1.1 	A bill for an act
1.2 	relating to taxation; reducing the state general tax; modifying the deemed 
1.3 	dividend deduction for foreign operating corporations; amending Minnesota 
1.4 	Statutes 2004, section 290.17, subdivision 4; Minnesota Statutes 2005 
1.5 	Supplement, section 275.025, subdivisions 1, 4.
1.6 	BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:

1.7 	Section 1. Minnesota Statutes 2005 Supplement, section 275.025, subdivision 1, 
1.8 	is amended to read:
1.9 		Subdivision 1.Levy amount. The state general levy is levied against 
1.10 	commercial-industrial property and seasonal residential recreational property, as defined in 
1.11 	this section. The state general levy base amount is $592,000,000$595,000,000 for taxes 
1.12 	payable in 2002 2006. For taxes payable in subsequent years, the levy base amount is 
1.13 	increased each year by multiplying the levy base amount for the prior year by the sum 
1.14 	of one plus the rate of increase, if any, in the implicit price deflator for government 
1.15 	consumption expenditures and gross investment for state and local governments prepared 
1.16 	by the Bureau of Economic Analysts of the United States Department of Commerce for 
1.17 	the 12-month period ending March 31 of the year prior to the year the taxes are payable. 
1.18 	The tax under this section is not treated as a local tax rate under section 469.177 and is not 
1.19 	the levy of a governmental unit under chapters 276A and 473F.
1.20 	The commissioner shall increase or decrease the preliminary or final rate for a year 
1.21 	as necessary to account for errors and tax base changes that affected a preliminary or final 
1.22 	rate for either of the two preceding years. Adjustments are allowed to the extent that the 
1.23 	necessary information is available to the commissioner at the time the rates for a year must 
1.24 	be certified, and for the following reasons:
1.25 	(1) an erroneous report of taxable value by a local official;
2.1 	(2) an erroneous calculation by the commissioner; and
2.2 	(3) an increase or decrease in taxable value for commercial-industrial or seasonal 
2.3 	residential recreational property reported on the abstracts of tax lists submitted under 
2.4 	section 275.29 that was not reported on the abstracts of assessment submitted under 
2.5 	section 270C.89 for the same year.
2.6 	The commissioner may, but need not, make adjustments if the total difference in the tax 
2.7 	levied for the year would be less than $100,000.

2.8 	EFFECTIVE DATE. This section is effective beginning with taxes payable in 2007.

2.9 	Sec. 2. Minnesota Statutes 2005 Supplement, section 275.025, subdivision 4, is 
2.10 	amended to read:
2.11 		Subd. 4.Apportionment and levy of state general tax. Ninety-five 94.5 percent of 
2.12 	the state general tax must be levied by applying a uniform rate to all commercial-industrial 
2.13 	tax capacity and five 5.5 percent of the state general tax must be levied by applying a 
2.14 	uniform rate to all seasonal residential recreational tax capacity. On or before October 1 
2.15 	each year, the commissioner of revenue shall certify the preliminary state general levy 
2.16 	rates to each county auditor that must be used to prepare the notices of proposed property 
2.17 	taxes for taxes payable in the following year. By January 1 of each year, the commissioner 
2.18 	shall certify the final state general levy rate to each county auditor that shall be used 
2.19 	in spreading taxes.

2.20 	EFFECTIVE DATE. This section is effective beginning with taxes payable in 2007.

2.21 	Sec. 3. Minnesota Statutes 2004, section 290.17, subdivision 4, is amended to read:
2.22 		Subd. 4.Unitary business principle. (a) If a trade or business conducted wholly 
2.23 	within this state or partly within and partly without this state is part of a unitary business, 
2.24 	the entire income of the unitary business is subject to apportionment pursuant to section  
2.25 	290.191. Notwithstanding subdivision 2, paragraph (c), none of the income of a unitary 
2.26 	business is considered to be derived from any particular source and none may be allocated 
2.27 	to a particular place except as provided by the applicable apportionment formula. The 
2.28 	provisions of this subdivision do not apply to business income subject to subdivision 5, 
2.29 	income of an insurance company, or income of an investment company determined under 
2.30 	section  290.36. 
2.31 	(b) The term "unitary business" means business activities or operations which 
2.32 	result in a flow of value between them. The term may be applied within a single legal 
3.1 	entity or between multiple entities and without regard to whether each entity is a sole 
3.2 	proprietorship, a corporation, a partnership or a trust.
3.3 	(c) Unity is presumed whenever there is unity of ownership, operation, and use, 
3.4 	evidenced by centralized management or executive force, centralized purchasing, 
3.5 	advertising, accounting, or other controlled interaction, but the absence of these 
3.6 	centralized activities will not necessarily evidence a nonunitary business. Unity is also 
3.7 	presumed when business activities or operations are of mutual benefit, dependent upon or 
3.8 	contributory to one another, either individually or as a group.
3.9 	(d) Where a business operation conducted in Minnesota is owned by a business 
3.10 	entity that carries on business activity outside the state different in kind from that 
3.11 	conducted within this state, and the other business is conducted entirely outside the state, it 
3.12 	is presumed that the two business operations are unitary in nature, interrelated, connected, 
3.13 	and interdependent unless it can be shown to the contrary.
3.14 	(e) Unity of ownership is not deemed to exist when a corporation is involved unless 
3.15 	that corporation is a member of a group of two or more business entities and more than 50 
3.16 	percent of the voting stock of each member of the group is directly or indirectly owned 
3.17 	by a common owner or by common owners, either corporate or noncorporate, or by one 
3.18 	or more of the member corporations of the group. For this purpose, the term "voting 
3.19 	stock" shall include membership interests of mutual insurance holding companies formed 
3.20 	under section  60A.077. 
3.21 	(f) The net income and apportionment factors under section  290.191 or  290.20 of 
3.22 	foreign corporations and other foreign entities which are part of a unitary business shall 
3.23 	not be included in the net income or the apportionment factors of the unitary business. 
3.24 	A foreign corporation or other foreign entity which is required to file a return under this 
3.25 	chapter shall file on a separate return basis. The net income and apportionment factors 
3.26 	under section  290.191 or  290.20 of foreign operating corporations shall not be included in 
3.27 	the net income or the apportionment factors of the unitary business except as provided in 
3.28 	paragraph (g). 
3.29 	(g) The adjusted net income of a foreign operating corporation shall be deemed to 
3.30 	be paid as a dividend on the last day of its taxable year to each shareholder thereof, in 
3.31 	proportion to each shareholder's ownership, with which such corporation is engaged in 
3.32 	a unitary business. Such deemed dividend shall be treated as a dividend under section  
3.33 	290.21, subdivision 4. The dividends received deduction is not allowed on dividends, 
3.34 	interest, royalties, capital gains, or other like income.
3.35 	Dividends actually paid by a foreign operating corporation to a corporate shareholder 
3.36 	which is a member of the same unitary business as the foreign operating corporation shall 
4.1 	be eliminated from the net income of the unitary business in preparing a combined report 
4.2 	for the unitary business. The adjusted net income of a foreign operating corporation 
4.3 	shall be its net income adjusted as follows:
4.4 	(1) any taxes paid or accrued to a foreign country, the commonwealth of Puerto 
4.5 	Rico, or a United States possession or political subdivision of any of the foregoing shall 
4.6 	be a deduction; and
4.7 	(2) the subtraction from federal taxable income for payments received from foreign 
4.8 	corporations or foreign operating corporations under section  290.01, subdivision 19d, 
4.9 	clause (10), shall not be allowed. 
4.10 	If a foreign operating corporation incurs a net loss, neither income nor deduction 
4.11 	from that corporation shall be included in determining the net income of the unitary 
4.12 	business.
4.13 	(h) For purposes of determining the net income of a unitary business and the factors 
4.14 	to be used in the apportionment of net income pursuant to section  290.191 or  290.20, there 
4.15 	must be included only the income and apportionment factors of domestic corporations or 
4.16 	other domestic entities other than foreign operating corporations that are determined to 
4.17 	be part of the unitary business pursuant to this subdivision, notwithstanding that foreign 
4.18 	corporations or other foreign entities might be included in the unitary business. 
4.19 	(i) Deductions for expenses, interest, or taxes otherwise allowable under this chapter 
4.20 	that are connected with or allocable against dividends, deemed dividends described 
4.21 	in paragraph (g), or royalties, fees, or other like income described in section  290.01, 
4.22 	subdivision 19d, clause (10), shall not be disallowed. 
4.23 	(j) Each corporation or other entity, except a sole proprietorship, that is part of a 
4.24 	unitary business must file combined reports as the commissioner determines. On the 
4.25 	reports, all intercompany transactions between entities included pursuant to paragraph 
4.26 	(h) must be eliminated and the entire net income of the unitary business determined in 
4.27 	accordance with this subdivision is apportioned among the entities by using each entity's 
4.28 	Minnesota factors for apportionment purposes in the numerators of the apportionment 
4.29 	formula and the total factors for apportionment purposes of all entities included pursuant 
4.30 	to paragraph (h) in the denominators of the apportionment formula.
4.31 	(k) If a corporation has been divested from a unitary business and is included in a 
4.32 	combined report for a fractional part of the common accounting period of the combined 
4.33 	report:
4.34 	(1) its income includable in the combined report is its income incurred for that part 
4.35 	of the year determined by proration or separate accounting; and
5.1 	(2) its sales, property, and payroll included in the apportionment formula must 
5.2 	be prorated or accounted for separately.

5.3 	EFFECTIVE DATE. This section is effective for taxable years beginning after 
5.4 	December 31, 2005.