1.1 	A bill for an act
1.2 	relating to taxes; changing the city local government aid program; changing 
1.3 	taxation of foreign operating corporations and dedicating the additional revenue 
1.4 	for property tax relief; amending Minnesota Statutes 2004, sections 290.17, 
1.5 	subdivision 4; 290.62; 477A.013, subdivision 9; Minnesota Statutes 2005 
1.6 	Supplement, sections 477A.011, subdivision 36; 477A.013, subdivision 8; 
1.7 	477A.03, subdivision 2a.
1.8 	BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:

1.9 	ARTICLE 1
1.10 	LOCAL GOVERNMENT AID

1.11 	Section 1. Minnesota Statutes 2005 Supplement, section 477A.011, subdivision 36, 
1.12 	is amended to read:
1.13 		Subd. 36.City aid base. (a) Except as otherwise provided in this subdivision, 
1.14 	"city aid base" is zero.
1.15 	(b) The city aid base for any city with a population less than 500 is increased by 
1.16 	$40,000 for aids payable in calendar year 1995 and thereafter, and the maximum amount 
1.17 	of total aid it may receive under section 477A.013, subdivision 9, paragraph (c), is also 
1.18 	increased by $40,000 for aids payable in calendar year 1995 only, provided that:
1.19 	(i) the average total tax capacity rate for taxes payable in 1995 exceeds 200 percent;
1.20 	(ii) the city portion of the tax capacity rate exceeds 100 percent; and
1.21 	(iii) its city aid base is less than $60 per capita.
1.22 	(c) The city aid base for a city is increased by $20,000 in 1998 and thereafter and 
1.23 	the maximum amount of total aid it may receive under section 477A.013, subdivision 9, 
1.24 	paragraph (c), is also increased by $20,000 in calendar year 1998 only, provided that:
1.25 	(i) the city has a population in 1994 of 2,500 or more;
2.1 	(ii) the city is located in a county, outside of the metropolitan area, which contains a 
2.2 	city of the first class;
2.3 	(iii) the city's net tax capacity used in calculating its 1996 aid under section 
2.4 	477A.013 is less than $400 per capita; and
2.5 	(iv) at least four percent of the total net tax capacity, for taxes payable in 1996, of 
2.6 	property located in the city is classified as railroad property.
2.7 	(d) The city aid base for a city is increased by $200,000 in 1999 and thereafter and 
2.8 	the maximum amount of total aid it may receive under section 477A.013, subdivision 9, 
2.9 	paragraph (c), is also increased by $200,000 in calendar year 1999 only, provided that:
2.10 	(i) the city was incorporated as a statutory city after December 1, 1993;
2.11 	(ii) its city aid base does not exceed $5,600; and
2.12 	(iii) the city had a population in 1996 of 5,000 or more.
2.13 	(e) The city aid base for a city is increased by $450,000 in 1999 to 2008 and the 
2.14 	maximum amount of total aid it may receive under section 477A.013, subdivision 9, 
2.15 	paragraph (c), is also increased by $450,000 in calendar year 1999 only, provided that:
2.16 	(i) the city had a population in 1996 of at least 50,000;
2.17 	(ii) its population had increased by at least 40 percent in the ten-year period ending 
2.18 	in 1996; and
2.19 	(iii) its city's net tax capacity for aids payable in 1998 is less than $700 per capita.
2.20 	(f) The city aid base for a city is increased by $150,000 for aids payable in 2000 and 
2.21 	thereafter, and the maximum amount of total aid it may receive under section 477A.013, 
2.22 	subdivision 9, paragraph (c), is also increased by $150,000 in calendar year 2000 only, 
2.23 	provided that:
2.24 	(1) the city has a population that is greater than 1,000 and less than 2,500;
2.25 	(2) its commercial and industrial percentage for aids payable in 1999 is greater 
2.26 	than 45 percent; and
2.27 	(3) the total market value of all commercial and industrial property in the city 
2.28 	for assessment year 1999 is at least 15 percent less than the total market value of all 
2.29 	commercial and industrial property in the city for assessment year 1998.
2.30 	(g) The city aid base for a city is increased by $200,000 in 2000 and thereafter, and 
2.31 	the maximum amount of total aid it may receive under section 477A.013, subdivision 9, 
2.32 	paragraph (c), is also increased by $200,000 in calendar year 2000 only, provided that:
2.33 	(1) the city had a population in 1997 of 2,500 or more;
2.34 	(2) the net tax capacity of the city used in calculating its 1999 aid under section 
2.35 	477A.013 is less than $650 per capita;
3.1 	(3) the pre-1940 housing percentage of the city used in calculating 1999 aid under 
3.2 	section 477A.013 is greater than 12 percent;
3.3 	(4) the 1999 local government aid of the city under section 477A.013 is less than 
3.4 	20 percent of the amount that the formula aid of the city would have been if the need 
3.5 	increase percentage was 100 percent; and
3.6 	(5) the city aid base of the city used in calculating aid under section 477A.013
3.7 	is less than $7 per capita.
3.8 	(h) The city aid base for a city is increased by $102,000 in 2000 and thereafter, and 
3.9 	the maximum amount of total aid it may receive under section 477A.013, subdivision 9, 
3.10 	paragraph (c), is also increased by $102,000 in calendar year 2000 only, provided that:
3.11 	(1) the city has a population in 1997 of 2,000 or more;
3.12 	(2) the net tax capacity of the city used in calculating its 1999 aid under section 
3.13 	477A.013 is less than $455 per capita;
3.14 	(3) the net levy of the city used in calculating 1999 aid under section 477A.013 is 
3.15 	greater than $195 per capita; and
3.16 	(4) the 1999 local government aid of the city under section 477A.013 is less than 
3.17 	38 percent of the amount that the formula aid of the city would have been if the need 
3.18 	increase percentage was 100 percent.
3.19 	(i) The city aid base for a city is increased by $32,000 in 2001 and thereafter, and 
3.20 	the maximum amount of total aid it may receive under section 477A.013, subdivision 9, 
3.21 	paragraph (c), is also increased by $32,000 in calendar year 2001 only, provided that:
3.22 	(1) the city has a population in 1998 that is greater than 200 but less than 500;
3.23 	(2) the city's revenue need used in calculating aids payable in 2000 was greater 
3.24 	than $200 per capita;
3.25 	(3) the city net tax capacity for the city used in calculating aids available in 2000 
3.26 	was equal to or less than $200 per capita;
3.27 	(4) the city aid base of the city used in calculating aid under section 477A.013
3.28 	is less than $65 per capita; and
3.29 	(5) the city's formula aid for aids payable in 2000 was greater than zero.
3.30 	(j) The city aid base for a city is increased by $7,200 in 2001 and thereafter, and 
3.31 	the maximum amount of total aid it may receive under section 477A.013, subdivision 9, 
3.32 	paragraph (c), is also increased by $7,200 in calendar year 2001 only, provided that:
3.33 	(1) the city had a population in 1998 that is greater than 200 but less than 500;
3.34 	(2) the city's commercial industrial percentage used in calculating aids payable in 
3.35 	2000 was less than ten percent;
4.1 	(3) more than 25 percent of the city's population was 60 years old or older according 
4.2 	to the 1990 census;
4.3 	(4) the city aid base of the city used in calculating aid under section 477A.013
4.4 	is less than $15 per capita; and
4.5 	(5) the city's formula aid for aids payable in 2000 was greater than zero.
4.6 	(k) The city aid base for a city is increased by $45,000 in 2001 and thereafter and 
4.7 	by an additional $50,000 in calendar years 2002 to 2011, and the maximum amount of 
4.8 	total aid it may receive under section 477A.013, subdivision 9, paragraph (c), is also 
4.9 	increased by $45,000 in calendar year 2001 only, and by $50,000 in calendar year 2002 
4.10 	only, provided that:
4.11 	(1) the net tax capacity of the city used in calculating its 2000 aid under section 
4.12 	477A.013 is less than $810 per capita;
4.13 	(2) the population of the city declined more than two percent between 1988 and 1998;
4.14 	(3) the net levy of the city used in calculating 2000 aid under section 477A.013 is 
4.15 	greater than $240 per capita; and
4.16 	(4) the city received less than $36 per capita in aid under section 477A.013, 
4.17 	subdivision 9, for aids payable in 2000.
4.18 	(l) The city aid base for a city with a population of 10,000 or more which is located 
4.19 	outside of the seven-county metropolitan area is increased in 2002 and thereafter, and the 
4.20 	maximum amount of total aid it may receive under section 477A.013, subdivision 9, 
4.21 	paragraph (b) or (c), is also increased in calendar year 2002 only, by an amount equal to 
4.22 	the lesser of:
4.23 	(1)(i) the total population of the city, as determined by the United States Bureau of 
4.24 	the Census, in the 2000 census, (ii) minus 5,000, (iii) times 60; or
4.25 	(2) $2,500,000.
4.26 	(m) The city aid base is increased by $50,000 in 2002 and thereafter, and the 
4.27 	maximum amount of total aid it may receive under section 477A.013, subdivision 9, 
4.28 	paragraph (c), is also increased by $50,000 in calendar year 2002 only, provided that:
4.29 	(1) the city is located in the seven-county metropolitan area;
4.30 	(2) its population in 2000 is between 10,000 and 20,000; and
4.31 	(3) its commercial industrial percentage, as calculated for city aid payable in 2001, 
4.32 	was greater than 25 percent.
4.33 	(n) The city aid base for a city is increased by $150,000 in calendar years 2002 
4.34 	to 2011 and the maximum amount of total aid it may receive under section 477A.013, 
4.35 	subdivision 9, paragraph (c), is also increased by $150,000 in calendar year 2002 only, 
4.36 	provided that:
5.1 	(1) the city had a population of at least 3,000 but no more than 4,000 in 1999;
5.2 	(2) its home county is located within the seven-county metropolitan area;
5.3 	(3) its pre-1940 housing percentage is less than 15 percent; and
5.4 	(4) its city net tax capacity per capita for taxes payable in 2000 is less than $900 
5.5 	per capita.
5.6 	(o) The city aid base for a city is increased by $200,000 beginning in calendar 
5.7 	year 2003 and the maximum amount of total aid it may receive under section 477A.013, 
5.8 	subdivision 9, paragraph (c), is also increased by $200,000 in calendar year 2003 only, 
5.9 	provided that the city qualified for an increase in homestead and agricultural credit aid 
5.10 	under Laws 1995, chapter 264, article 8, section 18.
5.11 	(p) The city aid base for a city is increased by $200,000 in 2004 only and the 
5.12 	maximum amount of total aid it may receive under section 477A.013, subdivision 9, is 
5.13 	also increased by $200,000 in calendar year 2004 only, if the city is the site of a nuclear 
5.14 	dry cask storage facility.
5.15 	(q) The city aid base for a city is increased by $10,000 in 2004 and thereafter and the 
5.16 	maximum total aid it may receive under section 477A.013, subdivision 9, is also increased 
5.17 	by $10,000 in calendar year 2004 only, if the city was included in a federal major disaster 
5.18 	designation issued on April 1, 1998, and its pre-1940 housing stock was decreased by 
5.19 	more than 40 percent between 1990 and 2000.
5.20 	(r) The city aid base for a city is increased by $25,000 in 2006 only and the 
5.21 	maximum total aid it may receive under section 477A.013, subdivision 9, is also increased 
5.22 	by $25,000 in calendar year 2006 only if the city had a population in 2003 of at least 1,000 
5.23 	and has a state park for which the city provides rescue services and which comprised at 
5.24 	least 14 percent of the total geographic area included within the city boundaries in 2000.
5.25 	(s) The city aid base for a city with a population less than 5,000 is increased in 
5.26 	2006 and thereafter and the minimum and maximum amount of total aid it may receive 
5.27 	under this section is also increased in calendar year 2006 only by an amount equal to 
5.28 	$6 multiplied by its population.
5.29 	(t) The city aid base for each city is increased by an amount equal to the city aid base 
5.30 	it received under Minnesota Statutes 2002, section 477A.011, subdivision 36, paragraphs 
5.31 	(a) and (b).

5.32 	EFFECTIVE DATE. This section is effective beginning with aids payable in 2007.

5.33 	Sec. 2. Minnesota Statutes 2005 Supplement, section 477A.013, subdivision 8, is 
5.34 	amended to read:
6.1 		Subd. 8.City formula aid. In calendar year 2004 and subsequent years, the 
6.2 	formula aid for a city is equal to the need increase percentage multiplied by the difference 
6.3 	between (1) the city's revenue need multiplied by its population, and (2) the sum of the 
6.4 	city's net tax capacity multiplied by the tax effort rate; the city's aid base under section 
6.5 	477A.011, subdivision 36, paragraph (t); the taconite aids under sections 298.28 and 
6.6 	298.282 to any city except a city directly impacted by a taconite mine or plant, multiplied 
6.7 	by the following percentages:
6.8 	(i) zero percent for aids payable in 2004;
6.9 	(ii) 25 percent for aids payable in 2005;
6.10 	(iii) 50 percent for aids payable in 2006;
6.11 	(iv) 75 percent for aids payable in 2007; and
6.12 	(v) 100 percent for aids payable in 2008 and thereafter.
6.13 	For purposes of this subdivision, "a city directly impacted by a taconite mine or 
6.14 	plant" means: (1) Babbit, (2) Eveleth, (3) Hibbing, (4) Keewatin, (5) Mountain Iron, (6) 
6.15 	Silver Bay, or (7) Virginia.
6.16 	No city may have a formula aid amount less than zero. The need increase percentage 
6.17 	must be the same for all cities.
6.18 	The applicable need increase percentage must be calculated by the Department of 
6.19 	Revenue so that the total of the aid under subdivision 9 equals the total amount available 
6.20 	for aid under section 477A.03 after the subtraction under section 477A.014, subdivisions 4 
6.21 	and 5. For aids payable in 2007 only, the need increase percentage is equal to 92 percent.

6.22 	EFFECTIVE DATE. This section is effective beginning with aids payable in 2007.

6.23 	Sec. 3. Minnesota Statutes 2004, section 477A.013, subdivision 9, is amended to read:
6.24 		Subd. 9.City aid distribution. (a) In calendar year 2002 and thereafter, each 
6.25 	city shall receive an aid distribution equal to the sum of (1) the city formula aid under 
6.26 	subdivision 8, and (2) its city aid base.
6.27 	(b) ~~The aid for a city in calendar year 2004 shall not exceed the amount of its aid in~~ 
6.28 	~~calendar year 2003 after the reductions under Laws 2003, First Special Session chapter~~ 
6.29 	~~21, article 5.~~ For aids payable in 2007 only, the total aid for any city shall not exceed 
6.30 	the greater of (1) the amount of city aid base the city receives under section 477A.011, 
6.31 	subdivision 36, or (2) the sum of ten percent of the city's net levy for the year prior to 
6.32 	the aid distribution plus its total aid in the previous year.
6.33 	(c) For aids payable in ~~2005~~2008 and thereafter, the total aid for any city shall 
6.34 	not exceed the sum of (1) ten percent of the city's net levy for the year prior to the aid 
7.1 	distribution plus (2) its total aid in the previous year. For aids payable in 2005 and 
7.2 	thereafter, the total aid for any city with a population of 2,500 or more may not decrease 
7.3 	from its total aid under this section in the previous year by an amount greater than ten 
7.4 	percent of its net levy in the year prior to the aid distribution.
7.5 	(d) For aids payable in 2004 only, the total aid for a city with a population less 
7.6 	than 2,500 may not be less than the amount it was certified to receive in 2003 minus the 
7.7 	greater of (1) the reduction to this aid payment in 2003 under Laws 2003, First Special 
7.8 	Session chapter 21, article 5, or (2) five percent of its 2003 aid amount. For aids payable 
7.9 	in 2005 and thereafter, the total aid for a city with a population less than 2,500 must not be 
7.10 	less than the amount it was certified to receive in the previous year minus five percent 
7.11 	of its 2003 certified aid amount.

7.12 	EFFECTIVE DATE. This section is effective beginning with aids payable in 2007.

7.13 	Sec. 4. Minnesota Statutes 2005 Supplement, section 477A.03, subdivision 2a, is 
7.14 	amended to read:
7.15 		Subd. 2a.Cities. For aids payable in 2004, the total aids paid under section 
7.16 	477A.013, subdivision 9, are limited to $429,000,000. For aids payable in 2005, the total 
7.17 	aids paid under section 477A.013, subdivision 9, are limited to $437,052,000. For aids 
7.18 	payable in 2006 ~~and thereafter~~, the total aids paid under section 477A.013, subdivision 
7.19 	9, is limited to $485,052,000. For aids payable in 2007, the total aids paid under section 
7.20 	477A.013, subdivision 9, is limited to $485,052,000 from the general fund with the 
7.21 	remaining amount paid from the property tax relief account. For aids payable in 2008 
7.22 	and thereafter, the total aids paid under section 477A.013, subdivision 9, is limited to 
7.23 	$485,052,000 from the general fund plus an amount from the property tax relief account 
7.24 	equal to the lesser of (1) the amount deposited in the account in the fiscal year ending June 
7.25 	30 of the year in which the aid is calculated, or (2) the amount needed to set the need 
7.26 	increase percentage under section 477A.013, subdivision 8, to 100 percent.

7.27 	EFFECTIVE DATE. This section is effective beginning with aids payable in 2007.

7.28 	ARTICLE 2
7.29 	ADDITIONAL TAX RELIEF REVENUES

7.30 	Section 1. Minnesota Statutes 2004, section 290.17, subdivision 4, is amended to read:
7.31 		Subd. 4.Unitary business principle. (a) If a trade or business conducted wholly 
7.32 	within this state or partly within and partly without this state is part of a unitary business, 
7.33 	the entire income of the unitary business is subject to apportionment pursuant to section  
8.1 	290.191. Notwithstanding subdivision 2, paragraph (c), none of the income of a unitary 
8.2 	business is considered to be derived from any particular source and none may be allocated 
8.3 	to a particular place except as provided by the applicable apportionment formula. The 
8.4 	provisions of this subdivision do not apply to business income subject to subdivision 5, 
8.5 	income of an insurance company, or income of an investment company determined under 
8.6 	section  290.36. 
8.7 	(b) The term "unitary business" means business activities or operations which 
8.8 	result in a flow of value between them. The term may be applied within a single legal 
8.9 	entity or between multiple entities and without regard to whether each entity is a sole 
8.10 	proprietorship, a corporation, a partnership or a trust.
8.11 	(c) Unity is presumed whenever there is unity of ownership, operation, and use, 
8.12 	evidenced by centralized management or executive force, centralized purchasing, 
8.13 	advertising, accounting, or other controlled interaction, but the absence of these 
8.14 	centralized activities will not necessarily evidence a nonunitary business. Unity is also 
8.15 	presumed when business activities or operations are of mutual benefit, dependent upon or 
8.16 	contributory to one another, either individually or as a group.
8.17 	(d) Where a business operation conducted in Minnesota is owned by a business 
8.18 	entity that carries on business activity outside the state different in kind from that 
8.19 	conducted within this state, and the other business is conducted entirely outside the state, it 
8.20 	is presumed that the two business operations are unitary in nature, interrelated, connected, 
8.21 	and interdependent unless it can be shown to the contrary.
8.22 	(e) Unity of ownership is not deemed to exist when a corporation is involved unless 
8.23 	that corporation is a member of a group of two or more business entities and more than 50 
8.24 	percent of the voting stock of each member of the group is directly or indirectly owned 
8.25 	by a common owner or by common owners, either corporate or noncorporate, or by one 
8.26 	or more of the member corporations of the group. For this purpose, the term "voting 
8.27 	stock" shall include membership interests of mutual insurance holding companies formed 
8.28 	under section  60A.077. 
8.29 	(f) The net income and apportionment factors under section  290.191 or  290.20 of 
8.30 	foreign corporations and other foreign entities which are part of a unitary business shall 
8.31 	not be included in the net income or the apportionment factors of the unitary business. 
8.32 	A foreign corporation or other foreign entity which is required to file a return under this 
8.33 	chapter shall file on a separate return basis. The net income and apportionment factors 
8.34 	under section  290.191 or  290.20 of foreign operating corporations shall not be included in 
8.35 	the net income or the apportionment factors of the unitary business except as provided in 
8.36 	paragraph (g). 
9.1 	(g) The adjusted net income of a foreign operating corporation shall be deemed to 
9.2 	be paid as a dividend on the last day of its taxable year to each shareholder thereof, in 
9.3 	proportion to each shareholder's ownership, with which such corporation is engaged in 
9.4 	a unitary business. Such deemed dividend shall be treated as a dividend under section  
9.5 	290.21, subdivision 4. The dividends received deduction is not allowed on dividends, 
9.6 	interest, royalties, capital gains, or other like income received by the foreign operating 
9.7 	corporation.
9.8 	Dividends actually paid by a foreign operating corporation to a corporate shareholder 
9.9 	which is a member of the same unitary business as the foreign operating corporation shall 
9.10 	be eliminated from the net income of the unitary business in preparing a combined report 
9.11 	for the unitary business. The adjusted net income of a foreign operating corporation 
9.12 	shall be its net income adjusted as follows:
9.13 	(1) any taxes paid or accrued to a foreign country, the commonwealth of Puerto 
9.14 	Rico, or a United States possession or political subdivision of any of the foregoing shall 
9.15 	be a deduction; and
9.16 	(2) the subtraction from federal taxable income for payments received from foreign 
9.17 	corporations or foreign operating corporations under section  290.01, subdivision 19d, 
9.18 	clause (10), shall not be allowed. 
9.19 	If a foreign operating corporation incurs a net loss, neither income nor deduction 
9.20 	from that corporation shall be included in determining the net income of the unitary 
9.21 	business.
9.22 	(h) For purposes of determining the net income of a unitary business and the factors 
9.23 	to be used in the apportionment of net income pursuant to section  290.191 or  290.20, there 
9.24 	must be included only the income and apportionment factors of domestic corporations or 
9.25 	other domestic entities other than foreign operating corporations that are determined to 
9.26 	be part of the unitary business pursuant to this subdivision, notwithstanding that foreign 
9.27 	corporations or other foreign entities might be included in the unitary business. 
9.28 	(i) Deductions for expenses, interest, or taxes otherwise allowable under this chapter 
9.29 	that are connected with or allocable against dividends, deemed dividends described 
9.30 	in paragraph (g), or royalties, fees, or other like income described in section  290.01, 
9.31 	subdivision 19d, clause (10), shall not be disallowed. 
9.32 	(j) Each corporation or other entity, except a sole proprietorship, that is part of a 
9.33 	unitary business must file combined reports as the commissioner determines. On the 
9.34 	reports, all intercompany transactions between entities included pursuant to paragraph 
9.35 	(h) must be eliminated and the entire net income of the unitary business determined in 
9.36 	accordance with this subdivision is apportioned among the entities by using each entity's 
10.1 	Minnesota factors for apportionment purposes in the numerators of the apportionment 
10.2 	formula and the total factors for apportionment purposes of all entities included pursuant 
10.3 	to paragraph (h) in the denominators of the apportionment formula.
10.4 	(k) If a corporation has been divested from a unitary business and is included in a 
10.5 	combined report for a fractional part of the common accounting period of the combined 
10.6 	report:
10.7 	(1) its income includable in the combined report is its income incurred for that part 
10.8 	of the year determined by proration or separate accounting; and
10.9 	(2) its sales, property, and payroll included in the apportionment formula must 
10.10 	be prorated or accounted for separately.

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

10.13 	Sec. 2. Minnesota Statutes 2004, section 290.62, is amended to read:
10.14 	290.62 DISTRIBUTION OF REVENUES.
10.15 		Subdivision 1.General fund. Except as provided in subdivision 2, all revenues 
10.16 	derived from the taxes, interest, penalties and charges under this chapter shall, 
10.17 	notwithstanding any other provisions of law, be paid into the state treasury and credited to 
10.18 	the general fund, and be distributed as follows:
10.19 	(1) There shall, notwithstanding any other provision of the law, be paid from this 
10.20 	general fund all refunds of taxes erroneously collected from taxpayers under this chapter 
10.21 	as provided herein;
10.22 	(2) There is hereby appropriated to the persons entitled to payment herein, from 
10.23 	the fund or account in the state treasury to which the money was credited, an amount 
10.24 	sufficient to make the refund and payment.
10.25 		Subd. 2.Tax relief account. All revenues derived from enactment of the provisions 
10.26 	in section 1 must be deposited in a property tax relief account in the special revenue fund. 
10.27 	Amounts in this account, along with its investment earnings, are credited to the account 
10.28 	and are available for appropriation to fund local government aid, other property tax relief 
10.29 	aids, and property tax refund payments.

10.30 	EFFECTIVE DATE. This section is effective the day after final enactment.