Article 1: Income and Corporate Franchise Taxes
Section 1 adds new definitions to the applicable section for the small business investment credit (commonly known as the “Angel Investment Credit”). Effective the day following final enactment for tax years beginning after December 31, 2014.
Section 2 adds references to a qualified greater Minnesota business for purposes of the certification requirements. Requires that to receive certification as a qualified greater Minnesota business, a business must satisfy the existing requirements for qualified small businesses under current law, have its headquarters in greater Minnesota, have at least 51 of percent of its employees employed in greater Minnesota, and have 51 percent of its total payroll paid or incurred in greater Minnesota. Requires the DEED Commissioner to maintain a list of qualified small businesses and qualified greater Minnesota businesses certified in a calendar year and make the list accessible to the public. Defines “greater Minnesota” as the area outside the seven-county metropolitan area. Effective the day following final enactment for tax years beginning after December 31, 2014.
Section 3 increases the amount that may be allocated for credits under the program and extends the allocation for two years. For tax year 2014, the allocation is increased from $12 million under current law to $15 million, effective the day following final enactment for tax year 2014.
Extends the allocation to tax years 2015 and 2016, and authorizes $15 million to be allocated each year. Requires that for 2015 and 2016, $7.5 million must be allocated to credits for qualifying investments in qualified greater Minnesota businesses and minority or women-owned qualified small businesses anywhere in the state. Adds a requirement that, at the time the investment is proposed, the qualified investor or investor in a qualified fund must not be an officer or principal of the qualified small business. The investor must also not own, control, or hold the power to vote 20 percent or more of the outstanding securities of the qualified small business, either individually or in combination with one or more family members. Family members of individuals disqualified by this requirement are also not eligible for the credit. These provisions are effective the day following final enactment for tax years beginning after December 31, 2014.
Requires the commissioner of DEED to allocate credits to approved applications if credits are available. Provides that credit applications that were approved but not allocated remain eligible for allocation for the approved year, but approved credit applications that do not receive credit allocations in the approved year must re-apply to be eligible for credit allocations the following year.
Section 4 applies the repayment provisions for the small business investment credit to greater Minnesota businesses, if the DEED Commissioner determines that a business did not meet the certification requirements under section 2 in any of the five years after the year in which the qualifying investment was made. Effective the day following final enactment for tax years beginning after December 31, 2014.
Section 5 adds the requirement that the annual report to the Legislature on the qualified small business investment credit include the number of qualified greater Minnesota small businesses. Effective the day following final enactment.
Section 6 extends the credit through tax year 2016. Retains reporting requirements necessary to enforce credit revocations and provide program information to the legislature. Effective the day following final enactment.
Section 7 adopts references to the federal administrative provisions made between April 14, 2011 and December 20, 2013, that are referenced in the administrative chapter in Minnesota Statutes. Effective the day following final enactment.
Section 8 updates a cross reference in the administrative chapter for renumbering done in a later section.
Section 9 adopts changes made to federal taxable income since April 14, 2011. Some of these federal changes apply for tax years 2012 and 2013, some for tax year 2012 and future years, and some for tax year 2013 and future years. This section addresses these federal changes for Minnesota purposes for tax year 2013 and future years. Minnesota conformed to most federal provisions for tax year 2012 and would conform to most changes for tax years 2013 and future years, where applicable. The federal provisions, and the provisions to which Minnesota would not conform, are described below. This section also removes obsolete language relating to federal conformity for tax year 2012.
Provisions enacted federally for 2012 and 2013 only and adopted for Minnesota retroactively to tax year 2013:
Deduction in adjusted gross income of up to $250 for classroom expenses paid by a K-12 grade educator;
Exclusion for discharge indebtedness income on a principal residence;
Itemized deduction for mortgage insurance premiums on a principal residence;
For taxpayers 70 ½ or older, exclusion from gross income up to $100,000 of IRA distributions made directly to charitable organizations (the amount excluded is not allowed as a charitable deduction);
Increased maximum exclusion for employer provided commuter vehicle or transit pass fringe benefits from $125 per month to $245 per month to obtain parity with the exclusion of fringe parking benefits;
Deferred recognition of active income earned by the corporation but not distributed to the shareholder extended to taxable years beginning before January 1, 2014 to U.S. shareholders with a 10% or greater interest in a controlled banking or financing corporation;
Allowed expensing for the first $15 million of production costs of films and television shows;
Allowed depreciation of leasehold improvements and qualified restaurant property, including new restaurant property and improvements to retail property over 15 years (rather than 39 years) for to property placed in service through 2013;
Allowed accelerated depreciation of qualified Indian reservation property for property placed in service through 2013;
For contributions made in taxable years beginning through 2013, extension of basis adjustment to S corporation stock when the S corporation donates appreciated property, which is equal to the tax basis of the property rather than the fair market value;
Allowed depreciation of certain motorsports entertainment complex property over 7 years rather than 15 or 39 years for property placed in service through 2013.
Allowed expensing of 50% of the cost of advanced mine safety equipment for equipment placed in service through 2013;
Special rule for charitable contributions of real property for conservation purposes for contributions made in tax years beginning in 2013;
Allowance for companies other than C corporations to take a deduction for contributions to a charity equal to the cost basis plus one-half the normal price mark-up of food inventory for contributions made through 2013;
Increased exclusion for gain from the sale of qualified small business stock sold by an individual from 50% to 100% for original issue C corporation stock acquired in 2013. The exclusion applies to certain stock purchased in businesses with less than $50 million of assets that is held for at least five years;
Preferential treatment of dividends of regulated investments companies under which dividends paid to foreign shareholders are exempt to the same extent the dividends are exempt if the income had been earned directly by the foreign shareholder;
Extension of the special rule limiting payments from controlled subsidiaries of exempt organizations that are subject to the unrelated business income tax to the amount in excess of allowable payments under arm’s length transactions rules, only if a binding written contract between the entities was in effect on August 17, 2006; and
Reduction in the minimum holding period for built-in gains on sales of assets of S corporations that converted from C corporations from ten years to five years so that S corporations can sell assets held more than five years without being taxed on built-in gains;
Changes made at the federal level to which Minnesota would not conform:
Increased section 179 expensing and phaseout threshold. Minnesota would retain current law requirement that 80 percent of the expensing amount be added back in the first year and then subtract 20 percent of the add back amount each of the following five years; and
50 percent bonus depreciation to tax year 2013. Minnesota would retain its current law requirement that taxpayers add to taxable income 80 percent of the additional depreciation amount in the first tax year, and then subtract one-fifth of the amount added back in each of the five following tax years.
Provisions enacted at the federal level for tax year 2013 and future years to which Minnesota would conform retroactively to tax year 2013 and for future years:
Increased contribution limits from $500 to $2,000 per year and allowed use of education savings accounts for elementary and secondary school expenses;
Increased income limits and allowance of unlimited time period for the deduction of student loan interest;
Exclusion from gross income for amounts paid or expenses incurred (up to $5,250 annually) by an employer in providing educational assistance to employees under an educational assistance program;
Exclusion from income for awards under the National Health Service Corps scholarship program and related awards for health-care professionals; and
Exclusion for employer provided adoption assistance;
Changes made at the federal level to which Minnesota would not conform:
Increased income thresholds for the limitation on itemized deductions. Minnesota would retain its own limitation on itemized deduction and allow a new subtraction from taxable income in a later section for the amount limited at the federal level;
Increased income threshold for phaseout of personal and dependent exemptions. Minnesota would retain its own phaseout of exemptions and allow a new subtraction from taxable income in a later section for the amount phased out at the federal level; and
Increased standard deduction for married filers. For tax year 2013, Minnesota would continue to require taxpayers to add to taxable income the difference between the “old” and “new” federal standard deduction amounts, and would conform to the extension of the increased standard deduction for married filers beginning in tax year 2014.
Section 10 conforms Minnesota’s income tax to the increased federal standard deduction for married filers beginning in tax year 2014; and retains the addition between the old and new federal deduction amounts for tax year 2013. Conforms to the deductions for higher education tuition expenses and educator classroom expenses, which were extended at the federal level to tax year 2013 only. Strikes obsolete language and adds language to retain Minnesota’s limitation on itemized deductions, as described above.
Section 11 provides new subtractions for the federal limitation of itemized deductions and phaseout of personal and dependent exemptions and updates cross references to conform to other changes in the bill.
Section 12 provides a definition for “state itemized deduction” for purposes of limiting the income thresholds for deduction of the phaseout of personal and dependent exemptions and limitation on itemized deductions.
Section 13 adopts federal changes to federal adjusted gross income (FAGI) made between April 14, 2011, and December 20, 2013 for purposes of calculating individual alternative minimum tax (AMT) and withholding. FAGI is the starting point for calculating household income used to compute the dependent care and K-12 education credit.
Section 14 updates cross references to changes made in other sections.
Section 15 adds identifying letters at the start of the last three paragraphs of the subdivision.
Section 16 updates a cross reference in the definition of household income, clarifies the addition to household income for tuition expenses deducted at the federal level, and strikes an obsolete provision for unemployment benefits, for purposes of the dependent care credit.
Section 17 adds a new definition for purposes of increases to the eligible expense limit and credit rate for the Minnesota dependent care credit. Increases would be effective beginning in tax year 2014.
Section 18 increases the income level at which the credit beings to phase out for married joint filers by $5,000 in tax years 2013 to 2017, with the $5,000 amount indexed for inflation from 2009. Increases the income level at which the credit begins to phase out for married joint filers by $3,000 in tax year 2018 and following years, with the $3,000 amount indexed for inflation from 2008. This will match the working family credit phaseout to the federal earned income tax credit phaseout for 2013 and later years.
Increases the working family credit beginning in tax year 2014 by increasing the percentage of income used to calculate the credit for all taxpayers and removing the two-tier calculation under current law for taxpayers with children. For each category of taxpayers (no qualifying children; one qualifying child; or two or more qualifying children), the credit equals a percentage of a first dollar amount of income provided under the bill. The credit would then be reduced by a percentage amount for income in excess of stated amounts.
Section 19 provides indexing for inflation for the increase in the working family credit.
Section 20 updates cross references to changes made in other sections for purposes of calculating earned income.
Section 21 updates cross references to changes made in other sections for purposes of calculating AMT.
Section 22 updates the reference to the Internal Revenue Code in the property tax refund chapter.
Section 23 prohibits the commissioner from assessing tax or reducing refunds of individual taxpayers who correctly computed their tax or refund using the version of the Code in effect before the enactment of this article. This section is effective the day following final enactment.
Article 2: Sales and Use Taxes
Section 1 repeals the sales tax on repairing and maintaining electronic and precision equipment, and commercial and industrial machinery and equipment, and on warehousing and storage services. Effective for sales and purchases made after March 31, 2014.
Section 2 inserts a cross reference in the sales tax exemption for capital equipment to telecommunications equipment, the exemption for which is reinstated in section 3. Effective for sales and purchases made after March 31, 2014.
Section 3 reinstates the sales tax exemption for telecommunications equipment. Effective for sales and purchases made after March 31, 2014.
Section 4 amends the effective date in Laws 2013 providing an upfront sales tax exemption for purchases of capital equipment to make the upfront exemption effective for sales and purchases after June 30, 2015. Sales tax on qualifying capital equipment purchases would continue to be paid upfront and then refunded as under current law.
Section 5 repeals the definition of "self-storage service." This definition is no longer necessary given the repeal of the sales tax on storage and warehousing services. Effective for sales and purchases made after March 31, 2014.
Article 3: Estate and Gift Tax
Section 1 requires filing of a tax return if the sum of the federal adjusted taxable estate and federal adjusted taxable gifts are made during the year exceeds $1,200,000, $2,000,000, $3,000,000, $4,000,000, and $5,000,000 for estates of decedents dying in 2014, 2015, 2016, 2017, and 2018 and thereafter, respectively.
Section 2 removes obsolete language from the estate tax filing due date requirement.
Section 3 removes language no longer necessary with stand-alone rates. Clarifies the situs rules. Removes language allowing an exclusion for qualified small business and farm property. This language is moved and clarified in a later section.
Section 4 provides the new estate tax base necessary for a stand-alone rate structure. The estate tax base is the sum of the following:
Federal taxable estate; state death tax deduction; foreign death tax deduction; aggregate taxable gifts as defined in section 2053 of the Internal Revenue code made within a three-year period before death, and for qualified farm and small business property, the difference between $5,000,000 and the current year exclusion amount.
Section 5 removes language for computing the estate tax under current law. Under this proposal, the estate tax is computed by applying a schedule of rates to the applicable Minnesota taxable estate.
This section creates stand-alone tax rates and brackets. Paragraphs (a) to (e) are the brackets associated with each year of a phased-in exclusion, up to $5,000,000, for decedents dying in 2018 and thereafter. The tax rates range from ten to 18 percent.
Section 6 allows, for purposes of computing the Minnesota taxable estate, a deduction for the value of qualified terminable interest property (QTIP), regardless of whether the decedent’s estate elects to use the QTIP deduction for federal estate tax. Requires a federal QTIP election when a federal estate tax return is required.
Section 7 repeals language currently in another section of the estate tax chapter that is repealed in a later section.
Section 8 repeals the following provisions:
The gift tax sections of law retroactively for gifts made after June 30, 2013;
Obsolete language regarding the 2010 QTIP election;
Nonresident decedent tax credit provision contained under the current law section pertaining to estate tax rates. This language was moved to a new section of law in the draft; and
Obsolete provisions pertaining to arbitration of disputes between states over their jurisdiction to impose estate or inheritance taxes on a decedent's estate which have never been used.
Article 4: Property Taxes
Sections 1 and 3 corrects cross references to local optional revenue changes made in Section 2.
Section 2 renames the existing ‘location equity revenue’ the ‘local optional revenue’ and makes all school districts eligible for the $424 per pupil location optional revenue allowance and provides that a district may levy less than the permitted maximum.
Section 4 makes technical changes to the location equity revenue subtraction from referendum revenue. Provides that, for a district with more than one referendum allowance expiring in the same year, the location equity revenue subtraction must be made first from any allowances that do not have an inflation adjustment approved by the voters.
Section 5 clarifies that changes made in the 2013 Omnibus Tax Bill relating to property tax valuation reductions only apply to easements or restrictions entered into after May 23, 2013. A statutory reference is also stricken to ensure that this provision applies to all restrictions or easements for conservation purposes.
Section 6 provides for an additional $3 million of county program aid to Beltrami County for aids payable in 2015 through 2024 only, and an additional $1.5 million to Mahnomen County for aids payable in 2015 only. Of the amount paid to Mahnomen County, $750,000 shall be paid to the White Earth Band of Ojibwe for transition costs associated with health and human services. The corresponding appropriations are also updated to include the increased aid payments.
Article 5: Public Finance
Section 1 extends, by ten years, the authority for the State Agricultural Society to issue bonds, other than bonds to refund outstanding bonds.
Section 2 authorizes the Metropolitan Council to issue regional transit capital debt up to $75,300.000. Of this amount, $37,000,000 may be issued after July 1, 2014 and $38,300,000 may be issued after July 1, 2015.
Section 3 authorizes Itasca County to issue both revenue and general obligation bonds to finance the construction of a nursing home facility.
Section 4 extends, by two years, the authority for the city of Detroit Lakes to approve a tax increment financing district.
Section 5 allows the city of St. Paul to use tax increment from a 2008 TIF district to pay principal and interest on bond obligations issued in 2009 for the RiverCentre arena.
Article 6: Miscellaneous Provisions
Section 1 strikes references to previous transfers to the budget reserve and creates a new requirement for the Commissioner of Management and Budget to calculate a budget reserve level, to be determined by multiplying the current biennium’s general fund nondedicated revenues by the amount of the most recent budget reserve percentage determined under the new procedure provided. Paragraph (b) specifies that after a November positive unrestricted general fund balance (a forecast surplus) has been allocated to the statutory priorities already expressed in law, 33 percent of any additional amount shall be transferred to the budget reserve account in the general fund to the extent necessary to increase the to the budget reserve level calculated under the new procedure established in this section.
Section 2 amends existing law to increase the use of a forecast budget surplus (without additional legislative action) to increase the budget reserve from the limit on the use of the surplus of $653,000,000 currently in law up to $810,922,000. Also strikes an obsolete requirement to restore previous transfers from the state airports fund.
Section 3 changes the method used to calculate the adequacy of the budget reserve and directs the Commissioner of Management and Budget to annually prepare a methodology to evaluate the adequacy of the reserve based on Minnesota’s general fund tax structure. The changes in this section will require the commissioner to apply the methodology to the current biennium’s general fund nondedicated revenues to determine the recommended budget reserve. This section also requires the Commissioner of Management and Budget to provide a report to legislative chairs regarding the recommended budget reserve, including a description of factors underlying the recommendation.
Section 4 provides that if insufficient funds exist in the Iron Range school consolidation and cooperatively operated school account to make payments as authorized, the Iron Range Resources and Rehabilitation Board may receive up to 25% of the distribution levy under the Iron Range fiscal disparities program.
Section 5 factors into the apportionment of the areawide levy the school fund allocation, if certified by the Iron Range Resources and Rehabilitation Board.
Section 6 requires the administrative auditor to include the school fund allocation upon determining the areawide tax rate.
Section 7 provides for the payment of the school fund allocation from the fiscal disparities levy to the Iron Range Resources and Rehabilitation Board.
Section 8 annually appropriates, from the occupation tax distribution that is deposited into the general fund, an amount equal to that which would have been generated by six cents tax of the production tax.
Section 9 reduces, by five cents, the aid guarantee for the allocation of the production tax to the counties.
Sections 10 and 12 freezes the inflationary index to reflect changes made in section 15.
Section 11 reduces by five cents the allocation of the taconite production tax that is allocated to counties.
Section 13 creates a school account that receives a ten cent distribution of the production tax and the distribution of the occupation tax and the inflation adjustment for the production tax. The IRRRB is authorized to use funds in the account only to assist school districts within the taconite relief area with the repayment of bonds issued for qualified school projects. All expenditures must be approved by seven members of the IRRRB
Section 14 reduces, by five cents, the allocation of the taconite production tax that is allocated to the taconite economic development fund.
Section 15 captures and reallocates the proceeds attributable to the increase in the implicit price deflator to the new school account created in section 13.
Section 16 requires a onetime transfer of $150,000,000 to the budget reserve in the general fund on July 1, 2014.
Section 17 appropriates $1,000,000 for fiscal years 2014 and 2015 from the general fund to the commissioner of revenue for costs associated with administering this act. This is a onetime appropriated and does not renew or become part of the base budget.