1.1 	A bill for an act
1.2 	relating to taxes; changing income, franchise,
1.3 	withholding, sales and use, gross revenues, insurance,
1.4 	property, and solid waste management taxes; providing
1.5 	a dairy investment credit; increasing the sales factor
1.6 	percentage in apportioning net income to this state;
1.7 	changing property tax refund provisions; providing for
1.8 	taxation of cigarettes and liquor; conforming
1.9 	provisions to changes in the Internal Revenue Code;
1.10 	providing for designation of an international economic
1.11 	development zone; changing disposition of certain
1.12 	general fund balance; requiring state contracts be
1.13 	with vendors that have registered to collect use
1.14 	taxes; changing provisions relating to the state
1.15 	elections campaign fund; changing certain city aid
1.16 	payments; authorizing tax credits for purposes of
1.17 	biotechnology and health sciences industry zone;
1.18 	appropriating money; amending Minnesota Statutes 2004,
1.19 	sections 10A.31, subdivisions 1, 3, 4; 16C.03, by
1.20 	adding a subdivision; 270A.03, subdivision 7; 272.02,
1.21 	by adding a subdivision; 273.1384, subdivision 1;
1.22 	289A.02, subdivision 7; 289A.20, subdivision 2;
1.23 	289A.50, subdivision 1; 290.01, subdivisions 6, 6b,
1.24 	19, 19a, 19b, 19c, 19d, 29, 31; 290.032, subdivisions
1.25 	1, 2; 290.06, subdivision 2c, by adding subdivisions;
1.26 	290.067, subdivisions 1, 2a; 290.0671, subdivision 1;
1.27 	290.0672, subdivisions 1, 2; 290.0675, subdivision 1;
1.28 	290.091, subdivision 2; 290.0921, subdivision 3;
1.29 	290.0922, subdivisions 2, 3; 290.191, subdivisions 2,
1.30 	3; 290.92, by adding a subdivision; 290A.03,
1.31 	subdivisions 3, 11, 15; 295.53, subdivision 1;
1.32 	297A.61, subdivisions 4, 7; 297A.67, by adding a
1.33 	subdivision; 297A.68, subdivisions 2, 5, by adding a
1.34 	subdivision; 297F.14, subdivision 4; 297H.13,
1.35 	subdivision 2; 297I.01, by adding a subdivision;
1.36 	469.335; 473.843, subdivision 2; Laws 2001, First
1.37 	Special Session chapter 5, article 12, section 95;
1.38 	proposing coding for new law in Minnesota Statutes,
1.39 	chapters 295; 297A; 297F; 469; repealing Minnesota
1.40 	Statutes 2004, sections 10A.322, subdivision 4;
1.41 	16A.1522, subdivision 4; 290.06, subdivision 23.
1.42 	BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:

1.43 	ARTICLE 1
2.1 	INCOME AND CORPORATE FRANCHISE TAXES

2.2 	Section 1. Minnesota Statutes 2004, section 289A.20,
2.3 	subdivision 2, is amended to read:
2.4 		Subd. 2.Withholding from wages, entertainer withholding,
2.5 	withholding from payments to out-of-state contractors, and
2.6 	withholding by partnerships and small business corporations.
 2.7 	(a) A tax required to be deducted and withheld during the
2.8 	quarterly period must be paid on or before the last day of the
2.9 	month following the close of the quarterly period, unless an
2.10 	earlier time for payment is provided.  A tax required to be
2.11 	deducted and withheld from compensation of an entertainer and
2.12 	from a payment to an out-of-state contractor must be paid on or
2.13 	before the date the return for such tax must be filed under
2.14 	section 289A.18, subdivision 2.  Taxes required to be deducted
2.15 	and withheld by partnerships and ,S corporations, and trusts 
2.16 	must be paid on or before the date the return must be filed
2.17 	under section 289A.18, subdivision 2a quarterly basis as
2.18 	estimated taxes under section 289A.25 for partnerships and
2.19 	trusts and under section 289A.26 for S corporations.
2.20 	(b) An employer who, during the previous quarter, withheld
2.21 	more than $1,500 of tax under section 290.92, subdivision 2a or
2.22 	3, or 290.923, subdivision 2, must deposit tax withheld under
2.23 	those sections with the commissioner within the time allowed to
2.24 	deposit the employer's federal withheld employment taxes under
2.25 	Code of Federal Regulations, title 26, section 31.6302-1, as
2.26 	amended through December 31, 2001, without regard to the safe
2.27 	harbor or de minimis rules in subparagraph (f) or the one-day
2.28 	rule in subsection (c), clause (3).  Taxpayers must submit a
2.29 	copy of their federal notice of deposit status to the
2.30 	commissioner upon request by the commissioner.
2.31 	(c) The commissioner may prescribe by rule other return
2.32 	periods or deposit requirements.  In prescribing the reporting
2.33 	period, the commissioner may classify payors according to the
2.34 	amount of their tax liability and may adopt an appropriate
2.35 	reporting period for the class that the commissioner judges to
2.36 	be consistent with efficient tax collection.  In no event will
3.1 	the duration of the reporting period be more than one year.
3.2 	(d) If less than the correct amount of tax is paid to the
3.3 	commissioner, proper adjustments with respect to both the tax
3.4 	and the amount to be deducted must be made, without interest, in
3.5 	the manner and at the times the commissioner prescribes.  If the
3.6 	underpayment cannot be adjusted, the amount of the underpayment
3.7 	will be assessed and collected in the manner and at the times
3.8 	the commissioner prescribes.
3.9 	(e) If the aggregate amount of the tax withheld during a
3.10 	fiscal year ending June 30 under section 290.92, subdivision 2a
3.11 	or 3, is equal to or exceeds the amounts established for
3.12 	remitting federal withheld taxes pursuant to the regulations
3.13 	promulgated under section 6302(h) of the Internal Revenue Code,
3.14 	the employer must remit each required deposit for wages paid in
3.15 	the subsequent calendar year by electronic means.
3.16 	(f) A third-party bulk filer as defined in section 290.92,
3.17 	subdivision 30, paragraph (a), clause (2), who remits
3.18 	withholding deposits must remit all deposits by electronic means
3.19 	as provided in paragraph (e), regardless of the aggregate amount
3.20 	of tax withheld during a fiscal year for all of the employers.
3.21 	
EFFECTIVE DATE. This section is effective for tax years
3.22 	beginning after December 31, 2005.

3.23 	Sec. 2. Minnesota Statutes 2004, section 290.01,
3.24 	subdivision 6b, is amended to read:
3.25 		Subd. 6b.Foreign operating corporation.  The term
3.26 	"foreign operating corporation," when applied to a corporation,
3.27 	means a domestic corporation with the following characteristics:
3.28 	(1) it is part of a unitary business at least one member of
3.29 	which is taxable in this state;
3.30 	(2) it is not a foreign sales corporation under section 922
3.31 	of the Internal Revenue Code, as amended through December 31,
3.32 	1999, for the taxable year; and 
3.33 	(3) either (i) the average of the percentages of its
3.34 	property and payrolls, including the pro rata share of its
3.35 	unitary partnerships' property and payrolls,assigned to
3.36 	locations inside outside the United States and the District of
4.1 	Columbia, excluding the commonwealth of Puerto Rico and
4.2 	possessions of the United States, where the United States
4.3 	includes the District of Columbia and excludes the commonwealth
4.4 	of Puerto Rico and possessions of the United States,as
4.5 	determined under section 290.191 or 290.20, is 20 80 percent or
4.6 	less more; or (ii) it has in effect a valid election under
4.7 	section 936 of the Internal Revenue Code; and 
4.8 	(4) it has $1,000,000 of payroll and $2,000,000 of
4.9 	property, as determined under section 290.191 or 290.20, that
4.10 	are located outside the United States.  If the domestic
4.11 	corporation does not have payroll as determined under section
4.12 	290.191 or 290.20, but it or its partnerships have paid
4.13 	$1,000,000 for work, performed directly for the domestic
4.14 	corporation or the partnerships, outside the United States, then
4.15 	paragraph (3)(i) shall not require payrolls to be included in
4.16 	the average calculation.
4.17 	
EFFECTIVE DATE. This section is effective for tax years
4.18 	beginning after December 31, 2004.

4.19 	Sec. 3. Minnesota Statutes 2002, section 290.06, is
4.20 	amended by adding a subdivision to read:
4.21 		Subd. 29.Dairy investment credit. (a) A dairy
4.22 	investment credit is allowed against the tax due under this
4.23 	chapter equal to ten percent of the amount paid or incurred by
4.24 	the taxpayer, on the first $300,000 of qualifying expenditures
4.25 	made in the qualifying period.
4.26 	(b) "Qualifying expenditures" means for purposes of this
4.27 	subdivision the amount spent for the acquisition, construction,
4.28 	or improvement of buildings or facilities, or the acquisition of
4.29 	equipment, for dairy animal housing, confinement, animal
4.30 	feeding, milk production, and waste management, including the
4.31 	following, if related to dairy animals:
4.32 	(1) freestall barns;
4.33 	(2) fences;
4.34 	(3) watering facilities;
4.35 	(4) feed storage and handling equipment;
4.36 	(5) milking parlors;
5.1 	(6) robotic equipment;
5.2 	(7) scales;
5.3 	(8) milk storage and cooling facilities;
5.4 	(9) bulk tanks;
5.5 	(10) manure pumping and storage facilities;
5.6 	(11) digesters; and 
5.7 	(12) equipment used to produce energy.
5.8 	Qualified expenditures only include amounts that are capitalized
5.9 	and deducted under either section 167 or 179 of the Internal
5.10 	Revenue Code in computing federal taxable income.
5.11 	(c) The credit is limited to the liability for tax, as
5.12 	computed under this chapter for the taxable year.  If the amount
5.13 	of the credit determined under this section for any taxable year
5.14 	exceeds this limitation, the excess is a dairy investment credit
5.15 	carryover to each of the 15 succeeding taxable years.  The
5.16 	entire amount of the excess unused credit for the taxable year
5.17 	is carried first to the earliest of the taxable years to which
5.18 	the credit may be carried and then to each successive year to
5.19 	which the credit may be carried.  The amount of the unused
5.20 	credit which may be added under this paragraph shall not exceed
5.21 	the taxpayer's liability for tax less the dairy investment
5.22 	credit for the taxable year.
5.23 	(d) The qualifying period is that time after December 31,
5.24 	2005, and before January 1, 2012.
5.25 	(e) The $30,000 maximum credit applies at the entity level
5.26 	for partnerships, S corporations, trusts, and estates as well as
5.27 	at the individual level.  In the case of married individuals,
5.28 	the credit is limited to $30,000 for a married couple.
5.29 	
EFFECTIVE DATE. This section is effective for tax years
5.30 	beginning after December 31, 2005.

5.31 	Sec. 4. Minnesota Statutes 2004, section 290.0672,
5.32 	subdivision 1, is amended to read:
5.33 		Subdivision 1.Definitions.  (a) For purposes of this
5.34 	section, the following terms have the meanings given.
5.35 	(b) "Long-term care insurance" means a policy that:
5.36 	(1) qualifies for a deduction under section 213 of the
6.1 	Internal Revenue Code, disregarding the 7.5 percent income test;
6.2 	or meets the requirements given in section 62A.46; or provides
6.3 	similar coverage issued under the laws of another jurisdiction;
6.4 	and
6.5 	(2) has a lifetime long-term care benefit limit of not less
6.6 	than $100,000; and
6.7 	(3) has been offered in compliance with the inflation
6.8 	protection requirements of section 62S.23.
6.9 	(c) "Qualified beneficiary" means the taxpayer or the
6.10 	taxpayer's spouse.
6.11 	(d) "Premiums deducted in determining federal taxable
6.12 	income" means the lesser of (1) long-term care insurance
6.13 	premiums that qualify as deductions under section 213 of the
6.14 	Internal Revenue Code; and (2) the total amount deductible for
6.15 	medical care under section 213 of the Internal Revenue Code.
6.16 	
EFFECTIVE DATE. This section is effective for tax years
6.17 	beginning after December 31, 2004.

6.18 	Sec. 5. Minnesota Statutes 2004, section 290.0672,
6.19 	subdivision 2, is amended to read:
6.20 		Subd. 2.Credit.  A taxpayer is allowed a credit against
6.21 	the tax imposed by this chapter for long-term care insurance
6.22 	policy premiums paid during the tax year.  The credit for each
6.23 	policy equals 25 percent of premiums paid to the extent not
6.24 	deducted in determining federal taxable income.  A taxpayer may
6.25 	claim a credit for only one policy for each qualified
6.26 	beneficiary.  A maximum of $100 applies to each qualified
6.27 	beneficiary.  The maximum total credit allowed per year is $200
6.28 	for married couples filing joint returns and $100 for all other
6.29 	filers.  For a nonresident or part-year resident, the credit
6.30 	determined under this section must be allocated based on the
6.31 	percentage calculated under section 290.06, subdivision 2c,
6.32 	paragraph (e).
6.33 	
EFFECTIVE DATE. This section is effective for tax years
6.34 	beginning after December 31, 2004.

6.35 	Sec. 6. Minnesota Statutes 2004, section 290.191,
6.36 	subdivision 2, is amended to read:
7.1 		Subd. 2.Apportionment formula of general application.
 7.2 	(a) Except for those trades or businesses required to use a
7.3 	different formula under subdivision 3 or section 290.36, and for
7.4 	those trades or businesses that receive permission to use some
7.5 	other method under section 290.20 or under subdivision 4, a
7.6 	trade or business required to apportion its net income must
7.7 	apportion its income to this state on the basis of the
7.8 	percentage obtained by taking the sum of:
7.9 	(1) 75 the percent for the sales factor under paragraph (b) 
7.10 	of the percentage which the sales made within this state in
7.11 	connection with the trade or business during the tax period are
7.12 	of the total sales wherever made in connection with the trade or
7.13 	business during the tax period;
7.14 	(2) 12.5 the percent for the property factor under
7.15 	paragraph (b) of the percentage which the total tangible
7.16 	property used by the taxpayer in this state in connection with
7.17 	the trade or business during the tax period is of the total
7.18 	tangible property, wherever located, used by the taxpayer in
7.19 	connection with the trade or business during the tax period; and
7.20 	(3) 12.5 the percent for the payroll factor under paragraph
7.21 	(b) of the percentage which the taxpayer's total payrolls paid
7.22 	or incurred in this state or paid in respect to labor performed
7.23 	in this state in connection with the trade or business during
7.24 	the tax period are of the taxpayer's total payrolls paid or
7.25 	incurred in connection with the trade or business during the tax
7.26 	period.
7.27 	(b) For purposes of paragraph (a) and subdivision 3, the
7.28 	following percentages apply for the taxable years specified:
7.29 	Taxable years Sales factor Property Payroll
7.30 	beginning percent factor factor
7.31 	during calendar percent percent
7.32 	year
7.33 	     2007 78 11 11
7.34 	     2008 81 9.5 9.5
7.35 	     2009 84 8 8
7.36 	     2010 87 6.5 6.5
8.1 	     2011 90 5 5
8.2 	     2012 93 3.5 3.5
8.3 	     2013 96 2 2
8.4 	     2014 and later 100 0 0
8.5 	      calendar years 
8.6 	
EFFECTIVE DATE. This section is effective for tax years
8.7 	beginning after December 31, 2006.

8.8 	Sec. 7. Minnesota Statutes 2004, section 290.191,
8.9 	subdivision 3, is amended to read:
8.10 		Subd. 3.Apportionment formula for financial
8.11 	institutions.  Except for an investment company required to
8.12 	apportion its income under section 290.36, a financial
8.13 	institution that is required to apportion its net income must
8.14 	apportion its net income to this state on the basis of the
8.15 	percentage obtained by taking the sum of:
8.16 	(1) 75 the percent for the sales factor under subdivision
8.17 	2, paragraph (b),of the percentage which the receipts from
8.18 	within this state in connection with the trade or business
8.19 	during the tax period are of the total receipts in connection
8.20 	with the trade or business during the tax period, from wherever
8.21 	derived;
8.22 	(2) 12.5 the percent for the property factor under
8.23 	subdivision 2, paragraph (b),of the percentage which the sum of
8.24 	the total tangible property used by the taxpayer in this state
8.25 	and the intangible property owned by the taxpayer and attributed
8.26 	to this state in connection with the trade or business during
8.27 	the tax period is of the sum of the total tangible property,
8.28 	wherever located, used by the taxpayer and the intangible
8.29 	property owned by the taxpayer and attributed to all states in
8.30 	connection with the trade or business during the tax period; and
8.31 	(3) 12.5 the percent for the payroll factor under
8.32 	subdivision 2, paragraph (b),of the percentage which the
8.33 	taxpayer's total payrolls paid or incurred in this state or paid
8.34 	in respect to labor performed in this state in connection with
8.35 	the trade or business during the tax period are of the
8.36 	taxpayer's total payrolls paid or incurred in connection with
9.1 	the trade or business during the tax period.
9.2 	
EFFECTIVE DATE. This section is effective for tax years
9.3 	beginning after December 31, 2006.

9.4 	Sec. 8. Minnesota Statutes 2004, section 290.92, is
9.5 	amended by adding a subdivision to read:
9.6 		Subd. 31.Payments to persons who are not employees;
9.7 	withholding. Any person engaged in a trade or business who in
9.8 	the course of such trade or business makes payments to an
9.9 	individual, who is not an employee of the person, for work
9.10 	described in industry code numbers 23 through 238990 of the
9.11 	North American Industry Classification System, shall deduct from
9.12 	the payment and withhold two percent of the amount as Minnesota
9.13 	withholding tax when the amount paid to that individual by the
9.14 	same person during the calendar year exceeds $600.  For purposes
9.15 	of this section, a payment to any person that is subject to
9.16 	withholding under this subdivision must be treated as if the
9.17 	payment was a wage paid by an employer to an employee.  Every
9.18 	individual who is to receive a payment that is subject to
9.19 	withholding under this subdivision shall furnish the contracting
9.20 	person with a statement, containing the name, address, and
9.21 	Social Security account number of the person receiving the
9.22 	payment.
9.23 	
EFFECTIVE DATE. This section is effective for payments
9.24 	made after July 31, 2005.

9.25 	ARTICLE 2
9.26 	FEDERAL UPDATE

9.27 	Section 1. Minnesota Statutes 2004, section 289A.02,
9.28 	subdivision 7, is amended to read:
9.29 		Subd. 7.Internal revenue code.  Unless specifically
9.30 	defined otherwise, "Internal Revenue Code" means the Internal
9.31 	Revenue Code of 1986, as amended through June 15, 2003 December
9.32 	31, 2004.
9.33 	
EFFECTIVE DATE. This section is effective the day
9.34 	following final enactment.

9.35 	Sec. 2. Minnesota Statutes 2004, section 290.01,
9.36 	subdivision 19, is amended to read:
10.1 		Subd. 19.Net income.  The term "net income" means the
10.2 	federal taxable income, as defined in section 63 of the Internal
10.3 	Revenue Code of 1986, as amended through the date named in this
10.4 	subdivision, incorporating the federal effective dates of
10.5 	changes to the Internal Revenue Code and any elections made by
10.6 	the taxpayer in accordance with the Internal Revenue Code in
10.7 	determining federal taxable income for federal income tax
10.8 	purposes, and with the modifications provided in subdivisions
10.9 	19a to 19f.
10.10 	In the case of a regulated investment company or a fund
10.11 	thereof, as defined in section 851(a) or 851(g) of the Internal
10.12 	Revenue Code, federal taxable income means investment company
10.13 	taxable income as defined in section 852(b)(2) of the Internal
10.14 	Revenue Code, except that:
10.15 	(1) the exclusion of net capital gain provided in section
10.16 	852(b)(2)(A) of the Internal Revenue Code does not apply;
10.17 	(2) the deduction for dividends paid under section
10.18 	852(b)(2)(D) of the Internal Revenue Code must be applied by
10.19 	allowing a deduction for capital gain dividends and
10.20 	exempt-interest dividends as defined in sections 852(b)(3)(C)
10.21 	and 852(b)(5) of the Internal Revenue Code; and
10.22 	(3) the deduction for dividends paid must also be applied
10.23 	in the amount of any undistributed capital gains which the
10.24 	regulated investment company elects to have treated as provided
10.25 	in section 852(b)(3)(D) of the Internal Revenue Code.
10.26 	The net income of a real estate investment trust as defined
10.27 	and limited by section 856(a), (b), and (c) of the Internal
10.28 	Revenue Code means the real estate investment trust taxable
10.29 	income as defined in section 857(b)(2) of the Internal Revenue
10.30 	Code.
10.31 	The net income of a designated settlement fund as defined
10.32 	in section 468B(d) of the Internal Revenue Code means the gross
10.33 	income as defined in section 468B(b) of the Internal Revenue
10.34 	Code.
10.35 	The provisions of sections 1113(a), 1117, 1206(a), 1313(a),
10.36 	1402(a), 1403(a), 1443, 1450, 1501(a), 1605, 1611(a), 1612,
11.1 	1616, 1617, 1704(l), and 1704(m) of the Small Business Job
11.2 	Protection Act, Public Law 104-188, the provisions of Public Law
11.3 	104-117, the provisions of sections 313(a) and (b)(1), 602(a),
11.4 	913(b), 941, 961, 971, 1001(a) and (b), 1002, 1003, 1012, 1013,
11.5 	1014, 1061, 1062, 1081, 1084(b), 1086, 1087, 1111(a), 1131(b)
11.6 	and (c), 1211(b), 1213, 1530(c)(2), 1601(f)(5) and (h), and
11.7 	1604(d)(1) of the Taxpayer Relief Act of 1997, Public Law
11.8 	105-34, the provisions of section 6010 of the Internal Revenue
11.9 	Service Restructuring and Reform Act of 1998, Public Law
11.10 	105-206, the provisions of section 4003 of the Omnibus
11.11 	Consolidated and Emergency Supplemental Appropriations Act,
11.12 	1999, Public Law 105-277, and the provisions of section 318 of
11.13 	the Consolidated Appropriation Act of 2001, Public Law 106-554,
11.14 	shall become effective at the time they become effective for
11.15 	federal purposes.
11.16 	The Internal Revenue Code of 1986, as amended through
11.17 	December 31, 1996 2004, shall be in effect for taxable years
11.18 	beginning after December 31, 1996. The provisions of Public Law
11.19 	109-1, shall be effective for tax years beginning after December
11.20 	31, 2003.
11.21 	The provisions of sections 202(a) and (b), 221(a), 225,
11.22 	312, 313, 913(a), 934, 962, 1004, 1005, 1052, 1063, 1084(a) and
11.23 	(c), 1089, 1112, 1171, 1204, 1271(a) and (b), 1305(a), 1306,
11.24 	1307, 1308, 1309, 1501(b), 1502(b), 1504(a), 1505, 1527, 1528,
11.25 	1530, 1601(d), (e), (f), and (i) and 1602(a), (b), (c), and (e)
11.26 	of the Taxpayer Relief Act of 1997, Public Law 105-34, the
11.27 	provisions of sections 6004, 6005, 6012, 6013, 6015, 6016, 7002,
11.28 	and 7003 of the Internal Revenue Service Restructuring and
11.29 	Reform Act of 1998, Public Law 105-206, the provisions of
11.30 	section 3001 of the Omnibus Consolidated and Emergency
11.31 	Supplemental Appropriations Act, 1999, Public Law 105-277, the
11.32 	provisions of section 3001 of the Miscellaneous Trade and
11.33 	Technical Corrections Act of 1999, Public Law 106-36, and the
11.34 	provisions of section 316 of the Consolidated Appropriation Act
11.35 	of 2001, Public Law 106-554, shall become effective at the time
11.36 	they become effective for federal purposes.
12.1 	The Internal Revenue Code of 1986, as amended through
12.2 	December 31, 1997, shall be in effect for taxable years
12.3 	beginning after December 31, 1997.
12.4 	The provisions of sections 5002, 6009, 6011, and 7001 of
12.5 	the Internal Revenue Service Restructuring and Reform Act of
12.6 	1998, Public Law 105-206, the provisions of section 9010 of the
12.7 	Transportation Equity Act for the 21st Century, Public Law
12.8 	105-178, the provisions of sections 1004, 4002, and 5301 of the
12.9 	Omnibus Consolidation and Emergency Supplemental Appropriations
12.10 	Act, 1999, Public Law 105-277, the provision of section 303 of
12.11 	the Ricky Ray Hemophilia Relief Fund Act of 1998, Public Law
12.12 	105-369, the provisions of sections 532, 534, 536, 537, and 538
12.13 	of the Ticket to Work and Work Incentives Improvement Act of
12.14 	1999, Public Law 106-170, the provisions of the Installment Tax
12.15 	Correction Act of 2000, Public Law 106-573, and the provisions
12.16 	of section 309 of the Consolidated Appropriation Act of 2001,
12.17 	Public Law 106-554, shall become effective at the time they
12.18 	become effective for federal purposes.
12.19 	The Internal Revenue Code of 1986, as amended through
12.20 	December 31, 1998, shall be in effect for taxable years
12.21 	beginning after December 31, 1998.
12.22 	The provisions of the FSC Repeal and Extraterritorial
12.23 	Income Exclusion Act of 2000, Public Law 106-519, and the
12.24 	provision of section 412 of the Job Creation and Worker
12.25 	Assistance Act of 2002, Public Law 107-147, shall become
12.26 	effective at the time it became effective for federal purposes.
12.27 	The Internal Revenue Code of 1986, as amended through
12.28 	December 31, 1999, shall be in effect for taxable years
12.29 	beginning after December 31, 1999.  The provisions of sections
12.30 	306 and 401 of the Consolidated Appropriation Act of 2001,
12.31 	Public Law 106-554, and the provision of section 632(b)(2)(A) of
12.32 	the Economic Growth and Tax Relief Reconciliation Act of 2001,
12.33 	Public Law 107-16, and provisions of sections 101 and 402 of the
12.34 	Job Creation and Worker Assistance Act of 2002, Public Law
12.35 	107-147, shall become effective at the same time it became
12.36 	effective for federal purposes.
13.1 	The Internal Revenue Code of 1986, as amended through
13.2 	December 31, 2000, shall be in effect for taxable years
13.3 	beginning after December 31, 2000.  The provisions of sections
13.4 	659a and 671 of the Economic Growth and Tax Relief
13.5 	Reconciliation Act of 2001, Public Law 107-16, the provisions of
13.6 	sections 104, 105, and 111 of the Victims of Terrorism Tax
13.7 	Relief Act of 2001, Public Law 107-134, and the provisions of
13.8 	sections 201, 403, 413, and 606 of the Job Creation and Worker
13.9 	Assistance Act of 2002, Public Law 107-147, shall become
13.10 	effective at the same time it became effective for federal
13.11 	purposes.
13.12 	The Internal Revenue Code of 1986, as amended through March
13.13 	15, 2002, shall be in effect for taxable years beginning after
13.14 	December 31, 2001.
13.15 	The provisions of sections 101 and 102 of the Victims of
13.16 	Terrorism Tax Relief Act of 2001, Public Law 107-134, shall
13.17 	become effective at the same time it becomes effective for
13.18 	federal purposes.
13.19 	The Internal Revenue Code of 1986, as amended through June
13.20 	15, 2003, shall be in effect for taxable years beginning after
13.21 	December 31, 2002.  The provisions of section 201 of the Jobs
13.22 	and Growth Tax Relief and Reconciliation Act of 2003, H.R. 2, if
13.23 	it is enacted into law, are effective at the same time it became
13.24 	effective for federal purposes.
13.25 	Except as otherwise provided, references to the Internal
13.26 	Revenue Code in subdivisions 19a 19 to 19g 19f mean the code in
13.27 	effect for purposes of determining net income for the applicable
13.28 	year.
13.29 	
EFFECTIVE DATE. This section is effective the day
13.30 	following final enactment.

13.31 	Sec. 3. Minnesota Statutes 2004, section 290.01,
13.32 	subdivision 19a, is amended to read:
13.33 		Subd. 19a.Additions to federal taxable income.  For
13.34 	individuals, estates, and trusts, there shall be added to
13.35 	federal taxable income:
13.36 	(1)(i) interest income on obligations of any state other
14.1 	than Minnesota or a political or governmental subdivision,
14.2 	municipality, or governmental agency or instrumentality of any
14.3 	state other than Minnesota exempt from federal income taxes
14.4 	under the Internal Revenue Code or any other federal statute;
14.5 	and
14.6 	(ii) exempt-interest dividends as defined in section
14.7 	852(b)(5) of the Internal Revenue Code, except the portion of
14.8 	the exempt-interest dividends derived from interest income on
14.9 	obligations of the state of Minnesota or its political or
14.10 	governmental subdivisions, municipalities, governmental agencies
14.11 	or instrumentalities, but only if the portion of the
14.12 	exempt-interest dividends from such Minnesota sources paid to
14.13 	all shareholders represents 95 percent or more of the
14.14 	exempt-interest dividends that are paid by the regulated
14.15 	investment company as defined in section 851(a) of the Internal
14.16 	Revenue Code, or the fund of the regulated investment company as
14.17 	defined in section 851(g) of the Internal Revenue Code, making
14.18 	the payment; and
14.19 	(iii) for the purposes of items (i) and (ii), interest on
14.20 	obligations of an Indian tribal government described in section
14.21 	7871(c) of the Internal Revenue Code shall be treated as
14.22 	interest income on obligations of the state in which the tribe
14.23 	is located;
14.24 	(2) the amount of income or sales and use taxes paid or
14.25 	accrued within the taxable year under this chapter and income or
14.26 	sales and use taxes paid to any other state or to any province
14.27 	or territory of Canada, to the extent allowed as a deduction
14.28 	under section 63(d) of the Internal Revenue Code, but the
14.29 	addition may not be more than the amount by which the itemized
14.30 	deductions as allowed under section 63(d) of the Internal
14.31 	Revenue Code exceeds the amount of the standard deduction as
14.32 	defined in section 63(c) of the Internal Revenue Code of 1986,
14.33 	as amended through June 15, 2003.  For the purpose of this
14.34 	paragraph, the disallowance of itemized deductions under section
14.35 	68 of the Internal Revenue Code of 1986, income or sales and use 
14.36 	tax is the last itemized deduction disallowed;
15.1 	(3) the capital gain amount of a lump sum distribution to
15.2 	which the special tax under section 1122(h)(3)(B)(ii) of the Tax
15.3 	Reform Act of 1986, Public Law 99-514, applies;
15.4 	(4) the amount of income taxes paid or accrued within the
15.5 	taxable year under this chapter and income taxes paid to any
15.6 	other state or any province or territory of Canada, to the
15.7 	extent allowed as a deduction in determining federal adjusted
15.8 	gross income.  For the purpose of this paragraph, income taxes
15.9 	do not include the taxes imposed by sections 290.0922,
15.10 	subdivision 1, paragraph (b), 290.9727, 290.9728, and 290.9729;
15.11 	(5) the amount of expense, interest, or taxes disallowed
15.12 	pursuant to section 290.10;
15.13 	(6) the amount of a partner's pro rata share of net income
15.14 	which does not flow through to the partner because the
15.15 	partnership elected to pay the tax on the income under section
15.16 	6242(a)(2) of the Internal Revenue Code; and 
15.17 	(7) 80 percent of the depreciation deduction allowed under
15.18 	section 168(k) of the Internal Revenue Code.  For purposes of
15.19 	this clause, if the taxpayer has an activity that in the taxable
15.20 	year generates a deduction for depreciation under section 168(k)
15.21 	and the activity generates a loss for the taxable year that the
15.22 	taxpayer is not allowed to claim for the taxable year, "the
15.23 	depreciation allowed under section 168(k)" for the taxable year
15.24 	is limited to excess of the depreciation claimed by the activity
15.25 	under section 168(k) over the amount of the loss from the
15.26 	activity that is not allowed in the taxable year.  In succeeding
15.27 	taxable years when the losses not allowed in the taxable year
15.28 	are allowed, the depreciation under section 168(k) is allowed;
15.29 	(8) 80 percent of the amount by which the deduction allowed
15.30 	by section 179 of the Internal Revenue Code exceeds the
15.31 	deduction allowable by section 179 of the Internal Revenue Code
15.32 	of 1986, as amended through December 31, 2003;
15.33 	(9) to the extent deducted in computing federal taxable
15.34 	income, the amount of the deduction allowable under section 199
15.35 	of the Internal Revenue Code; and 
15.36 	(10) to the extent deducted in computing federal taxable
16.1 	income, the amount by which the standard deduction allowed under
16.2 	section 63(c) of the Internal Revenue Code exceeds the standard
16.3 	deduction allowable under section 63(c) of the Internal Revenue
16.4 	Code of 1986, as amended through December 31, 2003.
16.5 	
EFFECTIVE DATE. This section is effective for tax years
16.6 	beginning after December 31, 2004, except the changes in clause
16.7 	(2) are effective for tax years beginning after December 31,
16.8 	2003.

16.9 	Sec. 4. Minnesota Statutes 2004, section 290.01,
16.10 	subdivision 19b, is amended to read:
16.11 		Subd. 19b.Subtractions from federal taxable income.  For
16.12 	individuals, estates, and trusts, there shall be subtracted from
16.13 	federal taxable income:
16.14 	(1) interest income on obligations of any authority,
16.15 	commission, or instrumentality of the United States to the
16.16 	extent includable in taxable income for federal income tax
16.17 	purposes but exempt from state income tax under the laws of the
16.18 	United States;
16.19 	(2) if included in federal taxable income, the amount of
16.20 	any overpayment of income tax to Minnesota or to any other
16.21 	state, for any previous taxable year, whether the amount is
16.22 	received as a refund or as a credit to another taxable year's
16.23 	income tax liability;
16.24 	(3) the amount paid to others, less the amount used to
16.25 	claim the credit allowed under section 290.0674, not to exceed
16.26 	$1,625 for each qualifying child in grades kindergarten to 6 and
16.27 	$2,500 for each qualifying child in grades 7 to 12, for tuition,
16.28 	textbooks, and transportation of each qualifying child in
16.29 	attending an elementary or secondary school situated in
16.30 	Minnesota, North Dakota, South Dakota, Iowa, or Wisconsin,
16.31 	wherein a resident of this state may legally fulfill the state's
16.32 	compulsory attendance laws, which is not operated for profit,
16.33 	and which adheres to the provisions of the Civil Rights Act of
16.34 	1964 and chapter 363A.  For the purposes of this clause,
16.35 	"tuition" includes fees or tuition as defined in section
16.36 	290.0674, subdivision 1, clause (1).  As used in this clause,
17.1 	"textbooks" includes books and other instructional materials and
17.2 	equipment purchased or leased for use in elementary and
17.3 	secondary schools in teaching only those subjects legally and
17.4 	commonly taught in public elementary and secondary schools in
17.5 	this state.  Equipment expenses qualifying for deduction
17.6 	includes expenses as defined and limited in section 290.0674,
17.7 	subdivision 1, clause (3).  "Textbooks" does not include
17.8 	instructional books and materials used in the teaching of
17.9 	religious tenets, doctrines, or worship, the purpose of which is
17.10 	to instill such tenets, doctrines, or worship, nor does it
17.11 	include books or materials for, or transportation to,
17.12 	extracurricular activities including sporting events, musical or
17.13 	dramatic events, speech activities, driver's education, or
17.14 	similar programs.  For purposes of the subtraction provided by
17.15 	this clause, "qualifying child" has the meaning given in section
17.16 	32(c)(3) of the Internal Revenue Code;
17.17 	(4) income as provided under section 290.0802;
17.18 	(5) to the extent included in federal adjusted gross
17.19 	income, income realized on disposition of property exempt from
17.20 	tax under section 290.491;
17.21 	(6) to the extent included in federal taxable income,
17.22 	postservice benefits for youth community service under section
17.23 	124D.42 for volunteer service under United States Code, title
17.24 	42, sections 12601 to 12604;
17.25 	(7) to the extent not deducted in determining federal
17.26 	taxable income by an individual who does not itemize deductions
17.27 	for federal income tax purposes for the taxable year, an amount
17.28 	equal to 50 percent of the excess of charitable contributions
17.29 	over $500 allowable as a deduction for the taxable year under
17.30 	section 170(a) of the Internal Revenue Code over $500 and under
17.31 	the provisions of Public Law 109-1;
17.32 	(8) for taxable years beginning before January 1, 2008, the
17.33 	amount of the federal small ethanol producer credit allowed
17.34 	under section 40(a)(3) of the Internal Revenue Code which is
17.35 	included in gross income under section 87 of the Internal
17.36 	Revenue Code;
18.1 	(9) for individuals who are allowed a federal foreign tax
18.2 	credit for taxes that do not qualify for a credit under section
18.3 	290.06, subdivision 22, an amount equal to the carryover of
18.4 	subnational foreign taxes for the taxable year, but not to
18.5 	exceed the total subnational foreign taxes reported in claiming
18.6 	the foreign tax credit.  For purposes of this clause, "federal
18.7 	foreign tax credit" means the credit allowed under section 27 of
18.8 	the Internal Revenue Code, and "carryover of subnational foreign
18.9 	taxes" equals the carryover allowed under section 904(c) of the
18.10 	Internal Revenue Code minus national level foreign taxes to the
18.11 	extent they exceed the federal foreign tax credit;
18.12 	(10) in each of the five tax years immediately following
18.13 	the tax year in which an addition is required under subdivision
18.14 	19a, clause (7), an amount equal to one-fifth of the delayed
18.15 	depreciation.  For purposes of this clause, "delayed
18.16 	depreciation" means the amount of the addition made by the
18.17 	taxpayer under subdivision 19a, clause (7), minus the positive
18.18 	value of any net operating loss under section 172 of the
18.19 	Internal Revenue Code generated for the tax year of the
18.20 	addition.  The resulting delayed depreciation cannot be less
18.21 	than zero; and 
18.22 	(11) job opportunity building zone income as provided under
18.23 	section 469.316.;
18.24 	(12) in each of the five tax years immediately following
18.25 	the tax year in which an addition is required under subdivision
18.26 	19a, clause (8), or 19c, clause (17), in the case of a
18.27 	shareholder of a corporation that is an S corporation, an amount
18.28 	equal to one-fifth of the addition made by the taxpayer under
18.29 	subdivision 19a, clause (8), or 19c, clause (17), in the case of
18.30 	a shareholder of a corporation that is an S corporation, minus
18.31 	the positive value of any net operating loss under section 172
18.32 	of the Internal Revenue Code generated for the tax year of the
18.33 	addition.  If the net operating loss exceeds the addition for
18.34 	the tax year, a subtraction is not allowed under this clause;
18.35 	and 
18.36 	(13) to the extent included in federal taxable income,
19.1 	compensation paid to a service member as defined in United
19.2 	States Code, title 10, section 101(a)(5), for military service
19.3 	as defined in the Service Member Civil Relief Act, Public Law
19.4 	108-189, section 101(2), and compensation paid for state active
19.5 	service as defined in section 190.05, subdivision 5a, clauses
19.6 	(1) and (3), or federally funded state active service as defined
19.7 	in section 190.05, subdivision 5b.  This subtraction does not
19.8 	apply to retirement income as defined in section 290.17,
19.9 	subdivision 2, paragraph (a), clause (3).
19.10 	
EFFECTIVE DATE. This section is effective for tax years
19.11 	beginning after December 31, 2004, except the change to clause
19.12 	(7) is effective for tax years beginning after December 31, 2003.

19.13 	Sec. 5. Minnesota Statutes 2004, section 290.01,
19.14 	subdivision 19c, is amended to read:
19.15 		Subd. 19c.Corporations; additions to federal taxable
19.16 	income.  For corporations, there shall be added to federal
19.17 	taxable income:
19.18 	(1) the amount of any deduction taken for federal income
19.19 	tax purposes for income, excise, or franchise taxes based on net
19.20 	income or related minimum taxes, including but not limited to
19.21 	the tax imposed under section 290.0922, paid by the corporation
19.22 	to Minnesota, another state, a political subdivision of another
19.23 	state, the District of Columbia, or any foreign country or
19.24 	possession of the United States;
19.25 	(2) interest not subject to federal tax upon obligations
19.26 	of:  the United States, its possessions, its agencies, or its
19.27 	instrumentalities; the state of Minnesota or any other state,
19.28 	any of its political or governmental subdivisions, any of its
19.29 	municipalities, or any of its governmental agencies or
19.30 	instrumentalities; the District of Columbia; or Indian tribal
19.31 	governments;
19.32 	(3) exempt-interest dividends received as defined in
19.33 	section 852(b)(5) of the Internal Revenue Code;
19.34 	(4) the amount of any net operating loss deduction taken
19.35 	for federal income tax purposes under section 172 or 832(c)(10)
19.36 	of the Internal Revenue Code or operations loss deduction under
20.1 	section 810 of the Internal Revenue Code;
20.2 	(5) the amount of any special deductions taken for federal
20.3 	income tax purposes under sections 241 to 247 of the Internal
20.4 	Revenue Code;
20.5 	(6) losses from the business of mining, as defined in
20.6 	section 290.05, subdivision 1, clause (a), that are not subject
20.7 	to Minnesota income tax;
20.8 	(7) the amount of any capital losses deducted for federal
20.9 	income tax purposes under sections 1211 and 1212 of the Internal
20.10 	Revenue Code;
20.11 	(8) the exempt foreign trade income of a foreign sales
20.12 	corporation under sections 921(a) and 291 of the Internal
20.13 	Revenue Code;
20.14 	(9) the amount of percentage depletion deducted under
20.15 	sections 611 through 614 and 291 of the Internal Revenue Code;
20.16 	(10) for certified pollution control facilities placed in
20.17 	service in a taxable year beginning before December 31, 1986,
20.18 	and for which amortization deductions were elected under section
20.19 	169 of the Internal Revenue Code of 1954, as amended through
20.20 	December 31, 1985, the amount of the amortization deduction
20.21 	allowed in computing federal taxable income for those
20.22 	facilities;
20.23 	(11) the amount of any deemed dividend from a foreign
20.24 	operating corporation determined pursuant to section 290.17,
20.25 	subdivision 4, paragraph (g);
20.26 	(12) the amount of any environmental tax paid under section
20.27 	59(a) of the Internal Revenue Code;
20.28 	(13) the amount of a partner's pro rata share of net income
20.29 	which does not flow through to the partner because the
20.30 	partnership elected to pay the tax on the income under section
20.31 	6242(a)(2) of the Internal Revenue Code;
20.32 	(14) the amount of net income excluded under section 114 of
20.33 	the Internal Revenue Code;
20.34 	(15) any increase in subpart F income, as defined in
20.35 	section 952(a) of the Internal Revenue Code, for the taxable
20.36 	year when subpart F income is calculated without regard to the
21.1 	provisions of section 614 of Public Law 107-147; and 
21.2 	(16) 80 percent of the depreciation deduction allowed under
21.3 	section 168(k) of the Internal Revenue Code.  For purposes of
21.4 	this clause, if the taxpayer has an activity that in the taxable
21.5 	year generates a deduction for depreciation under section 168(k)
21.6 	and the activity generates a loss for the taxable year that the
21.7 	taxpayer is not allowed to claim for the taxable year, "the
21.8 	depreciation allowed under section 168(k)" for the taxable year
21.9 	is limited to excess of the depreciation claimed by the activity
21.10 	under section 168(k) over the amount of the loss from the
21.11 	activity that is not allowed in the taxable year.  In succeeding
21.12 	taxable years when the losses not allowed in the taxable year
21.13 	are allowed, the depreciation under section 168(k) is allowed;
21.14 	(17) 80 percent of the amount by which the deduction
21.15 	allowed by section 179 of the Internal Revenue Code exceeds the
21.16 	deduction allowable by section 179 of the Internal Revenue Code
21.17 	of 1986, as amended through December 31, 2003; and 
21.18 	(18) to the extent deducted in computing federal taxable
21.19 	income, the amount of the deduction allowable under section 199
21.20 	of the Internal Revenue Code.
21.21 	
EFFECTIVE DATE. This section is effective for tax years
21.22 	beginning after December 31, 2004.

21.23 	Sec. 6. Minnesota Statutes 2004, section 290.01,
21.24 	subdivision 19d, is amended to read:
21.25 		Subd. 19d.Corporations; modifications decreasing federal
21.26 	taxable income.  For corporations, there shall be subtracted
21.27 	from federal taxable income after the increases provided in
21.28 	subdivision 19c:
21.29 	(1) the amount of foreign dividend gross-up added to gross
21.30 	income for federal income tax purposes under section 78 of the
21.31 	Internal Revenue Code;
21.32 	(2) the amount of salary expense not allowed for federal
21.33 	income tax purposes due to claiming the federal jobs credit
21.34 	under section 51 of the Internal Revenue Code;
21.35 	(3) any dividend (not including any distribution in
21.36 	liquidation) paid within the taxable year by a national or state
22.1 	bank to the United States, or to any instrumentality of the
22.2 	United States exempt from federal income taxes, on the preferred
22.3 	stock of the bank owned by the United States or the
22.4 	instrumentality;
22.5 	(4) amounts disallowed for intangible drilling costs due to
22.6 	differences between this chapter and the Internal Revenue Code
22.7 	in taxable years beginning before January 1, 1987, as follows:
22.8 	(i) to the extent the disallowed costs are represented by
22.9 	physical property, an amount equal to the allowance for
22.10 	depreciation under Minnesota Statutes 1986, section 290.09,
22.11 	subdivision 7, subject to the modifications contained in
22.12 	subdivision 19e; and
22.13 	(ii) to the extent the disallowed costs are not represented
22.14 	by physical property, an amount equal to the allowance for cost
22.15 	depletion under Minnesota Statutes 1986, section 290.09,
22.16 	subdivision 8;
22.17 	(5) the deduction for capital losses pursuant to sections
22.18 	1211 and 1212 of the Internal Revenue Code, except that:
22.19 	(i) for capital losses incurred in taxable years beginning
22.20 	after December 31, 1986, capital loss carrybacks shall not be
22.21 	allowed;
22.22 	(ii) for capital losses incurred in taxable years beginning
22.23 	after December 31, 1986, a capital loss carryover to each of the
22.24 	15 taxable years succeeding the loss year shall be allowed;
22.25 	(iii) for capital losses incurred in taxable years
22.26 	beginning before January 1, 1987, a capital loss carryback to
22.27 	each of the three taxable years preceding the loss year, subject
22.28 	to the provisions of Minnesota Statutes 1986, section 290.16,
22.29 	shall be allowed; and
22.30 	(iv) for capital losses incurred in taxable years beginning
22.31 	before January 1, 1987, a capital loss carryover to each of the
22.32 	five taxable years succeeding the loss year to the extent such
22.33 	loss was not used in a prior taxable year and subject to the
22.34 	provisions of Minnesota Statutes 1986, section 290.16, shall be
22.35 	allowed;
22.36 	(6) an amount for interest and expenses relating to income
23.1 	not taxable for federal income tax purposes, if (i) the income
23.2 	is taxable under this chapter and (ii) the interest and expenses
23.3 	were disallowed as deductions under the provisions of section
23.4 	171(a)(2), 265 or 291 of the Internal Revenue Code in computing
23.5 	federal taxable income;
23.6 	(7) in the case of mines, oil and gas wells, other natural
23.7 	deposits, and timber for which percentage depletion was
23.8 	disallowed pursuant to subdivision 19c, clause (11), a
23.9 	reasonable allowance for depletion based on actual cost.  In the
23.10 	case of leases the deduction must be apportioned between the
23.11 	lessor and lessee in accordance with rules prescribed by the
23.12 	commissioner.  In the case of property held in trust, the
23.13 	allowable deduction must be apportioned between the income
23.14 	beneficiaries and the trustee in accordance with the pertinent
23.15 	provisions of the trust, or if there is no provision in the
23.16 	instrument, on the basis of the trust's income allocable to
23.17 	each;
23.18 	(8) for certified pollution control facilities placed in
23.19 	service in a taxable year beginning before December 31, 1986,
23.20 	and for which amortization deductions were elected under section
23.21 	169 of the Internal Revenue Code of 1954, as amended through
23.22 	December 31, 1985, an amount equal to the allowance for
23.23 	depreciation under Minnesota Statutes 1986, section 290.09,
23.24 	subdivision 7;
23.25 	(9) amounts included in federal taxable income that are due
23.26 	to refunds of income, excise, or franchise taxes based on net
23.27 	income or related minimum taxes paid by the corporation to
23.28 	Minnesota, another state, a political subdivision of another
23.29 	state, the District of Columbia, or a foreign country or
23.30 	possession of the United States to the extent that the taxes
23.31 	were added to federal taxable income under section 290.01,
23.32 	subdivision 19c, clause (1), in a prior taxable year;
23.33 	(10) 80 percent of royalties, fees, or other like income
23.34 	accrued or received from a foreign operating corporation or a
23.35 	foreign corporation which is part of the same unitary business
23.36 	as the receiving corporation;
24.1 	(11) income or gains from the business of mining as defined
24.2 	in section 290.05, subdivision 1, clause (a), that are not
24.3 	subject to Minnesota franchise tax;
24.4 	(12) the amount of handicap access expenditures in the
24.5 	taxable year which are not allowed to be deducted or capitalized
24.6 	under section 44(d)(7) of the Internal Revenue Code;
24.7 	(13) the amount of qualified research expenses not allowed
24.8 	for federal income tax purposes under section 280C(c) of the
24.9 	Internal Revenue Code, but only to the extent that the amount
24.10 	exceeds the amount of the credit allowed under section 290.068;
24.11 	(14) the amount of salary expenses not allowed for federal
24.12 	income tax purposes due to claiming the Indian employment credit
24.13 	under section 45A(a) of the Internal Revenue Code;
24.14 	(15) the amount of any refund of environmental taxes paid
24.15 	under section 59A of the Internal Revenue Code;
24.16 	(16) for taxable years beginning before January 1, 2008,
24.17 	the amount of the federal small ethanol producer credit allowed
24.18 	under section 40(a)(3) of the Internal Revenue Code which is
24.19 	included in gross income under section 87 of the Internal
24.20 	Revenue Code;
24.21 	(17) for a corporation whose foreign sales corporation, as
24.22 	defined in section 922 of the Internal Revenue Code, constituted
24.23 	a foreign operating corporation during any taxable year ending
24.24 	before January 1, 1995, and a return was filed by August 15,
24.25 	1996, claiming the deduction under section 290.21, subdivision
24.26 	4, for income received from the foreign operating corporation,
24.27 	an amount equal to 1.23 multiplied by the amount of income
24.28 	excluded under section 114 of the Internal Revenue Code,
24.29 	provided the income is not income of a foreign operating
24.30 	company;
24.31 	(18) any decrease in subpart F income, as defined in
24.32 	section 952(a) of the Internal Revenue Code, for the taxable
24.33 	year when subpart F income is calculated without regard to the
24.34 	provisions of section 614 of Public Law 107-147; and 
24.35 	(19) in each of the five tax years immediately following
24.36 	the tax year in which an addition is required under subdivision
25.1 	19c, clause (16), an amount equal to one-fifth of the delayed
25.2 	depreciation.  For purposes of this clause, "delayed
25.3 	depreciation" means the amount of the addition made by the
25.4 	taxpayer under subdivision 19c, clause (16).  The resulting
25.5 	delayed depreciation cannot be less than zero; and 
25.6 	(20) in each of the five tax years immediately following
25.7 	the tax year in which an addition is required under subdivision
25.8 	19c, clause (17), an amount equal to one-fifth of the amount of
25.9 	the addition.
25.10 	
EFFECTIVE DATE. This section is effective for tax years
25.11 	beginning after December 31, 2004.

25.12 	Sec. 7. Minnesota Statutes 2004, section 290.01,
25.13 	subdivision 31, is amended to read:
25.14 		Subd. 31.Internal revenue code.  Unless specifically
25.15 	defined otherwise, "Internal Revenue Code" means the Internal
25.16 	Revenue Code of 1986, as amended through June 15, 2003 December
25.17 	31, 2004.
25.18 	
EFFECTIVE DATE. This section is effective the day
25.19 	following final enactment except the changes incorporated by
25.20 	federal changes are effective at the same times as the changes
25.21 	were effective for federal purposes.

25.22 	Sec. 8. Minnesota Statutes 2004, section 290.032,
25.23 	subdivision 1, is amended to read:
25.24 		Subdivision 1.Imposition.  There is hereby imposed as an
25.25 	addition to the annual income tax for a taxable year of a
25.26 	taxpayer in the classes described in section 290.03 a tax with
25.27 	respect to any distribution received by such taxpayer that is
25.28 	treated as a lump sum distribution under section 402(d) of the
25.29 	Internal Revenue Code 1401(c)(2) of the Small Business Job
25.30 	Protection Act, Public Law 104-188 and that is subject to tax
25.31 	for such taxable year under section 402(d) of the Internal
25.32 	Revenue Code 1401(c)(2) of the Small Business Job Protection
25.33 	Act, Public Law 104-188.
25.34 	
EFFECTIVE DATE. This section is effective for tax years
25.35 	beginning after December 31, 1999.

25.36 	Sec. 9. Minnesota Statutes 2004, section 290.032,
26.1 	subdivision 2, is amended to read:
26.2 		Subd. 2.Computation.  The amount of tax imposed by
26.3 	subdivision 1 shall be computed in the same way as the tax
26.4 	imposed under section 402(d) of the Internal Revenue Code of
26.5 	1986, as amended through December 31, 1995, except that the
26.6 	initial separate tax shall be an amount equal to five times the
26.7 	tax which would be imposed by section 290.06, subdivision 2c, if
26.8 	the recipient was an unmarried individual, and the taxable net
26.9 	income was an amount equal to one-fifth of the excess of
26.10 	(i) the total taxable amount of the lump sum distribution
26.11 	for the year, over
26.12 	(ii) the minimum distribution allowance, and except that
26.13 	references in section 402(d) of the Internal Revenue Code of
26.14 	1986, as amended through December 31, 1995,to paragraph (1)(A)
26.15 	thereof shall instead be references to subdivision 1, and the
26.16 	excess, if any, of the subtraction base amount over federal
26.17 	taxable income for a qualified individual as provided under
26.18 	section 290.0802, subdivision 2.
26.19 	
EFFECTIVE DATE. This section is effective for tax years
26.20 	beginning after December 31, 1999.

26.21 	Sec. 10. Minnesota Statutes 2004, section 290.06,
26.22 	subdivision 2c, is amended to read:
26.23 		Subd. 2c.Schedules of rates for individuals, estates,
26.24 	and trusts.  (a) The income taxes imposed by this chapter upon
26.25 	married individuals filing joint returns and surviving spouses
26.26 	as defined in section 2(a) of the Internal Revenue Code must be
26.27 	computed by applying to their taxable net income the following
26.28 	schedule of rates:
26.29 	(1) On the first $25,680, 5.35 percent;
26.30 	(2) On all over $25,680, but not over $102,030, 7.05
26.31 	percent;
26.32 	(3) On all over $102,030, 7.85 percent.
26.33 	Married individuals filing separate returns, estates, and
26.34 	trusts must compute their income tax by applying the above rates
26.35 	to their taxable income, except that the income brackets will be
26.36 	one-half of the above amounts.
27.1 	(b) The income taxes imposed by this chapter upon unmarried
27.2 	individuals must be computed by applying to taxable net income
27.3 	the following schedule of rates:
27.4 	(1) On the first $17,570, 5.35 percent;
27.5 	(2) On all over $17,570, but not over $57,710, 7.05
27.6 	percent;
27.7 	(3) On all over $57,710, 7.85 percent.
27.8 	(c) The income taxes imposed by this chapter upon unmarried
27.9 	individuals qualifying as a head of household as defined in
27.10 	section 2(b) of the Internal Revenue Code must be computed by
27.11 	applying to taxable net income the following schedule of rates:
27.12 	(1) On the first $21,630, 5.35 percent;
27.13 	(2) On all over $21,630, but not over $86,910, 7.05
27.14 	percent;
27.15 	(3) On all over $86,910, 7.85 percent.
27.16 	(d) In lieu of a tax computed according to the rates set
27.17 	forth in this subdivision, the tax of any individual taxpayer
27.18 	whose taxable net income for the taxable year is less than an
27.19 	amount determined by the commissioner must be computed in
27.20 	accordance with tables prepared and issued by the commissioner
27.21 	of revenue based on income brackets of not more than $100.  The
27.22 	amount of tax for each bracket shall be computed at the rates
27.23 	set forth in this subdivision, provided that the commissioner
27.24 	may disregard a fractional part of a dollar unless it amounts to
27.25 	50 cents or more, in which case it may be increased to $1.
27.26 	(e) An individual who is not a Minnesota resident for the
27.27 	entire year must compute the individual's Minnesota income tax
27.28 	as provided in this subdivision.  After the application of the
27.29 	nonrefundable credits provided in this chapter, the tax
27.30 	liability must then be multiplied by a fraction in which:
27.31 	(1) the numerator is the individual's Minnesota source
27.32 	federal adjusted gross income as defined in section 62 of the
27.33 	Internal Revenue Code and increased by the additions required
27.34 	under section 290.01, subdivision 19a, clauses (1), (5), and 
27.35 	(6), (7), (8), and (9),and reduced by the subtraction under
27.36 	section 290.01, subdivision 19b, clause (11), and the Minnesota
28.1 	assignable portion of the subtraction for United States
28.2 	government interest under section 290.01, subdivision 19b,
28.3 	clause (1), and the subtractions under clauses (10), (11), (12),
28.4 	and (13),after applying the allocation and assignability
28.5 	provisions of section 290.081, clause (a), or 290.17; and
28.6 	(2) the denominator is the individual's federal adjusted
28.7 	gross income as defined in section 62 of the Internal Revenue
28.8 	Code of 1986, increased by the amounts specified in section
28.9 	290.01, subdivision 19a, clauses (1), (5), and (6), (7), (8),
28.10 	and (9),and reduced by the amounts specified in section 290.01,
28.11 	subdivision 19b, clauses (1) and , (10),(11), (12), and (13).
28.12 	
EFFECTIVE DATE. This section is effective for tax years
28.13 	beginning after December 31, 2004.

28.14 	Sec. 11. Minnesota Statutes 2004, section 290.067,
28.15 	subdivision 2a, is amended to read:
28.16 		Subd. 2a.Income.  (a) For purposes of this section,
28.17 	"income" means the sum of the following:
28.18 	(1) federal adjusted gross income as defined in section 62
28.19 	of the Internal Revenue Code; and
28.20 	(2) the sum of the following amounts to the extent not
28.21 	included in clause (1):
28.22 	(i) all nontaxable income;
28.23 	(ii) the amount of a passive activity loss that is not
28.24 	disallowed as a result of section 469, paragraph (i) or (m) of
28.25 	the Internal Revenue Code and the amount of passive activity
28.26 	loss carryover allowed under section 469(b) of the Internal
28.27 	Revenue Code;
28.28 	(iii) an amount equal to the total of any discharge of
28.29 	qualified farm indebtedness of a solvent individual excluded
28.30 	from gross income under section 108(g) of the Internal Revenue
28.31 	Code;
28.32 	(iv) cash public assistance and relief;
28.33 	(v) any pension or annuity (including railroad retirement
28.34 	benefits, all payments received under the federal Social
28.35 	Security Act, supplemental security income, and veterans
28.36 	benefits), which was not exclusively funded by the claimant or
29.1 	spouse, or which was funded exclusively by the claimant or
29.2 	spouse and which funding payments were excluded from federal
29.3 	adjusted gross income in the years when the payments were made;
29.4 	(vi) interest received from the federal or a state
29.5 	government or any instrumentality or political subdivision
29.6 	thereof;
29.7 	(vii) workers' compensation;
29.8 	(viii) nontaxable strike benefits;
29.9 	(ix) the gross amounts of payments received in the nature
29.10 	of disability income or sick pay as a result of accident,
29.11 	sickness, or other disability, whether funded through insurance
29.12 	or otherwise;
29.13 	(x) a lump sum distribution under section 402(e)(3) of the
29.14 	Internal Revenue Code of 1986, as amended through December 31,
29.15 	1995;
29.16 	(xi) contributions made by the claimant to an individual
29.17 	retirement account, including a qualified voluntary employee
29.18 	contribution; simplified employee pension plan; self-employed
29.19 	retirement plan; cash or deferred arrangement plan under section
29.20 	401(k) of the Internal Revenue Code; or deferred compensation
29.21 	plan under section 457 of the Internal Revenue Code; and 
29.22 	(xii) nontaxable scholarship or fellowship grants;
29.23 	(xiii) the amount of deduction allowed under section 199 of
29.24 	the Internal Revenue Code; and 
29.25 	(xiv) the amount of deduction allowed under section 220 or
29.26 	223 of the Internal Revenue Code.
29.27 	In the case of an individual who files an income tax return
29.28 	on a fiscal year basis, the term "federal adjusted gross income"
29.29 	means federal adjusted gross income reflected in the fiscal year
29.30 	ending in the next calendar year.  Federal adjusted gross income
29.31 	may not be reduced by the amount of a net operating loss
29.32 	carryback or carryforward or a capital loss carryback or
29.33 	carryforward allowed for the year.
29.34 	(b) "Income" does not include:
29.35 	(1) amounts excluded pursuant to the Internal Revenue Code,
29.36 	sections 101(a) and 102;
30.1 	(2) amounts of any pension or annuity that were exclusively
30.2 	funded by the claimant or spouse if the funding payments were
30.3 	not excluded from federal adjusted gross income in the years
30.4 	when the payments were made;
30.5 	(3) surplus food or other relief in kind supplied by a
30.6 	governmental agency;
30.7 	(4) relief granted under chapter 290A;
30.8 	(5) child support payments received under a temporary or
30.9 	final decree of dissolution or legal separation; and
30.10 	(6) restitution payments received by eligible individuals
30.11 	and excludable interest as defined in section 803 of the
30.12 	Economic Growth and Tax Relief Reconciliation Act of 2001,
30.13 	Public Law 107-16.
30.14 	
EFFECTIVE DATE. This section is effective for tax years
30.15 	beginning after December 31, 2003.

30.16 	Sec. 12. Minnesota Statutes 2004, section 290.0675,
30.17 	subdivision 1, is amended to read:
30.18 		Subdivision 1.Definitions.  (a) For purposes of this
30.19 	section the following terms have the meanings given.
30.20 	(b) "Earned income" means the sum of the following, to the
30.21 	extent included in Minnesota taxable income:
30.22 	(1) earned income as defined in section 32(c)(2) of the
30.23 	Internal Revenue Code;
30.24 	(2) income received from a retirement pension,
30.25 	profit-sharing, stock bonus, or annuity plan; and
30.26 	(3) Social Security benefits as defined in section 86(d)(1)
30.27 	of the Internal Revenue Code.
30.28 	(c) "Taxable income" means net income as defined in section
30.29 	290.01, subdivision 19.
30.30 	(d) "Earned income of lesser-earning spouse" means the
30.31 	earned income of the spouse with the lesser amount of earned
30.32 	income as defined in paragraph (b) for the taxable year minus
30.33 	the sum of (i) the amount for one exemption under section 151(d)
30.34 	of the Internal Revenue Code and (ii) one-half the amount of the
30.35 	standard deduction under section 63(c)(2)(A) and (4) of the
30.36 	Internal Revenue Code of 1986, as amended through December 31,
31.1 	2003.
31.2 	
EFFECTIVE DATE. This section is effective for tax years
31.3 	beginning after December 31, 2004.

31.4 	Sec. 13. Minnesota Statutes 2004, section 290.091,
31.5 	subdivision 2, is amended to read:
31.6 		Subd. 2.Definitions.  For purposes of the tax imposed by
31.7 	this section, the following terms have the meanings given:
31.8 	(a) "Alternative minimum taxable income" means the sum of
31.9 	the following for the taxable year:
31.10 	(1) the taxpayer's federal alternative minimum taxable
31.11 	income as defined in section 55(b)(2) of the Internal Revenue
31.12 	Code;
31.13 	(2) the taxpayer's itemized deductions allowed in computing
31.14 	federal alternative minimum taxable income, but excluding:
31.15 	(i) the charitable contribution deduction under section 170
31.16 	of the Internal Revenue Code to the extent that the deduction
31.17 	exceeds 1.0 percent of adjusted gross income, as defined in
31.18 	section 62 of the Internal Revenue Code;
31.19 	(ii) the medical expense deduction;
31.20 	(iii) the casualty, theft, and disaster loss deduction; and
31.21 	(iv) the impairment-related work expenses of a disabled
31.22 	person;
31.23 	(3) for depletion allowances computed under section 613A(c)
31.24 	of the Internal Revenue Code, with respect to each property (as
31.25 	defined in section 614 of the Internal Revenue Code), to the
31.26 	extent not included in federal alternative minimum taxable
31.27 	income, the excess of the deduction for depletion allowable
31.28 	under section 611 of the Internal Revenue Code for the taxable
31.29 	year over the adjusted basis of the property at the end of the
31.30 	taxable year (determined without regard to the depletion
31.31 	deduction for the taxable year);
31.32 	(4) to the extent not included in federal alternative
31.33 	minimum taxable income, the amount of the tax preference for
31.34 	intangible drilling cost under section 57(a)(2) of the Internal
31.35 	Revenue Code determined without regard to subparagraph (E);
31.36 	(5) to the extent not included in federal alternative
32.1 	minimum taxable income, the amount of interest income as
32.2 	provided by section 290.01, subdivision 19a, clause (1); and
32.3 	(6) the amount of addition required by section 290.01,
32.4 	subdivision 19a, clause clauses (7), (8), and (9);
32.5 	less the sum of the amounts determined under the following:
32.6 	(1) interest income as defined in section 290.01,
32.7 	subdivision 19b, clause (1);
32.8 	(2) an overpayment of state income tax as provided by
32.9 	section 290.01, subdivision 19b, clause (2), to the extent
32.10 	included in federal alternative minimum taxable income;
32.11 	(3) the amount of investment interest paid or accrued
32.12 	within the taxable year on indebtedness to the extent that the
32.13 	amount does not exceed net investment income, as defined in
32.14 	section 163(d)(4) of the Internal Revenue Code.  Interest does
32.15 	not include amounts deducted in computing federal adjusted gross
32.16 	income; and
32.17 	(4) amounts subtracted from federal taxable income as
32.18 	provided by section 290.01, subdivision 19b, clauses (10) and ,
32.19 	(11), (12), and (13).
32.20 	In the case of an estate or trust, alternative minimum
32.21 	taxable income must be computed as provided in section 59(c) of
32.22 	the Internal Revenue Code.
32.23 	(b) "Investment interest" means investment interest as
32.24 	defined in section 163(d)(3) of the Internal Revenue Code.
32.25 	(c) "Tentative minimum tax" equals 6.4 percent of
32.26 	alternative minimum taxable income after subtracting the
32.27 	exemption amount determined under subdivision 3.
32.28 	(d) "Regular tax" means the tax that would be imposed under
32.29 	this chapter (without regard to this section and section
32.30 	290.032), reduced by the sum of the nonrefundable credits
32.31 	allowed under this chapter.
32.32 	(e) "Net minimum tax" means the minimum tax imposed by this
32.33 	section.
32.34 	
EFFECTIVE DATE. This section is effective for tax years
32.35 	beginning after December 31, 2004.

32.36 	Sec. 14. Minnesota Statutes 2004, section 290A.03,
33.1 	subdivision 3, is amended to read:
33.2 		Subd. 3.Income.  (1) "Income" means the sum of the
33.3 	following:
33.4 	(a) federal adjusted gross income as defined in the
33.5 	Internal Revenue Code; and
33.6 	(b) the sum of the following amounts to the extent not
33.7 	included in clause (a):
33.8 	(i) all nontaxable income;
33.9 	(ii) the amount of a passive activity loss that is not
33.10 	disallowed as a result of section 469, paragraph (i) or (m) of
33.11 	the Internal Revenue Code and the amount of passive activity
33.12 	loss carryover allowed under section 469(b) of the Internal
33.13 	Revenue Code;
33.14 	(iii) an amount equal to the total of any discharge of
33.15 	qualified farm indebtedness of a solvent individual excluded
33.16 	from gross income under section 108(g) of the Internal Revenue
33.17 	Code;
33.18 	(iv) cash public assistance and relief;
33.19 	(v) any pension or annuity (including railroad retirement
33.20 	benefits, all payments received under the federal Social
33.21 	Security Act, supplemental security income, and veterans
33.22 	benefits), which was not exclusively funded by the claimant or
33.23 	spouse, or which was funded exclusively by the claimant or
33.24 	spouse and which funding payments were excluded from federal
33.25 	adjusted gross income in the years when the payments were made;
33.26 	(vi) interest received from the federal or a state
33.27 	government or any instrumentality or political subdivision
33.28 	thereof;
33.29 	(vii) workers' compensation;
33.30 	(viii) nontaxable strike benefits;
33.31 	(ix) the gross amounts of payments received in the nature
33.32 	of disability income or sick pay as a result of accident,
33.33 	sickness, or other disability, whether funded through insurance
33.34 	or otherwise;
33.35 	(x) a lump sum distribution under section 402(e)(3) of the
33.36 	Internal Revenue Code of 1986, as amended through December 31,
34.1 	1995;
34.2 	(xi) contributions made by the claimant to an individual
34.3 	retirement account, including a qualified voluntary employee
34.4 	contribution; simplified employee pension plan; self-employed
34.5 	retirement plan; cash or deferred arrangement plan under section
34.6 	401(k) of the Internal Revenue Code; or deferred compensation
34.7 	plan under section 457 of the Internal Revenue Code; and 
34.8 	(xii) nontaxable scholarship or fellowship grants;
34.9 	(xiii) the amount of deduction allowed under section 199 of
34.10 	the Internal Revenue Code; and 
34.11 	(xiv) the amount of deduction allowed under section 220 or
34.12 	223 of the Internal Revenue Code.
34.13 	In the case of an individual who files an income tax return
34.14 	on a fiscal year basis, the term "federal adjusted gross income"
34.15 	shall mean federal adjusted gross income reflected in the fiscal
34.16 	year ending in the calendar year.  Federal adjusted gross income
34.17 	shall not be reduced by the amount of a net operating loss
34.18 	carryback or carryforward or a capital loss carryback or
34.19 	carryforward allowed for the year.
34.20 	(2) "Income" does not include:
34.21 	(a) amounts excluded pursuant to the Internal Revenue Code,
34.22 	sections 101(a) and 102;
34.23 	(b) amounts of any pension or annuity which was exclusively
34.24 	funded by the claimant or spouse and which funding payments were
34.25 	not excluded from federal adjusted gross income in the years
34.26 	when the payments were made;
34.27 	(c) surplus food or other relief in kind supplied by a
34.28 	governmental agency;
34.29 	(d) relief granted under this chapter;
34.30 	(e) child support payments received under a temporary or
34.31 	final decree of dissolution or legal separation; or
34.32 	(f) restitution payments received by eligible individuals
34.33 	and excludable interest as defined in section 803 of the
34.34 	Economic Growth and Tax Relief Reconciliation Act of 2001,
34.35 	Public Law 107-16.
34.36 	(3) The sum of the following amounts may be subtracted from
35.1 	income:
35.2 	(a) for the claimant's first dependent, the exemption
35.3 	amount multiplied by 1.4;
35.4 	(b) for the claimant's second dependent, the exemption
35.5 	amount multiplied by 1.3;
35.6 	(c) for the claimant's third dependent, the exemption
35.7 	amount multiplied by 1.2;
35.8 	(d) for the claimant's fourth dependent, the exemption
35.9 	amount multiplied by 1.1;
35.10 	(e) for the claimant's fifth dependent, the exemption
35.11 	amount; and
35.12 	(f) if the claimant or claimant's spouse was disabled or
35.13 	attained the age of 65 on or before December 31 of the year for
35.14 	which the taxes were levied or rent paid, the exemption amount.
35.15 	For purposes of this subdivision, the "exemption amount"
35.16 	means the exemption amount under section 151(d) of the Internal
35.17 	Revenue Code for the taxable year for which the income is
35.18 	reported.
35.19 	
EFFECTIVE DATE. This section is effective for property
35.20 	tax refunds based on household income for 2004 and thereafter.

35.21 	Sec. 15. Minnesota Statutes 2004, section 290A.03,
35.22 	subdivision 15, is amended to read:
35.23 		Subd. 15.Internal revenue code.  "Internal Revenue Code"
35.24 	means the Internal Revenue Code of 1986, as amended through June
35.25 	15, 2003 December 31, 2004.
35.26 	
EFFECTIVE DATE. This section is effective for property
35.27 	tax refunds based on property taxes payable on or after December
35.28 	31, 2004, and rent paid on or after December 31, 2003.

35.29 	ARTICLE 3
35.30 	SALES, USE, AND SPECIAL TAXES

35.31 	Section 1. Minnesota Statutes 2004, section 16C.03, is
35.32 	amended by adding a subdivision to read:
35.33 		Subd. 18.Contracts with foreign vendors. (a) The
35.34 	commissioner and other agencies to which this section applies
35.35 	and the legislative branch of government shall, subject to
35.36 	paragraph (d), cancel a contract for goods or services from a
36.1 	vendor or an affiliate of a vendor or suspend or debar a vendor
36.2 	or an affiliate of a vendor from future contracts upon
36.3 	notification from the commissioner of revenue that the vendor or
36.4 	an affiliate of the vendor has not registered to collect the
36.5 	sales and use tax imposed under chapter 297A on its sales in
36.6 	Minnesota or to a destination in Minnesota.  This subdivision
36.7 	shall not apply to state colleges and universities, the courts,
36.8 	and any agency in the judicial branch of government.  For
36.9 	purposes of this subdivision, the term "affiliate" means any
36.10 	person or entity that is controlled by, or is under common
36.11 	control of, a vendor through stock ownership or other
36.12 	affiliation.
36.13 	(b) Beginning January 1, 2006, each vendor or affiliate of
36.14 	a vendor selling goods or services, subject to tax under chapter
36.15 	297A, to an agency or the legislature must provide its Minnesota
36.16 	sales and use tax business identification number, upon request,
36.17 	to show that the vendor is registered to collect Minnesota sales
36.18 	or use tax.
36.19 	(c) The commissioner of revenue shall periodically provide
36.20 	to the commissioner and the legislative branch a list of vendors
36.21 	who have not registered to collect Minnesota sales and use tax
36.22 	and who are subject to being suspended or debarred as vendors or
36.23 	having their contracts canceled.
36.24 	(d) The provisions of this subdivision may be waived by the
36.25 	commissioner or the legislative branch when the vendor is the
36.26 	single source of such goods or services, in the event of an
36.27 	emergency, or when it is in the best interests of the state as
36.28 	determined by the commissioner in consultation with the
36.29 	commissioner of revenue.  Such consultation is not a disclosure
36.30 	violation under chapter 270B.
36.31 	
EFFECTIVE DATE. This section is effective for all
36.32 	contracts entered into after December 31, 2005.

36.33 	Sec. 2. Minnesota Statutes 2004, section 295.53,
36.34 	subdivision 1, is amended to read:
36.35 		Subdivision 1.Exemptions.  (a) The following payments
36.36 	are excluded from the gross revenues subject to the hospital,
37.1 	surgical center, or health care provider taxes under sections
37.2 	295.50 to 295.59:
37.3 	(1) payments received for services provided under the
37.4 	Medicare program, including payments received from the
37.5 	government, and organizations governed by sections 1833 and 1876
37.6 	of title XVIII of the federal Social Security Act, United States
37.7 	Code, title 42, section 1395, and enrollee deductibles,
37.8 	coinsurance, and co-payments, whether paid by the Medicare
37.9 	enrollee or by a Medicare supplemental coverage as defined in
37.10 	section 62A.011, subdivision 3, clause (10), or by Medicaid
37.11 	payments under title XIX of the federal Social Security Act.
37.12 	Payments for services not covered by Medicare are taxable;
37.13 	(2) payments received for home health care services;
37.14 	(3) payments received from hospitals or surgical centers
37.15 	for goods and services on which liability for tax is imposed
37.16 	under section 295.52 or the source of funds for the payment is
37.17 	exempt under clause (1), (7), (10), or (14);
37.18 	(4) payments received from health care providers for goods
37.19 	and services on which liability for tax is imposed under this
37.20 	chapter or the source of funds for the payment is exempt under
37.21 	clause (1), (7), (10), or (14);
37.22 	(5) amounts paid for legend drugs, other than nutritional
37.23 	products, to a wholesale drug distributor who is subject to tax
37.24 	under section 295.52, subdivision 3, reduced by reimbursements
37.25 	received for legend drugs otherwise exempt under this chapter;
37.26 	(6) payments received by a health care provider or the
37.27 	wholly owned subsidiary of a health care provider for care
37.28 	provided outside Minnesota;
37.29 	(7) payments received from the chemical dependency fund
37.30 	under chapter 254B;
37.31 	(8) payments received in the nature of charitable donations
37.32 	that are not designated for providing patient services to a
37.33 	specific individual or group;
37.34 	(9) payments received for providing patient services
37.35 	incurred through a formal program of health care research
37.36 	conducted in conformity with federal regulations governing
38.1 	research on human subjects.  Payments received from patients or
38.2 	from other persons paying on behalf of the patients are subject
38.3 	to tax;
38.4 	(10) payments received from any governmental agency for
38.5 	services benefiting the public, not including payments made by
38.6 	the government in its capacity as an employer or insurer or
38.7 	payments made by the government for services provided under
38.8 	general assistance medical care, the MinnesotaCare program, or
38.9 	the medical assistance program governed by title XIX of the
38.10 	federal Social Security Act, United States Code, title 42,
38.11 	sections 1396 to 1396v;
38.12 	(11) government payments received by the commissioner of
38.13 	human services for state-operated services;
38.14 	(12) payments received by a health care provider for
38.15 	hearing aids and related equipment or prescription eyewear
38.16 	delivered outside of Minnesota;
38.17 	(13) payments received by an educational institution from
38.18 	student tuition, student activity fees, health care service
38.19 	fees, government appropriations, donations, or grants, and for
38.20 	services identified in and provided under an individualized
38.21 	education plan as defined in section 256B.0625 or Code of
38.22 	Federal Regulations, chapter 34, section 300.340(a).  Fee for
38.23 	service payments and payments for extended coverage are taxable;
38.24 	and 
38.25 	(14) payments received under the federal Employees Health
38.26 	Benefits Act, United States Code, title 5, section 8909(f), as
38.27 	amended by the Omnibus Reconciliation Act of 1990; and 
38.28 	(15) payments received under the federal Tricare program,
38.29 	Code of Federal Regulations, title 32, section 199.17(a)(7).
38.30 	Enrollee deductibles, coinsurance, and co-payments are subject
38.31 	to tax.
38.32 	(b) Payments received by wholesale drug distributors for
38.33 	legend drugs sold directly to veterinarians or veterinary bulk
38.34 	purchasing organizations are excluded from the gross revenues
38.35 	subject to the wholesale drug distributor tax under sections
38.36 	295.50 to 295.59.
39.1 	
EFFECTIVE DATE. This section is effective for gross
39.2 	revenues received under the federal Tricare program after
39.3 	December 31, 2004.

39.4 	Sec. 3. [295.75] LIQUOR GROSS RECEIPTS TAX.
39.5 		Subdivision 1.Definitions. (a) For purposes of this
39.6 	section, the following terms have the meanings given.
39.7 	(b) "Commissioner" means the commissioner of revenue.
39.8 	(c) "Gross receipts" means the total amount received, in
39.9 	money or by barter or exchange, for all liquor sales at retail
39.10 	as measured by the sales price, but does not include any taxes
39.11 	imposed directly on the consumer that are separately stated on
39.12 	the invoice, bill of sale, or similar document given to the
39.13 	purchaser.
39.14 	(d) "Liquor" means:
39.15 	(1) intoxicating liquor, as defined in section 340A.101,
39.16 	subdivision 14;
39.17 	(2) beverage containing intoxicating liquor; and 
39.18 	(3) 3.2 percent malt liquor, as defined in section
39.19 	340A.101, subdivision 19, when sold at an on-sale or off-sale
39.20 	municipal liquor store or other establishment licensed to sell
39.21 	any type of intoxicating liquor.
39.22 	(e) "Liquor retailer" means a retailer that sells liquor.
39.23 	(f) "Retail sale" has the meaning given in section 297A.61,
39.24 	subdivision 4.
39.25 		Subd. 2.Gross receipts tax imposed. A tax is imposed on
39.26 	each liquor retailer equal to 2.5 percent of gross receipts from
39.27 	retail sales in Minnesota of liquor.
39.28 		Subd. 3.Use tax imposed; credit for taxes paid. (a) A
39.29 	person that receives liquor for use or storage in Minnesota,
39.30 	other than from a liquor retailer that paid the tax under
39.31 	subdivision 2, is subject to tax at the rate imposed under
39.32 	subdivision 2.  Liability for the tax is incurred when the
39.33 	person has possession of the liquor in Minnesota.  The tax must
39.34 	be remitted to the commissioner in the same manner prescribed
39.35 	for the taxes imposed under chapter 297A.
39.36 	(b) A person that has paid taxes to another jurisdiction on
40.1 	the same transaction and is subject to tax under this section is
40.2 	entitled to a credit for the tax legally due and paid to another
40.3 	jurisdiction to the extent of the lesser of (1) the tax actually
40.4 	paid to the other jurisdiction, or (2) the amount of tax imposed
40.5 	by Minnesota on the transaction subject to tax in the other
40.6 	jurisdiction.
40.7 		Subd. 4.Tax collection required. A liquor retailer with
40.8 	nexus in Minnesota, who is not subject to tax under subdivision
40.9 	2, is required to collect the tax imposed under subdivision 3
40.10 	from the purchaser of the liquor and give the purchaser a
40.11 	receipt for the tax paid.  The tax collected must be remitted to
40.12 	the commissioner in the same manner prescribed for the taxes
40.13 	imposed under chapter 297A.
40.14 		Subd. 5.Taxes paid to another jurisdiction; credit. A
40.15 	liquor retailer that has paid taxes to another jurisdiction
40.16 	measured by gross receipts and is subject to tax under this
40.17 	section on the same gross receipts is entitled to a credit for
40.18 	the tax legally due and paid to another jurisdiction to the
40.19 	extent of the lesser of (1) the tax actually paid to the other
40.20 	jurisdiction, or (2) the amount of tax imposed by Minnesota on
40.21 	the gross receipts subject to tax in the other taxing
40.22 	jurisdictions.
40.23 		Subd. 6.Exemptions. All of the exemptions applicable to
40.24 	the taxes imposed under chapter 297A are applicable to the taxes
40.25 	imposed under this section.
40.26 		Subd. 7.Sourcing of sales. All of the provisions of
40.27 	section 297A.668 apply to the taxes imposed by this section.
40.28 		Subd. 8.Payment; reporting. A liquor retailer shall
40.29 	report the tax on a return prescribed by the commissioner of
40.30 	revenue, and shall remit the tax with the return.  The return
40.31 	and the tax must be filed and paid using the filing cycle and
40.32 	due dates provided for taxes imposed under chapter 297A.
40.33 		Subd. 9.Administration. Unless specifically provided
40.34 	otherwise by this section, the audit, assessment, refund,
40.35 	penalty, interest, enforcement, collection remedies, appeal, and
40.36 	administrative provisions of chapters 270 and 289A that are
41.1 	applicable to taxes imposed under chapter 297A apply to taxes
41.2 	imposed under this section.
41.3 		Subd. 10.Interest on overpayments. Interest must be
41.4 	paid on an overpayment refunded or credited to the taxpayer from
41.5 	the date of payment of the tax until the date the refund is paid
41.6 	or credited.  For purposes of this subdivision, the date of
41.7 	payment is the due date of the return or the date of actual
41.8 	payment of the tax, whichever is later.
41.9 		Subd. 11.Deposit of revenues. The commissioner shall
41.10 	deposit all revenues, including penalties and interest, derived
41.11 	from the tax imposed by this section in the general fund.
41.12 	
EFFECTIVE DATE. This section is effective for sales and
41.13 	purchases occurring on or after January 1, 2006.

41.14 	Sec. 4. Minnesota Statutes 2004, section 297A.61,
41.15 	subdivision 4, is amended to read:
41.16 		Subd. 4.Retail sale.  (a) A "retail sale" means any
41.17 	sale, lease, or rental for any purpose other than resale,
41.18 	sublease, or subrent.
41.19 	(b) A sale of property used by the owner only by leasing it
41.20 	to others or by holding it in an effort to lease it, and put to
41.21 	no use by the owner other than resale after the lease or effort
41.22 	to lease, is a sale of property for resale.
41.23 	(c) A sale of master computer software that is purchased
41.24 	and used to make copies for sale or lease is a sale of property
41.25 	for resale.
41.26 	(d) A sale of building materials, supplies, and equipment
41.27 	to owners, contractors, subcontractors, or builders for the
41.28 	erection of buildings or the alteration, repair, or improvement
41.29 	of real property is a retail sale in whatever quantity sold,
41.30 	whether the sale is for purposes of resale in the form of real
41.31 	property or otherwise.
41.32 	(e) A sale of carpeting, linoleum, or similar floor
41.33 	covering to a person who provides for installation of the floor
41.34 	covering is a retail sale and not a sale for resale since a sale
41.35 	of floor covering which includes installation is a contract for
41.36 	the improvement of real property.
42.1 	(f) A sale of shrubbery, plants, sod, trees, and similar
42.2 	items to a person who provides for installation of the items is
42.3 	a retail sale and not a sale for resale since a sale of
42.4 	shrubbery, plants, sod, trees, and similar items that includes
42.5 	installation is a contract for the improvement of real property.
42.6 	(g) A sale of tangible personal property that is awarded as
42.7 	prizes is a retail sale and is not considered a sale of property
42.8 	for resale.
42.9 	(h) A sale of tangible personal property utilized or
42.10 	employed in the furnishing or providing of services under
42.11 	subdivision 3, paragraph (g), clause (1), including, but not
42.12 	limited to, property given as promotional items, is a retail
42.13 	sale and is not considered a sale of property for resale.
42.14 	(i) A sale of tangible personal property used in conducting
42.15 	lawful gambling under chapter 349 or the state lottery under
42.16 	chapter 349A, including, but not limited to, property given as
42.17 	promotional items, is a retail sale and is not considered a sale
42.18 	of property for resale.
42.19 	(j) A sale of machines, equipment, or devices that are used
42.20 	to furnish, provide, or dispense goods or services, including,
42.21 	but not limited to, coin-operated devices, is a retail sale and
42.22 	is not considered a sale of property for resale.
42.23 	(k) In the case of a lease, a retail sale occurs (1) when
42.24 	an obligation to make a lease payment becomes due under the
42.25 	terms of the agreement or the trade practices of the lessor or
42.26 	(2) in the case of a lease of a motor vehicle, as defined in
42.27 	section 297B.01, subdivision 5, but excluding vehicles with a
42.28 	manufacturer's gross vehicle weight rating greater than 10,000
42.29 	pounds and rentals of vehicles for not more than 28 days, at the
42.30 	time the lease is executed.
42.31 	(l) In the case of a conditional sales contract, a retail
42.32 	sale occurs upon the transfer of title or possession of the
42.33 	tangible personal property.
42.34 	
EFFECTIVE DATE. This section is effective for leases
42.35 	entered into after June 30, 2005.

42.36 	Sec. 5. Minnesota Statutes 2004, section 297A.61,
43.1 	subdivision 7, is amended to read:
43.2 		Subd. 7.Sales price.  (a) "Sales price" means the
43.3 	measure subject to sales tax, and means the total amount of
43.4 	consideration, including cash, credit, personal property, and
43.5 	services, for which personal property or services are sold,
43.6 	leased, or rented, valued in money, whether received in money or
43.7 	otherwise, without any deduction for the following:
43.8 	(1) the seller's cost of the property sold;
43.9 	(2) the cost of materials used, labor or service cost,
43.10 	interest, losses, all costs of transportation to the seller, all
43.11 	taxes imposed on the seller, and any other expenses of the
43.12 	seller;
43.13 	(3) charges by the seller for any services necessary to
43.14 	complete the sale, other than delivery and installation charges;
43.15 	(4) delivery charges;
43.16 	(5) installation charges; and
43.17 	(6) the value of exempt property given to the purchaser
43.18 	when taxable and exempt personal property have been bundled
43.19 	together and sold by the seller as a single product or piece of
43.20 	merchandise.
43.21 	(b) Sales price does not include:
43.22 	(1) discounts, including cash, terms, or coupons, that are
43.23 	not reimbursed by a third party and that are allowed by the
43.24 	seller and taken by a purchaser on a sale;
43.25 	(2) interest, financing, and carrying charges from credit
43.26 	extended on the sale of personal property or services, if the
43.27 	amount is separately stated on the invoice, bill of sale, or
43.28 	similar document given to the purchaser; and
43.29 	(3) any taxes legally imposed directly on the consumer that
43.30 	are separately stated on the invoice, bill of sale, or similar
43.31 	document given to the purchaser.
43.32 	(c) In the case of a lease of a motor vehicle, as defined
43.33 	in subdivision 4, paragraph (k), clause (2), that is taxable
43.34 	under this chapter, "sales price" means the total amount to be
43.35 	paid by the lessee under the lease agreement at the time the
43.36 	lease is executed.  If the total amount of the consideration for
44.1 	the lease includes amounts that are not calculated at the time
44.2 	the lease is executed, "sales price" includes these amounts at
44.3 	the time the amounts are billed to the lessee.  In the case of
44.4 	an open-ended lease, "sales price" means the total amount to be
44.5 	paid during the initial term of the lease, and then, for each
44.6 	subsequent renewal period, the total amount to be paid during
44.7 	the subsequent terms of the lease.
44.8 	
EFFECTIVE DATE. This section is effective for leases
44.9 	entered into after June 30, 2005.

44.10 	Sec. 6. Minnesota Statutes 2004, section 297A.67, is
44.11 	amended by adding a subdivision to read:
44.12 		Subd. 32.Cigarettes. Cigarettes upon which a tax has
44.13 	been imposed under section 297F.25 are exempt.
44.14 	
EFFECTIVE DATE. This section is effective for sales and
44.15 	purchases made after July 31, 2005.

44.16 	Sec. 7. Minnesota Statutes 2004, section 297A.68,
44.17 	subdivision 2, is amended to read:
44.18 		Subd. 2.Materials consumed in industrial production.
 44.19 	(a) Materials stored, used, or consumed in industrial production
44.20 	of personal property intended to be sold ultimately at retail
44.21 	are exempt, whether or not the item so used becomes an
44.22 	ingredient or constituent part of the property produced.
44.23 	Materials that qualify for this exemption include, but are not
44.24 	limited to, the following:
44.25 	(1) chemicals, including chemicals used for cleaning food
44.26 	processing machinery and equipment;
44.27 	(2) materials, including chemicals, fuels, and electricity
44.28 	purchased by persons engaged in industrial production to treat
44.29 	waste generated as a result of the production process;
44.30 	(3) fuels, electricity, gas, and steam used or consumed in
44.31 	the production process, except that electricity, gas, or steam
44.32 	used for space heating, cooling, or lighting is exempt if (i) it
44.33 	is in excess of the average climate control or lighting for the
44.34 	production area, and (ii) it is necessary to produce that
44.35 	particular product;
44.36 	(4) petroleum products and lubricants;
45.1 	(5) packaging materials, including returnable containers
45.2 	used in packaging food and beverage products;
45.3 	(6) accessory tools, equipment, and other items that are
45.4 	separate detachable units with an ordinary useful life of less
45.5 	than 12 months used in producing a direct effect upon the
45.6 	product; and
45.7 	(7) the following materials, tools, and equipment used in
45.8 	metalcasting:  crucibles, thermocouple protection sheaths and
45.9 	tubes, stalk tubes, refractory materials, molten metal filters
45.10 	and filter boxes, degassing lances, and base blocks.
45.11 	(b) This exemption does not include:
45.12 	(1) machinery, equipment, implements, tools, accessories,
45.13 	appliances, contrivances and furniture and fixtures, except
45.14 	those listed in paragraph (a), clause (6); and
45.15 	(2) petroleum and special fuels used in producing or
45.16 	generating power for propelling ready-mixed concrete trucks on
45.17 	the public highways of this state.
45.18 	(c) Industrial production includes, but is not limited to,
45.19 	research, development, design or production of any tangible
45.20 	personal property, manufacturing, processing (other than by
45.21 	restaurants and consumers) of agricultural products (whether
45.22 	vegetable or animal), commercial fishing, refining, smelting,
45.23 	reducing, brewing, distilling, printing, mining, quarrying,
45.24 	lumbering, generating electricity, the production of road
45.25 	building materials, and the research, development, design, or
45.26 	production of computer software.  Industrial production does not
45.27 	include painting, cleaning, repairing or similar processing of
45.28 	property except as part of the original manufacturing process.
45.29 	Industrial production does not include the transportation,
45.30 	transmission, or distribution of petroleum, liquefied gas,
45.31 	natural gas, water, or steam, in, by, or through pipes, lines,
45.32 	tanks, mains, or other means of transporting those products.
45.33 	For purposes of this paragraph, "transportation, transmission,
45.34 	or distribution" does not include blending of petroleum or
45.35 	biodiesel fuel as defined in section 239.77.
45.36 	
EFFECTIVE DATE. This section is effective for sales and
46.1 	purchases made after June 30, 2005.

46.2 	Sec. 8. Minnesota Statutes 2004, section 297A.68,
46.3 	subdivision 5, is amended to read:
46.4 		Subd. 5.Capital equipment.  (a) Capital equipment is
46.5 	exempt.  The tax must be imposed and collected as if the rate
46.6 	under section 297A.62, subdivision 1, applied, and then refunded
46.7 	in the manner provided in section 297A.75.
46.8 	"Capital equipment" means machinery and equipment purchased
46.9 	or leased, and used in this state by the purchaser or lessee
46.10 	primarily for manufacturing, fabricating, mining, or refining
46.11 	tangible personal property to be sold ultimately at retail if
46.12 	the machinery and equipment are essential to the integrated
46.13 	production process of manufacturing, fabricating, mining, or
46.14 	refining.  Capital equipment also includes machinery and
46.15 	equipment used to electronically transmit results retrieved by a
46.16 	customer of an on-line computerized data retrieval system.
46.17 	(b) Capital equipment includes, but is not limited to:
46.18 	(1) machinery and equipment used to operate, control, or
46.19 	regulate the production equipment;
46.20 	(2) machinery and equipment used for research and
46.21 	development, design, quality control, and testing activities;
46.22 	(3) environmental control devices that are used to maintain
46.23 	conditions such as temperature, humidity, light, or air pressure
46.24 	when those conditions are essential to and are part of the
46.25 	production process;
46.26 	(4) materials and supplies used to construct and install
46.27 	machinery or equipment;
46.28 	(5) repair and replacement parts, including accessories,
46.29 	whether purchased as spare parts, repair parts, or as upgrades
46.30 	or modifications to machinery or equipment;
46.31 	(6) materials used for foundations that support machinery
46.32 	or equipment;
46.33 	(7) materials used to construct and install special purpose
46.34 	buildings used in the production process;
46.35 	(8) ready-mixed concrete equipment in which the ready-mixed
46.36 	concrete is mixed as part of the delivery process regardless if
47.1 	mounted on a chassis and leases of ready-mixed concrete trucks;
47.2 	and
47.3 	(9) machinery or equipment used for research, development,
47.4 	design, or production of computer software.
47.5 	(c) Capital equipment does not include the following:
47.6 	(1) motor vehicles taxed under chapter 297B;
47.7 	(2) machinery or equipment used to receive or store raw
47.8 	materials;
47.9 	(3) building materials, except for materials included in
47.10 	paragraph (b), clauses (6) and (7);
47.11 	(4) machinery or equipment used for nonproduction purposes,
47.12 	including, but not limited to, the following:  plant security,
47.13 	fire prevention, first aid, and hospital stations; support
47.14 	operations or administration; pollution control; and plant
47.15 	cleaning, disposal of scrap and waste, plant communications,
47.16 	space heating, cooling, lighting, or safety;
47.17 	(5) farm machinery and aquaculture production equipment as
47.18 	defined by section 297A.61, subdivisions 12 and 13;
47.19 	(6) machinery or equipment purchased and installed by a
47.20 	contractor as part of an improvement to real property; or 
47.21 	(7) machinery or equipment used in the transportation,
47.22 	transmission, or distribution of petroleum, liquefied gas,
47.23 	natural gas, water, or steam, in, by, or through pipes, lines,
47.24 	tanks, mains, or other means of transporting those products.
47.25 	This clause does not apply to machinery or equipment used to
47.26 	blend petroleum or biodiesel fuel as defined in section 239.77;
47.27 	or 
47.28 	(8) any other item that is not essential to the integrated
47.29 	process of manufacturing, fabricating, mining, or refining.
47.30 	(d) For purposes of this subdivision:
47.31 	(1) "Equipment" means independent devices or tools separate
47.32 	from machinery but essential to an integrated production
47.33 	process, including computers and computer software, used in
47.34 	operating, controlling, or regulating machinery and equipment;
47.35 	and any subunit or assembly comprising a component of any
47.36 	machinery or accessory or attachment parts of machinery, such as
48.1 	tools, dies, jigs, patterns, and molds.
48.2 	(2) "Fabricating" means to make, build, create, produce, or
48.3 	assemble components or property to work in a new or different
48.4 	manner.
48.5 	(3) "Integrated production process" means a process or
48.6 	series of operations through which tangible personal property is
48.7 	manufactured, fabricated, mined, or refined.  For purposes of
48.8 	this clause, (i) manufacturing begins with the removal of raw
48.9 	materials from inventory and ends when the last process prior to
48.10 	loading for shipment has been completed; (ii) fabricating begins
48.11 	with the removal from storage or inventory of the property to be
48.12 	assembled, processed, altered, or modified and ends with the
48.13 	creation or production of the new or changed product; (iii)
48.14 	mining begins with the removal of overburden from the site of
48.15 	the ores, minerals, stone, peat deposit, or surface materials
48.16 	and ends when the last process before stockpiling is completed;
48.17 	and (iv) refining begins with the removal from inventory or
48.18 	storage of a natural resource and ends with the conversion of
48.19 	the item to its completed form.
48.20 	(4) "Machinery" means mechanical, electronic, or electrical
48.21 	devices, including computers and computer software, that are
48.22 	purchased or constructed to be used for the activities set forth
48.23 	in paragraph (a), beginning with the removal of raw materials
48.24 	from inventory through completion of the product, including
48.25 	packaging of the product.
48.26 	(5) "Machinery and equipment used for pollution control"
48.27 	means machinery and equipment used solely to eliminate, prevent,
48.28 	or reduce pollution resulting from an activity described in
48.29 	paragraph (a).
48.30 	(6) "Manufacturing" means an operation or series of
48.31 	operations where raw materials are changed in form, composition,
48.32 	or condition by machinery and equipment and which results in the
48.33 	production of a new article of tangible personal property.  For
48.34 	purposes of this subdivision, "manufacturing" includes the
48.35 	generation of electricity or steam to be sold at retail.
48.36 	(7) "Mining" means the extraction of minerals, ores, stone,
49.1 	or peat.
49.2 	(8) "On-line data retrieval system" means a system whose
49.3 	cumulation of information is equally available and accessible to
49.4 	all its customers.
49.5 	(9) "Primarily" means machinery and equipment used 50
49.6 	percent or more of the time in an activity described in
49.7 	paragraph (a).
49.8 	(10) "Refining" means the process of converting a natural
49.9 	resource to an intermediate or finished product, including the
49.10 	treatment of water to be sold at retail.
49.11 	
EFFECTIVE DATE. This section is effective for sales and
49.12 	purchases made after June 30, 2005.

49.13 	Sec. 9. [297A.82] MOTOR VEHICLE LEASES.
49.14 		Subdivision 1.Motor vehicle lease price; payment. (a)
49.15 	In the case of a lease of a motor vehicle as provided in section
49.16 	297A.61, subdivision 4, paragraph (k), clause (2), the tax is
49.17 	imposed on the total amount to be paid by the lessee under the
49.18 	lease agreement.  The lessor shall collect the tax in full at
49.19 	the time the lease is executed or, if the tax is included in the
49.20 	lease and the lease is assigned, the tax is due from the
49.21 	original lessor at the time the lease is assigned.  The total
49.22 	amount to be paid by the lessee under the lease agreement equals
49.23 	the agreed-upon value of the vehicle less manufacturer's
49.24 	rebates, the stated residual value of the leased vehicle, and
49.25 	the total value allowed for a vehicle owned by the lessee taken
49.26 	in trade by the lessor, plus the price of any taxable goods and
49.27 	services included in the lease and the rent charge as provided
49.28 	by Code of Federal Regulations, title 12, section 213.4,
49.29 	excluding any rent charge related to the capitalization of the
49.30 	tax.
49.31 	(b) If the total amount paid by the lessee for use of the
49.32 	leased vehicle includes amounts that are not calculated at the
49.33 	time the lease is executed, the tax is imposed and must be
49.34 	collected by the lessor at the time the amounts are paid by the
49.35 	lessee.  In the case of a lease which by its terms may be
49.36 	renewed, the sales tax is due and payable on the total amount to
50.1 	be paid during the initial term of the lease, and then for each
50.2 	subsequent renewal period on the total amount to be paid during
50.3 	the renewal period.
50.4 	(c) If a lease is canceled or rescinded on or before 90
50.5 	days of its execution or if a vehicle is returned to the
50.6 	manufacturer under section 325F.665, the lessor may file a claim
50.7 	for a refund of the total tax paid minus the amount of tax due
50.8 	for the period the vehicle is used by the lessee.
50.9 		Subd. 2.Lease of motor vehicles. When the lease of a
50.10 	motor vehicle as defined in section 297A.61, subdivision 4,
50.11 	paragraph (k), clause (2), originates in another state, the
50.12 	sales tax under subdivision 1 shall be calculated by the lessor
50.13 	on the total amount that is due under the lease agreement after
50.14 	the vehicle is required to be registered in Minnesota.  If the
50.15 	total amount to be paid by the lessee under the lease agreement
50.16 	has already been subjected to tax by another state, a credit for
50.17 	taxes paid in the other state is allowed as provided in section
50.18 	297A.80.
50.19 	
EFFECTIVE DATE. Subdivision 1 of this section is
50.20 	effective for leases entered into after June 30, 2005.
50.21 	Subdivision 2 of this section is effective for vehicles
50.22 	registering in Minnesota after June 30, 2005.

50.23 	Sec. 10. Minnesota Statutes 2004, section 297F.14,
50.24 	subdivision 4, is amended to read:
50.25 		Subd. 4.Bad debt. The commissioner may adopt rules
50.26 	providing a refund of the tax paid under this chapter if the tax
50.27 	paid qualifies as a bad debt under section 166(a) of the
50.28 	Internal Revenue Code.For any reporting period, a taxpayer may
50.29 	offset against taxes payable under this chapter the amount of
50.30 	taxes previously paid under this chapter that is attributable to
50.31 	a bad debt.  The taxes must have been included in a transaction
50.32 	the consideration for which was a debt owed to the taxpayer and
50.33 	which became uncollectible, but only in proportion to the
50.34 	portion of debt that became uncollectible.  To qualify for
50.35 	offset under this subdivision, the debt must have qualified as a
50.36 	bad debt under section 166(a) of the Internal Revenue Code.  The
51.1 	taxpayer may claim the offset within the time period prescribed
51.2 	in section 297F.17, subdivision 6.  If the taxpayer is no longer
51.3 	liable for taxes imposed under this chapter, the commissioner
51.4 	shall refund to the taxpayer the amount of the taxes
51.5 	attributable to the bad debt.  Any recovery of the tax claimed
51.6 	as a refund or credit must be reported to the commissioner on
51.7 	the tax return for the month in which the recovery is made.  If
51.8 	the taxpayer is no longer required to file returns under this
51.9 	chapter, the taxpayer must reimburse the commissioner for tax
51.10 	recovered in the month following the recovery.
51.11 	
EFFECTIVE DATE. This section is effective for claims
51.12 	filed on or after July 1, 2005.

51.13 	Sec. 11. [297F.25] CIGARETTE SALES TAX.
51.14 		Subdivision 1.Imposition. A tax is imposed on
51.15 	distributors on the sale of cigarettes by a cigarette
51.16 	distributor to a retailer or cigarette subjobber for resale in
51.17 	this state.  The tax is equal to 6.5 percent of the weighted
51.18 	average retail price.  The weighted average retail price must be
51.19 	expressed in cents per pack when rounded to the nearest
51.20 	one-tenth of a cent.  The weighted average retail price must be
51.21 	determined annually, with new rates published by May 1, and
51.22 	effective for sales on or after July 1.  The weighted average
51.23 	retail price must be established by surveying cigarette
51.24 	retailers statewide in a manner and time determined by the
51.25 	commissioner.  The determination of the commissioner pursuant to
51.26 	this subdivision is not a "rule" and is not subject to the
51.27 	Administrative Procedure Act contained in chapter 14.  As of
51.28 	August 1, 2005, the tax is 21 cents per pack of 20 cigarettes.
51.29 	For packs of cigarettes with other than 20 cigarettes, the tax
51.30 	must be adjusted proportionally.
51.31 		Subd. 2.Payment. Each taxpayer must remit payments of
51.32 	the taxes to the commissioner on the same dates prescribed under
51.33 	section 297F.09, subdivision 1, for cigarette tax returns,
51.34 	including the accelerated remittance of the June liability.
51.35 		Subd. 3.Return. A taxpayer must file a return with the
51.36 	commissioner on the same dates prescribed under section 297F.09,
52.1 	subdivision 1, for cigarette tax returns.  Notwithstanding any
52.2 	other provisions of this chapter, the tax due on the return is
52.3 	based upon actual stamps purchased during the reporting period.
52.4 		Subd. 4.Form of return. The return must contain the
52.5 	information and be in the form prescribed by the commissioner.
52.6 		Subd. 5.Tax as debt. The tax that is required to be
52.7 	paid by the distributor is a debt from the retailer or cigarette
52.8 	subjobber to the distributor recoverable at law in the same
52.9 	manner as other debts.  A cigarette retailer or subjobber must
52.10 	pay the tax imposed under subdivision 1 to the distributor
52.11 	before the 12th day of the month following the month in which
52.12 	the cigarettes were purchased from the distributor.
52.13 		Subd. 6.Sales tax stamp. Payment of the tax imposed
52.14 	under section 297F.05 and by this section must be evidenced by a
52.15 	dual-purpose single stamp affixed to each package.
52.16 		Subd. 7.Administration. The stamping, audit,
52.17 	assessment, interest, penalty, appeal, refund, and collection
52.18 	provisions applicable to the taxes imposed under this chapter
52.19 	apply to taxes imposed under this section.
52.20 		Subd. 8.Deposit of revenues. Notwithstanding the
52.21 	provisions of section 297F.10, the commissioner shall deposit
52.22 	all revenues, including penalties and interest, derived from the
52.23 	tax imposed by this section, in the general fund.
52.24 	
EFFECTIVE DATE. This section is effective for all sales
52.25 	made on or after August 1, 2005.

52.26 	Sec. 12. Minnesota Statutes 2004, section 297H.13,
52.27 	subdivision 2, is amended to read:
52.28 		Subd. 2.Allocation of revenues.  (a) The commissioner of
52.29 	revenue shall deduct from the proceeds of the taxes imposed
52.30 	under this chapter an amount that equals the direct and indirect
52.31 	costs of the Department of Revenue to administer this chapter.
52.32 	This amount is annually appropriated to the commissioner of
52.33 	revenue.
52.34 	(b) $22,000,000 $33,760,000, or 50 70 percent, whichever
52.35 	is greater, of the balance of the amounts remitted under this
52.36 	chapter must be credited to the environmental fund established
53.1 	in section 16A.531, subdivision 1.
53.2 	(b) (c) The remainder must be deposited into the general
53.3 	fund.
53.4 	
EFFECTIVE DATE. This section is effective for amounts
53.5 	remitted on or after July 1, 2005.

53.6 	Sec. 13. Minnesota Statutes 2004, section 297I.01, is
53.7 	amended by adding a subdivision to read:
53.8 		Subd. 6a.Direct business. (a) "Direct business" means
53.9 	all insurance provided by an insurance company or its agents,
53.10 	and specifically includes stop-loss insurance purchased in
53.11 	connection with a self-insurance plan for employee health
53.12 	benefits or for other purposes, but excludes:
53.13 	(1) reinsurance in which an insurance company assumes the
53.14 	liability of another insurance company; and 
53.15 	(2) self-insurance.
53.16 	(b) For purposes of this subdivision, an insurance company
53.17 	includes a nonprofit health service corporation, health
53.18 	maintenance organization, and community integrated service
53.19 	network.
53.20 	
EFFECTIVE DATE. This section is effective for insurance
53.21 	premiums received after December 31, 2005.

53.22 	Sec. 14. Minnesota Statutes 2004, section 473.843,
53.23 	subdivision 2, is amended to read:
53.24 		Subd. 2.Disposition of proceeds. (a) The commissioner
53.25 	of revenue shall deduct from the proceeds of the fees imposed
53.26 	under this section an amount that equals the direct and indirect
53.27 	costs of the Department of Revenue to administer this section.
53.28 	This amount is annually appropriated to the commissioner of
53.29 	revenue.
53.30 	(b) The remainder of the proceeds of the fees imposed under
53.31 	this section, including interest and penalties, must be
53.32 	deposited as follows:
53.33 	(1) three-fourths of the proceeds must be deposited in the
53.34 	environmental fund for metropolitan landfill abatement for the
53.35 	purposes described in section 473.844; and
53.36 	(2) one-fourth of the proceeds must be deposited in the
54.1 	metropolitan landfill contingency action trust account in the
54.2 	remediation fund established in sections 116.155 and 473.845.
54.3 	
EFFECTIVE DATE. This section is effective for amounts
54.4 	remitted on or after July 1, 2005.

54.5 	Sec. 15. Laws 2001, First Special Session chapter 5,
54.6 	article 12, section 95, is amended to read:
54.7 	Sec. 95REPEALER.
 54.8 	(a) Minnesota Statutes 2000, sections 297A.61, subdivision
54.9 	16; 297A.68, subdivision 21; and 297A.71, subdivisions 2 and 16,
54.10 	are repealed effective for sales and purchases occurring after
54.11 	June 30, 2001, except that the repeal of section 297A.61,
54.12 	subdivision 16, paragraph (d), is effective for sales and
54.13 	purchases occurring after July 31, 2001.
54.14 	(b) Minnesota Statutes 2000, sections section 297A.62,
54.15 	subdivision 2, a nd 297A.64, subdivision 1, are is repealed
54.16 	effective for sales and purchases made after December 31, 2005.
54.17 	(c) Minnesota Statutes 2000, section 297A.71, subdivision
54.18 	15, is repealed effective for sales and purchases made after
54.19 	June 30, 2002.
54.20 	(d) Minnesota Statutes 2000, section 289A.60, subdivision
54.21 	15, is repealed effective for liabilities after January 1, 2003.

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

54.24 	Sec. 16. FLOOR STOCKS TAX.
 54.25 		Subdivision 1.Cigarettes. A floor stocks cigarette
54.26 	sales tax is imposed on every person engaged in the business in
54.27 	this state as a distributor, retailer, subjobber, vendor,
54.28 	manufacturer, or manufacturer's representative of cigarettes, on
54.29 	the stamped cigarettes and unaffixed stamps in the person's
54.30 	possession or under the person's control at 12:01 a.m. on August
54.31 	1, 2005.  The tax is imposed at the rate of 21 cents per pack of
54.32 	20 cigarettes.  For packs of cigarettes with other than 20
54.33 	cigarettes, the tax shall be adjusted proportionally.
54.34 	Each distributor, by August 10, 2005, shall file a return
54.35 	with the commissioner, in the form the commissioner prescribes,
54.36 	showing the stamped cigarettes and unaffixed stamps on hand at
55.1 	12:01 a.m. on August 1, 2005, and the amount of tax due on the
55.2 	cigarettes and unaffixed stamps.  The tax imposed by this
55.3 	section is due and payable by September 7, 2005, and after that
55.4 	date bears interest at the rate of one percent a month.
55.5 	Each retailer, subjobber, vendor, manufacturer, or
55.6 	manufacturer's representative, by August 10, 2005, shall file a
55.7 	return with the commissioner, in the form the commissioner
55.8 	prescribes, showing the cigarettes on hand at 12:01 a.m. on
55.9 	August 1, 2005, and the amount of tax due on the cigarettes.
55.10 	The tax imposed by this section is due and payable by September
55.11 	7, 2005, and after that date bears interest at the rate of one
55.12 	percent a month.
55.13 		Subd. 2.Audit and enforcement. The tax imposed by this
55.14 	section is subject to the audit, assessment, penalty, and
55.15 	collection provisions applicable to the taxes imposed under
55.16 	Minnesota Statutes, chapter 297F.  The commissioner may require
55.17 	a distributor to receive and maintain copies of floor stocks tax
55.18 	returns filed by all persons requesting a credit for returned
55.19 	cigarettes.
55.20 		Subd. 3.Deposit of proceeds. The revenue from the tax
55.21 	imposed under this section shall be deposited by the
55.22 	commissioner in the state treasury and credited to the general
55.23 	fund.
55.24 	
EFFECTIVE DATE. This section is effective August 1, 2005.

55.25 	ARTICLE 4
55.26 	INTERNATIONAL ECONOMIC DEVELOPMENT ZONE

55.27 	Section 1. Minnesota Statutes 2004, section 272.02, is
55.28 	amended by adding a subdivision to read:
55.29 		Subd. 68.International economic development zone
55.30 	property. (a) Improvements to real property, and personal
55.31 	property, classified under section 273.13, subdivision 24, and
55.32 	located within the international economic development zone
55.33 	designated under section 469.322, are exempt from ad valorem
55.34 	taxes levied under chapter 275, if the improvements are:
55.35 	(1) part of a regional distribution center as defined in
55.36 	section 469.321; or 
56.1 	(2) occupied by a qualified business as defined in section
56.2 	469.321, that uses the improvements primarily in freight
56.3 	forwarding operations.
56.4 	(b) The exemption applies beginning for the first
56.5 	assessment year after designation of the international economic
56.6 	development zone.  The exemption applies to each assessment year
56.7 	that begins during the duration of the international economic
56.8 	development zone.  To be exempt under paragraph (a), clause (2),
56.9 	the property must be occupied by July 1 of the assessment year
56.10 	by a qualified business that has signed the business subsidy
56.11 	agreement by July 1 of the assessment year.
56.12 	
EFFECTIVE DATE. This section is effective beginning for
56.13 	property taxes payable in 2008.

56.14 	Sec. 2. Minnesota Statutes 2004, section 290.01,
56.15 	subdivision 19b, is amended to read:
56.16 		Subd. 19b.Subtractions from federal taxable income.  For
56.17 	individuals, estates, and trusts, there shall be subtracted from
56.18 	federal taxable income:
56.19 	(1) interest income on obligations of any authority,
56.20 	commission, or instrumentality of the United States to the
56.21 	extent includable in taxable income for federal income tax
56.22 	purposes but exempt from state income tax under the laws of the
56.23 	United States;
56.24 	(2) if included in federal taxable income, the amount of
56.25 	any overpayment of income tax to Minnesota or to any other
56.26 	state, for any previous taxable year, whether the amount is
56.27 	received as a refund or as a credit to another taxable year's
56.28 	income tax liability;
56.29 	(3) the amount paid to others, less the amount used to
56.30 	claim the credit allowed under section 290.0674, not to exceed
56.31 	$1,625 for each qualifying child in grades kindergarten to 6 and
56.32 	$2,500 for each qualifying child in grades 7 to 12, for tuition,
56.33 	textbooks, and transportation of each qualifying child in
56.34 	attending an elementary or secondary school situated in
56.35 	Minnesota, North Dakota, South Dakota, Iowa, or Wisconsin,
56.36 	wherein a resident of this state may legally fulfill the state's
57.1 	compulsory attendance laws, which is not operated for profit,
57.2 	and which adheres to the provisions of the Civil Rights Act of
57.3 	1964 and chapter 363A.  For the purposes of this clause,
57.4 	"tuition" includes fees or tuition as defined in section
57.5 	290.0674, subdivision 1, clause (1).  As used in this clause,
57.6 	"textbooks" includes books and other instructional materials and
57.7 	equipment purchased or leased for use in elementary and
57.8 	secondary schools in teaching only those subjects legally and
57.9 	commonly taught in public elementary and secondary schools in
57.10 	this state.  Equipment expenses qualifying for deduction
57.11 	includes expenses as defined and limited in section 290.0674,
57.12 	subdivision 1, clause (3).  "Textbooks" does not include
57.13 	instructional books and materials used in the teaching of
57.14 	religious tenets, doctrines, or worship, the purpose of which is
57.15 	to instill such tenets, doctrines, or worship, nor does it
57.16 	include books or materials for, or transportation to,
57.17 	extracurricular activities including sporting events, musical or
57.18 	dramatic events, speech activities, driver's education, or
57.19 	similar programs.  For purposes of the subtraction provided by
57.20 	this clause, "qualifying child" has the meaning given in section
57.21 	32(c)(3) of the Internal Revenue Code;
57.22 	(4) income as provided under section 290.0802;
57.23 	(5) to the extent included in federal adjusted gross
57.24 	income, income realized on disposition of property exempt from
57.25 	tax under section 290.491;
57.26 	(6) to the extent included in federal taxable income,
57.27 	postservice benefits for youth community service under section
57.28 	124D.42 for volunteer service under United States Code, title
57.29 	42, sections 12601 to 12604;
57.30 	(7) to the extent not deducted in determining federal
57.31 	taxable income by an individual who does not itemize deductions
57.32 	for federal income tax purposes for the taxable year, an amount
57.33 	equal to 50 percent of the excess of charitable contributions
57.34 	allowable as a deduction for the taxable year under section
57.35 	170(a) of the Internal Revenue Code over $500;
57.36 	(8) for taxable years beginning before January 1, 2008, the
58.1 	amount of the federal small ethanol producer credit allowed
58.2 	under section 40(a)(3) of the Internal Revenue Code which is
58.3 	included in gross income under section 87 of the Internal
58.4 	Revenue Code;
58.5 	(9) for individuals who are allowed a federal foreign tax
58.6 	credit for taxes that do not qualify for a credit under section
58.7 	290.06, subdivision 22, an amount equal to the carryover of
58.8 	subnational foreign taxes for the taxable year, but not to
58.9 	exceed the total subnational foreign taxes reported in claiming
58.10 	the foreign tax credit.  For purposes of this clause, "federal
58.11 	foreign tax credit" means the credit allowed under section 27 of
58.12 	the Internal Revenue Code, and "carryover of subnational foreign
58.13 	taxes" equals the carryover allowed under section 904(c) of the
58.14 	Internal Revenue Code minus national level foreign taxes to the
58.15 	extent they exceed the federal foreign tax credit;
58.16 	(10) in each of the five tax years immediately following
58.17 	the tax year in which an addition is required under subdivision
58.18 	19a, clause (7), an amount equal to one-fifth of the delayed
58.19 	depreciation.  For purposes of this clause, "delayed
58.20 	depreciation" means the amount of the addition made by the
58.21 	taxpayer under subdivision 19a, clause (7), minus the positive
58.22 	value of any net operating loss under section 172 of the
58.23 	Internal Revenue Code generated for the tax year of the
58.24 	addition.  The resulting delayed depreciation cannot be less
58.25 	than zero; and 
58.26 	(11) job opportunity building zone income as provided under
58.27 	section 469.316; and 
58.28 	(12) international economic development zone income as
58.29 	provided under section 469.325.
58.30 	
EFFECTIVE DATE. This section is effective for tax years
58.31 	beginning after December 31, 2006.

58.32 	Sec. 3. Minnesota Statutes 2004, section 290.01,
58.33 	subdivision 29, is amended to read:
58.34 		Subd. 29.Taxable income.  The term "taxable income"
58.35 	means:
58.36 	(1) for individuals, estates, and trusts, the same as
59.1 	taxable net income;
59.2 	(2) for corporations, the taxable net income less
59.3 	(i) the net operating loss deduction under section 290.095;
59.4 	(ii) the dividends received deduction under section 290.21,
59.5 	subdivision 4;
59.6 	(iii) the exemption for operating in a job opportunity
59.7 	building zone under section 469.317; and 
59.8 	(iv) the exemption for operating in a biotechnology and
59.9 	health sciences industry zone under section 469.337; and 
59.10 	(v) the exemption for operating in an international
59.11 	economic development zone under section 469.326.
59.12 	
EFFECTIVE DATE. This section is effective for tax years
59.13 	beginning after December 31, 2006.

59.14 	Sec. 4. Minnesota Statutes 2004, section 290.06,
59.15 	subdivision 2c, is amended to read:
59.16 		Subd. 2c.Schedules of rates for individuals, estates,
59.17 	and trusts.  (a) The income taxes imposed by this chapter upon
59.18 	married individuals filing joint returns and surviving spouses
59.19 	as defined in section 2(a) of the Internal Revenue Code must be
59.20 	computed by applying to their taxable net income the following
59.21 	schedule of rates:
59.22 	(1) On the first $25,680, 5.35 percent;
59.23 	(2) On all over $25,680, but not over $102,030, 7.05
59.24 	percent;
59.25 	(3) On all over $102,030, 7.85 percent.
59.26 	Married individuals filing separate returns, estates, and
59.27 	trusts must compute their income tax by applying the above rates
59.28 	to their taxable income, except that the income brackets will be
59.29 	one-half of the above amounts.
59.30 	(b) The income taxes imposed by this chapter upon unmarried
59.31 	individuals must be computed by applying to taxable net income
59.32 	the following schedule of rates:
59.33 	(1) On the first $17,570, 5.35 percent;
59.34 	(2) On all over $17,570, but not over $57,710, 7.05
59.35 	percent;
59.36 	(3) On all over $57,710, 7.85 percent.
60.1 	(c) The income taxes imposed by this chapter upon unmarried
60.2 	individuals qualifying as a head of household as defined in
60.3 	section 2(b) of the Internal Revenue Code must be computed by
60.4 	applying to taxable net income the following schedule of rates:
60.5 	(1) On the first $21,630, 5.35 percent;
60.6 	(2) On all over $21,630, but not over $86,910, 7.05
60.7 	percent;
60.8 	(3) On all over $86,910, 7.85 percent.
60.9 	(d) In lieu of a tax computed according to the rates set
60.10 	forth in this subdivision, the tax of any individual taxpayer
60.11 	whose taxable net income for the taxable year is less than an
60.12 	amount determined by the commissioner must be computed in
60.13 	accordance with tables prepared and issued by the commissioner
60.14 	of revenue based on income brackets of not more than $100.  The
60.15 	amount of tax for each bracket shall be computed at the rates
60.16 	set forth in this subdivision, provided that the commissioner
60.17 	may disregard a fractional part of a dollar unless it amounts to
60.18 	50 cents or more, in which case it may be increased to $1.
60.19 	(e) An individual who is not a Minnesota resident for the
60.20 	entire year must compute the individual's Minnesota income tax
60.21 	as provided in this subdivision.  After the application of the
60.22 	nonrefundable credits provided in this chapter, the tax
60.23 	liability must then be multiplied by a fraction in which:
60.24 	(1) the numerator is the individual's Minnesota source
60.25 	federal adjusted gross income as defined in section 62 of the
60.26 	Internal Revenue Code and increased by the additions required
60.27 	under section 290.01, subdivision 19a, clauses (1), (5), and
60.28 	(6), and reduced by the subtraction under section 290.01,
60.29 	subdivision 19b, clause clauses (11) and (12), and the Minnesota
60.30 	assignable portion of the subtraction for United States
60.31 	government interest under section 290.01, subdivision 19b,
60.32 	clause (1), after applying the allocation and assignability
60.33 	provisions of section 290.081, clause (a), or 290.17; and
60.34 	(2) the denominator is the individual's federal adjusted
60.35 	gross income as defined in section 62 of the Internal Revenue
60.36 	Code of 1986, increased by the amounts specified in section
61.1 	290.01, subdivision 19a, clauses (1), (5), and (6), and reduced
61.2 	by the amounts specified in section 290.01, subdivision 19b,
61.3 	clauses (1) and ,(11), and (12).
61.4 	
EFFECTIVE DATE. This section is effective for tax years
61.5 	beginning after December 31, 2006.

61.6 	Sec. 5. Minnesota Statutes 2004, section 290.06, is
61.7 	amended by adding a subdivision to read:
61.8 		Subd. 32.International economic development zone job
61.9 	credit. A taxpayer that is a qualified business, as defined in
61.10 	section 469.321, subdivision 6, is allowed a credit as
61.11 	determined under section 469.327 against the tax imposed by this
61.12 	chapter.
61.13 	
EFFECTIVE DATE. This section is effective the day
61.14 	following final enactment.

61.15 	Sec. 6. Minnesota Statutes 2004, section 290.067,
61.16 	subdivision 1, is amended to read:
61.17 		Subdivision 1.Amount of credit.  (a) A taxpayer may take
61.18 	as a credit against the tax due from the taxpayer and a spouse,
61.19 	if any, under this chapter an amount equal to the dependent care
61.20 	credit for which the taxpayer is eligible pursuant to the
61.21 	provisions of section 21 of the Internal Revenue Code subject to
61.22 	the limitations provided in subdivision 2 except that in
61.23 	determining whether the child qualified as a dependent, income
61.24 	received as a Minnesota family investment program grant or
61.25 	allowance to or on behalf of the child must not be taken into
61.26 	account in determining whether the child received more than half
61.27 	of the child's support from the taxpayer, and the provisions of
61.28 	section 32(b)(1)(D) of the Internal Revenue Code do not apply.
61.29 	(b) If a child who has not attained the age of six years at
61.30 	the close of the taxable year is cared for at a licensed family
61.31 	day care home operated by the child's parent, the taxpayer is
61.32 	deemed to have paid employment-related expenses.  If the child
61.33 	is 16 months old or younger at the close of the taxable year,
61.34 	the amount of expenses deemed to have been paid equals the
61.35 	maximum limit for one qualified individual under section 21(c)
61.36 	and (d) of the Internal Revenue Code.  If the child is older
62.1 	than 16 months of age but has not attained the age of six years
62.2 	at the close of the taxable year, the amount of expenses deemed
62.3 	to have been paid equals the amount the licensee would charge
62.4 	for the care of a child of the same age for the same number of
62.5 	hours of care.
62.6 	(c) If a married couple:
62.7 	(1) has a child who has not attained the age of one year at
62.8 	the close of the taxable year;
62.9 	(2) files a joint tax return for the taxable year; and
62.10 	(3) does not participate in a dependent care assistance
62.11 	program as defined in section 129 of the Internal Revenue Code,
62.12 	in lieu of the actual employment related expenses paid for that
62.13 	child under paragraph (a) or the deemed amount under paragraph
62.14 	(b), the lesser of (i) the combined earned income of the couple
62.15 	or (ii) the amount of the maximum limit for one qualified
62.16 	individual under section 21(c) and (d) of the Internal Revenue
62.17 	Code will be deemed to be the employment related expense paid
62.18 	for that child.  The earned income limitation of section 21(d)
62.19 	of the Internal Revenue Code shall not apply to this deemed
62.20 	amount.  These deemed amounts apply regardless of whether any
62.21 	employment-related expenses have been paid.
62.22 	(d) If the taxpayer is not required and does not file a
62.23 	federal individual income tax return for the tax year, no credit
62.24 	is allowed for any amount paid to any person unless:
62.25 	(1) the name, address, and taxpayer identification number
62.26 	of the person are included on the return claiming the credit; or
62.27 	(2) if the person is an organization described in section
62.28 	501(c)(3) of the Internal Revenue Code and exempt from tax under
62.29 	section 501(a) of the Internal Revenue Code, the name and
62.30 	address of the person are included on the return claiming the
62.31 	credit.
62.32 	In the case of a failure to provide the information required
62.33 	under the preceding sentence, the preceding sentence does not
62.34 	apply if it is shown that the taxpayer exercised due diligence
62.35 	in attempting to provide the information required.
62.36 	In the case of a nonresident, part-year resident, or a
63.1 	person who has earned income not subject to tax under this
63.2 	chapter including earned income excluded pursuant to section
63.3 	290.01, subdivision 19b, clause clauses (11) and (12), the
63.4 	credit determined under section 21 of the Internal Revenue Code
63.5 	must be allocated based on the ratio by which the earned income
63.6 	of the claimant and the claimant's spouse from Minnesota sources
63.7 	bears to the total earned income of the claimant and the
63.8 	claimant's spouse.
63.9 	
EFFECTIVE DATE. This section is effective for tax years
63.10 	beginning after December 31, 2006.

63.11 	Sec. 7. Minnesota Statutes 2004, section 290.0671,
63.12 	subdivision 1, is amended to read:
63.13 		Subdivision 1.Credit allowed.  (a) An individual is
63.14 	allowed a credit against the tax imposed by this chapter equal
63.15 	to a percentage of earned income.  To receive a credit, a
63.16 	taxpayer must be eligible for a credit under section 32 of the
63.17 	Internal Revenue Code.
63.18 	(b) For individuals with no qualifying children, the credit
63.19 	equals 1.9125 percent of the first $4,620 of earned income.  The
63.20 	credit is reduced by 1.9125 percent of earned income or modified
63.21 	adjusted gross income, whichever is greater, in excess of
63.22 	$5,770, but in no case is the credit less than zero.
63.23 	(c) For individuals with one qualifying child, the credit
63.24 	equals 8.5 percent of the first $6,920 of earned income and 8.5
63.25 	percent of earned income over $12,080 but less than $13,450.
63.26 	The credit is reduced by 5.73 percent of earned income or
63.27 	modified adjusted gross income, whichever is greater, in excess
63.28 	of $15,080, but in no case is the credit less than zero.
63.29 	(d) For individuals with two or more qualifying children,
63.30 	the credit equals ten percent of the first $9,720 of earned
63.31 	income and 20 percent of earned income over $14,860 but less
63.32 	than $16,800.  The credit is reduced by 10.3 percent of earned
63.33 	income or modified adjusted gross income, whichever is greater,
63.34 	in excess of $17,890, but in no case is the credit less than
63.35 	zero.
63.36 	(e) For a nonresident or part-year resident, the credit
64.1 	must be allocated based on the percentage calculated under
64.2 	section 290.06, subdivision 2c, paragraph (e).
64.3 	(f) For a person who was a resident for the entire tax year
64.4 	and has earned income not subject to tax under this chapter,
64.5 	including income excluded under section 290.01, subdivision 19b,
64.6 	clause (11) or (12), the credit must be allocated based on the
64.7 	ratio of federal adjusted gross income reduced by the earned
64.8 	income not subject to tax under this chapter over federal
64.9 	adjusted gross income.
64.10 	(g) For tax years beginning after December 31, 2001, and
64.11 	before December 31, 2004, the $5,770 in paragraph (b), the
64.12 	$15,080 in paragraph (c), and the $17,890 in paragraph (d),
64.13 	after being adjusted for inflation under subdivision 7, are each
64.14 	increased by $1,000 for married taxpayers filing joint returns.
64.15 	(h) For tax years beginning after December 31, 2004, and
64.16 	before December 31, 2007, the $5,770 in paragraph (b), the
64.17 	$15,080 in paragraph (c), and the $17,890 in paragraph (d),
64.18 	after being adjusted for inflation under subdivision 7, are each
64.19 	increased by $2,000 for married taxpayers filing joint returns.
64.20 	(i) For tax years beginning after December 31, 2007, and
64.21 	before December 31, 2010, the $5,770 in paragraph (b), the
64.22 	$15,080 in paragraph (c), and the $17,890 in paragraph (d),
64.23 	after being adjusted for inflation under subdivision 7, are each
64.24 	increased by $3,000 for married taxpayers filing joint returns.
64.25 	For tax years beginning after December 31, 2008, the $3,000 is
64.26 	adjusted annually for inflation under subdivision 7.
64.27 	(j) The commissioner shall construct tables showing the
64.28 	amount of the credit at various income levels and make them
64.29 	available to taxpayers.  The tables shall follow the schedule
64.30 	contained in this subdivision, except that the commissioner may
64.31 	graduate the transition between income brackets.
64.32 	
EFFECTIVE DATE. This section is effective for tax years
64.33 	beginning after December 31, 2006.

64.34 	Sec. 8. Minnesota Statutes 2004, section 290.091,
64.35 	subdivision 2, is amended to read:
64.36 		Subd. 2.Definitions.  For purposes of the tax imposed by
65.1 	this section, the following terms have the meanings given:
65.2 	(a) "Alternative minimum taxable income" means the sum of
65.3 	the following for the taxable year:
65.4 	(1) the taxpayer's federal alternative minimum taxable
65.5 	income as defined in section 55(b)(2) of the Internal Revenue
65.6 	Code;
65.7 	(2) the taxpayer's itemized deductions allowed in computing
65.8 	federal alternative minimum taxable income, but excluding:
65.9 	(i) the charitable contribution deduction under section 170
65.10 	of the Internal Revenue Code to the extent that the deduction
65.11 	exceeds 1.0 percent of adjusted gross income, as defined in
65.12 	section 62 of the Internal Revenue Code;
65.13 	(ii) the medical expense deduction;
65.14 	(iii) the casualty, theft, and disaster loss deduction; and
65.15 	(iv) the impairment-related work expenses of a disabled
65.16 	person;
65.17 	(3) for depletion allowances computed under section 613A(c)
65.18 	of the Internal Revenue Code, with respect to each property (as
65.19 	defined in section 614 of the Internal Revenue Code), to the
65.20 	extent not included in federal alternative minimum taxable
65.21 	income, the excess of the deduction for depletion allowable
65.22 	under section 611 of the Internal Revenue Code for the taxable
65.23 	year over the adjusted basis of the property at the end of the
65.24 	taxable year (determined without regard to the depletion
65.25 	deduction for the taxable year);
65.26 	(4) to the extent not included in federal alternative
65.27 	minimum taxable income, the amount of the tax preference for
65.28 	intangible drilling cost under section 57(a)(2) of the Internal
65.29 	Revenue Code determined without regard to subparagraph (E);
65.30 	(5) to the extent not included in federal alternative
65.31 	minimum taxable income, the amount of interest income as
65.32 	provided by section 290.01, subdivision 19a, clause (1); and
65.33 	(6) the amount of addition required by section 290.01,
65.34 	subdivision 19a, clause (7);
65.35 	less the sum of the amounts determined under the following:
65.36 	(1) interest income as defined in section 290.01,
66.1 	subdivision 19b, clause (1);
66.2 	(2) an overpayment of state income tax as provided by
66.3 	section 290.01, subdivision 19b, clause (2), to the extent
66.4 	included in federal alternative minimum taxable income;
66.5 	(3) the amount of investment interest paid or accrued
66.6 	within the taxable year on indebtedness to the extent that the
66.7 	amount does not exceed net investment income, as defined in
66.8 	section 163(d)(4) of the Internal Revenue Code.  Interest does
66.9 	not include amounts deducted in computing federal adjusted gross
66.10 	income; and
66.11 	(4) amounts subtracted from federal taxable income as
66.12 	provided by section 290.01, subdivision 19b, clauses (10) and ,
66.13 	(11), and (12).
66.14 	In the case of an estate or trust, alternative minimum
66.15 	taxable income must be computed as provided in section 59(c) of
66.16 	the Internal Revenue Code.
66.17 	(b) "Investment interest" means investment interest as
66.18 	defined in section 163(d)(3) of the Internal Revenue Code.
66.19 	(c) "Tentative minimum tax" equals 6.4 percent of
66.20 	alternative minimum taxable income after subtracting the
66.21 	exemption amount determined under subdivision 3.
66.22 	(d) "Regular tax" means the tax that would be imposed under
66.23 	this chapter (without regard to this section and section
66.24 	290.032), reduced by the sum of the nonrefundable credits
66.25 	allowed under this chapter.
66.26 	(e) "Net minimum tax" means the minimum tax imposed by this
66.27 	section.
66.28 	
EFFECTIVE DATE. This section is effective for tax years
66.29 	beginning after December 31, 2006.

66.30 	Sec. 9. Minnesota Statutes 2004, section 290.0921,
66.31 	subdivision 3, is amended to read:
66.32 		Subd. 3.Alternative minimum taxable income.
 66.33 	"Alternative minimum taxable income" is Minnesota net income as
66.34 	defined in section 290.01, subdivision 19, and includes the
66.35 	adjustments and tax preference items in sections 56, 57, 58, and
66.36 	59(d), (e), (f), and (h) of the Internal Revenue Code.  If a
67.1 	corporation files a separate company Minnesota tax return, the
67.2 	minimum tax must be computed on a separate company basis.  If a
67.3 	corporation is part of a tax group filing a unitary return, the
67.4 	minimum tax must be computed on a unitary basis.  The following
67.5 	adjustments must be made.
67.6 	(1) For purposes of the depreciation adjustments under
67.7 	section 56(a)(1) and 56(g)(4)(A) of the Internal Revenue Code,
67.8 	the basis for depreciable property placed in service in a
67.9 	taxable year beginning before January 1, 1990, is the adjusted
67.10 	basis for federal income tax purposes, including any
67.11 	modification made in a taxable year under section 290.01,
67.12 	subdivision 19e, or Minnesota Statutes 1986, section 290.09,
67.13 	subdivision 7, paragraph (c).
67.14 	For taxable years beginning after December 31, 2000, the
67.15 	amount of any remaining modification made under section 290.01,
67.16 	subdivision 19e, or Minnesota Statutes 1986, section 290.09,
67.17 	subdivision 7, paragraph (c), not previously deducted is a
67.18 	depreciation allowance in the first taxable year after December
67.19 	31, 2000.
67.20 	(2) The portion of the depreciation deduction allowed for
67.21 	federal income tax purposes under section 168(k) of the Internal
67.22 	Revenue Code that is required as an addition under section
67.23 	290.01, subdivision 19c, clause (16), is disallowed in
67.24 	determining alternative minimum taxable income.
67.25 	(3) The subtraction for depreciation allowed under section
67.26 	290.01, subdivision 19d, clause (19), is allowed as a
67.27 	depreciation deduction in determining alternative minimum
67.28 	taxable income.
67.29 	(4) The alternative tax net operating loss deduction under
67.30 	sections 56(a)(4) and 56(d) of the Internal Revenue Code does
67.31 	not apply.
67.32 	(5) The special rule for certain dividends under section
67.33 	56(g)(4)(C)(ii) of the Internal Revenue Code does not apply.
67.34 	(6) The special rule for dividends from section 936
67.35 	companies under section 56(g)(4)(C)(iii) does not apply.
67.36 	(7) The tax preference for depletion under section 57(a)(1)
68.1 	of the Internal Revenue Code does not apply.
68.2 	(8) The tax preference for intangible drilling costs under
68.3 	section 57(a)(2) of the Internal Revenue Code must be calculated
68.4 	without regard to subparagraph (E) and the subtraction under
68.5 	section 290.01, subdivision 19d, clause (4).
68.6 	(9) The tax preference for tax exempt interest under
68.7 	section 57(a)(5) of the Internal Revenue Code does not apply.
68.8 	(10) The tax preference for charitable contributions of
68.9 	appreciated property under section 57(a)(6) of the Internal
68.10 	Revenue Code does not apply.
68.11 	(11) For purposes of calculating the tax preference for
68.12 	accelerated depreciation or amortization on certain property
68.13 	placed in service before January 1, 1987, under section 57(a)(7)
68.14 	of the Internal Revenue Code, the deduction allowable for the
68.15 	taxable year is the deduction allowed under section 290.01,
68.16 	subdivision 19e.
68.17 	For taxable years beginning after December 31, 2000, the
68.18 	amount of any remaining modification made under section 290.01,
68.19 	subdivision 19e, not previously deducted is a depreciation or
68.20 	amortization allowance in the first taxable year after December
68.21 	31, 2004.
68.22 	(12) For purposes of calculating the adjustment for
68.23 	adjusted current earnings in section 56(g) of the Internal
68.24 	Revenue Code, the term "alternative minimum taxable income" as
68.25 	it is used in section 56(g) of the Internal Revenue Code, means
68.26 	alternative minimum taxable income as defined in this
68.27 	subdivision, determined without regard to the adjustment for
68.28 	adjusted current earnings in section 56(g) of the Internal
68.29 	Revenue Code.
68.30 	(13) For purposes of determining the amount of adjusted
68.31 	current earnings under section 56(g)(3) of the Internal Revenue
68.32 	Code, no adjustment shall be made under section 56(g)(4) of the
68.33 	Internal Revenue Code with respect to (i) the amount of foreign
68.34 	dividend gross-up subtracted as provided in section 290.01,
68.35 	subdivision 19d, clause (1), (ii) the amount of refunds of
68.36 	income, excise, or franchise taxes subtracted as provided in
69.1 	section 290.01, subdivision 19d, clause (10), or (iii) the
69.2 	amount of royalties, fees or other like income subtracted as
69.3 	provided in section 290.01, subdivision 19d, clause (11).
69.4 	(14) Alternative minimum taxable income excludes the income
69.5 	from operating in a job opportunity building zone as provided
69.6 	under section 469.317.
69.7 	(15) Alternative minimum taxable income excludes the income
69.8 	from operating in a biotechnology and health sciences industry
69.9 	zone as provided under section 469.337.
69.10 	(16) Alternative minimum taxable income excludes the income
69.11 	from operating in an international economic development zone as
69.12 	provided under section 469.326.
69.13 	Items of tax preference must not be reduced below zero as a
69.14 	result of the modifications in this subdivision.
69.15 	
EFFECTIVE DATE. This section is effective for tax years
69.16 	beginning after December 31, 2006.

69.17 	Sec. 10. Minnesota Statutes 2004, section 290.0922,
69.18 	subdivision 2, is amended to read:
69.19 		Subd. 2.Exemptions.  The following entities are exempt
69.20 	from the tax imposed by this section:
69.21 	(1) corporations exempt from tax under section 290.05;
69.22 	(2) real estate investment trusts;
69.23 	(3) regulated investment companies or a fund thereof; and
69.24 	(4) entities having a valid election in effect under
69.25 	section 860D(b) of the Internal Revenue Code;
69.26 	(5) town and farmers' mutual insurance companies;
69.27 	(6) cooperatives organized under chapter 308A that provide
69.28 	housing exclusively to persons age 55 and over and are
69.29 	classified as homesteads under section 273.124, subdivision 3;
69.30 	and 
69.31 	(7) an entity, if for the taxable year all of its property
69.32 	is located in a job opportunity building zone designated under
69.33 	section 469.314 and all of its payroll is a job opportunity
69.34 	building zone payroll under section 469.310; and 
69.35 	(8) an entity, if for the taxable year all of its property
69.36 	is located in an international economic development zone
70.1 	designated under section 469.322, and all of its payroll is
70.2 	international economic development zone payroll under section
70.3 	469.321.
70.4 	Entities not specifically exempted by this subdivision are
70.5 	subject to tax under this section, notwithstanding section
70.6 	290.05.
70.7 	
EFFECTIVE DATE. This section is effective for tax years
70.8 	beginning after December 31, 2006.

70.9 	Sec. 11. Minnesota Statutes 2004, section 290.0922,
70.10 	subdivision 3, is amended to read:
70.11 		Subd. 3.Definitions.  (a) "Minnesota sales or receipts"
70.12 	means the total sales apportioned to Minnesota pursuant to
70.13 	section 290.191, subdivision 5, the total receipts attributed to
70.14 	Minnesota pursuant to section 290.191, subdivisions 6 to 8,
70.15 	and/or the total sales or receipts apportioned or attributed to
70.16 	Minnesota pursuant to any other apportionment formula applicable
70.17 	to the taxpayer.
70.18 	(b) "Minnesota property" means total Minnesota tangible
70.19 	property as provided in section 290.191, subdivisions 9 to 11,
70.20 	any other tangible property located in Minnesota, but does not
70.21 	include property located in a job opportunity building zone
70.22 	designated under section 469.314,or property of a qualified
70.23 	business located in a biotechnology and health sciences industry
70.24 	zone designated under section 469.334, or property of a
70.25 	qualified business located in the international economic
70.26 	development zone designated under section 469.322.  Intangible
70.27 	property shall not be included in Minnesota property for
70.28 	purposes of this section.  Taxpayers who do not utilize tangible
70.29 	property to apportion income shall nevertheless include
70.30 	Minnesota property for purposes of this section.  On a return
70.31 	for a short taxable year, the amount of Minnesota property
70.32 	owned, as determined under section 290.191, shall be included in
70.33 	Minnesota property based on a fraction in which the numerator is
70.34 	the number of days in the short taxable year and the denominator
70.35 	is 365.
70.36 	(c) "Minnesota payrolls" means total Minnesota payrolls as
71.1 	provided in section 290.191, subdivision 12, but does not
71.2 	include job opportunity building zone payrolls under section
71.3 	469.310, subdivision 8, or biotechnology and health sciences
71.4 	industry zone payroll payrolls under section 469.330,
71.5 	subdivision 8, or international economic development zone
71.6 	payrolls under section 469.321, subdivision 9.  Taxpayers who do
71.7 	not utilize payrolls to apportion income shall nevertheless
71.8 	include Minnesota payrolls for purposes of this section.
71.9 	
EFFECTIVE DATE. This section is effective for tax years
71.10 	beginning after December 31, 2006.

71.11 	Sec. 12. Minnesota Statutes 2004, section 297A.68, is
71.12 	amended by adding a subdivision to read:
71.13 		Subd. 40.International economic development zones. (a)
71.14 	Purchases of tangible personal property or taxable services by a
71.15 	qualified business, as defined in section 469.321, are exempt if
71.16 	the property or services are primarily used or consumed in the
71.17 	international economic development zone designated under section
71.18 	469.322.
71.19 	(b) Purchase and use of construction materials, supplies,
71.20 	and equipment incorporated into the construction of improvements
71.21 	to real property in the international economic development zone
71.22 	are exempt if the improvements after completion of construction
71.23 	are to be used as a regional distribution center as defined in
71.24 	section 469.321 or otherwise used in the conduct of freight
71.25 	forwarding activities of a qualified business as defined in
71.26 	section 469.321.  This exemption applies regardless of whether
71.27 	the purchases are made by the business or a contractor.
71.28 	(c) The exemptions under this subdivision apply to a local
71.29 	sales and use tax, regardless of whether the local tax is
71.30 	imposed on sales taxable under this chapter or in another law,
71.31 	ordinance, or charter provision.
71.32 	(d) The exemption in paragraph (a) applies to sales during
71.33 	the duration of the zone, if the purchase was made and delivery
71.34 	received after the business signs the business subsidy agreement
71.35 	required under chapter 469.  The exemption in paragraph (b)
71.36 	applies to sales made before the end of the duration of the
72.1 	zone, if the purchase and delivery were made after June 30, 2006.
72.2 	
EFFECTIVE DATE. This section is effective the day
72.3 	following final enactment.

72.4 	Sec. 13. [469.321] DEFINITIONS.
72.5 		Subdivision 1.Scope. For purposes of sections 469.321
72.6 	to 469.328, the following terms have the meanings given.
72.7 		Subd. 2.Foreign trade zone. "Foreign trade zone" means
72.8 	a foreign trade zone designated pursuant to United States Code,
72.9 	title 19, section 81a, for the right to use the powers provided
72.10 	in United States Code, title 19, sections 81a to 81u, or a
72.11 	subzone authorized by the foreign trade zone.
72.12 		Subd. 3.Foreign trade zone authority. "Foreign trade
72.13 	zone authority" means the Greater Metropolitan Foreign Trade
72.14 	Zone Commission number 119, a joint powers authority created by
72.15 	the county of Hennepin, the cities of Minneapolis and
72.16 	Bloomington, and the Metropolitan Airports Commission, under the
72.17 	authority of section 469.059, 469.101, or 471.59, which includes
72.18 	any other political subdivisions that enter into the authority
72.19 	after its creation.
72.20 		Subd. 4.International economic development zone or
72.21 	zone. An "international economic development zone" or "zone" is
72.22 	a zone so designated under section 469.322.
72.23 		Subd. 5.Person. "Person" includes an individual,
72.24 	corporation, partnership, limited liability company,
72.25 	association, or any other entity.
72.26 		Subd. 6.Qualified business. (a) "Qualified business"
72.27 	means a person who has signed a business subsidy agreement as
72.28 	required under sections 116J.993 to 116J.995 and 469.323,
72.29 	subdivision 4, carrying on a trade or business at a place of
72.30 	business located within the international economic development
72.31 	zone that is:
72.32 	(1)(i) engaged in the furtherance of international export
72.33 	or import of goods as a freight forwarder; and (ii) certified by
72.34 	the foreign trade zone authority as a trade or business that
72.35 	furthers the purpose of developing international distribution
72.36 	capacity and capability; or 
73.1 	(2) the owner or operator of a regional distribution center.
73.2 	(b) A qualified business must pay each employee total
73.3 	compensation, including benefits not mandated by law, that on an
73.4 	annualized basis is equal to at least 110 percent of the federal
73.5 	poverty guidelines for a family of four.
73.6 		Subd. 7.Regional distribution center. A "regional
73.7 	distribution center" is a distribution center developed within a
73.8 	foreign trade zone.  The regional distribution center must have
73.9 	as its primary purpose, the facilitation of the gathering of
73.10 	freight for the purpose of centralizing the functions necessary
73.11 	for the shipment of freight in international commerce,
73.12 	including, but not limited to, security and customs functions.
73.13 		Subd. 8.International economic development zone
73.14 	percentage or zone percentage. "International economic
73.15 	development zone percentage" or "zone percentage" means the
73.16 	following fraction reduced to a percentage:
73.17 	(1) the numerator of the fraction is:
73.18 	(i) the ratio of the taxpayer's property factor under
73.19 	section 290.191 located in the zone for the taxable year which
73.20 	is land, buildings, machinery and equipment, inventories, and
73.21 	other tangible personal property that is a regional distribution
73.22 	center or is used in the furtherance of the taxpayer's freight
73.23 	forwarding operations over the property factor numerator
73.24 	determined under section 290.191, plus 
73.25 	(ii) the ratio of the taxpayer's international economic
73.26 	development zone payroll factor under subdivision 9 over the
73.27 	payroll factor numerator determined under section 290.191; and 
73.28 	(2) the denominator of the fraction is two.
73.29 	When calculating the zone percentage for a business that is
73.30 	part of a unitary business as defined under section 290.17,
73.31 	subdivision 4, the denominator of the payroll and property
73.32 	factors is the Minnesota payroll and property of the unitary
73.33 	business as reported on the combined report under section
73.34 	290.17, subdivision 4, paragraph (j).
73.35 		Subd. 9.International economic development zone payroll
73.36 	factor or international economic development zone payroll.
 74.1 	"International economic development zone payroll factor" or
74.2 	"international economic development zone payroll" is that
74.3 	portion of the payroll factor under section 290.191 used to
74.4 	operate a regional distribution center, or used in the
74.5 	furtherance of the taxpayer's freight forwarding operations that
74.6 	represents:
74.7 	(1) wages or salaries paid to an individual for services
74.8 	performed in the international economic development zone; or 
74.9 	(2) wages or salaries paid to individuals working from
74.10 	offices within the international economic development zone, if
74.11 	their employment requires them to work outside the zone and the
74.12 	work is incidental to the work performed by the individual
74.13 	within the zone.  However, in no case does zone payroll include
74.14 	wages paid for work performed outside the zone of an employee
74.15 	who performs more than ten percent of total services for the
74.16 	employer outside the zone.
74.17 		Subd. 10.Freight forwarder. "Freight forwarder" is a
74.18 	business that, for compensation, ensures that goods produced or
74.19 	sold by another business move from point of origin to point of
74.20 	destination.
74.21 	
EFFECTIVE DATE. This section is effective the day
74.22 	following final enactment.

74.23 	Sec. 14. [469.3215] APPLICATION FOR DESIGNATION.
74.24 		Subdivision 1.Who may apply. One or more local
74.25 	government units, or a joint powers board under section 471.59,
74.26 	acting on behalf of two or more units, may apply for designation
74.27 	of an area as an international economic development zone.  All
74.28 	or part of the area proposed for designation as a zone must be
74.29 	located within the boundaries of each of the governmental
74.30 	units.  A local government unit may not submit or have submitted
74.31 	on its behalf more than one application for designation of an
74.32 	international economic development zone.
74.33 		Subd. 2.Application content. (a) The application must
74.34 	include:
74.35 	(1) a resolution or ordinance adopted by each of the cities
74.36 	or towns and the counties in which the zone is located, agreeing
75.1 	to provide all of the local tax exemptions provided under
75.2 	section 469.315;
75.3 	(2) an agreement by the applicant to treat incentives
75.4 	provided under the zone designation as business subsidies under
75.5 	sections 116J.993 to 116J.995 and to comply with the
75.6 	requirements of that law; and 
75.7 	(3) supporting evidence to allow the authority to evaluate
75.8 	the application.
75.9 	(b) Applications must be submitted to the authority no
75.10 	later than December 31, 2005.
75.11 	
EFFECTIVE DATE. This section is effective the day
75.12 	following final enactment.

75.13 	Sec. 15. [469.322] DESIGNATION OF INTERNATIONAL ECONOMIC
75.14 	DEVELOPMENT ZONE.
75.15 	(a) An area designated as a foreign trade zone may be
75.16 	designated by the foreign trade zone authority as an
75.17 	international economic development zone if within the zone a
75.18 	regional distribution center is being developed pursuant to
75.19 	section 469.323.  The zone must consist of contiguous area of
75.20 	not less than 500 acres and not more than 1,000 acres.  The
75.21 	designation authority under this section is limited to one zone.
75.22 	(b) In making the designation, the foreign trade zone
75.23 	authority, in consultation with the Minnesota Department of
75.24 	Transportation, the Minnesota Department of Employment and
75.25 	Economic Development, the Minnesota Department of Revenue, and
75.26 	the Metropolitan Council, shall consider access to major
75.27 	transportation routes, consistency with current state
75.28 	transportation and air cargo planning, adequacy of the size of
75.29 	the site, access to airport facilities, present and future
75.30 	capacity at the designated airport, the capability to meet
75.31 	integrated present and future air cargo, security, and
75.32 	inspection services, and access to other infrastructure and
75.33 	financial incentives to maximize the security, efficiency, and
75.34 	volume of Minnesota's export shipments.  The border of the
75.35 	international economic development zone must be no more than 60
75.36 	miles distant or 90 minutes drive time from the border of the
76.1 	Minneapolis-St. Paul International Airport.
76.2 	(c) Prior to a final site designation, the foreign trade
76.3 	zone authority, in consultation with the applicant, must conduct
76.4 	a transportation impact study based on the regional model and
76.5 	utilizing traffic forecasting and assignments.  The results must
76.6 	be used to evaluate the effects of the proposed use on the
76.7 	transportation system and identify any needed improvements.  If
76.8 	the site is in the metropolitan area the study must also
76.9 	evaluate the effect of the transportation impacts on the
76.10 	Metropolitan Transportation System plan as well as the
76.11 	comprehensive plans of the municipalities that would be
76.12 	affected.  The cost of the study must be paid by the applicant.
76.13 	(d) Final zone designation must be made by June 30, 2006.
76.14 	(e) Duration of the zone is a 12-year period beginning on
76.15 	January 1, 2007.

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

76.18 	Sec. 16. [469.323] FOREIGN TRADE ZONE AUTHORITY POWERS.
76.19 		Subdivision 1.Development of regional distribution
76.20 	center. The foreign trade zone authority shall be responsible
76.21 	for creating a development plan for the regional distribution
76.22 	center.  The regional distribution center must be developed with
76.23 	the purpose of expanding, on a regional basis, international
76.24 	distribution capacity and capability.  The foreign trade zone
76.25 	authority shall consult only with municipalities that have
76.26 	indicated to the authority an interest in locating the
76.27 	international economic development zone within their boundaries,
76.28 	as well as interested businesses, potential financiers, and
76.29 	appropriate state and federal agencies.
76.30 		Subd. 2.Business plan. Before designation of an
76.31 	international economic development zone under section 469.322,
76.32 	the governing body of the foreign trade zone authority shall
76.33 	prepare a business plan.  The plan must establish performance
76.34 	goals for the zone.  These goals must set out, at a minimum, the
76.35 	amount of investment, the number of jobs, and the amount of
76.36 	freight handled expected to be attained at the end of three-,
77.1 	five-, and ten-year periods by the zone.  The plan also must
77.2 	include an analysis of the economic feasibility of the regional
77.3 	distribution center once it becomes operational and of the
77.4 	operations of freight forwarders and other businesses that
77.5 	choose to locate within the boundaries of the zone.  The
77.6 	analysis must provide profitability models that:
77.7 	(1) include the benefits of the incentives;
77.8 	(2) estimate the amount of time needed to achieve
77.9 	profitability; and 
77.10 	(3) analyze the length of time incentives will be necessary
77.11 	to the economic viability of the regional distribution center.
77.12 	If the governing body of the foreign trade authority
77.13 	determines that the models do not establish the economic
77.14 	feasibility of the project, the regional distribution center
77.15 	does not meet the development requirements of this section and
77.16 	section 469.322.
77.17 		Subd. 3.Port authority powers. The governing body of
77.18 	the foreign trade zone authority may establish a port authority
77.19 	that has the same powers as a port authority established under
77.20 	section 469.049.  If the foreign trade zone authority
77.21 	establishes a port authority, the governing body of the foreign
77.22 	trade zone authority shall exercise all powers granted to a city
77.23 	by sections 469.048 to 469.068 or other law.
77.24 		Subd. 4.Business subsidy law. Tax exemptions and job
77.25 	credits provided under this section are business subsidies paid
77.26 	by the affected local government for the purpose of sections
77.27 	116J.871 and 116J.993 to 116J.995.
77.28 	
EFFECTIVE DATE. This section is effective the day
77.29 	following final enactment.

77.30 	Sec. 17. [469.324] TAX INCENTIVES IN INTERNATIONAL
77.31 	ECONOMIC DEVELOPMENT ZONE.
77.32 		Subdivision 1.Availability. Qualified businesses that
77.33 	operate in an international economic development zone,
77.34 	individuals who invest in a regional distribution center or
77.35 	qualified businesses that operate in an international economic
77.36 	development zone, and property located in an international
78.1 	economic development zone qualify for:
78.2 	(1) exemption from individual income taxes as provided
78.3 	under section 469.325;
78.4 	(2) exemption from corporate franchise taxes as provided
78.5 	under section 469.326;
78.6 	(3) exemption from the state sales and use tax and any
78.7 	local sales and use taxes on qualifying purchases as provided in
78.8 	section 297A.68, subdivision 40;
78.9 	(4) exemption from the property tax as provided in section
78.10 	272.02, subdivision 68; and 
78.11 	(5) the jobs credit allowed under section 469.327.

78.12 	Sec. 18. [469.325] INDIVIDUAL INCOME TAX EXEMPTION.
78.13 		Subdivision 1.Application. An individual, estate, or
78.14 	trust operating a trade or business in the international
78.15 	economic development zone, and an individual making a qualifying
78.16 	investment in a qualified business operating in the
78.17 	international economic development zone, qualifies for the
78.18 	exemptions from taxes imposed under chapter 290, as provided in
78.19 	this section.  The exemptions provided under this section apply
78.20 	only to the extent that the income otherwise would be taxable
78.21 	under chapter 290.  Subtractions under this section from federal
78.22 	taxable income, alternative minimum taxable income, or any other
78.23 	base subject to tax are limited to the amount that otherwise
78.24 	would be included in the tax base absent the exemption under
78.25 	this section.  This section applies only to tax years beginning
78.26 	during the duration of the zone.
78.27 		Subd. 2.Rents. An individual, estate, or trust is
78.28 	exempt from the taxes imposed under chapter 290 on net rents
78.29 	derived from real or tangible personal property used by a
78.30 	qualified business and located in the zone for the taxable year
78.31 	in which the zone was designated an international economic
78.32 	development zone.  If tangible personal property was used both
78.33 	within and outside of the zone by the qualified business, the
78.34 	exemption amount for the net rental income must be multiplied by
78.35 	a fraction, the numerator of which is the number of days the
78.36 	property was used in the zone and the denominator of which is
79.1 	the total days the property is rented by a qualified business.
79.2 		Subd. 3.Business income. An individual, estate, or
79.3 	trust is exempt from the taxes imposed under chapter 290 on net
79.4 	income from the operation of a qualified business in the
79.5 	international economic development zone.  If the trade or
79.6 	business is carried on within and outside of the zone and the
79.7 	individual is not a resident of Minnesota, the exemption must be
79.8 	apportioned based on the zone percentage for the taxable year.
79.9 	If the trade or business is carried on within or outside of the
79.10 	zone and the individual is a resident of Minnesota, the
79.11 	exemption must be apportioned based on the zone percentage for
79.12 	the taxable year, except the ratios under section 469.321,
79.13 	subdivision 8, clause (1), items (i) and (ii), must use the
79.14 	denominators of the property and payroll factors determined
79.15 	under section 290.191.  No subtraction is allowed under this
79.16 	section in excess of 20 percent of the sum of the international
79.17 	economic development zone payroll and the adjusted basis of the
79.18 	property at the time that the property is first used in the
79.19 	international economic development zone by the business.
79.20 		Subd. 4.Capital gains. (a) An individual, estate, or
79.21 	trust is exempt from the taxes imposed under chapter 290 on:
79.22 	(1) net gain derived on a sale or exchange of real property
79.23 	located in the international economic development zone and used
79.24 	by a qualified business.  If the property was held by the
79.25 	individual, estate, or trust during a period when the zone was
79.26 	not designated, the gain must be prorated based on the
79.27 	percentage of time, measured in calendar days, that the real
79.28 	property was held by the individual during the period the zone
79.29 	designation was in effect to the total period of time the real
79.30 	property was held by the individual;
79.31 	(2) net gain derived on a sale or exchange of tangible
79.32 	personal property used by a qualified business in the
79.33 	international economic development zone.  If the property was
79.34 	held by the individual, estate, or trust during a period when
79.35 	the zone was not designated, the gain must be prorated based on
79.36 	the percentage of time, measured in calendar days, that the
80.1 	property was held by the individual during the period the zone
80.2 	designation was in effect to the total period of time the
80.3 	property was held by the individual, estate, or trust.  If the
80.4 	tangible personal property was used outside of the zone during
80.5 	the period of the zone's designation, the exemption must be
80.6 	multiplied by a fraction, the numerator of which is the number
80.7 	of days the property was used in the zone during the time of the
80.8 	designation and the denominator of which is the total days the
80.9 	property was held during the time of the designation; and 
80.10 	(3) net gain derived on a sale of an ownership interest in
80.11 	a qualified business operating in the international economic
80.12 	development zone, meeting the requirements of paragraph (b).
80.13 	The exemption on the gain must be multiplied by the zone
80.14 	percentage of the business for the taxable year prior to the
80.15 	sale.
80.16 	(b) A qualified business meets the requirements of
80.17 	paragraph (a), clause (3), if it is a corporation, an S
80.18 	corporation, or a partnership, and for the taxable year its
80.19 	international economic development zone percentage exceeds 25
80.20 	percent.  For purposes of paragraph (a), clause (3), the zone
80.21 	percentage must be calculated by modifying the ratios under
80.22 	section 469.321, subdivision 8, clause (1), items (i) and (ii),
80.23 	to use the denominators of the property and payroll factors
80.24 	determined under section 290.191.  Upon the request of an
80.25 	individual, estate, or trust holding an ownership interest in
80.26 	the entity, the entity must certify to the owner, in writing,
80.27 	the international economic development zone percentage needed to
80.28 	determine the exemption.
80.29 	
EFFECTIVE DATE. This section is effective for tax years
80.30 	beginning after December 31, 2006.

80.31 	Sec. 19. [469.326] CORPORATE FRANCHISE TAX EXEMPTION.
80.32 	(a) A qualified business is exempt from taxation under
80.33 	section 290.02, the alternative minimum tax under section
80.34 	290.0921, and the minimum fee under section 290.0922, on the
80.35 	portion of its income attributable to operations within the
80.36 	international economic development zone.  This exemption is
81.1 	determined as follows:
81.2 	(1) for purposes of the tax imposed under section 290.02,
81.3 	by multiplying its taxable net income by its zone percentage and
81.4 	subtracting the result in determining taxable income;
81.5 	(2) for purposes of the alternative minimum tax under
81.6 	section 290.0921, by multiplying its alternative minimum taxable
81.7 	income by its zone percentage and reducing alternative minimum
81.8 	taxable income by this amount; and 
81.9 	(3) for purposes of the minimum fee under section 290.0922,
81.10 	by excluding property and payroll in the zone from the
81.11 	computations of the fee or by exempting the entity under section
81.12 	290.0922, subdivision 2, clause (8).
81.13 	(b) No subtraction is allowed under this section in excess
81.14 	of 20 percent of the sum of the corporation's international
81.15 	economic development zone payroll and the adjusted basis of the
81.16 	zone property at the time that the property is first used in the
81.17 	international economic development zone by the corporation.
81.18 	(c) This section applies only to tax years beginning during
81.19 	the duration of the international economic development zone.

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

81.22 	Sec. 20. [469.327] JOBS CREDIT.
81.23 		Subdivision 1.Credit allowed. A qualified business is
81.24 	allowed a credit against the taxes imposed under chapter 290.
81.25 	The credit equals seven percent of the:
81.26 	(1) lesser of:
81.27 	(i) zone payroll for the taxable year, less the zone
81.28 	payroll for the base year; or 
81.29 	(ii) total Minnesota payroll for the taxable year, less
81.30 	total Minnesota payroll for the base year; minus 
81.31 	(2) $30,000 multiplied by the number of full-time
81.32 	equivalent employees that the qualified business employs in the
81.33 	international economic development zone for the taxable year,
81.34 	minus the number of full-time equivalent employees the business
81.35 	employed in the zone in the base year, but not less than zero.
81.36 		Subd. 2.Definitions. (a) For purposes of this section,
82.1 	the following terms have the meanings given.
82.2 	(b) "Base year" means the taxable year beginning during the
82.3 	calendar year in which the zone designation was made under
82.4 	section 469.322, paragraph (d).
82.5 	(c) "Full-time equivalent employees" means the equivalent
82.6 	of annualized expected hours of work equal to 2,080 hours.
82.7 	(d) "Minnesota payroll" means the wages or salaries
82.8 	attributed to Minnesota under section 290.191, subdivision 12,
82.9 	for the qualified business or the unitary business of which the
82.10 	qualified business is a part, whichever is greater.
82.11 	(e) "Zone payroll" means wages or salaries used to
82.12 	determine the zone payroll factor for the qualified business,
82.13 	less the amount of compensation attributable to any employee
82.14 	that exceeds $100,000.
82.15 		Subd. 3.Inflation adjustment. For taxable years
82.16 	beginning after December 31, 2004, the dollar amounts in
82.17 	subdivisions 1, clause (2); and 2, paragraph (e), are annually
82.18 	adjusted for inflation.  The commissioner of revenue shall
82.19 	adjust the amounts by the percentage determined under section
82.20 	290.06, subdivision 2d, for the taxable year.
82.21 		Subd. 4.Refundable. If the amount of the credit exceeds
82.22 	the liability for tax under chapter 290, the commissioner of
82.23 	revenue shall refund the excess to the qualified business.
82.24 		Subd. 5.Appropriation. An amount sufficient to pay the
82.25 	refunds authorized by this section is appropriated to the
82.26 	commissioner of revenue from the general fund.
82.27 	
EFFECTIVE DATE. This section is effective for tax years
82.28 	beginning after December 31, 2006.

82.29 	Sec. 21. [469.328] REPAYMENT OF TAX BENEFITS.
82.30 		Subdivision 1.Repayment obligation. A person must repay
82.31 	the amount of the tax reduction received under section 469.324,
82.32 	subdivision 1, clauses (1) to (5), or credit received under
82.33 	section 469.327, during the two years immediately before it
82.34 	ceased to operate in the zone as a qualified business, if the
82.35 	person ceased to operate its facility located within the zone,
82.36 	ceased to be in compliance with the terms of the business
83.1 	subsidy agreement, or otherwise ceases to be or is not a
83.2 	qualified business.
83.3 		Subd. 2.Disposition of repayment. The repayment must be
83.4 	paid to the state to the extent it represents a state tax
83.5 	reduction and to the county to the extent it represents a
83.6 	property tax reduction.  Any amount repaid to the state must be
83.7 	deposited in the general fund.  Any amount repaid to the county
83.8 	for the property tax exemption must be distributed to the local
83.9 	governments with authority to levy taxes in the zone in the same
83.10 	manner provided for distribution of payment of delinquent
83.11 	property taxes.  Any repayment of local sales or use taxes must
83.12 	be repaid to the jurisdiction imposing the local sales or use
83.13 	tax.
83.14 		Subd. 3.Repayment procedures. (a) For the repayment of
83.15 	taxes imposed under chapter 290 or 297A or local taxes collected
83.16 	pursuant to section 297A.99, a person must file an amended
83.17 	return with the commissioner of revenue and pay any taxes
83.18 	required to be repaid within 30 days after ceasing to be a
83.19 	qualified business.  The amount required to be repaid is
83.20 	determined by calculating the tax for the period for which
83.21 	repayment is required without regard to the tax reductions and
83.22 	credits allowed under section 469.324.
83.23 	(b) For the repayment of property taxes, the county auditor
83.24 	shall prepare a tax statement for the person, applying the
83.25 	applicable tax extension rates for each payable year and provide
83.26 	a copy to the business.  The person must pay the taxes to the
83.27 	county treasurer within 30 days after receipt of the tax
83.28 	statement.  The taxpayer may appeal the valuation and
83.29 	determination of the property tax to the tax court within 30
83.30 	days after receipt of the tax statement.
83.31 	(c) The provisions of chapters 270 and 289A relating to the
83.32 	commissioner of revenue's authority to audit, assess, and
83.33 	collect the tax and to hear appeals are applicable to the
83.34 	repayment required under paragraphs (a) and (b).  The
83.35 	commissioner may impose civil penalties as provided in chapter
83.36 	289A, and the additional tax and penalties are subject to
84.1 	interest at the rate provided in section 270.75, from 30 days
84.2 	after ceasing to do business in the zone until the date the tax
84.3 	is paid.
84.4 	(d) If a property tax is not repaid under paragraph (c),
84.5 	the county treasurer shall add the amount required to be repaid
84.6 	to the property taxes assessed against the property for payment
84.7 	in the year following the year in which the treasurer discovers
84.8 	that the person ceased to operate in the international economic
84.9 	development zone.
84.10 	(e) For determining the tax required to be repaid, a tax
84.11 	reduction is deemed to have been received on the date that the
84.12 	tax would have been due if the person had not been entitled to
84.13 	the tax reduction.
84.14 	(f) The commissioner of revenue may assess the repayment of
84.15 	taxes under paragraph (d) at any time within two years after the
84.16 	person ceases to be a qualified business, or within any period
84.17 	of limitations for the assessment of tax under section 289A.38,
84.18 	whichever is later.
84.19 		Subd. 4.Waiver authority. The commissioner of revenue
84.20 	may waive all or part of a repayment, if, in consultation with
84.21 	the foreign trade zone authority and appropriate officials from
84.22 	the state and local government units, including the commissioner
84.23 	of employment and economic development, determines that
84.24 	requiring repayment of the tax is not in the best interest of
84.25 	the state or local government and the business ceased operating
84.26 	as a result of circumstances beyond its control, including, but
84.27 	not limited to:
84.28 	(1) a natural disaster;
84.29 	(2) unforeseen industry trends; or 
84.30 	(3) loss of a major supplier or customer.
84.31 	
EFFECTIVE DATE. This section is effective the day
84.32 	following final enactment.

84.33 	Sec. 22. [469.329] REPORTING REQUIREMENTS.
84.34 	An applicant receiving designation of an international
84.35 	economic development zone under section 469.322 must annually
84.36 	report to the commissioner of employment and economic
85.1 	development on its progress in meeting the zone performance
85.2 	goals under the business plan for the zone and the applicant's
85.3 	compliance with the business subsidy law under sections 116J.993
85.4 	to 116J.995.

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

85.7 	ARTICLE 5
85.8 	MISCELLANEOUS

85.9 	Section 1. Minnesota Statutes 2004, section 10A.31,
85.10 	subdivision 1, is amended to read:
85.11 		Subdivision 1.Designation.  An individual resident of
85.12 	this state who files an income tax return or a renter and
85.13 	homeowner property tax refund return with the commissioner of
85.14 	revenue may designate on their original return that $5 be paid
85.15 	from the general fund of the state $1 to $25, or $1 to $50 if
85.16 	the return is filed jointly, be added to the tax or deducted
85.17 	from the refund that would otherwise be payable by or to the
85.18 	individual and paid into the state elections campaign fund. If
85.19 	a husband and wife file a joint return, each spouse may
85.20 	designate that $5 be paid.  No individual is allowed to
85.21 	designate $5 more than once in any year.The taxpayer may
85.22 	designate that the amount be paid into the account of a
85.23 	political party or into the general account. Designations made
85.24 	under this section are not eligible for refund under section
85.25 	290.06, subdivision 23.
85.26 	
EFFECTIVE DATE. This section is effective beginning with
85.27 	designations made on income tax returns filed for tax years
85.28 	beginning after December 31, 2004, and property tax refund
85.29 	returns based on property taxes payable in 2006 or rent
85.30 	constituting property taxes paid in 2005.

85.31 	Sec. 2. Minnesota Statutes 2004, section 10A.31,
85.32 	subdivision 3, is amended to read:
85.33 		Subd. 3.Form.  The commissioner of revenue must provide
85.34 	on the first page of the income tax form and the renter and
85.35 	homeowner property tax refund return a space for the individual
85.36 	to indicate a wish to pay $5 ($10 $1 to $25, or $1 to $50 if
86.1 	filing a joint return ) from the general fund of the state ,to
86.2 	finance election campaigns.  The form must also contain language
86.3 	prepared by the commissioner that permits the individual to
86.4 	direct the state to pay the $5 (or $10 if filing a joint return) 
86.5 	designation to:  (1) one of the major political parties; (2) any
86.6 	minor political party that qualifies under subdivision 3a; or
86.7 	(3) all qualifying candidates as provided by subdivision 7. The
86.8 	renter and homeowner property tax refund return must include
86.9 	instructions that the individual filing the return may designate
86.10 	$5 on the return only if the individual has not designated $5 on
86.11 	the income tax return.
86.12 	
EFFECTIVE DATE. This section is effective beginning with
86.13 	designations made on income tax returns filed for tax years
86.14 	beginning after December 31, 2004, and property tax refund
86.15 	returns based on property taxes payable in 2006 or rent
86.16 	constituting property taxes paid in 2005.

86.17 	Sec. 3. Minnesota Statutes 2004, section 10A.31,
86.18 	subdivision 4, is amended to read:
86.19 		Subd. 4.Appropriation. (a) The amounts designated by
86.20 	individuals for the state elections campaign fund, less three
86.21 	percent, are appropriated from the general fund,must be
86.22 	transferred and credited to the appropriate account in the state
86.23 	elections campaign fund, and are annually appropriated for
86.24 	distribution as set forth in subdivisions 5, 5a, 6, and 7.  The
86.25 	remaining three percent must be kept deposited in the general
86.26 	fund for administrative costs.
86.27 	(b) In addition to the amounts in paragraph (a), $1,500,000
86.28 	for each general election is appropriated from the general fund
86.29 	for transfer to the general account of the state elections
86.30 	campaign fund.
86.31 	Of this appropriation, $65,000 each fiscal year must be set
86.32 	aside to pay assessments made by the Office of Administrative
86.33 	Hearings under section 211B.37.  Amounts remaining after all
86.34 	assessments have been paid must be canceled to the general
86.35 	account.
86.36 	
EFFECTIVE DATE. The changes to paragraph (a) are
87.1 	effective beginning with designations made on income tax returns
87.2 	filed for tax years beginning after December 31, 2004, and
87.3 	property tax refund returns based on property taxes payable in
87.4 	2006 or rent constituting property taxes paid in 2005.  The
87.5 	changes to paragraph (b) are effective for appropriations for
87.6 	general elections occurring after December 31, 2004.

87.7 	Sec. 4. Minnesota Statutes 2004, section 270A.03,
87.8 	subdivision 7, is amended to read:
87.9 		Subd. 7.Refund.  "Refund" means an individual income tax
87.10 	refund or political contribution refund, pursuant to chapter
87.11 	290, or a property tax credit or refund, pursuant to chapter
87.12 	290A, or a sustainable forest tax payment to a claimant under
87.13 	chapter 290C.
87.14 	For purposes of this chapter, lottery prizes, as set forth
87.15 	in section 349A.08, subdivision 8, and amounts granted to
87.16 	persons by the legislature on the recommendation of the joint
87.17 	senate-house of representatives Subcommittee on Claims shall be
87.18 	treated as refunds.
87.19 	In the case of a joint property tax refund payable to
87.20 	spouses under chapter 290A, the refund shall be considered as
87.21 	belonging to each spouse in the proportion of the total refund
87.22 	that equals each spouse's proportion of the total income
87.23 	determined under section 290A.03, subdivision 3.  In the case of
87.24 	a joint income tax refund under chapter 289A, the refund shall
87.25 	be considered as belonging to each spouse in the proportion of
87.26 	the total refund that equals each spouse's proportion of the
87.27 	total taxable income determined under section 290.01,
87.28 	subdivision 29.  The commissioner shall remit the entire refund
87.29 	to the claimant agency, which shall, upon the request of the
87.30 	spouse who does not owe the debt, determine the amount of the
87.31 	refund belonging to that spouse and refund the amount to that
87.32 	spouse.  For court fines, fees, and surcharges and court-ordered
87.33 	restitution under section 611A.04, subdivision 2, the notice
87.34 	provided by the commissioner of revenue under section 270A.07,
87.35 	subdivision 2, paragraph (b), serves as the appropriate legal
87.36 	notice to the spouse who does not owe the debt.
88.1 	
EFFECTIVE DATE. This section is effective for political
88.2 	contribution refund claims based on contributions made on or
88.3 	after July 1, 2005.

88.4 	Sec. 5. Minnesota Statutes 2004, section 273.1384,
88.5 	subdivision 1, is amended to read:
88.6 		Subdivision 1.Residential homestead market value
88.7 	credit.  Each county auditor shall determine a homestead credit
88.8 	for each class 1a, 1b, 1c, and 2a homestead property within the
88.9 	county equal to 0.4 percent of the first $76,000 of market value
88.10 	of the property.  The amount of homestead credit for a homestead
88.11 	may not exceed $304 and is reduced by minus.09 percent of the
88.12 	market value in excess of $76,000. The credit amount may not be
88.13 	less than zero.In the case of an agricultural or resort
88.14 	homestead, only the market value of the house, garage, and
88.15 	immediately surrounding one acre of land is eligible in
88.16 	determining the property's homestead credit.  In the case of a
88.17 	property which is classified as part homestead and part
88.18 	nonhomestead, (i) the credit shall apply only to the homestead
88.19 	portion of the property., but (ii) if a portion of a property is
88.20 	classified as nonhomestead solely because not all the owners
88.21 	occupy the property, or solely because both spouses do not
88.22 	occupy the property, the credit amount shall be initially
88.23 	computed as if that nonhomestead portion were also in the
88.24 	homestead class and then prorated to the owner-occupant's
88.25 	percentage of ownership or prorated to one-half if both spouses
88.26 	do not occupy the property.
88.27 	
EFFECTIVE DATE. This section is effective for taxes
88.28 	payable in 2006 and thereafter.

88.29 	Sec. 6. Minnesota Statutes 2004, section 289A.50,
88.30 	subdivision 1, is amended to read:
88.31 		Subdivision 1.General right to refund.  (a) Subject to
88.32 	the requirements of this section and section 289A.40, a taxpayer
88.33 	who has paid a tax in excess of the taxes lawfully due and who
88.34 	files a written claim for refund will be refunded or credited
88.35 	the overpayment of the tax determined by the commissioner to be
88.36 	erroneously paid.
89.1 	(b) The claim must specify the name of the taxpayer, the
89.2 	date when and the period for which the tax was paid, the kind of
89.3 	tax paid, the amount of the tax that the taxpayer claims was
89.4 	erroneously paid, the grounds on which a refund is claimed, and
89.5 	other information relative to the payment and in the form
89.6 	required by the commissioner.  An income tax, estate tax, or
89.7 	corporate franchise tax return, or amended return claiming an
89.8 	overpayment constitutes a claim for refund.
89.9 	(c) When, in the course of an examination, and within the
89.10 	time for requesting a refund, the commissioner determines that
89.11 	there has been an overpayment of tax, the commissioner shall
89.12 	refund or credit the overpayment to the taxpayer and no demand
89.13 	is necessary.  If the overpayment exceeds $1, the amount of the
89.14 	overpayment must be refunded to the taxpayer.  If the amount of
89.15 	the overpayment is less than $1, the commissioner is not
89.16 	required to refund.  In these situations, the commissioner does
89.17 	not have to make written findings or serve notice by mail to the
89.18 	taxpayer.
89.19 	(d) If the amount allowable as a credit for withholding,
89.20 	estimated taxes, or dependent care exceeds the tax against which
89.21 	the credit is allowable, the amount of the excess is considered
89.22 	an overpayment. The refund allowed by section 290.06,
89.23 	subdivision 23, is also considered an overpayment.The
89.24 	requirements of section 270.10, subdivision 1, do not apply to
89.25 	the refunding of such an overpayment shown on the original
89.26 	return filed by a taxpayer.
89.27 	(e) If the entertainment tax withheld at the source exceeds
89.28 	by $1 or more the taxes, penalties, and interest reported in the
89.29 	return of the entertainment entity or imposed by section
89.30 	290.9201, the excess must be refunded to the entertainment
89.31 	entity.  If the excess is less than $1, the commissioner need
89.32 	not refund that amount.
89.33 	(f) If the surety deposit required for a construction
89.34 	contract exceeds the liability of the out-of-state contractor,
89.35 	the commissioner shall refund the difference to the contractor.
89.36 	(g) An action of the commissioner in refunding the amount
90.1 	of the overpayment does not constitute a determination of the
90.2 	correctness of the return of the taxpayer.
90.3 	(h) There is appropriated from the general fund to the
90.4 	commissioner of revenue the amount necessary to pay refunds
90.5 	allowed under this section.
90.6 	
EFFECTIVE DATE. This section is effective for political
90.7 	contribution refund claims based on contributions made on or
90.8 	after July 1, 2005.

90.9 	Sec. 7. Minnesota Statutes 2004, section 290.01,
90.10 	subdivision 6, is amended to read:
90.11 		Subd. 6.Taxpayer.  The term "taxpayer" means any person
90.12 	or corporation subject to a tax imposed by this chapter. For
90.13 	purposes of section 290.06, subdivision 23, the term "taxpayer"
90.14 	means an individual eligible to vote in Minnesota under section
90.15 	201.014.
90.16 	
EFFECTIVE DATE. This section is effective for political
90.17 	contribution refund claims based on contributions that are made
90.18 	on or after July 1, 2005.

90.19 	Sec. 8. Minnesota Statutes 2004, section 290A.03,
90.20 	subdivision 11, is amended to read:
90.21 		Subd. 11.Rent constituting property taxes. (a) "Rent
90.22 	constituting property taxes" means 19 the percent specified in
90.23 	paragraph (b) of the gross rent actually paid in cash, or its
90.24 	equivalent, or the portion of rent paid in lieu of property
90.25 	taxes, in any calendar year by a claimant for the right of
90.26 	occupancy of the claimant's Minnesota homestead in the calendar
90.27 	year, and which rent constitutes the basis, in the succeeding
90.28 	calendar year of a claim for relief under this chapter by the
90.29 	claimant.
90.30 	(b) For rent paid in 2005, the percent is 16 percent; and
90.31 	for rent paid in 2006, and thereafter, the percent is 15 percent.
90.32 	
EFFECTIVE DATE. This section is effective for rent
90.33 	constituting property taxes payable based on rent paid after
90.34 	December 31, 2004.

90.35 	Sec. 9. Minnesota Statutes 2004, section 469.335, is
90.36 	amended to read:
91.1 	469.335 APPLICATION FOR TAX BENEFITS.
91.2 	(a) To claim a tax credit or exemption against a state tax
91.3 	under section 469.336, clauses (2) through (5), a business must
91.4 	apply to the commissioner for a tax credit certificate.  As a
91.5 	condition of its application, the business must agree to furnish
91.6 	information to the commissioner that is sufficient to verify the
91.7 	eligibility for any credits or exemptions claimed.  The total
91.8 	amount of the state tax credits and exemptions allowed for the
91.9 	specified period may not exceed the amount of the tax credit
91.10 	certificates provided by the commissioner to the business.  The
91.11 	commissioner must verify to the commissioner of revenue the
91.12 	amount of tax exemptions or credits for which each business is
91.13 	eligible.
91.14 	(b) A tax credit certificate issued under this section may
91.15 	specify the particular tax exemptions or credits against a state
91.16 	tax that the qualified business is eligible to claim under
91.17 	section 469.336, clauses (2) through (5), and the amount of each
91.18 	exemption or credit allowed.
91.19 	(c) The commissioner may issue $1,000,000 of tax credits or
91.20 	exemptions in fiscal year 2004.  Any tax credits or exemptions
91.21 	not awarded in fiscal year 2004 may be awarded in fiscal year
91.22 	2005. The commissioner may issue $1,000,000 in tax credits or
91.23 	exemptions in fiscal year 2006.  Any tax credits or exemptions
91.24 	not awarded in fiscal year 2006 may be awarded in fiscal year
91.25 	2007.
91.26 	(d) A qualified business must use the tax credits or tax
91.27 	exemptions granted under this section by the later of the end of
91.28 	the state fiscal year or the taxpayer's tax year in which the
91.29 	credits or exemptions are granted.

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

91.32 	Sec. 10. 2005 CITY AID PAYMENTS.
 91.33 	In 2005 and 2006, market value credit reimbursements for
91.34 	each city payable under Minnesota Statutes, section 273.1384,
91.35 	are reduced by the dollar amount of the 2003 reduction in market
91.36 	value credit reimbursements for that city due to Laws 2003,
92.1 	First Special Session chapter 21, article 5, section 12.  No
92.2 	city's 2005 or 2006 market value credit reimbursements are
92.3 	reduced to less than zero under this section.  To the extent
92.4 	sufficient information is available on each payment date, the
92.5 	commissioner shall pay the annual 2005 and 2006 market value
92.6 	credit reimbursement amounts, after reduction under this
92.7 	section, to cities in equal installments on the dates specified
92.8 	in Minnesota Statutes, section 273.1384.

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

92.11 	Sec. 11. REPEALER.
 92.12 	(a) Minnesota Statutes 2004, section 10A.322, subdivision
92.13 	4, is repealed effective July 1, 2005.
92.14 	(b) Minnesota Statutes 2004, section 16A.1522, subdivision
92.15 	4, is repealed effective the day following final enactment.
92.16 	(c) Minnesota Statutes 2004, section 290.06, subdivision
92.17 	23, is repealed effective for contributions made after June 30,
92.18 	2005.