1.1 	A bill for an act
1.2 	relating to taxation; allowing a subtraction for certain income; reducing corporate 
1.3 	franchise tax rates; allowing sales tax exemption for capital equipment at time 
1.4 	of purchase; amending Minnesota Statutes 2010, sections 290.01, subdivision 
1.5 	19b; 290.06, subdivision 1; 290.0921, subdivision 1; 297A.68, subdivision 5; 
1.6 	297A.75, subdivisions 1, 2.
1.7 	BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:

1.8 	Section 1. Minnesota Statutes 2010, section 290.01, subdivision 19b, is amended to 
1.9 	read:
1.10 		Subd. 19b.Subtractions from federal taxable income. For individuals, estates, 
1.11 	and trusts, there shall be subtracted from federal taxable income:
1.12 	(1) net interest income on obligations of any authority, commission, or 
1.13 	instrumentality of the United States to the extent includable in taxable income for federal 
1.14 	income tax purposes but exempt from state income tax under the laws of the United States;
1.15 	(2) if included in federal taxable income, the amount of any overpayment of income 
1.16 	tax to Minnesota or to any other state, for any previous taxable year, whether the amount 
1.17 	is received as a refund or as a credit to another taxable year's income tax liability;
1.18 	(3) the amount paid to others, less the amount used to claim the credit allowed under 
1.19 	section 290.0674, not to exceed $1,625 for each qualifying child in grades kindergarten 
1.20 	to 6 and $2,500 for each qualifying child in grades 7 to 12, for tuition, textbooks, and 
1.21 	transportation of each qualifying child in attending an elementary or secondary school 
1.22 	situated in Minnesota, North Dakota, South Dakota, Iowa, or Wisconsin, wherein a 
1.23 	resident of this state may legally fulfill the state's compulsory attendance laws, which 
1.24 	is not operated for profit, and which adheres to the provisions of the Civil Rights Act 
1.25 	of 1964 and chapter 363A. For the purposes of this clause, "tuition" includes fees or 
2.1 	tuition as defined in section 290.0674, subdivision 1, clause (1). As used in this clause, 
2.2 	"textbooks" includes books and other instructional materials and equipment purchased 
2.3 	or leased for use in elementary and secondary schools in teaching only those subjects 
2.4 	legally and commonly taught in public elementary and secondary schools in this state. 
2.5 	Equipment expenses qualifying for deduction includes expenses as defined and limited in 
2.6 	section 290.0674, subdivision 1, clause (3). "Textbooks" does not include instructional 
2.7 	books and materials used in the teaching of religious tenets, doctrines, or worship, the 
2.8 	purpose of which is to instill such tenets, doctrines, or worship, nor does it include books 
2.9 	or materials for, or transportation to, extracurricular activities including sporting events, 
2.10 	musical or dramatic events, speech activities, driver's education, or similar programs. No 
2.11 	deduction is permitted for any expense the taxpayer incurred in using the taxpayer's or 
2.12 	the qualifying child's vehicle to provide such transportation for a qualifying child. For 
2.13 	purposes of the subtraction provided by this clause, "qualifying child" has the meaning 
2.14 	given in section 32(c)(3) of the Internal Revenue Code;
2.15 	(4) income as provided under section 290.0802;
2.16 	(5) to the extent included in federal adjusted gross income, income realized on 
2.17 	disposition of property exempt from tax under section 290.491;
2.18 	(6) to the extent not deducted or not deductible pursuant to section 408(d)(8)(E) 
2.19 	of the Internal Revenue Code in determining federal taxable income by an individual 
2.20 	who does not itemize deductions for federal income tax purposes for the taxable year, an 
2.21 	amount equal to 50 percent of the excess of charitable contributions over $500 allowable 
2.22 	as a deduction for the taxable year under section 170(a) of the Internal Revenue Code, 
2.23 	under the provisions of Public Law 109-1 and Public Law 111-126;
2.24 	(7) for individuals who are allowed a federal foreign tax credit for taxes that do not 
2.25 	qualify for a credit under section 290.06, subdivision 22, an amount equal to the carryover 
2.26 	of subnational foreign taxes for the taxable year, but not to exceed the total subnational 
2.27 	foreign taxes reported in claiming the foreign tax credit. For purposes of this clause, 
2.28 	"federal foreign tax credit" means the credit allowed under section 27 of the Internal 
2.29 	Revenue Code, and "carryover of subnational foreign taxes" equals the carryover allowed 
2.30 	under section 904(c) of the Internal Revenue Code minus national level foreign taxes to 
2.31 	the extent they exceed the federal foreign tax credit;
2.32 	(8) in each of the five tax years immediately following the tax year in which an 
2.33 	addition is required under subdivision 19a, clause (7), or 19c, clause (15), in the case 
2.34 	of a shareholder of a corporation that is an S corporation, an amount equal to one-fifth 
2.35 	of the delayed depreciation. For purposes of this clause, "delayed depreciation" means 
2.36 	the amount of the addition made by the taxpayer under subdivision 19a, clause (7), or 
3.1 	subdivision 19c, clause (15), in the case of a shareholder of an S corporation, minus the 
3.2 	positive value of any net operating loss under section 172 of the Internal Revenue Code 
3.3 	generated for the tax year of the addition. The resulting delayed depreciation cannot be 
3.4 	less than zero;
3.5 	(9) job opportunity building zone income as provided under section 469.316;
3.6 	(10) to the extent included in federal taxable income, the amount of compensation 
3.7 	paid to members of the Minnesota National Guard or other reserve components of the 
3.8 	United States military for active service performed in Minnesota, excluding compensation 
3.9 	for services performed under the Active Guard Reserve (AGR) program. For purposes of 
3.10 	this clause, "active service" means (i) state active service as defined in section 190.05, 
3.11 	subdivision 5a, clause (1); (ii) federally funded state active service as defined in section 
3.12 	190.05, subdivision 5b; or (iii) federal active service as defined in section 190.05, 
3.13 	subdivision 5c, but "active service" excludes service performed in accordance with section 
3.14 	190.08, subdivision 3;
3.15 	(11) to the extent included in federal taxable income, the amount of compensation 
3.16 	paid to Minnesota residents who are members of the armed forces of the United States or 
3.17 	United Nations for active duty performed outside Minnesota under United States Code, 
3.18 	title 10, section 101(d); United States Code, title 32, section 101(12); or the authority of 
3.19 	the United Nations;
3.20 	(12) an amount, not to exceed $10,000, equal to qualified expenses related to a 
3.21 	qualified donor's donation, while living, of one or more of the qualified donor's organs 
3.22 	to another person for human organ transplantation. For purposes of this clause, "organ" 
3.23 	means all or part of an individual's liver, pancreas, kidney, intestine, lung, or bone marrow; 
3.24 	"human organ transplantation" means the medical procedure by which transfer of a human 
3.25 	organ is made from the body of one person to the body of another person; "qualified 
3.26 	expenses" means unreimbursed expenses for both the individual and the qualified donor 
3.27 	for (i) travel, (ii) lodging, and (iii) lost wages net of sick pay, except that such expenses 
3.28 	may be subtracted under this clause only once; and "qualified donor" means the individual 
3.29 	or the individual's dependent, as defined in section 152 of the Internal Revenue Code. An 
3.30 	individual may claim the subtraction in this clause for each instance of organ donation for 
3.31 	transplantation during the taxable year in which the qualified expenses occur;
3.32 	(13) in each of the five tax years immediately following the tax year in which an 
3.33 	addition is required under subdivision 19a, clause (8), or 19c, clause (16), in the case of a 
3.34 	shareholder of a corporation that is an S corporation, an amount equal to one-fifth of the 
3.35 	addition made by the taxpayer under subdivision 19a, clause (8), or 19c, clause (16), in the 
3.36 	case of a shareholder of a corporation that is an S corporation, minus the positive value of 
4.1 	any net operating loss under section 172 of the Internal Revenue Code generated for the 
4.2 	tax year of the addition. If the net operating loss exceeds the addition for the tax year, a 
4.3 	subtraction is not allowed under this clause;
4.4 	(14) to the extent included in federal taxable income, compensation paid to a service 
4.5 	member as defined in United States Code, title 10, section 101(a)(5), for military service 
4.6 	as defined in the Servicemembers Civil Relief Act, Public Law 108-189, section 101(2);
4.7 	(15) international economic development zone income as provided under section 
4.8 	469.325;
4.9 	(16) to the extent included in federal taxable income, the amount of national service 
4.10 	educational awards received from the National Service Trust under United States Code, 
4.11 	title 42, sections 12601 to 12604, for service in an approved Americorps National Service 
4.12 	program; and
4.13 	(17) to the extent included in federal taxable income, discharge of indebtedness 
4.14 	income resulting from reacquisition of business indebtedness included in federal taxable 
4.15 	income under section 108(i) of the Internal Revenue Code. This subtraction applies only 
4.16 	to the extent that the income was included in net income in a prior year as a result of the 
4.17 	addition under section 290.01, subdivision 19a, clause (16).; and
4.18 	(18) an amount not less than zero and not to exceed the applicable percentage 
4.19 	multiplied by the distributive share of income or loss, as defined in sections 703(a) and 
4.20 	1366(a)(2) of the Internal Revenue Code, combined from all partnerships or S corporations 
4.21 	in which the taxpayer materially participates, as defined in section 469(h) of the Internal 
4.22 	Revenue Code, and that have employees or tangible property located in this state. As used 
4.23 	in this clause, the "applicable percentage" is:
4.24 	(i) five percent for taxable year 2012;
4.25 	(ii) ten percent for taxable year 2013;
4.26 	(iii) 15 percent for taxable year 2014; and
4.27 	(iv) 20 percent for taxable years beginning after December 31, 2014.

4.28 	EFFECTIVE DATE. This section is effective for taxable years beginning after 
4.29 	December 31, 2011.

4.30 	Sec. 2. Minnesota Statutes 2010, section 290.06, subdivision 1, is amended to read:
4.31 		Subdivision 1.Computation, corporations. The franchise tax imposed upon 
4.32 	corporations shall be computed by applying to their taxable income the rate of:
4.33 	(1) 9.8 percent. for taxable years beginning before January 1, 2012;
4.34 	(2) 9.3 percent for taxable year 2012;
4.35 	(3) 8.8 percent for taxable year 2013;
5.1 	(4) 8.5 percent for taxable year 2014;
5.2 	(5) 7.8 percent for taxable year 2015;
5.3 	(6) 7.3 percent for taxable year 2016;
5.4 	(7) 6.8 percent for taxable year 2017;
5.5 	(8) 6.3 percent for taxable year 2018;
5.6 	(9) 5.8 percent for taxable year 2019;
5.7 	(10) 5.3 percent for taxable year 2020;
5.8 	(11) 4.8 percent for taxable years beginning after December 31, 2020.

5.9 	EFFECTIVE DATE. This section is effective for taxable years beginning after 
5.10 	December 31, 2011.

5.11 	Sec. 3. Minnesota Statutes 2010, section 290.0921, subdivision 1, is amended to read:
5.12 		Subdivision 1.Tax imposed. In addition to the taxes computed under this chapter 
5.13 	without regard to this section, the franchise tax imposed on corporations includes a tax 
5.14 	equal to the excess, if any, for the taxable year of:
5.15 	(1)(i) 5.8 percent of Minnesota alternative minimum taxable income for taxable 
5.16 	years beginning before January 1, 2012;
5.17 	(ii) 5.5 percent of Minnesota alternative minimum taxable income for taxable year 
5.18 	2012;
5.19 	(iii) 5.2 percent of Minnesota alternative minimum taxable income for taxable year 
5.20 	2013;
5.21 	(iv) 4.9 percent of Minnesota alternative minimum taxable income for taxable year 
5.22 	2014;
5.23 	(v) 4.6 percent of Minnesota alternative minimum taxable income for taxable year 
5.24 	2015;
5.25 	(vi) 4.3 percent of Minnesota alternative minimum taxable income for taxable year 
5.26 	2016;
5.27 	(vii) four percent of Minnesota alternative minimum taxable income for taxable 
5.28 	year 2017;
5.29 	(viii) 3.7 percent of Minnesota alternative minimum taxable income for taxable 
5.30 	year 2018;
5.31 	(ix) 3.4 percent of Minnesota alternative minimum taxable income for taxable year 
5.32 	2019;
5.33 	(x) 3.1 percent of Minnesota alternative minimum taxable income for taxable year 
5.34 	2020;
6.1 	(xi) 2.8 percent of Minnesota alternative minimum taxable income for taxable years 
6.2 	beginning after December 31, 2020; over
6.3 	(2) the tax imposed under section 290.06, subdivision 1, without regard to this 
6.4 	section.

6.5 	EFFECTIVE DATE. This section is effective for taxable years beginning after 
6.6 	December 31, 2011.

6.7 	Sec. 4. Minnesota Statutes 2010, section 297A.68, subdivision 5, is amended to read:
6.8 		Subd. 5.Capital equipment. (a) Capital equipment is exempt. The tax must be 
6.9 	imposed and collected as if the rate under section 297A.62, subdivision 1, applied, and 
6.10 	then refunded in the manner provided in section 297A.75.
6.11 	"Capital equipment" means machinery and equipment purchased or leased, and used 
6.12 	in this state by the purchaser or lessee primarily for manufacturing, fabricating, mining, 
6.13 	or refining tangible personal property to be sold ultimately at retail if the machinery and 
6.14 	equipment are essential to the integrated production process of manufacturing, fabricating, 
6.15 	mining, or refining. Capital equipment also includes machinery and equipment 
6.16 	used primarily to electronically transmit results retrieved by a customer of an online 
6.17 	computerized data retrieval system.
6.18 	(b) Capital equipment includes, but is not limited to:
6.19 	(1) machinery and equipment used to operate, control, or regulate the production 
6.20 	equipment;
6.21 	(2) machinery and equipment used for research and development, design, quality 
6.22 	control, and testing activities;
6.23 	(3) environmental control devices that are used to maintain conditions such as 
6.24 	temperature, humidity, light, or air pressure when those conditions are essential to and are 
6.25 	part of the production process;
6.26 	(4) materials and supplies used to construct and install machinery or equipment;
6.27 	(5) repair and replacement parts, including accessories, whether purchased as spare 
6.28 	parts, repair parts, or as upgrades or modifications to machinery or equipment;
6.29 	(6) materials used for foundations that support machinery or equipment;
6.30 	(7) materials used to construct and install special purpose buildings used in the 
6.31 	production process;
6.32 	(8) ready-mixed concrete equipment in which the ready-mixed concrete is mixed 
6.33 	as part of the delivery process regardless if mounted on a chassis, repair parts for 
6.34 	ready-mixed concrete trucks, and leases of ready-mixed concrete trucks; and
7.1 	(9) machinery or equipment used for research, development, design, or production 
7.2 	of computer software.
7.3 	(c) Capital equipment does not include the following:
7.4 	(1) motor vehicles taxed under chapter 297B;
7.5 	(2) machinery or equipment used to receive or store raw materials;
7.6 	(3) building materials, except for materials included in paragraph (b), clauses (6) 
7.7 	and (7);
7.8 	(4) machinery or equipment used for nonproduction purposes, including, but not 
7.9 	limited to, the following: plant security, fire prevention, first aid, and hospital stations; 
7.10 	support operations or administration; pollution control; and plant cleaning, disposal of 
7.11 	scrap and waste, plant communications, space heating, cooling, lighting, or safety;
7.12 	(5) farm machinery and aquaculture production equipment as defined by section 
7.13 	297A.61, subdivisions 12 and 13;
7.14 	(6) machinery or equipment purchased and installed by a contractor as part of an 
7.15 	improvement to real property;
7.16 	(7) machinery and equipment used by restaurants in the furnishing, preparing, or 
7.17 	serving of prepared foods as defined in section 297A.61, subdivision 31;
7.18 	(8) machinery and equipment used to furnish the services listed in section 297A.61, 
7.19 	subdivision 3, paragraph (g), clause (6), items (i) to (vi) and (viii);
7.20 	(9) machinery or equipment used in the transportation, transmission, or distribution 
7.21 	of petroleum, liquefied gas, natural gas, water, or steam, in, by, or through pipes, lines, 
7.22 	tanks, mains, or other means of transporting those products. This clause does not apply to 
7.23 	machinery or equipment used to blend petroleum or biodiesel fuel as defined in section 
7.24 	239.77; or
7.25 	(10) any other item that is not essential to the integrated process of manufacturing, 
7.26 	fabricating, mining, or refining.
7.27 	(d) For purposes of this subdivision:
7.28 	(1) "Equipment" means independent devices or tools separate from machinery but 
7.29 	essential to an integrated production process, including computers and computer software, 
7.30 	used in operating, controlling, or regulating machinery and equipment; and any subunit or 
7.31 	assembly comprising a component of any machinery or accessory or attachment parts of 
7.32 	machinery, such as tools, dies, jigs, patterns, and molds.
7.33 	(2) "Fabricating" means to make, build, create, produce, or assemble components or 
7.34 	property to work in a new or different manner.
7.35 	(3) "Integrated production process" means a process or series of operations through 
7.36 	which tangible personal property is manufactured, fabricated, mined, or refined. For 
8.1 	purposes of this clause, (i) manufacturing begins with the removal of raw materials 
8.2 	from inventory and ends when the last process prior to loading for shipment has been 
8.3 	completed; (ii) fabricating begins with the removal from storage or inventory of the 
8.4 	property to be assembled, processed, altered, or modified and ends with the creation 
8.5 	or production of the new or changed product; (iii) mining begins with the removal of 
8.6 	overburden from the site of the ores, minerals, stone, peat deposit, or surface materials and 
8.7 	ends when the last process before stockpiling is completed; and (iv) refining begins with 
8.8 	the removal from inventory or storage of a natural resource and ends with the conversion 
8.9 	of the item to its completed form.
8.10 	(4) "Machinery" means mechanical, electronic, or electrical devices, including 
8.11 	computers and computer software, that are purchased or constructed to be used for the 
8.12 	activities set forth in paragraph (a), beginning with the removal of raw materials from 
8.13 	inventory through completion of the product, including packaging of the product.
8.14 	(5) "Machinery and equipment used for pollution control" means machinery and 
8.15 	equipment used solely to eliminate, prevent, or reduce pollution resulting from an activity 
8.16 	described in paragraph (a).
8.17 	(6) "Manufacturing" means an operation or series of operations where raw materials 
8.18 	are changed in form, composition, or condition by machinery and equipment and which 
8.19 	results in the production of a new article of tangible personal property. For purposes of 
8.20 	this subdivision, "manufacturing" includes the generation of electricity or steam to be 
8.21 	sold at retail.
8.22 	(7) "Mining" means the extraction of minerals, ores, stone, or peat.
8.23 	(8) "Online data retrieval system" means a system whose cumulation of information 
8.24 	is equally available and accessible to all its customers.
8.25 	(9) "Primarily" means machinery and equipment used 50 percent or more of the time 
8.26 	in an activity described in paragraph (a).
8.27 	(10) "Refining" means the process of converting a natural resource to an intermediate 
8.28 	or finished product, including the treatment of water to be sold at retail.
8.29 	(11) This subdivision does not apply to telecommunications equipment as 
8.30 	provided in subdivision 35, and does not apply to wire, cable, fiber, poles, or conduit 
8.31 	for telecommunications services.

8.32 	EFFECTIVE DATE. This section is effective for sales and purchases made after 
8.33 	June 30, 2011.

8.34 	Sec. 5. Minnesota Statutes 2010, section 297A.75, subdivision 1, is amended to read:
9.1 		Subdivision 1.Tax collected. The tax on the gross receipts from the sale of the 
9.2 	following exempt items must be imposed and collected as if the sale were taxable and the 
9.3 	rate under section 297A.62, subdivision 1, applied. The exempt items include:
9.4 	(1) capital equipment exempt under section 297A.68, subdivision 5;
9.5 	(2)(1) building materials for an agricultural processing facility exempt under section 
9.6 	297A.71, subdivision 13;
9.7 	(3) (2) building materials for mineral production facilities exempt under section 
9.8 	297A.71, subdivision 14;
9.9 	(4) (3) building materials for correctional facilities under section 297A.71, 
9.10 	subdivision 3;
9.11 	(5) (4) building materials used in a residence for disabled veterans exempt under 
9.12 	section 297A.71, subdivision 11;
9.13 	(6) (5) elevators and building materials exempt under section 297A.71, subdivision 
9.14 	12; or
9.15 	(7) (6) building materials for the Long Lake Conservation Center exempt under 
9.16 	section 297A.71, subdivision 17;
9.17 	(8) (7) materials and supplies for qualified low-income housing under section 
9.18 	297A.71, subdivision 23;
9.19 	(9) (8) materials, supplies, and equipment for municipal electric utility facilities 
9.20 	under section 297A.71, subdivision 35;
9.21 	(10) (9) equipment and materials used for the generation, transmission, and 
9.22 	distribution of electrical energy and an aerial camera package exempt under section 
9.23 	297A.68, subdivision 37;
9.24 	(11) (10) tangible personal property and taxable services and construction materials, 
9.25 	supplies, and equipment exempt under section 297A.68, subdivision 41;
9.26 	(12) (11) commuter rail vehicle and repair parts under section 297A.70, subdivision 
9.27 	3, clause (11);
9.28 	(13) (12) materials, supplies, and equipment for construction or improvement of 
9.29 	projects and facilities under section 297A.71, subdivision 40;
9.30 	(14) (13) materials, supplies, and equipment for construction or improvement of a 
9.31 	meat processing facility exempt under section 297A.71, subdivision 41; and
9.32 	(15) (14) materials, supplies, and equipment for construction, improvement, or 
9.33 	expansion of an aerospace defense manufacturing facility exempt under section 297A.71, 
9.34 	subdivision 42.

9.35 	EFFECTIVE DATE. This section is effective for sales and purchases made after 
9.36 	June 30, 2011.

10.1 	Sec. 6. Minnesota Statutes 2010, section 297A.75, subdivision 2, is amended to read:
10.2 		Subd. 2.Refund; eligible persons. Upon application on forms prescribed by the 
10.3 	commissioner, a refund equal to the tax paid on the gross receipts of the exempt items 
10.4 	must be paid to the applicant. Only the following persons may apply for the refund:
10.5 	(1) for subdivision 1, clauses (1) to (3) and (2), the applicant must be the purchaser;
10.6 	(2) for subdivision 1, clauses (4) (3) and (7) (6), the applicant must be the 
10.7 	governmental subdivision;
10.8 	(3) for subdivision 1, clause (5) (4), the applicant must be the recipient of the 
10.9 	benefits provided in United States Code, title 38, chapter 21;
10.10 	(4) for subdivision 1, clause (6) (5), the applicant must be the owner of the 
10.11 	homestead property;
10.12 	(5) for subdivision 1, clause (8) (7), the owner of the qualified low-income housing 
10.13 	project;
10.14 	(6) for subdivision 1, clause (9) (8), the applicant must be a municipal electric utility 
10.15 	or a joint venture of municipal electric utilities;
10.16 	(7) for subdivision 1, clauses (10), (11), (14), and (15) (9), (10), (13), and (14), 
10.17 	the owner of the qualifying business; and
10.18 	(8) for subdivision 1, clauses (11) and (12) and (13), the applicant must be the 
10.19 	governmental entity that owns or contracts for the project or facility.

10.20 	EFFECTIVE DATE. This section is effective for sales and purchases made after 
10.21 	June 30, 2011.