1.1                          A bill for an act 
  1.2             relating to taxation; eliminating the sales tax 
  1.3             exemption for special tooling and the reduced sales 
  1.4             tax rate for replacement capital equipment; using the 
  1.5             proceeds to increase education funding; amending 
  1.6             Minnesota Statutes 1994, sections 124A.22, subdivision 
  1.7             2; 297A.01, subdivision 16; 297A.02, subdivision 2; 
  1.8             and 297A.15, subdivision 5; repealing Minnesota 
  1.9             Statutes 1994, sections 297A.02, subdivision 5; and 
  1.10            297A.25, subdivision 53. 
  1.11  BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
  1.12     Section 1.  Minnesota Statutes 1994, section 124A.22, 
  1.13  subdivision 2, is amended to read: 
  1.14     Subd. 2.  [BASIC REVENUE.] The basic revenue for each 
  1.15  district equals the formula allowance times the actual pupil 
  1.16  units for the school year.  ~~The formula allowance for fiscal~~ 
  1.17  ~~years 1993 and 1994 is $3,050.~~  The formula allowance for fiscal 
  1.18  year 1995 ~~and subsequent fiscal years~~ is $3,150.  The formula 
  1.19  allowance for fiscal year 1996 is $3,178.  The formula allowance 
  1.20  for fiscal year 1997 is $3,190.  The formula allowance for 
  1.21  fiscal year 1998 is $3,206.  The formula allowance for fiscal 
  1.22  year 1999 and subsequent fiscal years is $3,222. 
  1.23     Sec. 2.  Minnesota Statutes 1994, section 297A.01, 
  1.24  subdivision 16, is amended to read: 
  1.25     Subd. 16.  [CAPITAL EQUIPMENT.] (a) Capital equipment means 
  1.26  machinery and equipment purchased or leased for use in this 
  1.27  state and used by the purchaser or lessee primarily for 
  1.28  manufacturing, fabricating, mining, or refining tangible 
  2.1   personal property to be sold ultimately at retail and for 
  2.2   electronically transmitting results retrieved by a customer of 
  2.3   an on-line computerized data retrieval system.  
  2.4      (b) Capital equipment includes all machinery and equipment 
  2.5   that is essential to the integrated production process.  Capital 
  2.6   equipment includes, but is not limited to: 
  2.7      (1) machinery and equipment used or required to operate, 
  2.8   control, or regulate the production equipment; 
  2.9      (2) machinery and equipment used for research and 
  2.10  development, design, quality control, and testing activities; 
  2.11     (3) environmental control devices that are used to maintain 
  2.12  conditions such as temperature, humidity, light, or air pressure 
  2.13  when those conditions are essential to and are part of the 
  2.14  production process; or 
  2.15     (4) materials and supplies necessary to construct and 
  2.16  install machinery or equipment. 
  2.17     (c) Capital equipment does not include the following: 
  2.18     (1) repair or replacement parts, including accessories, 
  2.19  whether purchased as spare parts, repair parts, or as upgrades 
  2.20  or modifications, and whether purchased before or after the 
  2.21  machinery or equipment is placed into service.  Parts or 
  2.22  accessories are treated as capital equipment only to the extent 
  2.23  that they are a part of and are essential to the operation of 
  2.24  the machinery or equipment as initially purchased; 
  2.25     (2) motor vehicles taxed under chapter 297B; 
  2.26     (3) machinery or equipment used to receive or store raw 
  2.27  materials; 
  2.28     (4) building materials; 
  2.29     (5) machinery or equipment used for nonproduction purposes, 
  2.30  including, but not limited to, the following:  machinery and 
  2.31  equipment used for plant security, fire prevention, first aid, 
  2.32  and hospital stations; machinery and equipment used in support 
  2.33  operations or for administrative purposes; machinery and 
  2.34  equipment used solely for pollution control, prevention, or 
  2.35  abatement; and machinery and equipment used in plant cleaning, 
  2.36  disposal of scrap and waste, plant communications, space 
  3.1   heating, lighting, or safety; 
  3.2      (6) "farm machinery" as defined by subdivision 15, 
  3.3   "aquaculture production equipment" as defined by subdivision 19, 
  3.4   and "replacement capital equipment" as defined by subdivision 
  3.5   20; ~~or~~ 
  3.6      (7) special tooling as defined by subdivision 17; or 
  3.7      (8) any other item that is not essential to the integrated 
  3.8   process of manufacturing, fabricating, mining, or refining. 
  3.9      (d) For purposes of this subdivision: 
  3.10     (1) "Equipment" means independent devices or tools separate 
  3.11  from machinery but essential to an integrated production 
  3.12  process, including computers and software, used in operating 
  3.13  machinery and equipment; and any subunit or assembly comprising 
  3.14  a component of any machinery or accessory or attachment parts of 
  3.15  machinery, such as tools, dies, jigs, patterns, and molds. 
  3.16     (2) "Fabricating" means to make, build, create, produce, or 
  3.17  assemble components or property to work in a new or different 
  3.18  manner. 
  3.19     (3) "Machinery" means mechanical, electronic, or electrical 
  3.20  devices, including computers and software, that are purchased or 
  3.21  constructed to be used for the activities set forth in paragraph 
  3.22  (a), beginning with the removal of raw materials from inventory 
  3.23  through the completion of the product, including packaging of 
  3.24  the product. 
  3.25     (4) "Manufacturing" means an operation or series of 
  3.26  operations where raw materials are changed in form, composition, 
  3.27  or condition by machinery and equipment and which results in the 
  3.28  production of a new article of tangible personal property.  For 
  3.29  purposes of this subdivision, "manufacturing" includes the 
  3.30  generation of electricity or steam to be sold at retail. 
  3.31     (5) "Mining" means the extraction of minerals, ores, stone, 
  3.32  and peat. 
  3.33     (6) "On-line data retrieval system" means a system whose 
  3.34  cumulation of information is equally available and accessible to 
  3.35  all its customers. 
  3.36     (7) "Pollution control equipment" means machinery and 
  4.1   equipment used to eliminate, prevent, or reduce pollution 
  4.2   resulting from an activity described in paragraph (a).  
  4.3      (8) "Primarily" means machinery and equipment used 50 
  4.4   percent or more of the time in an activity described in 
  4.5   paragraph (a). 
  4.6      (9) "Refining" means the process of converting a natural 
  4.7   resource to a product, including the treatment of water to be 
  4.8   sold at retail. 
  4.9      (e) For purposes of this subdivision the requirement that 
  4.10  the machinery or equipment "must be used by the purchaser or 
  4.11  lessee" means that the person who purchases or leases the 
  4.12  machinery or equipment must be the one who uses it for the 
  4.13  qualifying purpose.  When a contractor buys and installs 
  4.14  machinery or equipment as part of an improvement to real 
  4.15  property, only the contractor is considered the purchaser. 
  4.16     (f) Notwithstanding prior provisions of this subdivision, 
  4.17  machinery and equipment purchased or leased to replace machinery 
  4.18  and equipment used in the mining or production of taconite shall 
  4.19  qualify as capital equipment. 
  4.20     Sec. 3.  Minnesota Statutes 1994, section 297A.02, 
  4.21  subdivision 2, is amended to read: 
  4.22     Subd. 2.  [MACHINERY AND EQUIPMENT.] Notwithstanding the 
  4.23  provisions of subdivision 1, the rate of the excise tax imposed 
  4.24  upon sales of farm machinery and aquaculture production 
  4.25  equipment is 2.5 percent, and the rate of the excise tax imposed 
  4.26  upon sales of special tooling is four percent. 
  4.27     Sec. 4.  Minnesota Statutes 1994, section 297A.15, 
  4.28  subdivision 5, is amended to read: 
  4.29     Subd. 5.  [REFUND; APPROPRIATION.] Notwithstanding the 
  4.30  provisions of ~~sections 297A.02, subdivision 5, and~~ section 
  4.31  297A.25, subdivisions 42 and 50, the tax on sales of capital 
  4.32  equipment~~, replacement capital equipment,~~ and construction 
  4.33  materials and supplies under section 297A.25, subdivision 50, 
  4.34  shall be imposed and collected as if the rates under sections 
  4.35  297A.02, subdivision 1, and 297A.021, applied.  Upon application 
  4.36  by the purchaser, on forms prescribed by the commissioner, a 
  5.1   refund equal to the reduction in the tax due as a result of the 
  5.2   application of the exemption under section 297A.25, subdivision 
  5.3   42 or 50, ~~and the rates under sections 297A.02, subdivision 5,~~ 
  5.4   ~~and 297A.021~~ shall be paid to the purchaser.  In the case of 
  5.5   building materials qualifying under section 297A.25, subdivision 
  5.6   50, where the tax was paid by a contractor, application must be 
  5.7   made by the owner for the sales tax paid by all the contractors, 
  5.8   subcontractors, and builders for the project.  The application 
  5.9   must include sufficient information to permit the commissioner 
  5.10  to verify the sales tax paid for the project.  The application 
  5.11  shall include information necessary for the commissioner 
  5.12  initially to verify that the purchases qualified as capital 
  5.13  equipment under section 297A.25, subdivision 42, ~~replacement~~ 
  5.14  ~~capital equipment under section 297A.01, subdivision 20,~~ or 
  5.15  capital equipment or construction materials and supplies under 
  5.16  section 297A.25, subdivision 50.  No more than two applications 
  5.17  for refunds may be filed under this subdivision in a calendar 
  5.18  year.  No owner may apply for a refund based on the exemption 
  5.19  under section 297A.25, subdivision 50, before July 1, 1993.  
  5.20  Unless otherwise specifically provided by this subdivision, the 
  5.21  provisions of section 289A.40 apply to the refunds payable under 
  5.22  this subdivision.  There is annually appropriated to the 
  5.23  commissioner of revenue the amount required to make the refunds. 
  5.24     The amount to be refunded shall bear interest at the rate 
  5.25  in section 270.76 from the date the refund claim is filed with 
  5.26  the commissioner. 
  5.27     Sec. 5.  [REPEALER.] 
  5.28     Minnesota Statutes 1994, sections 297A.02, subdivision 5; 
  5.29  and 297A.25, subdivision 53, are repealed. 
  5.30     Sec. 6.  [EFFECTIVE DATE.] 
  5.31     Sections 2 to 5 are effective for sales after June 30, 1995.