1.1                          A bill for an act 
  1.2             relating to taxation; reducing individual income tax 
  1.3             rates; increasing the income limitations for the 
  1.4             dependent care credit; providing income tax credits 
  1.5             for children; adjusting property tax refund amounts; 
  1.6             providing a sales tax exemption for capital equipment 
  1.7             used to provide telecommunications services; 
  1.8             appropriating money; amending Minnesota Statutes 1998, 
  1.9             sections 290.06, subdivisions 2c and 2d; 290.067, 
  1.10            subdivisions 2 and 2b; 290A.04, subdivisions 2, 2a, 
  1.11            and 4; 297A.01, subdivision 16; and 297A.15, 
  1.12            subdivision 5; proposing coding for new law in 
  1.13            Minnesota Statutes, chapter 290. 
  1.14  BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
  1.15     Section 1.  Minnesota Statutes 1998, section 290.06, 
  1.16  subdivision 2c, is amended to read: 
  1.17     Subd. 2c.  [SCHEDULES OF RATES FOR INDIVIDUALS, ESTATES, 
  1.18  AND TRUSTS.] (a) The income taxes imposed by this chapter upon 
  1.19  married individuals filing joint returns and surviving spouses 
  1.20  as defined in section 2(a) of the Internal Revenue Code must be 
  1.21  computed by applying to their taxable net income the following 
  1.22  schedule of rates: 
  1.23     (1) On the first ~~$19,910~~ $25,220, ~~6~~ 5.8 percent; 
  1.24     (2) On all over ~~$19,910~~ $25,220, but not 
  1.25  over ~~$79,120~~ $100,210, ~~8~~ 7.8 percent; 
  1.26     (3) On all over ~~$79,120~~ $100,210, 8.5 percent. 
  1.27     Married individuals filing separate returns, estates, and 
  1.28  trusts must compute their income tax by applying the above rates 
  1.29  to their taxable income, except that the income brackets will be 
  2.1   one-half of the above amounts.  
  2.2      (b) The income taxes imposed by this chapter upon unmarried 
  2.3   individuals must be computed by applying to taxable net income 
  2.4   the following schedule of rates: 
  2.5      (1) On the first ~~$13,620~~ $17,250, ~~6~~ 5.8 percent; 
  2.6      (2) On all over ~~$13,620~~ $17,250, but not 
  2.7   over ~~$44,750~~ $56,680, ~~8~~ 7.8 percent; 
  2.8      (3) On all over ~~$44,750~~ $56,680, 8.5 percent. 
  2.9      (c) The income taxes imposed by this chapter upon unmarried 
  2.10  individuals qualifying as a head of household as defined in 
  2.11  section 2(b) of the Internal Revenue Code must be computed by 
  2.12  applying to taxable net income the following schedule of rates: 
  2.13     (1) On the first ~~$16,770~~ $21,240, ~~6~~ 5.8 percent; 
  2.14     (2) On all over ~~$16,770~~ $21,240, but not 
  2.15  over ~~$67,390~~ $85,350, ~~8~~ 7.8 percent; 
  2.16     (3) On all over ~~$67,390~~ $85,350, 8.5 percent. 
  2.17     (d) In lieu of a tax computed according to the rates set 
  2.18  forth in this subdivision, the tax of any individual taxpayer 
  2.19  whose taxable net income for the taxable year is less than an 
  2.20  amount determined by the commissioner must be computed in 
  2.21  accordance with tables prepared and issued by the commissioner 
  2.22  of revenue based on income brackets of not more than $100.  The 
  2.23  amount of tax for each bracket shall be computed at the rates 
  2.24  set forth in this subdivision, provided that the commissioner 
  2.25  may disregard a fractional part of a dollar unless it amounts to 
  2.26  50 cents or more, in which case it may be increased to $1. 
  2.27     (e) An individual who is not a Minnesota resident for the 
  2.28  entire year must compute the individual's Minnesota income tax 
  2.29  as provided in this subdivision.  After the application of the 
  2.30  nonrefundable credits provided in this chapter, the tax 
  2.31  liability must then be multiplied by a fraction in which:  
  2.32     (1) the numerator is the individual's Minnesota source 
  2.33  federal adjusted gross income as defined in section 62 of the 
  2.34  Internal Revenue Code disregarding income or loss flowing from a 
  2.35  corporation having a valid election for the taxable year under 
  2.36  section 1362 of the Internal Revenue Code but which is not an 
  3.1   "S" corporation under section 290.9725 and increased by the 
  3.2   additions required under section 290.01, subdivision 19a, 
  3.3   clauses (1) and (9), after applying the allocation and 
  3.4   assignability provisions of section 290.081, clause (a), or 
  3.5   290.17; and 
  3.6      (2) the denominator is the individual's federal adjusted 
  3.7   gross income as defined in section 62 of the Internal Revenue 
  3.8   Code of 1986, increased by the amounts specified in section 
  3.9   290.01, subdivision 19a, clauses (1), (5), (6), (7), and (9), 
  3.10  and reduced by the amounts specified in section 290.01, 
  3.11  subdivision 19b, clauses (1), (11), and (12). 
  3.12     Sec. 2.  Minnesota Statutes 1998, section 290.06, 
  3.13  subdivision 2d, is amended to read: 
  3.14     Subd. 2d.  [INFLATION ADJUSTMENT OF BRACKETS.] (a) For 
  3.15  taxable years beginning after December 31, ~~1991~~ 1999, the 
  3.16  minimum and maximum dollar amounts for each rate bracket for 
  3.17  which a tax is imposed in subdivision 2c shall be adjusted for 
  3.18  inflation by the percentage determined under paragraph (b).  For 
  3.19  the purpose of making the adjustment as provided in this 
  3.20  subdivision all of the rate brackets provided in subdivision 2c 
  3.21  shall be the rate brackets as they existed for taxable years 
  3.22  beginning after December 31, ~~1990~~ 1998, and before January 
  3.23  1, ~~1992~~ 2000.  The rate applicable to any rate bracket must not 
  3.24  be changed.  The dollar amounts setting forth the tax shall be 
  3.25  adjusted to reflect the changes in the rate brackets.  The rate 
  3.26  brackets as adjusted must be rounded to the nearest $10 amount.  
  3.27  If the rate bracket ends in $5, it must be rounded up to the 
  3.28  nearest $10 amount.  
  3.29     (b) The commissioner shall adjust the rate brackets and by 
  3.30  the percentage determined pursuant to the provisions of section 
  3.31  1(f) of the Internal Revenue Code, except that in section 
  3.32  1(f)(3)(B) the word "~~1990~~ 1998" shall be substituted for the 
  3.33  word "~~1987~~ 1992."  For ~~1991~~ 1999, the commissioner shall then 
  3.34  determine the percent change from the 12 months ending on August 
  3.35  31, ~~1990~~ 1998, to the 12 months ending on August 31, ~~1991~~ 1999, 
  3.36  and in each subsequent year, from the 12 months ending on August 
  4.1   31, ~~1990~~ 1999, to the 12 months ending on August 31 of the year 
  4.2   preceding the taxable year.  The determination of the 
  4.3   commissioner pursuant to this subdivision shall not be 
  4.4   considered a "rule" and shall not be subject to the 
  4.5   Administrative Procedure Act contained in chapter 14.  
  4.6      No later than December 15 of each year, the commissioner 
  4.7   shall announce the specific percentage that will be used to 
  4.8   adjust the tax rate brackets. 
  4.9      Sec. 3.  Minnesota Statutes 1998, section 290.067, 
  4.10  subdivision 2, is amended to read: 
  4.11     Subd. 2.  [LIMITATIONS.] The credit for expenses incurred 
  4.12  for the care of each dependent shall not exceed $720 in any 
  4.13  taxable year, and the total credit for all dependents of a 
  4.14  claimant shall not exceed $1,440 in a taxable year.  The maximum 
  4.15  total credit shall be reduced according to the amount of the 
  4.16  income of the claimant and a spouse, if any, as follows:  
  4.17     income up to ~~$13,350~~ $25,000, $720 maximum for one 
  4.18  dependent, $1,440 for all dependents; 
  4.19     income over ~~$13,350~~ $25,000, the maximum credit for one 
  4.20  dependent shall be reduced by $18 for every $350 of additional 
  4.21  income, $36 for all dependents. 
  4.22     The commissioner shall construct and make available to 
  4.23  taxpayers tables showing the amount of the credit at various 
  4.24  levels of income and expenses.  The tables shall follow the 
  4.25  schedule contained in this subdivision, except that the 
  4.26  commissioner may graduate the transitions between expenses and 
  4.27  income brackets.  
  4.28     Sec. 4.  Minnesota Statutes 1998, section 290.067, 
  4.29  subdivision 2b, is amended to read: 
  4.30     Subd. 2b.  [INFLATION ADJUSTMENT.] The dollar amount of the 
  4.31  income threshold at which the maximum credit begins to be 
  4.32  reduced under subdivision 2 must be adjusted for inflation for 
  4.33  taxable years beginning after December 31, 1999.  The 
  4.34  commissioner shall adjust the threshold amount by the percentage 
  4.35  determined under section 290.06, subdivision 2d, for the taxable 
  4.36  year. 
  5.1      Sec. 5.  [290.0675] [CREDIT FOR CHILDREN.] 
  5.2      Subdivision 1.  [CREDIT ALLOWED.] A taxpayer and spouse, if 
  5.3   any, may take a credit against the tax imposed by this chapter 
  5.4   equal to $200 for each qualifying child as defined in section 
  5.5   24(c) of the Internal Revenue Code.  The total credit allowed a 
  5.6   taxpayer shall be reduced by $50 for each $1,000 of income, or 
  5.7   fraction thereof, over a threshold amount, but in no case shall 
  5.8   the credit be less than zero.  The threshold amounts are 
  5.9   $110,000 for married taxpayers filing joint returns, $55,000 for 
  5.10  married taxpayers filing separate returns, and $75,000 for all 
  5.11  other taxpayers.  For purposes of this section, "income" means 
  5.12  modified adjusted gross income as defined in section 24(b) of 
  5.13  the Internal Revenue Code. 
  5.14     For nonresidents and part-year residents, the credit must 
  5.15  be allocated based on the percentage calculated under section 
  5.16  290.06, subdivision 2c, paragraph (e). 
  5.17     Subd. 2.  [CREDIT REFUNDABLE.] If the amount of credit that 
  5.18  the claimant is eligible to receive under this section exceeds 
  5.19  the claimant's tax liability under this chapter, the 
  5.20  commissioner shall refund the excess to the claimant. 
  5.21     Subd. 3.  [INFLATION ADJUSTMENT.] For taxable years 
  5.22  beginning after December 31, 1999, the credit amount and the 
  5.23  income thresholds at which the credit begins to be reduced in 
  5.24  subdivision 1 must be adjusted for inflation.  The commissioner 
  5.25  shall adjust the credit and threshold amounts by the percentage 
  5.26  determined under section 290.06, subdivision 2d, for the taxable 
  5.27  year. 
  5.28     Subd. 4.  [APPROPRIATION.] An amount sufficient to pay the 
  5.29  refunds required by this section is annually appropriated to the 
  5.30  commissioner from the general fund. 
  5.31     Sec. 6.  Minnesota Statutes 1998, section 290A.04, 
  5.32  subdivision 2, is amended to read: 
  5.33     Subd. 2.  [HOMEOWNERS.] A claimant whose property taxes 
  5.34  payable are in excess of the percentage of the household income 
  5.35  stated below shall pay an amount equal to the percent of income 
  5.36  shown for the appropriate household income level along with the 
  6.1   percent to be paid by the claimant of the remaining amount of 
  6.2   property taxes payable.  The state refund equals the amount of 
  6.3   property taxes payable that remain, up to the state refund 
  6.4   amount shown below.  
  6.5                         Percent           Percent    Maximum
  6.6   Household Income     of Income          Paid by     State
  6.7                                           Claimant    Refund
  6.8       ~~$0 to 1,029~~     ~~1.2 percent~~        ~~18 percent~~   ~~$440~~
  6.9    ~~1,030 to 2,059~~     ~~1.3 percent~~        ~~18 percent~~   ~~$440~~
  6.10   ~~2,060 to 3,099~~     ~~1.4 percent~~        ~~20 percent~~   ~~$440~~
  6.11   ~~3,100 to 4,129~~     ~~1.6 percent~~        ~~20 percent~~   ~~$440~~
  6.12   ~~4,130 to 5,159~~     ~~1.7 percent~~        ~~20 percent~~   ~~$440~~
  6.13   ~~5,160 to 7,229~~     ~~1.9 percent~~        ~~25 percent~~   ~~$440~~
  6.14   ~~7,230 to 8,259~~     ~~2.1 percent~~        ~~25 percent~~   ~~$440~~
  6.15   ~~8,260 to 9,289~~     ~~2.2 percent~~        ~~25 percent~~   ~~$440~~
  6.16   ~~9,290 to 10,319~~    ~~2.3 percent~~        ~~30 percent~~   ~~$440~~
  6.17  ~~10,320 to 11,349~~    ~~2.4 percent~~        ~~30 percent~~   ~~$440~~
  6.18  ~~11,350 to 12,389~~    ~~2.5 percent~~        ~~30 percent~~   ~~$440~~
  6.19  ~~12,390 to 14,449~~    ~~2.6 percent~~        ~~30 percent~~   ~~$440~~
  6.20  ~~14,450 to 15,479~~    ~~2.8 percent~~        ~~35 percent~~   ~~$440~~
  6.21  ~~15,480 to 16,509~~    ~~3.0 percent~~        ~~35 percent~~   ~~$440~~
  6.22  ~~16,510 to 17,549~~    ~~3.2 percent~~        ~~40 percent~~   ~~$440~~
  6.23  ~~17,550 to 21,669~~    ~~3.3 percent~~        ~~40 percent~~   ~~$440~~
  6.24  ~~21,670 to 24,769~~    ~~3.4 percent~~        ~~45 percent~~   ~~$440~~
  6.25  ~~24,770 to 30,959~~    ~~3.5 percent~~        ~~45 percent~~   ~~$440~~
  6.26  ~~30,960 to 36,119~~    ~~3.5 percent~~        ~~45 percent~~   ~~$440~~
  6.27  ~~36,120 to 41,279~~    ~~3.7 percent~~        ~~50 percent~~   ~~$440~~
  6.28  ~~41,280 to 58,829~~    ~~4.0 percent~~        ~~50 percent~~   ~~$440~~
  6.29  ~~58,830 to 59,859~~    ~~4.0 percent~~        ~~50 percent~~   ~~$310~~
  6.30  ~~59,860 to 60,889~~    ~~4.0 percent~~        ~~50 percent~~   ~~$210~~
  6.31  ~~60,890 to 61,929~~    ~~4.0 percent~~        ~~50 percent~~   ~~$100~~
  6.32  $    0 to  4,999    1.0 percent         5 percent $1,200
  6.33   5,000 to  9,999    1.1 percent        10 percent $1,200
  6.34  10,000 to 14,999    1.3 percent        15 percent $1,200
  6.35  15,000 to 19,999    1.5 percent        20 percent $1,200
  6.36  20,000 to 24,999    1.9 percent        30 percent $1,200
  6.37  25,000 to 29,999    2.6 percent        35 percent $1,200
  6.38  30,000 to 39,999    3.0 percent        40 percent $1,200
  6.39  40,000 to 44,999    3.5 percent        45 percent $1,200
  6.40  45,000 to 49,999    4.0 percent        50 percent $1,000
  6.41  50,000 to 54,999    4.0 percent        50 percent   $800
  6.42  55,000 to 59,999    4.0 percent        50 percent   $600
  6.43  60,000 to 64,999    4.0 percent        50 percent   $400
  6.44  65,000 to 69,999    4.0 percent        50 percent   $200
  6.45     The payment made to a claimant shall be the amount of the 
  6.46  state refund calculated under this subdivision.  No payment is 
  6.47  allowed if the claimant's household income is ~~$61,930~~ $70,000 or 
  6.48  more. 
  6.49     Sec. 7.  Minnesota Statutes 1998, section 290A.04, 
  6.50  subdivision 2a, is amended to read: 
  6.51     Subd. 2a.  [RENTERS.] A claimant whose rent constituting 
  6.52  property taxes exceeds the percentage of the household income 
  6.53  stated below must pay an amount equal to the percent of income 
  6.54  shown for the appropriate household income level along with the 
  6.55  percent to be paid by the claimant of the remaining amount of 
  7.1   rent constituting property taxes.  The state refund equals the 
  7.2   amount of rent constituting property taxes that remain, up to 
  7.3   the maximum state refund amount shown below.  
  7.4                         Percent           Percent      Maximum
  7.5   Household Income     of Income          Paid by        State
  7.6                                           Claimant      Refund
  7.7   ~~$     0 to 3,099~~     ~~1.0 percent~~         ~~5 percent~~    ~~$1,030~~
  7.8     ~~3,100 to 4,129~~     ~~1.0 percent~~        ~~10 percent~~    ~~$1,030~~
  7.9     ~~4,130 to 5,159~~     ~~1.1 percent~~        ~~10 percent~~    ~~$1,030~~
  7.10    ~~5,160 to 7,229~~     ~~1.2 percent~~        ~~10 percent~~    ~~$1,030~~
  7.11    ~~7,230 to 9,289~~     ~~1.3 percent~~        ~~15 percent~~    ~~$1,030~~
  7.12    ~~9,290 to 10,319~~    ~~1.4 percent~~        ~~15 percent~~    ~~$1,030~~
  7.13   ~~10,320 to 11,349~~    ~~1.4 percent~~        ~~20 percent~~    ~~$1,030~~
  7.14   ~~11,350 to 13,419~~    ~~1.5 percent~~        ~~20 percent~~    ~~$1,030~~
  7.15   ~~13,420 to 14,449~~    ~~1.6 percent~~        ~~20 percent~~    ~~$1,030~~
  7.16   ~~14,450 to 15,479~~    ~~1.7 percent~~        ~~25 percent~~    ~~$1,030~~
  7.17   ~~15,480 to 17,549~~    ~~1.8 percent~~        ~~25 percent~~    ~~$1,030~~
  7.18   ~~17,550 to 18,579~~    ~~1.9 percent~~        ~~30 percent~~    ~~$1,030~~
  7.19   ~~18,580 to 19,609~~    ~~2.0 percent~~        ~~30 percent~~    ~~$1,030~~
  7.20   ~~19,610 to 20,639~~    ~~2.2 percent~~        ~~30 percent~~    ~~$1,030~~
  7.21   ~~20,640 to 21,669~~    ~~2.4 percent~~        ~~30 percent~~    ~~$1,030~~
  7.22   ~~21,670 to 22,709~~    ~~2.6 percent~~        ~~35 percent~~    ~~$1,030~~
  7.23   ~~22,710 to 23,739~~    ~~2.7 percent~~        ~~35 percent~~    ~~$1,030~~
  7.24   ~~23,740 to 24,769~~    ~~2.8 percent~~        ~~35 percent~~    ~~$1,030~~
  7.25   ~~24,770 to 25,799~~    ~~2.9 percent~~        ~~40 percent~~    ~~$1,030~~
  7.26   ~~25,800 to 26,839~~    ~~3.0 percent~~        ~~40 percent~~    ~~$1,030~~
  7.27   ~~26,840 to 27,869~~    ~~3.1 percent~~        ~~40 percent~~    ~~$1,030~~
  7.28   ~~27,870 to 28,899~~    ~~3.2 percent~~        ~~40 percent~~    ~~$1,030~~
  7.29   ~~28,900 to 29,929~~    ~~3.3 percent~~        ~~45 percent~~    ~~$  930~~
  7.30   ~~29,930 to 30,959~~    ~~3.4 percent~~        ~~45 percent~~    ~~$  830~~
  7.31   ~~30,960 to 31,999~~    ~~3.5 percent~~        ~~45 percent~~    ~~$  720~~
  7.32   ~~32,000 to 33,029~~    ~~3.5 percent~~        ~~50 percent~~    ~~$  620~~
  7.33   ~~33,030 to 34,059~~    ~~3.5 percent~~        ~~50 percent~~    ~~$  520~~
  7.34   ~~34,060 to 35,089~~    ~~3.5 percent~~        ~~50 percent~~    ~~$  310~~
  7.35   ~~35,090 to 36,119~~    ~~3.5 percent~~        ~~50 percent~~    ~~$  100~~
  7.36  $     0 to  4,999    1.0 percent         5 percent    $1,200
  7.37    5,000 to  9,999    1.1 percent        10 percent    $1,200
  7.38   10,000 to 14,999    1.3 percent        15 percent    $1,200
  7.39   15,000 to 19,999    1.5 percent        20 percent    $1,200
  7.40   20,000 to 24,999    1.9 percent        30 percent    $1,200
  7.41   25,000 to 29,999    2.6 percent        35 percent    $1,200
  7.42   30,000 to 33,999    3.0 percent        40 percent    $1,200
  7.43   34,000 to 34,999    3.2 percent        45 percent    $1,200
  7.44   35,000 to 35,999    3.4 percent        45 percent    $1,100
  7.45   36,000 to 36,999    3.5 percent        45 percent      $900
  7.46   37,000 to 37,999    3.5 percent        50 percent      $750
  7.47   38,000 to 38,999    3.5 percent        50 percent      $600
  7.48   39,000 to 39,999    3.5 percent        50 percent      $400
  7.49   40,000 to 40,999    3.5 percent        50 percent      $200
  7.50     The payment made to a claimant is the amount of the state 
  7.51  refund calculated under this subdivision.  No payment is allowed 
  7.52  if the claimant's household income is ~~$36,120~~ $41,000 or more. 
  7.53     Sec. 8.  Minnesota Statutes 1998, section 290A.04, 
  7.54  subdivision 4, is amended to read: 
  7.55     Subd. 4.  [INFLATION ADJUSTMENT.] Beginning for property 
  7.56  tax refunds payable in calendar year ~~1996~~ 2001, the commissioner 
  7.57  shall annually adjust the dollar amounts of the income 
  7.58  thresholds and the maximum refunds under subdivisions 2 and 2a 
  8.1   for inflation.  The commissioner shall make the inflation 
  8.2   adjustments in accordance with section 290.06, subdivision 2d, 
  8.3   except that for purposes of this subdivision the percentage 
  8.4   increase shall be determined from the year ending on June 30, 
  8.5   ~~1994~~ 1999, to the year ending on June 30 of the year preceding 
  8.6   that in which the refund is payable.  The commissioner shall use 
  8.7   the appropriate percentage increase to annually adjust the 
  8.8   income thresholds and maximum refunds under subdivisions 2 and 
  8.9   2a for inflation without regard to whether or not the income tax 
  8.10  brackets are adjusted for inflation in that year.  The 
  8.11  commissioner shall round the thresholds and the maximum amounts, 
  8.12  as adjusted to the nearest $10 amount.  If the amount ends in 
  8.13  $5, the commissioner shall round it up to the next $10 amount.  
  8.14     The commissioner shall annually announce the adjusted 
  8.15  refund schedule at the same time provided under section 290.06.  
  8.16  The determination of the commissioner under this subdivision is 
  8.17  not a rule under the Administrative Procedure Act. 
  8.18     Sec. 9.  Minnesota Statutes 1998, section 297A.01, 
  8.19  subdivision 16, is amended to read: 
  8.20     Subd. 16.  [CAPITAL EQUIPMENT.] (a) Capital equipment means 
  8.21  machinery and equipment purchased or leased for use in this 
  8.22  state and used by the purchaser or lessee primarily for 
  8.23  manufacturing, fabricating, mining, or refining tangible 
  8.24  personal property to be sold ultimately at retail ~~and~~, for 
  8.25  electronically transmitting results retrieved by a customer of 
  8.26  an on-line computerized data retrieval system, and for use by a 
  8.27  purchaser or lessee that is in the business of providing 
  8.28  telecommunications services.  For purposes of this subdivision, 
  8.29  "telecommunications service" is an activity done for the purpose 
  8.30  of transmission of voice, video, or data, including local and 
  8.31  long-distance telephone carriers, telegraph and other message 
  8.32  communications, television and radio broadcasting, satellite 
  8.33  global positioning services, computer networking, data 
  8.34  processing, and the provision of Internet access.  
  8.35     (b) Capital equipment includes all machinery and equipment 
  8.36  that is essential to the integrated production process or, in 
  9.1   the case of a telecommunications business, in the process of 
  9.2   providing the telecommunications service.  Capital equipment 
  9.3   includes, but is not limited to: 
  9.4      (1) machinery and equipment used or required to operate, 
  9.5   control, or regulate the production or telecommunications 
  9.6   equipment; 
  9.7      (2) machinery and equipment used for research and 
  9.8   development, design, quality control, and testing activities; 
  9.9      (3) environmental control devices that are used to maintain 
  9.10  conditions such as temperature, humidity, light, or air pressure 
  9.11  when those conditions are essential to and are part of the 
  9.12  production or telecommunications process; 
  9.13     (4) materials and supplies necessary to construct and 
  9.14  install machinery or equipment; 
  9.15     (5) repair and replacement parts, including accessories, 
  9.16  whether purchased as spare parts, repair parts, or as upgrades 
  9.17  or modifications to machinery or equipment; 
  9.18     (6) materials used for foundations that support machinery 
  9.19  or equipment; 
  9.20     (7) materials used to construct and install special purpose 
  9.21  buildings used in the production process; or 
  9.22     (8) ready-mixed concrete trucks in which the ready-mixed 
  9.23  concrete is mixed as part of the delivery process. 
  9.24     (c) Capital equipment does not include the following: 
  9.25     (1) motor vehicles taxed under chapter 297B; 
  9.26     (2) machinery or equipment used to receive or store raw 
  9.27  materials; 
  9.28     (3) building materials; 
  9.29     (4) machinery or equipment used for nonproduction purposes, 
  9.30  including, but not limited to, the following:  machinery and 
  9.31  equipment used for plant security, fire prevention, first aid, 
  9.32  and hospital stations; machinery and equipment used in support 
  9.33  operations or for administrative purposes; machinery and 
  9.34  equipment used solely for pollution control, prevention, or 
  9.35  abatement; and machinery and equipment used in plant cleaning, 
  9.36  disposal of scrap and waste, plant communications, space 
 10.1   heating, lighting, or safety; 
 10.2      (5) "farm machinery" as defined by subdivision 15, and 
 10.3   "aquaculture production equipment" as defined by subdivision 19; 
 10.4   or 
 10.5      (6) any other item that is not essential to the integrated 
 10.6   process of manufacturing, fabricating, mining, ~~or~~ refining, or 
 10.7   providing telecommunications services. 
 10.8      (d) For purposes of this subdivision: 
 10.9      (1) "Equipment" means independent devices or tools separate 
 10.10  from machinery but essential to an integrated production 
 10.11  process, including computers and software, used in operating, 
 10.12  controlling, or regulating machinery and equipment; and any 
 10.13  subunit or assembly comprising a component of any machinery or 
 10.14  accessory or attachment parts of machinery, such as tools, dies, 
 10.15  jigs, patterns, and molds. 
 10.16     (2) "Fabricating" means to make, build, create, produce, or 
 10.17  assemble components or property to work in a new or different 
 10.18  manner. 
 10.19     (3) "Machinery" means mechanical, electronic, or electrical 
 10.20  devices, including computers and software, that are purchased or 
 10.21  constructed to be used for the activities set forth in paragraph 
 10.22  (a), beginning with the removal of raw materials from inventory 
 10.23  through the completion of the product, including packaging of 
 10.24  the product. 
 10.25     (4) "Manufacturing" means an operation or series of 
 10.26  operations where raw materials are changed in form, composition, 
 10.27  or condition by machinery and equipment and which results in the 
 10.28  production of a new article of tangible personal property.  For 
 10.29  purposes of this subdivision, "manufacturing" includes the 
 10.30  generation of electricity or steam to be sold at retail. 
 10.31     (5) "Mining" means the extraction of minerals, ores, stone, 
 10.32  and peat. 
 10.33     (6) "On-line data retrieval system" means a system whose 
 10.34  cumulation of information is equally available and accessible to 
 10.35  all its customers. 
 10.36     (7) "Pollution control equipment" means machinery and 
 11.1   equipment used to eliminate, prevent, or reduce pollution 
 11.2   resulting from an activity described in paragraph (a). 
 11.3      (8) "Primarily" means machinery and equipment used 50 
 11.4   percent or more of the time in an activity described in 
 11.5   paragraph (a). 
 11.6      (9) "Refining" means the process of converting a natural 
 11.7   resource to a product, including the treatment of water to be 
 11.8   sold at retail. 
 11.9      (e) For purposes of this subdivision the requirement that 
 11.10  the machinery or equipment "must be used by the purchaser or 
 11.11  lessee" means that the person who purchases or leases the 
 11.12  machinery or equipment must be the one who uses it for the 
 11.13  qualifying purpose.  When a contractor buys and installs 
 11.14  machinery or equipment as part of an improvement to real 
 11.15  property, only the contractor is considered the purchaser, 
 11.16  except that a purchase by a contractor for installation of 
 11.17  capital equipment used for providing telecommunications services 
 11.18  is considered to be made by the entity that provides the 
 11.19  telecommunications services. 
 11.20     Sec. 10.  Minnesota Statutes 1998, section 297A.15, 
 11.21  subdivision 5, is amended to read: 
 11.22     Subd. 5.  [REFUND; APPROPRIATION.] Notwithstanding the 
 11.23  provisions of sections 297A.02, subdivision 5, and 297A.25, 
 11.24  subdivision 42, except for capital equipment purchased for use 
 11.25  in a business that provides telecommunications services, the tax 
 11.26  on sales of capital equipment, and replacement capital 
 11.27  equipment, shall be imposed and collected as if the rate under 
 11.28  section 297A.02, subdivision 1, applied.  Upon application by 
 11.29  the purchaser, on forms prescribed by the commissioner, a refund 
 11.30  equal to the reduction in the tax due as a result of the 
 11.31  application of the exemption under section 297A.25, subdivision 
 11.32  42, and the rate under section 297A.02, subdivision 5, shall be 
 11.33  paid to the purchaser.  The application must include sufficient 
 11.34  information to permit the commissioner to verify the sales tax 
 11.35  paid for the project.  The application shall include information 
 11.36  necessary for the commissioner initially to verify that the 
 12.1   purchases qualified as capital equipment under section 297A.25, 
 12.2   subdivision 42, or replacement capital equipment under section 
 12.3   297A.01, subdivision 20.  No more than two applications for 
 12.4   refunds may be filed under this subdivision in a calendar year.  
 12.5   Unless otherwise specifically provided by this subdivision, the 
 12.6   provisions of section 289A.40 apply to the refunds payable under 
 12.7   this subdivision.  There is annually appropriated to the 
 12.8   commissioner of revenue the amount required to make the refunds. 
 12.9      The amount to be refunded shall bear interest at the rate 
 12.10  in section 270.76 from the date the refund claim is filed with 
 12.11  the commissioner. 
 12.12     Sec. 11.  [EFFECTIVE DATE.] 
 12.13     Sections 1, 3, and 5 are effective for taxable years 
 12.14  beginning after December 31, 1998.  Sections 6 and 7 are 
 12.15  effective for claims based on rent paid in 1999, and taxes 
 12.16  payable in 2000, and later years.  Sections 9 and 10 are 
 12.17  effective for sales after June 30, 1999.