
overpayment even if in fact there was no tax liability with 
respect to which the amount was paid.  
    Notwithstanding any other provision of law to the contrary, 
in the case of any overpayment the commissioner, within the 
applicable period of limitations, shall refund any balance of 
more than $1 to the company $10 if the company licensee so 
requests.  
    Sec. 11.  Minnesota Statutes 1986, section 60A.209, 
subdivision 1, is amended to read:  
    Subdivision 1.  [AUTHORIZATION; REGULATION.] A resident of 
this state may obtain insurance from an ineligible surplus lines 
insurer in this state through a surplus lines licensee.  The 
licensee shall first attempt to place the insurance with a 
licensed insurer, or if that is not possible, with an eligible 
surplus lines insurer.  If coverage is not obtainable from a 
licensed insurer or an eligible surplus lines insurer, the 
licensee shall certify to the commissioner, on a form prescribed 
by the commissioner, that these attempts were made.  Upon 
obtaining coverage from an ineligible surplus lines insurer, the 
licensee shall:  
    (a) Have printed, typed, or stamped in red ink upon the 
face of the policy in not less than 10 point type the following 
notice:  "THIS INSURANCE IS ISSUED PURSUANT TO THE MINNESOTA 
SURPLUS LINES INSURANCE ACT.  THIS INSURANCE IS PLACED WITH AN 
INSURER THAT IS NOT LICENSED BY THE STATE NOR RECOGNIZED BY THE 
COMMISSIONER OF COMMERCE AS AN ELIGIBLE SURPLUS LINES INSURER.  
IN CASE OF ANY DISPUTE RELATIVE TO THE TERMS OR CONDITIONS OF 
THE POLICY OR THE PRACTICES OF THE INSURER, THE COMMISSIONER OF 
COMMERCE WILL NOT BE ABLE TO ASSIST IN THE DISPUTE.  IN CASE OF 
INSOLVENCY, PAYMENT OF CLAIMS IS NOT GUARANTEED."  The notice 
may not be covered or concealed in any manner; and 
    (b) Collect from the insured appropriate premium taxes and 
report the transaction to the commissioner of revenue on a form 
prescribed by the commissioner.  If the insured fails to pay the 
taxes when due, the insured shall be subject to a civil fine of 
not more than $3,000, plus accrued interest from the inception 
of the insurance.  
    Sec. 12.  Minnesota Statutes 1986, section 60A.209, 
subdivision 3, is amended to read:  
    Subd. 3.  [DUTY TO REPORT.] Each insured in this state who 
procures, causes to be procured, or continues or renews 
insurance with an ineligible surplus lines insurer or any 
self-insurer in this state who procures or continues excess of 
loss, catastrophe, or other insurance upon a subject of 
insurance resident, located, or to be performed within this 
state, other than insurance procured pursuant to section 60A.201 
or subdivision 1 of this section shall file a written report 
regarding the insurance with the commissioner of revenue on 
forms prescribed by the commissioner of revenue and furnished to 
the insured upon request.  The report shall be filed within 30 
days after the date the insurance was procured, continued, or 
renewed and shall be accompanied by the tax on the premiums of 
two percent.  The report shall show all of the following:  
    (a) The name and address of the insured;  
    (b) The name and address of the insurer;  
    (c) The subject of the insurance;  
    (d) A general description of the coverage;  
    (e) The amount of premium currently charged for the 
insurance; and 
    (f) Any additional pertinent information reasonably 
requested by the commissioner of revenue. 
    Sec. 13.  Minnesota Statutes 1986, section 60C.06, is 
amended by adding a subdivision to read: 
    Subd. 5.  [SURCHARGE.] (a) The plan of operation adopted 
pursuant to section 60C.07 must require each member insurer to 
recoup over a reasonable length of time a sum reasonably 
calculated to recoup the assessments paid by the member insurer 
under this article by way of a surcharge on premiums charged for 
insurance policies to which this chapter applies. 
    (b) The amount of any surcharge must be separately stated 
on either a billing or policy declaration sent to an insured.  
The association shall determine the rate of the surcharge and 
the collection period for each category and these are mandatory 
for all member insurers of the association who write business in 
those categories.  The amount of the surcharge determined under 
this section is included in the insurance company's premiums for 
purposes of the gross premiums tax imposed under section 60A.15. 
    (c) The plan of operation may permit a member insurer to 
omit collection of the surcharge from its insured when the 
expense of collecting the surcharge would exceed the amount of 
the surcharge.  However, nothing in this section shall relieve 
the member insurer of its obligation to recoup the amount of the 
surcharge otherwise collectible. 
    Sec. 14.  Minnesota Statutes 1986, section 61B.02, 
subdivision 1, is amended to read:  
    Subdivision 1.  [SCOPE.] Sections 61B.01 to 61B.16 apply to 
direct life insurance policies, health insurance 
policies including subscriber contracts issued by a nonprofit 
health service plan corporation operating under chapter 62C, 
annuity contracts, and contracts supplemental to life and health 
insurance policies or annuity contracts, issued by persons 
authorized at any time to transact insurance or business as a 
nonprofit health service plan corporation operating under 
chapter 62C in this state.  Sections 61B.01 to 61B.16 do not 
apply to: 
    (a) any policy or contract or part thereof under which the 
risk is borne by the policyholder; 
    (b) any policy or contract or part thereof assumed by an 
impaired insurer under a contract of reinsurance other than 
reinsurance for which assumption certificates have been issued; 
    (c) any policy or contract issued by an assessment benefit 
association operating under chapter 63, or a fraternal benefit 
society operating under chapter 64B; 
    (d) any subscriber contract issued by a nonprofit health 
service plan corporation operating under chapter 62C; or 
    (e) (d) any health insurance policies issued by a person 
other than a person authorized to write life insurance in this 
state or other than a person whose corporate charter would 
permit the writing of life insurance but who is authorized to 
write only health insurance in this state.  
     Sec. 15.  Minnesota Statutes 1986, section 61B.03, 
subdivision 8, is amended to read: 
    Subd. 8.  "Health insurance" means accident and health 
insurance regulated under chapter 62A and credit accident and 
health insurance regulated under chapter 62B and subscriber 
contracts issued by a nonprofit health service plan corporation 
operating under chapter 62C. 
     Sec. 16.  Minnesota Statutes 1986, section 61B.03, 
subdivision 10, is amended to read: 
    Subd. 10.  "Member insurer" means any person authorized to 
transact in this state any kind of insurance or business to 
which sections 61B.01 to 61B.16 apply under section 61B.02. 
    Sec. 17.  Minnesota Statutes 1986, section 62E.02, 
subdivision 23, is amended to read:  
    Subd. 23.  "Contributing member" means those companies 
operating pursuant to chapter 62A, paying premium taxes pursuant 
to section 60A.15, and offering, selling, issuing, or renewing 
policies or contracts of accident and health insurance or health 
maintenance organizations and nonprofit health service plan 
corporations incorporated under chapter 62C or fraternal benefit 
society operating under chapter 64. 
    Sec. 18.  Minnesota Statutes 1986, section 67A.11, 
subdivision 3, is amended to read:  
    Subd. 3.  [ANNUAL STATEMENT.] (a) On or before March first, 
following the end of each fiscal year, the president and the 
secretary shall file with the commissioner a verified statement 
of the entire business and condition of the company, which 
statement shall contain such data and information in reference 
to the business of the preceding fiscal year as shall be 
required by the commissioner. 
    (b) On or before March 1 of each year, the president and 
secretary shall also file with the commissioner of revenue a 
copy of the verified statement required by paragraph (a).  
Failure to file the statement on or before March 1 will subject 
the company to a penalty of $10 a day up to a maximum of $100. 
    Sec. 19.  Minnesota Statutes 1986, section 69.011, 
subdivision 1, is amended to read:  
    Subdivision 1.  [DEFINITIONS.] Unless the language or 
context clearly indicates that a different meaning is intended, 
the following words and terms shall for the purposes of this 
chapter and chapters 423, 423A, 424 and 424A have the meanings 
ascribed to them: 
    (a) "Commissioner" means the commissioner of revenue. 
    (b) "Municipality" means any home rule charter or statutory 
city, organized town or park district subject to chapter 398, 
and the University of Minnesota.  
    (c) "Minnesota Firetown Premium Report" means a form 
prescribed by the commissioner containing space for reporting by 
insurers of fire, lightning, sprinkler leakage and extended 
coverage premiums received upon risks located or to be performed 
in this state less return premiums and dividends. 
    (d) "Firetown" means the area serviced by any municipality 
having a qualified fire department or a qualified incorporated 
fire department having a subsidiary volunteer firefighters' 
relief association. 
    (e) "Assessed property valuation" means latest available 
assessed value of all property in a taxing jurisdiction, whether 
the property is subject to taxation, or exempt from ad valorem 
taxation obtained from information which appears on abstracts 
filed with the commissioner of revenue or equalized by the state 
board of equalization. 
    (f) "Minnesota Aid to Police Premium Report" means a form 
prescribed by the commissioner for reporting by each fire and 
casualty insurer of all premiums received upon direct business 
received by it in this state, or by its agents for it, in cash 
or otherwise, during the preceding calendar year, with reference 
to insurance written for insuring against the perils contained 
in auto liability-bodily injury, auto liability-property damage, 
and auto physical damage insurance coverages as reported in the 
Minnesota business schedule of the fire and casualty insurance 
companies annual financial statement which each insurer is 
required to file with the commissioner in accordance with the 
governing laws or rules less return premiums and dividends. 
    (g) "Peace officer" means any person: 
    (1) whose primary source of income derived from wages is 
from direct employment by a municipality or county as a law 
enforcement officer on a full-time basis of not less than 30 
hours per week; 
    (2) who has been employed for a minimum of six months prior 
to December 31 preceding the date of the current year's 
certification pursuant to subdivision 2, clause (b); 
    (3) who is sworn to enforce the general criminal laws of 
the state and local ordinances; 
    (4) who is licensed by the peace officers standards and 
training board and is authorized to arrest with a warrant; and 
    (5) who is a member of a local police relief association to 
which section 69.77 applies or the public employees police and 
fire fund. 
    (h) "Full-time equivalent number of peace officers 
providing contract service" means the integral or fractional 
number of peace officers which would be necessary to provide the 
contract service if all peace officers providing service were 
employed on a full-time basis as defined by the employing unit 
and the municipality receiving the contract service. 
    (i) "Retirement benefits other than a service pension"  
means any disbursement authorized pursuant to section 424A.05, 
subdivision 3, clauses (2), (3) and (4).  
    (j) "Municipal clerk, municipal clerk-treasurer or county 
auditor" means the person who was elected or appointed to the 
specified position or, in the absence of the person, another 
person who is designated by the applicable governing body.  In a 
park district the clerk is the secretary of the board of park 
district commissioners.  In the case of the University of 
Minnesota, the clerk is that official designated by the board of 
regents.  
    Sec. 20.  Minnesota Statutes 1986, section 69.011, 
subdivision 2, is amended to read:  
    Subd. 2.  [QUALIFICATION FOR FIRE OR POLICE STATE AID.] (a) 
In order to qualify to receive fire state aid, on or before July 
1, annually, in conjunction with the financial report required 
pursuant to section 69.051, the clerk of each municipality 
having a duly organized fire department as provided in 
subdivision 4, or the secretary of each independent nonprofit 
firefighting corporation having a subsidiary incorporated 
firefighters' relief association whichever is applicable, and 
the secretary and the treasurer of the firefighters' relief 
association fire chief, shall jointly certify the existence of 
the municipal fire department or of the independent nonprofit 
firefighting corporation, whichever is applicable, which meets 
the minimum qualification requirements set forth in this 
subdivision, and the fire personnel and equipment of the 
municipal fire department or the independent nonprofit 
firefighting corporation as of the preceding December 31.  
Certification shall be made to the commissioner on a form 
prescribed by the commissioner and shall include any other facts 
the commissioner may require.  The certification shall be made 
to the commissioner in duplicate.  Each copy of the certificate 
shall be duly executed and deemed an original.  The commissioner 
shall forward one copy to the auditor of the county wherein the 
fire department is located and retain one copy. 
    (b) On or before July 1 annually the clerk of each 
municipality having a duly organized police department and 
having a duly incorporated relief association shall certify that 
fact to the county auditor of the county where the police 
department is located and to the commissioner on a form 
prescribed by the commissioner together with the other facts the 
commissioner or auditor may require. 
    On or before July 1 annually, the clerk of each 
municipality and the auditor of each county employing one or 
more peace officers as defined in subdivision 1, clause (h), 
shall certify the number of such peace officers to the 
commissioner on forms prescribed by the commissioner.  Credit 
for officers employed less than a full year shall be 
apportioned.  Each full month of employment of a qualifying 
officer during the calendar year shall entitle the employing 
municipality or county to credit for 1/12 of the payment for 
employment of a peace officer for the entire year.  For purposes 
of sections 69.011 to 69.051, employment of a peace officer 
shall commence when the peace officer is entered on the payroll 
of the respective municipal police department or county 
sheriff's department.  No peace officer shall be included in the 
certification of the number of peace officers by more than one 
municipality or county for the same month. 
    Sec. 21.  Minnesota Statutes 1986, section 69.021, 
subdivision 1, is amended to read:  
    Subdivision 1.  [MINNESOTA FIRETOWN PREMIUM REPORT AND 
MINNESOTA AID TO POLICE PREMIUM REPORT.] The commissioner of 
revenue shall, at the time of mailing annual statement and tax 
forms, send blank copies of the Minnesota Firetown Premium 
Report and when applicable the Minnesota Aid to Police Premium 
Report to each insurer, including township and farmers mutual 
insurance companies licensed to write insurance as described in 
section 69.011, subdivision 1, clauses (c) and (f) in this 
state.  These reports shall contain space for the insurers name, 
address, gross premiums less return premiums, dividends, net 
premiums, certification and other facts the commissioner may 
require. 
    Sec. 22.  Minnesota Statutes 1986, section 69.021, 
subdivision 2, is amended to read:  
    Subd. 2.  [REPORT OF PREMIUMS.] Each insurer, including 
township and farmers mutual insurers where applicable, shall 
return to the commissioner of commerce with its annual financial 
statement the reports described in subdivision 1 certified by 
its secretary and president or chief financial officer.  The 
Minnesota Firetown Premium Report shall contain a true and 
accurate statement of the total premium for all gross direct 
fire, lightning, and sprinkler leakage insurance of all domestic 
mutual insurers and the total premiums for all gross direct 
fire, lightning, sprinkler leakage and extended coverage 
insurance of all other insurers, less return premiums and 
dividends received by them on that business written or done 
during the preceding calendar year upon property located within 
the state or brought into the state for temporary use.  The fire 
and extended coverage portion of multiperil and multiple peril 
package premiums and all other combination premiums shall be 
determined by applying percentages determined by the 
commissioner of commerce or by rating bureaus recognized by the 
commissioner of commerce.  The Minnesota Aid to Police Premium 
Report shall contain a true and accurate statement of the total 
premiums, less return premiums and dividends received, on all 
direct business received by such insurer in this state, or by 
its agents for it, in cash or otherwise, during the preceding 
calendar year, with reference to insurance written for perils 
described in section 69.011, subdivision 1, clause (f), except 
that domestic mutual insurance companies must not file a report. 
    Each insurer shall, in addition to filing with the 
commissioner of commerce the reports required by this 
subdivision, file the reports required by this subdivision with 
the commissioner of revenue. 
    Sec. 23.  Minnesota Statutes 1986, section 69.021, 
subdivision 3, is amended to read:  
    Subd. 3.  [PENALTY FOR FRAUDULENT, INCORRECT, INCOMPLETE 
RETURNS AND LATE FILING OF REPORT WITH THE COMMISSIONER OF 
COMMERCE.] When it appears to the commissioner of commerce that 
any insurer has made an incomplete or inaccurate report the 
commissioner of commerce shall return the report and demand that 
a complete and accurate report be filed.  If the insurer fails 
to file a report by on or before March 1, annually, or within 30 
days after demand by the commissioner of commerce, the insurer 
shall be liable and shall pay $25 for each seven days delinquent 
or fraction thereof not to exceed $200.  If the insurer fails to 
file a corrected report within 30 days after demand, the insurer 
is liable for the penalties provided in this subdivision for 
knowingly filing an inaccurate or false report. 
    Any insurer who knowingly makes and files an inaccurate or 
false report shall be liable to a fine of not less than $25 nor 
more than $1,000 and the commissioner of commerce may revoke the 
insurer's certificate of authority. 
    Any person whose duty it is to make the report who fails or 
refuses to make it within 30 days after notification by the 
commissioner of commerce shall be fined not more than $1,000. 
Failure of the insurer to receive a reporting form shall not 
excuse the insurer from filing the report. 
    Sec. 24.  Minnesota Statutes 1986, section 69.54, is 
amended to read:  
    69.54 [SURCHARGE ON PREMIUMS TO RESTORE DEFICIENCY IN 
SPECIAL FUND.] 
    The commissioner shall order and direct a surcharge to be 
collected of two percent of the fire, lightning, and sprinkler 
leakage gross premiums, less return premiums, on all direct 
business received by any licensed foreign or domestic fire 
insurance company on property in this city of the first class, 
or by its agents for it, in cash or otherwise.  This surcharge 
shall be due and payable from these companies to the state 
treasurer, in equal installments, on March 15, May 15, and 
November 15 of each calendar year, and if not paid within 30 
days after these dates, a penalty of ten percent shall accrue 
thereon and thereafter this sum and penalty shall draw interest 
at the rate of one percent per month until paid.  
    Sec. 25.  Minnesota Statutes 1986, section 69.55, is 
amended to read:  
    69.55 [WARRANT ON STATE TREASURER.] 
    The commissioner of finance semiannually after July 31, 
1934, by July 31 and December 31 of each year shall issue and 
deliver to the treasurer of the relief association in such each 
city a warrant upon the state treasurer for an amount equal to 
the total amount of the surcharge on the premiums within the 
city theretofore so collected and transmitted to the state 
treasurer by these insurance companies.  There is hereby 
appropriated out of any money in from the general fund in the 
state treasury not otherwise appropriated such sums as may, from 
time to time, be the amount necessary to pay these warrants.  
    Sec. 26.  Minnesota Statutes 1986, section 79.34, 
subdivision 1, is amended to read:  
    Subdivision 1.  A nonprofit association known as the 
workers' compensation reinsurance association is created, which 
may be incorporated under chapter 317 with all the powers of a 
corporation formed under that chapter, except that if the 
provisions of that chapter are inconsistent with sections 79.34 
to 79.40 or any amendments thereto, sections 79.34 to 79.40 
shall govern.  Each insurer as defined by section 79.01, 
subdivision 2, shall as a condition of its authority to transact 
workers' compensation insurance in this state, be a member of 
the reinsurance association and shall be bound by the plan of 
operation of the reinsurance association; provided, that all 
affiliated insurers within a holding company system as defined 
in sections 60D.01 to 60D.13 shall be considered a single entity 
for purposes of the exercise of all rights and duties of 
membership in the reinsurance association.  Each self-insurer 
approved pursuant to section 176.181 and each political 
subdivision which self-insures shall, as a condition of its 
authority to self-insure workers' compensation liability in this 
state, be a member of the reinsurance association and shall be 
bound by its plan of operation; provided, that (a) all 
affiliated companies within a holding company system, as 
determined by the commissioner in a manner consistent with the 
standards and definitions in sections 60D.01 to 60D.13, shall be 
considered a single entity for purposes of the exercise of all 
rights and duties of membership in the reinsurance association, 
and (b) all group self-insurers granted authority to self-insure 
pursuant to section 176.181 shall be considered a single entity 
for purposes of the exercise of all the rights and duties of 
membership in the reinsurance association.  As a condition of 
its authority to self-insure workers' compensation liability, 
and for losses incurred on or after January 1, 1984, the state 
shall be a member of the reinsurance association and is bound by 
its plan of operation.  The commissioner of labor and industry 
represents the state in the exercise of all the rights and 
duties of membership in the reinsurance association.  The state 
treasurer shall pay the premium to the reinsurance association 
from the state compensation revolving fund upon warrants of the 
commissioner of labor and industry.  For the purposes of this 
section "state" means the administrative branch of state 
government, the legislative branch, the judicial branch, the 
University of Minnesota, and any other entity whose workers' 
compensation liability is paid from the state revolving fund. 
The commissioner of finance may calculate, prorate, and charge a 
department or agency the portion of premiums paid to the 
reinsurance association for employees who are paid wholly or in 
part by federal funds, dedicated funds, or special revenue 
funds.  The reinsurance association is not a state agency.  
Actions of the reinsurance association and its board of 
directors and actions of the commissioner of labor and industry 
with respect to the reinsurance association are not subject to 
chapters 13, 14, and 15.  The reinsurance association is exempt 
from taxation under the laws of this state and All property 
owned by the association is exempt from taxation.  The 
reinsurance association is not obligated to make any payments or 
pay any assessments to any funds or pools established pursuant 
to this chapter or chapter 176 or any other law. 
    Sec. 27.  Minnesota Statutes 1986, section 79.34, is 
amended by adding a subdivision to read: 
    Subd. 1a.  The direct funded premium received by the 
reinsurance association is subject to the gross premium tax 
imposed by section 60A.15.  Only direct funded premium payments 
made to the reinsurance association by self-insurers approved 
pursuant to section 176.181 and each political subdivision that 
self-insures shall be subject to the gross premiums tax. 
    Sec. 28.  Minnesota Statutes 1986, section 176.129, 
subdivision 4a, is amended to read: 
    Subd. 4a.  [CONTRIBUTION RATE ADJUSTMENT.] In determining 
the rate of adjustment as provided by subdivision 3, the 
commissioner shall determine the revenues received less claims 
received for the preceding 12 months ending June 30, 1984, and 
each June 30 thereafter.  
        If the result is:           the range of adjustment is:
        over $15,000,000                  -10% to 0%
        less than $15,000,000 but 
          more than $10,000,000           -7% to +3%
        less than $10,000,000 but
          more than $5,000,000            -5% to +5%
        less than $5,000,000 
          but more than $0                -3% to +7%
        $0 but less than a 
          $5,000,000 deficit              0% to +10%
        more than a $5,000,000 
          deficit                         +5% to +12%
    The adjustment under this subdivision shall be used for 
assessments for calendar year 1984 and each year thereafter.  
    An amount assessed pursuant to this section is payable to 
the commissioner within 45 days of mailing notice of the amount 
due unless the commissioner orders otherwise.  
     The commissioner may allow an offset of the reimbursements 
due an employer pursuant to sections 176.131 and 176.132 against 
the assessment due under this section and may promulgate rules 
to establish the terms and conditions under which an employer 
will be allowed the offset.  
    Sec. 29.  Minnesota Statutes 1986, section 176A.08, is 
amended to read:  
    176A.08 [EXEMPTION FROM AND APPLICABILITY OF CERTAIN LAWS.] 
    The fund shall not be considered a state agency for any 
purpose including, but not limited to, chapters 13, 14, 15, 15A, 
and 43A.  However, the fund shall be subject to sections 179A.01 
to 179A.25.  The insurance operations of the fund are subject to 
all of the provisions of chapters 60A and 60B.  The commissioner 
of commerce has the same powers with respect to the board as the 
commissioner has with respect to a private workers' compensation 
insurer under chapters 60A and 60B.  The fund is considered an 
insurer for the purposes of chapters 60C, 72A, 79, and 176.  The 
fund is subject to the same tax liability as a mutual insurance 
company in this state pursuant to section 60A.15, subdivision 
2.  As a condition of its authority to transact business in this 
state the fund shall be a member of the workers' compensation 
reinsurance association and is bound by its plan of operation.  
    Sec. 30.  Minnesota Statutes 1986, section 299F.21, 
subdivision 1, is amended to read:  
    Subdivision 1.  [ESTIMATED INSTALLMENT PAYMENTS.] On or 
before April 15, June 15, and December 15 of each year, 
every licensed insurance company, including reciprocals, or 
interinsurance exchanges or Lloyds, doing business in the state, 
excepting farmers' mutual fire insurance companies and township 
mutual fire insurance companies, shall pay to the commissioner 
of revenue installments equal to one-third of, a tax upon its 
fire premiums or assessments or both, as follows: 
    A based on a sum equal to one-half of one percent of the 
estimated gross fire premiums and assessments, less return 
premiums and dividends, on all direct business received by it in 
this state, or by its agents for it, in cash or otherwise, 
during the calendar year, including premiums on policies 
covering fire risks only on automobiles, whether written under 
floater form or otherwise.  In the case of a mutual company or 
reciprocal exchange the dividends or savings paid or credited to 
members in this state shall be construed to be return premiums.  
The money so received into the state treasury shall be credited 
to the general fund. 
    If the tax prescribed by this section is not paid by those 
dates, penalties and interest as provided in section 290.53, 
subdivision 1, shall be imposed.  A company that fails to make 
payments of at least one-third of either (1) the total tax paid 
during the previous calendar year or (2) 80 percent of the 
actual tax for the current calendar year is subject to the 
penalty and interest provided in this chapter. 
    Sec. 31.  Minnesota Statutes 1986, section 299F.21, is 
amended by adding a subdivision to read: 
     Subd. 1a.  [ADDITION TO THE TAX.] In case of an 
underpayment of installments by an insurer, there must be added 
to the tax for the taxable year an amount determined at the rate 
specified in section 270.75 upon the amount of underpayment. 
    Sec. 32.  Minnesota Statutes 1986, section 299F.21 is 
amended by adding a subdivision to read: 
    Subd. 1b.  [AMOUNT OF UNDERPAYMENT.] For purposes of 
subdivision 1a, the amount of the underpayment is the excess 
of:  (1) the amount of the installment; over (2) the amount, if 
any, of the installment paid on or before the last date 
prescribed for payment. 
    Sec. 33.  Minnesota Statutes 1986, section 299F.21, is 
amended by adding a subdivision to read: 
    Subd. 1c.  [PERIOD OF UNDERPAYMENT.] The period of the 
underpayment runs from the date the installment was required to 
be paid to the earliest of the following dates: 
    (1) on March 1 following the close of the taxable year; 
    (2) with respect to any portion of the underpayment, the 
date on which that portion is paid.  For purposes of this 
clause, a payment of estimated tax on any installment date is 
considered a payment of any previous underpayment only to the 
extent the payment exceeds the amount of the installment 
determined under clause (1), for the installment date. 
    Sec. 34.  Minnesota Statutes 1986, section 299F.21, is 
amended by adding a subdivision to read: 
     Subd. 1d.  [DEFINITION OF TAX.] The term "tax" means the 
tax imposed by chapter 299F. 
    Sec. 35.  Minnesota Statutes 1986, section 299F.21, is 
amended by adding a subdivision to read: 
    Subd. 1e.  [FAILURE TO FILE AN ESTIMATE.] In the case of an 
insurer that fails to file an estimated tax statement for a 
taxable year when one is required, the period of the 
underpayment runs from the installment dates as set forth in 
subdivision 1 to whichever of the periods set forth in 
subdivision 1c is the earlier. 
    Sec. 36.  Minnesota Statutes 1986, section 299F.21, 
subdivision 2, is amended to read: 
    Subd. 2.  [ANNUAL RETURNS.] (a) Every insurer required to 
pay a premium tax under this section shall make and file a 
statement of estimated premium taxes for the period covered by 
the installment tax payment.  The statement shall be in the form 
prescribed by the commissioner of revenue.  
    (b) On or before March 1, annually every insurer subject to 
taxation under this section shall make an annual return for the 
preceding calendar year setting forth information the 
commissioner of revenue may reasonably require on forms 
prescribed by the commissioner.  
    (c) On March 1, the insurer shall pay any additional amount 
due for the preceding calendar year; if there has been an 
overpayment, the overpayment may be credited without interest on 
the estimated tax due April 15.  
    (d) If unpaid by this date, penalties and interest as 
provided in section 290.53, subdivision 1, shall be imposed. 
    Sec. 37.  [COMPUTATION OF 1987 GROSS PREMIUMS TAX.] 
    For calendar year 1987 the gross premiums tax under 
Minnesota Statutes, section 60A.15, as applied to the premiums 
of town and farmers mutual insurance companies, domestic mutual 
insurance companies, and the workers' compensation reinsurance 
association or other companies or entities that were exempt 
prior to enactment of this act shall equal one-half of the 
amount of tax that would be due if the tax were imposed for the 
full calendar year.  Estimated tax equal to, at least, 80 
percent of the tax computed under this section must be paid by 
December 15, 1987, or the penalties and interest for failure to 
pay or for underpayments of estimated tax under Minnesota 
Statutes, section 60A.15, apply. 
    Sec. 38.  [REPEALER.] 
    (a) Minnesota Statutes 1986, sections 60A.15, subdivision 2;
61A.49; 62E.13, subdivision 9; and 69.021, subdivision 3a, are 
repealed. 
    (b) Section 62E.11, subdivision 8, is repealed.  
    Sec. 39.  [EFFECTIVE DATE.] 
    Section 17 is effective January 1, 1987 for the calendar 
year 1987 assessments of the Comprehensive Health Association.  
Section 38, clause (b) is effective for taxable years beginning 
after December 31, 1986.  The remainder of the article is 
effective July 1, 1987. 

                               ARTICLE 3 

                          PROPERTY TAX REFUND 
    Section 1.  Minnesota Statutes 1986, section 290A.03, 
subdivision 3, is amended to read:  
    Subd. 3.  [INCOME.] (1) "Income" means the sum of the 
following: 
    (a) the greater of federal adjusted gross income as defined 
in the Internal Revenue Code of 1954 as amended through December 
31, 1985 or zero; and 
    (b) the sum of the following amounts to the extent not 
included in clause (a): 
    (i) additions to federal adjusted gross income as provided 
in section 290.01, subdivision 20a, clauses (1), (2), (3), and 
(4); 
    (ii) all nontaxable income; 
    (iii) recognized net long-term capital gains (ii) the 
amount of a passive activity loss that is not disallowed as a 
result of section 469, paragraph (i) or (1) of the Internal 
Revenue Code and the amount of passive activity loss carryover 
allowed under section 469(b) of the Internal Revenue Code; 
    (iv) dividends excluded from federal adjusted gross income 
under section 116 of the Internal Revenue Code of 1954 (iii) an 
amount equal to the total of any discharge of qualified farm 
indebtedness of a solvent individual excluded from gross income 
under section 108(g) of the Internal Revenue Code; 
    (v) (iv) cash public assistance and relief; 
    (vi) (v) any pension or annuity (including railroad 
retirement benefits, all payments received under the federal 
Social Security Act, supplemental security income, and veterans 
benefits), which was not exclusively funded by the claimant or 
spouse, or which was funded exclusively by the claimant or 
spouse and which funding payments were excluded from federal 
adjusted gross income in the years when the payments were made; 
    (vii) (vi)  nontaxable interest received from the state or 
federal or a state government or any instrumentality or 
political subdivision thereof; 
    (viii) (vii) workers' compensation; 
    (ix) (viii) unemployment benefits; 
    (x) nontaxable strike benefits;  
    (xi) (ix) the gross amounts of payments received in the 
nature of disability income or sick pay as a result of accident, 
sickness, or other disability, whether funded through insurance 
or otherwise;  
    (xii) (x) the ordinary income portion of a lump sum 
distribution under section 402(e) of the Internal Revenue Code 
of 1954; and 
    (xiii) (xi) contributions made by the claimant to an 
individual retirement account, including a qualified voluntary 
employee contribution; simplified employee pension plan; 
self-employed retirement plan; cash or deferred arrangement plan 
under section 401(k) of the Internal Revenue Code of 1954; or 
deferred compensation plan under section 457 of the Internal 
Revenue Code of 1954. 
    In the case of an individual who files an income tax return 
on a fiscal year basis, the term "federal adjusted gross income" 
shall mean federal adjusted gross income reflected in the fiscal 
year ending in the calendar year.  Federal adjusted gross income 
shall not be reduced by the amount of a net operating loss 
carryback. 
    (2) "Income" does not include 
    (a) amounts excluded pursuant to the Internal Revenue Code, 
sections 101(a), 102, 117, and 121; 
    (b) amounts of any pension or annuity which was exclusively 
funded by the claimant or spouse and which funding payments were 
not excluded from federal adjusted gross income in the years 
when the payments were made; 
    (c) surplus food or other relief in kind supplied by a 
governmental agency; 
    (d) relief granted under this chapter; or 
    (e) child support payments received under a temporary or 
final decree of dissolution or legal separation; or 
    (f) the first $2,000 of household income if the claimant 
was disabled on or before June 1 or attained the age of 65 prior 
to June 1 of the year following the year for which the taxes 
were levied or in which the rent was paid. 
    Sec. 2.  Minnesota Statutes 1986, section 290A.03, 
subdivision 8, is amended to read:  
    Subd. 8.  [CLAIMANT.] (a) "Claimant" means a person, other 
than a dependent, who filed a claim authorized by this chapter 
and who was domiciled in a resident of this state as provided in 
chapter 290 during the calendar year for which the claim for 
relief was filed. 
    (b) In the case of a claim relating to rent constituting 
property taxes, the claimant shall have resided in a rented or 
leased unit on which ad valorem taxes or payments made in lieu 
of ad valorem taxes, including payments of special assessments 
imposed in lieu of ad valorem taxes, are payable at some time 
during the calendar year covered by the claim.  
    (c) "Claimant" shall not include a resident of a nursing 
home, intermediate care facility, or long-term residential 
facility whose rent constituting property taxes is paid pursuant 
to the supplemental security income program under title XVI of 
the Social Security Act, the Minnesota supplemental aid program 
under sections 256D.35 to 256D.41, the medical assistance 
program pursuant to title XIX of the Social Security Act, or the 
general assistance medical care program pursuant to section 
256D.03, subdivision 3.  If only a portion of the rent 
constituting property taxes is paid by these programs, the 
resident shall be a claimant for purposes of this chapter, but 
the refund calculated pursuant to section 290A.04 shall be 
multiplied by a fraction, the numerator of which is income as 
defined in subdivision 3 reduced by the total amount of income 
from the above sources other than vendor payments under the 
medical assistance program or the general assistance medical 
care program and the denominator of which is income as defined 
in subdivision 3 plus vendor payments under the medical 
assistance program or the general assistance medical care 
program, to determine the allowable refund pursuant to this 
chapter.  For purposes of this paragraph and paragraph (d), 
household income or income as defined in subdivision 3 must not 
be reduced by the $2,000 reduction provided in subdivision 3, 
paragraph (2), clause (f), for claimants who are disabled or age 
65 or more. 
    (d) Notwithstanding paragraph (c), if the claimant was a 
resident of the nursing home, intermediate care facility or 
long-term residential facility for only a portion of the 
calendar year covered by the claim, the claimant may compute 
rent constituting property taxes by disregarding the rent 
constituting property taxes from the nursing home, intermediate 
care facility, or long-term residential facility and use only 
that amount of rent constituting property taxes or property 
taxes payable relating to that portion of the year when the 
claimant was not in the facility.  The claimant's household 
income is the income for the entire calendar year covered by the 
claim.  
    (e) In the case of a claim for rent constituting property 
taxes of a part-year Minnesota resident, the income and rental 
reflected in this computation shall be for the period of 
Minnesota residency only.  Any rental expenses paid which may be 
reflected in arriving at federal adjusted gross income cannot be 
utilized for this computation.  When two individuals of a 
household are able to meet the qualifications for a claimant, 
they may determine among them as to who the claimant shall be. 
If they are unable to agree, the matter shall be referred to the 
commissioner of revenue whose decision shall be final.  If a 
homestead property owner was a part-year Minnesota resident, the 
income reflected in the computation made pursuant to section 
290A.04 shall be for the entire calendar year, including income 
not assignable to Minnesota. 
    (f) If a homestead is occupied by two or more renters, who 
are not husband and wife, the rent shall be deemed to be paid 
equally by each, and separate claims shall be filed by each.  
The income of each shall be each renter's household income for 
purposes of computing the amount of credit to be allowed. 
    Sec. 3.  Minnesota Statutes 1986, section 290A.03, is 
amended by adding a subdivision to read: 
    Subd. 15.  [INTERNAL REVENUE CODE.] "Internal Revenue Code" 
means the Internal Revenue Code of 1986, as amended through 
December 31, 1986. 
    Sec. 4.  Minnesota Statutes 1986, section 290A.04, 
subdivision 2, is amended to read:  
    Subd. 2.  A claimant who is disabled or has attained the 
age of 65 by June 1 of the year in which a refund is payable or 
who, on the federal tax return filed for the prior year, claimed 
a personal exemption for a dependent pursuant to section 151 of 
the Internal Revenue Code, and whose property taxes payable or 
rent constituting property taxes are in excess of the percentage 
of the household income stated below shall pay an amount equal 
to the percent of income shown for the appropriate household 
income level along with the percent to be paid by the claimant 
of the remaining amount of property taxes payable or rent 
constituting property taxes.  The state refund will be equal to 
the amount of property taxes payable or rent constituting 
property taxes that remain, up to the state refund amount shown 
below.  
                     Percent              Percent    Maximum
Household Income    of Income             Paid by     State
                                          Claimant    Refund
Net loss and 
 up to $2,999     1.0 percent             5 percent  $1,125
 3,000 to 3,499   1.0 percent             6 percent  $1,125
 3,500 to 3,999   1.0 percent             7 percent  $1,125
 4,000 to 4,499   1.0 percent             8 percent  $1,125
 4,500 to 4,999   1.0 percent             9 percent  $1,125
 5,000 to 5,999   1.0 percent            10 percent  $1,125
 6,000 to 6,999   1.0 percent            11 percent  $1,125
 7,000 to 7,999   1.0 percent            12 percent  $1,125
 8,000 to 8,999   1.1 percent            13 percent  $1,125
 9,000 to 9,999   1.2 percent            14 percent  $1,125
10,000 to 10,999  1.3 percent            15 percent  $1,125
11,000 to 11,999  1.4 percent            16 percent  $1,125
12,000 to 12,999  1.5 percent            17 percent  $1,125
13,000 to 13,999  1.5 percent            18 percent  $1,125
14,000 to 14,999  1.5 percent            19 percent  $1,125
15,000 to 15,999  1.5 percent            20 percent  $1,125
16,000 to 16,999  1.5 percent            21 percent  $1,125
17,000 to 17,999  1.5 percent            22 percent  $1,125
18,000 to 18,999  1.5 percent            23 percent  $1,125
19,000 to 19,999  1.5 percent            24 percent  $1,125
20,000 to 20,999  1.6 percent            25 percent  $1,125
21,000 to 21,999  1.6 percent            27 percent  $1,125
22,000 to 22,999  1.6 percent            29 percent  $1,125
23,000 to 23,999  1.8 percent            31 percent  $1,125
24,000 to 24,999  1.8 percent            33 percent  $1,105
25,000 to 25,999  1.8 percent            35 percent  $1,080
26,000 to 26,999  2.0 percent            38 percent  $1,050
27,000 to 27,999  2.0 percent            41 percent  $1,020
28,000 to 28,999  2.0 percent            44 percent  $  990
29,000 to 29,999  2.0 percent            47 percent  $  960
30,000 to 30,999  2.0 percent            50 percent  $  930
31,000 to 31,999  2.2 percent            50 percent  $  900
32,000 to 32,999  2.2 percent            50 percent  $  800
33,000 to 33,999  2.2 percent            50 percent  $  700
34,000 to 34,999  2.2 percent            50 percent  $  600
35,000 to 35,999  2.2 percent            50 percent  $  500
36,000 to 36,999  2.4 percent            50 percent  $  400
37,000 to 37,999  2.4 percent            50 percent  $  300
38,000 to 38,999  2.4 percent            50 percent  $  200
39,000 to 39,999  2.4 percent            50 percent  $  100
40,000 and over   2.4 percent            50 percent     -0-
 $0 to 999        1.0 percent            10 percent  $1,100
 1,000 to 1,999   1.0 percent            10 percent  $1,100
 2,000 to 2,999   1.0 percent            10 percent  $1,100
 3,000 to 3,499   1.0 percent            11 percent  $1,100
 3,500 to 3,999   1.0 percent            11 percent  $1,100
 4,000 to 4,499   1.0 percent            11 percent  $1,100
 4,500 to 4,999   1.0 percent            12 percent  $1,100
 5,000 to 5,999   1.0 percent            12 percent  $1,100
 6,000 to 6,999   1.1 percent            12 percent  $1,100
 7,000 to 7,999   1.1 percent            13 percent  $1,100
 8,000 to 8,999   1.2 percent            13 percent  $1,100
 9,000 to 9,999   1.2 percent            13 percent  $1,100
10,000 to 10,999  1.3 percent            14 percent  $1,075
11,000 to 11,999  1.4 percent            14 percent  $1,075
12,000 to 12,999  1.5 percent            14 percent  $1,075
13,000 to 13,999  1.5 percent            15 percent  $1,075
14,000 to 14,999  1.5 percent            16 percent  $1,075
15,000 to 15,999  1.6 percent            17 percent  $1,075
16,000 to 16,999  1.7 percent            18 percent  $1,075
17,000 to 17,999  1.8 percent            19 percent  $1,050
18,000 to 18,999  1.9 percent            20 percent  $1,050
19,000 to 19,999  2.0 percent            22 percent  $1,050
20,000 to 20,999  2.1 percent            24 percent  $1,050
21,000 to 21,999  2.2 percent            26 percent  $1,050
22,000 to 22,999  2.2 percent            28 percent  $1,050
23,000 to 23,999  2.2 percent            30 percent  $1,025
24,000 to 24,999  2.3 percent            32 percent  $1,025
25,000 to 25,999  2.3 percent            34 percent  $1,025
26,000 to 26,999  2.3 percent            36 percent  $1,025
27,000 to 27,999  2.4 percent            38 percent  $1,000
28,000 to 28,999  2.4 percent            40 percent  $  900
29,000 to 29,999  2.4 percent            42 percent  $  800
30,000 to 30,999  2.4 percent            44 percent  $  700
31,000 to 31,999  2.5 percent            46 percent  $  600
32,000 to 32,999  2.5 percent            48 percent  $  500
33,000 to 33,999  2.5 percent            50 percent  $  300
34,000 to 34,999  2.5 percent            50 percent  $  100
    The payment made to a claimant shall be the amount of the 
state refund calculated pursuant to this subdivision, less the 
homestead credit given pursuant to section 273.13, subdivisions 
22 and 23.  No payment is allowed if the claimant's household 
income is $40,000 $35,000 or more. 
    Sec. 5.  Minnesota Statutes 1986, section 290A.04, is 
amended by adding a subdivision to read: 
    Subd. 2a.  A claimant who is ineligible for a refund 
pursuant to subdivision 2 and whose property taxes payable or 
rent constituting property taxes are in excess of the percentage 
of the household income stated below shall pay an amount equal 
to the percent of income shown for the appropriate household 
income level along with the percent to be paid by the claimant 
of the remaining amount of property taxes payable or rent 
constituting property taxes.  The state refund equals the amount 
of property taxes payable or rent constituting property taxes 
that remain, up to the state refund amount shown below.  
                     Percent              Percent    Maximum
Household Income    of Income             Paid by     State
                                          Claimant    Refund
 $0 to 999        2.5 percent            10 percent  $1,100
 1,000 to 1,999   2.5 percent            10 percent  $1,100
 2,000 to 2,999   2.5 percent            10 percent  $1,100
 3,000 to 3,499   2.5 percent            11 percent  $1,100
 3,500 to 3,999   2.5 percent            11 percent  $1,100
 4,000 to 4,499   2.5 percent            11 percent  $1,100
 4,500 to 4,999   2.5 percent            12 percent  $1,100
 5,000 to 5,999   2.5 percent            12 percent  $1,100
 6,000 to 6,999   2.6 percent            12 percent  $1,100
 7,000 to 7,999   2.6 percent            13 percent  $1,100
 8,000 to 8,999   2.7 percent            13 percent  $1,100
 9,000 to 9,999   2.7 percent            13 percent  $1,100
10,000 to 10,999  2.8 percent            14 percent  $1,075
11,000 to 11,999  2.9 percent            14 percent  $1,075
12,000 to 12,999  3.0 percent            14 percent  $1,075
13,000 to 13,999  3.0 percent            15 percent  $1,075
14,000 to 14,999  3.0 percent            16 percent  $1,075
15,000 to 15,999  3.1 percent            17 percent  $1,075
16,000 to 16,999  3.2 percent            18 percent  $1,075
17,000 to 17,999  3.3 percent            19 percent  $1,050
18,000 to 18,999  3.4 percent            20 percent  $1,050
19,000 to 19,999  3.5 percent            22 percent  $1,050
20,000 to 20,999  3.6 percent            24 percent  $1,050
21,000 to 21,999  3.7 percent            26 percent  $1,050
22,000 to 22,999  3.7 percent            28 percent  $1,050
23,000 to 23,999  3.7 percent            30 percent  $1,025
24,000 to 24,999  3.8 percent            32 percent  $1,025
25,000 to 25,999  3.8 percent            34 percent  $1,025
26,000 to 26,999  3.8 percent            36 percent  $1,025
27,000 to 27,999  3.9 percent            38 percent  $1,000
28,000 to 28,999  3.9 percent            40 percent  $  900
29,000 to 29,999  3.9 percent            42 percent  $  800
30,000 to 30,999  3.9 percent            44 percent  $  700
31,000 to 31,999  4.0 percent            46 percent  $  600
32,000 to 32,999  4.0 percent            48 percent  $  500
33,000 to 33,999  4.0 percent            50 percent  $  300
34,000 to 34,999  4.0 percent            50 percent  $  100
    The payment made to a claimant must be the amount of the 
state refund calculated pursuant to this subdivision, less the 
homestead credit given pursuant to section 273.13, subdivisions 
22 and 23.  No payment is allowed if the claimant's household 
income is $35,000 or more.  
    Sec. 6.  Minnesota Statutes 1986, section 290A.04, is 
amended by adding a subdivision to read: 
    Subd. 2b.  The commissioner may reconstruct the tables in 
subdivisions 2 and 2a to reflect the elimination of the 
homestead credit beginning for claims based on taxes payable in 
1989.  
    Sec. 7.  Minnesota Statutes 1986, section 290A.06, is 
amended to read:  
    290A.06 [FILING TIME LIMIT, LATE FILING; INCOME TAX 
RETURN.] 
    Any claim for a refund based on property taxes payable 
shall be filed with the department of revenue on or before 
August 15 of the year in which the property taxes are due and 
payable.  A copy of the claimant's federal income tax return for 
the taxable year preceding the year in which the property taxes 
are payable must be filed with the claim if the claimant filed a 
federal income tax return for that year.  
    Any claim for rent constituting property taxes shall be 
filed with the department of revenue on or before August 15 of 
the year following the year in which the rent was paid.  A copy 
of the claimant's federal income tax return for the taxable year 
in which the rent was paid must be filed with the claim if the 
claimant filed a federal income tax return for that year.  
     The commissioner may extend the time for filing these 
claims for a period not to exceed six months in the case of 
sickness, absence, or other disability, or when in the 
commissioner's judgment other good cause exists. 
    A claim filed after the original or extended due date shall 
be allowed, but the amount of credit shall be reduced by five 
percent of the amount otherwise allowable, plus an additional 
five percent for each month of delinquency, not exceeding a 
total reduction of 25 percent which may be canceled or reduced 
by the commissioner in the case of sickness, absence, or other 
disability, or when in the commissioner's judgment other good 
cause exists.  In any event no claim shall be allowed if the 
initial claim is filed one year after the original due date for 
filing the claim. 
    The time limit on redetermination of claims for refund and 
examination of records shall be governed by sections 290.49, 
290.50, and 290.56 and for purposes of computing the time limit 
as provided in these sections the due date of the property tax 
refund return shall be the same as the due date contained in 
section 290.42 for an income tax return covering the year in 
which the rent was paid or the year preceding the year in which 
the property taxes are payable. 
    Sec. 8.  [290A.091] [CLAIMS OF TENANTS IN LEASEHOLD 
COOPERATIVES.] 
    The cooperative manager of a leasehold cooperative shall 
furnish a statement to each tenant by March 31 of the year in 
which the property tax is payable showing each unit's share of 
the gross property tax and each unit's share of any property tax 
credits.  Each tenant may apply for a property tax refund under 
this chapter as a homeowner based on each tenant's share of 
property taxes.  The tenant may not include any rent 
constituting property taxes paid on that unit. 
    Sec. 9.  Minnesota Statutes 1986, section 290A.18, is 
amended to read:  
    290A.18 [RIGHT TO FILE CLAIM; RIGHT TO RECEIVE CREDIT.] 
    Subdivision 1.  [CLAIM BY SURVIVING SPOUSE OR DEPENDENT.] 
If a person entitled to relief under this chapter dies prior to 
receiving relief, the surviving spouse or dependent of the 
person shall be entitled to file the claim and receive relief.  
If there is no surviving spouse or dependent, the right to the 
credit shall lapse.  
    Subd. 2.  [CLAIMANT CANNOT BE LOCATED.] If the commissioner 
cannot locate the claimant within two years from the date that 
the original warrant was issued, the right to the credit shall 
lapse, and the warrant shall be deposited in the general fund. 
    Sec. 10.  Minnesota Statutes 1986, section 290A.19, is 
amended to read:  
    290A.19 [OWNER OR MANAGING AGENT TO FURNISH RENT 
CERTIFICATE; PENALTY.] 
    (a) The owner or managing agent of any property for which 
rent is paid for occupancy as a homestead shall furnish a 
certificate of rent constituting property tax to each person who 
is a renter on December 31, in the form prescribed by the 
commissioner.  If the renter moves prior to December 31, the 
owner or managing agent has the option to either provide the 
certificate to the renter at the time of moving, or mail the 
certificate to the forwarding address if an address has been 
provided by the renter.  The certificate shall be made available 
to the renter not later than January 31 of the year following 
the year in which the rent was paid.  
     (b) Any owner or managing agent who willfully fails to 
furnish a certificate as provided herein shall be to the renter 
and the commissioner as required by this section is liable to 
the commissioner for a penalty of $20 $100 for each act or 
failure to act.  The penalty shall be assessed and collected in 
the manner provided in chapter 290 for the assessment and 
collection of income tax.  If the owner or managing agent 
willfully furnishes certificates that report total rent 
constituting property taxes in excess of the amount of actual 
property taxes paid on the rented part of a property, as 
determined under this section, the owner or managing agent is 
liable for a penalty equal to the greater of (1) $100 or (2) 50 
percent of the excess that is reported.  If the owner or 
managing agent reports a total amount of rent constituting 
property taxes that exceeds by ten percent or more the actual 
property taxes, the report is deemed to be willful. 
    (b) (c) If the owner or managing agent elects to provide 
the renter with the certificate at the time of moving, rather 
than after December 31, the amount of rent constituting property 
taxes shall be computed as follows: 
    (i) The net tax shall be reduced by 1/12 for each month 
remaining in the calendar year. 
    (ii) In calculating the denominator of the fraction 
pursuant to section 290A.03, subdivision 11, the gross rent paid 
through the last month of claimant's occupancy shall be 
substituted for "the gross rent paid for the calendar year for 
the property in which the unit is located." 
    (c) (d) The certificate of rent constituting property taxes 
shall include the address of the property, including the county, 
and the property tax parcel identification number and any 
additional information which the commissioner determines is 
appropriate. 
    (d) (e) If the owner or managing agent fails to provide the 
renter with a certificate of rent constituting property taxes, 
the commissioner shall allocate the net tax on the building to 
the unit on a square footage basis or other appropriate basis as 
the commissioner determines.  The renter shall supply the 
commissioner with a statement from the county treasurer which 
gives the amount of property tax on the parcel, the address and 
property tax parcel identification number of the property, and 
the number of units in the building. 
    (f) The owner or managing agent must file a copy of the 
certificate of rent paid with the commissioner before April 15 
of the year following the year in which the rent was paid.  The 
commissioner may require that each owner or managing agent 
report on a single form the total property taxes for a property 
and the allocation of the property taxes as rent constituting 
property taxes among the renters of the property. 
    Sec. 11.  [AUDIT; REPORT TO LEGISLATURE.] 
    The department of revenue shall, during fiscal years 1988 
and 1989, verify and audit a sample of property tax refund 
claims for accuracy.  The sampling methods, size of the sample, 
and the study methodology must permit reliable conclusions to be 
drawn regarding compliance with the property tax refund law by 
both renters and landlords regarding the reporting of household 
income, property taxes paid, and rent constituting property 
taxes by claimants and landlords.  The department shall report 
the results of the study to the legislature by February 1, 1989. 
    Sec. 12.  [LIMITATIONS ON PROPERTY TAX REFUNDS.] 
    (a)  For claims filed based on rent paid in 1986 and 
property taxes payable in 1987, the commissioner shall pay 67 
percent of the payments allowable under section 290A.04, 
subdivisions 1 and 2.  The commissioner shall include with each 
reduced refund a statement that the reduction is required by 
this section.  
    (b) Minnesota Statutes 1986, section 290A.23 does not apply 
to claims based on property taxes payable in 1988 and rent paid 
in 1987 under section 290A.04, subdivisions 1 and 2.  
$125,000,000 is appropriated to the commissioner of revenue for 
fiscal year 1989 to pay the claims.  The commissioner shall 
estimate the amount of payments allowable under section 290A.04, 
subdivisions 1 and 2, by August 25, 1988.  If the estimate 
exceeds the $125,000,000 limitation, the commissioner shall 
proportionally reduce the refunds paid so that the refunds paid 
equal $125,000,000.  All refunds for claims based on property 
taxes payable in 1988 and rent paid in 1987 must be reduced by 
the same percentage.  If reduced, the commissioner shall include 
with each refund a statement that the reduction is required by 
this section. 
    Sec. 13.  [REPEALER.] 
    Minnesota Statutes 1986, section 290A.04, subdivisions 2e 
and 2g, are repealed. 
    Sec. 14.  [EFFECTIVE DATE.] 
    Sections 1 to 8 and 10 are effective for claims based on 
property taxes payable in 1988 and rent paid during calendar 
year 1987, and thereafter, except the requirement in section 10 
that copies of the certificate of rent paid be filed with the 
commissioner of revenue is effective for rent paid during 
calendar year 1988.  Section 9 is effective the day following 
final enactment and applies to all unclaimed warrants held by 
the commissioner on January 1, 1987, or issued after that date. 

                                ARTICLE 4

                               SALES TAX 
    Section 1.  Minnesota Statutes 1986, section 297A.01, 
subdivision 3, is amended to read:  
    Subd. 3.  A "sale" and a "purchase" includes, but is not 
limited to, each of the following transactions: 
    (a) Any transfer of title or possession, or both, of 
tangible personal property, whether absolutely or conditionally, 
and the leasing of or the granting of a license to use or 
consume tangible personal property other than manufactured homes 
used for residential purposes for a continuous period of 30 days 
or more, for a consideration in money or by exchange or barter. 
"Sales" also include the transfer of computer software, meaning 
information and directions which dictate the function to be 
performed by data processing equipment and which are sold 
without adaptation to the specific requirements of the 
purchaser.  This type of computer software, whether contained on 
tape, discs, cards, or other devices, shall be considered 
tangible personal property;  
    (b) 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; 
    (c) The furnishing, preparing or serving for a 
consideration of food, meals or drinks, not including meals or 
drinks served to patients or persons residing at hospitals, 
sanatoriums, nursing homes or senior citizens homes, meals or 
drinks purchased for and served exclusively to individuals who 
are 60 years of age or over and their spouses or to the 
handicapped and their spouses by governmental agencies, 
nonprofit organizations, agencies, or churches or pursuant to 
any program funded in whole or part through 42 USCA sections 
3001 through 3045, wherever delivered, prepared or served, meals 
and lunches served at public and private schools, universities 
or colleges, or the occasional meal thereof by a charitable or 
church organization.  "Sales" also includes meals furnished by 
employers to employees at less than fair market value.  
Notwithstanding section 297A.25, subdivision 2, taxable food or 
meals include, but are not limited to, the following:  
    (i) heated food or drinks;  
    (ii) sandwiches prepared by the retailer;  
    (iii) single sales of prepackaged ice cream or ice milk 
novelties prepared by the retailer; 
    (iv) hand-prepared or dispensed ice cream or ice milk 
products including cones, sundaes, and snow cones;  
    (v) soft drinks and other beverages prepared or served by 
the retailer;  
    (vi) gum;  
    (vii) ice;  
    (viii) all food sold in vending machines;  
    (ix) party trays prepared by the retailers; and 
    (x) all meals and single servings of packaged snack food, 
single cans or bottles of pop, sold in restaurants and bars; 
    (d) The granting of the privilege of admission to places of 
amusement, recreational areas, or athletic events and the 
privilege of having access to and the use of amusement devices, 
tanning facilities, reducing salons, steam baths, turkish baths, 
massage parlors, health clubs, and spas or athletic facilities; 
    (e) The furnishing for a consideration of lodging and 
related services by a hotel, rooming house, tourist court, motel 
or trailer camp and of the granting of any similar license to 
use real property other than the renting or leasing thereof for 
a continuous period of 30 days or more; 
    (f) The furnishing for a consideration of electricity, gas, 
water, or steam for use or consumption within this state, or 
local exchange telephone service and, intrastate toll service, 
and interstate toll service, if that service originates from and 
is charged to a telephone located in this state; the tax imposed 
on amounts paid for telephone services is the liability of and 
shall be paid by the person paying for the services.  Sales by 
municipal corporations in a proprietary capacity are included in 
the provisions of this clause.  The furnishing of water and 
sewer services for residential use shall not be considered a 
sale;  
    (g) The furnishing for a consideration of cable television 
services, including charges for basic monthly service, charges 
for monthly premium service, and charges for any other similar 
television services;  
    (h) Notwithstanding subdivision 4, and section 297A.25, 
subdivision 9, the sales of horses including claiming sales and 
fees paid for breeding a stallion to a mare.  This clause 
applies to sales and fees with respect to a horse to be used for 
racing whose birth has been recorded by the Jockey Club or the 
United States Trotting Association or the American Quarter Horse 
Association but shall not apply with respect to the sale of a 
horse bred and born in the state of Minnesota; 
    (i) The furnishing for a consideration of parking services, 
whether on a contractual, hourly, or other periodic basis, 
except for parking at a meter; and 
    (j) The furnishing for a consideration of services listed 
in this paragraph: 
    (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.  Laundry and dry 
cleaning services do not include services provided by coin 
operated facilities operated by the customer; 
    (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 and exterminating services; 
    (iv) services provided by detective agencies, security 
services, burglar, fire alarm, and armored car services; 
    (v) pet grooming services; and 
    (vi) lawn care, fertilizing, mowing, spraying and sprigging 
services; garden planting and maintenance; arborist services; 
tree, bush, and shrub planting, pruning, bracing, spraying, and 
surgery; and tree trimming for public utility lines. 
The services listed in this paragraph are taxable under section 
297A.02 if the service is performed wholly within Minnesota or 
if the service is performed partly within and partly without 
Minnesota and the greater proportion of the service is performed 
in Minnesota, based on the cost of performance.  In applying the 
provisions of this chapter, the terms "tangible personal 
property" and "sales at retail" include taxable services and the 
provision of taxable services, unless specifically provided 
otherwise.  Services performed by an employee for an employer 
are not taxable under this paragraph.  Services performed by a 
corporation, partnership, or association for another 
corporation, partnership, or association are not taxable under 
this paragraph if one of the entities owns or controls more than 
80 percent of the voting power of the equity interest in the 
other entity.  
    (k) A "sale" and a "purchase" includes the transfer of 
computer software, meaning information and directions that 
dictate the function performed by data processing equipment.  A 
"sale" and a "purchase" does not include the design, 
development, writing, translation, fabrication, lease, or 
transfer for a consideration of title or possession of a custom 
computer program. 
    Sec. 2.  Minnesota Statutes 1986, section 297A.01, 
subdivision 4, is amended to read:  
    Subd. 4.  A "retail sale" or "sale at retail" means a sale 
for any purpose other than resale in the regular course of 
business.  Property utilized by the owner only by leasing such 
property to others or by holding it in an effort to so lease it, 
and which is put to no use by the owner other than resale after 
such lease or effort to lease, shall be considered property 
purchased for resale.  Master computer software programs that 
are purchased and used to make copies for sale or lease are 
considered property purchased for resale.  Sales 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 are "retail 
sales" or "sales at retail" in whatever quantity sold and 
whether or not for purpose of resale in the form of real 
property or otherwise.  A sale of carpeting, linoleum, or other 
similar floor covering which includes installation of the 
carpeting, linoleum, or other similar floor covering is a 
contract for the improvement of real property.  Aircraft and 
parts for the repair thereof purchased by a nonprofit, 
incorporated flying club or association utilized solely by the 
corporation by leasing such aircraft to shareholders of the 
corporation shall not be considered property purchased for 
resale.  The leasing of the aircraft to the shareholders by the 
flying club or association shall not be considered a 
sale notwithstanding subdivision 3 if the tax imposed by this 
chapter was paid on the initial purchase as provided by this 
subdivision. 
    Leasing of aircraft utilized by a lessee for the purpose of 
leasing to others, whether or not the lessee also utilizes the 
aircraft for flight instruction where no separate charge is made 
for aircraft rental or for charter service, shall be considered 
a purchase for resale; provided, however, that a proportionate 
share of the lease payment reflecting use for flight instruction 
or charter service is subject to tax pursuant to section 297A.14.
    Sec. 3.  Minnesota Statutes 1986, section 297A.01, 
subdivision 8, is amended to read:  
    Subd. 8.  "Sales price" means the total consideration 
valued in money, for a retail sale whether paid in money or 
otherwise, excluding therefrom any amount allowed as credit for 
tangible personal property taken in trade for resale, without 
deduction for the cost of the property sold, cost of materials 
used, labor or service cost, interest, or discount allowed after 
the sale is consummated, the cost of transportation incurred 
prior to the time of sale, any amount for which credit is given 
to the purchaser by the seller, or any other expense 
whatsoever.  A deduction may be made for charges for services 
that are part of the sale, including charges up to 15 percent in 
lieu of tips, if the consideration for such charges is 
separately stated, but no deduction shall be allowed for charges 
for services that are part of a sale as defined in subdivision 
3, clauses (b) to (f).  A deduction may also be made for 
interest, financing, or carrying charges, charges for labor or 
services used in installing or applying the property sold or 
transportation charges if the transportation occurs after the 
retail sale of the property only if the consideration for such 
charges is separately stated.  There shall not be included in 
"sales price" cash discounts allowed and taken on sales, or the 
amount refunded either in cash or in credit for property 
returned by purchasers or the amount of any tax (not including, 
however, any manufacturers' or importers' excise tax) imposed by 
the United States upon or with respect to retail sales, whether 
imposed upon the retailer or the consumer. 
    Sec. 4.  Minnesota Statutes 1986, section 297A.01, 
subdivision 11, is amended to read: 
    Subd. 11.  "Tangible personal property" means corporeal 
personal property of any kind whatsoever, including property 
which is to become real property as a result of incorporation, 
attachment, or installation following its acquisition. 
    Personal property does not include: 
    (a) large ponderous machinery and equipment used in a 
business or production activity which at common law would be 
considered to be real property; 
    (b) property which is subject to an ad valorem property tax;
    (c) property described in section 272.02, subdivision 1, 
clause (8), paragraphs (a) to (d); 
    (d) property described in section 272.03, subdivision 2, 
clauses (3) and (5). 
    Tangible personal property includes computer software, 
whether contained on tape, discs, cards, or other devices. 
    Sec. 5.  Minnesota Statutes 1986, section 297A.01, is 
amended by adding a subdivision to read: 
    Subd. 18.  [CUSTOM COMPUTER PROGRAM.] "Custom computer 
program" means a computer program prepared to the special order 
of the customer, either in the form of written procedures or in 
the form of storage media on which, or in which, the program is 
recorded, or any required documentation or manuals designed to 
facilitate the use of the custom computer program transferred.  
It includes those services represented by separately stated 
charges for modifications to an existing prewritten program that 
are prepared to the special order of the customer.  It does not 
include a "canned" or prewritten computer program that is held 
or existing for general or repeated sale or lease, even if the 
prewritten or "canned" program was initially developed on a 
custom basis or for in-house use.  Modification to an existing 
prewritten program to meet the customer's needs is custom 
computer programming only to the extent of the modification.  
For purposes of this subdivision: 
    (1) "Storage media" includes punched cards, tapes, discs, 
diskettes, or drums on which computer programs may be embodied 
or stored; 
    (2) "Computer" does not include tape-controlled automatic 
drilling, milling, or other manufacturing machinery or 
equipment; and 
    (3) "Computer program" means the complete plan for the 
solution of a problem, such as the complete sequence of 
automatic data processing equipment instructions necessary to 
solve a problem and includes both systems and application 
programs and subdivisions, such as assemblers, compilers, 
routines, generators, and utility programs. 
    Sec. 6.  Minnesota Statutes 1986, section 297A.01, 
subdivision 15, is amended to read:  
    Subd. 15.  "Farm machinery" means new or used machinery, 
equipment, implements, accessories and contrivances used 
directly and principally in the production for sale, but not 
including the processing, of livestock, dairy animals, dairy 
products, poultry and poultry products, fruits, vegetables, 
forage, grains and bees and apiary products.  "Farm machinery"  
shall include includes 
    (1) machinery for the preparation, seeding or cultivation 
of soil for growing agricultural crops and sod, harvesting and 
threshing of agricultural products, harvesting or mowing of sod, 
and certain machinery for dairy, livestock and poultry farms, 
together with; 
    (2) barn cleaners, milking systems, grain dryers, automatic 
feeding systems and similar installations., whether or not the 
equipment is installed by the seller and becomes part of the 
real property;  
    (3) irrigation equipment sold for exclusively agricultural 
use, including pumps, pipe fittings, valves, sprinklers and 
other equipment necessary to the operation of an irrigation 
system when sold as part of an irrigation system, except 
irrigation equipment which is situated below ground and 
considered to be a part of the real property, shall be included 
in the definition of farm machinery.; and 
    (4)  logging equipment, including chain saws used for 
logging only if the engine displacement equals or exceeds five 
cubic inches, shall be included in the definition of farm 
machinery.  
    Repair or replacement parts for farm machinery shall not be 
included in the definition of farm machinery.  
    Tools, shop equipment, grain bins, feed bunks, fencing 
material, communication equipment and other farm supplies shall 
not be considered to be farm machinery.  "Farm machinery" does 
not include motor vehicles taxed under chapter 297B, 
snowmobiles, snow blowers, lawn mowers except those used in the 
production of sod for sale, garden-type tractors or garden 
tillers and the repair and replacement parts for those vehicles 
and machines. 
    Sec. 7.  Minnesota Statutes 1986, section 297A.14, is 
amended to read: 
    297A.14 [USING, STORING OR CONSUMING TANGIBLE PERSONAL 
PROPERTY; ADMISSIONS; UTILITIES USE TAX.] 
    Subdivision 1.  [IMPOSITION.] For the privilege of using, 
storing or consuming in Minnesota tangible personal property, 
tickets or admissions to places of amusement and athletic 
events, electricity, gas, and local exchange telephone service 
purchased for use, storage or consumption in this state, a use 
tax is imposed on every person in this state at the rate of six 
percent of tax imposed under section 297A.02 on the sales price 
of sales at retail of the items, unless the tax imposed by 
section 297A.02 was paid on the sales price.  Notwithstanding 
the provisions of the preceding sentence, the rate of the use 
tax imposed upon the sales price of sales of special tooling, 
and capital equipment is four percent and upon the sales price 
of sales of farm machinery is two percent.  
    Subd. 2.  [MOTOR VEHICLES.] A motor vehicle subject to tax 
under this section shall be taxed at its fair market value at 
the time of transport into Minnesota if the motor vehicle was 
acquired more than three months prior to its transport into this 
state. 
    Sec. 8.  Minnesota Statutes 1986, section 297A.18, is 
amended to read:  
    297A.18 [ADVERTISING NO TAX; MINIMUM TAX.] 
    It shall be unlawful for any retailer to advertise or hold 
out or state to the public or to any customer, directly or 
indirectly, that the use tax or any part thereof will be assumed 
or absorbed by the retailer, or that it will not be added to the 
sales price or that, if added, it or any part thereof will be 
refunded except that in computing the tax to be collected as the 
result of any transaction amounts of tax less than one-half of 
one cent may be disregarded and amounts of tax of one-half cent 
or more may be considered an additional cent. 
    It is unlawful for a person to broadcast or publish, or 
arrange to have broadcast or published, an advertisement in a 
publication or broadcast media, printed, distributed, broadcast, 
or intended to be received in this state, that states that no 
sales or use tax is due under this chapter, when the person 
knows the advertisement is false. 
    Sec. 9.  Minnesota Statutes 1986, section 297A.211, 
subdivision 2, is amended to read: 
    Subd. 2.  (a) Such persons, when properly registered as 
retailers, may make purchases in this state, or import property 
into this state, without payment of the sales or use taxes 
imposed by this chapter at the time of purchase or importation, 
provided that such purchases or importations come within the 
provisions of this section and are made in strict compliance 
with the rules of the commissioner. 
    (b) Any person described in subdivision 1 may elect to pay 
directly to the commissioner any sales or use tax that may be 
due under this chapter for the acquisition of mobile 
transportation equipment and parts and accessories attached or 
to be attached to such equipment. 
    (c) The total cost of such equipment and parts and 
accessories attached or to be attached to such equipment shall 
be multiplied by a fraction, the numerator of which is the 
mileage operated during the past calendar year within the state 
of Minnesota and the denominator is the total mileage operated 
during the past calendar year.  The amount so determined shall 
be multiplied by the tax rate to disclose the tax due. 
In computing the tax under this section "sales price" does not 
include the amount of any tax, except any manufacturer's or 
importer's excise tax, imposed by the United States upon or with 
respect to retail sales, whether imposed on the retailer or the 
consumer.  
    (d) Each such retailer shall make a return and remit to the 
commissioner the tax due for the preceding calendar month in 
accordance with the provisions of sections 297A.26 and 297A.27. 
    Sec. 10.  Minnesota Statutes 1986, section 297A.211, is 
amended by adding a subdivision to read:  
    Subd. 4.  Notwithstanding subdivisions 1 to 3, the 
commissioner may enter into an agreement with the commissioner 
of public safety, whereby upon approval of both commissioners, 
the commissioner of public safety will collect the motor vehicle 
excise tax from persons defined in subdivision 1.  For the 
purpose of collecting the tax, the commissioner of public safety 
shall act as the agent of the commissioner of revenue and shall 
be subject to all rules not inconsistent with the provisions of 
this chapter, that may be prescribed by the commissioner. 
    Sec. 11.  [297A.212] [RAILROAD ROLLING STOCK.] 
    Railroad rolling stock used by a railroad operating in this 
state that is licensed as a common carrier by the Interstate 
Commerce Commission and used to transport persons or property in 
interstate or foreign commerce is subject to taxation under this 
chapter only to the extent provided in this section.  The ratio 
of intrastate mileage to interstate or foreign mileage traveled 
by the carrier during the previous fiscal year of the carrier 
must be determined at the close of the carrier's fiscal year.  
This ratio must be applied each month to the purchase price of 
total purchases of rolling stock that are used in this state by 
the railroad to establish that portion of the total used and 
consumed in intrastate movement and subject to tax under this 
chapter.  "Railroad rolling stock" means all portable or moving 
apparatus and machinery of a railroad company and includes 
engines, cars, tenders, coaches, sleeping cars, and parts 
necessary for the repair and maintenance of the rolling stock.  
    Sec. 12.  Minnesota Statutes 1986, section 297A.25, 
subdivision 3, is amended to read:  
    Subd. 3.  [MEDICINES; MEDICAL DEVICES.] The gross receipts 
from the sale of prescribed drugs and, prescribed medicine and 
insulin, intended for use, internal or external, in the cure, 
mitigation, treatment or prevention of illness or disease in 
human beings and products consumed by humans for the 
preservation of health are exempt, including together with 
prescription glasses, therapeutic, and prosthetic devices, but 
not including cosmetics or toilet articles notwithstanding the 
presence of medicinal ingredients therein. 
    Sec. 13.  Minnesota Statutes 1986, section 297A.25, 
subdivision 7, is amended to read:  
    Subd. 7.  [PETROLEUM PRODUCTS.] The gross receipts from the 
sale of and storage, use or consumption of the following 
petroleum products are exempt:  
    (1) products upon which a tax has been imposed and paid 
under the provisions of chapter 296, whether or not any part of 
said tax may be subsequently refunded and no refund has been or 
will be allowed because the buyer used the fuel for nonhighway 
use, or 
    (2) products which are used in the improvement of 
agricultural land by constructing, maintaining, and repairing 
drainage ditches, tile drainage systems, grass waterways, water 
impoundment, and other erosion control structures. 
    Sec. 14.  Minnesota Statutes 1986, section 297A.25, 
subdivision 11, is amended to read:  
    Subd. 11.  [SALES TO GOVERNMENT.] The gross receipts from 
all sales, including sales in which title is retained by a 
seller or a vendor or is assigned to a third party under an 
installment sale or lease purchase agreement under section 
465.71, of tangible personal property to, and all storage, use 
or consumption of such property by, the United States and its 
agencies and instrumentalities or a state and its agencies, 
instrumentalities, and political subdivisions of the state are 
exempt.  Sales exempted by this subdivision include sales 
pursuant to section 297A.01, subdivision 3, clauses (d) and 
(f).  This exemption shall not apply to building, construction 
or reconstruction materials purchased by a contractor or a 
subcontractor as a part of a lump-sum contract or similar type 
of contract with a guaranteed maximum price covering both labor 
and materials for use in the construction, alteration or repair 
of a building or facility.  This exemption does not apply to 
construction materials purchased by tax exempt entities or their 
contractors to be used in constructing buildings or facilities 
which will not be used principally by the tax exempt entities. 
    Sec. 15.  Minnesota Statutes 1986, section 297A.25, 
subdivision 12, is amended to read:  
    Subd. 12.  [OCCASIONAL SALES.] The gross receipts from the 
isolated or occasional sale of tangible personal property in 
Minnesota not made in the normal course of business of selling 
that kind of property, and the storage, use, or consumption of 
property acquired as a result of such a sale are exempt.  For 
purposes of this subdivision, sales by a nonprofit organization 
shall be deemed to be "isolated or occasional" if they occur at 
sale events that have a duration of three or fewer consecutive 
days.  The granting of the privilege of admission to places of 
amusement and the privilege of use of amusement devices by a 
nonprofit organization at an isolated or occasional event 
conducted on property owned or leased for a continuous period of 
more than 30 days by the nonprofit organization are also 
exempt.  The exemption provided for isolated sales of tangible 
personal property and of the granting of admissions or the 
privilege of use of amusement devices by nonprofit organizations 
pursuant to this subdivision shall be available only if the sum 
of the days on which the organization and any subsidiary 
nonprofit organization sponsored by it that does not have a 
separate sales tax exemption permit conduct sales of tangible 
personal property, plus the days with respect to which the 
organization charges for the use of amusement devices or 
admission to places of amusement, does not exceed eight days in 
a calendar year.  For purposes of this subdivision, a "nonprofit 
organization" means any corporation, society, association, 
foundation, or institution organized and operated exclusively 
for charitable, religious, or educational purposes, no part of 
the net earnings of which inures to the benefit of a private 
individual. 
    Sec. 16.  Minnesota Statutes 1986, section 297A.25, is 
amended by adding a subdivision to read:  
    Subd. 35.  [FOOD STAMPS.] The gross receipts from the sale 
of tangible personal property purchased with food stamps, 
coupons, or vouchers issued by the federal government under the 
Food Stamp Program are exempt.  This exemption also applies to 
food purchased under the Special Supplemental Food Program for 
Women, Infants, and Children.  The exemption provided by this 
subdivision is effective and applies only to the extent required 
by federal law. 
    Sec. 17.  Minnesota Statutes 1986, section 297A.25, is 
amended by adding a subdivision to read: 
    Subd. 36.  [INCOMING, INTERSTATE WATS LINES.] The gross 
receipts from the sale of long distance telephone services are 
exempt, if the service consists of a wide area telephone line 
that permits a long distance call to an individual or business 
located in Minnesota to be made from a location outside of 
Minnesota at no toll charge to the person placing the call. 
    Sec. 18.  Minnesota Statutes 1986, section 297A.256, is 
amended to read:  
    297A.256 [EXEMPTIONS FOR CERTAIN NONPROFIT GROUPS.] 
    Notwithstanding the provisions of this chapter, the 
following sales made by a "nonprofit organization" are exempt 
from the sales and use tax. 
    (a) All sales made by an organization for fundraising 
purposes if that organization exists solely for the purpose of 
providing educational or social activities for young people 
primarily age 18 and under.  This exemption shall apply only if 
the gross annual sales receipts of the organization from 
fundraising do not exceed $10,000. 
    (b) All sales made by an organization for fundraising 
purposes if that organization is a senior citizen group which 
qualifies for exemption on its purchases pursuant to section 
297A.25, subdivision 16 or association of groups that in general 
limits membership to persons age 55 or older and is organized 
and operated exclusively for pleasure, recreation and other 
nonprofit purposes and no part of the net earnings inure to the 
benefit of any private shareholders.  This exemption shall apply 
only if the gross annual sales receipts of the organization from 
fundraising do not exceed $10,000. 
    (c) The gross receipts from the sales of tangible personal 
property at, admission charges for, and sales of food, meals, or 
drinks at fundraising events sponsored by a nonprofit 
organization when the entire proceeds, except for the necessary 
expenses therewith, will be used solely and exclusively for 
charitable, religious, or educational purposes.  This exemption 
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.  For 
purposes of this clause, a "nonprofit organization" means any 
unit of government, corporation, society, association, 
foundation, or institution organized and operated for 
charitable, religious, educational, civic, fraternal, senior 
citizens' or veterans' purposes, no part of the net earnings of 
which enures to the benefit of a private individual. 
    If the profits are not used solely and exclusively for 
charitable, religious, or educational purposes, the entire gross 
receipts are subject to tax. 
    Each nonprofit organization shall keep a separate 
accounting record, including receipts and disbursements from 
each fundraising event.  All deductions from gross receipts must 
be documented with receipts and other records.  If records are 
not maintained as required, the entire gross receipts are 
subject to tax. 
    The exemption provided by this section 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. 
    The exemption for fundraising events under this section is 
limited to no more than 24 days a year.  Fundraising events 
conducted on premises leased or occupied for more than four days 
but less than 30 days do not qualify for this exemption.  
    Sec. 19.  Minnesota Statutes 1986, section 297A.26, is 
amended by adding a subdivision to read: 
    Subd. 4.  When a retailer located outside of a city that 
imposes a local sales and use tax collects use tax to be 
remitted to that city, the retailer is not required to remit the 
tax until the amount collected reaches $10.  
    Sec. 20.  Minnesota Statutes 1986, section 297A.43, is 
amended to read:  
    297A.43 [CONFIDENTIAL NATURE OF INFORMATION.] 
    It shall be unlawful for the commissioner or any other 
public official or employee to divulge or otherwise make known 
in any manner any particulars disclosed in any report or return 
required by sections 297A.01 to 297A.44, or any information 
concerning the affairs of the person making the return acquired 
from the person's records, officers, or employees while 
examining or auditing under the authority of sections 297A.01 to 
297A.44, except in connection with a proceeding involving taxes 
due under this chapter from the taxpayer making such report or 
return or to comply with the provisions of section 297A.431 or 
where a question arises as to the proper tax applicable, that 
is, sales or use tax. In the latter instance, the commissioner 
may furnish information to a buyer and a seller with respect to 
the specific transaction in question.  Nothing herein contained 
shall be construed to prohibit the commissioner from publishing 
statistics so classified as not to disclose the identity of 
particular returns or reports and the contents thereof.  Any 
person violating the provisions of this section shall be guilty 
of a gross misdemeanor. 
    The commissioner may enter into an agreement with the 
commissioner or other taxing officials of another state for the 
interpretation and administration of the acts of their several 
states providing for the collection of a sales and/or use tax 
for the purpose of promoting fair and equitable administration 
of such acts and to eliminate double taxation. 
    Notwithstanding the above provisions of this section, the 
commissioner, in order to implement the purposes of this 
chapter, may furnish information on a reciprocal basis to the 
taxing officials of another state, or to the taxing officials of 
any municipality of the state of Minnesota which has a local 
sales and/or use tax.  The commissioner may furnish to the 
Minnesota supreme court and the board of professional 
responsibility information regarding the amount of any 
uncontested delinquent taxes due under this chapter or a failure 
to file a return due under this chapter by an attorney admitted 
to practice law in this state under chapter 481.  The 
commissioner may furnish information to taxing officials of 
another state where necessary in the administration of the laws 
of that state, to the extent that the state provides similar 
rights of examination or information to officials of this state, 
if the other state agrees to be subject to the confidentiality 
restrictions of this section.  
    In order to facilitate processing of returns and payments 
of taxes required by this chapter, the commissioner may contract 
with outside vendors and may disclose private and nonpublic data 
to the vendor.  The data disclosed will be administered by the 
vendor consistent with this section.  
    Sec. 21.  Minnesota Statutes 1986, section 297B.03, is 
amended to read:  
    297B.03 [EXEMPTIONS.] 
    There is specifically exempted from the provisions of this 
chapter and from computation of the amount of tax imposed by it 
the following: 
    (1) Purchase or use, including use under a lease purchase 
agreement or installment sales contract made pursuant to section 
465.71, of any motor vehicle by the United States and its 
agencies and instrumentalities and by any person described in 
and subject to the conditions provided in section 
297A.25, subdivisions 11, 16, and subdivision 18. 
    (2) Purchase or use of any motor vehicle by any person who 
was a resident of another state at the time of the purchase and 
who subsequently becomes a resident of Minnesota, provided the 
purchase occurred more than 60 days prior to the date such 
person began residing in the state of Minnesota. 
    (3) Purchase or use of any motor vehicle by any person 
making a valid election to be taxed under the provisions of 
section 297A.211. 
    (4) Purchase or use of any motor vehicle previously 
registered in the state of Minnesota by any corporation or 
partnership when such transfer constitutes a transfer within the 
meaning of section 351 or 721 of the Internal Revenue Code of 
1954, as amended through December 31, 1974. 
    (5) Purchase or use of any vehicle owned by a resident of 
another state and leased to a Minnesota based private or for 
hire carrier for regular use in the transportation of persons or 
property in interstate commerce provided the vehicle is titled 
in the state of the owner or secured party, and that state does 
not impose a sales or motor vehicle excise tax on motor vehicles 
used in interstate commerce.  
    Sec. 22.  Minnesota Statutes 1986, section 297B.031, is 
amended to read:  
    297B.031 [REFUND OF TAX; MANDATORY REFUND OR REPLACEMENT 
LAWS.] 
    If a manufacturer of motor vehicles is required by a court 
order under section 325F.665 or a decision of an informal 
dispute settlement mechanism as defined in section 325F.665, 
subdivision 3, to refund pay the consumer the tax imposed by 
this chapter, a portion of the tax so paid by the purchaser 
shall be refunded to the manufacturer.  The amount of the refund 
shall be the tax paid by the purchaser less an amount equal to 
the tax paid multiplied by a fraction, the denominator of which 
is the purchase price of the vehicle and the numerator of which 
is the allowance deducted from the refund for the consumer's use 
of the vehicle.  The refund shall be paid to the manufacturer 
only upon filing of a written application, in a form and 
providing information as prescribed by the commissioner.  
Payment of a refund pursuant to this section shall be made out 
of the general and highway user funds in the same proportion 
provided for deposit of tax proceeds for the fiscal year 
pursuant to section 297B.09, subdivision 1.  The amounts 
necessary to pay the refunds are appropriated out of the 
respective funds. 
    Sec. 23.  Minnesota Statutes 1986, section 325F.665, 
subdivision 3, is amended to read:  
    Subd. 3.  [MANUFACTURER'S DUTY TO REFUND OR REPLACE.] (a) 
If the manufacturer, its agents, or its authorized dealers are 
unable to conform the new motor vehicle to any applicable 
express warranty by repairing or correcting any defect or 
condition which substantially impairs the use or market value of 
the motor vehicle to the consumer after a reasonable number of 
attempts, the manufacturer shall, at the consumer's option, 
either replace the new motor vehicle with a comparable motor 
vehicle or accept return of the vehicle from the consumer and 
refund to the consumer the full purchase price, or the total 
amount actually paid by the consumer under any vehicle lease, 
including the cost of any options or other modifications 
arranged, installed, or made by the manufacturer, its agent, or 
its authorized dealer within 30 days after the date of original 
delivery, and all other charges including, but not limited to, 
sales tax, license fees and registration fees, reimbursement for 
towing and rental vehicle expenses incurred by the consumer as a 
result of the vehicle being out of service for warranty repair, 
less a reasonable allowance for the consumer's use of the 
vehicle not exceeding ten cents per mile driven or ten percent 
of the purchase price or full lease cost of the vehicle, 
whichever is less.  Refunds must be made to the consumer, and 
lienholder, if any, as their interests appear on the records of 
the registrar of motor vehicles.  Refunds shall include the 
amount stated by the dealer as the trade-in value of a 
consumer's used motor vehicle, plus any additional amount paid 
by the consumer for the new motor vehicle.  For a lease vehicle, 
refunds shall include the total amount actually paid by the 
consumer under any vehicle lease, less any finance charges paid 
by the consumer.  A reasonable allowance for use is that amount 
directly attributable to use by the consumer and any previous 
consumer prior to the first report of the nonconformity to the 
manufacturer, agent, or dealer.  It is an affirmative defense to 
any claim under this section (1) that an alleged nonconformity 
does not substantially impair the use or market value, or (2) 
that a nonconformity is the result of abuse, neglect, or 
unauthorized modifications or alterations of a motor vehicle by 
anyone other than the manufacturer, its agent or its authorized 
dealer.  
    (b) It is presumed that a reasonable number of attempts 
have been undertaken to conform a new motor vehicle to the 
applicable express warranties, if (1) the same nonconformity has 
been subject to repair four or more times by the manufacturer, 
its agents, or its authorized dealers within the express 
warranty term or during the period of one year following the 
date of original delivery of the motor vehicle to a consumer, 
whichever is the earlier date, but the nonconformity continues 
to exist, or (2) the vehicle is out of service by reason of 
repair for a cumulative total of 30 or more business days during 
the term or during the period, whichever is the earlier date.  
    (c) If the nonconformity results in a complete failure of 
the braking or steering system of the new motor vehicle and is 
likely to cause death or serious bodily injury if the vehicle is 
driven, it is presumed that a reasonable number of attempts have 
been undertaken to conform the vehicle to the applicable express 
warranties if the nonconformity has been subject to repair at 
least once by the manufacturer, its agents, or its authorized 
dealers within the express warranty term or during the period of 
one year following the date of original delivery of the motor 
vehicle to a consumer, whichever is the earlier date, and the 
nonconformity continues to exist.  
    (d) The term of an express warranty, the one-year period 
and the 30-day period shall be extended by any period of time 
during which repair services are not available to the consumer 
because of a war, invasion, strike, or fire, flood, or other 
natural disaster.  
    (e) The presumption contained in paragraph (b) applies 
against a manufacturer only if the manufacturer, its agent, or 
its authorized dealer has received prior written notification 
from or on behalf of the consumer at least once and an 
opportunity to cure the defect alleged.  If the notification is 
received by the manufacturer's agent or authorized dealer, the 
agent or dealer must forward it to the manufacturer by certified 
mail, return receipt requested.  
    (f) A consumer is eligible to receive a refund or 
replacement vehicle under this section if the nonconformity is 
reported to the manufacturer, its authorized agent or dealer, at 
any time during the motor vehicle's express warranty period, 
even if the motor vehicle's express warranty expires before the 
requirements of paragraphs (a), (b), and (c) have been met.  
    (g) At the time of purchase the manufacturer must provide 
directly to the consumer a written statement on a separate piece 
of paper, in 10-point all capital type, in substantially the 
following form:  "IMPORTANT:  IF THIS VEHICLE IS DEFECTIVE, YOU 
MAY BE ENTITLED UNDER STATE LAW TO REPLACEMENT OF IT OR A REFUND 
OF ITS PURCHASE PRICE.  HOWEVER, TO BE ENTITLED TO REFUND OR 
REPLACEMENT, YOU MUST FIRST NOTIFY THE MANUFACTURER, ITS AGENT, 
OR ITS AUTHORIZED DEALER OF THE PROBLEM IN WRITING AND GIVE THEM 
AN OPPORTUNITY TO REPAIR THE VEHICLE."  
    (h) The amount of the sales tax to be paid by the 
manufacturer to the consumer under paragraph (a) shall be the 
tax paid by the consumer when the vehicle was purchased less an 
amount equal to the tax paid multiplied by a fraction, the 
denominator of which is the purchase price of the vehicle and 
the numerator of which is the allowance deducted from the refund 
for the consumer's use of the vehicle.  
    Sec. 24.  Minnesota Statutes 1986, section 360.654, is 
amended to read:  
    360.654 [AIRCRAFT DEALER'S COMMERCIAL USE PERMIT.] 
    Upon written application by a dealer licensed in accordance 
with section 360.63 and payment of a fee of $20 for each 
aircraft identified in the application, the commissioner of 
revenue shall issue a commercial use permit which shall entitle 
the dealer to use the aircraft for commercial purposes without 
payment of the tax imposed by section 297A.02 or 297A.14 for a 
period of 12 months or until the aircraft is sold, whichever 
first occurs.  The dealer shall pay the tax imposed by section 
297A.14 on all consideration received for use of the aircraft 
for commercial purposes during the period the dealer holds the 
commercial use permit.  Commercial purposes as used herein does 
not include rental or lease of the aircraft for which the 
aircraft dealers normally collect the sales tax from their 
customers.  Applications shall be on forms prescribed and 
furnished by the commissioner of revenue and shall include the 
federal aircraft registration number of each aircraft for which 
a permit is to be issued. A permit shall be affixed to the 
dealer's license and shall be conspicuously displayed in the 
aircraft for which it was issued, which aircraft shall remain in 
the possession of or under the control of the licensed dealer to 
whom the permit was issued.  The permit shall expire and the tax 
imposed by section 297A.02 or 297A.14 shall become due upon 
either sale of the aircraft by the dealer or expiration of the 
12-month period.  If the aircraft has not been sold within the 
12-month period the tax is due on the purchase price of the 
aircraft and its auxiliary equipment to the dealer and the tax 
imposed by section 297A.02 shall become due on the eventual sale 
of the aircraft.  Laws 1971, chapter 740 shall in no way apply 
to registration or taxation pursuant to sections 360.511 to 
360.67.  
    Sec. 25.  [REPEALER.] 
    (a) Minnesota Statutes 1986, section 270.89 is repealed. 
    (b) Minnesota Statutes 1986, section 297A.25, subdivision 
13, is repealed.  
    (c) Laws 1986, chapter 391, section 3, is repealed. 
    Sec. 26.  [EFFECTIVE DATE.] 
    Sections 1, paragraphs (a), (c), (d), except the reference 
to having access to and the use of amusement devices and 
athletic facilities, (f), and (k), 2, 4, 5, 11 to 14, 17, 20, 
21, and 25, paragraph (b), are effective for sales at retail 
made after May 31, 1987, but shall not apply to sales of 
tangible personal property made pursuant to bona fide written 
contracts that were enforceable before June 1, 1987, and 
delivery is made on or before December 31, 1987.  Section 6 is 
effective for sales at retail made after May 31, 1987.  Sections 
3, 8, 9, 24, and 25, paragraph (a), are effective June 1, 1987.  
Section 16 is effective for sales after September 30, 1987.  The 
reference to having access to and the use of amusement devices 
and athletic facilities in section 1, paragraph (d), is 
effective February 1, 1987.  Section 1, paragraphs (i) and (j), 
are effective for services provided after June 30, 1987, except 
that taxation of services described in paragraph (j), clauses 
(i), (iii), (iv), and (vi), is effective for services provided 
after September 30, 1987.  Section 10 is effective upon approval 
of the agreement by the commissioner of revenue and the 
commissioner of public safety. 

                               ARTICLE 5 

                             PROPERTY TAXES
    Section 1.  Minnesota Statutes 1986, section 273.11, 
subdivision 8, is amended to read:  
    Subd. 8.  [LIMITED EQUITY COOPERATIVE APARTMENTS.] For the 
purposes of this subdivision, the terms defined in this 
subdivision have the meanings given them.  
    A "limited equity cooperative" is a corporation organized 
under chapter 308, which has as its primary purpose the 
provision of housing and related services to its members, whose 
income must not exceed 90 percent of the median St. 
Paul-Minneapolis metropolitan area income as determined by the 
United States Department of Housing and Urban Development at the 
time they purchase their membership, and which meets the 
following requirements:  
    (a) The articles of incorporation set the sale price of 
occupancy entitling cooperative shares or memberships at no more 
than a transfer value determined as provided in the articles. 
That value may not exceed the sum of the following:  
    (1) the consideration paid for the membership or shares by 
the first occupant of the unit, as shown in the records of the 
corporation;  
    (2) the fair market value, as shown in the records of the 
corporation, of any improvements to the real property that were 
installed at the sole expense of the member with the prior 
approval of the board of directors;  
    (3) accumulated interest, or an inflation allowance not to 
exceed the greater of a ten percent annual noncompounded 
increase on the consideration paid for the membership or share 
by the first occupant of the unit, or the amount that would have 
been paid on that consideration if interest had been paid on it 
at the rate of the percentage increase in the revised consumer 
price index for all urban consumers for the Minneapolis-St. Paul 
metropolitan area prepared by the United States Department of 
Labor, provided that the amount determined pursuant to this 
clause may not exceed $500 for each year or fraction of a year 
the membership or share was owned; plus 
    (4) real property capital contributions shown in the 
records of the corporation to have been paid by the transferor 
member and previous holders of the same membership, or of 
separate memberships that had entitled occupancy to the unit of 
the member involved.  These contributions include contributions 
to a corporate reserve account the use of which is restricted to 
real property improvements or acquisitions, contributions to the 
corporation which are used for real property improvements or 
acquisitions, and the amount of principal amortized by the 
corporation on its indebtedness due to the financing of real 
property acquisition or improvement or the averaging of 
principal paid by the corporation over the term of its real 
property-related indebtedness. 
    (b) The articles of incorporation require that the board of 
directors limit the purchase price of stock or membership 
interests for new member-occupants or resident shareholders to 
an amount which does not exceed the transfer value for the 
membership or stock as defined in clause (a).  
    (c) The articles of incorporation require that the total 
distribution out of capital to a member shall not exceed that 
transfer value. 
    (d) The articles of incorporation require that upon 
liquidation of the corporation any assets remaining after 
retirement of corporate debts and distribution to members will 
be conveyed to a charitable organization described in section 
501(c)(3) of the Internal Revenue Code of 1954 1986, as amended 
through December 31, 1984 1986, or a public agency.  
    A "limited equity cooperative apartment" is a dwelling unit 
owned or leased by a limited equity cooperative.  If the 
dwelling unit is leased by the cooperative the lease agreement 
must meet the conditions for a cooperative lease stated in 
section 273.124, subdivision 6.  
    "Occupancy entitling cooperative share or membership" is 
the ownership interest in a cooperative organization which 
entitles the holder to an exclusive right to occupy a dwelling 
unit owned or leased by the cooperative.  
    For purposes of taxation, the assessor shall value a unit 
owned by a limited equity cooperative at the lesser of its 
market value or the value determined by capitalizing the net 
operating income of a comparable apartment operated on a rental 
basis at the capitalization rate used in valuing comparable 
buildings that are not limited equity cooperatives.  If a 
cooperative fails to operate in accordance with the provisions 
of clauses (a) to (d), the property shall be subject to 
additional property taxes in the amount of the difference 
between the taxes determined in accordance with this subdivision 
for the last ten years that the property had been assessed 
pursuant to this subdivision and the amount that would have been 
paid if the provisions of this subdivision had not applied to 
it.  The additional taxes, plus interest at the rate specified 
in section 549.09, shall be extended against the property on the 
tax list for the current year.  
    Sec. 2.  [273.1195] [STATE PAID SMALL BUSINESS PROPERTY TAX 
TRANSITION CREDIT.] 
    For property taxes payable in 1988 only, class 3a 
commercial industrial property is eligible for a state paid 
small business transition property tax credit if the payable 
1988 property taxes on the first $120,000 of market value of the 
property exceed three percent of the January 2, 1987 market 
value.  The credit is equal to 50 percent of the property tax 
amount which is in excess of three percent of market value.  
Only the first $120,000 of market value of a qualifying parcel 
and the taxes attributable to the first $120,000 of market value 
are eligible for the computation of this credit.  Only a parcel 
that qualifies for the 28 percent assessment ratio contained in 
section 273.13, subdivision 24, paragraph (a), qualifies for the 
credit provided in this section. 
    In the case of taxes paid in installments pursuant to 
section 279.01, subdivision 1, the credit under this section 
must be deducted from the second one-half installment payable 
October 15.  The amount of the reduction must be reported to the 
commissioner of revenue as part of the abstracts of tax lists 
required to be filed with the commissioner under section 275.29. 
    There is annually appropriated from the general fund to the 
commissioners of revenue and education the amount necessary to 
replace the revenue lost to local units of government and school 
districts as a result of the reduction in property taxes 
provided in this section.  The payment amounts must be 
determined and the installments paid under the provisions of 
sections 273.13, subdivision 15a, and 273.1392. 
    Sec. 3.  Minnesota Statutes 1986, section 273.124, 
subdivision 7, is amended to read: 
    Subd. 7.  [LEASED BUILDINGS OR LAND.] For purposes of class 
1 determinations, homesteads include: 
    (a) buildings and appurtenances owned and used by the 
occupant as a permanent residence which are located upon land 
the title to which is vested in a person or entity other than 
the occupant; 
    (b) all buildings and appurtenances located upon land owned 
by the occupant and used for the purposes of a homestead 
together with the land upon which they are located, if all of 
the following criterial are met: 
    (1) the occupant is using the property as a permanent 
residence; 
    (2) the occupant is paying the property taxes and any 
special assessments levied against the property; 
    (3) the occupant has signed a lease which has an option to 
purchase the buildings and appurtenances; and 
    (4) the term of the lease is at least five years; and 
    (5) the occupant has made a down payment of at least $5,000 
in cash if the property was purchased by means of a contract for 
deed or subject to a mortgage. 
    Any taxpayer meeting all the requirements of this paragraph 
must notify the county assessor, or the assessor who has the 
powers of the county assessor pursuant to section 273.063, in 
writing, as soon as possible after signing the lease agreement 
and occupying the buildings as a homestead. 
    Sec. 4.  Minnesota Statutes 1986, section 273.13, 
subdivision 22, is amended to read: 
    Subd. 22.  [CLASS 1.] (a) Except as provided in subdivision 
23, real estate which is residential and used for homestead 
purposes is class 1.  The market value of class 1a property must 
be determined based upon the value of the house, garage, and 
land.  
    The first $64,000 $68,000 of market value of class 1a 
property must be assessed at 18 17 percent of its market value.  
The homestead value of class 1a property that 
exceeds $64,000 $68,000 must be assessed at 28 27 percent of its 
value. 
    (b) Class 1b property includes real estate or manufactured 
homes used for the purposes of a homestead by 
    (1) any blind person, if the blind person is the owner 
thereof or if the blind person and the blind person's spouse are 
the sole owners thereof; or 
    (2) any person, hereinafter referred to as "veteran," who: 
    (i) served in the active military or naval service of the 
United States; and 
    (ii) is entitled to compensation under the laws and 
regulations of the United States for permanent and total 
service-connected disability due to the loss, or loss of use, by 
reason of amputation, ankylosis, progressive muscular 
dystrophies, or paralysis, of both lower extremities, such as to 
preclude motion without the aid of braces, crutches, canes, or a 
wheelchair; and 
    (iii) with assistance by the administration of veterans 
affairs has acquired a special housing unit with special 
fixtures or movable facilities made necessary by the nature of 
the veteran's disability, or the surviving spouse of the 
deceased veteran for as long as the surviving spouse retains the 
special housing unit as a homestead; or 
    (3) any person who: 
    (i) is permanently and totally disabled and 
    (ii) receives 90 percent or more of total income from 
     (A) aid from any state as a result of that disability; or 
     (B) supplemental security income for the disabled; or 
     (C) workers' compensation based on a finding of total and 
permanent disability; or 
     (D) social security disability, including the amount of a 
disability insurance benefit which is converted to an old age 
insurance benefit and any subsequent cost of living increases; 
or 
     (E) aid under the Federal Railroad Retirement Act of 1937, 
United States Code Annotated, title 45, section 228b(a)5; or 
      (F) a pension from any local government retirement fund 
located in the state of Minnesota as a result of that disability.
      Property is classified and assessed pursuant to clause (1) 
only if the commissioner of human services certifies to the 
assessor that the owner of the property satisfies the 
requirements of this subdivision.  The commissioner of human 
services shall provide a copy of the certification to the 
commissioner of revenue.  
    Class 1b property is valued and assessed as follows:  in 
the case of agricultural land, including a manufactured home, 
used for a homestead, the first $32,000 $33,000 of market value 
shall be valued and assessed at five percent, the 
next $32,000 $33,000 of market value shall be valued and 
assessed at 14 percent, and the remaining market value shall be 
valued and assessed at 18 percent; and in the case of all other 
real estate and manufactured homes, the first $32,000 $34,000 of 
market value shall be valued and assessed at five percent, the 
next $32,000 $34,000 of market value shall be valued and 
assessed at 18 17 percent, and the remaining market value shall 
be valued and assessed at 28 27 percent.  In the case of 
agricultural land including a manufactured home used for 
purposes of a homestead, the commissioner of revenue shall 
adjust, as provided in section 273.1311, the maximum amount of 
the market value of the homestead brackets subject to the five 
percent and 18 percent rates; and for all other real estate and 
manufactured homes, the commissioner of revenue shall adjust, as 
provided in section 273.1311, the maximum amount of the market 
value of the homestead brackets subject to the five percent 
and 18 17 percent rates.  Permanently and totally disabled for 
the purpose of this subdivision means a condition which is 
permanent in nature and totally incapacitates the person from 
working at an occupation which brings the person an income. 
    (c) Class 1c property is commercial use real property that 
abuts a lakeshore line and is devoted to temporary and seasonal 
residential occupancy for recreational purposes but not devoted 
to commercial purposes for more than 200 days in the year 
preceding the year of assessment, and that includes a portion 
used as a homestead by the owner.  It must be assessed at 12 
percent of market value with the following limitation:  the area 
of the property must not exceed 100 feet of lakeshore footage 
for each cabin or campsite located on the property up to a total 
of 800 feet and 500 feet in depth, measured away from the 
lakeshore. 
    (d) The tax to be paid on class 1a or class 1b property, 
less any reduction received pursuant to sections 273.123 and 
473H.10, shall be reduced by 54 percent of the tax imposed on 
the first $68,000 of market value.  The amount of the reduction 
shall not exceed $700. 
    Sec. 5.  Minnesota Statutes 1986, section 273.133, 
subdivision 3, is amended to read:  
    Subd. 3.  [LEASEHOLD COOPERATIVES.] When one or more 
dwellings or one or more buildings which each contain several 
dwelling units is owned by a nonprofit corporation subject to 
the provisions of chapter 317 or a limited partnership which 
corporation or partnership operates the property in conjunction 
with a cooperative association, homestead treatment, as provided 
under section 273.13, subdivision 7, may be claimed for each 
dwelling unit occupied by a member of the cooperative.  To 
qualify for the treatment provided by this subdivision, the 
following conditions shall be met:  (a) the cooperative 
association must be organized under sections 308.05 to 308.18; 
(b) the cooperative association must have a lease for occupancy 
of the property for a term of at least 20 years; (c) the 
cooperative association must have a right under a written 
agreement with the owner to purchase the property if the owner 
proposes to sell it; if the cooperative association does not 
purchase the property when it is offered for sale, the owner may 
not subsequently sell the property to another purchaser at a 
price lower than the price at which it was offered for sale to 
the cooperative association unless the cooperative association 
approves the sale; (d) the cooperative must meet one of the 
following criteria with respect to the income of its members:  
(1) a minimum of 75 percent of members must have incomes at or 
less than 90 percent of area median income, (2) a minimum of 40 
percent of members must have incomes at or less than 60 percent 
of area median income, or (3) a minimum of 20 percent of members 
must have incomes at or less than 50 percent of area median 
income.  For purposes of this clause, "member income" shall mean 
the income of a member existing at the time the member acquires 
his or her cooperative membership, and median income shall mean 
the St. Paul-Minneapolis metropolitan area median income as 
determined by the United States Department of Housing and Urban 
Development; and (d) (e) if a limited partnership owns the 
property, it must include as the managing general partner either 
the cooperative association or a nonprofit organization 
operating under the provisions of chapter 317.  Homestead 
treatment shall be afforded to units occupied by members of the 
cooperative association and the units shall be assessed as 
provided in subdivision 1, provided that any unit not so 
occupied shall be classified and assessed pursuant to section 
273.13, subdivision 19.  No more than three acres of land shall, 
for assessment purposes, be included with each dwelling unit 
that qualifies for homestead treatment under this subdivision.  
    Sec. 6.  Minnesota Statutes 1986, section 273.1392, is 
amended to read:  
    273.1392 [PAYMENT; AIDS TO SCHOOL DISTRICTS.] 
    The amounts of homestead credit under section 273.13, 
subdivisions 22 and 23; wetlands credit and reimbursement under 
section 273.115; native prairie credit and reimbursement under 
section 273.116; small business transition credit under section 
2; disaster or emergency reimbursement under section 273.123; 
attached machinery aid under section 273.138;  and metropolitan 
agricultural preserve reduction under section 473H.10, shall be 
certified to the department of education by the department of 
revenue.  The amounts so certified shall be paid according to 
section 124.195, subdivisions 6 and 10. 
    Sec. 7.  Minnesota Statutes 1986, section 273.1393, is 
amended to read: 
    273.1393 [COMPUTATION OF NET PROPERTY TAXES.] 
    Notwithstanding any other provisions to the contrary, "net" 
property taxes are determined by subtracting the credits in the 
order listed from the gross tax:  
    (1) small business property tax transition credit as 
provided in section 2; 
    (2) disaster credit as provided in section 273.123;  
    (2)(3) wetlands credit as provided in section 273.115;  
    (3)(4) native prairie credit as provided in section 273.116;
    (4)(5) powerline credit as provided in section 273.42;  
    (5)(6) agricultural preserves credit as provided in section 
473H.10; 
   (6)(7) enterprise zone credit as provided in section 
273.1314; 
    (7)(8) state school agricultural credit as provided in 
section 124.2137; 
    (8)(9) state paid homestead credit as provided in section 
273.13, subdivisions 22 and 23; 
    (9)(10) taconite homestead credit as provided in section 
273.135;  
    (10)(11) supplemental homestead credit as provided in 
section 273.1391.  
    The combination of all property tax credits must not exceed 
the gross tax amount.  
    Sec. 8.  [273.1397] [INCOME MAINTENANCE TAX DISPARITY AID.] 
    Subdivision 1.  [DEFINITIONS.] (a) In this section, the 
following terms have the meanings given them. 
    (b) "Income maintenance programs" means general assistance 
payments as defined in section 256D.02, subdivision 4, less any 
amounts paid under the third paragraph of section 256D.03, 
subdivision 2; general assistance medical care payments as 
defined in section 256D.02, subdivision 4a; and work readiness 
assistance under section 256D.051. 
    (c) "Unreimbursed local share" means the county's cost of 
income maintenance programs for the previous state fiscal year, 
excluding administrative costs, and excluding costs that are 
reimbursed by the federal government, or by the state under 
section 256D.03, subdivisions 2, 4, and 6.  
    (d) "Adjusted assessed value" has the meaning given it in 
section 124A.02, subdivision 3a. 
    (e) "Preliminary aid amount" means the unreimbursed local 
share, less the product of one-half mill times the most recent 
adjusted assessed value of all taxable property in the county 
excluding the captured value of tax increment financing property 
and the net value adjustment under chapter 473F. 
    Subd. 2.  [AID TO COUNTY.] A county whose preliminary aid 
amount is greater than zero shall receive a payment equal to the 
lesser of (1) the preliminary aid amount, or (2) 95 percent of 
the unreimbursed local share.  The commissioner of revenue shall 
annually determine the amounts pursuant to this section and 
shall notify the county of the resulting income maintenance tax 
disparity aid amount.  The commissioner of revenue shall pay to 
each affected county treasurer the county's total payment for 
the year in equal installments on or before July 15 and December 
15 of each year. 
    Subd. 3.  [APPROPRIATION.] An amount sufficient to make the 
payments required in this section is annually appropriated from 
the general fund to the commissioner of revenue. 
    Sec. 9.  Minnesota Statutes 1986, section 276.04, is 
amended to read:  
    276.04 [NOTICE OF RATES; PROPERTY TAX STATEMENTS.] 
    On receiving the tax lists from the county auditor, the 
county treasurer shall, if directed by the county board, give 
three weeks' published notice in a newspaper specifying the 
rates of taxation for all general purposes and the amounts 
raised for each specific purpose.  The treasurer shall, whether 
or not directed by the county board, cause to be printed on all 
tax statements, or on an attachment, a tabulated statement of 
the dollar amount due to each taxing authority from the parcel 
of real property for which a particular tax statement is 
prepared.  The dollar amounts due the county, township or 
municipality and school district shall be separately stated but 
the amounts due other taxing districts, if any, may be 
aggregated.  The dollar amounts, including the dollar amount of 
any special assessments, may be rounded to the nearest even 
whole dollar.  For purposes of this section whole odd-numbered 
dollars may be adjusted to the next higher even-numbered 
dollar.  The statement shall include the following sentence, 
printed in upper case letters in bold face print:  "THE STATE OF 
MINNESOTA DOES NOT RECEIVE ANY PROPERTY TAX REVENUES.  THE STATE 
OF MINNESOTA REDUCES YOUR PROPERTY TAX BY PAYING CREDITS AND 
REIMBURSEMENTS TO LOCAL UNITS OF GOVERNMENT."  The property tax 
statements for manufactured homes and sectional structures taxed 
as personal property shall contain the same information that is 
required on the tax statements for real property.  The county 
treasurer shall mail to taxpayers statements of their personal 
property taxes due, such statements to be mailed not later than 
February 15 (except in the case of manufactured homes and 
sectional structures taxed as personal property), statements of 
the real property taxes due shall be mailed not later than 
January 31; provided, that the validity of the tax shall not be 
affected by failure of the treasurer to mail such statement.  
The taxpayer is defined as the owner who is responsible for the 
payment of the tax.  Such real and personal property tax 
statements shall contain the market value, as defined in section 
272.03, subdivision 8, used in determining the tax.  The 
statement shall show the amount attributable to section 124.2137 
as "state paid agricultural credit" and the amount attributable 
to section 273.13, subdivisions 22 and 23 as "state paid 
homestead credit."  The statement must state the amount deducted 
under section 2 and identify it as "state paid small business 
transition credit."  If so directed by the county board, the 
treasurer shall visit places in the county as the treasurer 
deems expedient for the purpose of receiving taxes and the 
county board is authorized to pay the expenses of such visits 
and of preparing duplicate tax lists.  Failure to mail the tax 
statement shall not be deemed a material defect to affect the 
validity of any judgment and sale for delinquent taxes.  
    Sec. 10.  Minnesota Statutes 1986, section 477A.012, 
subdivision 1, is amended to read: 
    Subdivision 1.  [AID AMOUNT.] In calendar year 1987 1988 
and calendar years thereafter, each county government shall 
receive a distribution equal to 104 percent of the aid amount 
certified for 1986 1987 pursuant to sections 477A.011 to 
477A.03.  Each county government that received no distribution 
in 1986 pursuant to sections 477A.011 to 477A.03 shall receive a 
distribution in calendar year 1987 computed by multiplying the 
county's population by a factor equal to the total increase in 
aid certified to all other counties under this section in 1987 
over the total amount certified in 1986, divided by the total 
population of those counties this subdivision. 
    Sec. 11.  Minnesota Statutes 1986, section 477A.013, is 
amended to read:  
    477A.013 [MUNICIPAL GOVERNMENT DISTRIBUTIONS.] 
    Subdivision 1.  [TOWNS.] In calendar year 1987 1988 and 
calendar years thereafter, each town which had levied for taxes 
payable in the previous year at least one mill on the dollar of 
the assessed value of the town shall receive a distribution 
equal to 104 percent of the greater of:  (a) 60 percent of the 
amount received in 1983 pursuant to Minnesota Statutes 1982, 
sections 273.138, 273.139, and 477A.011 to 477A.03; or (b) the 
amount received certified in 1986 1987 pursuant to sections 
477A.011 to 477A.03. 
    Subd. 2.  [CITIES.] In calendar year 1987 1988 and calendar 
years thereafter, each city shall receive a local government aid 
distribution as determined by the following steps. 
    (1) A preliminary aid amount shall be computed for each 
city equal to the amount obtained by subtracting its local 
effort mill rate multiplied by its equalized assessed value from 
its fiscal need factor, except that its preliminary aid amount 
may not be less than its previous year aid amount. 
    For any city which received more than $70 per capita in 
attached machinery aids in 1983 pursuant to Minnesota Statutes 
1982, section 273.138, an amount equal to the amount of attached 
machinery aids received in 1983 shall be added to the 
preliminary aid amount. 
    (2) For each city, an aid increase amount equal to the 
amount by which its preliminary aid amount exceeds its previous 
year aid amount shall be determined.  Each city's aid increase 
amount shall be reduced by a uniform percentage as determined by 
the commissioner of revenue, to make the sum of the final aid 
distributions for all cities equal the aid limitation imposed by 
subdivision 3.  
    (3) Each city's final aid amount shall be equal to the sum 
of its aid increase amount, as adjusted, and its previous year 
aid amount; provided, however, that no city's aid shall exceed 
its maximum aid amount, and further provided that no city which 
is a city of the first class shall have a final aid amount which 
is less than 102 percent of its previous year aid. 
    Subd. 3.  [AID LIMITATION.] The total amount available for 
distribution to cities pursuant to subdivision 2 shall be 
$297,440,000 for calendar year 1987 equal to the amount that the 
city was certified to receive for calendar year 1987 under this 
subdivision. 
    Sec. 12.  [LEVY LIMITATIONS FOR TAXES PAYABLE IN 1988.] 
    Subdivision 1.  [GENERALLY.] Notwithstanding any other law 
to the contrary, for taxes levied in 1987, payable in 1988 only, 
the provisions of Minnesota Statutes, sections 275.50 to 275.56, 
shall not apply, and the provisions of this section shall govern 
the levies for all counties and all cities regardless of 
population.  
    Subd. 2.  [CITIES.] For any home rule charter or statutory 
city, the levy limit base for taxes payable in 1988 is the sum 
of (1) the city's total levy for taxes payable in 1987, 
excluding the amount levied in that year for debt service and 
the amount claimed as a special levy for unfunded accrued 
pension liabilities under section 275.50, subdivision 5, clause 
(o); and (2) the amount received in 1987 under Minnesota 
Statutes 1986, section 275.51, subdivision 3i.  This sum shall 
be increased by a percentage equal to the greater of the 
percentage increases in population or in number of households, 
if any, for the most recent 12-month period for which data is 
available, using figures derived under Minnesota Statutes, 
section 275.51, subdivision 6.  The resulting amount for each 
home rule charter or statutory city multiplied by 103 percent is 
the city's levy limit base for taxes payable in 1988.  The 
payable 1988 levy limitation for each city shall be equal to the 
levy limit base determined under this section reduced by the 
aids for 1988 enumerated in section 275.51, subdivision 3i. 
    Subd. 3.  [COUNTIES.] For any county, the levy limit base 
for taxes payable in 1988 is the sum of (1) the county's total 
levy for taxes payable in 1987, excluding the amount levied in 
that year for (a) debt service; (b) amount claimed as a special 
levy for unfunded accrued pension liabilities under section 
275.50, subdivision 5, clause (o); (c) income maintenance 
programs except for the administrative costs associated with 
those programs; and (d) social services programs, including the 
administrative costs associated with those programs, plus (2) 
the amount received in 1987 under Minnesota Statutes 1986, 
section 275.51, subdivision 3i.  This sum shall be increased by 
a percentage equal to the greater of the percentage increases in 
population or in number of households, if any, for the most 
recent 12-month period for which data is available, using 
figures derived under Minnesota Statutes, section 275.51, 
subdivision 6.  The resulting amount for each county multiplied 
by 103 percent is the county's levy limit base for taxes payable 
in 1988.  The payable 1988 levy limitation for each county shall 
be equal to the levy limit base determined under this section 
reduced by the aids for 1988 enumerated in section 275.51, 
subdivision 3i. 
    Subd. 4.  [EXCEPTIONS.] For taxes payable in 1988, the 
amounts levied for the following costs are not subject to the 
limitation under subdivision 2 or 3: 
    (1) levies for debt service, 
    (2) levies for unfunded accrued pension liabilities as 
specified under section 275.50, subdivision 5, clause (o), 
    (3) levies for income maintenance programs, net of any aid 
payments received under section 8, and excluding the 
administrative costs associated with those programs, and 
    (4) levies for social service programs including the 
administrative costs associated with those programs. 
    The amount levied by the county for taxes payable in 1988 
to pay the costs of programs described in clauses (3) and (4) of 
this subdivision shall be subject to the percentage limitations 
provided in section 275.50, subdivision 5, clause (d). 
    Subd. 5.  [APPEALS.] A governmental subdivision subject to 
the limitations in this section may appeal to the commissioner 
of revenue for an adjustment in its levy limit base under this 
section.  If the governmental subdivision can provide evidence 
satisfactory to the commissioner that its levy for taxes payable 
in 1987 had been reduced because it had made expenditures from 
reserve funds, or for any other reason, or that it is necessary 
to levy additional amounts for taxes payable in 1988 which were 
not levied in 1987, the commissioner may permit the governmental 
subdivision to increase its levy limit base under this section 
by the amount determined by the commissioner.  The 
commissioner's decision is final. 
     Sec. 13.  [EFFECTIVE DATE.] 
     Sections 1, 3, 4, 5, and 8 are effective for taxes levied 
in 1987 payable in 1988 and subsequent years. 

                                ARTICLE 6

                    1989 AND SUBSEQUENT PROPERTY TAX
    Section 1.  Minnesota Statutes 1986, section 116C.63, 
subdivision 4, is amended to read:  
    Subd. 4.  When private real property defined as class 1a, 
1b, 1c, 2a, 2c, 4a, 5a, or 6a pursuant to that is an 
agricultural or nonagricultural homestead, nonhomestead 
agricultural land, rental residential property, and both 
commercial and noncommercial seasonal residential recreational 
property, as those terms are defined in section 273.13 is 
proposed to be acquired for the construction of a site or route 
by eminent domain proceedings, the fee owner, or when 
applicable, the fee owner with the written consent of the 
contract for deed vendee, or the contract for deed vendee with 
the written consent of the fee owner, shall have the option to 
require the utility to condemn a fee interest in any amount of 
contiguous, commercially viable land which the owner or vendee 
wholly owns or has contracted to own in undivided fee and elects 
in writing to transfer to the utility within 60 days after 
receipt of the notice of the objects of the petition filed 
pursuant to section 117.055.  Commercial viability shall be 
determined without regard to the presence of the utility route 
or site.  The owner or, when applicable, the contract vendee 
shall have only one such option and may not expand or otherwise 
modify an election without the consent of the utility.  The 
required acquisition of land pursuant to this subdivision shall 
be considered an acquisition for a public purpose and for use in 
the utility's business, for purposes of chapter 117 and section 
500.24, respectively; provided that a utility shall divest 
itself completely of all such lands used for farming or capable 
of being used for farming not later than the time it can receive 
the market value paid at the time of acquisition of lands less 
any diminution in value by reason of the presence of the utility 
route or site.  Upon the owner's election made under this 
subdivision, the easement interest over and adjacent to the 
lands designated by the owner to be acquired in fee, sought in 
the condemnation petition for a high voltage transmission line 
right-of-way shall automatically be converted into a fee taking. 
    Sec. 2.  Minnesota Statutes 1986, section 124.155, 
subdivision 2, is amended to read:  
    Subd. 2.  [ADJUSTMENT TO AIDS.] The amount specified in 
subdivision 1 shall be used to adjust the following state aids 
and credits in the order listed: 
    (a) foundation aid as defined in section 124A.01;  
    (b) secondary vocational aid authorized in section 124.573; 
    (c) special education aid authorized in section 124.32;  
    (d) secondary vocational aid for handicapped children 
authorized in section 124.574;  
    (e) gifted and talented aid authorized in section 124.247;  
    (f) aid for pupils of limited English proficiency 
authorized in section 124.273;  
    (g) aid for chemical use programs authorized in section 
124.246;  
    (h) interdistrict cooperation aid authorized in section 
124.272; 
    (i) summer program aid authorized in section 124A.033; 
    (j) transportation aid authorized in section 124.225;  
    (k) community education programs aid authorized in section 
124.271;  
    (l) adult education aid authorized in section 124.26;  
    (m) early childhood family education aid authorized in 
section 124.2711; 
    (n) capital expenditure equalization aid authorized in 
section 124.245;  
    (o) homestead credit replacement aid authorized in section 
273.13, subdivisions 22 and 23 273.1394;  
    (p) state school agricultural tax credit replacement aid 
authorized in section 124.2137 273.1395; 
    (q) wetlands credit authorized in section 273.115;  
    (r) native prairie credit authorized in section 273.116; 
    (s) attached machinery aid authorized in section 273.138, 
subdivision 3; and 
    (t) (r) teacher retirement and F.I.C.A. aid authorized in 
sections 124.2162 and 124.2163.  
    The commissioner of education shall schedule the timing of 
the adjustments to state aids and credits specified in 
subdivision 1, as close to the end of the fiscal year as 
possible. 
    Sec. 3.  Minnesota Statutes 1986, section 124.2131, 
subdivision 3, is amended to read:  
    Subd. 3.  [DECREASE IN IRON ORE ASSESSED VALUE.] If in any 
year the assessed value of class 9a and 9b iron ore property, as 
defined in section 273.13, subdivision 30, in any district is 
less than the assessed value of such property in the immediately 
preceding year, the equalization aid review committee shall 
redetermine for all purposes the adjusted assessed value of 
the immediately preceding year taking into account only the 
decrease in assessed value of class 9a and 9b iron ore 
property.  If subdivision 2, clause (a) is applicable to such 
a the district, the decrease in class 9a and 9b iron ore 
property shall be applied to the adjusted assessed value as 
limited therein.  In all other respects, the provisions of 
clause (1) shall be applicable apply. 
    Sec. 4.  Minnesota Statutes 1986, section 124.2139, is 
amended to read:  
    124.2139 [REDUCTION OF HOMESTEAD CREDIT PAYMENTS TO SCHOOL 
DISTRICTS.] 
    The commissioner of revenue shall reduce homestead credit 
replacement aid payments made to school districts pursuant to 
section 273.13, subdivisions 22 and 23, 273.1394 by the product 
of:  
    (1) the district's fiscal year 1984 payroll for coordinated 
plan members of the public employees retirement association, 
times 
    (2) the difference between the employer contribution rate 
in effect prior to July 1, 1984, and the total employer 
contribution rate in effect after June 30, 1984.  
    Sec. 5.  Minnesota Statutes 1986, section 124A.02, 
subdivision 11, is amended to read:  
    Subd. 11.  [MINIMUM AID.] A qualifying district's minimum 
aid for each school year shall equal its minimum guarantee for 
that school year, minus the sum of: 
    (1) the amount of the district's state school homestead 
credit replacement aid paid under section 273.1394 and its 
agricultural tax credit replacement aid under section 273.1395 
for that school year, after any positive tax base adjustment but 
prior to any negative tax base adjustment under section 273.1396;
    (2) the amount by which property taxes of the district for 
use in that school year are reduced by the homestead credit 
provisions in section 273.13, subdivisions 22 and 23; 
    (3) the amount by which property taxes of the district for 
use in that school year are reduced by the taconite homestead 
credit provisions in section 273.135;  
    (4) the amount by which property taxes of the district for 
use in that school year are reduced by the attached machinery 
provisions in section 273.138, subdivision 6;  
    (5) the amount by which property taxes of the district for 
use in that school year are reduced by the state paid wetlands 
credit provisions in section 273.115;  
    (6) the amount by which property taxes of the district for 
use in that school year are reduced by the state paid native 
prairie credit provisions in section 273.116;  
    (7) (3) the amount by which property taxes of the district 
for use in that school year are reduced by the state reimbursed 
disaster or emergency reassessment provisions in section 
273.123; and 
    (8) (4) the amount by which property taxes of the district 
for use in that school year are reduced by the metropolitan 
agricultural preserve provisions in section 473H.10. 
    Sec. 6.  Minnesota Statutes 1986, section 272.02, 
subdivision 1, is amended to read:  
    Subdivision 1.  All property described in this section to 
the extent herein limited shall be exempt from taxation: 
    (1) All public burying grounds; 
    (2) All public schoolhouses; 
    (3) All public hospitals; 
    (4) All academies, colleges, and universities, and all 
seminaries of learning; 
    (5) All churches, church property, and houses of worship; 
    (6) Institutions of purely public charity except parcels of 
property containing structures and the structures assessed as 
class 7(a), (b), (c), or (d) described in section 273.13, 
subdivision 25, paragraph (c), clauses (1) or (2), or paragraph 
(d), clause (2); 
    (7) All public property exclusively used for any public 
purpose; 
    (8) Except for the taxable personal property enumerated 
below, all personal property and the property described in 
section 272.03, subdivision 1, paragraphs (c) and (d) shall be 
exempt.  
    The following personal property shall be taxable:  
    (a) personal property which is part of an electric 
generating, transmission, or distribution system or a pipeline 
system transporting or distributing water, gas, crude oil, or 
petroleum products or mains and pipes used in the distribution 
of steam or hot or chilled water for heating or cooling 
buildings and structures;  
    (b) railroad docks and wharves which are part of the 
operating property of a railroad company as defined in section 
270.80;  
    (c) personal property defined in section 272.03, 
subdivision 2, clause (3);  
    (d) leasehold or other personal property interests which 
are taxed pursuant to section 272.01, subdivision 2; 273.124, 
subdivision 7; or 273.19, subdivision 1; or any other law 
providing the property is taxable as if the lessee or user were 
the fee owner;  
    (e) manufactured homes and sectional structures; and 
    (f) flight property as defined in section 270.071.  
    (9) Real and personal property used primarily for the 
abatement and control of air, water, or land pollution to the 
extent that it is so used, other than real property used 
primarily as a solid waste disposal site. 
    Any taxpayer requesting exemption of all or a portion of 
any equipment or device, or part thereof, operated primarily for 
the control or abatement of air or water pollution shall file an 
application with the commissioner of revenue.  The equipment or 
device shall meet standards, rules or criteria prescribed by the 
Minnesota pollution control agency, and must be installed or 
operated in accordance with a permit or order issued by that 
agency.  The Minnesota pollution control agency shall upon 
request of the commissioner furnish information or advice to the 
commissioner.  On determining that property qualifies for 
exemption, the commissioner shall issue an order exempting the 
property from taxation.  The equipment or device shall continue 
to be exempt from taxation as long as the permit issued by the 
Minnesota pollution control agency remains in effect. 
    (10) Wetlands.  For purposes of this subdivision, 
"wetlands" means (1) land described in section 105.37, 
subdivision 15, or (2) land which is mostly under water, 
produces little if any income, and has no use except for 
wildlife or water conservation purposes, provided it is 
preserved in its natural condition and drainage of it would be 
legal, feasible, and economically practical for the production 
of livestock, dairy animals, poultry, fruit, vegetables, forage 
and grains, except wild rice.  "Wetlands" shall include adjacent 
land which is not suitable for agricultural purposes due to the 
presence of the wetlands.  "Wetlands" shall not include woody 
swamps containing shrubs or trees, wet meadows, meandered water, 
streams, rivers, and floodplains or river bottoms.  Exemption of 
wetlands from taxation pursuant to this section shall not grant 
the public any additional or greater right of access to the 
wetlands or diminish any right of ownership to the wetlands. 
    (11) Native prairie.  The commissioner of the department of 
natural resources shall determine lands in the state which are 
native prairie and shall notify the county assessor of each 
county in which the lands are located.  Pasture land used for 
livestock grazing purposes shall not be considered native 
prairie for the purposes of this clause and section 273.116.  
Upon receipt of an application for the exemption and credit 
provided in this clause and section 273.116 for lands for which 
the assessor has no determination from the commissioner of 
natural resources, the assessor shall refer the application to 
the commissioner of natural resources who shall determine within 
30 days whether the land is native prairie and notify the county 
assessor of the decision.  Exemption of native prairie pursuant 
to this clause shall not grant the public any additional or 
greater right of access to the native prairie or diminish any 
right of ownership to it. 
    (12) Property used in a continuous program to provide 
emergency shelter for victims of domestic abuse, provided the 
organization that owns and sponsors the shelter is exempt from 
federal income taxation pursuant to section 501(c)(3) of the 
Internal Revenue Code of 1954 1986, as amended through December 
31, 1982 1986, notwithstanding the fact that the sponsoring 
organization receives funding under section 8 of the United 
States Housing Act of 1937, as amended. 
    (13) If approved by the governing body of the municipality 
in which the property is located, property not exceeding one 
acre which is owned and operated by any senior citizen group or 
association of groups that in general limits membership to 
persons age 55 or older and is organized and operated 
exclusively for pleasure, recreation, and other nonprofit 
purposes, no part of the net earnings of which inures to the 
benefit of any private shareholders; provided the property is 
used primarily as a clubhouse, meeting facility or recreational 
facility by the group or association and the property is not 
used for residential purposes on either a temporary or permanent 
basis. 
    (14) To the extent provided by section 295.44, real and 
personal property used or to be used primarily for the 
production of hydroelectric or hydromechanical power on a site 
owned by the state or a local governmental unit which is 
developed and operated pursuant to the provisions of section 
105.482, subdivisions 1, 8 and 9. 
    (15) If approved by the governing body of the municipality 
in which the property is located, and if construction is 
commenced after June 30, 1983:  
    (a) a "direct satellite broadcasting facility" operated by 
a corporation licensed by the federal communications commission 
to provide direct satellite broadcasting services using direct 
broadcast satellites operating in the 12-ghz. band;  
    (b) a "fixed satellite regional or national program service 
facility" operated by a corporation licensed by the federal 
communications commission to provide fixed satellite-transmitted 
regularly scheduled broadcasting services using satellites 
operating in the 6-ghz. band; and 
    (c) a facility at which a licensed Minnesota manufacturer 
produces distilled spirituous liquors, liqueurs, cordials, or 
liquors designated as specialties regardless of alcoholic 
content, but not including ethyl alcohol, distilled with a 
majority of the ingredients grown or produced in Minnesota.  
An exemption provided by paragraph (15) shall apply for a period 
not to exceed five years.  When the facility no longer qualifies 
for exemption, it shall be placed on the assessment rolls as 
provided in subdivision 4.  Before approving a tax exemption 
pursuant to this paragraph, the governing body of the 
municipality shall provide an opportunity to the members of the 
county board of commissioners of the county in which the 
facility is proposed to be located and the members of the school 
board of the school district in which the facility is proposed 
to be located to meet with the governing body.  The governing 
body shall present to the members of those boards its estimate 
of the fiscal impact of the proposed property tax exemption.  
The tax exemption shall not be approved by the governing body 
until the county board of commissioners has presented its 
written comment on the proposal to the governing body, or 30 
days has passed from the date of the transmittal by the 
governing body to the board of the information on the fiscal 
impact, whichever occurs first. 
    (16) Real and personal property owned and operated by a 
private, nonprofit corporation exempt from federal income 
taxation pursuant to United States Code, title 26, section 
501(c)(3), primarily used in the generation and distribution of 
hot water for heating buildings and structures.  
    (17) Notwithstanding section 273.19, state lands that are 
leased from the department of natural resources under section 
92.46. 
    (18) Electric power distribution lines and their 
attachments and appurtenances, that are used primarily for 
supplying electricity to farmers at retail.  
    Sec. 7.  Minnesota Statutes 1986, section 272.02, 
subdivision 1a, is amended to read:  
    Subd. 1a.  The exemptions granted by subdivision 1 are 
subject to the limits contained in the other subdivisions of 
this section, section 272.025, or 273.13, subdivision 28 25, 
paragraphs (a), (b), (c) and (d) paragraph (c), clause (1) or 
(2), or paragraph (d), clause (2).  
    Sec. 8.  Minnesota Statutes 1986, section 272.115, 
subdivision 4, is amended to read:  
    Subd. 4.  No real estate sold on or after January 1, 1978 
for which a certificate of value is required pursuant to 
subdivision 1 shall receive the homestead credit provided under 
section 273.13, subdivisions 22 and 23; value exemption amount 
or the agricultural mill credit provided exemption amount 
computed in section 124.2137 275.081; or the taconite homestead 
credit provided in sections 273.134 to 273.136, unless a 
certificate of value has been filed with the county auditor in 
accordance with this section. 
    This subdivision shall apply to any real estate taxes that 
are payable the year or years following the sale of the property.
    Sec. 9.  Minnesota Statutes 1986, section 273.1102, is 
amended to read:  
    273.1102 [RATE OF TAX, TERMINOLOGY OF LAWS OR CHARTERS.] 
    Subdivision 1.  [PRE-1988 ADJUSTMENT.] The rate of property 
taxation by any political subdivision or other public 
corporation for any purpose for which any law or charter now 
provides a maximum tax rate expressed in mills times the 
assessed value or times the full and true value of taxable 
property (except any value determined by the state equalization 
aid review committee) shall not exceed 33-1/3 percent of such 
maximum tax rate until and unless such law or charter is amended 
to provide a different maximum tax rate.  
    Subd. 2.  [1988 ADJUSTMENT.] The rate of property taxation, 
salary limits, or aid formulas set for any political subdivision 
or other public corporation for which any law or charter provide 
a maximum tax rate expressed in mills effective on July 1, 1988, 
shall be adjusted by multiplying the mill rate provision in 
effect for taxes levied in 1987, payable in 1988, by 45 percent. 
    Sec. 10.  Minnesota Statutes 1986, section 273.1104, 
subdivision 1, is amended to read:  
    Subdivision 1.  The term value as applied to iron ore in 
sections 273.165, subdivision 2 and 273.13, subdivision 30 31, 
paragraph (b) shall be deemed to be three times the present 
value of future income notwithstanding the provisions of section 
273.11.  The present value of future income shall be determined 
by the commissioner of revenue in accordance with professionally 
recognized mineral valuation practice and procedure.  Nothing 
contained herein shall be construed as requiring any change in 
the method of determining present value of iron ore utilized by 
the commissioner prior to the enactment hereof or as limiting 
any remedy presently available to the taxpayer in connection 
with the commissioner's determination of present value, or 
precluding the commissioner from making subsequent changes in 
the present worth formula. 
    Sec. 11.  Minnesota Statutes 1986, section 273.123, 
subdivision 1, is amended to read:  
    Subdivision 1.  [DEFINITIONS.] For purposes of this section 
(a) "disaster or emergency" means 
    (1) a major disaster as determined by the president of the 
United States;  
    (2) a natural disaster as determined by the secretary of 
agriculture;  
    (3) a disaster as determined by the administrator of the 
small business administration; or 
    (4) a tornado, storm, flood, earthquake, landslide, 
explosion, fire or similar catastrophe, as a result of which a 
local emergency is declared pursuant to section 12.29.  
    (b) "disaster or emergency area" means an area 
    (1) in which the president of the United States, the 
secretary of agriculture, or the administrator of the small 
business administration has determined that a disaster exists 
pursuant to federal law or in which a local emergency has been 
declared pursuant to section 12.29; and 
    (2) for which an application by the local unit of 
government requesting property tax relief under this section has 
been received by the governor and approved by the executive 
council.  
    (c) "homestead property" means homestead dwelling that is 
classified as class 1a, 1b 1, or 2a property or a manufactured 
home or sectional home used as a homestead and taxed pursuant to 
section 274.19, subdivision 8, paragraph (b), (c), or (d).  
    Sec. 12.  Minnesota Statutes 1986, section 273.123, 
subdivision 4, is amended to read:  
    Subd. 4.  [STATE REIMBURSEMENT.] The county auditor shall 
calculate the tax on the property described in subdivision 2 
based on the assessment made on January 2 of the year in which 
the disaster or emergency occurred.  The difference between the 
tax determined on the January 2 assessed value and the tax 
actually payable based on the reassessed value determined under 
subdivision 2 shall be reimbursed to each taxing jurisdiction in 
which the damaged property is located.  The amount shall be 
certified by the county auditor and reported to the commissioner 
of revenue.  The commissioner shall make the payments to the 
taxing jurisdictions containing the property at the time 
distributions are made pursuant to section 273.13, subdivision 
15a 273.1394, in the same proportion that the ad valorem tax is 
distributed.  
    Sec. 13.  Minnesota Statutes 1986, section 273.123, 
subdivision 5, is amended to read:  
    Subd. 5.  [COMPUTATION OF CREDITS.] The amounts of any 
credits or tax relief which reduce the gross tax shall be 
computed upon the reassessed value determined under subdivision 
2.  Payment shall be made pursuant to section 273.13, 
subdivision 15a 273.1394.  For purposes of the property tax 
refund, property taxes payable, as defined in section 290A.03, 
subdivision 13, and net property taxes payable, as defined in 
section 290A.04, subdivision 2d, shall be computed upon the 
reassessed value determined under subdivision 2.  
    Sec. 14.  Minnesota Statutes 1986, section 273.123, 
subdivision 7, is amended to read:  
    Subd. 7.  [LOCAL OPTION; OTHER PROPERTY.] The owner of 
homestead property not qualifying for an adjustment in valuation 
pursuant to subdivisions 1 to 5 or of nonhomestead property may 
receive a reduction in the amount of taxes payable for the year 
in which the destruction occurs on the homestead portion 
property if:  
    (a) 50 percent or more of the homestead dwelling or other 
structure, as established by the county assessor, is 
unintentionally or accidentally destroyed and the homestead is 
uninhabitable or the other structure is not usable;  
    (b) the owner of the property makes written application to 
the county assessor as soon as practical after the damage has 
occurred; and 
    (c) the owner of the property makes written application to 
the county board, upon completion of the restoration of the 
destroyed structure.  
    The county board may grant a reduction in the amount of 
property tax which the owner must pay on the qualifying home 
property in the year of destruction.  Any reduction in the 
amount of tax payable which is authorized by county board action 
shall be calculated based upon the number of months that the 
home is uninhabitable or the other structure is unusable.  The 
amount of net tax due from the taxpayer shall be multiplied by a 
fraction, the numerator of which is the number of months the 
dwelling was occupied by that taxpayer, or the number of months 
the other structure was used by the taxpayer, and the 
denominator of which is 12.  For purposes of this subdivision, 
if a structure is occupied or used for a fraction of a month, it 
is considered a month.  "Net tax" is defined as the amount of 
tax after the subtraction of all of the state paid property tax 
credits.  If application is made following payment of all 
property taxes due for the year of destruction, the amount of 
the reduction granted by the county board shall be refunded to 
the taxpayer by the county treasurer as soon as practical.  
    Any reductions or refunds approved by the county board 
shall not be subject to approval by the commissioner of revenue. 
    The county board may levy in the following year the amount 
of tax dollars lost to the county government as a result of the 
reductions granted pursuant to this subdivision.  Any amount 
levied for this purpose shall be exempt from the levy limit 
provisions of sections 275.50 to 275.56.  
    Sec. 15.  Minnesota Statutes 1986, section 273.124, 
subdivision 8, is amended to read: 
    Subd. 8.  [HOMESTEAD OWNED BY FAMILY FARM CORPORATION OR 
PARTNERSHIP.] (a) Each family farm corporation and each 
partnership operating a family farm is entitled to class 1b or 
class 2a assessment for one homestead occupied by a shareholder 
or partner thereof who is residing on the land and actively 
engaged in farming of the land owned by the corporation or 
partnership.  Homestead treatment applies even if legal title to 
the property is in the name of the corporation or partnership 
and not in the name of the person residing on it.  "Family farm 
corporation" and "family farm" have the meanings given in 
section 500.24. 
    (b) In addition to property specified in paragraph (a), any 
other residences owned by corporations or partnerships described 
in paragraph (a) which are located on agricultural land and 
occupied as homesteads by shareholders or partners who are 
actively engaged in farming on behalf of the corporation or 
partnership must also be assessed as class 1b or class 2a 
property, but the property eligible is limited to the residence 
itself and as much of the land surrounding the homestead, not 
exceeding one acre, as is reasonably necessary for the use of 
the dwelling as a home, and does not include any other 
structures that may be located on it. 
    Sec. 16.  Minnesota Statutes 1986, section 273.124, 
subdivision 11, is amended to read: 
    Subd. 11.  [LIMITATION ON HOMESTEAD CLASSIFICATION.] If the 
assessor has classified a property as both homestead and 
nonhomestead, the greater of the value attributable to the 
portion of the property classified as class 1a, 1b, 1 or class 
2a or the value of the first tier of assessment percentages 
provided under section 273.13, subdivision 22, paragraph (a) or 
(b) or subdivision 23, paragraph (a) is entitled to assessment 
as a homestead treatment under section 273.13, subdivision 22 or 
23, and the homestead exemption under section 275.081, 
subdivision 2.  The limitation in this subdivision does not 
apply to buildings containing fewer than four residential units 
or to a single rented or leased dwelling unit located within or 
attached to a private garage or similar structure owned by the 
owner of a homestead and located on the premises of that 
homestead.  
    If the assessor has classified a property as both homestead 
and nonhomestead, the homestead credit provided in section 
273.13, subdivisions 22 and 23, and the reductions in tax 
provided under sections 273.135 and 273.1391 apply to the value 
of both the homestead and the nonhomestead portions of the 
property. 
    Sec. 17.  Minnesota Statutes 1986, section 273.124, 
subdivision 13, is amended to read: 
    Subd. 13.  [SOCIAL SECURITY NUMBER REQUIRED FOR HOMESTEAD 
APPLICATION.] Beginning with the January 2, 1987, assessment, 
every property owner applying for homestead classification must 
furnish to the county assessor that owner's social security or 
taxpayer identification number.  If the social security or 
taxpayer identification number is not provided, the county 
assessor shall classify the property as nonhomestead.  The 
social security numbers of the property owners are private data 
on individuals as defined by section 13.02, subdivision 12, but, 
notwithstanding that section, the private data may be disclosed 
to the commissioner of revenue. 
    At the request of the commissioner, each county must give 
the commissioner a listing that includes the name and social 
security or taxpayer identification number of each property 
owner applying for homestead classification.  
    If, in comparing the lists supplied by the counties, the 
commissioner finds that a property owner is claiming more than 
one homestead, the commissioner shall notify the appropriate 
counties.  Within 90 days of the notification, the county 
assessor shall investigate to determine if the homestead 
classification was properly claimed.  If the property owner does 
not qualify, the county assessor shall notify the county auditor 
who will determine the amount of homestead benefits that had 
been improperly allowed.  For the purpose of this section, 
"homestead benefits" means the tax reduction resulting from the 
homestead credit exemption amount provided under section 
275.081, taconite homestead credit, supplemental homestead 
credit, and the the tax reduction resulting from agricultural 
school credit which is in excess of the credit which would be 
allowed if the property had been classified as nonhomestead 
property exemption amount provided in section 275.081.  The 
county auditor shall send a notice to the owners of the affected 
property, demanding reimbursement of the homestead benefits plus 
a penalty equal to 25 percent of the homestead benefits.  The 
property owners may appeal the county's determination by filing 
a notice of appeal with the Minnesota tax court within 60 days 
of the date of the notice from the county. 
    If the amount of homestead benefits and penalty is not paid 
within 60 days, and if no appeal has been filed, the county 
auditor shall certify the amount to the succeeding year's tax 
list to be collected as part of the property taxes. 
    Any amount of homestead benefits recovered from the 
property owner must be transmitted to the commissioner by the 
end of each calendar quarter.  Any amount recovered attributable 
to taconite homestead credit shall be transmitted to the St. 
Louis county auditor to be deposited in the taconite property 
tax relief account.  The amount of penalty collected must be 
deposited in the county general fund. 
    The commissioner will provide suggested homestead 
applications to each county.  If a property owner has applied 
for more than one homestead and the county assessors cannot 
determine which property should be classified as homestead, the 
county assessors will refer the information to the commissioner. 
The commissioner shall make the determination and notify the 
counties within 60 days. 
    In addition to lists of homestead properties, the 
commissioner may ask the counties to furnish lists of all 
properties and the record owners. 
    Sec. 18.  Minnesota Statutes 1986, section 273.13, 
subdivision 15a, is amended to read:  
    Subd. 15a.  [GENERAL FUND, REPLACEMENT OF REVENUE.] (1) 
Payment from the general fund shall be made, as provided herein, 
for the purpose of replacing revenue lost as a result of the 
reduction of property taxes provided in subdivisions 22 and 
subdivision 23.  
    (2) Each county auditor shall certify, not later than May 1 
of each year to the commissioner of revenue the amount of 
reduction resulting from subdivisions 22 and subdivision 23 in 
the auditor's county.  This certification shall be submitted to 
the commissioner of revenue as part of the abstracts of tax 
lists required to be filed with the commissioner under the 
provisions of section 275.29.  Any prior year adjustments shall 
also be certified in the abstracts of tax lists.  The 
commissioner of revenue shall review such certifications to 
determine their accuracy.  The commissioner may make such 
changes in the certification as are deemed necessary or return a 
certification to the county auditor for corrections. 
    (3) Based on current year tax data reported in the 
abstracts of tax lists, the commissioner of revenue shall 
annually determine the taxing district distribution of the 
amounts certified under clause (2).  The commissioner of revenue 
shall pay to each taxing district, other than school districts, 
its total payment for the year in equal installments on or 
before July 15 and December 15 of each year. 
    Sec. 19.  Minnesota Statutes 1986, section 273.13, 
subdivision 22, is amended to read:  
    Subd. 22.  [CLASS 1.] (a) Except as provided in subdivision 
23, real estate which is residential and used for homestead 
purposes is class 1.  The market value of class 1a 1 property 
must be determined based upon the value of the house, garage, 
and land.  
    The first $64,000 $68,000 of market value of class 1a 1 
property must be assessed at 18 37 percent of its market value.  
The homestead value of class 1a 1 property that exceeds 
$64,000 $68,000 must be assessed at 28 60 percent of its value. 
    (b) Class 1b property includes real estate or manufactured 
homes used for the purposes of a homestead by 
    (1) any blind person, if the blind person is the owner 
thereof or if the blind person and the blind person's spouse are 
the sole owners thereof; or 
    (2) any person, hereinafter referred to as "veteran," who: 
    (i) served in the active military or naval service of the 
United States; and 
    (ii) is entitled to compensation under the laws and 
regulations of the United States for permanent and total 
service-connected disability due to the loss, or loss of use, by 
reason of amputation, ankylosis, progressive muscular 
dystrophies, or paralysis, of both lower extremities, such as to 
preclude motion without the aid of braces, crutches, canes, or a 
wheelchair; and 
    (iii) with assistance by the administration of veterans 
affairs has acquired a special housing unit with special 
fixtures or movable facilities made necessary by the nature of 
the veteran's disability, or the surviving spouse of the 
deceased veteran for as long as the surviving spouse retains the 
special housing unit as a homestead; or 
    (3) any person who: 
    (i) is permanently and totally disabled and 
    (ii) receives 90 percent or more of total income from 
    (A) aid from any state as a result of that disability; or 
    (B) supplemental security income for the disabled; or 
    (C) workers' compensation based on a finding of total and 
permanent disability; or 
    (D) social security disability, including the amount of a 
disability insurance benefit which is converted to an old age 
insurance benefit and any subsequent cost of living increases; 
or 
    (E) aid under the Federal Railroad Retirement Act of 1937, 
United States Code Annotated, title 45, section 228b(a)5; or 
    (F) a pension from any local government retirement fund 
located in the state of Minnesota as a result of that disability.
    Property is classified and assessed pursuant to clause (1) 
only if the commissioner of human services certifies to the 
assessor that the owner of the property satisfies the 
requirements of this subdivision.  The commissioner of human 
services shall provide a copy of the certification to the 
commissioner of revenue.  
    Class 1b property is valued and assessed as follows:  in 
the case of agricultural land, including a manufactured home, 
used for a homestead, the first $32,000 of market value shall be 
valued and assessed at five percent, the next $32,000 of market 
value shall be valued and assessed at 14 percent, and the 
remaining market value shall be valued and assessed at 18 
percent; and in the case of all other real estate and 
manufactured homes, the first $32,000 of market value shall be 
valued and assessed at five percent, the next $32,000 of market 
value shall be valued and assessed at 18 percent, and the 
remaining market value shall be valued and assessed at 28 
percent.  In the case of agricultural land including a 
manufactured home used for purposes of a homestead, the 
commissioner of revenue shall adjust, as provided in section 
273.1311, the maximum amount of the market value of the 
homestead brackets subject to the five percent and 18 percent 
rates; and for all other real estate and manufactured homes, the 
commissioner of revenue shall adjust, as provided in section 
273.1311, the maximum amount of the market value of the 
homestead brackets subject to the five percent and 18 percent 
rates.  Permanently and totally disabled for the purpose of this 
subdivision means a condition which is permanent in nature and 
totally incapacitates the person from working at an occupation 
which brings the person an income. 
    (c) Class 1c property is commercial use real property that 
abuts a lakeshore line and is devoted to temporary and seasonal 
residential occupancy for recreational purposes but not devoted 
to commercial purposes for more than 200 days in the year 
preceding the year of assessment, and that includes a portion 
used as a homestead by the owner.  It must be assessed at 12 
percent of market value with the following limitation:  the area 
of the property must not exceed 100 feet of lakeshore footage 
for each cabin or campsite located on the property up to a total 
of 800 feet and 500 feet in depth, measured away from the 
lakeshore. 
    (d) The tax to be paid on class 1a or class 1b property, 
less any reduction received pursuant to sections 273.123 and 
473H.10, shall be reduced by 54 percent of the tax imposed on 
the first $68,000 of market value.  The amount of the reduction 
shall not exceed $700. 
    Sec. 20.  Minnesota Statutes 1986, section 273.13, 
subdivision 23, is amended to read:  
    Subd. 23.  [CLASS 2.] (a) Class 2a property is agricultural 
land that is homesteaded, together with the house and garage.  
The first $64,000 $66,000 of market value of an agricultural 
homestead is valued at 14 30 percent.  The remaining value of 
class 2a property is assessed at 18 40 percent of market value. 
    Noncontiguous land shall constitute class 2a only if the 
homestead is classified as class 2a and the detached land is 
located in the same township or city or not farther than two 
townships or cities or combination thereof from the homestead. 
    Agricultural land used for purposes of a homestead and 
actively farmed by a person holding a vested remainder interest 
in it must be classified class 2a.  If agricultural land is 
classified class 2a, any other dwellings on the land used for 
purposes of a homestead by persons holding vested remainder 
interests who are actively engaged in farming the property, and 
up to one acre of the land surrounding each homestead and 
reasonably necessary for the use of the dwelling as a home, must 
also be assessed class 2a and is entitled to the homestead 
credit. 
    The tax to be paid on class 2a property, less any reduction 
received pursuant to sections 124.2137, 273.123, and 473H.10 
shall be reduced by 54 52 percent of the tax.  The amount of the 
reduction shall not exceed $700.  
    (b) Class 2b property is (1) real estate, rural in 
character and used exclusively for growing trees for timber, 
lumber, and wood and wood products.  It is assessed at 18 
percent of market value.  
    (c) Class 2c Property is; and (2) real estate that is 
nonhomestead agricultural land.  It Class 2b property is 
assessed at 18 40 percent of market value. 
    Agricultural land as used in this section shall mean 
contiguous acreage of ten acres or more, primarily used during 
the preceding year for agricultural purposes.  Agricultural use 
may include pasture, timber, waste, unusable wild land and land 
included in federal farm programs. 
    Real estate of less than ten acres used principally for 
raising poultry, livestock, fruit, vegetables or other 
agricultural products, shall be considered as agricultural land, 
if it is not used primarily for residential purposes. 
    The assessor shall determine and list separately on the 
records the market value of the homestead dwelling and the one 
acre of land on which that dwelling is located.  If any farm 
buildings or structures are located on this homesteaded acre of 
land, their market value shall not be included in this separate 
determination. 
    Sec. 21.  Minnesota Statutes 1986, section 273.13, 
subdivision 24, is amended to read:  
    Subd. 24.  [CLASS 3.] (a) Commercial and industrial 
property is class 3a.  It is assessed at 28 60 percent of the 
first $60,000 $80,000 of market value and 43 96 percent for 
of the market value over $60,000 $80,000.  In the case of 
state-assessed commercial or industrial property owned by one 
person or entity, only one parcel may qualify for the 28 60 
percent assessment.  In the case of other commercial or 
industrial property owned by one person or entity, only one 
parcel in each county may qualify for the 28 60 percent 
assessment. 
    (b) Employment property defined in section 273.1313, during 
the period provided in section 273.1313, shall constitute class 
3b and shall be valued and assessed at 20 45 percent of the 
first $50,000 of market value and 21.5 50 percent of the 
remainder, except that for employment property located in an 
enterprise zone designated pursuant to section 273.1312, 
subdivision 4, paragraph (c), clause (3), the first 
$60,000 $80,000 of market value shall be valued and assessed 
at 28 60 percent and the remainder shall be assessed and valued 
at 38.5 86 percent, unless the governing body of the city 
designated as an enterprise zone determines that a specific 
parcel shall be assessed pursuant to the first clause of this 
sentence.  The governing body may provide for assessment under 
the first clause of the preceding sentence only for property 
which is located in an area which has been designated by the 
governing body for the receipt of tax reductions authorized by 
section 273.1314, subdivision 9, paragraph (a). 
    (c) Real property which is not improved with a structure 
and which is not utilized as part of a commercial or industrial 
activity shall constitute class 3c and shall be valued and 
assessed at 40 percent of market value. 
    Sec. 22.  Minnesota Statutes 1986, section 273.13, 
subdivision 25, is amended to read:  
    Subd. 25.  [CLASS 4.] (a) Class 4a is residential real 
estate containing four or more units and used or held for use by 
the owner or by the tenants or lessees of the owner as a 
residence for rental periods of 30 days or more.  Class 4a also 
includes hospitals licensed under sections 144.50 to 144.56, 
other than hospitals exempt under section 272.02, and contiguous 
property used for hospital purposes, without regard to whether 
the property has been platted or subdivided.  Class 4a property 
is assessed at 34 70 percent of market value. 
    (b) Class 4b is tools, implements, and machinery of an 
electric generating, transmission, or distribution system or a 
pipeline system transporting or distributing water, gas, crude 
oil, or petroleum products or mains and pipes used in the 
distribution of steam or hot or chilled water for heating or 
cooling buildings, which are fixtures.  Class 4b property is 
assessed at 33-1/3 percent of market value. 
    (b) Class 4b includes: 
    (1) residential real estate containing less than four 
units, other than seasonal residential, recreational, and 
homesteads; 
    (2) post-secondary student housing not to exceed one acre 
of land which is owned by a nonprofit corporation organized 
under chapter 317 and is used exclusively by a sorority or 
fraternity organization for housing;  
    (3) manufactured homes not classified under any other 
provision; and 
    (4) a dwelling, garage, and surrounding one acre of 
property on a nonhomestead farm classified under subdivision 23, 
paragraph (b).  
    Class 4b property is assessed at 60 percent for taxes 
levied in 1988, payable in 1989 and thereafter. 
    (c) Class 4c property includes: 
    (1) a structure that is situated on real property that is 
used for housing for the elderly or for low and moderate income 
families as defined by Title II of the National Housing Act or 
the Minnesota housing finance agency law of 1971 or rules 
promulgated by the agency pursuant thereto and financed by a 
direct federal loan or federally insured loan or a loan made by 
the Minnesota housing finance agency pursuant to the provisions 
of either of those acts and acts amendatory thereof.  This 
clause applies only to property of a nonprofit or limited 
dividend entity.  Property is classified as class 4c under this 
clause for 15 years from the date of the completion of the 
original construction or substantial rehabilitation, or for the 
original term of the loan;  
    (2) a structure that is: 
    (i) situated upon real property that is used for housing 
lower income families or elderly or handicapped persons, as 
defined in section 8 of the United States Housing Act of 1937, 
as amended; and 
    (ii) owned by an entity which has entered into a housing 
assistance payments contract under section 8 which provides 
assistance for 100 percent of the dwelling units in the 
structure, other than dwelling units intended for management or 
maintenance personnel.  Property is classified as class 4c under 
this clause for the term of the housing assistance payments 
contract, including all renewals, or for the term of its 
permanent financing, whichever is shorter. 
    For all properties described in clauses (1) and (2) and in 
paragraph (d), clause (2), the market value determined by the 
assessor must be based on the normal approach to value using 
normal unrestricted rents. 
    (3) a parcel of land, not to exceed one acre, and its 
improvements or a parcel of unimproved land, not to exceed one 
acre, if it is owned by a neighborhood real estate trust and at 
least 60 percent of the dwelling units, if any, on all land 
owned by the trust are leased to or occupied by lower income 
families or individuals.  This clause does not apply to any 
portion of the land or improvements used for nonresidential 
purposes.  For purposes of this clause, a lower income family is 
a family with an income that does not exceed 65 percent of the 
median family income for the area, and a lower income individual 
is an individual whose income does not exceed 65 percent of the 
median individual income for the area, as determined by the 
United States Secretary of Housing and Urban Development.  For 
purposes of this clause, "neighborhood real estate trust" means 
an entity which is certified by the governing body of the 
municipality in which it is located to have the following 
characteristics:  (a) it is a nonprofit corporation organized 
under chapter 317; (b) it has as its principal purpose providing 
housing for lower income families in a specific geographic 
community designated in its articles or bylaws; (c) it limits 
membership with voting rights to residents of the designated 
community; and (d) it has a board of directors consisting of at 
least seven directors, 60 percent of whom are members with 
voting rights and, to the extent feasible, 25 percent of whom 
are elected by resident members of buildings owned by the trust; 
and 
    (4) except as provided in paragraph (d), clause (1), real 
property devoted to temporary and seasonal residential occupancy 
for recreation purposes, including real property devoted to 
temporary and seasonal residential occupancy for recreation 
purposes and not devoted to commercial purposes for more than 
200 days in the year preceding the year of assessment.  For this 
purpose, property is devoted to commercial use on a specific day 
if it is used, or offered for use, and a fee is charged for the 
use.  Class 4c also includes commercial use real property used 
exclusively for recreational purposes in conjunction with class 
4c property devoted to temporary and seasonal residential 
occupancy for recreational purposes, up to a total of two acres, 
provided the property is not devoted to commercial recreational 
use for more than 200 days in the year preceding the year of 
assessment and is located within two miles of the class 4c 
property with which it is used.  Class 4c property also includes 
the remainder of class 4d resorts; and 
    (5) real property up to a maximum of one acre of land owned 
by a nonprofit community service oriented organization; provided 
that the property is not used for a revenue-producing activity 
for more than six days in the calendar year preceding the year 
of assessment and the property is not used for residential 
purposes on either a temporary or permanent basis.  For purposes 
of this clause, a "nonprofit community service oriented 
organization" means any corporation, society, association, 
foundation, or institution organized and operated exclusively 
for charitable, religious, fraternal, civic, or educational 
purposes, and which is exempt from federal income taxation 
pursuant to section 501(c)(3), (10), or (19) of the Internal 
Revenue Code of 1986, as amended through December 31, 1986.  For 
purposes of this clause, "revenue-producing activities" shall 
include but not be limited to property or that portion of the 
property that is used as an on-sale intoxicating liquor or 
nonintoxicating malt liquor establishment licensed under chapter 
340A, a restaurant open to the public, bowling alley, a retail 
store, gambling conducted by organizations licensed under 
chapter 349, an insurance business, or office or other space 
leased or rented to a lessee who conducts a for-profit 
enterprise on the premises.  Any portion of the property which 
is used for revenue-producing activities for more than six days 
in the calendar year preceding the year of assessment shall be 
assessed as class 3a.  The use of the property for social events 
open exclusively to members and their guests for periods of less 
than 24 hours, when an admission is not charged nor any revenues 
are received by the organization shall not be considered a 
revenue-producing activity; and 
     Class 4c property is assessed at 50 percent. 
    (d) Class 4d property includes: 
    (1) commercial use real property that abuts a lakeshore 
line and is devoted to temporary and seasonal residential 
occupancy for recreational purposes but not devoted to 
commercial purposes for more than 200 days in the year preceding 
the year of assessment, and that includes a portion used as a 
homestead by the owner.  The area of the property that is 
classified as class 4d must not exceed 100 feet of lakeshore 
footage for each cabin or campsite located on the property up to 
a total of 800 feet and 500 feet in depth, measured away from 
the lakeshore;  
    (2) any structure: 
    (i) situated on real property that is used for housing for 
the elderly or for low and moderate income families as defined 
by the farmers home administration; 
    (ii) located in a municipality of less than 10,000 
population; and 
    (iii) financed by a direct loan or insured loan from the 
farmers home administration.  Property must be assessed under 
this clause for 15 years from the date of the completion of the 
original construction or for the original term of the loan.  
    The 30 percent and 50 percent assessment ratios apply to 
the properties described in paragraph (c), clauses (1) and (2) 
and this clause, only in proportion to occupancy of the 
structure by elderly or handicapped persons or low and moderate 
income families as defined in the applicable laws unless 
construction of the structure had been commenced prior to 
January 1, 1984; or the project had been approved by the 
governing body of the municipality in which it is located prior 
to June 30, 1983; or financing of the project had been approved 
by a federal or state agency prior to June 30, 1983.  
Classification under this clause is only available to property 
of a nonprofit or limited dividend entity; and 
    (3) the first $34,000 of market value of real estate or 
manufactured homes used for the purposes of a homestead by 
    (i) any blind person, if the blind person is the owner 
thereof or if the blind person and the blind person's spouse are 
the sole owners thereof; or 
    (ii) any person, hereinafter referred to as "veteran," who: 
    (A) served in the active military or naval service of the 
United States; and 
    (B) is entitled to compensation under the laws and 
regulations of the United States for permanent and total 
service-connected disability due to the loss, or loss of use, by 
reason of amputation, ankylosis, progressive muscular 
dystrophies, or paralysis, of both lower extremities, such as to 
preclude motion without the aid of braces, crutches, canes, or a 
wheelchair; and 
    (C) with assistance by the administration of veterans 
affairs has acquired a special housing unit with special 
fixtures or movable facilities made necessary by the nature of 
the veteran's disability, or the surviving spouse of the 
deceased veteran for as long as the surviving spouse retains the 
special housing unit as a homestead; or 
    (iii) any person who: 
    (A) is permanently and totally disabled and 
    (B) receives 90 percent or more of total income from 
    (1) aid from any state as a result of that disability; or 
    (2) supplemental security income for the disabled; or 
    (3) workers' compensation based on a finding of total and 
permanent disability; or 
    (4) social security disability, including the amount of a 
disability insurance benefit which is converted to an old age 
insurance benefit and any subsequent cost of living increases; 
or 
    (5) aid under the Federal Railroad Retirement Act of 1937, 
United States Code Annotated, title 45, section 228b(a)5; or 
    (6) a pension from any local government retirement fund 
located in the state of Minnesota as a result of that disability.
    Property is classified and assessed pursuant to this clause 
only if the commissioner of human services certifies to the 
assessor that the owner of the property satisfies the 
requirements of this subdivision.  The commissioner of human 
services shall provide a copy of the certification to the 
commissioner of revenue.  
    The remaining value of class 4(d)(3) property in excess of 
$34,000 shall be valued and assessed under subdivision 22 or 23, 
as appropriate, provided that only the value in excess of 
$34,000 but not in excess of $68,000 is assessed at the rate 
provided for the first tier of value in subdivision 22 or only 
the value in excess of $34,000 but not in excess of $66,000 is 
assessed at the rate provided for the first tier of value in 
subdivision 23. 
    Class 4d property is assessed at 30 percent of market value.
    Sec. 23.  Minnesota Statutes 1986, section 273.13, 
subdivision 31, is amended to read:  
    Subd. 31.  [CLASS 10 5.] All property not included in any 
other class is class 10 5 property and is assessed at 43 96 
percent of market value.  
    Sec. 24.  Minnesota Statutes 1986, section 273.1313, 
subdivision 3, is amended to read:  
    Subd. 3.  [CLASSIFICATION.] Property shall be classified as 
employment property and assessed as provided for class 4d 3b 
property in section 273.13, subdivision 24, paragraph (b), for 
taxes levied in the year in which the classification is approved 
and for the four succeeding years after the approval.  If the 
classification is revoked, the revocation is effective for taxes 
levied in the next year after revocation.  
    Sec. 25.  Minnesota Statutes 1986, section 273.135, 
subdivision 2, is amended to read:  
    Subd. 2.  The amount of the reduction authorized by 
subdivision 1 shall be 
    (a) In the case of property located within the boundaries 
of a municipality which meets the qualifications prescribed in 
section 273.134, 66 percent of the net tax up to the taconite 
breakpoint plus a percentage equal to the homestead credit 
equivalency percentage of the net tax in excess of the taconite 
breakpoint, provided that the reduction shall not exceed the 
maximum amounts specified in clause (c). 
    (b) In the case of property located within the boundaries 
of a school district which qualifies as a tax relief area but 
which is outside the boundaries of a municipality which meets 
the qualifications prescribed in section 273.134, 57 percent of 
the net tax up to the taconite breakpoint plus a percentage 
equal to the homestead credit equivalency percentage of the net 
tax in excess of the taconite breakpoint, provided that the 
reduction shall not exceed the maximum amounts specified in 
clause (c). 
    (c) (1) The maximum reduction of the net tax up to the 
taconite breakpoint is $225.40 on property described in clause 
(a) and $200.10 on property described in clause (b), for taxes 
payable in 1985.  These maximum amounts shall increase by $15 
times the quantity one minus the homestead credit equivalency 
percentage per year for taxes payable in 1986 and subsequent 
years. 
    (2) The total maximum reduction of the net tax on property 
described in clause (a) is $490 for taxes payable in 1985.  The 
total maximum reduction for the net tax on property described in 
clause (b) is $435 for taxes payable in 1985.  These maximum 
amounts shall increase by $15 per year for taxes payable in 1986 
and thereafter.  
    For the purposes of this subdivision, "net tax" means the 
tax on the property after deduction of any credit under section 
273.13, subdivision 22 or 23, "taconite breakpoint" means the 
lowest possible net tax for a homestead qualifying for the 
maximum reduction pursuant to section 273.13, subdivision 22, 
rounded to the nearest whole dollar, and "homestead credit 
equivalency percentage" means a percentage equal to the 
percentage reduction authorized in section 273.13, subdivision 
22 before application of the credit payable under this section. 
    Sec. 26.  Minnesota Statutes 1986, section 273.1391, 
subdivision 2, is amended to read:  
    Subd. 2.  The amount of the reduction authorized by 
subdivision 1 shall be:  
    (a) In the case of property located within a school 
district which does not meet the qualifications of section 
273.134 as a tax relief area, but which is located in a county 
with a population of less than 100,000 in which taconite is 
mined or quarried and wherein a school district is located which 
does meet the qualifications of a tax relief area, and provided 
that at least 90 percent of the area of the school district 
which does not meet the qualifications of section 273.134 lies 
within such county, 57 percent of the net tax up to the taconite 
breakpoint plus a percentage equal to the homestead credit 
equivalency percentage of the net tax in excess of the taconite 
breakpoint on qualified property located in the school district 
that does not meet the qualifications of section 273.134, 
provided that the amount of said reduction shall not exceed the 
maximum amounts specified in clause (c).  The reduction provided 
by this clause shall only be applicable to property located 
within the boundaries of the county described therein.  
    (b) In the case of property located within a school 
district which does not meet the qualifications of section 
273.134 as a tax relief area, but which is located in a school 
district in a county containing a city of the first class and a 
qualifying municipality, but not in a school district containing 
a city of the first class or adjacent to a school district 
containing a city of the first class unless the school district 
so adjacent contains a qualifying municipality, 57 percent of 
the net tax up to the taconite breakpoint plus a percentage 
equal to the homestead credit equivalency percentage of the net 
tax in excess of the taconite breakpoint, but not to exceed the 
maximums specified in clause (c). 
    (c) (1) The maximum reduction of the net tax up to the 
taconite breakpoint is $200.10 for taxes payable in 1985.  This 
maximum amount shall increase by $15 multiplied by the quantity 
one minus the homestead credit equivalency percentage per year 
for taxes payable in 1986 and subsequent years.  
    (2) The total maximum reduction of the net tax is $435 for 
taxes payable in 1985.  This total maximum amount shall increase 
by $15 per year for taxes payable in 1986 and thereafter. 
    For the purposes of this subdivision, "net tax" means the 
tax on the property after deduction of any credit under section 
273.13, subdivision 22 or 23, "taconite breakpoint" means the 
lowest possible net tax for a homestead qualifying for the 
maximum reduction pursuant to section 273.13, subdivision 22, 
rounded to the nearest whole dollar, and "homestead credit 
equivalency percentage" means a percentage equal to the 
percentage reduction authorized in section 273.13, subdivision 
22 before application of the credit under this section. 
    Sec. 27.  Minnesota Statutes 1986, section 273.1392, is 
amended to read:  
    273.1392 [PAYMENT; AIDS TO SCHOOL DISTRICTS.] 
    The amounts of homestead credit under section 273.13, 
subdivisions 22 and 23; wetlands credit and reimbursement under 
section 273.115; native prairie credit and reimbursement under 
section 273.116; disaster or emergency reimbursement under 
section 273.123; attached machinery aid under section 273.138;  
homestead credit replacement aid under section 273.1394; 
agricultural credit replacement aid under section 273.1395; and 
metropolitan agricultural preserve reduction under section 
473H.10, shall be certified to the department of education by 
the department of revenue.  The amounts so certified shall be 
paid according to section 124.195, subdivisions 6 and 10. 
    Sec. 28.  Minnesota Statutes 1986, section 273.1393, is 
amended to read:  
    273.1393 [COMPUTATION OF NET PROPERTY TAXES.] 
    Notwithstanding any other provisions to the contrary, "net" 
property taxes are determined by subtracting the credits in the 
order listed from the gross tax:  
    (1) disaster credit as provided in section 273.123;  
    (2) wetlands credit as provided in section 273.115;  
    (3) native prairie credit as provided in section 273.116;  
    (4) powerline credit as provided in section 273.42;  
    (5) (3) agricultural preserves credit as provided in 
section 473H.10; 
    (6) (4) enterprise zone credit as provided in section 
273.1314; 
    (7) state school agricultural credit as provided in section 
124.2137; 
    (8) (5) state paid homestead credit as provided in section 
273.13, subdivisions 22 and subdivision 23; 
    (9) (6) taconite homestead credit as provided in section 
273.135;  
    (10) (7) supplemental homestead credit as provided in 
section 273.1391.  
    The combination of all property tax credits must not exceed 
the gross tax amount.  
    Sec. 29.  [273.1394] [HOMESTEAD CREDIT REPLACEMENT AID.] 
    Subdivision 1.  [PAYMENT.] There shall be paid to each 
taxing jurisdiction in 1989 and subsequent years a homestead 
credit replacement aid, determined as provided in this section. 
    Subd. 2.  [COMPUTATION.] (a) The initial aid will be 
computed as follows: 
    (1) for aids paid in 1989 only, determine the amount of 
homestead credit reimbursement that would have been paid to the 
taxing jurisdiction in 1988 under Minnesota Statutes 1986, 
section 273.13, subdivision 15a, on nonagricultural homesteads 
in 1988 if the homestead credit percentage provided in Minnesota 
Statutes 1986, section 273.13, subdivision 22, had been 
determined by using a rate of 52 percent and as if there had 
been no $700 maximum; 
    (2) for aids payable in 1990 and subsequent years, the 
initial aid is the amount paid in the previous year; and 
    (3) for aids paid in 1988 only, the initial amount 
determined under clause (1) for all taxing jurisdictions levying 
within each school district shall be reapportioned among all 
taxing jurisdictions in proportion to their share of the total 
levy by all taxing jurisdictions in payable 1988. 
    (b) The amount determined in paragraph (a) shall be 
multiplied by a fraction, the numerator of which is the ratio of 
the estimated assessed value of the total homestead base value 
of nonagricultural homesteads in the taxing jurisdiction for the 
current assessment year to the estimated total assessed value of 
all property within the taxing jurisdiction for the current 
assessment year, and the denominator of which is the ratio of 
the estimated assessed value of the total homestead base value 
of nonagricultural homesteads in the taxing jurisdiction for the 
previous assessment year to the estimated total assessed value 
of all property within the taxing jurisdiction for the previous 
assessment year.  The county auditor shall certify the estimated 
assessed value of the total homestead base value and the total 
homestead exemption amount, of nonagricultural homesteads and 
the estimated assessed value of all property in the taxing 
jurisdiction as of July 15 to the commissioner of revenue. 
    (c) for aids paid in 1989 and thereafter, the amounts 
determined under paragraph (b) shall be adjusted as follows: 
    (i) for cities, towns, and special taxing districts, 
multiply the amount by one plus the implicit price deflator as 
defined in section 275.50, subdivision 8; 
    (ii) for counties, multiply the amount by the following 
factors:  first, by the ratio of the total county levy, except 
the sum of the levy for income maintenance not including 
administrative costs plus the levy for social services, to the 
total county levy multiplied by one plus the implicit price 
deflator as defined in section 275.50, subdivision 8; second, by 
the ratio of the sum of the levy for income maintenance, not 
including administrative costs plus the social service levy of 
the county to the total county levy multiplied by the estimated 
increase in county social service costs and income maintenance 
program costs, not including income maintenance administrative 
costs; as used in this subclause (ii), "levy" means the levy for 
taxes payable in the year preceding the year in which the aid is 
paid;  
    (iii) for school districts, multiply the amount by the 
ratio of the school district's levy limit, exclusive of any 
referendum levy authorized under section 124A.03, subdivision 2, 
for taxes payable in the preceding year to its levy limit for 
taxes payable in the year in which the aid is paid exclusive of 
any such referendum levy.  
    The county must certify actual social service and income 
maintenance levies to the commissioner of revenue, who will 
adjust the final aid amounts paid under this section and section 
273.1395 accordingly. 
    Subd. 3.  [PAYMENT.] The commissioner shall certify and pay 
the homestead credit replacement aid at the times provided in 
sections 477A.014 and 477A.015 for certification and payment of 
local government aid to other taxing jurisdictions.  Aids to 
school districts must be certified to the commissioner of 
education and paid pursuant to section 273.1392.  Payment shall 
not be made to any taxing jurisdiction that has ceased to levy a 
property tax. 
    Subd. 4.  [APPROPRIATION.] An amount sufficient to make the 
payments required in this section is annually appropriated from 
the general fund to the commissioner of revenue. 
    Sec. 30.  [273.1395] [AGRICULTURAL CREDIT REPLACEMENT AID.] 
    Subdivision 1.  [PAYMENT.] There shall be paid to each 
taxing jurisdiction in 1989 and subsequent years an agricultural 
credit replacement aid determined as provided in this section. 
    Subd. 2.  [COMPUTATION.] (a) The initial aid will be 
computed as follows: 
    (1) The amount of aid that would have been paid to a taxing 
jurisdiction in 1988 pursuant to Minnesota Statutes 1986, 
section 124.2137, if the aid paid to school districts under that 
provision had been distributed among all taxing jurisdictions 
containing property with respect to which the credit had been 
paid in proportion to their share of the total levy by all 
taxing jurisdictions in payable 1988.  For aid payable in 1990 
and subsequent years, the initial aid is the amount paid in the 
previous year.  
    (2) An amount determined in clause (1) shall be multiplied 
by a fraction, the numerator of which is the ratio of the 
estimated assessed value of property qualifying for the 
agricultural credit under Minnesota Statutes 1986, section 
124.2137, in the taxing jurisdiction for the current assessment 
year to the estimated total assessed value of all property 
within the taxing jurisdiction for the current assessment year, 
and the denominator of which is the ratio of the estimated 
assessed value of property qualifying for the agricultural 
credit under Minnesota Statutes 1986, section 124.2137, in the 
taxing jurisdiction for the previous assessment year to the 
estimated total assessed value of all property within the taxing 
jurisdiction for the previous assessment year.  The county 
auditor shall certify the estimated assessed value of property 
qualifying for the agricultural credit under Minnesota Statutes 
1986, section 124.2137, and the estimated assessed value of all 
property in the taxing jurisdiction as of July 15 to the 
commissioner of revenue. 
    (b) For aids paid in 1989 and subsequent years, the amounts 
determined in paragraph (a) would be adjusted according to the 
formula provided in section 273.1394, subdivision 2, paragraph 
(c). 
    Subd. 3.  [CERTIFICATION AND PAYMENT.] The commissioner 
shall certify and pay the agricultural credit replacement aid at 
the times provided in sections 477A.014 and 477A.015 for 
certification and payment of local government aid to other 
taxing jurisdictions.  Aids to school districts must be 
certified to the commissioner of education and paid pursuant to 
section 273.1392.  Payment shall not be made to any special 
taxing district that has ceased to levy a property tax. 
    Subd. 4.  [APPROPRIATION.] An amount sufficient to make the 
payments required in this section is annually appropriated from 
the general fund to the commissioner of revenue. 
    Sec. 31.  [273.1396] [TAX BASE ADJUSTMENT AID.] 
    Subdivision 1.  [ADJUSTMENT.] There shall be added to or 
subtracted from the aid paid to each taxing jurisdiction under 
sections 273.1394, 273.1395, 477A.015, and chapter 124A an 
amount determined under this section. 
    Subd. 2.  [1989 COMPUTATION.] The amount shall be computed 
for aids paid to each taxing jurisdiction in 1989 as follows: 
    (a) multiply the assessment ratios provided in section 
273.13, for taxes payable in 1989 by 45 percent and redetermine 
the assessed value of the taxing jurisdiction for taxes payable 
in 1988 using the resulting ratios.  Any recomputed captured 
assessed value of a tax increment district as defined in section 
273.73 would not be included in the assessed value of the taxing 
jurisdiction.  The recomputed assessed values would not be 
adjusted to reflect any change in the effects of chapter 473F or 
in assessed value pursuant to section 273.425 as a result of the 
recomputation but would be adjusted for those values as 
originally certified; 
    (b) subtract the amount determined in paragraph (a) from 
the actual taxable assessed value of the taxing jurisdiction for 
taxes payable in 1988, and multiply that amount by the actual 
mill rate of the taxing jurisdiction for taxes payable in 1988; 
    (c) if the amount determined in paragraph (b) is positive, 
it shall be added to the taxing jurisdiction's homestead credit 
replacement aid under section 273.1394 or if no homestead credit 
replacement aid is payable, granted as an additional aid.  If 
the amount determined in paragraph (b) is negative, it shall be 
subtracted from the sum of the taxing jurisdiction's homestead 
credit replacement aid under section 273.1394, and agricultural 
credit replacement aid under section 273.1394.  If the amount 
determined in paragraph (b) is negative and is not totally 
offset against the homestead and agricultural credit 
reimbursement aid then the remainder shall be subtracted from a 
taxing jurisdiction's local government aid paid under section 
477A.015 and school aids paid under chapter 124A.  
    Subd. 3.  [SUBSEQUENT COMPUTATIONS.] For aids paid under 
sections 273.1394 and 273.1395 in 1990 and subsequent years, the 
amount to be added or subtracted under this section shall be 
equal to the amount determined under subdivision 2.  
    Subd. 4.  [APPROPRIATION.] An amount sufficient to make the 
payments required in this section is annually appropriated from 
the general fund to the commissioner of revenue. 
    Sec. 32.  Minnesota Statutes 1986, section 273.165, 
subdivision 2, is amended to read:  
    Subd. 2.  [IRON ORE.] Unmined iron ore included in class 9 
5 must be assessed with and as a part of the real estate in 
which it is located, but at the rate established in section 
273.13, subdivision 30.  The real estate in which iron ore is 
located, other than the ore, must be classified and assessed in 
accordance with the provisions of the appropriate classes.  In 
assessing any tract or lot of real estate in which iron ore is 
known to exist, the assessable value of the ore exclusive of the 
land in which it is located, and the assessable value of the 
land exclusive of the ore must be determined and set down 
separately and the aggregate of the two must be assessed against 
the tract or lot. 
    Sec. 33.  Minnesota Statutes 1986, section 273.37, 
subdivision 2, is amended to read:  
    Subd. 2.  Transmission lines of less than 69 kv, 
transmission lines of 69 kv and above located in an unorganized 
township, and distribution lines, and equipment attached 
thereto, having a fixed situs outside the corporate limits of 
cities except distribution lines taxed as provided in sections 
273.40 and 273.41, shall be listed with and assessed by the 
commissioner of revenue in the county where situated.  The 
commissioner shall assess such property at the percentage of 
market value fixed by law; and, on or before the 15th day of 
November, shall certify to the auditor of each county in which 
such property is located the amount of the assessment made 
against each company and person owning such property. 
    Sec. 34.  Minnesota Statutes 1986, section 273.38, is 
amended to read:  
    273.38 [PERCENTAGE OF ASSESSMENTS; EXCEPTIONS.] 
    The commissioner of revenue shall assess distribution 
lines, and the attachments and appurtenances thereto, used 
primarily for supplying electricity to farmers at retail, which 
shall be taxed at the average rate of taxes levied for all 
purposes throughout the county, and which shall be entered, 
certified and credited as provided in section 273.42.  It is 
further provided that The distribution lines and the attachments 
and appurtenances thereto of cooperative associations organized 
under the provisions of Laws 1923, chapter 326, and laws 
amendatory thereof and supplemental thereto, and engaged in the 
electrical heat, light and power business, upon a mutual, 
nonprofit and cooperative plan, shall be assessed and taxed as 
provided in sections 273.40 and 273.41. 
    Sec. 35.  Minnesota Statutes 1986, section 273.42, 
subdivision 2, is amended to read:  
    Subd. 2.  Owners of land defined as class 1a, 1b, 1c, 2a, 
2c, 4a, 5a, or 6a, pursuant to that is an agricultural or 
nonagricultural homestead, nonhomestead agricultural land, 
rental residential property, and both commercial and 
noncommercial seasonal residential recreational property, as 
those terms are defined in section 273.13 listed on records of 
the county auditor or county treasurer over which runs a high 
voltage transmission line as defined in section 116C.52, 
subdivision 3, except a high voltage transmission line the 
construction of which was commenced prior to July 1, 1974, shall 
receive a property tax credit in an amount determined by 
multiplying a fraction, the numerator of which is the length of 
high voltage transmission line which runs over that parcel and 
the denominator of which is the total length of that particular 
line running over all property within the city or township by 
ten percent of the transmission line tax revenue derived from 
the tax on that portion of the line within the city or township 
pursuant to section 273.36.  In the case of property owners in 
unorganized townships, the property tax credit shall be 
determined by multiplying a fraction, the numerator of which is 
the length of the qualifying high voltage transmission line 
which runs over the parcel and the denominator of which is the 
total length of the qualifying high voltage transmission line 
running over all property within all the unorganized townships 
within the county, by the total utility property tax credit fund 
amount available within the county for that year pursuant to 
subdivision 1.  Where a right-of-way width is shared by more 
than one property owner, the numerator shall be adjusted by 
multiplying the length of line on the parcel by the proportion 
of the total width on the parcel owned by that property owner.  
The amount of credit for which the property qualifies shall not 
exceed 20 percent of the total gross tax on the parcel prior to 
deduction of the state paid agricultural credit and the state 
paid homestead credit, provided that, if the property containing 
the right-of-way is included in a parcel which exceeds 40 acres, 
the total gross tax on the parcel shall be multiplied by a 
fraction, the numerator of which is the sum of the number of 
acres in each quarter-quarter section or portion thereof which 
contains a right-of-way and the denominator of which is the 
total number of acres in the parcel set forth on the tax 
statement, and the maximum credit shall be 20 percent of the 
product of that computation, prior to deduction of those 
credits.  The auditor of the county in which the affected parcel 
is located shall calculate the amount of the credit due for each 
parcel and transmit that information to the county treasurer.  
The county auditor, in computing the credits credit received 
pursuant to sections 273.13 and section 273.135, shall reduce 
the gross tax by the amount of the credit received pursuant to 
this section, unless the amount of the credit would be less than 
$10. 
    If, after the county auditor has computed the credit to 
those qualifying property owners in unorganized townships, there 
is money remaining in the utility property tax credit fund, then 
that excess amount in the fund shall be returned to the general 
school fund of the county. 
    Sec. 36.  Minnesota Statutes 1986, section 275.07, 
subdivision 1, is amended to read:  
    Subdivision 1.  The taxes voted by cities, and towns, and 
school districts shall be certified by the proper authorities to 
the county auditor on or before October 10 in each year.  The 
taxes of a school district must be certified to the commissioner 
of education by October 10 in each year.  If a city, town, 
county, school district or special district fails to certify its 
levy by that date, its levy shall be the amount levied by it for 
the preceding year.  If the local unit notifies the commissioner 
of revenue, or the commissioner of education in the case of a 
school district, before October 10 of its inability to certify 
its levy by that date, and the commissioner is satisfied that 
the delay is unavoidable and is not due to the negligence of the 
local unit's officials or staff, the commissioner shall extend 
the time within which the local unit shall certify its levy. 
    Sec. 37.  [275.081] [FARM AND HOMESTEAD VALUE EXEMPTION.] 
    Subdivision 1.  [PROCEDURE.] After certification of 
assessed valuations pursuant to section 274.04 and adjustments 
pursuant to sections 270.13, 274.01, 274.08, 274.09, 274.12, 
274.16, and 274.17, the county auditor shall reduce the assessed 
value of each farm and homestead according to this section.  
    Subd. 2.  [NONAGRICULTURAL HOMESTEADS.] The assessed value 
of a nonagricultural homestead is reduced by 52 percent, but not 
to exceed 52 percent of the assessed value of a class 1 
homestead having an estimated market value of $68,000. 
    Subd. 3.  [AGRICULTURAL HOMESTEADS.] The assessed value of 
the first 320 acres of property classified as an agricultural 
homestead is reduced by 36 percent of the assessed value of the 
first 320 acres less the value of the homestead dwelling, 
garage, and one acre on which the dwelling is situated.  The 
assessed value of the property in excess of 320 acres is reduced 
by 26 percent of its assessed value.  
    Subd. 4.  [NONHOMESTEAD FARMS AND TIMBERLAND.] The assessed 
value of a nonhomestead farm, excluding the value of any 
dwelling, garage, and one acre surrounding it, is reduced by 26 
percent of its assessed value.  For purposes of this section, 
nonhomestead farms shall include timberlands.  
    Subd. 5.  [SEASONAL RESIDENTIAL RECREATIONAL PROPERTY.] The 
assessed value of noncommercial seasonal residential 
recreational property is reduced by 15 percent, but not to 
exceed 15 percent of the assessed value of a noncommercial 
seasonal residential recreational property with $31,000 of 
assessed value.  
    Sec. 38.  [275.082] [COMPUTATION OF TAX ON PARCELS.] 
    Subdivision 1.  [NONAGRICULTURAL HOMESTEADS.] For use in 
taxing nonagricultural homesteads, a mill rate shall be computed 
for each taxing jurisdiction based on the assessed value of 
properties as reduced under section 275.081.  The homestead 
credit amount for each nonagricultural homestead shall be the 
exemption amount computed under section 275.081, multiplied by 
the total mill rate, and the gross tax is the sum of that credit 
amount plus the net tax determined by multiplying the mill rate 
by the assessed value of the property after subtraction of the 
exemption amount.  
    Subd. 2.  [AGRICULTURAL AND OTHER PROPERTY.] For use in 
taxing agricultural homesteads, nonhomestead agricultural land, 
timberland, and seasonal recreational property, the mill rate as 
computed under subdivision 1 shall be applied to the assessed 
value of the property after deduction of the exemption amount 
computed under section 275.081.  From that amount of tax on 
agricultural homesteads there shall be deducted a homestead 
credit in an amount equal to 52 percent of the tax on the 
property, less any reduction received under sections 273.123 and 
473H.10, but not to exceed $700.  
    Sec. 39.  Minnesota Statutes 1986, section 275.125, is 
amended by adding a subdivision to read: 
    Subd. 22.  [AID ADJUSTMENT.] If a school district's aids 
pursuant to chapter 124A or sections 273.1394 and 273.1395 for 
the school year beginning following the levy year are reduced 
pursuant to section 273.1396, then the district's levy limit 
shall be increased by the amount of the reduction.  If the 
district's aids are increased pursuant to section 273.1396, then 
its levy limit shall be reduced by the amount of the increase. 
    Sec. 40.  Minnesota Statutes 1986, section 275.50, 
subdivision 2, is amended to read:  
    Subd. 2.  [GOVERNMENTAL SUBDIVISION.] (a) "Governmental 
subdivision" means a county, home rule charter city, or 
statutory city, except a home rule charter or statutory city 
that has a population of less than 5,000 according to the most 
recent federal census.  
    (b) "Governmental subdivision" also includes any city or 
town that receives a distribution from the taconite municipal 
aid account in the levy year. 
    Sec. 41.  Minnesota Statutes 1986, section 275.51, 
subdivision 3h, is amended to read:  
    Subd. 3h.  [ADJUSTED LEVY LIMIT BASE.] For taxes levied in 
1985 and thereafter 1988 and thereafter, the adjusted levy limit 
base is equal to the levy limit base computed pursuant 
to article 5, section 12, or subdivision 3f, increased by:  
    (a) a percentage equal to the percentage growth in the 
implicit price deflator, or five three percent, whichever is 
lesser;  
    (b) a percentage equal to the greater of the percentage 
increases in population or in number of households, if any, for 
the most recent 12-month period for which data is available, 
using figures derived pursuant to subdivision 6; 
    (c) one-half of the amount levied as a special levy in the 
previous year for paying the costs of municipal services 
provided to new private industrial and nonresidential commercial 
development pursuant to section 275.50, subdivision 5, clause 
(m), if the special levy is discontinued;  
    (d) the amount of any permanent increase in the levy limit 
base approved at a general or special election held during the 
12-month period ending September 30 of the levy year, pursuant 
to section 275.58, subdivisions 1 and 2; and 
    (e) the amount, if known, equal to the decrease in federal 
revenue sharing allotment from the levy year to the year in 
which the levy is payable; otherwise the amount equal to the 
decrease in federal revenue sharing allotment in the levy year 
as compared to the previous year if the levy base for the 
previous year has not been adjusted for a decrease in federal 
revenue sharing allotment.  
    Sec. 42.  Minnesota Statutes 1986, section 276.04, is 
amended to read:  
    276.04 [NOTICE OF RATES; PROPERTY TAX STATEMENTS.] 
    On receiving the tax lists from the county auditor, the 
county treasurer shall, if directed by the county board, give 
three weeks' published notice in a newspaper specifying the 
rates of taxation for all general purposes and the amounts 
raised for each specific purpose.  The treasurer shall, whether 
or not directed by the county board, cause to be printed on all 
tax statements, or on an attachment, a tabulated statement of 
the dollar amount due to each taxing authority from the parcel 
of real property for which a particular tax statement is 
prepared.  The dollar amounts due the county, township or 
municipality and school district shall be separately stated but 
the amounts due other taxing districts, if any, may be 
aggregated.  The dollar amounts, including the dollar amount of 
any special assessments, may be rounded to the nearest even 
whole dollar.  For purposes of this section whole odd-numbered 
dollars may be adjusted to the next higher even-numbered 
dollar.  The statement shall include the following sentence, 
printed in upper case letters in bold face print:  "THE STATE OF 
MINNESOTA DOES NOT RECEIVE ANY PROPERTY TAX REVENUES.  THE STATE 
OF MINNESOTA REDUCES YOUR PROPERTY TAX BY PAYING CREDITS AND 
REIMBURSEMENTS TO LOCAL UNITS OF GOVERNMENT."  The property tax 
statements for manufactured homes and sectional structures taxed 
as personal property shall contain the same information that is 
required on the tax statements for real property.  The county 
treasurer shall mail to taxpayers statements of their personal 
property taxes due, such statements to be mailed not later than 
February 15 (except in the case of manufactured homes and 
sectional structures taxed as personal property), statements of 
the real property taxes due shall be mailed not later than 
January 31; provided, that the validity of the tax shall not be 
affected by failure of the treasurer to mail such statement.  
The taxpayer is defined as the owner who is responsible for the 
payment of the tax.  Such real and personal property tax 
statements shall contain the market value, as defined in section 
272.03, subdivision 8, used in determining the tax.  The 
statement shall show the amount attributable to the decrease in 
tax under section 275.082 attributable to Minnesota Statutes 
1986, section 124.2137 as "state paid agricultural 
credit amount" and the amount attributable to the decrease in 
tax under section 275.082 attributable to Minnesota Statutes 
1986, section 273.13, subdivisions 22 and 23 as "state paid 
homestead credit amount."  If so directed by the county board, 
the treasurer shall visit places in the county as the treasurer 
deems expedient for the purpose of receiving taxes and the 
county board is authorized to pay the expenses of such visits 
and of preparing duplicate tax lists.  Failure to mail the tax 
statement shall not be deemed a material defect to affect the 
validity of any judgment and sale for delinquent taxes.  
    Sec. 43.  Minnesota Statutes 1986, section 279.01, 
subdivision 1, is amended to read:  
    Subdivision 1.  Except as provided in subdivision 3, on May 
16, of each year, with respect to property actually occupied and 
used as a homestead by the owner of the property, a penalty of 
three percent shall accrue and thereafter be charged upon all 
unpaid taxes on real estate on the current lists in the hands of 
the county treasurer, and a penalty of seven percent on 
nonhomestead property, except that this penalty shall not accrue 
until June 1 of each year on commercial use real property used 
for seasonal residential recreational purposes and classified as 
class 1c 4d or 6a 4c, and on other commercial use real property 
classified as class 3a, provided that over 60 percent of the 
gross income earned by the enterprise on the class 3a property 
is earned during the months of May, June, July, and August.  Any 
property owner of such class 3a property who pays the first half 
of the tax due on the property after May 15 and before June 1 
shall attach an affidavit to the payment attesting to compliance 
with the income provision of this subdivision.  Thereafter, for 
both homestead and nonhomestead property, on the 16th day of 
each month, up to and including October 16 following, an 
additional penalty of one percent for each month shall accrue 
and be charged on all such unpaid taxes.  When the taxes against 
any tract or lot exceed $50, one-half thereof may be paid prior 
to May 16; and, if so paid, no penalty shall attach; the 
remaining one-half shall be paid at any time prior to October 16 
following, without penalty; but, if not so paid, then a penalty 
of four percent shall accrue thereon for homestead property and 
a penalty of four percent on nonhomestead property.  Thereafter, 
for homestead property, on the 16th day of each month up to and 
including December 16 following, an additional penalty of two 
percent for each month shall accrue and be charged on all such 
unpaid taxes.  Thereafter, for nonhomestead property, on the 
16th day of each month up to and including December 16 
following, an additional penalty of four percent for each month 
shall accrue and be charged on all such unpaid taxes.  If 
one-half of such taxes shall not be paid prior to May 16, the 
same may be paid at any time prior to October 16, with accrued 
penalties to the date of payment added, and thereupon no penalty 
shall attach to the remaining one-half until October 16 
following; provided, also, that the same may be paid in 
installments as follows:  One-fourth prior to March 16; 
one-fourth prior to May 16; one-fourth prior to August 16; and 
the remaining one-fourth prior to October 16, subject to the 
aforesaid penalties.  Where the taxes delinquent after October 
16 against any tract or parcel exceed $100, upon resolution of 
the county board, they may be paid in installments of not less 
than 25 percent thereof, together with all accrued penalties and 
costs, up to the next tax judgment sale, and after such payment, 
penalties, interest, and costs shall accrue only on the sum 
remaining unpaid.  Any county treasurer who shall make out and 
deliver or countersign any receipt for any such taxes without 
including all of the foregoing penalties therein, shall be 
liable to the county for the amount of such penalties.  
    Sec. 44.  Minnesota Statutes 1986, section 279.06, is 
amended to read:  
    279.06 [COPY OF LIST AND NOTICE.] 
    Within five days after the filing of such list, the court 
administrator shall return a copy thereof to the county auditor, 
with a notice prepared and signed by the court administrator, 
and attached thereto, which may be substantially in the 
following form: 
   State of Minnesota        )                            
                             ) ss.                        
   County of ............... )                            
                                            District Court
                             .......... Judicial District.
    The state of Minnesota, to all persons, companies, or 
corporations who have or claim any estate, right, title, or 
interest in, claim to, or lien upon, any of the several parcels 
of land described in the list hereto attached: 
    The list of taxes and penalties on real property for the 
county of ............................... remaining delinquent 
on the first Monday in January, 19....., has been filed in the 
office of the court administrator of the district court of said 
county, of which that hereto attached is a copy.  Therefore, 
you, and each of you, are hereby required to file in the office 
of said court administrator, on or before the 20th day after the 
publication of this notice and list, your answer, in writing, 
setting forth any objection or defense you may have to the 
taxes, or any part thereof, upon any parcel of land described in 
the list, in, to, or on which you have or claim any estate, 
right, title, interest, claim, or lien, and, in default thereof, 
judgment will be entered against such parcel of land for the 
taxes on such list appearing against it, and for all penalties, 
interest, and costs.  Based upon said judgment, the land shall 
be sold to the state of Minnesota on the second Monday in May, 
19...  The period of redemption for all lands sold to the state 
at a tax judgment sale shall be three years from the date of 
sale to the state of Minnesota if the land is within an 
incorporated area unless it is:  (a) nonagricultural homesteaded 
land as defined in section 273.13, subdivision 22; (b) 
homesteaded agricultural land as defined in section 273.13, 
subdivision 23, paragraph (a); or (c) seasonal recreational land 
as defined in section 273.13, subdivision 22 25, 
paragraph (c) (d)(1) or subdivision 27, paragraph (a) (c)(4), in 
which event the period of redemption is five years from the date 
of sale to the state of Minnesota.  
    The period of redemption for all other lands sold to the 
state at a tax judgment sale shall be five years from the date 
of sale.  
    Inquiries as to the proceedings set forth above can be made 
to the county auditor of ..... county whose address is ..... .  
    (Signed) ............................................., 
    Court Administrator of the District Court of the County 
    of .................................................... 
    (Here insert list.) 
    The list referred to in the notice shall be substantially 
in the following form: 
    List of real property for the county of 
......................., on which taxes remain delinquent on the 
first Monday in January, 19...: 

                          Town of (Fairfield), 

                       Township (40), Range (20), 
 Names (and 
 Current Filed 
 Addresses) for 
 the Taxpayers 
 and Fee Owners 
 and in Addition 
 Those Parties 
 Who Have Filed 
 Their Addresses                            Tax 
 Pursuant to     Subdivision of            Parcel   Total Tax 
 section 276.041    Section       Section  Number  and Penalty
                                                     $ cts.
 John Jones  S.E. 1/4 of S.W. 1/4    10    23101       2.20  
 (825 Fremont  
 Fairfield, MN 
 55000) 
 Bruce Smith  That part of N.E. 1/4 
 (2059 Hand   of S.W. 1/4 desc. as 
 Fairfield,   follows:  Beg. at the 
 MN 55000)    S.E. corner of said 
 and          N.E. 1/4 of S.W. 1/4;  
 Fairfield    thence N. along the E.  
 State Bank   line of said N.E. 1/4 
 (100 Main    of S.W. 1/4 a distance 
 Street       of 600 ft.; thence W. 
 Fairfield,   parallel with the S. 
 MN 55000)    line of said N.E. 1/4 
              of S.W. 1/4 a distance 
              of 600 ft.; thence S. 
              parallel with said E. 
              line a distance of 600 
              ft. to S. line of said 
              N.E. 1/4 of S.W. 1/4;
              thence E. along said S. 
              line a distance of 600 
              ft. to the point of 
              beg. ...............    21    33211       3.15  
    As to platted property, the form of heading shall conform 
to circumstances and be substantially in the following form:  

                          City of (Smithtown) 

                    Brown's Addition, or Subdivision 
 Names (and 
 Current Filed 
 Addresses) for 
 the Taxpayers 
 and Fee Owners 
 and in Addition 
 Those Parties 
 Who have Filed 
 Their Addresses                         Tax 
 Pursuant to                            Parcel      Total Tax 
 section 276.041     Lot     Block      Number     and Penalty
                                                     $ cts 
 John Jones           15         9      58243          2.20 
 (825 Fremont 
 Fairfield, 
 MN 55000) 
 Bruce Smith          16         9      58244          3.15 
 (2059 Hand 
 Fairfield, 
 MN 55000) 
 and 
 Fairfield 
 State Bank 
 (100 Main Street 
 Fairfield, 
 MN 55000) 
    The names, descriptions, and figures employed in 
parentheses in the above forms are merely for purposes of 
illustration. 
    The name of the town, township, range or city, and addition 
or subdivision, as the case may be, shall be repeated at the 
head of each column of the printed lists as brought forward from 
the preceding column.  
    Errors in the list shall not be deemed to be a material 
defect to affect the validity of the judgment and sale. 
    Sec. 45.  Minnesota Statutes 1986, section 281.17, is 
amended to read:  
    281.17 [PERIOD FOR REDEMPTION.] 
    The period of redemption for all lands sold to the state at 
a tax judgment sale shall be three years from the date of sale 
to the state of Minnesota if the land is within an incorporated 
area unless it is:  (a) nonagricultural homesteaded land as 
defined in section 273.13, subdivision 22, (b) homesteaded 
agricultural land as defined in section 273.13, subdivision 23, 
paragraph (a), or (c) seasonal recreational land as defined in 
section 273.13, subdivision 27 25, paragraph (a), (d)(1) or 
subdivision 22, paragraph (c)(4), in which event the period of 
redemption is five years from the date of sale to the state of 
Minnesota. 
    The period of redemption for all other lands sold to the 
state at a tax judgment sale shall be five years from the date 
of sale. 
    Sec. 46.  Minnesota Statutes 1986, 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 before reductions made pursuant to section 273.13, 
subdivisions 22 and 23, but after deductions made pursuant to 
sections 124.2137, 273.115, 273.116, 273.135, 273.1391, 273.42, 
subdivision 2, and any other state paid property tax credits in 
any calendar year.  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 274.19, subdivision 8, "property taxes payable" shall 
also include the amount of the gross rent paid in the preceding 
year for the site on which the homestead is located, which is 
attributable to the net tax paid on the site.  The amount 
attributable to property taxes shall be determined by 
multiplying the net tax on the parcel by a fraction, the 
numerator of which is the gross rent paid for the calendar year 
for the site and the denominator of which is the gross rent paid 
for the calendar year for the parcel.  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 273.13, subdivision 22 or 23 on or 
before June 1 of the year in which the "property taxes payable" 
were levied; or (ii) the claimant must provide documentation 
from the local assessor that application for homestead 
classification has been made prior to October 1 of the year in 
which the "property taxes payable" were payable and that the 
assessor has approved the application.  
    Sec. 47.  Minnesota Statutes 1986, section 290A.03, 
subdivision 14, is amended to read:  
    Subd. 14.  [NET TAX.] "Net tax" means 
    (a) the property tax, exclusive of special assessments, 
interest, and penalties, and after reduction for any state paid 
property tax credits as required in subdivision 13 except for 
the reduction pursuant to section 273.13, subdivisions 22 and 
23, or 
    (b) the payments made in lieu of ad valorem taxes, 
including payments of special assessments imposed in lieu of ad 
valorem taxes, 
    for the calendar year in which the rent was paid.  If a 
portion of the property is occupied as a homestead or is used 
for other than rental purposes, the net tax shall be the amount 
of tax reduced by the percentage that the nonrental use 
comprises of the total square footage of the building.  If a 
portion of the property is used for purposes other than for 
residential rental and none of the property is occupied as a 
homestead, the net tax shall be the amount of the tax of the 
parcel multiplied by a fraction, the numerator of which is the 
assessed value of the residential rental portion and the 
denominator of which is the total assessed value of the parcel. 
If a portion of the property is used for other than rental 
residential purposes, the county treasurer shall list on the 
property tax statement the amount of net tax pertaining to the 
rental residential portion of the property.  
    The amount of the net tax shall not be reduced by an 
abatement or a court ordered reduction in the property tax on 
the property made after the certificate of rent constituting 
property tax has been provided to the renter.  
    Sec. 48.  Minnesota Statutes 1986, section 290A.04, 
subdivision 2, is amended to read:  
    Subd. 2.  A claimant whose property taxes payable or rent 
constituting property taxes are in excess of the percentage of 
the household income stated below shall pay an amount equal to 
the percent of income shown for the appropriate household income 
level along with the percent to be paid by the claimant of the 
remaining amount of property taxes payable or rent constituting 
property taxes.  The state refund will be equal to the amount of 
property taxes payable or rent constituting property taxes that 
remain, up to the state refund amount shown below.  
                     Percent              Percent    Maximum
Household Income    of Income             Paid by     State
                                          Claimant    Refund
Net loss and 
 up to $2,999     1.0 percent             5 percent  $1,125
 3,000 to 3,499   1.0 percent             6 percent  $1,125
 3,500 to 3,999   1.0 percent             7 percent  $1,125
 4,000 to 4,499   1.0 percent             8 percent  $1,125
 4,500 to 4,999   1.0 percent             9 percent  $1,125
 5,000 to 5,999   1.0 percent            10 percent  $1,125
 6,000 to 6,999   1.0 percent            11 percent  $1,125
 7,000 to 7,999   1.0 percent            12 percent  $1,125
 8,000 to 8,999   1.1 percent            13 percent  $1,125
 9,000 to 9,999   1.2 percent            14 percent  $1,125
10,000 to 10,999  1.3 percent            15 percent  $1,125
11,000 to 11,999  1.4 percent            16 percent  $1,125
12,000 to 12,999  1.5 percent            17 percent  $1,125
13,000 to 13,999  1.5 percent            18 percent  $1,125
14,000 to 14,999  1.5 percent            19 percent  $1,125
15,000 to 15,999  1.5 percent            20 percent  $1,125
16,000 to 16,999  1.5 percent            21 percent  $1,125
17,000 to 17,999  1.5 percent            22 percent  $1,125
18,000 to 18,999  1.5 percent            23 percent  $1,125
19,000 to 19,999  1.5 percent            24 percent  $1,125
20,000 to 20,999  1.6 percent            25 percent  $1,125
21,000 to 21,999  1.6 percent            27 percent  $1,125
22,000 to 22,999  1.6 percent            29 percent  $1,125
23,000 to 23,999  1.8 percent            31 percent  $1,125
24,000 to 24,999  1.8 percent            33 percent  $1,105
25,000 to 25,999  1.8 percent            35 percent  $1,080
26,000 to 26,999  2.0 percent            38 percent  $1,050
27,000 to 27,999  2.0 percent            41 percent  $1,020
28,000 to 28,999  2.0 percent            44 percent  $  990
29,000 to 29,999  2.0 percent            47 percent  $  960
30,000 to 30,999  2.0 percent            50 percent  $  930
31,000 to 31,999  2.2 percent            50 percent  $  900
32,000 to 32,999  2.2 percent            50 percent  $  800
33,000 to 33,999  2.2 percent            50 percent  $  700
34,000 to 34,999  2.2 percent            50 percent  $  600
35,000 to 35,999  2.2 percent            50 percent  $  500
36,000 to 36,999  2.4 percent            50 percent  $  400
37,000 to 37,999  2.4 percent            50 percent  $  300
38,000 to 38,999  2.4 percent            50 percent  $  200
39,000 to 39,999  2.4 percent            50 percent  $  100
40,000 and over   2.4 percent            50 percent     -0-
    The payment made to a claimant shall be the amount of the 
state refund calculated pursuant to this subdivision, less the 
homestead credit given pursuant to section 273.13, subdivisions 
22 and 23.  No payment is allowed if the claimant's household 
income is $40,000 or more.  
    Sec. 49.  Minnesota Statutes 1986, section 473.446, 
subdivision 1, is amended to read:  
    Subdivision 1.  [TAXATION WITHIN TRANSIT TAXING DISTRICT.] 
For the purposes of sections 473.401 to 473.451 and the 
metropolitan transit system, except as otherwise provided in 
this subdivision the regional transit board shall levy each year 
upon all taxable property within the metropolitan transit taxing 
district, defined in subdivision 2, a transit tax consisting of: 
    (a) an amount up to two mills times the assessed value of 
all such property, based upon the level of transit service 
provided for the property, the proceeds of which shall be used 
for payment of the expenses of operating transit and paratransit 
service and to provide for payment of obligations issued by the 
commission under section 473.436, subdivision 6; 
    (b) an additional amount, if any, as the board determines 
to be necessary to provide for the full and timely payment of 
its certificates of indebtedness and other obligations 
outstanding on July 1, 1985, to which property taxes under this 
section have been pledged; and 
    (c) an additional amount necessary to provide full and 
timely payment of certificates of indebtedness, bonds, or other 
obligations issued or to be issued under section 473.39 by the 
council for purposes of acquisition and betterment of property 
and other improvements of a capital nature and to which the 
council or board has specifically pledged tax levies under this 
clause. 
    The county auditor shall reduce the tax levied pursuant to 
this subdivision on all property within statutory and home rule 
charter cities and towns that receive full peak service and 
limited off-peak service by an amount equal to the tax levy that 
would be produced by applying a rate of 0.5 mills on the 
property.  The county auditor shall reduce the tax levied 
pursuant to this subdivision on all property within statutory 
and home rule charter cities and towns that receive limited peak 
service by an amount equal to the tax levy that would be 
produced by applying a rate of 0.75 mills on the property.  The 
amounts so computed by the county auditor shall be submitted to 
the commissioner of revenue as part of the abstracts of tax 
lists required to be filed with the commissioner under section 
275.29.  Any prior year adjustments shall also be certified in 
the abstracts of tax lists.  The commissioner shall review the 
certifications to determine their accuracy and may make changes 
in the certification as necessary or return a certification to 
the county auditor for corrections.  The commissioner shall pay 
to the regional transit board the amounts certified by the 
county auditors on the dates provided in section 273.13, 
subdivision 15a, clause (3) 273.1394.  There is annually 
appropriated from the general fund in the state treasury to the 
department of revenue the amounts necessary to make these 
payments in fiscal year 1987 and thereafter.  
    For the purposes of this subdivision, "full peak and 
limited off-peak service" means peak period regular route 
service, plus weekday midday regular route service at intervals 
longer than 60 minutes on the route with the greatest frequency; 
and "limited peak period service" means peak period regular 
route service only.  
    Sec. 50.  Minnesota Statutes 1986, section 473F.02, 
subdivision 4, is amended to read:  
    Subd. 4.  "Residential property" means the following 
categories of property, as defined in section 273.13, excluding 
that portion of such property exempt from taxation pursuant to 
section 272.02: 
    (a) Class 1a, 1b 1, 2a, 4a, 5a, 5b, 7a, 7b, 7c, and 7d 4b, 
4c, and 4d property except resorts 
    (b) And that portion of class 3a, 3b, and 10 5 property 
used exclusively for residential occupancy. 
    Sec. 51.  Minnesota Statutes 1986, section 473F.02, 
subdivision 17, is amended to read:  
    Subd. 17.  "Public grants" means (1) the sum of all money 
received by a municipality pursuant to sections 273.13, 
subdivisions 3 and 15(4), 290.361, subdivision 4, 297.13 section 
273.1394; and (2) one-tenth of all other money received by a 
municipality from the federal and state governments, and their 
agencies and political subdivisions, under programs of 
intergovernmental aids and grants distributed by formula or upon 
application.  The state auditor shall certify the public grants 
of each municipality for each year to the commissioner of 
finance not later than September 1 of the subsequent year. 
    Sec. 52.  Minnesota Statutes 1986, section 475.61, 
subdivision 3, is amended to read:  
    Subd. 3.  [IRREVOCABILITY.] Tax levies so made and filed 
shall be irrevocable, except as provided in this subdivision. 
    In each year when there is on hand any excess amount in the 
debt redemption fund of a school district at the time the 
district makes its property tax levies, the amount of the excess 
shall be certified by the school board to the commissioner of 
education who shall compute the reduced tax levy, after 
adjustment for the homestead credit replacement aid paid 
pursuant to section 273.1394, the agricultural credit 
replacement aid paid pursuant to section 273.1395, and the tax 
base adjustment pursuant to section 273.1396.  The commissioner 
of education shall certify the adjusted reduced tax levy to the 
county auditor and the auditor shall reduce the tax levy 
otherwise to be included in the rolls next prepared by the 
amount certified, unless the school board determines that the 
excess amount is necessary to ensure the prompt and full payment 
of the obligations and any call premium on the obligations, or 
will be used for redemption of the obligations in accordance 
with their terms.  An amount shall be presumed to be excess for 
a school district in the amount that it, together with the levy 
required by subdivision 1, will exceed 106 percent of the amount 
needed to meet when due the principal and interest payments on 
the obligations due before the second following July 1.  This 
subdivision shall not limit a school board's authority to 
specify a tax levy in a higher amount if necessary because of 
anticipated tax delinquency or for cash flow needs to meet the 
required payments from the debt redemption fund. 
    If the governing body, including the governing body of a 
school district, in any year makes an irrevocable appropriation 
to the debt service fund of moneys actually on hand or if there 
is on hand any excess amount in the debt service fund, the 
recording officer may certify to the county auditor the fact and 
amount thereof and the auditor shall reduce by the amount so 
certified the amount otherwise to be included in the rolls next 
thereafter prepared. 
    Sec. 53.  [REPEALER.] 
    Minnesota Statutes 1986, sections 13.58; 124.2131, 
subdivision 4; 124.2137; 124.2139; 124A.031, subdivision 4; 
273.112, subdivision 9; 273.115; 273.116; 273.13, subdivisions 
26, 27, 28, and 29; 273.1311; 273.1315; 273.135, subdivision 5; 
and 273.1391, subdivision 4, are repealed.  
    Sec. 54.  [EFFECTIVE DATE.] 
    Except where provided otherwise, sections 1 to 53 are 
effective for taxes levied in 1988, payable in 1989, and 
thereafter. 

                                ARTICLE 7 

                       PROPERTY TAX ADMINISTRATION
    Section 1.  [3.861] [TAX STUDY COMMISSION.] 
    Subdivision 1.  [CREATION.] A legislative tax study 
commission is created.  
    Subd. 2.  [DUTIES.] The commission shall:  
    (1) examine the burden of income maintenance and social 
services on the property tax levies of the counties, and of each 
county individually, and determine the impact of total or 
increased state funding of income maintenance and social 
services on those levies; 
    (2) examine and recommend to the legislature alternative 
methods of income adjusted property tax relief for homeowners 
and renters;  
    (3) examine and recommend to the legislature alternative 
property tax classification systems that reduce the number of 
property classifications, and determine the effects of the 
consolidation by type and use of property; 
    (4) examine the tax structures and revenue needs and 
revenue resources of state and local governments;  
    (5) study and make recommendations about long-range tax 
policy;  
    (6) analyze proposed tax legislation, with particular 
reference to revenue and distribution impact, local government 
financing, and adherence to sound tax policies, and report its 
findings to the legislature; 
    (7) examine the property tax burdens on agricultural, 
commercial, industrial, and employment property by county, and 
by type, use, and market value; and 
    (8) file a report at least biennially with the legislature. 
    Subd. 3.  [MEMBERSHIP.] The commission consists of seven 
members of the senate, including the chair of the committee on 
taxes and tax laws, to be appointed by the subcommittee on 
committees of the committee on rules and administration, and 
seven members of the house of representatives, including the 
chair of the committee on taxes, to be appointed by the speaker. 
    Appointees are members of the commission only while they 
are members of the bodies from which they were appointed.  The 
first members serve for a term expiring on January 15 of the 
next biennial session of the legislature and until their 
successors are appointed.  Later members must be appointed at 
the start of each biennial session of the legislature for a 
two-year term beginning on January 16 of that year.  Vacancies 
must be filled in the same manner as the original appointment.  
    Subd. 4.  [MEETINGS; OFFICERS.] The commission shall hold 
meetings at the times and places it designates.  The 
commission's first chair shall be the chair of the house tax 
committee.  Every two years, the chair of the house tax 
committee and the chair of the senate committee on taxes and tax 
laws shall alternate the office of commission chair.  The 
commission shall select a vice-chair and other officers from its 
membership. 
    Subd. 5.  [STAFF; OFFICE; EQUIPMENT.] (a) In performing its 
duties, the commission must utilize existing legislative staff. 
    (b) The commission may purchase equipment and supplies, and 
may enter into contracts for the furnishing of services, 
equipment, and supplies necessary to discharge its duties. 
    Subd. 6.  [ASSISTANCE OF OTHER AGENCIES.] (a) The 
commission may request information from any state officer or 
agency to assist in carrying out this section.  The officer or 
agency shall promptly provide the data requested to the extent 
permitted by law. 
    (b) The commissioner of revenue shall prepare, maintain, 
and make available to the commission data that compares (1) 
household incomes with rents and property tax burdens; and (2) 
household incomes with home market values and property tax 
burdens.  The data must be furnished and made available in the 
form and manner that the commission determines will facilitate 
its use to discharge the duty imposed in subdivision 2, clause 
(2).  The data must not disclose the name, address, social 
security number, or any other item of information that the 
commissioner believes may identify an individual.  The data must 
be furnished to the commission by September 15, 1987, and 
subsequently maintained by the commissioner so that the most 
complete and current data available is furnished to the 
commission.  
    Subd. 7.  [EXPENSES AND REIMBURSEMENT OF MEMBERS AND 
STAFF.] The members of the commission may receive per diem when 
attending meetings and other commission business.  Members and 
legislative employees must be reimbursed for expenses actually 
and necessarily incurred in the performance of their duties 
under the rules governing legislators and legislative employees. 
    Subd. 8.  [COMMISSION EXPENSES AND REPORTS.] Expenses of 
the commission must be approved by the chair or other member as 
the rules of the commission may provide.  The expenses must then 
be paid in the same way as other state expenses are paid.  A 
general summary or statement of expenses incurred by the 
commission and paid must be made to the legislature by November 
15 of each even-numbered year. 
     Subd. 9.  [APPROPRIATION.] $300,000 is appropriated for the 
biennium ending June 30, 1989, from the general fund to the tax 
study commission. 
    Sec. 2.  Minnesota Statutes 1986, section 88.49, is amended 
by adding a subdivision to read: 
    Subd. 9a.  [LAND TRADES WITH GOVERNMENTAL 
UNITS.] Notwithstanding subdivisions 6 and 9, or section 88.491, 
subdivision 2, if an owner trades land under auxiliary forest 
contract for land owned by a governmental unit and the owner 
agrees to use the land received in trade from the governmental 
unit for the production of forest products, upon resolution of 
the county board, no taxes and assessments shall be levied 
against the land traded, except that any current or delinquent 
annual taxes or yield taxes due on that land while it was under 
the auxiliary forest provision must be paid prior to the land 
exchange.  The land received from the governmental unit in the 
land trade automatically qualifies for inclusion in the tree 
growth tax law. 
    Sec. 3.  Minnesota Statutes 1986, section 124.2131, 
subdivision 1, is amended to read: 
    Subdivision 1.  [ADJUSTED ASSESSED VALUE.] (a) 
[COMPUTATION.] The equalization aid review committee, consisting 
of the commissioner of education, the commissioner of 
administration, the commissioner of agriculture, and the 
commissioner of revenue, is hereby continued and permanently 
established.  The duty of this committee shall be to review the 
assessed valuation of the districts of the state.  The 
department of revenue shall annually conduct an assessment/sales 
ratio study of the taxable property in each school district in 
accordance with the procedures referenced in paragraphs (b) and 
(c).  Based upon the results of this assessment/sales ratio 
study, the department of revenue shall determine an aggregate 
equalized assessed value for the various strata of taxable 
property in each school district, which value shall be 
designated as the adjusted assessed value.  The department of 
revenue shall take such steps as are necessary in the 
performance of that duty and may incur such expense as is 
necessary therefor.  The commissioner of revenue is authorized 
to reimburse any county or governmental official for requested 
services performed in ascertaining such adjusted valuation.  On 
or before March 15 annually, the department of revenue shall 
file with the chair of the tax committee of the house of 
representatives and the chair of the committee on taxes and tax 
laws of the senate a report of adjusted assessed values.  On or 
before March June 15, annually, the department of revenue 
shall submit file its final report on the assessed values 
established by the previous year's assessment to said committee 
for approval or rejection and, if approved, such report shall be 
filed not later than the following July 1 with the commissioner 
of education and each county auditor for those school districts 
for which the auditor has the responsibility for determination 
of mill rates.  A copy of the adjusted assessed value so filed 
shall be forthwith mailed to the clerk of each district involved 
and to the county assessor or supervisor of assessments of the 
county or counties in which such each district is located. 
    (b) [METHODOLOGY.] In making its annual assessment/sales 
ratio studies, the department of revenue shall use a methodology 
consistent with the most recent Standard on Assessment Ratio 
Studies published by the assessment standards committee of the 
International Association of Assessing Officers.  The 
commissioner of revenue shall supplement this general 
methodology with specific procedures necessary for proper 
execution of the study in accordance with other Minnesota laws 
impacting the assessment/sales ratio study.  The commissioner 
shall document these specific procedures in writing and shall 
publish the procedures in the State Register, but these 
procedures will not be considered "rules" pursuant to the 
Minnesota administrative procedure act.  By January 15, 1985, 
the commissioner shall report to the chairs of the house tax 
committee and the senate committee on taxes and tax laws the 
results of a study which the commissioner shall prepare 
comparing the 1983 sales ratio study based upon the original 
1983 assessment/sales ratio study methodology with the new 
methodology as provided in clause (b).  The 1984 adjusted 
assessed values which are certified to the commissioner of 
education shall be computed using the 1983 assessment/sales 
ratio study methodology unless the 1985 legislature directs 
otherwise.  
    (c) [AGRICULTURAL LANDS.] For purposes of determining the 
adjusted assessed value of agricultural lands for the 
calculation of 1977 1987 adjusted assessed values and 
thereafter, the market value of agricultural lands shall be the 
arithmetic average of (1) the price for which the property would 
sell in an arms length transaction, and (2) the income which 
could be derived from its free market gross rental rate 
capitalized at a rate of nine percent. 
    Sec. 4.  Minnesota Statutes 1986, section 124.2131, 
subdivision 2, is amended to read: 
    Subd. 2.  [ADJUSTED ASSESSED VALUE; GROWTH LIMIT.] In the 
calculation of adjusted assessed valuations for 1979 1987 and 
each year thereafter, the committee commissioner of revenue 
shall not increase the adjusted assessed valuation of taxable 
property for any school district over the adjusted assessed 
valuation established and filed with the commissioner of 
education for the immediately preceding year by more than the 
greater of (1) 19 percent of the certified adjusted assessed 
valuation established and filed with the commissioner of 
education for the year immediately preceding, or (2) 40 percent 
of the difference between the district's total adjusted assessed 
valuation for the current year calculated without the 
application of this subdivision and the district's certified 
adjusted assessed valuation established and filed with the 
commissioner of education for the immediately preceding year.  
    Sec. 5.  Minnesota Statutes 1986, section 124.2131, 
subdivision 3, is amended to read:  
    Subd. 3.  [DECREASE IN IRON ORE ASSESSED VALUE.] If in any 
year the assessed value of class 9a and 9b iron ore property, as 
defined in section 273.13, subdivision 30, in any district is 
less than the assessed value of such property in the immediately 
preceding year, the equalization aid review 
committee commissioner of revenue shall redetermine for all 
purposes the adjusted assessed value of the immediately 
preceding year taking into account only the decrease in assessed 
value of class 9a and 9b iron ore property.  If subdivision 2, 
clause (a) is applicable to such a district, the decrease 
in class 9a and 9b iron ore property shall be applied to the 
adjusted assessed value as limited therein.  In all other 
respects, the provisions of clause (1) shall be applicable. 
    Sec. 6.  Minnesota Statutes 1986, section 124.2131, 
subdivision 5, is amended to read:  
    Subd. 5.  [ADJUSTED ASSESSED VALUE; APPEALS.] Should any 
district within 60 30 days after receipt of a copy of a report 
filed with the commissioner of education made pursuant to 
subdivision 1 or 3, be of the opinion that the equalization aid 
review committee commissioner of revenue has made an error in 
the determination of the school district's market value, it may 
appeal from the report or portion thereof relating to the school 
district to the commissioner of revenue for a review and 
determination of the matters contained in the appeal.  The 
commissioner shall advise the school district of the 
determination within 30 days.  If the school district wishes to 
appeal the determination of the commissioner, it must file a 
notice of appeal with the tax court, as provided in subdivisions 
6 to 11 within ten days of the notice of determination from the 
commissioner.  
    Sec. 7.  Minnesota Statutes 1986, section 124.2131, 
subdivision 6, is amended to read: 
    Subd. 6.  [NOTICE OF APPEAL.] The school district shall 
file with the court administrator of the tax court a notice of 
appeal from the determination of the equalization aid review 
committee commissioner of revenue fixing the market value of the 
school district, and such notice shall show the basis of the 
alleged error.  A copy of such notice of appeal shall be served 
upon the commissioners commissioner of revenue and education, 
and proof of service shall be filed with the court administrator.
    Sec. 8.  Minnesota Statutes 1986, section 124.2131, 
subdivision 7, is amended to read: 
    Subd. 7.  [HEARING.] Upon receipt of the notice of appeal 
the tax court shall review the notice of appeal and determine 
whether it appears from the allegations and proofs therein 
contained that an error has been made in the determination by 
the equalization aid review committee commissioner of revenue of 
the market value of the property in the school district.  If the 
court finds it probable that such an error has been made, it 
shall notice the matter for hearing; otherwise, it shall dismiss 
the appeal and notify the parties thereof.  Hearing shall be set 
and held in the same manner as other hearings of the tax court 
are set and heard, except that an appeal filed under subdivision 
5 shall take precedence over other appeals pending before the 
court.  The attorney general shall represent the 
commissioners commissioner of revenue and education and 
equalization aid review committee;.  The administrative 
procedure act, sections 14.09 to 14.36, 14.38, 14.44 to 14.45, 
and 14.57 to 14.70, shall apply to hearings insofar as it is 
applicable. 
    Sec. 9.  Minnesota Statutes 1986, section 124.2131, 
subdivision 8, is amended to read: 
    Subd. 8.  [TAX COURT DETERMINATION.] The tax court shall 
hear, consider and determine such appeal, de novo upon the 
issues made by the notice of appeal, if a hearing has been 
granted thereon.  At the conclusion of the hearing the court 
shall (1) file findings of fact, or (2) rerefer refer the issues 
to the equalization aid review committee commissioner of revenue 
with instructions and recommendations for a determination and 
correction of the market value of the appealing school 
district.  The decision of the tax court, if it decides the 
matter de novo, shall have the same force and effect as a 
determination by the equalization aid review committee 
commissioner of revenue in the first instance under this 
section, and the equalization aid review committee commissioner 
of revenue shall be notified thereof.  If the matter is 
rereferred to the equalization aid review committee commissioner 
of revenue, a redetermination by the equalization aid review 
committee commissioner of revenue in accordance with the 
recommendations of the tax court shall likewise have the same 
force and effect as a determination by it in the first instance 
under this section. 
    Sec. 10.  Minnesota Statutes 1986, section 124.2131, 
subdivision 11, is amended to read: 
    Subd. 11.  [AIDS PENDING APPEALS.] During the pendency of 
any appeal from an equalization aid review committee the 
commissioner of revenue evaluation, state aids to the district 
so appealing shall be paid on the basis of the evaluation 
subject to adjustment upon final determination of the appeal. 
    Sec. 11.  Minnesota Statutes 1986, section 124.38, 
subdivision 8, is amended to read: 
    Subd. 8.  "Adjusted assessed valuation" means, as of any 
date, the valuation of all taxable property most recently 
determined by the equalization aid review committee commissioner 
of revenue in accordance with the provisions of section 
124.2131. "Market value" means the value of all taxable property 
in the district on which its net debt limit is based as provided 
in section 475.53, subdivision 4.  
    Sec. 12.  Minnesota Statutes 1986, section 124A.02, 
subdivision 3a, is amended to read:  
    Subd. 3a.  [ADJUSTED ASSESSED VALUATION.] "Adjusted 
assessed valuation" or "EARC valuation" means the assessed 
valuation of the taxable property notwithstanding the provisions 
of section 275.49 of the school district as adjusted by 
the equalization aid review committee commissioner of revenue 
under section 124.2131.  The adjusted assessed valuation for any 
given calendar year shall be used to compute levy limitations 
for levies certified in the succeeding calendar year and aid for 
the school year beginning in the second succeeding calendar year.
    Sec. 13.  Minnesota Statutes 1986, section 124A.02, 
subdivision 8, is amended to read:  
    Subd. 8.  [EQUALIZING FACTOR.] "Equalizing factor" means a 
number equal to the minimum EARC adjusted assessed valuation per 
total pupil unit which disqualifies a district from earning any 
basic foundation aid.  The equalizing factor for each school 
year and for levies for use in that school year equals the 
ratio, rounded to the nearest dollar, of the foundation aid 
formula allowance for that school year to the basic maintenance 
mill rate for that school year.  
    Sec. 14.  Minnesota Statutes 1986, section 124A.08, 
subdivision 5, is amended to read:  
    Subd. 5.  [SECOND TIER LEVY FUND BALANCE.] Beginning with 
the 1983 payable 1984 levy, for a district where the net 
unappropriated operating fund balance as of the June 30 before 
the levy is certified exceeds $500 per total pupil unit in the 
year when the levy is certified, the second tier levy shall be 
reduced by the amount of the excess times the lesser of (a) one, 
or (b) the ratio of the district's EARC adjusted assessed 
valuation for the preceding year per total pupil unit in the 
school year for which the levy is attributable, to the 
equalizing factor.  Beginning with the 1984-1985 school year, 
the second tier aid for the year when that levy is used shall be 
reduced by any amount of the excess which is not subtracted from 
the levy.  
    Sec. 15.  Minnesota Statutes 1986, section 134.33, 
subdivision 1, is amended to read:  
    Subdivision 1.  An establishment grant as described in 
section 134.32, subdivision 2, shall be made to any regional 
public library system for the first two state fiscal years after 
a board of county commissioners has contracted to join that 
system and has agreed that the county will provide the levels of 
support for public library service specified in this section.  
In the first year of participation, the county shall provide an 
amount of support equivalent to .3 mill times the adjusted 
assessed valuation of the taxable property of the county as 
determined by the equalization aid review committee commissioner 
of revenue for the second year preceding that calendar year or 
two-thirds of the per capita amount established under the 
provisions of section 134.34, subdivision 1, whichever amount is 
less.  In the second year of participation and in each year 
thereafter, the county shall provide an amount of support 
equivalent to .4 mill times the adjusted assessed valuation of 
the taxable property of the county as determined by 
the equalization aid review committee commissioner of revenue 
for the second year preceding that calendar year or the per 
capita amount established under the provisions of section 
134.34, subdivision 1, whichever is less.  The minimum level of 
support shall be certified annually to the county by the 
department of education.  In no event shall the department of 
education require any county to provide a higher level of 
support than the level of support specified in this section in 
order for a system to qualify for an establishment grant.  This 
section shall not be construed to prohibit any county from 
providing a higher level of support for public libraries than 
the level of support specified in this section. 
    Sec. 16.  Minnesota Statutes 1986, section 134.34, 
subdivision 1, is amended to read:  
    Subdivision 1.  A regional library basic system support 
grant shall be made to any regional public library system where 
there are at least three participating counties and where each 
participating city and county, except in the first year of 
participation as provided in section 134.33, is providing for 
public library service support the lesser of (a) an amount 
equivalent to .4 mill times the adjusted assessed valuation of 
the taxable property of that city or county, as determined by 
the equalization aid review committee commissioner of revenue 
for the second year preceding that calendar year or (b) a per 
capita amount calculated under the provisions of this 
subdivision.  The per capita amount is established for calendar 
year 1980 as $3.  In succeeding calendar years, the per capita 
amount shall be increased by a percentage equal to one-half of 
the percentage by which the total state adjusted assessed 
valuation of property as determined by the equalization aid 
review committee commissioner of revenue for the second year 
preceding that calendar year increases over that total adjusted 
assessed valuation for the third year preceding that calendar 
year.  The minimum level of support shall be certified annually 
to the participating cities and counties by the department of 
education.  A city which is a part of a regional public library 
system shall not be required to provide this level of support if 
the property of that city is already taxable by the county for 
the support of that regional public library system.  In no event 
shall the department of education require any city or county to 
provide a higher level of support than the level of support 
specified in this section in order for a system to qualify for a 
regional library basic system support grant.  This section shall 
not be construed to prohibit a city or county from providing a 
higher level of support for public libraries than the level of 
support specified in this section.  
    Sec. 17.  Minnesota Statutes 1986, section 134.34, 
subdivision 2, is amended to read:  
    Subd. 2.  Notwithstanding the provisions of section 134.33 
and subdivision 1 of this section, after the second year of 
participation by a city or county, the dollar amount of the 
minimum level of support for that city or county shall not be 
required to increase by more than ten percent over the dollar 
amount of the minimum level of support required of it in the 
previous year.  If a participating city or county which has been 
providing for public library service support in an amount 
equivalent to .67 mill times the assessed valuation of the 
taxable property of that city or county for the year preceding 
that calendar year would be required to increase the dollar 
amount of such support by more than ten percent to reach the 
equivalent of .4 mill times the adjusted assessed valuation of 
the taxable property of that participating city or county as 
determined by the equalization aid review committee commissioner 
of revenue for the second year preceding that calendar year or 
the per capita amount calculated under the provisions of 
subdivision 1, it shall only be required to increase the dollar 
amount of such support by ten percent per year until such time 
as it reaches an amount equivalent to .4 mill times the adjusted 
assessed valuation of that taxable property as determined by the 
equalization aid review committee commissioner of revenue for 
the second year preceding that calendar year or the per capita 
amount calculated under the provisions of subdivision 1.  
    Sec. 18.  Minnesota Statutes 1986, section 270.11, 
subdivision 1, is amended to read: 
    Subdivision 1.  [TO ACT AS STATE BOARD OF EQUALIZATION.] 
The commissioner of revenue shall have and exercise all the 
rights, powers and authority by law vested in the state board of 
equalization, which board of equalization is hereby continued, 
with full power and authority to review, modify, and revise all 
of the acts and proceedings of the commissioner in so far as 
they relate to the equalization and valuation of property 
assessed for taxation, as prescribed by section 270.12, which 
state board of equalization shall meet on August 15 of each year 
during its existence. 
    Sec. 19.  Minnesota Statutes 1986, section 270.11, 
subdivision 2, is amended to read: 
    Subd. 2.  [COUNTY ASSESSOR'S REPORTS OF ASSESSMENT FILED 
WITH COMMISSIONER.] Each county assessor shall file by June 15 
with the commissioner of revenue a copy of the abstract that 
will be acted upon by the county board of review.  The abstract 
must list the real and personal property in the county, as 
equalized by the local board of review or equalization, itemized 
by assessment districts.  A printed or typewritten copy of the 
proceedings of the local board of review or equalization must 
also be filed with the commissioner.  The commissioner of 
revenue may require The assessor of each county in the state to 
shall file with the commissioner, on or before August 1, each 
year, complete abstracts of all real and personal property in 
the county, as equalized by the county board of equalization, 
and itemized by assessment districts, within five working days 
following final action of the county board of equalization, any 
changes made by the county board of equalization.  The 
information must be filed in the manner prescribed by the 
commissioner.  It must be accompanied by a printed or 
typewritten copy of the proceedings of the county board of 
equalization, and it shall be the duty of the county assessor to 
so report to the commissioner of revenue. 
    The final abstract of assessments after adjustments by the 
state board of equalization and inclusion of any omitted 
property shall be submitted to the commissioner of revenue on or 
before January 1 November 15 of each calendar year. 
    Sec. 20.  Minnesota Statutes 1986, section 270.12, 
subdivision 2, is amended to read: 
    Subd. 2.  The board shall meet annually on August 
15 between July 15 and October 1 at the office of the 
commissioner of revenue and examine and compare the returns of 
the assessment of the property in the several counties, and 
equalize the same so that all the taxable property in the state 
shall be assessed at its market value, subject to the following 
rules: 
    (1) The board shall add to the aggregate valuation of the 
real property of every county, which the board believes to be 
valued below its market value in money, such percent as will 
bring the same to its market value in money; 
    (2) The board shall deduct from the aggregate valuation of 
the real property of every county, which the board believes to 
be valued above its market value in money, such percent as will 
reduce the same to its market value in money; 
    (3) If the board believes the valuation of the real 
property of any town or district in any county, or the valuation 
of the real property of any county not in towns or cities, 
should be raised or reduced, without raising or reducing the 
other real property of such county, or without raising or 
reducing it in the same ratio, the board may add to, or take 
from, the valuation of any one or more of such towns or cities, 
or of the property not in towns or cities, such percent as the 
board believes will raise or reduce the same to its market value 
in money; 
    (4) The board shall add to the aggregate valuation of any 
class of personal property of any county, town, or city, which 
the board believes to be valued below the market value thereof, 
such percent as will raise the same to its market value in money;
     (5) The board shall take from the aggregate valuation of 
any class of personal property in any county, town or city, 
which the board believes to be valued above the market value 
thereof, such percent as will reduce the same to its market 
value in money; 
     (6) The board shall not reduce the aggregate valuation of 
all the property of the state, as returned by the several county 
auditors, more than one percent on the whole valuation thereof; 
    (7) When it would be of assistance in equalizing values the 
board may require any county auditor to furnish statements 
showing assessments of real and personal property of any 
individuals, firms, or corporations within the county.  The 
board shall consider and equalize such assessments and may 
increase the assessment of individuals, firms, or corporations 
above the amount returned by the county board of equalization 
when it shall appear to be undervalued, first giving notice to 
such persons of the intention of the board so to do, which 
notice shall fix a time and place of hearing.  The board shall 
not decrease any such assessment below the valuation placed by 
the county board of equalization; and 
    (8) In equalizing values pursuant to this section, the 
board shall utilize a 12-month assessment/sales ratio study 
conducted by the department of revenue containing only sales 
that occurred between October 1 of the year immediately 
preceding the previous year to September 30 of the previous 
year.  The sales prices used in the study must be discounted for 
terms of financing.  The board shall use the median ratio as the 
statistical measure of the level of assessment for any 
particular category of property. 
    Sec. 21.  Minnesota Statutes 1986, section 270.12, 
subdivision 3, is amended to read:  
    Subd. 3.  For taxes levied in 1985 and thereafter When a 
taxing jurisdiction lies in two or more counties, if the sales 
ratio studies prepared by the department of revenue show that 
the average levels of assessment in the several portions of the 
taxing jurisdictions in the different counties differ by more 
than five percent, the board may order the apportionment of the 
levy.  When the sales ratio studies prepared by the department 
of revenue show that the average levels of assessment in the 
several portions of the taxing jurisdictions in the different 
counties differ by more than ten percent, the board shall order 
the apportionment of the levy unless (a) the proportion of total 
adjusted assessed value in one of the counties is less than ten 
percent of the total adjusted assessed value in the taxing 
jurisdiction and the average level of assessment in that portion 
of the taxing jurisdiction is the level which differs by more 
than five percent from the assessment level in any one of the 
other portions of the taxing jurisdiction; (b) significant 
changes have been made in the level of assessment in the taxing 
jurisdiction which have not been reflected in the sales ratio 
study, and those changes alter the assessment levels in the 
portions of the taxing jurisdiction so that the assessment level 
now differs by five percent or less; or (c) commercial, 
industrial, mineral, or public utility property predominates in 
one county within the taxing jurisdiction and another class of 
property predominates in another county within that same taxing 
jurisdiction.  If one or more of these factors are present, the 
board may order the apportionment of the levy.  
    Notwithstanding any other provision, the levy for the 
metropolitan mosquito control district, metropolitan council, 
metropolitan transit district, and metropolitan transit area 
must be apportioned without regard to the percentage difference. 
    If, pursuant to this subdivision, the board apportions the 
levy, then that levy apportionment among the portions in the 
different counties shall be made in the same proportion as the 
adjusted assessed value as determined by the equalization aid 
review committee commissioner in each portion is to the total 
adjusted assessed value of the taxing jurisdiction. 
    For the purposes of this section, the average level of 
assessment in a taxing jurisdiction or portion thereof shall be 
the aggregate assessment sales ratio.  Assessed values as 
determined by the equalization aid review committee commissioner 
shall be the values as determined for the year preceding the 
year in which the levy to be apportioned is levied. 
    Actions pursuant to this subdivision shall be commenced 
subsequent to the annual meeting on August July 15 of the state 
board of equalization, but notice of the action shall be given 
to the affected jurisdiction and the appropriate county auditors 
by the following November 15 October 1. 
    Apportionment of a levy pursuant to this subdivision shall 
be considered as a remedy to be taken after equalization 
pursuant to subdivision 2, and when equalization within the 
jurisdiction would disturb equalization within other 
jurisdictions of which the several portions of the jurisdiction 
in question are a part. 
    Sec. 22.  Minnesota Statutes 1986, section 270.13, is 
amended to read: 
    270.13 [RECORD OF PROCEEDINGS CHANGING ASSESSED VALUATION; 
DUTIES OF COUNTY AUDITOR.] 
    A record of all proceedings of the commissioner of revenue 
affecting any change in the assessed valuation of any property, 
as revised by the state board of equalization, shall be kept by 
the commissioner of revenue and a copy thereof, duly certified, 
shall be mailed each year to the auditor of each county wherein 
such property is situated, on or before November 15 October 1 or 
30 days after submission of the abstract required by section 
270.11, subdivision 2, whichever is later.  This record shall 
specify the amounts or amount, or both, added to or deducted 
from the valuation of the real property of each of the several 
towns and cities, and of the real property not in towns or 
cities, also the percent or amount of both, added to or deducted 
from the several classes of personal property in each of the 
towns and cities, and also the amount added to or deducted from 
the assessments of individuals, copartnerships, associations, or 
corporations.  The county auditor shall add to or deduct from 
such tract or lot, or portion thereof, of any real property in 
the county the required percent or amount, or both, on the 
valuation thereof as it stood after equalized by the county 
board, adding in each case a fractional sum of 50 cents or more, 
and deducting in each case any fractional sum of less than 50 
cents, so that no valuation of any separate tract or lot shall 
contain any fraction of a dollar; and add to, or deduct from, 
the several classes of personal property in the county the 
required percent or amount, or both, on the valuation thereof as 
it stood after equalized by the county board, adding or 
deducting in manner aforesaid any fractional sum so that no 
valuation of any separate class of personal property shall 
contain a fraction of a dollar, and add to or deduct from 
assessments of individuals, copartnerships, associations, or 
corporations, as they stood after equalization by the county 
board, the required amounts to agree with the assessments as 
returned by the commissioner of revenue. 
    Sec. 23.  [270.485] [SENIOR ACCREDITATION.] 
    The legislature finds that the property tax system would be 
enhanced by requiring that every county assessor and senior 
appraiser in the department of revenue's property tax review 
division obtain senior accreditation from the state board of 
assessors.  By January 1, 1989, every county assessor and senior 
appraiser, including the department's regional representatives, 
must obtain senior accreditation from the state board of 
assessors.  The board shall provide the necessary courses or 
training.  If a department senior appraiser or regional 
representative fails to obtain senior accreditation by January 
1, 1989, the failure shall be grounds for dismissal, 
disciplinary action, or corrective action.  After December 30, 
1988, the commissioner must not approve the appointment of a 
county assessor who is not senior accredited by the state board 
of assessors.  No employee hired by the commissioner as a senior 
appraiser or regional representative after June 30, 1987, shall 
attain permanent status until the employee obtains senior 
accreditation. 
    Sec. 24.  Minnesota Statutes 1986, section 270.87, is 
amended to read: 
    270.87 [CERTIFICATION TO COUNTY ASSESSORS.] 
    After making an annual determination of the equalized fair 
market value of the operating property of each company in each 
of the respective counties, and in the taxing districts therein, 
the commissioner shall certify the equalized fair market value 
to the county assessor on or before October 1, which shall 
constitute the equalized fair market value of the operating 
property of the railroad company in such county and the taxing 
districts therein upon which taxes shall be levied and collected 
in the same manner as on the commercial and industrial property 
of such county and the taxing districts therein.  
    Sec. 25.  Minnesota Statutes 1986, section 271.21, 
subdivision 2, is amended to read: 
    Subd. 2.  At the election of the taxpayer, the small claims 
division shall have jurisdiction only in the following matters: 
    (a) any case concerning the valuation, assessment, or 
taxation of residential property homesteaded by the taxpayer; or 
    (b) any other case concerning the tax laws as defined in 
section 271.01, subdivision 5 in which the amount in controversy 
does not exceed $2,500 $5,000, including penalty and interest. 
    Sec. 26.  Minnesota Statutes 1986, section 272.115, 
subdivision 2, is amended to read:  
    Subd. 2.  The certificate of value shall require such facts 
and information as may be determined by the equalization aid 
review committee commissioner to be reasonably necessary in the 
administration of the state education aid formulas. The form of 
the certificate of value shall be prescribed by the department 
of revenue which shall provide an adequate supply of forms to 
each county auditor. 
    Sec. 27.  [272.121] [CURRENT TAX ON DIVIDED PARCELS.] 
    If a deed or other instrument conveys a parcel of land that 
is less than a whole parcel of land as described in the current 
tax list, the county auditor shall not transfer or divide the 
land in the auditor's official records, and the county recorder 
shall not file and record the instrument, unless the instrument 
of conveyance contains a certification by the county treasurer 
that the taxes due in the current tax year for the whole parcel 
have been paid.  This certification is in addition to the 
certification for delinquent tax required by section 272.12.  No 
certification of current tax paid is required for any sheriff's 
or referee's certificate of sale or other instrument if a 
certification of delinquent tax for the instrument is not 
required under section 272.12. 
    Sec. 28.  Minnesota Statutes 1986, section 273.061, 
subdivision 1, is amended to read:  
    Subdivision 1.  [OFFICE CREATED; APPOINTMENT, 
QUALIFICATIONS.] Every county in this state shall have a county 
assessor.  The county assessor shall be appointed by the board 
of county commissioners and shall be a resident of this state.  
The assessor shall be selected and appointed because of 
knowledge and training in the field of property taxation and 
appointment shall be approved by the commissioner of revenue 
before the same shall become effective.  Upon receipt by the 
county commissioners of the commissioner of revenue's refusal to 
approve an appointment, the term of the appointee shall 
terminate at the end of that day.  Notwithstanding any law to 
the contrary, a county assessor must have senior accreditation 
from the state board of assessors by January 1, 1989.  
    Sec. 29.  Minnesota Statutes 1986, section 273.061, 
subdivision 8, is amended to read: 
    Subd. 8.  [POWERS AND DUTIES.] The county assessor shall 
have the following powers and duties: 
    (1)  To call upon and confer with the township and city 
assessors in the county, and advise and give them the necessary 
instructions and directions as to their duties under the laws of 
this state, to the end that a uniform assessment of all real 
property in the county will be attained. 
    (2)  To assist and instruct the local assessors in the 
preparation and proper use of land maps and record cards, in the 
property classification of real and personal property, and in 
the determination of proper standards of value. 
    (3)  To keep the local assessors in the county advised of 
all changes in assessment laws and all instructions which the 
assessor receives from the commissioner of revenue relating to 
their duties. 
    (4)  To have authority to require the attendance of groups 
of local assessors at sectional meetings called by the assessor 
for the purpose of giving them further assistance and 
instruction as to their duties. 
    (5)  To immediately commence the preparation of a large 
scale topographical land map of the county, in such form as may 
be prescribed by the commissioner of revenue, showing thereon 
the location of all railroads, highways and roads, bridges, 
rivers and lakes, swamp areas, wooded tracts, stony ridges and 
other features which might affect the value of the land.  
Appropriate symbols shall be used to indicate the best, the fair 
and the poor land of the county.  For use in connection with the 
topographical land map, the assessor shall prepare and keep 
available in the assessor's office tables showing fair average 
minimum and maximum market values per acre of cultivated, 
meadow, pasture, cut-over, timber and waste lands of each 
township.  The assessor shall keep the map and tables available 
in the office for the guidance of town assessors, boards of 
review, and the county board of equalization. 
    (6)  To also prepare and keep available in the office for 
the guidance of town assessors, boards of review and the county 
board of equalization, a land valuation map of the county, in 
such form as may be prescribed by the commissioner of revenue.  
This map, which shall include the bordering tier of townships of 
each county adjoining, shall show the average market value per 
acre, both with and without improvements, as finally equalized 
in the last assessment of real estate, of all land in each town 
or unorganized township which lies outside the corporate limits 
of cities. 
    (7)  To regularly examine all conveyances of land outside 
the corporate limits of cities of the first and second class, 
filed with the county recorder of the county, and keep a file, 
by descriptions, of the considerations shown thereon.  From the 
information obtained by comparing the considerations shown with 
the market values assessed, the assessor shall make 
recommendations to the county board of equalization of necessary 
changes in individual assessments or aggregate valuations. 
    (8)  To prepare annually and keep available in the 
assessor's office for the guidance of boards of review and the 
county board of equalization, a table showing the market value 
per capita of all personal property in each assessment district 
in the county as finally equalized in the last previous 
assessment of personal property.  For the guidance of the county 
board of equalization, the assessor shall also add to the table 
the market value per capita of all personal property of each 
assessment district for the current year as equalized by the 
local board of review. 
    (9)  To become familiar with the values of the different 
items of personal property so as to be in a position when called 
upon to advise the boards of review and the county board of 
equalization concerning property, market values thereof. 
    (10) While the county board of equalization is in session, 
to give it every possible assistance to enable it to perform its 
duties.  The assessor shall furnish the board with all necessary 
charts, tables, comparisons and data which it requires in its 
deliberations, and shall make whatever investigations the board 
may desire. 
    (11) At the request of either the board of county 
commissioners or the commissioner of revenue, to investigate 
applications for reductions of valuation and abatements and 
settlements of taxes, examine the real or personal property 
involved, and submit written reports and recommendations with 
respect to the applications, in such form as may be prescribed 
by the board of county commissioners and commissioner of revenue.
    (12)  To make diligent search each year for real and 
personal property which has been omitted from assessment in the 
county, and report all such omissions to the county auditor. 
    (13) To regularly confer with county assessors in all 
adjacent counties about the assessment of property in order to 
uniformly assess and equalize the value of similar properties 
and classes of property located in adjacent counties.  The 
conference shall emphasize the assessment of agricultural and 
commercial and industrial property or other properties that may 
have an inadequate number of sales in a single county. 
    (14) To render such other services pertaining to the 
assessment of real and personal property in the county as are 
not inconsistent with the duties set forth in this section, and 
as may be required by the board of county commissioners or by 
the commissioner of revenue. 
    Sec. 30.  Minnesota Statutes 1986, section 273.061, 
subdivision 9, is amended to read: 
    Subd. 9.  [ADDITIONAL GENERAL DUTIES.] Additional duties of 
the county assessor shall be as follows:  (a) to make all 
assessments, based upon the appraised values reported by the 
local assessors or assistants and the county assessor's own 
knowledge of the value of the property assessed; (b) to 
personally view and determine the value of any property which 
because of its type or character may be difficult for the local 
assessor to appraise; (c) to make all changes ordered by the 
local boards of review, relative to the assessed value of the 
property of any individual, firm or corporation after notice has 
been given and hearings held as provided by law.  A local board 
of review shall have the power to reduce assessments upon 
petition of the taxpayer but the total of such adjustments shall 
not reduce the aggregate assessment made by the county assessor 
by more than one percent of said aggregate assessment.  If the 
total of such adjustments would lower the aggregate assessments 
made by the county assessor by more than one percent, none of 
such adjustments shall be allowed.  The assessor shall correct 
any clerical errors or double assessments discovered by the 
board of review without affecting the one percent referred to 
above; (d) to enter all assessments in the assessment books, 
furnished by the county auditor, with each book and the tabular 
statements for each book in correct balance; (e) to prepare all 
assessment cards, charts, maps and any other forms prescribed by 
the commissioner of revenue; (f) to attend the meeting of the 
county board of equalization; to investigate and report on any 
assessment ordered by said board; to enter all changes made by 
said board in the assessment books and prepare the abstract of 
assessments for the commissioner of revenue; to enter all 
changes made by the state board of equalization in the 
assessment books; to deduct all exemptions authorized by law 
from each assessment and certify to the county auditor the 
taxable value of each parcel of land, as described and listed in 
the assessment books by the county auditor, and the taxable 
value of the personal property of each person, firm, or 
corporation assessed; (g) to investigate and make 
recommendations relative to all applications for the abatement 
of taxes or applications for the reduction of the assessed 
valuation of any property; (h) to perform all other duties 
relating to the assessment of property for the purpose of 
taxation which may be required by the commissioner of revenue. 
    Sec. 31.  Minnesota Statutes 1986, section 273.065, is 
amended to read:  
    273.065 [DELIVERY OF ASSESSMENT APPRAISAL RECORDS; 
EXTENSIONS.] 
    Assessment districts shall complete the assessment 
appraisal records on or before May 1 March 15.  The records 
shall be delivered to the county assessor as of that date and 
any work which is the responsibility of the local assessor which 
is not completed by May 1 March 15 shall be accomplished by the 
county assessor or persons employed by the county assessor and 
the cost of such work shall be charged against the assessment 
district as provided in section 273.064.  Extensions of time to 
complete the assessment appraisal records may be granted to the 
local assessor by the county assessor if such extension is 
approved by the county board.  
    Sec. 32.  Minnesota Statutes 1986, section 273.11, is 
amended by adding a subdivision to read: 
    Subd. 10.  [VALUATION OF AGRICULTURAL LAND.] Annually on 
November 15, beginning in 1988 and each year thereafter, the 
commissioner of revenue shall provide county assessors with a 
land valuation schedule showing a range of values to be used in 
the valuation of agricultural lands for the succeeding year's 
assessment.  The land valuation schedule shall be developed 
matching the sales data obtained on the certificates of real 
estate value filed in the 12-month period between October 1 of 
the year immediately preceding to September 30 of the current 
year with information obtained from soil surveys.  A range of 
values for each major soil type by region will be provided.  
Counties having similar soil types, number of degree days, and 
other similar characteristics will be grouped into regions for 
purposes of the valuation schedule.  The department of revenue, 
in consultation with the county assessors, shall develop the 
land valuation schedule. 
    Sec. 33.  Minnesota Statutes 1986, section 273.1102, is 
amended to read:  
    273.1102 [RATE OF TAX, TERMINOLOGY OF LAWS OR CHARTERS.] 
    The rate of property taxation by any political subdivision 
or other public corporation for any purpose for which any law or 
charter now provides a maximum tax rate expressed in mills times 
the assessed value or times the full and true value of taxable 
property (except any value adjusted assessed values determined 
by the state equalization aid review committee by the 
commissioner under section 124.2131) shall not exceed 33-1/3 
percent of such maximum tax rate until and unless such law or 
charter is amended to provide a different maximum tax rate.  
    Sec. 34.  Minnesota Statutes 1986, section 273.1103, is 
amended to read:  
    273.1103 [NET DEBT, TERMINOLOGY OF LAWS OR CHARTERS.] 
    Net debt incurred by any political subdivision or other 
public corporation for which any law or any charter provision 
provides a limit expressed as a percentage of the assessed value 
or the full and true value of taxable property (except 
any adjusted assessed value determined by the state equalization 
aid review committee commissioner under section 124.2131) shall 
not exceed 33-1/3 percent of such limit until and unless such 
law or charter is amended to provide a different limit.  
    Sec. 35.  Minnesota Statutes 1986, section 273.33, 
subdivision 2, is amended to read: 
    Subd. 2.  The personal property, consisting of the pipeline 
system of mains, pipes and equipment attached thereto, of 
pipeline companies and others engaged in the operations or 
business of transporting natural gas, gasoline, crude oil, or 
other petroleum products by pipe lines, shall be listed with and 
assessed by the commissioner of revenue.  This subdivision shall 
not apply to the assessment of the products transported through 
the pipe lines nor to the lines of local commercial gas 
companies engaged primarily in the business of distributing gas 
to consumers at retail nor to pipe lines used by the owner 
thereof to supply natural gas or other petroleum products 
exclusively for such owner's own consumption and not for resale 
to others.  On or before the fifteenth day of November October 
1, the commissioner shall certify to the auditor of each county, 
the amount of such personal property assessment against each 
company in each district in which such property is located. 
    Sec. 36.  Minnesota Statutes 1986, section 273.37, 
subdivision 2, is amended to read: 
    Subd. 2.  Transmission lines of less than 69 kv, 
transmission lines of 69 kv and above located in an unorganized 
township, and distribution lines, and equipment attached 
thereto, having a fixed situs outside the corporate limits of 
cities except distribution lines taxed as provided in sections 
273.40 and 273.41, shall be listed with and assessed by the 
commissioner of revenue in the county where situated.  The 
commissioner shall assess such property at the percentage of 
market value fixed by law; and, on or before the 15th day of 
November October 1, shall certify to the auditor of each county 
in which such property is located the amount of the assessment 
made against each company and person owning such property. 
    Sec. 37.  Minnesota Statutes 1986, section 274.01, 
subdivision 1, is amended to read: 
    Subdivision 1.  (a) The town board of each town, the 
council or other governing body of each city, except in cities 
whose charters provide for a board of equalization, shall be a 
board of review.  The county assessor shall fix a day and time 
when each of such boards board and the board of equalization of 
any city whose charter provides for a board of equalization 
shall meet in the several assessment districts of the county, 
and shall on or before April 1st February 15 of each year give 
written notice thereof to the clerk.  Such meetings 
Notwithstanding the provisions of any charter to the contrary 
shall, the meeting must be held between April 1st and June 
30th May 31 in each year, and.  The clerk shall give published 
and posted notice of such the meeting at least ten days prior to 
the date fixed.  Such The board shall meet at the office of the 
clerk to review the assessment and classification of property in 
such town or district, and immediately proceed to examine and 
see that all taxable property in the town or district has been 
properly placed upon the list, and duly valued by the assessor.  
In case If any property, real or personal shall have has been 
omitted, the board shall place it upon the list with its market 
value, and correct the assessment so that each tract or lot of 
real property, and each article, parcel, or class of personal 
property, shall be is entered on the assessment list at its 
market value; but no assessment of the property of any person 
shall be raised until the person has been duly notified of the 
intent of the board so to do.  On application of any person 
feeling aggrieved, the board shall review the assessment or 
classification or both, and correct it as shall appear just.  A 
majority of the members may act at such meeting, and adjourn 
from day to day until they finish the hearing of all cases 
presented. The assessor shall attend, with the assessment books 
and papers, and take part in the proceedings, but shall not 
vote.  The county assessor, or an assistant delegated by the 
county assessor shall attend such meetings.  The board shall 
list separately, on a form appended to the assessment book, all 
omitted property added to the list by the board and all items of 
property increased or decreased, with the market value of each 
item of property, added or changed by the board, placed opposite 
such item.  The county assessor shall enter all changes made by 
the board in the assessment book. 
    (b) If a person fails to appear in person, by counsel, or 
by written communication before the board after being duly 
notified of the board's intent to raise the assessment of the 
property, or if a person feeling aggrieved by an assessment or 
classification fails to apply for a review of the assessment or 
classification, the person may not appear before the county 
board of equalization for a review of the assessment or 
classification, except when an assessment was made subsequent to 
the meeting of the board, as provided in section 273.01, or that 
the person can establish not having received notice of market 
value at least five days before the local board of review 
meeting. 
    (c) A local board of review may reduce assessments upon 
petition of the taxpayer but the total reductions must not 
reduce the aggregate assessment made by the county assessor by 
more than one percent.  If the total reductions would lower the 
aggregate assessments made by the county assessor by more than 
one percent, none of the adjustments may be made.  The assessor 
shall correct any clerical errors or double assessments 
discovered by the board of review without regard to the one 
percent limitation. 
    (d) The board of review, and the board of equalization of 
any city, unless a longer period is approved by the commissioner 
of revenue, shall complete its work and adjourn within 20 days 
from the time of convening specified in the notice of the clerk 
and no action taken subsequent to such date shall be valid.  All 
complaints in reference to any assessment or classification made 
after the meeting of such board, shall be heard and determined 
by the county board of equalization.  Any nonresident may, at 
any time, before the meeting of the board of review file written 
objections to an assessment or classification with the county 
assessor and if any such objections are filed they shall be 
presented to the board of review at its meeting by the county 
assessor for its consideration. 
    Sec. 38.  Minnesota Statutes 1986, section 274.14, is 
amended to read: 
    274.14 [LENGTH OF SESSION; RECORD.] 
    The county board of equalization or the special board of 
equalization appointed by it may continue in session and adjourn 
from time to time commencing on the first Monday following the 
fourth day of July or, if the first Monday following the fourth 
day of July is a legal holiday, the first Tuesday following the 
fourth day of July and ending on or before the tenth following 
working day, when it shall adjourn and no action taken 
subsequent to the day of adjournment shall be valid unless a 
longer session period is approved by the commissioner of revenue 
meet during the last two weeks in June.  The commissioner may 
extend the session period to August 10 July 15 but no action 
taken by the county board of review after the extended 
termination date shall be valid.  The county auditor shall keep 
an accurate record of the proceedings and orders of the board, 
which record shall be published in the same manner as other 
proceedings of county commissioners.  A copy of such the 
published record shall must be transmitted to the commissioner 
of revenue, with the abstract of assessment required by section 
274.16.  
    Sec. 39.  Minnesota Statutes 1986, section 274.16, is 
amended to read: 
    274.16 [CORRECTED LISTS, ABSTRACTS.] 
    The county assessor or, in Ramsey county, the official 
designated by the board of county commissioners shall calculate 
the changes of the assessment lists determined by the county 
board of equalization, and make corrections accordingly, in the 
real or personal lists, or both, and shall make duplicate 
abstracts of the same; one shall be filed in the assessor's 
office, and one shall be forwarded to the commissioner of 
revenue on or before August 1 as provided in section 270.11, 
subdivision 2. 
    Sec. 40.  Minnesota Statutes 1986, section 275.07, 
subdivision 1, is amended to read: 
    Subdivision 1.  The taxes voted by cities, towns, and 
school districts shall be certified by the proper authorities to 
the county auditor on or before October 10 in each year.  If a 
city, town, county, school district or special district fails to 
certify its levy by that date, its levy shall be the amount 
levied by it for the preceding year.  If the local unit notifies 
the commissioner of revenue before October 10 of its inability 
to certify its levy by that date, and the commissioner is 
satisfied that the delay is unavoidable and is not due to the 
negligence of the local unit's officials or staff, the 
commissioner shall extend the time within which the local unit 
shall certify its levy up to 15 calendar days beyond the date of 
request for extension.  For 1988 only, the commissioner may 
extend the certification time to November 7 if the requirements 
of this subdivision are met.  
    Sec. 41.  Minnesota Statutes 1986, section 275.125, 
subdivision 9, is amended to read:  
    Subd. 9.  [LEVY REDUCTIONS; TACONITE.] (1) Reductions in 
levies pursuant to subdivision 10, and section 273.138, shall be 
made prior to the reductions in clause (2). 
    (2) Notwithstanding any other law to the contrary, 
districts which received payments pursuant to sections 294.21 to 
294.26; 298.23 to 298.28, except an amount distributed under 
section 298.28, subdivision 4, paragraph (c), clause (ii); 
298.34 to 298.39; 298.391 to 298.396; 298.405; 298.51 to 298.67; 
477A.15; and any law imposing a tax upon severed mineral values, 
or under any other law distributing proceeds in lieu of ad 
valorem tax assessments on copper or nickel properties, or 
recognized revenue pursuant to section 477A.15; shall not 
include a portion of these aids in their permissible levies 
pursuant to those sections, but instead shall reduce the 
permissible levies authorized by this section and sections 
124A.03, 124A.06, subdivision 3a, 124A.08, subdivision 3a, 
124A.10, subdivision 3a, 124A.12, subdivision 3a, 124A.14, 
subdivision 5a, and 124A.20, subdivision 2, by the greater of 
the following: 
    (a) an amount equal to 50 percent of the total dollar 
amount of the payments received pursuant to those sections or 
revenue recognized pursuant to section 477A.15 in the previous 
fiscal year; or 
    (b) an amount equal to the total dollar amount of the 
payments received pursuant to those sections or revenue 
recognized pursuant to section 477A.15 in the previous fiscal 
year less the product of the same dollar amount of payments or 
revenue times the ratio of the maximum levy allowed the district 
under sections 124A.03, subdivision 2, 124A.06, subdivision 3a, 
124A.08, subdivision 3a, 124A.10, subdivision 3a, 124A.12, 
subdivision 3a, and 124A.14, subdivision 5a, to the total levy 
allowed the district under this section and sections 124A.03, 
124A.06, subdivision 3a, 124A.08, subdivision 3a, 124A.10, 
subdivision 3a, 124A.12, subdivision 3a, 124A.14, subdivision 
5a, and 124A.20, subdivision 2, in the year in which the levy is 
certified. 
    (3) No reduction pursuant to this subdivision shall reduce 
the levy made by the district pursuant to section 124A.03, 
subdivision 1, to an amount less than the amount raised by a 
levy of 12.5 mills times the adjusted assessed valuation of that 
district for the preceding year as determined by 
the equalization aid review committee commissioner.  The amount 
of any increased levy authorized by referendum pursuant to 
section 124A.03, subdivision 2 shall not be reduced pursuant to 
this subdivision.  The amount of any levy authorized by 
subdivision 4, to make payments for bonds issued and for 
interest thereon, shall not be reduced pursuant to this 
subdivision.  
    (4) Before computing the reduction pursuant to this 
subdivision of the capital expenditure levy authorized by 
subdivision 11a, and the community service levy authorized by 
subdivision 8, the commissioner shall ascertain from each 
affected school district the amount it proposes to levy for 
capital expenditures pursuant to subdivision 11a and for 
community services pursuant to subdivision 8.  The reduction of 
the capital expenditure levy and the community services levy 
shall be computed on the basis of the amount so ascertained. 
    (5) Notwithstanding any law to the contrary, any amounts 
received by districts in any fiscal year pursuant to sections 
294.21 to 294.26; 298.23 to 298.28; 298.34 to 298.39; 298.391 to 
298.396; 298.405; 298.51 to 298.67; or any law imposing a tax on 
severed mineral values, or under any other law distributing 
proceeds in lieu of ad valorem tax assessments on copper or 
nickel properties; and not deducted from foundation aid pursuant 
to section 124A.035, subdivision 5, clause (2), and not applied 
to reduce levies pursuant to this subdivision shall be paid by 
the district to the St. Louis county auditor in the following 
amount by March 15 of each year except 1986, the amount required 
to be subtracted from the previous fiscal year's foundation aid 
pursuant to section 124A.035, subdivision 5, which is in excess 
of the foundation aid earned for that fiscal year.  The county 
auditor shall deposit any amounts received pursuant to this 
clause in the St. Louis county treasury for purposes of paying 
the taconite homestead credit as provided in section 273.135. 
    Sec. 42.  Minnesota Statutes 1986, section 275.125, 
subdivision 9b, is amended to read:  
    Subd. 9b.  [OPERATING DEBT LEVY.] (1) Each year, a district 
may make an additional levy to eliminate a deficit in the net 
unappropriated operating funds of the district, determined as of 
June 30, 1983, and certified and adjusted by the commissioner.  
This levy may in each year be an amount not to exceed the amount 
raised by a levy of 1.5 mills times the adjusted assessed 
valuation of the district for the preceding year as determined 
by the equalization aid review committee commissioner.  However, 
the total amount of this levy for all years it is made shall not 
exceed the lesser of (a) the amount of the deficit in the net 
unappropriated operating funds of the district as of June 30, 
1983, or (b) the amount of the aid reduction, according to Laws 
1981, Third Special Session chapter 2, article 2, section 2, but 
excluding clauses (l), (m), (n), (o), and (p), and Laws 1982, 
Third Special Session chapter 1, article 3, section 6, to the 
district in fiscal year 1983.  When the cumulative levies made 
pursuant to this subdivision equal the total amount permitted by 
this subdivision, the levy shall be discontinued.  
    (2) The proceeds of this levy shall be used only for cash 
flow requirements and shall not be used to supplement district 
revenues or income for the purposes of increasing the district's 
expenditures or budgets.  
    (3) Any district which levies pursuant to this subdivision 
shall certify the maximum levy allowable under section 124A.03, 
subdivision 1 or 3 in that same year. 
    Sec. 43.  Minnesota Statutes 1986, section 275.125, 
subdivision 15, is amended to read:  
    Subd. 15.  [ADJUSTMENTS.] If any school district levy is 
found to be excessive as a result of a decision of the tax court 
or a redetermination by the equalization aid review committee 
commissioner of revenue under section 124.2131, subdivisions 2 
to 11 or for any other reason, the amount of the excess shall be 
deducted from the levy certified in the next year for the same 
purpose; provided that if no levy is certified in the next year 
for the same purpose or if the amount certified is less than the 
amount of the excess, the excess shall be deducted from that 
levy and the levy certified pursuant to section 124A.03, 
subdivision 1.  If any aid entitlement pursuant to sections 
124.225, 124.245, and 124A.02 would have been increased in a 
prior year as a result of a decision of the tax court or a 
redetermination by the equalization aid review 
committee commissioner, the amount of the increase shall be 
added to the current aid entitlement for the same purposes. 
    Sec. 44.  Minnesota Statutes 1986, section 276.11, is 
amended to read:  
    276.11 [WHEN TREASURER SHALL PAY FUNDS FROM MARCH AND MAY 
SETTLEMENTS.] 
    Subdivision 1.  [GENERALLY.] As soon as practical after the 
March and May settlements the county treasurer shall pay over to 
the state treasurer or the treasurer of any town, city, school 
district, or special district, on the warrant of the county 
auditor, all receipts arising from taxes levied by and belonging 
to the state, or to such municipal corporation, or other body, 
and deliver up all orders and other evidences of indebtedness of 
such municipal corporation or other body, taking triplicate 
receipts therefor.  The treasurer shall file one of the receipts 
with the county auditor, and shall return one by mail on the day 
of its reception to the clerk of the town, city, school 
district, or special district to which payment was made.  The 
clerk shall preserve the receipt in the clerk's office.  Upon 
written request of the state, a municipal corporation or other 
public body, the county treasurer shall, to the extent 
practicable, make partial payments of amounts collected 
periodically in advance of the next settlement and 
distribution.  Accompanying each payment shall be a statement 
prepared by the county treasurer designating the years for which 
taxes included in the payment were collected and, for each year, 
the amount of the taxes and any penalties thereon.  The county 
treasurer shall pay, upon written request of the state, a 
municipal corporation or other public body except school 
districts, at least 70 percent of the estimated collection 
within 30 days after the March and May settlement dates.  Within 
seven business days after the due date, the county treasurer 
shall pay to the treasurer of the school districts 50 percent of 
the estimated collections arising from taxes levied by and 
belonging to the school district and the remaining 50 percent of 
the estimated collections shall be paid to the treasurer of the 
school district within the next seven business days.  The 
treasurer shall pay the balance of the amounts collected to the 
state or to a municipal corporation or other body within 60 days 
after the March and May settlement dates, provided, however, 
that after 45 days interest shall accrue at a rate of eight 
percent per annum to the credit of and shall be paid to the 
state, municipal corporation or other body.  Interest shall be 
payable upon appropriation from the general revenue fund of the 
county and, if not paid, may be recovered by the state, 
municipal corporation, or other body, in a civil action. 
    Subd. 2.  [DEFINITION.] For purposes of this section and 
section 276.111, "estimated collections" includes estimated 
collections of taxes and special assessments, and penalties and 
interest due to the taxing district. 
    Subd. 3.  [APPEAL.] The treasurer or other appropriate 
fiscal officer of a town, city, school district, or special 
district may appeal to the county board the determination of the 
amount of estimated collections by the county treasurer under 
this section or section 276.111.  If the county board finds that 
the amount of estimated collections has been determined by the 
county treasurer incorrectly, resulting in underpayment to the 
local taxing districts, it shall order the county treasurer to 
pay the additional amount necessary to comprise the correct 
estimated collection amount. 
    Sec. 45.  [276.19] [UNCLAIMED OVERPAYMENTS.] 
    Subdivision 1.  [NOTICE OF OVERPAYMENT.] If an overpayment 
of property tax arises on a parcel for any reason, the 
responsible county official shall promptly notify the payer by 
regular mail that the overpayment has occurred.  The notice must 
state the amount of overpayment and identify the parcel on which 
the overpayment occurred.  The notice must also instruct the 
payer how to claim the overpayment and advise that the 
overpayment is subject to forfeiture under this section.  If the 
name or address of the payer is not known, the notice of 
unclaimed overpayment must be mailed to the taxpayer of record 
in the office of the county auditor.  
    Subd. 2.  [FAILURE TO CLAIM REFUND.] If the person entitled 
to the refund fails to claim the overpayment within three years 
after the date of overpayment, the county auditor shall cause 
notice to be published at least once in an English language 
newspaper of general circulation in the county.  The county 
board shall designate the newspaper of publication that in the 
judgment of the board is most likely to be read by the 
claimants, notwithstanding any law to the contrary.  The 
published notice must be called "Notice of unclaimed property 
tax refunds."  The notice must contain: 
    (1) the names in alphabetical order and last known 
addresses, if any, of persons listed in the notice that may be 
entitled to unclaimed property tax refund; 
    (2) a statement that information concerning the amount of 
overpayment and affected property may be obtained from the 
county auditor at the address given in the notice; and 
    (3) a statement that if proof of claim is not presented to 
the county auditor within 90 days from the date of publication 
of notice, the overpayment will be considered abandoned and all 
claims to property tax overpayment will be forfeited. 
    The county auditor is not required to include and publish 
in the notice any item of less than $25 overpaid on a parcel. 
    Subd. 3.  [DISTRIBUTION OF REFUNDS.] If the person entitled 
to the refund fails to claim the overpayment within the time 
provided in this section, the county auditor shall distribute 
the refund to the affected taxing districts in proportion to the 
amount of their respective taxes included in the levy for the 
tax year overpaid.  At the option of the county auditor, the 
overpayment may be distributed to the affected taxing districts 
in proportion to the current tax year levy.  
    Subd. 4.  [APPLICABILITY.] Sections 345.31 to 345.60 do not 
apply to unclaimed property tax refunds, overpayments, and 
warrants. 
    Sec. 46.  Minnesota Statutes 1986, section 277.01, is 
amended to read:  
    277.01 [WHEN TAX IS DELINQUENT; PENALTY.] 
    Subdivision 1.  All unpaid personal property taxes where 
the amount is $10 $50 or less shall be deemed delinquent on the 
later of March 1 next after they become due or 30 days after the 
postmark date on the envelope containing the property tax 
statement, and thereupon a penalty of eight percent shall attach 
and be charged upon all such taxes.  When the amount of such tax 
exceeds the sum of $10 $50 the first half shall become 
delinquent if not paid prior to March 1 or 30 days after the 
postmark date on the envelope containing the property tax 
statement, whichever is later, and thereupon a penalty of eight 
percent shall attach on such unpaid first half.  The second half 
of a tax in excess of $10 $50 shall become delinquent if not 
paid prior to July 1 and thereupon a penalty of eight percent 
shall attach on such unpaid second half.  This section shall not 
apply to class 2a property.  
    A county may provide by resolution that in the case of a 
property owner that has multiple personal property tax 
statements with the aggregate taxes exceeding $50, payments may 
be made in installments as provided in this subdivision. 
    The county treasurer may accept payments of more or less 
than the exact amount of a tax installment due.  If the accepted 
payment is less than the amount due, payments must be applied 
first to the penalty accrued for the year the payment is made.  
Acceptance of partial payment of tax does not constitute a 
waiver of the minimum payment required as a condition for filing 
an appeal under section 277.011 or any other law, nor does it 
affect the order of payment of delinquent taxes under section 
280.39. 
    Sec. 47.  Minnesota Statutes 1986, section 278.05, 
subdivision 4, is amended to read:  
    Subd. 4.  [SALES RATIO STUDIES AS EVIDENCE.] The sales 
ratio studies published by the department of revenue, or any 
part of the studies, or any copy of the studies or records 
accumulated to prepare the studies which is prepared by the 
commissioner of revenue for the equalization aid review 
committee for use in determining school aids shall be admissible 
in evidence as a public record without the laying of a 
foundation if the sales prices used in the study are adjusted 
for the terms of the sale to reflect market value and are 
adjusted to reflect the difference in the date of sale compared 
to the assessment date.  Additional evidence relevant to the 
sales ratio study is also admissible.  No sales ratio study 
received into evidence shall be conclusive or binding on the 
court and evidence of its reliability or unreliability may be 
introduced by any party including, but not limited to, evidence 
of inadequate adjustment of sale prices for terms of financing, 
inadequate adjustment of sales prices to reflect the difference 
in the date of sale compared to the assessment date, and 
inadequate sample size.  
    No reduction in value on the grounds of discrimination 
shall be granted on the basis of a sales ratio study published 
by the department of revenue unless 
    (a) the sales prices are adjusted for the terms of the sale 
to reflect market value, 
    (b) the sales prices are adjusted to reflect the difference 
in the date of sale compared to the assessment date, and 
    (c) there is an adequate sample size. 
    Sec. 48.  Minnesota Statutes 1986, section 279.01, 
subdivision 1, is amended to read:  
    Subdivision 1.  Except as provided in subdivision 3, on May 
16, of each year, with respect to property actually occupied and 
used as a homestead by the owner of the property, a penalty of 
three percent shall accrue and thereafter be charged upon all 
unpaid taxes on real estate on the current lists in the hands of 
the county treasurer, and a penalty of seven percent on 
nonhomestead property, except that this penalty shall not accrue 
until June 1 of each year on commercial use real property used 
for seasonal residential recreational purposes and classified as 
class 1c or 6a, and on other commercial use real property 
classified as class 3a, provided that over 60 percent of the 
gross income earned by the enterprise on the class 3a property 
is earned during the months of May, June, July, and August.  Any 
property owner of such class 3a property who pays the first half 
of the tax due on the property after May 15 and before June 1 
shall attach an affidavit to the payment attesting to compliance 
with the income provision of this subdivision.  Thereafter, for 
both homestead and nonhomestead property, on the 16th day of 
each month, up to and including October 16 following, an 
additional penalty of one percent for each month shall accrue 
and be charged on all such unpaid taxes.  When the taxes against 
any tract or lot exceed $50, one-half thereof may be paid prior 
to May 16; and, if so paid, no penalty shall attach; the 
remaining one-half shall be paid at any time prior to October 16 
following, without penalty; but, if not so paid, then a penalty 
of four percent shall accrue thereon for homestead property and 
a penalty of four percent on nonhomestead property.  Thereafter, 
for homestead property, on the 16th day of each month up to and 
including December 16 following, an additional penalty of two 
percent for each month shall accrue and be charged on all such 
unpaid taxes.  Thereafter, for nonhomestead property, on the 
16th day of each month up to and including December 16 
following, an additional penalty of four percent for each month 
shall accrue and be charged on all such unpaid taxes.  If 
one-half of such taxes shall not be paid prior to May 16, the 
same may be paid at any time prior to October 16, with accrued 
penalties to the date of payment added, and thereupon no penalty 
shall attach to the remaining one-half until October 16 
following; provided, also, that the same may be paid in 
installments as follows:  One-fourth prior to March 16; 
one-fourth prior to May 16; one-fourth prior to August 16; and 
the remaining one-fourth prior to October 16, subject to the 
aforesaid penalties.  Where the taxes delinquent after October 
16 against any tract or parcel exceed $100, upon resolution of 
the county board, they may be paid in installments of not less 
than 25 percent thereof, together with all accrued penalties and 
costs, up to the next tax judgment sale, and after such payment, 
penalties, interest, and costs shall accrue only on the sum 
remaining unpaid.  Any county treasurer who shall make out and 
deliver or countersign any receipt for any such taxes without 
including all of the foregoing penalties therein, shall be 
liable to the county for the amount of such penalties.  
    A county may provide by resolution that in the case of a 
property owner that has multiple tracts or parcels with 
aggregate taxes exceeding $50, payments may be made in 
installments as provided in this subdivision. 
    The county treasurer may accept payments of more or less 
than the exact amount of a tax installment due.  If the accepted 
payment is less than the amount due, payments must be applied 
first to the penalty accrued for the year the payment is made.  
Acceptance of partial payment of tax does not constitute a 
waiver of the minimum payment required as a condition for filing 
an appeal under section 278.03 or any other law, nor does it 
affect the order of payment of delinquent taxes under section 
280.39. 
    Sec. 49.  Minnesota Statutes 1986, section 282.014, is 
amended to read:  
    282.014 [COMPLETION OF SALE AND CONVEYANCE.] 
    Upon compliance by the purchaser with the provisions of 
sections 282.011 to 282.015 and with the terms and conditions of 
the sale, and upon full payment for the land, plus a $10 $20 fee 
in addition to the sale price, the sale shall be complete and a 
conveyance of the land shall be issued to the purchaser as 
provided by the appropriate statutes according to the status of 
the land upon forfeiture. 
    The conveyance must be forwarded to the county recorder who 
shall record the conveyance before the auditor issues it to the 
purchaser. 
    Sec. 50.  Minnesota Statutes 1986, section 282.02, is 
amended to read:  
    282.02 [LIST OF LANDS OFFERED FOR SALE.] 
    Immediately after classification and appraisal of the land, 
and after approval by the commissioner of natural resources when 
required pursuant to section 282.01, subdivision 3, the county 
board shall provide and file with the county auditor a list of 
parcels of land to be offered for sale.  This list shall contain 
a description of the parcels of land and the appraised value 
thereof; provided that the description and appraised value may 
be omitted in the discretion of the county board.  The auditor 
shall publish a notice of the forfeiture and intended public 
sale of such parcels of land and a copy of the resolution of the 
county board fixing the terms of the sale, if other than for 
cash only, by publication once a week for two weeks in the 
official newspaper of the county, the last publication to be not 
less than ten days previous to the commencement of the sale.  
    A notice in substantially the following form shall be 
sufficient: 
    "Notice is hereby given that I shall sell to the highest 
bidder, at my office in the courthouse in the city of 
........................................, in the county of 
......................., the following described parcels of land 
forfeited to the state for nonpayment of taxes which have been 
classified and appraised as provided by law.  Such sale will be 
governed, as to terms, by the resolution of the county board 
authorizing the same, and commence at .......... o'clock a.m., 
on the ..............  day of ........................., 
19........... 
    Description .............. Appraised value 
      Subdivision Sec.    Twp.    Range       $
           or      or
          Lot    Block
Given under my hand and seal this .... day of ..........., 19..
                                         ......................
                                             County Auditor,
                                  .......... County, Minnesota."
   The notice shall include the parcel's description and 
appraised value.  The notice shall also indicate the amount of 
any special assessments which may be the subject of a 
reassessment or new assessment or which may result in the 
imposition of a fee or charge pursuant to sections 429.071, 
subdivision 4, 435.23, and 444.076.  The county auditor shall 
also mail notice to the owners of land adjoining the parcel to 
be sold and to the owners of platted or unplatted land whose 
boundaries are within 300 feet of the boundaries of a parcel 
offered for sale having an appraised value of $1,000 or more.  
For purposes of this section, "owner" means the taxpayer as 
listed in the records of the county auditor.  
    If the county board of St. Louis or Koochiching counties 
determines that the sale shall take place in a county facility 
other than the courthouse, the notice shall specify the facility 
and its location. 
    Sec. 51.  Minnesota Statutes 1986, section 282.241, is 
amended to read:  
    282.241 [REPURCHASE AFTER FORFEITURE FOR TAXES.] 
    The owner at the time of forfeiture or the owner's heirs, 
devisees, or representatives, or any person to whom the right to 
pay taxes was given by statute, mortgage, or other agreement, 
may repurchase any parcel of land claimed by the state to be 
forfeited to the state for taxes unless prior to the time 
repurchase is made such parcel shall have been sold under 
installment payments, or otherwise, by the state as provided by 
law, or is under mineral prospecting permit or lease, or 
proceedings have been commenced by the state or any of its 
political subdivisions or by the United States to condemn such 
parcel of land.  Said parcel of land may be repurchased for a 
sum equal to the aggregate of all delinquent taxes and 
assessments computed as provided by section 282.251, together 
with penalties, interest, and costs, which did or would have 
accrued if such parcel of land had not forfeited to the state.  
Except for property which was homesteaded on the date of 
forfeiture, such repurchase shall be permitted during one year 
only from the date of forfeiture, and in any case only after the 
adoption of a resolution by the board of county commissioners 
determining that thereby undue hardship or injustice resulting 
from the forfeiture will be corrected, or that permitting such 
repurchase will promote the use of such lands that will best 
serve the public interest; provided further such.  If the county 
board has good cause to believe that a repurchase installment 
payment plan for a particular parcel is unnecessary and not in 
the public interest, the county board may require as a condition 
of repurchase that the entire repurchase price be paid at the 
time of repurchase.  A repurchase shall be subject to any 
easement, lease or other encumbrance granted by the state prior 
thereto, and if said land is located within a restricted area 
established by any county under Laws 1939, Chapter 340, such 
repurchase shall not be permitted unless said resolution with 
respect thereto is adopted by the unanimous vote of the board of 
county commissioners. 
    Sec. 52.  Minnesota Statutes 1986, section 282.33, 
subdivision 1, is amended to read:  
    Subdivision 1.  Whenever an unrecorded deed from the state 
of Minnesota conveying tax-forfeited lands shall have been lost 
or destroyed, an application, in form approved by the attorney 
general, for a new deed may be made by the grantee or the 
grantee's successor in interest to the commissioner of revenue.  
If it appears to the commissioner of revenue that the facts 
stated in the petition are true, the commissioner shall issue a 
new deed to the original grantee, in form approved by the 
attorney general, with like effect as the original deed.  The 
commissioner shall send the new deed to the county recorder, who 
after recording the deed will forward it to the county auditor.  
The application shall be accompanied by a fee of $10 $20, 
payable to the commissioner of revenue, which shall be deposited 
with the state treasurer and credited to the general fund.  
    Sec. 53.  Minnesota Statutes 1986, section 473F.02, 
subdivision 12, is amended to read:  
    Subd. 12.  "Market value" of real property within a 
municipality means the "actual market value" of real property 
within the municipality, determined in the manner and with 
respect to the property described for school districts in 
section 475.53, subdivision 4, except that no adjustment shall 
be made for property on which taxes are paid into the state 
treasury under gross earnings tax laws applicable to common 
carrier railroads.  For purposes of sections 473F.01 to 473F.13, 
the equalization aid review committee commissioner of revenue 
shall annually make determinations and reports with respect to 
each municipality which are comparable to those it makes for 
school districts under section 124.2131, subdivision 1, in the 
same manner and at the same times as are prescribed by the 
subdivision.  The commissioner of revenue shall annually 
determine, for each municipality, information comparable to that 
required by section 475.53, subdivision 4, for school districts, 
as soon as practicable after it becomes available.  The 
commissioner of revenue shall then compute the market value of 
property within each municipality. 
    Sec. 54.  Minnesota Statutes 1986, section 475.53, 
subdivision 4, is amended to read: 
    Subd. 4.  [SCHOOL DISTRICTS.] Except as otherwise provided 
by law, no school district shall be subject to a net debt in 
excess of ten percent of the actual market value of all taxable 
property and of exempt property referred to in section 275.49, 
situated within its corporate limits, as computed in accordance 
with this subdivision.  The county auditor of each county 
containing taxable real or personal property situated within any 
school district shall certify to the district upon request the 
market value of all such property.  The county auditor of each 
county containing exempt property referred to in section 275.49, 
situated within any school district, shall certify to the 
district upon request the total market value of all such 
property as determined under section 275.49.  The commissioner 
of revenue shall certify to the district upon request the market 
value of railroad property within the district as most recently 
determined under section 270.87.  Whenever the state 
equalization aid review committee commissioner of revenue, in 
accordance with section 124.2131, subdivision 1, has determined 
that the assessed valuation of any district furnished by county 
auditors is not based upon the market value of taxable property 
in the district, the commissioner of revenue shall certify to 
the district upon request the ratio most recently ascertained to 
exist between such value and the actual market value of property 
within the district.  The actual market value of property within 
a district, on which its debt limit under this subdivision is 
based, is (a) the value certified by the county auditors and, 
where applicable, by the commissioner of revenue under section 
270.87, or (b) this value divided by the ratio certified by the 
commissioner of revenue, whichever results in a higher value. 
    Sec. 55.  [REPEALER.] 
    (a) Minnesota Statutes 1986, section 124.38, subdivision 
10, is repealed.  
    (b) Minnesota Statutes 1986, section 282.021, is repealed. 
    Sec. 56.  [EFFECTIVE DATE.] 
    Section 2 is effective August 1, 1987. 
    Sections 1, 3 to 17, 26, 30, 33, 34, 41 to 43, 47, 53, 54, 
and 55, paragraph (a), are effective the day following final 
enactment, except that paragraph (c) of section 3 is effective 
for the calculation of 1987 adjusted assessed values and 
thereafter.  Sections 27, 46, 48 to 52, and 55, paragraph (b), 
are effective July 1, 1987.  Section 44 is effective for taxes 
paid after July 31, 1987.  Sections 18 to 22, 24, 29, 31, and 35 
to 40, are effective for the 1988 assessment and thereafter, and 
taxes payable in 1989 and thereafter, except that the changes in 
references in section 21 from the equalization aid review 
committee to the commissioner are effective the day following 
final enactment, and the recodification of the local board of 
review's powers contained in section 37, clause (c), is 
effective the day after final enactment.  Section 25 is 
effective for claims filed after July 1, 1987.  Section 32 is 
effective for the 1989 assessment and thereafter, and taxes 
payable in 1990 and thereafter.  Section 45 is effective for 
property tax overpayments unclaimed on or after the day of final 
enactment. 

                               ARTICLE 8 

                          TAX EXEMPT PROPERTY
    Section 1.  Minnesota Statutes 1986, section 272.01, 
subdivision 2, is amended to read:  
    Subd. 2.  (a) When any real or personal property which for 
any reason is exempt from ad valorem taxes, and taxes in lieu 
thereof, is leased, loaned, or otherwise made available and used 
by a private individual, association or corporation in 
connection with a business conducted for profit, there shall be 
imposed a tax, for the privilege of so using or possessing such 
real or personal property, in the same amount and to the same 
extent as though the lessee or user was the owner of such 
property. 
    (b) The tax imposed by this subdivision shall not apply to 
(1) property leased or used by way of a concession in or 
relative to the use in whole or part of a public park, market, 
fairgrounds, port authority, economic development authority 
established under chapter 458C, municipal auditorium, airport 
owned by a city, town, county or group thereof but not the 
metropolitan airports commission, municipal museum or municipal 
stadium or (2) property constituting or used as a public 
pedestrian ramp, or concourse, passenger check-in area or ticket 
sale counter, boarding area or luggage claim area in connection 
with a public airport; provided that real estate which is owned 
by a municipality in connection with the operation of a public 
airport and which is leased or used for agricultural purposes 
shall not be exempt. 
    (c) Taxes imposed by this subdivision shall be due and 
payable as in the case of personal property taxes and such taxes 
shall be assessed to such lessees or users of real or personal 
property in the same manner as taxes assessed to owners of real 
or personal property, except that such taxes shall not become a 
lien against the property.  When due, the taxes shall constitute 
a debt due from the lessee or user to the state, township, city, 
county and school district for which the taxes were assessed and 
shall be collected in the same manner as personal property 
taxes.  If property subject to the tax imposed by this 
subdivision is leased or used jointly by two or more persons, 
each lessee or user shall be jointly and severally liable for 
payment of the tax. 
    Sec. 2.  Minnesota Statutes 1986, section 272.01, 
subdivision 3, is amended to read:  
    Subd. 3.  The provisions of subdivision 2 shall not apply 
to: 
    (a) Federal property for which payments are made in lieu of 
taxes in amounts equivalent to taxes which might otherwise be 
lawfully assessed; 
    (b) Real estate exempt from ad valorem taxes and taxes in 
lieu thereof which is leased, loaned, or otherwise made 
available to telephone companies or electric, light and power 
companies upon which personal property consisting of 
transmission and distribution lines is situated and assessed 
pursuant to sections 273.37, 273.38, 273.40 and 273.41, or upon 
which are situated the communication lines of express, railway, 
telephone or telegraph companies, and pipelines used for the 
transmission and distribution of petroleum products; 
    (c) Property presently owned by any educational institution 
chartered by the territorial legislature; 
    (d) Inventories of raw materials, work in process and 
finished goods and machinery and equipment owned by the federal 
government and leased, loaned or otherwise made available and 
used by private individuals, associations or corporations in 
connection with the production of goods for sale to the federal 
government; 
    (e) Indian lands; 
    (f) (e) Property of any corporation organized as a tribal 
corporation under the Indian Reorganization Act of June 18, 
1934, (Statutes at Large, volume 48, page 984); 
    (g) (f) Real property owned by the state and leased 
pursuant to section 161.23 and acts amendatory thereto; 
    (h) (g) Real property owned by a seaway port authority on 
June 1, 1967 upon which there has been constructed docks, 
warehouses, tank farms, administrative and maintenance 
buildings, railroad and ship terminal facilities and other 
maritime and transportation facilities or those directly related 
thereto, together with facilities for the handling of passengers 
and baggage and for the handling of freight and bulk liquids, 
and personal property owned by a seaway port authority used or 
usable in connection therewith, when said property is leased to 
a private individual, association or corporation, but only when 
such lease provides that the said facilities are available to 
the public for the loading and unloading of passengers and their 
baggage and the handling, storage, care, shipment and delivery 
of merchandise, freight and baggage and other maritime and 
transportation activities and functions directly related 
thereto, but not including property used for grain elevator 
facilities; it being the declared policy of this state that such 
property when so leased is public property used exclusively for 
a public purpose, notwithstanding the three one year limitation 
in the provisions of section 273.19.  
    (i) (h) Notwithstanding the provisions of clause (h) (g), 
when the annual rental received by a seaway port authority in 
any calendar year for such leased property exceeds an amount 
reasonably required for administrative expense of the authority 
per year, plus promotional expense for the authority not to 
exceed the sum of $100,000 per year, to be expended when and in 
the manner decided upon by the commissioners, plus an amount 
sufficient to pay all installments of principal and interest 
due, or to become due, during such calendar year and the next 
succeeding year on any revenue bonds issued by the authority, 
plus 25 percent of the gross annual rental to be retained by the 
authority for improvement, development or other contingencies, 
the authority shall make a payment in lieu of real and personal 
property taxes of a reasonable portion of the remaining annual 
rental to the county treasurer of the county in which such 
seaway port authority is principally located.  Any such payments 
to the county treasurer shall be disbursed by the treasurer on 
the same basis as real estate taxes are divided among the 
various governmental units, but if such port authority shall 
have received funds from the state of Minnesota and funds from 
any city and county pursuant to Laws 1957, chapters 648, 831 and 
849 and acts amendatory thereof, then such disbursement by the 
county treasurer shall be on the same basis as real estate taxes 
are divided among the various governmental units, except that 
the portion of such payments which would otherwise go to other 
taxing units shall be divided equally among the state of 
Minnesota and said county and city.  
    Sec. 3.  Minnesota Statutes 1986, section 272.02, 
subdivision 1, is amended to read: 
    Subdivision 1.  All property described in this section to 
the extent herein limited shall be exempt from taxation: 
    (1) All public burying grounds; 
    (2) All public schoolhouses; 
    (3) All public hospitals; 
    (4) All academies, colleges, and universities, and all 
seminaries of learning; 
    (5) All churches, church property, and houses of worship; 
    (6) Institutions of purely public charity except parcels of 
property containing structures and the structures assessed as 
class 7(a), (b), (c), or (d); 
    (7) All public property exclusively used for any public 
purpose; 
    (8) Except for the taxable personal property enumerated 
below, all personal property and the property described in 
section 272.03, subdivision 1, paragraphs (c) and (d) shall be 
exempt.  
    The following personal property shall be taxable:  
    (a) personal property which is part of an electric 
generating, transmission, or distribution system or a pipeline 
system transporting or distributing water, gas, crude oil, or 
petroleum products or mains and pipes used in the distribution 
of steam or hot or chilled water for heating or cooling 
buildings and structures;  
    (b) railroad docks and wharves which are part of the 
operating property of a railroad company as defined in section 
270.80;  
    (c) personal property defined in section 272.03, 
subdivision 2, clause (3);  
    (d) leasehold or other personal property interests which 
are taxed pursuant to section 272.01, subdivision 2; 273.124, 
subdivision 7; or 273.19, subdivision 1; or any other law 
providing the property is taxable as if the lessee or user were 
the fee owner;  
    (e) manufactured homes and sectional structures; and 
    (f) flight property as defined in section 270.071.  
    (9) Real and personal property used primarily for the 
abatement and control of air, water, or land pollution to the 
extent that it is so used, other than real property used 
primarily as a solid waste disposal site. 
    Any taxpayer requesting exemption of all or a portion of 
any equipment or device, or part thereof, operated primarily for 
the control or abatement of air or water pollution shall file an 
application with the commissioner of revenue.  The equipment or 
device shall meet standards, rules or criteria prescribed by the 
Minnesota pollution control agency, and must be installed or 
operated in accordance with a permit or order issued by that 
agency.  The Minnesota pollution control agency shall upon 
request of the commissioner furnish information or advice to the 
commissioner.  On determining that property qualifies for 
exemption, the commissioner shall issue an order exempting the 
property from taxation.  The equipment or device shall continue 
to be exempt from taxation as long as the permit issued by the 
Minnesota pollution control agency remains in effect. 
    (10) Wetlands.  For purposes of this subdivision, 
"wetlands" means (1) land described in section 105.37, 
subdivision 15, or (2) land which is mostly under water, 
produces little if any income, and has no use except for 
wildlife or water conservation purposes, provided it is 
preserved in its natural condition and drainage of it would be 
legal, feasible, and economically practical for the production 
of livestock, dairy animals, poultry, fruit, vegetables, forage 
and grains, except wild rice.  "Wetlands" shall include adjacent 
land which is not suitable for agricultural purposes due to the 
presence of the wetlands.  "Wetlands" shall not include woody 
swamps containing shrubs or trees, wet meadows, meandered water, 
streams, rivers, and floodplains or river bottoms.  Exemption of 
wetlands from taxation pursuant to this section shall not grant 
the public any additional or greater right of access to the 
wetlands or diminish any right of ownership to the wetlands. 
    (11) Native prairie.  The commissioner of the department of 
natural resources shall determine lands in the state which are 
native prairie and shall notify the county assessor of each 
county in which the lands are located.  Pasture land used for 
livestock grazing purposes shall not be considered native 
prairie for the purposes of this clause and section 273.116.  
Upon receipt of an application for the exemption and credit 
provided in this clause and section 273.116 for lands for which 
the assessor has no determination from the commissioner of 
natural resources, the assessor shall refer the application to 
the commissioner of natural resources who shall determine within 
30 days whether the land is native prairie and notify the county 
assessor of the decision.  Exemption of native prairie pursuant 
to this clause shall not grant the public any additional or 
greater right of access to the native prairie or diminish any 
right of ownership to it. 
    (12) Property used in a continuous program to provide 
emergency shelter for victims of domestic abuse, provided the 
organization that owns and sponsors the shelter is exempt from 
federal income taxation pursuant to section 501(c)(3) of the 
Internal Revenue Code of 1954, as amended through December 31, 
1982, notwithstanding the fact that the sponsoring organization 
receives funding under section 8 of the United States Housing 
Act of 1937, as amended. 
    (13) If approved by the governing body of the municipality 
in which the property is located, property not exceeding one 
acre which is owned and operated by any senior citizen group or 
association of groups that in general limits membership to 
persons age 55 or older and is organized and operated 
exclusively for pleasure, recreation, and other nonprofit 
purposes, no part of the net earnings of which inures to the 
benefit of any private shareholders; provided the property is 
used primarily as a clubhouse, meeting facility or recreational 
facility by the group or association and the property is not 
used for residential purposes on either a temporary or permanent 
basis. 
    (14) To the extent provided by section 295.44, real and 
personal property used or to be used primarily for the 
production of hydroelectric or hydromechanical power on a site 
owned by the state or a local governmental unit which is 
developed and operated pursuant to the provisions of section 
105.482, subdivisions 1, 8, and 9. 
    (15) If approved by the governing body of the municipality 
in which the property is located, and if construction is 
commenced after June 30, 1983:  
    (a) a "direct satellite broadcasting facility" operated by 
a corporation licensed by the federal communications commission 
to provide direct satellite broadcasting services using direct 
broadcast satellites operating in the 12-ghz. band; and 
    (b) a "fixed satellite regional or national program service 
facility" operated by a corporation licensed by the federal 
communications commission to provide fixed satellite-transmitted 
regularly scheduled broadcasting services using satellites 
operating in the 6-ghz. band; and 
    (c) a facility at which a licensed Minnesota manufacturer 
produces distilled spirituous liquors, liqueurs, cordials, or 
liquors designated as specialties regardless of alcoholic 
content, but not including ethyl alcohol, distilled with a 
majority of the ingredients grown or produced in Minnesota.  
An exemption provided by paragraph (15) shall apply for a period 
not to exceed five years.  When the facility no longer qualifies 
for exemption, it shall be placed on the assessment rolls as 
provided in subdivision 4.  Before approving a tax exemption 
pursuant to this paragraph, the governing body of the 
municipality shall provide an opportunity to the members of the 
county board of commissioners of the county in which the 
facility is proposed to be located and the members of the school 
board of the school district in which the facility is proposed 
to be located to meet with the governing body.  The governing 
body shall present to the members of those boards its estimate 
of the fiscal impact of the proposed property tax exemption.  
The tax exemption shall not be approved by the governing body 
until the county board of commissioners has presented its 
written comment on the proposal to the governing body, or 30 
days has passed from the date of the transmittal by the 
governing body to the board of the information on the fiscal 
impact, whichever occurs first. 
    (16) Real and personal property owned and operated by a 
private, nonprofit corporation exempt from federal income 
taxation pursuant to United States Code, title 26, section 
501(c)(3), primarily used in the generation and distribution of 
hot water for heating buildings and structures.  
    (17) Notwithstanding section 273.19, state lands that are 
leased from the department of natural resources under section 
92.46. 
    Sec. 4.  Minnesota Statutes 1986, section 273.19, 
subdivision 1, is amended to read: 
    Subdivision 1.  Except as provided in subdivision 3 or 4, 
property held under a lease for a term of three or more years at 
least one year, and not taxable under section 272.01, 
subdivision 2, or under a contract for the purchase thereof, 
when the property belongs to the United States, to the state, or 
to any religious, scientific, or benevolent society or 
institution, incorporated or unincorporated, or to any railroad 
company or other corporation whose property is not taxed in the 
same manner as other property, or when the property is school or 
other state lands, shall be considered, for all purposes of 
taxation, as the property of the person so holding the same.  
This subdivision does not apply to property exempt from taxation 
under section 272.01, subdivision 2, clause (b)(2). 
    Sec. 5.  Minnesota Statutes 1986, section 273.19, is 
amended by adding a subdivision to read: 
    Subd. 1a.  For purposes of this section, a lease includes 
any agreement permitting a nonexempt person or entity to use the 
property, regardless of whether the agreement is characterized 
as a lease.  A lease has a "term of at least one year" if the 
term is for a period of less than one year and the lease permits 
the parties to renew the lease without requiring that similar 
terms for leasing the property will be offered to other 
applicants or bidders through a competitive bidding or other 
form of offer to potential lessees or users. 
    Sec. 6.  Minnesota Statutes 1986, section 273.19, 
subdivision 3, is amended to read: 
    Subd. 3.  The assessed value of property held under a lease 
for a term of three or more years at least one year which (i) is 
located within a federal reservation; (ii) has been conveyed to 
the state of Minnesota by the federal government; and (iii) had 
been occupied and used by a branch of the armed services of the 
United States, shall be no greater than the value added to the 
property by improvements to the property made by the lessee. 
    Sec. 7.  Minnesota Statutes 1986, section 273.19, 
subdivision 4, is amended to read:  
    Subd. 4.  Property held under a lease for a term of three 
or more years at least one year which is owned by the United 
States and located within a national park shall be exempt, 
provided the property was acquired by the United States by 
condemnation or purchased by the United States under threat of 
condemnation, and within a reasonable time leased back for 
noncommercial residential purposes to the person owning the 
property at the time of acquisition by the United States.  If 
property exempt under this subdivision is subsequently leased or 
subleased for a term of three or more years at least one year to 
another person, it shall no longer qualify for the exemption 
provided in this subdivision and shall be placed on the 
assessment rolls as provided in section 272.02, subdivision 4, 
and taxed pursuant to subdivision 1 of this section.  
    The value of improvements made to property otherwise exempt 
pursuant to this subdivision which are owned by the lessee or to 
which the lessee has salvage rights shall be taxable to the 
lessee pursuant to subdivision 1.  
     Sec. 8.  [REPEALER.] 
    Minnesota Statutes 1986, section 297A.254 is repealed.  
     Sec. 9.  [EFFECTIVE DATE.] 
     Sections 1 to 7 are effective beginning for property taxes 
assessed in 1987 and payable in 1988. 

                                ARTICLE 9

                                MINERALS
    Section 1.  Minnesota Statutes 1986, section 16A.26, is 
amended to read:  
    16A.26 [ONE DEPOSITORY ACCOUNT FOR EACH TAX.] 
    Notwithstanding sections 290.361, 297.13, 298.17, 298.282, 
298.39, 298.396, 298.51, 298.64, 298.65, 297C.02 to 297C.08 and 
similar laws to the contrary relating to the depositing, 
disposition, or apportionment of tax receipts, the commissioner 
may use one depository account for each tax.  To do so, there 
must be enough information to identify and dispose of or 
apportion the tax under law.  The commissioner shall ask the 
appropriate officials for the transfers and necessary 
certifications.  The commissioner may issue directives to carry 
out this section. 
    Sec. 2.  Minnesota Statutes 1986, section 121.904, 
subdivision 11a, is amended to read: 
    Subd. 11a.  Beginning with payments received in fiscal year 
1978, Revenues received pursuant to sections 294.21 to 
294.28; 29; 298.23 to 298.28; 298.32; 298.34 to 298.39; 298.391 
to 298.396; 298.405; 298.51 to 298.67; or any law imposing a tax 
on severed mineral values or any other law distributing proceeds 
in lieu of ad valorem tax assessments on copper or nickel 
properties, shall be recognized as revenue in the school year 
received. 
    Sec. 3.  Minnesota Statutes 1986, section 121.904, 
subdivision 11b, is amended to read:  
    Subd. 11b.  (1) Each district affected by the provisions of 
subdivision 11a shall account for and expend according to the 
provisions of this subdivision the total amount by which its 
1976 payable 1977 and its 1977 payable 1978 permissible levies 
pursuant to sections 124A.03, 124A.06, subdivision 3a, 124A.08, 
subdivision 3a, 124A.10, subdivision 3a, 124A.12, subdivision 
3a, 124A.14, subdivision 5a, and 275.125 were reduced on account 
of payments pursuant to Minnesota Statutes 1976, sections 294.21 
or 294.28; 298.23 to 298.28; 298.32; 298.34 to 298.39; 298.391 
to 298.396; 298.405; 298.51 to 298.67; any law imposing a tax 
upon severed mineral values, or under any other law distributing 
proceeds in lieu of ad valorem tax assessments on copper or 
nickel properties.  Notwithstanding the provisions of section 
124A.035, subdivision 5, clause (2) and the provisions of 
section 275.125, subdivision 9, clause (2) or any other law to 
the contrary, this total amount shall not be applied to reduce 
the foundation aid which the district is entitled to receive 
pursuant to section 124A.02 or again be applied to reduce the 
permissible levies of the district. 
    (2) The lesser of the amount in (1) or an amount equal to 
$200 times the pupil units in the district computed pursuant to 
section 124.17 for the 1977-1978 school year shall be reflected 
in an "appropriated fund balance reserve account for current use 
of taconite payments" which shall be established in the general 
fund.  Each school year, beginning in 1978-1979, each affected 
district shall transfer an amount equal to $20 times the number 
of pupil units in the district in 1977-1978 out of this account 
into other operating accounts in the general fund, until the 
amount transferred equals the amount originally reflected in the 
reserve account; provided that in the last year in which the 
district is required to make this transfer, it shall transfer 
the balance of the reserve account, not to exceed an amount 
equal to $20 times the number of pupil units in the district in 
1977-1978.  Notwithstanding the provisions of section 121.917, 
each affected district may use the amount so transferred each 
year to increase its expenditures above the amount it would 
otherwise be authorized to expend in that school year. 
    (3) Of the amount in (1), any amount not reflected in the 
account established pursuant to clause (2) shall be reflected in 
the district's appropriated fund balance reserve account for 
purposes of reducing statutory operating debt, if the district 
has established this account pursuant to section 275.125, 
subdivision 9a.  The June 30, 1977 statutory operating debt of 
the district shall be reduced by the amount so reflected and 
shall be recertified accordingly by the commissioner. 
    (4) Notwithstanding the provisions of section 121.912, any 
portion of the amount in (1) remaining after the application of 
clauses (2) and (3) shall be transferred to the district's 
capital expenditure fund; provided that before July 1, 1979 not 
exceeding $75,000 of the amount transferred to the capital 
expenditure fund pursuant to this clause may be transferred to 
the district's general fund. 
    Sec. 4.  Minnesota Statutes 1986, section 124.195, 
subdivision 2, is amended to read: 
    Subd. 2.  [DEFINITIONS.] (a) The term "other district 
receipts" means payments by county treasurers pursuant to 
section 276.10, apportionments from the school endowment fund 
pursuant to section 124.09, apportionments by the county auditor 
pursuant to section 124.10, subdivision 2, and payments to 
school districts by the commissioner of revenue pursuant to 
sections 294.21 to 294.26 and chapter 298.  
    (b) The term "cumulative amount guaranteed" means the sum 
of the following: 
    (1) one-third of the final adjustment payment according to 
subdivision 6; plus 
    (2) the product of 
    (i) the cumulative disbursement percentage shown in 
subdivision 3; times 
    (ii) the sum of 
    85 percent of the estimated aid and credit entitlements 
paid according to subdivision 10; plus 
    100 percent of the entitlements paid according to 
subdivisions 8 and 9; plus 
    the other district receipts; plus 
    the final adjustment payment according to subdivision 6.  
    Sec. 5.  Minnesota Statutes 1986, section 124A.035, 
subdivision 5, is amended to read: 
    Subd. 5.  [TACONITE DEDUCTIONS.] (1) Notwithstanding any 
provisions of any other law to the contrary, the adjusted 
assessed valuation used in calculating foundation aid shall 
include only that property which is currently taxable in the 
district.  
    (2) For districts which received payments under sections 
294.21 to 294.26; 29; 298.23 to 298.28; 298.34 to 298.39; 
298.391 to 298.396; 298.405; 298.51 to 298.67; any law imposing 
a tax upon severed mineral values, or under any other law 
distributing proceeds in lieu of ad valorem tax assessments on 
copper or nickel properties or recognized revenue pursuant to 
section 477A.15; the foundation aid shall be reduced in the 
October adjustment payment by the difference between the dollar 
amount of the payments received pursuant to those sections, or 
revenue recognized pursuant to section 477A.15 in the fiscal 
year to which the October adjustment is attributable and the 
amount which was calculated, pursuant to section 275.125, 
subdivision 9, as a reduction of the levy attributable to the 
fiscal year to which the October adjustment is attributable.  If 
the October adjustment of a district's foundation aid for a 
fiscal year is a negative amount because of this clause, the 
next fiscal year's foundation aid to that district shall be 
reduced by this negative amount in the following manner:  there 
shall be withheld from each monthly scheduled foundation aid 
payment due the district in such fiscal year, 15 percent of the 
total negative amount, until the total negative amount has been 
withheld.  The amount reduced from foundation aid pursuant to 
this clause shall be recognized as revenue in the fiscal year to 
which the October adjustment payment is attributable.  
    Sec. 6.  Minnesota Statutes 1986, section 270.80, 
subdivision 2, is amended to read:  
    Subd. 2.  "Railroad company" means: 
    (1) any company which as a common carrier operates a 
railroad or a line or lines of railway situated within or partly 
within Minnesota; or 
    (2) any company owning or operating, other than as a common 
carrier, a railway principally used for transportation of 
taconite concentrates from the plant at which the taconite 
concentrates are produced in shipping form to a point of 
consumption or port for shipment beyond the state; or 
    (3) any company that produces concentrates from taconite 
and transports that taconite in the course of the concentrating 
process and before the concentrating process is completed to a 
concentrating plant located within the state over a railroad 
that is not a common carrier and shall not use a common carrier 
or taconite railroad company as defined in clause (2) of this 
section for the movement of the concentrate to a point of 
consumption or port for shipment beyond the state.  
    Sec. 7.  Minnesota Statutes 1986, section 273.12, is 
amended to read:  
    273.12 [ASSESSMENT OF REAL PROPERTY.] 
    It shall be the duty of every assessor and board, in 
estimating and determining the value of lands for the purpose of 
taxation, to consider and give due weight to every element and 
factor affecting the market value thereof, including its 
location with reference to roads and streets and the location of 
roads and streets thereon or over the same, and to take into 
consideration a reduction in the acreage of each tract or lot 
sufficient to cover the amount of land actually used for any 
improved public highway and the reduction in area of land caused 
thereby, provided, that in determining the market value of 
vacant land, the fact that such land is platted shall not be 
taken into account.  An individual lot of such platted property 
shall not be assessed in excess of the assessment of the land as 
if it were unplatted until the lot is improved with a permanent 
improvement all or a portion of which is located upon the lot, 
or for a period of three years after final approval of said plat 
whichever is shorter.  When a lot is sold or construction begun, 
the assessed value of that lot or any single contiguous lot 
fronting on the same street shall be eligible for reassessment.  
It shall be the duty of every assessor and board, in estimating 
and determining the value of lands for the purpose of taxation, 
to consider and give due weight to lands which are comparable in 
character, quality, and location, to the end that all lands 
similarly located and improved will be assessed upon a uniform 
basis and without discrimination and, for agricultural lands, to 
consider and give recognition to its earning potential as 
measured by its free market rental rate.  
     Notwithstanding the provisions of this or any other 
section, no additional value shall be assessed for unmined 
mineral value except for iron ore or taconite. 
    Sec. 8.  Minnesota Statutes 1986, section 275.125, 
subdivision 9, is amended to read: 
    Subd. 9.  [LEVY REDUCTIONS; TACONITE.] (1) Reductions in 
levies pursuant to subdivision 10, and section 273.138, shall be 
made prior to the reductions in clause (2). 
    (2) Notwithstanding any other law to the contrary, 
districts which received payments pursuant to sections 294.21 to 
294.26; 29; 298.23 to 298.28, except an amount distributed under 
section 298.28, subdivision 4, paragraph (c), clause (ii); 
298.34 to 298.39; 298.391 to 298.396; 298.405; 298.51 to 298.67; 
477A.15; and any law imposing a tax upon severed mineral values, 
or under any other law distributing proceeds in lieu of ad 
valorem tax assessments on copper or nickel properties, or 
recognized revenue pursuant to section 477A.15; shall not 
include a portion of these aids in their permissible levies 
pursuant to those sections, but instead shall reduce the 
permissible levies authorized by this section and sections 
124A.03, 124A.06, subdivision 3a, 124A.08, subdivision 3a, 
124A.10, subdivision 3a, 124A.12, subdivision 3a, 124A.14, 
subdivision 5a, and 124A.20, subdivision 2, by the greater of 
the following: 
    (a) an amount equal to 50 percent of the total dollar 
amount of the payments received pursuant to those sections or 
revenue recognized pursuant to section 477A.15 in the previous 
fiscal year; or 
    (b) an amount equal to the total dollar amount of the 
payments received pursuant to those sections or revenue 
recognized pursuant to section 477A.15 in the previous fiscal 
year less the product of the same dollar amount of payments or 
revenue times the ratio of the maximum levy allowed the district 
under sections 124A.03, subdivision 2, 124A.06, subdivision 3a, 
124A.08, subdivision 3a, 124A.10, subdivision 3a, 124A.12, 
subdivision 3a, and 124A.14, subdivision 5a, to the total levy 
allowed the district under this section and sections 124A.03, 
124A.06, subdivision 3a, 124A.08, subdivision 3a, 124A.10, 
subdivision 3a, 124A.12, subdivision 3a, 124A.14, subdivision 
5a, and 124A.20, subdivision 2, in the year in which the levy is 
certified. 
     (3) No reduction pursuant to this subdivision shall reduce 
the levy made by the district pursuant to section 124A.03, 
subdivision 1, to an amount less than the amount raised by a 
levy of 12.5 mills times the adjusted assessed valuation of that 
district for the preceding year as determined by the 
equalization aid review committee.  The amount of any increased 
levy authorized by referendum pursuant to section 124A.03, 
subdivision 2 shall not be reduced pursuant to this 
subdivision.  The amount of any levy authorized by subdivision 
4, to make payments for bonds issued and for interest thereon, 
shall not be reduced pursuant to this subdivision.  
     (4) Before computing the reduction pursuant to this 
subdivision of the capital expenditure levy authorized by 
subdivision subdivisions 11a, llc, 12, and 12a, and the 
community service levy authorized by subdivision subdivisions 8 
and 8b, the commissioner shall ascertain from each affected 
school district the amount it proposes to levy for capital 
expenditures pursuant to subdivision subdivisions 11a, llc, 12, 
and 12a, and for community services pursuant to subdivision 
subdivisions 8 and 8b.  The reduction of the capital expenditure 
levy and the community services levy shall be computed on the 
basis of the amount so ascertained. 
    (5) Notwithstanding any law to the contrary, any amounts 
received by districts in any fiscal year pursuant to sections 
294.21 to 294.26; 29; 298.23 to 298.28; 298.34 to 298.39; 
298.391 to 298.396; 298.405; 298.51 to 298.67; or any law 
imposing a tax on severed mineral values, or under any other law 
distributing proceeds in lieu of ad valorem tax assessments on 
copper or nickel properties; and not deducted from foundation 
aid pursuant to section 124A.035, subdivision 5, clause (2), and 
not applied to reduce levies pursuant to this subdivision shall 
be paid by the district to the St. Louis county auditor in the 
following amount by March 15 of each year except 1986 and 1987, 
the amount required to be subtracted from the previous fiscal 
year's foundation aid pursuant to section 124A.035, subdivision 
5, which is in excess of the foundation aid earned for that 
fiscal year.  The county auditor shall deposit any amounts 
received pursuant to this clause in the St. Louis county 
treasury for purposes of paying the taconite homestead credit as 
provided in section 273.135. 
    Sec. 9.  Minnesota Statutes 1986, section 275.51, 
subdivision 3i, is amended to read:  
    Subd. 3i.  [LEVY LIMITATION.] The levy limitation for a 
governmental subdivision shall be equal to the adjusted levy 
limit base determined pursuant to subdivision 3h, reduced by (a) 
the total amount of local government aid that the governmental 
subdivision has been certified to receive pursuant to sections 
477A.011 to 477A.014; (b) taconite aids pursuant to sections 
298.28 and 298.282 including any aid received in the levy year 
which was required to be placed in a special fund for 
expenditure in the next succeeding year; (c) state 
reimbursements for wetlands and native prairie property tax 
exemptions pursuant to sections 273.115, subdivision 3 and 
273.116, subdivision 3; and (d) payments in lieu of taxes to a 
county pursuant to section 477A.12 which are required to be used 
to provide property tax levy reduction certified to be paid in 
the calendar year in which property taxes are payable; and (e) 
payments from the proceeds of the net proceeds tax under section 
29.  If the sum of the taconite aids deducted exceeds the 
adjusted levy limit base, the excess must be used to reduce the 
amounts levied as special levies pursuant to section 275.50, 
subdivisions 5 and 7.  The commissioner of revenue shall notify 
a governmental subdivision of any excess taconite aids to be 
used to reduce special levies.  
    As provided in section 298.28, one cent per taxable ton of 
the amount distributed under section 298.28, subdivision 5, 
paragraph d shall not be deducted from the levy limit base of 
the counties that receive that aid.  The resulting figure is the 
amount of property taxes which a governmental subdivision may 
levy for all purposes other than those for which special levies 
and special assessments are made.  
    For taxes levied in 1987 and subsequent years, the levy 
limit for a county as calculated under paragraph (b) shall be 
decreased by an additional amount equal to the reduction in the 
distribution to the county under section 298.28, from the 1986 
distribution to the 1987 distribution.  
    Sec. 10.  Minnesota Statutes 1986, section 287.09, is 
amended to read: 
    287.09 [MORTGAGE ON EXEMPT PROPERTY; PROPERTY NOT DIRECTLY 
TAXED; RECEIPT; APPORTIONMENT OF TAX.] 
    When any real estate situate in this state and described in 
any such a mortgage is exempt from taxation under the 
Constitution of the state of Minnesota, article 10, section 1, 
the mortgage registry tax herein provided shall be paid to the 
treasurer of the county in which such the real estate is situate 
located in the same manner as if such the real estate was were 
not exempt from taxation.  When any real estate situate in this 
state and described in such a mortgage is not exempt from 
taxation under such that section, but is not taxed by direct tax 
upon the assessed valuation thereof, then the mortgage registry 
tax herein provided shall be paid to the county.; this sentence 
does not apply to real estate taxed under sections 298.23 to 
298.28, relating to taconite and taconite operations or under 
sections 294.21 to 294.28, relating to railroads transporting 
taconite or taconite concentrates other than as a common 
carrier, shall not be considered to be real estate not taxed by 
direct tax upon the assessed valuation thereof within the 
meaning of this section. 
    Sec. 11.  Minnesota Statutes 1986, section 290.92, 
subdivision 6, is amended to read:  
    Subd. 6.  [RETURNS, DEPOSITS.] (1)(a) [RETURNS.] Every 
employer who is required to deduct and withhold tax under 
subdivision 2a or 3 and every person required to deduct and 
withhold tax under section 21, subdivision 2, shall file a 
return with the commissioner for each quarterly period, on or 
before the last day of the month following the close of each 
quarterly period, unless otherwise prescribed by the 
commissioner.  Any tax required to be deducted and withheld 
during the quarterly period shall be paid with the return unless 
an earlier time for payment is provided.  However, any return 
may be filed on or before the tenth day of the second calendar 
month following the period if the return shows timely deposits 
in full payment of the taxes due for that period.  For the 
purpose of the preceding sentence, a deposit which is not 
required to be made within the return period, may be made on or 
before the last day of the first calendar month following the 
close of the period.  Every employer, in preparing a quarterly 
return, shall take credit for monthly deposits previously made 
in accordance with this subdivision. 
    The return shall be in the form and contain the information 
prescribed by the commissioner.  The commissioner may grant a 
reasonable extension of time for filing the return, but no 
extension shall be granted for more than six months.  
    (b) [ADVANCE DEPOSITS REQUIRED IN CERTAIN CASES.] (i) 
Unless clause (ii) is applicable, if during any calendar month, 
other than the last month of the calendar quarter, the aggregate 
amount of the tax withheld during that quarter under subdivision 
2a or 3, or under section 21, subdivision 2, exceeds $500, the 
employer shall deposit the aggregate amount with the 
commissioner within 15 days after the close of the calendar 
month.  (ii) If at the close of any eighth-monthly period the 
aggregate amount of undeposited taxes is $3,000 or more, the 
employer, or person withholding tax under section 21, 
subdivision 2, shall deposit the undeposited taxes with the 
commissioner within three banking days after the close of the 
eighth-monthly period.  For purposes of this subparagraph, the 
term "eighth-monthly period" means the first three days of a 
calendar month, the fourth day through the seventh day of a 
calendar month, the eighth day through the 11th day of a 
calendar month, the 12th day through the 15th day of a calendar 
month, the 16th day through the 19th day of a calendar month, 
the 20th day through the 22nd day of a calendar month, the 23rd 
day through the 25th day of a calendar month, or the portion of 
a calendar month following the 25th day of the month.  
    (c) [OTHER METHODS.] The commissioner may by rule prescribe 
other return periods or deposit requirements.  In prescribing 
the reporting period, the commissioner may classify employers 
payors according to the amount of their tax liability and may 
adopt an appropriate reporting period for each class which the 
commissioner deems to be consistent with efficient tax 
collection.  In no event shall the duration of the reporting 
period be more than one year. 
    (2) If less than the correct amount of tax is paid to the 
commissioner, proper adjustments, with respect to both the tax 
and the amount to be deducted, shall be made, without interest, 
in the manner and at the times as the commissioner prescribes.  
If the underpayment cannot be adjusted, the amount of the 
underpayment shall be assessed and collected in the manner and 
at the times as the commissioner prescribes. 
    (3) If any employer fails to make and file any return 
required by paragraph (1) at the time prescribed, or makes and 
files a false or fraudulent return, the commissioner shall make 
for the employer a return from the commissioner's own knowledge 
and from information the commissioner obtains through testimony, 
or otherwise, and assess a tax on the basis of it.  The amount 
of tax shown on it shall be paid to the commissioner at the 
times as the commissioner prescribes.  Any return or assessment 
made by the commissioner shall be prima facie correct and valid, 
and the employer shall have the burden of establishing its 
incorrectness or invalidity in any action or proceeding in 
respect to it. 
    (4)  The commissioner, in any case, on having reason to 
believe that the collection of the tax provided for in paragraph 
(1) of this subdivision, and any added penalties and interest, 
if any, will be jeopardized by delay, may immediately assess the 
tax, whether or not the time otherwise prescribed by law for 
making and filing the return and paying the tax has expired. 
    (5) Any assessment under this subdivision shall be made by 
recording the liability of the employer, or person withholding 
tax under section 21, subdivision 2, in the office of the 
commissioner in accordance with rules prescribed by the 
commissioner.  Upon request of the employer, the commissioner 
shall furnish the employer a copy of the record of assessment. 
    (6) Any assessment of tax under this subdivision shall be 
made within 3-1/2 years after the due date of the return 
required by paragraph (1), or the date the return was filed, 
whichever is later.  In the case of a false or fraudulent return 
or failure to file a return, the tax may be assessed at any 
time.  The tax may be assessed within 6-1/2 years after the due 
date of the return or the date the return was filed, whichever 
is later, where the employer omitted withholding tax from the 
return which is properly includable therein and the omitted 
withholding tax is in excess of 25 percent of the amount of 
withholding tax stated on the return. 
    (7)(a) Except as provided in (b) of this paragraph, every 
employer, or person withholding tax under section 21, 
subdivision 2, who fails to pay to or deposit with the 
commissioner any sum or sums required by this section to be 
deducted, withheld and paid, shall be personally and 
individually liable to the state for the sum or sums (and any 
added penalties and interest).  Any sum or sums deducted and 
withheld in accordance with the provisions of subdivision 2a or 
3, or section 21, subdivision 2, shall be held to be a special 
fund in trust for the state of Minnesota. 
    (b) If the employer, or person withholding tax under 
section 21, subdivision 2, in violation of this section, fails 
to deduct and withhold the tax under this section, and 
thereafter the taxes against which the tax may be credited are 
paid, the tax required to be deducted and withheld shall not be 
collected from the employer; but this does not relieve the 
employer from liability for any penalties and interest otherwise 
applicable for failure to deduct and withhold. 
    (8) Upon the failure of any employer, or person required to 
withhold tax under section 21, subdivision 2, to pay to or 
deposit with the commissioner, within the time provided by 
paragraph (1), (2), or (3) of this subdivision, any tax required 
to be withheld in accordance with the provisions of subdivision 
2a or 3, or section 21, subdivision 2, if the commissioner has 
assessed a tax pursuant to paragraph (4), the tax shall become 
immediately due and payable, and the commissioner may deliver to 
the attorney general a certified statement of the tax, penalties 
and interest due from the employer.  The statement shall also 
give the address of the employer owing the tax, the period for 
which the tax is due, the date of the delinquency, and any other 
information required by the attorney general.  The attorney 
general shall institute legal action in the name of the state to 
recover the amount of the tax, penalties, interest and costs.  
The commissioner's certified statement to the attorney general 
shall for all purposes and in all courts be prima facie evidence 
of the facts stated in it and that the amount shown in it is due 
from the employer named in the statement.  If an action is 
instituted, the court shall, upon application of the attorney 
general, appoint a receiver of the property and business of the 
delinquent employer for the purpose of impounding it as security 
for any judgment which has been or may be recovered.  Any action 
must be brought within five years after the date of assessment 
of any tax under this subdivision.  
    (8a) The period of time during which a tax must be assessed 
or collection proceedings commenced under this subdivision shall 
be suspended during the period from the date of filing of a 
petition in bankruptcy until 30 days after the commissioner of 
revenue receives notice that the bankruptcy proceedings have 
been closed or dismissed or the automatic stay has been 
terminated or has expired.  
    The suspension of the statute of limitations under this 
subdivision shall apply to the person against whom the petition 
in bankruptcy is filed and all other persons who may also be 
wholly or partially liable for the tax under this chapter.  
    (9) Either party to an action for the recovery of any tax, 
interest or penalties under this subdivision may appeal the 
judgment as in other civil cases. 
    (10) No suit shall lie to enjoin the assessment or 
collection of any tax imposed by this section, or the interest 
and penalties added to it. 
    Sec. 12.  Minnesota Statutes 1986, section 290.92, 
subdivision 7, is amended to read:  
    Subd. 7.  [WITHHOLDING STATEMENT TO EMPLOYEE OR PAYEE AND 
TO COMMISSIONER.] (1) Every person required to deduct and 
withhold from an employee a tax under subdivision 2a or 
subdivision 3, or section 21, subdivision 2, or who would have 
been required to deduct and withhold a tax under subdivision 2a 
or subdivision 3, or persons required to withhold tax under 
section 21, subdivision 2, determined without regard to 
subdivision 19, if the employee or payee had claimed no more 
than one withholding exemption, or who paid wages or made 
payments not subject to withholding under subdivision 2a or 3, 
or section 21, subdivision 2, to an employee or person receiving 
royalty payments in excess of $600, or who has entered into a 
voluntary withholding agreement with a payee pursuant to 
subdivision 20, shall furnish to each such employee or person 
receiving royalty payments in respect to the remuneration paid 
by such person to such employee or person receiving royalty 
payments during the calendar year, on or before January 31 of 
the succeeding year, or, if employment is terminated before the 
close of such calendar year, within 30 days after the date of 
receipt of a written request from the employee if the 30-day 
period ends before January 31, a written statement showing the 
following: 
    (a) Name of such person, 
    (b) The name of the employee or payee and the employee's or 
payee's social security account number, 
    (c) The total amount of wages as that term is defined in 
subdivision 1(1), and/or the total amount of remuneration 
subject to withholding pursuant to subdivision 20, and the 
amount of sick pay as required under section 6051(f) of the 
Internal Revenue Code of 1954, as amended through December 31, 
1985, 
    (d) The total amount deducted and withheld as tax under 
subdivision 2a or subdivision 3, or section 21, subdivision 2. 
    (2) The statement required to be furnished by this 
subdivision in respect of any remuneration shall be furnished at 
such other times, shall contain such other information, and 
shall be in such form as the commissioner may prescribe. 
    (3) The commissioner may prescribe rules providing for 
reasonable extensions of time, not in excess of 30 days, to 
employers or payers required to furnish such statements to their 
employees or payees under this subdivision. 
    (4) A duplicate of any statement made pursuant to this 
subdivision and in accordance with rules prescribed by the 
commissioner, along with a reconciliation in such form as the 
commissioner may prescribe of all such statements for the 
calendar year (including a reconciliation of the quarterly 
returns required to be filed pursuant to subdivision 6), shall 
be filed with the commissioner on or before February 28 of the 
year after the payments were made.  
    Sec. 13.  Minnesota Statutes 1986, section 290.92, 
subdivision 9, is amended to read:  
    Subd. 9.  [DETERMINATION OF TAX DUE.] The commissioner may 
grant permission to employers, or persons withholding tax under 
section 21, subdivision 2, who do not desire to use the 
withholding tax tables provided in accordance with paragraph (3) 
of subdivision 2a, or section 21, subdivision 2, to determine 
the amount of tax to be withheld by use of a method of 
withholding other than withholding tax tables, provided such 
method will withhold from each employee or person receiving 
royalty payments substantially the same amount of tax as would 
be withheld by use of the withholding tax tables.  Employers, or 
persons withholding tax under section 21, subdivision 2, who 
desire to determine the amount of tax to be withheld by a method 
other than by use of the withholding tax tables shall obtain 
permission from the commissioner before the beginning of a 
payroll period for which the employer, or person withholding tax 
under section 21, subdivision 2, desires to withhold the tax by 
such other method.  Applications to use such other method must 
be accompanied by evidence establishing the need for the use of 
such method. 
    Sec. 14.  Minnesota Statutes 1986, section 290.92, 
subdivision 11, is amended to read:  
    Subd. 11.  [REFUNDS.] Where there has been an overpayment 
of tax imposed by this section, refund of such overpayment or 
credit shall be made to the employer, or person withholding tax 
under section 21, subdivision 2, in accordance with rules 
prescribed by the commissioner, but only to the extent that the 
amount of such overpayment was not deducted and withheld under 
subdivision 2a or 3, or section 21, subdivision 2, by the 
employer or other person subject to withholding.  Any 
overpayment which is refunded shall bear interest at the rate 
specified in section 270.76, computed from the date of payment 
until the date the refund is paid to the employer.  The 
commissioner of finance shall cause any such refund of tax and 
interest to be paid out of the general fund in accordance with 
the provisions of section 290.62 and so much of said fund as may 
be necessary is hereby appropriated for that purpose.  
Notwithstanding the provisions of section 290.50, written 
findings by the commissioner, notice by mail to the taxpayer, 
and certificate for refundment by the commissioner, shall not be 
necessary.  The provisions of section 270.10, shall not be 
applicable. 
    Sec. 15.  Minnesota Statutes 1986, section 290.92, 
subdivision 12, is amended to read:  
    Subd. 12.  [WITHHELD AMOUNT, CREDIT AGAINST TAX.] The 
amount deducted and withheld as tax under subdivision 2a or 
subdivision 3, or section 21, subdivision 2, during any calendar 
year upon the wages of any individual or person receiving 
royalty payments shall be allowed as a credit to the recipient 
of the income against the taxes imposed by this chapter or by 
chapter 298, for a taxable year beginning in such calendar 
year.  If more than one taxable year begins in such calendar 
year, such amount shall be allowed as a credit against the taxes 
for the last taxable year so beginning. 
    Sec. 16.  Minnesota Statutes 1986, section 290.92, 
subdivision 13, is amended to read:  
    Subd. 13.  [REFUNDS.] (1) Where the amount of the tax 
withheld at the source under subdivision 2a or 3, or section 21, 
subdivision 2, exceeds by $1 or more the taxes (and any added 
penalties and interest) reported in the return of the employee 
taxpayer or imposed upon the employee taxpayer by this chapter, 
the amount of such excess shall be refunded to the employee 
taxpayer.  If the amount of such excess is less than $1 the 
commissioner shall not be required to refund that amount.  Where 
any amount of such excess to be refunded exceeds $10, such 
amount on the original return shall bear interest at the rate 
specified in section 270.76, computed from 90 days after (a) the 
due date of the return of the employee taxpayer or (b) the date 
on which the return is filed, whichever is later, to the date 
the refund is paid to the taxpayer.  A return shall not be 
treated as filed until it is in processible form.  A return is 
in processible form when it is filed on a permitted form 
containing the taxpayer's name, address, social security account 
number, the required signature, and sufficient required 
information (whether on the return or on required attachments) 
to permit the mathematical verification of tax liability shown 
on the return.  Notwithstanding the provisions of section 
290.50, written findings by the commissioner, notice by mail to 
the taxpayer, and certificate for refundment by the 
commissioner, shall not be necessary.  The provisions of section 
270.10, shall not be applicable. 
    (2) Any action of the commissioner in refunding the amount 
of such excess shall not constitute a determination of the 
correctness of the return of the employee taxpayer within the 
purview of section 290.46. 
    (3) The commissioner of finance shall cause any such refund 
of tax and interest, to be paid out of the general fund in 
accordance with the provisions of section 290.62, and so much of 
said fund as may be necessary is hereby appropriated for that 
purpose.  
    Sec. 17.  Minnesota Statutes 1986, section 290.92, 
subdivision 14, is amended to read:  
    Subd. 14.  [RECORDS MUST BE KEPT.] Every person liable for 
any tax imposed by this section, or for the collection thereof, 
shall keep such records, render such statements, make such 
returns, and comply with such rules, as the commissioner may 
from time to time prescribe.  Any such return or statement shall 
include therein the information required by such rules and by 
the forms prescribed by the commissioner.  For the purpose of 
determining compliance with the provisions of this subdivision, 
or for the purpose of collection of any taxes due under this 
section or section 21, the commissioner shall have power to 
examine, or cause to be examined, any books, papers, records, or 
memoranda relevant to making such determination, whether such 
books, papers, records, or memoranda are the property of or in 
the possession of such person or any other person or 
corporation.  The commissioner shall further have power to 
require the attendance of any persons having knowledge or 
information in the premises, to compel the production of books, 
papers, records, or memoranda by persons so required to attend, 
to take testimony on matters material to such determination, and 
to administer oaths or affirmations. 
    Sec. 18.  Minnesota Statutes 1986, section 290.92, 
subdivision 18, is amended to read:  
    Subd. 18.  [RETURNS; CONFESSION OF JUDGMENT.] Any return 
that is required to be filed with the commissioner of revenue 
under this section or section 21 shall (a) contain a written 
declaration that it is correct and complete, and (b) shall 
contain language prescribed by the commissioner providing a 
confession of judgment for the amount of the tax shown due 
thereon to the extent not timely paid. 
    Sec. 19.  Minnesota Statutes 1986, section 290.92, 
subdivision 24, is amended to read:  
    Subd. 24.  [APPLICATION FOR ACCOUNT NUMBER.] An employer, 
or person withholding tax under section 21, desiring to engage 
in business in Minnesota shall file with the commissioner an 
application for a withholding account number on or before the 
due date of the first payment required to be made under the 
provisions of subdivision 6.  An application for an account 
number shall be made upon a form prescribed by the commissioner 
and shall set forth the name of the employer or payor, the 
location of the place or places of business, the names, 
addresses and social security numbers of the owners or partners, 
or if the employer or payor is a corporation of the officers, or 
if the employer or payor is a trust of the trustees, and such 
other information as the commissioner may require.  The 
application shall be filed by the owner if the employer or payor 
is a natural person; by a member or partner if the employer or 
payor is an association or partnership; by a trustee if the 
employer or payor be a trust, or by a person authorized to sign 
the application if the employer or payor is a corporation. 
    No fee shall be charged for the application. 
    The account number is not assignable. 
    An employer or payor who fails to file an application for a 
withholding account number shall be liable to the commissioner 
for a penalty of $100.  The penalty shall be collected in the 
same manner as delinquent withholding tax is collected.  The 
commissioner may abate this penalty. 
    Sec. 20.  Minnesota Statutes 1986, section 290.92, 
subdivision 25, is amended to read:  
    Subd. 25.  [DELEGATION OF DUTY OF EMPLOYER OR PAYOR.] The 
delegation to an agent, fiduciary or employee of an employer, or 
person withholding tax under section 21, of any duty prescribed 
for the employer or payor by this section shall not relieve the 
employer or payor of full compliance with such duty. 
    Sec. 21.  [290.923] [TAX WITHHELD ON ROYALTIES UPON ORE.] 
    Subdivision 1.  [DEFINITION.] In this section, "royalty" 
means the amount in money or value of property received by any 
person having any right, title, or interest in any tract of land 
in this state for permission to explore, mine, take out, and 
remove ore from the land.  
    Subd. 2.  [COLLECTION AT SOURCE.] (a) Every person making 
payment of royalties shall deduct and withhold upon the 
royalties a tax as provided in this section.  
    (b) The amount of tax to be withheld shall be based upon 
tables to be prepared and distributed by the commissioner.  The 
tables must be computed for several permissible withholding 
periods and shall take into account any exemptions allowed under 
this chapter.  The amounts computed for withholding shall be 
such that the amount withheld for any person during the person's 
taxable year shall approximate in the aggregate as closely as 
possible the tax levied and imposed under this chapter for that 
taxable year upon the person's income subject to tax.  
    Subd. 3.  [RETURNS; DEPOSITS.] Every person who is required 
to deduct and withhold tax under subdivision 2 shall file 
returns and make deposits as required under section 290.92, 
subdivision 6.  
    Subd. 4.  [WITHHOLDING STATEMENT.] Every person required to 
deduct and withhold tax under this section shall furnish 
withholding statements as required by section 290.92, 
subdivision 7.  
    Subd. 5.  [PAYOR LIABLE FOR TAX WITHHELD.] The payor shall 
be liable for the payment of tax required to be deducted and 
withheld under subdivision 2 and shall not be liable to any 
person for the amount of the payment.  
    Subd. 6.  [DETERMINATION OF TAX DUE.] The commissioner may 
grant permission to payors who do not wish to use the 
withholding tax tables provided in accordance with subdivision 
(2), paragraph (b), in accordance with section 290.92, 
subdivision 9.  
    Subd. 7.  [REFUNDS.] Refunds of overpayments or credits due 
to overpayments of tax imposed by this section shall be allowed 
in accordance with section 290.92, subdivisions 11 to 13.  
    Subd. 8.  [RECORDS.] Every person liable for tax imposed by 
this section or for the collection of it shall be subject to the 
provisions of section 290.92, subdivision 14. 
    Subd. 9.  [PAYEES INCURRING NO INCOME TAX LIABILITY.] 
Notwithstanding any other provision of this section a payor 
shall not be required to deduct and withhold any tax under this 
chapter upon a payment of royalties to a payee if there is in 
effect with respect to the payment a withholding exemption 
certificate, in the form and containing the information 
prescribed by the commissioner, furnished to the payor by the 
payee certifying that the payee:  
    (1) incurred no liability for income tax imposed under this 
chapter for the payee's preceding taxable year; and 
    (2) anticipates incurring no liability for income tax under 
this chapter for the current taxable year.  
    The commissioner shall provide by rule for the coordination 
of the provisions of this subdivision with the provisions of 
subdivision 4.  
    Subd. 10.  [APPLICATION FOR ACCOUNT NUMBER.] A payor 
desiring to engage in business in Minnesota shall file with the 
commissioner an application for a withholding account number in 
accordance with section 290.92, subdivisions 24 and 25. 
    Sec. 22.  Minnesota Statutes 1986, section 298.01, 
subdivision 1, is amended to read:  
    Subdivision 1.  [OCCUPATION TAX; IRON ORE; TACONITE 
CONCENTRATES.] Every person engaged in the business of mining or 
producing iron ore or other ores taconite concentrates in this 
state shall pay to the state of Minnesota an occupation tax 
equal to 15 percent of the valuation of all ores mined or 
produced before January 1, 1986, 14.5 percent of the valuation 
of all ores produced after December 31, 1985 and before January 
1, 1987, and 14 percent of the valuation of all the ores 
produced after December 31, 1986.  Said The tax shall be in 
addition to all other taxes provided for by law and shall be due 
and payable from such person on or before June 15 of the year 
next succeeding the calendar year covered by the report thereon 
to be filed as hereinafter provided during which the ore was 
produced.  
    Sec. 23.  Minnesota Statutes 1986, section 298.01, is 
amended by adding a subdivision to read: 
    Subd. 3.  [OCCUPATION TAX; OTHER ORES.] Every person 
engaged in the business of mining or producing ores, except iron 
ore or taconite concentrates, shall pay an occupation tax to the 
state of Minnesota as provided in this subdivision.  The tax is 
measured by the person's taxable income for the year for which 
the tax is imposed, and computed in the manner and at the rates 
provided in chapter 290, except that section 290.05, subdivision 
1, clause (a), does not apply.  Corporations and individuals 
shall be subject to the alternative minimum taxes imposed under 
chapter 290.  The tax is in addition to all other taxes and is 
due and payable on or before June 15 of the year succeeding the 
calendar year covered by the report required by section 298.05. 
    Sec. 24.  Minnesota Statutes 1986, section 298.01, is 
amended by adding a subdivision to read: 
    Subd. 4.  [OCCUPATION TAX; IRON ORE; TACONITE 
CONCENTRATES.] A person engaged in the business of mining or 
producing of iron ore or taconite concentrates shall pay an 
occupation tax to the state of Minnesota.  The tax is measured 
by the person's taxable income for the year for which the tax is 
imposed, and computed in the manner and at the rates provided 
for in chapter 290, except that section 290.05, subdivision 1, 
clause (a), does not apply.  Corporations and individuals shall 
be subject to the alternative minimum taxes imposed under 
chapter 290.  The tax is in addition to all other taxes and is 
due and payable on or before June 15 of the year succeeding the 
calendar year covered by the report required by section 298.05.  
    Sec. 25.  Minnesota Statutes 1986, section 298.01, is 
amended by adding a subdivision to read: 
    Subd. 5.  [IF DECLARED UNCONSTITUTIONAL.] If the taxes 
imposed in subdivisions 3 and 4 are found unconstitutional by 
any court of last resort, then persons engaged in the business 
of mining or producing iron ore or other ores shall pay the 
occupation taxes imposed in Minnesota Statutes 1986, chapter 298.
    Sec. 26.  [298.015] [NET PROCEEDS TAX ON MINING.] 
    Subdivision 1.  [TAX IMPOSED.] A person engaged in the 
business of mining shall pay to the state of Minnesota for 
distribution as provided in section 29 a net proceeds tax equal 
to two percent of the net proceeds from mining in Minnesota.  
The tax applies to all mineral and energy resources mined or 
extracted within the state of Minnesota except for sand, silica 
sand, gravel, building stone, crushed rock, limestone, granite, 
dimension granite, dimension stone, horticultural peat, soil, 
iron ore, and taconite concentrates.  The tax is in addition to 
all other taxes provided for by law.  The tax is due by June 15 
of the year succeeding the calendar year covered by the report 
required by section 298.05. 
    Subd. 2.  [NET PROCEEDS.] For purposes of this section, the 
term "net proceeds" means the gross proceeds from mining, as 
defined in section 27, less the deductions allowed in section 
28.  No other credits or deductions shall apply to this tax 
except for those provided in section 28. 
    Sec. 27.  [298.016] [GROSS PROCEEDS.] 
    Subdivision 1.  [COMPUTATION; ARMS-LENGTH TRANSACTIONS.] 
When a metal or mineral product is sold by the producer in an 
arms-length transaction, the gross proceeds are equal to the 
proceeds from the sale of the product.  This subdivision applies 
to sales realized on all metal or mineral products produced from 
mining, including reduction, beneficiation, or any treatment 
used by a producer to obtain a metal or mineral product which is 
commercially marketable.  
    Subd 2.  [OTHER TRANSACTIONS.] When a metal or mineral 
product is used by the producer or disposed of in a 
non-arms-length transaction, the gross proceeds must be 
determined using the alternative computation in subdivision 3.  
Transactions subject to this subdivision include, but are not 
limited to, shipments to a wholly owned smelter, transactions 
with associated or affiliated companies, and any other 
transactions which are not at arms-length. 
    Subd. 3.  [ALTERNATIVE COMPUTATION.] The commissioner of 
revenue shall determine the alternative computation of gross 
proceeds using the following procedure:  
    (a)(1) Metal and mineral prices shall be determined by 
using the average annual market price as published in the 
Engineering and Mining Journal; (2) For metals or mineral 
products with a monthly or weekly price quotation in the 
Engineering and Mining Journal, but for which no average annual 
price has been published, an arithmetic average of the monthly 
or weekly prices published in the Engineering and Mining Journal 
shall be used; (3) If the price of a particular metal or mineral 
product is not published in the Engineering and Mining Journal, 
another recognized published price, as established by the 
commissioner of revenue will be used.  
    (b) The quantity of each particular metal or mineral 
product recovered and paid or credited for by the smelter will 
be multiplied by the average annual market price as determined 
in clause (a).  Special smelter charges for particular metals 
will be allowed as a deduction from this price.  The resulting 
amount will be the gross proceeds for calculating the tax in 
section 26.  
    Subd. 4.  [DEFINITIONS.] For the purposes of this section 
and sections 26 and 28, the terms defined in this subdivision 
have the meaning given them unless the context clearly indicates 
otherwise.  
    (a) "Metal or mineral products" means all those mineral and 
energy resources subject to the tax provided in section 26. 
    (b) "Exploration" means activities designed and engaged in 
to ascertain the existence, location, extent, or quality of any 
deposit of metal or mineral products prior to the development of 
a mining site.  
    (c) "Development" means activities designed and engaged in 
to prepare or develop a potential mining site for mining after 
the existence of metal or mineral products in commercially 
marketable quantities has been disclosed including, but not 
limited to, the clearing of forestation, the building of roads, 
removal of overburden, or the sinking of shafts.  
    (d) "Research" means activities designed and engaged in to 
create new or improved methods of mining, producing, processing, 
beneficiating, smelting, or refining metal or mineral products.  
    Sec. 28.  [298.017] [DEDUCTIONS.] 
    Subdivision 1.  [DEDUCTIONS NOT ALLOWED.] For purposes of 
calculating the net proceeds under section 26, the following 
expenses are not deductible:  (1) all sales, marketing, and 
interest expenses; (2) all insurance expense and taxes, except 
as specifically provided in this section; (3) all administrative 
expenses outside of Minnesota; (4) any research expense prior to 
production; (5) all reclamation expenses after production ends; 
(6) royalty expenses, depletion allowances, and cost of mining 
land.  
    Subd. 2.  [DEDUCTIONS ALLOWED.] (a) In calculating the net 
proceeds for the purpose of determining the tax provided in 
section 26, only those expenses specifically allowed in this 
subdivision may be deducted from gross proceeds.  The carryback 
or carryforward of deductions shall not be allowed.  
    (b) Ordinary and necessary expenses actually paid for the 
mining, production, processing, beneficiation, smelting, or 
refining of metal or mineral products for (1) labor, including 
wages, salaries, fringe benefits, unemployment and workers' 
compensation insurance; (2) machinery, equipment, and supplies, 
including any sales and use tax paid on it, except that 
machinery and equipment subject to depreciation shall only be 
deductible under clause (b)(3); (3) depreciation as defined and 
allowed by section 167 of the Internal Revenue Code of 1986, as 
amended through December 31, 1986; and (4) administrative 
expenses inside Minnesota are deductible.  
    (c) Ordinary and necessary expenses of transporting metal 
or mineral products are allowed as a deduction if the costs are 
included in the sale price of the products.  
    (d) Expenses of exploration, research, or development in 
this state for the mining and processing of minerals within 
Minnesota paid in a production year are deductible in the 
production year.  
    (e) Expenses of exploration and development in Minnesota 
incurred prior to production must be amortized and deducted on a 
straight-line basis over the first five years of production.  
    Sec. 29.  [298.018] [DISTRIBUTION OF PROCEEDS.] 
    Subdivision 1.  [WITHIN TACONITE TAX RELIEF AREA.] The 
proceeds of the tax paid under sections 26 to 28 on minerals and 
energy resources mined or extracted within the taconite tax 
relief area defined in section 273.134 shall be allocated as 
follows: 
    (1) five percent to the city or town within which the 
minerals or energy resources are mined or extracted; 
    (2) ten percent to the taconite municipal aid account to be 
distributed as provided in section 298.282; 
    (3) ten percent to the school district within which the 
minerals or energy resources are mined or extracted; 
    (4) 20 percent to a group of school districts comprised of 
those school districts wherein the mineral or energy resource 
was mined or extracted or in which there is a qualifying 
municipality as defined by section 273.134 in direct proportion 
to school district indexes as follows:  for each school 
district, its pupil units determined under section 124.17 for 
the prior school year shall be multiplied by the ratio of the 
average adjusted assessed value per pupil unit for school 
districts receiving aid under this clause as calculated pursuant 
to chapter 124A for the school year ending prior to distribution 
to the adjusted assessed value per pupil unit of the district.  
Each district shall receive that portion of the distribution 
which its index bears to the sum of the indices for all school 
districts that receive the distributions;  
    (5) 20 percent to the county within which the minerals or 
energy resources are mined or extracted; 
    (6) 20 percent to St. Louis county acting as the counties' 
fiscal agent to be distributed as provided in sections 273.134 
to 273.136; 
    (7) five percent to the iron range resources and 
rehabilitation board for the purposes of section 298.22; 
    (8) five percent to the northeast Minnesota economic 
protection trust fund; and 
    (9) five percent to the taconite environmental protection 
fund. 
     The proceeds of the tax shall be distributed on July 15 
each year.  
    Subd. 2.  [OUTSIDE TACONITE TAX RELIEF AREA.] The proceeds 
of the tax paid under sections 26 to 28 on minerals and energy 
resources mined or extracted outside of the taconite tax relief 
area shall be deposited in the general fund. 
    Sec. 30.  Minnesota Statutes 1986, section 298.026, is 
amended to read:  
    298.026 [CREDIT FOR RESEARCH, EXPERIMENTATION, AND 
EXPLORATION.] 
    A tax credit shall be allowed to each taxpayer against the 
taxes payable by such taxpayer as computed each year under 
sections 298.01, subdivision 1, and 298.02, for the cost of all 
research, experimentation, pilot plant tests and exploration 
work performed in Minnesota in such year for the express purpose 
of furthering the discovery, development, or beneficiation of 
Minnesota iron ore or other Minnesota ores. 
    Such credit shall be computed by applying to such costs and 
allowances the weighted average net effective rate of all the 
occupation taxes applicable to such taxpayer for such year 
imposed pursuant to section 298.01, subdivision 1, after the 
application of the credits against such occupation taxes allowed 
under section 298.02, subdivision 1, but before the application 
of the credit herein provided. 
    Any such credit shall be applied against the tax for the 
year for which such credit is computed except that any such 
credit in excess of such tax shall be applied in like manner in 
the next year and thereafter from year to year, but not 
exceeding two years, until the entire credit has been so applied.
    The determination as to what type of costs will qualify 
under this law, and the amount allowable, will be made by the 
commissioner of revenue who may use the services of the 
University of Minnesota department of civil and mineral 
engineering which is hereby established as a technical 
consultant to the commissioner for the purposes of this section. 
    Sec. 31.  Minnesota Statutes 1986, section 298.027, is 
amended to read:  
    298.027 [COSTS OF MINING EXCEEDING VALUE OF ORE TAX 
CREDIT.] 
    A tax credit shall be allowed to each taxpayer against the 
taxes computed under this chapter where the allowable costs for 
any mine determined under section 298.03 except taconite and 
semitaconite exceed the value of the ore at the place where the 
same is brought to the surface of the earth.  The said allowable 
costs shall not include amounts attributable to or payable by 
reason of the termination of mining operations. 
    The credit shall be computed by applying the tax rates 
specified in section 298.01, subdivision 1, to the excess of 
such deductions over such value, but limited to; in the case of 
open pit iron ore mines, 53.68 percent of the credit so computed 
and in the case of underground mines, 42.10 percent of the 
credit so computed. 
    Such credit shall be allowed for the year in which such 
excess occurs. 
    Sec. 32.  Minnesota Statutes 1986, section 298.028, 
subdivision 1, is amended to read:  
    Subdivision 1.  A credit of five percent of the net cost of 
equipment used primarily to abate or control pollutants to meet 
or exceed state laws, rules or standards to the extent the 
property is so used may be deducted from the tax imposed by 
section 298.01, subdivision 1, in the first year in which the 
equipment is installed.  
    The credit allowed by this subdivision shall not exceed so 
much of the liability for tax for the taxable year as does not 
exceed $75,000.  The credit shall apply only if the equipment 
meets rules prescribed by the Minnesota pollution control agency 
and is installed or operated in accordance with a permit or 
order issued by the agency.  
    Sec. 33.  Minnesota Statutes 1986, section 298.03, 
subdivision 1, is amended to read:  
    Subdivision 1.  [GENERAL RULES.] The valuation of iron or 
other ores for the purposes of determining the amount of tax to 
be paid under the provisions of section 298.01, subdivision 1, 
shall be ascertained by subtracting from the value of such ore, 
at the place where the same is brought to the surface of the 
earth, such value to be determined by the commissioner of 
revenue: 
    (1) the reasonable cost of supplies used and labor 
performed at the mine in separating the ore from the ore body, 
including hoisting, elevating, or conveying the same to the 
surface of the earth; 
    (2) if the ore is taken from an open pit mine, an amount 
for each ton of ore mined or produced during the year equal to 
the cost of removing the overburden, divided by the number of 
tons of ore uncovered, the number of tons of ore uncovered in 
each case to be determined by the commissioner of revenue; 
    (3) if the ore is taken from an underground mine, an amount 
for each ton of ore mined or produced during the year equal to 
the cost of sinking and constructing shafts and running drifts, 
divided by the number of tons of ore that can be advantageously 
taken out through such shafts and drifts, the number of tons of 
ore that can be advantageously taken out in each case to be 
determined by the commissioner of revenue; 
    (4) the amount of royalties paid on the ore mined or 
produced during the year; 
    (5) for persons mining or producing iron ore the mining or 
production of which is subject to the occupation tax imposed by 
section 298.01, subdivision 1, the amount of the ad valorem 
taxes levied and paid for the year against the realty in which 
the ore is deposited; for all others a percentage of the ad 
valorem taxes levied and paid for such year against the realty 
in which the ore is deposited equal to the percentage that the 
tons mined or produced during such year bears to the total 
tonnage in the mine; 
    (6) in the case of taconite, semitaconite and iron sulphide 
operations, the tax payable under section 298.24, and that 
payable under section 298.35, on the concentrates produced in 
said year and any taxes paid under Laws 1955, chapter 391, 429, 
514, 576 or 540, or any other law imposing on such taconite 
operations a specific tax for school or other governmental 
purposes; 
    (7) the amount or amounts of all the foregoing subtractions 
shall be ascertained and determined by the commissioner of 
revenue.  Deductions for interest on plant investment shall not 
exceed the greater of (a) four percent of book value, or (b) the 
amount actually paid but not exceeding six percent of book 
value. No subtraction shall be allowed for shrinkage of iron ore.
    Sec. 34.  Minnesota Statutes 1986, section 298.031, 
subdivision 2, is amended to read:  
    Subd. 2.  [VALUE OF CERTAIN ORE; HOW ASCERTAINED.] (1) The 
taxpayer shall be given a credit in each taxable year upon the 
occupation tax assessed in such year upon iron ore or taconite 
concentrates, under Minnesota Statutes 1957, chapter 298, 
against a given mine after credit for labor credits has been 
given, in an amount equal to the occupation tax under said 
chapter 298 upon an amount produced by multiplying the number of 
tons of ore sold at a discount by the amount of such discount. 
    (2) The aggregate amount of all credits allowed under this 
section to all mines shall not exceed four percent of the 
aggregate amount of all occupation taxes imposed under section 
298.01, subdivision 1, assessed against all mines in the state 
for said year prior to the deduction of the credit allowed by 
this section. 
    (3) The amount of the foregoing subtraction shall be 
ascertained and determined by the commissioner. 
    (4) If ore stockpiled from previous years operations is 
sold at a discount, the discount credit shall be allowed against 
all ore currently being produced by the same company to the 
extent that the discount credit is available.  Any unused credit 
may be carried forward and utilized with future years production 
of ore from the stockpiled property or other properties operated 
by the same company.  
    Sec. 35.  Minnesota Statutes 1986, section 298.08, is 
amended to read:  
    298.08 [PROCEDURE WHEN NO REPORT IS FILED; PENALTY FOR 
FAILURE TO REPORT.] 
    If any person subject to sections 298.01, 298.03, 298.05 to 
298.16, and 298.21 shall fail and section 26 fails to make the 
report provided for in section 298.05 at the time and in the 
manner therein provided, the commissioner of revenue shall in 
such case, upon information as the commissioner may possess or 
obtain, ascertain the kind and amount of ore mined or produced, 
together with the its valuation thereof, and thereon find and 
determine the amount of the tax due from such person.  There 
shall be added thereto to the tax a penalty for failure to 
report, which penalty shall equal to ten percent of the tax 
imposed and which shall be treated as a part thereof of the 
tax.  
    Sec. 36.  Minnesota Statutes 1986, section 298.09, 
subdivision 1, is amended to read:  
    Subdivision 1.  On or before May 1 in each year, the 
commissioner of revenue shall send to each person subject to an 
occupation tax taxes under the provisions of Laws 1921, chapter 
223 section 298.01, as amended, or the net proceeds tax under 
the provisions of section 26, a notice of the amount of the tax 
so determined to be due.  Said notice shall be sent by certified 
mail and directed to the person at the address given in the 
report filed by the person, and, if no report has been filed or 
no address given, then at such address as the commissioner of 
revenue may be able to ascertain; but the validity of the tax 
shall not be affected by the failure of the commissioner of 
revenue to mail such notice or the failure of the person subject 
to the tax to receive it. 
    Sec. 37.  Minnesota Statutes 1986, section 298.24, 
subdivision 1, is amended to read:  
    Subdivision 1.  (a) For concentrate produced in 1986 and 
1987 there is hereby imposed upon taconite and iron sulphides, 
and upon the mining and quarrying thereof, and upon the 
production of iron ore concentrate therefrom, and upon the 
concentrate so produced, a tax of $1.90 per gross ton of 
merchantable iron ore concentrate produced therefrom.  
    (b) Except as provided in paragraph (c), for concentrates 
produced in 1987 1988 and subsequent years, the tax rate shall 
be equal to the preceding year's tax rate plus an amount equal 
to the preceding year's tax multiplied by the percentage 
increase in the implicit price deflator from the fourth quarter 
of the second preceding year to the fourth quarter of the 
preceding year.  "Implicit price deflator" for the gross 
national product means the implicit price deflator prepared by 
the bureau of economic analysis of the United States Department 
of Commerce.  
    (c) The provisions of paragraph (b) will not be in effect 
for concentrates produced in 1987 if the 1987 production is not 
less than 33,000,000 tons, and will not be in effect for 
concentrates produced in 1988 if the 1988 production is not less 
than 34,000,000 tons.  If the provisions of paragraph (b) are 
not in effect for concentrates produced in a year, the rate of 
the tax for that year's production will be the rate of the tax 
imposed on the previous year's production.  The tax shall be 
imposed on the average of the production for the current year 
and the previous two years.  The rate of the tax imposed will be 
the current year's tax rate.  This clause shall not apply in the 
case of the closing of a taconite facility if the property taxes 
on the facility would be higher if this clause and section 
298.25 were not applicable.  
    (d) If the tax or any part of the tax imposed by this 
subdivision is held to be unconstitutional, a tax of $1.90 per 
gross ton of merchantable iron ore concentrate produced shall be 
imposed.  
    (e) Consistent with the intent of this subdivision to 
impose a tax based upon the weight of merchantable iron ore 
concentrate, the commissioner of revenue may indirectly 
determine the weight of merchantable iron ore concentrate 
included in fluxed pellets by subtracting the weight of the 
limestone, dolomite, or olivine derivatives or other basic flux 
additives included in the pellets from the weight of the 
pellets.  For purposes of this paragraph, "fluxed pellets" are 
pellets produced in a process in which limestone, dolomite, 
olivine, or other basic flux additives are combined with 
merchantable iron ore concentrate.  No subtraction from the 
weight of the pellets shall be allowed for binders, mineral and 
chemical additives other than basic flux additives, or moisture. 
    Sec. 38.  Minnesota Statutes 1986, section 298.25, is 
amended to read: 
    298.25 [TAXES ADDITIONAL TO OTHER TAXES.] 
    The taxes imposed under section 298.24 shall be in addition 
to the occupation tax imposed upon the business of mining and 
producing iron ore and in addition to the royalty tax imposed 
upon royalties received for permission to mine and produce iron 
ore.  Except as herein otherwise provided, such taxes shall be 
in lieu of all other taxes upon such taconite and iron 
sulphides, or the lands in which they are contained, or upon the 
mining or quarrying thereof, or the production of concentrate 
therefrom, or upon the concentrate produced, or upon the 
machinery, equipment, tools, supplies and buildings used in such 
mining, quarrying or production, or upon the lands occupied by, 
or used in connection with, such mining, quarrying or production 
facilities.  If electric or steam power for the mining, 
transportation or concentration of such taconite or the 
concentrates produced therefrom is generated in plants 
principally devoted to the generation of power for such 
purposes, the plants in which such power is generated and all 
machinery, equipment, tools, supplies, transmission and 
distribution lines used in the generation and distribution of 
such power, shall be considered to be machinery, equipment, 
tools, supplies and buildings used in the mining, quarrying or 
production of taconite and taconite concentrates within the 
meaning of this section.  If part of the power generated in such 
a plant is used for purposes other than the mining or 
concentration of taconite or the transportation or loading of 
taconite or the concentrates thereof, a proportionate share of 
the value of such generating facilities, equal to the proportion 
that the power used for such other purpose bears to the 
generating capacity of the plant, shall be subject to the 
general property tax in the same manner as other property; 
provided, power generated in such a plant and exchanged for an 
equivalent amount of power which is used for the mining, 
transportation or concentration of such taconite or concentrates 
produced therefrom, shall be considered as used for such 
purposes within the meaning of this section.  Nothing herein 
shall prevent the assessment and taxation of the surface of 
reserve land containing taconite and not occupied by such 
facilities or used in connection therewith at the value thereof 
without regard to the taconite or iron sulphides therein, nor 
the assessment and taxation of merchantable iron ore or other 
minerals, or iron-bearing materials other than taconite or iron 
sulphides in such lands in the manner provided by law, nor the 
assessment and taxation of facilities used in producing sulphur 
or sulphur products from iron sulphide concentrates, or in 
refining such sulphur products, under the general property tax 
laws.  Nothing herein shall except from general taxation or from 
taxation as provided by other laws any property used for 
residential or townsite purposes, including utility services 
thereto. 
    Sec. 39.  Minnesota Statutes 1986, section 298.28, 
subdivision 4, is amended to read: 
    Subd. 4.  [SCHOOL DISTRICTS.] (a) 27.5 cents per taxable 
ton plus the increase provided in paragraph (d) must be 
allocated to qualifying school districts to be distributed, 
based upon the certification of the commissioner of revenue, 
under paragraphs (b) and (c). 
    (b) 5.5 cents per taxable ton must be distributed to the 
school districts in which the lands from which taconite was 
mined or quarried were located or within which the concentrate 
was produced.  The distribution must be based on the 
apportionment formula prescribed in subdivision 2. 
    (c)(i) 22 cents per taxable ton, less any amount 
distributed under paragraph (e), shall be distributed to a group 
of school districts comprised of those school districts wherein 
the taconite was mined or quarried or the concentrate produced 
or in which there is a qualifying municipality as defined by 
section 273.134 in direct proportion to school district indexes 
as follows:  for each school district, its pupil units 
determined under section 124.17 for the prior school year shall 
be multiplied by the ratio of the average adjusted assessed 
value per pupil unit for school districts receiving aid under 
this clause as calculated pursuant to chapter 124A for the 
school year ending prior to distribution to the adjusted 
assessed value per pupil unit of the district.  Each district 
shall receive that portion of the distribution which its index 
bears to the sum of the indices for all school districts that 
receive the distributions.  
    (ii) Notwithstanding clause (i), each school district that 
receives a distribution under sections 294.21 to 294.26; 29; 
298.23 to 298.28, exclusive of any amount received under this 
clause; 298.34 to 298.39; 298.391 to 298.396; 298.405; 298.51 to 
298.67 or any law imposing a tax on several severed mineral 
values or any other law distributing proceeds in lieu of ad 
valorem tax assessments on copper or nickel properties that is 
less than the amount of its levy reduction under section 
275.125, subdivision 9, for the second year prior to the year of 
the distribution shall receive a distribution equal to the 
difference; the amount necessary to make this payment shall be 
derived from proportionate reductions in the initial 
distribution to other school districts under clause (i).  
    (d) On July 15, in years prior to 1988, an amount equal to 
the increase derived by increasing the amount determined by 
paragraph (c) in the same proportion as the increase in the 
steel mill products index over the base year of 1977 as provided 
in section 298.24, subdivision 1, clause (a), shall be 
distributed to any school district described in paragraph (c) 
where a levy increase pursuant to section 124A.03, subdivision 
2, is authorized by referendum, according to the following 
formula.  On July 15, 1988, the increase over the amount 
established for 1987 shall be determined as if there had been an 
increase in the tax rate under section 298.24, subdivision 1, 
paragraph (b), according to the increase in the implicit price 
deflator.  On July 15, 1988 1989 and subsequent years, the 
increase over the amount established for the prior year shall be 
determined according to the increase in the implicit price 
deflator as provided in section 298.24, subdivision 1, paragraph 
(a).  Each district shall receive the product of: 
     (i) $150 times the pupil units identified in section 
124.17, subdivision 1, enrolled in the second previous year or 
the 1983-1984 school year, whichever is greater, less the 
product of 1-3/4 mills times the district's taxable valuation in 
the second previous year; times 
    (ii) the lesser of: 
    (A) one, or 
    (B) the ratio of the amount certified pursuant to section 
124A.03, subdivision 2, in the previous year, to the product of 
1-3/4 mills times the district's taxable valuation in the second 
previous year. 
    If the total amount provided by paragraph (d) is 
insufficient to make the payments herein required then the 
entitlement of $150 per pupil unit shall be reduced uniformly so 
as not to exceed the funds available.  Any amounts received by a 
qualifying school district in any fiscal year pursuant to 
paragraph (d) shall not be applied to reduce foundation aids 
which the district is entitled to receive pursuant to section 
124A.02 or the permissible levies of the district.  Any amount 
remaining after the payments provided in this paragraph shall be 
paid to the commissioner of iron range resources and 
rehabilitation who shall deposit the same in the taconite 
environmental protection fund and the northeast Minnesota 
economic protection trust fund as provided in subdivision 11. 
    (e) There shall be distributed to any school district the 
amount which the school district was entitled to receive under 
section 298.32 in 1975. 
    Sec. 40.  Minnesota Statutes 1986, section 298.28, 
subdivision 7, is amended to read:  
    Subd. 7.  [IRON RANGE RESOURCES AND REHABILITATION BOARD.] 
Three cents per taxable ton shall be paid to the iron range 
resources and rehabilitation board for the purposes of section 
298.22.  The amount determined in this subdivision shall be 
increased in 1981 and subsequent years prior to 1988 in the same 
proportion as the increase in the steel mill products index as 
provided in section 298.24, subdivision 1, and shall be 
increased in 1988 1989 and subsequent years according to the 
increase in the implicit price deflator as provided in section 
298.24, subdivision 1.  The amount distributed in 1988 shall be 
increased according to the increase that would have occurred in 
the rate of tax under section 298.24 if the rate had been 
adjusted according to the implicit price deflator for 1987 
production.  The amount distributed pursuant to this subdivision 
shall be expended within or for the benefit of a tax relief area 
defined in section 273.134.  No part of the fund provided in 
this subdivision may be used to provide loans for the operation 
of private business unless the loan is approved by the governor 
and the legislative advisory commission. 
    Sec. 41.  Minnesota Statutes 1986, section 298.28, 
subdivision 10, is amended to read:  
    Subd. 10.  [INCREASE.] The amounts determined under 
subdivisions 6, paragraph (a), and 9 shall be increased in 1979 
and subsequent years prior to 1988 in the same proportion as the 
increase in the steel mill products index as provided in section 
298.24, subdivision 1.  The amount distributed in 1988 shall be 
increased according to the increase that would have occurred in 
the rate of tax under section 298.24 if the rate had been 
adjusted according to the implicit price deflator for 1987 
production.  Those amounts shall be increased in 1988 1989 and 
subsequent years in the same proportion as the increase in the 
implicit price deflator as provided in section 298.24, 
subdivision 1.  
    The distributions per ton determined under subdivisions 5, 
paragraphs (b) and (d), and 6, paragraphs (b) and (c) for 
distribution in 1988 and subsequent years shall be the 
distribution per ton determined for distribution in 1987. 
    Sec. 42.  Minnesota Statutes 1986, section 298.28, is 
amended by adding a subdivision to read: 
    Subd. 15.  [DISTRIBUTION OF DELAYED 
PAYMENTS.] Notwithstanding any other provision of this section 
or any other law, if payment of taxes collected under section 
298.24 is delayed past the due date because the taxpayer is a 
debtor in a pending bankruptcy proceeding, the amount paid shall 
be distributed as follows when received:  
    (1) 50 percent to St. Louis county acting as the counties' 
fiscal agent, to be distributed as provided in sections 273.134 
to 273.136; 
    (2) 25 percent to the northeast Minnesota economic 
protection trust fund; and 
    (3) 25 percent to the taconite environmental protection 
fund.  
    Sec. 43.  [REPEALER.] 
    (a) Minnesota Statutes 1986, sections 294.21; 294.22; 
294.23; 294.24; 294.25; 294.26; 299.01; 299.012; 299.013; 
299.02; 299.03; 299.04; 299.05; 299.06; 299.07; 299.08; 299.09; 
299.10; 299.11; 299.12; 299.13; and 299.14, are repealed. 
    (b) Minnesota Statutes 1986, sections 290.082; 298.04; 
298.28, subdivision 14; 298.51; 298.52; 298.53; 298.54; 298.55; 
298.61; 298.62; 298.63; 298.64; 298.65; 298.66; and 298.67, are 
repealed.  
    (c) Minnesota Statutes 1986, sections 298.01, subdivision 1;
298.02; 298.026; 298.027; 298.028; 298.03; 298.031; and 298.40 
are repealed. 
    Sec. 44.  [EFFECTIVE DATE.] 
    Section 1 and the parts of sections 2, 3, 5, 8, and 39 that 
strike references to sections 298.51 to 298.67 and references to 
other laws distributing proceeds in lieu of ad valorem tax 
assessments on copper or nickel properties are effective 
December 31, 1986.  Section 6 is effective for taxes assessed in 
1989 and thereafter.  Sections 4, 10 to 21, 38, and 43, 
paragraph (a), and the parts of sections 2, 3, 5, 8, and 39 that 
strike references to sections 294.21 to 294.26 or sections 
294.21 to 294.28 are effective for taxable years beginning after 
December 31, 1989.  Sections 7, 9, 22, 26 to 36, and 43, 
paragraph (b), are effective for taxable years beginning after 
December 31, 1986.  Section 23 is effective for ores mined after 
December 31, 1986.  Section 24 and section 43, paragraph (c), 
are effective for iron ore and taconite concentrates mined after 
December 31, 1989.  Section 37 is effective for taconite 
concentrates mined after December 31, 1986. 

                               ARTICLE 10

                          ECONOMIC DEVELOPMENT
    Section 1.  Minnesota Statutes 1986, section 273.1313, 
subdivision 1, is amended to read:  
    Subdivision 1.  [DEFINITIONS.] (a) As used in this section, 
the following terms have the meanings given them.  
    (b) "Commissioner" means the commissioner of revenue energy 
and economic development.  
    (c) "Employment property" means taxable property, excluding 
land but including buildings, structures, fixtures, and 
improvements that satisfy each of the following conditions:  
    (1) The property is located within an enterprise zone 
designated according to section 273.1312.  
    (2) The property is commercial or industrial property which 
is not used in a trade or business which either is described in 
section 103(b)(6)(O) of the Internal Revenue Code of 1954, as 
amended through December 31, 1984, or is property of a public 
utility (i) a facility the primary purpose of which is one of 
the following:  retail food and beverage services, automobile 
sales or service, or the provision of recreation or 
entertainment, or a private or commercial golf course, country 
club, massage parlor, tennis club, skating facility including 
roller skating, skateboard, and ice skating, racquet sports 
facility, including any handball or racquetball court, hot tub 
facility, suntan facility, or racetrack; (ii) property of a 
public utility; (iii) property used in the operation of a 
financial institution; (iv) property owned by a fraternal or 
veterans' organization; or (v) property of a business operating 
under a franchise agreement that requires the business to be 
located in the state; except that, in an enterprise zone 
designated under section 273.1312, subdivision 4, paragraph (c), 
clause (3), that is not in a city of the first class, employment 
property includes property used as a retail food or beverage 
facility or an automobile sales or service facility, and 
property described in (v) except for property of a retail food 
or beverage facility. 
    (d) "Market value" of a parcel of employment property means 
the value of the taxable property as annually determined 
pursuant to section 273.12, less (i) the market value of all 
property existing at the time of application for classification, 
as last assessed prior to the time of application, and (ii) any 
increase in the market value of the property referred to in 
clause (i) as assessed in each year after the employment 
property is first placed in service.  In each year, any change 
in the values of the employment property and the other property 
on the land shall be deemed to be proportionate unless caused by 
a capital improvement or loss.  
    (e) "Municipality" means any home rule charter or statutory 
city or county, but a county may not exercise the powers granted 
in this section with reference to property situated within a 
city.  
    (f) Notwithstanding the provisions of paragraphs (c) and (d)
"employment property" and "market value" includes in the case of 
taxable real property located in an enterprise zone designated 
under section 273.1312, subdivision 4, paragraph (c), clause 
(3), the entire value of the commercial and industrial 
employment property, including land, used in a trade or business 
which is not used in a trade or business which either is 
described in section 103(b)(0)(ii) of the Internal Revenue Code 
of 1954, as amended through December 31, 1984, or is the 
property of a public utility.  The provisions of this paragraph 
shall not apply to employment property located in an enterprise 
zone designated pursuant to section 273.1312, subdivision 4, 
paragraph (c), clause (3), that is assessed pursuant to the 
first clause of the first sentence of section 273.13, 
subdivision 24, paragraph (b). 
    Sec. 2.  Minnesota Statutes 1986, section 273.1313, 
subdivision 2, is amended to read:  
    Subd. 2.  [PROGRAM.] (a) The governing body of any 
municipality which contains a designated enterprise zone as 
provided by section 273.1312 shall by resolution establish a 
program for classification of new property or improvements to 
existing property as employment property pursuant to the 
provisions of this section.  Applications for classification 
under the program shall be filed with the municipal clerk or 
auditor in a form prescribed by the commissioner, with additions 
as may be prescribed by the municipal governing body.  The 
application shall contain, where appropriate, a legal 
description of the parcel of land on which the facility is to be 
situated or improved; a general description of the facility or 
improvement and its proposed use, the probable time schedule for 
undertaking any construction or improvement, and information 
regarding the matters referred to in paragraph (d); the market 
value and the assessed value of the land and of all other 
taxable property then situated on it, according to the most 
recent assessment; and if the property is to be improved or 
expanded, an estimate of the probable cost of the new 
construction or improvement and the market value of the new or 
improved facility (excluding land) when completed.  
    (b) Upon receipt of an application the municipal clerk or 
auditor, subject to any prior approval required by the 
resolution establishing the program, shall furnish a copy to the 
assessor for the property and to the governing body of each 
school district and other public body authorized to levy taxes 
on the property, and shall publish a notice in the official 
newspaper of the time and place of a hearing to be held by the 
governing body on the application, not less than 30 days after 
the notice is published, stating that the applicant, the 
assessor, representatives of the affected taxing authorities, 
and any taxpayer of the municipality may be heard or may present 
their views in writing at or before the hearing.  The hearing 
may be adjourned from time to time, but the governing body shall 
take action on the application by resolution within 30 days 
after the hearing.  If disapproved, the reasons shall be set 
forth in the resolution, and the applicant may appeal to the 
commissioner within 30 days thereafter, but only on the ground 
that the determination is arbitrary, in relation to prior 
determinations as to classification under the program, or based 
upon a mistake of law.  If approved, the resolution shall 
include determinations as to the matters set forth in paragraph 
(d), and the clerk or auditor shall transmit it to the 
commissioner.  
    (c) Within 60 days after receipt of an approved application 
or an appeal from the disapproval of an application, the 
commissioner shall take action on it.  The commissioner shall 
approve each application approved by the governing body on 
finding that it complies with the provisions of this section.  
If the commissioner disapproves the application, or finds 
grounds exist for appeal of a disapproved application, the 
commissioner shall transmit the finding to the governing body 
and the applicant.  When grounds for appeal have been determined 
to exist, the governing body shall reconsider and take further 
action on the application within 30 days after receipt of the 
commissioner's notice and serve written notice of the action 
upon the applicant.  The applicant, within 30 days after receipt 
of notice of final disapproval by the commissioner or the 
governing body, may appeal from the disapproval to a court of 
competent jurisdiction. 
    (d) In the case of enterprise zones qualifying pursuant to 
section 273.1312, subdivision 4, paragraph (c), clause (1), an 
application shall not be approved unless the governing body 
finds and determines that the construction or improvement of the 
facility: 
    (1) is reasonably likely to create new employment or 
prevent a loss of employment in the municipality;  
    (2) is not likely to have the effect of transferring 
existing employment from one or more other municipalities within 
the state;  
    (3) is not likely to cause the total market value of 
employment property within the municipality to exceed five 
percent of the total market value of all taxable property within 
the municipality; or if it will, the resulting limitation upon 
the increase of the assessed value of all taxable property 
within the municipality, considering the amount of additional 
municipal services likely to be required for the employment 
property, is not likely to substantially impede the operation or 
the financial integrity of the municipality or any other public 
body levying taxes on property in the municipality; and 
    (4) will not result in the reduction of the assessed value 
of existing property within the municipality owned by the 
applicant, through abandonment, demolition, or otherwise, 
without provision for the restoration of the existing property 
within a reasonable time in a manner sufficient to restore the 
assessed valuation.  
    (e) In the case of enterprise zones qualifying pursuant to 
section 273.1312, subdivision 4, paragraph (c), clause (3), an 
application for assessment as employment property under section 
273.13, subdivision 24, paragraph (b), or for a tax reduction 
pursuant to section 273.1314, subdivision 9, may not be approved 
unless the governing body finds and determines that the 
construction or improvement of the facility is not likely to 
have the effect of transferring existing employment from one or 
more other municipalities within the state.  
    (f) All participating enterprise zone municipalities must 
submit, with each application from businesses that previously 
have not received enterprise zone credits, a written multiyear 
enterprise zone tax credit distribution plan.  The plan must set 
forth:  (1) the maximum amount of credits to be drawn over the 
five year allowable period; and (2) the maximum amount of state 
tax credits to be drawn each of those five years, and whether 
the form will be in tax credits or refunds. 
    (g) Within 90 days of final enactment of this act, all 
participating enterprise zone municipalities, except those 
containing an enterprise zone designated under section 273.1312, 
subdivision 4, paragraph (c), clause (3), other than a zone in 
the city of the first class, must submit a written multiyear 
enterprise zone tax credit distribution plan.  The plan must 
specify the maximum amounts of state tax credits previously 
approved business applicants are eligible to receive in each of 
the remaining years for which credits have been authorized.  The 
commissioner may only approve requests for state tax credits 
from a business that meets the requirements established in 
sections 273.1312 to 273.1314.  The commissioner shall not 
approve any request for state tax credits from a business that 
exceeds the amount set forth in an enterprise zone 
municipality's multiyear enterprise zone tax credit distribution 
plan for that business entity for that year. 
    (h) Border city enterprise zones designated under section 
273.1312, subdivision 4, paragraph (c), clause (3), that are not 
located in cities of the first class shall, within 90 days of 
final enactment of this act, submit a written multiyear 
enterprise zone tax distribution plan.  The plan must specify 
the maximum aggregate amount of tax credits all previously 
approved business applicants are eligible to receive in each of 
the remaining years for which credits have been authorized.  The 
commissioner may only approve requests for state tax credits for 
a business that meets the requirements established in sections 
273.1312 to 273.1314.  
    Sec. 3.  Minnesota Statutes 1986, section 273.1314, 
subdivision 9, is amended to read:  
    Subd. 9.  [AUTHORIZED FORMS OF STATE TAX REDUCTIONS.] (a) 
The following types of tax reductions may be approved by the 
commissioner for businesses located in an enterprise zone: 
    (1) an exemption from the general sales tax imposed by 
chapter 297A for purchases of construction materials or 
equipment for use in the zone if the purchase was made after the 
date of application for the zone; 
    (2) a credit against the income tax of an employer for 
additional workers employed in the zone, other than workers 
employed in construction, up to a maximum of $3,000 per employee 
per year;  
    (3) an income tax credit for a percentage of the cost of 
debt financing to construct new or expanded facilities in the 
zone; 
    (4) a state paid property tax credit for a portion of the 
property taxes paid by a new commercial or industrial facility 
or the additional property taxes paid by an expansion of an 
existing commercial or industrial facility in the zone; and 
    (5) a complete abatement of all corporate income and excise 
taxes under chapter 290, property taxes, and sales and use taxes 
under chapter 297A on the purchase of construction materials or 
equipment for use in the zone if the zone is designated pursuant 
to section 273.1312, subdivision (4), paragraph (c), clause 
(4).  Local taxing authorities with an enterprise zone 
designated pursuant to section 273.1312, subdivision 4, 
paragraph (c), clause (4), will be reimbursed by the state for 
foregone property taxes only to the extent that the local taxing 
authority can demonstrate the development within that zone has 
imposed an additional net financial burden on its budget.  The 
additional net financial burden shall be determined by 
subtracting the increase in the total equalized assessed 
property value of the local taxing authority that is in excess 
of a statewide average increase in equalized assessed property 
values as determined by the commissioner of revenue, multiplied 
by the mill rate of the local taxing authority for taxes payable 
in the current year, from the additional direct costs the 
development has placed on the local taxing authority's budget 
for the current year.  The commissioner of energy and economic 
development, in consultation with the commissioner of revenue, 
shall review that local taxing authority's demonstration of 
additional financial burden and determine the amount which the 
state will reimburse the local taxing authority for foregone 
property tax revenue.  
    (b) The municipality shall specify in its application for 
designation the types of tax reductions it seeks to be made 
available in the zone and the percentage rates and other 
appropriate limitations on the reductions.  
    (c) Upon designation of an enterprise zone and approval by 
the commissioner of the tax reductions to be made available 
therein, the commissioner of revenue shall take the steps 
necessary to implement the tax reductions.  
    (d) The tax reductions provided by this subdivision shall 
not apply to any facility described in section 103(b)(6)(O) of 
the Internal Revenue Code of 1954, as amended through January 
15, 1983, or to any regulated public utility (1) a facility the 
primary purpose of which is one of the following:  retail food 
and beverage services, automobile sales or service, or the 
provision of recreation or entertainment, or a private or 
commercial golf course, country club, massage parlor, tennis 
club, skating facility including roller skating, skateboard, and 
ice skating, racquet sports facility, including any handball or 
racquetball court, hot tub facility, suntan facility, or 
racetrack; (2) property of a public utility; (3) property used 
in the operation of a financial institution; (4) property owned 
by a fraternal or veterans' organization; or (5) property of a 
business operating under a franchise agreement that requires the 
business to be located in the state; except that, in an 
enterprise zone designated under section 273.1312, subdivision 
4, paragraph (c), clause (3), that is not in a city of the first 
class, tax reductions may be provided to a retail food or 
beverage facility or an automobile sales or service facility, or 
a business operating under a franchise agreement that requires 
the business to be located in this state except for such a 
franchised retail food or beverage facility. 
    (e) The commissioner shall approve tax reductions 
authorized by paragraph (a) within an enterprise zone designated 
pursuant to section 273.1312, subdivision 4, paragraph (c), 
clause (3), only after the governing body of a city designated 
as an enterprise zone has designated an area or areas, each 
consisting of at least 100 acres, of the city not in excess of 
400 acres in which the tax reductions may be provided.  
    (f) In addition to the tax reductions authorized by 
paragraph (a), for an enterprise zone designated under section 
273.1312, subdivision 4, paragraph (c), clause (3), the 
following types of tax reductions may be approved:  
    (1) A credit against income tax for workers employed in the 
zone and not qualifying for a credit under paragraph (a), clause 
(2), subject to a maximum of $1,500 per employee per year; 
    (2) A state paid property tax credit for a portion of the 
property taxes paid by a commercial or industrial facility 
located in the zone.  Notwithstanding paragraph (d), the credits 
provided by this paragraph may be provided to the businesses 
described in section 103(b)(6)(0)(i) of the Internal Revenue 
Code of 1954, as amended through December 31, 1983. 
    (g) Each tax reduction provided to a business pursuant to 
this subdivision shall terminate not longer than five years 
after the effective date of the tax reduction for the 
business unless the business is located in a border city 
enterprise zone designated under section 273.1312, subdivision 
4, paragraph (c), clause (3), that is not a city of the first 
class.  Each tax reduction provided to a business that is 
located in a border city enterprise zone designated under 
section 273.1312, subdivision 4, paragraph (c), clause (3), that 
is not located in a city of the first class shall terminate not 
longer than seven years after the effective date of the tax 
reduction for the business.  Subject to the five-year or the 
seven-year limitation, the tax reductions may be provided after 
expiration of the zone's designation.  
    (h) The income tax credits provided pursuant to clauses (a) 
and (f) may be refundable.  
    Sec. 4.  Minnesota Statutes 1986, section 273.1314, 
subdivision 10, is amended to read: 
    Subd. 10.  [RECAPTURE.] Any business which (a) receives tax 
reductions authorized by subdivision 9, classification as 
employment property pursuant to section 273.1312, or an 
alternative local contribution under subdivision 6; and (b) 
ceases to operate its facility located within the enterprise 
zone within two years after the expiration of the tax reductions 
shall repay the amount of the tax reduction or local 
contribution pursuant to the following schedule:  
      Termination                                   Repayment
      of operations                                  Portion
      Less than 6 months                            100 percent
      6 months or more but less than 12 months       75 percent
      12 months or more but less than 18 months      50 percent
      18 months or more but less than 24 months      25 percent
    The repayment must be paid to the state to the extent it 
represents a tax reduction under subdivision 9 and to the 
municipality to the extent it represents a property tax 
reduction or other local contribution.  Any amount repaid to the 
state must be credited to the amount certified as available for 
tax reductions in the zone pursuant to subdivision 8.  Any 
amount repaid to the municipality must be used by the 
municipality for economic development purposes.  
    The commissioner of revenue may seek repayment of tax 
credits from a business ceasing to operate within an enterprise 
zone. 
    Sec. 5.  Minnesota Statutes 1986, section 273.1314, is 
amended by adding a subdivision to read: 
    Subd. 8b.  [ADDITIONAL BORDER CITY ALLOCATIONS.] In 
addition to tax reductions authorized in subdivisions 8 and 8a, 
the commissioner may allocate $2,000,000 for tax reductions 
pursuant to subdivision 9 to enterprise zones designated under 
section 273.1312, subdivision 4, paragraph (c), clause (3), 
except for zones located in cities of the first class.  This 
money shall be allocated among the zones on a per capita basis.  
Limits on the maximum allocation to a zone imposed by 
subdivision 8 do not apply to allocations made under this 
subdivision.  Tax reductions authorized by this subdivision may 
not be allocated to any property which is: 
    (1) a facility the primary purpose of which is one of the 
following:  the provision of recreation or entertainment, or a 
private or commercial golf course, country club, massage parlor, 
tennis club, skating facility including roller skating, 
skateboard, and ice skating, racquet sports facility, including 
any handball or racquetball court, hot tub facility, suntan 
facility, or racetrack; 
    (2) property of a public utility; 
    (3) property used in the operation of a financial 
institution; 
    (4) property owned by a fraternal or veterans' organization;
    (5) property of a retail food or beverage service business 
operating under a franchise agreement that requires the business 
to be located in the state. 
    Sec. 6.  Minnesota Statutes 1986, section 273.1314, is 
amended by adding a subdivision to read: 
    Subd. 10a.  [INTEREST.] When tax credits allowed under 
subdivision 9 result in an overpayment within the meaning of 
section 290.50, the excess to be refunded to the taxpayer shall 
bear interest at the amount specified in section 270.76, 
computed from 90 days after (1) the due date of the return or 
(2) the date on which the return is filed, whichever is later, 
to the date the refund is paid. 
    Sec. 7.  Minnesota Statutes 1986, section 297A.257, 
subdivision 1, is amended to read:  
    Subdivision 1.  [DESIGNATION OF DISTRESSED COUNTIES.] (a) 
The commissioner of energy and economic development shall 
annually on June 1 designate those counties which are 
distressed.  A county is distressed if it satisfies either at 
least one of the following two criteria: 
    (1) The county has an average unemployment rate of ten 
percent or more for the one-year period ending on April 30 of 
the year in which the designation is made; or 
    (2) the unemployment rate for the entire county was greater 
than 110 percent of the state average for the 12-month period 
ending the previous April 30, and 20 percent or more of the 
county's economy, as determined by the commissioner of jobs and 
training, is dependent upon agriculture; or 
    (3) for counties designated for periods beginning after 
June 30, 1986, but before July 1, 1988, at least 20 percent of 
the county's economy, as determined by the commissioner of jobs 
and training, is dependent upon agriculture and the total market 
value of real and personal property for the entire county for 
taxes payable in 1986, as determined by the commissioner of 
revenue, has decreased by at least 22 percent from the total 
market value of real and personal property for the entire county 
for taxes payable in 1984.  
    If, as a result of a plant closing, layoffs or another 
similar event affecting a significant number of employees in the 
county, the commissioner has reason to believe that the average 
unemployment in the county will exceed ten percent during the 
one-year period beginning April 30, the commissioner may 
designate the county as distressed, notwithstanding clause (1).  
    (b) The commissioner shall designate a portion of a county 
containing a city of the first class located outside of the 
metropolitan area as a distressed county if: 
    (1) that portion of the county has an unemployment rate of 
ten percent or more for the one-year period ending on April 30 
of the year in which the designation is made; and 
    (2) that portion of the county has a population of at least 
50,000 as determined by the 1980 federal census. 
    (c) A county or the portion of a county designated pursuant 
to this subdivision shall be considered a distressed county for 
purposes of this section and chapter 116M.  
    (d) Except as otherwise specifically provided, the 
determination of whether a county is distressed must be made 
using the most current data available from the state 
demographer.  The designation of a distressed county is 
effective for the 12-month period beginning July 1.  A county 
may be designated as distressed as often as it qualifies. 
    (e) The authority to designate counties as distressed 
expires on June 30, 1989. 
    Sec. 8.  Minnesota Statutes 1986, section 297A.257, 
subdivision 2, is amended to read:  
    Subd. 2.  [SALES TAX EXEMPTION.] Purchase and use of 
capital equipment is exempt from the sales and use tax imposed 
by this chapter if the capital equipment is placed in service in 
connection with the construction of a new or an expansion of an 
existing manufacturing facility in a distressed county or in the 
taconite tax relief area defined in section 273.134.  Purchase 
or use of equipment for use in an existing plant qualifies under 
this section and section 297A.01, subdivision 16, as an 
expansion if either the production capacity of the plant is 
increased by at least 20 percent as a result or if the total 
capital investments made within a 12-month period exceed 
$25,000,000.  Purchases of capital equipment are exempt under 
this section only to the extent that the purchases of capital 
equipment for the project during the calendar year exceed 
$100,000.  The county is a distressed county for purposes of 
this subdivision if it was designated as a distressed county for 
the time period during which the contract to purchase the 
equipment was executed. 
    A county meeting only the criteria in paragraph (a), clause 
(3), of subdivision 1 is a distressed county for purposes of 
this subdivision if it was designated as a distressed county for 
the time period during which sales and use tax on capital 
equipment purchased became due and payable.  
    Sec. 9.  Minnesota Statutes 1986, section 297A.257, 
subdivision 2a, is amended to read:  
    Subd. 2a.  [EXEMPTION FOR CONSTRUCTION MATERIALS.] 
Construction materials and supplies are exempt from the tax 
imposed under this chapter, regardless of whether purchased by 
the owner or a contractor, subcontractor, or builder, if all of 
the following conditions are met:  
    (a)(1) the materials and supplies are used or consumed in 
constructing a new manufacturing facility or expanding an 
existing one in a distressed county; and 
    (2) the total capital investment made within a three-year 
period exceeds $75,000,000; or 
    (b)(1) the materials and supplies are used or consumed in 
constructing a new manufacturing facility or expanding an 
existing one within the taconite tax relief area defined in 
section 273.134; and 
    (2) the total capital investment made within a three-year 
period exceeds $50,000,000.  
    A county is a distressed county for purposes of a project 
qualifying under this subdivision if it was designated as a 
distressed county at the time the initial contract to purchase 
the materials and supplies was executed.  
    Sec. 10.  Minnesota Statutes 1986, section 297A.257, is 
amended by adding a subdivision to read: 
     Subd. 2b.  [PROJECTS; CONTINUED EXEMPTION.] If construction 
of a project is begun during a time period in which the county 
was designated as a distressed county and if the county ceases 
to be a distressed county, the provision of subdivisions 2 and 
2a apply to the project as if the county were distressed for 12 
months after the designation expired. 
    Sec. 11.  [APPROPRIATION.] 
    $500,000 is appropriated from the general fund to the 
commissioner of energy and economic development to be disbursed 
to the Aitkin county growth fund to be expended for economic 
development projects and activities within the county. 

                               ARTICLE 11

                             GROSS EARNINGS
    Section 1.  Minnesota Statutes 1986, section 295.01, 
subdivision 10, is amended to read:  
    Subd. 10.  [TELEPHONE COMPANY.] The term "telephone 
company" as used in this chapter means any person, firm, 
association or corporation, excluding municipal telephone 
companies, owning or operating any telephone line or telephone 
exchange for hire wholly or partly within this state, including 
radio and other advancements in the art of telephony but 
excluding cellular radio and sellers of telephone services, but 
excluding resellers and cellular radio.  "Resellers of telephone 
services" as used in this chapter means any person, firm, 
association, or corporation that: 
    (1) resells telecommunications services purchased from 
telephone companies as defined in this chapter; 
    (2) does not own, operate, manage, or control transmission 
facilities that have the technological capability to provide 
telecommunication services; and 
    (3) incurs costs equal to at least 50 percent of its gross 
revenues for the telephone services purchased from telephone 
companies that own, operate, manage, or control transmission 
facilities. 
    Sec. 2.  Minnesota Statutes 1986, section 295.32, is 
amended to read:  
    295.32 [GROSS EARNINGS TAX; ANNUAL RETURN.] 
    Every telegraph company as defined in section 295.01, 
subdivision 9, shall file a return with the commissioner of 
revenue, in such form as the commissioner shall prescribe, 
containing a true and just report of its gross earnings derived 
from business within the state during the preceding calendar 
year, which return shall contain a computation of tax of six 
percent and make payment of the tax based upon the following 
percentages of such gross earnings:  
    for calendar years beginning before December 31, 1989, 6 
percent, 
    for calendar year 1990, 4.5 percent, 
    for calendar year 1991, 3 percent, 
    for calendar year 1992, 1.5 percent, and 
    for calendar years beginning after December 31, 1992, 
exempt.  
    Such return and payment of the tax due therewith shall be 
submitted on or before March first of each year, and shall be in 
lieu of all ad valorem taxes upon the property of such company 
within the state for the year during which such gross earnings 
accrued.  The provisions of chapter 294 and acts amendatory 
thereto, shall be applicable to such telegraph companies and to 
the returns and to the taxes submitted therewith by them.  
    Sec. 3.  Minnesota Statutes 1986, section 295.34, 
subdivision 1, is amended to read:  
    Subdivision 1.  Except as provided in subdivision 2 every 
telephone company shall file a return with the commissioner of 
revenue on or before April 15 of each year, and submit payment 
therewith, of the following percentages of its gross earnings, 
including long distance access charges, of the preceding 
calendar year derived from business within this state: 
    (a) for gross earnings from service to rural subscribers 
and from exchange business of all cities of the fourth class and 
statutory cities having a population of 10,000 or less 
    for calendar years beginning before December 31, 1986 1988, 
4 percent, 
    for calendar year 1987 1989, 3 percent, provided that the 
estimated tax payments made on March 15 and June 15, 1989, 
pursuant to section 295.365, must be made as if the tax were 
imposed at a rate of four percent, 
    for calendar year 1988 1990, 1.5 percent, 
    for calendar year 1989 1991, 1 percent, and 
    for calendar years beginning after December 31, 1989 1992, 
exempt; and 
    (b) for gross earnings derived from all other business 
    for calendar years beginning before December 31, 1986 1988, 
7 percent, 
    for calendar year 1987 1989, 5.5 percent, provided that the 
estimated tax payments made on March 15 and June 15, 1989, 
pursuant to section 295.365, must be made as if the tax were 
imposed at a rate of seven percent, 
    for calendar year 1988 1990, 3 percent, 
    for calendar year 1989 1991, 2.5 percent, and 
    for calendar years beginning after December 31, 1989 1992, 
exempt. 
    Beginning January 1, 1986, A tax shall not be imposed on 
the gross earnings of a telephone company from business 
originating or terminating outside of Minnesota, except that the 
gross earnings tax is imposed on all long distance access 
charges allocated to interstate service received in payment from 
a telephone company before December 31, 1989. 
    The tax imposed is in lieu of all other taxes, except the 
taxes imposed by chapter 290, property taxes assessed beginning 
in 1987 1989, payable in 1988 1990, and sales and use taxes 
imposed as a result of section 296.22, subdivision 13 chapter 
297A.  All money paid by a company for connecting fees and 
switching charges to any other company shall be reported as 
earnings by the company to which they are paid, but shall not be 
deemed earnings of the collecting and paying company.  For the 
purposes of this section, the population of any statutory city 
shall be considered as that stated in the latest federal census. 
    Sec. 4.  Minnesota Statutes 1986, section 295.365, is 
amended to read:  
    295.365 [DECLARATIONS OF ESTIMATED GROSS EARNINGS TAX BY 
TELEGRAPH AND TELEPHONE COMPANIES.] 
    Subdivision 1.  [PAYMENTS.] Every telegraph company subject 
to taxation pursuant to section 295.32 and every telephone 
company subject to taxation pursuant to section 295.34, shall 
make a declaration of estimated gross earnings tax for the 
calendar year if the gross earnings tax can reasonably be 
expected to be in excess of $1,000.  The declaration of 
estimated tax shall be filed on or before March 15.  The amount 
of estimated tax with respect to which a declaration is required 
shall be paid in four equal installments on or before the 15th 
day of March, June, September, and December.  For calendar year 
1989 only, the March 15 and June 15 installments for telephone 
companies shall be made as provided in section 295.34, 
subdivision 1.  The remaining two installments for calendar year 
1989 shall be calculated by subtracting the sum of the March 15 
and June 15 installments from the estimated tax for the year and 
dividing the difference by two.  An amendment of a declaration 
may be filed in any interval between installment dates 
prescribed above but only one amendment may be filed in each 
such interval.  
    Subd. 2.  [AMENDMENT OF DECLARATIONS.] (a) If any amendment 
of a declaration is filed, the amount of each remaining 
installment shall be the amount which would have been payable if 
the new estimate had been made when the first estimate for the 
calendar year was made, increased or decreased, as the case may 
be, by the amount computed by dividing 
    (1) the difference between (A) the amount of estimated tax 
required to be paid before the date on which the amendment was 
made, and (B) the amount of estimated tax which would have been 
required to be paid before such date if the new estimate had 
been made when the first estimate was made, by 
    (2) the number of installments remaining to be paid on or 
after the date on which the amendment is made.  
    (b) Notwithstanding paragraph (a), if an amendment of a 
declaration is filed for calendar year 1989 prior to payment of 
the June 15 installment, the amount of the June 15 installment 
shall be 31.5 percent of the estimated tax for the calendar year 
plus the difference between 31.5 percent of the reestimated tax 
for the calendar year and the March 15 installment.  
    Subd. 3.  [EXTENSIONS.] The commissioner of revenue may 
grant a reasonable extension of time for filing any declaration 
but such extension shall not be for more than six months.  
    Sec. 5.  Minnesota Statutes 1986, section 295.366, is 
amended by adding a subdivision to read: 
    Subd. 5.  [1989 EXCEPTION.] Notwithstanding subdivision 4, 
for calendar year 1989 only, the addition to the tax with 
respect to any underpayment of the March 15 or June 15 payment 
is imposed if the total amount of the payments of estimated tax 
made on or before June 15 does not equal or exceed the amount 
which would have been required to be paid on or before that date 
if the estimated tax for the first six months of 1989 were the 
lesser of: 
    (1) 50 percent of the tax shown on the return of the 
corporation for the preceding year; or 
    (2) 60 percent of the actual liability for the calendar 
year. 
The addition to tax under this subdivision shall reduce any 
addition to tax imposed under subdivision 4 but not to less than 
zero.  
    Sec. 6.  Minnesota Statutes 1986, section 295.39, is 
amended to read:  
    295.39 [REPORTS FILED BY TRUST COMPANIES WITH COMMISSIONER 
OF REVENUE COUNTY TREASURER.] 
    It shall be the duty of every trust company which is 
required to pay a tax of six percent of its gross earnings in 
lieu of taxes and assessments upon its capital stock and 
personal property pursuant to the provisions of section 295.37, 
on or before the first day of February, in each year, to make 
and file with the commissioner of revenue county treasurer of 
the county in which the trust has its principal place of 
business a report covering the preceding calendar year, verified 
by the oath of an officer of such company, setting forth 
correctly the full amount of the gross earnings of such company 
during the preceding calendar year, and such other and further 
information as the commissioner of revenue county treasurer may 
require.  
    Sec. 7.  Minnesota Statutes 1986, section 295.40, is 
amended to read:  
    295.40 [TAX DETERMINED.] 
    Upon receipt of such report the commissioner of revenue 
county treasurer shall determine therefrom and from such other 
information as the commissioner treasurer may possess or obtain 
the amount of tax due from such company; and, on or before the 
15th day of February, the commissioner of revenue county 
treasurer shall certify the amount of the taxes found and 
determined to be due from such company to the treasurer of the 
county in which such trust company has its principal place of 
business.  
    Sec. 8.  Minnesota Statutes 1986, section 295.41, is 
amended to read:  
    295.41 [FAILURE TO REPORT; PENALTY.] 
    If any company subject to sections 295.39 to 295.43 shall 
fail to make the report provided for in section 295.39, at the 
time and in the manner therein provided, there shall be added to 
the tax found and determined by the commissioner of revenue 
county treasurer to be due from such company a penalty equal to 
ten percent of the tax imposed, which shall be treated as a part 
thereof.  
    Sec. 9.  Minnesota Statutes 1986, section 295.43, is 
amended to read:  
    295.43 [LIEN OF TAX.] 
    Gross earnings taxes imposed under and pursuant to the 
provisions of section 295.37, which become delinquent, shall be 
a lien upon all of the property of the company owning the same, 
and shall be collected at the same time and in the same manner 
that delinquent personal property taxes are collected.  
    Sec. 10.  Laws 1985, First Special Session chapter 14, 
article 3, section 18, is amended to read: 
    Sec. 18.  [EFFECTIVE DATE.] 
    Section 3 and section 4, paragraph (d), are effective 
beginning with taxes assessed in 1987 1989 and payable in 1988 
1990 and thereafter.  Sections 2, 4, paragraph (c), 5 to 12, and 
14 are effective beginning with taxes assessed in 1985 and 
payable in 1986 and thereafter.  Sections 15 and 16 are 
effective the day after final enactment.  The change in the 
classification ratio for employment property in section 9 does 
not modify the required amount of local contribution for 
enterprise zones, approved prior to enactment of this act, that 
provide local contributions in lieu of the employment 
classification for projects already approved. 
    Sec. 11.  [REPEALER.] 
    (a) Laws 1985, First Special Session chapter 14, article 
14, section 3, is repealed.  
    (b) Minnesota Statutes 1986, sections 295.32; 295.33; 
295.34; 295.36; 295.365; and 295.366, are repealed.  
    Sec. 12.  [EFFECTIVE DATE.] 
    Sections 1 to 3 and 6 to 11, paragraph (a), are effective 
for all tax years after December 31, 1986.  Section 11, 
paragraph (b), is effective beginning calendar year 1992. 

                               ARTICLE 12

                               LIQUOR TAX
    Section 1.  Minnesota Statutes 1986, section 297C.02, 
subdivision 1, is amended to read:  
    Subdivision 1.  [DISTILLED SPIRITS AND WINE.] There is 
imposed on all distilled spirits and wine manufactured, 
imported, sold, or possessed in this state the following excise 
tax: 
                          Standard            Metric
(a) Distilled spirits,    $4.39 per gallon    $1.16 per liter
                          $5.03               $1.33 
    liqueurs, cordials,
    and specialties
    regardless of
    alcohol content
    (excluding ethyl
    alcohol)
(b) Wine containing 14    $.27 per gallon     $.07 per liter
                          $.30                $.08  
    percent or less
    alcohol by volume
(c) Wine containing more  $.79 per gallon     $.21 per liter
                          $.95                $.25
    than 14 percent but
    not more than 21
    percent alcohol by
    volume
(d) Wine containing more  $1.58 per gallon    $.42 per liter
                          $1.82               $.48 
    than 21 percent but
    not more than 24
    percent alcohol by
    volume
(e) Wine containing more  $3.08 per gallon    $.81 per liter
                          $3.52               $.93 
    than 24 percent
    alcohol by volume
(f) Natural and           $1.50 per gallon    $.40 per liter
                          $1.82               $.48 
    artificial sparkling
    wines containing
    alcohol
The metric tax is imposed on all products taxable under this 
subdivision when the net contents are stated in metric units of 
measure.  
    In computing the tax on a package of distilled spirits or 
wine a proportional tax at a like rate on all fractional parts 
of a gallon or liter must be paid, except that the tax on a 
fractional part of a gallon less than 1/16 of a gallon is the 
same as for 1/16 of a gallon.  
    The tax on miniatures of two fluid ounces or less or 50 
milliliters or less is 12 14 cents. 
    The commissioner of revenue may establish by rule a date 
and procedure for the conversion of excise tax computation and 
reporting from rates expressed in gallons to rates expressed in 
metric volumes.  The official conversion factor is one liter 
equals 0.264172 United States gallons. 
    Sec. 2.  Minnesota Statutes 1986, section 297C.02, 
subdivision 2, is amended to read:  
    Subd. 2.  [FERMENTED MALT BEVERAGES.] There is imposed on 
the direct or indirect sale of fermented malt beverages the 
following excise tax:  
    (1) On fermented malt beverages containing not more than 
3.2 percent alcohol by weight, $2 $2.40 per barrel of 31 gallons;
    (2) On fermented malt beverages containing more than 3.2 
percent alcohol by weight, $4 $4.60 per barrel of 31 gallons.  
    The tax is at a proportional rate for fractions of a barrel 
of 31 gallons. 
    Sec. 3.  Minnesota Statutes 1986, section 297C.03, 
subdivision 1, is amended to read:  
    Subdivision 1.  [MANNER AND TIME OF PAYMENT; PENALTIES; 
DEPOSIT OF TAX PROCEEDS.] The tax on wines and distilled spirits 
on which the excise tax has not been previously paid must be 
paid to the commissioner by persons having on file with the 
commissioner a sufficient bond as provided in subdivision 4 on 
or before the 25th 18th day of the month following the month in 
which the first sale is made in this state by a licensed 
manufacturer or wholesaler.  Every person liable for the tax on 
wines or distilled spirits imposed by section 297C.02 must file 
with the commissioner on or before the 25th 18th day of the 
month following first sale in this state by a licensed 
manufacturer or wholesaler a return in the form prescribed 
by rule of the commissioner, and must keep records and render 
reports required by rule of the commissioner.  A person liable 
for any tax on wines or distilled spirits not having on file a 
sufficient bond must pay the tax within 24 hours after first 
sale in this state.  The commissioner may certify to the 
commissioner of public safety any failure to pay taxes when due 
as a violation of a statute relating to the sale of intoxicating 
liquor for possible revocation or suspension of license.  
    If a person fails to pay the tax within the time specified 
or within 30 days after final determination of an appeal to the 
Minnesota tax court relating thereto, there is added a penalty 
equal to ten percent of the remaining unpaid amount.  The 
penalty must be collected as part of the tax.  The amount of tax 
not timely paid, together with the penalty, must bear interest 
at the rate specified in section 270.75 from the time the tax 
should have been paid until it is paid. 
    Sec. 4.  Minnesota Statutes 1986, section 297C.03, is 
amended by adding a subdivision to read: 
    Subd. 4a.  [CERTIFIED CHECK.] In lieu of the bond required 
in subdivision 4, a certified check may be filed with the 
commissioner.  The check must be payable to the commissioner in 
an amount to be established by the commissioner or the 
commissioner's designee but not to exceed twice the average 
monthly liability of the taxpayer.  The department of revenue 
shall not pay interest on funds encumbered by the check. 
    Sec. 5.  Minnesota Statutes 1986, section 297C.04, is 
amended to read:  
    297C.04 [PAYMENT OF TAX; MALT LIQUOR.] 
    The commissioner shall may by rule provide a reporting 
method for paying and collecting the excise tax on fermented 
malt beverages.  The rules must require reports to be filed with 
and the excise tax to be paid to the commissioner on or before 
the 25th 18th day of the month following the month in which the 
importation into or the first sale is made in this state, 
whichever first occurs.  The rules must also require payments in 
June of 1987 and subsequent years according to the provisions of 
section 297C.05, subdivision 2, paragraph (b).  If the excise 
tax is not paid when due, the amount due is increased by a 
penalty of ten percent thereof, and interest on the tax and 
penalty at an annual rate of 20 percent, adjusted as provided in 
section 270.75, from the date the tax became due until paid.  
    Sec. 6.  Minnesota Statutes 1986, section 297C.05, 
subdivision 2, is amended to read:  
    Subd. 2.  [MONTHLY ACCELERATED TAX PAYMENTS; PENALTY FOR 
NONPAYMENT PAYMENT.] (a) Subject to paragraph (b), all taxes 
shall be due and payable as directed in this chapter, and taxes 
not paid shall bear interest at the rate specified in section 
270.75.  The commissioner in issuing a final assessment shall 
add to the amount of tax found due and unpaid a penalty of ten 
percent thereof, except that, if the commissioner finds that the 
taxpayer has made a false and fraudulent return with intent to 
evade the tax imposed by this chapter, the penalty shall be 25 
percent of the entire tax as shown by the corrected return.  If 
the tax is not paid within the time herein specified for the 
payment thereof or within 30 days after final determination of 
an appeal to the Minnesota tax court relating thereto, there 
shall be added thereto a specific penalty equal to ten percent 
of the amount so remaining unpaid, but in no event shall the 
penalty for failure to pay the tax within the time provided for 
payment be less than $10.  The commissioner may extend the time 
for paying the tax without penalty for good cause shown.  
    (b) Every person liable for tax under this chapter having a 
liability of $1,500 or more in May 1987 or in May of each 
subsequent year, shall remit the June liability in the manner 
required by this section.  
    On or before June 25 18, 1987, or June 25 18 of each 
subsequent year, the taxpayer shall remit the actual May 
liability and one-half of the estimated June liability to the 
commissioner and file the return on a form prescribed by the 
commissioner.  
    On or before August 25 18, 1987, or August 25 18 of each 
subsequent year, the taxpayer shall submit a return showing the 
actual June liability and paying any additional amount of tax 
not remitted in June.  A penalty is hereby imposed equal to ten 
percent of the amount of June liability required to be paid in 
June less the amount remitted in June.  However, the penalty 
shall not be imposed if the amount remitted in June equals the 
lesser of (a) 45 percent of the actual June liability, or (b) 50 
percent of the preceding May's liability.  
    Sec. 7.  Minnesota Statutes 1986, section 297C.06, is 
amended to read:  
    297C.06 [REFUNDS.] 
    Subdivision 1.  [PRODUCTS DESTROYED.] The commissioner may 
refund to a taxpayer the amount of tax paid under this chapter 
on intoxicating liquor or malt liquor which becomes unfit for 
human consumption and is destroyed under an order by a federal, 
state, or local agency while being held for sale by a licensed 
retailer.  Any destruction must meet the requirements of the 
environmental laws of this state.  
    Subd. 2.  [BAD DEBTS.] The commissioner may adopt rules 
providing a refund of the tax paid under this chapter on 
intoxicating liquor or wine if the tax paid qualifies as a bad 
debt under section 166(a) of the Internal Revenue Code of 1986, 
as amended through December 31, 1986. 
    Subd. 3.  [PROOF OF LOSS.] Refunds shall be made only if 
satisfactory proof is presented to the commissioner by the 
taxpayer and the licensed retailer that the retailer was not 
indemnified by insurance for the tax.  The commissioner may 
prescribe the method of proof required for obtaining the refund. 
    The commissioner may refund to a taxpayer the amount of tax 
paid under this chapter for the breakage of inventory not 
subject to reimbursement from any insurance proceeds.  The 
method of proof for obtaining the refund will be prescribed by 
the commissioner. 
    The commissioner may refund any overpayment of tax imposed 
under section 297C.02 provided that the claim for refund is 
filed within three years from the due date of the return for 
which the refund is claimed.  The refund of tax shall be paid 
out of the general fund and amounts necessary to pay the refunds 
are appropriated out of the general fund. 
    Subd. 4.  [CREDIT AGAINST TAX.] The commissioner may credit 
the amount determined under this section against taxes otherwise 
payable under this chapter by the taxpayer. 
    Subd. 5.  [CLAIMS; TIME LIMIT.] Claims for refund must be 
filed with the commissioner (1) for refunds under subdivision 1 
within one year from the date of the breakage or the destruction 
order; and (2) for refunds under subdivision 2, within two years 
of the date the product is sold to the retailer. 
    Subd. 6.  [ANNUAL APPROPRIATION.] There is appropriated 
annually from the general fund to the commissioner the sums 
necessary to make the refunds provided by this section. 
    Sec. 8.  Minnesota Statutes 1986, section 297C.09, is 
amended to read:  
    297C.09 [IMPORTATION BY INDIVIDUALS.] 
    A person, other than a person under the age of 19 21 years, 
entering Minnesota from another state may have in possession one 
liter of intoxicating liquor or 288 ounces of malt liquor and a 
person entering Minnesota from a foreign country may have in 
possession four liters of intoxicating liquor or ten quarts (320 
ounces) of malt liquor without the required payment of the 
Minnesota excise tax.  A collector of commemorative bottles, 
other than a person under the age of 19 21 years, entering 
Minnesota from another state may have in possession 12 or fewer 
commemorative bottles without the required payment of the 
Minnesota excise tax.  A person who imports or has in possession 
untaxed intoxicating liquor or malt liquor in excess of the 
quantities provided for in this section is guilty of a 
misdemeanor.  This section does not apply to the consignments of 
alcoholic beverages shipped into this state by holders of 
Minnesota import licenses or Minnesota manufacturers and 
wholesalers when licensed by the commissioner of public safety 
or to common carriers with licenses to sell intoxicating liquor 
in more than one state.  A peace officer, the commissioner, or 
their authorized agents, may seize untaxed liquor. 
    Sec. 9.  [297C.14] [PENALTIES.] 
    Subdivision 1.  [PENALTY ON UNPAID TAX.] If a tax imposed 
by this chapter, or any part of it, is not paid within the time 
required for the payment, or an extension of time, or within 30 
days after final determination of an appeal to the tax court 
relating to it if the taxpayer is not required to pay the amount 
in dispute pending appeal under section 271.061, there shall be 
added to the tax a penalty equal to three percent of the amount 
remaining unpaid if the failure is for not more than 30 days, 
with an additional penalty of three percent of the amount of tax 
remaining unpaid during each additional 30 days or fraction 
thereof, not exceeding 24 percent in the aggregate.  
    Subd. 2.  [PENALTY FOR FAILURE TO FILE.] If a person fails 
to make and file a return within the time required by this 
chapter or an extension of time, there shall be added to the tax 
three percent of the amount of tax not paid on or before the 
date prescribed for payment of the tax if the failure is for not 
more than 30 days, with an additional five percent of the amount 
of tax remaining unpaid for each additional 30 days or fraction 
thereof during which such failure continues, not exceeding 23 
percent in the aggregate.  The amount so added to any tax under 
subdivisions 1 and 2 shall be collected at the same time and in 
the same manner and as a part of the tax and shall bear interest 
at the rate specified in section 270.75 from the time the tax 
should have been paid, unless the tax has been paid before the 
discovery of the negligence, in which case the amount so added 
shall be collected in the same manner as the tax.  
     In the case of a failure to file a return within 60 days of 
the date prescribed for filing of the return (determined with 
regard to any extension of time for filing), the addition to tax 
under this subdivision shall not be less than the lesser of (i) 
$200; or (ii) the greater of (a) 25 percent of the amount 
required to be shown as tax on the return without reduction for 
any payments made or refundable credits allowable against the 
tax; or (b) $50.  
    Subd. 3.  [COMBINED PENALTIES.] Where penalties are imposed 
under subdivisions 1 and 2, the penalties imposed under both 
subdivisions combined, other than the minimum penalty under 
subdivision 2, shall not exceed 38 percent in the aggregate. 
    Subd. 4.  [WILLFUL FAILURE; FRAUD.] If a person willfully 
fails to file a return or make a payment required by this 
chapter, or willfully files a false or fraudulent return, or 
willfully attempts in any manner to evade or defeat the tax or 
payment of it, there shall also be imposed a penalty in an 
amount equal to 50 percent of the tax (less any amounts paid on 
the basis of such false or fraudulent return) found due for the 
period to which the return related.  The penalty imposed by this 
subdivision shall be collected as part of the tax and is in 
addition to any other penalties, civil and criminal, provided by 
this section.  
    Subd. 5.  [ORDER PAYMENTS CREDITED.] All payments received 
may, in the discretion of the commissioner of revenue, be 
credited first to the oldest liability not secured by a judgment 
or lien, but in all cases shall be credited first to penalties, 
next to interest, and then to the tax due.  
    Subd. 6.  [INTEREST.] The amount of tax not timely paid, 
together with any penalty imposed by this chapter, shall bear 
interest at the rate specified in section 270.75 from the time 
such tax should have been paid until paid.  Any interest and 
penalty shall be added to the tax and collected as a part of it. 
    Subd. 7.  [NEGLIGENCE; INTENTIONAL DISREGARD OF LAW OR 
RULES.] If any part of any additional assessment is due to 
negligence or intentional disregard of the provisions of this 
chapter or rules of the commissioner of revenue (but without 
intent to defraud), there shall be added to the tax an amount 
equal to ten percent of the additional assessment.  The amount 
of tax together with this penalty shall bear interest at the 
rate specified in section 270.75 from the time the tax should 
have been paid until paid.  
    Subd. 8.  [FAILURE TO FILE INFORMATIONAL RETURNS.] Any 
person required to file informational returns or reports that 
fails to do so by the time period established by law, will be 
assessed a $25 penalty for each month the return remains unfiled.
    Sec. 10.  [297C.16] [PERSONAL DEBT; LIEN.] 
    The tax imposed by this chapter, and interest and penalties 
imposed with respect to it, shall be a personal debt of the 
person required to file a return from the time the liability for 
it arises, irrespective of when the time for payment of the 
liability occurs.  The debt shall, in the case of the executor 
or administrator of the estate of a decedent and in the case of 
any fiduciary, be that of the person in the person's official or 
fiduciary capacity only, unless the person has voluntarily 
distributed the assets held in that capacity without reserving 
sufficient assets to pay the tax, interest, and penalties.  Then 
the person shall be personally liable for the deficiency.  
    Sec. 11.  [REPEALER.] 
    Minnesota Statutes 1986, sections 297C.03, subdivisions 2 
and 3, and 297C.05, subdivision 4, are repealed.  
    Sec. 12.  [EFFECTIVE DATE.] 
    Sections 1 to 11 are effective June 1, 1987. 

                               ARTICLE 13 

                        CIGARETTE TAX AND SALES 
    Section 1.  Minnesota Statutes 1986, section 297.01, 
subdivision 2, is amended to read:  
    Subd. 2.  "Cigarette" means any roll for smoking made 
wholly or in part of tobacco, and encased in any irrespective of 
size and shape and whether or not the tobacco is flavored, 
adulterated, or mixed with any other ingredient, the wrapper or 
cover of which is made of paper or any other substance or 
material except tobacco.  
    Sec. 2.  Minnesota Statutes 1986, section 297.01, 
subdivision 4, is amended to read: 
    Subd. 4.  "Person" means any individual, firm, trade 
association, company, partnership, joint stock company, joint 
adventure, corporation, trustee club, syndicate, agency, 
or receiver, or any legal representative of any of the foregoing 
engaged in the sale of cigarettes.  
    Sec. 3.  Minnesota Statutes 1986, section 297.01, 
subdivision 7, is amended to read: 
    Subd. 7.  "Distributor" means any and each of the following:
    (1) Any person engaged in the business of selling 
cigarettes in this state who brings, or causes to be brought, 
into this state from without the state any packages of 
cigarettes for sale; 
    (2) Any person who makes, manufactures, or fabricates 
cigarettes in this state for sale in this state; 
    (3) Any person engaged in the business without this state 
who ships or transports cigarettes to retailers in this state, 
to be sold by those retailers; 
    (4) Any person who engages in this state in the business of 
selling packages of cigarettes which the person purchases 
unstamped from a licensee under sections 297.01 to 297.13.  Any 
person who is on direct purchase from a cigarette manufacturer 
and applies cigarette stamps or indicia on at least 50 percent 
of cigarettes sold by that person. 
    A distributor who also sells at retail must maintain a 
separate inventory, substantiated with invoices for cigarettes 
that were acquired for retail sale.  
    A distributor may transfer another state's stamped 
cigarettes to another distributor for the purpose of resale in 
the other state. 
    Sec. 4.  Minnesota Statutes 1986, section 297.01, 
subdivision 10, is amended to read: 
    Subd. 10.  "Retailer" means any person engaged in this 
state in the business of selling cigarettes to ultimate 
consumers, or offering to sell, cigarettes at retail.  
    Sec. 5.  Minnesota Statutes 1986, section 297.01, 
subdivision 14, is amended to read:  
    Subd. 14.  "Subjobber" means any person who buys acquires 
stamped cigarettes and sells them to persons other than ultimate 
consumers for the primary purpose of resale to retailers, and 
any licensed distributor who delivers to and sells or 
distributes stamped cigarettes from a place of business other 
than that licensed in the distributor's license.  The definition 
of subjobber does not include the occasional sale of stamped 
cigarettes from one retailer to another.  Notwithstanding the 
foregoing, "subjobber" shall also mean any person who is a 
vending machine operator.  A vending machine operator is any 
person whose principal business is operating, or owning and 
leasing to operators, machines for the vending of merchandise or 
service.  
    For the purpose of this section, any subjobber that sells 
at retail must maintain a separate inventory, substantiated with 
invoices, that reflect the cigarettes were acquired for retail 
sale.  
    Sec. 6.  Minnesota Statutes 1986, section 297.02, 
subdivision 1, is amended to read:  
    Subdivision 1.  [RATES.] A tax is hereby imposed upon the 
sale of cigarettes in this state or having cigarettes in 
possession in this state with intent to sell and upon any person 
engaged in business as a distributor thereof, at the following 
rates, subject to the discount provided in section 297.03: 
    (1) On cigarettes weighing not more than three pounds per 
thousand, 19.5 19 mills minus the tax, not more than eight 
mills, imposed by United States Code, title 26, section 5701, as 
amended, on each such cigarette; 
    (2) On cigarettes weighing more than three pounds per 
thousand, 39.8 38 mills minus the tax, not more than 16.8 mills, 
imposed by United States Code, title 26, section 5701, as 
amended, on each such cigarette. 
    Sec. 7.  Minnesota Statutes 1986, section 297.02, 
subdivision 6, is amended to read: 
    Subd. 6.  [SALES BY STATE.] The state of Minnesota or any 
of its agencies, instrumentalities, or governmental subdivisions 
except institutions under the control and management of the 
commissioner of corrections shall be subject to the tax imposed 
by this chapter on all cigarettes sold, in the same manner as 
distributors, if such unit is engaged in the purchase and sale 
of cigarettes.  
    Sec. 8.  Minnesota Statutes 1986, section 297.03, 
subdivision 1, is amended to read: 
    Subdivision 1.  [STAMP PUT ON BY DISTRIBUTOR; EXCEPTION.] 
Except as otherwise provided in this section payment of the tax 
imposed by section 297.02 shall be evidenced by stamps affixed 
to each package.  Before delivering, or causing to be delivered, 
any package to any person in this state, other than a licensed 
distributor, every distributor shall firmly affix to each 
package of cigarettes stamps in amounts equal to the tax on 
those cigarettes as provided for in section 297.02.  
    Sec. 9.  Minnesota Statutes 1986, section 297.03, 
subdivision 5, is amended to read: 
    Subd. 5.  [SALE OF STAMPS.] (a) Except as provided in 
paragraph (b), The commissioner shall sell stamps to any person 
licensed as a distributor at a discount of two 1.25 percent from 
the face amount of the stamps for the 
first $1,000,000 $1,500,000 of such stamps purchased in any 
fiscal year; and at a discount of 1.25 .75 percent on the 
remainder of such stamps purchased in any fiscal year.  The 
commissioner shall not sell stamps to any other person. 
    (b) If the tax exceeds 12.5 mills a cigarette, the discount 
is 1.5 percent from the face amount of the stamps for the first 
$1,000,000 of the stamps purchased in a fiscal year and one 
percent for additional stamps purchased during the fiscal year. 
The commissioner may prescribe the method of shipment of the 
stamps to the distributor as well as the quantities of stamps 
purchased.  
    Sec. 10.  Minnesota Statutes 1986, section 297.03, 
subdivision 6, is amended to read: 
    Subd. 6.  [TAX METER MACHINES.] (1) Before January 1, 1989 
1990, the commissioner may authorize any person licensed as a 
distributor to stamp packages with a tax meter machine, approved 
by the commissioner, which shall be provided by the 
distributor.  The commissioner may provide for the use of such a 
machine by the distributor, supervise and check its operation, 
provide for the payment of the tax on any package so stamped, 
subject to the discount provided in subdivision 5, and in that 
connection require the furnishing of a corporate surety bond, 
check guarantee bond, or certified check in a suitable amount to 
guarantee the payment of the tax.  
    (2) Before January 1, 1989 1990, the commissioner may 
authorize, and after December 31, 1988 1989, the commissioner 
shall require any person licensed as a distributor to stamp 
packages with a heat-applied tax stamping machine, approved by 
the commissioner, which shall be provided by the distributor.  
The commissioner shall supervise and check the operation of the 
machines and shall provide for the payment of the tax on any 
package so stamped, subject to the discount provided in 
subdivision 5.  The commissioner may sell heat-applied stamps on 
a credit basis under conditions prescribed by the commissioner, 
and in that connection require the furnishing of a corporate 
surety bond, check guarantee bond, or certified check in an 
amount suitable to guarantee payment of the tax stamps so 
purchased by a distributor.  The stamps shall be sold by the 
commissioner at a price which includes the tax after giving 
effect to the discount provided in subdivision 5.  The 
commissioner shall recover the actual costs of the stamps from 
the distributor.  
    (3) If the commissioner finds that a stamping machine is 
not printing or affixing a legible stamp on the package, the 
commissioner may order the distributor to immediately cease the 
stamping process until the machine is functioning properly. 
    Sec. 11.  Minnesota Statutes 1986, section 297.04, 
subdivision 4, is amended to read: 
    Subd. 4.  [DISTRIBUTOR'S APPLICATION; FEE, BOND; CERTIFIED 
CHECK; SUBJOBBER'S LICENSE.] (a) Except as otherwise provided in 
clause paragraph (b), each application for a distributor's 
license shall be accompanied by a fee of $150 and a corporate 
surety bond issued by a surety licensed to do business in this 
state in the sum of $1,000, conditioned upon the true and 
faithful compliance by the licensee with all of the provisions 
of this act.  This bond, or a reissue thereof, or a substitute 
therefor, shall be kept in full force and effect during the 
entire period covered by the license.  A separate application 
for license shall be made for each place of business at which a 
distributor proposes to engage in business as such under 
sections 297.01 to 297.13, provided that a separate application 
for a subjobber's license may be made by a licensed distributor 
for each place of business (other than that licensed in the 
distributor's license) to which the distributor delivers and 
from which the distributor sells or distributes stamped 
cigarettes.  
    Each application for a subjobber's license shall be 
accompanied by a fee of $12.  
    A distributor or subjobber applying for a license between 
July 1 and December 31 of any year shall be required to pay only 
one-half of the license fee provided for herein.  
    (b) Each application for a distributor's license for the 
period beginning July 1, 1971 shall be accompanied by a fee of 
$75 and the corporate surety bond prescribed by clause (a).  
Each application for a subjobber's license for the period 
beginning July 1, 1971 shall be accompanied by a fee of $6.  
Each license issued for the period beginning July 1, 1971 shall 
expire on December 31, 1971.  In lieu of the bond required in 
paragraph (a), a certified check made payable to the 
commissioner may be filed with the commissioner.  The department 
of revenue shall not pay interest on funds encumbered by the 
check. 
    Sec. 12.  Minnesota Statutes 1986, section 297.04, 
subdivision 6, is amended to read: 
    Subd. 6.  [EXPIRATION.] Each license issued for any period 
subsequent to June 30, 1971, shall expire on December 31 
following its date of issue unless sooner revoked by the 
commissioner or unless the business with respect to which the 
license was issued is transferred.  In either case the holder of 
the license shall immediately surrender it to the commissioner.  
    Sec. 13.  Minnesota Statutes 1986, section 297.04, 
subdivision 9, is amended to read: 
    Subd. 9.  [REVOCATION.] The commissioner may revoke, 
cancel, or suspend the license or licenses of any distributor or 
subjobber for violation of sections 297.01 to 297.13, or any 
other act applicable to the sale of cigarettes, or any rule 
promulgated by the commissioner, and may also revoke any such 
license or licenses of any distributor or subjobber for the 
violation of sections 297.31 to 297.39, or any other act 
applicable to the sale of tobacco products, or any rule 
promulgated by the commissioner in furtherance of sections 
297.31 to 297.39.  The commissioner may revoke, cancel, or 
suspend the license or licenses of any distributor or subjobber 
for violation of sections 325D.31 to 325D.42.  
    No license shall be revoked, canceled, or suspended except 
after notice and a hearing by the commissioner as provided in 
section 297.09.  
    Sec. 14.  Minnesota Statutes 1986, section 297.07, 
subdivision 1, is amended to read:  
    Subdivision 1.  [MONTHLY RETURN FILED WITH COMMISSIONER.] 
On or before the 25th 18th day of each calendar month every 
distributor with a place of business in this state shall file a 
return with the commissioner showing the quantity of cigarettes 
manufactured or brought in from without the state or purchased 
during the preceding calendar month and the quantity of 
cigarettes sold or otherwise disposed of in this state and 
outside this state during that month.  Every licensed 
distributor outside this state shall in like manner file a 
return showing the quantity of cigarettes shipped or transported 
into this state during the preceding calendar month.  Returns 
shall be made upon forms furnished and prescribed by the 
commissioner and shall contain such other information as the 
commissioner may require.  The return shall be accompanied by a 
remittance for the full unpaid tax liability shown by it. 
    Sec. 15.  Minnesota Statutes 1986, section 297.07, 
subdivision 3, is amended to read: 
    Subd. 3.  [DEALER MAY PROTEST; HEARING.] If, within 20 30 
days after mailing of notice of the proposed assessment, the 
distributor or a legal representative shall file a protest to 
said proposed assessment and request a hearing thereon, the 
commissioner shall give notice to that distributor or legal 
representative of the time and place fixed for the hearing, 
shall hold a hearing in conformity with the provisions of 
sections 297.01 to 297.13, and pursuant thereto shall issue a 
final assessment to the distributor or legal representative for 
the amount found to be due as a result of the hearing.  This 
hearing shall be held within 45 days after filing of the 
protest.  If a protest is not filed within the time herein 
prescribed, the commissioner shall issue a final assessment to 
the distributor or legal representative, as such.  Any tax due 
and owing after a final assessment order has been issued to the 
distributor or legal representative of such distributor shall be 
paid within 60 days.  The tax due must be paid within 60 days 
after the mailing date of the assessment notice.  
    Sec. 16.  Minnesota Statutes 1986, section 297.07, 
subdivision 4, is amended to read: 
    Subd. 4.  [MONTHLY ACCELERATED TAX PAYMENTS; PENALTY FOR 
NONPAYMENT PAYMENT.] (a) Except as provided in paragraph (b), 
all taxes shall be due and payable not later than the 
twenty-fifth day of the month following the calendar month in 
which they were incurred, and thereafter shall bear interest at 
the rate specified in section 270.75.  The commissioner in 
issuing the final assessment pursuant to subdivision 3 shall add 
to the amount of tax found due and unpaid a penalty of ten 
percent thereof, except that, on finding that the distributor 
has made a false and fraudulent return with intent to evade the 
tax imposed by sections 297.01 to 297.13, the penalty shall be 
25 percent of the entire tax as shown by the corrected return.  
If any such tax is not paid within the time herein specified for 
the payment thereof or within 30 days after final determination 
of an appeal to the Minnesota tax court relating thereto, there 
shall be added thereto a specific penalty equal to ten percent 
of the amount so remaining unpaid, but in no event shall the 
penalty for failure to pay such tax within the time provided for 
such payment be less than $10.  The commissioner is authorized 
to extend the time for paying such tax without penalty for good 
cause shown. 
    (b) Every distributor having a liability of $1,500 or more 
in May 1987 or in May of each subsequent year, shall remit the 
June liability in the manner required by this section.  
    On or before June 25 18, 1987, or June 25 18 of each 
subsequent year, the distributor shall remit the actual May 
liability and one-half of the estimated June liability to the 
commissioner and file the return on a form prescribed by the 
commissioner.  
    On or before August 25 July 18, 1987, or August 25 July 18 
of each subsequent year, the distributor shall submit a return 
showing the actual June liability and paying any additional 
amount of tax not remitted in June.  A penalty is imposed equal 
to ten percent of the amount of June liability required to be 
paid in June less the amount remitted in June.  However, the 
penalty shall not be imposed if the amount remitted in June 
equals the lesser of (a) 45 percent of the actual June 
liability, or (b) 50 percent of the preceding May's liability.  
    Sec. 17.  Minnesota Statutes 1986, section 297.07, 
subdivision 5, is amended to read: 
    Subd. 5.  [RECOVERY BY COMMISSIONER OFFSET.] The 
commissioner may recover the amount of any tax due and unpaid, 
interest, and any penalty in a civil action.  The collection of 
such a tax, interest, or penalty shall not be a bar to any 
prosecution under sections 297.01 to 297.13 Upon audit, if a 
distributor's return reflects an overpayment, the overpayment 
may only be offset against an additional tax liability for the 
month immediately preceding or immediately after the month of 
overpayment.  
    Sec. 18.  Minnesota Statutes 1986, section 297.11, 
subdivision 3, is amended to read:  
    Subd. 3.  [PACKAGES STAMPED, EXCEPTION.] No distributor 
shall sell a package of cigarettes not stamped in accordance 
with the provisions of sections 297.01 to 297.13, except when 
the sale is made by the distributor to another distributor 
licensed under sections 297.01 to 297.13 or when the sale is 
made under such circumstances that the tax imposed by sections 
297.01 to 297.13 may not legally be levied because of the 
constitution or laws of the United States.  
    Sec. 19.  Minnesota Statutes 1986, section 297.11, 
subdivision 5, is amended to read:  
    Subd. 5.  [TRANSPORTING UNSTAMPED PACKAGES.] No person 
shall transport into, or receive, carry, or move from place to 
place in this state, any packages of cigarettes not stamped in 
accordance with the provisions of this act except in the course 
of interstate commerce, unless the cigarettes are moving from a 
public warehouse to a distributor upon orders from the 
manufacturer or distributor or from one distributor to another.  
This subdivision shall not apply to a person carrying for 
personal use not more than 200 cigarettes when those cigarettes 
have had the individual packages or seals thereof broken and are 
intended for personal use by that person and not to be sold or 
offered for sale.  
    Common carriers transporting cigarettes into this state 
shall file with the commissioner reports of all such shipments 
other than those which are delivered to public warehouses of 
first destination in this state which are licensed under the 
provisions of chapter 231.  Such reports shall be filed monthly 
on or before the 10th day of each month and shall show with 
respect to deliveries made in the preceding month: the date, 
point of origin, point of delivery, name of consignee, the 
quantity of cigarettes delivered and such other information as 
the commissioner may require.  
    All common carriers transporting cigarettes into Minnesota 
shall permit examination by the commissioner of their records 
relating to the shipment of cigarettes.  
    Any person who fails or refuses to transmit to the 
commissioner the required reports or whoever refuses to permit 
the examination of the records by the commissioner shall be 
guilty of a misdemeanor.  
    Sec. 20.  Minnesota Statutes 1986, section 297.13, 
subdivision 1, is amended to read: 
    Subdivision 1.  [CIGARETTE TAX APPORTIONMENT.] Revenues 
received from taxes, penalties and interest under sections 
297.01 to 297.13 and from license fees and miscellaneous sources 
of revenue shall be deposited by the commissioner of revenue in 
a separate and special fund, designated as the tobacco tax 
revenue fund, in the state treasury and credited as follows:  
    (a) first to the general obligation special tax bond debt 
service account in each fiscal year the amount required to 
increase the balance on hand in the account on each December 1 
to an amount equal to the full amount of principal and interest 
to come due on all outstanding bonds whose debt service is 
payable primarily from the proceeds of the tax to and including 
the second following July 1; and 
    (b) after the requirements of paragraph (a) of this 
subdivision have been met: 
    (1) the revenue produced by one mill of the tax on 
cigarettes weighing not more than three pounds a thousand and 
two mills of the tax on cigarettes weighing more than three 
pounds a thousand must be credited to a Minnesota resources fund 
for purposes of natural resources acceleration as provided in 
chapter 86; 
    (2) the revenue produced by two mills of the tax on 
cigarettes weighing not more than three pounds a thousand and 
four mills of the tax on cigarettes weighing more than three 
pounds a thousand must be credited to the Minnesota state water 
pollution control fund created in section 116.16, provided that, 
if the tax on cigarettes imposed by United States Code, title 
26, section 5701, as amended, is reduced after June 1, 1985, an 
additional one mill of the tax on cigarettes weighing not more 
than three pounds a thousand and two mills of the tax on 
cigarettes weighing more than three pounds a thousand must be 
credited to the Minnesota state water pollution control fund 
created in section 116.16 less any amount credited to the 
general obligation special tax debt service account under 
paragraph (a), with respect to bonds issued for the prevention, 
control, and abatement of water pollution; 
    (3) the revenue produced by one-half one mill of the tax on 
cigarettes weighing not more than three pounds a thousand and 
one mill two mills of the tax on cigarettes weighing more than 
three pounds a thousand must be credited to a public health 
fund, provided that if the tax on cigarettes imposed by United 
States Code, title 26, section 5701, as amended, is reduced 
after June 1, 1985, an additional two-tenths of one mill of the 
tax on cigarettes weighing not more than three pounds a thousand 
and an additional four-tenths of one mill of the tax on 
cigarettes weighing more than three pounds a thousand must be 
credited to the public health fund; 
    (4) the balance of the revenues derived from taxes, 
penalties, and interest under sections 297.01 to 297.13 and from 
license fees and miscellaneous sources of revenue shall be 
credited to the general fund. 
    Sec. 21.  Minnesota Statutes 1986, section 297.23, 
subdivision 1, is amended to read:  
    Subdivision 1.  On or before the 25th 18th day of each 
calendar month, every consumer who during the preceding calendar 
month has acquired title to or possession of cigarettes for use 
or storage in this state, upon which cigarettes the tax imposed 
by sections 297.01 to 297.13 has not been paid, shall file a 
return with the commissioner showing the quantity of cigarettes 
so acquired.  The return shall be made upon a form furnished and 
prescribed by the commissioner, and shall contain such other 
information as the commissioner may require.  The return shall 
be accompanied by a remittance for the full unpaid tax liability 
shown by it.  
    Sec. 22.  Minnesota Statutes 1986, section 297.26, is 
amended to read:  
    297.26 [REVENUE DISTRIBUTION.] 
    All revenues derived from taxes, penalties and interest 
under sections 297.21 to 297.26 shall be deposited by the 
commissioner in the general tobacco tax revenue fund and 
disposed of in the same manner as provided by section 297.13 for 
revenues received under sections 297.01 to 297.13.  
    Sec. 23.  Minnesota Statutes 1986, section 297.31, 
subdivision 2, is amended to read: 
    Subd. 2.  (a) "Tobacco products" means cigars; little 
cigars as defined herein; cheroots; stogies; periques; 
granulated, plug cut, crimp cut, ready rubbed, and other smoking 
tobacco; snuff; snuff flour; cavendish; plug and twist tobacco; 
fine-cut and other chewing tobaccos; shorts; refuse scraps, 
clippings, cuttings and sweepings of tobacco, and other kinds 
and forms of tobacco, prepared in such manner as to be suitable 
for chewing or smoking in a pipe or otherwise, or both for 
chewing and smoking; but shall not include cigarettes as defined 
in section 297.01, subdivision 2.  
    (b) "Little cigar" means any roll for smoking, made wholly 
or in part of tobacco, which has a factory list price not 
exceeding $12 per thousand, irrespective of size or shape and 
irrespective of whether the tobacco is flavored, adulterated or 
mixed with any other ingredient, where such roll has a wrapper 
or cover made wholly or in part of tobacco, and where such roll 
weighs not more than three pounds per thousand.  
    Sec. 24.  Minnesota Statutes 1986, section 297.31, 
subdivision 3, is amended to read: 
    Subd. 3.  "Person" means any individual, firm, trade 
association, company, partnership, joint stock company, joint 
adventure, corporation, trustee, club, syndicate, agency, or 
receiver, or any legal representative of any of the 
foregoing engaged in the sale of tobacco.  
    Sec. 25.  Minnesota Statutes 1986, section 297.31, 
subdivision 7, is amended to read: 
    Subd. 7.  "Retailer" means any person engaged in this state 
in the business of selling tobacco products to ultimate 
consumers, or offering to sell, tobacco at retail.  
    Sec. 26.  Minnesota Statutes 1986, section 297.32, 
subdivision 1, is amended to read: 
    Subdivision 1.  A tax is hereby imposed upon all tobacco 
products in this state and upon any person engaged in business 
as a distributor thereof, at the rate of 25 35 percent of the 
wholesale sales price of such tobacco products except little 
cigars as defined in section 297.31, subdivision 2, clause (b).  
Little cigars shall be subject to the same rate of tax imposed 
on cigarettes weighing not more than three pounds per thousand 
subject to the discount provided in section 297.35, subdivision 
1.  Such tax shall be imposed at the time the distributor (1) 
brings, or causes to be brought, into this state from without 
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.  
    Sec. 27.  Minnesota Statutes 1986, section 297.32, 
subdivision 2, is amended to read: 
    Subd. 2.  A tax is hereby imposed upon the use or storage 
by consumers of tobacco products in this state, and upon such 
consumers, at the rate of 25 35 percent of the cost of such 
tobacco products, except little cigars as defined in section 
297.31, subdivision 2, clause (b).  Little cigars shall be 
subject to the same rate of tax imposed on cigarettes weighing 
not more than three pounds per thousand.  
    The tax imposed by this subdivision shall not apply if the 
tax imposed by subdivision 1 on such tobacco products has been 
paid.  
    This tax shall not apply to the use or storage of tobacco 
products in quantities of: 
    1.  not more than 50 cigars; 
    2.  not more than ten oz. snuff or snuff powder; 
    3.  not more than one lb. smoking or chewing tobacco or 
other tobacco products not specifically mentioned herein, in the 
possession of any one consumer.  
    Sec. 28.  Minnesota Statutes 1986, section 297.32, 
subdivision 8, is amended to read: 
    Subd. 8.  The state of Minnesota or any of its agencies, 
instrumentalities, or governmental subdivisions except 
institutions under the control and management of the 
commissioner of corrections shall be subject to the tax imposed 
by sections 297.32 to 297.39 in the same manner as distributors, 
if such unit is engaged in the purchase and sale of tobacco 
products.  
    Sec. 29.  Minnesota Statutes 1986, section 297.33, 
subdivision 4, is amended to read: 
    Subd. 4.  (a) Except as otherwise provided in clause 
paragraph (b), each application for a distributor's license 
shall be accompanied by a fee of $37.50.  The application shall 
also be accompanied by a corporate surety bond issued by a 
surety licensed to do business in this state, in the sum of 
$1,000, conditioned upon the true and faithful compliance by the 
distributor with all the provisions of sections 297.31 to 297.39 
and the payment when due of all taxes, penalties and accrued 
interest arising in the ordinary course of business or by reason 
of any delinquent money which may be due the state of 
Minnesota.  This bond shall be in a form to be fixed by the 
commissioner and approved by the attorney general.  Whenever it 
is the opinion of the commissioner that the bond given by a 
licensee is inadequate in amount to fully protect the state, the 
commissioner shall require either an increase in the amount of 
said bond or additional bond, in such amount as the commissioner 
deems sufficient.  Any bond required by this subdivision, or a 
reissue thereof, or a substitute therefor, shall be kept in full 
force and effect during the entire period covered by the license.
    A separate application for license shall be made for each 
place of business at which a distributor proposes to engage in 
business as such under sections 297.31 to 297.39.  A separate 
application for a subjobber's license may be made by a licensed 
distributor for each place of business, other than that licensed 
in the distributor's license, to which the distributor sells or 
distributes tobacco products upon which the tax imposed by this 
chapter has been imposed to other than the ultimate consumer.  
    (b) Each application for a distributor's license for the 
period beginning July 1, 1971 shall be accompanied by a fee of 
$18.75 and the corporate surety bond prescribed by clause (a) of 
this subdivision.  Each license issued for the period beginning 
July 1, 1971 shall expire on December 31, 1971 In lieu of the 
bond required in paragraph (a), a certified check may be filed 
with the commissioner.  The check must be made payable to the 
commissioner and in an amount to be established by the 
commissioner or the commissioner's designee but not less than 
twice the average monthly liability of the taxpayer.  The 
department of revenue shall pay no interest on funds encumbered 
by the check.  
    Sec. 30.  Minnesota Statutes 1986, section 297.33, 
subdivision 5, is amended to read: 
    Subd. 5.  (a) Except as otherwise provided in clause (b), 
Each application for a subjobber's license shall be accompanied 
by a fee of $10.  
    (b) Each application for a subjobber's license for the 
period beginning July 1, 1971 shall be accompanied by a fee of 
$5.  Each license issued for the period beginning July 1, 1971 
shall expire on December 31, 1971 All licenses expire on 
December 31 of the year they were issued.  
    Sec. 31.  Minnesota Statutes 1986, section 297.35, 
subdivision 1, is amended to read:  
    Subdivision 1.  On or before the twenty-fifth 18th day of 
each calendar month every distributor with a place of business 
in this state shall file a return with the commissioner showing 
the quantity and wholesale sales price of each tobacco product 
(1) brought, or caused to be brought, into this state for sale; 
and (2) made, manufactured or fabricated in this state for sale 
in this state, during the preceding calendar month.  Every 
licensed distributor outside this state shall in like manner 
file a return showing the quantity and wholesale sales price of 
each tobacco product shipped or transported to retailers in this 
state to be sold by those retailers, during the preceding 
calendar month.  Returns shall be made upon forms furnished and 
prescribed by the commissioner and shall contain such other 
information as the commissioner may require.  Each return shall 
be accompanied by a remittance for the full tax liability shown 
therein, less two 1.5 percent of such liability as compensation 
to reimburse the distributor for expenses incurred in the 
administration of sections 297.31 to 297.39. 
    Sec. 32.  Minnesota Statutes 1986, section 297.35, 
subdivision 3, is amended to read: 
    Subd. 3.  If, within 20 30 days after mailing of notice of 
the proposed assessment, the taxpayer or a legal representative 
shall file a protest to said proposed assessment and request a 
hearing thereon, the commissioner shall give notice to that 
taxpayer or legal representative of the time and place fixed for 
the hearing, shall hold a hearing on such protest, and shall 
issue a final assessment to the taxpayer or legal representative 
for the amount found to be due as a result of the hearing.  This 
hearing shall be held within 45 days after filing of the 
protest.  If a protest is not filed within the time herein 
prescribed, the commissioner shall issue a final assessment to 
the taxpayer or legal representative, as such.  Any tax due and 
owing after a final an assessment order has been issued to the 
distributor or legal representative of such distributor shall be 
paid within 60 days.  Any such assessment made by the 
commissioner shall be prima facie correct and valid, and the 
taxpayer shall have the burden of establishing its incorrectness 
or invalidity in any action or proceeding in respect thereto. 
    Sec. 33.  Minnesota Statutes 1986, section 297.35, 
subdivision 5, is amended to read:  
    Subd. 5. (a) Except as provided in paragraph (b), all taxes 
shall be due and payable not later than the 25th day of the 
month following the calendar month in which they were incurred, 
and thereafter shall bear interest at the rate specified in 
section 270.75.  If any tax required to be paid under the 
provisions of this section is not paid within the time herein 
specified, a penalty of five percent of the unpaid tax remaining 
each month up to a maximum of 25 percent is herein imposed but 
in no event shall the penalty for failing to pay such tax within 
the time so provided be less than $10.  The commissioner of 
revenue is authorized to extend the time for paying such tax 
without penalty for good cause shown. 
    Where, under the provisions of subdivisions 2 and 3, the 
amount of tax due for a given period is assessed without 
allocating it to any particular month or months, the interest 
shall commence to run from the date of such assessment. 
    The commissioner shall have power to reduce or abate the 
penalty or interest when in the commissioner's opinion the facts 
warrant such reduction or abatement.  The exercise of this power 
shall be subject to the provisions of chapter 270 if the 
reduction or abatement exceeds $500. 
    (b) Every distributor having a liability of $1,500 or more 
in May 1987 or in May of each subsequent year, shall remit the 
June liability in the manner required by this section.  
    On or before June 25 18, 1987, or June 25 18 of each 
subsequent year, the distributor shall remit the actual May 
liability and one-half of the estimated June liability to the 
commissioner and file the return on a form prescribed by the 
commissioner.  
    On or before August 25 July 18, 1987, or August 25 July 18 
of each subsequent year, the distributor shall submit a return 
showing the actual June liability and paying any additional 
amount of tax not remitted in June.  A penalty is imposed equal 
to ten percent of the amount of June liability required to be 
paid in June less the amount remitted in June.  However, the 
penalty is not imposed if the amount remitted in June equals the 
lesser of (a) 45 percent of the actual June liability, or (b) 50 
percent of the preceding May's liability.  
    Sec. 34.  Minnesota Statutes 1986, section 297.35, 
subdivision 8, is amended to read:  
    Subd. 8.  On or before the twenty-fifth 18th day of each 
calendar month, every consumer who, during the preceding 
calendar month, has acquired title to or possession of tobacco 
products for use or storage in this state, upon which tobacco 
products the tax imposed by section 297.32 has not been paid, 
shall file a return with the commissioner showing the quantity 
of tobacco products so acquired.  The return shall be made upon 
a form furnished and prescribed by the commissioner, and shall 
contain such other information as the commissioner may require.  
The return shall be accompanied by a remittance for the full 
unpaid tax liability shown by it. 
    Sec. 35.  Minnesota Statutes 1986, section 297.36, is 
amended to read: 
    297.36 [REFUNDS, CREDITS.] 
    Where tobacco products upon which the tax imposed by 
sections 297.31 to 297.39 has been reported and paid, are 
shipped or transported by the distributor to consumers, to be 
consumed without the state, or to retailers or subjobbers 
without the state, to be sold by those retailers, or subjobbers 
without the state, or are returned to the manufacturer by the 
distributor or destroyed by the distributor, refund of such tax 
or credit may be made to the distributor in accordance with 
rules prescribed by the commissioner.  Any overpayment of the 
tax imposed under section 297.32 may be made to the taxpayer in 
accordance with rules prescribed by the commissioner.  The 
commissioner of finance shall cause any such refund of tax to be 
paid out of the general fund, and so much of said fund as may be 
necessary is hereby appropriated for that purpose.  Any claims 
for refund must be filed within three years from the due date of 
the return for which the refund is claimed.  
    Sec. 36.  [297.41] [PERSONAL DEBT; LIEN.] 
    The tax imposed by sections 297.01 to 297.40, and interest 
and penalties imposed with respect to it, shall be a personal 
debt of the person required to file a return from the time the 
liability for it arises, irrespective of when the time for 
payment of the liability occurs.  The debt shall, in the case of 
the executor or administrator of the estate of a decedent and in 
the case of any fiduciary, be that of the person in the person's 
official or fiduciary capacity only, unless the person has 
voluntarily distributed the assets held in that capacity without 
reserving sufficient assets to pay the tax, interest, and 
penalties.  Then the person shall be personally liable for the 
deficiency.  
    Sec. 37.  [297.42] [FAILURE TO FILE RETURN.] 
    If a person required by chapter 297 to file a return fails 
to do so within the time prescribed, or makes, willfully or 
otherwise, an incorrect, false, or fraudulent return, the person 
shall, upon written notice and demand, immediately file the 
return, or corrected return, and at the same time pay any tax 
due on the basis of it.  If the person fails to file the return 
or corrected return, the commissioner shall make a return, or 
corrected return, for the person from the commissioner's own 
knowledge and from information that the commissioner can obtain 
through testimony, or otherwise, and assess a tax on the basis 
of it.  The tax (less any payments previously made on account of 
the tax for the taxable period covered by such return) must be 
paid immediately upon written notice and demand.  A return or 
assessment made by the commissioner is prima facie correct and 
valid, and the person shall have the burden of establishing its 
incorrectness or invalidity in an action or proceeding in 
respect to it.  
    Sec. 38.  [297.43] [PENALTIES.] 
    Subdivision 1.  [PENALTY ON UNPAID TAX.] If a tax imposed 
by chapter 297, or any part of it, is not paid within the time 
required for the payment, or an extension of time, or within 30 
days after final determination of an appeal to the tax court 
relating to it if the taxpayer is not required to pay the amount 
in dispute pending appeal under section 271.061, there shall be 
added to the tax a penalty equal to three percent of the amount 
remaining unpaid if the failure is for not more than 30 days, 
with an additional penalty of three percent of the amount of tax 
remaining unpaid during each additional 30 days or fraction 
thereof, not exceeding 24 percent in the aggregate. 
    Subd. 2.  [PENALTY FOR FAILURE TO FILE.] If a person fails 
to make and file a return within the time required under 
sections 297.07, 297.23, and 297.35, there shall be added to the 
tax three percent of the amount of tax not paid on or before the 
date prescribed for payment of the tax if the failure is for not 
more than 30 days, with an additional five percent of the amount 
of tax remaining unpaid for each additional 30 days or fraction 
thereof during which such failure continues, not exceeding 23 
percent in the aggregate.  The amount so added to any tax under 
subdivisions 1 and 2 shall be collected at the same time and in 
the same manner and as a part of the tax and shall bear interest 
at the rate specified in section 270.75 from the time the tax 
should have been paid, unless the tax has been paid before the 
discovery of the negligence, in which case the amount so added 
shall be collected in the same manner as the tax. 
    In the case of a failure to file a return within 60 days of 
the date prescribed for filing of the return (determined with 
regard to any extension of time for filing), the addition to tax 
under this subdivision shall not be less than the lesser of (i) 
$200; or (ii) the greater of (a) 25 percent of the amount 
required to be shown as tax on the return without reduction for 
any payments made or refundable credits allowable against the 
tax; or (b) $50.  
    Subd. 3.  [COMBINED PENALTIES.] Where penalties are imposed 
under subdivisions 1 and 2, the penalties imposed under both 
subdivisions combined, other than the minimum penalty under 
subdivision 2, shall not exceed 38 percent in the aggregate. 
    Subd. 4.  [WILLFUL FAILURE; FRAUD.] If a person willfully 
fails to file a return or make a payment required by chapter 
297, or willfully files a false or fraudulent return, or 
willfully attempts in any manner to evade or defeat the tax or 
payment of it, there shall also be imposed a penalty in an 
amount equal to 50 percent of the tax (less any amounts paid on 
the basis of the false or fraudulent return) found due for the 
period to which the return related.  The penalty imposed by this 
subdivision shall be collected as part of the tax, and is in 
addition to any other penalties, civil and criminal, provided by 
this section. 
    Subd. 5.  [ORDER PAYMENTS CREDITED.] All payments received 
may, in the discretion of the commissioner of revenue, be 
credited first to the oldest liability not secured by a judgment 
or lien, but in all cases shall be credited first to penalties, 
next to interest, and then to the tax due. 
    Subd. 6.  [INTEREST.] The amount of tax not timely paid, 
together with any penalty imposed in this section, shall bear 
interest at the rate specified in section 270.75 from the time 
such tax should have been paid until paid.  Any interest and 
penalty shall be added to the tax and collected as a part of it. 
    Subd. 7.  [EXTENSION OF TIME.] The commissioner may extend 
the time for filing returns and remittance of tax, deficiencies, 
and penalties for not more than 60 days.  The commissioner may 
require that a tentative return be filed at the time fixed for 
filing the regularly required return and that payment of the tax 
be made with it on the basis of the tentative return.  
    When an extension of time for payment has been granted 
under this section, interest shall be payable at the rate 
provided in section 270.75 from the date when the payment should 
have been made, if no extension had been granted, until the tax 
is paid. 
    Subd. 8.  [CIVIL ACTION.] The commissioner may recover the 
amount of any tax due and unpaid, interest, and any penalty in a 
civil action.  The collection of the tax, interest, or penalty 
is not a bar to any prosecution under chapter 297. 
    Subd. 9.  [NEGLIGENCE; INTENTIONAL DISREGARD OF LAW OR 
RULES.] If any part of any additional assessment is due to 
negligence or intentional disregard of the provisions of this 
chapter or rules of the commissioner of revenue (but without 
intent to defraud), there shall be added to the tax an amount 
equal to ten percent of the additional assessment.  The amount 
of the tax together with this amount shall bear interest at the 
rate specified in section 270.75 from the time the tax should 
have been paid until paid. 
    Sec. 39.  [FLOOR STOCKS TAX.] 
    Subdivision 1.  [CIGARETTES.] A floor stocks tax is imposed 
upon every person engaged in business in this state as a 
distributor of cigarettes, on the cigarettes in the person's 
possession or under the person's control at 12:01 a.m. on June 
1, 1987.  The tax is imposed at the following rates, subject to 
the discount in section 297.03: 
    (1) on cigarettes weighing not more than three pounds a 
thousand, 7.5 mills on each cigarette; 
    (2) on cigarettes weighing more than three pounds a 
thousand, 15 mills on each cigarette. 
    Each distributor, by June 20, 1987, shall file a report 
with the commissioner, in the form the commissioner prescribes, 
showing the cigarettes on hand at 12:01 a.m. on June 1, 1987, 
and the amount of tax due on them.  The tax imposed by this 
section less the discount provided in section 297.03, 
subdivision 5, is due and payable by July 20, 1987, and after 
that date bears interest at the rate of one percent a month. 
    Subd. 2.  [TOBACCO PRODUCTS.] A floor stocks tax is imposed 
upon every person engaged in business in this state as a 
distributor of tobacco products, at the rate of ten percent of 
the wholesale sales price of each tobacco product in the 
person's possession or under the person's control at 12:01 a.m. 
on June 1, 1987.  Each distributor, by June 20, 1987, shall file 
a report with the commissioner, in the form the commissioner 
prescribes, showing the tobacco products on hand at 12:01 a.m. 
on June 1, 1987, and the amount of tax due on them.  The tax 
imposed by this section less the discount provided in section 
297.35, subdivision 1, is due and payable by July 20, 1987, and 
after that date bears interest at the rate of one percent a 
month.  
    Subd. 3.  [DEPOSIT OF PROCEEDS.] The revenue from the tax 
imposed under this section shall be deposited by the 
commissioner in the tobacco tax revenue fund in the state 
treasury. 
    Sec. 40.  Minnesota Statutes 1986, section 325D.30, is 
amended to read: 
    325D.30 [MINNESOTA UNFAIR CIGARETTE SALES ACT; FINDINGS AND 
POLICY.] 
    The legislature finds that unfair, dishonest and fraudulent 
business practices exist in transactions involving the sale of, 
or offer to sell, cigarettes in the wholesale and retail trades 
in this state and are demoralizing and disorganizing the said 
trades.  
    Offering for sale, or sale of cigarettes below cost in the 
wholesale and retail trade is declared by the legislature to 
have the intent or effect of injuring a competitor, destroying 
or lessening competition, and is deemed an unfair and deceptive 
business practice and an unfair method of competition.  
    Such practices affect collection of taxes and license fees 
imposed on distributors, wholesalers, retailers, and persons 
engaged in the sale of cigarettes.  
    It is hereby declared to be the policy of the state of 
Minnesota and the purposes of sections 325D.30 to 325D.42 to 
protect the public by prohibiting such sales.  
    Sec. 41.  Minnesota Statutes 1986, section 325D.32, 
subdivision 4, is amended to read: 
    Subd. 4.  "Wholesaler" means and includes any person who 
acquires cigarettes for the purpose of sale to retailers or to 
other persons for resale, and who maintains an established place 
of business when any part of the business is the sale of 
cigarettes at wholesale to persons licensed to sell cigarettes 
by the state or any municipality, and where at all times a stock 
of cigarettes is available to retailers for resale, or any 
cigarette manufacturer or manufacturer's representative who 
sells to retailers or to other persons for resale, and any 
person defined as a "distributor" under section 297.01, 
subdivision 7.  The term "wholesaler" shall also include a 
"subjobber" as defined by section 297.01, subdivision 14.  This 
subdivision does not prohibit any person from engaging in 
business as a retailer as defined in subdivision 5. 
    Sec. 42.  Minnesota Statutes 1986, section 325D.32, 
subdivision 10, is amended to read: 
    Subd. 10.  (1) (a) "Cost to wholesaler" means the basic 
cost of the cigarettes, prior to deducting manufacturer's timely 
payment and stamping discounts and any other discounts or 
rebates, plus the cost of doing business by the wholesaler, as 
defined in sections 325D.30 to 325D.42.  
    (2) (b) The cost of doing business by the wholesaler is 
presumed to be four percentum percent of the basic cost of said 
the cigarettes, plus cartage to the retail outlet, if furnished 
or paid for by the wholesaler, in the absence of proof of a 
lesser or higher cost, except that the cost of doing business by 
the wholesaler is two percent of the basic cost of said 
cigarettes, when such cigarettes are sold to a wholesaler, in 
the absence of proof of a lesser or a higher cost.  Such cartage 
cost is presumed to be one-half of one percent of the basic cost 
of the cigarettes in the absence of proof of a lesser or higher 
cost.  
    Sec. 43.  Minnesota Statutes 1986, section 325D.32, 
subdivision 11, is amended to read: 
    Subd. 11.  (1) (a) "Cost of the retailer" means the basic 
cost of the cigarettes involved to the retailer plus the cost of 
doing business by the retailer as defined in sections 325D.30 to 
325D.42.  
    (2) (b) The cost of doing business by the said retailer is 
presumed to be eight percentum percent of the basic cost of 
cigarettes in the absence of proof of a lesser or a higher cost. 
    (3) If any retailer in connection with the purchase of any 
cigarettes shall receive the discounts ordinarily allowed upon 
purchases by a retailer and in whole or in part discounts 
ordinarily allowed upon purchases by a wholesaler, the cost of 
doing business by the retailer with respect to the said 
cigarettes shall be, in the absence of a lesser or a higher cost 
of doing business, the sum of the cost of doing business by the 
retailer and, to the extent that the retailer shall have 
received the full discounts allowed to a wholesaler, the cost of 
doing business by a wholesaler as defined in subdivision 10, 
clause (2)  (c) If a retailer qualifies for the purchase of 
cigarettes at a manufacturer's price to wholesaler and 
ultimately sells the cigarettes at retail, the cost of doing 
business by the retailer with respect to the cigarettes shall 
be, in the absence of showing of a lesser or higher cost of 
doing business, the sum of the cost of doing business by the 
wholesaler, as defined in subdivision 10, paragraph (b), and the 
cost of doing business by the retailer, as defined in paragraph 
(b) of this subdivision.  
    Sec. 44.  Minnesota Statutes 1986, section 325D.33, 
subdivision 1, is amended to read: 
    Subdivision 1.  It shall be unlawful for any wholesaler, 
subjobber or retailer to offer to sell, or sell, at wholesale or 
retail, cigarettes at less than cost to such wholesaler, 
subjobber or retailer, as the case may be, as defined in 
sections 325D.30 to 325D.42 for the purpose or with the effect 
of injuring a competitor or destroying competition, or for a 
retailer to induce or to attempt to induce a wholesaler or 
subjobber to violate the provisions of the Minnesota unfair 
cigarette sales act.  Any wholesaler, subjobber or retailer who 
violates the provisions of this section shall be guilty of a 
misdemeanor. 
    Sec. 45.  Minnesota Statutes 1986, section 325D.33, 
subdivision 2, is amended to read:  
    Subd. 2.  Evidence of advertisement, offering to sell or 
sale of cigarettes by any wholesaler, subjobber or retailer at 
less than cost as defined by sections 325D.30 to 325D.42 shall 
be prima facie evidence of a violation of sections 325D.30 to 
325D.42 in civil cases.  
    Sec. 46.  Minnesota Statutes 1986, section 325D.33, is 
amended by adding a subdivision to read: 
    Subd. 3.  [REBATES OR CONCESSIONS.] It is unlawful for a 
wholesaler to offer a rebate in price, to give a rebate in 
price, to offer a concession of any kind, or to give a 
concession of any kind in connection with the sale of 
cigarettes.  For purposes of this chapter, the term "discount" 
is included in the definition of a rebate.  
    Sec. 47.  Minnesota Statutes 1986, section 325D.33, is 
amended by adding a subdivision to read: 
    Subd. 4.  [WHOLESALER TO PRESERVE COPIES OF 
INVOICES.] Every person who sells cigarettes to persons other 
than the ultimate consumer shall prepare for each sale itemized 
invoices showing the seller's name and address, the purchaser's 
name and address, the date of sale, and all prices and discounts 
and shall keep legible copies of them for one year from the date 
of sale.  
    Sec. 48.  Minnesota Statutes 1986, section 325D.33, is 
amended by adding a subdivision to read: 
    Subd. 5.  [COMMISSIONER'S REFUSAL TO LICENSE.] The 
commissioner may refuse to grant a cigarette distributor or 
subjobber license to any person who violates the provisions of 
sections 325D.30 to 325D.42, or any other law applicable to the 
sale of cigarettes, or any rule adopted by the commissioner for 
the enforcement or regulation of the sale of cigarettes. 
    Sec. 49.  Minnesota Statutes 1986, section 325D.33, is 
amended by adding a subdivision to read: 
    Subd. 6.  [VIOLATIONS.] If the commissioner determines that 
a distributor is violating any provision of this chapter, the 
commissioner must give the distributor a written warning 
explaining the violation and an explanation of what must be done 
to comply with this chapter.  Within ten days of issuance of the 
warning, the distributor must notify the commissioner that the 
distributor has complied with the commissioner's recommendation 
or request that the commissioner set the issue for a hearing 
pursuant to chapter 14.  If a hearing is requested, the hearing 
shall be scheduled within 20 days of the request and the 
recommendation of the administrative law judge shall be issued 
within five working days of the close of the hearing.  The 
commissioner's final determination shall be issued within five 
working days of the receipt of the administrative law judge's 
recommendation.  If the commissioner's final determination is 
adverse to the distributor and the distributor does not comply 
within ten days of receipt of the commissioner's final 
determination, the commissioner may order the distributor to 
immediately cease the stamping of cigarettes.  As soon as 
practicable after the order, the commissioner must remove the 
meter and any unapplied cigarette stamps from the premises of 
the distributor. 
    If within ten days of issuance of the written warning the 
distributor has not complied with the commissioner's 
recommendation or requested a hearing, the commissioner may 
order the distributor to immediately cease the stamping of 
cigarettes and remove the meter and unapplied stamps from the 
distributor's premises. 
    If, within any 12-month period, the commissioner has issued 
three written warnings to any distributor, even if the 
distributor has complied within ten days, the commissioner shall 
notify the distributor of the commissioner's intent to revoke 
the distributor's license for a continuing course of conduct 
contrary to this chapter.  For purposes of this paragraph, a 
written warning that was ultimately resolved by removal of the 
warning by the commissioner is not deemed to be a warning.  The 
commissioner must notify the distributor of the date and time of 
a hearing pursuant to chapter 14 at least 20 days before the 
hearing is held.  The hearing must provide an opportunity for 
the distributor to show cause why the license should not be 
revoked.  If the commissioner revokes a distributor's license, 
the commissioner shall not issue a new license to that 
distributor for 180 days. 
    Sec. 50.  Minnesota Statutes 1986, section 325D.33, is 
amended by adding a subdivision to read: 
    Subd. 7.  [PENALTIES.] Any retailer purchasing cigarettes 
for less than the legal price may be assessed a penalty in the 
full amount of the difference between the actual purchase price 
and the legal price under this chapter.  This penalty may be 
collected under the authorities given the commissioner in 
Minnesota Statutes, chapters 270 and 297, and the penalty shall 
bear interest at the rate prescribed by section 270.75, 
subdivision 5.  All cigarettes purchased for less than the legal 
price may be confiscated and disposed of at the discretion of 
the commissioner pursuant to any laws of the state. 
    Sec. 51.  Minnesota Statutes 1986, section 325D.35, is 
amended to read:  
    325D.35 [SALES BY A WHOLESALER TO A WHOLESALER.] 
    When one wholesaler sells cigarettes to any other 
wholesaler, the former shall not be required to include in the 
selling price to the latter, the cost of doing business to the 
wholesaler, as defined by section 325D.32, but the latter 
wholesaler, upon resale to a retailer, shall be subject to the 
provisions of the said section.  For the purposes of this 
section, any sale of cigarettes to a wholesaler that will be 
placed in the inventory to be sold at retail, must include in 
the selling price the cost of doing business as defined by 
section 325D.32.  
    Sec. 52.  Minnesota Statutes 1986, section 325D.38, 
subdivision 1, is amended to read:  
    Subdivision 1.  [COST TO WHOLESALERS AND RETAILERS.] In 
determining cost to the wholesaler and cost to the retailer the 
court shall receive and consider as bearing on the bona fides of 
such cost, evidence that any person complained against under any 
of the provisions of sections 325D.30 to 325D.42 purchased or 
sold the cigarettes involved in the complaint before the court, 
at a fictitious price, or upon terms, or in such a manner, or 
under such invoices, as to conceal the true cost, discounts, or 
terms of purchase, and shall also receive and consider as 
bearing on the bona fides of such cost, evidence of the normal, 
customary and prevailing terms and discounts in connection with 
other sales of a similar nature in the trade area or state or 
sale.  
    Sec. 53.  Minnesota Statutes 1986, section 325D.40, 
subdivision 1, is amended to read:  
    Subdivision 1.  Any corporation, partnership, trade 
association, or any person or persons who would suffer injury 
from any threatened violation of sections 325D.30 to 325D.42 may 
maintain an action to enjoin such actual or threatened violation 
and proof of actual damages need not be alleged or proved in 
cases of threatened violation.  If a violation or threatened 
violation of the Minnesota unfair cigarette sales act shall be 
established, the court shall enjoin such violator or threatened 
violator, and, in addition thereto, the court shall assess in 
favor of the plaintiff and against defendant the injuries of the 
suit including reasonable attorneys fees.  Where alleged and 
proved, the plaintiff, in addition to such injunctive relief and 
cost of suit including reasonable attorneys fees, shall be 
entitled to recover from defendant the actual damages sustained. 
    Sec. 54.  [REPEALER.] 
     (a) Minnesota Statutes 1986, sections 297.07, subdivision 6;
297.23, subdivision 5; and 297.35, subdivisions 4, 6, and 7, are 
repealed. 
    (b) Minnesota Statutes 1986, sections 325D.32, subdivision 
12, and 325D.41, are repealed. 
    Sec. 55.  [EFFECTIVE DATE.] 
    Sections 1 to 5, 7, 8, 10 to 25, 28 to 30, and 32 to 38 are 
effective July 1, 1987.  Sections 6, 9, 26, 27, the discount 
rate change in 31, and 39 are effective June 1, 1987.  Sections 
40 to 53, and 54, paragraph (b), are effective the day following 
final enactment. 

                               ARTICLE 14 

                             SPECIAL TAXES 
    Section 1.  Minnesota Statutes 1986, section 239.10, is 
amended to read:  
    239.10 [ANNUAL INSPECTION.] 
    The department shall charge a fee to the owner for the 
costs of the regular inspection of scales, weights, measures, 
and weighing or measuring devices.  The cost of any other 
inspection must be paid by the owner if the inspection is 
performed at the owner's request or if the inspection is made at 
the request of some other person and the scale, weight, measure, 
or weighing or measuring device is found to be incorrect.  The 
department may fix the fees and expenses for regular inspections 
and special services by rule pursuant to section 16A.128, except 
that no additional fee may be charged for retail petroleum 
pumps, petroleum vehicle meters, and petroleum bulk meters that 
dispense petroleum products for which the petroleum inspection 
fee required by section 296.13 4 is collected.  Money collected 
by the department for its regular inspections, special services, 
fees, and penalties must be paid into the state treasury and 
credited to the state general fund. 
    Sec. 2.  [239.75] [INSPECTION OF PETROLEUM PRODUCTS.] 
    Subdivision 1.  [INSPECTION TO BE MADE.] The department of 
public service shall make inspection of petroleum products 
wherever processed, held, stored, or offered for sale or used, 
and shall secure samples periodically from importations in their 
original containers to determine their specifications when 
tested by the methods of the American Society for Testing 
Materials.  Upon the request of the department of public 
service, a person holding, storing, offering for sale, or using 
petroleum products shall permit the department of public service 
to take for testing free samples, not to exceed 32 ounces each, 
of the products when necessary for the purposes of this 
chapter.  The department of public service shall test samples of 
petroleum products received and submitted by any licensed 
distributor and shall inform the distributor of the results of 
the tests. 
    Subd. 2.  [WHEN NOT MEETING SPECIFICATIONS.] A record of 
the inspection shall be made.  Any material not meeting the 
specifications under section 3 shall be sealed in the container 
from which the sample was secured or placed in separate storage 
under seal until a method of its disposition has been approved 
by the department of public service. 
    Subd. 3.  [CALIBRATION OR GAUGE CHARTS.] A person holding 
petroleum products in storage tanks for sale or for use as 
special fuel shall maintain a calibration or gauge chart for 
each tank. 
    Subd. 4.  [ENTRY UPON PREMISES.] The department of public 
service may enter into or upon the premises of a distributor, 
bulk purchaser, or dealer of petroleum products to inspect the 
receptacles in which the products are stored.  A distributor, 
bulk purchaser, or dealer shall keep the receptacles free from 
impurities.  If the receptacles are found to contain impurities, 
they must be sealed until a method of disposition of the 
material has been approved by the department of public service. 
    Sec. 3.  [239.76] [SPECIFICATIONS OF PETROLEUM PRODUCTS.] 
    Subdivision 1.  [GASOLINE.] No gasoline shall be sold for 
use in motor vehicles unless it is free from water, suspended 
matter, and impurities, and it conforms to the requirements in 
section 296.01, subdivision 3. 
    Subd. 2.  [FUEL OIL; DIESEL FUEL; KEROSENE.] No fuel oil, 
diesel fuel, or kerosene shall be sold unless it conforms to 
section 296.01, subdivision 4, 4a, or 4b. 
    Subd. 3.  [TESTS, HOW MADE.] Tests must be made by the 
weights and measures division of the department of public 
service in accordance with the methods outlined in the American 
Society for Testing Materials specifications numbered D-396, 
D-439, D-910, D-975, and D-3699. 
    Subd. 4.  [RESULTS OF TEST SUPPLIED BY SHIPPER TO 
DISTRIBUTOR.] Upon request of a licensed distributor, the 
shipper shall, at the time of shipment, supply the licensed 
distributor with the results of tests of the petroleum product 
shipped to the distributor at destination in Minnesota. 
    Subd. 5.  [AVIATION GASOLINE.] No aviation gasoline shall 
be received, sold, stored, or withdrawn from storage in this 
state unless it conforms to the specifications set forth in 
American Society for Testing Materials specification number 
D-910. 
    Subd. 6.  [SALES OF CERTAIN PETROLEUM PRODUCTS ON GROSS 
VOLUME BASIS.] The sale of gasoline, number one and number two 
diesel oils, and number one and number two fuel oils and 
kerosene from a supplier's terminal rack through retail on any 
other basis than gross volume is prohibited. 
    Subd. 7.  [ALCOHOL-BLENDED FUELS; DISCLOSURE.] A 
manufacturer, hauler, blender, agent, jobber, consignment agent, 
importer, or distributor who distributes gasoline containing 
alcohol shall state on an invoice, bill of lading, shipping 
paper, or other documentation used in normal and customary 
business practices, the percentages by volume and the types, if 
more than one percent, of alcohols contained in the gasoline; 
except if the gasoline is distributed to the ultimate consumer, 
such as a bulk delivery to a farmer, only the types of alcohol 
must be disclosed.  In determining compliance with this 
subdivision, the weights and measures division of the department 
of public service shall allow a one percent tolerance above or 
below the percentage stated on the documentation. 
    Sec. 4.  [239.78] [INSPECTION FEES.] 
    An inspection fee shall be charged on petroleum products 
when received by the distributor, and on petroleum products 
received and held for sale or use by any person when the 
petroleum products have not previously been received by a 
licensed distributor.  The department shall adjust the 
inspection fee to recover the amount appropriated for petroleum 
product quality inspection expenses and the amount appropriated 
for the inspection and testing of petroleum product measuring 
devices as required by chapter 239.  The department shall review 
and adjust the inspection fee as required by section 16A.128, 
except the review of the fee shall occur annually on or before 
January 1. 
    The commissioner of revenue shall credit the distributor 
for inspection fees previously paid in error or for any material 
exported or sold for export from the state upon filing of a 
report in a manner approved by the department.  The commissioner 
of revenue is authorized to collect the inspection fees along 
with any taxes due under chapter 296. 
    Sec. 5.  [239.79] [PETROLEUM PRODUCTS; REQUIREMENTS.] 
    Subdivision 1.  [PRICES POSTED.] A gasoline pump in this 
state shall have the total sales price per gallon posted on the 
pump in a conspicuous manner. 
    Subd. 2.  [GASOLINE-ALCOHOL BLENDS; IDENTIFICATION.] When 
gasoline blended with alcohol is sold, offered for sale, or 
dispensed for use in motor vehicles, the dispenser shall be 
clearly marked to identify the type of alcohol, if more than one 
percent by volume, blended with the gasoline.  The marking must 
consist of a white or yellow adhesive decal at least two inches 
by six inches with clearly printed black lettering at least 
one-half inch high and one-eighth inch in stroke.  The marking 
shall be conspicuously displayed on both sides of the dispenser 
and state that the gasoline "CONTAINS ETHANOL" or "CONTAINS 
METHANOL" or has been "ETHANOL ENRICHED."  This subdivision does 
not prohibit the posting of other alcohol or additive 
information. 
    Sec. 6.  [239.80] [VIOLATIONS; PENALTIES.] 
    Subdivision 1.  [VIOLATIONS; ACTIONS OF DEPARTMENT.] The 
department, or any of its employees, shall condemn, seize, or 
destroy any petroleum products processed, held, stored, offered 
for sale, or used in violation of section 239.10, 239.76, 
239.78, or 239.79.  Storage tanks containing the petroleum 
products, and pumps attached to the storage tanks, shall be 
marked in a manner to be prescribed by the department indicating 
a violation of this chapter.  This marking shall remain on the 
tank or pump and prevent sale or use of product contained in it 
until the petroleum product conforms with sections 239.10 
239.76, 239.78, and 239.79. 
     Subd. 2.  [PENALTY.] Any person who fails to comply with 
any provision of section 239.10, 239.76, 239.78, or 239.79 shall 
be guilty of a misdemeanor. 
    Sec. 7.  [270.058] [AUTHORITY TO PAY LOCAL TAXES; 
APPROPRIATION.] 
    The commissioner may pay to any local government unit, any 
locally imposed sales taxes that may be assessed against the 
department of revenue.  There is appropriated to the 
commissioner of revenue from the general fund the amount needed 
to make the payments.  
    Sec. 8.  Minnesota Statutes 1986, section 270.071, is 
amended by adding a subdivision to read:  
    Subd. 9.  "Small or medium sized community" means a home 
rule charter or statutory city or town in Minnesota with a 
population of 100,000 or fewer that is not located in Anoka, 
Carver, Dakota, Hennepin, Ramsey, Scott, or Washington counties. 
    Sec. 9.  Minnesota Statutes 1986, section 270.074, 
subdivision 3, is amended to read:  
    Subd. 3.  (a) The flight property of every airline company 
shall be assessed at 33-1/3 70 percent of the value thereof 
apportioned to this state under subdivision 1, except that quiet 
aircraft shall be assessed at 40 percent of the value determined 
under subdivision 1.  Quiet aircraft shall include turboprops 
and aircraft defined as stage III by the Federal Aeronautics 
Administration.  If, in the opinion of the commissioner, other 
aircraft may be qualified as quiet aircraft, the commissioner 
may adopt rules providing additional qualifications.  
    (b) The flight property of an airline company that owns or 
leases aircraft the majority of which are turboprops, and which 
provides, during six months or more of the year that taxes are 
levied, scheduled passenger service to three or more airports 
inside or outside of this state that serve small or medium sized 
communities, shall be assessed at 50 percent of the assessment 
percentage otherwise set by paragraph (a). 
    Sec. 10.  Minnesota Statutes 1986, section 270.075, 
subdivision 1, is amended to read:  
    Subdivision 1.  The commissioner shall determine the rate 
of tax to be levied and collected against the assessed valuation 
as determined pursuant to section 270.074, subdivision 2, which 
shall be the average rate of taxes, general, municipal, and 
local, levied throughout the state for the preceding year.  The 
levy shall be completed on or before the first Monday in October 
of each year to generate revenues of $7,600,000 from taxes 
levied in assessment year 1987 and payable in 1988 and revenues 
of $8,400,000 from taxes levied in 1988 and payable in 1989.  
Thereafter the legislature shall annually establish the amount 
of revenue to be generated from a tax on airflight property. 
    Sec. 11.  Minnesota Statutes 1986, section 270.10, 
subdivision 4, is amended to read:  
    Subd. 4.  [ORDERS ASSESSING PE