Bill Text: MN SF1617 | 2013-2014 | 88th Legislature | Introduced

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Bill Title: Omnibus tax reform bill

Spectrum: Partisan Bill (Democrat 5-0)

Status: (Introduced - Dead) 2013-04-18 - Referred to Taxes [SF1617 Detail]

Download: Minnesota-2013-SF1617-Introduced.html

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A bill for an act

relating to taxation; making changes to individual income, corporate franchise,
sales and use, tobacco, estate, local, and other taxes; changing provisions of
the small business investment tax credit; creating a clothing sales tax credit;
establishing a technology corporate franchise tax certificate transfer program;
modifying additions, subtractions, and modifications to federal taxable income;
modifying the corporate franchise minimum fee; modifying definition of sale
and purchase and retail sale; expanding the sales tax base; providing exemptions;
modifying taxes on tobacco products; indexing rates on cigarettes; imposing a
floor stocks tax; providing definition for the Minnesota taxable estate; modifying
definition of qualifying property for the estate tax; modifying city aid; modifying
aviation excise taxes; imposing a sports memorabilia gross receipts tax; requiring
reports; appropriating money;amending Minnesota Statutes 2012, sections
16C.03, subdivision 18; 116J.8737, subdivisions 1, 2, 5, 7, 9, 12, by adding
a subdivision; 270C.03, subdivision 1; 270C.56, subdivision 1; 289A.08,
subdivision 3; 289A.38, by adding a subdivision; 290.01, subdivisions 19b, 19c,
19d, 29; 290.06, subdivision 1, by adding a subdivision; 290.068, subdivision
1; 290.091, subdivision 2; 290.0921, subdivisions 1, 3; 290.0922, subdivision
1; 290.095, subdivision 2; 290.17, subdivision 4; 290.191, subdivision 5;
290.21, subdivision 4; 291.005, subdivision 1; 291.03, subdivisions 1, 8, 9, 10,
11; 296A.09, subdivision 2, by adding a subdivision; 296A.17, subdivision
3, by adding a subdivision; 297A.61, subdivisions 3, 4, 10, 17a, 25, 38, 45,
by adding subdivisions; 297A.62, subdivisions 1, 1a; 297A.65; 297A.66,
subdivisions 1, 3, by adding a subdivision; 297A.665; 297A.668, by adding a
subdivision; 297A.67, subdivision 7; 297A.68, subdivisions 2, 5, 10; 297A.70,
subdivisions 2, 4, 5, 13, 14, by adding subdivisions; 297A.75, subdivisions 1, 2,
3; 297A.815, subdivision 3; 297A.82, subdivision 4, by adding a subdivision;
297F.01, subdivision 19, by adding subdivisions; 297F.05, subdivisions 1, 3,
4, by adding subdivisions; 297F.24, subdivision 1; 297F.25, subdivision 1;
298.01, subdivision 3b; 325F.781, subdivision 1; 360.531; 360.66; 469.190, by
adding a subdivision; 477A.011, subdivisions 30, 34, 42, by adding subdivisions;
477A.013, subdivisions 8, 9, by adding a subdivision; 477A.03, subdivision 2a;
proposing coding for new law in Minnesota Statutes, chapters 116J; 290; 291;
295; 297A; repealing Minnesota Statutes 2012, sections 16A.725; 256.9658;
290.01, subdivision 6b; 290.0921, subdivision 7; 290.171; 290.173; 290.174;
297A.61, subdivision 27; 297A.66, subdivision 4; 297A.67, subdivision 8;
297A.68, subdivisions 9, 22, 35; 477A.011, subdivisions 2a, 19, 29, 31, 32,
33, 36, 39, 40, 41, 42; 477A.013, subdivisions 11, 12; 477A.0133; 477A.0134;
Minnesota Rules, part 8130.0500, subpart 2.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:

ARTICLE 1

INDIVIDUAL INCOME TAX

    Section 1. Minnesota Statutes 2012, section 116J.8737, subdivision 1, is amended to
read:
    Subdivision 1. Definitions. (a) For the purposes of this section, the following terms
have the meanings given.
(b) "Qualified small business" means a business that has been certified by the
commissioner under subdivision 2.
(c) "Qualified investor" means an investor who has been certified by the
commissioner under subdivision 3.
(d) "Qualified fund" means a pooled angel investment network fund that has been
certified by the commissioner under subdivision 4.
(e) "Qualified investment" means a cash investment in a qualified small business
of a minimum of:
(1) $10,000 in a calendar year by a qualified investor; or
(2) $30,000 in a calendar year by a qualified fund.
A qualified investment must be made in exchange for common stock, a partnership
or membership interest, preferred stock, debt with mandatory conversion to equity, or an
equivalent ownership interest as determined by the commissioner.
(f) "Family" means a family member within the meaning of the Internal Revenue
Code, section 267(c)(4).
(g) "Pass-through entity" means a corporation that for the applicable taxable year is
treated as an S corporation or a general partnership, limited partnership, limited liability
partnership, trust, or limited liability company and which for the applicable taxable year is
not taxed as a corporation under chapter 290.
(h) "Intern" means a student of an accredited institution of higher education, or a
former student who has graduated in the past six months from an accredited institution
of higher education, who is employed by a qualified small business in a nonpermanent
position for a duration of nine months or less that provides training and experience in the
primary business activity of the business.
(i) "Qualified greater Minnesota business" means a qualified small business that
is also certified by the commissioner as a qualified greater Minnesota business under
subdivision 2, paragraph (h).
(j) "Liquidation event" means a conversion of qualified investment for cash, cash
and other consideration, or any other form of equity or debt interest.
EFFECTIVE DATE.This section is effective the day following final enactment.

    Sec. 2. Minnesota Statutes 2012, section 116J.8737, subdivision 2, is amended to read:
    Subd. 2. Certification of qualified small businesses. (a) Businesses may apply
to the commissioner for certification as a qualified small business for a calendar year.
In addition, the business' application may request certification as a qualified greater
Minnesota business under paragraph (h). The application must be in the form and
be made under the procedures specified by the commissioner, accompanied by an
application fee of $150. Application fees are deposited in the small business investment
tax credit administration account in the special revenue fund. The application for
certification for 2010 must be made available on the department's Web site by August 1,
2010. Applications for subsequent years' certification must be made available on the
department's Web site by November 1 of the preceding year.
(b) Within 30 days of receiving an application for certification under this
subdivision, the commissioner must either certify the business as satisfying the conditions
required of a qualified small business or a qualified greater Minnesota business, request
additional information from the business, or reject the application for certification. If
the commissioner requests additional information from the business, the commissioner
must either certify the business or reject the application within 30 days of receiving the
additional information. If the commissioner neither certifies the business nor rejects
the application within 30 days of receiving the original application or within 30 days of
receiving the additional information requested, whichever is later, then the application is
deemed rejected, and the commissioner must refund the $150 application fee. A business
that applies for certification and is rejected may reapply.
(c) To receive certification as a qualified small business, a business must satisfy
all of the following conditions:
(1) the business has its headquarters in Minnesota;
(2) at least 51 percent of the business's employees are employed in Minnesota, and
51 percent of the business's total payroll is paid or incurred in the state;
(3) the business is engaged in, or is committed to engage in, innovation in Minnesota
in one of the following as its primary business activity:
(i) using proprietary technology to add value to a product, process, or service in a
qualified high-technology field;
(ii) researching or developing a proprietary product, process, or service in a qualified
high-technology field; or
(iii) researching, developing, or producing a new proprietary technology for use in
the fields of agriculture, tourism, forestry, mining, manufacturing, or transportation;
(4) other than the activities specifically listed in clause (3), the business is not
engaged in real estate development, insurance, banking, lending, lobbying, political
consulting, information technology consulting, wholesale or retail trade, leisure,
hospitality, transportation, construction, ethanol production from corn, or professional
services provided by attorneys, accountants, business consultants, physicians, or health
care consultants;
(5) the business has fewer than 25 employees;
(6) the business must pay its employees annual wages of at least 175 percent of the
federal poverty guideline for the year for a family of four and must pay its interns annual
wages of at least 175 percent of the federal minimum wage used for federally covered
employers, except that this requirement must be reduced proportionately for employees
and interns who work less than full-time, and does not apply to an executive, officer, or
member of the board of the business, or to any employee who owns, controls, or holds
power to vote more than 20 percent of the outstanding securities of the business;
(7) the business has not been in operation for more than ten years;
(8) the business has not previously received private equity investments of more
than $4,000,000; and
    (9) the business is not an entity disqualified under section 80A.50, paragraph (b),
clause (3); and
    (10) the business has not issued securities that are traded on a public exchange.
(d) In applying the limit under paragraph (c), clause (5), the employees in all members
of the unitary business, as defined in section 290.17, subdivision 4, must be included.
(e) In order for a qualified investment in a business to be eligible for tax credits, the
business:
(1) the business must have applied for and received certification for the calendar
year in which the investment was made prior to the date on which the qualified investment
was made;
(2) must not have issued securities that are traded on a public exchange;
(3) must not issue securities that are traded on a public exchange within 180 days
after the date on which the qualified investment was made; and
(4) must not have a liquidation event within 180 days after the date on which a
qualified investment was made.
(f) The commissioner must maintain a list of qualified small businesses and qualified
greater Minnesota businesses certified under this subdivision for the calendar year and
make the list accessible to the public on the department's Web site.
(g) For purposes of this subdivision, the following terms have the meanings given:
(1) "qualified high-technology field" includes aerospace, agricultural processing,
renewable energy, energy efficiency and conservation, environmental engineering, food
technology, cellulosic ethanol, information technology, materials science technology,
nanotechnology, telecommunications, biotechnology, medical device products,
pharmaceuticals, diagnostics, biologicals, chemistry, veterinary science, and similar
fields; and
(2) "proprietary technology" means the technical innovations that are unique and
legally owned or licensed by a business and includes, without limitation, those innovations
that are patented, patent pending, a subject of trade secrets, or copyrighted.; and
(3) "greater Minnesota" means the area of Minnesota located outside of the
metropolitan area as defined in section 473.121, subdivision 2.
(h) To receive certification as a qualified greater Minnesota business, a business must
satisfy all of the requirements of paragraph (c) and must satisfy the following conditions:
(1) the business has its headquarters in greater Minnesota; and
(2) at least 51 percent of the business's employees are employed in greater Minnesota,
and 51 percent of the business's total payroll is paid or incurred in greater Minnesota.
EFFECTIVE DATE.This section is effective the day following final enactment.

    Sec. 3. Minnesota Statutes 2012, section 116J.8737, subdivision 5, is amended to read:
    Subd. 5. Credit allowed. (a) A qualified investor or qualified fund is eligible for a
credit equal to 25 percent of the qualified investment in a qualified small business.
Investments made by a pass-through entity qualify for a credit only if the entity is a
qualified fund. The commissioner must not allocate more than $11,000,000 in credits to
qualified investors or qualified funds for taxable years beginning after December 31, 2009,
and before January 1, 2011, and must not allocate more than $12,000,000 in credits per
year for taxable years beginning after December 31, 2010, and before January 1, 2015
2013, or more than $17,000,000 in credits per year for taxable years beginning after
December 31, 2012, and before January 1, 2016. Any portion of a taxable year's credits
that is not allocated by the commissioner does not cancel and may be carried forward to
subsequent taxable years until all credits have been allocated.
(b) The commissioner may not allocate more than a total maximum amount in credits
for a taxable year to a qualified investor for the investor's cumulative qualified investments
as an individual qualified investor and as an investor in a qualified fund; for married
couples filing joint returns the maximum is $250,000, and for all other filers the maximum
is $125,000. The commissioner may not allocate more than a total of $1,000,000 in credits
over all taxable years for qualified investments in any one qualified small business.
(c) The commissioner may not allocate a credit to a qualified investor either as an
individual qualified investor or as an investor in a qualified fund if the investor receives
more than 50 percent of the investor's gross annual income from the qualified small
business in which the qualified investment is proposed. A member of the family of an
individual disqualified by this paragraph is not eligible for a credit under this section. For
a married couple filing a joint return, the limitations in this paragraph apply collectively
to the investor and spouse. For purposes of determining the ownership interest of an
investor under this paragraph, the rules under section 267(c) and 267(e) of the Internal
Revenue Code apply.
(d) Applications for tax credits for 2010 must be made available on the department's
Web site by September 1, 2010, and the department must begin accepting applications
by September 1, 2010. Applications for subsequent years must be made available by
November 1 of the preceding year.
(e) Qualified investors and qualified funds must apply to the commissioner for tax
credits. Tax credits must be allocated to qualified investors or qualified funds in the order
that the tax credit request applications are filed with the department. The commissioner
must approve or reject tax credit request applications within 15 days of receiving the
application. The investment specified in the application must be made within 60 days of
the allocation of the credits. If the investment is not made within 60 days, the credit
allocation is canceled and available for reallocation. A qualified investor or qualified fund
that fails to invest as specified in the application, within 60 days of allocation of the
credits, must notify the commissioner of the failure to invest within five business days of
the expiration of the 60-day investment period.
(f) All tax credit request applications filed with the department on the same day must
be treated as having been filed contemporaneously. If two or more qualified investors or
qualified funds file tax credit request applications on the same day, and the aggregate
amount of credit allocation claims exceeds the aggregate limit of credits under this section
or the lesser amount of credits that remain unallocated on that day, then the credits must
be allocated among the qualified investors or qualified funds who filed on that day on a
pro rata basis with respect to the amounts claimed. The pro rata allocation for any one
qualified investor or qualified fund is the product obtained by multiplying a fraction,
the numerator of which is the amount of the credit allocation claim filed on behalf of
a qualified investor and the denominator of which is the total of all credit allocation
claims filed on behalf of all applicants on that day, by the amount of credits that remain
unallocated on that day for the taxable year.
(g) A qualified investor or qualified fund, or a qualified small business acting on their
behalf, must notify the commissioner when an investment for which credits were allocated
has been made, and the taxable year in which the investment was made. A qualified fund
must also provide the commissioner with a statement indicating the amount invested by
each investor in the qualified fund based on each investor's share of the assets of the
qualified fund at the time of the qualified investment. After receiving notification that the
investment was made, the commissioner must issue credit certificates for the taxable year
in which the investment was made to the qualified investor or, for an investment made by
a qualified fund, to each qualified investor who is an investor in the fund. The certificate
must state that the credit is subject to revocation if the qualified investor or qualified
fund does not hold the investment in the qualified small business for at least three years,
consisting of the calendar year in which the investment was made and the two following
years. The three-year holding period does not apply if:
(1) the investment by the qualified investor or qualified fund becomes worthless
before the end of the three-year period;
(2) 80 percent or more of the assets of the qualified small business is sold before
the end of the three-year period;
(3) the qualified small business is sold before the end of the three-year period; or
(4) the qualified small business's common stock begins trading on a public exchange
before the end of the three-year period.
(h) The commissioner must notify the commissioner of revenue of credit certificates
issued under this section.
EFFECTIVE DATE.This section is effective the day following final enactment for
taxable years beginning after December 31, 2012.

    Sec. 4. Minnesota Statutes 2012, section 116J.8737, is amended by adding a
subdivision to read:
    Subd. 5a. Promotion of credit in greater Minnesota. (a) By July 1, 2013, the
commissioner shall develop a plan to increase awareness of and use of the credit for
investments in greater Minnesota businesses with a target goal that a minimum of 30
percent of the credit will be awarded for those investments during the second half
of calendar year 2013 and for each full calendar year thereafter. Beginning with the
legislative report due on March 15, 2014, under subdivision 9, the commissioner shall
report on its plan under this subdivision and the results achieved.
(b) If the target goal of 30 percent under paragraph (a) is not achieved for the
six-month period ending on December 31, 2013, the credit percentage under subdivision
5, paragraph (a), is increased to 40 percent for a qualified investment made after December
31, 2013, in a greater Minnesota business. This paragraph does not apply and the credit
percentage for all qualified investments is the rate provided under subdivision 5 for any
calendar year beginning after a calendar year for which the commissioner determines the
30 percent target has been satisfied. The commissioner shall timely post notification of
changes in the credit rate under this paragraph on the department's Web site.
EFFECTIVE DATE.This section is effective the day following final enactment.

    Sec. 5. Minnesota Statutes 2012, section 116J.8737, subdivision 7, is amended to read:
    Subd. 7. Revocation of credits. (a) If the commissioner determines that a
qualified investor or qualified fund did not meet the three-year holding period required in
subdivision 5, paragraph (g), any credit allocated and certified to the investor or fund is
revoked and must be repaid by the investor.
(b) If the commissioner determines that a business did not meet the employment
and payroll requirements in subdivision 2, paragraph (c), clause (2), or paragraph (h), as
applicable, in any of the five calendar years following the year in which an investment in the
business that qualified for a tax credit under this section was made, the business must repay
the following percentage of the credits allowed for qualified investments in the business:

	Year following the year in which		Percentage of credit required
	the investment was made:		to be repaid:
		First	100%
		Second	80%
		Third	60%
		Fourth	40%
		Fifth	20%
		Sixth and later	0

(c) The commissioner must notify the commissioner of revenue of every credit
revoked and subject to full or partial repayment under this section.
(d) For the repayment of credits allowed under this section and section 290.0692,
a qualified small business, qualified investor, or investor in a qualified fund must file an
amended return with the commissioner of revenue and pay any amounts required to be
repaid within 30 days after becoming subject to repayment under this section.
EFFECTIVE DATE.This section is effective the day following final enactment.

    Sec. 6. Minnesota Statutes 2012, section 116J.8737, subdivision 9, is amended to read:
    Subd. 9. Report to legislature. Beginning in 2011, the commissioner must
annually report by March 15 to the chairs and ranking minority members of the legislative
committees having jurisdiction over taxes and economic development in the senate and
the house of representatives, in compliance with sections 3.195 and 3.197, on the tax
credits issued under this section. The report must include:
(1) the number and amount of the credits issued;
(2) the recipients of the credits;
(3) for each qualified small business, its location, line of business, and if it received
an investment resulting in certification of tax credits;
(4) the total amount of investment in each qualified small business resulting in
certification of tax credits;
(5) for each qualified small business that received investments resulting in tax
credits, the total amount of additional investment that did not qualify for the tax credit;
(6) the number and amount of credits revoked under subdivision 7;
(7) the number and amount of credits that are no longer subject to the three-year
holding period because of the exceptions under subdivision 5, paragraph (g), clauses
(1) to (4); and
(8) the number of qualified small businesses that are women or minority-owned; and
(9) any other information relevant to evaluating the effect of these credits.
EFFECTIVE DATE.This section is effective the day following final enactment.

    Sec. 7. Minnesota Statutes 2012, section 116J.8737, subdivision 12, is amended to read:
    Subd. 12. Sunset. This section expires for taxable years beginning after December
31, 2014 2015, except that reporting requirements under subdivision 6 and revocation
of credits under subdivision 7 remain in effect through 2016 2017 for qualified
investors and qualified funds, and through 2018 2019 for qualified small businesses,
reporting requirements under subdivision 9 remain in effect through 2019 2020, and the
appropriation in subdivision 11 remains in effect through 2018 2019.
EFFECTIVE DATE.This section is effective the day following final enactment.

    Sec. 8. [290.0683] CLOTHING SALES TAX CREDIT.
    Subdivision 1. Definitions. (a) For purposes of this section, the following terms
have the meanings given.
(b) "Income" has the meaning given in section 290.067, subdivision 2a.
(c) "Dependent" has the meaning given in section 152 of the Internal Revenue Code.
    Subd. 2. Credit allowed. A taxpayer is allowed a refundable credit against the tax
imposed under this chapter. The credit is equal to $60 for a married couple filing a joint
return, and $30 for all other filers, plus $30 for the first dependent claimed on the return,
$15 for each of the second and third dependents claimed on the return, $10 for the fourth
dependent claimed on the return, and $5 for each subsequent dependent.
    Subd. 3. Limitations. The credit allowed in this section is reduced by $10 for every
$1,000 of income in excess of 200 percent of the federal poverty guidelines.
    Subd. 4. Appropriation. An amount sufficient to pay the refunds required by this
section is appropriated to the commissioner from the general fund.
EFFECTIVE DATE.This section is effective for taxable years beginning after
December 31, 2012.

    Sec. 9. CLOTHING SALES TAX CREDIT; TAX YEAR 2013.
For tax year 2013 only, the credit calculated under Minnesota Statutes, section
290.0683, is the credit under Minnesota Statutes, section 290.0683, subdivision 2, after
limitations imposed under Minnesota Statutes, section 290.0683, subdivision 3, multiplied
by one-half.
EFFECTIVE DATE.This section is effective for taxable years beginning after
December 31, 2012.

ARTICLE 2

CORPORATE FRANCHISE TAXES

    Section 1. [116J.8738] TECHNOLOGY CORPORATE FRANCHISE TAX
CERTIFICATE TRANSFER PROGRAM.
    Subdivision 1. Program established. The commissioner shall establish a corporate
franchise tax benefit certificate transfer program to allow new or expanding emerging
technology and biotechnology companies in this state with unused net operating loss
carryovers under section 290.095 to surrender those tax benefits for use by other corporate
franchise taxpayers in this state. The tax benefits may be used on the corporate franchise
tax returns to be filed by those taxpayers in exchange for private financial assistance to
be provided by the corporate franchise taxpayer that is the recipient of the tax benefit
certificate to assist in the funding of costs incurred by the new or expanding emerging
technology and biotechnology company.
    Subd. 2. Definitions. (a) For purposes of this section, the following terms have the
meanings given, unless the context clearly requires otherwise.
(b) "Biotechnology" means the continually expanding body of fundamental
knowledge about the functioning of biological systems from the macro level to the
molecular and subatomic levels, as well as novel products, services, technologies, and
subtechnologies developed as a result of insights gained from research advances that add
to that body of fundamental knowledge.
(c) "Biotechnology company" means an emerging corporation that:
(1) has its headquarters or base of operations in this state;
(2) owns, has filed for, or has a valid license to use protected, proprietary intellectual
property; and
(3) is engaged in the research, development, production, or provision of
biotechnology for the purpose of developing or providing products or processes
for specific commercial or public purposes, including, but not limited to, medical,
pharmaceutical, nutritional, and other health-related purposes; agricultural purposes; and
environmental purposes.
(d) "Full-time employee" means a person employed by a new or expanding emerging
technology or biotechnology company for consideration for at least 35 hours per week, or
who renders any other standard of service generally accepted by custom or practice as
full-time employment and whose wages are subject to withholding as provided in section
290.92, or who is a partner of a new or expanding emerging technology or biotechnology
company who works for the partnership for at least 35 hours per week, or who renders
any other standard of service generally accepted by custom or practice as full-time
employment, and whose distributive share of income, gain, loss, or deduction, or whose
guaranteed payments, or any combination thereof, is subject to the payment of estimated
taxes, as provided in section 289A.25. To qualify as a full-time employee, an employee
must also receive from the new or expanding emerging technology or biotechnology
company, group health benefits under a health plan as defined under section 62A.011,
subdivision 3, or under a self-insured employee welfare benefit plan as defined in United
States Code, title 29, section 1002. Full-time employee excludes any person who works as
an independent contractor or on a consulting basis for the new or expanding emerging
technology or biotechnology company.
(e) "New or expanding" means a technology or biotechnology company that:
(1) on June 30 of the year in which the corporation files an application for surrender
of unused but otherwise allowable tax benefits under this section and on the date of the
exchange of the corporate franchise tax benefit certificate, has fewer than 250 employees
in the United States;
(2) on June 30 of the year in which the corporation files the application, has at least
one full-time employee working in this state if the company has been incorporated for less
than three years, has at least five full-time employees working in this state if the company
has been incorporated for more than three years but less than five years, and has at least
ten full-time employees working in this state if the company has been incorporated for
more than five years; and
(3) on the date of the exchange of the corporate franchise tax benefit certificate, the
corporation has the number of full-time employees in this state required by clause (2).
(f) "Technology company" means an emerging corporation that:
(1) has its headquarters or base of operations in this state;
(2) owns, has filed for, or has a valid license to use protected, proprietary intellectual
property; and
(3) employs some combination of the following: highly educated or trained
managers and workers, or both, employed in this state who use sophisticated scientific
research service or production equipment, processes, or knowledge to discover, develop,
test, transfer, or manufacture a product or service.
    Subd. 3. Allocation of tax benefits; annual limit. (a) The commissioner, in
cooperation with the commissioner of revenue, shall review and approve applications by
new or expanding emerging technology and biotechnology companies in this state with
unused but otherwise allowable net operating loss carryovers under section 290.095, to
surrender those tax benefits in exchange for private financial assistance to be made by the
corporate franchise taxpayer that is the recipient of the corporate franchise tax benefit
certificate in an amount equal to at least 75 percent of the amount of the surrendered tax
benefit. The amount of the surrendered tax benefit is the amount of the net operating loss
carryover apportioned to Minnesota under the provisions of section 290.095, subdivision
3, paragraph (c), for the taxable year in which the benefit is transferred and subsequently
multiplied by the corporate franchise tax rate under section 290.06, subdivision 1.
(b) The commissioner must approve the transfer of no more than $15,000,000 of
tax benefits in each fiscal year. If the total amount of transferable tax benefits requested
to be surrendered by approved applicants exceeds $15,000,000 for a fiscal year, the
commissioner, in cooperation with the commissioner of revenue, must not approve the
transfer of more than $15,000,000 for that fiscal year and shall allocate the transfer of tax
benefits by approved corporations using the following method:
(1) an eligible applicant with $250,000 or less of transferable tax benefits is
authorized to surrender the entire amount of its transferable tax benefits;
(2) an eligible applicant with more than $250,000 of transferable tax benefits is
authorized to surrender a minimum of $250,000 of its transferable tax benefits; and
(3) an eligible applicant with more than $250,000 of transferable tax benefits is
authorized to surrender additional transferable tax benefits determined by multiplying
the applicant's transferable tax benefits less the minimum transferable tax benefits that
corporation is authorized to surrender under clause (2) by a fraction, the numerator of
which is the total amount of transferable tax benefits that the commissioner is authorized
to approve less the total amount of transferable tax benefits approved under clauses (1)
and (2) and the denominator of which is the total amount of transferable tax benefits
requested to be surrendered by all eligible applicants less the total amount of transferable
tax benefits approved under clauses (1) and (2).
(c) If the total amount of transferable tax benefits that would be authorized using the
method under paragraph (b) exceeds $15,000,000 for a fiscal year, then the commissioner,
in cooperation with the commissioner of revenue, shall limit the total amount of tax
benefits authorized to be transferred to $15,000,000 by applying the above method on an
apportioned basis.
    Subd. 4. Qualifying tax benefits and corporations. For purposes of this section,
transferable tax benefits include an eligible applicant's unused but otherwise allowable
carryover of net operating losses apportioned to Minnesota under the provisions of section
290.095, subdivision 3, paragraph (c), and subsequently multiplied by the corporation
franchise tax rate under section 290.06, subdivision 1. An eligible applicant's transferable
tax benefits are limited to net operating losses that the applicant requests to surrender in its
application to the authority and must not, in total, exceed the maximum amount of tax
benefits that the applicant is eligible to surrender. No application for a corporate franchise
tax benefit transfer certificate must be approved in which the new or expanding emerging
technology or biotechnology company:
(1) has demonstrated positive net operating income in any of the two previous full
years of ongoing operations as determined on its financial statements issued according to
generally accepted accounting standards endorsed by the Financial Accounting Standards
Board; or
(2) is directly or indirectly at least 50 percent owned or controlled by another
corporation that has demonstrated positive net operating income in any of the two previous
full years of ongoing operations as determined on its financial statements issued according
to generally accepted accounting standards endorsed by the Financial Accounting
Standards Board or is part of a consolidated group of affiliated corporations, as filed for
federal income tax purposes, that in the aggregate has demonstrated positive net operating
income in any of the two previous full years of ongoing operations as determined on
its combined financial statements issued according to generally accepted accounting
standards endorsed by the Financial Accounting Standards Board.
The maximum lifetime value of surrendered tax benefits that a corporation is permitted to
surrender under the program is $4,000,000.
    Subd. 5. Recapture of tax benefits. The commissioner, in consultation with the
commissioner of revenue, shall establish rules for the recapture of all, or a portion of,
the amount of a grant of a corporate franchise tax benefit certificate from the new or
expanding emerging technology or biotechnology company having surrendered tax
benefits under this section if the taxpayer fails to use the private financial assistance
received for the surrender of tax benefits as required by this section or fails to maintain a
headquarters or a base of operation in this state during the five years following receipt
of the private financial assistance; except if the failure to maintain a headquarters or a
base of operation in this state is due to the liquidation of the new or expanding emerging
technology or biotechnology company.
    Subd. 6. Approval of acquisition of tax benefits; purposes; required agreement.
(a) The commissioner, in cooperation with the commissioner of revenue, shall review and
approve applications by taxpayers under the corporate franchise tax in chapter 290 to
acquire surrendered tax benefits approved under subdivision 3, which must be issued in
the form of corporate franchise tax benefit transfer certificates, in exchange for private
financial assistance to be made by the taxpayer in an amount equal to at least 75 percent
of the amount of the surrendered tax benefit of a new or expanding biotechnology
company. The commissioner must not issue a corporate franchise tax benefit transfer
certificate, unless the applicant certifies that as of the date of the exchange of the corporate
franchise tax benefit certificate it is operating as a new or expanding emerging technology
or biotechnology company and has no current intention to cease operating as a new or
expanding emerging technology or biotechnology company.
(b) The private financial assistance shall assist in funding expenses incurred
in connection with the operation of the new or expanding emerging technology or
biotechnology company in this state, including, but not limited to, the expenses of fixed
assets, such as the construction and acquisition and development of real estate, materials,
start-up, tenant fit-out, working capital, salaries, research and development expenditures,
and any other expenses determined by the commissioner to be necessary to carry out
emerging technology or biotechnology company operations in this state.
(c) The commissioner shall require a corporate franchise taxpayer that acquires
a corporate franchise tax benefit certificate to enter into a written agreement with the
new or expanding emerging technology or biotechnology company concerning the terms
and conditions of the private financial assistance made in exchange for the certificate.
The written agreement may contain terms concerning the maintenance by the new or
expanding emerging technology or biotechnology company of a headquarters or a base
of operation in this state.
EFFECTIVE DATE.This section is effective the day following final enactment
and applies to taxable years beginning after December 31, 2012.

    Sec. 2. Minnesota Statutes 2012, section 289A.08, subdivision 3, is amended to read:
    Subd. 3. Corporations. (a) A corporation that is subject to the state's jurisdiction to
tax under section 290.014, subdivision 5, must file a return, except that a foreign operating
corporation as defined in section 290.01, subdivision 6b, is not required to file a return.
(b) Members of a unitary business that are required to file a combined report on one
return must designate a member of the unitary business to be responsible for tax matters,
including the filing of returns, the payment of taxes, additions to tax, penalties, interest,
or any other payment, and for the receipt of refunds of taxes or interest paid in excess of
taxes lawfully due. The designated member must be a member of the unitary business that
is filing the single combined report and either:
(1) a corporation that is subject to the taxes imposed by chapter 290; or
(2) a corporation that is not subject to the taxes imposed by chapter 290:
(i) Such corporation consents by filing the return as a designated member under this
clause to remit taxes, penalties, interest, or additions to tax due from the members of the
unitary business subject to tax, and receive refunds or other payments on behalf of other
members of the unitary business. The member designated under this clause is a "taxpayer"
for the purposes of this chapter and chapter 270C, and is liable for any liability imposed
on the unitary business under this chapter and chapter 290.
(ii) If the state does not otherwise have the jurisdiction to tax the member designated
under this clause, consenting to be the designated member does not create the jurisdiction
to impose tax on the designated member, other than as described in item (i).
(iii) The member designated under this clause must apply for a business tax account
identification number.
(c) The commissioner shall adopt rules for the filing of one return on behalf of the
members of an affiliated group of corporations that are required to file a combined report.
All members of an affiliated group that are required to file a combined report must file one
return on behalf of the members of the group under rules adopted by the commissioner.
(d) If a corporation claims on a return that it has paid tax in excess of the amount of
taxes lawfully due, that corporation must include on that return information necessary for
payment of the tax in excess of the amount lawfully due by electronic means.
EFFECTIVE DATE.This section is effective for taxable years beginning after
December 31, 2012.

    Sec. 3. Minnesota Statutes 2012, section 290.01, subdivision 19b, is amended to read:
    Subd. 19b. Subtractions from federal taxable income. For individuals, estates,
and trusts, there shall be subtracted from federal taxable income:
    (1) net interest income on obligations of any authority, commission, or
instrumentality of the United States to the extent includable in taxable income for federal
income tax purposes but exempt from state income tax under the laws of the United States;
    (2) if included in federal taxable income, the amount of any overpayment of income
tax to Minnesota or to any other state, for any previous taxable year, whether the amount
is received as a refund or as a credit to another taxable year's income tax liability;
    (3) the amount paid to others, less the amount used to claim the credit allowed under
section 290.0674, not to exceed $1,625 for each qualifying child in grades kindergarten
to 6 and $2,500 for each qualifying child in grades 7 to 12, for tuition, textbooks, and
transportation of each qualifying child in attending an elementary or secondary school
situated in Minnesota, North Dakota, South Dakota, Iowa, or Wisconsin, wherein a
resident of this state may legally fulfill the state's compulsory attendance laws, which
is not operated for profit, and which adheres to the provisions of the Civil Rights Act
of 1964 and chapter 363A. For the purposes of this clause, "tuition" includes fees or
tuition as defined in section 290.0674, subdivision 1, clause (1). As used in this clause,
"textbooks" includes books and other instructional materials and equipment purchased
or leased for use in elementary and secondary schools in teaching only those subjects
legally and commonly taught in public elementary and secondary schools in this state.
Equipment expenses qualifying for deduction includes expenses as defined and limited in
section 290.0674, subdivision 1, clause (3). "Textbooks" does not include instructional
books and materials used in the teaching of religious tenets, doctrines, or worship, the
purpose of which is to instill such tenets, doctrines, or worship, nor does it include books
or materials for, or transportation to, extracurricular activities including sporting events,
musical or dramatic events, speech activities, driver's education, or similar programs. No
deduction is permitted for any expense the taxpayer incurred in using the taxpayer's or
the qualifying child's vehicle to provide such transportation for a qualifying child. For
purposes of the subtraction provided by this clause, "qualifying child" has the meaning
given in section 32(c)(3) of the Internal Revenue Code;
    (4) income as provided under section 290.0802;
    (5) to the extent included in federal adjusted gross income, income realized on
disposition of property exempt from tax under section 290.491;
    (6) to the extent not deducted or not deductible pursuant to section 408(d)(8)(E)
of the Internal Revenue Code in determining federal taxable income by an individual
who does not itemize deductions for federal income tax purposes for the taxable year, an
amount equal to 50 percent of the excess of charitable contributions over $500 allowable
as a deduction for the taxable year under section 170(a) of the Internal Revenue Code,
under the provisions of Public Law 109-1 and Public Law 111-126;
    (7) for individuals who are allowed a federal foreign tax credit for taxes that do not
qualify for a credit under section 290.06, subdivision 22, an amount equal to the carryover
of subnational foreign taxes for the taxable year, but not to exceed the total subnational
foreign taxes reported in claiming the foreign tax credit. For purposes of this clause,
"federal foreign tax credit" means the credit allowed under section 27 of the Internal
Revenue Code, and "carryover of subnational foreign taxes" equals the carryover allowed
under section 904(c) of the Internal Revenue Code minus national level foreign taxes to
the extent they exceed the federal foreign tax credit;
    (8) in each of the five tax years immediately following the tax year in which an
addition is required under subdivision 19a, clause (7), or 19c, clause (15) (14), in the case
of a shareholder of a corporation that is an S corporation, an amount equal to one-fifth of the
delayed depreciation. For purposes of this clause, "delayed depreciation" means the amount
of the addition made by the taxpayer under subdivision 19a, clause (7), or subdivision 19c,
clause (15) (14), in the case of a shareholder of an S corporation, minus the positive value
of any net operating loss under section 172 of the Internal Revenue Code generated for the
tax year of the addition. The resulting delayed depreciation cannot be less than zero;
    (9) job opportunity building zone income as provided under section 469.316;
    (10) to the extent included in federal taxable income, the amount of compensation
paid to members of the Minnesota National Guard or other reserve components of the
United States military for active service, excluding compensation for services performed
under the Active Guard Reserve (AGR) program. For purposes of this clause, "active
service" means (i) state active service as defined in section 190.05, subdivision 5a, clause
(1); or (ii) federally funded state active service as defined in section 190.05, subdivision
5b , but "active service" excludes service performed in accordance with section 190.08,
subdivision 3 ;
    (11) to the extent included in federal taxable income, the amount of compensation
paid to Minnesota residents who are members of the armed forces of the United States
or United Nations for active duty performed under United States Code, title 10; or the
authority of the United Nations;
    (12) an amount, not to exceed $10,000, equal to qualified expenses related to a
qualified donor's donation, while living, of one or more of the qualified donor's organs
to another person for human organ transplantation. For purposes of this clause, "organ"
means all or part of an individual's liver, pancreas, kidney, intestine, lung, or bone marrow;
"human organ transplantation" means the medical procedure by which transfer of a human
organ is made from the body of one person to the body of another person; "qualified
expenses" means unreimbursed expenses for both the individual and the qualified donor
for (i) travel, (ii) lodging, and (iii) lost wages net of sick pay, except that such expenses
may be subtracted under this clause only once; and "qualified donor" means the individual
or the individual's dependent, as defined in section 152 of the Internal Revenue Code. An
individual may claim the subtraction in this clause for each instance of organ donation for
transplantation during the taxable year in which the qualified expenses occur;
    (13) in each of the five tax years immediately following the tax year in which an
addition is required under subdivision 19a, clause (8), or 19c, clause (16) (15), in the case
of a shareholder of a corporation that is an S corporation, an amount equal to one-fifth of
the addition made by the taxpayer under subdivision 19a, clause (8), or 19c, clause (16)
(15), in the case of a shareholder of a corporation that is an S corporation, minus the
positive value of any net operating loss under section 172 of the Internal Revenue Code
generated for the tax year of the addition. If the net operating loss exceeds the addition for
the tax year, a subtraction is not allowed under this clause;
    (14) to the extent included in the federal taxable income of a nonresident of
Minnesota, compensation paid to a service member as defined in United States Code, title
10, section 101(a)(5), for military service as defined in the Servicemembers Civil Relief
Act, Public Law 108-189, section 101(2);
    (15) to the extent included in federal taxable income, the amount of national service
educational awards received from the National Service Trust under United States Code,
title 42, sections 12601 to 12604, for service in an approved Americorps National Service
program;
(16) to the extent included in federal taxable income, discharge of indebtedness
income resulting from reacquisition of business indebtedness included in federal taxable
income under section 108(i) of the Internal Revenue Code. This subtraction applies only
to the extent that the income was included in net income in a prior year as a result of the
addition under section 290.01, subdivision 19a, clause (16); and
(17) the amount of the net operating loss allowed under section 290.095, subdivision
11 , paragraph (c); and
(18) in the year that the expenditures are made for railroad track maintenance, as
defined in section 45G(d) of the Internal Revenue Code, in the case of a shareholder of a
corporation that is an S corporation or a partner in a partnership, an amount equal to the
credit awarded pursuant to section 45G(a) of the Internal Revenue Code. The subtraction
shall be reduced to an amount equal to the percentage of the shareholder's or partner's
share of the net income of the S corporation or partnership.
EFFECTIVE DATE.This section is effective for taxable years beginning after
December 31, 2012.

    Sec. 4. Minnesota Statutes 2012, section 290.01, subdivision 19c, is amended to read:
    Subd. 19c. Corporations; additions to federal taxable income. For corporations,
there shall be added to federal taxable income:
    (1) the amount of any deduction taken for federal income tax purposes for income,
excise, or franchise taxes based on net income or related minimum taxes, including but not
limited to the tax imposed under section 290.0922, paid by the corporation to Minnesota,
another state, a political subdivision of another state, the District of Columbia, or any
foreign country or possession of the United States;
    (2) interest not subject to federal tax upon obligations of: the United States, its
possessions, its agencies, or its instrumentalities; the state of Minnesota or any other
state, any of its political or governmental subdivisions, any of its municipalities, or any
of its governmental agencies or instrumentalities; the District of Columbia; or Indian
tribal governments;
    (3) exempt-interest dividends received as defined in section 852(b)(5) of the Internal
Revenue Code;
    (4) the amount of any net operating loss deduction taken for federal income tax
purposes under section 172 or 832(c)(10) of the Internal Revenue Code or operations loss
deduction under section 810 of the Internal Revenue Code;
    (5) the amount of any special deductions taken for federal income tax purposes
under sections 241 to 247 and 965 of the Internal Revenue Code;
    (6) losses from the business of mining, as defined in section 290.05, subdivision 1,
clause (a), that are not subject to Minnesota income tax;
    (7) the amount of any capital losses deducted for federal income tax purposes under
sections 1211 and 1212 of the Internal Revenue Code;
    (8) the exempt foreign trade income of a foreign sales corporation under sections
921(a) and 291 of the Internal Revenue Code;
    (9) the amount of percentage depletion deducted under sections 611 through 614 and
291 of the Internal Revenue Code;
    (10) for certified pollution control facilities placed in service in a taxable year
beginning before December 31, 1986, and for which amortization deductions were elected
under section 169 of the Internal Revenue Code of 1954, as amended through December
31, 1985, the amount of the amortization deduction allowed in computing federal taxable
income for those facilities;
    (11) the amount of any deemed dividend from a foreign operating corporation
determined pursuant to section 290.17, subdivision 4, paragraph (g). The deemed dividend
shall be reduced by the amount of the addition to income required by clauses (20), (21),
(22), and (23);
    (12) (11) the amount of a partner's pro rata share of net income which does not flow
through to the partner because the partnership elected to pay the tax on the income under
section 6242(a)(2) of the Internal Revenue Code;
    (13) (12) the amount of net income excluded under section 114 of the Internal
Revenue Code;
    (14) (13) any increase in subpart F income, as defined in section 952(a) of the
Internal Revenue Code, for the taxable year when subpart F income is calculated without
regard to the provisions of Division C, title III, section 303(b) of Public Law 110-343;
    (15) (14) 80 percent of the depreciation deduction allowed under section
168(k)(1)(A) and (k)(4)(A) of the Internal Revenue Code. For purposes of this clause, if
the taxpayer has an activity that in the taxable year generates a deduction for depreciation
under section 168(k)(1)(A) and (k)(4)(A) and the activity generates a loss for the taxable
year that the taxpayer is not allowed to claim for the taxable year, "the depreciation
allowed under section 168(k)(1)(A) and (k)(4)(A)" for the taxable year is limited to excess
of the depreciation claimed by the activity under section 168(k)(1)(A) and (k)(4)(A)
over the amount of the loss from the activity that is not allowed in the taxable year. In
succeeding taxable years when the losses not allowed in the taxable year are allowed, the
depreciation under section 168(k)(1)(A) and (k)(4)(A) is allowed;
    (16) (15) 80 percent of the amount by which the deduction allowed by section 179 of
the Internal Revenue Code exceeds the deduction allowable by section 179 of the Internal
Revenue Code of 1986, as amended through December 31, 2003;
    (17) (16) to the extent deducted in computing federal taxable income, the amount of
the deduction allowable under section 199 of the Internal Revenue Code;
    (18) (17) for taxable years beginning before January 1, 2013, the exclusion allowed
under section 139A of the Internal Revenue Code for federal subsidies for prescription
drug plans;
    (19) (18) the amount of expenses disallowed under section 290.10, subdivision 2;
    (20) an amount equal to the interest and intangible expenses, losses, and costs paid,
accrued, or incurred by any member of the taxpayer's unitary group to or for the benefit
of a corporation that is a member of the taxpayer's unitary business group that qualifies
as a foreign operating corporation. For purposes of this clause, intangible expenses and
costs include:
    (i) expenses, losses, and costs for, or related to, the direct or indirect acquisition,
use, maintenance or management, ownership, sale, exchange, or any other disposition of
intangible property;
    (ii) losses incurred, directly or indirectly, from factoring transactions or discounting
transactions;
    (iii) royalty, patent, technical, and copyright fees;
    (iv) licensing fees; and
    (v) other similar expenses and costs.
For purposes of this clause, "intangible property" includes stocks, bonds, patents, patent
applications, trade names, trademarks, service marks, copyrights, mask works, trade
secrets, and similar types of intangible assets.
This clause does not apply to any item of interest or intangible expenses or costs paid,
accrued, or incurred, directly or indirectly, to a foreign operating corporation with respect
to such item of income to the extent that the income to the foreign operating corporation
is income from sources without the United States as defined in subtitle A, chapter 1,
subchapter N, part 1, of the Internal Revenue Code;
    (21) except as already included in the taxpayer's taxable income pursuant to clause
(20), any interest income and income generated from intangible property received or
accrued by a foreign operating corporation that is a member of the taxpayer's unitary
group. For purposes of this clause, income generated from intangible property includes:
    (i) income related to the direct or indirect acquisition, use, maintenance or
management, ownership, sale, exchange, or any other disposition of intangible property;
    (ii) income from factoring transactions or discounting transactions;
    (iii) royalty, patent, technical, and copyright fees;
    (iv) licensing fees; and
    (v) other similar income.
For purposes of this clause, "intangible property" includes stocks, bonds, patents, patent
applications, trade names, trademarks, service marks, copyrights, mask works, trade
secrets, and similar types of intangible assets.
This clause does not apply to any item of interest or intangible income received or accrued
by a foreign operating corporation with respect to such item of income to the extent that
the income is income from sources without the United States as defined in subtitle A,
chapter 1, subchapter N, part 1, of the Internal Revenue Code;
    (22) the dividends attributable to the income of a foreign operating corporation that
is a member of the taxpayer's unitary group in an amount that is equal to the dividends
paid deduction of a real estate investment trust under section 561(a) of the Internal
Revenue Code for amounts paid or accrued by the real estate investment trust to the
foreign operating corporation;
    (23) the income of a foreign operating corporation that is a member of the taxpayer's
unitary group in an amount that is equal to gains derived from the sale of real or personal
property located in the United States;
    (24) (19) for taxable years beginning before January 1, 2010, the additional amount
allowed as a deduction for donation of computer technology and equipment under section
170(e)(6) of the Internal Revenue Code, to the extent deducted from taxable income; and
(25) (20) discharge of indebtedness income resulting from reacquisition of business
indebtedness and deferred under section 108(i) of the Internal Revenue Code.
EFFECTIVE DATE.This section is effective for taxable years beginning after
December 31, 2012.

    Sec. 5. Minnesota Statutes 2012, section 290.01, subdivision 19d, is amended to read:
    Subd. 19d. Corporations; modifications decreasing federal taxable income. For
corporations, there shall be subtracted from federal taxable income after the increases
provided in subdivision 19c:
    (1) the amount of foreign dividend gross-up added to gross income for federal
income tax purposes under section 78 of the Internal Revenue Code;
    (2) the amount of salary expense not allowed for federal income tax purposes due to
claiming the work opportunity credit under section 51 of the Internal Revenue Code;
    (3) any dividend (not including any distribution in liquidation) paid within the
taxable year by a national or state bank to the United States, or to any instrumentality of
the United States exempt from federal income taxes, on the preferred stock of the bank
owned by the United States or the instrumentality;
    (4) amounts disallowed for intangible drilling costs due to differences between
this chapter and the Internal Revenue Code in taxable years beginning before January
1, 1987, as follows:
    (i) to the extent the disallowed costs are represented by physical property, an amount
equal to the allowance for depreciation under Minnesota Statutes 1986, section 290.09,
subdivision 7 , subject to the modifications contained in subdivision 19e; and
    (ii) to the extent the disallowed costs are not represented by physical property, an
amount equal to the allowance for cost depletion under Minnesota Statutes 1986, section
290.09, subdivision 8 ;
    (5) the deduction for capital losses pursuant to sections 1211 and 1212 of the
Internal Revenue Code, except that:
    (i) for capital losses incurred in taxable years beginning after December 31, 1986,
capital loss carrybacks shall not be allowed;
    (ii) for capital losses incurred in taxable years beginning after December 31, 1986,
a capital loss carryover to each of the 15 taxable years succeeding the loss year shall be
allowed;
    (iii) for capital losses incurred in taxable years beginning before January 1, 1987, a
capital loss carryback to each of the three taxable years preceding the loss year, subject to
the provisions of Minnesota Statutes 1986, section 290.16, shall be allowed; and
    (iv) for capital losses incurred in taxable years beginning before January 1, 1987,
a capital loss carryover to each of the five taxable years succeeding the loss year to the
extent such loss was not used in a prior taxable year and subject to the provisions of
Minnesota Statutes 1986, section 290.16, shall be allowed;
    (6) an amount for interest and expenses relating to income not taxable for federal
income tax purposes, if (i) the income is taxable under this chapter and (ii) the interest and
expenses were disallowed as deductions under the provisions of section 171(a)(2), 265 or
291 of the Internal Revenue Code in computing federal taxable income;
    (7) in the case of mines, oil and gas wells, other natural deposits, and timber for
which percentage depletion was disallowed pursuant to subdivision 19c, clause (9), a
reasonable allowance for depletion based on actual cost. In the case of leases the deduction
must be apportioned between the lessor and lessee in accordance with rules prescribed
by the commissioner. In the case of property held in trust, the allowable deduction must
be apportioned between the income beneficiaries and the trustee in accordance with the
pertinent provisions of the trust, or if there is no provision in the instrument, on the basis
of the trust's income allocable to each;
    (8) for certified pollution control facilities placed in service in a taxable year
beginning before December 31, 1986, and for which amortization deductions were elected
under section 169 of the Internal Revenue Code of 1954, as amended through December
31, 1985, an amount equal to the allowance for depreciation under Minnesota Statutes
1986, section 290.09, subdivision 7;
    (9) amounts included in federal taxable income that are due to refunds of income,
excise, or franchise taxes based on net income or related minimum taxes paid by the
corporation to Minnesota, another state, a political subdivision of another state, the
District of Columbia, or a foreign country or possession of the United States to the extent
that the taxes were added to federal taxable income under section 290.01, subdivision 19c,
clause (1), in a prior taxable year;
    (10) 80 percent of royalties, fees, or other like income accrued or received from a
foreign operating corporation or a foreign corporation which is part of the same unitary
business as the receiving corporation, unless the income resulting from such payments or
accruals is income from sources within the United States as defined in subtitle A, chapter
1, subchapter N, part 1, of the Internal Revenue Code;
    (11) (10) income or gains from the business of mining as defined in section 290.05,
subdivision 1 , clause (a), that are not subject to Minnesota franchise tax;
    (12) (11) the amount of disability access expenditures in the taxable year which are not
allowed to be deducted or capitalized under section 44(d)(7) of the Internal Revenue Code;
    (13) (12) the amount of qualified research expenses not allowed for federal income
tax purposes under section 280C(c) of the Internal Revenue Code, but only to the extent
that the amount exceeds the amount of the credit allowed under section 290.068;
    (14) (13) the amount of salary expenses not allowed for federal income tax purposes
due to claiming the Indian employment credit under section 45A(a) of the Internal
Revenue Code;
    (15) (14) for a corporation whose foreign sales corporation, as defined in section
922 of the Internal Revenue Code, constituted a foreign operating corporation during any
taxable year ending before January 1, 1995, and a return was filed by August 15, 1996,
claiming the deduction under section 290.21, subdivision 4, for income received from
the foreign operating corporation, an amount equal to 1.23 multiplied by the amount of
income excluded under section 114 of the Internal Revenue Code, provided the income is
not income of a foreign operating company;
    (16) (15) any decrease in subpart F income, as defined in section 952(a) of the
Internal Revenue Code, for the taxable year when subpart F income is calculated without
regard to the provisions of Division C, title III, section 303(b) of Public Law 110-343;
    (17) (16) in each of the five tax years immediately following the tax year in which an
addition is required under subdivision 19c, clause (15) (14), an amount equal to one-fifth
of the delayed depreciation. For purposes of this clause, "delayed depreciation" means the
amount of the addition made by the taxpayer under subdivision 19c, clause (15) (14). The
resulting delayed depreciation cannot be less than zero;
    (18) (17) in each of the five tax years immediately following the tax year in which an
addition is required under subdivision 19c, clause (16) (15), an amount equal to one-fifth
of the amount of the addition; and
(19) (18) to the extent included in federal taxable income, discharge of indebtedness
income resulting from reacquisition of business indebtedness included in federal taxable
income under section 108(i) of the Internal Revenue Code. This subtraction applies only
to the extent that the income was included in net income in a prior year as a result of the
addition under section 290.01, subdivision 19c, clause (25) (20); and
(19) in the year that the expenditures are made for railroad track maintenance, as
defined in section 45G(d) of the Internal Revenue Code, an amount equal to the credit
awarded pursuant to section 45G(a) of the Internal Revenue Code.
EFFECTIVE DATE.This section is effective for taxable years beginning after
December 31, 2012.

    Sec. 6. Minnesota Statutes 2012, section 290.01, subdivision 29, is amended to read:
    Subd. 29. Taxable income. The term "taxable income" means:
(1) for individuals, estates, and trusts, the same as taxable net income;
(2) for corporations, the taxable net income less
(i) the net operating loss deduction under section 290.095, excluding any amount
surrendered under section 116J.8738;
(ii) the dividends received deduction under section 290.21, subdivision 4;
(iii) the exemption for operating in a job opportunity building zone under section
469.317 ; and
(iv) the exemption for operating in a biotechnology and health sciences industry
zone under section 469.337.
EFFECTIVE DATE.This section is effective for taxable years beginning after
December 31, 2012.

    Sec. 7. Minnesota Statutes 2012, section 290.06, subdivision 1, is amended to read:
    Subdivision 1. Computation, corporations. The franchise tax imposed upon
corporations shall be computed by applying to their taxable income the rate of 9.8 9.0
percent.
EFFECTIVE DATE.This section is effective for taxable years beginning after
December 31, 2012.

    Sec. 8. Minnesota Statutes 2012, section 290.06, is amended by adding a subdivision
to read:
    Subd. 36. Credit; technology corporate franchise tax certificate transfer.
A taxpayer may take a credit against the tax imposed under subdivision 1 or section
290.0921 equal to the amount of the transferable tax benefits certified to the taxpayer for
the taxable year by the commissioner of employment and economic development under
section 116J.8738. The credit can be used against the tax liability of any member of the
unitary business that is included in the combined return that is filed by the taxpayer.
EFFECTIVE DATE.This section is effective for taxable years beginning after
December 31, 2012.

    Sec. 9. Minnesota Statutes 2012, section 290.068, subdivision 1, is amended to read:
    Subdivision 1. Credit allowed. A corporation, partners in a partnership, or
shareholders in a corporation treated as an "S" corporation under section 290.9725 are
allowed a credit against the tax computed under this chapter for the taxable year equal to:
    (a) ten percent of the first $2,000,000 of the excess (if any) of
    (1) the qualified research expenses for the taxable year, over
    (2) the base amount; and
    (b) 2.5 4.5 percent on all of such excess expenses over $2,000,000.
EFFECTIVE DATE.This section is effective for taxable years beginning after
December 31, 2012.

    Sec. 10. Minnesota Statutes 2012, section 290.091, subdivision 2, is amended to read:
    Subd. 2. Definitions. For purposes of the tax imposed by this section, the following
terms have the meanings given:
    (a) "Alternative minimum taxable income" means the sum of the following for
the taxable year:
    (1) the taxpayer's federal alternative minimum taxable income as defined in section
55(b)(2) of the Internal Revenue Code;
    (2) the taxpayer's itemized deductions allowed in computing federal alternative
minimum taxable income, but excluding:
    (i) the charitable contribution deduction under section 170 of the Internal Revenue
Code;
    (ii) the medical expense deduction;
    (iii) the casualty, theft, and disaster loss deduction; and
    (iv) the impairment-related work expenses of a disabled person;
    (3) for depletion allowances computed under section 613A(c) of the Internal
Revenue Code, with respect to each property (as defined in section 614 of the Internal
Revenue Code), to the extent not included in federal alternative minimum taxable income,
the excess of the deduction for depletion allowable under section 611 of the Internal
Revenue Code for the taxable year over the adjusted basis of the property at the end of the
taxable year (determined without regard to the depletion deduction for the taxable year);
    (4) to the extent not included in federal alternative minimum taxable income, the
amount of the tax preference for intangible drilling cost under section 57(a)(2) of the
Internal Revenue Code determined without regard to subparagraph (E);
    (5) to the extent not included in federal alternative minimum taxable income, the
amount of interest income as provided by section 290.01, subdivision 19a, clause (1); and
    (6) the amount of addition required by section 290.01, subdivision 19a, clauses (7)
to (9), (12), (13), and (16) to (18);
    less the sum of the amounts determined under the following:
    (1) interest income as defined in section 290.01, subdivision 19b, clause (1);
    (2) an overpayment of state income tax as provided by section 290.01, subdivision
19b , clause (2), to the extent included in federal alternative minimum taxable income;
    (3) the amount of investment interest paid or accrued within the taxable year on
indebtedness to the extent that the amount does not exceed net investment income, as
defined in section 163(d)(4) of the Internal Revenue Code. Interest does not include
amounts deducted in computing federal adjusted gross income;
    (4) amounts subtracted from federal taxable income as provided by section 290.01,
subdivision 19b , clauses (6), (8) to (14), and (16), and (18); and
(5) the amount of the net operating loss allowed under section 290.095, subdivision
11 , paragraph (c).
    In the case of an estate or trust, alternative minimum taxable income must be
computed as provided in section 59(c) of the Internal Revenue Code.
    (b) "Investment interest" means investment interest as defined in section 163(d)(3)
of the Internal Revenue Code.
    (c) "Net minimum tax" means the minimum tax imposed by this section.
    (d) "Regular tax" means the tax that would be imposed under this chapter (without
regard to this section and section 290.032), reduced by the sum of the nonrefundable
credits allowed under this chapter.
    (e) "Tentative minimum tax" equals 6.4 percent of alternative minimum taxable
income after subtracting the exemption amount determined under subdivision 3.
EFFECTIVE DATE.This section is effective for taxable years beginning after
December 31, 2012.

    Sec. 11. Minnesota Statutes 2012, section 290.0921, subdivision 1, is amended to read:
    Subdivision 1. Tax imposed. In addition to the taxes computed under this chapter
without regard to this section, the franchise tax imposed on corporations includes a tax
equal to the excess, if any, for the taxable year of:
(1) 5.8 5.3 percent of Minnesota alternative minimum taxable income; over
(2) the tax imposed under section 290.06, subdivision 1, without regard to this section.
EFFECTIVE DATE.This section is effective for taxable years beginning after
December 31, 2012.

    Sec. 12. Minnesota Statutes 2012, section 290.0921, subdivision 3, is amended to read:
    Subd. 3. Alternative minimum taxable income. "Alternative minimum taxable
income" is Minnesota net income as defined in section 290.01, subdivision 19, and
includes the adjustments and tax preference items in sections 56, 57, 58, and 59(d), (e),
(f), and (h) of the Internal Revenue Code. If a corporation files a separate company
Minnesota tax return, the minimum tax must be computed on a separate company basis.
If a corporation is part of a tax group filing a unitary return, the minimum tax must be
computed on a unitary basis. The following adjustments must be made.
(1) For purposes of the depreciation adjustments under section 56(a)(1) and
56(g)(4)(A) of the Internal Revenue Code, the basis for depreciable property placed in
service in a taxable year beginning before January 1, 1990, is the adjusted basis for federal
income tax purposes, including any modification made in a taxable year under section
290.01, subdivision 19e , or Minnesota Statutes 1986, section 290.09, subdivision 7,
paragraph (c).
For taxable years beginning after December 31, 2000, the amount of any remaining
modification made under section 290.01, subdivision 19e, or Minnesota Statutes 1986,
section 290.09, subdivision 7, paragraph (c), not previously deducted is a depreciation
allowance in the first taxable year after December 31, 2000.
(2) The portion of the depreciation deduction allowed for federal income tax
purposes under section 168(k) of the Internal Revenue Code that is required as an addition
under section 290.01, subdivision 19c, clause (15) (14), is disallowed in determining
alternative minimum taxable income.
(3) The subtraction for depreciation allowed under section 290.01, subdivision
19d , clause (17) (16), is allowed as a depreciation deduction in determining alternative
minimum taxable income.
(4) The alternative tax net operating loss deduction under sections 56(a)(4) and 56(d)
of the Internal Revenue Code does not apply.
(5) The special rule for certain dividends under section 56(g)(4)(C)(ii) of the Internal
Revenue Code does not apply.
(6) The special rule for dividends from section 936 companies under section
56(g)(4)(C)(iii) does not apply.
(7) The tax preference for depletion under section 57(a)(1) of the Internal Revenue
Code does not apply.
(8) The tax preference for intangible drilling costs under section 57(a)(2) of the
Internal Revenue Code must be calculated without regard to subparagraph (E) and the
subtraction under section 290.01, subdivision 19d, clause (4).
(9) The tax preference for tax exempt interest under section 57(a)(5) of the Internal
Revenue Code does not apply.
(10) The tax preference for charitable contributions of appreciated property under
section 57(a)(6) of the Internal Revenue Code does not apply.
(11) For purposes of calculating the tax preference for accelerated depreciation or
amortization on certain property placed in service before January 1, 1987, under section
57(a)(7) of the Internal Revenue Code, the deduction allowable for the taxable year is the
deduction allowed under section 290.01, subdivision 19e.
For taxable years beginning after December 31, 2000, the amount of any remaining
modification made under section 290.01, subdivision 19e, not previously deducted is a
depreciation or amortization allowance in the first taxable year after December 31, 2004.
(12) For purposes of calculating the adjustment for adjusted current earnings in
section 56(g) of the Internal Revenue Code, the term "alternative minimum taxable
income" as it is used in section 56(g) of the Internal Revenue Code, means alternative
minimum taxable income as defined in this subdivision, determined without regard to the
adjustment for adjusted current earnings in section 56(g) of the Internal Revenue Code.
(13) For purposes of determining the amount of adjusted current earnings under
section 56(g)(3) of the Internal Revenue Code, no adjustment shall be made under section
56(g)(4) of the Internal Revenue Code with respect to (i) the amount of foreign dividend
gross-up subtracted as provided in section 290.01, subdivision 19d, clause (1), (ii) the
amount of refunds of income, excise, or franchise taxes subtracted as provided in section
290.01, subdivision 19d , clause (9), or (iii) the amount of royalties, fees or other like
income subtracted as provided in section 290.01, subdivision 19d, clause (10).
(14) Alternative minimum taxable income excludes the income from operating in a
job opportunity building zone as provided under section 469.317.
(15) Alternative minimum taxable income excludes the income from operating in a
biotechnology and health sciences industry zone as provided under section 469.337.
Items of tax preference must not be reduced below zero as a result of the
modifications in this subdivision.
EFFECTIVE DATE.This section is effective for taxable years beginning after
December 31, 2012.

    Sec. 13. Minnesota Statutes 2012, section 290.0922, subdivision 1, is amended to read:
    Subdivision 1. Imposition. (a) In addition to the tax imposed by this chapter without
regard to this section, the franchise tax imposed on a corporation required to file under
section 289A.08, subdivision 3, other than a corporation treated as an "S" corporation
under section 290.9725 for the taxable year includes a tax equal to the following amounts:

	If the sum of the corporation's Minnesota property, payrolls, and sales or receipts is:							the tax equals:
			less than		$	500,000 930,000		$	0
		$	500,000 930,000	to	$	999,999 1,869,999		$	100 190
		$	1,000,000 1,870,000	to	$	4,999,999 9,339,999		$	300 560
		$	5,000,000 9,340,000	to	$	9,999,999 18,679,999		$	1,000 1,870
		$	10,000,000 18,680,000	to	$	19,999,999 37,359,999		$	2,000 3,740
		$	20,000,000 37,360,000	or	more			$	5,000 9,340

(b) A tax is imposed for each taxable year on a corporation required to file a return
under section 289A.12, subdivision 3, that is treated as an "S" corporation under section
290.9725 and on a partnership required to file a return under section 289A.12, subdivision
3 , other than a partnership that derives over 80 percent of its income from farming. The
tax imposed under this paragraph is due on or before the due date of the return for the
taxpayer due under section 289A.18, subdivision 1. The commissioner shall prescribe
the return to be used for payment of this tax. The tax under this paragraph is equal to
the following amounts:

	If the sum of the S corporation's or partnership's Minnesota property, payrolls, and sales or receipts is:							the tax equals:
			less than		$	500,000 930,000		$	0
		$	500,000 930,000	to	$	999,999 1,869,999		$	100 190
		$	1,000,000 1,870,000	to	$	4,999,999 9,339,999		$	300 560
		$	5,000,000 9,340,000	to	$	9,999,999 18,679,999		$	1,000 1,870
		$	10,000,000 18,680,000	to	$	19,999,999 37,359,999		$	2,000 3,740
		$	20,000,000 37,360,000	or	more			$	5,000 9,340

(c) The commissioner shall adjust the dollar amounts of both the tax and the property,
payrolls, and sales or receipts thresholds in paragraphs (a) and (b) by the percentage
determined pursuant to the provisions of section 1(f) of the Internal Revenue Code, except
that in section 1(f)(3)(B) the year 2012 must be substituted for the year 1992. For 2014,
the commissioner shall determine the percentage change from the 12 months ending on
August 31, 2012, to the 12 months ending on August 31, 2013, and in each subsequent
year, from the 12 months ending on August 31, 2012, to the 12 months ending on August
31 of the year preceding the taxable year. The determination of the commissioner pursuant
to this subdivision is not a rule subject to the Administrative Procedure Act contained in
chapter 14. The tax amounts as adjusted must be rounded to the nearest $10 amount and
the threshold amounts must be adjusted to the nearest $10,000 amount. For tax amounts
that end in $5, the amount is rounded up to the nearest $10 amount and for threshold
amounts that end in $5,000, the amount is rounded up to the nearest $10,000.
EFFECTIVE DATE.This section is effective for taxable years beginning after
December 31, 2012.

    Sec. 14. Minnesota Statutes 2012, section 290.095, subdivision 2, is amended to read:
    Subd. 2. Defined and limited. (a) The term "net operating loss" as used in this
section shall mean a net operating loss as defined in section 172(c) of the Internal Revenue
Code, with the modifications specified in subdivision 4. The deductions provided in
section 290.21 and the modification provided in section 290.01, subdivision 19d, clause
(10), cannot be used in the determination of a net operating loss.
(b) The term "net operating loss deduction" as used in this section means the
aggregate of the net operating loss carryovers to the taxable year, computed in accordance
with subdivision 3. The provisions of section 172(b) of the Internal Revenue Code relating
to the carryback of net operating losses, do not apply.
EFFECTIVE DATE.This section is effective for taxable years beginning after
December 31, 2012.

    Sec. 15. Minnesota Statutes 2012, section 290.17, subdivision 4, is amended to read:
    Subd. 4. Unitary business principle. (a) If a trade or business conducted wholly
within this state or partly within and partly without this state is part of a unitary business,
the entire income of the unitary business is subject to apportionment pursuant to section
290.191 . Notwithstanding subdivision 2, paragraph (c), none of the income of a unitary
business is considered to be derived from any particular source and none may be allocated
to a particular place except as provided by the applicable apportionment formula. The
provisions of this subdivision do not apply to business income subject to subdivision 5,
income of an insurance company, or income of an investment company determined under
section 290.36.
(b) The term "unitary business" means business activities or operations which
result in a flow of value between them. The term may be applied within a single legal
entity or between multiple entities and without regard to whether each entity is a sole
proprietorship, a corporation, a partnership or a trust.
(c) Unity is presumed whenever there is unity of ownership, operation, and use,
evidenced by centralized management or executive force, centralized purchasing,
advertising, accounting, or other controlled interaction, but the absence of these
centralized activities will not necessarily evidence a nonunitary business. Unity is also
presumed when business activities or operations are of mutual benefit, dependent upon or
contributory to one another, either individually or as a group.
(d) Where a business operation conducted in Minnesota is owned by a business
entity that carries on business activity outside the state different in kind from that
conducted within this state, and the other business is conducted entirely outside the state, it
is presumed that the two business operations are unitary in nature, interrelated, connected,
and interdependent unless it can be shown to the contrary.
(e) Unity of ownership is not deemed to exist when a corporation is involved unless
that corporation is a member of a group of two or more business entities and more than 50
percent of the voting stock of each member of the group is directly or indirectly owned
by a common owner or by common owners, either corporate or noncorporate, or by one
or more of the member corporations of the group. For this purpose, the term "voting
stock" shall include membership interests of mutual insurance holding companies formed
under section 66A.40.
(f) The net income and apportionment factors under section 290.191 or 290.20 of
foreign corporations and other foreign entities which are part of a unitary business shall not
be included in the net income or the apportionment factors of the unitary business; except
that the income and apportionment factors of a foreign corporation, foreign partnership, or
other foreign entity, that are included in the federal taxable income, as defined in section
63 of the Internal Revenue Code as amended through the date named in section 290.01,
subdivision 19, of a domestic corporation, domestic entity, or individual must be included
in determining net income and the factors to be used in the apportionment of net income
pursuant to section 290.191 or 290.20. A foreign corporation or other foreign entity which
is not part of a unitary business and which is required to file a return under this chapter shall
file on a separate return basis. The net income and apportionment factors under section
290.191 or 290.20 of foreign operating corporations shall not be included in the net income
or the apportionment factors of the unitary business except as provided in paragraph (g).
(g) The adjusted net income of a foreign operating corporation shall be deemed to
be paid as a dividend on the last day of its taxable year to each shareholder thereof, in
proportion to each shareholder's ownership, with which such corporation is engaged in
a unitary business. Such deemed dividend shall be treated as a dividend under section
290.21, subdivision 4.
Dividends actually paid by a foreign operating corporation to a corporate shareholder
which is a member of the same unitary business as the foreign operating corporation shall
be eliminated from the net income of the unitary business in preparing a combined report
for the unitary business. The adjusted net income of a foreign operating corporation
shall be its net income adjusted as follows:
(1) any taxes paid or accrued to a foreign country, the commonwealth of Puerto
Rico, or a United States possession or political subdivision of any of the foregoing shall
be a deduction; and
(2) the subtraction from federal taxable income for payments received from foreign
corporations or foreign operating corporations under section 290.01, subdivision 19d,
clause (10), shall not be allowed.
If a foreign operating corporation incurs a net loss, neither income nor deduction from
that corporation shall be included in determining the net income of the unitary business.
(h) (g) For purposes of determining the net income of a unitary business and the
factors to be used in the apportionment of net income pursuant to section 290.191 or
290.20 , there must be included only the income and apportionment factors of domestic
corporations or other domestic entities other than foreign operating corporations that are
determined to be part of the unitary business pursuant to this subdivision, notwithstanding
that foreign corporations or other foreign entities might be included in the unitary
business; except that the income and apportionment factors of a foreign corporation,
foreign partnership, or other foreign entity, that is included in the federal taxable income,
as defined in section 63 of the Internal Revenue Code as amended through the date
named in section 290.01, subdivision 19, of a domestic corporation, domestic entity, or
individual must be included in determining net income and the factors to be used in the
apportionment of net income pursuant to section 290.191 or 290.20.
(i) Deductions for expenses, interest, or taxes otherwise allowable under this chapter
that are connected with or allocable against dividends, deemed dividends described
in paragraph (g), or royalties, fees, or other like income described in section 290.01,
subdivision 19d , clause (10), shall not be disallowed.
(j) (h) Each corporation or other entity, except a sole proprietorship, that is part of
a unitary business must file combined reports as the commissioner determines. On the
reports, all intercompany transactions between entities included pursuant to paragraph (h)
(g) must be eliminated and the entire net income of the unitary business determined in
accordance with this subdivision is apportioned among the entities by using each entity's
Minnesota factors for apportionment purposes in the numerators of the apportionment
formula and the total factors for apportionment purposes of all entities included pursuant to
paragraph (h) (g) in the denominators of the apportionment formula. All sales of the unitary
business made within this state pursuant to section 290.191 or 290.20 must be included
on the combined report of a corporation or other entity that is a member of the unitary
business and is subject to the jurisdiction of this state to impose tax under this chapter.
(k) (i) If a corporation has been divested from a unitary business and is included in a
combined report for a fractional part of the common accounting period of the combined
report:
(1) its income includable in the combined report is its income incurred for that part
of the year determined by proration or separate accounting; and
(2) its sales, property, and payroll included in the apportionment formula must
be prorated or accounted for separately.
EFFECTIVE DATE.This section is effective for taxable years beginning after
December 31, 2012.

    Sec. 16. Minnesota Statutes 2012, section 290.191, subdivision 5, is amended to read:
    Subd. 5. Determination of sales factor. For purposes of this section, the following
rules apply in determining the sales factor.
    (a) The sales factor includes all sales, gross earnings, or receipts received in the
ordinary course of the business, except that the following types of income are not included
in the sales factor:
    (1) interest;
    (2) dividends;
    (3) sales of capital assets as defined in section 1221 of the Internal Revenue Code;
    (4) sales of property used in the trade or business, except sales of leased property of
a type which is regularly sold as well as leased; and
    (5) sales of debt instruments as defined in section 1275(a)(1) of the Internal Revenue
Code or sales of stock; and.
    (6) royalties, fees, or other like income of a type which qualify for a subtraction from
federal taxable income under section 290.01, subdivision 19d, clause (10).
    (b) Sales of tangible personal property are made within this state if the property is
received by a purchaser at a point within this state, and the taxpayer is taxable in this state,
regardless of the f.o.b. point, other conditions of the sale, or the ultimate destination
of the property.
    (c) Tangible personal property delivered to a common or contract carrier or foreign
vessel for delivery to a purchaser in another state or nation is a sale in that state or nation,
regardless of f.o.b. point or other conditions of the sale.
    (d) Notwithstanding paragraphs (b) and (c), when intoxicating liquor, wine,
fermented malt beverages, cigarettes, or tobacco products are sold to a purchaser who is
licensed by a state or political subdivision to resell this property only within the state of
ultimate destination, the sale is made in that state.
    (e) Sales made by or through a corporation that is qualified as a domestic
international sales corporation under section 992 of the Internal Revenue Code are not
considered to have been made within this state.
    (f) Sales, rents, royalties, and other income in connection with real property is
attributed to the state in which the property is located.
    (g) Receipts from the lease or rental of tangible personal property, including finance
leases and true leases, must be attributed to this state if the property is located in this
state and to other states if the property is not located in this state. Receipts from the
lease or rental of moving property including, but not limited to, motor vehicles, rolling
stock, aircraft, vessels, or mobile equipment are included in the numerator of the receipts
factor to the extent that the property is used in this state. The extent of the use of moving
property is determined as follows:
    (1) A motor vehicle is used wholly in the state in which it is registered.
    (2) The extent that rolling stock is used in this state is determined by multiplying
the receipts from the lease or rental of the rolling stock by a fraction, the numerator of
which is the miles traveled within this state by the leased or rented rolling stock and the
denominator of which is the total miles traveled by the leased or rented rolling stock.
    (3) The extent that an aircraft is used in this state is determined by multiplying the
receipts from the lease or rental of the aircraft by a fraction, the numerator of which is
the number of landings of the aircraft in this state and the denominator of which is the
total number of landings of the aircraft.
    (4) The extent that a vessel, mobile equipment, or other mobile property is used in
the state is determined by multiplying the receipts from the lease or rental of the property
by a fraction, the numerator of which is the number of days during the taxable year the
property was in this state and the denominator of which is the total days in the taxable year.
    (h) Royalties and other income not described in paragraph (a), clause (6), received
for the use of or for the privilege of using intangible property, including patents,
know-how, formulas, designs, processes, patterns, copyrights, trade names, service names,
franchises, licenses, contracts, customer lists, or similar items, must be attributed to the
state in which the property is used by the purchaser. If the property is used in more
than one state, the royalties or other income must be apportioned to this state pro rata
according to the portion of use in this state. If the portion of use in this state cannot be
determined, the royalties or other income must be excluded from both the numerator
and the denominator. Intangible property is used in this state if the purchaser uses the
intangible property or the rights therein in the regular course of its business operations in
this state, regardless of the location of the purchaser's customers.
    (i) Sales of intangible property are made within the state in which the property is
used by the purchaser. If the property is used in more than one state, the sales must be
apportioned to this state pro rata according to the portion of use in this state. If the
portion of use in this state cannot be determined, the sale must be excluded from both the
numerator and the denominator of the sales factor. Intangible property is used in this
state if the purchaser used the intangible property in the regular course of its business
operations in this state.
    (j) Receipts from the performance of services must be attributed to the state where
the services are received. For the purposes of this section, receipts from the performance
of services provided to a corporation, partnership, or trust may only be attributed to a state
where it has a fixed place of doing business. If the state where the services are received is
not readily determinable or is a state where the corporation, partnership, or trust receiving
the service does not have a fixed place of doing business, the services shall be deemed
to be received at the location of the office of the customer from which the services were
ordered in the regular course of the customer's trade or business. If the ordering office
cannot be determined, the services shall be deemed to be received at the office of the
customer to which the services are billed.
    (k) For the purposes of this subdivision and subdivision 6, paragraph (l), receipts
from management, distribution, or administrative services performed by a corporation
or trust for a fund of a corporation or trust regulated under United States Code, title 15,
sections 80a-1 through 80a-64, must be attributed to the state where the shareholder of
the fund resides. Under this paragraph, receipts for services attributed to shareholders are
determined on the basis of the ratio of: (1) the average of the outstanding shares in the
fund owned by shareholders residing within Minnesota at the beginning and end of each
year; and (2) the average of the total number of outstanding shares in the fund at the
beginning and end of each year. Residence of the shareholder, in the case of an individual,
is determined by the mailing address furnished by the shareholder to the fund. Residence
of the shareholder, when the shares are held by an insurance company as a depositor for
the insurance company policyholders, is the mailing address of the policyholders. In
the case of an insurance company holding the shares as a depositor for the insurance
company policyholders, if the mailing address of the policyholders cannot be determined
by the taxpayer, the receipts must be excluded from both the numerator and denominator.
Residence of other shareholders is the mailing address of the shareholder.
EFFECTIVE DATE.This section is effective for taxable years beginning after
December 31, 2012.

    Sec. 17. Minnesota Statutes 2012, section 290.21, subdivision 4, is amended to read:
    Subd. 4. Dividends received from another corporation. (a)(1) Eighty percent
of dividends received by a corporation during the taxable year from another corporation,
in which the recipient owns 20 percent or more of the stock, by vote and value, not
including stock described in section 1504(a)(4) of the Internal Revenue Code when the
corporate stock with respect to which dividends are paid does not constitute the stock in
trade of the taxpayer or would not be included in the inventory of the taxpayer, or does not
constitute property held by the taxpayer primarily for sale to customers in the ordinary
course of the taxpayer's trade or business, or when the trade or business of the taxpayer
does not consist principally of the holding of the stocks and the collection of the income
and gains therefrom; and
    (2)(i) the remaining 20 percent of dividends if the dividends received are the stock in
an affiliated company transferred in an overall plan of reorganization and the dividend
is eliminated in consolidation under Treasury Department Regulation 1.1502-14(a), as
amended through December 31, 1989;
    (ii) the remaining 20 percent of dividends if the dividends are received from a
corporation which is subject to tax under section 290.36 and which is a member of an
affiliated group of corporations as defined by the Internal Revenue Code and the dividend
is eliminated in consolidation under Treasury Department Regulation 1.1502-14(a), as
amended through December 31, 1989, or is deducted under an election under section
243(b) of the Internal Revenue Code; or
    (iii) the remaining 20 percent of the dividends if the dividends are received from a
property and casualty insurer as defined under section 60A.60, subdivision 8, which is a
member of an affiliated group of corporations as defined by the Internal Revenue Code
and either: (A) the dividend is eliminated in consolidation under Treasury Regulation
1.1502-14(a), as amended through December 31, 1989; or (B) the dividend is deducted
under an election under section 243(b) of the Internal Revenue Code.
    (b) Seventy percent of dividends received by a corporation during the taxable year
from another corporation in which the recipient owns less than 20 percent of the stock,
by vote or value, not including stock described in section 1504(a)(4) of the Internal
Revenue Code when the corporate stock with respect to which dividends are paid does not
constitute the stock in trade of the taxpayer, or does not constitute property held by the
taxpayer primarily for sale to customers in the ordinary course of the taxpayer's trade or
business, or when the trade or business of the taxpayer does not consist principally of the
holding of the stocks and the collection of income and gain therefrom.
    (c) The dividend deduction provided in this subdivision shall be allowed only with
respect to dividends that are included in a corporation's Minnesota taxable net income
for the taxable year.
    The dividend deduction provided in this subdivision does not apply to a dividend
from a corporation which, for the taxable year of the corporation in which the distribution
is made or for the next preceding taxable year of the corporation, is a corporation exempt
from tax under section 501 of the Internal Revenue Code.
The dividend deduction provided in this subdivision does not apply to a dividend
received from a real estate investment trust as defined in section 856 of the Internal
Revenue Code.
    The dividend deduction provided in this subdivision applies to the amount of
regulated investment company dividends only to the extent determined under section
854(b) of the Internal Revenue Code.
    The dividend deduction provided in this subdivision shall not be allowed with
respect to any dividend for which a deduction is not allowed under the provisions of
section 246(c) of the Internal Revenue Code.
    (d) If dividends received by a corporation that does not have nexus with Minnesota
under the provisions of Public Law 86-272 are included as income on the return of
an affiliated corporation permitted or required to file a combined report under section
290.17, subdivision 4 , or 290.34, subdivision 2, then for purposes of this subdivision the
determination as to whether the trade or business of the corporation consists principally
of the holding of stocks and the collection of income and gains therefrom shall be made
with reference to the trade or business of the affiliated corporation having a nexus with
Minnesota.
    (e) The deduction provided by this subdivision does not apply if the dividends are
paid by a FSC as defined in section 922 of the Internal Revenue Code.
    (f) If one or more of the members of the unitary group whose income is included on
the combined report received a dividend, the deduction under this subdivision for each
member of the unitary business required to file a return under this chapter is the product
of: (1) 100 percent of the dividends received by members of the group; (2) the percentage
allowed pursuant to paragraph (a) or (b); and (3) the percentage of the taxpayer's business
income apportionable to this state for the taxable year under section 290.191 or 290.20.
EFFECTIVE DATE.This section is effective for taxable years beginning after
December 31, 2012.

    Sec. 18. Minnesota Statutes 2012, section 298.01, subdivision 3b, is amended to read:
    Subd. 3b. Deductions. (a) For purposes of determining taxable income under
subdivision 3, the deductions from gross income include only those expenses necessary
to convert raw ores to marketable quality. Such expenses include costs associated with
refinement but do not include expenses such as transportation, stockpiling, marketing, or
marine insurance that are incurred after marketable ores are produced, unless the expenses
are included in gross income. The allowable deductions from a mine or plant that mines
and produces more than one mineral, metal, or energy resource must be determined
separately for the purposes of computing the deduction in section 290.01, subdivision 19c,
clause (9). These deductions may be combined on one occupation tax return to arrive at
the deduction from gross income for all production.
(b) The provisions of section 290.01, subdivisions 19c, clauses (6) and (9), and 19d,
clauses (7) and (11) (10), are not used to determine taxable income.
EFFECTIVE DATE.This section is effective for taxable years beginning after
December 31, 2012.

    Sec. 19. REPEALER.
Minnesota Statutes 2012, sections 290.01, subdivision 6b; and 290.0921, subdivision
7, are repealed.
EFFECTIVE DATE.This section is effective for taxable years beginning after
December 31, 2012.

ARTICLE 3

SALES AND USE TAX

    Section 1. Minnesota Statutes 2012, section 16C.03, subdivision 18, is amended to read:
    Subd. 18. Contracts with foreign vendors. (a) The commissioner and other
agencies to which this section applies and the legislative branch of government shall,
subject to paragraph (d), cancel a contract for goods or services from a vendor or an
affiliate of a vendor or suspend or debar a vendor or an affiliate of a vendor from future
contracts upon notification from the commissioner of revenue that the vendor or an
affiliate of the vendor has not registered to collect the sales and use tax imposed under
chapter 297A on its sales in Minnesota or to a destination in Minnesota. This subdivision
shall not apply to state colleges and universities, the courts, and any agency in the judicial
branch of government. For purposes of this subdivision, the term "affiliate" means any
person or entity that is controlled by, or is under common control of, a vendor through
stock ownership or other affiliation.
    (b) Beginning January 1, 2006, Each vendor or affiliate of a vendor selling goods or
services, subject to tax under chapter 297A, to an agency or the legislature must register
with the commissioner of revenue as provided in section 297A.83, and comply with all legal
requirements imposed on a person maintaining a place of business in this state, including
the requirement to collect and remit sales and use tax on all taxable sales to customers in
the state, and provide its Minnesota sales and use tax business identification number, upon
request, to show that the vendor is registered to collect Minnesota sales or use tax.
    (c) The commissioner of revenue shall periodically provide to the commissioner
and the legislative branch a list of vendors who have not registered to collect Minnesota
sales and use tax and who are subject to being suspended or debarred as vendors or having
their contracts canceled.
    (d) The provisions of this subdivision may be waived by the commissioner or the
legislative branch when the vendor is the single source of such goods or services, in the
event of an emergency, or when it is in the best interests of the state as determined by the
commissioner in consultation with the commissioner of revenue. Such consultation is not
a disclosure violation under chapter 270B.

    Sec. 2. Minnesota Statutes 2012, section 297A.61, subdivision 3, is amended to read:
    Subd. 3. Sale and purchase. (a) "Sale" and "purchase" include, but are not limited
to, each of the transactions listed in this subdivision.
    (b) Sale and purchase include:
    (1) any transfer of title or possession, or both, of tangible personal property, whether
absolutely or conditionally, for a consideration in money or by exchange or barter; and
    (2) the leasing of or the granting of a license to use or consume, for a consideration
in money or by exchange or barter, tangible personal property, other than a manufactured
home used for residential purposes for a continuous period of 30 days or more.
    (c) Sale and purchase include the production, fabrication, printing, or processing of
tangible personal property for a consideration for consumers who furnish either directly or
indirectly the materials used in the production, fabrication, printing, or processing.
    (d) Sale and purchase include the preparing for a consideration of food.
Notwithstanding section 297A.67, subdivision 2, taxable food includes, but is not limited
to, the following:
    (1) prepared food sold by the retailer;
    (2) soft drinks;
    (3) candy;
    (4) dietary supplements; and
    (5) all food sold through vending machines.
    (e) A sale and a purchase includes the furnishing for a consideration of electricity,
gas, water, or steam for use or consumption within this state.
    (f) A sale and a purchase includes:
    (1) the transfer for a consideration of prewritten computer software whether
delivered electronically, by load and leave, or otherwise.; and
    (2) the receipt of custom computer software whether delivered electronically, by
load and leave, or otherwise.
    (g) A sale and a purchase includes the furnishing for a consideration of the following
services:
    (1) the privilege of admission to places of amusement, exhibitions, recreational
areas, or professional athletic events, including the rental of box seats and suites at
professional athletic events, and the making available of amusement devices, tanning
facilities, reducing salons, steam baths, Turkish baths, health clubs, and spas or athletic
facilities. The term "exhibitions" includes, but is not limited to, trade shows, boat shows,
home shows, garden shows, and other similar events;
    (2) lodging and related services by a hotel, rooming house, resort, campground,
motel, or trailer camp, including furnishing the guest of the facility with access to
telecommunication services, and the granting of any similar license to use real property in
a specific facility, other than the renting or leasing of it for a continuous period of 30 days
or more under an enforceable written agreement that may not be terminated without prior
notice and including accommodations intermediary services provided in connection with
other services provided under this clause;
    (3) nonresidential parking services, whether on a contractual, hourly, or other
periodic basis, except for parking at a meter;
    (4) the granting of membership in a club, association, or other organization if:
    (i) the club, association, or other organization makes available for the use of its
members sports and athletic facilities, without regard to whether a separate charge is
assessed for use of the facilities; and
    (ii) use of the sports and athletic facility is not made available to the general public
on the same basis as it is made available to members.
Granting of membership means both onetime initiation fees and periodic membership
dues. Sports and athletic facilities include golf courses; tennis, racquetball, handball, and
squash courts; basketball and volleyball facilities; running tracks; exercise equipment;
swimming pools; and other similar athletic or sports facilities;
    (5) delivery of aggregate materials by a third party, excluding delivery of aggregate
material used in road construction; and delivery of concrete block by a third party if the
delivery would be subject to the sales tax if provided by the seller of the concrete block.
For purposes of this clause, "road construction" means construction of:
    (i) public roads;
    (ii) cartways; and
    (iii) private roads in townships located outside of the seven-county metropolitan area
up to the point of the emergency response location sign; and
    (6) services as provided in this clause:
    (i) laundry and dry cleaning services including cleaning, pressing, repairing, altering,
and storing clothes, linen services and supply, cleaning and blocking hats, and carpet,
drapery, upholstery, and industrial cleaning. Laundry and dry cleaning services do not
include services provided by coin operated facilities operated by the customer;
    (ii) motor vehicle washing, waxing, and cleaning services, including services
provided by coin operated facilities operated by the customer, and rustproofing,
undercoating, and towing of motor vehicles;
    (iii) building and residential cleaning, maintenance, and disinfecting services and
pest control and exterminating services;
    (iv) detective, security, burglar, fire alarm, and armored car services; but not including
services performed within the jurisdiction they serve by off-duty licensed peace officers as
defined in section 626.84, subdivision 1, or services provided by a nonprofit organization
for monitoring and electronic surveillance of persons placed on in-home detention
pursuant to court order or under the direction of the Minnesota Department of Corrections;
    (v) pet grooming services;
    (vi) lawn care, fertilizing, mowing, spraying and sprigging services; garden planting
and maintenance; tree, bush, and shrub pruning, bracing, spraying, and surgery; indoor
plant care; tree, bush, shrub, and stump removal, except when performed as part of a land
clearing contract as defined in section 297A.68, subdivision 40; and tree trimming for
public utility lines. Services performed under a construction contract for the installation of
shrubbery, plants, sod, trees, bushes, and similar items are not taxable;
    (vii) massages, except when provided by a licensed health care facility or
professional or upon written referral from a licensed health care facility or professional for
treatment of illness, injury, or disease; and
    (viii) the furnishing of lodging, board, and care services for animals in kennels and
other similar arrangements, but excluding veterinary and horse boarding services.
    In applying the provisions of this chapter, the terms "tangible personal property"
and "retail sale" include taxable services listed in clause (6), items (i) to (vi) and (viii),
and the provision of these taxable services, unless specifically provided otherwise.
Services performed by an employee for an employer are not taxable. Services performed
by a partnership or association for another partnership or association are not taxable if
one of the entities owns or controls more than 80 percent of the voting power of the
equity interest in the other entity. Services performed between members of an affiliated
group of corporations are not taxable. For purposes of the preceding sentence, "affiliated
group of corporations" means those entities that would be classified as members of an
affiliated group as defined under United States Code, title 26, section 1504, disregarding
the exclusions in section 1504(b).
    For purposes of clause (5), "road construction" means construction of (1) public
roads, (2) cartways, and (3) private roads in townships located outside of the seven-county
metropolitan area up to the point of the emergency response location sign.
    (h) A sale and a purchase includes the furnishing for a consideration of tangible
personal property or taxable services by the United States or any of its agencies or
instrumentalities, or the state of Minnesota, its agencies, instrumentalities, or political
subdivisions.
    (i) A sale and a purchase includes the furnishing for a consideration of
telecommunications services, ancillary services associated with telecommunication
services, cable and pay television services, and direct satellite services. Telecommunication
services include, but are not limited to, the following services, as defined in section
297A.669 : air-to-ground radiotelephone service, mobile telecommunication service,
postpaid calling service, prepaid calling service, prepaid wireless calling service, and
private communication services. The services in this paragraph are taxed to the extent
allowed under federal law.
    (j) A sale and a purchase includes the furnishing for a consideration of installation if
the installation charges would be subject to the sales tax if the installation were provided
by the seller of the item being installed.
    (k) A sale and a purchase includes the rental of a vehicle by a motor vehicle dealer
to a customer when (1) the vehicle is rented by the customer for a consideration, or (2)
the motor vehicle dealer is reimbursed pursuant to a service contract as defined in section
59B.02, subdivision 11.
    (l) A sale and a purchase includes the furnishing for a consideration of specified
digital products or other digital products and granting the right for a consideration to use
specified digital products or other digital products on a temporary or permanent basis and
regardless of whether the purchaser is required to make continued payments for such
right. Wherever the term "tangible personal property" is used in this chapter, other than in
subdivisions 10 and 38, the provisions also apply to specified digital products, or other
digital products, unless specifically provided otherwise or the context indicates otherwise.
(m) A sale and purchase includes:
(1) any service performed for the care, cleansing, beautification, or alteration of the
appearance of the body, skin, nails, or hair, or in the enhancement of personal relaxation,
appearance, or health, but excluding mortuary services;
(2) repair labor for:
(i) farm machinery as defined under section 297A.61, subdivision 12;
(ii) motor vehicles as defined under section 297B.01, subdivision 11, except for
motor vehicles sold at wholesale auction at an auto auction facility; and
(iii) any other tangible personal property;
(3) warehousing or storage services for tangible personal property excluding storage
of farm products and storage of electronic data; and
(4) the furnishing for consideration of documents prepared in connection with any
legal proceeding, including a trial hearing, deposition, arbitration, or mediation.
(n) A sale and purchase includes any personal service not subject to taxation under
paragraph (g), clause (6), or paragraph (m), including, but not limited to, event planning,
dating services, personal shopping, personal concierge services, or personal or household
organizing services, but excluding the services in section 297A.715, subdivisions 19 to 27.
(o) In applying the provisions of this chapter, the terms "tangible personal property"
and "retail sale" include taxable services listed in paragraph (g), clause (6), items (i) to (vi)
and (viii), and paragraphs (m) and (n), and the provision of these taxable services, unless
specifically provided otherwise.
EFFECTIVE DATE.This section is effective for sales and purchases made after
June 30, 2013.

    Sec. 3. Minnesota Statutes 2012, section 297A.61, subdivision 4, is amended to read:
    Subd. 4. Retail sale. (a) A "retail sale" means:
    (1) any sale, lease, or rental of tangible personal property for any purpose, other than
resale, sublease, or subrent of items by the purchaser in the normal course of business
as defined in subdivision 21; and
    (2) any sale of a service enumerated in subdivision 3, for any purpose other than
resale by the purchaser in the normal course of business as defined in subdivision 21.
    (b) A sale of property used by the owner only by leasing it to others or by holding it
in an effort to lease it, and put to no use by the owner other than resale after the lease or
effort to lease, is a sale of property for resale.
    (c) A sale of master computer software that is purchased and used to make copies for
sale or lease is a sale of property for resale.
    (d) A sale of building materials, supplies, and equipment to owners, contractors,
subcontractors, or builders for the erection of buildings or the alteration, repair, or
improvement of real property is a retail sale in whatever quantity sold, whether the sale is
for purposes of resale in the form of real property or otherwise.
    (e) A sale of carpeting, linoleum, or similar floor covering to a person who provides
for installation of the floor covering is a retail sale and not a sale for resale since a sale of
floor covering which includes installation is a contract for the improvement of real property.
    (f) A sale of shrubbery, plants, sod, trees, and similar items to a person who provides
for installation of the items is a retail sale and not a sale for resale since a sale of
shrubbery, plants, sod, trees, and similar items that includes installation is a contract for
the improvement of real property.
    (g) A sale of tangible personal property that is awarded as prizes is a retail sale and
is not considered a sale of property for resale.
    (h) A sale of tangible personal property utilized or employed in the furnishing or
providing of services under subdivision 3, paragraph (g), clause (1), including, but not
limited to, property given as promotional items, is a retail sale and is not considered a
sale of property for resale.
    (i) A sale of tangible personal property used in conducting lawful gambling under
chapter 349 or the State Lottery under chapter 349A, including, but not limited to, property
given as promotional items, is a retail sale and is not considered a sale of property for resale.
    (j) A sale of machines, equipment, or devices that are used to furnish, provide, or
dispense goods or services, including, but not limited to, coin-operated devices, is a retail
sale and is not considered a sale of property for resale.
    (k) In the case of a lease, a retail sale occurs (1) when an obligation to make a lease
payment becomes due under the terms of the agreement or the trade practices of the
lessor or (2) in the case of a lease of a motor vehicle, as defined in section 297B.01,
subdivision 11 , but excluding vehicles with a manufacturer's gross vehicle weight rating
greater than 10,000 pounds and rentals of vehicles for not more than 28 days, at the time
the lease is executed.
    (l) In the case of a conditional sales contract, a retail sale occurs upon the transfer of
title or possession of the tangible personal property.
    (m) A sale of a bundled transaction in which one or more of the products included
in the bundle is a taxable product is a retail sale, except that if one of the products
is a telecommunication service, ancillary service, Internet access, or audio or video
programming service, and the seller has maintained books and records identifying through
reasonable and verifiable standards the portions of the price that are attributable to the
distinct and separately identifiable products, then the products are not considered part of a
bundled transaction. For purposes of this paragraph:
    (1) the books and records maintained by the seller must be maintained in the regular
course of business, and do not include books and records created and maintained by the
seller primarily for tax purposes;
    (2) books and records maintained in the regular course of business include, but are
not limited to, financial statements, general ledgers, invoicing and billing systems and
reports, and reports for regulatory tariffs and other regulatory matters; and
    (3) books and records are maintained primarily for tax purposes when the books
and records identify taxable and nontaxable portions of the price, but the seller maintains
other books and records that identify different prices attributable to the distinct products
included in the same bundled transaction.
(n) A sale of motor vehicle repair paint and materials by a motor vehicle repair or
body shop business is a retail sale and the sales tax is imposed on the gross receipts from the
retail sale of the paint and materials. The motor vehicle repair or body shop that purchases
motor vehicle repair paint and motor vehicle repair materials for resale must either:
(1) separately state each item of paint and each item of materials, and the sales price
of each, on the invoice to the purchaser; or
(2) in order to calculate the sales price of the paint and materials, use a method
which estimates the amount and monetary value of the paint and materials used in
the repair of the motor vehicle by multiplying the number of labor hours by a rate of
consideration for the paint and materials used in the repair of the motor vehicle following
industry standard practices that fairly calculate the gross receipts from the retail sale of
the motor vehicle repair paint and motor vehicle repair materials. An industry standard
practice fairly calculates the gross receipts if the sales price of the paint and materials used
or consumed in the repair of a motor vehicle equals or exceeds the purchase price paid
by the motor vehicle repair or body shop business. Under clause (1), the invoice must
either separately state the "paint and materials" as a single taxable item, or separately state
"paint" as a taxable item and "materials" as a taxable item. This clause does not apply to
wholesale transactions at an auto auction facility.
    (o) A sale of specified digital products or other digital products to an end user with
or without rights of permanent use and regardless of whether rights of use are conditioned
upon continued payment by the purchaser is a retail sale. When a digital code has been
purchased that relates to specified digital products or other digital products, the subsequent
receipt of or access to the related specified digital products or other digital products
is not a retail sale.
EFFECTIVE DATE.This section is effective for sales and purchases made after
June 30, 2013.

    Sec. 4. Minnesota Statutes 2012, section 297A.61, subdivision 10, is amended to read:
    Subd. 10. Tangible personal property. (a) "Tangible personal property" means
personal property that can be seen, weighed, measured, felt, or touched, or that is in any
other manner perceptible to the senses. "Tangible personal property" includes, but is not
limited to, electricity, water, gas, steam, and prewritten computer software.
    (b) Tangible personal property does not include:
    (1) large ponderous machinery and equipment used in a business or production
activity which at common law would be considered to be real property;
    (2) property which is subject to an ad valorem property tax;
    (3) property described in section 272.02, subdivision 9, clauses (a) to (d); and
    (4) property described in section 272.03, subdivision 2, clauses (3) and (5).; and
(5) specified digital products, or other digital products, transferred electronically,
except that prewritten computer software delivered electronically is tangible personal
property.
EFFECTIVE DATE.This section is effective for sales and purchases made after
June 30, 2013.

    Sec. 5. Minnesota Statutes 2012, section 297A.61, subdivision 17a, is amended to read:
    Subd. 17a. Delivered electronically. "Delivered electronically" means delivered
to the purchaser by means other than tangible storage media and, unless the context
indicates otherwise, applies to the delivery of computer software. Computer software is
not considered delivered electronically to a purchaser simply because the purchaser has
access to the product.
EFFECTIVE DATE.This section is effective for sales and purchases the day
following final enactment.

    Sec. 6. Minnesota Statutes 2012, section 297A.61, subdivision 25, is amended to read:
    Subd. 25. Cable Pay television service. "Cable Pay television service" means
the transmission of video, audio, or other programming service to purchasers, and the
subscriber interaction, if any, required for the selection or use of the programming service,
regardless of whether the programming is transmitted over facilities owned or operated
by the cable service provider or over facilities owned or operated by one or more dealers
of communications services. The term includes point-to-multipoint distribution direct to
home satellite services by which programming is transmitted or broadcast by microwave
or other equipment directly to the subscriber's premises, or any similar or comparable
method of service. The term includes basic, extended, premium, all programming services,
including subscriptions, digital video recorders, pay-per-view, digital, and music services.
EFFECTIVE DATE.This section is effective for sales and purchases made after
June 30, 2013.

    Sec. 7. Minnesota Statutes 2012, section 297A.61, subdivision 38, is amended to read:
    Subd. 38. Bundled transaction. (a) "Bundled transaction" means the retail sale
of two or more products when the products are otherwise distinct and identifiable, and
the products are sold for one nonitemized price. As used in this subdivision, "product"
includes tangible personal property, services, intangibles, and digital goods, including
specified digital products or other digital products, but does not include real property or
services to real property. A bundled transaction does not include the sale of any products
in which the sales price varies, or is negotiable, based on the selection by the purchaser of
the products included in the transaction.
    (b) For purposes of this subdivision, "distinct and identifiable" products does not
include:
    (1) packaging and other materials, such as containers, boxes, sacks, bags, and
bottles, wrapping, labels, tags, and instruction guides, that accompany the retail sale of the
products and are incidental or immaterial to the retail sale. Examples of packaging that are
incidental or immaterial include grocery sacks, shoe boxes, dry cleaning garment bags,
and express delivery envelopes and boxes;
    (2) a promotional product provided free of charge with the required purchase of
another product. A promotional product is provided free of charge if the sales price of
another product, which is required to be purchased in order to receive the promotional
product, does not vary depending on the inclusion of the promotional product; and
    (3) items included in the definition of sales price.
    (c) For purposes of this subdivision, the term "one nonitemized price" does not
include a price that is separately identified by product on binding sales or other supporting
sales-related documentation made available to the customer in paper or electronic form
including but not limited to an invoice, bill of sale, receipt, contract, service agreement,
lease agreement, periodic notice of rates and services, rate card, or price list.
    (d) A transaction that otherwise meets the definition of a bundled transaction is
not a bundled transaction if it is:
    (1) the retail sale of tangible personal property and a service and the tangible
personal property is essential to the use of the service, and is provided exclusively in
connection with the service, and the true object of the transaction is the service;
    (2) the retail sale of services if one service is provided that is essential to the use or
receipt of a second service and the first service is provided exclusively in connection with
the second service and the true object of the transaction is the second service;
    (3) a transaction that includes taxable products and nontaxable products and the
purchase price or sales price of the taxable products is de minimis; or
    (4) the retail sale of exempt tangible personal property and taxable tangible personal
property if:
    (i) the transaction includes food and food ingredients, drugs, durable medical
equipment, mobility enhancing equipment, over-the-counter drugs, prosthetic devices,
or medical supplies; and
    (ii) the seller's purchase price or sales price of the taxable tangible personal property is
50 percent or less of the total purchase price or sales price of the bundled tangible personal
property. Sellers must not use a combination of the purchase price and sales price of the
tangible personal property when making the 50 percent determination for a transaction.
    (e) For purposes of this subdivision, "purchase price" means the measure subject to
use tax on purchases made by the seller, and "de minimis" means that the seller's purchase
price or sales price of the taxable products is ten percent or less of the total purchase
price or sales price of the bundled products. Sellers shall use either the purchase price
or the sales price of the products to determine if the taxable products are de minimis.
Sellers must not use a combination of the purchase price and sales price of the products
to determine if the taxable products are de minimis. Sellers shall use the full term of a
service contract to determine if the taxable products are de minimis.
EFFECTIVE DATE.This section is effective for sales and purchases made after
June 30, 2013.

    Sec. 8. Minnesota Statutes 2012, section 297A.61, subdivision 45, is amended to read:
    Subd. 45. Ring tone. "Ring tone" means a digitized sound file that is downloaded
onto a device and that may be used to alert the customer of a telecommunication service
with respect to a communication. A ring tone does not include ring back tones or other
digital audio files that are not stored on the purchaser's communication device.
EFFECTIVE DATE.This section is effective for sales and purchases made after
June 30, 2013.

    Sec. 9. Minnesota Statutes 2012, section 297A.61, is amended by adding a subdivision
to read:
    Subd. 49. Motor vehicle repair paint and motor vehicle repair materials.
"Motor vehicle repair paint" means a substance composed of solid matter suspended in a
liquid medium and applied as a protective or decorative coating to the surface of a motor
vehicle in order to restore the motor vehicle to its original condition, and includes primer,
body paint, clear coat, and paint thinner used to paint motor vehicles, as defined in section
297B.01. "Motor vehicle repair materials" means items, other than motor vehicle repair
paint or motor vehicle parts, that become a part of a repaired motor vehicle or are consumed
in repairing the motor vehicle at retail, and include abrasives, battery water, body filler or
putty, bolts and nuts, brake fluid, buffing pads, chamois, cleaning compounds, degreasing
compounds, glaze, grease, grinding discs, hydraulic jack oil, lubricants, masking tape,
oxygen and acetylene, polishes, rags, razor blades, sandpaper, sanding discs, scuff pads,
sealer, solder, solvents, striping tape, tack cloth, thinner, waxes, and welding rods. Motor
vehicle repair materials do not include items that are not used directly on the motor vehicle,
such as floor dry that is used to clean the shop, or cleaning compounds and rags that are
used to clean tools, equipment, or the shop and are not used to clean the motor vehicle.
EFFECTIVE DATE.This section is effective for sales and purchases made after
June 30, 2013.

    Sec. 10. Minnesota Statutes 2012, section 297A.61, is amended by adding a
subdivision to read:
    Subd. 50. Digital audio works. "Digital audio works" means works that result from
a fixation of a series of musical, spoken, or other sounds, that are transferred electronically.
Digital audio works includes such items as the following which may either be prerecorded
or live: songs, music, readings of books or other written materials, speeches, ring tones, or
other sound recordings. Digital audio works does not include audio greeting cards sent by
electronic mail. Unless the context provides otherwise, in this chapter digital audio works
includes the digital code, or a subscription to or access to a digital code, for receiving,
accessing, or otherwise obtaining digital audio works.
EFFECTIVE DATE.This section is effective for sales and purchases made after
June 30, 2013.

    Sec. 11. Minnesota Statutes 2012, section 297A.61, is amended by adding a
subdivision to read:
    Subd. 51. Digital audiovisual works. "Digital audiovisual works" means a series
of related images which, when shown in succession, impart an impression of motion,
together with accompanying sounds, if any, that are transferred electronically. Digital
audiovisual works includes such items as motion pictures, movies, musical videos, news
and entertainment, and live events. Digital audiovisual works does not include video
greeting cards sent by electronic mail. Unless the context provides otherwise, in this
chapter digital audiovisual works includes the digital code, or a subscription to or access to
a digital code, for receiving, accessing, or otherwise obtaining digital audiovisual works.
EFFECTIVE DATE.This section is effective for sales and purchases made after
June 30, 2013.

    Sec. 12. Minnesota Statutes 2012, section 297A.61, is amended by adding a
subdivision to read:
    Subd. 52. Digital books. "Digital books" means any literary works, other than
digital audiovisual works or digital audio works, expressed in words, numbers, or other
verbal or numerical symbols or indicia so long as the product is generally recognized in
the ordinary and usual sense as a "book." It includes works of fiction and nonfiction and
short stories. It does not include periodicals, magazines, newspapers, or other news or
information products, chat rooms, or weblogs. Unless the context provides otherwise, in
this chapter digital books includes the digital code, or a subscription to or access to a
digital code, for receiving, accessing, or otherwise obtaining digital books.
EFFECTIVE DATE.This section is effective for sales and purchases made after
June 30, 2013.

    Sec. 13. Minnesota Statutes 2012, section 297A.61, is amended by adding a
subdivision to read:
    Subd. 53. Digital code. "Digital code" means a code which provides a purchaser
with a right to obtain one or more specified digital products or other digital products.
A digital code may be transferred electronically, such as through electronic mail, or it
may be transferred on a tangible medium, such as on a plastic card, a piece of paper or
invoice, or imprinted on another product. A digital code is not a code that represents a
stored monetary value that is deducted from a total as it is used by the purchaser, and it
is not a code that represents a redeemable card, gift card, or gift certificate that entitles
the holder to select a digital product of an indicated cash value. The end user of a digital
code is any purchaser except one who receives the contractual right to redistribute a digital
product which is the subject of the transaction.
EFFECTIVE DATE.This section is effective for sales and purchases made after
June 30, 2013.

    Sec. 14. Minnesota Statutes 2012, section 297A.61, is amended by adding a
subdivision to read:
    Subd. 54. Other digital products. "Other digital products" means the following
items when transferred electronically:
(1) greeting cards;
(2) finished artwork available for reproduction, display, or similar purposes;
(3) video or electronic games;
(4) periodicals;
(5) magazines; and
(6) other news or information products, excluding newspapers.
EFFECTIVE DATE.This section is effective for sales and purchases made after
June 30, 2013.

    Sec. 15. Minnesota Statutes 2012, section 297A.61, is amended by adding a
subdivision to read:
    Subd. 55. Specified digital products. "Specified digital products" means digital
audio works, digital audiovisual works, and digital books that are transferred electronically
to a customer.
EFFECTIVE DATE.This section is effective for sales and purchases made after
June 30, 2013.

    Sec. 16. Minnesota Statutes 2012, section 297A.61, is amended by adding a
subdivision to read:
    Subd. 56. Transferred electronically. "Transferred electronically" means obtained
by the purchaser by means other than tangible storage media. For purposes of this
subdivision, it is not necessary that a copy of the product be physically transferred to
the purchaser. A product will be considered to have been transferred electronically to a
purchaser if the purchaser has access to the product.
EFFECTIVE DATE.This section is effective for sales and purchases made after
June 30, 2013.

    Sec. 17. Minnesota Statutes 2012, section 297A.61, is amended by adding a
subdivision to read:
    Subd. 57. Service. "Service" means all activities engaged in for a fee, retainer,
commission, or other consideration, as distinguished from sales and purchases of tangible
personal property. In determining what is a service, the intended use, or the principal or
ultimate objective of the contracting parties, shall not be controlling.
EFFECTIVE DATE.This section is effective for sales and purchases made after
June 30, 2013.

    Sec. 18. Minnesota Statutes 2012, section 297A.62, subdivision 1, is amended to read:
    Subdivision 1. Generally. Except as otherwise provided in subdivision 3 or in this
chapter, a sales tax of 6.5 5.677 percent is imposed on the gross receipts from retail sales
as defined in section 297A.61, subdivision 4, made in this state or to a destination in this
state by a person who is required to have or voluntarily obtains a permit under section
297A.83, subdivision 1 .
EFFECTIVE DATE.This section is effective for sales and purchases made after
June 30, 2013.

    Sec. 19. Minnesota Statutes 2012, section 297A.62, subdivision 1a, is amended to read:
    Subd. 1a. Constitutionally required sales tax increase. Except as otherwise
provided in subdivision 3 or in this chapter, an additional sales tax of 0.375 0.323 percent,
as required under the Minnesota Constitution, article XI, section 15, is imposed on the gross
receipts from retail sales as defined in section 297A.61, subdivision 4, made in this state or
to a destination in this state by a person who is required to have or voluntarily obtains a
permit under section 297A.83, subdivision 1. This additional tax expires July 1, 2034.
EFFECTIVE DATE.This section is effective for sales and purchases made after
June 30, 2013.

    Sec. 20. Minnesota Statutes 2012, section 297A.65, is amended to read:
297A.65 LOTTERY TICKETS; IN LIEU TAX.
Sales of state lottery tickets are exempt from the tax imposed under section
297A.62 . The State Lottery must on or before the 20th day of each month transmit to
the commissioner of revenue an amount equal to the gross receipts from the sale of
lottery tickets for the previous month multiplied by the a tax rate under section 297A.62,
subdivision 1 of 6.5 percent. The resulting payment is in lieu of the sales tax that otherwise
would be imposed by this chapter. The commissioner shall deposit the money transmitted
as provided by section 297A.94 and the money must be treated as other proceeds of the
sales tax. For purposes of this section, "gross receipts" means the proceeds of the sale
of tickets before deduction of a commission or other compensation paid to the vendor or
retailer for selling tickets.
EFFECTIVE DATE.This section is effective for sales and purchases made after
June 30, 2013.

    Sec. 21. Minnesota Statutes 2012, section 297A.66, subdivision 1, is amended to read:
    Subdivision 1. Definitions. (a) To the extent allowed by the United States
Constitution and the laws of the United States, A"retailer maintaining a place of business
in this state," or a similar term, means a retailer:
    (1) having or maintaining within this state, directly or by a subsidiary or an affiliate,
an office, place of distribution, sales or sample room or place, warehouse, or other place
of business; or
    (2) having utilizing a representative, including, but not limited to, an affiliate, agent,
salesperson, canvasser, or solicitor operating in this state under the authority of the retailer
or its subsidiary, for any purpose, including the repairing, selling, delivering, installing, or
soliciting of orders for the retailer's goods or services, or the leasing of tangible personal
property located in this state, whether the place of business or agent, representative, affiliate,
salesperson, canvasser, or solicitor is located in the state permanently or temporarily, or
whether or not the retailer, subsidiary, or affiliate is authorized to do business in this state.
    (b) "Destination of a sale" means the location to which the retailer makes delivery of
the property sold, or causes the property to be delivered, to the purchaser of the property,
or to the agent or designee of the purchaser. The delivery may be made by any means,
including the United States Postal Service or a for-hire carrier.
    (c) A retailer shall be presumed to be "maintaining a place of business in this state" if:
    (1) any person, other than a person acting in the person's capacity as a common
carrier, that has substantial nexus with this state:
    (i) sells a similar line of products as the retailer and does so under the same or
a similar business name;
    (ii) maintains an office, distribution facility, warehouse or storage place, or similar
place of business in the state to facilitate the delivery of property or services sold by the
retailer to the retailer's customers;
    (iii) uses trademarks, service marks, or trade names in the state that are substantially
the same or substantially similar to those used by the retailer;
    (iv) delivers, installs, assembles, or performs maintenance services for the retailer's
customers within the state;
    (v) facilitates the retailer's delivery of property to customers in the state by allowing
the retailer's customers to pick up property sold by the retailer at an office, distribution
facility, warehouse, storage space, or similar place of business maintained by the person in
the state;
    (vi) conducts any other activities in the state that are significantly associated with the
retailer's ability to establish and maintain a market in the state for the retailer's sales; or
    (2) any affiliated person has substantial nexus with the state.
    (d) The presumptions in paragraph (c) may be rebutted by demonstrating that the
activities of the person or affiliated person in the state are not significantly associated with
the retailer's ability to establish or maintain a market in this state for the retailer's sales.
    (e) "Affiliated person" means any person that is a member of the same controlled
group of corporations, as defined in section 1563(a) of the Internal Revenue Code as
the retailer, or any other entity that, notwithstanding its form of organization, bears the
same ownership relationship to the retailer as a corporation that is a member of the same
controlled group of corporations as defined in section 1563(a) of the Internal Revenue Code.
    (f) "Solicitor" means a person, whether an independent contractor or other
representative, who directly or indirectly solicits business for the retailer.
     (1) A retailer is presumed to have a solicitor in this state if it enters into an agreement
with one or more persons under which the person, for a commission or other consideration,
while within this state directly or indirectly refers potential customers, whether by a link
on an Internet Web site, by telemarketing, by an in-person oral presentation, or otherwise,
to the retailer, if the cumulative gross receipts from the sales by the retailer to customers in
the state who are referred to the retailer by all persons within this state with this type of an
agreement with the retailer is in excess of $10,000 during the preceding 12 months.
    (2) The presumption in clause (1) may be rebutted by submitting proof that the
persons with whom the retailer has an agreement did not engage in any activity within the
state that was significantly associated with the retailer's ability to establish or maintain
the retailer's market in the state during the preceding 12 months. Such proof may consist
of sworn written statements from all of the persons within this state with whom the
retailer has an agreement stating that they did not engage in any solicitation in this state
on behalf of the retailer during the preceding year, provided that such statements were
provided and obtained in good faith.
    (3) Nothing in this section shall be construed to narrow the scope of the terms
"agent," "salesperson," "canvasser," or "other representative" for purposes of subdivision
1, paragraph (a).

    Sec. 22. Minnesota Statutes 2012, section 297A.66, subdivision 3, is amended to read:
    Subd. 3. Retailer not maintaining place of business in this state. (a) To the
extent allowed by the United States Constitution and the laws of the United States, a
retailer making retail sales from outside this state to a destination within this state and
not maintaining a place of business in this state shall collect sales and use taxes and remit
them to the commissioner under section 297A.77, if the retailer engages in the regular or
systematic soliciting of sales from potential customers in this state by:
    (1) distribution, by mail or otherwise, of catalogs, periodicals, advertising flyers, or
other written solicitations of business to customers in this state;
    (2) display of advertisements on billboards or other outdoor advertising in this state;
    (3) advertisements in newspapers published in this state;
    (4) advertisements in trade journals or other periodicals the circulation of which is
primarily within this state;
    (5) advertisements in a Minnesota edition of a national or regional publication or
a limited regional edition in which this state is included as part of a broader regional or
national publication which are not placed in other geographically defined editions of the
same issue of the same publication;
    (6) advertisements in regional or national publications in an edition which is not
by its contents geographically targeted to Minnesota but which is sold over the counter
in Minnesota or by subscription to Minnesota residents;
    (7) advertisements broadcast on a radio or television station located in Minnesota; or
    (8) any other solicitation by telegraphy, telephone, computer database, cable, optic,
microwave, or other communication system.
    This paragraph (a) must be construed without regard to the state from which
distribution of the materials originated or in which they were prepared.
    (b) The location within or without this state of independent vendors that provide
products or services to the retailer in connection with its solicitation of customers within this
state, including such products and services as creation of copy, printing, distribution, and
recording, is not considered in determining whether the retailer is required to collect tax.
    (c) A retailer not maintaining a place of business in this state is presumed, subject to
rebuttal, to be engaged in regular solicitation within this state if it engages in any of the
activities in paragraph (a) and:
    (1) makes 100 or more retail sales from outside this state to destinations in this state
during a period of 12 consecutive months; or
    (2) makes ten or more retail sales totaling more than $100,000 from outside this state
to destinations in this state during a period of 12 consecutive months.

    Sec. 23. Minnesota Statutes 2012, section 297A.66, is amended by adding a
subdivision to read:
    Subd. 7. Severability. The legislature intends that the provisions of this section
are severable. If any provision contained in this bill is held invalid or unconstitutional, or
its application is held invalid or unconstitutional, that finding shall not affect the other
provisions or applications that can be given effect without the invalid or unconstitutional
provision or application.
EFFECTIVE DATE.This section is effective for sales and purchases made after
June 30, 2013.

    Sec. 24. Minnesota Statutes 2012, section 297A.665, is amended to read:
297A.665 PRESUMPTION OF TAX; BURDEN OF PROOF.
    (a) For the purpose of the proper administration of this chapter and to prevent
evasion of the tax, until the contrary is established, it is presumed that:
    (1) all gross receipts are subject to the tax; and
    (2) all retail sales for delivery in Minnesota are for storage, use, or other consumption
in Minnesota.
    (b) The burden of proving that a sale is not a taxable retail sale is on the seller.
However, a seller is relieved of liability if:
    (1) the seller obtains a fully completed exemption certificate or all the relevant
information required by section 297A.72, subdivision 2, at the time of the sale or within
90 days after the date of the sale; or
    (2) if the seller has not obtained a fully completed exemption certificate or all the
relevant information required by section 297A.72, subdivision 2, within the time provided
in clause (1), within 120 days after a request for substantiation by the commissioner,
the seller either:
    (i) obtains in good faith a fully completed exemption certificate or all the relevant
information required by section 297A.72, subdivision 2, from the purchaser; or
    (ii) proves by other means that the transaction was not subject to tax;
    (3) in the case of drop shipment sales, a seller engaged in drop shipping may claim a
resale exemption based on an exemption certificate provided by its customer or reseller,
or any other acceptable information available to the seller engaged in drop shipping
evidencing qualification for a resale exemption, regardless of whether the customer or
e-seller is registered to collect and remit sales and use tax in the state.
    (c) Notwithstanding paragraph (b), relief from liability does not apply to a seller who:
    (1) fraudulently fails to collect the tax; or
    (2) solicits purchasers to participate in the unlawful claim of an exemption.
    (d) A certified service provider, as defined in section 297A.995, subdivision 2, is
relieved of liability under this section to the extent a seller who is its client is relieved of
liability.
    (e) A purchaser of tangible personal property or any items listed in section 297A.63
that are shipped or brought to Minnesota by the purchaser has the burden of proving that the
property was not purchased from a retailer for storage, use, or consumption in Minnesota.
    (f) If a seller claims that certain sales are exempt and does not provide the certificate,
information, or proof required by paragraph (b), clause (2), within 120 days after the date
of the commissioner's request for substantiation, then the exemptions claimed by the seller
that required substantiation are disallowed.
EFFECTIVE DATE.This section is effective for sales and purchases made after
June 30, 2013.

    Sec. 25. Minnesota Statutes 2012, section 297A.668, is amended by adding a
subdivision to read:
    Subd. 6a. Multiple points of use. (a) Notwithstanding the provisions of
subdivisions 2 and 3, a business purchaser that is not a holder of a direct pay permit that
purchases electronically delivered goods or services that will be concurrently available for
use in more than one taxing jurisdiction may deliver to the seller in conjunction with its
purchase a multiple points of use certificate disclosing this fact.
(b) Upon receipt of the multiple points of use certificate, the seller is relieved of the
obligation to collect, pay, or remit the applicable tax and the purchaser is obligated to
collect, pay, or remit the applicable tax on a direct pay basis.
(c) The purchaser delivering the multiple points of use certificate has sole discretion
to use any reasonable but consistent and uniform method of apportionment that is supported
by the purchaser's business records as they exist at the time of the consummation of the sale.
(d) The multiple points of use certificate remains in effect for all future sales by the
seller to the purchaser until it is revoked by the purchaser in writing.
(e) A holder of a direct pay permit is not required to deliver a multiple points of use
certificate to the seller. A direct pay permit holder shall follow the provisions of paragraph
(c) in apportioning the tax due on electronically delivered goods or services that will be
concurrently available for use in more than one taxing jurisdiction.
(f) A seller is relieved of liability if:
(1) the seller obtains a fully completed multiple points of use certificate or all the
relevant information required by section 297A.72, subdivision 2, at the time of the sale or
within 90 days after the date of the sale; or
(2) within 120 days after a request for substantiation by the commissioner, the
seller either:
(i) obtains in good faith a fully completed multiple points of use certificate or all the
relevant information required by section 297A.72, subdivision 2, from the purchaser; or
(ii) proves by other means that the transaction was not subject to tax.
EFFECTIVE DATE.This section is effective for sales and purchases made after
June 30, 2013.

    Sec. 26. Minnesota Statutes 2012, section 297A.67, subdivision 7, is amended to read:
    Subd. 7. Drugs; medical devices. (a) Sales of the following drugs and medical
devices for human use are exempt:
    (1) prescription drugs, including over-the-counter drugs;
    (2) single-use finger-pricking devices for the extraction of blood and other single-use
devices and single-use diagnostic agents used in diagnosing, monitoring, or treating
diabetes;
    (3) insulin and medical oxygen for human use, regardless of whether prescribed
or sold over the counter;
    (4) prosthetic devices;
    (5) durable medical equipment for home use only;
    (6) mobility enhancing equipment;
    (7) prescription corrective eyeglasses; and
    (8) kidney dialysis equipment, including repair and replacement parts.
    (b) For purposes of this subdivision:
    (1) "Drug" means a compound, substance, or preparation, and any component of
a compound, substance, or preparation, other than food and food ingredients, dietary
supplements, or alcoholic beverages that is:
    (i) recognized in the official United States Pharmacopoeia, official Homeopathic
Pharmacopoeia of the United States, or official National Formulary, and supplement
to any of them;
    (ii) intended for use in the diagnosis, cure, mitigation, treatment, or prevention
of disease; or
    (iii) intended to affect the structure or any function of the body.
    (2) "Durable medical equipment" means equipment, including repair and
replacement parts, but not including mobility enhancing equipment, that:
    (i) can withstand repeated use;
    (ii) is primarily and customarily used to serve a medical purpose;
    (iii) generally is not useful to a person in the absence of illness or injury; and
    (iv) is not worn in or on the body.
    For purposes of this clause, "repair and replacement parts" includes all components
or attachments used in conjunction with the durable medical equipment, but does not
include repair and replacement parts which are for single patient use only.
    (3) "Mobility enhancing equipment" means equipment, including repair and
replacement parts, but not including durable medical equipment, that:
    (i) is primarily and customarily used to provide or increase the ability to move from
one place to another and that is appropriate for use either in a home or a motor vehicle;
    (ii) is not generally used by persons with normal mobility; and
    (iii) does not include any motor vehicle or equipment on a motor vehicle normally
provided by a motor vehicle manufacturer.
    (4) "Over-the-counter drug" means a drug that contains a label that identifies the
product as a drug as required by Code of Federal Regulations, title 21, section 201.66. The
label must include a "drug facts" panel or a statement of the active ingredients with a list of
those ingredients contained in the compound, substance, or preparation. Over-the-counter
drugs do not include grooming and hygiene products, regardless of whether they otherwise
meet the definition. "Grooming and hygiene products" are soaps, cleaning solutions,
shampoo, toothpaste, mouthwash, antiperspirants, and suntan lotions and sunscreens.
    (5) (4) "Prescribed" and "prescription" means a direction in the form of an order,
formula, or recipe issued in any form of oral, written, electronic, or other means of
transmission by a duly licensed health care professional.
    (6) (5) "Prosthetic device" means a replacement, corrective, or supportive device,
including repair and replacement parts, worn on or in the body to:
    (i) artificially replace a missing portion of the body;
    (ii) prevent or correct physical deformity or malfunction; or
    (iii) support a weak or deformed portion of the body.
Prosthetic device does not include corrective eyeglasses.
    (7) (6) "Kidney dialysis equipment" means equipment that:
    (i) is used to remove waste products that build up in the blood when the kidneys are
not able to do so on their own; and
    (ii) can withstand repeated use, including multiple use by a single patient,
notwithstanding the provisions of clause (2).
EFFECTIVE DATE.This section is effective for sales and purchases made after
June 30, 2013.

    Sec. 27. Minnesota Statutes 2012, section 297A.68, subdivision 2, is amended to read:
    Subd. 2. Materials consumed in industrial production. (a) Materials stored, used,
or consumed in industrial production of tangible personal property intended to be sold
ultimately at retail, are exempt, whether or not the item so used becomes an ingredient
or constituent part of the property produced. Materials that qualify for this exemption
include, but are not limited to, the following:
(1) chemicals, including chemicals used for cleaning food processing machinery
and equipment;
(2) materials, including chemicals, fuels, and electricity purchased by persons
engaged in industrial production to treat waste generated as a result of the production
process;
(3) fuels, electricity, gas, and steam used or consumed in the production process,
except that electricity, gas, or steam used for space heating, cooling, or lighting is exempt
if (i) it is in excess of the average climate control or lighting for the production area, and
(ii) it is necessary to produce that particular product;
(4) petroleum products and lubricants;
(5) packaging materials, including returnable containers used in packaging food
and beverage products;
(6) accessory tools, equipment, and other items that are separate detachable units
with an ordinary useful life of less than 12 months used in producing a direct effect upon
the product; and
(7) the following materials, tools, and equipment used in metal-casting: crucibles,
thermocouple protection sheaths and tubes, stalk tubes, refractory materials, molten metal
filters and filter boxes, degassing lances, and base blocks.
(b) This exemption does not include:
(1) machinery, equipment, implements, tools, accessories, appliances, contrivances
and furniture and fixtures, except those listed in paragraph (a), clause (6); and
(2) petroleum and special fuels used in producing or generating power for propelling
ready-mixed concrete trucks on the public highways of this state.
(c) Industrial production includes, but is not limited to, research, development,
design or production of any tangible personal property, manufacturing, processing (other
than by restaurants and consumers) of agricultural products (whether vegetable or animal),
commercial fishing, refining, smelting, reducing, brewing, distilling, printing, mining,
quarrying, lumbering, generating electricity, the production of road building materials,
and the research, development, design, or production of computer software. Industrial
production does not include painting, cleaning, repairing or similar processing of property
except as part of the original manufacturing process.
(d) Industrial production does not include:
(1) the furnishing of services listed in section 297A.61, subdivision 3, paragraph (g),
clause (6), items (i) to (vi) and (viii), or paragraph (m) or (n); or
(2) the transportation, transmission, or distribution of petroleum, liquefied gas,
natural gas, water, or steam, in, by, or through pipes, lines, tanks, mains, or other means of
transporting those products. For purposes of this paragraph, "transportation, transmission,
or distribution" does not include blending of petroleum or biodiesel fuel as defined
in section 239.77.
EFFECTIVE DATE.This section is effective for sales and purchases made after
June 30, 2013.

    Sec. 28. Minnesota Statutes 2012, section 297A.68, subdivision 5, is amended to read:
    Subd. 5. Capital equipment. (a) Capital equipment is exempt. Except as provided
in paragraphs (e) and (f), the tax must be imposed and collected as if the rate under section
297A.62, subdivision 1 , applied, and then refunded in the manner provided in section
297A.75 .
"Capital equipment" means machinery and equipment purchased or leased, and used
in this state by the purchaser or lessee primarily for manufacturing, fabricating, mining,
or refining tangible personal property to be sold ultimately at retail if the machinery and
equipment are essential to the integrated production process of manufacturing, fabricating,
mining, or refining. Capital equipment also includes machinery and equipment
used primarily to electronically transmit results retrieved by a customer of an online
computerized data retrieval system.
(b) Capital equipment includes, but is not limited to:
(1) machinery and equipment used to operate, control, or regulate the production
equipment;
(2) machinery and equipment used for research and development, design, quality
control, and testing activities;
(3) environmental control devices that are used to maintain conditions such as
temperature, humidity, light, or air pressure when those conditions are essential to and are
part of the production process;
(4) materials and supplies used to construct and install machinery or equipment;
(5) repair and replacement parts, including accessories, whether purchased as spare
parts, repair parts, or as upgrades or modifications to machinery or equipment;
(6) materials used for foundations that support machinery or equipment;
(7) materials used to construct and install special purpose buildings used in the
production process;
(8) ready-mixed concrete equipment in which the ready-mixed concrete is mixed
as part of the delivery process regardless if mounted on a chassis, repair parts for
ready-mixed concrete trucks, and leases of ready-mixed concrete trucks; and
(9) machinery or equipment used for research, development, design, or production
of computer software.
(c) Capital equipment does not include the following:
(1) motor vehicles taxed under chapter 297B;
(2) machinery or equipment used to receive or store raw materials;
(3) building materials, except for materials included in paragraph (b), clauses (6)
and (7);
(4) machinery or equipment used for nonproduction purposes, including, but not
limited to, the following: plant security, fire prevention, first aid, and hospital stations;
support operations or administration; pollution control; and plant cleaning, disposal of
scrap and waste, plant communications, space heating, cooling, lighting, or safety;
(5) farm machinery and aquaculture production equipment as defined by section
297A.61 , subdivisions 12 and 13;
(6) machinery or equipment purchased and installed by a contractor as part of an
improvement to real property;
(7) machinery and equipment used by restaurants in the furnishing, preparing, or
serving of prepared foods as defined in section 297A.61, subdivision 31;
(8) machinery and equipment used to furnish the services listed in section 297A.61,
subdivision 3 , paragraph (g), clause (6), items (i) to (vi) and (viii);
(9) machinery or equipment used in the transportation, transmission, or distribution
of petroleum, liquefied gas, natural gas, water, or steam, in, by, or through pipes, lines,
tanks, mains, or other means of transporting those products. This clause does not apply to
machinery or equipment used to blend petroleum or biodiesel fuel as defined in section
239.77 ; or
(10) any other item that is not essential to the integrated process of manufacturing,
fabricating, mining, or refining.
(d) For purposes of this subdivision:
(1) "Equipment" means independent devices or tools separate from machinery but
essential to an integrated production process, including computers and computer software,
used in operating, controlling, or regulating machinery and equipment; and any subunit or
assembly comprising a component of any machinery or accessory or attachment parts of
machinery, such as tools, dies, jigs, patterns, and molds.
(2) "Fabricating" means to make, build, create, produce, or assemble components or
property to work in a new or different manner.
(3) "Integrated production process" means a process or series of operations through
which tangible personal property is manufactured, fabricated, mined, or refined. For
purposes of this clause, (i) manufacturing begins with the removal of raw materials
from inventory and ends when the last process prior to loading for shipment has been
completed; (ii) fabricating begins with the removal from storage or inventory of the
property to be assembled, processed, altered, or modified and ends with the creation
or production of the new or changed product; (iii) mining begins with the removal of
overburden from the site of the ores, minerals, stone, peat deposit, or surface materials and
ends when the last process before stockpiling is completed; and (iv) refining begins with
the removal from inventory or storage of a natural resource and ends with the conversion
of the item to its completed form.
(4) "Machinery" means mechanical, electronic, or electrical devices, including
computers and computer software, that are purchased or constructed to be used for the
activities set forth in paragraph (a), beginning with the removal of raw materials from
inventory through completion of the product, including packaging of the product.
(5) "Machinery and equipment used for pollution control" means machinery and
equipment used solely to eliminate, prevent, or reduce pollution resulting from an activity
described in paragraph (a).
(6) "Manufacturing" means an operation or series of operations where raw materials
are changed in form, composition, or condition by machinery and equipment and which
results in the production of a new article of tangible personal property. For purposes of
this subdivision, "manufacturing" includes the generation of electricity or steam to be
sold at retail.
(7) "Mining" means the extraction of minerals, ores, stone, or peat.
(8) "Online data retrieval system" means a system whose cumulation of information
is equally available and accessible to all its customers.
(9) "Primarily" means machinery and equipment used 50 percent or more of the time
in an activity described in paragraph (a).
(10) "Refining" means the process of converting a natural resource to an intermediate
or finished product, including the treatment of water to be sold at retail.
(11) This subdivision does not apply to telecommunications equipment as
provided in subdivision 35, and does not apply to wire, cable, fiber, poles, or conduit
for telecommunications services.
(e) Materials exempt under this section may be purchased without imposing and
collecting the tax and without applying for a refund under section 297A.75, provided that:
(1) the purchaser employed not more than 80 full-time equivalent employees at
any time during calendar year 2012; and
(2) if another business owns at least 20 percent of the purchaser, then the sum of the
number of full-time equivalent employees employed by the purchaser and the number
of full-time equivalent employees employed by any other business that owns at least 20
percent of the purchaser's business is not more than 80 full-time equivalent employees
during calendar year 2012. This clause must be applied for each business that owns at
least 20 percent of the purchaser.
(f) For the state's fiscal year 2016 and thereafter, all purchases exempt under this
section may be purchased without imposing and collecting the tax and without applying
for a refund under section 297A.75.
EFFECTIVE DATE.Paragraph (e) is effective for sales and purchases made after
June 30, 2013, and through June 30, 2015; and paragraph (f) is effective for sales and
purchases made after June 30, 2015.

    Sec. 29. Minnesota Statutes 2012, section 297A.68, subdivision 10, is amended to read:
    Subd. 10. Publications; publication materials. Tangible personal property that
is used or consumed in producing any publication regularly issued at average intervals
not exceeding three months is exempt, and any such publication is exempt. "Publication"
includes, but is not limited to, a qualified newspaper as defined by section 331A.02,
together with any supplements or enclosures. "Publication" does not include magazines
and periodicals, whether sold over the counter or by subscription. Tangible personal
property that is used or consumed in producing a publication does not include machinery,
equipment, implements, tools, accessories, appliances, contrivances, furniture, and fixtures
used in the publication, or fuel, electricity, gas, or steam used for space heating or lighting.
Advertising contained in a publication is a nontaxable service and is exempt.
Persons who publish or sell newspapers are engaging in a nontaxable service with
respect to gross receipts realized from such news-gathering or news-publishing activities,
including the sale of advertising.
EFFECTIVE DATE.This section is effective for sales and purchases made after
June 30, 2013.

    Sec. 30. Minnesota Statutes 2012, section 297A.70, subdivision 2, is amended to read:
    Subd. 2. Sales to government. (a) All sales, except those listed in paragraph (b),
to the following governments and political subdivisions, or to the listed agencies or
instrumentalities of governments and political subdivisions, are exempt:
(1) the United States and its agencies and instrumentalities;
(2) school districts, local governments, the University of Minnesota, state universities,
community colleges, technical colleges, state academies, the Perpich Minnesota Center for
Arts Education, and an instrumentality of a political subdivision that is accredited as an
optional/special function school by the North Central Association of Colleges and Schools;
(3) hospitals and nursing homes owned and operated by political subdivisions of
the state of tangible personal property and taxable services used at or by hospitals and
nursing homes;
(4) the Metropolitan Council, for its purchases of vehicles and repair parts to equip
operations provided for in section 473.4051;
(5) other states or political subdivisions of other states, if the sale would be exempt
from taxation if it occurred in that state; and
(6) public libraries, public library systems, multicounty, multitype library systems as
defined in section 134.001, county law libraries under chapter 134A, state agency libraries,
the state library under section 480.09, and the Legislative Reference Library; and.
(7) towns.
(b) This exemption does not apply to the sales of the following products and services:
(1) building, construction, or reconstruction materials purchased by a contractor
or a subcontractor as a part of a lump-sum contract or similar type of contract with a
guaranteed maximum price covering both labor and materials for use in the construction,
alteration, or repair of a building or facility;
(2) construction materials purchased by tax exempt entities or their contractors to
be used in constructing buildings or facilities which will not be used principally by the
tax exempt entities;
(3) the leasing of a motor vehicle as defined in section 297B.01, subdivision 11,
except for leases entered into by the United States or its agencies or instrumentalities;
(4) lodging as defined under section 297A.61, subdivision 3, paragraph (g), clause
(2), and prepared food, candy, soft drinks, and alcoholic beverages as defined in section
297A.67, subdivision 2 , except for lodging, prepared food, candy, soft drinks, and alcoholic
beverages purchased directly by the United States or its agencies or instrumentalities; or
(5) goods or services purchased by a town local government as inputs to goods and
services that are generally provided by a private business and the purchases would be
taxable if made by a private business engaged in the same activity.
(c) As used in this subdivision, "school districts" means public school entities and
districts of every kind and nature organized under the laws of the state of Minnesota, and
any instrumentality of a school district, as defined in section 471.59.
(d) As used in this subdivision, "local governments" means cities, counties, and
townships.
(d) (e) As used in this subdivision, "goods or services generally provided by a private
business" include, but are not limited to, goods or services provided by liquor stores, gas
and electric utilities, golf courses, marinas, health and fitness centers, campgrounds, cafes,
and laundromats. "Goods or services generally provided by a private business" do not
include housing services, sewer and water services, wastewater treatment, ambulance and
other public safety services, correctional services, chore or homemaking services provided
to elderly or disabled individuals, or road and street maintenance or lighting.
EFFECTIVE DATE.This section is effective for sales and purchases made after
June 30, 2013.

    Sec. 31. Minnesota Statutes 2012, section 297A.70, subdivision 4, is amended to read:
    Subd. 4. Sales to nonprofit groups. (a) All sales, except those listed in paragraph
(b), to the following "nonprofit organizations" are exempt:
(1) a corporation, society, association, foundation, or institution organized and
operated exclusively for charitable, religious, or educational purposes if the item
purchased is used in the performance of charitable, religious, or educational functions; and
(2) any senior citizen group or association of groups that:
(i) in general limits membership to persons who are either age 55 or older, or
physically disabled;
(ii) is organized and operated exclusively for pleasure, recreation, and other
nonprofit purposes, not including housing, no part of the net earnings of which inures to
the benefit of any private shareholders; and
(iii) is an exempt organization under section 501(c) of the Internal Revenue Code.
For purposes of this subdivision, charitable purpose includes the maintenance of a
cemetery owned by a religious organization.
(b) This exemption does not apply to the following sales:
(1) building, construction, or reconstruction materials purchased by a contractor
or a subcontractor as a part of a lump-sum contract or similar type of contract with a
guaranteed maximum price covering both labor and materials for use in the construction,
alteration, or repair of a building or facility;
(2) construction materials purchased by tax-exempt entities or their contractors to
be used in constructing buildings or facilities that will not be used principally by the
tax-exempt entities; and
(3) lodging as defined under section 297A.61, subdivision 3, paragraph (g), clause
(2), and prepared food, candy, soft drinks, and alcoholic beverages as defined in section
297A.67, subdivision 2 , except wine purchased by an established religious organization
for sacramental purposes or as allowed under subdivision 9a; and
(4) leasing of a motor vehicle as defined in section 297B.01, subdivision 11, except
as provided in paragraph (c).
(c) This exemption applies to the leasing of a motor vehicle as defined in section
297B.01, subdivision 11 , only if the vehicle is:
(1) a truck, as defined in section 168.002, a bus, as defined in section 168.002, or a
passenger automobile, as defined in section 168.002, if the automobile is designed and
used for carrying more than nine persons including the driver; and
(2) intended to be used primarily to transport tangible personal property or
individuals, other than employees, to whom the organization provides service in
performing its charitable, religious, or educational purpose.
(d) A limited liability company also qualifies for exemption under this subdivision if
(1) it consists of a sole member that would qualify for the exemption, and (2) the items
purchased qualify for the exemption.
EFFECTIVE DATE.This section is effective retroactively for sales and purchases
made after June 30, 2012.

    Sec. 32. Minnesota Statutes 2012, section 297A.70, subdivision 5, is amended to read:
    Subd. 5. Veterans groups. Sales to an organization of military service veterans or
an auxiliary unit of an organization of military service veterans are exempt if:
(1) the organization or auxiliary unit is organized within the state of Minnesota
and is exempt from federal taxation under section 501(c), clause (19), of the Internal
Revenue Code; and
(2) the tangible personal property is or services are for charitable, civic, educational,
or nonprofit uses and not for social, recreational, pleasure, or profit uses.
EFFECTIVE DATE.This section is effective for sales and purchases made after
June 30, 2013.

    Sec. 33. Minnesota Statutes 2012, section 297A.70, is amended by adding a
subdivision to read:
    Subd. 9a. Established religious orders. Sales of lodging, prepared food, candy,
soft drinks, and alcoholic beverages at noncatered events between an established religious
order and an affiliated institution of higher education are exempt. For purposes of this
subdivision, an institution of higher education is "affiliated" with an established religious
order if members of the religious order are represented on the governing board of the
institution of higher education and the two organizations share campus space and common
facilities.
EFFECTIVE DATE.This section is effective retroactively for sales and purchases
made after June 30, 2012.

    Sec. 34. Minnesota Statutes 2012, section 297A.70, subdivision 13, is amended to read:
    Subd. 13. Fund-raising sales by or for nonprofit groups. (a) The following
sales by the specified organizations for fund-raising purposes are exempt, subject to the
limitations listed in paragraph (b):
(1) all sales made by a nonprofit organization that exists solely for the purpose of
providing educational or social activities for young people primarily age 18 and under;
(2) all sales made by an organization that is a senior citizen group or association of
groups if (i) in general it limits membership to persons age 55 or older; (ii) it is organized
and operated exclusively for pleasure, recreation, and other nonprofit purposes; and (iii)
no part of its net earnings inures to the benefit of any private shareholders;
(3) the sale or use of tickets or admissions to a golf tournament held in Minnesota if
the beneficiary of the tournament's net proceeds qualifies as a tax-exempt organization
under section 501(c)(3) of the Internal Revenue Code; and
(4) sales of candy sold for fund-raising purposes by a nonprofit organization that
provides educational and social activities primarily for young people age 18 and under.
(b) The exemptions listed in paragraph (a) are limited in the following manner:
(1) the exemption under paragraph (a), clauses (1) and (2), applies only if the gross
annual receipts of the organization from fund-raising do not exceed $10,000; and
(2) the exemption under paragraph (a), clause (1), does not apply if the sales are
derived from admission charges or from activities for which the money must be deposited
with the school district treasurer under section 123B.49, subdivision 2, or be recorded in
the same manner as other revenues or expenditures of the school district under section
123B.49, subdivision 4 .
(c) Sales of tangible personal property and services are exempt if the entire proceeds,
less the necessary expenses for obtaining the property or services, will be contributed to
a registered combined charitable organization described in section 43A.50, to be used
exclusively for charitable, religious, or educational purposes, and the registered combined
charitable organization has given its written permission for the sale. Sales that occur over
a period of more than 24 days per year are not exempt under this paragraph.
(d) For purposes of this subdivision, a club, association, or other organization of
elementary or secondary school students organized for the purpose of carrying on sports,
educational, or other extracurricular activities is a separate organization from the school
district or school for purposes of applying the $10,000 limit.
EFFECTIVE DATE.This section is effective for sales and purchases made after
June 30, 2013.

    Sec. 35. Minnesota Statutes 2012, section 297A.70, subdivision 14, is amended to read:
    Subd. 14. Fund-raising events sponsored by nonprofit groups. (a) Sales of
tangible personal property or services at, and admission charges for fund-raising events
sponsored by, a nonprofit organization are exempt if:
(1) all gross receipts are recorded as such, in accordance with generally accepted
accounting practices, on the books of the nonprofit organization; and
(2) the entire proceeds, less the necessary expenses for the event, will be used solely
and exclusively for charitable, religious, or educational purposes. Exempt sales include
the sale of prepared food, candy, and soft drinks at the fund-raising event.
(b) This exemption is limited in the following manner:
(1) it does not apply to admission charges for events involving bingo or other
gambling activities or to charges for use of amusement devices involving bingo or other
gambling activities;
(2) all gross receipts are taxable if the profits are not used solely and exclusively for
charitable, religious, or educational purposes;
(3) it does not apply unless the organization keeps a separate accounting record,
including receipts and disbursements from each fund-raising event that documents all
deductions from gross receipts with receipts and other records;
(4) it does not apply to any sale made by or in the name of a nonprofit corporation as
the active or passive agent of a person that is not a nonprofit corporation;
(5) all gross receipts are taxable if fund-raising events exceed 24 days per year;
(6) it does not apply to fund-raising events conducted on premises leased for more
than five days but less than 30 days; and
(7) it does not apply if the risk of the event is not borne by the nonprofit organization
and the benefit to the nonprofit organization is less than the total amount of the state and
local tax revenues forgone by this exemption.
(c) For purposes of this subdivision, a "nonprofit organization" means any unit of
government, corporation, society, association, foundation, or institution organized and
operated for charitable, religious, educational, civic, fraternal, and senior citizens' or
veterans' purposes, no part of the net earnings of which inures to the benefit of a private
individual.
EFFECTIVE DATE.This section is effective for sales and purchases made after
June 30, 2013.

    Sec. 36. Minnesota Statutes 2012, section 297A.70, is amended by adding a
subdivision to read:
    Subd. 18. Nursing homes and boarding care homes. (a) All sales, except those
listed in paragraph (b), to a nursing home licensed under section 144A.02 or a boarding
care home certified as a nursing facility under title 19 of the Social Security Act are
exempt if the facility:
(1) is exempt from federal income taxation pursuant to section 501(c)(3) of the
Internal Revenue Code; and
(2) is certified to participate in the medical assistance program under title 19 of the
Social Security Act, or certifies to the commissioner that it does not discharge residents
due to the inability to pay.
(b) This exemption does not apply to the following sales:
(1) building, construction, or reconstruction materials purchased by a contractor
or a subcontractor as a part of a lump-sum contract or similar type of contract with a
guaranteed maximum price covering both labor and materials for use in the construction,
alteration, or repair of a building or facility;
(2) construction materials purchased by tax-exempt entities or their contractors to
be used in constructing buildings or facilities that will not be used principally by the
tax-exempt entities;
(3) lodging as defined under section 297A.61, subdivision 3, paragraph (g), clause
(2), and prepared food, candy, soft drinks, and alcoholic beverages as defined in section
297A.67, subdivision 2; and
(4) leasing of a motor vehicle as defined in section 297B.01, subdivision 11, except
as provided in paragraph (c).
(c) This exemption applies to the leasing of a motor vehicle as defined in section
297B.01, subdivision 11, only if the vehicle is:
(1) a truck, as defined in section 168.002; a bus, as defined in section 168.002; or a
passenger automobile, as defined in section 168.002, if the automobile is designed and
used for carrying more than nine persons including the driver; and
(2) intended to be used primarily to transport tangible personal property or residents
of the nursing home or boarding care home.
EFFECTIVE DATE.This section is effective for sales and purchases made after
June 30, 2013.

    Sec. 37. [297A.715] SERVICE EXEMPTIONS.
    Subdivision 1. Scope. To the extent provided in this section, the gross receipts from
sales of and use of services listed in this section are specifically exempted from the taxes
imposed by this chapter.
    Subd. 2. Agriculture and forestry support. Agriculture and forestry support
services are exempt. Agriculture and forestry support services include services such
as aerial dusting or spraying; soil preparation activity or crop production services such
as plowing, fertilizing, seed bed preparation, planting, cultivating, and crop protection
services; mechanical harvesting, picking, and combining of crops, threshing, and related
activities; postharvest activities, such as crop cleaning, sun-drying, shelling, fumigating,
curing, sorting, grading, packing, and cooling; breeding services for livestock and
working animals; dairy herd improvement activities; livestock spraying; sheep dipping
and shearing; branding; hoof trimming; and support activities related to timber production
and forest protection, such as estimating timber, forest firefighting, and forest pest control.
    Subd. 3. Bank services. Bank services, excluding safe deposit box rental, are
exempt. Bank services include services such as automated teller machine services;
monthly maintenance; issuing credit cards, money orders, travelers' checks, and certified
checks; cashing checks, transmitting or transferring money, including wire-transfers,
accepting deposits, and clearinghouse and reserve services; lending and brokerage;
investments; extending credit or arranging loans; sales financing; handling stop payment
orders, overdrafts, and returned deposits; providing statements of account; and accepting
payment by a particular method.
    Subd. 4. Brokerage and investment counseling. Brokerage and investment
counseling services are exempt. Brokerage and investment counseling services include
services such as underwriting securities issues; making markets for securities and
commodities; acting as agents or brokers between buyers and sellers of securities and
commodities, providing securities and commodity exchange services; and other services,
such as managing portfolios of assets; providing investment advice; trust, fiduciary, and
custody services; and facilitating the buying and selling of stocks, stock options, bonds,
or commodity contracts.
    Subd. 5. Cemetery grounds maintenance. Cemetery grounds maintenance
services are exempt. In addition to the exemption for lawn care and related services used
in the maintenance of cemetery grounds provided by section 297A.67, subdivision 25,
charges for cemetery grounds maintenance services include charges for services such as
opening and closing graves; constructing and installing concrete forms at grave sites;
placing memorials; maintaining the irrigation system; and maintaining equipment and
tools necessary for cemetery maintenance. For purposes of this exemption, "cemetery"
means a cemetery for human burial.
    Subd. 6. Construction labor; real property. Labor services for construction or
improvement of real property are exempt. Labor services for construction or improvement
of real property include construction work on buildings and engineering projects such as
highways, bridges, and utility systems; services by building equipment contractors, such
as plumbing and heating; and services by specialty trade contractors needed to complete
the basic structure of buildings, such as masons, glazers, roofers, foundation cement
pourers, electricians, and plumbers, whether new work, additions, alterations, or repairs.
These labor services also include demolition of buildings and structures; preparation of
sites, such as under a "land clearing contract" for removal of trees, bushes, and shrubs,
including the removal of roots and stumps, to develop a site, as described in section
297A.68, subdivision 40; land subdivision; and services performed under a construction
contract for the installation of shrubbery, plants, sod, trees, bushes, and similar items.
    Subd. 7. Education services. (a) Education services provided by establishments
such as schools, colleges, universities, and training centers, that are primarily engaged
in furnishing academic courses and associated course work, including vocational and
technical training, and that provide instruction and training in a wide variety of subjects,
are exempt.
(b) Educational services provided by any organization for purposes of continuing
professional education or accreditation are exempt.
    Subd. 8. Funeral and cremation services. Funeral and cremation services
for humans are exempt. Charges for funeral and cremation services include charges
for services such as preparing the dead for burial, interment, or cremation services;
conducting funerals; providing facilities for wakes, visitation, and memorial services;
cremation; arranging transportation for the dead; and basic services provided by funeral
director and staff.
    Subd. 9. Health care and medical services. Health care and medical services
for humans, provided by a health care facility or health care professional, are exempt.
Health care and medical services include services such as the following: dental services;
services provided by medical and diagnostic laboratories; the transportation of patients;
medical rescue services; services provided to hospital inpatients, including food services;
outpatient services; physical therapy; psychiatric and mental health services; psychological
services; vocational services provided to a patient; social work services provided to a
patient; and services such as collecting, storing, and distributing blood and blood products.
    Subd. 10. Insurance company commissions for policy sales. Insurance company
commissions paid to an insurance agent for the service of selling an insurance policy
are exempt.
    Subd. 11. Mining support. Mining support services are exempt. Mining support
services are those services which are required for the mining and quarrying of minerals,
and for the extraction of oil and gas. Mining support services include services such
as drilling; taking core samples and making geological observations at prospective
sites; excavating slush pits and cellars; sinking shafts; removing overburden; tunneling;
blasting; boring and testing; draining and pumping an excavation site; and such oil and
gas operations as spudding in; well surveying; running, cutting, and pulling casings,
tubes, and rods; cementing and shooting wells; perforating well casings; acidizing and
chemically treating wells; and cleaning out, bailing, and swabbing wells.
    Subd. 12. Public services. Services that are provided by government for a fee
are exempt. Services that are provided by government for a fee include such services
as issuing, renewing, and reinstating licenses and permits; inspection and certification
of property, goods, and services, operations, and standards; and various other services
provided by local, regional, state, and federal government agencies or officials; except
services which are specifically enumerated in this chapter as being taxable services, even
though provided by government.
    Subd. 13. Transit service; student transportation. (a) Transit services are exempt.
Transit services include use of bus, light rail, and other transit systems provided using
regular routes and schedules; taxi cabs or other ground transport services used primarily
for transporting natural persons; and include "special transportation services" by specially
equipped vehicles, as defined in section 174.29.
(b) Providing students with transportation services by school bus to and from school,
college, university, and private career school is exempt; and transporting students under
the Head Start Act, as defined in section 169.448, subdivision 3, is exempt. For purposes
of this subdivision, a "school" is as defined in section 120A.22, subdivision 4; and "private
career school" means a school licensed under section 141.25.
    Subd. 14. Real estate services. Real estate services provided by a licensed real
estate broker, licensed real estate salesperson, licensed real estate closing agent, or closing
agent, as defined in chapter 82, are exempt; and real estate services provided by a licensed
real estate appraiser, as defined in chapter 82B, are exempt.
    Subd. 15. Social assistance services. (a) Social assistance services, such as the
services provided by day care; babysitters; nursing homes; residential care facilities for
people with intellectual and developmental disabilities, mental illness, or substance abuse
problems; adoption agencies; and foster care, are exempt. Social assistance services
include services such as life skills training; crisis intervention services; drug prevention
services; emergency and relief services; rehabilitation counseling services; group and
family support services; and assistance in daily living provided to ill, disabled, or infirm
persons, such as grooming, dressing, transfer assistance, light housekeeping, preparing
meals, performing errands, and providing companionship.
(b) If a service is available to the general public, the fact that the service is provided
to someone who is also receiving social assistance services does not mean that the service
is a social assistance service.
    Subd. 16. Storage of farm products and storage of refrigerated food. Storage of
farm products and storage of refrigerated food, including grain elevator storage services,
are exempt.
    Subd. 17. Veterinary services. Services of practicing veterinary medicine, as that
term is used in chapter 156, are exempt. This includes veterinary services for household
pets and for animals kept for economic reasons, including livestock, laboratory animals,
working animals, animals to be sold at retail in the normal course of business, and sport
animals.
    Subd. 18. Waste management services. Waste management services, meaning the
collection, transportation, processing, treatment, and disposal of solid and hazardous
waste, are exempt. Waste management services include the hauling of waste materials;
operating materials recovery facilities; providing remediation services, meaning the
cleanup of contaminated buildings, mine sites, soil, or ground water; and providing septic
pumping and sewer cleaning.
    Subd. 19. Legal services. Legal services, meaning the rendering of legal
consultation or advice to a client; appearing on behalf of a client in any hearing,
proceeding, or related deposition or discovery matter or before any judicial officer, court,
public agency, referee, magistrate, commissioner, or hearing officer; or engaging in other
activities that constitute the practice of law, are exempt, regardless of whether the legal
services are performed by a licensed attorney or any other person working on behalf of a
licensed attorney. The term legal services does not include prewritten computer software
containing legal forms, agreements, or compilations of information relating to the law that
is available for sale to the public.
    Subd. 20. Accounting services. Accounting services, meaning services requiring
accountancy or related skills, including accounting, assurance, financial management
services, insolvency services, investment advice, are exempt, regardless of whether the
services are performed by a member of a professional accounting body or any other person
working on behalf of a member of a professional accounting body. The term accounting
services does not include prewritten computer software, such as accounting forms or tax
preparation or bookkeeping software that is available to the public.
    Subd. 21. Business and management consulting. Business and management
consulting services are exempt. Business and management consulting services includes
providing advice on starting, managing, or operating a business or organization, and
business, organizational, and operational strategy; conducting industry, market, and
organizational research; and marketing a business, service, organization, or product.
    Subd. 22. Architectural services. Architectural services are exempt. Architectural
services include the design and structural plan of new or existing buildings, open areas,
communities, and other artificial constructions and environments; and the supervision of
construction work, regardless of whether the services are performed by a licensed architect
or any other person working on behalf of a licensed architect.
    Subd. 23. Engineering services. Engineering services, meaning the application of
scientific principles to design or develop structures, machines, apparatus, or manufacturing
or technological processes, are exempt, regardless of whether the service is performed
by a person licensed in a field of engineering or any other person working on behalf of
a licensed person. Engineering services include chemical, mechanical, civil, electrical,
agricultural, biological, applied, energy, industrial, petroleum, and nuclear engineering.
    Subd. 24. Information technology services. Information technology services
are exempt. Information technology services include the study, design, development,
application, implementation, installation, administration, support, or management
of computer-based information systems; and the planning and management of the
maintenance, upgrading, and replacement of hardware and software in a computer-based
information system.
    Subd. 25. Staffing and employment search services. Staffing and employment
search services, meaning any service that matches employers to employees, whether for
permanent or temporary placement, are exempt.
    Subd. 26. Business support services. Business support services, including
document preparation, information processing, research and compilation of information,
billing and bookkeeping, bill paying, transcription, voice mail answering, correspondence,
and administrative services provided to a business or organization, are exempt.
    Subd. 27. Transportation services. Transportation services for the actual
transportation of freight or property, including handling, drayage, storage, and packing are
exempt. Transportation services include services by persons not otherwise engaged in the
business of transporting freight or property for arranging transportation to customers for
freight or property.
    Subd. 28. Miscellaneous services. The following services are exempt:
(1) coin-operated laundry facilities operated by a customer;
(2) residential parking and parking at a meter;
(3) security services performed within the jurisdiction served by off-duty licensed
peace officers as defined in section 626.84, subdivision 1;
(4) services provided by a nonprofit organization, or any organization at the direction
of a county, for monitoring and electronic surveillance of persons placed on in-home
detention pursuant to court order or under the direction of the Minnesota Department
of Corrections;
(5) horse boarding services;
(6) shoe shining services;
    (7) travel agency services;
    (8) auctioneering fees; and
(9) related-party services as follows:
(i) services performed by an employee for an employer;
(ii) services performed by a partnership or association for another partnership or
association if one of the entities owns or controls more than 80 percent of the voting power
of the equity interest in the other entity; and
(iii) services performed between members of an affiliated group of corporations. For
purposes of this item, "affiliated group of corporations" means those entities that would be
classified as members of an affiliated group as defined under United States Code, title 26,
section 1504, disregarding the exclusions in section 1504(b).
EFFECTIVE DATE.This section is effective for sales and purchases made after
June 30, 2013.

    Sec. 38. Minnesota Statutes 2012, section 297A.75, subdivision 1, is amended to read:
    Subdivision 1. Tax collected. The tax on the gross receipts from the sale of the
following exempt items must be imposed and collected as if the sale were taxable and the
rate under section 297A.62, subdivision 1, applied. The exempt items include:
    (1) capital equipment exempt under section 297A.68, subdivision 5;
    (2) (1) building materials for an agricultural processing facility exempt under section
297A.71, subdivision 13 ;
    (3) (2) building materials for mineral production facilities exempt under section
297A.71, subdivision 14 ;
    (4) (3) building materials for correctional facilities under section 297A.71,
subdivision 3 ;
    (5) (4) building materials used in a residence for disabled veterans exempt under
section 297A.71, subdivision 11;
    (6) (5) elevators and building materials exempt under section 297A.71, subdivision
12 ;
    (7) (6) building materials for the Long Lake Conservation Center exempt under
section 297A.71, subdivision 17;
    (8) (7) materials and supplies for qualified low-income housing under section
297A.71, subdivision 23 ;
    (9) (8) materials, supplies, and equipment for municipal electric utility facilities
under section 297A.71, subdivision 35;
    (10) (9) equipment and materials used for the generation, transmission, and
distribution of electrical energy and an aerial camera package exempt under section
297A.68 , subdivision 37;
    (11) (10) commuter rail vehicle and repair parts under section 297A.70, subdivision
3, paragraph (a), clause (10);
    (12) (11) materials, supplies, and equipment for construction or improvement of
projects and facilities under section 297A.71, subdivision 40;
(13) (12) materials, supplies, and equipment for construction or improvement of a
meat processing facility exempt under section 297A.71, subdivision 41;
(14) (13) materials, supplies, and equipment for construction, improvement, or
expansion of an aerospace defense manufacturing facility exempt under section 297A.71,
subdivision 42;
(15) (14) enterprise information technology equipment and computer software for
use in a qualified data center exempt under section 297A.68, subdivision 42; and
(16) (15) materials, supplies, and equipment for qualifying capital projects under
section 297A.71, subdivision 44.
EFFECTIVE DATE.This section is effective for sales and purchases made after
June 30, 2015.

    Sec. 39. Minnesota Statutes 2012, section 297A.75, subdivision 2, is amended to read:
    Subd. 2. Refund; eligible persons. Upon application on forms prescribed by the
commissioner, a refund equal to the tax paid on the gross receipts of the exempt items
must be paid to the applicant. Only the following persons may apply for the refund:
    (1) for subdivision 1, clauses (1) to (3) and (2), the applicant must be the purchaser;
    (2) for subdivision 1, clauses (4) (3) and (7) (6), the applicant must be the
governmental subdivision;
    (3) for subdivision 1, clause (5) (4), the applicant must be the recipient of the
benefits provided in United States Code, title 38, chapter 21;
    (4) for subdivision 1, clause (6) (5), the applicant must be the owner of the
homestead property;
    (5) for subdivision 1, clause (8) (7), the owner of the qualified low-income housing
project;
    (6) for subdivision 1, clause (9) (8), the applicant must be a municipal electric utility
or a joint venture of municipal electric utilities;
    (7) for subdivision 1, clauses (10), (9), (12), (13), and (14), and (15), the owner
of the qualifying business; and
    (8) for subdivision 1, clauses (10), (11), (12), and (16) (15), the applicant must be
the governmental entity that owns or contracts for the project or facility.
EFFECTIVE DATE.This section is effective for sales and purchases made after
June 30, 2015.

    Sec. 40. Minnesota Statutes 2012, section 297A.75, subdivision 3, is amended to read:
    Subd. 3. Application. (a) The application must include sufficient information
to permit the commissioner to verify the tax paid. If the tax was paid by a contractor,
subcontractor, or builder, under subdivision 1, clause (3), (4), (5), (6), (7), (8), (9), (10),
(11), (12), (13), (14), or (15), or (16), the contractor, subcontractor, or builder must
furnish to the refund applicant a statement including the cost of the exempt items and the
taxes paid on the items unless otherwise specifically provided by this subdivision. The
provisions of sections 289A.40 and 289A.50 apply to refunds under this section.
    (b) An applicant may not file more than two applications per calendar year for
refunds for taxes paid on capital equipment exempt under section 297A.68, subdivision 5.
    (c) Total refunds for purchases of items in section 297A.71, subdivision 40, must not
exceed $5,000,000 in fiscal years 2010 and 2011. Applications for refunds for purchases
of items in sections 297A.70, subdivision 3, paragraph (a), clause (11), and 297A.71,
subdivision 40, must not be filed until after June 30, 2009.
EFFECTIVE DATE.This section is effective for sales and purchases made after
June 30, 2015.

    Sec. 41. Minnesota Statutes 2012, section 297A.815, subdivision 3, is amended to read:
    Subd. 3. Motor vehicle lease sales tax revenue. (a) For purposes of this
subdivision, "net revenue" means an amount equal to:
    (1) the revenues, including interest and penalties, that would have been collected
under this section, during the fiscal year if the rate had been 6.875 percent; less
    (2) in fiscal year 2011, $30,100,000; in fiscal year 2012, $31,100,000; and in fiscal
year 2013 and following fiscal years, $32,000,000.
    (b) On or before June 30 of each fiscal year, the commissioner of revenue shall
estimate the amount of the revenues and subtraction under paragraph (a) for the current
fiscal year.
    (c) On or after July 1 of the subsequent fiscal year, the commissioner of management
and budget shall transfer the net revenue as estimated in paragraph (b) from the general
fund, as follows:
    (1) 50 percent to the greater Minnesota transit account; and
    (2) 50 percent to the county state-aid highway fund. Notwithstanding any other law
to the contrary, the commissioner of transportation shall allocate the funds transferred
under this clause to the counties in the metropolitan area, as defined in section 473.121,
subdivision 4, excluding the counties of Hennepin and Ramsey, so that each county shall
receive of such amount the percentage that its population, as defined in section 477A.011,
subdivision 3, estimated or established by July 15 of the year prior to the current calendar
year, bears to the total population of the counties receiving funds under this clause.
    (d) For fiscal years 2010 and 2011, the amount under paragraph (a), clause (1), must
be calculated using the following percentages of the total revenues:
    (1) for fiscal year 2010, 83.75 percent; and
    (2) for fiscal year 2011, 93.75 percent.
EFFECTIVE DATE.This section is effective for sales and purchases made after
June 30, 2013.

    Sec. 42. Minnesota Statutes 2012, section 469.190, is amended by adding a subdivision
to read:
    Subd. 1a. Tax base; locally collected taxes. A tax imposed on the gross receipts
from lodging under this section or under a special law applies to the same base as taxes
collected by the commissioner of revenue under subdivision 7 and section 270C.171.
EFFECTIVE DATE.This section is effective the day following final enactment.
In enacting this section, the legislature confirms its original intent in enacting Minnesota
Statutes, section 469.190, its predecessor provisions, and any special laws authorizing
political subdivisions to impose lodging taxes, and that those taxes were and are intended
to apply to the entire consideration paid to obtain access to transient lodging, including
ancillary or related services, such as services provided by accommodation intermediaries
as defined in Minnesota Statutes, section 297A.61, and similar services. The provisions of
this section must not be interpreted to imply a narrower construction of the tax base under
lodging tax provisions of Minnesota law prior to the enactment of this section.

    Sec. 43. DULUTH LOCAL SALES TAX; RATE REDUCTION.
Notwithstanding Minnesota Statutes, section 297A.99 or 645.021, or any ordinance,
city charter, or other provision of law, the city of Duluth shall reduce its rate of tax
authorized under Laws 1973, chapter 461, section 1, as amended by Laws 1977, chapter
438, to 0.87 percent.
EFFECTIVE DATE.This section is effective for sales and purchases made after
June 30, 2013.

    Sec. 44. REVISOR'S INSTRUCTION.
In Minnesota Rules, part 8130.9700, the revisor of statutes shall remove the last
sentence in subpart 3, item B, that reads "Use of equipment on a time-sharing basis,
where access to the equipment is only by means of remote access facilities, is not taxable
leasing of such equipment."
EFFECTIVE DATE.This section is effective for sales and purchases made after
June 30, 2013.

    Sec. 45. REPEALER.
(a) Minnesota Statutes 2012, sections 297A.61, subdivision 27; 297A.66, subdivision
4; 297A.67, subdivision 8; and 297A.68, subdivisions 9, 22, and 35, are repealed.
(b) Minnesota Rules, part 8130.0500, subpart 2, is repealed.
EFFECTIVE DATE.This section is effective for sales and purchases made after
June 30, 2013.

ARTICLE 4

TOBACCO

    Section 1. Minnesota Statutes 2012, section 270C.56, subdivision 1, is amended to read:
    Subdivision 1. Liability imposed. A person who, either singly or jointly with
others, has the control of, supervision of, or responsibility for filing returns or reports,
paying taxes, or collecting or withholding and remitting taxes and who fails to do so, or a
person who is liable under any other law, is liable for the payment of taxes arising under
chapters 295, 296A, 297A, 297F, and 297G, or sections 256.9658, 290.92, and 297E.02,
and the applicable penalties and interest on those taxes.
EFFECTIVE DATE.This section is effective July 1, 2013.

    Sec. 2. Minnesota Statutes 2012, section 297F.01, is amended by adding a subdivision
to read:
    Subd. 9b. Little cigar. "Little cigar" means any roll for smoking made in whole or
in part of tobacco if the product is wrapped in a substance containing tobacco other than
natural leaf tobacco, uses an integrated cellulose acetate or other similar filter, and weighs
not more than 4-1/2 pounds per thousand.
EFFECTIVE DATE.This section is effective July 1, 2013.

    Sec. 3. Minnesota Statutes 2012, section 297F.01, is amended by adding a subdivision
to read:
    Subd. 10b. Moist snuff. "Moist snuff" means any finely cut, ground, or powdered
smokeless tobacco that is intended to be placed or dipped in the mouth.

    Sec. 4. Minnesota Statutes 2012, section 297F.01, is amended by adding a subdivision
to read:
    Subd. 13a. Premium cigar. "Premium cigar" means any cigar that is
hand-constructed and hand-rolled, has a wrapper that is made entirely from whole tobacco
leaf, has a filler and binder that is made entirely of tobacco, except for adhesives or other
materials used to maintain size, texture, or flavor, and has a wholesale price of no less
than $2.
EFFECTIVE DATE.This section is effective July 1, 2013.

    Sec. 5. Minnesota Statutes 2012, section 297F.01, subdivision 19, is amended to read:
    Subd. 19. Tobacco products. (a) "Tobacco products" means any product
containing, made, or derived from tobacco that is intended for human consumption,
whether chewed, smoked, absorbed, dissolved, inhaled, snorted, sniffed, or ingested by
any other means, or any component, part, or accessory of a tobacco product, including,
but not limited to, cigars; little cigars; cheroots; stogies; periques; granulated, plug cut,
crimp cut, ready rubbed, and other smoking tobacco; snuff; snuff flour; cavendish; plug
and twist tobacco; fine-cut and other chewing tobacco; shorts; refuse scraps, clippings,
cuttings and sweepings of tobacco, and other kinds and forms of tobacco; but does not
include cigarettes as defined in this section. Tobacco products excludes any tobacco
product that has been approved by the United States Food and Drug Administration for
sale as a tobacco cessation product, as a tobacco dependence product, or for other medical
purposes, and is being marketed and sold solely for such an approved purpose.
(b) Except for the imposition of tax under section 297F.05, subdivisions 3 and 4,
tobacco products includes a premium cigar, as defined in subdivision 13a.
EFFECTIVE DATE.This section is effective July 1, 2013.

    Sec. 6. Minnesota Statutes 2012, section 297F.05, subdivision 1, is amended to read:
    Subdivision 1. Rates; cigarettes. A tax is imposed upon the sale of cigarettes in
this state, upon having cigarettes in possession in this state with intent to sell, upon any
person engaged in business as a distributor, and upon the use or storage by consumers, at
the following rates:
(1) on cigarettes weighing not more than three pounds per thousand, 24 108.5 mills,
or 10.85 cents, on each such cigarette; and
(2) on cigarettes weighing more than three pounds per thousand, 48 217 mills, or
21.7 cents, on each such cigarette.
EFFECTIVE DATE.This section is effective July 1, 2013.

    Sec. 7. Minnesota Statutes 2012, section 297F.05, is amended by adding a subdivision
to read:
    Subd. 1a. Annual indexing. (a) Each year the commissioner shall adjust the
tax rates under subdivision 1, including any adjustment made in prior years under this
subdivision, by multiplying the mill rates for the current calendar year by an adjustment
factor. The adjustment factor equals the in-lieu sales tax rate that applies to the following
calendar year divided by the in-lieu sales tax rate for the current calendar year. For
purposes of this subdivision, "in-lieu sales tax rate" means the tax rate established under
section 297F.25, subdivision 1, rounded to 1/100 of one cent per cigarette.
    (b) The commissioner shall publish the resulting rate by November 1 and the rate
applies to sales made on or after January 1 of the following year.
(c) The determination of the commissioner under this subdivision is not a rule and is
not subject to the Administrative Procedure Act in chapter 14.
EFFECTIVE DATE.This section is effective July 1, 2013.

    Sec. 8. Minnesota Statutes 2012, section 297F.05, subdivision 3, is amended to read:
    Subd. 3. Rates; tobacco products. (a) Except as provided in subdivision 3a, a tax is
imposed upon all tobacco products in this state and upon any person engaged in business
as a distributor, at the rate of 35 90 percent of the wholesale sales price of the tobacco
products. The tax is imposed at the time the distributor:
(1) brings, or causes to be brought, into this state from outside the state tobacco
products for sale;
(2) makes, manufactures, or fabricates tobacco products in this state for sale in
this state; or
(3) ships or transports tobacco products to retailers in this state, to be sold by those
retailers.
(b) Notwithstanding paragraph (a), a minimum tax equal to the rate imposed on a pack
of 20 cigarettes weighing not more than three pounds per thousand, as established under
subdivision 1, and adjusted by subdivision 1a, is imposed on each container of moist snuff.
For purposes of this subdivision, a "container" means the smallest consumer-size can,
package, or other container that is marketed or packaged by the manufacturer, distributor,
or retailer for separate sale to a retail purchaser.
(c) Notwithstanding paragraph (a), for little cigars, the tax on each little cigar shall
be equal to the tax imposed per cigarette under subdivision 1, clause (1), and adjusted by
subdivision 1a, and any successor provision taxing cigarettes.
EFFECTIVE DATE.This section is effective July 1, 2013, except the minimum
tax under paragraph (b) is effective January 1, 2014.

    Sec. 9. Minnesota Statutes 2012, section 297F.05, is amended by adding a subdivision
to read:
    Subd. 3a. Rates; tobacco. (a) A tax is imposed upon all premium cigars in this state
and upon any person engaged in business as a tobacco product distributor, at the lesser of:
(1) the rate of 70 percent of the wholesale sales price of the premium cigars; or
(2) $3.50 per premium cigar.
(b) The tax imposed under paragraph (a) is imposed at the time the tobacco products
distributor:
(1) brings, or causes to be brought, into this state from outside the state premium
cigars for sale;
(2) makes, manufactures, or fabricates premium cigars in this state for sale in this
state; or
(3) ships or transports premium cigars to retailers in this state, to be sold by those
retailers.
EFFECTIVE DATE.This section is effective July 1, 2013.

    Sec. 10. Minnesota Statutes 2012, section 297F.05, subdivision 4, is amended to read:
    Subd. 4. Use tax; tobacco products. (a) Except as provided in subdivision 4a, a tax
is imposed upon the use or storage by consumers of tobacco products in this state, and
upon such consumers, at the rate of 35 90 percent of the cost to the consumer of the tobacco
products or the minimum tax under subdivision 3, paragraph (b), whichever is greater.
(b) Notwithstanding paragraph (a), for little cigars, the tax on each little cigar
shall be equal to the tax imposed per cigarette under subdivision 1, clause (1), and any
successor provision taxing cigarettes.
EFFECTIVE DATE.This section is effective July 1, 2013.

    Sec. 11. Minnesota Statutes 2012, section 297F.05, is amended by adding a subdivision
to read:
    Subd. 4a. Use tax; premium cigars. A tax is imposed upon the use or storage by
consumers of all premium cigars in this state, and upon such consumers, at the lesser of:
(1) the rate of 70 percent of the cost to the consumer of the premium cigars; or
(2) $3.50 per premium cigar.
EFFECTIVE DATE.This section is effective July 1, 2013.

    Sec. 12. Minnesota Statutes 2012, section 297F.24, subdivision 1, is amended to read:
    Subdivision 1. Fee imposed. (a) A fee is imposed upon the sale of nonsettlement
cigarettes in this state, upon having nonsettlement cigarettes in possession in this state
with intent to sell, upon any person engaged in business as a distributor, and upon the use
or storage by consumers of nonsettlement cigarettes. The fee equals a rate of 1.75 2.5
cents per cigarette.
(b) The purpose of this fee is to:
(1) ensure that manufacturers of nonsettlement cigarettes pay fees to the state that
are comparable to costs attributable to the use of the cigarettes;
(2) prevent manufacturers of nonsettlement cigarettes from undermining the state's
policy of discouraging underage smoking by offering nonsettlement cigarettes at prices
substantially below the cigarettes of other manufacturers; and
(3) fund such other purposes as the legislature determines appropriate.

    Sec. 13. Minnesota Statutes 2012, section 297F.25, subdivision 1, is amended to read:
    Subdivision 1. Imposition. (a) A tax is imposed on distributors on the sale of
cigarettes by a cigarette distributor to a retailer or cigarette subjobber for resale in this
state. The tax is equal to 6.5 percent of the weighted average retail price and must be
expressed in cents per pack rounded to the nearest one-tenth of a cent. The weighted
average retail price must be determined annually, with new rates published by November
1, and effective for sales on or after January 1 of the following year. The weighted average
retail price must be established by surveying cigarette retailers statewide in a manner
and time determined by the commissioner. The commissioner shall make an inflation
adjustment in accordance with the Consumer Price Index for all urban consumers inflation
indicator as published in the most recent state budget forecast. The commissioner shall use
the inflation factor for the calendar year in which the new tax rate takes effect. If the survey
indicates that the average retail price of cigarettes has not increased relative to the average
retail price in the previous year's survey, then the commissioner shall not make an inflation
adjustment. The determination of the commissioner pursuant to this subdivision is not a
"rule" and is not subject to the Administrative Procedure Act contained in chapter 14. For
packs of cigarettes with other than 20 cigarettes, the tax must be adjusted proportionally.
(b) Notwithstanding paragraph (a), and in lieu of a survey of cigarette retailers, the
tax calculation of the weighted average retail price for the sales of cigarettes from August
1, 2011, through December 31, 2011, shall be calculated by: (1) increasing the average
retail price per pack of 20 cigarettes from the most recent survey by the percentage change
in a weighted average of the presumed legal prices for cigarettes during the year after
completion of that survey, as reported and published by the Department of Commerce
under section 325D.371; (2) subtracting the sales tax included in the retail price; and (3)
adjusting for expected inflation. The rate must be published by May 1 and is effective for
sales after July 31. If the weighted average of the presumed legal prices indicates that the
average retail price of cigarettes has not increased relative to the average retail price in the
most recent survey, then no inflation adjustment must be made for any period that a rate
change in section 297F.05, subdivision 1, is enacted after the current effective January 1
rate and prior to the following January 1, the commissioner of revenue shall make a
proportionate adjustment to the sales tax rate. For packs of cigarettes with other than 20
cigarettes, the sales tax must be adjusted proportionally.
EFFECTIVE DATE.This section is effective July 1, 2013.

    Sec. 14. Minnesota Statutes 2012, section 325F.781, subdivision 1, is amended to read:
    Subdivision 1. Definitions. (a) For purposes of this section, the following terms
have the meanings given, unless the language or context clearly provides otherwise.
(b) "Consumer" means an individual who purchases, receives, or possesses tobacco
products for personal consumption and not for resale.
(c) "Delivery sale" means:
(1) a sale of tobacco products to a consumer in this state when:
(i) the purchaser submits the order for the sale by means of a telephonic or other
method of voice transmission, the mail or any other delivery service, or the Internet or
other online service; or
(ii) the tobacco products are delivered by use of the mail or other delivery service; or
(2) a sale of tobacco products that satisfies the criteria in clause (1), item (i),
regardless of whether the seller is located inside or outside of the state.
A sale of tobacco products to an individual in this state must be treated as a sale to a
consumer, unless the individual is licensed as a distributor or retailer of tobacco products.
(d) "Delivery service" means a person, including the United States Postal Service,
that is engaged in the commercial delivery of letters, packages, or other containers.
(e) "Distributor" means a person, whether located inside or outside of this state,
other than a retailer, who sells or distributes tobacco products in the state. Distributor does
not include a tobacco products manufacturer, export warehouse proprietor, or importer
with a valid permit under United States Code, title 26, section 5712 (1997), if the person
sells or distributes tobacco products in this state only to distributors who hold valid and
current licenses under the laws of a state, or to an export warehouse proprietor or another
manufacturer. Distributor does not include a common or contract carrier that is transporting
tobacco products under a proper bill of lading or freight bill that states the quantity, source,
and destination of tobacco products, or a person who ships tobacco products through this
state by common or contract carrier under a bill of lading or freight bill.
(f) "Retailer" means a person, whether located inside or outside this state, who sells
or distributes tobacco products to a consumer in this state.
(g) "Tobacco products" means:
(1) cigarettes, as defined in section 297F.01, subdivision 3; and
(2) smokeless tobacco as defined in section 325F.76.; and
(3) premium cigars as defined in section 297F.01, subdivision 13a.
EFFECTIVE DATE.This section is effective July 1, 2013.

    Sec. 15. FLOOR STOCKS TAX.
(a) A floor stocks cigarette tax is imposed on every person engaged in the business
in this state as a distributor, retailer, subjobber, vendor, manufacturer, or manufacturer's
representative of cigarettes, on the stamped cigarettes and unaffixed stamps in the person's
possession or under the person's control at 12:01 a.m. on July 1, 2013. The tax is imposed
at the following rates:
(1) on cigarettes weighing not more than three pounds per thousand, 47 mills on
each cigarette; and
(2) on cigarettes weighing more than three pounds per thousand, 94 mills on each
cigarette.
(b) Each distributor, on or before July 10, 2013, shall file a return with the
commissioner of revenue, in the form the commissioner prescribes, showing the stamped
cigarettes and unaffixed stamps on hand at 12:01 a.m. on July 1, 2013, and the amount of
tax due on the cigarettes and unaffixed stamps.
(c) Each retailer, subjobber, vendor, manufacturer, or manufacturer's representative,
on or before July 10, 2013, shall file a return with the commissioner of revenue, in the
form the commissioner prescribes, showing the cigarettes on hand at 12:01 a.m. on July 1,
2013, and the amount of tax due on the cigarettes.
(d) The tax imposed by this section is due and payable on or before September 4,
2013, and after that date bears interest at the rate of one percent per month.
EFFECTIVE DATE.This section is effective July 1, 2013.

    Sec. 16. TOBACCO TAX COLLECTION REPORT.
    Subdivision 1. Report to legislature. (a) The commissioner of revenue shall report
to the 2014 legislature on the tobacco tax collection system, including recommendations
to improve compliance under the excise tax for both cigarettes and other tobacco products.
The purpose of the report is to provide information and guidance to the legislature on
improvements to the tobacco tax collection system to:
(1) provide a unified system of collecting both the cigarette and other tobacco
taxes, regardless of category, size, or shape, that ensures the highest reasonable rates of
tax collection;
(2) discourage tax evasion; and
(3) help to prevent illegal sale of tobacco products, which may make these products
more accessible to youth.
(b) In the report, the commissioner shall:
(1) provide a detailed review of the present excise tax collection and compliance
system as it applies to both cigarettes and other tobacco products. This must include
an assessment of the levels of compliance for each category of products and the effect
of the stamping requirement on compliance for each category of products and the effect
of the stamping requirement on compliance rates for cigarettes relative to other tobacco
products. It also must identify any weaknesses in the system;
(2) survey the methods of collection and enforcement used by other states or nations,
including identifying and discussing emerging best practices that ensure tracking of both
cigarettes and other tobacco products and result in the highest rates of tax collection and
compliance. These best practices must consider high-technology alternatives, such as use
of bar codes, radio-frequency identification tags, or similar mechanisms for tracking
compliance;
(3) evaluate the adequacy and effectiveness of the existing penalties and other
sanctions for noncompliance;
(4) evaluate the adequacy of the resources allocated by the state to enforce the
tobacco tax and prevention laws; and
(5) make recommendations on implementation of a comprehensive tobacco tax
collection system for Minnesota that can be implemented by January 1, 2014, including:
(i) recommendations on the specific steps needed to institute and implement the new
system, including estimates of the state's costs of doing so and any additional personnel
requirements;
(ii) recommendations on methods to recover the cost of implementing the system
from the industry;
(iii) evaluation of the extent to which the proposed system is sufficiently flexible
and adaptable to adjust to modifications in the construction, packaging, formatting, and
marketing of tobacco products by the industry; and
(iv) recommendations to modify existing penalties or to impose new penalties or
other sanctions to ensure compliance with the system.
    Subd. 2. Due date. The report required by subdivision 1 is due January 1, 2014.
    Subd. 3. Procedure. The report required under this section must be made in the
manner provided under Minnesota Statutes, section 3.195. In addition, copies must be
provided to the chairs and ranking minority members of the legislative committees and
divisions with jurisdiction over taxation.
    Subd. 4. Appropriation. (a) $100,000 is appropriated from the general fund to the
commissioner of revenue for fiscal year 2014 for the cost of preparing the report under
subdivision 1.
(b) The appropriation under this subdivision is a onetime appropriation and is not
included in the base budget.
EFFECTIVE DATE.This section is effective the day following final enactment.

    Sec. 17. REPEALER.
Minnesota Statutes 2012, sections 16A.725; and 256.9658, are repealed.
EFFECTIVE DATE.This section is effective July 1, 2013.

ARTICLE 5

ESTATE

    Section 1. Minnesota Statutes 2012, section 289A.38, is amended by adding a
subdivision to read:
    Subd. 17. Estate tax returns; unused deceased spousal exclusion.
Notwithstanding any period of limitation in this section, after the time has expired within
which a tax may be assessed with respect to a deceased spousal unused exclusion amount,
as defined in section 291.016, subdivision 3, the commissioner may examine a return of
the deceased spouse to make determinations with respect to that amount to carry out the
purposes of section 291.016, subdivision 3.
EFFECTIVE DATE.This section is effective for the estates of decedents dying
after June 30, 2013.

    Sec. 2. Minnesota Statutes 2012, section 291.005, subdivision 1, is amended to read:
    Subdivision 1. Scope. Unless the context otherwise clearly requires, the following
terms used in this chapter shall have the following meanings:
    (1) "Commissioner" means the commissioner of revenue or any person to whom the
commissioner has delegated functions under this chapter.
    (2) "Federal gross estate" means the gross estate of a decedent as required to be valued
and otherwise determined for federal estate tax purposes under the Internal Revenue Code.
    (3) "Internal Revenue Code" means the United States Internal Revenue Code of
1986, as amended through April 14, 2011 January 3, 2013, but without regard to the
provisions of sections 501 and 901 of Public Law 107-16, as amended by Public Law
111-312, and section 301(c) of Public Law 111-312.
    (4) "Minnesota adjusted taxable estate" means federal adjusted taxable estate as
defined by section 2011(b)(3) of the Internal Revenue Code, plus
(i) the amount of deduction for state death taxes allowed under section 2058 of
the Internal Revenue Code; less
(ii)(A) the value of qualified small business property under section 291.03,
subdivision 9 , and the value of qualified farm property under section 291.03, subdivision
10 , or (B) $4,000,000, whichever is less.
    (5) "Minnesota gross estate" means the federal gross estate of a decedent after (a)
excluding therefrom any property included therein which has its situs outside Minnesota,
and (b) including therein any property omitted from the federal gross estate which is
includable therein, has its situs in Minnesota, and was not disclosed to federal taxing
authorities.
    (6) (5) "Nonresident decedent" means an individual whose domicile at the time
of death was not in Minnesota.
    (7) (6) "Personal representative" means the executor, administrator or other person
appointed by the court to administer and dispose of the property of the decedent. If there
is no executor, administrator or other person appointed, qualified, and acting within this
state, then any person in actual or constructive possession of any property having a situs in
this state which is included in the federal gross estate of the decedent shall be deemed
to be a personal representative to the extent of the property and the Minnesota estate tax
due with respect to the property.
    (8) (7) "Resident decedent" means an individual whose domicile at the time of
death was in Minnesota.
    (9) (8) "Situs of property" means, with respect to:
(i) real property, the state or country in which it is located; with respect to
(ii) tangible personal property, the state or country in which it was normally kept or
located at the time of the decedent's death; and with respect to
(iii) intangible personal property, the state or country in which the decedent was
domiciled at death.
EFFECTIVE DATE.This section is effective for the estates of decedents dying
after June 30, 2013.

    Sec. 3. [291.016] MINNESOTA TAXABLE ESTATE.
    Subdivision 1. General. For purposes of the tax under this chapter, the Minnesota
taxable estate equals the federal taxable estate as provided under section 2051 of the Internal
Revenue Code, without regard to whether the estate is subject to the federal estate tax:
(1) increased by the additions under subdivision 2; and
(2) reduced by the sum of:
(i) lesser of (A) the sum of the value of qualified small business property under
section 291.03, subdivision 9, and the value of qualified farm property under section
291.03, subdivision 10, or (B) $4,000,000; and
(ii) the exclusion amount under subdivision 3.
    Subd. 2. Additions. The following amounts, to the extent deducted in computing
the federal taxable estate, must be added in computing the Minnesota taxable estate:
(1) the amount of the deduction for state death taxes allowed under section 2058 of
the Internal Revenue Code; and
(2) the amount of the deduction for foreign death taxes allowed under section
2053(d) of the Internal Revenue Code.
    Subd. 3. Exclusion amount; deceased spousal unused exclusion amount. (a)
The exclusion amount equals the sum of:
(1) $1,000,000; and
(2) for a surviving spouse, the deceased spousal unused exclusion amount under
paragraph (b).
(b) For purposes of this subdivision, with respect to a surviving spouse of a deceased
spouse dying after June 30, 2013, the term "deceased spousal unused exclusion amount"
means the excess of:
(1) the amount under paragraph (a), clause (1), over
(2) the amount of the exclusion claimed on the Minnesota estate tax return filed for
the last deceased spouse of the surviving spouse.
A deceased spousal unused exclusion amount is not allowed to the estate of a surviving
spouse under this subdivision, unless the executor of the estate of the deceased spouse
files a Minnesota estate tax return on which the amount is claimed and elects on the return
that the amount may be so taken into account. The election, once made, is irrevocable. No
election may be made under this paragraph if the return is filed after the time prescribed
by law, including extensions, for filing the return.
EFFECTIVE DATE.This section is effective for decedents dying after June 30,
2013.

    Sec. 4. Minnesota Statutes 2012, section 291.03, subdivision 1, is amended to read:
    Subdivision 1. Tax amount. (a) The tax imposed shall be an amount equal to the
proportion of the maximum credit for state death taxes computed under section 2011
of the Internal Revenue Code, but using Minnesota adjusted taxable estate instead of
federal adjusted taxable estate, as the Minnesota gross estate bears to the value of the
federal gross estate.
    (b) The tax determined under this subdivision must not be greater than the sum
of the following amounts be computed by applying the following schedule of rates to
the Minnesota taxable estate: (1) on the first $5,000,000, nine percent, and (2) on all
over $5,000,000, 17 percent and multiplied by a fraction, the numerator of which is the
Minnesota gross estate and the denominator of which is the federal gross estate:.
    (1) the rates and brackets under section 2001(c) of the Internal Revenue Code
multiplied by the sum of:
    (i) the taxable estate, as defined under section 2051 of the Internal Revenue Code; plus
    (ii) adjusted taxable gifts, as defined in section 2001(b) of the Internal Revenue
Code; less
(iii) the lesser of (A) the sum of the value of qualified small business property
under subdivision 9, and the value of qualified farm property under subdivision 10, or
(B) $4,000,000; less
    (2) the amount of tax allowed under section 2001(b)(2) of the Internal Revenue
Code; and less
    (3) the federal credit allowed under section 2010 of the Internal Revenue Code.
    (c) For purposes of this subdivision, "Internal Revenue Code" means the Internal
Revenue Code of 1986, as amended through December 31, 2000.
EFFECTIVE DATE.This section is effective for the estates of decedents dying
after June 30, 2013.

    Sec. 5. Minnesota Statutes 2012, section 291.03, subdivision 8, is amended to read:
    Subd. 8. Definitions. (a) For purposes of this section, the following terms have the
meanings given in this subdivision.
(b) "Family member" means a family member as defined in section 2032A(e)(2) of
the Internal Revenue Code, or a trust whose present beneficiaries are all family members
as defined in section 2032A(e)(2) of the Internal Revenue Code.
(c) "Qualified heir" means a family member who acquired qualified property from
upon the death of the decedent and satisfies the requirement under subdivision 9, clause
(6) (7), or subdivision 10, clause (4) (5), for the property.
(d) "Qualified property" means qualified small business property under subdivision
9 and qualified farm property under subdivision 10.
EFFECTIVE DATE.This section is effective retroactively for estates of decedents
dying after June 30, 2011.

    Sec. 6. Minnesota Statutes 2012, section 291.03, subdivision 9, is amended to read:
    Subd. 9. Qualified small business property. Property satisfying all of the following
requirements is qualified small business property:
(1) The value of the property was included in the federal adjusted taxable estate.
(2) The property consists of the assets of a trade or business or shares of stock or
other ownership interests in a corporation or other entity engaged in a trade or business.
The decedent or the decedent's spouse must have materially participated in the trade or
business within the meaning of section 469 of the Internal Revenue Code during the
taxable year that ended before the date of the decedent's death. Shares of stock in a
corporation or an ownership interest in another type of entity do not qualify under this
subdivision if the shares or ownership interests are traded on a public stock exchange at
any time during the three-year period ending on the decedent's date of death. For purposes
of this subdivision, an ownership interest includes the interest the decedent is deemed to
own under sections 2036, 2037, and 2038 of the Internal Revenue Code.
(3) During the taxable year that ended before the decedent's death, the trade or
business must not have been a passive activity within the meaning of section 469(c) of the
Internal Revenue Code, and the decedent or the decedent's spouse must have materially
participated in the trade or business within the meaning of section 469(h) of the Internal
Revenue Code, excluding section 469(h)(3) of the Internal Revenue Code and any other
provision provided by United States Department of the Treasury regulations that substitute
material participation in prior taxable years for material participation in the taxable year
that ended before the decedent's death.
(4) The gross annual sales of the trade or business were $10,000,000 or less for the
last taxable year that ended before the date of the death of the decedent.
(4) (5) The property does not consist of cash or, cash equivalents, publicly traded
securities, or assets not used in the operation of the trade or business. For property
consisting of shares of stock or other ownership interests in an entity, the amount value of
cash or, cash equivalents, publicly traded securities, or assets not used in the operation of
the trade or business held by the corporation or other entity must be deducted from the
value of the property qualifying under this subdivision in proportion to the decedent's
share of ownership of the entity on the date of death.
(5) (6) The decedent continuously owned the property, including property the
decedent is deemed to own under sections 2036, 2037, and 2038 of the Internal Revenue
Code, for the three-year period ending on the date of death of the decedent. In the case of
a sole proprietor, if the property replaced similar property within the three-year period,
the replacement property will be treated as having been owned for the three-year period
ending on the date of death of the decedent.
(6) A family member continuously uses the property in the operation of the trade or
business for three years following the date of death of the decedent.
(7) For three years following the date of death of the decedent, the trade or business
is not a passive activity within the meaning of section 469(c) of the Internal Revenue Code,
and a family member materially participates in the operation of the trade or business within
the meaning of section 469(h) of the Internal Revenue Code, excluding section 469(h)(3) of
the Internal Revenue Code and any other provision provided by United States Department
of the Treasury regulations that substitute material participation in prior taxable years for
material participation in the three years following the date of death of the decedent.
(8) The estate and the qualified heir elect to treat the property as qualified small
business property and agree, in the form prescribed by the commissioner, to pay the
recapture tax under subdivision 11, if applicable.
EFFECTIVE DATE.This section is effective retroactively for estates of decedents
dying after June 30, 2011.

    Sec. 7. Minnesota Statutes 2012, section 291.03, subdivision 10, is amended to read:
    Subd. 10. Qualified farm property. Property satisfying all of the following
requirements is qualified farm property:
(1) The value of the property was included in the federal adjusted taxable estate.
(2) The property consists of a farm meeting the requirements of agricultural land as
defined in section 500.24, subdivision 2, paragraph (g), and is owned by a person or entity
that is not excluded from owning agricultural land by section 500.24, and was classified
for property tax purposes as the homestead of the decedent or the decedent's spouse or
both under section 273.124, and as class 2a property under section 273.13, subdivision 23.
(3) For property taxes payable in the taxable year of the decedent's death, the
decedent's interest in the property was classified as the homestead of the decedent, the
decedent's spouse, or both under section 273.124 and as class 2a property under section
273.13, subdivision 23.
(4) The decedent continuously owned the property, including property the decedent
is deemed to own under sections 2036, 2037, and 2038 of the Internal Revenue Code, for
the three-year period ending on the date of death of the decedent either by ownership of
the agricultural land or pursuant to holding an interest in an entity that is not excluded
from owning agricultural land under section 500.24.
(4) A family member continuously uses the property in the operation of the trade or
business (5) The property is classified for property tax purposes as class 2a property under
section 273.13, subdivision 23, for three years following the date of death of the decedent.
(5) (6) The estate and the qualified heir elect to treat the property as qualified farm
property and agree, in a form prescribed by the commissioner, to pay the recapture tax
under subdivision 11, if applicable.
EFFECTIVE DATE.This section is effective retroactively for estates of decedents
dying after June 30, 2011.

    Sec. 8. Minnesota Statutes 2012, section 291.03, subdivision 11, is amended to read:
    Subd. 11. Recapture tax. (a) If, within three years after the decedent's death and
before the death of the qualified heir, the qualified heir disposes of any interest in the
qualified property, other than by a disposition to a family member, or a family member
ceases to use the qualified property which was acquired or passed from the decedent
satisfy the requirement under subdivision 9, clause (7); or 10, clause (5), an additional
estate tax is imposed on the property. In the case of a sole proprietor, if the qualified heir
replaces qualified small business property excluded under subdivision 9 with similar
property, then the qualified heir will not be treated as having disposed of an interest in the
qualified property.
(b) The amount of the additional tax equals the amount of the exclusion claimed by
the estate under subdivision 8, paragraph (d), multiplied by 16 percent.
(c) The additional tax under this subdivision is due on the day which is six months
after the date of the disposition or cessation in paragraph (a).
EFFECTIVE DATE.This section is effective retroactively for estates of decedents
dying after June 30, 2011.

ARTICLE 6

CITY AID

    Section 1. Minnesota Statutes 2012, section 477A.011, subdivision 30, is amended to
read:
    Subd. 30. Pre-1940 housing percentage. (a) Except as provided in paragraph (b),
"pre-1940 housing percentage" for a city is 100 times the most recent federal census count
by the United States Bureau of the Census of all housing units in the city built before
1940, divided by the total number of all housing units in the city. Housing units includes
both occupied and vacant housing units as defined by the federal census.
(b) For the city of East Grand Forks only, "pre-1940 housing percentage" is equal
to 100 times the 1990 federal census count of all housing units in the city built before
1940, divided by the most recent counts by the United States Bureau of the Census of all
housing units in the city. Housing units includes both occupied and vacant housing units
as defined by the federal census.
EFFECTIVE DATE.This section is effective for aids payable in calendar year
2014 and thereafter.

    Sec. 2. Minnesota Statutes 2012, section 477A.011, is amended by adding a
subdivision to read:
    Subd. 30a. Percent of housing built between 1940 and 1970. "Percent of housing
built between 1940 and 1970" is equal to 100 times the most recent count by the United
States Bureau of the Census of all housing units in the city built after 1939 but before
1970, divided by the total number of all housing units in the city. Housing units includes
both occupied and vacant housing units as defined by the federal census.
EFFECTIVE DATE.This section is effective for aids payable in calendar year
2014 and thereafter.

    Sec. 3. Minnesota Statutes 2012, section 477A.011, subdivision 34, is amended to read:
    Subd. 34. City revenue need. (a) For a city with a population equal to or greater
than 2,500 10,000, "city revenue need" is the greater of 285 or 1.15 times the sum of (1)
5.0734098 4.59 times the pre-1940 housing percentage; plus (2) 19.141678 times the
population decline percentage 0.622 times the percent of housing built between 1940 and
1970; plus (3) 2504.06334 times the road accidents factor 169.415 times the jobs per
capita; plus (4) 355.0547; minus (5) the metropolitan area factor; minus (6) 49.10638
times the household size 307.664.
    (b) For a city with a population equal to or greater than 2,500 and less than 10,000,
city revenue need is 1.15 times the sum of (1) 572.62; plus (2) 5.026 times the pre-1940
housing percentage; minus (3) 53.768 times household size; plus (4) 14.022 times peak
population decline.
    (b) (c) For a city with a population less than 2,500, "city revenue need" is the sum of
(1) 2.387 times the pre-1940 housing percentage; plus (2) 2.67591 times the commercial
industrial percentage; plus (3) 3.16042 times the population decline percentage; plus (4)
1.206 times the transformed population; minus (5) 62.772 410 plus 0.367 times the city's
population over 100. The city revenue need under this paragraph shall not exceed 630.
    (c) (d) For a city with a population of at least 2,500 or more and a population in one
of the most recently available five years that was less than 2,500, "city revenue need"
is the sum of (1) its city revenue need calculated under paragraph (a) multiplied by its
transition factor; plus (2) its city revenue need calculated under the formula in paragraph
(b) multiplied by the difference between one and its transition factor. For purposes of this
paragraph, a city's "transition factor" is equal to 0.2 multiplied by the number of years that
the city's population estimate has been 2,500 or more. This provision only applies for aids
payable in calendar years 2006 to 2008 to cities with a 2002 population of less than 2,500.
It applies to any city for aids payable in 2009 and thereafter but less than 3,000, the city
revenue need equals (1) the transition factor times the city's revenue need calculated in
paragraph (b) plus (2) 630 times the difference between one and the transition factor. For a
city with a population of at least 10,000 but less than 10,500, the city revenue need equals
(1) the transition factor times the city's revenue need calculated in paragraph (a) plus (2)
the city's revenue need calculated under the formula in paragraph (b) times the difference
between one and the transition factor. For purposes of this paragraph, "transition factor" is
0.2 percent times the amount that the city's population exceeds the minimum threshold in
either of the first two sentences.
    (d) (e) The city revenue need cannot be less than zero.
    (e) (f) For calendar year 2005 2015 and subsequent years, the city revenue need for
a city, as determined in paragraphs (a) to (d) (e), is multiplied by the ratio of the annual
implicit price deflator for government consumption expenditures and gross investment for
state and local governments as prepared by the United States Department of Commerce,
for the most recently available year to the 2003 2013 implicit price deflator for state
and local government purchases.
EFFECTIVE DATE.This section is effective for aids payable in calendar year
2014 and thereafter.

    Sec. 4. Minnesota Statutes 2012, section 477A.011, subdivision 42, is amended to read:
    Subd. 42. City jobs base Jobs per capita in the city. (a) "City jobs base" for a city
with a population of 5,000 or more is equal to the product of (1) $25.20, (2) the number of
jobs per capita in the city, and (3) its population. For cities with a population less than
5,000, the city jobs base is equal to zero. For a city receiving aid under subdivision 36,
paragraph (k), its city jobs base is reduced by the lesser of 36 percent of the amount of
aid received under that paragraph or $1,000,000. No city's city jobs base may exceed
$4,725,000 under this paragraph.
    (b) For calendar year 2010 and subsequent years, the city jobs base for a city, as
determined in paragraph (a), is multiplied by the ratio of the appropriation under section
477A.03, subdivision 2a, for the year in which the aid is paid to the appropriation under
that section for aids payable in 2009.
    (c) For purposes of this subdivision, "Jobs per capita in the city" means (1) the
average annual number of employees in the city based on the data from the Quarterly
Census of Employment and Wages, as reported by the Department of Employment and
Economic Development, for the most recent calendar year available as of May 1, 2008
November 1 of every odd-numbered year, divided by (2) the city's population for the
same calendar year as the employment data. The commissioner of the Department of
Employment and Economic Development shall certify to the city the average annual
number of employees for each city by June 1, 2008 January 15 of every even-numbered
year beginning with January 15, 2014. A city may challenge an estimate under this
paragraph by filing its specific objection, including the names of employers that it feels
may have misreported data, in writing with the commissioner by June 20, 2008 December
1 of every odd-numbered year. The commissioner shall make every reasonable effort to
address the specific objection and adjust the data as necessary. The commissioner shall
certify the estimates of the annual employment to the commissioner of revenue by July 15,
2008 January 15 of all even-numbered years, including any estimates still under objection.
For aids payable in 2014, jobs per capita in the city shall be based on the annual number of
employees and population for calendar year 2010 without additional review.
EFFECTIVE DATE.This section is effective for aids payable in calendar year
2014 and thereafter.

    Sec. 5. Minnesota Statutes 2012, section 477A.011, is amended by adding a
subdivision to read:
    Subd. 44. Peak population decline. "Peak population decline" is equal to 100 times
the difference between one and the ratio of the city's current population to the highest city
population reported in a federal census from the 1970 census or later. Peak population
decline shall not be less than zero.
EFFECTIVE DATE.This section is effective for aids payable in calendar year
2014 and thereafter.

    Sec. 6. Minnesota Statutes 2012, section 477A.013, subdivision 8, is amended to read:
    Subd. 8. City formula aid. (a) For aids payable in 2014 only, the formula aid for a
city is equal to the sum of (1) its 2013 certified aid and (2) the product of (i) the difference
between its unmet need and its 2013 certified aid, and (ii) the aid gap percentage.
    (b) For aids payable in 2015 and thereafter, the formula aid for a city is equal to
the sum of (1) its city jobs base, (2) its small city aid base, and (3) the need increase
percentage multiplied by the average of its unmet need for the most recently available two
years formula aid in the previous year and (2) the product of (i) the difference between
its unmet need and its certified aid in the previous year under subdivision 9, and (ii)
the aid gap percentage.
No city may have a formula aid amount less than zero. The need increase aid gap
percentage must be the same for all cities.
    The applicable need increase aid gap percentage must be calculated by the
Department of Revenue so that the total of the aid under subdivision 9 equals the total
amount available for aid under section 477A.03. Data used in calculating aids to cities
under sections 477A.011 to 477A.013 shall be the most recently available data as of
January 1 in the year in which the aid is calculated except that the data used to compute "net
levy" in subdivision 9 is the data most recently available at the time of the aid computation.
EFFECTIVE DATE.This section is effective for aids payable in calendar year
2014 and thereafter.

    Sec. 7. Minnesota Statutes 2012, section 477A.013, subdivision 9, is amended to read:
    Subd. 9. City aid distribution. (a) In calendar year 2013 2014 and thereafter, each
city shall receive an aid distribution equal to the sum of (1) the city formula aid under
subdivision 8, and (2) its city aid base aid adjustment under subdivision 13.
    (b) For aids payable in 2013 and 2014 only, the total aid in the previous year for
any city shall mean the amount of aid it was certified to receive for aids payable in 2012
under this section. For aids payable in 2015 and thereafter, the total aid in the previous
year for any city means the amount of aid it was certified to receive under this section in
the previous payable year.
    (c) For aids payable in 2010 and thereafter, the total aid for any city shall not exceed
the sum of (1) ten percent of the city's net levy for the year prior to the aid distribution
plus (2) its total aid in the previous year. For aids payable in 2009 and thereafter, the total
aid for any city with a population of 2,500 or more may not be less than its total aid under
this section in the previous year minus the lesser of $10 multiplied by its population, or ten
percent of its net levy in the year prior to the aid distribution.
    (d) (b) For aids payable in 2014 only, the total aid for a city may not be less than the
amount it was certified to receive in 2013. For aids payable in 2010 2015 and thereafter,
the total aid for a city with a population less than 2,500 must not be less than the amount
it was certified to receive in the previous year minus the lesser of $10 multiplied by its
population, or five percent of its 2003 certified aid amount. For aids payable in 2009 only,
the total aid for a city with a population less than 2,500 must not be less than what it
received under this section in the previous year unless its total aid in calendar year 2008
was aid under section 477A.011, subdivision 36, paragraph (s), in which case its minimum
aid is zero its net levy in the year prior to the aid distribution.
    (e) A city's aid loss under this section may not exceed $300,000 in any year in
which the total city aid appropriation under section 477A.03, subdivision 2a, is equal or
greater than the appropriation under that subdivision in the previous year, unless the
city has an adjustment in its city net tax capacity under the process described in section
469.174, subdivision 28.
    (f) If a city's net tax capacity used in calculating aid under this section has decreased
in any year by more than 25 percent from its net tax capacity in the previous year due to
property becoming tax-exempt Indian land, the city's maximum allowed aid increase
under paragraph (c) shall be increased by an amount equal to (1) the city's tax rate in the
year of the aid calculation, multiplied by (2) the amount of its net tax capacity decrease
resulting from the property becoming tax exempt.
EFFECTIVE DATE.This section is effective for aids payable in calendar year
2014 and thereafter.

    Sec. 8. Minnesota Statutes 2012, section 477A.013, is amended by adding a
subdivision to read:
    Subd. 13. Certified aid adjustments. (a) A city that received an aid base increase
under Minnesota Statutes 2012, section 477A.011, subdivision 36, paragraph (e), shall
have its total aid under subdivision 9 increased by an amount equal to $150,000 for aids
payable in 2014 through 2018.
(b) A city that received a temporary aid increase under Minnesota Statutes 2012,
section 477A.011, subdivision 36, paragraph (m), (v), or (w), shall have its total aid under
subdivision 9 decreased by the amount of its aid base increase under those paragraphs in
calendar year 2013.

    Sec. 9. Minnesota Statutes 2012, section 477A.03, subdivision 2a, is amended to read:
    Subd. 2a. Cities. For aids payable in 2013 2014 and thereafter, the total aid paid
under section 477A.013, subdivision 9, is $426,438,012 $506,438,012.
EFFECTIVE DATE.This section is effective for aids payable in calendar year
2014 and thereafter.

    Sec. 10. PROPERTY TAX SAVINGS REPORT.
(a) Beginning September 1, 2014, local governments, as defined in Minnesota
Statutes, section 297A.70, subdivision 2, paragraph (d), shall report annually to the
commissioner of revenue on the savings realized to their budgets for the period beginning
July 1 of the previous year to June 30 in the year the report is due that resulted from the
sales tax exemption authorized under Minnesota Statutes, section 297A.70, subdivision
2, together with the amount of any property tax levy reduction that resulted from that
sales tax exemption.
(b) Beginning February 1, 2015, the commissioner of revenue shall annually compile
the reports required under paragraph (a) and report to the chairs and ranking minority
members of the senate and house of representatives committees with jurisdiction over
taxes and the majority and minority leaders of the house of representatives and senate.
The report shall include a calculation of the property tax reduction statewide that resulted
from the sales tax exemption authorized under Minnesota Statutes, section 297A.70,
subdivision 2, and shall include a recommendation to impose levy limits under Minnesota
Statutes, sections 275.70 to 275.74, if the total reported property tax reduction is not at
least 75 percent of the reported savings from the sales tax exemption.
EFFECTIVE DATE.This section is effective the day following final enactment.

    Sec. 11. REPEALER.
Minnesota Statutes 2012, sections 477A.011, subdivisions 2a, 19, 29, 31, 32, 33, 36,
39, 40, 41, and 42; 477A.013, subdivisions 11 and 12; 477A.0133; and 477A.0134, are
repealed.
EFFECTIVE DATE.This section is effective for aids payable in calendar year
2014 and thereafter.

ARTICLE 7

AVIATION TAXES

    Section 1. Minnesota Statutes 2012, section 296A.09, subdivision 2, is amended to read:
    Subd. 2. Jet fuel and special fuel tax imposed. There is imposed an excise tax
of the same rate 15 cents per gallon as the aviation gasoline on all jet fuel or special
fuel received, sold, stored, or withdrawn from storage in this state, for use as substitutes
for aviation gasoline and not otherwise taxed as gasoline. Jet fuel is defined in section
296A.01, subdivision 8 .

    Sec. 2. Minnesota Statutes 2012, section 296A.09, is amended by adding a subdivision
to read:
    Subd. 3a. Excise tax for certain airline companies. Subdivision 2 does not apply
to jet fuel or special fuel purchased by an airline company that is engaged in air commerce
in this state and is required to pay air flight property tax under section 270.072. An excise
tax of five cents per gallon is imposed on fuel that is described in this subdivision.

    Sec. 3. Minnesota Statutes 2012, section 296A.17, subdivision 3, is amended to read:
    Subd. 3. Refund on graduated basis. Any person who has directly or indirectly
paid the excise tax on aviation gasoline or special fuel for aircraft use provided for by this
chapter under section 296A.09, subdivision 3a, shall, as to all such aviation gasoline
and special fuel received, stored, or withdrawn from storage by the person in this state
in any calendar year and not sold or otherwise disposed of to others, or intended for
sale or other disposition to others, on which such tax has been so paid, be entitled to
the following graduated reductions in such tax for that calendar year, to be obtained by
means of the following refunds:
(1) on each gallon of such aviation gasoline or special fuel up to 50,000 gallons, all
but five cents per gallon;
(2) on each gallon of such aviation gasoline or special fuel above 50,000 gallons and
not more than 150,000 gallons, all but two cents per gallon;
(3) on each gallon of such aviation gasoline or special fuel above 150,000 gallons
and not more than 200,000 gallons, all but one cent per gallon;
(4) on each gallon of such aviation gasoline or special fuel above 200,000, all but
one-half cent per gallon.

    Sec. 4. Minnesota Statutes 2012, section 296A.17, is amended by adding a subdivision
to read:
    Subd. 3a. Nonrefundable excise tax. Any person who has directly or indirectly
paid the jet fuel or special fuel tax imposed under section 296A.09, subdivision 2, is not
entitled to a tax refund under subdivision 3.

    Sec. 5. Minnesota Statutes 2012, section 297A.82, subdivision 4, is amended to read:
    Subd. 4. Exemptions. (a) The following transactions are exempt from the tax
imposed in this chapter to the extent provided.
(b) The purchase or use of aircraft previously registered in Minnesota by a
corporation or partnership is exempt if the transfer constitutes a transfer within the
meaning of section 351 or 721 of the Internal Revenue Code.
(c) The sale to or purchase, storage, use, or consumption by a licensed aircraft dealer
of an aircraft for which a commercial use permit has been issued pursuant to section
360.654 is exempt, if the aircraft is resold while the permit is in effect.
(d) Air flight equipment when sold to, or purchased, stored, used, or consumed by
airline companies, as defined in section 270.071, subdivision 4, is exempt. For purposes
of this subdivision, "air flight equipment" includes airplanes and parts necessary for the
repair and maintenance of such air flight equipment, and flight simulators, but does
not include airplanes with a gross weight of less than 30,000 pounds that are used on
intermittent or irregularly timed flights.
(e) Sales of, and the storage, distribution, use, or consumption of aircraft, as defined
in section 360.511 and approved by the Federal Aviation Administration, and which the
seller delivers to a purchaser outside Minnesota or which, without intermediate use, is
shipped or transported outside Minnesota by the purchaser are exempt, but only if the
purchaser is not a resident of Minnesota and provided that the aircraft is not thereafter
returned to a point within Minnesota, except in the course of interstate commerce or
isolated and occasional use, and will be registered in another state or country upon its
removal from Minnesota. This exemption applies even if the purchaser takes possession of
the aircraft in Minnesota and uses the aircraft in the state exclusively for training purposes
for a period not to exceed ten days prior to removing the aircraft from this state.
(f) The sale or purchase of the following items that relate to aircraft operated under
Federal Aviation Regulations, parts 91 and 135, and associated installation charges:
equipment and parts necessary for repair and maintenance of aircraft and equipment
and parts to upgrade and improve aircraft.

    Sec. 6. Minnesota Statutes 2012, section 297A.82, is amended by adding a subdivision
to read:
    Subd. 4a. Deposit in state airports fund. Tax revenue collected from the sale or
purchase of an aircraft taxable under this chapter must be deposited in the state airports
fund, established in section 360.017.

    Sec. 7. Minnesota Statutes 2012, section 360.531, is amended to read:
360.531 TAXATION.
    Subdivision 1. In lieu tax. All aircraft using the air space overlying the state of
Minnesota or the airports thereof, except as set forth in section 360.55, shall be taxed in
lieu of all other taxes thereon, on the basis and at the rate for the period January 1, 1966, to
June 30, 1967, and for each fiscal year as follows.
    Subd. 2. Rate. The tax shall be at the rate of one percent of value; provided that
the minimum tax on an aircraft subject to the provisions of sections 360.511 to 360.67
shall not be less than 25 percent of the tax on said aircraft computed on its base price or
$50 whichever is the higher. as follows:

	Base Price		Tax
	Under $499,999		$100
	$500,000 to $999,999		$200
	$1,000,000 to $2,499,999		$2,000
	$2,500,000 to $4,999,999		$4,000
	$5,000,000 to $7,499,999		$7,500
	$7,500,000 to $9,999,999		$10,000
	$10,000,000 to $12,499,999		$12,500
	$12,500,000 to $14,999,999		$15,000
	$15,000,000 to $17,499,999		$17,500
	$17,500,000 to $19,999,999		$20,000
	$20,000,000 to $22,499,999		$22,500
	$22,500,000 to $24,999,999		$25,000
	$25,000,000 to $27,499,999		$27,500
	$27,500,000 to $29,999,999		$30,000
	$30,000,000 to $39,999,999		$50,000
	$40,000,000 and over		$75,000

    Subd. 3. First year of life. "First year of life" means the year the aircraft was
manufactured.
    Subd. 4. Base price for taxation. For the purpose of fixing a base price for taxation
from which depreciation in value at a fixed percent per annum can be counted, such, the
base price is defined as follows:
(a) The base price for taxation of an aircraft shall be the manufacturer's list price.
(b) The commissioner shall have authority to fix the base value for taxation purposes
of any aircraft of which no such similar or corresponding model has been manufactured,
and of any rebuilt or foreign aircraft, any aircraft on which a record of the list price is not
available, or any military aircraft converted for civilian use, using as a basis for such
valuation the list price of aircraft with comparable performance characteristics, and taking
into consideration the age and condition of the aircraft.
    Subd. 5. Similarity of corresponding model. Models shall be deemed similar if
substantially alike and of the same make. Models shall be deemed to be corresponding
models for the purpose of taxation under sections 360.54 to 360.67 if of the same make
and having approximately the same weight and type of frame and the same style and
size of motor.
    Subd. 6. Depreciation. After the first year of aircraft life the base value for taxation
purposes shall be reduced as follows: ten percent the second year, and 15 percent the third
and each succeeding year thereafter, but in no event shall such tax be reduced below
the minimum.
    Subd. 7. Prorating tax. When an aircraft first becomes subject to taxation during the
period for which the tax is to be paid, the tax on it shall be for the remainder of that period,
prorated on a monthly basis of 1/12 of the annual tax for each calendar month counting the
month during which it becomes subject to the tax as the first month of such period.
    Subd. 8. Tax, fiscal year. Every aircraft subject to the provisions of sections
360.511 to 360.67 which has at any time since April 19, 1945, used the air space overlying
the state of Minnesota or the airports thereof shall be taxed for the period from January 1,
1966, through June 30, 1967, and for each fiscal year thereafter in which it is so used. Any
aircraft which does not use the air space overlying the state of Minnesota or the airports
thereof at any time during the period of January 1, 1966, to and including June 30, 1967,
or at any time during any fiscal year thereafter shall not be subject to the tax provided by
sections 360.511 to 360.67 for such period. Rebuilt aircraft shall be subject to the tax
provided by sections 360.511 to 360.67 for that portion of the aforesaid periods remaining
after the aircraft has been rebuilt, prorated on a monthly basis.
    Subd. 9. Assessed as personal property in certain cases. Aircraft subject to
taxation under the provisions of sections 360.54 to 360.67 shall not be assessed as personal
property and shall be subject to no tax except as provided for by these sections. Aircraft
not subject to taxation as provided in these sections, but subject to taxation as personal
property within the state of Minnesota shall be assessed and valued at 33-1/3 percent of
the market value thereof and taxed at the rate and in the manner provided by law for the
taxation of ordinary personal property. If the person against whom any tax has been levied
on the ad valorem basis because of any aircraft shall, during the calendar year for which
such ad valorem tax is levied, be also taxed under provisions of these sections, then and in
that event, upon proper showing, the commissioner of revenue shall grant to the person
against whom said ad valorem tax was levied, such reduction or abatement of net tax
capacity or taxes as was occasioned by the so-called ad valorem tax imposed. If the ad
valorem tax upon any aircraft has been assessed against a dealer in new and used aircraft,
and the tax imposed by these sections for the required period is thereafter paid by the
owner, then and in that event, upon proper showing, the commissioner of revenue, upon
the application of said dealer, shall grant to such dealer against whom said ad valorem tax
was levied such reduction or abatement of net tax capacity or taxes as was occasioned
by the so-called ad valorem tax imposed.

    Sec. 8. Minnesota Statutes 2012, section 360.66, is amended to read:
360.66 STATE AIRPORTS FUND.
    Subdivision 1. Tax credited to fund. The proceeds of the tax imposed on aircraft
under sections 360.54 360.531 to 360.67 and all fees and penalties provided for therein
shall be collected by the commissioner and paid into the state treasury and credited to the
state airports fund created by other statutes of this state.
    Subd. 2. Reimbursement for expenses. There shall be transferred by the
commissioner of management and budget each year from the state airports fund to the
general fund in the state treasury the amount expended from the latter fund for expenses of
administering the provisions of sections 360.54 360.531 to 360.67.

    Sec. 9. REPORT.
On or before June 30, 2016, and every four years thereafter, the commissioner of
transportation, in consultation with the commissioner of revenue, shall prepare and submit
to the chairs and ranking minority members of the senate and house of representatives
committees with jurisdiction over transportation policy and budget, a report that identifies
the amount and sources of annual revenue attributable to each type of aviation tax, along
with annual expenditures from the state airports fund, and any other transfers out of the
fund, during the previous four years. The report must include draft legislation for any
recommended statutory changes to ensure the future adequacy of the state airports fund.

    Sec. 10. EFFECTIVE DATE.
Sections 1 to 4 are effective July 1, 2014, and apply to sales and purchases made
on or after that date. Sections 5 and 6 are effective July 1, 2013, and apply to sales and
purchases made on or after that date. Sections 7 to 9 are effective July 1, 2014, and apply
to aircraft tax due on or after that date. Section 10 is effective July 1, 2013.

ARTICLE 8

MISCELLANEOUS

    Section 1. Minnesota Statutes 2012, section 270C.03, subdivision 1, is amended to read:
    Subdivision 1. Powers and duties. The commissioner shall have and exercise
the following powers and duties:
    (1) administer and enforce the assessment and collection of taxes;
    (2) make determinations, corrections, and assessments with respect to taxes,
including interest, additions to taxes, and assessable penalties;
    (3) use statistical or other sampling techniques consistent with generally accepted
auditing standards in examining returns or records and making assessments;
    (4) investigate the tax laws of other states and countries, and formulate and submit
to the legislature such legislation as the commissioner may deem expedient to prevent
evasions of state revenue laws and to secure just and equal taxation and improvement in
the system of state revenue laws;
    (5) consult and confer with the governor upon the subject of taxation, the
administration of the laws in regard thereto, and the progress of the work of the
department, and furnish the governor, from time to time, such assistance and information
as the governor may require relating to tax matters;
    (6) execute and administer any agreement with the secretary of the treasury or the
Bureau of Alcohol, Tobacco, Firearms and Explosives in the Department of Justice of the
United States or a representative of another state regarding the exchange of information
and administration of the state revenue laws;
    (7) require town, city, county, and other public officers to report information as to the
collection of taxes received from licenses and other sources, and such other information
as may be needful in the work of the commissioner, in such form as the commissioner
may prescribe;
    (8) authorize the use of unmarked motor vehicles to conduct seizures or criminal
investigations pursuant to the commissioner's authority;
    (9) authorize the participation in audits performed by the Multistate Tax Commission.
For the purposes of chapter 270B, the Multistate Tax Commission will be considered to be
a state for the purposes of auditing corporate sales, excise, and income tax returns;
    (10) maintain toll-free telephone access for taxpayer assistance for calls from
locations within the state; and
    (10) (11) exercise other powers and authority and perform other duties required of or
imposed upon the commissioner by law.
EFFECTIVE DATE.This section is effective the day following final enactment.

    Sec. 2. [295.61] SPORTS MEMORABILIA GROSS RECEIPTS TAX.
    Subdivision 1. Definitions. (a) For purposes of this section, the following terms
have the meanings given, unless the context clearly indicates otherwise.
(b) "Commissioner" means the commissioner of revenue.
(c) "Sale" means a transfer of title or possession of tangible personal property,
whether absolutely or conditionally.
(d) "Sports memorabilia" means items available for sale to the public that are sold
under a license granted by any professional or Collegiate Division I sports league or
association or a team that is a franchise of a professional sports league or association, an
affiliate or subsidiary of a league, association, or a team, including:
(1) one-of-a-kind items related to sports figures, teams, or events;
(2) trading cards;
(3) photographs;
(4) clothing;
(5) sports event licensed items;
(6) sports equipment; and
(7) similar items, but not food or beverage items.
(e) "Wholesale" or "sale at wholesale" means a sale to a retailer, as defined in
section 297A.61, subdivision 9, for the purpose of reselling the property to a third party.
Wholesale does not mean a sale to a wholesaler.
(f) "Wholesaler" means any person making wholesale sales of sports memorabilia
to purchasers in the state.
    Subd. 2. Imposition. A tax is imposed on each sale at wholesale of sports
memorabilia equal to 13 percent of the gross revenues from the sale.
    Subd. 3. Quarterly returns. Each wholesaler must file quarterly returns and make
payments by April 18 for the quarter ending March 31; July 18 for the quarter ending June
30; October 18 for the quarter ending September 30; and January 18 of the following
calendar year for the quarter ending December 31.
    Subd. 4. Compensating use tax. If the tax is not paid under subdivision 2, a
compensating tax is imposed on possession for sale or use of sports memorabilia in the
state. The rate of tax equals the rate under subdivision 2 and must be paid by the possessor
of the items.
    Subd. 5. Administrative provisions. Unless specifically provided otherwise by this
section, the relevant audit, assessment, refund, penalty, interest, enforcement, collection
remedies, appeal, and administrative provisions of chapters 270C and 289A apply to
taxes imposed under this section.
    Subd. 6. Disposition of revenues. The commissioner shall deposit the revenues
from the tax in the general fund.
EFFECTIVE DATE.This section is effective for sales and purchases made after
June 30, 2013.

    Sec. 3. REPEALER.
Minnesota Statutes 2012, sections 290.171; 290.173; and 290.174, are repealed.
EFFECTIVE DATE.This section is effective the day following final enactment.