1.1 	A bill for an act
1.2 	relating to human services; modifying MFIP and child care provisions; 
1.3 	changing and clarifying foreign operating corporation provisions;amending 
1.4 	Minnesota Statutes 2006, sections 119B.09, subdivision 1; 119B.12, by adding a 
1.5 	subdivision; 256J.21, subdivision 2; 256J.24, subdivision 5; 256J.53, subdivision 
1.6 	2; 256J.95, subdivision 9; 290.01, subdivisions 6b, 19c, 19d; 290.34, subdivision 
1.7 	1; repealing Minnesota Statutes 2006, sections 256B.0631; 256J.24, subdivision 
1.8 	6; 256J.37, subdivisions 3a, 3b.
1.9 	BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:

1.10 	ARTICLE 1
1.11 	WELFARE PROVISIONS

1.12 	Section 1. Minnesota Statutes 2006, section 119B.09, subdivision 1, is amended to read:
1.13 		Subdivision 1.General eligibility requirements for all applicants for child 
1.14 	care assistance. (a) Child care services must be available to families who need child 
1.15 	care to find or keep employment or to obtain the training or education necessary to find 
1.16 	employment and who:
1.17 	(1) have household income less than or equal to 250 percent of the federal poverty 
1.18 	guidelines 75 percent of the state median income, adjusted for family size, and meet the 
1.19 	requirements of section 119B.05; or receive MFIP assistance; and are participating in 
1.20 	employment and training services under chapter 256J or 256K; or
1.21 	(2) have household income less than or equal to 175 percent of the federal poverty 
1.22 	guidelines, adjusted for family size, at program entry and less than 250 percent of the 
1.23 	federal poverty guidelines, adjusted for family size, at program exit.
1.24 	(b) Child care services must be made available as in-kind services.
2.1 	(c) All applicants for child care assistance and families currently receiving child care 
2.2 	assistance must be assisted and required to cooperate in establishment of paternity and 
2.3 	enforcement of child support obligations for all children in the family as a condition 
2.4 	of program eligibility. For purposes of this section, a family is considered to meet the 
2.5 	requirement for cooperation when the family complies with the requirements of section 
2.6 	256.741.

2.7 	Sec. 2. Minnesota Statutes 2006, section 119B.12, is amended by adding a subdivision 
2.8 	to read:
2.9 		Subd. 4.Co-payment fee for families with annual incomes that exceed the 
2.10 	federal poverty level. The monthly family co-payment fee for families with annual 
2.11 	incomes greater than the federal poverty level, adjusted for family size, is determined 
2.12 	as follows:
2.13 	(a) The family's annual gross income is converted into a percentage of state median 
2.14 	income (SMI) for a family of four, adjusted for family size, by dividing the family's annual 
2.15 	gross income by 100 percent of the SMI for a family of four, adjusted for family size. The 
2.16 	percentage must be carried out to the nearest 100th of a percent. 
2.17 	(b) If the family's annual gross income is less than or equal to 75 percent of the 
2.18 	SMI for a family of four, adjusted for family size, the family's monthly co-payment fee 
2.19 	is the fixed percentage established for the family's income range in clauses (1) to (60), 
2.20 	multiplied by the highest possible income within that income range, divided by 12, and 
2.21 	rounded to the nearest whole dollar.
2.22 	(1) less than 35.01 percent of SMI -- 2.20%
2.23 	(2) 35.01 to 42.00 percent of SMI -- 2.70%
2.24 	(3) 42.01 to 43.00 percent of SMI -- 3.75% 
2.25 	(4) 43.01 to 44.00 percent of SMI -- 4.00%
2.26 	(5) 44.01 to 45.00 percent of SMI -- 4.25%
2.27 	(6) 45.01 to 46.00 percent of SMI -- 4.50%
2.28 	(7) 46.01 to 47.00 percent of SMI -- 4.75%
2.29 	(8) 47.01 to 48.00 percent of SMI -- 5.00%
2.30 	(9) 48.01 to 49.00 percent of SMI -- 5.25%
2.31 	(10) 49.01 to 50.00 percent of SMI -- 5.50%
2.32 	(11) 50.01 to 50.50 percent of SMI -- 5.75%
2.33 	(12) 50.51 to 51.00 percent of SMI -- 6.00%
2.34 	(13) 51.01 to 51.50 percent of SMI -- 6.25%
2.35 	(14) 51.51 to 52.00 percent of SMI -- 6.50%
3.1 	(15) 52.01 to 52.50 percent of SMI -- 6.75%
3.2 	(16) 52.51 to 53.00 percent of SMI -- 7.00%
3.3 	(17) 53.01 to 53.50 percent of SMI -- 7.25%
3.4 	(18) 53.51 to 54.00 percent of SMI -- 7.50%
3.5 	(19) 54.01 to 54.50 percent of SMI -- 7.75%
3.6 	(20) 54.51 to 55.00 percent of SMI -- 8.00%
3.7 	(21) 55.01 to 55.50 percent of SMI -- 8.30%
3.8 	(22) 55.51 to 56.00 percent of SMI -- 8.60%
3.9 	(23) 56.01 to 56.50 percent of SMI -- 8.90%
3.10 	(24) 56.51 to 57.00 percent of SMI -- 9.20%
3.11 	(25) 57.01 to 57.50 percent of SMI -- 9.50%
3.12 	(26) 57.51 to 58.00 percent of SMI -- 9.80%
3.13 	(27) 58.01 to 58.50 percent of SMI -- 10.10%
3.14 	(28) 58.51 to 59.00 percent of SMI -- 10.40%
3.15 	(29) 59.01 to 59.50 percent of SMI -- 10.70%
3.16 	(30) 59.51 to 60.00 percent of SMI -- 11.00%
3.17 	(31) 60.01 to 60.50 percent of SMI -- 11.30%
3.18 	(32) 60.51 to 61.00 percent of SMI -- 11.60%
3.19 	(33) 61.01 to 61.50 percent of SMI -- 11.90%
3.20 	(34) 61.51 to 62.00 percent of SMI -- 12.20%
3.21 	(35) 62.01 to 62.50 percent of SMI -- 12.50%
3.22 	(36) 62.51 to 63.00 percent of SMI -- 12.80%
3.23 	(37) 63.01 to 63.50 percent of SMI -- 13.10%
3.24 	(38) 63.51 to 64.00 percent of SMI -- 13.40%
3.25 	(39) 64.01 to 64.50 percent of SMI -- 13.70%
3.26 	(40) 64.51 to 65.00 percent of SMI -- 14.00%
3.27 	(41) 65.01 to 65.50 percent of SMI -- 14.30%
3.28 	(42) 65.51 to 66.00 percent of SMI -- 14.60%
3.29 	(43) 66.01 to 66.50 percent of SMI -- 14.90%
3.30 	(44) 66.51 to 67.00 percent of SMI -- 15.20%
3.31 	(45) 67.01 to 67.50 percent of SMI -- 15.50%
3.32 	(46) 67.51 to 68.00 percent of SMI -- 15.80%
3.33 	(47) 68.01 to 68.50 percent of SMI -- 16.10%
3.34 	(48) 68.51 to 69.00 percent of SMI -- 16.40%
3.35 	(49) 69.01 to 69.50 percent of SMI -- 16.70%
3.36 	(50) 69.51 to 70.00 percent of SMI -- 17.00%
4.1 	(51) 70.01 to 70.50 percent of SMI -- 17.30%
4.2 	(52) 70.51 to 71.00 percent of SMI -- 17.60%
4.3 	(53) 71.01 to 71.50 percent of SMI -- 17.90%
4.4 	(54) 71.51 to 72.00 percent of SMI -- 18.20%
4.5 	(55) 72.01 to 72.50 percent of SMI -- 18.50%
4.6 	(56) 72.51 to 73.00 percent of SMI -- 18.80%
4.7 	(57) 73.01 to 73.50 percent of SMI -- 19.10%
4.8 	(58) 73.51 to 74.00 percent of SMI -- 19.40%
4.9 	(59) 74.01 to 74.50 percent of SMI -- 19.70%
4.10 	(60) 74.51 to 75.00 percent of SMI -- 20.00%

4.11 	Sec. 3. Minnesota Statutes 2006, section 256J.21, subdivision 2, is amended to read:
4.12 		Subd. 2.Income exclusions. The following must be excluded in determining a 
4.13 	family's available income:
4.14 	(1) payments for basic care, difficulty of care, and clothing allowances received for 
4.15 	providing family foster care to children or adults under Minnesota Rules, parts 9555.5050 
4.16 	to 9555.6265, 9560.0521, and 9560.0650 to 9560.0655, and payments received and used 
4.17 	for care and maintenance of a third-party beneficiary who is not a household member;
4.18 	(2) reimbursements for employment training received through the Workforce 
4.19 	Investment Act of 1998, United States Code, title 20, chapter 73, section 9201;
4.20 	(3) reimbursement for out-of-pocket expenses incurred while performing volunteer 
4.21 	services, jury duty, employment, or informal carpooling arrangements directly related to 
4.22 	employment;
4.23 	(4) all educational assistance, except the county agency must count graduate student 
4.24 	teaching assistantships, fellowships, and other similar paid work as earned income and, 
4.25 	after allowing deductions for any unmet and necessary educational expenses, shall 
4.26 	count scholarships or grants awarded to graduate students that do not require teaching 
4.27 	or research as unearned income;
4.28 	(5) loans, regardless of purpose, from public or private lending institutions, 
4.29 	governmental lending institutions, or governmental agencies;
4.30 	(6) loans from private individuals, regardless of purpose, provided an applicant or 
4.31 	participant documents that the lender expects repayment;
4.32 	(7)(i) state income tax refunds; and
4.33 	(ii) federal income tax refunds;
4.34 	(8)(i) federal earned income credits;
4.35 	(ii) Minnesota working family credits;
5.1 	(iii) state homeowners and renters credits under chapter 290A; and
5.2 	(iv) federal or state tax rebates;
5.3 	(9) funds received for reimbursement, replacement, or rebate of personal or real 
5.4 	property when these payments are made by public agencies, awarded by a court, solicited 
5.5 	through public appeal, or made as a grant by a federal agency, state or local government, 
5.6 	or disaster assistance organizations, subsequent to a presidential declaration of disaster;
5.7 	(10) the portion of an insurance settlement that is used to pay medical, funeral, and 
5.8 	burial expenses, or to repair or replace insured property;
5.9 	(11) reimbursements for medical expenses that cannot be paid by medical assistance;
5.10 	(12) payments by a vocational rehabilitation program administered by the state 
5.11 	under chapter 268A, except those payments that are for current living expenses;
5.12 	(13) in-kind income, including any payments directly made by a third party to a 
5.13 	provider of goods and services;
5.14 	(14) assistance payments to correct underpayments, but only for the month in which 
5.15 	the payment is received;
5.16 	(15) payments for short-term emergency needs under section 256J.626, subdivision 
5.17 	2;
5.18 	(16) funeral and cemetery payments as provided by section 256.935;
5.19 	(17) nonrecurring cash gifts of $30 or less, not exceeding $30 per participant in 
5.20 	a calendar month;
5.21 	(18) any form of energy assistance payment made through Public Law 97-35, 
5.22 	Low-Income Home Energy Assistance Act of 1981, payments made directly to energy 
5.23 	providers by other public and private agencies, and any form of credit or rebate payment 
5.24 	issued by energy providers;
5.25 	(19) Supplemental Security Income (SSI), including retroactive SSI payments and 
5.26 	other income of an SSI recipient, except as described in section 256J.37, subdivision 3b;
5.27 	(20) Minnesota supplemental aid, including retroactive payments;
5.28 	(21) proceeds from the sale of real or personal property;
5.29 	(22) state adoption assistance payments under section 259.67, and up to an equal 
5.30 	amount of county adoption assistance payments;
5.31 	(23) state-funded family subsidy program payments made under section 252.32
5.32 	to help families care for children with developmental disabilities, consumer support 
5.33 	grant funds under section 256.476, and resources and services for a disabled household 
5.34 	member under one of the home and community-based waiver services programs under 
5.35 	chapter 256B;
6.1 	(24) interest payments and dividends from property that is not excluded from and 
6.2 	that does not exceed the asset limit;
6.3 	(25) rent rebates;
6.4 	(26) income earned by a minor caregiver, minor child through age 6, or a minor 
6.5 	child who is at least a half-time student in an approved elementary or secondary education 
6.6 	program;
6.7 	(27) income earned by a caregiver under age 20 who is at least a half-time student in 
6.8 	an approved elementary or secondary education program;
6.9 	(28) MFIP child care payments under section 119B.05;
6.10 	(29) all other payments made through MFIP to support a caregiver's pursuit of 
6.11 	greater economic stability;
6.12 	(30) income a participant receives related to shared living expenses;
6.13 	(31) reverse mortgages;
6.14 	(32) benefits provided by the Child Nutrition Act of 1966, United States Code, title 
6.15 	42, chapter 13A, sections 1771 to 1790;
6.16 	(33) benefits provided by the women, infants, and children (WIC) nutrition program, 
6.17 	United States Code, title 42, chapter 13A, section 1786;
6.18 	(34) benefits from the National School Lunch Act, United States Code, title 42, 
6.19 	chapter 13, sections 1751 to 1769e;
6.20 	(35) relocation assistance for displaced persons under the Uniform Relocation 
6.21 	Assistance and Real Property Acquisition Policies Act of 1970, United States Code, title 
6.22 	42, chapter 61, subchapter II, section 4636, or the National Housing Act, United States 
6.23 	Code, title 12, chapter 13, sections 1701 to 1750jj;
6.24 	(36) benefits from the Trade Act of 1974, United States Code, title 19, chapter 
6.25 	12, part 2, sections 2271 to 2322;
6.26 	(37) war reparations payments to Japanese Americans and Aleuts under United 
6.27 	States Code, title 50, sections 1989 to 1989d;
6.28 	(38) payments to veterans or their dependents as a result of legal settlements 
6.29 	regarding Agent Orange or other chemical exposure under Public Law 101-239, section 
6.30 	10405, paragraph (a)(2)(E);
6.31 	(39) income that is otherwise specifically excluded from MFIP consideration in 
6.32 	federal law, state law, or federal regulation;
6.33 	(40) security and utility deposit refunds;
6.34 	(41) American Indian tribal land settlements excluded under Public Laws 98-123, 
6.35 	98-124, and 99-377 to the Mississippi Band Chippewa Indians of White Earth, Leech 
7.1 	Lake, and Mille Lacs reservations and payments to members of the White Earth Band, 
7.2 	under United States Code, title 25, chapter 9, section 331, and chapter 16, section 1407;
7.3 	(42) all income of the minor parent's parents and stepparents when determining the 
7.4 	grant for the minor parent in households that include a minor parent living with parents or 
7.5 	stepparents on MFIP with other children;
7.6 	(43) income of the minor parent's parents and stepparents equal to 200 percent of the 
7.7 	federal poverty guideline for a family size not including the minor parent and the minor 
7.8 	parent's child in households that include a minor parent living with parents or stepparents 
7.9 	not on MFIP when determining the grant for the minor parent. The remainder of income is 
7.10 	deemed as specified in section 256J.37, subdivision 1b;
7.11 	(44) payments made to children eligible for relative custody assistance under section 
7.12 	257.85;
7.13 	(45) vendor payments for goods and services made on behalf of a client unless the 
7.14 	client has the option of receiving the payment in cash; and
7.15 	(46) the principal portion of a contract for deed payment.

7.16 	Sec. 4. Minnesota Statutes 2006, section 256J.24, subdivision 5, is amended to read:
7.17 		Subd. 5.MFIP transitional standard. (a) The MFIP transitional standard is based 
7.18 	on the number of persons in the assistance unit eligible for both food and cash assistance 
7.19 	unless the restrictions in subdivision 6 on the birth of a child apply. The following table 
7.20 	represents the transitional standards effective October 1, 2004.

7.21
7.22	Number of Eligible 
People
	Transitional 
Standard
	Cash Portion
	Food Portion

7.23	1
	$379:
	$250
	$129
	
7.24	2
	$675:
	$437
	$238
	
7.25	3
	$876:
	$532
	$344
	
7.26	4
	$1,036:
	$621
	$415
	
7.27	5
	$1,180:
	$697
	$483
	
7.28	6
	$1,350:
	$773
	$577
	
7.29	7
	$1,472:
	$850
	$622
	
7.30	8
	$1,623:
	$916
	$707
	
7.31	9
	$1,772:
	$980
	$792
	
7.32	10
	$1,915:
	$1,035
	$880
	
7.33	over 10
	add $142:
	$53
	$89
	
7.34	per additional member.
			
7.35 	The commissioner shall annually publish in the State Register the transitional 
7.36 	standard for an assistance unit sizes 1 to 10 including a breakdown of the cash and food 
7.37 	portions.
8.1 	(b) The commissioner shall increase the existing transitional standard by ten percent 
8.2 	effective July 1, 2007, to be distributed in the cash portion of the grant.

8.3 	Sec. 5. Minnesota Statutes 2006, section 256J.53, subdivision 2, is amended to read:
8.4 		Subd. 2.Approval of postsecondary education or training. (a) In order for a 
8.5 	postsecondary education or training program to be an approved activity in an employment 
8.6 	plan, the participant must be working in unsubsidized employment at least 20 hours per 
8.7 	week.
8.8 	(b) Participants seeking approval of a postsecondary education or training plan 
8.9 	must provide documentation that:
8.10 	(1) the employment goal can only be met with the additional education or training;
8.11 	(2) there are suitable employment opportunities that require the specific education or 
8.12 	training in the area in which the participant resides or is willing to reside;
8.13 	(3) the education or training will result in significantly higher wages for the 
8.14 	participant than the participant could earn without the education or training;
8.15 	(4) the participant can meet the requirements for admission into the program; and
8.16 	(5) there is a reasonable expectation that the participant will complete the training 
8.17 	program based on such factors as the participant's MFIP assessment, previous education, 
8.18 	training, and work history; current motivation; and changes in previous circumstances.
8.19 	(c) The hourly unsubsidized employment requirement does not apply for intensive 
8.20 	education or training programs lasting 12 weeks or less when full-time attendance is 
8.21 	required.
8.22 	(d)(b) Participants with an approved employment plan in place on July 1, 2003, 
8.23 	which includes more than 12 months of postsecondary education or training shall be 
8.24 	allowed to complete that plan provided that hourly requirements in section 256J.55, 
8.25 	subdivision 1, and conditions specified in paragraph (b), and subdivisions 3 and 5 are met. 
8.26 	A participant whose case is subsequently closed for three months or less for reasons other 
8.27 	than noncompliance with program requirements and who returns to MFIP shall be allowed 
8.28 	to complete that plan provided that hourly requirements in section 256J.55, subdivision 1, 
8.29 	and conditions specified in paragraph (b) and subdivisions 3 and 5 are met. 

8.30 	Sec. 6. Minnesota Statutes 2006, section 256J.95, subdivision 9, is amended to read:
8.31 		Subd. 9.Property and income limitations. The asset limits and exclusions in 
8.32 	section 256J.20 apply to applicants and recipients of DWP. All payments, unless excluded 
8.33 	in section 256J.21, must be counted as income to determine eligibility for the diversionary 
8.34 	work program. The county shall treat income as outlined in section 256J.37, except for 
9.1 	subdivision 3a. The initial income test and the disregards in section 256J.21, subdivision 
9.2 	3, shall be followed for determining eligibility for the diversionary work program. 

9.3 	Sec. 7.  REPEALER.
 9.4 	Minnesota Statutes 2006, sections 256B.0631; 256J.24, subdivision 6; and 256J.37, 
9.5 	subdivisions 3a and 3b, are repealed.

9.6 	ARTICLE 2
9.7 	FOREIGN OPERATING CORPORATIONS

9.8 	Section 1. Minnesota Statutes 2006, section 290.01, subdivision 6b, is amended to read:
9.9 		Subd. 6b.Foreign operating corporation. The term "foreign operating 
9.10 	corporation," when applied to a corporation, means a domestic corporation with the 
9.11 	following characteristics:
9.12 	(1) it is part of a unitary business at least one member of which is taxable in this state;
9.13 	(2) it is not a foreign sales corporation under section 922 of the Internal Revenue 
9.14 	Code, as amended through December 31, 1999, for the taxable year;
9.15 	(3) either (i) the average of the percentages of its property and payrolls, including 
9.16 	the pro rata share of its unitary partnerships' property and payrolls, assigned to locations 
9.17 	outside the United States, where the United States includes the District of Columbia and 
9.18 	excludes the commonwealth of Puerto Rico and possessions of the United States, as 
9.19 	determined under section 290.191 or 290.20, is 80 percent or more; or (ii) it has in effect a 
9.20 	valid election under section 936 of the Internal Revenue Code; or (ii) at least 80 percent 
9.21 	of the gross income from all sources of the corporation in the tax year is active foreign 
9.22 	business income; and
9.23 	(4) it has $1,000,000 of payroll and $2,000,000 of property, as determined under 
9.24 	section 290.191 or 290.20, that are located outside the United States. If the domestic 
9.25 	corporation does not have payroll as determined under section 290.191 or 290.20, but it 
9.26 	or its partnerships have paid $1,000,000 for work, performed directly for the domestic 
9.27 	corporation or the partnerships, outside the United States, then paragraph (3)(i) shall not 
9.28 	require payrolls to be included in the average calculation for purposes of this subdivision, 
9.29 	active foreign business income means gross income that is (i) derived from sources 
9.30 	without the United States, as defined in subtitle A, chapter 1, subchapter N, part 1, of the 
9.31 	Internal Revenue Code; and (ii) attributable to the active conduct of a trade or business in 
9.32 	a foreign country.

10.1 	EFFECTIVE DATE. This section is effective for taxable years beginning after 
10.2 	December 31, 2006.

10.3 	Sec. 2. Minnesota Statutes 2006, section 290.01, subdivision 19c, is amended to read:
10.4 		Subd. 19c.Corporations; additions to federal taxable income. For corporations, 
10.5 	there shall be added to federal taxable income:
10.6 	(1) the amount of any deduction taken for federal income tax purposes for income, 
10.7 	excise, or franchise taxes based on net income or related minimum taxes, including but not 
10.8 	limited to the tax imposed under section 290.0922, paid by the corporation to Minnesota, 
10.9 	another state, a political subdivision of another state, the District of Columbia, or any 
10.10 	foreign country or possession of the United States;
10.11 	(2) interest not subject to federal tax upon obligations of: the United States, its 
10.12 	possessions, its agencies, or its instrumentalities; the state of Minnesota or any other 
10.13 	state, any of its political or governmental subdivisions, any of its municipalities, or any 
10.14 	of its governmental agencies or instrumentalities; the District of Columbia; or Indian 
10.15 	tribal governments;
10.16 	(3) exempt-interest dividends received as defined in section 852(b)(5) of the Internal 
10.17 	Revenue Code;
10.18 	(4) the amount of any net operating loss deduction taken for federal income tax 
10.19 	purposes under section 172 or 832(c)(10) of the Internal Revenue Code or operations loss 
10.20 	deduction under section 810 of the Internal Revenue Code;
10.21 	(5) the amount of any special deductions taken for federal income tax purposes 
10.22 	under sections 241 to 247 and 965 of the Internal Revenue Code;
10.23 	(6) losses from the business of mining, as defined in section 290.05, subdivision 1, 
10.24 	clause (a), that are not subject to Minnesota income tax;
10.25 	(7) the amount of any capital losses deducted for federal income tax purposes under 
10.26 	sections 1211 and 1212 of the Internal Revenue Code;
10.27 	(8) the exempt foreign trade income of a foreign sales corporation under sections 
10.28 	921(a) and 291 of the Internal Revenue Code;
10.29 	(9) the amount of percentage depletion deducted under sections 611 through 614 and 
10.30 	291 of the Internal Revenue Code;
10.31 	(10) for certified pollution control facilities placed in service in a taxable year 
10.32 	beginning before December 31, 1986, and for which amortization deductions were elected 
10.33 	under section 169 of the Internal Revenue Code of 1954, as amended through December 
10.34 	31, 1985, the amount of the amortization deduction allowed in computing federal taxable 
10.35 	income for those facilities;
11.1 	(11) the amount of any deemed dividend from a foreign operating corporation 
11.2 	determined pursuant to section 290.17, subdivision 4, paragraph (g). The deemed dividend 
11.3 	is reduced by the amount of the addition to income required by clauses (19), (20), (21), 
11.4 	and (22);
11.5 	(12) the amount of a partner's pro rata share of net income which does not flow 
11.6 	through to the partner because the partnership elected to pay the tax on the income under 
11.7 	section 6242(a)(2) of the Internal Revenue Code;
11.8 	(13) the amount of net income excluded under section 114 of the Internal Revenue 
11.9 	Code;
11.10 	(14) any increase in subpart F income, as defined in section 952(a) of the Internal 
11.11 	Revenue Code, for the taxable year when subpart F income is calculated without regard 
11.12 	to the provisions of section 103 of Public Law 109-222;
11.13 	(15) 80 percent of the depreciation deduction allowed under section 168(k)(1)(A) 
11.14 	and (k)(4)(A) of the Internal Revenue Code. For purposes of this clause, if the taxpayer 
11.15 	has an activity that in the taxable year generates a deduction for depreciation under 
11.16 	section 168(k)(1)(A) and (k)(4)(A) and the activity generates a loss for the taxable year 
11.17 	that the taxpayer is not allowed to claim for the taxable year, "the depreciation allowed 
11.18 	under section 168(k)(1)(A) and (k)(4)(A)" for the taxable year is limited to excess of the 
11.19 	depreciation claimed by the activity under section 168(k)(1)(A) and (k)(4)(A) over the 
11.20 	amount of the loss from the activity that is not allowed in the taxable year. In succeeding 
11.21 	taxable years when the losses not allowed in the taxable year are allowed, the depreciation 
11.22 	under section 168(k)(1)(A) and (k)(4)(A) is allowed;
11.23 	(16) 80 percent of the amount by which the deduction allowed by section 179 of the 
11.24 	Internal Revenue Code exceeds the deduction allowable by section 179 of the Internal 
11.25 	Revenue Code of 1986, as amended through December 31, 2003;
11.26 	(17) to the extent deducted in computing federal taxable income, the amount of the 
11.27 	deduction allowable under section 199 of the Internal Revenue Code; and
11.28 	(18) the exclusion allowed under section 139A of the Internal Revenue Code for 
11.29 	federal subsidies for prescription drug plans.;
11.30 	(19) an amount equal to the interest and intangible expenses, losses, and costs paid, 
11.31 	accrued, or incurred by any member of the taxpayer's unitary group to or for the benefit 
11.32 	of a corporation that is a member of the taxpayer's unitary business group that qualifies 
11.33 	as a foreign operating corporation. For purposes of this clause, intangible expenses and 
11.34 	costs include:
12.1 	(i) expenses, losses, and costs for, or related to, the direct or indirect acquisition, 
12.2 	use, maintenance or management, ownership, sale, exchange, or any other disposition of 
12.3 	intangible property;
12.4 	(ii) losses incurred, directly or indirectly, from factoring transactions or discounting 
12.5 	transactions;
12.6 	(iii) royalty, patent, technical, and copyright fees;
12.7 	(iv) licensing fees; and
12.8 	(v) other similar expenses and costs.
12.9 	For purposes of this clause, "intangible property" includes stocks, bonds, patents, 
12.10 	patent applications, trade names, trademarks, service marks, copyrights, mask works, trade 
12.11 	secrets, and similar types of intangible assets.
12.12 	This clause does not apply to any item of interest or intangible expenses or costs 
12.13 	paid, accrued, or incurred, directly or indirectly, to a foreign operating corporation with 
12.14 	respect to such item of income to the extent that the income to the foreign operating 
12.15 	corporation is income from sources without the United States, as defined in subtitle A, 
12.16 	chapter 1, subchapter N, part 1, of the Internal Revenue Code;
12.17 	(20) except as already included in the taxpayer's taxable income under clause (19), 
12.18 	any interest income and income generated from intangible property received or accrued 
12.19 	by a foreign operating corporation that is a member of the taxpayer's unitary group. For 
12.20 	purposes of this clause, income generated from intangible property includes:
12.21 	(i) income related to the direct or indirect acquisition, use, maintenance or 
12.22 	management, ownership, sale, exchange, or any other disposition of intangible property;
12.23 	(ii) income from factoring transactions or discounting transactions;
12.24 	(iii) royalty, patent, technical, and copyright fees;
12.25 	(iv) licensing fees; and
12.26 	(v) other similar income.
12.27 	For purposes of this clause, "intangible property" includes stocks, bonds, patents, 
12.28 	patent applications, trade names, trademarks, service marks, copyrights, mask works, trade 
12.29 	secrets, and similar types of intangible assets. 
12.30 	This clause does not apply to any item of interest or intangible income received or 
12.31 	accrued by a foreign operating corporation with respect to such item of income to the 
12.32 	extent that the income is income from sources without the United States, as defined in 
12.33 	subtitle A, chapter 1, subchapter N, part 1, of the Internal Revenue Code;
12.34 	(21) the dividends attributable to the income of a foreign operating corporation that 
12.35 	is a member of the taxpayer's unitary group in an amount that is equal to the dividends 
12.36 	paid deduction of a real estate investment trust under section 561(a) of the Internal 
13.1 	Revenue Code for amounts paid or accrued by the real estate investment trust to the 
13.2 	foreign operating corporation; and
13.3 	(22) the income of a foreign operating corporation that is a member of the taxpayer's 
13.4 	unitary group in an amount that is equal to gains derived from the sale of real or personal 
13.5 	property located in the United States.

13.6 	EFFECTIVE DATE. This section is effective for taxable years beginning after 
13.7 	December 31, 2006.

13.8 	Sec. 3. Minnesota Statutes 2006, section 290.01, subdivision 19d, is amended to read:
13.9 		Subd. 19d.Corporations; modifications decreasing federal taxable income. For 
13.10 	corporations, there shall be subtracted from federal taxable income after the increases 
13.11 	provided in subdivision 19c:
13.12 	(1) the amount of foreign dividend gross-up added to gross income for federal 
13.13 	income tax purposes under section 78 of the Internal Revenue Code;
13.14 	(2) the amount of salary expense not allowed for federal income tax purposes due to 
13.15 	claiming the federal jobs credit under section 51 of the Internal Revenue Code;
13.16 	(3) any dividend (not including any distribution in liquidation) paid within the 
13.17 	taxable year by a national or state bank to the United States, or to any instrumentality of 
13.18 	the United States exempt from federal income taxes, on the preferred stock of the bank 
13.19 	owned by the United States or the instrumentality;
13.20 	(4) amounts disallowed for intangible drilling costs due to differences between 
13.21 	this chapter and the Internal Revenue Code in taxable years beginning before January 
13.22 	1, 1987, as follows:
13.23 	(i) to the extent the disallowed costs are represented by physical property, an amount 
13.24 	equal to the allowance for depreciation under Minnesota Statutes 1986, section 290.09, 
13.25 	subdivision 7, subject to the modifications contained in subdivision 19e; and
13.26 	(ii) to the extent the disallowed costs are not represented by physical property, an 
13.27 	amount equal to the allowance for cost depletion under Minnesota Statutes 1986, section 
13.28 	290.09, subdivision 8;
13.29 	(5) the deduction for capital losses pursuant to sections 1211 and 1212 of the 
13.30 	Internal Revenue Code, except that:
13.31 	(i) for capital losses incurred in taxable years beginning after December 31, 1986, 
13.32 	capital loss carrybacks shall not be allowed;
13.33 	(ii) for capital losses incurred in taxable years beginning after December 31, 1986, 
13.34 	a capital loss carryover to each of the 15 taxable years succeeding the loss year shall be 
13.35 	allowed;
14.1 	(iii) for capital losses incurred in taxable years beginning before January 1, 1987, a 
14.2 	capital loss carryback to each of the three taxable years preceding the loss year, subject to 
14.3 	the provisions of Minnesota Statutes 1986, section 290.16, shall be allowed; and
14.4 	(iv) for capital losses incurred in taxable years beginning before January 1, 1987, 
14.5 	a capital loss carryover to each of the five taxable years succeeding the loss year to the 
14.6 	extent such loss was not used in a prior taxable year and subject to the provisions of 
14.7 	Minnesota Statutes 1986, section 290.16, shall be allowed;
14.8 	(6) an amount for interest and expenses relating to income not taxable for federal 
14.9 	income tax purposes, if (i) the income is taxable under this chapter and (ii) the interest and 
14.10 	expenses were disallowed as deductions under the provisions of section 171(a)(2), 265 or 
14.11 	291 of the Internal Revenue Code in computing federal taxable income;
14.12 	(7) in the case of mines, oil and gas wells, other natural deposits, and timber for 
14.13 	which percentage depletion was disallowed pursuant to subdivision 19c, clause (11), a 
14.14 	reasonable allowance for depletion based on actual cost. In the case of leases the deduction 
14.15 	must be apportioned between the lessor and lessee in accordance with rules prescribed 
14.16 	by the commissioner. In the case of property held in trust, the allowable deduction must 
14.17 	be apportioned between the income beneficiaries and the trustee in accordance with the 
14.18 	pertinent provisions of the trust, or if there is no provision in the instrument, on the basis 
14.19 	of the trust's income allocable to each;
14.20 	(8) for certified pollution control facilities placed in service in a taxable year 
14.21 	beginning before December 31, 1986, and for which amortization deductions were elected 
14.22 	under section 169 of the Internal Revenue Code of 1954, as amended through December 
14.23 	31, 1985, an amount equal to the allowance for depreciation under Minnesota Statutes 
14.24 	1986, section 290.09, subdivision 7;
14.25 	(9) amounts included in federal taxable income that are due to refunds of income, 
14.26 	excise, or franchise taxes based on net income or related minimum taxes paid by the 
14.27 	corporation to Minnesota, another state, a political subdivision of another state, the 
14.28 	District of Columbia, or a foreign country or possession of the United States to the extent 
14.29 	that the taxes were added to federal taxable income under section 290.01, subdivision 19c, 
14.30 	clause (1), in a prior taxable year;
14.31 	(10) 80 percent of royalties, fees, or other like income accrued or received from a 
14.32 	foreign operating corporation or a foreign corporation which is part of the same unitary 
14.33 	business as the receiving corporation, unless the income resulting from such payments or 
14.34 	accruals is income from sources within the United States as defined in subtitle A, chapter 
14.35 	1, subchapter N, part 1, of the Internal Revenue Code;
15.1 	(11) income or gains from the business of mining as defined in section 290.05, 
15.2 	subdivision 1, clause (a), that are not subject to Minnesota franchise tax;
15.3 	(12) the amount of disability access expenditures in the taxable year which are not 
15.4 	allowed to be deducted or capitalized under section 44(d)(7) of the Internal Revenue Code;
15.5 	(13) the amount of qualified research expenses not allowed for federal income tax 
15.6 	purposes under section 280C(c) of the Internal Revenue Code, but only to the extent that 
15.7 	the amount exceeds the amount of the credit allowed under section 290.068;
15.8 	(14) the amount of salary expenses not allowed for federal income tax purposes due 
15.9 	to claiming the Indian employment credit under section 45A(a) of the Internal Revenue 
15.10 	Code;
15.11 	(15) the amount of any refund of environmental taxes paid under section 59A of the 
15.12 	Internal Revenue Code;
15.13 	(16) for taxable years beginning before January 1, 2008, the amount of the federal 
15.14 	small ethanol producer credit allowed under section 40(a)(3) of the Internal Revenue Code 
15.15 	which is included in gross income under section 87 of the Internal Revenue Code;
15.16 	(17) for a corporation whose foreign sales corporation, as defined in section 922 
15.17 	of the Internal Revenue Code, constituted a foreign operating corporation during any 
15.18 	taxable year ending before January 1, 1995, and a return was filed by August 15, 1996, 
15.19 	claiming the deduction under section 290.21, subdivision 4, for income received from 
15.20 	the foreign operating corporation, an amount equal to 1.23 multiplied by the amount of 
15.21 	income excluded under section 114 of the Internal Revenue Code, provided the income is 
15.22 	not income of a foreign operating company;
15.23 	(18) any decrease in subpart F income, as defined in section 952(a) of the Internal 
15.24 	Revenue Code, for the taxable year when subpart F income is calculated without regard 
15.25 	to the provisions of section 614 of Public Law 107-147;
15.26 	(19) in each of the five tax years immediately following the tax year in which an 
15.27 	addition is required under subdivision 19c, clause (15), an amount equal to one-fifth of 
15.28 	the delayed depreciation. For purposes of this clause, "delayed depreciation" means the 
15.29 	amount of the addition made by the taxpayer under subdivision 19c, clause (15). The 
15.30 	resulting delayed depreciation cannot be less than zero; and
15.31 	(20) in each of the five tax years immediately following the tax year in which an 
15.32 	addition is required under subdivision 19c, clause (16), an amount equal to one-fifth of the 
15.33 	amount of the addition.

15.34 	EFFECTIVE DATE. This section is effective for taxable years beginning after 
15.35 	December 31, 2006.

16.1 	Sec. 4. Minnesota Statutes 2006, section 290.34, subdivision 1, is amended to read:
16.2 		Subdivision 1.Business conducted in such a way as to create losses or improper 
16.3 	taxable net income.  (a) When any corporation liable to taxation under this chapter 
16.4 	conducts its business in such a manner as, directly or indirectly, to benefit its members 
16.5 	or stockholders or any person or corporation interested in such business or to reduce the 
16.6 	income attributable to this state by selling the commodities or services in which it deals 
16.7 	at less than the fair price which might be obtained therefor, or buying such commodities 
16.8 	or services at more than the fair price for which they might have been obtained, or when 
16.9 	any corporation, a substantial portion of whose shares is owned directly or indirectly by 
16.10 	another corporation, deals in the commodities or services of the latter corporation in such 
16.11 	a manner as to create a loss or improper net income or to reduce the taxable net income 
16.12 	attributable to this state, the commissioner of revenue may determine the amount of its 
16.13 	income so as to reflect what would have been its reasonable taxable net income but for the 
16.14 	arrangements causing the understatement of its taxable net income or the overstatement of 
16.15 	its losses, having regard to the fair profits which, but for any agreement, arrangement, or 
16.16 	understanding, might have been or could have been obtained from such business.
16.17 	(b) When any corporation engages in a transaction or series of transactions whose 
16.18 	primary business purpose is the avoidance of tax, or engages in a transaction or series of 
16.19 	transactions without economic substance, that transaction or series of transactions shall be 
16.20 	disregarded and the commissioner shall determine taxable net income without regard for 
16.21 	any such transaction or series of transactions.

16.22 	Sec. 5. INTENT OF LEGISLATURE.
 16.23 	Section 4 does not change Minnesota law, but merely clarifies the legislature's 
16.24 	intention with respect to transactions without economic substance or business purpose.