2013 Sales and Use Tax Legislative Bulletin

This post has been adopted from a Minnesota Department of Revenue document:
(2013 Regular Session)
Bulletin Date: May 31, 2013

MINNESOTA REVENUE
Appeals and Legal Services Division
600 North Robert Street
Saint Paul, Minnesota 55146-2220

Unless otherwise noted, the provisions discussed in this bulletin can be found in 2013 Minn. Laws, Chapter 143.

Administrative

Sufficient notice by electronic means

Amends § 270C.38, subd. 1, to provide that if a taxpayer or other person agrees to accept notification by electronic means, notice of a determination or action of the commissioner sent by electronic mail to the taxpayer’s or person’s last known electronic mailing address as provided for in section 325L.08 is sufficient. Effective May 24, 2013.

Interest on penalties

Amends Minn. Stat. § 270C.42, subd. 2; 289A.55, subd. 9; 289A.60, subd. 4; 297B.11; 469.319, subd. 4; and 469.340, subd. 4, to clarify that a penalty bears interest from the date it is assessable. Effective May 24, 2013. [See Miscellaneous Bulletin for other related provisions.]

Obsolete accelerated monthly sales tax payments

Amends Minn. Stat. § 289A.20, subd. 4, to eliminate obsolete language regarding the monthly accelerated remittance schedules for vendors with annual sales tax collections of at least $120,000; and to repeal Minn. Stat. § 289A.60, subd. 31, the related penalty and safe harbor provision. Minn. Stat. § 289A.20 provided that once the cash flow and budget reserve accounts reached their statutory amounts the sales tax remittance schedule would return to the pre-2010 schedule. This condition was met per the February 2012 budget forecast, beginning July 1, 2012. This change does not affect the June estimated payments. Effective May 24, 2013.

Exemption certificate taken in good faith

Amends Minn. Stat. § 297A.665 to define the term “taken in good faith” for purposes of seller relief from liability when a seller obtains a fully completed exemption certificate within 120 days after a request by the commissioner for substantiation of the exemption, and to provide that the relief is not available if the commissioner finds that at the time the exemption certificate or information is obtained by the seller, the seller had knowledge or reason to know that the information relating to the exemption was materially false, or finds that the seller knowingly participated in activity intended to purposefully evade the tax due. Effective retroactively from January 1, 2013.

Drop shipment sales

Amends Minn. Stat. § 297A.665, paragraph (b), to provide that 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 reseller is registered to collect and remit sales and use tax in the state. Effective for sales and purchases made after June 30, 2013.

Multiple points of use

Amends Minn. Stat. § 297A.668, to add new subd. 6a to allow a purchaser of a digital good, computer software delivered electronically, or a service to source the sale to multiple locations if at the time of sale the purchaser knows that these items will be concurrently available for use in more than one taxing jurisdiction and the purchaser delivers to the seller the exemption certificate indicating multiple points of use at the time of purchase and uses a reasonable, consistent apportionment method supported by business records to allocate the tax. Effective for sales and purchases made after June 30, 2013.

Sales Tax Base Expansion

Digital products

Amends Minn. Stat. § 297A.61, subds. 3,4,10,38,45, adding new subds. 50 to 56, and amends § 297A.68, subd. 2, to do the following:

  • impose tax on the retail sale and purchase of specified digital products and other digital products; and provide that wherever the term “tangible personal property” is used in chapter 297A, other than subds. 10 and 38, the provisions also apply to specified digital products and other digital products, unless specifically provided otherwise or the context indicates otherwise;
  • make explicit that the specified digital products and other digital products transferred electronically are not tangible personal property;
  • update the definition of ring tone to clarify that it does not include ring back tones or other digital audio files not stored on the communication device; and define “specified digital product” and its components and related terms (digital audio works, digital audio-visual works, digital books, digital code, and transferred electronically); and
  • define “other digital products” to mean greeting cards, and online video or electronic games, when transferred electronically.

Effective for sales and purchases made after June 30, 2013.

Warehousing and storage services

Amends Minn. Stat. § 297A.61, subd. 3, to add paragraph (m)(3), to impose sales and use tax on warehousing and storage services, but excluding the warehousing and storage of agricultural products, refrigerated storage and electronic data, and excluding consumer purchases of self-storage services, motor vehicles, recreational vehicles and boats. Amends Minn. Stat. § 297A.61, to add subd. 58 to define self-storage services. The imposition of tax on warehousing and storage services is effective for sales and purchases made after
March 31, 2014, and the definition in Minn. Stat. § 297A.61, subd. 58, is effective July 1, 2013.

Repair and maintenance services

Amends Minn. Stat. § 297A.61, subd. 3, to add paragraphs (m)(I) and (m)(2) to impose sales and use tax on services purchased by businesses for the repair and maintenance of electronic and precision equipment and commercial/industrial machinery and equipment. Provides that commercial/industrial machinery does not include motor vehicles, furniture and fixtures, ships, railroad stock and aircraft. Effective for sales and purchases made after June 30, 2013.

Retail sale

Amends Minn. Stat. § 297A.61, subd. 4(a),to clarify that a retail sale includes any sale made in the normal course of business, of tangible personal property that is not made for resale, sublease or subrent, and the sale made in the normal course of any service enumerated in subdivision 3 for any purpose other than resale. Effective for sales and purchases made after June 30, 2013.

Pay television service

Amends Minn. Stat. § 297 A.61, subd. 25, to provide that all “pay” television services, regardless if delivery is made via cable, direct satellite or otherwise, including the transmission of video, audio, or other programming services are taxable. Also this deletes Minn. Stat. § 297A.61,subd. 27, as it is now redundant, and amends Minn. Stat. § 297A.61, subd. 4(i), accordingly. Effective for sales and purchases made after June 30, 2013.

Jurisdiction to require collection and remittance of tax by a retailer

Amends Minn. Stat. § 297 A.66, subd. 3, to require retailers making retail sales from outside the state to a destination within this state and not maintaining a place of business in the state to collect and remit sales and use tax in accordance with federal remote seller law. Effective May 24, 2013.

Solicitor Nexus

Amends Minn.Stat.§ 297 A.66, by adding subdivision 4a, creating a rebuttable presumption that a retailer maintains a place of business in the state if they enter into an agreement with a solicitor for the referral of Minnesota customers for a commission and the retailer’s gross receipts over 12-months is at least $10,000. Effective for sales and purchases made after June 30, 2013. For more information, see this post on Minnesota’s new affiliate marketing law.

Exemptions

Detective, security, burglar, fire alarm, and armored car services

Amends Minn. Stat. § 297 A.61, subd. 3(g)(6)(iv), to exclude from the sales and use tax electronic surveillance services provided by any organization that monitors persons placed on in-home detention at the direction of a county. Under prior law, only non-profit organizations that provided electronic surveillance services were exempt. Effective for sales and purchases made after June 30, 2013.

Contributions in aid of construction

Amends Minn. Stat.§ 297 A.61, subd. 4, to add paragraph (P), to provide that a payment made to a cooperative electric association or public utility as a contribution in aid of construction is a contract for improvement to real property and is not a retail sale. Effective for sales and purchases made after June 30, 2013.

Drugs; medical devices

Amends Minn. Stat. § 297 A.67, subd. 7, and creates a subd. 7a, to exempt the purchase of all drugs and medical devices covered by Medicare and Medicaid; to expand the definition of durable medical equipment to include repair and replacement parts which are for single­ patient use; and to provide an exemption for accessories and supplies required for the effective use of durable medical equipment and prosthetic devices, to the extent they are not already exempt. Effective for sales and purchases made after June 30, 2013.

Digital books as textbooks

Amends Minn. Stat. § 297A.67, subd. 13, to provide that textbooks exempt under this subdivision also include digital books. Effective for sales and purchases made after June 30, 2013.

Capital equipment exemption; upfront

Amends Minn. Stat. § 297 A.68, subd. 5, to create an up front capital equipment exemption. Deletes the capital equipment sales tax refund, eligible person, and application provisions provided in Minn. Stat. § 297 A. 7 5 as they are unnecessary with an up front exemption. Effective for sales and purchases made after August 31, 2014.

Qualified data centers; qualified refurbished data centers

Amends Minn. Stat. § 297A.68, subd. 42, by adding “refurbished data centers” and modifying the qualifications as follows:

  • reduces the investment requirement from $50 million in a 24 month period to $30 million in a 48 month period;
  • reduces the minimum square footage requirement of the building housing the data center from
    30,000 to 25,000 square feet;
  • reduces the amount of space that must be “substantially refurbished” for building the data center from 30,000 square feet to 25,000 square feet;
  • defines “qualified refurbished data center” to include the new definition of “substantially refurbished,” and to retain the requirement of $50 million in investment within 24 months; and
  • defines “computer software.”

Effective for sales and purchases made after June 30, 2013.

Greater Minnesota business expansions

Creates Minn. Stat. § 297A.68, subd. 49, to provide an up front sales tax exemption for purchases of tangible personal property and taxable services purchased by a qualified business if the exemption is provided for in the business subsidy agreement under Minn. Stat. § 116J.3738 (see summary of explanation of § 116J.3738 below). The property or services must be primarily used or consumed in greater Minnesota and the purchase must have been made, and delivery received, during the certification period. Exempts the purchase and use of construction materials used or consumed in, and equipment incorporated into, the construction of improvements to real property in greater Minnesota if the improvements are used in the conduct of the trade or business of the qualified business. The allocations to all qualifying businesses may not exceed $7 million in a fiscal year, but any qualifying claims not paid in one year roll over to the subsequent year. Unused amounts may be carried forward and used for refunds in future years. Effective for sales and purchases made after June 30, 2014.

Local government exemption

Amends Minn. Stat. § 297A.70, subd. 2, to exempt the sales and purchases made by local governments, meaning cities, counties and townships. Excluded from the exemption are certain building construction or reconstruction materials, motor vehicle leases, lodging, prepared food, candy, soft drinks and alcoholic beverages. Also excluded are any goods and services that would be inputs to goods and services generally provided by a private business. This exemption applies to townships under prior law. Effective for sales and purchases made after December 31, 2013.

Veterans groups

Amends Minn. Stat. § 297A.70, subd. 5, to allow veterans to purchase taxable services exempt if the service is purchased for charitable, civic, educational or nonprofit uses and not for social, recreational, pleasure or profit uses. Effective for sales and purchases made after June 30, 2013.

Critical access dental providers

Amends Minn. Stat. § 297A.70, subd. 7, to exempt purchases made by a critical access dental provider, as defined by Minn. Stat. § 256B.76, subd. 4, paragraph (b), to provide critical access dental care if the provider in the previous calendar year had no more than 15 percent of its patients covered by private dental insurance. Effective retroactively for salesand purchases made after June 30, 2007, whereby purchasers may apply for a refund of purchases made after June 30, 2007 and before July 1, 2013, in the manner provided in Minn. Stat. § 297A.75.

Established religious orders

Amends Minn. Stat. § 297A. 70 to add subd. 9a, to provide that the sales of lodging, prepared food, candy, soft drinks and alcoholic beverages at non-catered events between an established religious order and an affiliated institution of higher education are exempt, and to provide definitions for both “established religious order” and “affiliated institution of higher education.” A cross reference to subd. 9 is provided in Minn. Stat. § 297 A. 70, subd. 4. Effective retroactively for sales and purchases made after June 30, 2012.

Fund-raising sales by nonprofits

Amends Minn. Stat. § 297A.70, subd. 13, paragraph (c), to exempt sales of taxable services if the entire proceeds net necessary expenses are contributed to a registered combined charitable organization, as defined in Minn. Stat. §43A.50, to be used exclusively for charitable, religious or educational purposes and the sale period is less than 24 days. Effective for sales and purchases made after June 30,2013.

Fund-raising events by nonprofits

Amends Minn. Stat. § 297A.70, subd. 14, to exempt sales of taxable services for fund-raising events held by a nonprofit organization, under certain conditions. Effective for sales and purchases made after June 30, 2013.

Nursing homes and boarding care homes

Amends Minn. Stat. § 297A.70 to add subd. 18, to provide a sales tax exemption for most purchases by a nursing home or boarding care facility. To qualify, a nursing home must be licensed by the state, a boarding care facility must be certified as nursing facility under federal law, the facility must be exempt under 501(c)(3), and the facility is either certified to participate in the federal medical assistance program or certifies to the commissioner of revenue that it does not discharge residents for inability to pay. The following sales are excluded from the exemption:

  • lodging;
  • prepared food;
  • soft drinks;
  • candy;
  • alcohol;
  • leased vehicles (except those leased and used to transport residents and property of the facility); and
  • construction materials purchased by tax-exempt entities or their contractors for use in constructing facilities that will not be primarily used by the nursing home or boarding care facility.

Effective for sales and purchases made after June 30, 2013.

Biopharmaceutical manufacturing facility

Amends Minn. Stat. § 297A.71, to add a new subd.45, and amends § 297 A. 75, to exempt materials, supplies, and capital equipment incorporated into construction, improvement, or expansion of a biopharmaceutical manufacturing facility if the facility manufactures biologics, makes a total capital investment of at least $50 million, and creates and maintains 190 new FTE employees in the state. The Department of Employment and Economic Development (DEED) determines that the project meets these requirement in each year in which a refund is requested. The exemption also applies to materials used in privately owned infrastructure needed to support the facility. The tax on purchases are paid as if the rate under section § 297A.62 applies, and then refunded under section § 297 A. 75. The refund is metered out so that 25 percent of the total allowable refund to date is paid annually. Subdivision 45 is effective retroactively to investments entered into and jobs created after December 31, 2012, and before July 1, 2019. Effective date of related change to § 297A.75 is May 24, 2013.

Research and development facility

Amends Minn. Stat. § 297A.71, to add a new subd. 46, and amends § 297A.75, to exempt materials and supplies used or consumed in and equipment incorporated into the construction or improvement of a qualifying research and development facility that has laboratory space of at least 400,000 square feet and utilizes high and low-intensity laboratories and has a total construction cost of at least $140 million in a 24-month period. The tax on purchases are paid as if the rate under section § 297A.62 applies, and then refunded under section § 297A.75. Subd. 46 is effective for sales and purchases made after June 30, 2013, and before September 1, 2015. Effective date of related change to § 297A.75 is May 24, 2013.

Industrial measurement manufacturing and controls facility

Amends Minn. Stat. § 297A.71, to add a new subd. 47, and amends § 297A.75, to exempt materials, supplies, capital equipment, and fixtures in construction, improvement, or expansion of an industrial measurement manufacturing and controls facility if the facility has a total capital investment of at least $60 million, employs 250 new FTE employees in the state. DEED determines that the project has a significant impact on the state economy. The exemption also applies to materials used in privately owned infrastructure needed to support the facility. The tax on purchases are paid as if the rate under section § 297A.62 applies, and then refunded under section § 297A.75. Subd. 47 is effective for sales and purchases after June 30, 2013, and before December 31, 2015. Effective date of related change to § 297A.75 is May 24, 2013.

Airflight equipment; exemption and deposit into state airports fund

Amends Minn. Stat. § 297A.82, subd. 4, to add paragraph (f) to exempt the sale or purchase of equipment and parts necessary for the repair, maintenance, upgrade and improvement of aircraft operated under Federal Aviation Regulations, Part 91 and 135, and their associated installation charges. Effective for sales and purchases made after June 30, 2013.

Miscellaneous

Aggregate

Amends Minn. Stat. § 297A.61, subd. 3(g)(5), by moving existing text that defines the term “road construction” that was previously in another part of the subdivision. Effective for sales and purchases made after June 30, 2013.

Related party services exemption

Amends Minn. Stat. § 297A.61, subd. 3, by moving language regarding the exemption for certain related party services that was previously in another part of the subdivision. Effective for sales and purchases made after June 30, 2013.

Motor vehicle repair paint

Amends Minn. Stat. § 297A.61, subd. 4, and creates subd. 49, to add the sale of motor vehicle repair paint and materials to the definition of a taxable retail sale, and to define the terms “motor vehicle repair paint” and “motor vehicle repair materials,” with repair materials not including items used to clean and maintain the shop and shop equipment. Provides that the repair paint and supply portion of a bill can be calculated by multiplying the number of labor hours by an hourly consideration rate for the paint and materials. Allows the taxpayer to use another method to calculate the tax, provided that the method fairly reflects the gross receipts from the retail sale of the paint and materials. Provides that the invoice must either separately state the “paint and materials” as a single taxable item, or separately state the “paint” as a taxable item and “materials” as a taxable item. Effective for sales and purchases made after June 30, 2013.

Rental motor vehicle sales tax rate

Amends Minn. Stat. § 297A.64, subd. 1, to increase the motor vehicle sales tax rate from 6.2% to 9.2%. Effective for sales and purchases made after June 30, 2013.

Materials used in industrial production

Amends Minn. Stat. § 297A.68, subd. 2 to add the term “tangible” in front of “personal property” in the first sentence of paragraph (a), as a clarification; and adds a cross reference in paragraph (d)(1) that excludes from the industrial production exemption the services listed at Minn. Stat. § 297A.61, subd. 3(m). Effective for sales and purchases made after June 30, 2013.

Airflight sales tax revenue

Amends Minn. Stat. § 297A.82 by adding subd. 4a to provide that any revenue collected from the sale or purchase of an aircraft taxable under chapter 297A must be deposited in the airports fund established in section § 360.017. Effective for sales and purchases made on or after July 1, 2013.

Report on transportation

A session law provides that beginning 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 a report to the chairs and ranking minority members of the senate and house of representatives that identifies the amount and sources of annual revenues attributable to each type of aviation tax along with expenditures from the state airports fund and any transfers out of the fund. Effective July 1,2014, and applies to sales and purchases of aircraft on or after that date.

Motor vehicle lease sales tax revenue

Amends Minn. Stat. § 297A.815, subd. 3, to change the allocation of funds transferred by the commissioner of management and budget from the general fund from net revenues of the motor vehicle lease sales tax remitted. As amended, $9,000,000 is transferred annually until January 1, 2016, and 50 percent annually thereafter to the county state-aid highway fund, with the remainder to the county state-aid highway fund. Effective January 1, 2014.
2013 Minn. Laws, Chapter 117, Article 3, Section 24.

Gift transfer of motor vehicles

Amends Minn. Stat. § 297B.01, subd. 14 and 16, to subject a gift transfer of a motor vehicle between individuals to motor vehicle sales tax, but retains exemption for a gift transfer between spouses, between parent and child, or between grandparents and a grandchild; and amends a cross reference. Effective July 1,2013, and applies to transfers oftitle that occur on or after that date. 2013 Minn. Laws, Chapter 117, Article 3, Sections 27 and 28

In lieu tax for collector vehicle

Amends Minn. Stat. § 297B.02, subd. 3, to increase the in lieu tax from $90 to $150 on the purchase of a collector passenger automobile or fire truck. Effective July 1, 2013, and applies to transfers of title that occur on or after that date. 2013 Minn. Laws, Chapter 117, Article 3, Section 29.

Prepaid wireless telecommunications service and E911 fee

Amends Minn. Stat. chapter 403 as follows:

  • Amends §403. 02 by adding subd.l 7b to define prepaid wireless telecommunications service; adding subd. 20a to define wireless telecommunications service; and amending subd. 21 to modify the definition of a wireless telecommunications service provider to mean a provider of wireless telecommunications service.
  • Amends Minn. Stat. § 403.06, subd. la, to require the commissioner of public safety to include in his annual financial report a forecast of revenue and expenditures for the 911 emergency telecommunications service account including a separate projection of E911 fees from prepaid wireless customers and projections of year-end fund balances.
  • Amends Minn. Stat. § 403 .11 by adding subd. 3d to provide that only wireless telecommunications providers that are certified by the commissioner of public safety to not be in arrears in amounts owed to the 911 emergency telecommunications service account can participate under a designation of eligible telecommunications carrier.
  • Creates Minn. Stat. §§403 .16 and 403.161, to provide definitions, and to create a “prepaid wireless E911 fee” and a “prepaid wireless telecommunications access Minnesota fee”; with both fees subject to adjustment, and the department of revenue posting notice of the adjustment thirty days prior to its effective date.
  • Creates Minn. Stat. § 403 .162 to provide that the department of revenue will have audit, assessment, appeal, collection, refund, penalty, interest, enforcement and administrative powers regarding the fees created.
  • Creates Minn. Stat. § 403 .163 to provide seller liability protection in the event of damages resulting from good faith, lawful investigative or law enforcement assistance.
  • Creates Minn. Stat. § 403 .164 to provide that the prepaid wireless E911 fee is the only obligation of a prepaid wireless telecommunications provider
    required to fund 911 services.

Effective January 1, 2014,except that §§ 403.06, subd. la, 403.11, subd. 3d, and 403.163 are effective May 24, 2013.

Amends Minn. Stat. § 270B.01 so that “Minnesota tax laws” for purposes of tax data, classification and disclosure under section § 270B includes the provisions of chapter 403. Effective January 1, 2014.

Repealers

Accelerated monthly sales tax payments; penalties and safe harbor

Repeals Minn. Stat. § 289A.60, subd. 31, the penalty and safe harbor provisions that relate to the obsolete accelerated monthly sales tax payment provisions in § 289A.20, subd. 4, which have been deleted. Effective May 24, 2013.

Direct satellite service

Repeals Minn. Stat. § 297A.61, subd. 27, regarding direct satellite television services. Effective for sales and purchases made after June 30, 2013.

Telecommunications equipment

Repeals Minn. Stat. § 297A.68, subd. 35, to delete the exemption for telecommunications, cable television or direct satellite machinery and equipment purchased or leased for use directly by a telecommunications, cable television, or direct satellite provider primarily in the provision of telecommunications, cable television or direct satellite services.
Effective for sales and purchases made after June 30, 2013.

Local Taxes

Greater Minnesota businesses; qualified expansions

Creates Minn. Stat. § 1161.3738to provide a definition and method of certification by the Commissioner of DEED for businesses in Greater Minnesota that qualify for a new sales tax exemption under Minn. Stat. § 297A.68, subd. 49 (see summary of exemption above). “Qualified business” is defined in part as a business that has operated in greater Minnesota for at least one year before applying for certification; pays or agrees to pay its employees compensation at least 120 percent of the federal poverty line for a family four not including benefits mandated by law; plans and agrees to expand its employment in greater Minnesota by a minimum number of employees; and receives qualification from the commissioner of DEED as a qualified business. Provides conditions under which such a business ceases to qualify for the sales tax exemption; and conditions under which the state may allow the business to continue receiving incentives. Effective May 24, 2013.

Local sales tax referenda; authorized expenditures

Amends Minn. Stat. § 297A.99, subd. 1, to authorize a political subdivision to expend funds to disseminate information included in a city council resolution adopting the imposition of a local sales tax; provide notice of and conduct forums for expression of public opinion on the referendum; and provide facts and data on the impact of a proposed sales tax and on the programs and projects that are proposed to be funded with the local sales tax. Effective May 24, 2013.

Transit taxes for counties outside metropolitan transportation area; authorization by resolution; allocation and termination

Amends Minn. Stat. § 297A.993, subds. 1 and 2, to, provide that counties outside of the metropolitan transportation area may impose a transportation sales tax and a $20 wheelage tax upon resolution of the county board, or each of the county boards, following a public hearing; removes the referendum requirement. Modifies the allowable uses for greater Minnesota local sales tax for transportation proceeds to allow payment of operating costs of transit and capital costs of safe route to school program, and allows the tax to continue to cover operating costs of the transit project or transit operations. Effective May 24, 2013. 2013 Minn. Laws, Chapter 117, Article 3, Sections 25 and 26.

City of St. Paul sales tax; use of revenues and extension

Amends Laws 1993, chapter 375, article 9, section 46, subdivision 2, as amended by Laws 1997, chapter 231, article 7, section 40, Laws 1998, chapter 389, article 8, section 30, Laws 2003, First Special Session chapter 21, article 8, section 13, Laws 2005, First Special Session chapter 3, article 5, section 26, and Laws 2009, chapter 88, article 4, section 15, to modify the use of sales tax revenues for the city of St. Paul so that if the revenues are less than 40 percent needed to meet obligations the remainder may be placed in an economic development account. And amends Laws 1993, chapter 375, article 9, section 46, subdivision 5, as amended by Laws 1998, chapter 389, article 8, section 32, to extend the city’s authority to impose the sales tax until December 31, 2042. Effective upon compliance by the local government under section § 645.021, subds. 2 and 3.

City of Rochester lodging tax

Amends Laws 2002, chapter 377, article 3, section 25, as amended by Laws 2009, chapter 88, article 4, section 19, and Laws 2010, chapter 389, article 5, section 3, to modify the Rochester lodging tax by increasing the additional allowed rate of the lodging tax imposed to fund construction, renovation, improvement, and expansion of the Mayo Civic Center Complex from one percent to three percent; adding design costs to the allowed uses for the lodging tax proceeds; increasing bonding from $43.5 million to $50 million; and by removing the requirement that the additional allowed tax rate expires when the proceeds are sufficient to pay the bonds for the Mayo Civic Center Complex; and it allows the city to choose to repeal.the tax any time after that time. Effective upon compliance by the local government under section § 645.021, subds. 2 and 3.

City of St. Cloud local option sales tax; use of revenues and extension

Amends Laws 2005, First Special Session chapter 3, article 5, section 37, subdivisions 2 and 4,to modify one of the existing allowed uses of the sales tax in the city of St. Cloud to limit funding to “regional” community and aquatic centers. And allows each St. Cloud area city-St. Joseph, St. Cloud, St. Augusta, Sartell, Sauk Rapids, and Waite Park-to extend the tax in its community from 2018 to 2038, provided the extension is approved by the voters no later than November 7,2017 at either a general election or a special election held on the first Tuesday after the First Monday of a November. The vote 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 compliance by the governing body of each city under section 645.021, subd. 3.

City of Clearwater local sales tax; use of revenues

Amends Laws 2008,chapter 366, article 7, section 19, subdivision 3, as amended by Laws 2011, First Special Session chapter 7, article 4, section 8, to provide a specific list of park and trail improvements that the city of Clearwater may fund with its local sales tax. Effective upon compliance by the local government under section 645.021, subds. 2 and 3.

City of Marshall food and beverage tax; use of proceeds; validation of prior act

Amends Laws 2010, chapter 389, article 5, section 6, subdivision 6, to provide specifics on the authorized expenses in conjunction with the construction of the Minnesota Emergency Response and Industry Training Center and the Southwest Amateur Sports Center. A separate provision allows the city of Marshall until July 1, 2013, to file its approval of the special laws authorizing the food and beverage and lodging taxes originally enacted in 2010, and to impose the tax on or before July 1, 2013. Effective May 24, 2013.

City of Proctor; validation of prior act

Session law allows the city to approve the extended uses and additional bond authority authorized under 2008 and 2010 special law by passing a resolution and filing the approval with the secretary of state by January 1, 2014. Effective May 24, 2013.

Repealer of City of Rochester’s local food and beverage tax authority

Repeals Laws 2009, chapter 88, article 4, section 23,as amended by Laws 2010, chapter 389, article 5, section 4, the Rochester local food and beverage tax authority authorized in 2009 but never imposed. Effective May 24, 2013.

Destination Medical Center; construction material and public infrastructure

Amends § 297 A. 71, by adding subd. 48 to provide a sales tax exemption for construction materials and supplies used in, and equipment incorporated into public infrastructure included in the Destination Medical Center Corporation (DMCC) development plan, as required under section § 469.43, and financed with public funds. Effective for sales and purchases made after June 30, 2015, and before July 1, 2049.

Destination Medical Center; development plan; local taxes; infrastructure and transit aid

Amends Minn. Stat. chapter 469 to create §§ 469.40 to 469.47 as follows:

  • Defines terms [§ 469.40];
  • Establishes the Destination Medical Center Corporation (DMCC) [§ 469.41];
  • Provides for officers, duties and organizational matters [§469.42];
  • Provides development plan requirements [§ 469.43; subd. 8, requires an annual report by the DMCC and city to the legislature, and to the commissioners of revenue and employment and economic development, and to the county (specifies scope of report, including actual costs and financing sources, including state aid amounts paid and the required local contributions)];
  • Grants powers and authorities to Rochester to implement the DMCC development plan, provides authority to issue bonds, requires city to use American made steel in the project where practicable [§ 469.44];
  • Rochester tax authority-grants Rochester authority to impose by ordinance a local lodging tax, food and beverage tax, and an admission/entertainment tax; with proceeds used to fund development plan projects, and taxes terminating no later than December 31, 2049; and authority to either extend its current local sales tax until 2049, or increase it by up to an additional 0.25 percent [§ 469.45];
  • County tax authority-authorizes Olmsted County to impose, by resolution, up to a 0.25 percent general sales tax and/or up to a $10 per vehicle wheelage tax to pay a portion of the transit infrastructure costs related to the DMC development plan. Revenues are first dedicated to the county portion which is limited to the amount raised by a sales tax of 0.15 percent, and any excess revenues may be used by the county to fund other transportation and transit projects within the county. Until January 1, 2018, the combined wheelage tax imposed under this section and general law must be equal to the rate in general law due to limitations in the state computer system. Taxes imposed by the county expire no later than December 31, 2049. [§ 469.46];
  • Provides for general state infrastructure aid and transit aid based on private investment and local city and county contributions to fund infrastructure projects in the DMC development plan [§ 469.47]

Effective upon compliance by the local government under section 645.021, subds. 2 and 3.

Amends Session Laws regarding Rochester local sales tax as follows:

  • Additional local sales tax-amends Laws 1998, chapter 389, article 8, section 43, subdivision
    1, to authorize the city of Rochester to impose an additional general sales tax of up to one­ quarter of one percent without voter approval. This would be in addition to the current one­ half percent tax in Rochester.
  • Use of local sales tax-amends Laws 1998, chapter 389, article 8, section 43, subdivision 3, as amended by Laws 2005, First Special Session chapter 3, article 5, section 28, and Laws 2011, First Special Session chapter 7, article 4, section 5, to require that any additional revenue resulting from either
    1. an extension of the duration of the existing local sales tax or
    2. an increase in the local sales tax rate be used to fund the city share of public infrastructure costs related to the DMC development plan.
    • Also deletes the requirement for the city to share $5 million of its existing sales tax revenues with surrounding cities-but note that this authority is reinstated subject to city council approval in another provision.
  • Termination of local sales tax-amends Laws 1998, chapter 389, article 8, section 43, subdivision 5, as amended by Laws 2005, First Special Session chapter 3, article 5, section 30, and Laws 2011, First Special Session chapter 7, article 4, section 7, to authorize the city to extend the duration of the existing one-half of one percent local sales tax as late as December 31, 2049, without voter approval. Also provides that if the sales tax rate is increased, the additional tax expires at least by December 31, 2049.
  • Sales Tax sharing with surrounding cities-this session law reinstates the authority stricken in other session law, for Rochester to share $5 million of its local sales tax revenue collection with surrounding cities. However, it requires the city council to hold a hearing and approve the revenue sharing by resolution by September 1, 2013, in order to share the money. lf the city does not pass the resolution, the $5 million is directed to paying the city share of costs related to the Destination Medical Center development plan. This provision is effective May 24, 2013.

Except as noted otherwise, effective upon compliance by the local government under section 645.021, subds. 2 and 3.

2013 Miscellaneous Legislative Bulletin

(2013 Regular Session)

Bulletin Date: May 31, 2013

MINNESOTA· REVENUE

Appeals and Legal Services Division

600 North Robert Street

Saint Paul, Minnesota 55146-2220

Unless otherwise noted, the provisions discussed in this bulletin can be found in 2013 Minn. Laws, Chapter 142.

Data Practices

Notification to Legislative Auditor of unauthorized access to data. Minn. Stat. § 3.971 was amended to require that heads of entities subject to OLA review notify the legislative auditor after obtaining information that not public data has been accessed or used unlawfully. Effective May 23, 2013.

Notification list contact information. Under new statute Minn. Stat. § 13.356, certain data maintained by a government entity, including an individual’s telephone number and email address, are classified as private when the data are collected from an individual subscribing to an entity’s notification or electronic publication lists (e.g., snow emergency alerts or policy bulletins). Effective May 22, 2013, applies to data collected before, on, and after that date. Minn. Laws 2013, Chapter 82, Section 1.

Void warrants. Minn. Stat. § 16A.46 was amended to clarify that a holder of a void warrant may not recover against the state. Effective May 24, 2013. Minn. Laws 2013, Chapter 143, Article 18, Section 1.

Healthcare Exchange Data Practices. Adds Minn. Stat. § 62V.06, which specifies that the healthcare exchange (MNsure) is subject to the Data Practices Act and classifies data collected or maintained by MNsure, including data on individuals, employees, and employers participating in the exchange, and the permitted use of the data. MNsure may share data only for the listed purposes; and, until July 1, 2014, other state agencies (including Revenue) may be required, under certain circumstances, to share data with MNsure to verify a participant’s identity, determine eligibility, process premiums, and investigate fraud. MNsure and other agencies may only exchange data pursuant to a data-sharing agreement. This section requires that MNsure provide a Tennessen warning prior to collecting private data. Additionally, only certain authorized individuals may access data maintained by MNsure, and the agency must maintain a data access audit trail. MNsure is prohibited from selling any data it collects or maintains. Effective March 21, 2013. Minn. Laws 2013, Chapter 9, Section 8.

New taxes subject to taxpayer data protections. The list of statutes defined as “Minnesota tax laws” in Minn. Stat. § 270B.Ol, subd. 8, was expanded to include:

  • Chapter 292 (gift taxes). Effective for gifts made after December 31, 2012. Minn. Laws 2013, Chapter 143, Article 7, Section 1.
  • Chapter 403 (fee for prepaid wireless telecommunications services).

Effective January 1, 2014. Minn. Laws 2013, Chapter 143, Article 13, Section 5.

Gift tax data subject

A new paragraph Minn. Stat. § 270B.03, subd. 1(9), provides that a donor required to file a gift tax return is the data subject who may inspect that return. Effective May 23, 2013. Minn. Laws 2013, Chapter 143, Article 7, section 2.

Data sharing with Public Safety

Minn. Stat. § 270B.12, subd. 4 was amended to allow the Commissioner of Revenue to disclose return information to the Department of Public Safety to administer the fee for prepaid wireless telecommunications services. Effective January 1, 2014. Minn. Laws 2013, Chapter 143, Article 13, Section 6.

Multistate Tax Commission

Minn. Stat. § 270C.03, subd. 1(9) was added to provide that for purposes of taxpayer data protection and disclosure chapter 270B, the MTC is deemed a state, so as to allow the Department to participate in MTC corporate sales, excise, and income tax audits. Effective May 23,2013. Minn. Laws 2013, Chapter 143, Article 13, section 7.

Property tax Homestead application data

The last paragraph of Minn. Stat. § 273.124, subd.13(c) was removed, changed, and moved to the new § 273.1245. Under the new provision, Social Security numbers, state and federal income tax returns, and related information are private data when submitted to a county or local assessor to support a claim for homestead classification or other property tax classification or benefit. Effective May 22,2013. Minn. Laws 2013, Chapter 82, Sections 20-21.

Miscellaneous

Biennial report of incidence of taxes. Minn. Stat. § 270C.13, subd. 1, was amended to eliminate the inclusion of information on the distribution of the federal income taxes borne by Minnesota residents in the commissioner’s biennial report to the legislature on the overall incidence of the state’s income, sales, and property taxes. Effective February 21, 2013. 2013 Minn. Laws, Chapter 3, Section 2.

Notice by electronic means

Minn. Stat. § 270C.38, subd. 1, was amended to provide that notice of determinations and actions of the commissioner sent by electronic means is sufficient notice if the taxpayer or other person agrees to accept notice electronically. Effective May 24, 2013. Minn.Laws 2013, Chapter 143, Article 18, Section 2.

Uniform interest on penalties

The following sections of statute were amended to provide a single, uniform statement of the rule regarding when interest on penalties accrues. These sections adopt a single rule that interest accrues on a penalty from the date it is assessable. The statutes are: Minn. Stat. §§ 270C.42, subd. 2; 287.385 subd. 7; 289A.55, subd. 9; 289A.60, subd. 4; 296A.22, subds. 1 and 3; 297B.11; 297E.14, subd. 7; 297F.09, subd. 9; 297F.18, subd. 7; 297G.09, subd. 8; 297G.17, subd. 7; 2971.80, subd. 1; 469.319, subd. 4; and 469.340, subd. 4. Effective May 24,2013. Minn. Laws, Chapter 143, Article 18, Sections 3-5 and 16-26.

Electronic wage levy disclosures and payments

Minn. Stat. § 270C.69, subd. 1, was amended to require that all wage levy disclosure forms be filed by electronic means and to require that all wage levy payments be made by electronic means. Effective for wage levy disclosures filed and wage levy payments made after December 31, 2013.

Postmark date

Subdivision 2a was added to Minn. Stat. § 271.06 to provide that when delivered by the United States Postal Service and received by the Minnesota Tax Court after the time allowed for appeal, an appeal from a Commissioner’s order is timely if the postmark is within the time allowed for appeal. Only a postmark of the United States Postal Service or a delivery services designed by the Internal Revenue Service may be relied on. A postmark made by a private postage meter may not be relied on and must be received by the Minnesota Tax Court within the time allowed for appeal. Effective for filings delivered by the United States Postal Service with a postmark date after August 1, 2013.

Continuous electronic payment requirement

Various statutes are amended to require that when a business exceeds the current threshold requiring it to make electronic payments, that the business must make electronic payments in all subsequent years.

These changes apply to:

  • withholding taxes (§ 289A20, subd. 2),
  • sales and use taxes (§ 289A20, subd. 4),
  • corporate taxes (§ 289A26, subd. 2a),
  • MinnesotaCare taxes (§ 295.55, subd. 4),
  • cigarette and tobacco products taxes (§ 297F.09, subd. 7),
  • liquor taxes (§ 297G.09, subd. 6),
  • insurance taxes (§ 297I.35, subd. 2), and
  • metropolitan solid waste landfill fee (§ 473.843, subd. 3).

Effective for the fiscal year ending June 30, 2013 and all fiscal years thereafter.

Unemployment insurance employer tax reduction:

Reduces the base tax rate for unemployment insurance employer tax for calendar year 2014 to 0.1 percent if, on September 30, 2013, the balance in the unemployment trust fund is more than $800,000,000. The base rate is to remain at 0.1 percent for calendar year 2015 if, on September 30, 2014, the balance in the unemployment trust fund is more than $900,000,000. The section expires December 31, 2015. Minn. Laws 2013, Chapter 85.

Minnesota sunset act

Chapter 3D, the Minnesota Sunset Advisory Commission, is repealed in its entirety and all references to the “Sunset Advisory Commission” wherever they appear in Minnesota statutes are deleted and all other necessary resulting changes are to be made by the revisor. Effective May 24, 2014.

Taxpayer assistance appropriation

$200,000 in fiscal year 2014 and $200,000 in fiscal year 2015 is added to the base appropriation of $200,000 each year for the taxpayer assistance program. (270C.21 – Taxpayer Assistance Grants.) The unencumbered balance in the first year does not cancel but is available for the second year. Art. 1, § 14, subd. 2. Effective July 1, 2013.


The provisions discussed below can be found in 2013 Minn. Laws, Chapter 3.

Biennial report on incidence of taxes

Amends Minn. Stat. 2012 § 270C.13, subd. 1, to eliminate the inclusion of information on the distribution of the federal income taxes borne by Minnesota residents in the commissioner’s biennial report to the legislature on the overall incidence of the state’s income, sales, and property taxes. Effective February 21, 2013. 2013 Minn. Laws, Chapter 3, Section 2.

Federal Update

2013 Minn. Laws, Chapter 3 adopted all of the changes to the Internal Revenue Code (“Code”) made through January 3, 2013 effective at the same time as they are effective for federal purposes. However, the changes are effective only for tax year 2012. For tax years 2013 and thereafter, Minnesota taxable income, alternative minimum taxable income, dependent care credit, working family credit, and household income will be based on Internal Revenue Code as amended through April 14, 2011 and will require modifications for the federal changes listed below.

Overview

Minnesota income and franchise tax is based on “federal taxable income” (FTI) for regular Minnesota tax purposes; “federal alternative minimum taxable income” (AMTI) for Minnesota alternative minimum tax purposes; “federal adjusted gross income” (FAGI) for household income used for the Minnesota dependent care credit, education credit, and property tax refund; and “earned income” for the working family credit.

Minnesota law referenced these federal concepts as amended through April 14, 2011.

Since that date, Congress enacted two Acts that make changes to the Code. The two new federal laws for tax year 2012 were:

The Federal Aviation Administration Modernization and Reform Act of 2012

Public Law 112..9. 5, enacted February 14, 2012, allows employees who received payments in airline bankruptcy cases filed after September 11, 2001, and before January 1, 2007, to roll over all or part of the payments to Individual Retirement Accounts (IRAs). A previous federal law allowed employees to roll over bankruptcy payments into Roth IRAs; this law allows amounts previously rolled over into Roth IRAs to be further rolled over into traditional IRAs. Taxpayers had 180 days, until August 12, 2012, to elect to make a rollover into a traditional IRA. The income limits on deductible IRA contributions do not apply to the rollovers. The rollovers are retroactive to the year in which the payments were received, and taxpayers are allowed to file amended returns to claim refunds of federal income taxes reflecting the reduction in taxable income resulting from the deduction of rolled-over amounts.

The American Taxpayer Relief Act of 2012

Public Law 112-240, enacted January 2, 2013, made the following major changes that affect tax year 2012. While some of these federal provisions extend beyond tax year 2012, the legislation that was enacted conforms for tax year 2012 only.

  • Increased the section 179 expensing amount and phase-out threshold for property placed in service in tax years 2012 and 2013 to $500,000 and $2 million.(Minnesota does not conform to the extension of increased section 179 amounts for tax year 2012, but retains its current law requirement that taxpayers add-back to taxable income 80 percent of the expensing amount in the first tax year, and then subtract one-fifth of the amount added back in each of the five following tax years.
  • Extends the educator classroom expense deduction of up to $250.
  • Extends the itemized deduction for mortgage insurance premiums.
  • Extends the option for taxpayers to claim an itemized deduction for sales taxes rather than income taxes paid. (Minnesota taxpayers will be unaffected by this, since present law requires any deducted sales tax to be added back in computing Minnesota tax; the same add-back is required for income taxes deducted at the federal level.)
  • Extends the increase in the federal adjusted gross income limit on the amount of qualified conservation easements that may be claimed as a charitable deduction.
    General law limits deduction of contributions of appreciated property to 20 or 30 percent of adjusted gross income, depending on the type of recipient organization. Beginning in 2006, the limit was increased to 50 percent for donations of qualified conservation easements by most taxpayers, and to 100 percent for donations made by farmers and ranchers, defined as individuals with 50 percent of gross income from farming/ranching.
  • Extends the higher education tuition expense deduction. The deduction applies up to $4,000 of qualifying expenses for taxpayers with adjusted gross income up to $65,000 ($130,000 for married joint filers), and up to $2,000 of qualifying expenses for taxpayers with adjusted gross income over $65,000 but less than $80,000 ($130,000 to $160,000 for married joint filers).
  • Extends the authority for individuals age 70YS or older to transfer up to $100,000 from a traditional IRA or Roth IRA directly to a qualified charity, while excluding that amount from adjusted gross income, and allows taxpayers to recharacterize distributions made in January 2013 as having been made in 2012.
  • Extends various provisions related to depreciation and expensing for property placed in service in tax year 2010, including more generous rules for leasehold and restaurant improvements,including new restaurant property and improvements to retail property (15-year straight-line recovery), motorsports entertainment complexes (seven-year recovery period), mine safety equipment, accelerated depreciation for business property on Indian reservations, and qualified film and television productions expenses.
  • Extends parity in qualified transportation fringe benefits, under which employers may exclude up to the same maximum amount per month ($240 in 2012) per employee for vanpool and transit pass expenses for parking, rather than $125 per month.
  • Extends the enhanced deduction for charitable contributions of food inventory, which allows pass-through entities (S corporations, partnerships, and proprietors) to deduct contributions of food inventory under the same rules as C corporations. Instead of being limited to the basis in the food inventory, the enhanced deduction equals the lesser of basis plus one-half of the normal price markup of food inventory, or two times basis, but may not exceed 10 percent of the taxpayer’s net income from pass­ through entities.
  • Extends the special rule limiting the amount of payments from controlled subsidiaries to parent-exempt organizations that are subject to the unrelated business income tax to the amount in excess of allowable payments under the arm’s-length transaction rules, providing that a binding written contract between the organizations was in effect as of August 17,2006.
  • Extends preferential treatment of dividends of regulated investment companies, under which dividends paid to foreign shareholders are exempt to the extent the dividends are derived from interest income that would be exempt if it had been earned directly by the foreign shareholder.
  • Extends the exception under subpart F which allows the United States shareholders with a 10 percent or greater interest in controlled foreign corporation to defer recognition of income earned by the corporation but not distributed to the shareholders.
  • Extends the limit on basis adjustments in S corporation stock when S corporations donate appreciated property to the tax basis of the property rather than the fair market value (this reduces capital gain on later sales of the S corporation stock, compared with prior law).
  • Extends the 100 percent exclusion for the gain on sale of qualified small business stock held for more than five years for stock acquired after September 27,2010, and before January 1,2012, to apply to stock acquired before January 1, 2014. The exclusion will revert to 50 percent for stock acquired on or after January 1, 2014.
  • Extends the reduction in the minimum holding period to avoid the tax on built-in gains on sales of assets of S corporations that converted from C corporations from ten years to five years, allowing S corporations to sell assets held more than five years without being taxed on built-in gains.

Update to federal definition of taxable income

Minn. Stat. § 290.01, subd. 19 was amended to adopt all of the federal changes to taxable income effective when the federal changes became effective, for tax year 2012 only, with the exception of increased section 179 expensing for tax year 2012 as described in the overview above.

Update to other references to the Internal Revenue Code in chapter 290

Minn. Stat. § 290.01, subd. 31 was amended to adopt federal changes to federal adjusted gross income used for computing individual alternative minimum tax and determining withholding on wages for tax year 2012. Federal adjusted gross income also is the starting point for calculating household income which is used to compute the dependent care and K-12 education credit. The main changes to federal adjusted gross income are described in the overview and are effective for Minnesota purposes at the same time the changes were effective federally.

Update of references to Internal Revenue Code in the property tax refund chapter

Minn. Stat. § 290A.03, subd. 15 was amended to adopt for tax year 2012 the federal changes to federal adjusted gross income described in the overview which is the starting point for calculating “household income” used in calculating Minnesota property tax refunds effective for refunds based on property taxes payable in 2013 and for rent paid in 2012.

Update of references to Internal Revenue code in the estate tax chapter

Minn. Stat. § 291.005, subd. 1, was amended to move the date through which Minnesota incorporates the federal estate tax to January 3, 2013, but without regard to the federal termination of the federal credit for state death taxes. This change has no substantive effect.

Amended returns

This uncodified provision extends the time for filing amended returns for individuals who made retroactive IRA rollovers under the Federal Aviation Administration Modernization and Reform Act of 2012 to June 1,2013, if the 3 year time limit on amending returns to make claims for refunds in statute has expired. Effective February 20, 2013.

Changes affecting tax year 2013 only

For tax year 2013, Minnesota only adopted 2 changes to the Internal Revenue Code that were enacted in the American Taxpayer Relief Act of 2012. Those changes, enacted in Minn Laws, chapter 143, are:

Section 179 expensing

For federal purposes, the maximum section 179 expensing amount and phase-out threshold for property placed in service in tax year 2013 was increased to $500,000(from $25,000)and $2 million (from $200,000). However, Minnesota will continue to treat all of the enhanced 179 expensing as it has treated other recent federal expansions of federal 179 expensing. This means taxpayers will be required to include 80% of the additional expensing in Minnesota taxable income, and subtract an amount equal to 20% of this amount in each of the next five years. The additions and subtractions dealing with this type of 179 expensing are already part of Minnesota law.

50% bonus depreciation

For property placed in service in 2013 or in 2014 for certain airline property or other long production property, Minnesota will continue to treat all of the bonus depreciation as it has treated other recent federal bonus depreciation. This means taxpayers will be required to include 80% of the bonus in Minnesota taxable income, and subtract an amount equal to 20% of this amount in each of the next five years. The additions and subtractions dealing with this type of bonus depreciation are already part of Minnesota law.

Thus, none of the changes discussed earlier in this bulletin as relating to tax year 2012 apply to Minnesota for 2013, nor do a number of other changes Congress enacted, including changes to the definition of federal taxable income and the calculation of the child and dependent care credit.