Minnesota ~ Multiple Taxes: House and Senate Repass Omnibus Tax Bill

The Minnesota House of Representatives and the Senate have repassed an omnibus tax bill that would make numerous changes to corporate income, personal income, sales and use, property, and other taxes. As previously reported, the House passed the omnibus tax bill on March 28 and the Senate passed the bill on April 5, but the House refused to concur with the Senate amendments to the bill and the bill was sent to a conference committee. (TAXDAY, 2011/03/31, S.15; TAXDAY, 2011/04/07, S.16) The bill repassed by the House and Senate contains the provisions in the Conference Committee Report. Significant changes to H.F. 42 as repassed by the House and Senate are discussed below.

Income Taxes

The revised legislation eliminates a provision in the original House bill that would have reduced income tax rates for individual taxpayers, but retains a provision that would increase the amount of the research credit on expenses in excess of $2 million dollars. In addition, the revised bill would retain a provision in the original Senate version of the bill that would allow taxpayers computing individual income tax liability a subtraction from federal taxable income for 55% of military retirement benefits, effective for taxable years after 2012.

New provisions in the bill, among other changes, would:

— eliminate the temporary Internal Revenue Code income tax conformity date of December 31, 2010, that is currently applicable only to the 2010 tax year and extend the conformity date to tax years beginning after 2009;

— accelerate adoption of single-sales apportionment for corporation income tax purposes from tax year 2014 to tax year 2012;

— add tuition payments to the list of eligible expenses for which individual income taxpayers may claim the refundable K-12 education credit;

— continue the individual income tax deduction for contributions of food inventory; and

— provide an estate tax exemption for qualifying small business and farm properties that would be subject to recapture if the heir disposes of the property before expiration of a 3-year holding period.

Sales and Use Taxes

Accelerated payments: The bill would eliminate the monthly accelerated payment provisions for vendors that have a liability of $120,000 or more during a fiscal year. June accelerated payments would continue to be required of certain vendors.

SST conformity updates: The bill would update Minnesota sales and use tax laws to conform to the Streamlined Sales and Use (SST) Agreement as follows.

— Ringtones would be exempt.

— A transitional period would be provided for retail sales of services covering a billing period starting before and ending after the effective date of a rate change. For a rate increase, the new rate would apply to the first billing period starting on or after the effective date. For a rate decrease, the new rate would apply to bills rendered on or after the effective date.

— Provisions regarding direct mail would be updated. Definitions for “advertising and promotional direct mail” and “other direct mail” would be added. Provisions regarding proof of exemption for, and sourcing of, advertising and promotional direct mail and other direct mail would be added and amended.

Ticket resales: Resellers of admission tickets would be required to charge tax on the total amount for which the ticket is resold. Rules would be provided for claiming a refund of tax paid on an original ticket purchase, passing on the tax or giving a credit to purchasers, recordkeeping, and other matters.

Exemptions: Sales to towns would generally be exempt. However, sales of certain construction materials, motor vehicle leases, lodging, and goods or services generally provided by a private business would not be exempt.

Certain lightweight aircraft and aircraft equipment, including repair and maintenance parts, would be exempt.

Products and services used for construction, ownership, operation, maintenance, and enhancement of a public safety radio communication system, including a public safety radio dispatch center, would be exempt. The tax would have to be paid and the governmental entity would claim a refund. Currently, an exemption is provided for such products and services used for the backbone system of a regionwide public safety radio communication system.

Water used directly in providing public safety services by an organized fire department, fire protection district, or fire company providing fire protection services to the state or a political subdivision would be exempt.

Property and Other Taxes

Renter property tax refunds: The bill would reduce the percentage of rent constituting property taxes for renter property tax refund claims from 19% to 15%.

Disabled veteran market value exclusion: The bill would expand the market value exclusion for disabled veterans to a family caregiver under certain circumstances and extend the benefit for surviving spouses to five years.

Tax on commercial-industrial property: The bill would increase the general tax levy on commercial-industrial property starting in 2012, with annual reductions which would bring the levy back to current levels by 2017 and continue reducing it until 2024.

Classification of seasonal inns: The bill would provide a reduced property tax classification (4c) for certain property devoted to commercial temporary and seasonal residential occupancy for recreational purposes (i.e., seasonal inns) that provide recreational activities near state trails.

Mineral taxes: The bill would also impose a tax on taconite and iron sulphides at the rate of $2.380 per gross ton of merchantable iron ore concentrate produced during 2011 and 2012, with annually adjusted rates thereafter.

H.F. 42, repassed by the Minnesota House of Representatives on May 17, 2011, and by the Senate on May 18, 2011

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