1.1                          A bill for an act 
  1.2             relating to taxation; making policy changes to income, 
  1.3             franchise, and property taxes; giving certain powers 
  1.4             to the commissioner of revenue; amending Minnesota 
  1.5             Statutes 1996, sections 290.06, subdivision 2c; 
  1.6             290.067, subdivision 2a; 290.091, subdivision 2; 
  1.7             290.0921, subdivision 3a; 290.10; 290.191, 
  1.8             subdivisions 1, 6, and 11; and 290A.03, subdivision 3; 
  1.9             Minnesota Statutes 1997 Supplement, sections 270.67, 
  1.10            subdivision 2; 272.115, subdivisions 4 and 5; 275.70, 
  1.11            by adding a subdivision; 289A.02, subdivision 7; 
  1.12            289A.19, subdivision 2; 290.01, subdivisions 19, 19a, 
  1.13            19b, 19c, 19f, and 31; 290.0671, subdivision 1; 
  1.14            290.091, subdivision 6; 290.371, subdivision 2; 
  1.15            290A.03, subdivision 15; and 291.005, subdivision 1; 
  1.16            repealing Minnesota Statutes 1996, sections 289A.50, 
  1.17            subdivision 6; and 290.191, subdivision 8. 
  1.18  BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
  1.19                             ARTICLE 1 
  1.20                     INCOME AND FRANCHISE TAXES 
  1.21     Section 1.  Minnesota Statutes 1997 Supplement, section 
  1.22  289A.19, subdivision 2, is amended to read: 
  1.23     Subd. 2.  [CORPORATE FRANCHISE AND MINING COMPANY TAXES.] 
  1.24  Corporations or mining companies shall receive an extension of 
  1.25  seven months for filing the return of a corporation subject to 
  1.26  tax under chapter 290 or for filing the return of a mining 
  1.27  company subject to tax under sections 298.01 and 298.015 ~~if:~~.  
  1.28  Interest on any balance of tax not paid when the regularly 
  1.29  required return is due must be paid at the rate specified in 
  1.30  section 270.75, from the date such payment should have been made 
  1.31  if no extension was granted, until the date of payment of such 
  2.1   tax. 
  2.2      If a corporation or mining company does not:  
  2.3      (1) ~~the corporation or mining company pays~~ pay at least 90 
  2.4   percent of the amount of tax shown on the return on or before 
  2.5   the regular due date of the return, the penalty prescribed by 
  2.6   section 289A.60, subdivision 1, shall be imposed on the unpaid 
  2.7   balance of tax; or 
  2.8      (2) pay the balance due shown on the regularly required 
  2.9   return ~~is paid~~ on or before the extended due date of the return~~;~~ 
  2.10  ~~and~~ 
  2.11     ~~(3) interest on any balance due is paid at the rate~~ 
  2.12  ~~specified in section 270.75 from the regular due date of the~~ 
  2.13  ~~return until the tax is paid~~, the penalty prescribed by section 
  2.14  289A.60, subdivision 1, shall be imposed on the unpaid balance 
  2.15  of tax from the original due date of the return.  
  2.16     Sec. 2.  Minnesota Statutes 1997 Supplement, section 
  2.17  290.01, subdivision 19a, is amended to read: 
  2.18     Subd. 19a.  [ADDITIONS TO FEDERAL TAXABLE INCOME.] For 
  2.19  individuals, estates, and trusts, there shall be added to 
  2.20  federal taxable income: 
  2.21     (1)(i) interest income on obligations of any state other 
  2.22  than Minnesota or a political or governmental subdivision, 
  2.23  municipality, or governmental agency or instrumentality of any 
  2.24  state other than Minnesota exempt from federal income taxes 
  2.25  under the Internal Revenue Code or any other federal statute, 
  2.26  and 
  2.27     (ii) exempt-interest dividends as defined in section 
  2.28  852(b)(5) of the Internal Revenue Code, except the portion of 
  2.29  the exempt-interest dividends derived from interest income on 
  2.30  obligations of the state of Minnesota or its political or 
  2.31  governmental subdivisions, municipalities, governmental agencies 
  2.32  or instrumentalities, but only if the portion of the 
  2.33  exempt-interest dividends from such Minnesota sources paid to 
  2.34  all shareholders represents 95 percent or more of the 
  2.35  exempt-interest dividends that are paid by the regulated 
  2.36  investment company as defined in section 851(a) of the Internal 
  3.1   Revenue Code, or the fund of the regulated investment company as 
  3.2   defined in section 851(h) of the Internal Revenue Code, making 
  3.3   the payment; and 
  3.4      (iii) for the purposes of items (i) and (ii), interest on 
  3.5   obligations of an Indian tribal government described in section 
  3.6   7871(c) of the Internal Revenue Code shall be treated as 
  3.7   interest income on obligations of the state in which the tribe 
  3.8   is located; 
  3.9      (2) the amount of income taxes paid or accrued within the 
  3.10  taxable year under this chapter and income taxes paid to any 
  3.11  other state or to any province or territory of Canada, to the 
  3.12  extent allowed as a deduction under section 63(d) of the 
  3.13  Internal Revenue Code, but the addition may not be more than the 
  3.14  amount by which the itemized deductions as allowed under section 
  3.15  63(d) of the Internal Revenue Code exceeds the amount of the 
  3.16  standard deduction as defined in section 63(c) of the Internal 
  3.17  Revenue Code.  For the purpose of this paragraph, the 
  3.18  disallowance of itemized deductions under section 68 of the 
  3.19  Internal Revenue Code of 1986, income tax is the last itemized 
  3.20  deduction disallowed; 
  3.21     (3) the capital gain amount of a lump sum distribution to 
  3.22  which the special tax under section 1122(h)(3)(B)(ii) of the Tax 
  3.23  Reform Act of 1986, Public Law Number 99-514, applies; 
  3.24     (4) the amount of income taxes paid or accrued within the 
  3.25  taxable year under this chapter and income taxes paid to any 
  3.26  other state or any province or territory of Canada, to the 
  3.27  extent allowed as a deduction in determining federal adjusted 
  3.28  gross income.  For the purpose of this paragraph, income taxes 
  3.29  do not include the taxes imposed by sections 290.0922, 
  3.30  subdivision 1, paragraph (b), 290.9727, 290.9728, and 290.9729; 
  3.31     (5) the amount of loss or expense included in federal 
  3.32  taxable income under section 1366 of the Internal Revenue Code 
  3.33  flowing from a corporation that has a valid election in effect 
  3.34  for the taxable year under section 1362 of the Internal Revenue 
  3.35  Code, but which is not allowed to be an "S" corporation under 
  3.36  section 290.9725; ~~and~~ 
  4.1      (6) the amount of any distributions in cash or property 
  4.2   made to a shareholder during the taxable year by a corporation 
  4.3   that has a valid election in effect for the taxable year under 
  4.4   section 1362 of the Internal Revenue Code, but which is not 
  4.5   allowed to be an "S" corporation under section 290.9725 to the 
  4.6   extent not already included in federal taxable income under 
  4.7   section 1368 of the Internal Revenue Code~~.~~; 
  4.8      (7) in the year stock of a corporation that had made a 
  4.9   valid election under section 1362 of the Internal Revenue Code 
  4.10  but was not an "S" corporation under section 290.9725 is sold or 
  4.11  disposed of in a transaction taxable under the Internal Revenue 
  4.12  Code, the amount of difference between the Minnesota basis of 
  4.13  the stock under subdivision 19f, paragraph (m), and the federal 
  4.14  basis if the Minnesota basis is lower than the shareholder's 
  4.15  federal basis; and 
  4.16     (8) the amount of expense, interest, or taxes disallowed 
  4.17  pursuant to section 290.10. 
  4.18     Sec. 3.  Minnesota Statutes 1997 Supplement, section 
  4.19  290.01, subdivision 19b, is amended to read: 
  4.20     Subd. 19b.  [SUBTRACTIONS FROM FEDERAL TAXABLE INCOME.] For 
  4.21  individuals, estates, and trusts, there shall be subtracted from 
  4.22  federal taxable income: 
  4.23     (1) interest income on obligations of any authority, 
  4.24  commission, or instrumentality of the United States to the 
  4.25  extent includable in taxable income for federal income tax 
  4.26  purposes but exempt from state income tax under the laws of the 
  4.27  United States; 
  4.28     (2) if included in federal taxable income, the amount of 
  4.29  any overpayment of income tax to Minnesota or to any other 
  4.30  state, for any previous taxable year, whether the amount is 
  4.31  received as a refund or as a credit to another taxable year's 
  4.32  income tax liability; 
  4.33     (3) the amount paid to others, less the credit allowed 
  4.34  under section 290.0674, not to exceed $1,625 for each dependent 
  4.35  in grades kindergarten to 6 and $2,500 for each dependent in 
  4.36  grades 7 to 12, for tuition, textbooks, and transportation of 
  5.1   each dependent in attending an elementary or secondary school 
  5.2   situated in Minnesota, North Dakota, South Dakota, Iowa, or 
  5.3   Wisconsin, wherein a resident of this state may legally fulfill 
  5.4   the state's compulsory attendance laws, which is not operated 
  5.5   for profit, and which adheres to the provisions of the Civil 
  5.6   Rights Act of 1964 and chapter 363.  For the purposes of this 
  5.7   clause, "tuition" includes fees or tuition as defined in section 
  5.8   290.0674, subdivision 1, clause (1).  As used in this clause, 
  5.9   "textbooks" includes books and other instructional materials and 
  5.10  equipment used in elementary and secondary schools in teaching 
  5.11  only those subjects legally and commonly taught in public 
  5.12  elementary and secondary schools in this state.  Equipment 
  5.13  expenses qualifying for deduction includes expenses as defined 
  5.14  and limited in section 290.0674, subdivision 1, clause (3).  
  5.15  "Textbooks" does not include instructional books and materials 
  5.16  used in the teaching of religious tenets, doctrines, or worship, 
  5.17  the purpose of which is to instill such tenets, doctrines, or 
  5.18  worship, nor does it include books or materials for, or 
  5.19  transportation to, extracurricular activities including sporting 
  5.20  events, musical or dramatic events, speech activities, driver's 
  5.21  education, or similar programs; 
  5.22     (4) to the extent included in federal taxable income, 
  5.23  distributions from a qualified governmental pension plan, an 
  5.24  individual retirement account, simplified employee pension, or 
  5.25  qualified plan covering a self-employed person that represent a 
  5.26  return of contributions that were included in Minnesota gross 
  5.27  income in the taxable year for which the contributions were made 
  5.28  but were deducted or were not included in the computation of 
  5.29  federal adjusted gross income.  The distribution shall be 
  5.30  allocated first to return of contributions until the 
  5.31  contributions included in Minnesota gross income have been 
  5.32  exhausted.  This subtraction applies only to contributions made 
  5.33  in a taxable year prior to 1985; 
  5.34     (5) income as provided under section 290.0802; 
  5.35     (6) the amount of unrecovered accelerated cost recovery 
  5.36  system deductions allowed under subdivision 19g; 
  6.1      (7) to the extent included in federal adjusted gross 
  6.2   income, income realized on disposition of property exempt from 
  6.3   tax under section 290.491; 
  6.4      (8) to the extent not deducted in determining federal 
  6.5   taxable income, the amount paid for health insurance of 
  6.6   self-employed individuals as determined under section 162(l) of 
  6.7   the Internal Revenue Code, except that the 25 percent limit does 
  6.8   not apply.  If the taxpayer deducted insurance payments under 
  6.9   section 213 of the Internal Revenue Code of 1986, the 
  6.10  subtraction under this clause must be reduced by the lesser of: 
  6.11     (i) the total itemized deductions allowed under section 
  6.12  63(d) of the Internal Revenue Code, less state, local, and 
  6.13  foreign income taxes deductible under section 164 of the 
  6.14  Internal Revenue Code and the standard deduction under section 
  6.15  63(c) of the Internal Revenue Code; or 
  6.16     (ii) the lesser of (A) the amount of insurance qualifying 
  6.17  as "medical care" under section 213(d) of the Internal Revenue 
  6.18  Code to the extent not deducted under section 162(1) of the 
  6.19  Internal Revenue Code or excluded from income or (B) the total 
  6.20  amount deductible for medical care under section 213(a); 
  6.21     (9) the exemption amount allowed under Laws 1995, chapter 
  6.22  255, article 3, section 2, subdivision 3; 
  6.23     (10) to the extent included in federal taxable income, 
  6.24  postservice benefits for youth community service under section 
  6.25  121.707 for volunteer service under United States Code, title 
  6.26  42, section 5011(d), as amended; ~~and~~ 
  6.27     (11) to the extent not subtracted under clause (1), the 
  6.28  amount of income or gain included in federal taxable income 
  6.29  under section 1366 of the Internal Revenue Code flowing from a 
  6.30  corporation that has a valid election in effect for the taxable 
  6.31  year under section 1362 of the Internal Revenue Code which is 
  6.32  not allowed to be an "S" corporation under section 290.9725; and 
  6.33     (12) in the year stock of a corporation that had made a 
  6.34  valid election under section 1362 of the Internal Revenue Code 
  6.35  but was not an "S" corporation under section 290.9725 is sold or 
  6.36  disposed of in a transaction taxable under the Internal Revenue 
  7.1   Code, the amount of difference between the Minnesota basis of 
  7.2   the stock under subdivision 19f, paragraph (m), and the federal 
  7.3   basis if the Minnesota basis is higher than the shareholder's 
  7.4   federal basis. 
  7.5      Sec. 4.  Minnesota Statutes 1997 Supplement, section 
  7.6   290.01, subdivision 19f, is amended to read: 
  7.7      Subd. 19f.  [BASIS MODIFICATIONS AFFECTING GAIN OR LOSS ON 
  7.8   DISPOSITION OF PROPERTY.] (a) For individuals, estates, and 
  7.9   trusts, the basis of property is its adjusted basis for federal 
  7.10  income tax purposes except as set forth in paragraphs (f), (g), 
  7.11  and (m).  For corporations, the basis of property is its 
  7.12  adjusted basis for federal income tax purposes, without regard 
  7.13  to the time when the property became subject to tax under this 
  7.14  chapter or to whether out-of-state losses or items of tax 
  7.15  preference with respect to the property were not deductible 
  7.16  under this chapter, except that the modifications to the basis 
  7.17  for federal income tax purposes set forth in paragraphs (b) to 
  7.18  (j) are allowed to corporations, and the resulting modifications 
  7.19  to federal taxable income must be made in the year in which gain 
  7.20  or loss on the sale or other disposition of property is 
  7.21  recognized. 
  7.22     (b) The basis of property shall not be reduced to reflect 
  7.23  federal investment tax credit.  
  7.24     (c) The basis of property subject to the accelerated cost 
  7.25  recovery system under section 168 of the Internal Revenue Code 
  7.26  shall be modified to reflect the modifications in depreciation 
  7.27  with respect to the property provided for in subdivision 19e.  
  7.28  For certified pollution control facilities for which 
  7.29  amortization deductions were elected under section 169 of the 
  7.30  Internal Revenue Code of 1954, the basis of the property must be 
  7.31  increased by the amount of the amortization deduction not 
  7.32  previously allowed under this chapter. 
  7.33     (d) For property acquired before January 1, 1933, the basis 
  7.34  for computing a gain is the fair market value of the property as 
  7.35  of that date.  The basis for determining a loss is the cost of 
  7.36  the property to the taxpayer less any depreciation, 
  8.1   amortization, or depletion, actually sustained before that 
  8.2   date.  If the adjusted cost exceeds the fair market value of the 
  8.3   property, then the basis is the adjusted cost regardless of 
  8.4   whether there is a gain or loss.  
  8.5      (e) The basis is reduced by the allowance for amortization 
  8.6   of bond premium if an election to amortize was made pursuant to 
  8.7   Minnesota Statutes 1986, section 290.09, subdivision 13, and the 
  8.8   allowance could have been deducted by the taxpayer under this 
  8.9   chapter during the period of the taxpayer's ownership of the 
  8.10  property.  
  8.11     (f) For assets placed in service before January 1, 1987, 
  8.12  corporations, partnerships, or individuals engaged in the 
  8.13  business of mining ores other than iron ore or taconite 
  8.14  concentrates subject to the occupation tax under chapter 298 
  8.15  must use the occupation tax basis of property used in that 
  8.16  business. 
  8.17     (g) For assets placed in service before January 1, 1990, 
  8.18  corporations, partnerships, or individuals engaged in the 
  8.19  business of mining iron ore or taconite concentrates subject to 
  8.20  the occupation tax under chapter 298 must use the occupation tax 
  8.21  basis of property used in that business.  
  8.22     (h) In applying the provisions of sections 301(c)(3)(B), 
  8.23  312(f) and (g), and 316(a)(1) of the Internal Revenue Code, the 
  8.24  dates December 31, 1932, and January 1, 1933, shall be 
  8.25  substituted for February 28, 1913, and March 1, 1913, 
  8.26  respectively.  
  8.27     (i) In applying the provisions of section 362(a) and (c) of 
  8.28  the Internal Revenue Code, the date December 31, 1956, shall be 
  8.29  substituted for June 22, 1954.  
  8.30     (j) The basis of property shall be increased by the amount 
  8.31  of intangible drilling costs not previously allowed due to 
  8.32  differences between this chapter and the Internal Revenue Code.  
  8.33     (k) The adjusted basis of any corporate partner's interest 
  8.34  in a partnership is the same as the adjusted basis for federal 
  8.35  income tax purposes modified as required to reflect the basis 
  8.36  modifications set forth in paragraphs (b) to (j).  The adjusted 
  9.1   basis of a partnership in which the partner is an individual, 
  9.2   estate, or trust is the same as the adjusted basis for federal 
  9.3   income tax purposes modified as required to reflect the basis 
  9.4   modifications set forth in paragraphs (f) and (g).  
  9.5      (l) The modifications contained in paragraphs (b) to (j) 
  9.6   also apply to the basis of property that is determined by 
  9.7   reference to the basis of the same property in the hands of a 
  9.8   different taxpayer or by reference to the basis of different 
  9.9   property.  
  9.10     (m) If a corporation has a valid election in effect for the 
  9.11  taxable year under section 1362 of the Internal Revenue Code, 
  9.12  but is not allowed to be an "S" corporation under section 
  9.13  290.9725, and the corporation is liquidated or the individual 
  9.14  shareholder disposes of the stock ~~and there is no capital loss~~ 
  9.15  ~~reflected in federal adjusted gross income because of the fact~~ 
  9.16  ~~that corporate losses have exhausted the shareholders' basis for~~ 
  9.17  ~~federal purposes, the shareholders shall be entitled to a~~ 
  9.18  ~~capital loss commensurate to their Minnesota basis for the~~ 
  9.19  ~~stock~~, the Minnesota basis in the shareholder's stock in the 
  9.20  corporation shall be computed as if the corporation were not an 
  9.21  "S" corporation for federal tax purposes. 
  9.22     Sec. 5.  Minnesota Statutes 1996, section 290.06, 
  9.23  subdivision 2c, is amended to read: 
  9.24     Subd. 2c.  [SCHEDULES OF RATES FOR INDIVIDUALS, ESTATES, 
  9.25  AND TRUSTS.] (a) The income taxes imposed by this chapter upon 
  9.26  married individuals filing joint returns and surviving spouses 
  9.27  as defined in section 2(a) of the Internal Revenue Code must be 
  9.28  computed by applying to their taxable net income the following 
  9.29  schedule of rates: 
  9.30     (1) On the first $19,910, 6 percent; 
  9.31     (2) On all over $19,910, but not over $79,120, 8 percent; 
  9.32     (3) On all over $79,120, 8.5 percent. 
  9.33     Married individuals filing separate returns, estates, and 
  9.34  trusts must compute their income tax by applying the above rates 
  9.35  to their taxable income, except that the income brackets will be 
  9.36  one-half of the above amounts.  
 10.1      (b) The income taxes imposed by this chapter upon unmarried 
 10.2   individuals must be computed by applying to taxable net income 
 10.3   the following schedule of rates: 
 10.4      (1) On the first $13,620, 6 percent; 
 10.5      (2) On all over $13,620, but not over $44,750, 8 percent; 
 10.6      (3) On all over $44,750, 8.5 percent. 
 10.7      (c) The income taxes imposed by this chapter upon unmarried 
 10.8   individuals qualifying as a head of household as defined in 
 10.9   section 2(b) of the Internal Revenue Code must be computed by 
 10.10  applying to taxable net income the following schedule of rates: 
 10.11     (1) On the first $16,770, 6 percent; 
 10.12     (2) On all over $16,770, but not over $67,390, 8 percent; 
 10.13     (3) On all over $67,390, 8.5 percent. 
 10.14     (d) In lieu of a tax computed according to the rates set 
 10.15  forth in this subdivision, the tax of any individual taxpayer 
 10.16  whose taxable net income for the taxable year is less than an 
 10.17  amount determined by the commissioner must be computed in 
 10.18  accordance with tables prepared and issued by the commissioner 
 10.19  of revenue based on income brackets of not more than $100.  The 
 10.20  amount of tax for each bracket shall be computed at the rates 
 10.21  set forth in this subdivision, provided that the commissioner 
 10.22  may disregard a fractional part of a dollar unless it amounts to 
 10.23  50 cents or more, in which case it may be increased to $1. 
 10.24     (e) An individual who is not a Minnesota resident for the 
 10.25  entire year must compute the individual's Minnesota income tax 
 10.26  as provided in this subdivision.  After the application of the 
 10.27  nonrefundable credits provided in this chapter, the tax 
 10.28  liability must then be multiplied by a fraction in which:  
 10.29     (1) The numerator is the individual's Minnesota source 
 10.30  federal adjusted gross income as defined in section 62 of the 
 10.31  Internal Revenue Code disregarding income or loss flowing from a 
 10.32  corporation having a valid election for the taxable year under 
 10.33  section 1362 of the Internal Revenue Code but which is not an 
 10.34  "S" corporation under section 290.9725 and increased by the 
 10.35  addition required for interest income from non-Minnesota state 
 10.36  and municipal bonds under section 290.01, subdivision 19a, 
 11.1   clause (1), after applying the allocation and assignability 
 11.2   provisions of section 290.081, clause (a), or 290.17; and 
 11.3      (2) the denominator is the individual's federal adjusted 
 11.4   gross income as defined in section 62 of the Internal Revenue 
 11.5   Code of 1986~~, as amended through April 15, 1995,~~ increased by 
 11.6   the ~~addition required for interest income from non-Minnesota~~ 
 11.7   ~~state and municipal bonds under section 290.01, subdivision 19a,~~ 
 11.8   ~~clause (1)~~ amounts specified in section 290.01, subdivision 19a, 
 11.9   clauses (1), (5), (6), and (7), and reduced by the amounts 
 11.10  specified in section 290.01, subdivision 19b, clauses (1), (11), 
 11.11  and (12). 
 11.12     Sec. 6.  Minnesota Statutes 1996, section 290.091, 
 11.13  subdivision 2, is amended to read: 
 11.14     Subd. 2.  [DEFINITIONS.] For purposes of the tax imposed by 
 11.15  this section, the following terms have the meanings given: 
 11.16     (a) "Alternative minimum taxable income" means the sum of 
 11.17  the following for the taxable year: 
 11.18     (1) the taxpayer's federal alternative minimum taxable 
 11.19  income as defined in section 55(b)(2) of the Internal Revenue 
 11.20  Code; 
 11.21     (2) the taxpayer's itemized deductions allowed in computing 
 11.22  federal alternative minimum taxable income, but excluding the 
 11.23  Minnesota charitable contribution deduction and the medical 
 11.24  expense deduction; 
 11.25     (3) for depletion allowances computed under section 613A(c) 
 11.26  of the Internal Revenue Code, with respect to each property (as 
 11.27  defined in section 614 of the Internal Revenue Code), to the 
 11.28  extent not included in federal alternative minimum taxable 
 11.29  income, the excess of the deduction for depletion allowable 
 11.30  under section 611 of the Internal Revenue Code for the taxable 
 11.31  year over the adjusted basis of the property at the end of the 
 11.32  taxable year (determined without regard to the depletion 
 11.33  deduction for the taxable year); 
 11.34     (4) to the extent not included in federal alternative 
 11.35  minimum taxable income, the amount of the tax preference for 
 11.36  intangible drilling cost under section 57(a)(2) of the Internal 
 12.1   Revenue Code determined without regard to subparagraph (E); 
 12.2      (5) to the extent not included in federal alternative 
 12.3   minimum taxable income, the amount of interest income as 
 12.4   provided by section 290.01, subdivision 19a, clause (1); 
 12.5      (6) amounts added to federal taxable income as provided by 
 12.6   section 290.01, subdivision 19a, clauses (5), (6), and (7); 
 12.7      less the sum of the amounts determined under the following 
 12.8   clauses (1) to ~~(3)~~ (4): 
 12.9      (1) interest income as defined in section 290.01, 
 12.10  subdivision 19b, clause (1); 
 12.11     (2) an overpayment of state income tax as provided by 
 12.12  section 290.01, subdivision 19b, clause (2), to the extent 
 12.13  included in federal alternative minimum taxable income; ~~and~~ 
 12.14     (3) the amount of investment interest paid or accrued 
 12.15  within the taxable year on indebtedness to the extent that the 
 12.16  amount does not exceed net investment income, as defined in 
 12.17  section 163(d)(4) of the Internal Revenue Code.  Interest does 
 12.18  not include amounts deducted in computing federal adjusted gross 
 12.19  income; and 
 12.20     (4) amounts subtracted from federal taxable income as 
 12.21  provided by section 290.01, subdivision 19b, clauses (11) and 
 12.22  (12). 
 12.23     In the case of an estate or trust, alternative minimum 
 12.24  taxable income must be computed as provided in section 59(c) of 
 12.25  the Internal Revenue Code. 
 12.26     (b) "Investment interest" means investment interest as 
 12.27  defined in section 163(d)(3) of the Internal Revenue Code. 
 12.28     (c) "Tentative minimum tax" equals seven percent of 
 12.29  alternative minimum taxable income after subtracting the 
 12.30  exemption amount determined under subdivision 3. 
 12.31     (d) "Regular tax" means the tax that would be imposed under 
 12.32  this chapter (without regard to this section and section 
 12.33  290.032), reduced by the sum of the nonrefundable credits 
 12.34  allowed under this chapter.  
 12.35     (e) "Net minimum tax" means the minimum tax imposed by this 
 12.36  section. 
 13.1      (f) "Minnesota charitable contribution deduction" means a 
 13.2   charitable contribution deduction under section 170 of the 
 13.3   Internal Revenue Code to or for the use of an entity described 
 13.4   in section 290.21, subdivision 3, clauses (a) to (e).  When the 
 13.5   federal deduction for charitable contributions is limited under 
 13.6   section 170(b) of the Internal Revenue Code, the allowable 
 13.7   contributions in the year of contribution are deemed to be first 
 13.8   contributions to entities described in section 290.21, 
 13.9   subdivision 3, clauses (a) to (e). 
 13.10     Sec. 7.  Minnesota Statutes 1997 Supplement, section 
 13.11  290.091, subdivision 6, is amended to read: 
 13.12     Subd. 6.  [CREDIT FOR PRIOR YEARS' LIABILITY.] (a) A credit 
 13.13  is allowed against the tax imposed by this chapter on 
 13.14  individuals, trusts, and estates equal to the minimum tax credit 
 13.15  for the taxable year.  The minimum tax credit equals the 
 13.16  adjusted net minimum tax for taxable years beginning after 
 13.17  December 31, 1988, reduced by the minimum tax credits allowed in 
 13.18  a prior taxable year.  The credit may not exceed the excess (if 
 13.19  any) for the taxable year of 
 13.20     (1) the regular tax, over 
 13.21     (2) the greater of (i) the tentative alternative minimum 
 13.22  tax, or (ii) zero. 
 13.23     (b) The adjusted net minimum tax for a taxable year equals 
 13.24  the lesser of the net minimum tax or the excess (if any) of 
 13.25     (1) the tentative minimum tax, over 
 13.26     (2) seven percent of the sum of 
 13.27     (i) adjusted gross income as defined in section 62 of the 
 13.28  Internal Revenue Code, 
 13.29     (ii) interest income as defined in section 290.01, 
 13.30  subdivision 19a, clause (1), 
 13.31     (iii) the amount added to federal taxable income as 
 13.32  provided by section 290.01, subdivision 19a, clauses (5), (6), 
 13.33  and (7), 
 13.34     (iv) interest on specified private activity bonds, as 
 13.35  defined in section 57(a)(5) of the Internal Revenue Code, to the 
 13.36  extent not included under clause (ii), 
 14.1      ~~(iv)~~ (v) depletion as defined in section 57(a)(1), 
 14.2   determined without regard to the last sentence of paragraph (1), 
 14.3   of the Internal Revenue Code, less 
 14.4      ~~(v)~~ (vi) the deductions allowed in computing alternative 
 14.5   minimum taxable income provided in subdivision 2, paragraph (a), 
 14.6   clause (2) of the first series of clauses and clauses (1), 
 14.7   (2), ~~and~~ (3), and (4) of the second series of clauses, and 
 14.8      ~~(vi)~~ (vii) the exemption amount determined under 
 14.9   subdivision 3. 
 14.10     In the case of an individual who is not a Minnesota 
 14.11  resident for the entire year, adjusted net minimum tax must be 
 14.12  multiplied by the fraction defined in section 290.06, 
 14.13  subdivision 2c, paragraph (e).  In the case of a trust or 
 14.14  estate, adjusted net minimum tax must be multiplied by the 
 14.15  fraction defined under subdivision 4, paragraph (b). 
 14.16     Sec. 8.  Minnesota Statutes 1996, section 290.10, is 
 14.17  amended to read: 
 14.18     290.10 [NONDEDUCTIBLE ITEMS.] 
 14.19     Except as provided in section 290.17, subdivision 4, 
 14.20  paragraph (i), in computing the net income of a ~~corporation~~ 
 14.21  taxpayer no deduction shall in any case be allowed for expenses, 
 14.22  interest and taxes connected with or allocable against the 
 14.23  production or receipt of all income not included in the measure 
 14.24  of the tax imposed by this chapter, except that for corporations 
 14.25  engaged in the business of mining or producing iron ore, the 
 14.26  mining of which is subject to the occupation tax imposed by 
 14.27  section 298.01, subdivision 4, this shall not prevent the 
 14.28  deduction of expenses and other items to the extent that the 
 14.29  expenses and other items are allowable under this chapter and 
 14.30  are not deductible, capitalizable, retainable in basis, or taken 
 14.31  into account by allowance or otherwise in computing the 
 14.32  occupation tax and do not exceed the amounts taken for federal 
 14.33  income tax purposes for that year.  Occupation taxes imposed 
 14.34  under chapter 298, royalty taxes imposed under chapter 299, or 
 14.35  depletion expenses may not be deducted under this clause. 
 14.36     Sec. 9.  Minnesota Statutes 1996, section 290.191, 
 15.1   subdivision 1, is amended to read: 
 15.2      Subdivision 1.  [GENERAL RULE.] (a) Except as otherwise 
 15.3   provided in section 290.17, subdivision 5, the net income from a 
 15.4   trade or business carried on partly within and partly without 
 15.5   this state must be apportioned to this state as provided in this 
 15.6   section.  
 15.7      (b) For purposes of this section, "state" means a state of 
 15.8   the United States, the District of Columbia, the commonwealth of 
 15.9   Puerto Rico, or any territory or possession of the United States 
 15.10  or any foreign country. 
 15.11     (c) For purposes of this section, "commercial domicile" 
 15.12  means the headquarters of the trade or business, that is, the 
 15.13  place from which the trade or business is principally managed 
 15.14  and directed.  If a taxpayer is organized under the laws of a 
 15.15  foreign country, or of the Commonwealth of Puerto Rico, or any 
 15.16  territory or possession of the United States, the taxpayer's 
 15.17  commercial domicile is the state that the taxpayer has declared 
 15.18  to be its home state under the International Banking Act of 
 15.19  1978; or, if the taxpayer has not made such a declaration or is 
 15.20  not required to make such a declaration, its commercial domicile 
 15.21  for the purpose of this section is the state of the United 
 15.22  States or the District of Columbia to which the greatest number 
 15.23  of employees are regularly connected or out of which they are 
 15.24  working, irrespective of where the services of the employees are 
 15.25  performed, as of the last day of the taxable year. 
 15.26     Sec. 10.  Minnesota Statutes 1996, section 290.191, 
 15.27  subdivision 6, is amended to read: 
 15.28     Subd. 6.  [DETERMINATION OF RECEIPTS FACTOR FOR FINANCIAL 
 15.29  INSTITUTIONS.] (a) For purposes of this section, the rules in 
 15.30  this subdivision ~~and subdivision 8~~ apply in determining the 
 15.31  receipts factor for financial institutions.  
 15.32     (b) "Receipts" for this purpose means gross income, 
 15.33  including net taxable gain on disposition of assets, including 
 15.34  securities and money market instruments, when derived from 
 15.35  transactions and activities in the regular course of the 
 15.36  taxpayer's trade or business.  
 16.1      (c) "Money market instruments" means federal funds sold and 
 16.2   securities purchased under agreements to resell, commercial 
 16.3   paper, banker's acceptances, and purchased certificates of 
 16.4   deposit and similar instruments to the extent that the 
 16.5   instruments are reflected as assets under generally accepted 
 16.6   accounting principles.  
 16.7      (d) "Securities" means United States Treasury securities, 
 16.8   obligations of United States government agencies and 
 16.9   corporations, obligations of state and political subdivisions, 
 16.10  corporate stock, bonds, and other securities, participations in 
 16.11  securities backed by mortgages held by United States or state 
 16.12  government agencies, loan-backed securities and similar 
 16.13  investments to the extent the investments are reflected as 
 16.14  assets under generally accepted accounting principles.  
 16.15     (e) Receipts from the lease or rental of real or tangible 
 16.16  personal property, including both finance leases and true 
 16.17  leases, must be attributed to this state if the property is 
 16.18  located in this state.  Receipts from the lease or rental of 
 16.19  tangible personal property that is characteristically moving 
 16.20  property, including, but not limited to, motor vehicles, rolling 
 16.21  stock, aircraft, vessels, or mobile equipment are included in 
 16.22  the numerator of the receipts factor to the extent that the 
 16.23  property is used in this state.  The extent of the use of moving 
 16.24  property is determined as follows: 
 16.25     (1) A motor vehicle is used wholly in the state in which it 
 16.26  is registered. 
 16.27     (2) The extent that rolling stock is used in this state is 
 16.28  determined by multiplying the receipts from the lease or rental 
 16.29  of the rolling stock by a fraction, the numerator of which is 
 16.30  the miles traveled within this state by the leased or rented 
 16.31  rolling stock and the denominator of which is the total miles 
 16.32  traveled by the leased or rented rolling stock. 
 16.33     (3) The extent that an aircraft is used in this state is 
 16.34  determined by multiplying the receipts from the lease or rental 
 16.35  of the aircraft by a fraction, the numerator of which is the 
 16.36  number of landings of the aircraft in this state and the 
 17.1   denominator of which is the total number of landings of the 
 17.2   aircraft. 
 17.3      (4) The extent that a vessel, mobile equipment, or other 
 17.4   mobile property is used in the state is determined by 
 17.5   multiplying the receipts from the lease or rental of property by 
 17.6   a fraction, the numerator of which is the number of days during 
 17.7   the taxable year the property was in this state and the 
 17.8   denominator of which is the total days in the taxable year. 
 17.9      (f) Interest income and other receipts from assets in the 
 17.10  nature of loans that are secured primarily by real estate or 
 17.11  tangible personal property must be attributed to this state if 
 17.12  the security property is located in this state under the 
 17.13  principles stated in paragraph (e).  
 17.14     (g) Interest income and other receipts from consumer loans 
 17.15  not secured by real or tangible personal property that are made 
 17.16  to residents of this state, whether at a place of business, by 
 17.17  traveling loan officer, by mail, by telephone or other 
 17.18  electronic means, must be attributed to this state.  
 17.19     (h) Interest income and other receipts from commercial 
 17.20  loans and installment obligations that are unsecured by real or 
 17.21  tangible personal property or secured by intangible property 
 17.22  must be attributed to this state if the ~~proceeds of the loan are~~ 
 17.23  ~~to be applied in this state.  If it cannot be determined where~~ 
 17.24  ~~the funds are to be applied, the income and receipts are~~ 
 17.25  ~~attributed to the state in which the office of the borrower from~~ 
 17.26  ~~which the application would be made in the regular course of~~ 
 17.27  ~~business is located.  If this cannot be determined, the~~ 
 17.28  ~~transaction is disregarded in the apportionment~~ 
 17.29  ~~formula~~ borrower's commercial domicile is located in this state. 
 17.30     (i) Interest income and other receipts from a participating 
 17.31  financial institution's portion of participation and syndication 
 17.32  loans must be attributed under paragraphs (e) to (h).  A 
 17.33  participation loan is an arrangement in which a lender makes a 
 17.34  loan to a borrower and then sells, assigns, or otherwise 
 17.35  transfers all or a part of the loan to a purchasing financial 
 17.36  institution.  A syndication loan is a loan transaction involving 
 18.1   multiple financial institutions in which all the lenders are 
 18.2   named as parties to the loan documentation, are known to the 
 18.3   borrower, and have privity of contract with the borrower.  
 18.4      (j) Interest income and other receipts including service 
 18.5   charges from financial institution credit card and travel and 
 18.6   entertainment credit card receivables and credit card holders' 
 18.7   fees must be attributed to the state to which the card charges 
 18.8   and fees are regularly billed.  
 18.9      (k) The receipts factor includes net gains (but not less 
 18.10  than zero) from the sale of credit card receivables, the 
 18.11  numerator of which is determined by multiplying the net gains by 
 18.12  a fraction, the numerator of which is the amount in the 
 18.13  numerator of the receipts factor under paragraph (j) and the 
 18.14  denominator of which is the taxpayer's total amount of interest 
 18.15  and fees or penalties in the nature of interest from credit card 
 18.16  receivables and fees charged to cardholders. 
 18.17     (1) The receipts factor includes all credit card issuer's 
 18.18  reimbursement fees, the numerator of which is determined by 
 18.19  multiplying the reimbursement fees by a fraction, the numerator 
 18.20  of which is the amount included in the numerator of the receipts 
 18.21  factor under paragraph (j) and the denominator of which is the 
 18.22  total amount of interest and fees or penalties in the nature of 
 18.23  interest from credit card receivables and fees charged to 
 18.24  cardholders. 
 18.25     (m) Merchant discount income derived from financial 
 18.26  institution credit card holder transactions with a merchant must 
 18.27  be attributed to the state ~~in which the merchant is located.  In~~ 
 18.28  ~~the case of merchants located within and outside the state, only~~ 
 18.29  ~~receipts from merchant discounts attributable to sales made from~~ 
 18.30  ~~locations within the state are attributed to this state.  It is~~ 
 18.31  ~~presumed, subject to rebuttal, that the location of a merchant~~ 
 18.32  ~~is the address shown on the invoice submitted by the merchant to~~ 
 18.33  ~~the taxpayer~~ of the merchant's commercial domicile. 
 18.34     (n) The receipts from the servicing of loans are included 
 18.35  in the receipts factor and are attributed to this state as 
 18.36  follows: 
 19.1      (1) The numerator of the receipts factor includes loan 
 19.2   servicing fees derived from loans secured by real estate or 
 19.3   tangible personal property multiplied by a fraction, the 
 19.4   numerator of which is the amount included in the numerator of 
 19.5   the receipts factor under paragraph (f) and the denominator of 
 19.6   which is the total amount of interest and fees or penalties in 
 19.7   the nature of interest from loans secured by real estate and 
 19.8   tangible personal property. 
 19.9      (2) The numerator of the receipts factor includes loan 
 19.10  servicing fees derived from consumer loans not secured by real 
 19.11  estate or tangible personal property multiplied by a fraction, 
 19.12  the numerator of which is the amount included in the numerator 
 19.13  of the receipts factor under paragraph (g) and the denominator 
 19.14  of which is the total amount of interest and fees or penalties 
 19.15  in the nature of interest from loans not secured by real estate 
 19.16  and tangible personal property. 
 19.17     (3) The numerator of the receipts factor includes loan 
 19.18  servicing fees derived from commercial loans and installment 
 19.19  obligations that are unsecured by real or tangible personal 
 19.20  property or secured by intangible property multiplied by a 
 19.21  fraction, the numerator of which is the amount included in the 
 19.22  numerator of the receipts factor under paragraph (h) and the 
 19.23  denominator of which is the total amount of interest and fees or 
 19.24  penalties in the nature of interest from commercial loans and 
 19.25  installment obligations that are unsecured by real or tangible 
 19.26  personal property or secured by intangible property. 
 19.27     (4) The numerator of the receipts factor includes loan 
 19.28  servicing fees derived from financial institution credit card 
 19.29  and travel and entertainment credit card receivables and credit 
 19.30  cardholders' fees multiplied by a fraction, the numerator of 
 19.31  which is the amount included in the numerator of the receipts 
 19.32  factor under paragraph (j) and the denominator of which is the 
 19.33  total amount of interest and fees or penalties in the nature of 
 19.34  interest from financial institution credit card and travel and 
 19.35  entertainment credit card receivables and credit cardholders' 
 19.36  fees. 
 20.1      (5) If the taxpayer receives loan servicing fees for 
 20.2   servicing either the secured or the unsecured loans of the 
 20.3   unrelated third party, the receipts are attributed under the 
 20.4   principles in paragraph (o). 
 20.5      ~~(l)~~ (o) Receipts from the performance of fiduciary and 
 20.6   other services must be attributed to the state in which the 
 20.7   services are received.  For the purposes of this section, 
 20.8   services provided to a corporation, partnership, or trust must 
 20.9   be attributed to a state where it has a fixed place of doing 
 20.10  business.  If the state where the services are received is not 
 20.11  readily determinable or is a state where the corporation, 
 20.12  partnership, or trust does not have a fixed place of doing 
 20.13  business, the services shall be deemed to be received at the 
 20.14  location of the office of the customer from which the services 
 20.15  were ordered in the regular course of the customer's trade or 
 20.16  business.  If the ordering office cannot be determined, the 
 20.17  services shall be deemed to be received at the office of the 
 20.18  customer to which the services are billed.  
 20.19     ~~(m)~~ (p) Receipts from the issuance of travelers checks and 
 20.20  money orders must be attributed to the state in which the checks 
 20.21  and money orders are purchased.  
 20.22     ~~(n)~~ (q) Receipts from investments of a financial 
 20.23  institution in securities and from money market instruments ~~must~~ 
 20.24  ~~be apportioned to this state based on the ratio that total~~ 
 20.25  ~~deposits from this state, its residents, including any business~~ 
 20.26  ~~with an office or other place of business in this state, its~~ 
 20.27  ~~political subdivisions, agencies, and instrumentalities bear to~~ 
 20.28  ~~the total deposits from all states, their residents, their~~ 
 20.29  ~~political subdivisions, agencies, and instrumentalities.  In the~~ 
 20.30  ~~case of an unregulated financial institution subject to this~~ 
 20.31  ~~section, these receipts are apportioned to this state based on~~ 
 20.32  ~~the ratio that its gross business income, excluding such~~ 
 20.33  ~~receipts, earned from sources within this state bears to gross~~ 
 20.34  ~~business income, excluding such receipts, earned from sources~~ 
 20.35  ~~within all states.  For purposes of this subdivision, deposits~~ 
 20.36  ~~made by this state, its residents, its political subdivisions,~~ 
 21.1   ~~agencies, and instrumentalities must be attributed to this~~ 
 21.2   ~~state, whether or not the deposits are accepted or maintained by~~ 
 21.3   ~~the taxpayer at locations~~ are attributed to this state if the 
 21.4   investments are properly assigned to a regular place of business 
 21.5   of the taxpayer within this state. 
 21.6      The taxpayer has the burden of proving that investments of 
 21.7   a financial institution in securities and from money market 
 21.8   instruments are properly assigned to a regular place of business 
 21.9   outside this state.  Where the day-to-day decisions regarding an 
 21.10  investment occur at more than one regular place of business, the 
 21.11  investment is considered to be located at the regular place of 
 21.12  business of the taxpayer where the investment or trading 
 21.13  policies and guidelines with respect to the investment are 
 21.14  established. 
 21.15     ~~(o)~~ (r) A financial institution's interest in property 
 21.16  described in section 290.015, subdivision 3, paragraph (b), is 
 21.17  included in the receipts factor in the same manner as assets in 
 21.18  the nature of securities or money market instruments are 
 21.19  included in paragraph ~~(n)~~ (q). 
 21.20     Sec. 11.  Minnesota Statutes 1996, section 290.191, 
 21.21  subdivision 11, is amended to read: 
 21.22     Subd. 11.  [FINANCIAL INSTITUTIONS; PROPERTY FACTOR.] (a) 
 21.23  For financial institutions, the property factor includes, as 
 21.24  well as tangible property, intangible property as set forth in 
 21.25  this subdivision.  
 21.26     (b) Intangible personal property must be included at its 
 21.27  tax basis for federal income tax purposes.  
 21.28     (c) Goodwill must not be included in the property factor.  
 21.29     (d) Coin and currency ~~located in this state must be~~ 
 21.30  ~~attributed to this state~~ must not be included in the property 
 21.31  factor.  
 21.32     (e) Lease financing receivables must be attributed to this 
 21.33  state if ~~and to the extent that the property is located~~ the 
 21.34  receivables are properly assigned to a regular place of business 
 21.35  of the taxpayer within this state.  
 21.36     (f) Assets in the nature of loans ~~that are secured by real~~ 
 22.1   ~~or tangible personal property~~ must be attributed to this state 
 22.2   if ~~and to the extent that the security property is located~~ the 
 22.3   loans are properly assigned to a regular place of business of 
 22.4   the taxpayer within this state.  
 22.5      (g) ~~Assets in the nature of consumer loans and installment~~ 
 22.6   ~~obligations that are unsecured or secured by intangible property~~ 
 22.7   ~~must be attributed to this state if the loan was made to a~~ 
 22.8   ~~resident of this state.~~  
 22.9      ~~(h) Assets in the nature of commercial loan and installment~~ 
 22.10  ~~obligations that are unsecured by real or tangible personal~~ 
 22.11  ~~property or secured by intangible property must be attributed to~~ 
 22.12  ~~this state if the proceeds of the loan are to be applied in this~~ 
 22.13  ~~state.  If it cannot be determined where the funds are to be~~ 
 22.14  ~~applied, the assets must be attributed to the state in which~~ 
 22.15  ~~there is located the office of the borrower from which the~~ 
 22.16  ~~application would be made in the regular course of business.  If~~ 
 22.17  ~~this cannot be determined, the transaction is disregarded in the~~ 
 22.18  ~~apportionment formula.~~  
 22.19     ~~(i)~~ A participating financial institution's portion of 
 22.20  participation and syndication loans must be attributed under 
 22.21  paragraphs (e) ~~to (h)~~ and (f).  
 22.22     ~~(j)~~ (h) Financial institution credit card and travel and 
 22.23  entertainment credit card receivables must be attributed to the 
 22.24  state ~~to which the credit card charges and fees are regularly~~ 
 22.25  ~~billed~~ if the receivables are properly assigned to a regular 
 22.26  place of business of the taxpayer within the state.  
 22.27     ~~(k)~~ (i) Receivables arising from merchant discount income 
 22.28  derived from financial institution credit card holder 
 22.29  transactions with a merchant are attributed to the state ~~in~~ 
 22.30  ~~which the merchant is located.  In the case of merchants located~~ 
 22.31  ~~within and without the state, only receivables from merchant~~ 
 22.32  ~~discounts attributable to sales made from locations within the~~ 
 22.33  ~~state are attributed to this state.  It is presumed, subject to~~ 
 22.34  ~~rebuttal, that the location of a merchant is the address shown~~ 
 22.35  ~~on the invoice submitted by the merchant to the taxpayer~~ if the 
 22.36  receivables are properly assigned to a regular place of business 
 23.1   of the taxpayer within the state. 
 23.2      ~~(l)~~ (j) Assets in the nature of securities and money market 
 23.3   instruments ~~are apportioned to this state based upon the ratio~~ 
 23.4   ~~that total deposits from this state, its residents, its~~ 
 23.5   ~~political subdivisions, agencies and instrumentalities bear to~~ 
 23.6   ~~the total deposits from all states, their residents, their~~ 
 23.7   ~~political subdivisions, agencies and instrumentalities.  In the~~ 
 23.8   ~~case of an unregulated financial institution, the assets are~~ 
 23.9   ~~apportioned to this state based upon the ratio that its gross~~ 
 23.10  ~~business income earned from sources within this state bears to~~ 
 23.11  ~~gross business income earned from sources within all states.~~  
 23.12  ~~For purposes of this paragraph, deposits made by this state, its~~ 
 23.13  ~~residents, its political subdivisions, agencies, and~~ 
 23.14  ~~instrumentalities are attributed to this state, whether or not~~ 
 23.15  ~~the deposits are accepted or maintained by the taxpayer at~~ 
 23.16  ~~locations within this state~~ must not be included in the property 
 23.17  factor. 
 23.18     ~~(m)~~ (k) A financial institution's interest in any property 
 23.19  described in section 290.015, subdivision 3, paragraph (b), ~~is~~ 
 23.20  ~~included in the property factor in the same manner as assets in~~ 
 23.21  ~~the nature of securities or money market instruments are~~ 
 23.22  ~~included under paragraph (1)~~ must not be included in the 
 23.23  property factor.  
 23.24     (l) For the purposes of paragraphs (e) to (i), loan assets 
 23.25  and receivables are properly assigned in this state if the 
 23.26  preponderance of substantive contact occurred in this state.  In 
 23.27  determining where the preponderance of substantive contact 
 23.28  occurred, the following consideration should be given: 
 23.29     (1) solicitation; 
 23.30     (2) investigation; 
 23.31     (3) negotiation; 
 23.32     (4) approval; and 
 23.33     (5) administration.  
 23.34     Sec. 12.  Minnesota Statutes 1997 Supplement, section 
 23.35  290.371, subdivision 2, is amended to read: 
 23.36     Subd. 2.  [EXEMPTIONS.] A corporation is not required to 
 24.1   file a notice of business activities report if:  
 24.2      (1) by the end of an accounting period for which it was 
 24.3   otherwise required to file a notice of business activities 
 24.4   report under this section, it had received a certificate of 
 24.5   authority to do business in this state; 
 24.6      (2) a timely return has been filed under section 289A.08; 
 24.7      (3) the corporation is exempt from taxation under this 
 24.8   chapter pursuant to section 290.05; or 
 24.9      (4) the corporation's activities in Minnesota, or the 
 24.10  interests in property which it owns, consist solely of 
 24.11  activities or property exempted from jurisdiction to tax under 
 24.12  section 290.015, subdivision 3, paragraph (b)~~; or~~ 
 24.13     ~~(5) the corporation is an "S" corporation under section~~ 
 24.14  ~~290.9725~~. 
 24.15     Sec. 13.  [REPEALER.] 
 24.16     Minnesota Statutes 1996, sections 289A.50, subdivision 6; 
 24.17  and 290.191, subdivision 8, are repealed. 
 24.18     Sec. 14.  [EFFECTIVE DATES.] 
 24.19     Section 1 is effective for extensions received under 
 24.20  Minnesota Statutes, section 289A.19, subdivision 2, for tax 
 24.21  years beginning after December 31, 1996.  The change in section 
 24.22  2 made by clause (7) is effective for tax years beginning after 
 24.23  December 31, 1996.  The change in section 2 made by clause (8) 
 24.24  is effective for tax years beginning after December 31, 1997.  
 24.25  Sections 3, 4, 6, and 7 are effective for tax years beginning 
 24.26  after December 31, 1996.  Section 5 is effective for tax years 
 24.27  beginning after December 31, 1996, except the change in 
 24.28  denominator for Minnesota Statutes, section 290.01, subdivision 
 24.29  19b, clause (1), is effective for tax years beginning after 
 24.30  December 31, 1997.  Section 8 is effective for tax years 
 24.31  beginning after December 31, 1997.  Sections 9 to 12 are 
 24.32  effective for tax years beginning after December 31, 1998.  
 24.33  Section 13 is effective for tax years beginning after December 
 24.34  31, 1997, except that the repeal of Minnesota Statutes, section 
 24.35  290.191, subdivision 8, is effective for tax years beginning 
 24.36  after December 31, 1998. 
 25.1                              ARTICLE 2 
 25.2                            FEDERAL UPDATE 
 25.3      Section 1.  Minnesota Statutes 1997 Supplement, section 
 25.4   289A.02, subdivision 7, is amended to read: 
 25.5      Subd. 7.  [INTERNAL REVENUE CODE.] Unless specifically 
 25.6   defined otherwise, "Internal Revenue Code" means the Internal 
 25.7   Revenue Code of 1986, as amended through December 31, ~~1996, and~~ 
 25.8   ~~includes the provisions of section 1(a) and (b) of Public Law~~ 
 25.9   ~~Number 104-117~~ 1997. 
 25.10     Sec. 2.  Minnesota Statutes 1997 Supplement, section 
 25.11  290.01, subdivision 19, is amended to read: 
 25.12     Subd. 19.  [NET INCOME.] The term "net income" means the 
 25.13  federal taxable income, as defined in section 63 of the Internal 
 25.14  Revenue Code of 1986, as amended through the date named in this 
 25.15  subdivision, incorporating any elections made by the taxpayer in 
 25.16  accordance with the Internal Revenue Code in determining federal 
 25.17  taxable income for federal income tax purposes, and with the 
 25.18  modifications provided in subdivisions 19a to 19f. 
 25.19     In the case of a regulated investment company or a fund 
 25.20  thereof, as defined in section 851(a) or 851(h) of the Internal 
 25.21  Revenue Code, federal taxable income means investment company 
 25.22  taxable income as defined in section 852(b)(2) of the Internal 
 25.23  Revenue Code, except that:  
 25.24     (1) the exclusion of net capital gain provided in section 
 25.25  852(b)(2)(A) of the Internal Revenue Code does not apply; 
 25.26     (2) the deduction for dividends paid under section 
 25.27  852(b)(2)(D) of the Internal Revenue Code must be applied by 
 25.28  allowing a deduction for capital gain dividends and 
 25.29  exempt-interest dividends as defined in sections 852(b)(3)(C) 
 25.30  and 852(b)(5) of the Internal Revenue Code; and 
 25.31     (3) the deduction for dividends paid must also be applied 
 25.32  in the amount of any undistributed capital gains which the 
 25.33  regulated investment company elects to have treated as provided 
 25.34  in section 852(b)(3)(D) of the Internal Revenue Code.  
 25.35     The net income of a real estate investment trust as defined 
 25.36  and limited by section 856(a), (b), and (c) of the Internal 
 26.1   Revenue Code means the real estate investment trust taxable 
 26.2   income as defined in section 857(b)(2) of the Internal Revenue 
 26.3   Code.  
 26.4      The net income of a designated settlement fund as defined 
 26.5   in section 468B(d) of the Internal Revenue Code means the gross 
 26.6   income as defined in section 468B(b) of the Internal Revenue 
 26.7   Code. 
 26.8      The Internal Revenue Code of 1986, as amended through 
 26.9   December 31, 1986, shall be in effect for taxable years 
 26.10  beginning after December 31, 1986.  The provisions of sections 
 26.11  10104, 10202, 10203, 10204, 10206, 10212, 10221, 10222, 10223, 
 26.12  10226, 10227, 10228, 10611, 10631, 10632, and 10711 of the 
 26.13  Omnibus Budget Reconciliation Act of 1987, Public Law Number 
 26.14  100-203, the provisions of sections 1001, 1002, 1003, 1004, 
 26.15  1005, 1006, 1008, 1009, 1010, 1011, 1011A, 1011B, 1012, 1013, 
 26.16  1014, 1015, 1018, 2004, 3041, 4009, 6007, 6026, 6032, 6137, 
 26.17  6277, and 6282 of the Technical and Miscellaneous Revenue Act of 
 26.18  1988, Public Law Number 100-647, the provisions of sections 
 26.19  7811, 7816, and 7831 of the Omnibus Budget Reconciliation Act of 
 26.20  1989, Public Law Number 101-239, ~~and~~ the provisions of sections 
 26.21  1305, 1704(r), and 1704(e)(1) of the Small Business Job 
 26.22  Protection Act, Public Law Number 104-188, and the provisions of 
 26.23  sections 975 and 1604(d)(2) and (e) of the Taxpayer Relief Act 
 26.24  of 1997, Public Law Number 105-34, shall be effective at the 
 26.25  time they become effective for federal income tax purposes.  
 26.26     The Internal Revenue Code of 1986, as amended through 
 26.27  December 31, 1987, shall be in effect for taxable years 
 26.28  beginning after December 31, 1987.  The provisions of sections 
 26.29  4001, 4002, 4011, 5021, 5041, 5053, 5075, 6003, 6008, 6011, 
 26.30  6030, 6031, 6033, 6057, 6064, 6066, 6079, 6130, 6176, 6180, 
 26.31  6182, 6280, and 6281 of the Technical and Miscellaneous Revenue 
 26.32  Act of 1988, Public Law Number 100-647, the provisions of 
 26.33  sections 7815 and 7821 of the Omnibus Budget Reconciliation Act 
 26.34  of 1989, Public Law Number 101-239, and the provisions of 
 26.35  section 11702 of the Revenue Reconciliation Act of 1990, Public 
 26.36  Law Number 101-508, shall become effective at the time they 
 27.1   become effective for federal tax purposes.  
 27.2      The Internal Revenue Code of 1986, as amended through 
 27.3   December 31, 1988, shall be in effect for taxable years 
 27.4   beginning after December 31, 1988.  The provisions of sections 
 27.5   7101, 7102, 7104, 7105, 7201, 7202, 7203, 7204, 7205, 7206, 
 27.6   7207, 7210, 7211, 7301, 7302, 7303, 7304, 7601, 7621, 7622, 
 27.7   7641, 7642, 7645, 7647, 7651, and 7652 of the Omnibus Budget 
 27.8   Reconciliation Act of 1989, Public Law Number 101-239, the 
 27.9   provision of section 1401 of the Financial Institutions Reform, 
 27.10  Recovery, and Enforcement Act of 1989, Public Law Number 101-73, 
 27.11  the provisions of sections 11701 and 11703 of the Revenue 
 27.12  Reconciliation Act of 1990, Public Law Number 101-508, and the 
 27.13  provisions of sections 1702(g) and 1704(f)(2)(A) and (B) of the 
 27.14  Small Business Job Protection Act, Public Law Number 104-188, 
 27.15  shall become effective at the time they become effective for 
 27.16  federal tax purposes.  
 27.17     The Internal Revenue Code of 1986, as amended through 
 27.18  December 31, 1989, shall be in effect for taxable years 
 27.19  beginning after December 31, 1989.  The provisions of sections 
 27.20  11321, 11322, 11324, 11325, 11403, 11404, 11410, and 11521 of 
 27.21  the Revenue Reconciliation Act of 1990, Public Law Number 
 27.22  101-508, and the provisions of sections 13224 and 13261 of the 
 27.23  Omnibus Budget Reconciliation Act of 1993, Public Law Number 
 27.24  103-66, shall become effective at the time they become effective 
 27.25  for federal purposes.  
 27.26     The Internal Revenue Code of 1986, as amended through 
 27.27  December 31, 1990, shall be in effect for taxable years 
 27.28  beginning after December 31, 1990. 
 27.29     The provisions of section 13431 of the Omnibus Budget 
 27.30  Reconciliation Act of 1993, Public Law Number 103-66, shall 
 27.31  become effective at the time they became effective for federal 
 27.32  purposes.  
 27.33     The Internal Revenue Code of 1986, as amended through 
 27.34  December 31, 1991, shall be in effect for taxable years 
 27.35  beginning after December 31, 1991.  
 27.36     The provisions of sections 1936 and 1937 of the 
 28.1   Comprehensive National Energy Policy Act of 1992, Public Law 
 28.2   Number 102-486, ~~and~~ the provisions of sections 13101, 13114, 
 28.3   13122, 13141, 13150, 13151, 13174, 13239, 13301, and 13442 of 
 28.4   the Omnibus Budget Reconciliation Act of 1993, Public Law Number 
 28.5   103-66, and the provisions of section 1604(a)(1), (2), and (3) 
 28.6   of the Taxpayer Relief Act of 1997, Public Law Number 105-34, 
 28.7   shall become effective at the time they become effective for 
 28.8   federal purposes.  
 28.9      The Internal Revenue Code of 1986, as amended through 
 28.10  December 31, 1992, shall be in effect for taxable years 
 28.11  beginning after December 31, 1992.  
 28.12     The provisions of sections 13116, 13121, 13206, 13210, 
 28.13  13222, 13223, 13231, 13232, 13233, 13239, 13262, and 13321 of 
 28.14  the Omnibus Budget Reconciliation Act of 1993, Public Law Number 
 28.15  103-66, ~~and~~ the provisions of sections 1703(a), 1703(d), 
 28.16  1703(i), 1703(l), and 1703(m) of the Small Business Job 
 28.17  Protection Act, Public Law Number 104-188, and the provision of 
 28.18  section 1604(c) of the Taxpayer Relief Act of 1997, Public Law 
 28.19  Number 105-34, shall become effective at the time they become 
 28.20  effective for federal purposes. 
 28.21     The Internal Revenue Code of 1986, as amended through 
 28.22  December 31, 1993, shall be in effect for taxable years 
 28.23  beginning after December 31, 1993. 
 28.24     The provision of section 741 of Legislation to Implement 
 28.25  Uruguay Round of General Agreement on Tariffs and Trade, Public 
 28.26  Law Number 103-465, the provisions of sections 1, 2, and 3, of 
 28.27  the Self-Employed Health Insurance Act of 1995, Public Law 
 28.28  Number 104-7, the provision of section 501(b)(2) of the Health 
 28.29  Insurance Portability and Accountability Act, Public Law Number 
 28.30  104-191, ~~and~~ the provisions of sections 1604 and 1704(p)(1) and 
 28.31  (2) of the Small Business Job Protection Act, Public Law Number 
 28.32  104-188, and the provisions of sections 1011, 1211(b)(1), and 
 28.33  1602(f)(1) of the Taxpayer Relief Act of 1997, Public Law Number 
 28.34  105-34, shall become effective at the time they become effective 
 28.35  for federal purposes. 
 28.36     The Internal Revenue Code of 1986, as amended through 
 29.1   December 31, 1994, shall be in effect for taxable years 
 29.2   beginning after December 31, 1994. 
 29.3      The provisions of sections 1119(a), 1120, 1121, 1202(a), 
 29.4   1444, 1449(b), 1602(a), 1610(a), 1613, and 1805 of the Small 
 29.5   Business Job Protection Act, Public Law Number 104-188, ~~and~~ the 
 29.6   provision of section 511 of the Health Insurance Portability and 
 29.7   Accountability Act, Public Law Number 104-191, and the 
 29.8   provisions of sections 1061, 1174, 1601(i)(2) and 1602(f)(2) and 
 29.9   (3) of the Taxpayer Relief Act of 1997, Public Law Number 
 29.10  105-35, shall become effective at the time they become effective 
 29.11  for federal purposes. 
 29.12     The Internal Revenue Code of 1986, as amended through March 
 29.13  22, 1996, is in effect for taxable years beginning after 
 29.14  December 31, 1995. 
 29.15     The provisions of sections 1113(a), 1117, 1206(a), 1313(a), 
 29.16  1402(a), 1403(a), 1443, 1450, 1501(a), 1605, 1611(a), 1612, 
 29.17  1616, 1617, 1704(l), and 1704(m) of the Small Business Job 
 29.18  Protection Act, Public Law Number 104-188, ~~and~~ the provisions of 
 29.19  Public Law Number 104-117, and the provisions of sections 313(a) 
 29.20  and (b)(1), 602(a), 913(b), 941, 961, 971, 1001(a) and (b), 
 29.21  1002, 1003, 1012(b)(1) and (c)(1) and (2), 1013, 1014, 1061, 
 29.22  1062(b), 1081, 1084(b), 1086, 1087, 1111(a), 1131(b) and (c), 
 29.23  1211(b)(1), 1213(c), 1308(b), 1530(c)(2), 1601(f)(5)(A) and (h), 
 29.24  and 1604(d)(1) of the Taxpayer Relief Act of 1997, Public Law 
 29.25  Number 105-35, shall become effective at the time they become 
 29.26  effective for federal purposes. 
 29.27     The Internal Revenue Code of 1986, as amended through 
 29.28  December 31, 1996, shall be in effect for taxable years 
 29.29  beginning after December 31, 1996. 
 29.30     The provisions of sections 202(a) and (b), 221(a), 312, 
 29.31  313, 913(a), 934, 962, 1004, 1005, 1052, 1063, 1084(a) and (c), 
 29.32  1089, 1112, 1131(b) and (c), 1171, 1204, 1271(a) and (b), 
 29.33  1305(a), 1306, 1307, 1308(a), 1309, 1501(b), 1502(b), 1504(a), 
 29.34  1505(c), 1527, 1528, 1530, 1601(d), (e), (f), and (i) and 
 29.35  1602(a) and (c) of the Taxpayer Relief Act of 1997, Public Law 
 29.36  Number 105-35, shall become effective at the time they become 
 30.1   effective for federal purposes. 
 30.2      The Internal Revenue Code of 1986, as amended through 
 30.3   December 31, 1997, shall be in effect for taxable years 
 30.4   beginning after December 31, 1997. 
 30.5      Except as otherwise provided, references to the Internal 
 30.6   Revenue Code in subdivisions 19a to 19g mean the code in effect 
 30.7   for purposes of determining net income for the applicable year. 
 30.8      Sec. 3.  Minnesota Statutes 1997 Supplement, section 
 30.9   290.01, subdivision 19a, is amended to read: 
 30.10     Subd. 19a.  [ADDITIONS TO FEDERAL TAXABLE INCOME.] For 
 30.11  individuals, estates, and trusts, there shall be added to 
 30.12  federal taxable income: 
 30.13     (1)(i) interest income on obligations of any state other 
 30.14  than Minnesota or a political or governmental subdivision, 
 30.15  municipality, or governmental agency or instrumentality of any 
 30.16  state other than Minnesota exempt from federal income taxes 
 30.17  under the Internal Revenue Code or any other federal statute, 
 30.18  and 
 30.19     (ii) exempt-interest dividends as defined in section 
 30.20  852(b)(5) of the Internal Revenue Code, except the portion of 
 30.21  the exempt-interest dividends derived from interest income on 
 30.22  obligations of the state of Minnesota or its political or 
 30.23  governmental subdivisions, municipalities, governmental agencies 
 30.24  or instrumentalities, but only if the portion of the 
 30.25  exempt-interest dividends from such Minnesota sources paid to 
 30.26  all shareholders represents 95 percent or more of the 
 30.27  exempt-interest dividends that are paid by the regulated 
 30.28  investment company as defined in section 851(a) of the Internal 
 30.29  Revenue Code, or the fund of the regulated investment company as 
 30.30  defined in section 851(h) of the Internal Revenue Code, making 
 30.31  the payment; and 
 30.32     (iii) for the purposes of items (i) and (ii), interest on 
 30.33  obligations of an Indian tribal government described in section 
 30.34  7871(c) of the Internal Revenue Code shall be treated as 
 30.35  interest income on obligations of the state in which the tribe 
 30.36  is located; 
 31.1      (2) the amount of income taxes paid or accrued within the 
 31.2   taxable year under this chapter and income taxes paid to any 
 31.3   other state or to any province or territory of Canada, to the 
 31.4   extent allowed as a deduction under section 63(d) of the 
 31.5   Internal Revenue Code, but the addition may not be more than the 
 31.6   amount by which the itemized deductions as allowed under section 
 31.7   63(d) of the Internal Revenue Code exceeds the amount of the 
 31.8   standard deduction as defined in section 63(c) of the Internal 
 31.9   Revenue Code.  For the purpose of this paragraph, the 
 31.10  disallowance of itemized deductions under section 68 of the 
 31.11  Internal Revenue Code of 1986, income tax is the last itemized 
 31.12  deduction disallowed; 
 31.13     (3) the capital gain amount of a lump sum distribution to 
 31.14  which the special tax under section 1122(h)(3)(B)(ii) of the Tax 
 31.15  Reform Act of 1986, Public Law Number 99-514, applies; 
 31.16     (4) the amount of income taxes paid or accrued within the 
 31.17  taxable year under this chapter and income taxes paid to any 
 31.18  other state or any province or territory of Canada, to the 
 31.19  extent allowed as a deduction in determining federal adjusted 
 31.20  gross income.  For the purpose of this paragraph, income taxes 
 31.21  do not include the taxes imposed by sections 290.0922, 
 31.22  subdivision 1, paragraph (b), 290.9727, 290.9728, and 290.9729; 
 31.23     (5) the amount of loss or expense included in federal 
 31.24  taxable income under section 1366 of the Internal Revenue Code 
 31.25  flowing from a corporation that has a valid election in effect 
 31.26  for the taxable year under section 1362 of the Internal Revenue 
 31.27  Code, but which is not allowed to be an "S" corporation under 
 31.28  section 290.9725; ~~and~~ 
 31.29     (6) the amount of any distributions in cash or property 
 31.30  made to a shareholder during the taxable year by a corporation 
 31.31  that has a valid election in effect for the taxable year under 
 31.32  section 1362 of the Internal Revenue Code, but which is not 
 31.33  allowed to be an "S" corporation under section 290.9725 to the 
 31.34  extent not already included in federal taxable income under 
 31.35  section 1368 of the Internal Revenue Code~~.~~; and 
 31.36     (7) the amount of a partner's pro rata share of net income 
 32.1   which does not flow through to the partner because the 
 32.2   partnership elected to pay the tax on the income under section 
 32.3   6242(a)(2) of the Internal Revenue Code. 
 32.4      Sec. 4.  Minnesota Statutes 1997 Supplement, section 
 32.5   290.01, subdivision 19c, is amended to read: 
 32.6      Subd. 19c.  [CORPORATIONS; ADDITIONS TO FEDERAL TAXABLE 
 32.7   INCOME.] For corporations, there shall be added to federal 
 32.8   taxable income: 
 32.9      (1) the amount of any deduction taken for federal income 
 32.10  tax purposes for income, excise, or franchise taxes based on net 
 32.11  income or related minimum taxes paid by the corporation to 
 32.12  Minnesota, another state, a political subdivision of another 
 32.13  state, the District of Columbia, or any foreign country or 
 32.14  possession of the United States; 
 32.15     (2) interest not subject to federal tax upon obligations 
 32.16  of:  the United States, its possessions, its agencies, or its 
 32.17  instrumentalities; the state of Minnesota or any other state, 
 32.18  any of its political or governmental subdivisions, any of its 
 32.19  municipalities, or any of its governmental agencies or 
 32.20  instrumentalities; the District of Columbia; or Indian tribal 
 32.21  governments; 
 32.22     (3) exempt-interest dividends received as defined in 
 32.23  section 852(b)(5) of the Internal Revenue Code; 
 32.24     (4) the amount of any net operating loss deduction taken 
 32.25  for federal income tax purposes under section 172 or 832(c)(10) 
 32.26  of the Internal Revenue Code or operations loss deduction under 
 32.27  section 810 of the Internal Revenue Code; 
 32.28     (5) the amount of any special deductions taken for federal 
 32.29  income tax purposes under sections 241 to 247 of the Internal 
 32.30  Revenue Code; 
 32.31     (6) losses from the business of mining, as defined in 
 32.32  section 290.05, subdivision 1, clause (a), that are not subject 
 32.33  to Minnesota income tax; 
 32.34     (7) the amount of any capital losses deducted for federal 
 32.35  income tax purposes under sections 1211 and 1212 of the Internal 
 32.36  Revenue Code; 
 33.1      (8) the amount of any charitable contributions deducted for 
 33.2   federal income tax purposes under section 170 of the Internal 
 33.3   Revenue Code; 
 33.4      (9) the exempt foreign trade income of a foreign sales 
 33.5   corporation under sections 921(a) and 291 of the Internal 
 33.6   Revenue Code; 
 33.7      (10) the amount of percentage depletion deducted under 
 33.8   sections 611 through 614 and 291 of the Internal Revenue Code; 
 33.9      (11) for certified pollution control facilities placed in 
 33.10  service in a taxable year beginning before December 31, 1986, 
 33.11  and for which amortization deductions were elected under section 
 33.12  169 of the Internal Revenue Code of 1954, as amended through 
 33.13  December 31, 1985, the amount of the amortization deduction 
 33.14  allowed in computing federal taxable income for those 
 33.15  facilities; 
 33.16     (12) the amount of any deemed dividend from a foreign 
 33.17  operating corporation determined pursuant to section 290.17, 
 33.18  subdivision 4, paragraph (g); ~~and~~ 
 33.19     (13) the amount of any environmental tax paid under section 
 33.20  59(a) of the Internal Revenue Code~~.~~; and 
 33.21     (14) the amount of a partner's pro rata share of net income 
 33.22  which does not flow through to the partner because the 
 33.23  partnership elected to pay the tax on the income under section 
 33.24  6242(a)(2) of the Internal Revenue Code. 
 33.25     Sec. 5.  Minnesota Statutes 1997 Supplement, section 
 33.26  290.01, subdivision 31, is amended to read: 
 33.27     Subd. 31.  [INTERNAL REVENUE CODE.] Unless specifically 
 33.28  defined otherwise, "Internal Revenue Code" means the Internal 
 33.29  Revenue Code of 1986, as amended through December 31, ~~1996, and~~ 
 33.30  ~~includes the provisions of section 1(a) and (b) of Public Law~~ 
 33.31  ~~Number 104-117~~ 1997. 
 33.32     Sec. 6.  Minnesota Statutes 1996, section 290.06, 
 33.33  subdivision 2c, is amended to read: 
 33.34     Subd. 2c.  [SCHEDULES OF RATES FOR INDIVIDUALS, ESTATES, 
 33.35  AND TRUSTS.] (a) The income taxes imposed by this chapter upon 
 33.36  married individuals filing joint returns and surviving spouses 
 34.1   as defined in section 2(a) of the Internal Revenue Code must be 
 34.2   computed by applying to their taxable net income the following 
 34.3   schedule of rates: 
 34.4      (1) On the first $19,910, 6 percent; 
 34.5      (2) On all over $19,910, but not over $79,120, 8 percent; 
 34.6      (3) On all over $79,120, 8.5 percent. 
 34.7      Married individuals filing separate returns, estates, and 
 34.8   trusts must compute their income tax by applying the above rates 
 34.9   to their taxable income, except that the income brackets will be 
 34.10  one-half of the above amounts.  
 34.11     (b) The income taxes imposed by this chapter upon unmarried 
 34.12  individuals must be computed by applying to taxable net income 
 34.13  the following schedule of rates: 
 34.14     (1) On the first $13,620, 6 percent; 
 34.15     (2) On all over $13,620, but not over $44,750, 8 percent; 
 34.16     (3) On all over $44,750, 8.5 percent. 
 34.17     (c) The income taxes imposed by this chapter upon unmarried 
 34.18  individuals qualifying as a head of household as defined in 
 34.19  section 2(b) of the Internal Revenue Code must be computed by 
 34.20  applying to taxable net income the following schedule of rates: 
 34.21     (1) On the first $16,770, 6 percent; 
 34.22     (2) On all over $16,770, but not over $67,390, 8 percent; 
 34.23     (3) On all over $67,390, 8.5 percent. 
 34.24     (d) In lieu of a tax computed according to the rates set 
 34.25  forth in this subdivision, the tax of any individual taxpayer 
 34.26  whose taxable net income for the taxable year is less than an 
 34.27  amount determined by the commissioner must be computed in 
 34.28  accordance with tables prepared and issued by the commissioner 
 34.29  of revenue based on income brackets of not more than $100.  The 
 34.30  amount of tax for each bracket shall be computed at the rates 
 34.31  set forth in this subdivision, provided that the commissioner 
 34.32  may disregard a fractional part of a dollar unless it amounts to 
 34.33  50 cents or more, in which case it may be increased to $1. 
 34.34     (e) An individual who is not a Minnesota resident for the 
 34.35  entire year must compute the individual's Minnesota income tax 
 34.36  as provided in this subdivision.  After the application of the 
 35.1   nonrefundable credits provided in this chapter, the tax 
 35.2   liability must then be multiplied by a fraction in which:  
 35.3      (1) The numerator is the individual's Minnesota source 
 35.4   federal adjusted gross income as defined in section 62 of the 
 35.5   Internal Revenue Code increased by the ~~addition~~ additions 
 35.6   required ~~for interest income from non-Minnesota state and~~ 
 35.7   ~~municipal bonds~~ under section 290.01, subdivision 19a, ~~clause~~ 
 35.8   clauses (1) and (7), after applying the allocation and 
 35.9   assignability provisions of section 290.081, clause (a), or 
 35.10  290.17; and 
 35.11     (2) the denominator is the individual's federal adjusted 
 35.12  gross income as defined in section 62 of the Internal Revenue 
 35.13  Code of 1986, ~~as amended through April 15, 1995,~~ increased by 
 35.14  the ~~addition required for interest income from non-Minnesota~~ 
 35.15  ~~state and municipal bonds~~ amounts specified under section 
 35.16  290.01, subdivision 19a, ~~clause~~ clauses (1) and (7). 
 35.17     Sec. 7.  Minnesota Statutes 1996, section 290.067, 
 35.18  subdivision 2a, is amended to read: 
 35.19     Subd. 2a.  [INCOME.] (a) For purposes of this section, 
 35.20  "income" means the sum of the following: 
 35.21     (1) federal adjusted gross income as defined in section 62 
 35.22  of the Internal Revenue Code; and 
 35.23     (2) the sum of the following amounts to the extent not 
 35.24  included in clause (1): 
 35.25     (i) all nontaxable income; 
 35.26     (ii) the amount of a passive activity loss that is not 
 35.27  disallowed as a result of section 469, paragraph (i) or (m) of 
 35.28  the Internal Revenue Code and the amount of passive activity 
 35.29  loss carryover allowed under section 469(b) of the Internal 
 35.30  Revenue Code; 
 35.31     (iii) an amount equal to the total of any discharge of 
 35.32  qualified farm indebtedness of a solvent individual excluded 
 35.33  from gross income under section 108(g) of the Internal Revenue 
 35.34  Code; 
 35.35     (iv) cash public assistance and relief; 
 35.36     (v) any pension or annuity (including railroad retirement 
 36.1   benefits, all payments received under the federal Social 
 36.2   Security Act, supplemental security income, and veterans 
 36.3   benefits), which was not exclusively funded by the claimant or 
 36.4   spouse, or which was funded exclusively by the claimant or 
 36.5   spouse and which funding payments were excluded from federal 
 36.6   adjusted gross income in the years when the payments were made; 
 36.7      (vi) interest received from the federal or a state 
 36.8   government or any instrumentality or political subdivision 
 36.9   thereof; 
 36.10     (vii) workers' compensation; 
 36.11     (viii) nontaxable strike benefits; 
 36.12     (ix) the gross amounts of payments received in the nature 
 36.13  of disability income or sick pay as a result of accident, 
 36.14  sickness, or other disability, whether funded through insurance 
 36.15  or otherwise; 
 36.16     (x) a lump sum distribution under section 402(e)(3) of the 
 36.17  Internal Revenue Code; 
 36.18     (xi) contributions made by the claimant to an individual 
 36.19  retirement account, including a qualified voluntary employee 
 36.20  contribution; simplified employee pension plan; self-employed 
 36.21  retirement plan; cash or deferred arrangement plan under section 
 36.22  401(k) of the Internal Revenue Code; or deferred compensation 
 36.23  plan under section 457 of the Internal Revenue Code; and 
 36.24     (xii) nontaxable scholarship or fellowship grants. 
 36.25     In the case of an individual who files an income tax return 
 36.26  on a fiscal year basis, the term "federal adjusted gross income" 
 36.27  means federal adjusted gross income reflected in the fiscal year 
 36.28  ending in the next calendar year.  Federal adjusted gross income 
 36.29  may not be reduced by the amount of a net operating loss 
 36.30  carryback or carryforward or a capital loss carryback or 
 36.31  carryforward allowed for the year. 
 36.32     (b) "Income" does not include: 
 36.33     (1) amounts excluded pursuant to the Internal Revenue Code, 
 36.34  sections 101(a)~~,~~ and 102~~, and 121~~; 
 36.35     (2) amounts of any pension or annuity that were exclusively 
 36.36  funded by the claimant or spouse if the funding payments were 
 37.1   not excluded from federal adjusted gross income in the years 
 37.2   when the payments were made; 
 37.3      (3) surplus food or other relief in kind supplied by a 
 37.4   governmental agency; 
 37.5      (4) relief granted under chapter 290A; and 
 37.6      (5) child support payments received under a temporary or 
 37.7   final decree of dissolution or legal separation. 
 37.8      Sec. 8.  Minnesota Statutes 1997 Supplement, section 
 37.9   290.0671, subdivision 1, is amended to read: 
 37.10     Subdivision 1.  [CREDIT ALLOWED.] An individual is allowed 
 37.11  a credit against the tax imposed by this chapter equal to a 
 37.12  percentage of the credit for which the individual is eligible 
 37.13  under section 32 of the Internal Revenue Code disregarding the 
 37.14  supplemental child credit of clause (m)[(n)].  The percentage is 
 37.15  15 for individuals without a qualifying child, and 25 for 
 37.16  individuals with at least one qualifying child.  For purposes of 
 37.17  this section, "qualifying child" has the meaning given in 
 37.18  section 32(c)(3) of the Internal Revenue Code. 
 37.19     For a nonresident or part-year resident, the credit 
 37.20  determined under section 32 of the Internal Revenue Code must be 
 37.21  allocated based on the percentage calculated under section 
 37.22  290.06, subdivision 2c, paragraph (e). 
 37.23     For a person who was a resident for the entire tax year and 
 37.24  has earned income not subject to tax under this chapter, the 
 37.25  credit must be allocated based on the ratio of federal adjusted 
 37.26  gross income reduced by the earned income not subject to tax 
 37.27  under this chapter over federal adjusted gross income. 
 37.28     Sec. 9.  Minnesota Statutes 1996, section 290.0921, 
 37.29  subdivision 3a, is amended to read: 
 37.30     Subd. 3a.  [EXEMPTIONS.] The following entities are exempt 
 37.31  from the tax imposed by this section: 
 37.32     (1) cooperatives taxable under subchapter T of the Internal 
 37.33  Revenue Code or organized under chapter 308 or a similar law of 
 37.34  another state; 
 37.35     (2) corporations subject to tax under section 60A.15, 
 37.36  subdivision 1; 
 38.1      (3) real estate investment trusts; 
 38.2      (4) regulated investment companies or a fund thereof; ~~and~~ 
 38.3      (5) entities having a valid election in effect under 
 38.4   section 860D(b) of the Internal Revenue Code~~.~~; and 
 38.5      (6) small corporations exempt from the federal alternative 
 38.6   minimum tax under section 55(e) of the Internal Revenue Code. 
 38.7      Sec. 10.  Minnesota Statutes 1996, section 290A.03, 
 38.8   subdivision 3, is amended to read: 
 38.9      Subd. 3.  [INCOME.] (1) "Income" means the sum of the 
 38.10  following:  
 38.11     (a) federal adjusted gross income as defined in the 
 38.12  Internal Revenue Code; and 
 38.13     (b) the sum of the following amounts to the extent not 
 38.14  included in clause (a):  
 38.15     (i) all nontaxable income; 
 38.16     (ii) the amount of a passive activity loss that is not 
 38.17  disallowed as a result of section 469, paragraph (i) or (m) of 
 38.18  the Internal Revenue Code and the amount of passive activity 
 38.19  loss carryover allowed under section 469(b) of the Internal 
 38.20  Revenue Code; 
 38.21     (iii) an amount equal to the total of any discharge of 
 38.22  qualified farm indebtedness of a solvent individual excluded 
 38.23  from gross income under section 108(g) of the Internal Revenue 
 38.24  Code; 
 38.25     (iv) cash public assistance and relief; 
 38.26     (v) any pension or annuity (including railroad retirement 
 38.27  benefits, all payments received under the federal Social 
 38.28  Security Act, supplemental security income, and veterans 
 38.29  benefits), which was not exclusively funded by the claimant or 
 38.30  spouse, or which was funded exclusively by the claimant or 
 38.31  spouse and which funding payments were excluded from federal 
 38.32  adjusted gross income in the years when the payments were made; 
 38.33     (vi) interest received from the federal or a state 
 38.34  government or any instrumentality or political subdivision 
 38.35  thereof; 
 38.36     (vii) workers' compensation; 
 39.1      (viii) nontaxable strike benefits; 
 39.2      (ix) the gross amounts of payments received in the nature 
 39.3   of disability income or sick pay as a result of accident, 
 39.4   sickness, or other disability, whether funded through insurance 
 39.5   or otherwise; 
 39.6      (x) a lump sum distribution under section 402(e)(3) of the 
 39.7   Internal Revenue Code; 
 39.8      (xi) contributions made by the claimant to an individual 
 39.9   retirement account, including a qualified voluntary employee 
 39.10  contribution; simplified employee pension plan; self-employed 
 39.11  retirement plan; cash or deferred arrangement plan under section 
 39.12  401(k) of the Internal Revenue Code; or deferred compensation 
 39.13  plan under section 457 of the Internal Revenue Code; and 
 39.14     (xii) nontaxable scholarship or fellowship grants.  
 39.15     In the case of an individual who files an income tax return 
 39.16  on a fiscal year basis, the term "federal adjusted gross income" 
 39.17  shall mean federal adjusted gross income reflected in the fiscal 
 39.18  year ending in the calendar year.  Federal adjusted gross income 
 39.19  shall not be reduced by the amount of a net operating loss 
 39.20  carryback or carryforward or a capital loss carryback or 
 39.21  carryforward allowed for the year.  
 39.22     (2) "Income" does not include 
 39.23     (a) amounts excluded pursuant to the Internal Revenue Code, 
 39.24  sections 101(a)~~,~~ and 102~~, and 121~~; 
 39.25     (b) amounts of any pension or annuity which was exclusively 
 39.26  funded by the claimant or spouse and which funding payments were 
 39.27  not excluded from federal adjusted gross income in the years 
 39.28  when the payments were made; 
 39.29     (c) surplus food or other relief in kind supplied by a 
 39.30  governmental agency; 
 39.31     (d) relief granted under this chapter; or 
 39.32     (e) child support payments received under a temporary or 
 39.33  final decree of dissolution or legal separation.  
 39.34     (3) The sum of the following amounts may be subtracted from 
 39.35  income:  
 39.36     (a) for the claimant's first dependent, the exemption 
 40.1   amount multiplied by 1.4; 
 40.2      (b) for the claimant's second dependent, the exemption 
 40.3   amount multiplied by 1.3; 
 40.4      (c) for the claimant's third dependent, the exemption 
 40.5   amount multiplied by 1.2; 
 40.6      (d) for the claimant's fourth dependent, the exemption 
 40.7   amount multiplied by 1.1; 
 40.8      (e) for the claimant's fifth dependent, the exemption 
 40.9   amount; and 
 40.10     (f) if the claimant or claimant's spouse was disabled or 
 40.11  attained the age of 65 on or before December 31 of the year for 
 40.12  which the taxes were levied or rent paid, the exemption amount.  
 40.13     For purposes of this subdivision, the "exemption amount" 
 40.14  means the exemption amount under section 151(d) of the Internal 
 40.15  Revenue Code for the taxable year for which the income is 
 40.16  reported.  
 40.17     Sec. 11.  Minnesota Statutes 1997 Supplement, section 
 40.18  290A.03, subdivision 15, is amended to read: 
 40.19     Subd. 15.  [INTERNAL REVENUE CODE.] "Internal Revenue Code" 
 40.20  means the Internal Revenue Code of 1986, as amended through 
 40.21  December 31, ~~1996~~ 1997. 
 40.22     Sec. 12.  Minnesota Statutes 1997 Supplement, section 
 40.23  291.005, subdivision 1, is amended to read: 
 40.24     Subdivision 1.  Unless the context otherwise clearly 
 40.25  requires, the following terms used in this chapter shall have 
 40.26  the following meanings: 
 40.27     (1) "Federal gross estate" means the gross estate of a 
 40.28  decedent as valued and otherwise determined for federal estate 
 40.29  tax purposes by federal taxing authorities pursuant to the 
 40.30  provisions of the Internal Revenue Code. 
 40.31     (2) "Minnesota gross estate" means the federal gross estate 
 40.32  of a decedent after (a) excluding therefrom any property 
 40.33  included therein which has its situs outside Minnesota and (b) 
 40.34  including therein any property omitted from the federal gross 
 40.35  estate which is includable therein, has its situs in Minnesota, 
 40.36  and was not disclosed to federal taxing authorities.  
 41.1      (3) "Personal representative" means the executor, 
 41.2   administrator or other person appointed by the court to 
 41.3   administer and dispose of the property of the decedent.  If 
 41.4   there is no executor, administrator or other person appointed, 
 41.5   qualified, and acting within this state, then any person in 
 41.6   actual or constructive possession of any property having a situs 
 41.7   in this state which is included in the federal gross estate of 
 41.8   the decedent shall be deemed to be a personal representative to 
 41.9   the extent of the property and the Minnesota estate tax due with 
 41.10  respect to the property. 
 41.11     (4) "Resident decedent" means an individual whose domicile 
 41.12  at the time of death was in Minnesota. 
 41.13     (5) "Nonresident decedent" means an individual whose 
 41.14  domicile at the time of death was not in Minnesota. 
 41.15     (6) "Situs of property" means, with respect to real 
 41.16  property, the state or country in which it is located; with 
 41.17  respect to tangible personal property, the state or country in 
 41.18  which it was normally kept or located at the time of the 
 41.19  decedent's death; and with respect to intangible personal 
 41.20  property, the state or country in which the decedent was 
 41.21  domiciled at death. 
 41.22     (7) "Commissioner" means the commissioner of revenue or any 
 41.23  person to whom the commissioner has delegated functions under 
 41.24  this chapter. 
 41.25     (8) "Internal Revenue Code" means the United States 
 41.26  Internal Revenue Code of 1986, as amended through December 31, 
 41.27  ~~1996, and includes the provisions of section 1(a)(4) of Public~~ 
 41.28  ~~Law Number 104-117~~ 1997. 
 41.29     Sec. 13.  [EFFECTIVE DATES.] 
 41.30     Sections 1, 3, 4, and 6 to 10 are effective for tax years 
 41.31  beginning after December 31, 1997.  Sections 5, 11, and 12 are 
 41.32  effective at the same time federal changes made by the Taxpayer 
 41.33  Relief Act of 1997, Public Law Number 105-34, which are 
 41.34  incorporated into Minnesota Statutes, chapters 290, 290A, and 
 41.35  291 by these sections become effective for federal tax purposes. 
 41.36                             ARTICLE 3 
 42.1                            PROPERTY TAXES 
 42.2      Section 1.  Minnesota Statutes 1997 Supplement, section 
 42.3   272.115, subdivision 4, is amended to read: 
 42.4      Subd. 4.  [ELIGIBILITY FOR HOMESTEAD STATUS.] No real 
 42.5   estate sold or transferred ~~on or after January 1, 1993,~~ for 
 42.6   which a certificate of real estate value is required under 
 42.7   ~~subdivision 1~~ this section shall be classified as a homestead, 
 42.8   unless ~~(1)~~ a certificate of value has been filed with the county 
 42.9   auditor in accordance with this section~~, or (2) the real estate~~ 
 42.10  ~~was conveyed by the federal government, the state, a political~~ 
 42.11  ~~subdivision of the state, or combination of them to a person~~ 
 42.12  ~~otherwise eligible to receive homestead classification of the~~ 
 42.13  ~~property~~. 
 42.14     This subdivision shall apply to any real estate taxes that 
 42.15  are payable the year or years following the sale or transfer of 
 42.16  the property. 
 42.17     Sec. 2.  Minnesota Statutes 1997 Supplement, section 
 42.18  272.115, subdivision 5, is amended to read: 
 42.19     Subd. 5.  [EXEMPTION FOR GOVERNMENT BODIES.] A certificate 
 42.20  of real estate value is not required when the real estate is 
 42.21  being conveyed to ~~or by a public authority or agency of the~~ 
 42.22  ~~federal government,~~ the ~~state of~~ Minnesota department of 
 42.23  transportation, a political subdivision of the state, or any 
 42.24  combination of them, for highway or roadway right-of-way 
 42.25  purposes, provided that the ~~authority,~~ agency~~,~~ or governmental 
 42.26  unit has agreed to file a list of the real estate conveyed ~~by or~~ 
 42.27  to the ~~authority,~~ agency~~,~~ or governmental unit with the 
 42.28  commissioner of revenue by June 1 of the year following the year 
 42.29  of the conveyance. 
 42.30     Sec. 3.  Minnesota Statutes 1997 Supplement, section 
 42.31  275.70, is amended by adding a subdivision to read: 
 42.32     Subd. 6.  [MATCHING FUND REQUIREMENTS.] The special levy 
 42.33  provided in subdivision 5, clause (8), does not include the 
 42.34  increased direct and indirect costs related to general increases 
 42.35  in program costs where there is no mandated increase regarding 
 42.36  the matching fund requirements.  Specifically, but without 
 43.1   limitation, the following provisions apply to the special levy 
 43.2   authorization in subdivision 5, clause (8):  (1) increases in 
 43.3   direct or indirect income maintenance administrative costs are 
 43.4   not included; (2) increases for social services and social 
 43.5   services administration are included, but only to the extent 
 43.6   that the minimum local share amount needed to receive community 
 43.7   social service aids exceeds the amount levied for social 
 43.8   services and social services administration for the taxes 
 43.9   payable year 1997; and (3) increases in county costs for Title 
 43.10  IV-E Foster Care Services over the amount levied for the taxes 
 43.11  payable year 1997 are included to the extent the amount from 
 43.12  both years represents the local matching fund requirement for 
 43.13  the federal grant.  
 43.14     Sec. 4.  [EFFECTIVE DATE.] 
 43.15     Sections 1 and 2 are effective for real estate sales and 
 43.16  transfers occurring on or after July 1, 1998.  Section 3 is 
 43.17  effective for taxes payable in 1998 and 1999.  
 43.18                             ARTICLE 4 
 43.19                            COLLECTIONS 
 43.20     Section 1.  Minnesota Statutes 1997 Supplement, section 
 43.21  270.67, subdivision 2, is amended to read: 
 43.22     Subd. 2.  [EXTENSION AGREEMENTS.] When any portion of any 
 43.23  tax payable to the commissioner of revenue together with 
 43.24  interest and penalty thereon, if any, has not been paid, the 
 43.25  commissioner may extend the time for payment for a further 
 43.26  period.  When the authority of this section is invoked, the 
 43.27  extension shall be evidenced by written agreement signed by the 
 43.28  taxpayer and the commissioner, stating the amount of the tax 
 43.29  with penalty and interest, if any, and providing for the payment 
 43.30  of the amount in installments.  The agreement may contain a 
 43.31  confession of judgment for the amount and for any unpaid portion 
 43.32  thereof and shall provide that the commissioner may forthwith 
 43.33  enter judgment against the taxpayer in the district court of the 
 43.34  county of residence as shown upon the taxpayer's tax return for 
 43.35  the unpaid portion of the amount specified in the extension 
 43.36  agreement.  The agreement shall provide that it can be 
 44.1   terminated, after notice by the commissioner, if information 
 44.2   provided by the taxpayer prior to the agreement was inaccurate 
 44.3   or incomplete, collection of the tax covered by the agreement is 
 44.4   in jeopardy, there is a subsequent change in the taxpayer's 
 44.5   financial condition, the taxpayer has failed to make a payment 
 44.6   due under the agreement, or has failed to pay any other tax or 
 44.7   file a tax return coming due after the agreement.  The notice 
 44.8   must be given at least 14 calendar days prior to termination, 
 44.9   and shall advise the taxpayer of the right to request a 
 44.10  reconsideration from the commissioner of whether termination is 
 44.11  reasonable and appropriate under the circumstances.  A request 
 44.12  for reconsideration does not stay collection action beyond the 
 44.13  14-day notice period.  If the commissioner has reason to believe 
 44.14  that collection of the tax covered by the agreement is in 
 44.15  jeopardy, the commissioner may proceed under sections 270.70, 
 44.16  subdivision 2, paragraph (b), and 270.274, and terminate the 
 44.17  agreement without regard to the 14-day period.  The commissioner 
 44.18  may accept other collateral the commissioner considers 
 44.19  appropriate to secure satisfaction of the tax liability.  The 
 44.20  principal sum specified in the agreement shall bear interest at 
 44.21  the rate specified in section 270.75 on all unpaid portions 
 44.22  thereof until the same has been fully paid or the unpaid portion 
 44.23  thereof has been entered as a judgment.  The judgment shall bear 
 44.24  interest at the rate specified in section 270.75.  If it appears 
 44.25  to the commissioner that the tax reported by the taxpayer is in 
 44.26  excess of the amount actually owing by the taxpayer, the 
 44.27  extension agreement or the judgment entered pursuant thereto 
 44.28  shall be corrected.  If after making the extension agreement or 
 44.29  entering judgment with respect thereto, the commissioner 
 44.30  determines that the tax as reported by the taxpayer is less than 
 44.31  the amount actually due, the commissioner shall assess a further 
 44.32  tax in accordance with the provisions of law applicable to the 
 44.33  tax.  The authority granted to the commissioner by this section 
 44.34  is in addition to any other authority granted to the 
 44.35  commissioner by law to extend the time of payment or the time 
 44.36  for filing a return and shall not be construed in limitation 
 45.1   thereof. 
 45.2      Sec. 2.  [EFFECTIVE DATE.] 
 45.3      Section 1 is effective the day following final enactment.