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S.F. No. 119 - (SS0119CE) Committee Engrossment: federal conformity and other tax provisions
 
Author: Senator Rod Skoe
 
Prepared By: Eric S. Silvia, Senate Counsel (651/296-1771)
Nora Pollock, Senate Counsel (651/297-8066)
 
Date: February 13, 2013



 

Section 1.  [Promotion of angel credit in greater Minnesota]

Requires the Commissioner of DEED to develop a plan to promote usage of the angel credit in greater Minnesota, with the goal of awarding 30 percent of credits to investments in greater Minnesota businesses during the second half of calendar year 2013 and following years.  If the 30 percent target is not achieved in the second half of 2013 or any following year, then the credit rate is increased from 25 percent to 40 percent for the next calendar year for investments in greater Minnesota businesses.  Defines “greater Minnesota business” as a business that has its headquarters and at least 51 percent of its employees and payroll outside the seven-county metro area, but includes the entire area of cities that are partly in the seven-county metro area, and partly in other counties (Hanover, New Prague, Northfield, and Rockford).  Effective the day following final enactment.

Section 2. [Federal taxable income definition; net income]

Conforms to the federal definition of “federal taxable income” for purposes of Minnesota taxable income, to reflect changes to the Internal Revenue Code made in the American Taxpayer Relief Act, enacted January 3, 2013.  Some of the provisions extend past tax year 2012, but Minnesota conforms for tax year 2012 only in this bill.  The only federal change to which Minnesota is not conforming is the increased allowance for section 179 expensing.  Section 179 expensing allows businesses to deduct the entire amount of the cost of eligible property in the tax year the property is placed in service instead of claiming depreciation deductions over a number of years.  Minnesota requires that taxpayers add back 80 percent of the expense amount in the first tax year, then subtract one-fifth of that amount for each of the next five years. 

The federal changes affecting Minnesota taxable income are listed below.  These changes are effective the day following final enactment.

  • Extension of deduction of up to $250 for qualified educator classroom expenses;
  • Extension of parity for exclusion of employer-provided mass transit and parking benefits.  Employers may exclude payments for transit passes, vanpools, and employee parking from an employee’s income, up to a maximum amount;
  • Extension of the itemized mortgage insurance premium deduction.  Premiums paid or accrued for qualified mortgage insurance can be treated as deductible qualified residence interest.   The deduction phases out for married taxpayers with adjusted gross income over $100,000, or $50,000 if filing separately;
  • Extension of the increased deduction for donation of property for conservation purposes.  The limit is 50 percent of adjusted gross income for donations of qualified conservation easements for most taxpayers, and 100 percent for qualified donations by farmers and ranchers (individuals having more than 50 percent of gross income from farming or ranching);
  • Extension of the deduction for higher education tuition expenses.  Taxpayers do not need to itemize to be eligible for this deduction, unless it is claimed as a business deduction;
  • Extension of the allowance of tax-free IRA distributions of up to $100,000 to eligible charities, for taxpayers 70 ½ or older.  The distribution amount is excluded from the taxpayer’s adjusted gross income;
  • Extension of 15-year straight-line depreciation for qualified leasehold, restaurant, and retail improvements.  This provision extends the date by which qualified improvements must be placed into service;
  • Extension of seven-year depreciation period for certain motorsports racing track facilities;
  • Extension of accelerated depreciation for business property on Indian reservations for property placed in service after December 31, 2011. 
  • Extension of enhanced deduction for charitable contributions of food inventory to qualified organizations by entities other than C corporations (i.e., S corporations, partnerships and sole proprietors).  The enhanced deduction is equal to half the donated food’s appreciated value, but the total deduction cannot exceed twice the donated food’s basis cost.  The deduction is calculated from the donated food’s fair market value and basis food and labor cost;
  • Extension of treatment of certain payments to controlling tax exempt organizations subject to unrelated business income tax for unrelated business income of the organization’s subsidiaries.  The payments are taxed as income to the extent they exceed fair market value, as long as a binding written contract was in effect between the organizations as of August 17, 2006;
  • Extension of expensing for qualified mine safety equipment.  Allows a taxpayer to treat 50 percent of the cost of qualified advanced mine safety equipment property as an expense in the taxable year in which the equipment is placed in service;
  • Extension of expensing rules for qualified film and television production costs.  Allows productions to deduct costs in the year in which the costs occurred instead of depreciating them over time;
  • Extension of preferential treatment of dividends of regulated investment companies.  Allows certain interest-related dividends and certain short-term capital gain dividends of regulated investment companies to not be subject to tax when received by a nonresident alien individual or foreign corporation;
  • Extension of the subpart F exception allowing multinational corporations to defer paying U.S. taxes on certain financial transactions undertaken outside the U.S. The companies are taxed by the U.S. on that income only when it is brought back into the country;
  • Extension of 100 percent exclusion for gain on sales of qualified small business stock held for more than five years, if the stock was acquired before January 1, 2014;
  • Extension of the limit on basis adjustments of stock in S corporations by the adjusted basis of property contributed to qualified charitable organizations.  The basis of an S corporation shareholder's stock is reduced by the pro-rata share of the adjusted basis of the contributed property; and
  • Extension of the shorter five-year recognition period for corporations that elect S-corporation status.  Newly converted S corporations pay corporate level tax on any gains that were inherent in the assets of the S corporation on the date of the election and that are recognized within the first five years after the S election is effective.

Section 3. [Internal Revenue Code reference]

Modifies the definition of “Internal Revenue Code” for purposes of references to the Code in chapter 290 to reflect the recent federal changes for determining federal adjusted gross income (FAGI).  Minnesota adopts these changes for tax year 2012 only.  Federal adjusted gross income is used for determining individual alternative minimum tax (AMT) and wage withholding, and is the starting point for calculating the dependent care and K-12 education credits. Effective the day following final enactment.

Section 4.  [Definitions]

References the definitions of “federal credit, placed in service,” and “qualified rehabilitation expenditures” to the meaning given in section 47 of the Internal Revenue Code, for purposes of the Minnesota historic structure rehabilitation credit.  Effective the day following final enactment.

Section 5.  [Applications; Allocations]

Replaces the term “expenses” with “expenditures” for purposes of the historic structure credit.  Requires the State Historic Preservation Office of the Minnesota Historical Society to notify the developer of a project of its eligibility determination in writing.  Provides for a decision of the office regarding eligibility for a state credit or grant to be challenged as a contested case under the state administrative procedure statutes.  Updates the references to the Commissioner of Revenue in the statute for consistency with references in other sections.  Effective the day following final enactment.

Section 6.  [Credit certificates; grants]

Provides that assignment of credit allocation certificates issued by the State Historic Preservation Office is not valid unless the assignee notifies the Commissioner of Revenue within 30 days that the assignment is made.  Requires the commissioner to prescribe the forms necessary for such notification.  Provides that a credit issued to a partnership, LLC taxed as a partnership, S corporation, or multiple owners of property passed through pro rata to partners, members, shareholders, or owners respectively, is not an assignment of a credit.  Allows a grant agreement between the office and a grant recipient to be issued to another individual or entity.  Effective the day following final enactment. 

Section 7.  [Partnerships; multiple owners] 

Adds language to allow credits granted to corporate entities to be passed through to partners, members, shareholders, or owners of a corporate entity according to any executed agreement between relevant parties.  Effective the day following final enactment.

Section 8.  [Internal revenue code; property tax refund]

Adopts the federal changes that affect the calculation of household income for purposes of the property tax refund in chapter 290A.  This section is effective for tax year 2012 only for property tax refunds based on property taxes payable after December 31, 2012 and rent paid after December 31, 2011.

Section 9.  [Authority; tax increment financing]

Modifies the definition of "authority" by adding a municipality that undertakes a project, pursuant to the newly created mining reclamation project area.

Section 10.  [Soil deficiency district definition] 

Defines a soil condition district as a district consisting of a project or portions of a project within which the authority finds by resolution that the following exist:

  • Parcels consisting of 70 percent of the area of the district contain unusual terrain or soil deficiencies that require substantial filling, grading, or other physical preparation for use and a parcel is eligible for inclusion if at least 50 percent of the area of the parcel requires substantial filling, grading, or other physical preparation for use; and
  • The estimated cost of physical preparation of that district, excluding certain road and local improvement costs, exceeds the fair market value of the land before completion of the preparation.

Section 11.  [Mining reclamation project area]

Paragraph (a) authorizes an authority to designate a mining reclamation project area where parcels consisting of at least 70 percent of the acreage, excluding street and railroad right of ways, are characterized with one or more of the following:

  1. peat or other soils with geotechnical deficiencies that impair development of buildings or infrastructure;
  2. soils or terrain that requires substantial filling in order to permit the development of buildings or infrastructure;
  3. landfills; dumps, or similar deposits of municipal or private waste;
  4. quarries or similar resource extraction sites;
  5. floodway; or
  6. substandard buildings.

Paragraph (b) clarifies that a parcel is deemed to meet the requirements above if 50 percent of the area meets the requirement, but for substandard buildings, the requirement is 30 percent. 

Section 12.  [Municipality approval] 

Requires an authority that establishes a mining reclamation project area to document the reasons and supporting facts for districts established in the area and retain the documentation until two years after a district is decertified.  The findings must have been made and documented no more than ten years before the approval of the tax increment financing plan for the district. 

Section 13.  [Duration limits]

Sets the duration limit for a soil deficiency district at 20 years.

Section 14.  [Soils condition districts] 

Provides that increments from a soils condition district in a mining reclamation project area can be used for public improvements in the area that are directly caused by the removal or remedial action. 

 

Section 15.  [Economic development districts

Extends the 2010 jobs bill’s economic development district authority, as extended by the 2011 tax policy bill, from July 1, 2012, through January 1, 2014.

Laws 2010, chapter 216, as amended by Laws 2011, chapter 112 allows economic development districts to be used for any type of project if the following conditions are met:

  • The municipality finds the project will create new jobs in the state, including construction jobs, and the project otherwise would not have begun before January 1, 2014, without the assistance
  • Construction of the project begins no later than July 1, 2012
  • The request for certification is made by June 20, 2012

This section would extend each of these dates by 18 months.  Under prior law and resuming July 1, 2012, economic development districts could only be used for (1) manufacturing, (2) warehousing, (3) research and development, and (4) tourism in selected counties.

 

Section 16. [Use of Surplus Increments] 

Extends by 18 months, to January 1, 2014, the 2010 job bill’s expanded authority, as extended by Laws 2011, chapter 112, to spend excess and surplus tax increment. Under present law, this authority applies to construction of new or substantial rehabilitation of existing buildings if:

  • Construction begins before July 1, 2011;
  • The development will create new jobs, including construction jobs; and
  • The development would not have occurred without assistance.

Section 17.  [Soil deficiency district increments]  

Restricts the use of increments from a soil deficiency district in a mining reclamation project area to the acquisition of parcels, paying the cost of correcting soil deficiencies, administrative expenses and redevelopment costs provided that the redevelopment costs do not exceed 25 percent of the tax increment.

Section 18.  [Five-year rule] 

Provides that in the tax increment financing plan for a district in a mining reclamation project area, an authority may elect that the five-year rule does not apply. 

Section 19.  [Use of revenues for decertification] 

Provides that in the tax increment financing plan for a district in a mining reclamation project area, an authority may elect that the provisions governing use of revenues for decertification do not apply. 

Section 20.  [City of St Paul, Capital Improvement Bonds]

Extends to 2024 the special law authorizing the city of St Paul’s capital improvement bonding program.  Absent the extension, the authority expires in 2013.

Section 21.  [Cook/Orr ambulance services; levy authority]

Expands the authorized uses of the levy proceeds to include attached and portable equipment for use in and for the ambulances and parts and replacement parts for maintenance and repair of ambulances, and specifically excludes "operation expenses."

Section 22.  [Use of revenues; Rochester]

Expands the requirements for cities eligible for a portion of the $5 million of Rochester’s local sales tax revenue set aside for economic development purposes in surrounding communities to include any other city with a population of at least 1,000 that is:

  • within 25 miles of the geographic center of Rochester, and
  • is closer to Rochester than to any other nonmetro city with a population of 20,000 or more.

The only city that qualifies is Wanamingo.  Effective the day following final enactment.

Section 23.  [Carlton County cemetery levy] 

Permits Carlton County to levy annually in and for the unorganized township of Sawyer for cemetery purposes. 

Section 24.   [Itasca County; Nursing Home Bonds]

Authorizes the county to issue general obligation bonds in addition to revenue bonds to finance nursing home improvements, subject to a reverse referendum.  Also authorizes refunding of bonds already issued to finance improvements.

Sections 25 and 26.  [St. Cloud and area cities local option sales tax]

Allows St. Cloud to use its local sales tax for regional community and aquatics facilities projects.  Allows St. Cloud area cities (St. Joseph, Waite Park, Sartell, Sauk Rapids, and Augusta) to extend their tax from 2018 to 2038, provided the extension is approved by the voters at a general election held by November 2017.  The ballot must still list the projects to be funded from the tax extension, but the tax does not have to expire for one year before being re-imposed.  Effective the day after the governing body of each city complies with Minnesota Statutes, section 645.021, subdivision 3.

Section 27. [Oakdale; TIF]

Authorizes specified parcels to be deemed occupied by substandard buildings for purposes of the requirements of a redevelopment tax increment financing district.

Section 28. [Effective Date change; Marshall County]

Allows farmers in Marshall County who were forced to move away from their farms due to flooding in 2009 to continue to receive agricultural homestead classification on the farmland for assessment years 2013 to 2017, provided they continue to reside in Minnesota within 50 miles of the land. This provision was originally adopted in a 2010 law, but on a temporary two-year basis, which is due to expire for taxes payable in 2013.

 

Section 29. [Dakota County; redevelopment TIF]

 Subdivision 1 authorizes the Dakota County Community Development Agency to create a redevelopment district consisting of parcels from an existing redevelopment district that is required to decertify in 2012.  This could be interpreted as an extension of the existing district.

Subdivision 2 exempts the district from the "blight test" and from the following limits on spending increment:  (1) the prohibition that tax increment not be used to pay for the cost of public improvements, equipment or decorative purpose; (2) the requirement that increment be used to finance the cost of corrections conditions; and (3) the prohibition that tax increment not be used for a commons area used as a public park or a facility used for social or recreational purposes.

Subdivision 3 authorizes expenditure of increment and clarifies that expenditures are deemed to meet the pooling requirements, the five-year rule and decertification requirements.

Subdivision 4 requires that the captured tax capacity be included for computing state aid formulas.

Section 30.  [St. Cloud; TIF]

Provides that St. Cloud TIF District No. 2. is deemed to be a "gap" district certified between August 1, 1979, and July 1, 1982.

Section 31.  [Amended returns; IRA rollovers]

Allows individual filers an extension until April 15, 2013, to file an amended return if the filer made an IRA rollover pursuant to the Federal Aviation and Modernization Act of 2012.  Before the Act, under a law enacted in 2008, eligible current and former airline employees were permitted to transfer to a Roth IRA up to 100 percent of certain payments received in connection with their airline’s bankruptcy.  Under the 2012 Act, eligible employees and their surviving spouses may transfer up to 90 percent of airline bankruptcy-related payments to a traditional IRA and claim a refund of the federal taxes they paid on such funds.  Those employees who exercised the Roth IRA rollover opportunity prior to the 2012 Act are also eligible to transfer up to 90 percent of those Roth IRA funds to a traditional IRA and claim a refund of the federal taxes they paid on such transferred funds. Effective the day following final enactment.

 

 

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