1.1 	A bill for an act
1.2 	relating to taxation; providing for budget reserves; changing calculation of the 
1.3 	school operating capital levy; changing the residential homestead market value 
1.4 	credit; imposing levy limits; conforming certain tax provisions to changes in the 
1.5 	Internal Revenue Code; excluding compensation and certain pension income for 
1.6 	service in the armed forces; providing dairy investment and regional investment 
1.7 	credits; increasing the maximum homeowners' property tax refunds; changing 
1.8 	the income and franchise tax income apportionment formula; providing a direct 
1.9 	sales tax exemption for small business and certain other capital equipment 
1.10 	purchases; exempting certain transportation purchases from the sales tax; 
1.11 	exempting certain sales of construction materials from the sales tax; extending 
1.12 	the period of job opportunity building zone benefits in certain cases; changing 
1.13 	certain aids to local governments;amending Minnesota Statutes 2006, sections 
1.14 	16A.152, subdivisions 1b, 2; 126C.10, subdivision 13a; 273.1384, subdivision 
1.15 	1; 275.70, subdivisions 3, 5, by adding a subdivision; 275.71, subdivisions 1, 
1.16 	2, 4, 5; 289A.02, subdivision 7; 290.01, subdivisions 19, 19b, 31; 290.06, by 
1.17 	adding subdivisions; 290.091, subdivision 2; 290.191, subdivision 2; 290A.03, 
1.18 	subdivision 15; 290A.04, subdivision 2; 291.005, subdivision 1; 297A.68, 
1.19 	subdivision 5; 297A.70, subdivision 2; 297A.71, by adding subdivisions; 
1.20 	297A.75, subdivisions 1, 3; 469.312, subdivision 5; 477A.013, subdivision 9, 
1.21 	by adding a subdivision; 477A.03, subdivision 2a.
1.22 	BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:

1.23 	ARTICLE 1
1.24 	GOVERNOR'S INITIATIVES

1.25 	Section 1. Minnesota Statutes 2006, section 16A.152, subdivision 1b, is amended to 
1.26 	read:
1.27 		Subd. 1b.Budget reserve increase. On July 1, 2003 2007, the commissioner of 
1.28 	finance shall transfer $300,000,000$47,000,000 to the budget reserve account in the 
1.29 	general fund. On July 1, 2004, the commissioner of finance shall transfer $296,000,000 to 
2.1 	the budget reserve account in the general fund. The amounts necessary for this purpose 
2.2 	are appropriated from the general fund.

2.3 	Sec. 2. Minnesota Statutes 2006, section 16A.152, subdivision 2, is amended to read:
2.4 		Subd. 2.Reserve goal; additional revenues; priority. (a) If on the basis of 
2.5 	a forecast of general fund revenues and expenditures, the commissioner of finance 
2.6 	determines that there will be a positive unrestricted budgetary general fund balance at the 
2.7 	close of the biennium that exceeds $125,000,000, the commissioner of finance must 
2.8 	allocate moneyshall transfer up to $50,000,000 to the following accounts and purposes in 
2.9 	priority order:
2.10 	(1) the cash flow account established in subdivision 1 until that account reaches 
2.11 	$350,000,000;
2.12 	(2) the budget reserve account established in subdivision 1a until that account 
2.13 	reaches $653,000,000; an amount equal to five percent of forecast general fund spending 
2.14 	for the second year of the biennium.
2.15 	(3) the amount necessary to increase the aid payment schedule for school district 
2.16 	aids and credits payments in section 127A.45 to not more than 90 percent rounded to the 
2.17 	nearest tenth of a percent without exceeding the amount available and with any remaining 
2.18 	funds deposited in the budget reserve; and
2.19 	(4) the amount necessary to restore all or a portion of the net aid reductions under 
2.20 	section 127A.441 and to reduce the property tax revenue recognition shift under section 
2.21 	123B.75, subdivision 5, paragraph (c), and Laws 2003, First Special Session chapter 9, 
2.22 	article 5, section 34, as amended by Laws 2003, First Special Session chapter 23, section 
2.23 	20, by the same amount.
2.24 	(b) The amounts necessary to meet the requirements of this section are appropriated 
2.25 	from the general fund within two weeks after the forecast is released or, in the case of 
2.26 	transfers under paragraph (a), clauses (3) and (4), as necessary to meet the appropriations 
2.27 	schedules otherwise established in statute.
2.28 	(c) To the extent that a positive unrestricted budgetary general fund balance is 
2.29 	projected, appropriations under this section must be made before section 16A.1522 takes 
2.30 	effect.
2.31 	(d) The commissioner of finance shall certify the total dollar amount of the 
2.32 	reductions under paragraph (a), clauses (3) and (4), to the commissioner of education. The 
2.33 	commissioner of education shall increase the aid payment percentage and reduce the 
2.34 	property tax shift percentage by these amounts and apply those reductions to the current 
2.35 	fiscal year and thereafter.

3.1 	Sec. 3. Minnesota Statutes 2006, section 126C.10, subdivision 13a, is amended to read:
3.2 		Subd. 13a.Operating capital levy. To obtain operating capital revenue for fiscal 
3.3 	year 2007 and later, a district may levy an amount not more than the product of its 
3.4 	operating capital revenue for the fiscal year times the lesser of one or the ratio of its 
3.5 	adjusted net tax capacity per adjusted marginal cost pupil unit to the operating capital 
3.6 	equalizing factor. The operating capital equalizing factor equals $22,222 for fiscal year 
3.7 	2006, and $10,700 for fiscal year 20072008 and $17,590 for fiscal year 2009 and later.

3.8 	EFFECTIVE DATE. This section is effective for revenue for fiscal year 2009.

3.9 	Sec. 4. Minnesota Statutes 2006, section 273.1384, subdivision 1, is amended to read:
3.10 		Subdivision 1.Residential homestead market value credit. Each county auditor 
3.11 	shall determine a homestead credit for each class 1a, 1b, and 2a homestead property within 
3.12 	the county equal to 0.4 percent of the first $76,000 of market value of the property minus 
3.13 	.09 percent of the market value in excess of $76,000 $118,000. The credit amount may 
3.14 	not be less than zero. In the case of an agricultural or resort homestead, only the market 
3.15 	value of the house, garage, and immediately surrounding one acre of land is eligible in 
3.16 	determining the property's homestead credit. In the case of a property that is classified as 
3.17 	part homestead and part nonhomestead, (i) the credit shall apply only to the homestead 
3.18 	portion of the property, but (ii) if a portion of a property is classified as nonhomestead 
3.19 	solely because not all the owners occupy the property, not all the owners have qualifying 
3.20 	relatives occupying the property, or solely because not all the spouses of owners occupy 
3.21 	the property, the credit amount shall be initially computed as if that nonhomestead portion 
3.22 	were also in the homestead class and then prorated to the owner-occupant's percentage 
3.23 	of ownership. For the purpose of this section, when an owner-occupant's spouse does 
3.24 	not occupy the property, the percentage of ownership for the owner-occupant spouse is 
3.25 	one-half of the couple's ownership percentage.

3.26 	EFFECTIVE DATE. This section is effective for taxes payable in 2008 and 
3.27 	thereafter.

3.28 	Sec. 5. Minnesota Statutes 2006, section 275.70, subdivision 3, is amended to read:
3.29 		Subd. 3.Local governmental unit. "Local governmental unit" means a county, 
3.30 	or a statutory or home rule charter city with a population greater than 2,500 for which 
3.31 	more than 33 percent of the county's or city's levy plus aid base including special levies 
3.32 	consists of aid.

4.1 	EFFECTIVE DATE. This section is effective for taxes payable in 2008 and 
4.2 	thereafter.

4.3 	Sec. 6. Minnesota Statutes 2006, section 275.70, subdivision 5, is amended to read:
4.4 		Subd. 5.Special levies. "Special levies" means those portions of ad valorem taxes 
4.5 	levied by a local governmental unit for the following purposes or in the following manner:
4.6 	(1) to pay the costs of the principal and interest on bonded indebtedness or to 
4.7 	reimburse for the amount of liquor store revenues used to pay the principal and interest 
4.8 	due on municipal liquor store bonds in the year preceding the year for which the levy 
4.9 	limit is calculated;
4.10 	(2) to pay the costs of principal and interest on certificates of indebtedness issued for 
4.11 	any corporate purpose except for the following:
4.12 	(i) tax anticipation or aid anticipation certificates of indebtedness;
4.13 	(ii) certificates of indebtedness issued under sections 298.28 and 298.282;
4.14 	(iii) certificates of indebtedness used to fund current expenses or to pay the costs of 
4.15 	extraordinary expenditures that result from a public emergency; or
4.16 	(iv) certificates of indebtedness used to fund an insufficiency in tax receipts or 
4.17 	an insufficiency in other revenue sources;
4.18 	(3) to provide for the bonded indebtedness portion of payments made to another 
4.19 	political subdivision of the state of Minnesota;
4.20 	(4) to fund payments made to the Minnesota State Armory Building Commission 
4.21 	under section 193.145, subdivision 2, to retire the principal and interest on armory 
4.22 	construction bonds;
4.23 	(5) property taxes approved by voters which are levied against the referendum 
4.24 	market value as provided under section 275.61;
4.25 	(6) to fund matching requirements needed to qualify for federal or state grants or 
4.26 	programs to the extent that either (i) the matching requirement exceeds the matching 
4.27 	requirement in calendar year 2001 2007, or (ii) it is a new matching requirement that 
4.28 	did not exist prior to 2002 2008;
4.29 	(7) to pay the expenses reasonably and necessarily incurred in preparing for or 
4.30 	repairing the effects of natural disaster including the occurrence or threat of widespread 
4.31 	or severe damage, injury, or loss of life or property resulting from natural causes, in 
4.32 	accordance with standards formulated by the Emergency Services Division of the state 
4.33 	Department of Public Safety, as allowed by the commissioner of revenue under section 
4.34 	275.74, subdivision 2;
5.1 	(8) pay amounts required to correct an error in the levy certified to the county 
5.2 	auditor by a city or county in a levy year, but only to the extent that when added to the 
5.3 	preceding year's levy it is not in excess of an applicable statutory, special law or charter 
5.4 	limitation, or the limitation imposed on the governmental subdivision by sections 275.70
5.5 	to 275.74 in the preceding levy year;
5.6 	(9) to pay an abatement under section 469.1815;
5.7 	(10) to pay any costs attributable to increases in the employer contribution rates 
5.8 	under chapter 353 that are effective after June 30, 2001 2006;
5.9 	(11) to pay the operating or maintenance costs of a county jail as authorized in 
5.10 	section 641.01 or 641.262, or of a correctional facility as defined in section 241.021, 
5.11 	subdivision 1, paragraph (f), to the extent that the county can demonstrate to the 
5.12 	commissioner of revenue that the amount has been included in the county budget as 
5.13 	a direct result of a rule, minimum requirement, minimum standard, or directive of the 
5.14 	Department of Corrections, or to pay the operating or maintenance costs of a regional jail 
5.15 	as authorized in section 641.262. For purposes of this clause, a district court order is 
5.16 	not a rule, minimum requirement, minimum standard, or directive of the Department of 
5.17 	Corrections. If the county utilizes this special levy, except to pay operating or maintenance 
5.18 	costs of a new regional jail facility under sections 641.262 to 641.264 which will not 
5.19 	replace an existing jail facility, any amount levied by the county in the previous levy year 
5.20 	for the purposes specified under this clause and included in the county's previous year's 
5.21 	levy limitation computed under section 275.71, shall be deducted from the levy limit 
5.22 	base under section 275.71, subdivision 2, when determining the county's current year 
5.23 	levy limitation. The county shall provide the necessary information to the commissioner 
5.24 	of revenue for making this determination;
5.25 	(12) to pay for operation of a lake improvement district, as authorized under section 
5.26 	103B.555. If the county utilizes this special levy, any amount levied by the county in the 
5.27 	previous levy year for the purposes specified under this clause and included in the county's 
5.28 	previous year's levy limitation computed under section 275.71 shall be deducted from 
5.29 	the levy limit base under section 275.71, subdivision 2, when determining the county's 
5.30 	current year levy limitation. The county shall provide the necessary information to the 
5.31 	commissioner of revenue for making this determination;
5.32 	(13) to repay a state or federal loan used to fund the direct or indirect required 
5.33 	spending by the local government due to a state or federal transportation project or other 
5.34 	state or federal capital project. This authority may only be used if the project is not a 
5.35 	local government initiative;
6.1 	(14) to pay for court administration costs as required under section 273.1398, 
6.2 	subdivision 4b, less the (i) county's share of transferred fines and fees collected by the 
6.3 	district courts in the county for in the prior calendar year 2001 and (ii) the aid amount 
6.4 	certified to be paid to the county in 2004 under section 273.1398, subdivision 4c; however, 
6.5 	for taxes levied to pay for these costs in the year in which the court financing is transferred 
6.6 	to the state, the amount under this clause is limited to the amount of aid the county is 
6.7 	certified to receive under section 273.1398, subdivision 4a;
6.8 	(15) to fund a police or firefighters relief association as required under section 69.77
6.9 	to the extent that the required amount exceeds the amount levied for this purpose in 2001
6.10 	the prior year;
6.11 	(16) for purposes of a storm sewer improvement district under section 444.20; and
6.12 	(17) to pay for the maintenance and support of a city or county society for the 
6.13 	prevention of cruelty to animals under section 343.11. If the city or county uses this special 
6.14 	levy, any amount levied by the city or county in the previous levy year for the purposes 
6.15 	specified in this clause and included in the city's or county's previous year's levy limit 
6.16 	computed under section 275.71, must be deducted from the levy limit base under section 
6.17 	275.71, subdivision 2, in determining the city's or county's current year levy limit; and
6.18 	(18) to pay the increase in unreimbursed targeted case management costs over the 
6.19 	unreimbursed costs for 2006.

6.20 	EFFECTIVE DATE. This section is effective for taxes payable in 2008 and 
6.21 	thereafter.

6.22 	Sec. 7. Minnesota Statutes 2006, section 275.70, is amended by adding a subdivision 
6.23 	to read:
6.24 		Subd. 7.Levy year. A reference in sections 275.70 to 275.74 to a "levy year," or a 
6.25 	year in which taxes are levied, refers to the year in which property tax levies are certified 
6.26 	under section 275.07 for taxes payable in the following year.

6.27 	EFFECTIVE DATE. This section is effective for taxes payable in 2008 and 
6.28 	thereafter.

6.29 	Sec. 8. Minnesota Statutes 2006, section 275.71, subdivision 1, is amended to read:
6.30 		Subdivision 1.Limit on levies. Notwithstanding any other provision of law or 
6.31 	municipal charter to the contrary which authorize ad valorem taxes in excess of the limits 
6.32 	established by sections 275.70 to 275.74, the provisions of this section sections 275.70 
7.1 	to 275.74 apply to local governmental units for all purposes other than those for which 
7.2 	special levies and special assessments are made. 

7.3 	EFFECTIVE DATE. This section is effective for taxes payable in 2008 and 
7.4 	thereafter.

7.5 	Sec. 9. Minnesota Statutes 2006, section 275.71, subdivision 2, is amended to read:
7.6 		Subd. 2.Levy limit base. The levy limit base for a local governmental unit for taxes 
7.7 	levied in 2003 2007 and thereafter is equal to its adjusted levy limit base in the previous 
7.8 	year,(i) the amount it levied in the prior year; plus (ii) the sum of the aids it was certified to 
7.9 	receive in the current year under sections 298.28, 298.282, and 477A.011 to 477A.03, plus 
7.10 	any state aid for federally unreimbursed targeted case management costs, subject to any 
7.11 	adjustments under section 275.72, plus any aid amounts received in 2003 under section 
7.12 	273.138 or 273.166, minus the difference between its levy limit under subdivision 5 for 
7.13 	taxes levied in 2002 and the amount it actually levied under that subdivision in that year, 
7.14 	and certified property tax replacement aid payable in 2003 under section 174.242; less (iii) 
7.15 	the amount it levied in the prior year as special levies. For taxes levied in 2007, the amount 
7.16 	under clause (iii) may include amounts that could have been levied as special levies. 

7.17 	EFFECTIVE DATE. This section is effective for taxes payable in 2008 and 
7.18 	thereafter.

7.19 	Sec. 10. Minnesota Statutes 2006, section 275.71, subdivision 4, is amended to read:
7.20 		Subd. 4.Adjusted levy limit base. (a) For taxes levied in 2003 2007 and thereafter, 
7.21 	the adjusted levy limit base for a local government unit is equal to the levy limit base 
7.22 	computed under subdivisions subdivision 2 and 3 or section 275.72, reduced by 40 percent 
7.23 	of the difference between (1) the sum of 2003 certified aid payments, under sections 
7.24 	273.138, 273.1398 except for amounts certified under subdivision 4a, paragraph (b), 
7.25 	273.166, 477A.011 to 477A.03, 477A.06, and 477A.07, before any reduction under Laws 
7.26 	2003, First Special Session chapter 21, articles 5 and 6, and (2) the sum of the aids paid 
7.27 	in 2004 under those same sections, after any reductions in 2004 under Laws 2003, First 
7.28 	Special Session chapter 21, articles 5 and 6. 
7.29 	(b) For taxes levied in 2003 only, the adjusted levy limit base is increased by 60 
7.30 	percent of the difference between a jurisdiction's market value credit in 2003 before any 
7.31 	reductions under Laws 2003, First Special Session chapter 21, articles 5 and 6, and its 
7.32 	market value credit in 2004 after reductions in Laws 2003, First Special Session chapter 
7.33 	21, articles 5 and 6.for that government unit for the same levy year, multiplied by:
8.1 	(1) 100 percent plus a percentage equal to the percentage growth in the implicit 
8.2 	price deflator; and
8.3 	(2) 100 percent plus a percentage equal to the percentage increase in the number of 
8.4 	households, if any, for the most recent 12-month period for which data is available.

8.5 	EFFECTIVE DATE. This section is effective for taxes payable in 2008 and 
8.6 	thereafter.

8.7 	Sec. 11. Minnesota Statutes 2006, section 275.71, subdivision 5, is amended to read:
8.8 		Subd. 5.Property tax levy limit. For taxes levied in 2003 2007 and thereafter, the 
8.9 	property tax levy limit for a local governmental unit is equal to its adjusted levy limit base 
8.10 	determined under subdivision 4 plus any additional levy authorized under section 275.73, 
8.11 	which is levied against net tax capacity, reduced by the sum of 
8.12 	(i) the total amount of aids and reimbursements that the local governmental unit is 
8.13 	certified to receive under sections 477A.011 to 477A.014, except for the increases in city 
8.14 	aid bases in calendar year 2002 under section 477A.011, subdivision 36, paragraphs 
8.15 	(l), (n), and (o) 477A.03,
8.16 	(ii) homestead and agricultural aids it is certified to receive under section 273.1398,
8.17 	(iii) (ii) taconite aids under sections 298.28 and 298.282 including any aid which 
8.18 	was required to be placed in a special fund for expenditure in the next succeeding year, 
8.19 	(iv) temporary court aid under section 273.1398, subdivision 4a, and 
8.20 	(v) (iii) estimated payments to the local governmental unit under section 272.029, 
8.21 	adjusted for any error in estimation in the preceding year, and
8.22 	(iv) state aid for targeted case management costs.

8.23 	EFFECTIVE DATE. This section is effective for taxes payable in 2008 and 
8.24 	thereafter.

8.25 	Sec. 12. Minnesota Statutes 2006, section 290.01, subdivision 19b, is amended to read:
8.26 		Subd. 19b.Subtractions from federal taxable income. For individuals, estates, 
8.27 	and trusts, there shall be subtracted from federal taxable income:
8.28 	(1) net interest income on obligations of any authority, commission, or 
8.29 	instrumentality of the United States to the extent includable in taxable income for federal 
8.30 	income tax purposes but exempt from state income tax under the laws of the United States;
8.31 	(2) if included in federal taxable income, the amount of any overpayment of income 
8.32 	tax to Minnesota or to any other state, for any previous taxable year, whether the amount 
8.33 	is received as a refund or as a credit to another taxable year's income tax liability;
9.1 	(3) the amount paid to others, less the amount used to claim the credit allowed under 
9.2 	section 290.0674, not to exceed $1,625 for each qualifying child in grades kindergarten 
9.3 	to 6 and $2,500 for each qualifying child in grades 7 to 12, for tuition, textbooks, and 
9.4 	transportation of each qualifying child in attending an elementary or secondary school 
9.5 	situated in Minnesota, North Dakota, South Dakota, Iowa, or Wisconsin, wherein a 
9.6 	resident of this state may legally fulfill the state's compulsory attendance laws, which 
9.7 	is not operated for profit, and which adheres to the provisions of the Civil Rights Act 
9.8 	of 1964 and chapter 363A. For the purposes of this clause, "tuition" includes fees or 
9.9 	tuition as defined in section 290.0674, subdivision 1, clause (1). As used in this clause, 
9.10 	"textbooks" includes books and other instructional materials and equipment purchased 
9.11 	or leased for use in elementary and secondary schools in teaching only those subjects 
9.12 	legally and commonly taught in public elementary and secondary schools in this state. 
9.13 	Equipment expenses qualifying for deduction includes expenses as defined and limited in 
9.14 	section 290.0674, subdivision 1, clause (3). "Textbooks" does not include instructional 
9.15 	books and materials used in the teaching of religious tenets, doctrines, or worship, the 
9.16 	purpose of which is to instill such tenets, doctrines, or worship, nor does it include books 
9.17 	or materials for, or transportation to, extracurricular activities including sporting events, 
9.18 	musical or dramatic events, speech activities, driver's education, or similar programs. For 
9.19 	purposes of the subtraction provided by this clause, "qualifying child" has the meaning 
9.20 	given in section 32(c)(3) of the Internal Revenue Code;
9.21 	(4) income as provided under section 290.0802;
9.22 	(5) to the extent included in federal adjusted gross income, income realized on 
9.23 	disposition of property exempt from tax under section 290.491;
9.24 	(6) to the extent not deducted in determining federal taxable income by an individual 
9.25 	who does not itemize deductions for federal income tax purposes for the taxable year, an 
9.26 	amount equal to 50 percent of the excess of charitable contributions over $500 allowable 
9.27 	as a deduction for the taxable year under section 170(a) of the Internal Revenue Code and 
9.28 	under the provisions of Public Law 109-1;
9.29 	(7) for taxable years beginning before January 1, 2008, the amount of the federal 
9.30 	small ethanol producer credit allowed under section 40(a)(3) of the Internal Revenue Code 
9.31 	which is included in gross income under section 87 of the Internal Revenue Code;
9.32 	(8) for individuals who are allowed a federal foreign tax credit for taxes that do not 
9.33 	qualify for a credit under section 290.06, subdivision 22, an amount equal to the carryover 
9.34 	of subnational foreign taxes for the taxable year, but not to exceed the total subnational 
9.35 	foreign taxes reported in claiming the foreign tax credit. For purposes of this clause, 
9.36 	"federal foreign tax credit" means the credit allowed under section 27 of the Internal 
10.1 	Revenue Code, and "carryover of subnational foreign taxes" equals the carryover allowed 
10.2 	under section 904(c) of the Internal Revenue Code minus national level foreign taxes to 
10.3 	the extent they exceed the federal foreign tax credit;
10.4 	(9) in each of the five tax years immediately following the tax year in which an 
10.5 	addition is required under subdivision 19a, clause (7), or 19c, clause (15), in the case 
10.6 	of a shareholder of a corporation that is an S corporation, an amount equal to one-fifth 
10.7 	of the delayed depreciation. For purposes of this clause, "delayed depreciation" means 
10.8 	the amount of the addition made by the taxpayer under subdivision 19a, clause (7), or 
10.9 	subdivision 19c, clause (15), in the case of a shareholder of an S corporation, minus the 
10.10 	positive value of any net operating loss under section 172 of the Internal Revenue Code 
10.11 	generated for the tax year of the addition. The resulting delayed depreciation cannot be 
10.12 	less than zero;
10.13 	(10) job opportunity building zone income as provided under section 469.316;
10.14 	(11) the amount of compensation paid to members of the Minnesota National Guard 
10.15 	or other reserve components of the United States military for active service performed 
10.16 	in Minnesota, excluding compensation for services performed under the Active Guard 
10.17 	Reserve (AGR) program. For purposes of this clause, "active service" means (i) state 
10.18 	active service as defined in section 190.05, subdivision 5a, clause (1); (ii) federally 
10.19 	funded state active service as defined in section 190.05, subdivision 5b; or (iii) federal 
10.20 	active service as defined in section 190.05, subdivision 5c, but "active service" excludes 
10.21 	services performed exclusively for purposes of basic combat training, advanced individual 
10.22 	training, annual training, and periodic inactive duty training; special training periodically 
10.23 	made available to reserve members; and service performed in accordance with section 
10.24 	190.08, subdivision 3;
10.25 	(12) the amount of compensation paid to Minnesota residents who are members 
10.26 	of the armed forces of the United States or United Nations for active duty performed 
10.27 	outside Minnesota;
10.28 	(13) an amount, not to exceed $10,000, equal to qualified expenses related to a 
10.29 	qualified donor's donation, while living, of one or more of the qualified donor's organs 
10.30 	to another person for human organ transplantation. For purposes of this clause, "organ" 
10.31 	means all or part of an individual's liver, pancreas, kidney, intestine, lung, or bone marrow; 
10.32 	"human organ transplantation" means the medical procedure by which transfer of a human 
10.33 	organ is made from the body of one person to the body of another person; "qualified 
10.34 	expenses" means unreimbursed expenses for both the individual and the qualified donor 
10.35 	for (i) travel, (ii) lodging, and (iii) lost wages net of sick pay, except that such expenses 
10.36 	may be subtracted under this clause only once; and "qualified donor" means the individual 
11.1 	or the individual's dependent, as defined in section 152 of the Internal Revenue Code. An 
11.2 	individual may claim the subtraction in this clause for each instance of organ donation for 
11.3 	transplantation during the taxable year in which the qualified expenses occur;
11.4 	(14) in each of the five tax years immediately following the tax year in which an 
11.5 	addition is required under subdivision 19a, clause (8), or 19c, clause (16), in the case of a 
11.6 	shareholder of a corporation that is an S corporation, an amount equal to one-fifth of the 
11.7 	addition made by the taxpayer under subdivision 19a, clause (8), or 19c, clause (16), in the 
11.8 	case of a shareholder of a corporation that is an S corporation, minus the positive value of 
11.9 	any net operating loss under section 172 of the Internal Revenue Code generated for the 
11.10 	tax year of the addition. If the net operating loss exceeds the addition for the tax year, a 
11.11 	subtraction is not allowed under this clause;
11.12 	(15) to the extent included in federal taxable income, compensation paid to a 
11.13 	nonresident who is a service member as defined in United States Code, title 10, section 
11.14 	101(a)(5), for military service as defined in the Service Member Civil Relief Act, Public 
11.15 	Law 108-189, section 101(2); and
11.16 	(16) international economic development zone income as provided under section 
11.17 	469.325.; and
11.18 	(17) to the extent included in federal taxable income, a percentage of compensation 
11.19 	received from a pension or other retirement pay from the government for service in the 
11.20 	armed forces of the United States, up to a maximum amount. For taxable years beginning 
11.21 	after December 31, 2006, and before January 1, 2008, the percentage is 25 percent and 
11.22 	the maximum amount is $7,500; for taxable years beginning after December 31, 2007, 
11.23 	and before January 1, 2009, the percentage is 50 percent and the maximum amount is 
11.24 	$15,000; for taxable years beginning after December 31, 2008, and before January 1, 
11.25 	2010, the percentage is 75 percent and the maximum amount is $22,500; and for taxable 
11.26 	years beginning after December 31, 2009, the percentage is 100 percent and there is no 
11.27 	maximum amount.

11.28 	EFFECTIVE DATE. This section is effective for tax years beginning after 
11.29 	December 31, 2006, except that the changes in clauses (11) and (12) are phased in over 
11.30 	the tax years beginning after December 31, 2006, and before December 31, 2009. For 
11.31 	tax years beginning after December 31, 2006, and before January 1, 2008, 25 percent 
11.32 	of the compensation affected by the changes in clauses (11) and (12) are an allowable 
11.33 	subtraction. For the tax year beginning after December 31, 2007, and before January 1, 
11.34 	2009, 50 percent is allowed. For the tax year beginning after December 31, 2008, and 
11.35 	before January 1, 2010, 75 percent is allowed. For tax years beginning after December 
11.36 	31, 2009, 100 percent is allowed.

12.1 	Sec. 13. Minnesota Statutes 2006, section 290.06, is amended by adding a subdivision 
12.2 	to read:
12.3 		Subd. 34.Dairy investment credit. (a) A dairy investment credit is allowed against 
12.4 	the tax due under this chapter equal to ten percent of the amount paid or incurred by the 
12.5 	taxpayer, on the first $500,000 of qualifying expenditures made in the qualifying period.
12.6 	(b) "Qualifying expenditures" means for purposes of this subdivision the amount 
12.7 	spent for the acquisition, construction, or improvement of buildings or facilities, or the 
12.8 	acquisition of equipment, for dairy animal housing, confinement, animal feeding, milk 
12.9 	production, and waste management, including the following, if related to dairy animals in 
12.10 	this state:
12.11 	(1) freestall barns;
12.12 	(2) fences;
12.13 	(3) watering facilities;
12.14 	(4) feed storage and handling equipment;
12.15 	(5) milking parlors;
12.16 	(6) robotic equipment;
12.17 	(7) scales;
12.18 	(8) milk storage and cooling facilities;
12.19 	(9) bulk tanks;
12.20 	(10) manure pumping and storage facilities;
12.21 	(11) digesters; and
12.22 	(12) equipment used to produce energy.
12.23 	Qualified expenditures only include amounts that are capitalized and deducted 
12.24 	under either section 167 or 179 of the Internal Revenue Code in computing federal 
12.25 	taxable income.
12.26 	(c) The credit is limited to the liability for tax, as computed under this chapter for the 
12.27 	taxable year. If the amount of the credit determined under this section for any taxable year 
12.28 	exceeds this limitation, the excess is a dairy investment credit carryover to each of the 15 
12.29 	succeeding taxable years. The entire amount of the excess unused credit for the taxable 
12.30 	year is carried first to the earliest of the taxable years to which the credit may be carried 
12.31 	and then to each successive year to which the credit may be carried. The amount of the 
12.32 	unused credit which may be added under this paragraph shall not exceed the taxpayer's 
12.33 	liability for tax less the dairy investment credit for the taxable year.
12.34 	(d) The qualifying period is that time after December 31, 2006, and before January 
12.35 	1, 2013.
13.1 	(e) The $50,000 maximum credit applies at the entity level for partnerships, S 
13.2 	corporations, trusts, and estates as well as at the individual level. In the case of married 
13.3 	individuals, the credit is limited to $50,000 for a married couple.

13.4 	EFFECTIVE DATE. This section is effective for tax years beginning after 
13.5 	December 31, 2006.

13.6 	Sec. 14. Minnesota Statutes 2006, section 290.06, is amended by adding a subdivision 
13.7 	to read:
13.8 		Subd. 35.Regional investment credit. (a) A credit is allowed against the tax 
13.9 	imposed by this chapter for investment in a qualified regional angel investment network 
13.10 	fund. The credit equals 25 percent of the taxpayer's investment made in the fund, but not 
13.11 	to exceed the lesser of:
13.12 	(1) the liability for tax under this chapter, including the applicable alternative 
13.13 	minimum tax; or
13.14 	(2) the taxpayer's share of the amount of the certificate issued to the fund by the 
13.15 	commissioner of employment and economic development under paragraph (c).
13.16 	The taxpayer must claim the credit in the same tax year in which the investment 
13.17 	to the fund is made. The credit is allowed only for investments made to a fund that are 
13.18 	made after the fund has been certified by the commissioner of employment and economic 
13.19 	development under paragraph (c).
13.20 	(b) For purposes of this subdivision, a regional angel investment network fund 
13.21 	means a pool investment fund that:
13.22 	(1) is organized as a limited liability company and consists of members who are 
13.23 	accredited investors within the meaning of Regulation D of the Securities and Exchange 
13.24 	Commission, Code of Federal Regulations, title 17, section 230.501(a); or consists of 
13.25 	members that are not accredited investors that make equity investments or investments in 
13.26 	notes that pay interest or other fixed amounts or any combination of both;
13.27 	(2) primarily makes investments in qualified small business ventures as defined in 
13.28 	paragraph (f);
13.29 	(3) has no fewer than five separate investors and no investor owns more than 25 
13.30 	percent of the outstanding ownership interests in the fund. For purposes of determining 
13.31 	the number of investors and the ownership interest of an investor under this clause, the 
13.32 	ownership interests of an investor include those of:
13.33 	(i) the investor's spouse, a child, and sibling; and
13.34 	(ii) a corporation, partnership, or trust in which the investor has a controlling equity 
13.35 	interest or in which the investor exercises management control.
14.1 	(c) Regional angel investment network funds may apply to the commissioner 
14.2 	of employment and economic development for certification as a qualifying regional 
14.3 	angel investment network fund. The application must be in the form and made under 
14.4 	procedures specified by the commissioner of employment and economic development. 
14.5 	The commissioner of employment and economic development may certify up to 20 
14.6 	funds and may provide certificates entitling investors in each fund to tax credits under 
14.7 	this subdivision of up to $600,000 for each fund. The commissioner of employment 
14.8 	and economic development must not issue a total amount of certificates for all funds of 
14.9 	more than $6,000,000. In awarding certificates under this paragraph, the commissioner 
14.10 	of employment and economic development shall generally award them to qualified 
14.11 	applicants in the order in which the applications are received, but shall also seek to certify 
14.12 	funds that are broadly dispersed across the entire state.
14.13 	(d) Each fund must provide each investor a statement indicating the investor's share 
14.14 	of the credit amount certified to the fund under paragraph (c) based on the order in which 
14.15 	that investor's investment is made to the fund.
14.16 	(e) If the amount of the credit under this subdivision for any taxable year exceeds 
14.17 	the limitation under paragraph (a), clause (1), the excess is a credit carryover to each of 
14.18 	the ten succeeding taxable years. The entire amount of the excess unused credit for the 
14.19 	taxable year must be carried first to the earliest of the taxable years to which the credit 
14.20 	may be carried, and then to each successive year to which the credit may be carried. The 
14.21 	amount of the unused credit which may be added under this paragraph may not exceed the 
14.22 	taxpayer's liability for tax less the credit for the taxable year.
14.23 	(f) A business is a qualified small business venture for purposes of this subdivision 
14.24 	only if the business satisfies the following conditions:
14.25 	(1) the business is engaged in, or is committed to engage in, manufacturing, 
14.26 	agriculture, processing or assembling products, conducting research and development, or 
14.27 	developing a new product or business process;
14.28 	(2) the business is not engaged in real estate development, insurance, banking, 
14.29 	lending, lobbying, political consulting, wholesale or retail trade, leisure, hospitality, 
14.30 	transportation, construction, or professional services provided by attorneys, accountants, 
14.31 	business consultants, physicians, or health care consultants;
14.32 	(3) the business has its headquarters in Minnesota;
14.33 	(4) at least 51 percent of the business's employees are employed in Minnesota;
14.34 	(5) the business has less than 100 employees;
14.35 	(6) the business has not been in operation for more than ten consecutive years;
15.1 	(7) the business has not received more than $1,000,000 in investments that have 
15.2 	qualified for and received tax credits under this subdivision; and
15.3 	(8) the business is not part of a unitary business that employs more than 100 
15.4 	employees.
15.5 	A business that does not meet all of the conditions in clauses (3) through (8) is 
15.6 	not a qualified small business venture unless the commissioner of employment and 
15.7 	economic development determines, prior to the investment by the fund, that the business 
15.8 	is a small business as defined by the small business administration, or by other criteria 
15.9 	in Minnesota law.

15.10 	EFFECTIVE DATE. This section is effective the day following final enactment.

15.11 	Sec. 15. Minnesota Statutes 2006, section 290.091, subdivision 2, is amended to read:
15.12 		Subd. 2.Definitions. For purposes of the tax imposed by this section, the following 
15.13 	terms have the meanings given:
15.14 	(a) "Alternative minimum taxable income" means the sum of the following for 
15.15 	the taxable year:
15.16 	(1) the taxpayer's federal alternative minimum taxable income as defined in section 
15.17 	55(b)(2) of the Internal Revenue Code;
15.18 	(2) the taxpayer's itemized deductions allowed in computing federal alternative 
15.19 	minimum taxable income, but excluding:
15.20 	(i) the charitable contribution deduction under section 170 of the Internal Revenue 
15.21 	Code:
15.22 	(A) for taxable years beginning before January 1, 2006, to the extent that the 
15.23 	deduction exceeds 1.0 percent of adjusted gross income;
15.24 	(B) for taxable years beginning after December 31, 2005, to the full extent of the 
15.25 	deduction.
15.26 	For purposes of this clause, "adjusted gross income" has the meaning given in 
15.27 	section 62 of the Internal Revenue Code;
15.28 	(ii) the medical expense deduction;
15.29 	(iii) the casualty, theft, and disaster loss deduction; and
15.30 	(iv) the impairment-related work expenses of a disabled person;
15.31 	(3) for depletion allowances computed under section 613A(c) of the Internal 
15.32 	Revenue Code, with respect to each property (as defined in section 614 of the Internal 
15.33 	Revenue Code), to the extent not included in federal alternative minimum taxable income, 
15.34 	the excess of the deduction for depletion allowable under section 611 of the Internal 
16.1 	Revenue Code for the taxable year over the adjusted basis of the property at the end of the 
16.2 	taxable year (determined without regard to the depletion deduction for the taxable year);
16.3 	(4) to the extent not included in federal alternative minimum taxable income, the 
16.4 	amount of the tax preference for intangible drilling cost under section 57(a)(2) of the 
16.5 	Internal Revenue Code determined without regard to subparagraph (E);
16.6 	(5) to the extent not included in federal alternative minimum taxable income, the 
16.7 	amount of interest income as provided by section 290.01, subdivision 19a, clause (1); and
16.8 	(6) the amount of addition required by section 290.01, subdivision 19a, clauses 
16.9 	(7), (8), and (9);
16.10 	less the sum of the amounts determined under the following:
16.11 	(1) interest income as defined in section 290.01, subdivision 19b, clause (1);
16.12 	(2) an overpayment of state income tax as provided by section 290.01, subdivision 
16.13 	19b, clause (2), to the extent included in federal alternative minimum taxable income;
16.14 	(3) the amount of investment interest paid or accrued within the taxable year on 
16.15 	indebtedness to the extent that the amount does not exceed net investment income, as 
16.16 	defined in section 163(d)(4) of the Internal Revenue Code. Interest does not include 
16.17 	amounts deducted in computing federal adjusted gross income; and
16.18 	(4) amounts subtracted from federal taxable income as provided by section 290.01, 
16.19 	subdivision 19b, clauses (9) to (16) (17).
16.20 	In the case of an estate or trust, alternative minimum taxable income must be 
16.21 	computed as provided in section 59(c) of the Internal Revenue Code.
16.22 	(b) "Investment interest" means investment interest as defined in section 163(d)(3) 
16.23 	of the Internal Revenue Code.
16.24 	(c) "Tentative minimum tax" equals 6.4 percent of alternative minimum taxable 
16.25 	income after subtracting the exemption amount determined under subdivision 3.
16.26 	(d) "Regular tax" means the tax that would be imposed under this chapter (without 
16.27 	regard to this section and section 290.032), reduced by the sum of the nonrefundable 
16.28 	credits allowed under this chapter.
16.29 	(e) "Net minimum tax" means the minimum tax imposed by this section.

16.30 	EFFECTIVE DATE. This section is effective for tax years beginning after 
16.31 	December 31, 2006.

16.32 	Sec. 16. Minnesota Statutes 2006, section 290.191, subdivision 2, is amended to read:
16.33 		Subd. 2.Apportionment formula of general application. (a) Except for those 
16.34 	trades or businesses required to use a different formula under subdivision 3 or section 
16.35 	290.36, and for those trades or businesses that receive permission to use some other 
17.1 	method under section 290.20 or under subdivision 4, a trade or business required to 
17.2 	apportion its net income must apportion its income to this state on the basis of the 
17.3 	percentage obtained by taking the sum of:
17.4 	(1) the percent for the sales factor under paragraph (b) of the percentage which 
17.5 	the sales made within this state in connection with the trade or business during the tax 
17.6 	period are of the total sales wherever made in connection with the trade or business during 
17.7 	the tax period;
17.8 	(2) the percent for the property factor under paragraph (b) of the percentage which 
17.9 	the total tangible property used by the taxpayer in this state in connection with the trade or 
17.10 	business during the tax period is of the total tangible property, wherever located, used by 
17.11 	the taxpayer in connection with the trade or business during the tax period; and
17.12 	(3) the percent for the payroll factor under paragraph (b) of the percentage which 
17.13 	the taxpayer's total payrolls paid or incurred in this state or paid in respect to labor 
17.14 	performed in this state in connection with the trade or business during the tax period are 
17.15 	of the taxpayer's total payrolls paid or incurred in connection with the trade or business 
17.16 	during the tax period.
17.17 	(b) For purposes of paragraph (a) and subdivision 3, the following percentages apply 
17.18 	for the taxable years specified:

17.19
17.20
17.21
17.22	Taxable years 
beginning 
during 
calendar year
		Sales 
factor 
percent
		Property 
factor 
percent
		Payroll 
factor 
percent
	
17.23	2007
		78
		11
		11
	
17.24	2008
		81 85
		9.5 7.5
		9.5 7.5
	
17.25	2009
		84 90
		8 5
		8 5
	
17.26	2010
		87 95
		6.5 2.5
		6.5 2.5
	
17.27	2011
		90
		5
		5
	
17.28	2012
		93
		3.5
		3.5
	
17.29	2013
		96
		2
		2
	
17.30
17.31	2014 and later 
calendar years
		100
		0
		0

17.32 	EFFECTIVE DATE. This section is effective for tax years beginning after 
17.33 	December 31, 2006.

17.34 	Sec. 17. Minnesota Statutes 2006, section 290A.04, subdivision 2, is amended to read:
17.35 		Subd. 2.Homeowners. A claimant whose property taxes payable are in excess 
17.36 	of the percentage of the household income stated below shall pay an amount equal to 
17.37 	the percent of income shown for the appropriate household income level along with the 
18.1 	percent to be paid by the claimant of the remaining amount of property taxes payable. 
18.2 	The state refund equals the amount of property taxes payable that remain, up to the state 
18.3 	refund amount shown below.

18.4
18.5	Household Income
	Percent of Income
	Percent Paid by 
Claimant
	Maximum State 
Refund

18.6
18.7	$0 to 1,189
	1.0 percent
	15 percent
		$1,450
$1,810
	
18.8
18.9	1,190 to 2,379
	1.1 percent
	15 percent
		$1,450
$1,810
	
18.10
18.11	2,380 to 3,589
	1.2 percent
	15 percent
		$1,410
$1,760
	
18.12
18.13	3,590 to 4,789
	1.3 percent
	20 percent
		$1,410
$1,760
	
18.14
18.15	4,790 to 5,979
	1.4 percent
	20 percent
		$1,360
$1,700
	
18.16
18.17	5,980 to 8,369
	1.5 percent
	20 percent
		$1,360
$1,700
	
18.18
18.19	8,370 to 9,559
	1.6 percent
	25 percent
		$1,310
$1,570
	
18.20
18.21	9,560 to 10,759
	1.7 percent
	25 percent
		$1,310
$1,570
	
18.22
18.23	10,760 to 11,949
	1.8 percent
	25 percent
		$1,260
$1,520
	
18.24
18.25	11,950 to 13,139
	1.9 percent
	30 percent
		$1,260
$1,520
	
18.26
18.27	13,140 to 14,349
	2.0 percent
	30 percent
		$1,210
$1,450
	
18.28
18.29	14,350 to 16,739
	2.1 percent
	30 percent
		$1,210
$1,450
	
18.30
18.31	16,740 to 17,929
	2.2 percent
	35 percent
		$1,160
$1,330
	
18.32
18.33	17,930 to 19,119
	2.3 percent
	35 percent
		$1,160
$1,330
	
18.34
18.35	19,120 to 20,319
	2.4 percent
	35 percent
		$1,110
$1,280
	
18.36
18.37	20,320 to 25,099
	2.5 percent
	40 percent
		$1,110
$1,280
	
18.38
18.39	25,100 to 28,679
	2.6 percent
	40 percent
		$1,070
$1,230
	
18.40
18.41	28,680 to 35,849
	2.7 percent
	40 percent
		$1,070
$1,230
	
18.42
18.43	35,850 to 41,819
	2.8 percent
	45 percent
		$ 970
$1,070
	
18.44
18.45	41,820 to 47,799
	3.0 percent
	45 percent
		$ 970
$1,070
	
18.46
18.47	47,800 to 53,779
	3.2 percent
	45 percent
		$ 870
$960
	
19.1
19.2	53,780 to 59,749
	3.5 percent
	50 percent
		$ 780
$860
	
19.3
19.4	59,750 to 65,729
	4.0 percent
	50 percent
		$ 680
$750
	
19.5
19.6	65,730 to 69,319
	4.0 percent
	50 percent
		$ 580
$640
	
19.7
19.8	69,320 to 71,719
	4.0 percent
	50 percent
		$ 480
$530
	
19.919.10
	71,720 to 74,619
	4.0 percent
	50 percent
		$ 390
$430
	
19.11
19.12	74,620 to 77,519
	4.0 percent
	50 percent
		$ 290
$320
	
19.13 	The payment made to a claimant shall be the amount of the state refund calculated 
19.14 	under this subdivision. No payment is allowed if the claimant's household income is 
19.15 	$77,520 or more.

19.16 	EFFECTIVE DATE. This section is effective beginning with refunds based on 
19.17 	property taxes payable in 2008.

19.18 	Sec. 18. Minnesota Statutes 2006, section 297A.68, subdivision 5, is amended to read:
19.19 		Subd. 5.Capital equipment. (a) Capital equipment is exempt as follows:
19.20 	(1) For sales and purchases of capital equipment by the wood products industry, the 
19.21 	tax is not imposed.
19.22 	(2) For sales and purchases of capital equipment by a small business, the tax is 
19.23 	not imposed. For purposes of this subdivision, "small business" is as defined in section 
19.24 	645.455, subdivision 2.
19.25 	(3) For all other sales and purchases of capital equipment, the tax must be imposed 
19.26 	and collected as if the rate under section 297A.62, subdivision 1, applied, and then 
19.27 	refunded in the manner provided in section 297A.75.
19.28 	"Capital equipment" means machinery and equipment purchased or leased, and used 
19.29 	in this state by the purchaser or lessee primarily for manufacturing, fabricating, mining, 
19.30 	or refining tangible personal property to be sold ultimately at retail if the machinery and 
19.31 	equipment are essential to the integrated production process of manufacturing, fabricating, 
19.32 	mining, or refining. Capital equipment also includes machinery and equipment 
19.33 	used primarily to electronically transmit results retrieved by a customer of an online 
19.34 	computerized data retrieval system.
19.35 	(b) Capital equipment includes, but is not limited to:
19.36 	(1) machinery and equipment used to operate, control, or regulate the production 
19.37 	equipment;
20.1 	(2) machinery and equipment used for research and development, design, quality 
20.2 	control, and testing activities;
20.3 	(3) environmental control devices that are used to maintain conditions such as 
20.4 	temperature, humidity, light, or air pressure when those conditions are essential to and are 
20.5 	part of the production process;
20.6 	(4) materials and supplies used to construct and install machinery or equipment;
20.7 	(5) repair and replacement parts, including accessories, whether purchased as spare 
20.8 	parts, repair parts, or as upgrades or modifications to machinery or equipment;
20.9 	(6) materials used for foundations that support machinery or equipment;
20.10 	(7) materials used to construct and install special purpose buildings used in the 
20.11 	production process;
20.12 	(8) ready-mixed concrete equipment in which the ready-mixed concrete is mixed 
20.13 	as part of the delivery process regardless if mounted on a chassis, repair parts for 
20.14 	ready-mixed concrete trucks, and leases of ready-mixed concrete trucks; and
20.15 	(9) machinery or equipment used for research, development, design, or production 
20.16 	of computer software.
20.17 	(c) Capital equipment does not include the following:
20.18 	(1) motor vehicles taxed under chapter 297B;
20.19 	(2) machinery or equipment used to receive or store raw materials;
20.20 	(3) building materials, except for materials included in paragraph (b), clauses (6) 
20.21 	and (7);
20.22 	(4) machinery or equipment used for nonproduction purposes, including, but not 
20.23 	limited to, the following: plant security, fire prevention, first aid, and hospital stations; 
20.24 	support operations or administration; pollution control; and plant cleaning, disposal of 
20.25 	scrap and waste, plant communications, space heating, cooling, lighting, or safety;
20.26 	(5) farm machinery and aquaculture production equipment as defined by section 
20.27 	297A.61, subdivisions 12 and 13;
20.28 	(6) machinery or equipment purchased and installed by a contractor as part of an 
20.29 	improvement to real property;
20.30 	(7) machinery and equipment used by restaurants in the furnishing, preparing, or 
20.31 	serving of prepared foods as defined in section 297A.61, subdivision 31;
20.32 	(8) machinery and equipment used to furnish the services listed in section 297A.61, 
20.33 	subdivision 3, paragraph (g), clause (6), items (i) to (vi) and (viii);
20.34 	(9) machinery or equipment used in the transportation, transmission, or distribution 
20.35 	of petroleum, liquefied gas, natural gas, water, or steam, in, by, or through pipes, lines, 
20.36 	tanks, mains, or other means of transporting those products. This clause does not apply to 
21.1 	machinery or equipment used to blend petroleum or biodiesel fuel as defined in section 
21.2 	239.77; or
21.3 	(10) any other item that is not essential to the integrated process of manufacturing, 
21.4 	fabricating, mining, or refining.
21.5 	(d) For purposes of this subdivision:
21.6 	(1) "Equipment" means independent devices or tools separate from machinery but 
21.7 	essential to an integrated production process, including computers and computer software, 
21.8 	used in operating, controlling, or regulating machinery and equipment; and any subunit or 
21.9 	assembly comprising a component of any machinery or accessory or attachment parts of 
21.10 	machinery, such as tools, dies, jigs, patterns, and molds.
21.11 	(2) "Fabricating" means to make, build, create, produce, or assemble components or 
21.12 	property to work in a new or different manner.
21.13 	(3) "Integrated production process" means a process or series of operations through 
21.14 	which tangible personal property is manufactured, fabricated, mined, or refined. For 
21.15 	purposes of this clause, (i) manufacturing begins with the removal of raw materials 
21.16 	from inventory and ends when the last process prior to loading for shipment has been 
21.17 	completed; (ii) fabricating begins with the removal from storage or inventory of the 
21.18 	property to be assembled, processed, altered, or modified and ends with the creation 
21.19 	or production of the new or changed product; (iii) mining begins with the removal of 
21.20 	overburden from the site of the ores, minerals, stone, peat deposit, or surface materials and 
21.21 	ends when the last process before stockpiling is completed; and (iv) refining begins with 
21.22 	the removal from inventory or storage of a natural resource and ends with the conversion 
21.23 	of the item to its completed form.
21.24 	(4) "Machinery" means mechanical, electronic, or electrical devices, including 
21.25 	computers and computer software, that are purchased or constructed to be used for the 
21.26 	activities set forth in paragraph (a), beginning with the removal of raw materials from 
21.27 	inventory through completion of the product, including packaging of the product.
21.28 	(5) "Machinery and equipment used for pollution control" means machinery and 
21.29 	equipment used solely to eliminate, prevent, or reduce pollution resulting from an activity 
21.30 	described in paragraph (a).
21.31 	(6) "Manufacturing" means an operation or series of operations where raw materials 
21.32 	are changed in form, composition, or condition by machinery and equipment and which 
21.33 	results in the production of a new article of tangible personal property. For purposes of 
21.34 	this subdivision, "manufacturing" includes the generation of electricity or steam to be 
21.35 	sold at retail.
21.36 	(7) "Mining" means the extraction of minerals, ores, stone, or peat.
22.1 	(8) "Online data retrieval system" means a system whose cumulation of information 
22.2 	is equally available and accessible to all its customers.
22.3 	(9) "Primarily" means machinery and equipment used 50 percent or more of the time 
22.4 	in an activity described in paragraph (a).
22.5 	(10) "Refining" means the process of converting a natural resource to an intermediate 
22.6 	or finished product, including the treatment of water to be sold at retail.
22.7 	(11) "Wood products industry" means manufacturers of pulp, paper, and paperboard; 
22.8 	sawmills and planing mills; manufacturers of panel board including veneer, plywood, and 
22.9 	reconstituted wood products such as particleboard, waferboard, and oriented strandboard; 
22.10 	manufacturers of fabricated wood millwork; manufacturers of structural wood members; 
22.11 	and manufacturers of prefabricated wood buildings and components. For purposes of this 
22.12 	subdivision, "wood products industry" does not include logging; manufacturers of wood 
22.13 	cabinets, furniture, office or store fixtures, toys and playground equipment, caskets, or 
22.14 	miscellaneous wood products; manufacturers of wood containers; businesses engaged in 
22.15 	wood preserving; the operation of timber tracts or tree farms; forest nurseries and the 
22.16 	gathering of forest products; and forestry services related to timber production.
22.17 	(11) (12) This subdivision does not apply to telecommunications equipment as 
22.18 	provided in subdivision 35, and does not apply to wire, cable, fiber, poles, or conduit 
22.19 	for telecommunications services.

22.20 	EFFECTIVE DATE. This section is effective for sales and purchases made after 
22.21 	June 30, 2007.

22.22 	Sec. 19. Minnesota Statutes 2006, section 297A.70, subdivision 2, is amended to read:
22.23 		Subd. 2.Sales to government. (a) All sales, except those listed in paragraph (b), 
22.24 	to the following governments and political subdivisions, or to the listed agencies or 
22.25 	instrumentalities of governments and political subdivisions, are exempt:
22.26 	(1) the United States and its agencies and instrumentalities;
22.27 	(2) school districts, the University of Minnesota, state universities, community 
22.28 	colleges, technical colleges, state academies, the Perpich Minnesota Center for Arts 
22.29 	Education, and an instrumentality of a political subdivision that is accredited as an 
22.30 	optional/special function school by the North Central Association of Colleges and Schools;
22.31 	(3) hospitals and nursing homes owned and operated by political subdivisions of 
22.32 	the state of tangible personal property and taxable services used at or by hospitals and 
22.33 	nursing homes;
22.34 	(4) the Metropolitan Council, for its purchases of vehicles and repair parts to equip 
22.35 	operations provided for in section 473.4051; 
23.1 	(5) other states or political subdivisions of other states, if the sale would be exempt 
23.2 	from taxation if it occurred in that state; and
23.3 	(6) sales to public libraries, public library systems, multicounty, multitype library 
23.4 	systems as defined in section 134.001, county law libraries under chapter 134A, state 
23.5 	agency libraries, the state library under section 480.09, and the Legislative Reference 
23.6 	Library.; and
23.7 	(7) Department of Transportation purchases that are made from the trunk highway 
23.8 	fund.
23.9 	(b) This exemption does not apply to the sales of the following products and services:
23.10 	(1) building, construction, or reconstruction materials purchased by a contractor 
23.11 	or a subcontractor as a part of a lump-sum contract or similar type of contract with a 
23.12 	guaranteed maximum price covering both labor and materials for use in the construction, 
23.13 	alteration, or repair of a building or facility;
23.14 	(2) construction materials purchased by tax exempt entities or their contractors to 
23.15 	be used in constructing buildings or facilities which will not be used principally by the 
23.16 	tax exempt entities;
23.17 	(3) the leasing of a motor vehicle as defined in section 297B.01, subdivision 5, 
23.18 	except for leases entered into by the United States or its agencies or instrumentalities; or 
23.19 	(4) lodging as defined under section 297A.61, subdivision 3, paragraph (g), clause 
23.20 	(2), and prepared food, candy, and soft drinks, except for lodging, prepared food, candy, 
23.21 	and soft drinks purchased directly by the United States or its agencies or instrumentalities. 
23.22 	(c) As used in this subdivision, "school districts" means public school entities and 
23.23 	districts of every kind and nature organized under the laws of the state of Minnesota, and 
23.24 	any instrumentality of a school district, as defined in section 471.59. 

23.25 	EFFECTIVE DATE. This section is effective for sales and purchases made after 
23.26 	June 30, 2007.

23.27 	Sec. 20. Minnesota Statutes 2006, section 297A.71, is amended by adding a 
23.28 	subdivision to read:
23.29 		Subd. 40.Legal reference office and data center facility. Materials and supplies 
23.30 	used or consumed in, and equipment incorporated into, the construction, improvement, or 
23.31 	expansion of a legal reference office and data center facility is exempt if:
23.32 	(1) the facility is engaged in the development or provision of print or online versions 
23.33 	of legal reference products and services; and
23.34 	(2) the total capital investment made in the facility is at least $60,000,000.
24.1 	Except for equipment owned or leased by a contractor, all machinery, equipment, 
24.2 	appliances, furniture, fixtures, and technical equipment, including data processing, data 
24.3 	storage, and telecommunications hardware and software, necessary to the construction and 
24.4 	equipping of the facility to provide those services are also exempt.

24.5 	EFFECTIVE DATE. This section is effective for sales and purchases made after 
24.6 	December 31, 2006, and before January 1, 2012.

24.7 	Sec. 21. Minnesota Statutes 2006, section 297A.71, is amended by adding a 
24.8 	subdivision to read:
24.9 		Subd. 41.Commuter rail; material, supplies, and equipment. Materials and 
24.10 	supplies used or consumed in, and equipment incorporated into, the construction or 
24.11 	improvement of a commuter rail transportation system operated under sections 174.80 
24.12 	to 174.90 are exempt. This exemption includes railroad cars and engines and related 
24.13 	equipment.

24.14 	EFFECTIVE DATE. This section is effective for sales and purchases made after 
24.15 	December 31, 2006.

24.16 	Sec. 22. Minnesota Statutes 2006, section 297A.75, subdivision 1, is amended to read:
24.17 		Subdivision 1.Tax collected. The tax on the gross receipts from the sale of the 
24.18 	following exempt items must be imposed and collected as if the sale were taxable and the 
24.19 	rate under section 297A.62, subdivision 1, applied. The exempt items include:
24.20 	(1) capital equipment exempt on which the tax is imposed and collected under 
24.21 	section 297A.68, subdivision 5;
24.22 	(2) building materials for an agricultural processing facility exempt under section 
24.23 	297A.71, subdivision 13;
24.24 	(3) building materials for mineral production facilities exempt under section 
24.25 	297A.71, subdivision 14;
24.26 	(4) building materials for correctional facilities under section 297A.71, subdivision 
24.27 	3;
24.28 	(5) building materials used in a residence for disabled veterans exempt under section 
24.29 	297A.71, subdivision 11;
24.30 	(6) elevators and building materials exempt under section 297A.71, subdivision 12;
24.31 	(7) building materials for the Long Lake Conservation Center exempt under section 
24.32 	297A.71, subdivision 17;
25.1 	(8) materials, supplies, fixtures, furnishings, and equipment for a county law 
25.2 	enforcement and family service center under section 297A.71, subdivision 26;
25.3 	(9) materials and supplies for qualified low-income housing under section 297A.71, 
25.4 	subdivision 23; 
25.5 	(10) materials, supplies, and equipment for municipal electric utility facilities under 
25.6 	section 297A.71, subdivision 35;
25.7 	(11) equipment and materials used for the generation, transmission, and distribution 
25.8 	of electrical energy and an aerial camera package exempt under section 297A.68, 
25.9 	subdivision 37; and
25.10 	(12) tangible personal property and taxable services and construction materials, 
25.11 	supplies, and equipment exempt under section 297A.68, subdivision 41.

25.12 	EFFECTIVE DATE. This section is effective for sales and purchases made after 
25.13 	June 30, 2007.

25.14 	Sec. 23. Minnesota Statutes 2006, section 297A.75, subdivision 3, is amended to read:
25.15 		Subd. 3.Application. (a) The application must include sufficient information 
25.16 	to permit the commissioner to verify the tax paid. If the tax was paid by a contractor, 
25.17 	subcontractor, or builder, under subdivision 1, clause (4), (5), (6), (7), (8), (9), (10), (11), 
25.18 	or (12), the contractor, subcontractor, or builder must furnish to the refund applicant a 
25.19 	statement including the cost of the exempt items and the taxes paid on the items unless 
25.20 	otherwise specifically provided by this subdivision. The provisions of sections 289A.40
25.21 	and 289A.50 apply to refunds under this section.
25.22 	(b) An applicant may not file more than two applications per calendar year for 
25.23 	refunds for taxes paid on capital equipment exempt on which the tax is imposed and 
25.24 	collected under section 297A.68, subdivision 5.

25.25 	EFFECTIVE DATE. This section is effective for sales and purchases made after 
25.26 	June 30, 2007.

25.27 	Sec. 24. Minnesota Statutes 2006, section 469.312, subdivision 5, is amended to read:
25.28 		Subd. 5.Duration limit. (a) The maximum duration of a zone is 12 years. The 
25.29 	applicant may request a shorter duration. The commissioner may specify a shorter 
25.30 	duration, regardless of the requested duration.
25.31 	(b) The duration limit under this subdivision and the duration of the zone for 
25.32 	purposes of allowance of tax incentives described in section 469.315 is extended by three 
25.33 	calendar years for each parcel of property that meets the following requirements:
26.1 	(1) the qualified business operates an ethanol plant, as defined in section 41A.09, on 
26.2 	the site that includes the parcel; and 
26.3 	(2) the business subsidy agreement was executed after April 30, 2006.
26.4 	(c)(1) Notwithstanding the 12-year zone limitation, all qualified businesses that sign 
26.5 	a business subsidy agreement, as required under sections 469.310, subdivision 11, and 
26.6 	469.313, before December 31, 2015, are entitled to claim the tax benefits for which they 
26.7 	qualify under section 469.315 for the year in which the business subsidy agreement is 
26.8 	signed and ten additional years.
26.9 	(2) This paragraph does not apply to:
26.10 	(i) any acreage designated as a job opportunity building zone for which any person 
26.11 	has fully executed a business subsidy agreement before this paragraph became effective; or 
26.12 	(ii) any trade or business that relocates as defined in section 469.310, subdivision 12, 
26.13 	and received benefits under section 463.315 prior to the relocation.

26.14 	EFFECTIVE DATE. This section is effective the day following final enactment.

26.15 	Sec. 25. Minnesota Statutes 2006, section 477A.013, subdivision 9, is amended to read:
26.16 		Subd. 9.City aid distribution. (a) In each calendar year 2002 and thereafter, each 
26.17 	city shall receive an aid distribution equal to the sum of (1) 50 percent of the sum of the 
26.18 	city city's formula aid under subdivision 8, and (2) its city aid base, each as computed 
26.19 	under the laws applicable to aid distributed in the prior year but without the limits in 
26.20 	paragraphs (b) through (d), and (2) 50 percent of the sum of the city's formula aid under 
26.21 	subdivision 8, and its city aid base, each as computed under the laws applicable to aid to 
26.22 	be distributed in the current year but without the limits in paragraphs (b) through (d).
26.23 	(b) For aids payable in 2005 and thereafter, the total The city aid distribution for 
26.24 	any city shall not exceed the sum of (1) ten percent of the city's net levy for the year 
26.25 	prior to the aid distribution plus (2) its total aid in the previous year. For aids payable in 
26.26 	2005 and thereafter,
26.27 	(c) The totalcity aid distribution for any city with a population of 2,500 or more 
26.28 	may not decrease from its total aid distribution under this section in the previous year by 
26.29 	an amount greater than ten percent of its net levy in the year prior to the aid distribution.
26.30 	(c) For aids payable in 2004 only, the total aid for a city with a population less 
26.31 	than 2,500 may not be less than the amount it was certified to receive in 2003 minus the 
26.32 	greater of (1) the reduction to this aid payment in 2003 under Laws 2003, First Special 
26.33 	Session chapter 21, article 5, or (2) five percent of its 2003 aid amount. For aids payable 
26.34 	in 2005 and thereafter,
27.1 	(d) The total aid distribution for a city with a population less than 2,500 must not be 
27.2 	less than the amount it was certified to receive in the previous year minus five percent 
27.3 	of its 2003 certified aid amount.
27.4 	(d) (e) If a city's net tax capacity used in calculating aid under this section has 
27.5 	decreased in any year by more than 25 percent from its net tax capacity in the previous 
27.6 	year due to property becoming tax-exempt Indian land, the city's maximum allowed aid 
27.7 	increase under paragraph (b) shall be increased by an amount equal to (1) the city's tax 
27.8 	rate in the year of the aid calculation, multiplied by (2) the amount of its net tax capacity 
27.9 	decrease resulting from the property becoming tax exempt.

27.10 	EFFECTIVE DATE. This section is effective the day following final enactment.

27.11 	Sec. 26. Minnesota Statutes 2006, section 477A.013, is amended by adding a 
27.12 	subdivision to read:
27.13 		Subd. 11.Use of revenues. Beginning with aids payable in 2007, any city of over 
27.14 	100,000 population receiving additional aid under this section due to an increase in the 
27.15 	appropriation over the amount appropriated for aid paid in 2006 must use the additional 
27.16 	aid it receives to increase spending on police services and prosecutors in the city attorney's 
27.17 	office above the level funded by the city in calendar year 2006.

27.18 	EFFECTIVE DATE. This section is effective beginning with aids payable in 2007 
27.19 	and thereafter.

27.20 	Sec. 27. Minnesota Statutes 2006, section 477A.03, subdivision 2a, is amended to read:
27.21 		Subd. 2a.Cities. For aids payable in 2004, the total aids paid under section 
27.22 	477A.013, subdivision 9, are limited to $429,000,000. For aids payable in 2005, the total 
27.23 	aids paid under section 477A.013, subdivision 9, are limited to $437,052,000. For aids 
27.24 	payable in 2006 and thereafter, The total aids paid under section 477A.013, subdivision 9, 
27.25 	is each year are limited to $485,052,000 $495,052,000.

27.26 	EFFECTIVE DATE. This section is effective the day following final enactment.

27.27 	ARTICLE 2
27.28 	FEDERAL UPDATE

27.29 	Section 1. Minnesota Statutes 2006, section 289A.02, subdivision 7, is amended to 
27.30 	read:
28.1 		Subd. 7.Internal Revenue Code. Unless specifically defined otherwise, "Internal 
28.2 	Revenue Code" means the Internal Revenue Code of 1986, as amended through May 
28.3 	18 December 31, 2006.

28.4 	EFFECTIVE DATE. This section is effective the day following final enactment.

28.5 	Sec. 2. Minnesota Statutes 2006, section 290.01, subdivision 19, is amended to read:
28.6 		Subd. 19.Net income. The term "net income" means the federal taxable income, 
28.7 	as defined in section 63 of the Internal Revenue Code of 1986, as amended through the 
28.8 	date named in this subdivision, incorporating the federal effective dates of changes to the 
28.9 	Internal Revenue Code and any elections made by the taxpayer in accordance with the 
28.10 	Internal Revenue Code in determining federal taxable income for federal income tax 
28.11 	purposes, and with the modifications provided in subdivisions 19a to 19f.
28.12 	In the case of a regulated investment company or a fund thereof, as defined in section 
28.13 	851(a) or 851(g) of the Internal Revenue Code, federal taxable income means investment 
28.14 	company taxable income as defined in section 852(b)(2) of the Internal Revenue Code, 
28.15 	except that:
28.16 	(1) the exclusion of net capital gain provided in section 852(b)(2)(A) of the Internal 
28.17 	Revenue Code does not apply;
28.18 	(2) the deduction for dividends paid under section 852(b)(2)(D) of the Internal 
28.19 	Revenue Code must be applied by allowing a deduction for capital gain dividends and 
28.20 	exempt-interest dividends as defined in sections 852(b)(3)(C) and 852(b)(5) of the Internal 
28.21 	Revenue Code; and
28.22 	(3) the deduction for dividends paid must also be applied in the amount of any 
28.23 	undistributed capital gains which the regulated investment company elects to have treated 
28.24 	as provided in section 852(b)(3)(D) of the Internal Revenue Code.
28.25 	The net income of a real estate investment trust as defined and limited by section 
28.26 	856(a), (b), and (c) of the Internal Revenue Code means the real estate investment trust 
28.27 	taxable income as defined in section 857(b)(2) of the Internal Revenue Code.
28.28 	The net income of a designated settlement fund as defined in section 468B(d) of 
28.29 	the Internal Revenue Code means the gross income as defined in section 468B(b) of the 
28.30 	Internal Revenue Code.
28.31 	The Internal Revenue Code of 1986, as amended through May 18 December 31, 
28.32 	2006, shall be in effect for taxable years beginning after December 31, 1996.
28.33 	Except as otherwise provided, references to the Internal Revenue Code in 
28.34 	subdivisions 19 to 19f mean the code in effect for purposes of determining net income for 
28.35 	the applicable year.

29.1 	EFFECTIVE DATE. This section is effective the day following final enactment.

29.2 	Sec. 3. Minnesota Statutes 2006, section 290.01, subdivision 19b, is amended to read:
29.3 		Subd. 19b.Subtractions from federal taxable income. For individuals, estates, 
29.4 	and trusts, there shall be subtracted from federal taxable income:
29.5 	(1) net interest income on obligations of any authority, commission, or 
29.6 	instrumentality of the United States to the extent includable in taxable income for federal 
29.7 	income tax purposes but exempt from state income tax under the laws of the United States;
29.8 	(2) if included in federal taxable income, the amount of any overpayment of income 
29.9 	tax to Minnesota or to any other state, for any previous taxable year, whether the amount 
29.10 	is received as a refund or as a credit to another taxable year's income tax liability;
29.11 	(3) the amount paid to others, less the amount used to claim the credit allowed under 
29.12 	section 290.0674, not to exceed $1,625 for each qualifying child in grades kindergarten 
29.13 	to 6 and $2,500 for each qualifying child in grades 7 to 12, for tuition, textbooks, and 
29.14 	transportation of each qualifying child in attending an elementary or secondary school 
29.15 	situated in Minnesota, North Dakota, South Dakota, Iowa, or Wisconsin, wherein a 
29.16 	resident of this state may legally fulfill the state's compulsory attendance laws, which 
29.17 	is not operated for profit, and which adheres to the provisions of the Civil Rights Act 
29.18 	of 1964 and chapter 363A. For the purposes of this clause, "tuition" includes fees or 
29.19 	tuition as defined in section 290.0674, subdivision 1, clause (1). As used in this clause, 
29.20 	"textbooks" includes books and other instructional materials and equipment purchased 
29.21 	or leased for use in elementary and secondary schools in teaching only those subjects 
29.22 	legally and commonly taught in public elementary and secondary schools in this state. 
29.23 	Equipment expenses qualifying for deduction includes expenses as defined and limited in 
29.24 	section 290.0674, subdivision 1, clause (3). "Textbooks" does not include instructional 
29.25 	books and materials used in the teaching of religious tenets, doctrines, or worship, the 
29.26 	purpose of which is to instill such tenets, doctrines, or worship, nor does it include books 
29.27 	or materials for, or transportation to, extracurricular activities including sporting events, 
29.28 	musical or dramatic events, speech activities, driver's education, or similar programs. For 
29.29 	purposes of the subtraction provided by this clause, "qualifying child" has the meaning 
29.30 	given in section 32(c)(3) of the Internal Revenue Code;
29.31 	(4) income as provided under section 290.0802;
29.32 	(5) to the extent included in federal adjusted gross income, income realized on 
29.33 	disposition of property exempt from tax under section 290.491;
29.34 	(6) to the extent not deducted or not deductible pursuant to section 408(d)(8)(E) 
29.35 	of the Internal Revenue Code in determining federal taxable income by an individual 
30.1 	who does not itemize deductions for federal income tax purposes for the taxable year, an 
30.2 	amount equal to 50 percent of the excess of charitable contributions over $500 allowable 
30.3 	as a deduction for the taxable year under section 170(a) of the Internal Revenue Code and 
30.4 	under the provisions of Public Law 109-1;
30.5 	(7) for taxable years beginning before January 1, 2008, the amount of the federal 
30.6 	small ethanol producer credit allowed under section 40(a)(3) of the Internal Revenue Code 
30.7 	which is included in gross income under section 87 of the Internal Revenue Code;
30.8 	(8) for individuals who are allowed a federal foreign tax credit for taxes that do not 
30.9 	qualify for a credit under section 290.06, subdivision 22, an amount equal to the carryover 
30.10 	of subnational foreign taxes for the taxable year, but not to exceed the total subnational 
30.11 	foreign taxes reported in claiming the foreign tax credit. For purposes of this clause, 
30.12 	"federal foreign tax credit" means the credit allowed under section 27 of the Internal 
30.13 	Revenue Code, and "carryover of subnational foreign taxes" equals the carryover allowed 
30.14 	under section 904(c) of the Internal Revenue Code minus national level foreign taxes to 
30.15 	the extent they exceed the federal foreign tax credit;
30.16 	(9) in each of the five tax years immediately following the tax year in which an 
30.17 	addition is required under subdivision 19a, clause (7), or 19c, clause (15), in the case 
30.18 	of a shareholder of a corporation that is an S corporation, an amount equal to one-fifth 
30.19 	of the delayed depreciation. For purposes of this clause, "delayed depreciation" means 
30.20 	the amount of the addition made by the taxpayer under subdivision 19a, clause (7), or 
30.21 	subdivision 19c, clause (15), in the case of a shareholder of an S corporation, minus the 
30.22 	positive value of any net operating loss under section 172 of the Internal Revenue Code 
30.23 	generated for the tax year of the addition. The resulting delayed depreciation cannot be 
30.24 	less than zero;
30.25 	(10) job opportunity building zone income as provided under section 469.316;
30.26 	(11) to the extent included in federal adjusted gross income, the amount of 
30.27 	compensation paid to members of the Minnesota National Guard or other reserve 
30.28 	components of the United States military for active service performed in Minnesota, 
30.29 	excluding compensation for services performed under the Active Guard Reserve (AGR) 
30.30 	program. For purposes of this clause, "active service" means (i) state active service as 
30.31 	defined in section 190.05, subdivision 5a, clause (1); (ii) federally funded state active 
30.32 	service as defined in section 190.05, subdivision 5b; or (iii) federal active service as 
30.33 	defined in section 190.05, subdivision 5c, but "active service" excludes services performed 
30.34 	exclusively for purposes of basic combat training, advanced individual training, annual 
30.35 	training, and periodic inactive duty training; special training periodically made available to 
30.36 	reserve members; and service performed in accordance with section 190.08, subdivision 3;
31.1 	(12) to the extent included in federal adjusted gross income, the amount of 
31.2 	compensation paid to Minnesota residents who are members of the armed forces of the 
31.3 	United States or United Nations for active duty performed outside Minnesota;
31.4 	(13) an amount, not to exceed $10,000, equal to qualified expenses related to a 
31.5 	qualified donor's donation, while living, of one or more of the qualified donor's organs 
31.6 	to another person for human organ transplantation. For purposes of this clause, "organ" 
31.7 	means all or part of an individual's liver, pancreas, kidney, intestine, lung, or bone marrow; 
31.8 	"human organ transplantation" means the medical procedure by which transfer of a human 
31.9 	organ is made from the body of one person to the body of another person; "qualified 
31.10 	expenses" means unreimbursed expenses for both the individual and the qualified donor 
31.11 	for (i) travel, (ii) lodging, and (iii) lost wages net of sick pay, except that such expenses 
31.12 	may be subtracted under this clause only once; and "qualified donor" means the individual 
31.13 	or the individual's dependent, as defined in section 152 of the Internal Revenue Code. An 
31.14 	individual may claim the subtraction in this clause for each instance of organ donation for 
31.15 	transplantation during the taxable year in which the qualified expenses occur;
31.16 	(14) in each of the five tax years immediately following the tax year in which an 
31.17 	addition is required under subdivision 19a, clause (8), or 19c, clause (16), in the case of a 
31.18 	shareholder of a corporation that is an S corporation, an amount equal to one-fifth of the 
31.19 	addition made by the taxpayer under subdivision 19a, clause (8), or 19c, clause (16), in the 
31.20 	case of a shareholder of a corporation that is an S corporation, minus the positive value of 
31.21 	any net operating loss under section 172 of the Internal Revenue Code generated for the 
31.22 	tax year of the addition. If the net operating loss exceeds the addition for the tax year, a 
31.23 	subtraction is not allowed under this clause;
31.24 	(15) to the extent included in federal taxable income, compensation paid to a 
31.25 	nonresident who is a service member as defined in United States Code, title 10, section 
31.26 	101(a)(5), for military service as defined in the Service Member Civil Relief Act, Public 
31.27 	Law 108-189, section 101(2); and
31.28 	(16) international economic development zone income as provided under section 
31.29 	469.325.

31.30 	EFFECTIVE DATE. This section is effective retroactively for tax years beginning 
31.31 	after December 31, 2005.

31.32 	Sec. 4. Minnesota Statutes 2006, section 290.01, subdivision 31, is amended to read:
31.33 		Subd. 31.Internal Revenue Code. Unless specifically defined otherwise, "Internal 
31.34 	Revenue Code" means the Internal Revenue Code of 1986, as amended through May 
31.35 	18 December 31, 2006.

32.1 	EFFECTIVE DATE. This section is effective the day following final enactment, 
32.2 	except the changes incorporated by federal changes are effective at the same times as the 
32.3 	changes were effective for federal purposes.

32.4 	Sec. 5. Minnesota Statutes 2006, section 290A.03, subdivision 15, is amended to read:
32.5 		Subd. 15.Internal Revenue Code. "Internal Revenue Code" means the Internal 
32.6 	Revenue Code of 1986, as amended through May 18 December 31, 2006.

32.7 	EFFECTIVE DATE. This section is effective retroactively for property tax refunds 
32.8 	based on property taxes payable on or after December 31, 2005, and rent paid on or after 
32.9 	December 31, 2004.

32.10 	Sec. 6. Minnesota Statutes 2006, section 291.005, subdivision 1, is amended to read:
32.11 		Subdivision 1.Scope. Unless the context otherwise clearly requires, the following 
32.12 	terms used in this chapter shall have the following meanings:
32.13 	(1) "Federal gross estate" means the gross estate of a decedent as valued and 
32.14 	otherwise determined for federal estate tax purposes by federal taxing authorities pursuant 
32.15 	to the provisions of the Internal Revenue Code.
32.16 	(2) "Minnesota gross estate" means the federal gross estate of a decedent after (a) 
32.17 	excluding therefrom any property included therein which has its situs outside Minnesota, 
32.18 	and (b) including therein any property omitted from the federal gross estate which is 
32.19 	includable therein, has its situs in Minnesota, and was not disclosed to federal taxing 
32.20 	authorities.
32.21 	(3) "Personal representative" means the executor, administrator or other person 
32.22 	appointed by the court to administer and dispose of the property of the decedent. If there 
32.23 	is no executor, administrator or other person appointed, qualified, and acting within this 
32.24 	state, then any person in actual or constructive possession of any property having a situs in 
32.25 	this state which is included in the federal gross estate of the decedent shall be deemed 
32.26 	to be a personal representative to the extent of the property and the Minnesota estate tax 
32.27 	due with respect to the property.
32.28 	(4) "Resident decedent" means an individual whose domicile at the time of death 
32.29 	was in Minnesota.
32.30 	(5) "Nonresident decedent" means an individual whose domicile at the time of 
32.31 	death was not in Minnesota.
32.32 	(6) "Situs of property" means, with respect to real property, the state or country in 
32.33 	which it is located; with respect to tangible personal property, the state or country in which 
32.34 	it was normally kept or located at the time of the decedent's death; and with respect to 
33.1 	intangible personal property, the state or country in which the decedent was domiciled 
33.2 	at death.
33.3 	(7) "Commissioner" means the commissioner of revenue or any person to whom the 
33.4 	commissioner has delegated functions under this chapter.
33.5 	(8) "Internal Revenue Code" means the United States Internal Revenue Code of 
33.6 	1986, as amended through May 18 December 31, 2006.
33.7 	(9) "Minnesota adjusted taxable estate" means federal adjusted taxable estate as 
33.8 	defined by section 2011(b)(3) of the Internal Revenue Code, increased by the amount of 
33.9 	deduction for state death taxes allowed under section 2058 of the Internal Revenue Code.

33.10 	EFFECTIVE DATE. This section is effective the day following final enactment.