Senate Counsel, Research
and Fiscal Analysis
G-17 State Capitol
75 Rev. Dr. Martin Luther King Jr. Blvd.
St. Paul, MN 55155-1606
(651) 296-4791
Fax: (651) 296-7747
Tom Bottern
Director
   Senate   
State of Minnesota
 
 
 
 
 
H.F. No. 42 - Omnibus Tax Bill (the Conference Committee Report)
 
Author: Senator Julianne E. Ortman
 
Prepared By: Nora B. Pollock, Senate Counsel (651/297-8066)
Jack Paulson, Senate Analyst (651/296-4954)
 
Date: May 17, 2011



 
ARTICLE 1
INCOME AND ESTATE TAX
 
 Section 1 [Information sharing authorization for reciprocity] authorizes the Commissioner of Revenue to share data with the Wisconsin Secretary of Revenue for purposes of conducting the Income Tax Reciprocity Benchmark Study authorized in Section 16.
 
Section 2 [Subtractions from taxable income; contributions of food inventory and military retirement pay] allows an ongoing deduction for contributions of food inventory by S corporations, partnerships, and sole proprietors following the rules that apply permanently to C corporations under the federal and Minnesota taxes and that apply temporarily (through tax year 2011) to businesses taxed under the federal individual income tax. The deduction is effective for tax years 2011 and after.  Section 2 also provides an income tax subtraction beginning in tax year 2013 for 55 percent of military retirement pay.  Subtractions for the food inventory contribution and military retirement pay deduction in the calculation of income subject to the alternative minimum tax are included in section 7. 
 
Section 3 [Nonresident ratio] adds references to the food inventory contribution and military retirement pay subtractions for purposes of the apportionment formula for Minnesota sourced and federal adjusted gross income.
 
Section 4 [Income tax tuition payment credit] adds tuition payments to the list of eligible expenses for which Minnesota taxpayers may claim a credit, effective tax years 2013 and after.  The credit equals 75 percent of qualifying expenses, up to a maximum of $1,000 per child in grades K-12, and phases out when income reaches $33,500.
 
Section 5 [Research credit] increases each of the rates of the research credit by 2.2 percentage points to 4.7 percent for excess qualifying research expenses over $2 million, effective tax year 2014.  Under current law, the research credit equals ten percent of the first $2 million of qualifying research and 2.5 percent of the excess over $2 million. 
 
Section 6 [Income tax reciprocity agreement requirements] Subdivision 1 eliminates the Commissioner of Revenue’s authority to terminate a reciprocity agreement with Wisconsin, and specifies that any reciprocity agreement with Wisconsin must require estimated payments of net revenue loss to be made from Wisconsin to Minnesota in the same fiscal year in which the loss occurred, with a final payment with interest made in the next fiscal year.  This subdivision is effective when a new agreement with Wisconsin is reached.
 
Subdivision 2, effective following final enactment,directs the commissioner to initiate negotiations with Wisconsin for purposes of entering into a new reciprocity agreement that would be effective for tax year 2012.  It provides that the commissioner may not enter into a new agreement with Wisconsin until Wisconsin has paid any amounts due, with interest, under the terms of the agreement in effect before tax year 2010.
 
Section 7 [Alternative minimum tax; individuals] provides a subtraction from alternative minimum taxable income for amounts deducted for contributions of food inventory and military retirement pay adopted in section 2.
 
Section 8 [Single sales apportionment] provides that, effective tax year 2012, the Minnesota share of corporate franchise tax for a multistate corporation will be determined solely based on percentage of the corporation's Minnesota sales to its total sales. 
 
Section 9 [Financial institution single sales apportionment] similar to Section 8, provides that the Minnesota share of corporate franchise tax for financial institutions will be determined solely based on percentage of the corporation's Minnesota receipts to its total receipts, effective tax year 2012.
 
Sections 10 to 15 [Qualified farm and small business property estate tax exclusion] allows for a subtraction of the combined value of qualified farm property and qualified small business property from the federal adjusted taxable estate for determining the Minnesota adjusted taxable estate.  The combined value may not exceed $4,000,000.  The qualified property must be included in the federal adjusted taxable estate, the decedent must have owned the property for three years immediately preceding death, and a family member must use the property for the qualified farm or small business purpose for the three years immediately after the decedent’s death.  In the case of a business, its most recent gross annual sales may not have exceeded $10,000,000.  Qualified family members must agree in writing to pay a recapture tax if the family member disposes of an interest in the property to someone other than a family member, or the property is not used as a qualified farm or small business property.  The recapture tax equals 16 percent of the amount of the exclusion claimed by the estate.  These sections are effective for tax years 2011 and after. 
 
Section 16 [Income tax reciprocity benchmark study] requires the Department of Revenue, together with the Wisconsin Department of Revenue, to conduct a study on various income reciprocity issues based on each state’s 2011 income tax returns and other necessary sources, and submit a report on the study by March 1, 2013.  The study must determine:  (1) the number of residents in each state earning income in the other state; (2) the income earned by residents of one state who work in the other state; and (3) the change in tax revenue for each state if taxpayers were required to pay income taxes only in their state of residence under a resumed reciprocity arrangement.
 
Section 17 [Estate tax study] requires the Department of Revenue to conduct a study on the various elements of Minnesota estate tax and submit a report on the study by February 1, 2012.   The study must include an analysis of:  (1) the Minnesota estate tax;, and (2) implications of federal estate tax changes such as repeal of the federal credit for state death taxes, increase in federal exclusion about, and portability of the federal exclusion; (3) considerations of revenue neutral alternatives to the estate tax such as inheritance or complementary gift taxes, or imposing an income tax on bequests; and (4) effects of current and alternate tax structures in Minnesota on residents’ domicile decisions. 
 
Section 18 [Appropriations] appropriates $291,000 in fiscal year 2012 and $314,000 in fiscal year 2013 to cover administrative costs of conducting the income tax reciprocity benchmark study described in Section 16. 
 
ARTICLE 2
FEDERAL UPDATE
 
Section 1 [Update of administrative tax provisions] adopts federal tax administrative provisions made between March 18, 2010, and December 17, 2010, that Minnesota references for state tax administration purposes for tax year 2011 and following years. This section is effective the day following final enactment.
Section 2 [Update to federal definition of taxable income] adopts all of the federal changes to taxable income effective when the federal changes became effective with the following exceptions:
•  Extension of 50 percent bonus depreciation for tax years 2011 to 2013, with temporary 100 percent bonus depreciation for property placed in service after September 8, 2010, and before January 1, 2012.  Minnesota would retain its current law requirement that taxpayers add-back to taxable income 80 percent of the additional depreciation amount in the first tax year and subtract one-fifth of the amount added back in each of the five following tax years.
•  Extension of the elimination of the limitation on itemized deductions and the phaseout of personal and dependent exemptions to tax years 2011 and 2012. Minnesota would require taxpayers to add the amounts phased out and limited under prior federal law to taxable income in section 3.
•  Extension of the exclusion for employer-provided education assistance to tax years 2011 and 2012.  Minnesota would require taxpayers to add the amounts excluded at the federal level to taxable income in section 3.
• Increase of the section 179 expensing amount and phase-out threshold for tax years 2011 and 2012. Minnesota would retain its current law requirement that taxpayers add back to taxable income 80 percent of the expensing amount in the first tax year and subtract one-fifth of the amount added back in each of the five following tax years.
Section 3 [Additions to federal taxable income (FTI) for individuals] conforms Minnesota's income tax to federal deductions for teacher classroom expenses and higher education tuition deductions by restricting the addition to taxable income for these items to tax years before 2010. Requires new additions starting tax year 2011 for the amount of limited itemized deductions and personal and dependent exemptions that would be phased out had the two-year extension to these elements of the federal Economic Growth and Tax Relief Reconciliation Act (EGTRRA) of 2001 not been enacted and for the amount of employer-provided education assistance.  Also limits the addition for subsidies received by companies that provide retiree drug benefits to tax years before 2013.
Section 4 [Additions to taxable income for corporations] conforms Minnesota's income tax to the enhanced federal deduction for the donation of computer equipment by restricting the addition to taxable income for these items to tax years before 2010.  Also limits the addition for subsidies received by companies that provide retiree drug benefits to tax years before 2013.  This section is effective tax year 2011.
Section 5 [Internal Revenue Code] adopts federal changes to federal adjusted gross income (FAGI) made between March 18, 2010, and December 17, 2010.  Federal adjusted gross income is used for computing individual alternative minimum tax, determining withholding, and is the starting point for calculating household income, which is used to compute the dependent care and K-12 education credit.  The main changes to federal adjusted gross income are described in section 2.  Also ties references to foreign source income to the Internal Revenue Code as amended through March 18, 2010.  These references are used in the foreign operating corporation and foreign royalty provisions.  
Section 6 [Nonresident ratio] modifies the calculation of the ratio used to apportion the tax of nonresidents and part-year residents to include the addition of employer-provided educational assistance to taxable income.
Section 7 [Update of references to Internal Revenue Code property tax refund chapter] adopts the federal changes that affect household income, which uses the definition of federal adjusted gross income as a starting point.  This section is effective for property tax refunds based on property taxes payable for tax year 2012 and after, and rent paid for tax year 2011 and after.
Section 8 [Estate tax] adopts federal changes in the Internal Revenue Code that affect the estate tax chapter.  
 

ARTICLE 3

SALES AND USE TAXES

 

Section 1 [Sales and use tax accelerated remittance schedule elimination] eliminates the accelerated remittance schedules for vendors with annual sales tax collections of at least $120,000 for all months except for June payments.  Effective for all payments due after July 1, 2011.

Section 2 [Ring tone sales tax exemption] exempts the purchase of ring tones from sales and use tax, effective July 1, 2011. 
 
Sections 3 and 4 [Transitional period for services; sales and use tax] states that a sales and use tax rate increase is effective beginning with the first billing period for taxable services starting after the date of the rate change.  For a rate decrease, the new rate will apply to bills mailed on or after the date of the rate change.  This reflects current administrative practice and is effective the day after final enactment.
 
Section 5 [Advertising and promotional material] defines advertising and promotional direct mail and continues to apply the current sourcing rules and removes obsolete references to direct pay permits, since these are now one type of exemption certificate rather than a separate permit.  This section is effective for sales after June 30, 2011.
 
Section 6 [Other direct mail sourcing rules] defines “other direct mail” and simplifies the sourcing rules for this item.  Under current law, if the purchaser does not provide an exemption certificate or direct pay permit, the seller must source the mail based on each mailing address.  The changes will allow the mail to be sourced to the address of the purchaser instead.  Also removes obsolete references to direct pay permits, since these are now one type of exemption certificate rather than a separate permit.  Effective for sales after June 30, 2011.
 
Section 7 [Resold admission tickets] allows sellers of resold admission tickets to claim a refund or provide a credit to the purchaser of resold tickets for sales tax paid on the original ticket.  The ticket reseller’s credit is the value of the tax paid at the time of the original ticket sale or the tax charged by the reseller, whichever is less.  The ticket reseller must charge sales tax on the full value of the ticket resale if tax was not paid on the original ticket sale.  This section is effective for sales after June 30, 2011.
 
Section 8 [Scope] makes a technical change to current law by adding “units of local government” to the list of organizations eligible for a sales tax exemption. 
 
Section 9 [Local sales tax exemption for townships] exempts townships from sales tax and provides that goods and services purchased by a township that are usually provided by a private business are taxable if a private business engages in that same activity. Effective for sales and purchases after June 30, 2011. 
 
Section 10 [Sales of goods and services to local governments] expands the sales tax exemption for certain goods and services to local governments to include water used directly in providing fire protection by a fire department, fire protection district, or fire company providing services to the state or a political subdivision.  The exemption is retroactive for sales and purchases made after June 30, 2007; however, no refunds will be made for taxes already paid on water purchased before January 30, 2010. 
 
This section also eliminates a sales tax exemption for towns for gravel, machinery and equipment used for road and bridge maintenance, since these purchases would be exempt under the exemption in section 9.  This exemption is effective for purchases made after June 30, 2011.  
 
Sections 11 to 14 [Public safety radio exemption] provides a sales tax exemption for sales and purchases of public safety radio communication systems products and services effective July 1, 2013.  Qualifying sales and purchases after December 31, 2009, and before July 1, 2013 that did not receive a sales tax exemption are eligible for a refund, for which purchasers may apply after July 1, 2013. 
 
Section 15 [Aircraft and equipment exemption] provides a sales tax exemption, effective after June 30, 2011, for the sale or purchase of aircraft with a maximum certified takeoff weight of 6,000 lbs. or more, as well as parts necessary to repair and maintain that equipment.   
 
Section 16 [Repealer] repeals the penalties and safe harbor provisions that applied to the accelerate remittance schedules eliminated in section 1.
 
ARTICLE 4
ECONOMIC DEVELOPMENT
 
Sections 1 to 10 establish a dedicated Minnesota Science and Technology Program and Fund.  The Minnesota Science and Technology Authority will establish and operate the following programs:
 
  • a commercialized research program, which provides funding under established criteria up to $250,000 per project to assist in transferring science and technology projects from universities and nonprofit research institutions to commercial uses, or to assist projects developed directly by a qualified science and technology company;
  • a federal research and development support program to coordinate procurement of federal science and technology research funding, including developing and providing matching funds for Small Business Innovation and Small Business Technology Transfer projects; and
  • an industry technology and competitiveness program to advance the capacity and competitiveness of new and current industries, including funding qualified entrepreneurial and targeted industry cluster efforts and retaining science-based occupations in Minnesota.
The authority may make awards in the form of grants or loans, and may charge interest or take an equity position or another form of security interest.
 
The authority is required to give priority to qualified science and technology businesses that have "demonstrable economic benefits to the state" by creating jobs, attracting federal money, or creating new businesses.
 
In making grants to colleges, universities, and nonprofit research organizations, the authority is to give priority to proposals that:
 
  • promote collaboration with private businesses;
  • attract new research entities, talent, or resources to Minnesota; or
  • attract significant researchers and resources from outside of Minnesota. 
 
Awards not used for the intended purpose must be repaid to the fund.  The bill also requires repayment to the fund in case the recipient relocates outside Minnesota or ceases operation in the state.  If a recipient relocates within three years, 100 percent of the award must be repaid; if relocation occurs after three years, but before four years, 75 percent must be repaid.  The program expires on June 30, 2018.  Any remaining funds are returned to the general fund.
 
Section 11 modifies a provision that was part of the 2010 Jobs bill by extending the date under which it would be operative.  Current law provides that tax increments from an economic development district may be used to provide loans or other subsidies or assistance to a development consisting of buildings and ancillary facilities if the municipality finds that the project will create or retain jobs in this state, including construction jobs, and that construction of the project would not have commenced before July 1, 2011, unless the authority provided the assistance.  The 2011 date is extended to 2012, except for housing projects, which are extended to January 1, 2012, but only if they are not income-restricted.
 
Section 12 extends for one year, from July 1, 2011, to July 1, 2012, a deadline for action that was included in a provision of the Jobs bill that was enacted by the legislature in 2010.  This provision authorizes expenditures of tax increments, not subject to other restrictions in the tax increment financing law, for the purpose of providing improvements, loans, interest rate subsidies, or assistance to private development for construction or substantial rehabilitation of buildings and related facilities if that project would create or retain jobs in the state, including construction jobs.  The law also authorized expenditures of increments to make an investment in a business that the authority determines is necessary to make that type of construction feasible.  The 2010 law required that the construction must begin before July 1, 2011.  The bill would extend that construction period to July 1, 2012, except for housing projects.  Market-rate housing projects would have a six-month extension; income-restricted housing gets no extension.
 
Section 13 modifies the special pooling rules for housing projects.  Under present law, an additional ten percent of increment from a district may be used outside of the area of the district from which it was collected for income-restricted housing.  This section expands the use of that ten percent of increment to include funding of certain costs related to developing market-rate housing.
 
This allows use for development of owner-occupied housing with a value of up to 150 percent of the average market value of housing in the city, but not to exceed $200,000 in the seven-county metropolitan area or $125,000 elsewhere in the state.
 
The money could be used to acquire the houses, demolish or relocate them, rehab them, do site preparation, or pollution cleanup.  To qualify, the sites or housing must be a one to four-unit dwelling that has been vacant for at least six months and be in foreclosure after the redemption period has expired.
 
This authority terminates December 31, 2016, but can be used to continue paying outstanding bonds that were issued before that date or costs incurred under contracts binding by that date.
 
Section 14 modifies the 2010 law enacted for a tax increment financing district in the city of Ramsey.  It corrects the boundary description of the district.  It expands the purposes for which increments may be expended, exempts the district from the requirement that 90 percent of redevelopment district increments be spent to correct blight, and the requirement that two parcels for which building permits had been obtained before the district was created would be eliminated from the district. 
 
Section 15 authorizes the authority that operates two specified tax increment financing districts in the city of Cohasset to transfer tax increments from each of those districts to the city in an amount equal to the advances that the city made from its general fund to finance expenditures that are authorized for expenditures of tax increments under the law for the benefit of that district.

Section 16 authorizes the city of Lino Lakes to collect tax increments from a specific tax increment financing district in the city through December 31, 2023, notwithstanding the limit on the duration of districts.  The tax increments that would be collected under this extension are required to be used only to pay debt service on bonds issued to finance a specific interchange in the city of Lino Lakes or bonds issued to finance public improvements serving a development known as Legacy at Woods Edge, and bonds issued to refund either of those bonds.  The provisions of general tax increment financing law that provide restrictions on the use of revenue from an economic development district and that prohibit the pooling of tax increments outside of the tax increment district, would not apply to these expenditures.

Section 17 allows the city of Taylors Falls to designate all or a part of the city as a border city development zone.  The city would receive an allocation of up to $100,000, which could be used for tax reductions for businesses in the border city development zone.  This would occur only if the governing body of the city of Taylors Falls determines that the tax reduction or offset is necessary to enable a business to expand within the city or to attract a business to the city.  Current law provides border city development zone powers to the cities of Breckenridge, Dilworth, East Grand Forks, Moorhead, and Ortonville.  The development zone that may be designated by the city for Taylors Falls would be subject to the same provisions that apply to those cities.  Before designating a development zone, the city must adopt a written development plan that addresses specific funding.  A business operating within a border city development zone may qualify for a property tax exemption, a corporate franchise tax credit, and a sales tax exemption.  Qualified property to which a property tax exemption would apply must be newly constructed after the zone was designated, but would then include the land that contains the improvements.  The exemption is available only if the municipality determines that granting it is necesaary to enable a business to expand within a zone or to attract a business to a zone.  Businesses may be eligible for an exemption from the sales tax on machinery, equipment, and repair parts, and on construction materials that may be used to construct either a business facility or housing located in a zone.  A credit against the corporate franchise tax for wages paid by new industries located in the zone is also available.  The $100,000 allocation may be used either as a source of the credit on the state-paid taxes or to reimburse the city or county or both for property tax reductions due to the exemption provided to property within the zone.  The duration of the zone designation is limited to 15 years.

Section 18 appropriates $500,000 to the Minnesota Science and Technology fund for fiscal year 2012, with any unspent money to carry over to fiscal year 2013.

 
ARTICLE 5
LOCAL SALES TAXES
 
Section 1 [Local sales tax authorization] strikes language that prohibited political subdivisions from adopting new local sales tax provisions until after May 31, 2010.  Since that date has passed, the paragraph is no longer needed.  Section 1 also adds language prohibiting a local government from spending money to promote a local sales tax referendum, except for funds spent to conduct the vote.  This prohibition applies to all referenda on local sales taxes, including those contained in Article 5.  This section is effective the day following final enactment.
 
Section 2 [Local sales tax authorization] requires voter approval of a local option sales tax before the sales tax may be authorized by the legislature, and is effective the day following final enactment.
 
Section 3 [Limit on deposits to reserve fund; Hennepin county ballpark tax] imposes a limit on the amount of reserves that may be maintained for the baseball park equal to (1) the net present value of all its obligations to fund the ball park authority operating costs, youth sports, extension of library hours, and required capital improvements for a thirty year period starting from when the first bonds were issued, minus (2) the amount of these obligations already paid.  Effective the day following final enactment.
 
Section 4 [Hermantown local sales tax] authorizes the city of Hermantown to impose an additional one-half of one percent local sales tax to pay for the costs of extending a sewer interceptor line; constructing a booster pump station, reservoirs, and related improvements to the water system; and constructing a building to house a police and fire station and an administrative services facility, if approved by referendum at a general election before December 31, 2012.  Hermantown is authorized to impose up to a one percent local sales tax to fund these projects, but currently imposes a one-half of one percent sales tax.
 
Sections 5 and 6 [Rochester expansion of local sales tax revenues; bonding authority] authorizes the city of Rochester to use its existing sales and use tax revenues for the following additional projects:  (1) $47 million for transportation infrastructure improvements, except railroad bypasses that would divert rail traffic from the city; (2) $26.5 million for higher education facilities; (3) $20 million for the Destination Medical Community initiative; (4) $8 million for construction of regional public safety facilities; (5) $20 million for a regional recreation/senior center; (6) $10 million for an economic development fund; and (7) $8 million for downtown infrastructure.  Five million dollars of the $10 million allocated for the economic development fund must be used for development grants to the following communities:  Byron, Chatfield, Dodge Center, Dover, Elgin, Eyota, Kasson, Mantorville, Oronoco, Pine Island, Plainview, St. Charles, Stewartville, Zumbrota, Spring Valley, West Concord, and Hayfield.
 
Both the sales and use tax applications and associated capital expenditure and bond financing must be approved by city voters in the 2012 general election.  If the extension appears on the 2012 ballot, sales and use tax applications currently authorized may be collected until December 31, 2012.  The aggregate principal of all bonds issued for the purposes in this section may not exceed $139.5 million plus issuance costs.  The extension would be effective until the Rochester City Council determines that $139.5 million has been received to finance the projects and pay the balance on any bonds issued.  Remaining funds may be placed in city’s general fund.
 
Section 8 [Clearwater modification of existing local sales tax revenues] extends voter-approved uses of a one-half of one percent sales and use tax for purposes of acquiring, constructing, and improving regional parks, bicycle trails, park land, open space, and pedestrian walkways.
 
Section 9 [Marshall local special sales tax deadline extension] extends the date by which the city of Marshall must seek voter approval of local lodging and food and beverage taxes authorized in the 2010 tax bill, allowing the city to hold this vote with the vote on its local sales tax authorized in section 14.
 
Section 10 [Cloquet local sales and use tax authorization] allows the city to impose a local sales tax of up to 1/2 of one percent, subject to approval at a general election.  The imposition and administration of the tax is subject to the provisions in Minnesota Statutes, section 297A.99.  The city may also impose a flat $20/vehicle tax on motor vehicles sold by dealers located in the city.  Revenues from the taxes must be used to pay the costs of administration and to pay for the following projects:  $4.5 million for the improvements to the Veteran's Park, a soccer complex, baseball complex, hockey arena, recreation center, and pedestrian trails throughout the city; $5.8 million for extension of utilities and other improvements related to property development adjacent to Highway 33 and Interstate 35; and $6.2 million for engineering and construction of infrastructure improvements identified in the city's comprehensive land use plan.
 
The city may issue up to $16.5 million in bonds for the projects listed based on the voter approval of the sales tax imposition.  No separate vote is required for issuing the bonds and the bonds are not included in any debt or levy limit on the city.  The taxes expire at the earlier of (1) 30 years; or (2) when the revenues collected are sufficient to pay for the projects and retire any associated bonds and bond costs.  Because of the timing requirements for termination, any excess revenues will be deposited in the city general fund.  The city may choose to end the taxes at an earlier date.
 
Section 11 [Fergus Falls local sales and use tax authorization] allows the city to impose a local sales tax of one-half of one percent to finance a regional ice arena, as approved by the voters at the 2010 general election.  The city may use up to $6.6 million in revenues from the taxes to pay the costs of administration and to pay for the acquisition and betterment of a regional ice center facility, including associated bond costs.  Allowed costs include furnishing and equipment costs as well as acquisition, design, and construction costs, and associated bond costs.  The tax expires when the revenues collected are sufficient to pay for the project and retire any associated bonds and bond costs. Because of the timing requirements for termination, any excess revenues will be deposited in the city general fund.  The city may choose to end the taxes at an earlier date.
 
Section 12 [Hutchinson local sales and use tax authorization] allows the city to impose a local sales tax of one-half of one percent to pay for its wastewater treatment facility, as approved by the voters at the 2010 general election. Allows the city to impose a complementary flat $20 per vehicle tax on motor vehicles sold by dealers located in the city.
 
Revenues from the taxes must be used to pay the costs of administration and to pay for the construction and renovation of the city's wastewater treatment facility, including construction, engineering, and associated bond costs.  The taxes end at the earlier of (1) 18 years; or (2) when revenues raised are sufficient to pay for the project, including all associated bond costs.  Because of the timing requirements for termination, any excess revenues will be deposited in the city general fund. The city may choose to end the taxes at an earlier date.
 
Section 13 [Lanesboro local sales and use tax authorization] allows the city to impose a one-half of one percent sales tax in the city, as approved by the voters at the 2010 general election, for the following projects: street and utility improvements along a number of specified streets; street lighting on State Highways 250 and 16; wastewater treatment facility improvements; utility improvements to the Lanesboro High Hazard Dam; and improvements to the community center, library, and city hall.  The city may issue up to $800,000 in bonds for these projects.  Total improvements are limited to $800,000 and associated bond costs.  The tax ends when revenues raised are sufficient to pay for the projects, including all associated bond costs.  Because of the timing requirements for termination, any excess revenues will be deposited in the city general fund.  The city may choose to end the taxes at an earlier date.
 
Section 14 [Marshall local sales and use tax authorization] allows the city to impose a one-half of one percent sales tax in the city of Marshall, if approved by voters at a general election held in the next two years.  The city is required to present separate ballot questions for each of the following two authorized projects:  new and existing facilities of the Minnesota Emergency Response and Industry Training Center; and new facilities of the Southwest Minnesota Regional Amateur Sports Center. The city may issue up to $17.29 million in bonds for these projects based on the voter approval of the sales tax imposition, and the bonds are not included in any debt or levy limit on the city.  The tax ends at the earlier of (1) 15 years; or (2) when revenues raised are sufficient to pay for the projects, including all associated bond costs.  Because of the timing requirements for termination, any excess revenues will be deposited in the city general fund.  The city may choose to end the taxes at an earlier date.
 
Section 15 [Medford local sales and use tax authorization] allows the city to impose a one-half of one percent sales tax to repay Minnesota Public Facility Authority Loans, if approved by the voters at the next general election.  The loans were used to finance $4.2 million of improvements to the city's water and wastewater systems.  The local sales tax ends at the earlier of (1) 20 years; or (2) when revenues raised are sufficient to repay the loans, including interest.  Because of the timing requirements for termination, any excess revenues will be deposited in the city general fund.  The city may choose to end the taxes at an earlier date.
 

ARTICLE 6

PROPERTY TAXES

Section 1 [Referendum market value] technical change in the definition of referendum market value to accommodate the cleanup of class 4c language in section 6.

Section 2 [Economic development; public purpose] modifies the holding period that applies to the property tax exemption for property that is held by a political subdivision of the state for later resale for economic development purposes.  Under current law, property will be exempt for up to eight years, except that a property that is located in a city of 5,000 or less population, and outside of the metropolitan area, the period is extended to 15 years.  This section extends the eight-year holding period to ten years.
 
Section 3 [Electric generation facility; personal property] provides an exemption from the property tax for personal property located at an electric generation facility that meets the following criteria:
 
  • it must be designed to utilize natural gas as a primary fuel;
  • it must be owned and operated by a municipal power agency;
  • it must be located within one mile of existing natural gas pipeline;
  • it must be designed to have black-start capability to furnish emergency backup power service to the city in which it is located; and
  • it must satisfy a resource deficiency identified in an approved integrated resource plan.
             The governing bodies of the city and county in which the facility is located must approve the exemption. Construction of the facility must begin after December 31, 2011, and before January 1, 2015.
 
Section 4 [Appeal] provides that if an assessor denies an application for Green Acres treatment, the applicant may appeal the decision to the Local Board of Appeal and Equalization.
 
Section 5 [Valuation notice] provides that the notice of valuation must clearly state when a property’s classification has changed between the current and prior assessment. Also deletes obsolete language. 
 
Section 6 [Class 4] provides a reduced property tax classification (4c) for commercial properties consisting of not more than 20 rental units used for less than 250 days a year, located in a city or town with a population under 2,500 outside the metropolitan area, provided that a state trail passes through the city or town.  Class 4c property has a class rate of 1.5 percent, and pays the statewide property tax at the seasonal recreational tax rate rather than the commercial-industrial tax rate.  Also makes a number of technical changes to eliminate redundancies and generally cleanup the 4c classification statute.
 
Section 7 [Disabled veteran homestead] modifies a limitation on the duration of the tax exemption for homesteads of surviving spouses of disabled veterans.  Current law provides an exemption from property taxation for a certain amount of market value of the homestead of a disabled veteran.  If the veteran has a disability rating of 70 percent or more, $150,000 of the market value is excluded, and if the disability is a total and permanent disability, $300,000 of the market value is excluded.  Currently, if the disabled veteran dies, and there is a surviving spouse who also resides in the homestead and retains the title to it, the exclusion continues in effect for the benefit of the veteran’s spouse for one additional assessment year, or until the spouse sells or otherwise disposes of the property, whichever comes first.  This section extends the one-year limitation on the continuation of the benefit for the surviving spouse, so that it would continue to be eligible for the exemption for five additional taxes payable years, or until the surviving spouse remarries or no longer owns and occupies the property.  The surviving spouse of a service member who dies of service-connected causes while serving honorably in active military service is allowed to receive the exclusion for the same five-year period as the surviving spouse of a disabled veteran that dies.  A disabled veteran's primary family caregiver, if one exists, is allowed to receive the market value exclusion if the veteran has no homestead of his or her own.
 
Section 8 [Local boards of review] authorizes, but does not require, local boards of review to take appeals of denials of green acres treatment by assessors.
 
Section 9 [State general levy] reduces the state general levy for commercial-industrial property only by $32.1 million for taxes payable in 2012 and 2013.  Sets the state general levy for both commercial-industrial and seasonal recreational property at approximately the pay 2012 level for payable years 2014 and 2015.  Beginning with taxes payable in 2016, the levy for both types of property is reduced by 10 percent each year, so that it is completely eliminated for taxes payable in 2025 and thereafter.
 
Section 10 [Seasonal recreational tax capacity] technical change in the definition of seasonal recreational tax capacity for the state general levy to accommodate the cleanup of class 4c language in section 6.
 
Section 11 [State general levy apportionment] eliminates the apportionment of the state general levy between commercial-industrial and seasonal-recreational properties.
 
Section 12 [Special levies] provides that the special levy for market value credit reimbursement reductions does not apply to the elimination of the homestead market value homestead credit provided in article 7.  Also provides a special levy for reductions in payment in lieu of tax (PILT) payments for natural resource land from the certified 2011 level, provided that the reduction is at least one percent of the county's levy for taxes payable in 2011.
 
Sections 13 through 15 [Levy limits] extend the current levy limits for another two years - for taxes levied in 2011 and 2012, payable in 2012 and 2013.  Also provides an additional levy limit base adjustment for decertification of tax increment finance (TIF) districts equal to the city tax rate times the captured value of the district in the prior year.
 
Section 16 [Maintenance of effort requirements] provides a suspension of maintenance of effort (MOE) requirements for counties for calendar years 2012 and 2013 provided that the suspension of an MOE does not require the state to spend additional money, or cause the state or county to lose federal funds.  Also exempts cities from the library MOE requirement for 2012 and 2013.  Requires the Commissioner of Management and Budget to post a list of all MOEs that will be suspended under this provision.
 
Section 17 [Repealer] repeals the state general levy for taxes payable in 2025 and thereafter.
 
 ARTICLE 7
AIDS, CREDITS, PAYMENTS, AND REFUNDS
 
Sections 1 and 2. [Sustainable Forest Incentive Act] eliminate references to the Sustainable Forest Incentive Act, which is repealed in section 41.
 
Section 3 [Public hunting areas and game refuges] reduces per acre PILT payments for public hunting land by 12 percent.
 
Section 4 [Goose management croplands] reduces the PILT payment on goose management croplands from 100 percent to 88 percent of the taxes on comparable privately-owned adjacent land.
 
Section 5 [Referendum market value] clarifies that referendum market value is calculated based on the market value prior to the homestead market value exclusion calculated under section 9.
 
Sections 6 and 7 [Cross references] strikes references to the political contribution refund and the sustainable forest incentive act which are repealed in section 41.
 
Section 8 [Managed forest land] replaces a cross-reference to the Sustainable Forest Incentive Act (SFIA) with the SFIA definition of "forest management plan" that is currently used in the qualification for managed forest land.
 
Section 9 [Homestead market value exclusion] converts the homestead market value credit from a credit against the property tax to an exclusion of the homestead’s market value.
 
Sections 10 and 11 [Credit reimbursements] provides that the agricultural market value credit will continue to be a state-paid credit, after the homestead market value credit is converted to a market value exclusion.
 
Section 12 [Computation of net property taxes] eliminates the market value homestead credit from the list of credits to be subtracted in going from a property’s gross tax to its net tax.
 
Section 13 [Disparity reduction aid] eliminates disparity reduction aid for counties and townships beginning with aids payable 2012.  School districts will receive the amount of their 2011 distribution in 2012 and subsequent years.  This section also deletes the recalculation of disparity reduction aid when class rates are reduced.
 
Section 14 [Content of tax statements] adds the homestead market value exclusion to the property tax statement and eliminates the market value homestead credit from the list of credit subtractions on the tax statement.
 
Sections 15 and 16 [Cross references] eliminate references to the political contribution refund, which is repealed in section 41.
 
Sections 17 and 18 [Renter property tax refund] reduce the percent of rent constituting property taxes used in calculating the renter property tax refund from 19 percent to 15 percent permanently beginning with claims based on rent paid in 2010.
 
Section 19 [Homeowner property tax refund] increases the maximum state refund amounts and reduces the percentage paid by claimants at most income levels. 
 
Sections 20 and 21 [Renter property tax refund schedules] reduces the maximum income eligible for senior/disabled renters from $54,370 under current law to $40,000, while the maximum income eligible for nonsenior/nondisabled renters is reduced to $25,000.  The maximum refund is reduced for nonsenior/nondisabled renters from $1,520 to $1,000.
 
Section 22 [Inflation adjustment] the household income levels for the homeowner property tax refund are updated to reflect inflation adjustments through the 2012 filing year.  The inflation adjustment is eliminated for the renter property tax refund. 
 
Section 23 [Alternative process for consolidation] allows an alternative way for counties to begin the process for consolidation by filing a unanimous resolution from each county board with the secretary of state.  Currently they need to have a petition signed by 25 percent of the voters in the last general election from each county in order to start the process.
 
Section 24 [First class city] defines first class cities as of 2009 which are Minneapolis, St. Paul, and Duluth.
 
Section 25 [City net tax capacity] clarifies that the homestead market value exclusion is subtracted in the calculation of city net tax capacity for the purpose of calculating local government aid.  
 
Section 26 [CPA reductions] provides that for 2011 and 2012, County Program Aid distributions are equal to the lesser of the 2011 certified CPA distribution or the 2010 CPA final distribution after reductions.
 
Section 27 [City formula aid] finishes the phase out of LGA to first class cities begun in section 29.  Those cities get 25 percent of their base aid in pay 2013 and zero in pay 2014 and thereafter. 
 
Section 28 [LGA minimum and maximum] provides that the LGA minimum and maximum aids for 2013 will be calculated based on 2012 LGA.  The minimum and maximum aids for 2014 and subsequent years will be based on the previous year’s certified aid.  The limits on aid increases and decreases do not apply to the aid changes for the first class cities. 
 
Section 29 [LGA reductions] defines “base aid” to be the lesser of the 2011 certified LGA distribution or the 2010 LGA final distribution after reductions.  The 2011 and 2012 local government aid distributions for all cities other than first class cities are equal to their base aid.  First class cities receive a distribution of 75 percent of their base aid in 2011 and 50 percent of their base aid in 2012.
 
Section 30 [Aid appropriations] permanently reduces the appropriation for local government aid from $527.1 million to $318.8 million for aids payable in 2013 and $283.3 million in 2014 and thereafter.  The appropriation for county program aid is reduced from $197.7 million to $161.3 million beginning in 2013.
 
Section 31 [Terms] eliminates a cross reference to the inflation factor for PILT payments that is repealed in section 41.
 
Section 32 [Types of land, payments] reduces the per acre rate for PILT payments beginning with aids payable in 2011 to 88 percent of the 2011 rate under current law.  Eliminates inflation in the future.  Currently the inflation adjusted rates for payable 2011 are equal to:
 
•           $5.133/acre or 0.75 percent of assessed value for acquired land;
 
•           $1.283/acre for county administered other natural resources land and land utilization project (LUP) land; and
 
•           $0.642/acre on commissioner administered other natural resource land.
 
The permanent rates set in the bill are 88 percent of the 2011 rates and are:
 
•           $4.517/acre or 0.66 percent of assessed value for acquired land;
 
•           $1.129/acre for county administered other natural resources land and land utilization project (LUP) land; and
 
•           $0.565/acre on commissioner administered other natural resource land.
 
Section 33 [General distribution] adjusts the allocation of PILT payments to the county and the townships proportionately to reflect the 88 percent reduction in the total payments.
 
Section 34 [Lake Vermillion State Park and Soudan Mine State Park] reduces the PILT payments for land in these two parks to 88 percent of the current level from 1.5 percent of appraised value to 1.32 percent of appraised value.
 
Section 35 [Property tax refund administration] requires the Commissioner of Revenue to recalculate property tax refund claims that are submitted in 2011 using 19 percent of rent as property taxes paid. Directs the commissioner to notify claimants whose refunds are recalculated that the recalculation was mandated by action of the 2011 legislature. 
 
Section 36 [Market value credit reductions] provides that the market value credit reimbursement for cities and counties in 2011 cannot exceed the reimbursement that they received for 2010.
 
Section 37 [Property tax statement for taxes payable in 2012 only] provides that for purposes of the 2012 tax statement only, the market value homestead credit for property taxes payable in 2011 will not be explicitly shown.  Instead, the credit will be subtracted from the amount shown as the gross tax.
 
Section 38 [PILT study] Requires the Commissioner of Natural Resources to report to the legislature with recommended changes to the PILT program after consulting with the Commissioners of Revenue and MMB and stakeholders.  The report must include an analysis of the current PILT payment system and any recommended changes to the purpose and criteria for payments, the rate of payments for classes of natural resource lands, the distribution formula and recognition of the tax capacity foregone due to the loss of future development potential for the land.
 Section 39 [Cooperation and consolidation grants] authorizes the Commissioner of Administration to make cooperation and consolidation grants to local governments on a first-come, first-served basis.  The maximum grant is $100,000 per local government. $1 million is appropriated in fiscal year 2012 and $2.5 million is appropriated in fiscal year 2013 for the cooperation and consolidation grants.
 
Section 40 [Sustainable Forest Incentive Act transition] provides a rationale for repealing the SFIA program, confirming that the 2009 legislative changes had the unintended effect of increasing payments by about 80 percent, and finding that many owners of lands in SFIA would engage in the forest management practices required of SFIA without the program.  Provides transition payments for calendar year 2011 to participants who did not benefit from the increase in 2010 SFIA payments. The payment equals $3.75 per acre, but may not exceed the proportionate share (based on the number of months until the repeal releases the properties from their restrictive SFIA covenants) of the $100,000 cap that applied in 2010.  Allows current SFIA enrollees until September 1, 2011 to apply for and enroll in class 2c for managed forest land (class rate of 0.65%) for taxes payable in 2012.  To enroll, applications would normally be required by May 1, 2011 to qualify for taxes payable in 2012.
 
Section 41 [Repealer] paragraphs (a) and (b) repeal the political contribution refund program, the section of the data practices law relating to political contribution refunds, and the section providing for refund receipts. Effective for contributions made after June 30, 2011.
 
Paragraph (c) repeals the wetland reimbursement and the inflation factor used to adjust PILT payments.
 
Paragraph (d) repeals the market value credit reimbursement reduction effective for taxes payable in 2012.
 
Paragraph (e) repeals the Sustainable Forest Incentive Act (SFIA) program effective the day following final enactment.  Requires the Commissioner of Revenue to issue a document to each enrollee releasing the land from the covenant no later than 90 days after enactment.
 
ARTICLE 8
MINERALS
 
Section 1 provides that property used in nonferrous mining is exempt from the property tax; the business would pay a net proceeds tax in lieu of the property tax.
 
Section 2 clarifies that businesses that conduct mining, producing or refining of ores, as well as metals and minerals, are exempt from corporate income tax.
 
Section 3 establishes a definition of "refining" in the minerals taxation chapter.
 
Section 4 adds references to refining metals and minerals to the description of taxpayers who are subject to the nonferrous occupation tax.  It specifically provides that mining includes the application of hydrometallurigical processes.
 
Section 5 modifies the definition of gross income that is used in the nonferrous occupation tax provision to include metals or minerals and to remove the reference to energy resources.
 
Section 6 changes the imposition of the nonferrous net proceeds tax so that it applies to all ores, metals, and minerals, mined, extracted, produced, or refined within the state.
 
Section 7 provides that the same deductions will apply to the net proceeds tax that are provided for the nonferrous occupation tax.
 
Section 8 defines metals or mineral products to mean all of those that are subject to the nonferrous net proceeds tax.
 
Section 9 strikes a reference to a distribution to the Range Association of Municipalities and Schools in the production tax distribution law that is repealed.
 
Section 10 modifies the rate that applies to the taconite production tax by suspending the implicit price deflator that applies to the rate for 2011 and 2012 production.
 
Section 11 modifies the distribution of taconite production tax proceeds to cities and towns in recognition of the elimination of the distribution to the Range Association of Municipalities and Schools.
 
Section 12, paragraph (a), repeals provisions establishing the distribution of taconite production tax proceeds to the Range Association of Municipalities and Schools and to the city of Eveleth for the support of the Hockey Hall of Fame.  Paragraph (b) repeals a provision that appropriates a state aid amount equal to a tax of 22 cents per ton, which has been distributed as if it were production tax proceeds.  Paragraph (c) repeals a provision that established deductions for the computation of the nonferrous net proceeds tax, which is replaced in this bill.
 
 
ARTICLE 9
MISCELLANEOUS
 
Section 1 [Tax incidence study] requires the tax incidence study to include information on the distribution of the burden of federal taxes borne by Minnesota residents.
 
Section 2 [Budget reserve account reduction] cancels $8,665,000 of the balance in the budget reserve account to the general fund on July 1, 2011.
 
Section 3 [Cash flow account reduction] cancels $166,000,000 of the balance in the cash flow account to the general fund on July 1, 2011.
 
Section 4 [Transfer; Douglas J. Johnson Fund] Directs the Commissioner of Iron Range Resources to make a onetime transfer of $60 million from the Douglas J. Johnson Economic Protection Trust Fund to the general fund before June 30, 2012.
 
JMZ/NBP/JP:dv
 

 

 

 

 
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