Journal of the House - 59th Day - Monday, May 19, 2003

The bill was repassed, as amended by the Senate, and its title agreed to.

Speaker pro tempore Abrams called Seifert to the Chair.

FISCAL CALENDAR

Pursuant to rule 1.22, Abrams requested immediate consideration of S. F. No. 1505.

S. F. No. 1505 was reported to the House.

Abrams moved to amend S. F. No. 1505, the unofficial engrossment, as follows:

Page 2, after line 50, insert:

"Section 1. Minnesota Statutes 2002, section 168.27, subdivision 4a, is amended to read:

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Subd. 4a. [LIMITED USED VEHICLE LICENSE.] A limited used vehicle license shall be provided to a nonprofit charitable organization that qualifies for tax exemption under section 501(c)(3) of the Internal Revenue Code whose primary business in the transfer of vehicles is to raise funds for the corporation, who acquires vehicles for sale through donation, and who uses a licensed motor vehicle auctioneer to sell vehicles to retail customers. This license does not apply to educational institutions whose primary purpose is to train students in the repair, maintenance, and sale of motor vehicles. A limited used vehicle license allows the organization to accept assignment of vehicles without the requirement to transfer title as provided in section 168A.10 until sold to a retail customer or licensed motor vehicle dealer. Limited used vehicle license holders are not entitled to dealer plates, and shall report all vehicles held for resale to the department of public safety in a manner and time prescribed by the department.

[EFFECTIVE DATE.] This section is effective for sales made after June 30, 2003."

Page 3, after line 25, insert:

"Sec. 3. Minnesota Statutes 2002, section 289A.18, subdivision 4, is amended to read:

Subd. 4. [SALES AND USE TAX RETURNS.] (a) Sales and use tax returns must be filed on or before the 20th day of the month following the close of the preceding reporting period, except that annual use tax returns provided for under section 289A.11, subdivision 1, must be filed by April 15 following the close of the calendar year, in the case of individuals. Annual use tax returns of businesses, including sole proprietorships, and annual sales tax returns must be filed by February 5 following the close of the calendar year.

(b) Returns for the June reporting period filed by retailers required to remit their June liability under section 289A.20, subdivision 4, paragraph (b), are due on or before August 20.

(c) If a retailer has an average sales and use tax liability, including local sales and use taxes administered by the commissioner, equal to or less than $500 per month in any quarter of a calendar year, and has substantially complied with the tax laws during the preceding four calendar quarters, the retailer may request authorization to file and pay the taxes quarterly in subsequent calendar quarters. The authorization remains in effect during the period in which the retailer's quarterly returns reflect sales and use tax liabilities of less than $1,500 and there is continued compliance with state tax laws.

(d) If a retailer has an average sales and use tax liability, including local sales and use taxes administered by the commissioner, equal to or less than $100 per month during a calendar year, and has substantially complied with the tax laws during that period, the retailer may request authorization to file and pay the taxes annually in subsequent years. The authorization remains in effect during the period in which the retailer's annual returns reflect sales and use tax liabilities of less than $1,200 and there is continued compliance with state tax laws.

(e) The commissioner may also grant quarterly or annual filing and payment authorizations to retailers if the commissioner concludes that the retailers' future tax liabilities will be less than the monthly totals identified in paragraphs (c) and (d). An authorization granted under this paragraph is subject to the same conditions as an authorization granted under paragraphs (c) and (d).

(f) A taxpayer who is a materials supplier may report gross receipts either on:

(1) the cash basis as the consideration is received; or

(2) the accrual basis as sales are made.

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As used in this paragraph, "materials supplier" means a person who provides materials for the improvement of real property; who is primarily engaged in the sale of lumber and building materials-related products to owners, contractors, subcontractors, repairers, or consumers; who is authorized to file a mechanics lien upon real property and improvements under chapter 514; and who files with the commissioner an election to file sales and use tax returns on the basis of this paragraph.

(g) Notwithstanding paragraphs (a) to (f), a seller that is not a Model 1, 2, or 3 seller, as those terms are used in the Streamlined Sales and Use Tax Agreement, that does not have a legal requirement to register in Minnesota, and that is registered under the agreement, must file a return by February 5 following the close of the calendar year in which the seller initially registers, and must file subsequent returns on February 5 on an annual basis in succeeding years. Additionally, a return must be submitted on or before the 20th day of the month following any month by which sellers have accumulated state and local tax funds for the state in the amount of $1,000 or more.

[EFFECTIVE DATE.] This section is effective for sales and purchases made on or after January 1, 2004.

Sec. 4. Minnesota Statutes 2002, section 289A.40, subdivision 2, is amended to read:

Subd. 2. [BAD DEBT LOSS.] If a claim relates to an overpayment because of a failure to deduct a loss due to a bad debt or to a security becoming worthless, the claim is considered timely if filed within seven years from the date prescribed for the filing of the return. A claim relating to an overpayment of taxes under chapter 297A must be filed within 3-1/2 years from the date prescribed for filing the return, plus any extensions granted for filing the return, but only if filed within the extended time~~, or within one year from the date the taxpayer's federal income tax return is timely filed claiming the bad debt deduction, whichever period expires later~~. The refund or credit is limited to the amount of overpayment attributable to the loss. "Bad debt" for purposes of this subdivision, has the same meaning as that term is used in United States Code, title 26, section 166, except that the following are excluded from the calculation of bad debt: financing charges or interest; sales or use taxes charged on the purchase price; uncollectible amounts on property that remain in the possession of the seller until the full purchase price is paid; expenses incurred in attempting to collect any debt; and repossessed property.

[EFFECTIVE DATE.] This section is effective for sales and purchases made on or after January 1, 2004.

Sec. 5. Minnesota Statutes 2002, section 289A.50, is amended by adding a subdivision to read:

Subd. 2b. [CERTIFIED SERVICE PROVIDER; BAD DEBT CLAIM.] A certified service provider, as defined in section 297A.995, subdivision 2, may claim on behalf of a taxpayer that is its client any bad debt allowance provided by section 297A.81. The certified service provider must credit or refund to its client the full amount of any bad debt allowance or refund received.

[EFFECTIVE DATE.] This section is effective for sales and purchases made on or after January 1, 2004.

Sec. 6. Minnesota Statutes 2002, section 289A.50, is amended by adding a subdivision to read:

Subd. 2c. [NOTICE FROM PURCHASER TO VENDOR REQUESTING REFUND.] (a) If a vendor has collected from a purchaser a tax on a transaction that is not subject to the tax imposed by chapter 297A, the purchaser may seek from the vendor a return of over-collected sales or use taxes as follows:

(1) the purchaser must provide written notice to the vendor;

(2) the notice to the vendor must contain the information necessary to determine the validity of the request; and

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(3) no cause of action against the vendor accrues until the vendor has had 60 days to respond to the written notice.

(b) In connection with a purchaser's request from a vendor of over-collected sales or use taxes, a vendor is presumed to have a reasonable business practice, if in the collection of such sales or use taxes, the vendor: (1) uses a certified service provider as defined in section 297A.995, a certified automated system, as defined in section 297A.995, or a proprietary system that is certified by the state; and (2) has remitted to the state all taxes collected less any deductions, credits, or collection allowances.

[EFFECTIVE DATE.] This section is effective for sales and purchases made on or after January 1, 2004.

Sec. 7. Minnesota Statutes 2002, section 289A.56, subdivision 4, is amended to read:

Subd. 4. [CAPITAL EQUIPMENT AND CERTAIN BUILDING MATERIALS REFUNDS; REFUNDS TO PURCHASERS.] Notwithstanding subdivision 3, for refunds payable under ~~section~~ sections 297A.75, subdivision 1, ~~clauses (1), (2), (3), and (5), interest is computed from the date the refund claim is filed with the commissioner. For refunds payable under section~~ and 289A.50, subdivision 2a, interest is computed from the 20th day of the month following the month of the invoice date for the purchase which is the subject of the refund, if the refund claim includes a detailed schedule of purchases made during each of the periods in the claim. If the refund claim submitted does not contain a schedule reflecting purchases made in each period, interest is computed from the date the claim was filed 90 days after the refund claim is filed with the commissioner.

[EFFECTIVE DATE.] This section is effective for refund claims filed on or after April 1, 2003."

Page 4, line 21, after "of" insert "prewritten" and before the period, insert "whether delivered electronically, by load and leave, or otherwise"

Page 7, line 6, strike everything after "law" and insert a period

Page 7, strike lines 7 to 29

Page 8, line 3, after "section" insert ", paragraph (f), and the changes made to paragraph (i) are effective for sales and purchases made on or after January 1, 2004. This section, paragraph (k),"

Page 8, after line 4, insert:

"Sec. 9. Minnesota Statutes 2002, section 297A.61, subdivision 7, is amended to read:

Subd. 7. [SALES PRICE.] (a) "Sales price" means the measure subject to sales tax, and means the total amount of consideration, including cash, credit, personal property, and services, for which personal property or services are sold, leased, or rented, valued in money, whether received in money or otherwise, without any deduction for the following:

(1) the seller's cost of the property sold;

(2) the cost of materials used, labor or service cost, interest, losses, all costs of transportation to the seller, all taxes imposed on the seller, and any other expenses of the seller;

(3) charges by the seller for any services necessary to complete the sale, other than delivery and installation charges;

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(4) delivery charges;

(5) installation charges; and

(6) the value of exempt property given to the purchaser when taxable and exempt personal property have been bundled together and sold by the seller as a single product or piece of merchandise.

(b) Sales price does not include:

(1) discounts, including cash, terms, or coupons, that are not reimbursed by a third party and that are allowed by the seller and taken by a purchaser on a sale;

(2) interest, financing, and carrying charges from credit extended on the sale of personal property or services, if the amount is separately stated on the invoice, bill of sale, or similar document given to the purchaser; and

(3) any taxes legally imposed directly on the consumer that are separately stated on the invoice, bill of sale, or similar document given to the purchaser.

[EFFECTIVE DATE.] This section is effective for sales and purchases made on or after January 1, 2004.

Sec. 10. Minnesota Statutes 2002, section 297A.61, subdivision 10, is amended to read:

Subd. 10. [TANGIBLE PERSONAL PROPERTY.] (a) "Tangible personal property" means ~~corporeal personal property of any kind, including property that is to become real property as a result of incorporation, attachment, or installation following its acquisition.~~

~~(b) Tangible personal property includes, but is not limited to:~~

~~(1) computer software, whether contained on tape, discs, cards, or other devices; and~~

~~(2) prepaid telephone calling cards.~~

~~(c)~~ 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, prewritten computer software, and prepaid calling cards.

(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).

[EFFECTIVE DATE.] This section is effective for sales and purchases made on or after January 1, 2004.

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Sec. 11. Minnesota Statutes 2002, section 297A.61, is amended by adding a subdivision to read:

Subd. 14a. [LEASE OR RENTAL.] (a) "Lease or rental" means any transfer of possession or control of tangible personal property for a fixed or indeterminate term for consideration. A lease or rental may include future options to purchase or extend.

(b) Lease or rental does not include:

(1) a transfer of possession or control of property under a security agreement or deferred payment plan that requires the transfer of title upon completion of the required payments;

(2) a transfer of possession or control of property under an agreement that requires the transfer of title upon completion of required payments and payment of an option price does not exceed the greater of $100 or one percent of the total required payments; or

(3) providing tangible personal property along with an operator for a fixed or indeterminate period of time. A condition of this exclusion is that the operator is necessary for the equipment to perform as designed. For the purpose of this subdivision, an operator must do more than maintain, inspect, or set up the tangible personal property.

(c) Lease or rental does include agreements covering motor vehicles and trailers where the amount of consideration may be increased or decreased by reference to the amount realized upon sale or disposition of the property as defined in United States Code, title 26, section 7701(h)(l).

(d) This definition must be used for sales and use tax purposes regardless if a transaction is characterized as a lease or rental under generally accepted accounting principles, the Internal Revenue Code, chapter 336, or other provisions of federal, state, or local law.

[EFFECTIVE DATE.] This section is effective for leases and rentals entered into on or after January 1, 2004.

Sec. 12. Minnesota Statutes 2002, section 297A.61, subdivision 17, is amended to read:

Subd. 17. [PREWRITTEN COMPUTER SOFTWARE.] "Prewritten computer software" means a computer program, either in the form of written procedures or contained on tapes, discs, cards, or another device, or any required documentation or manuals designed to facilitate the use of the computer program. computer software, including prewritten upgrades, that is not designed and developed by the author or other creator to the specifications of a specific purchaser. The combining of two or more "prewritten computer software" programs or prewritten portions of the programs does not cause the combination to be other than "prewritten computer software." "Prewritten computer software" includes software designed and developed by the author or other creator to the specifications of a specific purchaser when it is sold to a person other than the purchaser. If a person modifies or enhances computer software of which the person is not the author or creator, the person is deemed to be the author or creator only of such person's modifications or enhancements. "Prewritten computer software" or a prewritten portion of it that is modified or enhanced to any degree, if the modification or enhancement is designed and developed to the specifications of a specific purchaser, remains "prewritten computer software"; provided, however, that if there is a reasonable, separately stated charge or an invoice or other statement of the price given to the purchaser for such modification or enhancement, the modification or enhancement does not constitute "prewritten computer software." For purposes of this subdivision:

(1) "computer" ~~does not include tape-controlled automatic drilling, milling, or other manufacturing machinery or equipment~~ means an electronic device that accepts information in digital or similar form and manipulates it for a result based on a sequence of instructions; ~~and~~

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(2) "computer program" means information and directions that dictate the function performed by data processing equipment. It includes the complete plan for the solution of a problem, such as the complete sequence of automatic data processing equipment instructions necessary to solve a problem and includes both systems and application programs and subdivisions, such as assemblers, compilers, routines, generators, and utility programs. Computer program includes a "canned" or prewritten computer program that is held or existing for general or repeated sale or lease, even if the prewritten or "canned" program was initially developed on a custom basis or for in-house use. "electronic" means relating to technology having electrical, digital, magnetic, wireless, optical, electromagnetic, or similar capabilities; and

(3) "computer software" means a set of coded instructions designed to cause a "computer" or automatic data processing equipment to perform a task.

[EFFECTIVE DATE.] This section is effective for sales and purchases made on or after January 1, 2004.

Sec. 13. Minnesota Statutes 2002, section 297A.61, is amended by adding a subdivision to read:

Subd. 17a. [DELIVERED ELECTRONICALLY.] "Delivered electronically" means delivered to the purchaser by means other than tangible storage media.

[EFFECTIVE DATE.] This section is effective for sales and purchases made on or after January 1, 2004.

Sec. 14. Minnesota Statutes 2002, section 297A.61, is amended by adding a subdivision to read:

Subd. 17b. [LOAD AND LEAVE.] "Load and leave" means delivered to the purchaser by use of a tangible storage media where the tangible storage media is not physically transferred to the purchaser.

[EFFECTIVE DATE.] This section is effective for sales and purchases made on or after January 1, 2004.

Sec. 15. Minnesota Statutes 2002, section 297A.61, subdivision 30, is amended to read:

Subd. 30. [DELIVERY CHARGES.] "Delivery charges" means charges by the seller of personal property or services for preparation and delivery to a location designated by the purchaser of personal property or services including, but not limited to, transportation, shipping, postage, handling, crating, and packing.

[EFFECTIVE DATE.] This section is effective for sales and purchases made on or after January 1, 2004."

Page 8, after line 18, insert:

"Sec. 17. Minnesota Statutes 2002, section 297A.66, is amended by adding a subdivision to read:

Subd. 5. [WITHDRAWAL FROM STREAMLINED SALES AND USE TAX AGREEMENT.] If the state has withdrawn its membership or been expelled from the streamlined sales and use tax agreement, it shall not use a seller's registration with the central registration system and the collection of sales and use taxes in the state as a factor in determining whether the seller has nexus with that state for any tax at any time.

[EFFECTIVE DATE.] This section is effective for sales and purchases made on or after January 1, 2004.

Sec. 18. [297A.666] [AMNESTY FOR REGISTRATION.]

Subdivision 1. [AMNESTY PROVISIONS.] Subject to the limitations of subdivision 2:

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(1) this state shall provide amnesty for uncollected or unpaid sales or use tax to a seller who registers to pay or to collect and remit applicable sales or use tax on sales made to purchasers in this state in accordance with the terms of the streamlined sales and use tax agreement, provided that the seller was not so registered in this state in the 12-month period preceding the effective date of the state's participation in the agreement; and

(2) the amnesty shall preclude assessment for uncollected or unpaid sales or use tax together with penalty or interest for sales made during the period the seller was not registered in this state, provided registration occurs within 12 months of the effective date of the state's participation in the agreement.

Subd. 2. [LIMITATIONS.] (a) The amnesty is not available to a seller with respect to any matter or matters for which the seller received notice of the commencement of an audit and the audit is not yet finally resolved, including any related administrative and judicial processes.

(b) The amnesty is not available for sales or use taxes already paid or remitted to this state or to taxes collected by the seller.

(c) The amnesty is fully effective, absent the seller's fraud or intentional misrepresentation of a material fact, as long as the seller continues registration and continues payment or collection and remittance of applicable sales or use taxes for a period of at least 36 months. The statute of limitations provisions of chapter 289A applicable to asserting a sales or use tax liability must be tolled during this 36-month period.

(d) The amnesty is applicable only to sales or use taxes due from a seller in its capacity as a seller and not to sales or use taxes due from a seller in its capacity as a buyer.

[EFFECTIVE DATE.] This section is effective for sales and purchases made on or after January 1, 2004.

Sec. 19. Minnesota Statutes 2002, section 297A.668, is amended to read:

297A.668 [SOURCING OF SALE; SITUS IN THIS STATE.]

Subdivision 1. [~~SOURCING RULES~~ APPLICABILITY.] ~~(a)~~ The ~~following~~ provisions of this section apply regardless of the characterization of a product as tangible personal property, a digital good, or a service; but do not apply to telecommunications services, or the sales of motor vehicles, watercraft, aircraft, modular homes, manufactured homes, or mobile homes. These provisions only apply to determine a seller's obligation to pay or collect and remit a sales or use tax with respect to the seller's sale of a product. These provisions do not affect the obligation of a seller as purchaser to remit tax on the use of the product.

Subd. 2. [SOURCING RULES.] (a) The retail sale, excluding lease or rental, of a product shall be sourced as required in paragraphs (b) through (f).

(b) When the product is received by the purchaser at a business location of the seller, the sale is sourced to that business location.

(c) When the product is not received by the purchaser at a business location of the seller, the sale is sourced to the location where receipt by the purchaser or the donee designated by the purchaser occurs, including the location indicated by instructions for delivery to the purchasers or the purchaser's donee, known to the seller.

(d) When paragraphs (b) and (c) do not apply, the sale is sourced to the location indicated by an address for the purchaser that is available from the business records of the seller that are maintained in the ordinary course of the seller's business, when use of this address does not constitute bad faith.

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(e) When paragraphs (b), (c), and (d) do not apply, the sale is sourced to the location indicated by an address for the purchaser obtained during the consummation of the sale, including the address of a purchaser's payment instrument if no other address is available, when use of this address does not constitute bad faith.

(f) When paragraphs (b), (c), (d), and (e) do not apply, including the circumstance where the seller is without sufficient information to apply the previous paragraphs, then the location is determined by the address from which tangible personal property was shipped, from which the digital good or the computer software delivered electronically was first available for transmission by the seller, or from which the service was provided. For purposes of this paragraph, the seller must disregard any location that merely provided the digital transfer of the product sold.

(g) For purposes of this subdivision, the terms "receive" and "receipt" mean taking possession of tangible personal property, making first use of services, or taking possession or making first use of digital goods or the computer software delivered electronically, whichever occurs first. The terms receive and receipt do not include possession by a carrier for hire on behalf of the purchaser.

Subd. 3. [LEASE OR RENTAL OF TANGIBLE PERSONAL PROPERTY.] The lease or rental of tangible personal property, other than property identified in subdivision 4 or 5, shall be sourced as required in paragraphs (a) to (c).

(a) For a lease or rental that requires recurring periodic payments, the first periodic payment is sourced the same as a retail sale in accordance with the provisions of subdivision 6. Periodic payments made subsequent to the first payment are sourced to the primary property location for each period covered by the payment. The primary property location must be as indicated by an address for the property provided by the lessee that is available to the lessor from its records maintained in the ordinary course of business, when use of this address does not constitute bad faith. The property location must not be altered by intermittent use at different locations, such as use of business property that accompanies employees on business trips and service calls.

(b) For a lease or rental that does not require recurring periodic payments, the payment is sourced the same as a retail sale in accordance with the provisions of subdivision 2.

(c) This subdivision does not affect the imposition or computation of sales or use tax on leases or rentals based on a lump sum or accelerated basis, or on the acquisition of property for lease.

Subd. 4. [LEASE OR RENTAL OF MOTOR VEHICLES, TRAILERS, SEMITRAILERS, OR AIRCRAFT THAT DO NOT QUALIFY AS TRANSPORTATION EQUIPMENT.] The lease or rental of motor vehicles, trailers, semitrailers, or aircraft that do not qualify as transportation equipment, as defined in subdivision 5, shall be sourced as required in paragraphs (a) to (c).

(a) For a lease or rental that requires recurring periodic payments, each periodic payment is sourced to the primary property location. The primary property location must be as indicated by an address for the property provided by the lessee that is available to the lessor from its records maintained in the ordinary course of business, when use of this address does not constitute bad faith. This location must not be altered by intermittent use at different locations.

(b) For a lease or rental that does not require recurring periodic payments, the payment is sourced the same as a retail sale in accordance with the provisions of subdivision 2.

(c) This subdivision does not affect the imposition or computation of sales or use tax on leases or rentals based on a lump sum or accelerated basis, or on the acquisition of property for lease.

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Subd. 5. [TRANSPORTATION EQUIPMENT.] (a) The retail sale, including lease or rental, of transportation equipment shall be sourced the same as a retail sale in accordance with the provisions of subdivision 2, notwithstanding the exclusion of lease or rental in subdivision 2.

(b) "Transportation equipment" means any of the following:

(1) locomotives and railcars that are utilized for the carriage of persons or property in interstate commerce; and/or

(2) trucks and truck-tractors with a gross vehicle weight rating (GVWR) of 10,001 pounds or greater, trailers, semitrailers, or passenger buses that are:

(i) registered through the international registration plan; and

(ii) operated under authority of a carrier authorized and certified by the United States Department of Transportation or another federal authority to engage in the carriage of persons or property in interstate commerce.

Subd. 2. 6. [MULTIPLE POINTS OF USE.] (a) Notwithstanding the provisions of ~~subdivision 1~~ subdivisions 2 to 5, a business purchaser that is not a holder of a direct pay permit that knows at the time of its purchase of a digital good, computer software delivered electronically, or a service that the digital good, computer software delivered electronically, or service will be concurrently available for use in more than one taxing jurisdiction shall deliver to the seller in conjunction with its purchase a multiple points of use exemption certificate disclosing this fact.

(b) Upon receipt of the multiple points of use exemption 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) A purchaser delivering the multiple points of use exemption certificate may 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 exemption certificate remains in effect for all future sales by the seller to the purchaser until it is revoked in writing, except as to the subsequent sale's specific apportionment that is governed by the principle of paragraph (c) and the facts existing at the time of the sale.

(e) A holder of a direct pay permit is not required to deliver a multiple points or use exemption certificate to the seller. A direct pay permit holder shall follow the provisions of paragraph (c) in apportioning the tax due on a digital good, computer software delivered electronically, or a service that will be concurrently available for use in more than one taxing jurisdiction.

Subd. 3. [DEFINITION OF TERMS.] For purposes of this section, the terms "receive" and "receipt" mean taking possession of tangible personal property, making first use of services, or taking possession or making first use of digital goods, whichever occurs first. The terms receive and receipt do not include possession by a carrier for hire on behalf of the purchaser.

Subd. 7. [DIRECT MAIL.] (a) Notwithstanding other subdivisions of this section, a purchaser of direct mail that is not a holder of a direct pay permit shall provide to the seller, in conjunction with the purchase, either a direct mail form or information to show the jurisdictions to which the direct mail is delivered to recipients.

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(1) Upon receipt of the direct mail form, the seller is relieved of all obligations to collect, pay, or remit the applicable tax and the purchaser is obligated to pay or remit the applicable tax on a direct pay basis. A direct mail form remains in effect for all future sales of direct mail by the seller to the purchaser until it is revoked in writing.

(2) Upon receipt of information from the purchaser showing the jurisdictions to which the direct mail is delivered to recipients, the seller shall collect the tax according to the delivery information provided by the purchaser. In the absence of bad faith, the seller is relieved of any further obligation to collect tax on any transaction for which the seller has collected tax pursuant to the delivery information provided by the purchaser.

(b) If the purchaser of direct mail does not have a direct pay permit and does not provide the seller with either a direct mail form or delivery information, as required by paragraph (a), the seller shall collect the tax according to subdivision 2, paragraph (f). Nothing in this paragraph limits a purchaser's obligation for sales or use tax to any state to which the direct mail is delivered.

(c) If a purchaser of direct mail provides the seller with documentation of direct pay authority, the purchaser is not required to provide a direct mail form or delivery information to the seller.

[EFFECTIVE DATE.] This section is effective for sales and purchases made on or after January 1, 2004.

Sec. 20. [297A.669] [TELECOMMUNICATION SOURCING.]

Subdivision 1. [CALL-BY-CALL BASIS SOURCING.] Except for the defined telecommunication services in subdivision 3, the sale of telecommunication service sold on a call-by-call basis shall be sourced to (1) each level of taxing jurisdiction where the call originates and terminates in that jurisdiction; or (2) each level of taxing jurisdiction where the call either originates or terminates and in which the service address is also located.

Subd. 2. [OTHER THAN CALL-BY-CALL BASIS SOURCING.] Except for the defined telecommunication services in subdivision 3, a sale of telecommunications services sold on a basis other than a call-by-call basis is sourced to the customer's place of primary use.

Subd. 3. [DEFINED TELECOMMUNICATIONS SERVICES SOURCING.] The sale of the following telecommunication services shall be sourced to each level of taxing jurisdiction in paragraphs (a) to (d).

(a) A sale of mobile telecommunications services, other than air-to-ground radiotelephone service and prepaid calling service, is sourced to the customer's place of primary use as required by the Mobile Telecommunications Sourcing Act.

(b) A sale of postpaid calling service is sourced to the origination point of the telecommunications signal as first identified by either:

(1) the seller's telecommunications system; or

(2) information received by the seller from its service provider, where the system used to transport such signals is not that of the seller.

(c) A sale of prepaid calling service is sourced in accordance with section 297A.668, subdivision 2. However, in the case of a sale of mobile telecommunications service that is a prepaid telecommunications service, the rule provided in section 297A.668, subdivision 2, paragraph (f), shall include as an option the location associated with the mobile telephone number.

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(d) A sale of a private communication service is sourced as follows:

(1) service for a separate charge related to a customer channel termination point is sourced to each level of jurisdiction in which the customer channel termination point is located;

(2) service where all customer termination points are located entirely within one jurisdiction or levels of jurisdiction is sourced in such jurisdiction in which the customer channel termination points are located;

(3) service for segments of a channel between two customer channel termination points located in different jurisdictions and which segment of channel are separately charged is sourced 50 percent in each level of jurisdiction in which the customer channel termination points are located; and

(4) service for segments of a channel located in more than one jurisdiction or levels of jurisdiction and which segments are not separately billed is sourced in each jurisdiction based on the percentage determined by dividing the number of customer channel termination points in the jurisdiction by the total number of customer channel termination points.

Subd. 4. [AIR-TO-GROUND RADIOTELEPHONE SERVICE.] "Air-to-ground radiotelephone service," for purposes of this section, means a radio service, as that term is defined in Code of Federal Regulations, title 47, section 22.99, in which common carriers are authorized to offer and provide radio telecommunications service for hire to subscribers in aircraft.

Subd. 5. [CALL-BY-CALL BASIS.] "Call-by-call basis," for purposes of this section, means any method of charging for telecommunications services where the price is measured by individual calls.

Subd. 6. [COMMUNICATIONS CHANNEL.] "Communications channel," for purposes of this section, means a physical or virtual path of communications over which signals are transmitted between or among customer channel termination points.

Subd. 7. [CUSTOMER.] "Customer," for purposes of this section, means the person or entity that contracts with the seller of telecommunications services. If the end user of telecommunications services is not the contracting party, the end user of the telecommunications service is the customer of the telecommunication service, but this sentence applies only for the purpose of sourcing sales of telecommunications services under this section. Customer does not include a reseller of telecommunications service or for mobile telecommunications service of a serving carrier under an agreement to serve the customer outside the home service provider's licensed service area.

Subd. 8. [CUSTOMER CHANNEL TERMINATION POINT.] "Customer channel termination point," for purposes of this section, means the location where the customer either inputs or receives the communications.

Subd. 9. [END USER.] "End user," for purposes of this section, means the person who utilizes the telecommunication service. In the case of an entity, end user means the individual who utilizes the service on behalf of the entity.

Subd. 10. [HOME SERVICE PROVIDER.] "Home service provider," for purposes of this section, means the same as that term is defined in Section 124(5) of Public Law 106-252 (Mobile Telecommunications Sourcing Act).

Subd. 11. [MOBILE TELECOMMUNICATIONS SERVICE.] "Mobile telecommunications service," for purposes of this section, means the same as that term is defined in Section 124(1) of Public Law 106-252 (Mobile Telecommunications Sourcing Act).

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Subd. 12. [PLACE OF PRIMARY USE.] "Place of primary use," for purposes of this section, means the street address representative of where the customer's use of the telecommunications service primarily occurs, which must be the residential street address or the primary business street address of the customer. In the case of mobile telecommunications services, place of primary use must be within the licensed service area of the home service provider.

Subd. 13. [POSTPAID CALLING SERVICE.] "Postpaid calling service," for purposes of this section, means the telecommunications service obtained by making a payment on a call-by-call basis either through the use of a credit card or payment mechanism such as a bank card, travel card, credit card, or debit card, or by a charge made to a telephone number that is not associated with the origination or termination of the telecommunications service. A postpaid calling service includes a telecommunications service that would be a prepaid calling service except it is not exclusively a telecommunication service.

Subd. 14. [PREPAID CALLING SERVICE.] "Prepaid calling service," for purposes of this section, means the right to access exclusively telecommunications services, which must be paid for in advance and which enables the origination of calls using an access number or authorization code, whether manually or electronically dialed, and that is sold in predetermined units or dollars of which the number declines with use in a known amount.

Subd. 15. [PRIVATE COMMUNICATION SERVICES.] "Private communication services," for purposes of this section, means the same as that term is defined in section 297A.61, subdivision 26.

Subd. 16. [SERVICE ADDRESS.] "Service address," for purposes of this section, means:

(1) the location of the telecommunications equipment to which a customer's call is charged and from which the call originates or terminates, regardless of where the call is billed or paid;

(2) if the location in paragraph (a) is not known, service address means the origination point of the signal of the telecommunications services first identified by either the seller's telecommunications system or in information received by the seller from its service provider, where the system used to transport the signals is not that of the seller; or

(3) if the location in paragraphs (a) and (b) is not known, the service address means the location of the customer's place of primary use.

[EFFECTIVE DATE.] This section is effective for sales and purchases made on or after January 1, 2004.

Sec. 21. Minnesota Statutes 2002, section 297A.67, subdivision 8, is amended to read:

Subd. 8. [CLOTHING.] (a) Clothing is exempt. For purposes of this subdivision, "clothing" means all human wearing apparel suitable for general use.

(b) Clothing includes, but is not limited to, aprons, household and shop; athletic supporters; baby receiving blankets; bathing suits and caps; beach capes and coats; belts and suspenders; boots; coats and jackets; costumes; children and adult diapers, including disposable; ear muffs; footlets; formal wear; garters and garter belts; girdles; gloves and mittens for general use; hats and caps; hosiery; insoles for shoes; lab coats; neckties; overshoes; pantyhose; rainwear; rubber pants; sandals; scarves; shoes and shoe laces; slippers; sneakers; socks and stockings; steel-toed boots; underwear; uniforms, athletic and nonathletic; and wedding apparel.

(1) belt buckles sold separately;

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(2) costume masks sold separately;

(3) patches and emblems sold separately;

(4) sewing equipment and supplies, including but not limited to, knitting needles, patterns, pins, scissors, sewing machines, sewing needles, tape measures, and thimbles;

(5) sewing materials that become part of clothing, including but not limited to, buttons, fabric, lace, thread, yarn, and zippers;

(6) clothing accessories or equipment;

(7) sports or recreational equipment; and

(8) protective equipment.

Clothing also does not include apparel made from fur if a uniform definition of "apparel made from fur" is developed by the member states of the Streamlined Sales and Use Tax Agreement.

For purposes of this subdivision, "clothing accessories or equipment" means incidental items worn on the person or in conjunction with clothing. Clothing accessories and equipment include, but are not limited to, briefcases; cosmetics; hair notions, including barrettes, hair bows, and hairnets; handbags; handkerchiefs; jewelry; nonprescription sunglasses; umbrellas; wallets; watches; and wigs and hairpieces. "Sports or recreational equipment" means items designed for human use and worn in conjunction with an athletic or recreational activity that are not suitable for general use. Sports and recreational equipment includes, but is not limited to, ballet and tap shoes; cleated or spiked athletic shoes; gloves, including, but not limited to, baseball, bowling, boxing, hockey, and golf gloves; goggles; hand and elbow guards; life preservers and vests; mouth guards; roller and ice skates; shin guards; shoulder pads; ski boots; waders; and wetsuits and fins. "Protective equipment" means items for human wear and designed as protection of the wearer against injury or disease or as protection against damage or injury of other persons or property but not suitable for general use. Protective equipment includes, but is not limited to, breathing masks; clean room apparel and equipment; ear and hearing protectors; face shields; finger guards; hard hats; helmets; paint or dust respirators; protective gloves; safety glasses and goggles; safety belts; tool belts; and welders gloves and masks.

[EFFECTIVE DATE.] This section is effective for sales and purchases made on or after January 1, 2004."

Page 8, after line 28, insert:

"Sec. 23. Minnesota Statutes 2002, 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 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;

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(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 metalcasting: 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 ~~and~~, 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.

[EFFECTIVE DATE.] This section is effective for sales and purchases made on or after January 1, 2004.

Sec. 24. Minnesota Statutes 2002, section 297A.68, subdivision 5, is amended to read:

Subd. 5. [CAPITAL EQUIPMENT.] (a) Capital equipment is exempt. 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 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;

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(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; ~~and~~

(8) ready-mixed concrete trucks in which the ready-mixed concrete is mixed as part of the delivery process; and

(9) machinery or equipment used for research, development, design, or production of computer software.

(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; or

(7) 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) "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.

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(4) "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).

(5) "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.

(6) "Mining" means the extraction of minerals, ores, stone, or peat.

(7) "Online data retrieval system" means a system whose cumulation of information is equally available and accessible to all its customers.

(8) "Primarily" means machinery and equipment used 50 percent or more of the time in an activity described in paragraph (a).

(9) "Refining" means the process of converting a natural resource to a product, including the treatment of water to be sold at retail.

[EFFECTIVE DATE.] This section is effective for sales and purchases made on or after January 1, 2004."

Page 9, after line 5, insert:

"Sec. 26. Minnesota Statutes 2002, section 297A.75, subdivision 4, is amended to read:

Subd. 4. [INTEREST.] Interest must be paid on the refund at the rate in section 270.76 from the date the refund claim is filed for taxes paid under subdivision 1, clauses (1) to (3), and (5), and from 60 days after the date the refund claim is filed with the commissioner for claims filed under subdivision 1, clauses (4), (6), (7), (8), and (9) 90 days after the refund claim is filed with the commissioner for taxes paid under subdivision 1.

[EFFECTIVE DATE.] This section is effective for refund claims filed on or after April 1, 2003.

Sec. 27. Minnesota Statutes 2002, section 297A.81, is amended to read:

297A.81 [UNCOLLECTIBLE DEBTS; OFFSET AGAINST OTHER TAXES.]

Subdivision 1. [GENERAL.] The taxpayer may offset against the taxes payable for any reporting period the amount of taxes imposed by this chapter previously paid as a result of any transaction the consideration for which became a debt owed to the taxpayer that became uncollectible during the reporting period, but only in proportion to the portion of the debt that became uncollectible. Section 289A.40, subdivision 2, applies to an offset under this section.

Subd. 2. [MANNER OF ALLOWING DEDUCTION FOR UNCOLLECTIBLE DEBT.] (a) Uncollectible debt is allowed as a deduction in the manner provided in this subdivision.

(b) If the uncollectible debt arose with respect to a sale required to be included in gross receipts, subject to a tax imposed under chapter 297A, the entire amount of the debt remaining uncollected is allowed as a deduction.

(c) If the uncollectible debt arose with respect to a sale partly subject to the tax imposed under chapter 297A and partly exempt, the amount of the uncollectible debt allowed as a deduction is the amount derived by multiplying the uncollectible debt by the percentage that the taxable sale bears to the total sales.

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(d) If the uncollectible debt arose with respect to two or more sales made at successive intervals, payments made before the date the debt became uncollectible must be applied first to the earliest sale upon which there is an unpaid balance, and to following sales in successive order.

(e) If the books and records of the taxpayer claiming the bad debt allowance support an allocation of the bad debts among the member states of the streamlined sales and use tax agreement, such an allocation shall be allowed.

Subd. 3. [CERTIFIED SERVICE PROVIDER.] A certified service provider, as defined in section 297A.995, subdivision 2, on behalf of a taxpayer who is its client, may offset against taxes as provided by this section.

[EFFECTIVE DATE.] This section is effective for sales and purchases made on or after January 1, 2004.

Sec. 28. Minnesota Statutes 2002, section 297A.99, subdivision 5, is amended to read:

Subd. 5. [TAX RATE.] (a) The tax rate is as specified in the special law authorization and as imposed by the political subdivision.

(b) The full political subdivision rate applies to any sales that are taxed at a state rate ~~less than or more than the state general sales and use tax rate.~~, and the political subdivision must not have more than one local sales tax rate or more than one local use tax rate. This paragraph does not apply to sales or use taxes imposed on electricity, piped natural or artificial gas, or other heating fuels delivered by the seller, or the retail sale or transfer of motor vehicles, aircraft, watercraft, modular homes, manufactured homes, or mobile homes.

[EFFECTIVE DATE.] This section is effective for sales and purchases made on or after January 1, 2004.

Sec. 29. Minnesota Statutes 2002, section 297A.99, subdivision 10, is amended to read:

Subd. 10. [USE OF ZIP CODE IN DETERMINING LOCATION OF SALE.] To determine whether to impose the local tax, the retailer may use zip codes if the zip code area is entirely within the political subdivision. When a zip code area is not entirely within a political subdivision, the retailer shall not collect the local tax if the purchaser notifies the retailer that the purchaser's delivery address is outside of the political subdivision, unless the retailer verifies that the delivery address is in the political subdivision using a means other than the zip code. The lowest combined tax rate imposed in the zip code area applies if the area includes more than one tax rate in any level of taxing jurisdictions. If a nine-digit zip code designation is not available for a street address or if a seller is unable to determine the nine-digit zip code designation of a purchaser after exercising due diligence to determine the designation, the seller may apply the rate for the five-digit zip code area. For the purposes of this subdivision, there is a rebuttable presumption that a seller has exercised due diligence if the seller has attempted to determine the nine-digit zip code designation by utilizing software approved by the governing board that makes this designation from the street address and the five-digit zip code of the purchaser. Notwithstanding subdivision 13, this subdivision applies to all local sales taxes without regard to the date of authorization. This subdivision does not apply when the purchased product is received by the purchaser at the business location of the seller.

[EFFECTIVE DATE.] This section is effective for sales and purchases made on or after January 1, 2004.

Sec. 30. Minnesota Statutes 2002, section 297A.99, subdivision 12, is amended to read:

Subd. 12. [EFFECTIVE DATES; NOTIFICATION.] (a) A political subdivision may impose a tax under this section starting only on the first day of a calendar quarter. A political subdivision may repeal a tax under this section stopping only on the last day of a calendar quarter.

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(b) The political subdivision shall notify the commissioner of revenue at least 90 days before imposing, changing the rate of, or repealing a tax under this section.

(c) The political subdivision shall change the rate of tax imposed under this section starting only on the first day of a calendar quarter, and only after the commissioner has notified sellers at least 60 days prior to the change.

(d) The political subdivision shall apply the rate change for sales tax imposed under this section to purchases from printed catalogs, wherein the purchaser computed the tax based upon local tax rates published in the catalog, starting only on the first day of a calendar quarter, and only after the commissioner has notified sellers at least 120 days prior to the change.

(e) The political subdivision shall apply local jurisdiction boundary changes to taxes imposed under this section starting only on the first day of a calendar quarter, and only after the commissioner has notified sellers at least 60 days prior to the change.

[EFFECTIVE DATE.] This section is effective for sales and purchases made on or after January 1, 2004.

Sec. 31. Minnesota Statutes 2002, section 297A.995, is amended by adding a subdivision to read:

Subd. 10. [RELIEF FROM CERTAIN LIABILITY.] Notwithstanding subdivision 9, sellers and certified service providers are relieved from liability to the state for having charged and collected the incorrect amount of sales or use tax resulting from the seller or certified service provider (1) relying on erroneous data provided by this state on tax rates, boundaries, or taxing jurisdiction assignments, or (2) relying on erroneous data provided by the state in its taxability matrix concerning the taxability of products and services.

[EFFECTIVE DATE.] This section is effective for sales and purchases made on or after January 1, 2004."

Page 10, after line 6, insert:

"(a) Minnesota Statutes 2002, section 297A.61, subdivisions 14 and 15, are repealed effective for sales and purchases made on or after January 1, 2004.

(b) Minnesota Statutes 2002, section 297A.69, subdivision 5, is repealed effective January 1, 2006."

Page 10, line 7, before "Laws" insert "(c)"

Page 10, after line 11, insert:

"Section 1. [123A.455] [REALIGNING SPLIT RESIDENTIAL PARCELS.]

Subdivision 1. [DEFINITIONS.] "Split residential property parcel" means a parcel of real estate that is located within the boundaries of more than one school district and that is classified as residential property under:

(1) section 273.13, subdivision 22, paragraph (a) or (b);

(2) section 273.13, subdivision 25, paragraph (b), clause (1); or

(3) section 273.13, subdivision 25, paragraph (c), clause (1).

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Subd. 2. [PETITION.] The owner of a split residential property parcel may petition the auditor of the county where the split parcel is located to transfer that part into the adjoining school district so the entire property will be located in the same school district. The petition must contain:

(1) a correct description of the split parcel to be affected by the transfer including supporting data on location and title to the land;

(2) a list of the school districts in which the split parcels currently lie;

(3) the school district into which the petitioner desires to have the whole split parcel transferred; and

(4) the district of attendance of any students currently residing on the property.

Subd. 3. [AUDITOR'S ORDER.] Within 60 days of receipt of the petition, the auditor of the county in which the petition was filed under subdivision 2 shall issue an order to transfer the affected parcel to the district determined by the county board. Orders issued on or before July 1 will be effective for taxes payable in the following year. The auditor must notify the affected school districts and the commissioner of the change in school district boundaries.

Subd. 4. [COMMISSIONER.] The commissioner shall modify the records of school district boundaries to conform to the order.

Subd. 5. [TAXABLE PROPERTY.] Upon the effective date of the order, the whole split property parcel is transferred into a single school district. Beginning in the next subsequent taxes payable year, all taxable property in the whole split parcel is:

(1) relieved of all school district taxes from the district in which the parcel is no longer located; and

(2) subject to all school district taxes in the district in which the whole split parcel is now located.

[EFFECTIVE DATE.] This section is effective for petitions filed on or after the day following final enactment. Orders issued under subdivision 3 on or before September 15, 2003, are effective for taxes payable in 2004.

Sec. 2. Minnesota Statutes 2002, section 168A.05, subdivision 1a, is amended to read:

Subd. 1a. [MANUFACTURED HOME; STATEMENT OF PROPERTY TAX PAYMENT.] In the case of a manufactured home as defined in section 327.31, subdivision 6, the department shall not issue a certificate of title unless the application under section 168A.04 is accompanied with a statement from the county auditor or county treasurer where the manufactured home is presently located, stating that all manufactured home personal property taxes levied on the unit ~~that are due from~~ in the name of the current owner at the time of transfer ~~for which the application applies,~~ have been paid.

[EFFECTIVE DATE.] This section is effective for certificates of title issued by the department on or after July 1, 2003."

Page 17, after line 28, insert:

"Sec. 12. Minnesota Statutes 2002, section 273.124, subdivision 14, is amended to read:

Subd. 14. [AGRICULTURAL HOMESTEADS; SPECIAL PROVISIONS.] (a) Real estate of less than ten acres that is the homestead of its owner must be classified as class 2a under section 273.13, subdivision 23, paragraph (a), if:

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(1) the parcel on which the house is located is contiguous on at least two sides to (i) agricultural land, (ii) land owned or administered by the United States Fish and Wildlife Service, or (iii) land administered by the department of natural resources on which in lieu taxes are paid under sections 477A.11 to 477A.14;

(2) its owner also owns a noncontiguous parcel of agricultural land that is at least 20 acres;

(3) the noncontiguous land is located not farther than four townships or cities, or a combination of townships or cities from the homestead; and

(4) the agricultural use value of the noncontiguous land and farm buildings is equal to at least 50 percent of the market value of the house, garage, and one acre of land.

Homesteads initially classified as class 2a under the provisions of this paragraph shall remain classified as class 2a, irrespective of subsequent changes in the use of adjoining properties, as long as the homestead remains under the same ownership, the owner owns a noncontiguous parcel of agricultural land that is at least 20 acres, and the agricultural use value qualifies under clause (4). Homestead classification under this paragraph is limited to property that qualified under this paragraph for the 1998 assessment.

(b)(i) Agricultural property consisting of at least 40 acres shall be classified as the owner's homestead, to the same extent as other agricultural homestead property, if all of the following criteria are met:

(1) the owner, the owner's spouse, or the son or daughter of the owner or owner's spouse, is actively farming the agricultural property, either on the person's own behalf as an individual or on behalf of a partnership operating a family farm, family farm corporation, joint family farm venture, or limited liability company of which the person is a partner, shareholder, or member;

(2) both the owner of the agricultural property and the person who is actively farming the agricultural property under clause (1), are Minnesota residents;

(3) neither the owner nor the spouse of the owner claims another agricultural homestead in Minnesota; and

(4) neither the owner nor the person actively farming the property lives farther than four townships or cities, or a combination of four townships or cities, from the agricultural property, except that if the owner or the owner's spouse is required to live in employer-provided housing, the owner or owner's spouse, whichever is actively farming the agricultural property, may live more than four townships or cities, or combination of four townships or cities from the agricultural property.

The relationship under this paragraph may be either by blood or marriage.

(ii) Real property held by a trustee under a trust is eligible for agricultural homestead classification under this paragraph if the qualifications in clause (i) are met, except that "owner" means the grantor of the trust.

(iii) Property containing the residence of an owner who owns qualified property under clause (i) shall be classified as part of the owner's agricultural homestead, if that property is also used for noncommercial storage or drying of agricultural crops.

(c) Noncontiguous land shall be included as part of a homestead under section 273.13, subdivision 23, paragraph (a), only if the homestead is classified as class 2a and the detached land is located in the same township or city, or not farther than four townships or cities or combination thereof from the homestead. Any taxpayer of these noncontiguous lands must notify the county assessor that the noncontiguous land is part of the taxpayer's homestead, and, if the homestead is located in another county, the taxpayer must also notify the assessor of the other county.

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(d) Agricultural land used for purposes of a homestead and actively farmed by a person holding a vested remainder interest in it must be classified as a homestead under section 273.13, subdivision 23, paragraph (a). If agricultural land is classified class 2a, any other dwellings on the land used for purposes of a homestead by persons holding vested remainder interests who are actively engaged in farming the property, and up to one acre of the land surrounding each homestead and reasonably necessary for the use of the dwelling as a home, must also be assessed class 2a.

(e) Agricultural land and buildings that were class 2a homestead property under section 273.13, subdivision 23, paragraph (a), for the 1997 assessment shall remain classified as agricultural homesteads for subsequent assessments if:

(1) the property owner abandoned the homestead dwelling located on the agricultural homestead as a result of the April 1997 floods;

(2) the property is located in the county of Polk, Clay, Kittson, Marshall, Norman, or Wilkin;

(3) the agricultural land and buildings remain under the same ownership for the current assessment year as existed for the 1997 assessment year and continue to be used for agricultural purposes;

(4) the dwelling occupied by the owner is located in Minnesota and is within 30 miles of one of the parcels of agricultural land that is owned by the taxpayer; and

(5) the owner notifies the county assessor that the relocation was due to the 1997 floods, and the owner furnishes the assessor any information deemed necessary by the assessor in verifying the change in dwelling. Further notifications to the assessor are not required if the property continues to meet all the requirements in this paragraph and any dwellings on the agricultural land remain uninhabited.

(f) Agricultural land and buildings that were class 2a homestead property under section 273.13, subdivision 23, paragraph (a), for the 1998 assessment shall remain classified agricultural homesteads for subsequent assessments if:

(1) the property owner abandoned the homestead dwelling located on the agricultural homestead as a result of damage caused by a March 29, 1998, tornado;

(2) the property is located in the county of Blue Earth, Brown, Cottonwood, LeSueur, Nicollet, Nobles, or Rice;

(3) the agricultural land and buildings remain under the same ownership for the current assessment year as existed for the 1998 assessment year;

(4) the dwelling occupied by the owner is located in this state and is within 50 miles of one of the parcels of agricultural land that is owned by the taxpayer; and

(5) the owner notifies the county assessor that the relocation was due to a March 29, 1998, tornado, and the owner furnishes the assessor any information deemed necessary by the assessor in verifying the change in homestead dwelling. For taxes payable in 1999, the owner must notify the assessor by December 1, 1998. Further notifications to the assessor are not required if the property continues to meet all the requirements in this paragraph and any dwellings on the agricultural land remain uninhabited.

(g) Agricultural property consisting of at least 40 acres of a family farm corporation, joint family farm venture, family farm limited liability company, or partnership operating a family farm as described under subdivision 8 shall be classified homestead, to the same extent as other agricultural homestead property, if all of the following criteria are met:

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(1) a shareholder, member, or partner of that entity is actively farming the agricultural property;

(2) that shareholder, member, or partner who is actively farming the agricultural property is a Minnesota resident;

(3) neither that shareholder, member, or partner, nor the spouse of that shareholder, member, or partner claims another agricultural homestead in Minnesota; and

(4) that shareholder, member, or partner does not live farther than four townships or cities, or a combination of four townships or cities, from the agricultural property.

Homestead treatment applies under this paragraph for property leased to a family farm corporation, joint farm venture, limited liability company, or partnership operating a family farm if legal title to the property is in the name of an individual who is a member, shareholder, or partner in the entity.

(h) To be eligible for the special agricultural homestead under this subdivision, an initial full application must be submitted to the county assessor where the property is located. Owners and the persons who are actively farming the property shall be required to complete only a one-page abbreviated version of the application in each subsequent year provided that none of the following items have changed since the initial application:

(1) the day-to-day operation, administration, and financial risks remain the same;

(2) the owners and the persons actively farming the property continue to live within the four townships or city criteria and are Minnesota residents;

(3) the same operator of the agricultural property is listed with the farm service agency;

(4) a Schedule F or equivalent income tax form was filed for the most recent year;

(5) the property's acreage is unchanged; and

(6) none of the property's acres have been enrolled in a federal or state farm program since the initial application.

The owners and any persons who are actively farming the property must include the appropriate social security numbers, and sign and date the application. If any of the specified information has changed since the full application was filed, the owner must notify the assessor, and must complete a new application to determine if the property continues to qualify for the special agricultural homestead. The commissioner of revenue shall prepare a standard reapplication form for use by the assessors.

[EFFECTIVE DATE.] This section is effective for applications filed for the 2004 assessment and thereafter."

Page 17, delete section 10 and insert:

"Sec. 13. Minnesota Statutes 2002, section 273.13, subdivision 22, is amended to read:

Subd. 22. [CLASS 1.] (a) Except as provided in subdivision 23 and in paragraphs (b) and (c), real estate which is residential and used for homestead purposes is class 1a. In the case of a duplex or triplex in which one of the units is used for homestead purposes, the entire property is deemed to be used for homestead purposes. The market value of class 1a property must be determined based upon the value of the house, garage, and land.

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The first $500,000 of market value of class 1a property has a net class rate of one percent of its market value; and the market value of class 1a property that exceeds $500,000 has a class rate of 1.25 percent of its market value.

(b) Class 1b property includes homestead real estate or homestead manufactured homes used for the purposes of a homestead by

(1) any ~~blind~~ person who is blind as defined in section 256D.35, or the blind person and the blind person's spouse; or

(2) any person, hereinafter referred to as "veteran," who:

(i) served in the active military or naval service of the United States; and

(ii) is entitled to compensation under the laws and regulations of the United States for permanent and total service-connected disability due to the loss, or loss of use, by reason of amputation, ankylosis, progressive muscular dystrophies, or paralysis, of both lower extremities, such as to preclude motion without the aid of braces, crutches, canes, or a wheelchair; and

(iii) has acquired a special housing unit with special fixtures or movable facilities made necessary by the nature of the veteran's disability, or the surviving spouse of the deceased veteran for as long as the surviving spouse retains the special housing unit as a homestead; or

(3) any person who:

~~(i)~~ is permanently and totally disabled ~~and~~

~~(ii) receives 90 percent or more of total household income, as defined in section 290A.03, subdivision 5, from~~

~~(A) aid from any state as a result of that disability; or~~

~~(B) supplemental security income for the disabled; or~~

~~(C) workers' compensation based on a finding of total and permanent disability; or~~

~~(D) social security disability, including the amount of a disability insurance benefit which is converted to an old age insurance benefit and any subsequent cost of living increases; or~~

~~(E) aid under the federal Railroad Retirement Act of 1937, United States Code Annotated, title 45, section 228b(a)5; or~~

~~(F) a pension from any local government retirement fund located in the state of Minnesota as a result of that disability; or~~

~~(G) pension, annuity, or other income paid as a result of that disability from a private pension or disability plan, including employer, employee, union, and insurance plans and~~

~~(iii) has household income as defined in section 290A.03, subdivision 5, of $50,000 or less; or~~

~~(4) any person who is permanently and totally disabled and whose household income as defined in section 290A.03, subdivision 5, is 275 percent or less of the federal poverty level~~.

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Property is classified and assessed under clause ~~(4)~~ (3) only if the government agency or income-providing source certifies, upon the request of the homestead occupant, that the homestead occupant satisfies the disability requirements of this paragraph.

Property is classified and assessed pursuant to clause (1) only if the commissioner of ~~economic security~~ revenue certifies to the assessor that the homestead occupant satisfies the requirements of this paragraph.

Permanently and totally disabled for the purpose of this subdivision means a condition which is permanent in nature and totally incapacitates the person from working at an occupation which brings the person an income. The first $32,000 market value of class 1b property has a net class rate of .45 percent of its market value. The remaining market value of class 1b property has a class rate using the rates for class 1a or class 2a property, whichever is appropriate, of similar market value.

(c) Class 1c property is commercial use real property that abuts a lakeshore line and is devoted to temporary and seasonal residential occupancy for recreational purposes but not devoted to commercial purposes for more than 250 days in the year preceding the year of assessment, and that includes a portion used as a homestead by the owner, which includes a dwelling occupied as a homestead by a shareholder of a corporation that owns the resort or, a partner in a partnership that owns the resort, or a member of a limited liability company that owns the resort even if the title to the homestead is held by the corporation or, partnership, or limited liability company. For purposes of this clause, property is devoted to a commercial purpose on a specific day if any portion of the property, excluding the portion used exclusively as a homestead, is used for residential occupancy and a fee is charged for residential occupancy. The first $500,000 of market value of class 1c property has a class rate of one percent, and the remaining market value of class 1c property has a class rate of one percent, with the following limitation: the area of the property must not exceed 100 feet of lakeshore footage for each cabin or campsite located on the property up to a total of 800 feet and 500 feet in depth, measured away from the lakeshore. If any portion of the class 1c resort property is classified as class 4c under subdivision 25, the entire property must meet the requirements of subdivision 25, paragraph (d), clause (1), to qualify for class 1c treatment under this paragraph.

(d) Class 1d property includes structures that meet all of the following criteria:

(1) the structure is located on property that is classified as agricultural property under section 273.13, subdivision 23;

(2) the structure is occupied exclusively by seasonal farm workers during the time when they work on that farm, and the occupants are not charged rent for the privilege of occupying the property, provided that use of the structure for storage of farm equipment and produce does not disqualify the property from classification under this paragraph;

(3) the structure meets all applicable health and safety requirements for the appropriate season; and

(4) the structure is not salable as residential property because it does not comply with local ordinances relating to location in relation to streets or roads.

The market value of class 1d property has the same class rates as class 1a property under paragraph (a).

[EFFECTIVE DATE.] This section is effective for property taxes levied in 2003, payable in 2004, and thereafter, except that the amendments to paragraph (b) are effective for taxes payable in 2005 and thereafter.

Sec. 14. Minnesota Statutes 2002, section 273.13, subdivision 23, is amended to read:

Subd. 23. [CLASS 2.] (a) Class 2a property is agricultural land including any improvements that is homesteaded. The market value of the house and garage and immediately surrounding one acre of land has the same class rates as class 1a property under subdivision 22. The value of the remaining land including improvements up to and including $600,000 market value has a net class rate of 0.55 percent of market value. The remaining property over $600,000 market value has a class rate of one percent of market value.

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(b) Class 2b property is (1) real estate, rural in character and used exclusively for growing trees for timber, lumber, and wood and wood products; (2) real estate that is not improved with a structure and is used exclusively for growing trees for timber, lumber, and wood and wood products, if the owner has participated or is participating in a cost-sharing program for afforestation, reforestation, or timber stand improvement on that particular property, administered or coordinated by the commissioner of natural resources; (3) real estate that is nonhomestead agricultural land; or (4) a landing area or public access area of a privately owned public use airport. Class 2b property has a net class rate of one percent of market value.

(c) Agricultural land as used in this section means contiguous acreage of ten acres or more, used during the preceding year for agricultural purposes. "Agricultural purposes" as used in this section means the raising or cultivation of agricultural products. "Agricultural purposes" also includes or enrollment in the Reinvest in Minnesota program under sections 103F.501 to 103F.535 or the federal Conservation Reserve Program as contained in Public Law ~~Number~~ 99-198 if the property was classified as agricultural (i) under this subdivision for the assessment year 2002 or (ii) in the year prior to its enrollment. Contiguous acreage on the same parcel, or contiguous acreage on an immediately adjacent parcel under the same ownership, may also qualify as agricultural land, but only if it is pasture, timber, waste, unusable wild land, or land included in state or federal farm programs. Agricultural classification for property shall be determined excluding the house, garage, and immediately surrounding one acre of land, and shall not be based upon the market value of any residential structures on the parcel or contiguous parcels under the same ownership.

(d) Real estate, excluding the house, garage, and immediately surrounding one acre of land, of less than ten acres which is exclusively and intensively used for raising or cultivating agricultural products, shall be considered as agricultural land.

Land shall be classified as agricultural even if all or a portion of the agricultural use of that property is the leasing to, or use by another person for agricultural purposes.

Classification under this subdivision is not determinative for qualifying under section 273.111.

The property classification under this section supersedes, for property tax purposes only, any locally administered agricultural policies or land use restrictions that define minimum or maximum farm acreage.

(e) The term "agricultural products" as used in this subdivision includes production for sale of:

(1) livestock, dairy animals, dairy products, poultry and poultry products, fur-bearing animals, horticultural and nursery stock described in sections 18.44 to 18.61, fruit of all kinds, vegetables, forage, grains, bees, and apiary products by the owner;

(2) fish bred for sale and consumption if the fish breeding occurs on land zoned for agricultural use;

(3) the commercial boarding of horses if the boarding is done in conjunction with raising or cultivating agricultural products as defined in clause (1);

(4) property which is owned and operated by nonprofit organizations used for equestrian activities, excluding racing;

(5) game birds and waterfowl bred and raised for use on a shooting preserve licensed under section 97A.115;

(6) insects primarily bred to be used as food for animals;

(7) trees, grown for sale as a crop, and not sold for timber, lumber, wood, or wood products; and

Journal of the House - 59th Day - Monday, May 19, 2003 - Top of Page 3921

(8) maple syrup taken from trees grown by a person licensed by the Minnesota department of agriculture under chapter 28A as a food processor.

(f) If a parcel used for agricultural purposes is also used for commercial or industrial purposes, including but not limited to:

(1) wholesale and retail sales;

(2) processing of raw agricultural products or other goods;

(3) warehousing or storage of processed goods; and

(4) office facilities for the support of the activities enumerated in clauses (1), (2), and (3),

the assessor shall classify the part of the parcel used for agricultural purposes as class 1b, 2a, or 2b, whichever is appropriate, and the remainder in the class appropriate to its use. The grading, sorting, and packaging of raw agricultural products for first sale is considered an agricultural purpose. A greenhouse or other building where horticultural or nursery products are grown that is also used for the conduct of retail sales must be classified as agricultural if it is primarily used for the growing of horticultural or nursery products from seed, cuttings, or roots and occasionally as a showroom for the retail sale of those products. Use of a greenhouse or building only for the display of already grown horticultural or nursery products does not qualify as an agricultural purpose.

The assessor shall determine and list separately on the records the market value of the homestead dwelling and the one acre of land on which that dwelling is located. If any farm buildings or structures are located on this homesteaded acre of land, their market value shall not be included in this separate determination.

(g) To qualify for classification under paragraph (b), clause (4), a privately owned public use airport must be licensed as a public airport under section 360.018. For purposes of paragraph (b), clause (4), "landing area" means that part of a privately owned public use airport properly cleared, regularly maintained, and made available to the public for use by aircraft and includes runways, taxiways, aprons, and sites upon which are situated landing or navigational aids. A landing area also includes land underlying both the primary surface and the approach surfaces that comply with all of the following:

(i) the land is properly cleared and regularly maintained for the primary purposes of the landing, taking off, and taxiing of aircraft; but that portion of the land that contains facilities for servicing, repair, or maintenance of aircraft is not included as a landing area;

(ii) the land is part of the airport property; and

(iii) the land is not used for commercial or residential purposes.

The land contained in a landing area under paragraph (b), clause (4), must be described and certified by the commissioner of transportation. The certification is effective until it is modified, or until the airport or landing area no longer meets the requirements of paragraph (b), clause (4). For purposes of paragraph (b), clause (4), "public access area" means property used as an aircraft parking ramp, apron, or storage hangar, or an arrival and departure building in connection with the airport.

[EFFECTIVE DATE.] This section is effective for taxes payable in 2004 and thereafter.

Journal of the House - 59th Day - Monday, May 19, 2003 - Top of Page 3922

Sec. 15. Minnesota Statutes 2002, section 273.1315, is amended to read:

273.1315 [CERTIFICATION OF 1B PROPERTY.]

Any property owner seeking classification and assessment of the owner's homestead as class 1b property pursuant to section 273.13, subdivision 22, paragraph (b), ~~clause (2) or (3),~~ shall file with the commissioner of revenue ~~for each assessment year~~ a 1b homestead declaration, on a form prescribed by the commissioner. The declaration shall contain the following information:

(a) the information necessary to verify that the property owner or the owner's spouse satisfies the requirements of section 273.13, subdivision 22, paragraph (b), ~~clause (2) or (3),~~ for 1b classification; and

(b) ~~the property owner's household income, as defined in section 290A.03, for the previous calendar year; and~~

~~(c)~~ any additional information prescribed by the commissioner.

The declaration ~~shall~~ must be filed on or before ~~March~~ October 1 ~~of each year~~ to be effective for property taxes payable during the succeeding calendar year. The declaration and any supplementary information received from the property owner pursuant to this section shall be subject to chapter 270B. If approved by the commissioner, the declaration remains in effect until the property no longer qualifies under section 273.13, subdivision 22, paragraph (b). Failure to notify the commissioner within 30 days that the property no longer qualifies under that paragraph because of a sale, change in occupancy, or change in the status or condition of an occupant shall result in the penalty provided in section 273.124, subdivision 13, computed on the basis of the class 1b benefits for the property, and the property shall lose its current class 1b classification.

The commissioner shall provide to the assessor on or before ~~April~~ November 1 a listing of the parcels of property qualifying for 1b classification.

[EFFECTIVE DATE.] This section is effective for taxes payable in 2005 and thereafter.

Sec. 16. [274.014] [LOCAL BOARDS; APPEALS AND EQUALIZATION COURSE AND MEETING REQUIREMENTS.]

Subdivision 1. [HANDBOOK FOR LOCAL BOARDS.] By no later than January 1, 2005, the commissioner of revenue must develop a handbook detailing procedures, responsibilities, and requirements for local boards of appeal and equalization. The handbook must include, but need not be limited to, the role of the local board in the assessment process, the legal and policy reasons for fair and impartial appeal and equalization hearings, local board meeting procedures that foster fair and impartial assessment reviews and other best practices recommendations, quorum requirements for local boards, and explanations of alternate methods of appeal.

Subd. 2. [APPEALS AND EQUALIZATION COURSE.] By no later than January 1, 2006, and each year thereafter, there must be at least one member at each meeting of a local board of appeal and equalization who has attended an appeals and equalization course developed or approved by the commissioner within the last four years, as certified by the commissioner. The course may be offered in conjunction with a meeting of the Minnesota League of Cities or the Minnesota Association of Townships. The course content must include, but need not be limited to, a review of the handbook developed by the commissioner under subdivision 1.

Subd. 3. [PROOF OF COMPLIANCE; TRANSFER OF DUTIES.] Any city or town that does not provide proof to the county assessor by December 1, 2006, and each year thereafter, that it is in compliance with the requirements of subdivision 2, and that it had a quorum at each meeting of the board of appeal and equalization in the prior year, is deemed to have transferred its board of appeal and equalization powers to the county under section 274.01, subdivision 3, for the following year's assessment.

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The county shall notify the taxpayers when the board of appeal and equalization for a city or town has been transferred to the county under this subdivision and, prior to the meeting time of the county board of equalization, the county shall make available to those taxpayers a procedure for a review of the assessments, including, but not limited to, open book meetings. This alternate review process shall take place in April and May.

A local board whose powers are transferred to the county under this subdivision may be reinstated by resolution of the governing body of the city or town and upon proof of compliance with the requirements of subdivision 2. The resolution and proofs must be provided to the county assessor by December 1 in order to be effective for the following year's assessment.

[EFFECTIVE DATE.] This section is effective the day following final enactment."

Page 21, delete section 11 and insert:

"Sec. 17. [275.75] [CHARTER EXEMPTION FOR AID LOSS.]

Notwithstanding any other provision of a municipal charter that limits ad valorem taxes to a lesser amount, or that would require voter approval for any increase, the governing body of a municipality may by resolution increase its levy for taxes payable in 2004 and 2005 only by an amount equal to the reduction in the amount of aid it is certified to receive under sections 477A.011 to 477A.03 for that same payable year compared to the amount certified for payment in 2003."

Page 22, after line 9, insert:

"Sec. 19. Minnesota Statutes 2002, section 278.05, subdivision 6, is amended to read:

Subd. 6. [DISMISSAL OF PETITION; EXCLUSION OF CERTAIN EVIDENCE.] (a) Information, including income and expense figures, verified net rentable areas, and anticipated income and expenses, for income-producing property must be provided to the county assessor ~~within 60 days after the petition has been filed under this chapter~~ no later than 60 days after the applicable filing deadline contained in section 278.01, subdivision 1 or 4. Failure to provide the information required in this paragraph shall result in the dismissal of the petition, unless (1) the failure to provide it was due to the unavailability of the evidence at ~~that~~ the time that the information was due, or (2) the petitioner was not aware of or informed of the requirement to provide the information.

If the petitioner proves that the requirements under clause (2) are met, the petitioner has an additional 30 days to provide the information from the time the petitioner became aware of or was informed of the requirement to provide the information, otherwise the petition shall be dismissed.

(b) Provided that the information as contained in paragraph (a) is timely submitted to the county assessor, the county assessor shall furnish the petitioner at least five days before the hearing under this chapter with the property's appraisal, if any, which will be presented to the court at the hearing. The petitioner shall furnish to the county assessor at least five days before the hearing under this chapter with the property's appraisal, if any, which will be presented to the court at the hearing. An appraisal of the petitioner's property done by or for the county shall not be admissible as evidence if the county assessor does not comply with the provisions in this paragraph. The petition shall be dismissed if the petitioner does not comply with the provisions in this paragraph.

[EFFECTIVE DATE.] This section is effective for petitions filed on or after July 1, 2003."

Journal of the House - 59th Day - Monday, May 19, 2003 - Top of Page 3924

Page 27, after line 29, insert:

"Sec. 6. Minnesota Statutes 2002, section 290.01, subdivision 19a, is amended to read:

Subd. 19a. [ADDITIONS TO FEDERAL TAXABLE INCOME.] For individuals, estates, and trusts, there shall be added to federal taxable income:

(1)(i) interest income on obligations of any state other than Minnesota or a political or governmental subdivision, municipality, or governmental agency or instrumentality of any state other than Minnesota exempt from federal income taxes under the Internal Revenue Code or any other federal statute; and

(ii) exempt-interest dividends as defined in section 852(b)(5) of the Internal Revenue Code, except the portion of the exempt-interest dividends derived from interest income on obligations of the state of Minnesota or its political or governmental subdivisions, municipalities, governmental agencies or instrumentalities, but only if the portion of the exempt-interest dividends from such Minnesota sources paid to all shareholders represents 95 percent or more of the exempt-interest dividends that are paid by the regulated investment company as defined in section 851(a) of the Internal Revenue Code, or the fund of the regulated investment company as defined in section 851(g) of the Internal Revenue Code, making the payment; and

(iii) for the purposes of items (i) and (ii), interest on obligations of an Indian tribal government described in section 7871(c) of the Internal Revenue Code shall be treated as interest income on obligations of the state in which the tribe is located;

(2) the amount of income taxes paid or accrued within the taxable year under this chapter and income taxes paid to any other state or to any province or territory of Canada, to the extent allowed as a deduction under section 63(d) of the Internal Revenue Code, but the addition may not be more than the amount by which the itemized deductions as allowed under section 63(d) of the Internal Revenue Code exceeds the amount of the standard deduction as defined in section 63(c) of the Internal Revenue Code. For the purpose of this paragraph, the disallowance of itemized deductions under section 68 of the Internal Revenue Code of 1986, income tax is the last itemized deduction disallowed;

(3) the capital gain amount of a lump sum distribution to which the special tax under section 1122(h)(3)(B)(ii) of the Tax Reform Act of 1986, Public Law ~~Number~~ 99-514, applies;

(4) the amount of income taxes paid or accrued within the taxable year under this chapter and income taxes paid to any other state or any province or territory of Canada, to the extent allowed as a deduction in determining federal adjusted gross income. For the purpose of this paragraph, income taxes do not include the taxes imposed by sections 290.0922, subdivision 1, paragraph (b), 290.9727, 290.9728, and 290.9729;

(5) the amount of expense, interest, or taxes disallowed pursuant to section 290.10;

(6) 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; and

(7) 80 percent of the depreciation deduction allowed under section 168(k) 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) 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)" for the taxable year is limited to excess of the depreciation claimed by the activity under section 168(k) 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) is allowed.

[EFFECTIVE DATE.] This section is effective for taxable years ending after September 10, 2001."

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Page 30, after line 28, insert:

"Sec. 8. Minnesota Statutes 2002, 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 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);

(12) the amount of any environmental tax paid under section 59(a) of the Internal Revenue Code;

(13) 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;

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(14) the amount of net income excluded under section 114 of the Internal Revenue Code;

(15) 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 section 614 of Public Law Number 107-147; and

(16) 80 percent of the depreciation deduction allowed under section 168(k) 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) 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)" for the taxable year is limited to excess of the depreciation claimed by the activity under section 168(k) 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) is allowed.

[EFFECTIVE DATE.] This section is effective for taxable years ending after September 10, 2001."

Page 102, after line 9, insert:

"Sec. 49. [PRE-1940 HOUSING PERCENTAGE.]

For the purposes of determining local government aid payment amounts for aids payable in 2003, the "pre-1940 housing percentage" factor shall be based upon the 1990 federal census, notwithstanding Minnesota Statutes 2002, section 477A.011, subdivision 30.

[EFFECTIVE DATE.] This section is effective for aids payable in 2003 only."

Page 103, after line 3, insert:

"Sec. 2. Minnesota Statutes 2002, section 289A.60, subdivision 15, is amended to read:

Subd. 15. [ACCELERATED PAYMENT OF JUNE SALES TAX LIABILITY; PENALTY FOR UNDERPAYMENT.] If a vendor is required by law to submit an estimation of June sales tax liabilities and 62 75 percent payment by a certain date, the vendor shall pay a penalty equal to ten percent of the amount of actual June liability required to be paid in June less the amount remitted in June. The penalty must not be imposed, however, if the amount remitted in June equals the lesser of 62 75 percent of the preceding May's liability or 62 75 percent of the average monthly liability for the previous calendar year.

[EFFECTIVE DATE.] This section is effective for payments due after December 31, 2002."

Pages 137 to 172, delete article 9 and insert:

"ARTICLE 9

CENTRAL LAKES REGION SANITARY DISTRICT

Section 1. [DEFINITIONS.]

Subdivision 1. [APPLICATION.] The terms defined in this section shall have the meaning given them unless otherwise provided or indicated by the context.

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Subd. 2. [ACQUISITION AND BETTERMENT.] "Acquisition" and "betterment" shall have the meanings given them in Minnesota Statutes, section 475.51.

Subd. 3. [AGENCY.] "Agency" means the Minnesota pollution control agency created and established by Minnesota Statutes, chapter 116.

Subd. 4. [AGRICULTURAL PROPERTY.] "Agricultural property" means land as is classified agricultural land within the meaning of Minnesota Statutes, section 273.13, subdivision 23.

Subd. 5. [CURRENT COSTS OF ACQUISITION, BETTERMENT, AND DEBT SERVICE.] "Current costs of acquisition, betterment, and debt service" means interest and principal estimated to be due during the budget year on bonds issued to finance the acquisition and betterment and all other costs of acquisition and betterment estimated to be paid during the budget year from funds other than bond proceeds and federal or state grants.

Subd. 6. [DISTRICT DISPOSAL SYSTEM.] "District disposal system" means any and all of the interceptors or treatment works owned, constructed, or operated by the board unless designated by the board as local sanitary sewer facilities.

Subd. 7. [CENTRAL LAKES REGION SANITARY DISTRICT AND DISTRICT.] "Central Lakes Region Sanitary District" and "district" mean the area over which the sanitary sewer board has jurisdiction, including those parts of the Douglas county townships of Carlos, Brandon, La Grand, Leaf Valley, Miltona, and Moe, as more particularly described by metes and bounds in the comprehensive plan adopted under section 4.

Subd. 8. [INTERCEPTOR.] "Interceptor" means any sewer and necessary appurtenances to it, including but not limited to, mains, pumping stations, and sewage flow regulating and measuring stations, that is designed for or used to conduct sewage originating in more than one local government unit, or that is designed or used to conduct all or substantially all the sewage originating in a single local government unit from a point of collection in that unit to an interceptor or treatment works outside that unit, or that is determined by the board to be a major collector of sewage used or designed to serve a substantial area in the district.

Subd. 9. [LOCAL GOVERNMENT UNIT OR GOVERNMENT UNIT.] "Local government unit" or "government unit" means any municipal or public corporation or governmental or political subdivision or agency located in whole or in part in the district, authorized by law to provide for the collection and disposal of sewage.

Subd. 10. [LOCAL SANITARY SEWER FACILITIES.] "Local sanitary sewer facilities" means all or any part of any disposal system in the district other than the district disposal system.

Subd. 11. [MUNICIPALITY.] "Municipality" means any statutory or home rule charter city or town located in whole or in part in the district.

Subd. 12. [PERSON.] "Person" means any individual, partnership, corporation, limited liability company, cooperative, or other organization or entity, public or private.

Subd. 13. [POLLUTION AND SEWER SYSTEM.] "Pollution" and "sewer system" have the meanings given them in Minnesota Statutes, section 115.01.

Subd. 14. [SANITARY SEWER BOARD OR BOARD.] "Sanitary sewer board" or "board" means the sanitary sewer board established for the Central Lakes Region Sanitary District as provided in section 2.

Subd. 15. [SEWAGE.] "Sewage" means all liquid or water-carried waste products from whatever sources derived, together with the groundwater infiltration and surface water that may be present.

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Subd. 16. [TOTAL COSTS OF ACQUISITION AND BETTERMENT AND COSTS OF ACQUISITION AND BETTERMENT.] "Total costs of acquisition and betterment" and "costs of acquisition and betterment" mean all acquisition and betterment expenses that are permitted to be financed out of bond proceeds issued in accordance with section 12, subdivision 4, whether or not the expenses are in fact financed out of the bond proceeds.

Subd. 17. [TREATMENT WORKS AND DISPOSAL SYSTEM.] "Treatment works" and "disposal system" have the meanings given them in Minnesota Statutes, section 115.01.

Sec. 2. [SANITARY SEWER BOARD.]

Subdivision 1. [ESTABLISHMENT.] A sanitary sewer board with jurisdiction in the Central Lakes Region Sanitary District is established as a public corporation and political subdivision of the state with perpetual succession and all the rights, powers, privileges, immunities, and duties that may be validly granted to or imposed upon a municipal corporation, as provided in this article.

Subd. 2. [MEMBERS AND SELECTION.] The number of board members and method by which they are selected is as follows: The governing body of any municipality located in whole or part within the district must each separately select one member. Upon the board's ordering of a project to construct a sanitary sewer, the governing body of any municipality must appoint one additional member for each full 800 special assessments included in the ordered project to be levied against property located in the municipality. The term of each member is subject to the approval of the voting members of the city council or town board.

Subd. 3. [TIME LIMIT; ALTERNATIVE APPOINTMENT.] The initial board members must be selected as provided in subdivision 2 within 60 days after this article is effective. A successor must be selected at any time within 60 days before the expiration of the predecessor's term in the same manner as the predecessor was selected. Any vacancy on the board must be filled within 60 days after it occurs. If a selection is not made as provided within the time prescribed, the chief judge of the seventh judicial district of the Minnesota district court, on application by any interested person, shall appoint an eligible person to the board.

Subd. 4. [VACANCIES.] If the office of any board member becomes vacant, the vacancy shall be filled for the unexpired term in the manner as provided for selection of the member who vacated the office. The office shall be deemed vacant under the conditions specified in Minnesota Statutes, section 351.02.

Subd. 5. [TERMS OF OFFICE.] The terms of all board members shall be for one, two, three, or four calendar years to be determined in accordance with subdivision 2 by the governing body selecting such member. Terms shall expire on January 1 of a calendar year, except that each member shall serve until a successor has been duly selected and qualified.

Subd. 6. [REMOVAL.] A board member may be removed by the unanimous vote of the appointing governing body with or without cause.

Subd. 7. [QUALIFICATIONS.] Each board member may, but need not be a resident of the district and may, but need not be an elected public official.

Subd. 8. [CERTIFICATES OF SELECTION; OATH OF OFFICE.] A certificate of selection to a seat of every board member, stating the seat's term, must be made by the respective municipal clerk. The certificate, with the approval attached by other authority, if required, must be filed with the secretary of state. A copy must be furnished to the board member and the secretary of the board. Each member must qualify by taking and subscribing to the oath of office prescribed by the Minnesota Constitution, article V, section 6. The oath, duly certified by the official administering the same, must be filed with the secretary of state and the secretary of the board.

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Subd. 9. [COMPENSATION OF BOARD MEMBERS.] Each board member may be paid a per diem compensation to attend meetings and for other services in an amount as may be specifically authorized by the board from time to time. Per diem compensation must not exceed $4,000 for any member in any one year. All members of the board may be reimbursed for all reasonable expenses incurred in the performance of their duties as determined by the board.

Sec. 3. [GENERAL PROVISION FOR ORGANIZATION AND OPERATION OF BOARD.]

Subdivision 1. [OFFICERS MEETINGS; SEAL.] A majority of the members is a quorum at all meetings of the board, but a lesser number may meet and adjourn from time to time and compel the attendance of absent members. The board must meet regularly at the time and place as the board by resolution designates. Special meetings may be held at any time upon call of the chair or any two members, upon written notice sent by mail to each member at least three days before the meeting, or upon the notice as the board by resolution may provide, or without notice if each member is present or files with the secretary a written consent to the meeting either before or after the meeting. Except as otherwise provided in this article, any action within the authority of the board may be taken by the affirmative vote of a majority of the board at a regular or adjourned regular meeting or at a duly held special meeting, but in any case only if a quorum is present. All meetings of the board must be open to the public as provided in Minnesota Statutes, chapter 13D.

Subd. 2. [CHAIR.] The board must elect a chair from its membership. The term of the chair expires on January 1 of each year. The chair presides at all meetings of the board, if present, and must perform all other duties and functions usually incumbent upon the officer, and all administrative functions assigned to the chair by the board. The board must elect a vice-chair from its membership to act for the chair during a temporary absence or disability.

Subd. 3. [SECRETARY AND TREASURER.] The board must select one or more persons who may, but need not be a member of the board, to act as its secretary and treasurer. The secretary and treasurer hold office at the pleasure of the board, subject to the terms of any contract of employment that the board may enter into with the secretary or treasurer. The secretary must record the minutes of all meetings of the board, and is custodian of all books and records of the board except those the board entrusts to the custody of a designated employee. The board may appoint a deputy to perform any and all functions of either the secretary or the treasurer. A secretary or treasurer or a deputy of either who is not a member of the board shall not have any right to vote.

Subd. 4. [GENERAL MANAGER.] The board may appoint a general manager who shall be selected solely upon the basis of training, experience, and other qualifications. The general manager serves at the pleasure of the board and at a compensation to be determined by the board. The general manager need not be a resident of the district and may also be selected by the board to serve as either secretary or treasurer, or both, of the board. The general manager must attend all meetings of the board but must not vote. The general manager must:

(1) see that all resolutions, rules, regulations, or orders of the board are enforced;

(2) appoint and remove, upon the basis of merit and fitness, all subordinate officers and regular employees of the board except the secretary and the treasurer and their deputies;

(3) present to the board plans, studies, and other reports prepared for board purposes and recommend to the board for adoption such measures as the general manager considers necessary to enforce or carry out the powers and duties of the board, or for the efficient administration of the affairs of the board;

(4) keep the board fully advised as to its financial condition, and prepare and submit to the board, and to the governing bodies of the local government units, the board's annual budget and other financial information the board requests;

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(5) recommend to the board for adoption rules recommended as necessary for the efficient operation of a district disposal system and all local sanitary sewer facilities over which the board may assume responsibility as provided in section 17; and

(6) perform other duties as may be prescribed by the board.

Subd. 5. [PUBLIC EMPLOYEES.] The general manager and all persons employed by the general manager and public employees, and have all the rights and duties conferred on public employees under the Minnesota Public Employment Labor Relations Act. The compensation and conditions of employment of the employees is not governed by any rule applicable to state employees in the classified service or by Minnesota Statutes, chapter 15A, except as specifically authorized by law.

Subd. 6. [PROCEDURES.] The board must adopt resolutions or bylaws establishing procedures for board action, personnel administration, record keeping, investment policy, approving claims, authorizing or making disbursements, safekeeping funds, and audit of all financial operations of the board.

Subd. 7. [SURETY BONDS AND INSURANCE.] The board may procure surety bonds for its officers and employees in such amounts as are considered necessary to assure proper performance of their duties and proper accounting for funds in their custody. It may buy insurance against risks to property and liability of the board and its officers, agents, and employees for personal injuries or death and property damage and destruction in the amounts as it considers necessary or desirable, with the force and effect stated in Minnesota Statutes, chapter 466.

Sec. 4. [COMPREHENSIVE PLAN.]

Subdivision 1. [BOARD PLAN AND PROGRAM.] The board shall adopt a comprehensive plan for the collection, treatment, and disposal of sewage in the district for designated periods that the board considers proper and reasonable. The board must prepare and adopt subsequent comprehensive plans for the collection, treatment, and disposal of sewage in the district for each succeeding designated period as the board considers proper and reasonable. The plan must take into account the preservation and best and most economic use of water and other natural resources in the area; the preservation, use, and potential for use of lands adjoining waters of the state to be used for the disposal of sewage; and the impact such a disposal system will have on present and future land use in the affected area. The plans shall include the following:

(1) the exact legal description of the boundaries of the district;

(2) the general location of needed interceptors and treatment works;

(3) a description of the area that is to be served by the various interceptors and treatment works;

(4) a long-range capital improvements program; and

(5) such other details as the board deems appropriate.

In developing the plans, the board shall consult with persons designated by the governing bodies of any municipal or public corporation or governmental or political subdivision or agency within or without the district to represent such entities and shall consider the data, resources, and input offered to the board by such entities and any planning agency acting on behalf of one or more such entities. Each plan, when adopted, must be followed in the district and may be revised as often as the board considers necessary.

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Subd. 2. [REPORT TO DOUGLAS COUNTY.] Upon adoption of any comprehensive plan that establishes or reestablishes the boundaries of the district, the board must supply the appropriate Douglas county offices with the boundaries of the district.

Subd. 3. [COMPREHENSIVE PLANS; HEARING.] Before adopting any later comprehensive plan, the board must hold a public hearing on the proposed plan at the time and place in the district it determines. The hearing may be continued from time to time. Not less than 45 days before the hearing, the board must publish notice of it in a newspaper or newspapers having general circulation in the district stating the date, time, and place of the hearing, and the place where the proposed plan may be examined by any interested person. At the hearing, all interested persons must be permitted to present their views on the plan.

Subd. 4. [MUNICIPAL PLANS AND PROGRAMS; COORDINATION WITH BOARD'S RESPONSIBILITIES.] Before undertaking the construction of new sewers or other disposal facilities or the substantial alteration or improvement of any existing sewers or other disposal facilities, each local government unit may, and must if the construction or alteration of any sewage disposal facilities is contemplated by the government unit, adopt a comprehensive plan and program for the collection, treatment, and disposal of sewage for which the local government unit is responsible, coordinated with the board's comprehensive plan, and may revise the plan as often as deemed necessary. Each local plan or revision must be submitted to the board for review and is subject to the approval of the board as to those features of the plan affecting the board's responsibilities as determined by the board. Any features disapproved by the board must be modified in accordance with the board's recommendations. No construction project involving those features may be undertaken by the local government unit unless its governing body first finds the project to be in accordance with the government unit's comprehensive plan and program as approved by the board. Before approval by the board of the comprehensive plan and program of any local government unit in the district, no construction project may be undertaken by the government unit unless approval of the project is first gotten from the board as to those features of the project affecting the board's responsibilities as determined by the board.

Sec. 5. [SEWER SERVICE FUNCTION.]

Subdivision 1. [DUTY OF BOARD; ACQUISITION OF EXISTING FACILITIES; NEW FACILITIES.] At any time after the board has become organized, it must assume ownership of all existing interceptors and treatment works that are needed to implement the board's comprehensive plan for the collection, treatment, and disposal of sewage in the district, in the manner and subject to the conditions prescribed in subdivision 2, and must design, acquire, construct, better, equip, operate, and maintain all additional interceptors and treatment works that will be needed for this purpose. The board must assume ownership of all treatment works owned by a local government unit if any part of those treatment works are so needed.

Subd. 2. [METHOD OF ACQUISITION; EXISTING DEBT.] The board may require any local government unit to transfer to the board all of its right, title, and interest in any interceptors or treatment works and all necessary appurtenances to them owned by the local government unit that will be needed for the purpose stated in subdivision 1. Appropriate instruments of conveyance for all the property must be executed and delivered to the board by the proper officers of each local government unit concerned. The board, upon assuming ownership of any of the interceptors or treatment works, is obligated to pay to the local government unit amounts sufficient to pay, when due, all remaining principal of and interest on bonds issued by the local government unit for the acquisition or betterment of the interceptors or treatment works. The board must also assume the same obligation with respect to any other existing disposal system owned by a local government unit that the board determines to have been replaced or rendered useless by the district disposal system. The amounts to be paid under this subdivision may be offset against any amount to be paid to the board by the local government unit as provided in section 8. The board is not obligated to pay the local government unit anything in addition to the assumption of debt provided for in this subdivision.

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Subd. 3. [EXISTING JOINT POWERS BOARD.] Effective December 31, 2004, or an earlier date as determined by the board, the corporate existence of the joint powers board created by agreement among local government units under Minnesota Statutes, section 471.59, to provide the financing, acquisition, construction, improvement, extension, operation, and maintenance of facilities for the collection, treatment, and disposal of sewage is terminated. All persons regularly employed by the joint powers board on that date become employees of the board, and may at their option become members of the retirement system applicable to persons employed directly by the board or may continue as members of a public retirement association under any other law, to which they belonged before that date, and retain all pension rights that they may have the other law and all other rights to which they are entitled by contract or law. The board must make the employer's contributions to pension funds of its employees. The employees must perform duties as may be prescribed by the board. On December 31, 2004, or the earlier date, all funds of the joint powers board and all later collections of taxes, special assessments, or service charges, or any other sums due the joint powers board, or levied or imposed by or for the joint powers board, must be transferred to or made payable to the sanitary sewer board and the county auditor must remit the sums to the board. The local government units otherwise entitled to the cash, taxes, assessments, or service charges must be credited with the amounts, and the credits must be offset against any amounts to be paid by them to the board as provided in section 8. On December 31, 2004, or the earlier chosen date, the board shall succeed to and become vested with all right, title, and interest in and to any property, real or personal, owned or operated by the joint powers board. Before that date, the proper officers of the joint powers board must execute and deliver to the sanitary sewer board all deeds, conveyances, bills of sale, and other documents or instruments required to vest in the board good and marketable title to all the real or personal property, but this article operates as the transfer and conveyance to the board of the real or personal property, if not transferred, as may be required under the law or under the circumstances. On December 31, 2004, or the earlier chosen date, the board is obligated to pay or assume all outstanding bonds or other debt and all contracts or obligations incurred by the joint powers board, and all bonds, obligations, or debts of the joint powers board outstanding on the date this article is effective, are validated.

Subd. 4. [CONTRACTS BETWEEN LOCAL GOVERNMENT UNITS.] The board may terminate, upon 60 days' mailed notice to the contracting parties, any existing contract between or among local government units requiring payments by a local government unit to any other local government unit for the use of a disposal system, or as reimbursement of capital costs of a disposal system, all or part of which are needed to implement the board's comprehensive plan. All contracts between or among local government units for use of a disposal system entered into after the date on which this article becomes effective must be submitted to the board for approval as to those features affecting the board's responsibilities as determined by the board and are not effective until the approval is given.

Sec. 6. [SEWAGE COLLECTION AND DISPOSAL; POWERS.]

Subdivision 1. [POWERS.] In addition to all other powers conferred upon the board in this article, the board has the powers specified in this section.

Subd. 2. [DISCHARGE OF TREATED SEWAGE.] The board may discharge the effluent from any treatment works operated by it into any waters of the state, subject to approval of the agency if required and in accordance with any effluent or water quality standards lawfully adopted by the agency, any interstate agency, or any federal agency having jurisdiction.

Subd. 3. [USE OF DISTRICT SYSTEM.] The board may require any person or local government unit to provide for the discharge of any sewage, directly or indirectly, into the district disposal system, or to connect any disposal system or a part of it with the district disposal system wherever reasonable opportunity is provided; may regulate the manner in which the connections are made; may require any person or local government unit discharging sewage into the disposal system to provide preliminary treatment for it; may prohibit the discharge into the district disposal system of any substance it determines will or may be harmful to the system or any persons operating it; may prohibit any extraneous flow into the system; and may require any local government unit to discontinue the acquisition, betterment, or operation of any facility for the unit's disposal system wherever and so far as adequate service is or will be provided by the district disposal system.

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Sec. 7. [BUDGET.]

Except as otherwise specifically provided in this article, the board is subject to Minnesota Statutes, section 275.065. The board shall prepare and adopt, on or before September 15 of each year, a budget showing for the following calendar year or other fiscal year determined by the board, sometimes referred to in this article as the budget year, estimated receipts of money from all sources, including but not limited to, payments by each local government unit, federal or state grants, taxes on property, and funds on hand at the beginning of the year, and estimated expenditures for:

(1) costs of operation, administration, and maintenance of the district disposal system;

(2) cost acquisition and betterment of the district disposal system; and

(3) debt service, including principal and interest, on general obligation bonds and certificates issued under section 12, obligations and debts assumed under section 5, subdivisions 2 and 3, and any money judgments entered by a court of competent jurisdiction. Expenditures within these general categories, and others that the board may from time to time determine, must be itemized in the detail the board prescribes. The board and its officers, agents, and employees must not spend money for any purpose other than debt service without having set forth the expense in the budget, nor may they spend in excess of the amount in the budget, and an excess expenditure or one for an unauthorized purpose is enforceable except as the obligation of the person incurring it; but the board may amend the budget at any time by transferring from one budgetary purpose to another any sums, except money for debt service and bond proceeds, or by increasing expenditures in any amount by which cash receipts during the budget year actually exceed the total amounts designated in the original budget. The creation of any obligation pursuant to section 12 or the receipts of any federal or state grant is a sufficient budget designation of the proceeds for the purpose for which it is authorized, and of the tax or other revenue pledged to pay the obligation and interest on it, whether or not specifically included in any annual budget.

Sec. 8. [ALLOCATION OF COSTS.]

Subdivision 1. [DEFINITION OF CURRENT COSTS.] The estimated cost of administration, operation, maintenance, and debt service of the district disposal system to be paid by the board in each fiscal year and the estimated costs of acquisition and betterment of the system that are to be paid during the year from funds other than state or federal grants and bond proceeds and all other previously unallocated payments made by the board under this article in the fiscal year are referred to as current costs.

Subd. 2. [COLLECTION OF CURRENT COSTS.] Current costs shall be collected as described in paragraphs (a) and (b).

(a) Current costs may be allocated to local government units in the district on an equitable basis as the board may from time to time determine by resolution to be fair and reasonable and in the best interests of the district. In making the allocation, the board may provide for the deferment of payment of all or part of current costs, the reallocation of deferred costs, and the reimbursement of reallocated deferred costs on an equitable basis as the board may from time to time determine by resolution to be fair and reasonable and in the best interests of the district. The adoption or revision of a method of allocation, deferment, reallocation, or reimbursement used by the board shall be made by the affirmative vote of at least two-thirds of the members of the board.

(b) Upon approval of at least two-thirds of the members of the board, the board may provide for direct collection of current costs by monthly or other periodic billing of sewer users.

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Sec. 9. [GOVERNMENT UNITS; PAYMENTS TO BOARD.]

Subdivision 1. [OBLIGATIONS OF GOVERNMENT UNITS TO THE BOARD.] Each government unit must pay to the board all sums charged to it as provided in section 8, at the times and in the manner determined by the board. The governing body of each government unit must take all action necessary to provide the funds required for the payments and to make the payments when due.

Subd. 2. [AMOUNTS DUE BOARD; WHEN PAYABLE.] Charges payable to the board by local government units may be made payable at the times during each year as the board determines, after it has taken into account the dates on which taxes, assessments, revenue collections, and other funds become available to the government unit required to pay such charges.

Subd. 3. [GENERAL POWERS OF GOVERNMENT UNITS; LOCAL TAX LEVIES.] To accomplish any duty imposed on it by the board, the governing body of every government unit may, in addition to the powers granted in this article and in any other law or charter, exercise the powers granted any municipality by Minnesota Statutes, chapters 117, 412, 429, and 475, and sections 115.46, 444.075, and 471.59, with respect to the area of the government unit located in the district. In addition, the governing body of every government unit located in whole or in part within the district may levy taxes upon all taxable property in that part of the government unit located in this district for all or a part of the amount payable to the board. If the levy is for only part of the amount payable to the board, the governing body of the government unit may levy additional taxes on the entire net tax capacity of all taxable property of the government unit for all or a part of the balance remaining payable. The taxes levied under this subdivision must be assessed and extended as a tax upon the taxable property by the county auditor for the next calendar year, free from any limit of rate or amount imposed by law or charter. The tax must be collected and remitted in the same manner as other general taxes of the government unit.

Subd. 4. [ALTERNATE LEVY.] Instead of levying taxes on all taxable property under subdivision 3, the governing body of the government unit may elect to levy taxes upon the net tax capacity of all taxable property, except agricultural property, and upon only 25 percent of the net tax capacity of all agricultural property, in that part of the government unit located in the district for all or a part of the amount payable to the board. If the levy is for only part of the amount payable to the board, the governing body may levy additional taxes on the entire net tax capacity of all the property, including agricultural property, for all or a part of the balance. The taxes must be assessed and extended as a tax upon the taxable property by the county auditor for the next calendar year, free from any limit of rate or amount imposed by law or charter, and must be collected and remitted in the same manner as other general taxes of the government unit. In computing the tax capacity under this subdivision, the county auditor must include only 25 percent of the net tax capacity of all taxable agricultural property and 100 percent of the net tax capacity of all other taxable property in that part of the government unit located within the district and, in spreading the levy, the auditor must apply the tax rate upon the same percentages of agricultural and nonagricultural taxable property. If the government unit elects to levy taxes under this subdivision and any of the taxable agricultural property is reclassified so as to no longer qualify as agricultural property, it is subject to additional taxes. The additional taxes must be in an amount which, together with any additional taxes previously levied and the estimated collection of additional taxes subsequently levied on any other reclassified property, is determined by the governing body of the government unit to be at least sufficient to reimburse each other government unit for any excess current costs reallocated to it as a result of the board deferring any current cost under section 8 on account of the difference between the amount of the current costs initially allocated to each government unit based on the total net tax capacity of all taxable property in the district and the amount of the current costs reallocated to each government unit based on 25 percent of the net tax capacity of agricultural property and 100 percent of the net tax capacity of all other taxable property in the district. Any reimbursement must be made on terms which the board determines to be just and reasonable. These additional taxes may be levied in any greater amount as the governing body of the government unit determines to be appropriate, but the total amount of the additional taxes must not exceed the difference between:

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(1) the total amount of taxes that would have been levied upon the reclassified property to help pay current costs charged in each year to the government unit by the board if that part of the costs, if any, initially allocated by the board solely on the basis of 100 percent of the net tax capacity of all taxable property in the district and then reallocated on the basis of inclusion of only 25 percent of the net tax capacity of agricultural property in the district was not reallocated and if the amount of taxes levied by the government unit each year under this subdivision to pay current costs had been based on the initial allocation and had been imposed upon 100 percent of the net tax capacity of all taxable property, including agricultural property, in that part of the government unit located in the district; and

(2) the amount of taxes levied each year under this subdivision upon reclassified property, plus interest on the cumulative amount of the difference accruing each year at the approximate average annual rate borne by bonds issued by the board and outstanding at the beginning of the year or, if no bonds are then outstanding, at a rate of interest which may be determined by the board, but not exceeding the maximum rate of interest that may then be paid on bonds issued by the board. The additional taxes are a lien upon the reclassified property assessed in the same manner and for the same duration as all other ad valorem taxes levied upon the property. The additional taxes must be extended against the reclassified property on the tax list for the current year and must be collected and remitted in the same manner as other general taxes of the government unit. No penalties or additional interest may be levied on the additional taxes if timely paid.

Subd. 5. [DEBT LIMIT.] Any ad valorem taxes levied under subdivision 3, by the governing body of a government unit to pay any sums charged to it by the board pursuant to this article are not subject to, or counted toward, any limit imposed by law on the levy of taxes upon taxable property within any governmental unit.

Subd. 6. [DEFICIENCY TAX LEVIES.] If the local government unit fails to make a payment to the board when due, the board may certify to the Douglas county auditor the amount required for payment, with interest at not more than the maximum rate per year authorized at that time on assessments under Minnesota Statutes, section 429.061, subdivision 2. The auditor must levy and extend the amount as a tax upon all taxable property in that part of the government unit located in the district, for the next calendar year, free from any limits imposed by law or charter. The tax must be collected in the same manner as other general taxes of the government unit, and the proceeds, when collected, shall be paid by the county treasurer to the treasurer of the board and credited to the government unit for which the tax was levied.

Sec. 10. [PUBLIC HEARING AND SPECIAL ASSESSMENTS.]

Subdivision 1. [PUBLIC HEARING REQUIREMENT ON SPECIFIC PROJECT.] Before the board orders any project involving the acquisition or betterment of any interceptor or treatment works, all or a part of the cost of which will be allocated to local government units under section 8 as current costs, the board must hold a public hearing on the proposed project following two publications in a newspaper or newspapers having general circulation in the district, stating the time and place of the hearing, the general nature and location of the project, the estimated total cost of acquisition and betterment, that portion of costs estimated to be paid out of federal and state grants, and that portion of costs estimated to be allocated to each local government unit affected. The two publications must be a week apart and the hearing must be at least three days after the last publication. Not less than 45 days before the hearing, notice must also be mailed to each clerk of all local government units in the district, but failure to give mailed notice of any defects in the notice does not invalidate the proceedings. The project may include all or part of one or more interceptors or treatment works. A hearing is not required with respect to a project, no part of the costs of which are to be allocated to local government units as the current cost of acquisition, betterment, and debt service.

Subd. 2. [NOTICE TO BENEFITED PROPERTY OWNERS.] If the governing body of a local government unit in the district proposes to assess against benefited property within units, all or any part of the allocable costs of the project as provided in subdivision 5, the governing body must, not less than ten days before the hearing provided for in subdivision 1 mail a notice of the hearing to the owner of each parcel within the area proposed to be specially assessed and must also give one week's published notice of the hearing. The notice of hearing must contain the

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same information provided in the notice published by the board under subdivision 1, and in addition, a description of the area proposed to be assessed by the local government unit. To give mailed notice, owners must be those shown to be on the records of the county auditor or, in a county where tax statements are mailed by the county treasurer, on the records of the county treasurer; but other appropriate records may be used for this purpose. However, for properties that are tax exempt or subject to taxation on a gross earnings basis and are not listed on the records of the county auditor or the county treasurer, the owners may be ascertained by any practicable means and mailed notice must be given to them. Failure to give mailed notice or any defects in the notice does not invalidate the proceedings of the board or the local governing body.

Subd. 3. [BOARD PROCEEDINGS PERTAINING TO HEARING.] Before adoption of the resolution calling for the hearing, the board shall get from the district engineer, or other competent person of the board's selection, a preliminary report advising whether the proposed project is feasible, necessary, and cost-effective, and whether it should best be made as proposed or in connection with another project, and the estimated costs of the project as recommended. No error or omission in the report invalidates the proceeding. The board may also take steps before the hearing that will, in its judgment, provide helpful information in determining the desirability and feasibility of the project including, but not limited to, preparation of plans and specifications and advertisement for bids. The hearing may be adjourned from time to time and a resolution ordering the project may be adopted at any time within six months after the date of hearing. In ordering the project, the board may reduce but not increase the extent of the project as stated in the notice of hearing, unless another hearing is held, and must find that the project as ordered is in accordance with the comprehensive plan and program adopted by the board under section 4.

Subd. 4. [EMERGENCY ACTION.] If the board by resolution adopted by the affirmative vote of not less than two-thirds of its members determines that an emergency exists requiring the immediate purchase of materials or supplies or the making of emergency repairs, it may order the purchase of the supplies and materials and the making of the repairs before any hearing required under this section. But the board must set as early a date as practicable for that hearing at the time it declares the emergency. All other provisions of this section must be followed in giving notice of and conducting a hearing. This subdivision does not prevent the board or its agents from purchasing maintenance supplies or incurring maintenance costs without regard to the requirements of this section.

Subd. 5. [POWER OF GOVERNMENT UNIT TO SPECIALLY ASSESS.] A local government unit may specially assess all or part of the costs of acquisition and betterment of any project ordered by the board under this section. A special assessment must be levied in accordance with Minnesota Statutes, sections 429.051 to 429.081, except as otherwise provided in this subdivision. No other provisions of Minnesota Statutes, chapter 429, apply. For purposes of levying special assessments, the hearing on the project required in subdivision 1 must serve as the hearing on the making of the original improvement provided for by Minnesota Statutes, section 429.051. The area assessed may be less than but must not exceed the area proposed to be assessed as stated in the notice of hearing on the project provided for in subdivision 2. To determine the allocable cost of the project to the local government units, the government unit may adopt one of the procedures in paragraph (a) or (b).

(a) At any time after a contract is let for the project, the local government unit may get from the board a current written estimate, on the basis of historical and reasonably projected data, of that part of the total cost of acquisition and betterment of the project or of some part of the project that will be allocated to the local government unit and the number of years over which such costs will be allocated as current costs of acquisition, betterment, and debt service under section 8. The board is not bound by this estimate for allocating the costs of the project to local government units.

(b) The governing body may get from the board a written statement showing, for the prior period that the governing body designates, that part of the costs previously allocated to the local government unit as current costs of acquisition, betterment, and debt service only, of all or any part of the project designated by the governing body. In addition to the allocable costs, the local government unit may include in the total expense, as a basis for levying assessments, all other expenses incurred directly by the local government unit in connection with the project.

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Special assessments levied by the government unit with respect to previously allocated costs ascertained under this paragraph are payable in equal annual installments extending over a period not exceeding by more than one year the number of years that the costs have been allocated to the local government unit or the estimated useful life of the project, or part of the project, whichever number of years is the lesser. No limit is placed on the number of times the governing body of a local government unit may assess the previously allocated costs not previously assessed by the government unit. The power to specially assess provided for in this section is in addition and supplemental to all other powers of local government units to levy special assessments.

Sec. 11. [INITIAL COSTS.]

Subdivision 1. [CONTRIBUTIONS OR ADVANCES FROM LOCAL GOVERNMENT UNITS.] The board may, at the time it considers necessary and proper, request from a local government unit necessary money to defray the costs of any obligations assumed under section 5 and the costs of administration, operation, and maintenance. Before making a request, the board must, by formal resolution, determine the necessity for the money, setting forth the purposes for which the money is needed and the estimated amount for each purpose. Upon receiving a request, the governing body of each local government unit may provide for payment of the amount requested as it considers fair and reasonable. The money may be paid out of general revenue funds or any other available funds of any local government unit and its governing body thereof may levy taxes to provide funds, free from any existing limit imposed by law or charter. Money may be provided by government units with or without interest, but if interest is charged it must not exceed five percent per year. The board must credit the local government unit for the payments in allocating current costs under section 8, on the terms and at the times as are agreed to with the local government unit.

Subd. 2. [LIMITED TAX LEVY.] The board may levy ad valorem taxes on all taxable property in the district to defray any of the costs described in subdivision 1, provided the costs have not been defrayed by contribution under subdivision 1. Before certifying a levy to the county auditor, the board must determine the need for the money to be derived from the levy by formal resolution setting forth the purposes for which the tax money will be used and the amount proposed to be used for each purpose. In allocating current costs under section 8, the board must credit the government units for taxes collected under the levy made under this subdivision on the terms and at the time the board considers fair and reasonable and on terms consistent with section 8, subdivision 2.

Sec. 12. [BONDS CERTIFICATES AND OTHER OBLIGATIONS.]

Subdivision 1. [BUDGET ANTICIPATION CERTIFICATES OF INDEBTEDNESS.] (a) Before adopting its annual budget and in anticipation of the collection of tax and other revenues estimated and set forth by the board in the budget, the board may by resolution, authorize the issuance, negotiation, and sale in accordance with subdivision 5 in such form and manner and upon such terms as it may determine of its negotiable general obligation certificates of indebtedness in aggregate principal amounts not exceeding 50 percent of the total amount of such tax collections and other revenues and maturing not later than three months after the close of the budget year in which issued. Revenues listed in clauses (1) to (3) must not be anticipated for this purpose:

(1) taxes already anticipated by the issuance of certificates under subdivision 2;

(2) deficiency taxes levied pursuant to this subdivision; and

(3) taxes levied for the payment of certificates issued pursuant to subdivision 3.

(b) The proceeds of the sale of the certificates must be used only for the purposes for which tax collections and other revenues are to be expended under the budget.

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(c) All tax collections and other revenues included in the budget for the budget year, after the expenditures of tax collections and other revenues in accordance with the budget, must be irrevocably pledged and appropriated to a special fund to pay the principal and interest on the certificates when due.

(d) If for any reason the tax collections and other revenues are insufficient to pay the certificates and interest when due, the board must levy a tax in the amount of the deficiency on all taxable property in the district and must appropriate this amount when received to the special fund.

Subd. 2. [TAX LEVY ANTICIPATION CERTIFICATES OF INDEBTEDNESS.] After a tax is levied by the board under section 11, subdivision 2, and certified to the county auditors in anticipation of the collection of the tax, if the tax has not been anticipated by the issuance of certificates under subdivision 1, the board may, by resolution, authorize the issuance, negotiation, and sale in accordance with subdivision 5 in the form and manner and on the terms and conditions as it determines its negotiable general obligation tax levy anticipation certificates of indebtedness in aggregate principal amounts not exceeding 50 percent of the uncollected tax for which no penalty for nonpayment or delinquency has been attached. The certificates must mature not later than April 1 in the year after the year in which the tax is collectible. The proceeds of the tax in anticipation of which the certificates were issued and other funds that may become available must be applied to the extent necessary to repay the certificates.

Subd. 3. [EMERGENCY CERTIFICATES OF INDEBTEDNESS.] If in any budget year the receipts of tax and other revenues for some unforeseen cause become insufficient to pay the board's current expenses, or if any calamity or other public emergency subjects it to the necessity of making extraordinary expenditures, the board may by resolution authorize the issuance, negotiation, and sale in accordance with subdivision 5 in the form and manner and on the terms and conditions as it may determine of its negotiable general obligation certificates of indebtedness in an amount sufficient to meet the deficiency, and the board must levy on all taxable property in the district a tax sufficient to pay the certificates and interest and shall appropriate all collections of the tax to a special fund created for the payment of the certificates and interest.

Subd. 4. [GENERAL OBLIGATION BONDS.] The board may by resolution authorize the issuance of general obligation bonds maturing serially in one or more annual or semiannual installments for the acquisition or betterment of any part of the district disposal system, including but not limited to, the payment of interest during construction and for a reasonable period thereafter, or for the refunding of outstanding bonds, certificates of indebtedness, or judgments. The board must pledge its full faith and credit and taxing power for the payment of the bonds and shall provide for the issuance and sale and for the security of the bonds in the manner provided in Minnesota Statutes, chapter 475, and must have the same powers and duties as a municipality issuing bonds under that law. An election is not required to authorize the issuance of bonds and the debt limit of Minnesota Statutes, chapter 475, do not apply to the bonds. The board may also pledge for the payment of the bonds and deduct from the amount of any tax levy required under Minnesota Statutes, section 475.61, subdivision 1, any sums receivable under section 9 or any state and federal grants anticipated by the board and may covenant to refund the bonds if and when and to the extent that for any reason the revenues, together with other funds properly available and appropriated for the purpose, are not sufficient to pay all principal and interest due or about to become due; if the revenues have not been anticipated by the issuance of certificates under subdivision 1. All bonds that have been or shall hereafter be issued and sold in conformity with the provisions of this subdivision, and otherwise in conformity with law, are hereby authorized, legalized, and validated.

Subd. 5. [MANNER OF SALE AND ISSUANCE OF CERTIFICATES.] Certificates issued under subdivisions 1, 2, and 3 may be issued and sold by negotiation, without public sale, and may be sold at a price equal to the percentage of their par value, plus accrued interest, and bearing interest at the rate or rates as may be determined by the board. No election is required to authorize the issuance of certificates. Certificates must bear the same rate of interest after maturity as before and the full faith and credit and taxing power of the board must be pledged to the payment of the certificates.

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Sec. 13. [TAX LEVIES.]

The board may levy taxes to pay the bonds or other obligations assumed by the district under section 5 and for debt service of the district disposal system authorized in section 12 upon all taxable property within the district without limit of rate or amount and without affecting the amount or rate of taxes that may be levied by the board for other purposes or by any local government unit in the district. No other provision of law relating to debt limit shall restrict or in any way limit the power of the board to issue the bonds and certificates authorized in section 12. The board may also levy taxes as provided in sections 9 and 11. The county auditor must annually assess and extend upon the tax rolls the part of the taxes levied by the board in each year that is certified to the auditor by the board. The county treasurer must collect and make settlement of the taxes with the treasurer of the board.

Sec. 14. [DEPOSITORIES.]

The board must from time to time designate one or more national or state banks or trust companies authorized to do a banking business as official depositories for money of the board, and must require the treasurer to deposit all or a part of the money in those institutions. The designation must be in writing and must set forth all the terms and conditions on which the deposits are made, and must be signed by the chair and treasurer, and made a part of the minutes of the board. A designated bank or trust company must qualify as a depository by furnishing a corporate surety bond or collateral in the amount required by Minnesota Statutes, section 118A.03. But, no bond or collateral is required to secure any deposit insofar as it is insured under federal law.

Sec. 15. [MONEY; ACCOUNTS AND INVESTMENTS.]

Subdivision 1. [RECEIPT AND APPLICATION.] All money received by the board must be deposited or invested by the treasurer and disposed of as the board directs in accordance with its budget. But any money that has been pledged or dedicated by the board to the payment of obligations or interest on them or expenses incident to them, or for any other specific purpose authorized by law, must be paid by the treasurer into the fund to which they have been pledged.

Subd. 2. [FUNDS AND ACCOUNTS.] The board's treasurer must establish funds and accounts as necessary or convenient to handle the receipts and disbursements of the board in an orderly fashion.

Subd. 3. [DEPOSIT AND INVESTMENT.] The money on hand in the board's funds and accounts may be deposited in the official depositories of the board or invested as provided in this subdivision. The amount not currently needed or required by law to be kept in cash on deposit may be invested in obligations authorized by law for the investment of municipal sinking funds. The money may also be held under certificates of deposit issued by any official depository of the board. All investments by the board must conform to an investment policy adopted by the board as amended from time to time.

Subd. 4. [BOND PROCEEDS.] The use of proceeds of all bonds issued by the board for the acquisition and betterment of the district disposal system, and the use, other than investment, of all money on hand in any sinking fund or funds of the board must be governed by Minnesota Statutes, chapter 475, this article, and the resolutions authorizing the issuance of the bonds. The bond proceeds, when received, must be transferred to the treasurer of the board for safekeeping, investment, and payment of the costs for which they were issued.

Subd. 5. [AUDIT.] The board must provide for and pay the cost of an independent annual audit of its official books and records by the state auditor or a certified public accountant.

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Sec. 16. [GENERAL POWERS OF BOARD.]

Subdivision 1. [ALL NECESSARY OR CONVENIENT POWERS.] The board has powers necessary or convenient to discharge the duties imposed upon it by law. The powers include those specified in this article, but the express grant or enumeration of powers does not limit the generality or scope of the grant of power in this subdivision.

Subd. 2. [LAWSUITS.] The board may sue or be sued.

Subd. 3. [CONTRACTS.] The board may enter into any contract necessary or proper for the exercise of its powers or the accomplishment of its purposes.

Subd. 4. [RULES.] The board may adopt rules relating to the board's responsibilities and may provide penalties not exceeding the maximum penalty specified for a misdemeanor, and the cost of prosecution may be added to the penalties imposed. Any rule prescribing a penalty for violation must be published at least once in a newspaper having general circulation in the district. A violation may be prosecuted before any court in the district having jurisdiction of misdemeanor, and every court has jurisdiction of violations. A peace officer of any municipality in the district may make arrests for violations committed anywhere in the district in the manner and with the effect as for violations of municipal ordinances or for statutory misdemeanors. All fines collected must be deposited in the treasury of the board, or may be allocated between the board and the municipality in which the prosecution occurs on terms agreed to by the board and the municipality.

Subd. 5. [GIFTS; GRANTS.] The board may accept gifts, may apply for and accept grants or loans of money or other property from the United States, the state, or any person for any of its purposes, may enter into any agreement required to get the gift, grant, loan, or other property; and may hold, use, and dispose of money or property in accordance with the terms of the gift, grant, loan or agreement. With respect to any loans or grants of funds or real or personal property or other assistance from any state or federal government or any agency or instrumentality of the government, the board may contract to do and perform all acts and things required as a condition or consideration under state or federal law or rule or regulation, whether or not included among the powers expressly granted to the board in this article.

Subd. 6. [JOINT POWERS.] The board may act under Minnesota Statutes, section 471.59, or any other appropriate law providing for joint or cooperative action between government units.

Subd. 7. [RESEARCH; HEARINGS; INVESTIGATIONS; ADVISE.] The board may conduct research studies and programs, collect and analyze data, prepare reports, maps, charts, and tables, and conduct all necessary hearings and investigations in connection with the design, construction, and operation of the district disposal system, and may advise and assist other government units on system planning matters within the scope of its powers, duties, and objectives, and may provide at the request of any governmental unit other technical and administrative assistance as the board considers appropriate for the government unit to carry out the powers and duties vested in the government unit under this article or imposed on or by the board.

Subd. 8. [EMPLOYEES; CONTRACTORS; INSURANCE.] The board may employ on the terms it considers advisable, persons or firms performing engineering, legal, or other services of a professional nature; require any employee to get and file with it an individual bond or fidelity insurance policy; and procure insurance in the amounts it considers necessary against liability of the board or its officers or both, for personal injury or death and property damage or destruction, with the force and effect stated in Minnesota Statutes, chapter 466, and against risks of damage to or destruction of any of its facilities, equipment, or other property as it considers necessary.

Subd. 9. [PROPERTY.] The board may acquire by purchase, lease, condemnation, gift, or grant, real or personal property including positive and negative easements and water and air rights, and it may construct, enlarge, improve, replace, repair, maintain, and operate any interceptor, treatment works, or water facility determined to be necessary

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or convenient for the collection and disposal of sewage in the district. Any local government unit and the commissioners of transportation and natural resources may convey to or permit the use of these facilities owned or controlled by the board, subject to the rights of the holders of any bonds issued with respect to them with or without compensation and without an election or approval by any other government unit or agency. All powers conferred by this subdivision may be exercised both within or outside the district as may be necessary for the exercise by the board of its powers or the accomplishment of its purposes. The board may hold, lease, convey, or otherwise dispose of such property for its purposes, upon the terms and in the manner it deems advisable. Unless otherwise provided, the right to acquire lands and property rights by condemnation must be exercised in accordance with Minnesota Statutes, chapter 117, and must apply to any property or interest in property owned by any local government unit. Property devoted to an actual public use at the time, or held to be devoted to such use within a reasonable time, must not be so acquired unless a court of competent jurisdiction determines that the use proposed by the board is paramount. In case of property in actual public use, the board may take possession of any property of which condemnation proceedings have begun at any time after the issuance of a court order appointing commissioners for its condemnation.

Subd. 10. [RIGHTS-OF-WAY.] The board may construct or maintain its systems or facilities in, along, on, under, over, or through public waters, streets, bridges, viaducts, and other public right-of-way without first getting a franchise from any county or local government unit having jurisdiction over them. The facilities must be constructed and maintained in accordance with the ordinances and resolutions of the county or government unit relating to construction, installation, and maintenance of similar facilities on public properties and must not unnecessarily obstruct the public use of the rights-of-way.

Subd. 11. [DISPOSAL OF PROPERTY.] The board may sell, lease, or otherwise dispose of any real or personal property acquired by it that is no longer required to accomplish its purposes. The property may be sold in the manner provided by Minnesota Statutes, section 469.065, insofar as practical. The board may give notice of sale it considers appropriate. When the board determines that any property or any part of the district disposal system that has been acquired from a local government unit without compensation is no longer required, but is required as a local facility by the government unit from which is was acquired, the board may by resolution transfer it to the government unit.

Subd. 12. [JOINT OPERATIONS.] The board may contract with the United States or an agency of it, any state or agency of it, or any regional public planning body in the state with jurisdiction over any part of the district, or any other municipal or public corporation, or governmental subdivision in any state, for the joint use of any facility owned by the board or the entity, for the operation by the entity of any system or facility of the board, or for the performance on the board's behalf of any service including, but not limited to, planning, on the terms that may be agreed to by the contracting parties. Unless designated by the board as a local sanitary sewer facility, any treatment works or interceptor jointly used, or operated on behalf of the board, as provided in this subdivision, must be considered to be operated by the board to include the facilities in the district disposal system.

Sec. 17. [LOCAL FACILITIES.]

Subdivision 1. [SANITARY SEWER FACILITIES.] Except as otherwise provided in this article, local government units must retain responsibility for the planning, design, acquisition, betterment, operation, administration, and maintenance of all local sanitary sewer facilities as provided by law.

Subd. 2. [ASSUMPTION OF RESPONSIBILITY OVER LOCAL SANITARY SEWER FACILITIES.] The board must upon request of any government unit assume, either alone or jointly with the local government unit, all or any part of the responsibility of the local government unit described in subdivision 1. Except as provided in subdivision 4 and to exercise the responsibility, the board has all the powers and duties elsewhere conferred in this article with the same force and effect as if the local sanitary sewer facilities were a part of the district disposal system.

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Subd. 3. [WATER AND STREET FACILITIES.] The board may, on request of any governmental unit, enter into an agreement under which the board may assume, either alone or jointly with such unit, the responsibility to get and construct water and street facilities in conjunction with any project for the acquisition or betterment of the district disposal system or any project undertaken by the board under subdivision 2. Except as provided in subdivision 4, and to exercise any responsibilities under this subdivision, the board has all the powers and duties elsewhere conferred in this article with the same force and effect as if the water or street facilities were a part of the district disposal system.

Subd. 4. [ALLOCATION OF CURRENT COSTS.] All current costs attributable to responsibilities assumed by the board over local sanitary sewer facilities and water and street facilities as provided in this section must be allocated solely to the local unit for or with whom the responsibilities are assumed on the terms and over a period as the board determines to be equitable and in the best interest of the district. If two or more government units form a region in accordance with this section all or part of the current costs attributable to the region must, at the request of its joint board, be allocated to the region and provided in the agreement establishing the region.

Subd. 5. [PART OF DISTRICT SYSTEM.] This section or any other part of this article does not prevent the board from including, where appropriate, treatment works or interceptors, previously designated or treated as local sanitary sewer facilities, as a part of the district disposal system.

Sec. 18. [SERVICE CONTRACTS WITH GOVERNMENTS OUTSIDE DISTRICT.]

The board may contract with the United States or any agency of it, any state or any agency of it, or any municipal or public corporation, governmental subdivision or agency, or political subdivision in any state, outside the jurisdiction of the board, for furnishing to the entities any services which the board may furnish to local government units in the district under this article including, but not limited to, planning for and the acquisition, betterment, operation, administration, and maintenance of any or all interceptors, treatment works, and local sanitary sewer facilities; if the board may further include as one of the terms of the contract that the entity also pay to the board an amount as may be agreed upon as a reasonable estimate of the proportionate share properly allocable to the entity of costs of acquisition, betterment, and debt service previously allocated to local government units in the district. When the payments are made by the entities to the board, they must be applied in reduction of the total amount of costs allocated after that to each local government unit in the district, on the equitable basis the board considers to be in the best interest of the district. Any municipality in the state may enter into the contract and perform all acts and things required as a condition or consideration for it consistent with the purpose of this article, whether or not included among the powers otherwise granted to the municipality by law or charter.

Sec. 19. [CONSTRUCTION, MATERIALS, SUPPLIES, EQUIPMENT; CONTRACTS.]

Subdivision 1. [PLANS AND SPECIFICATIONS.] When the board orders a project involving the acquisition or betterment of a part of the district disposal system, it must cause plans and specifications of this project to be made, or if previously made, to be modified, if necessary, and to be approved by the agency if required, and after any required approval by the agency, one or more contracts for work and materials called for by the plans and specification may be awarded as provided in this section.

Subd. 2. [UNIFORM MUNICIPAL CONTRACTING LAW.] All contracts for work to be done or for purchases of materials, supplies, or equipment must be done in accordance with Minnesota Statutes, section 471.345.

Sec. 20. [ANNEXATION, WITHDRAWAL OF TERRITORY.]

Subdivision 1. [ANNEXATION.] Any municipality in Douglas county, upon resolution adopted by a four-fifths vote of its governing body, may petition the board for annexation to the district of the area then comprising the municipality or any part of it and, if accepted by the board, the area must be considered annexed to the district and

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subject to the jurisdiction of the board under the terms and provisions of this article. The territory so annexed is subject to taxation and assessment under this article and is subject to taxation by the board like other property in the district for the payment of principal and interest thereafter becoming due on general obligations of the board, whether authorized or issued before or after the annexation. The board may condition approval of the annexation upon the contribution, by or on behalf of the municipality petitioning for annexation, to the board of an amount as may be agreed upon as being a reasonable estimate of the proportionate share, properly allocable to the municipality, of cost or acquisition, betterment, and debt service previously allocated to local government units in the district, on the terms as may be agreed upon and in place of or in addition to further conditions as the board deems in the best interests of the district. Notwithstanding any other provisions of this article to the contrary, the conditions established for annexation may include the requirement that the annexed municipality pay for, contract for, and oversee the construction of local sanitary sewer facilities and interceptor sewers. To pay the contribution or satisfy any other condition established by the board, the municipality petitioning annexation may exercise the powers conferred in section 9. When the contributions are made by the municipality to the board, they must be applied to reduce the total amount of costs thereafter allocated to each local government unit in the district, on the equitable basis as the board considers to be in the best interests of the district, applying so far as practicable and appropriate the criteria set forth in section 8, subdivision 2. On annexation of the territory, the secretary of the board must certify to the auditor and treasurer of the county in which the municipality is located the fact of the annexation and a legal description of the territory annexed.

Subd. 2. [WITHDRAWALS.] A municipality may withdraw from the district by resolution of its governing body. The municipality must notify the board of the district of the withdrawal by providing a copy of the resolution at least two years in advance of the proposed withdrawal. Unless the district and the withdrawing member agree otherwise by action of their governing bodies, the taxable property of the withdrawing member is subject to its required property tax levies under this article for two taxes payable years following the notification of the withdrawal and the withdrawing member retains any rights, obligations, and liabilities obtained or incurred during its participation.

Sec. 21. [PROPERTY EXEMPT FROM TAXATION.]

Any properties, real or personal, owned, leased, controlled, used, or occupied by the sanitary sewer board for any purpose under this article are declared to be acquired, owned, leased, controlled, used, and occupied for public, governmental, and municipal purposes, and are exempt from taxation by the state or any political subdivision of the state; but the properties are subject to special assessments levied by a political subdivision for a local improvement in amounts proportionate to and not exceeding the special benefit received by the properties from the improvement. No possible use of any of the properties in any manner different from their use as part of the disposal system at the time may be considered in determining the special benefit received by the properties. All of the assessments are subject to final approval by the board, whose determination of the benefits is conclusive upon the political subdivision levying the assessment.

Sec. 22. [RELATION TO EXISTING LAWS.]

This article prevails over any law or charter inconsistent with it. The powers conferred on the board under this article do not diminish or supersede the powers conferred on the agency by Minnesota Statutes, chapters 115 and 116.

Sec. 23. [APPLICATION; EFFECTIVE DATE; LOCAL APPROVAL; OPT IN OR OUT.]

Subdivision 1. [APPLICATION.] This article applies to the townships of Brandon, Carlos, LaGrand, Leaf Valley, Miltona, and Moe, all in Douglas county.

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Subd. 2. [EFFECTIVE DATE; LOCAL APPROVAL.] This article is effective the day after a fourth township of the six listed in subdivision 1 has timely completed compliance with Minnesota Statutes, section 645.021, subdivisions 2 and 3. For any other township listed in subdivision 1, the article is effective the day after timely completing compliance with Minnesota Statutes, section 645.021, subdivisions 2 and 3. A township listed in subdivision 1 that fails to timely complete compliance with Minnesota Statutes, section 645.021, subdivisions 2 and 3, may petition for annexation to the district at a later time, as provided in this article.

ARTICLE 10

TAX INCREMENT FINANCING

Section 1. Minnesota Statutes 2002, section 469.174, subdivision 3, is amended to read:

Subd. 3. [BONDS.] (a) "Bonds" means any bonds~~, including refunding bonds, notes, interim certificates, debentures, interfund loans or advances,~~ or other obligations issued:

(1) by an authority under section 469.178; or ~~which were issued~~

(2) in aid of a project under any other law, except revenue bonds issued pursuant to sections 469.152 to 469.165, prior to August 1, 1979.

(b) Bonds or other obligations include:

(1) refunding bonds;

(2) notes;

(3) interim certificates;

(4) debentures; and

(5) interfund loans or advances qualifying under section 469.178, subdivision 7.

[EFFECTIVE DATE.] This section is effective at the same time as provided by Laws 2001, First Special Session chapter 5, article 15, section 3.

Sec. 2. Minnesota Statutes 2002, section 469.174, subdivision 6, is amended to read:

Subd. 6. [MUNICIPALITY.] "Municipality" means ~~any~~ the city, however organized, ~~and with respect to~~ in which the district is located, with the following exceptions:

(1) for a project undertaken pursuant to sections 469.152 to 469.165, "municipality" has the meaning given in sections 469.152 to 469.165~~, and with respect to~~; and

(2) for a project undertaken pursuant to sections 469.142 to 469.151, or a county or multicounty project undertaken pursuant to sections 469.004 to 469.008, "municipality" ~~also includes any~~ means the county in which the district is located.

[EFFECTIVE DATE.] This section is effective for districts for which the request for certification was made after July 31, 1979.

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Sec. 3. Minnesota Statutes 2002, section 469.174, subdivision 10, is amended to read:

Subd. 10. [REDEVELOPMENT DISTRICT.] (a) "Redevelopment district" means a type of tax increment financing district consisting of a project, or portions of a project, within which the authority finds by resolution that one or more of the following conditions, reasonably distributed throughout the district, exists:

(1) parcels consisting of 70 percent of the area of the district are occupied by buildings, streets, utilities, paved or gravel parking lots, or other similar structures and more than 50 percent of the buildings, not including outbuildings, are structurally substandard to a degree requiring substantial renovation or clearance; or

(2) the property consists of vacant, unused, underused, inappropriately used, or infrequently used railyards, rail storage facilities, or excessive or vacated railroad rights-of-way; or

(3) tank facilities, or property whose immediately previous use was for tank facilities, as defined in section 115C.02, subdivision 15, if the tank facilities:

(i) have or had a capacity of more than 1,000,000 gallons;

(ii) are located adjacent to rail facilities; and

(iii) have been removed or are unused, underused, inappropriately used, or infrequently used.

(b) For purposes of this subdivision, "structurally substandard" shall mean containing defects in structural elements or a combination of deficiencies in essential utilities and facilities, light and ventilation, fire protection including adequate egress, layout and condition of interior partitions, or similar factors, which defects or deficiencies are of sufficient total significance to justify substantial renovation or clearance.

(c) A building is not structurally substandard if it is in compliance with the building code applicable to new buildings or could be modified to satisfy the building code at a cost of less than 15 percent of the cost of constructing a new structure of the same square footage and type on the site. The municipality may find that a building is not disqualified as structurally substandard under the preceding sentence on the basis of reasonably available evidence, such as the size, type, and age of the building, the average cost of plumbing, electrical, or structural repairs, or other similar reliable evidence. The municipality may not make such a determination without an interior inspection of the property, but need not have an independent, expert appraisal prepared of the cost of repair and rehabilitation of the building. An interior inspection of the property is not required, if the municipality finds that (1) the municipality or authority is unable to gain access to the property after using its best efforts to obtain permission from the party that owns or controls the property; and (2) the evidence otherwise supports a reasonable conclusion that the building is structurally substandard. Items of evidence that support such a conclusion include recent fire or police inspections, on-site property tax appraisals or housing inspections, exterior evidence of deterioration, or other similar reliable evidence. Written documentation of the findings and reasons why an interior inspection was not conducted must be made and retained under section 469.175, subdivision 3, clause (1). Failure of a building to be disqualified under the provisions of this paragraph is a necessary, but not a sufficient, condition to determining that the building is substandard.

(d) A parcel is deemed to be occupied by a structurally substandard building for purposes of the finding under paragraph (a) if all of the following conditions are met:

(1) the parcel was occupied by a substandard building within three years of the filing of the request for certification of the parcel as part of the district with the county auditor;

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(2) the substandard building was demolished or removed by the authority or the demolition or removal was financed by the authority or was done by a developer under a development agreement with the authority;

(3) the authority found by resolution before the demolition or removal that the parcel was occupied by a structurally substandard building and that after demolition and clearance the authority intended to include the parcel within a district; and

(4) upon filing the request for certification of the tax capacity of the parcel as part of a district, the authority notifies the county auditor that the original tax capacity of the parcel must be adjusted as provided by section 469.177, subdivision 1, paragraph ~~(h)~~ (f).

(e) For purposes of this subdivision, a parcel is not occupied by buildings, streets, utilities, paved or gravel parking lots, or other similar structures unless 15 percent of the area of the parcel contains buildings, streets, utilities, paved or gravel parking lots, or other similar structures.

(f) For districts consisting of two or more noncontiguous areas, each area must qualify as a redevelopment district under paragraph (a) to be included in the district, and the entire area of the district must satisfy paragraph (a).

[EFFECTIVE DATE.] The amendment to Minnesota Statutes, section 469.174, subdivision 10, paragraph (c), confirms the intent of the legislature with regard to the original provisions of the language contained in Minnesota Statutes 2002, section 469.174, subdivision 10, paragraph (c), and is retroactive to the effective date of the original language. The amendment to Minnesota Statutes, section 469.174, subdivision 10, paragraph (d), is effective for districts for which the request for certification was received by the county after June 30, 2002.

Sec. 4. Minnesota Statutes 2002, section 469.174, subdivision 25, is amended to read:

Subd. 25. [INCREMENT.] "Increment," "tax increment," "tax increment revenues," "revenues derived from tax increment," and other similar terms for a district include:

(1) taxes paid by the captured net tax capacity, but excluding any excess taxes, as computed under section 469.177;

(2) the proceeds from the sale or lease of property, tangible or intangible, purchased by the authority with tax increments;

(3) ~~repayments of~~ principal and interest received on loans or other advances made by the authority with tax increments; and

(4) interest or other investment earnings on or from tax increments.

[EFFECTIVE DATE.] This section is effective for districts for which the request for certification was made after June 30, 1982, and payments of principal and interest received on loans or other advances that were made after June 30, 1997.

Sec. 5. Minnesota Statutes 2002, section 469.174, is amended by adding a subdivision to read:

Subd. 29. [QUALIFIED HOUSING DISTRICT.] "Qualified housing district" means:

(1) a housing district for a residential rental project or projects in which the only properties receiving assistance from revenues derived from tax increments from the district meet the rent restriction requirements and the low-income occupancy test for a qualified low-income housing project under section 42(g) of the Internal Revenue Code of 1986, as amended through December 31, 2002, regardless of whether the project actually receives a low-income housing credit; or

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(2) a housing district for a single-family homeownership project or projects, if 95 percent or more of the homes receiving assistance from tax increments from the district are purchased by qualified purchasers. A qualified purchaser means the first purchaser of a home after the tax increment assistance is provided whose income is at or below 85 percent of the median gross income for a family of the same size as the purchaser. Median gross income is the greater of (i) area median gross income, or (ii) the statewide median gross income, as determined by the secretary of Housing and Urban Development.

[EFFECTIVE DATE.] This section applies to all districts for which the request for certification was made on or after January 1, 2002, and to all districts to which the definition of qualified housing districts under Minnesota Statutes 2000, section 273.1399, applied.

Sec. 6. Minnesota Statutes 2002, section 469.175, subdivision 1, is amended to read:

Subdivision 1. [TAX INCREMENT FINANCING PLAN.] A tax increment financing plan shall contain:

(1) a statement of objectives of an authority for the improvement of a project;

(2) a statement as to the development program for the project, including the property within the project, if any, that the authority intends to acquire;

(3) a list of any development activities that the plan proposes to take place within the project, for which contracts have been entered into at the time of the preparation of the plan, including the names of the parties to the contract, the activity governed by the contract, the cost stated in the contract, and the expected date of completion of that activity;

(4) identification or description of the type of any other specific development reasonably expected to take place within the project, and the date when the development is likely to occur;

(5) estimates of the following:

(i) cost of the project, including ~~administration~~ administrative expenses, except that if part of the cost of the project is paid or financed with increment from the tax increment financing district, the tax increment financing plan for the district must contain an estimate of the amount of the cost of the project, including administrative expenses, that will be paid or financed with tax increments from the district;

(ii) amount of bonded indebtedness to be incurred;

(iii) sources of revenue to finance or otherwise pay public costs;

(iv) the most recent net tax capacity of taxable real property within the tax increment financing district and within any subdistrict;

(v) the estimated captured net tax capacity of the tax increment financing district at completion; and

(vi) the duration of the tax increment financing district's and any subdistrict's existence;

(6) statements of the authority's alternate estimates of the impact of tax increment financing on the net tax capacities of all taxing jurisdictions in which the tax increment financing district is located in whole or in part. For purposes of one statement, the authority shall assume that the estimated captured net tax capacity would be available to the taxing jurisdictions without creation of the district, and for purposes of the second statement, the authority shall assume that none of the estimated captured net tax capacity would be available to the taxing jurisdictions without creation of the district or subdistrict;

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(7) identification and description of studies and analyses used to make the determination set forth in subdivision 3, clause (2); and

(8) identification of all parcels to be included in the district or any subdistrict.

[EFFECTIVE DATE.] This section applies to districts for which the request for certification was made after July 31, 1979, and is effective for tax increment financing plans and modifications approved after June 30, 2003.

Sec. 7. Minnesota Statutes 2002, section 469.175, subdivision 3, is amended to read:

Subd. 3. [MUNICIPALITY APPROVAL.] (a) A county auditor shall not certify the original net tax capacity of a tax increment financing district until the tax increment financing plan proposed for that district has been approved by the municipality in which the district is located. If an authority that proposes to establish a tax increment financing district and the municipality are not the same, the authority shall apply to the municipality in which the district is proposed to be located and shall obtain the approval of its tax increment financing plan by the municipality before the authority may use tax increment financing. The municipality shall approve the tax increment financing plan only after a public hearing thereon after published notice in a newspaper of general circulation in the municipality at least once not less than ten days nor more than 30 days prior to the date of the hearing. The published notice must include a map of the area of the district from which increments may be collected and, if the project area includes additional area, a map of the project area in which the increments may be expended. The hearing may be held before or after the approval or creation of the project or it may be held in conjunction with a hearing to approve the project.

(b) Before or at the time of approval of the tax increment financing plan, the municipality shall make the following findings, and shall set forth in writing the reasons and supporting facts for each determination:

(1) that the proposed tax increment financing district is a redevelopment district, a renewal or renovation district, a housing district, a soils condition district, or an economic development district; if the proposed district is a redevelopment district or a renewal or renovation district, the reasons and supporting facts for the determination that the district meets the criteria of section 469.174, subdivision 10, paragraph (a), clauses (1) and (2), or subdivision 10a, must be documented in writing and retained and made available to the public by the authority until the district has been terminated;

(2) that ~~the proposed development or redevelopment~~, in the opinion of the municipality,:

(i) the proposed development or redevelopment would not reasonably be expected to occur solely through private investment within the reasonably foreseeable future; and ~~that~~

(ii) the increased market value of the site that could reasonably be expected to occur without the use of tax increment financing would be less than the increase in the market value estimated to result from the proposed development after subtracting the present value of the projected tax increments for the maximum duration of the district permitted by the plan. The requirements of this ~~clause~~ item do not apply if the district is a qualified housing district~~, as defined in section 273.1399, subdivision 1~~;

(3) that the tax increment financing plan conforms to the general plan for the development or redevelopment of the municipality as a whole;

(4) that the tax increment financing plan will afford maximum opportunity, consistent with the sound needs of the municipality as a whole, for the development or redevelopment of the project by private enterprise;

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(5) that the municipality elects the method of tax increment computation set forth in section 469.177, subdivision 3, clause (b), if applicable.

(c) When the municipality and the authority are not the same, the municipality shall approve or disapprove the tax increment financing plan within 60 days of submission by the authority. When the municipality and the authority are not the same, the municipality may not amend or modify a tax increment financing plan except as proposed by the authority pursuant to subdivision 4. Once approved, the determination of the authority to undertake the project through the use of tax increment financing and the resolution of the governing body shall be conclusive of the findings therein and of the public need for the financing.

(d) For a district that is subject to the requirements of paragraph (b), clause (2), item (ii), the municipality's statement of reasons and supporting facts must include all of the following:

(1) an estimate of the amount by which the market value of the site will increase without the use of tax increment financing;

(2) an estimate of the increase in the market value that will result from the development or redevelopment to be assisted with tax increment financing; and

(3) the present value of the projected tax increments for the maximum duration of the district permitted by the tax increment financing plan.

(e) For purposes of this subdivision, "site" means the parcels on which the development or redevelopment to be assisted with tax increment financing will be located.

[EFFECTIVE DATE.] This section is effective for determinations made after June 30, 2003, except the provisions of paragraph (e) apply to requests for certification of tax increment districts made after June 30, 1995.

Sec. 8. Minnesota Statutes 2002, section 469.175, subdivision 4, is amended to read:

Subd. 4. [MODIFICATION OF PLAN.] (a) A tax increment financing plan may be modified by an authority~~, provided that~~.

(b) The authority may make the following modifications only upon the notice and after the discussion, public hearing, and findings required for approval of the original plan:

(1) any reduction or enlargement of geographic area of the project or tax increment financing district, that does not meet the requirements of paragraph (e);

(2) increase in amount of bonded indebtedness to be incurred~~, including~~;

(3) a determination to capitalize interest on the debt if that determination was not a part of the original plan, or to increase or decrease the amount of interest on the debt to be capitalized,;

(4) increase in the portion of the captured net tax capacity to be retained by the authority,;

(5) increase in ~~total estimated tax increment expenditures~~ the estimate of the cost of the project, including administrative expenses, that will be paid or financed with tax increment from the district; or

(6) designation of additional property to be acquired by the authority ~~shall be approved upon the notice and after the discussion, public hearing, and findings required for approval of the original plan; provided that~~.

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(c) If an authority changes the type of district ~~from housing, redevelopment, or economic development~~ to another type of district, this change ~~shall~~ is not ~~be considered~~ a modification but ~~shall require~~ requires the authority to follow the procedure set forth in sections 469.174 to 469.179 for adoption of a new plan, including certification of the net tax capacity of the district by the county auditor.

(d) If a redevelopment district or a renewal and renovation district is enlarged, the reasons and supporting facts for the determination that the addition to the district meets the criteria of section 469.174, subdivision 10, paragraph (a), clauses (1) and (2), or subdivision 10a, must be documented.

(e) The requirements of ~~this~~ paragraph (b) do not apply if (1) the only modification is elimination of parcels from the project or district and (2)(A) the current net tax capacity of the parcels eliminated from the district equals or exceeds the net tax capacity of those parcels in the district's original net tax capacity or (B) the authority agrees that, notwithstanding section 469.177, subdivision 1, the original net tax capacity will be reduced by no more than the current net tax capacity of the parcels eliminated from the district. The authority must notify the county auditor of any modification that reduces or enlarges the geographic area of a district or a project area.

~~(b)~~ (f) The geographic area of a tax increment financing district may be reduced, but shall not be enlarged after five years following the date of certification of the original net tax capacity by the county auditor or after August 1, 1984, for tax increment financing districts authorized prior to August 1, 1979.

[EFFECTIVE DATE.] This section applies to districts for which the request for certification was made after June 30, 2003. The development authority may elect to have this section apply to a tax increment financing plan or modification that was approved before July 1, 2003, by adopting before January 1, 2004, a modification of the plan that states the amount of the cost of the project, including administrative expenses, that will be paid or financed with tax increments from the district. Section 469.175, subdivision 4, paragraph (b), does not apply to a modification adopted under this section if the modification is exclusively for the purpose of stating the amount of the cost of the project, including administrative expenses, that will be paid or financed with tax increment from the district. For districts for which the request for certification was made after July 31, 1979, and for which this section is not effective, the total estimated tax increment expenditures are determined by considering all of the information in the tax increment financing plan and exhibits to the plan about estimated sources and uses of funds.

For districts for which certification was requested after June 30, 1982, and before July 1, 2003, and for which the plan has not been amended after July 1, 2003, the limit on administrative expenses equals the greater of (1) nine percent of the increments for the district or (2) the amount determined under section 469.176, subdivision 3, and the tax increment financing plan.

Sec. 9. Minnesota Statutes 2002, section 469.175, subdivision 6, is amended to read:

Subd. 6. [ANNUAL FINANCIAL REPORTING.] (a) The state auditor shall develop a uniform system of accounting and financial reporting for tax increment financing districts. The system of accounting and financial reporting shall, as nearly as possible:

(1) provide for full disclosure of the sources and uses of public funds in the district;

(2) permit comparison and reconciliation with the affected local government's accounts and financial reports;

(3) permit auditing of the funds expended on behalf of a district, including a single district that is part of a multidistrict project or that is funded in part or whole through the use of a development account funded with tax increments from other districts or with other public money;

(4) be consistent with generally accepted accounting principles.

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(b) The authority must annually submit to the state auditor a financial report in compliance with paragraph (a). Copies of the report must also be provided to the county auditor and to the governing body of the municipality, if the authority is not the municipality. To the extent necessary to permit compliance with the requirement of financial reporting, the county and any other appropriate local government unit or private entity must provide the necessary records or information to the authority or the state auditor as provided by the system of accounting and financial reporting developed pursuant to paragraph (a). The authority must submit the annual report for a year on or before August 1 of the next year.

(1) the original net tax capacity of the district and any subdistrict under section 469.177, subdivision 1;

(2) the net tax capacity for the reporting period of the district and any subdistrict;

(3) the captured net tax capacity of the district;

(4) any fiscal disparity deduction from the captured net tax capacity under section 469.177, subdivision 3;

(5) the captured net tax capacity retained for tax increment financing under section 469.177, subdivision 2, paragraph (a), clause (1);

(6) any captured net tax capacity distributed among affected taxing districts under section 469.177, subdivision 2, paragraph (a), clause (2);

(7) the type of district;

(8) the date the municipality approved the tax increment financing plan and the date of approval of any modification of the tax increment financing plan, the approval of which requires notice, discussion, a public hearing, and findings under subdivision 4, paragraph (a);

(9) the date the authority first requested certification of the original net tax capacity of the district and the date of the request for certification regarding any parcel added to the district;

(10) the date the county auditor first certified the original net tax capacity of the district and the date of certification of the original net tax capacity of any parcel added to the district;

(11) the month and year in which the authority has received or anticipates it will receive the first increment from the district;

(12) the date the district must be decertified;

(13) for the reporting period and prior years of the district, the actual amount received from, at least, the following categories:

(i) tax increments paid by the captured net tax capacity retained for tax increment financing under section 469.177, subdivision 2, paragraph (a), clause (1), but excluding any excess taxes;

(ii) tax increments that are interest or other investment earnings on or from tax increments;

(iii) tax increments that are proceeds from the sale or lease of property, tangible or intangible, purchased by the authority with tax increments;

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(iv) tax increments that are repayments of loans or other advances made by the authority with tax increments;

(v) bond or loan proceeds;

(vi) special assessments;

(vii) grants; and

(viii) transfers from funds not exclusively associated with the district;

(14) for the reporting period and for the prior years of the district, ~~the amount budgeted under the tax increment financing plan, and~~ the actual amount expended for, at least, the following categories:

(i) acquisition of land and buildings through condemnation or purchase;

(ii) site improvements or preparation costs;

(iii) installation of public utilities, parking facilities, streets, roads, sidewalks, or other similar public improvements;

(iv) administrative costs, including the allocated cost of the authority;

(v) public park facilities, facilities for social, recreational, or conference purposes, or other similar public improvements; and

(vi) transfers to funds not exclusively associated with the district;

(15) for properties sold to developers, the total cost of the property to the authority and the price paid by the developer;

(16) the amount of any payments and the value of any in-kind benefits, such as physical improvements and the use of building space, that are paid or financed with tax increments and are provided to another governmental unit other than the municipality during the reporting period;

(17) the amount of any payments for activities and improvements located outside of the district that are paid for or financed with tax increments;

(18) the amount of payments of principal and interest that are made during the reporting period on any nondefeased:

(i) general obligation tax increment financing bonds;

(ii) other tax increment financing bonds; and

(iii) notes and pay-as-you-go contracts;

(19) the principal amount, at the end of the reporting period, of any nondefeased:

(i) general obligation tax increment financing bonds;

(ii) other tax increment financing bonds; and

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(iii) notes and pay-as-you-go contracts;

(20) the amount of principal and interest payments that are due for the current calendar year on any nondefeased:

(i) general obligation tax increment financing bonds;

(ii) other tax increment financing bonds; and

(iii) notes and pay-as-you-go contracts;

(21) if the fiscal disparities contribution under chapter 276A or 473F for the district is computed under section 469.177, subdivision 3, paragraph (a), the amount of increased property taxes imposed on other properties in the municipality that approved the tax increment financing plan as a result of the fiscal disparities contribution;

(22) whether the tax increment financing plan or other governing document permits increment revenues to be expended:

(i) to pay bonds, the proceeds of which were or may be expended on activities outside of the district;

(ii) for deposit into a common bond fund from which money may be expended on activities located outside of the district; or

(iii) to otherwise finance activities located outside of the tax increment financing district; ~~and~~

(23) the estimate, if any, contained in the tax increment financing plan of the amount of the cost of the project, including administrative expenses, that will be paid or financed with tax increment; and

(24) any additional information the state auditor may require.

(d) The commissioner of revenue shall prescribe the method of calculating the increased property taxes under paragraph (c), clause (21), and the form of the statement disclosing this information on the annual statement under subdivision 5.

(e) The reporting requirements imposed by this subdivision apply to districts certified before, on, and after August 1, 1979.

[EFFECTIVE DATE.] This section is effective beginning with the reports due in calendar year 2004.

Sec. 10. Minnesota Statutes 2002, section 469.176, subdivision 1c, is amended to read:

Subd. 1c. [DURATION LIMITS; PRE-1979 DISTRICTS.] (a) For tax increment financing districts created prior to August 1, 1979, no tax increment shall be paid to the authority after April 1, 2001, or the term of a nondefeased bond or obligation outstanding on April 1, 1990, secured by increments from the district or project area, whichever time is greater, provided that in no case will a tax increment be paid to an authority after August 1, 2009, from such a district. If a district's termination date is extended beyond April 1, 2001, because bonds were outstanding on April 1, 1990, with maturities extending beyond April 1, 2001, the following restrictions apply. No increment collected from the district may be expended after April 1, 2001, except to pay or ~~defease (i)~~ repay:

(1) bonds issued before April 1, 1990~~, or (ii)~~;

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(2) bonds issued to refund the principal of the outstanding bonds and pay associated issuance costs~~, provided the average maturity of the refunding bonds does not exceed the bonds refunded~~;

(3) administrative expenses of the district required to be paid under section 469.176, subdivision 4h, paragraph (a);

(4) transfers of increment permitted under section 469.1763, subdivision 6; and

(5) any advance or payment made by the municipality or the authority after June 1, 2002, to pay any bonds listed in clause (1) or (2).

(b) Each year, any increments from a district subject to this subdivision must be first applied to pay obligations listed under paragraph (a), clauses (1) and (2), and administrative expenses under paragraph (a), clause (3). Any remaining increments may be used for transfers of increments permitted under section 469.1763, subdivision 6, and to make payments under paragraph (a), clause (5).

(c) When sufficient money has been received to pay in full or defease obligations under paragraph (a), clauses (1), (2), and (5), the tax increment project or district must be decertified.

[EFFECTIVE DATE.] This section is effective the day following final enactment and applies to tax increment financing districts for which the request for certification was made before August 1, 1979.

Sec. 11. Minnesota Statutes 2002, section 469.176, subdivision 2, is amended to read:

Subd. 2. [EXCESS ~~TAX~~ INCREMENTS.] In any year in which the tax increment exceeds the amount necessary to pay the costs authorized by the tax increment financing plan, including the amount necessary to cancel any tax levy as provided in section 475.61, subdivision 3, (a) The authority shall annually determine the amount of excess increments for a district, if any. This determination must be based on the tax increment financing plan in effect on December 31 of the year and the increments and other revenues received as of December 31 of the year.

(b) For purposes of this subdivision, "excess increments" equals the excess of:

(1) total increments collected from the district since its certification, reduced by any excess increments paid under paragraph (c), clause (4), for a prior year, over

(2) the total costs authorized by the tax increment financing plan to be paid with increments from the district, reduced, but not below zero, by the sum of:

(i) the amounts of those authorized costs that have been paid from sources other than tax increments from the district;

(ii) revenues, other than tax increments from the district, that are dedicated for or otherwise required to be used to pay those authorized costs and that the authority has received and that are not included in item (i); and

(iii) the amount of principal and interest obligations due on outstanding bonds after December 31 of the year and not prepaid under paragraph (c) in a prior year.

(1) prepay any outstanding bonds,;

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(2) discharge the pledge of tax increment ~~therefor,~~ for any outstanding bonds;

(3) pay into an escrow account dedicated to the payment of ~~such bond,~~ any outstanding bonds; or

(4) return the excess amount to the county auditor who shall distribute the excess amount to the ~~municipality~~ city or town, county, and school district in which the tax increment financing district is located in direct proportion to their respective local tax rates.

(d) The county auditor must report to the commissioner of children, families, and learning the amount of any excess tax increment distributed to a school district within 30 days of the distribution.

[EFFECTIVE DATE.] This section is effective for all tax increment financing districts, regardless of whether the request for certification was made before, on, or after August 1, 1979, and applies after August 1, 2003, except the amendment to paragraph (c), clause (4), applies retroactively to August 1, 1979.

Sec. 12. Minnesota Statutes 2002, section 469.176, subdivision 3, is amended to read:

Subd. 3. [LIMITATION ON ADMINISTRATIVE EXPENSES.] (a) For districts for which certification was requested before August 1, 1979, or after June 30, 1982 and before August 1, 2001, no tax increment shall be used to pay any administrative expenses for a project which exceed ten percent of the total estimated tax increment expenditures authorized by the tax increment financing plan or the total tax increment expenditures for the project, whichever is less.

(b) For districts for which certification was requested after July 31, 1979, and before July 1, 1982, no tax increment shall be used to pay administrative expenses, as defined in Minnesota Statutes 1980, section 273.73, for a district which exceeds five percent of the total tax increment expenditures authorized by the tax increment financing plan or the total estimated tax increment expenditures for the district, whichever is less.

(c) For districts for which certification was requested after July 31, 2001, no tax increment may be used to pay any administrative expenses for a project which exceed ten percent of total estimated tax increment expenditures authorized by the tax increment financing plan or the total tax increments, as defined in section 469.174, subdivision 25, clause (1), from the district, whichever is less.

[EFFECTIVE DATE.] This section is effective for districts for which the request for certification was made before, on, or after August 1, 1979.

Sec. 13. Minnesota Statutes 2002, section 469.176, subdivision 7, is amended to read:

Subd. 7. [PARCELS NOT INCLUDABLE IN DISTRICTS.] (a) The authority may request inclusion in a tax increment financing district and the county auditor may certify the original tax capacity of a parcel or a part of a parcel that qualified under the provisions of section 273.111 or 273.112 or chapter 473H for taxes payable in any of the five calendar years before the filing of the request for certification only for:

(1) a district in which 85 percent or more of the planned buildings and facilities (determined on the basis of square footage) are a qualified manufacturing facility or a qualified distribution facility or a combination of both; or

(2) a qualified housing district ~~as defined in section 273.1399, subdivision 1~~.

(b)(1) A distribution facility means buildings and other improvements to real property that are used to conduct activities in at least each of the following categories:

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(i) to store or warehouse tangible personal property;

(ii) to take orders for shipment, mailing, or delivery;

(iii) to prepare personal property for shipment, mailing, or delivery; and

(iv) to ship, mail, or deliver property.

(2) A manufacturing facility includes space used for manufacturing or producing tangible personal property, including processing resulting in the change in condition of the property, and space necessary for and related to the manufacturing activities.

(3) To be a qualified facility, the owner or operator of a manufacturing or distribution facility must agree to pay and pay 90 percent or more of the employees of the facility at a rate equal to or greater than 160 percent of the federal minimum wage for individuals over the age of 20.

Sec. 14. Minnesota Statutes 2002, section 469.1763, subdivision 1, is amended to read:

Subdivision 1. [DEFINITIONS.] (a) For purposes of this section, the following terms have the meanings given.

(b) "Activities" means acquisition of property, clearing of land, site preparation, soils correction, removal of hazardous waste or pollution, installation of utilities, construction of public or private improvements, and other similar activities, but only to the extent that tax increment revenues may be spent for such purposes under other law.

(c) "Third party" means an entity other than (1) the person receiving the benefit of assistance financed with tax increments, or (2) the municipality or the development authority or other person substantially under the control of the municipality.

(d) "Revenues derived from tax increments paid by properties in the district" means only tax increment as defined in section 469.174, subdivision 25, clause (1), and does not include tax increment as defined in section 469.174, subdivision 25, clauses (2), (3), and (4).

[EFFECTIVE DATE.] This section is effective for districts for which the request for certification was made after April 30, 1990.

Sec. 15. Minnesota Statutes 2002, section 469.1763, subdivision 3, is amended to read:

Subd. 3. [FIVE-YEAR RULE.] (a) Revenues derived from tax increments are considered to have been expended on an activity within the district under subdivision 2 only if one of the following occurs:

(1) before or within five years after certification of the district, the revenues are actually paid to a third party with respect to the activity;

(2) bonds, the proceeds of which must be used to finance the activity, are issued and sold to a third party before or within five years after certification, the revenues are spent to repay the bonds, and the proceeds of the bonds either are, on the date of issuance, reasonably expected to be spent before the end of the later of (i) the five-year period, or (ii) a reasonable temporary period within the meaning of the use of that term under section 148(c)(1) of the Internal Revenue Code, or are deposited in a reasonably required reserve or replacement fund;

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(3) binding contracts with a third party are entered into for performance of the activity before or within five years after certification of the district and the revenues are spent under the contractual obligation; or

(4) costs with respect to the activity are paid before or within five years after certification of the district and the revenues are spent to reimburse a party for payment of the costs, including interest on unreimbursed costs; or

(5) expenditures are made for housing purposes as permitted by subdivision 2, paragraph (b).

(b) For purposes of this subdivision, bonds include subsequent refunding bonds if the original refunded bonds meet the requirements of paragraph (a), clause (2).

[EFFECTIVE DATE.] This section is effective for expenditures made after June 30, 2003.

Sec. 16. Minnesota Statutes 2002, section 469.1763, subdivision 6, is amended to read:

Subd. 6. [POOLING PERMITTED FOR DEFICITS.] (a) This subdivision applies only to districts for which the request for certification was made before August 1, 2001, and without regard to whether the request for certification was made prior to August 1, 1979.

(b) The municipality for the district may transfer available increments from another tax increment financing district located in the municipality, if the transfer is necessary to eliminate a deficit in the district to which the increments are transferred. A deficit in the district for purposes of this subdivision means the lesser of the following two amounts:

(1)(i) the amount due during the calendar year to pay preexisting obligations of the district; minus

(ii) the total increments collected or to be collected from properties located within the district that are available for the calendar year including amounts collected in prior years that are currently available; plus

(iii) total increments from properties located in other districts in the municipality including amounts collected in prior years that are available to be used to meet the district's obligations under this section, excluding this subdivision, or other provisions of law (but excluding a special tax under section 469.1791 and the grant program under Laws 1997, chapter 231, article 1, section 19, or Laws 2001, First Special Session chapter 5); or

(2) the reduction in increments collected from properties located in the district for the calendar year as a result of the changes in class rates in Laws 1997, chapter 231, article 1; Laws 1998, chapter 389, article 2; and Laws 1999, chapter 243, and Laws 2001, First Special Session chapter 5, or the elimination of the general education tax levy under Laws 2001, First Special Session chapter 5.

(1) bonds issued and sold before August 1, 2001, or bonds issued pursuant to a binding contract requiring the issuance of bonds entered into before July 1, 2001, and bonds issued to refund such bonds or to reimburse expenditures made in conjunction with a signed contractual agreement entered into before August 1, 2001, to the extent that the bonds are secured by a pledge of increments from the tax increment financing district; and

(2) binding contracts entered into before August 1, 2001, to the extent that the contracts require payments secured by a pledge of increments from the tax increment financing district.

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(d) The municipality may require a development authority, other than a seaway port authority, to transfer available increments including amounts collected in prior years that are currently available for any of its tax increment financing districts in the municipality to make up an insufficiency in another district in the municipality, regardless of whether the district was established by the development authority or another development authority. This authority applies notwithstanding any law to the contrary, but applies only to a development authority that:

(1) was established by the municipality; or

(2) the governing body of which is appointed, in whole or part, by the municipality or an officer of the municipality or which consists, in whole or part, of members of the governing body of the municipality. The municipality may use this authority only after it has first used all available increments of the receiving development authority to eliminate the insufficiency and exercised any permitted action under section 469.1792, subdivision 3, for preexisting districts of the receiving development authority to eliminate the insufficiency.

(e) The authority under this subdivision to spend tax increments outside of the area of the district from which the tax increments were collected:

(1) ~~may only be exercised after obtaining approval of the use of the increments, in writing, by the commissioner of revenue;~~

~~(2)~~ is an exception to the restrictions under section 469.176, subdivision 4i, and the other provisions of this section, and the percentage restrictions under subdivision 2 must be calculated after deducting increments spent under this subdivision from the total increments for the district; and

~~(3)~~ (2) applies notwithstanding the provisions of the Tax Increment Financing Act in effect for districts for which the request for certification was made before June 30, 1982, or any other law to the contrary.

(f) If a preexisting obligation requires the development authority to pay an amount that is limited to the increment from the district or a specific development within the district and if the obligation requires paying a higher amount to the extent that increments are available, the municipality may determine that the amount due under the preexisting obligation equals the higher amount and may authorize the transfer of increments under this subdivision to pay up to the higher amount. The existence of a guarantee of obligations by the individual or entity that would receive the payment under this paragraph is disregarded in the determination of eligibility to pool under this subdivision. The authority to transfer increments under this paragraph may only be used to the extent that the payment of all other preexisting obligations in the municipality due during the calendar year have been satisfied.

[EFFECTIVE DATE.] This section is effective retroactively to January 2, 2002, and thereafter.

Sec. 17. Minnesota Statutes 2002, section 469.177, subdivision 1, is amended to read:

Subdivision 1. [ORIGINAL NET TAX CAPACITY.] (a) Upon or after adoption of a tax increment financing plan, the auditor of any county in which the district is situated shall, upon request of the authority, certify the original net tax capacity of the tax increment financing district and that portion of the district overlying any subdistrict as described in the tax increment financing plan and shall certify in each year thereafter the amount by which the original net tax capacity has increased or decreased as a result of a change in tax exempt status of property within the district and any subdistrict, reduction or enlargement of the district or changes pursuant to subdivision 4.

(b) ~~For districts approved under section 469.175, subdivision 3, or parcels added to existing districts after May 1, 1988,~~ If the classification under section 273.13 of property located in a district changes to a classification that has a different assessment ratio, the original net tax capacity of that property must be redetermined at the time when its use is changed as if the property had originally been classified in the same class in which it is classified after its use is changed.

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(c) The amount to be added to the original net tax capacity of the district as a result of previously tax exempt real property within the district becoming taxable equals the net tax capacity of the real property as most recently assessed pursuant to section 273.18 or, if that assessment was made more than one year prior to the date of title transfer rendering the property taxable, the net tax capacity assessed by the assessor at the time of the transfer. If improvements are made to tax exempt property after certification of the district and before the parcel becomes taxable, the assessor shall, at the request of the authority, separately assess the estimated market value of the improvements. If the property becomes taxable, the county auditor shall add to original net tax capacity, the net tax capacity of the parcel, excluding the separately assessed improvements. If substantial taxable improvements were made to a parcel after certification of the district and if the property later becomes tax exempt, in whole or part, as a result of the authority acquiring the property through foreclosure or exercise of remedies under a lease or other revenue agreement or as a result of tax forfeiture, the amount to be added to the original net tax capacity of the district as a result of the property again becoming taxable is the amount of the parcel's value that was included in original net tax capacity when the parcel was first certified. The amount to be added to the original net tax capacity of the district as a result of enlargements equals the net tax capacity of the added real property as most recently certified by the commissioner of revenue as of the date of modification of the tax increment financing plan pursuant to section 469.175, subdivision 4.

(d) ~~For districts approved under section 469.175, subdivision 3, or parcels added to existing districts after May 1, 1988,~~ If the net tax capacity of a property increases because the property no longer qualifies under the Minnesota Agricultural Property Tax Law, section 273.111; the Minnesota Open Space Property Tax Law, section 273.112; or the Metropolitan Agricultural Preserves Act, chapter 473H, or because platted, unimproved property is improved or three years pass after approval of the plat under section 273.11, subdivision 1, the increase in net tax capacity must be added to the original net tax capacity.

(e) The amount to be subtracted from the original net tax capacity of the district as a result of previously taxable real property within the district becoming tax exempt, or a reduction in the geographic area of the district, shall be the amount of original net tax capacity initially attributed to the property becoming tax exempt or being removed from the district. If the net tax capacity of property located within the tax increment financing district is reduced by reason of a court-ordered abatement, stipulation agreement, voluntary abatement made by the assessor or auditor or by order of the commissioner of revenue, the reduction shall be applied to the original net tax capacity of the district when the property upon which the abatement is made has not been improved since the date of certification of the district and to the captured net tax capacity of the district in each year thereafter when the abatement relates to improvements made after the date of certification. The county auditor may specify reasonable form and content of the request for certification of the authority and any modification thereof pursuant to section 469.175, subdivision 4.

(f) If a parcel of property contained a substandard building that was demolished or removed and if the authority elects to treat the parcel as occupied by a substandard building under section 469.174, subdivision 10, paragraph (b), the auditor shall certify the original net tax capacity of the parcel using the greater of (1) the current net tax capacity of the parcel, or (2) the estimated market value of the parcel for the year in which the building was demolished or removed, but applying the class rates for the current year.

[EFFECTIVE DATE.] This section applies to all districts, regardless of whether the request for certification was made before, on, or after August 1, 1979, beginning for taxes payable in 2004. This section requires adjustment of the original tax capacity under Minnesota Statutes, section 469.177, subdivision 7, of all parcels for class rate changes enacted after May 1, 1988, regardless of whether the classification of the property has changed after the certification of the district. This section requires adjustment of original tax capacity for changes in the classification of the property, only if the change in use occurs after December 31, 2002.

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Sec. 18. Minnesota Statutes 2002, section 469.177, subdivision 12, is amended to read:

Subd. 12. [DECERTIFICATION OF TAX INCREMENT FINANCING DISTRICT.] The county auditor shall decertify a tax increment financing district when the earliest of the following times is reached:

(1) the applicable maximum duration limit under section 469.176, subdivisions 1a to 1g;

(2) the maximum duration limit, if any, provided by the municipality pursuant to section 469.176, subdivision 1;

(3) the time of decertification specified in section 469.1761, subdivision 4, if the commissioner of revenue issues an order of noncompliance and the maximum duration limit for economic development districts has been exceeded;

(4) upon completion of the required actions to allow decertification under section 469.1763, subdivision 4; or

(5) upon the later of receipt by the county auditor of a written request for decertification from the authority that requested certification of the original net tax capacity of the district or its successor or the decertification date specified in the request.

[EFFECTIVE DATE.] This section is effective for all districts regardless of whether the request for certification was made before, on, or after August 1, 1979.

Sec. 19. Minnesota Statutes 2002, section 469.1771, subdivision 4, is amended to read:

Subd. 4. [LIMITATIONS.] (a) If the increments are pledged to repay bonds that were issued before the lawsuit was filed under this section, the damages under this section may not exceed the greater of (1) ten percent of the expenditures or revenues derived from increment, or (2) the amount of available revenues after paying debt services due on the bonds.

(b) The court may abate all or part of the amount if it determines the unauthorized action or failure to perform the required action was taken in good faith and the payment would work an undue hardship on the authority or municipality.

[EFFECTIVE DATE.] This section is effective for violations occurring after December 31, 1990.

Sec. 20. Minnesota Statutes 2002, section 469.1771, is amended by adding a subdivision to read:

Subd. 7. [LIMITATIONS ON ACTIONS.] An action under subdivision 1, paragraph (a), contesting the validity of a determination by an authority under section 469.175, subdivision 3, must be commenced within the later of:

(1) 180 days after the municipality's approval under section 469.175, subdivision 3; or

(2) 90 days after the request for certification of the district is filed with the county auditor under section 469.177, subdivision 1.

[EFFECTIVE DATE.] This section is effective for actions filed after the day following final enactment.

Sec. 21. Minnesota Statutes 2002, section 469.178, subdivision 7, is amended to read:

Subd. 7. [INTERFUND LOANS.] The authority or municipality may advance or loan money to finance expenditures under section 469.176, subdivision 4, from its general fund or any other fund under which it has legal authority to do so. The loan or advance must be ~~approved~~ authorized, by resolution of the governing body, before

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money is transferred, advanced, or spent, whichever is earliest. The resolution may generally grant to the authority the power to make interfund loans under one or more tax increment financing plans or for one or more districts. The terms and conditions for repayment of the loan must be provided in writing and include, at a minimum, the principal amount, the interest rate, and maximum term. The maximum rate of interest permitted to be charged is limited to the greater of the rates specified under section 270.75 or 549.09 as of the date or advance is made, unless the written agreement states that the maximum interest rate will fluctuate as the interest rates specified under section 270.75 or 549.09 are from time to time adjusted.

[EFFECTIVE DATE.] This section is effective for loans and advances made after July 31, 2001, and for districts for which the request for certification was made after July 31, 1979.

Sec. 22. Minnesota Statutes 2002, section 469.1791, subdivision 3, is amended to read:

Subd. 3. [PRECONDITIONS TO ESTABLISH DISTRICT.] (a) A city may establish a special taxing district within a tax increment financing district under this section only if the conditions under paragraphs (b) and (c) are met or if the city elects to exercise the authority under paragraph (d).

(b) The city has determined that:

(1) total tax increments from the district, including unspent increments from previous years and increments transferred under paragraph (c), will be insufficient to pay the amounts due in a year on preexisting obligations; and

(2) this insufficiency of increments resulted from the reduction in property tax class rates enacted in the 1997 and 1998 legislative sessions.

(c) The city has agreed to transfer any available increments from other tax increment financing districts in the city to pay the preexisting obligations of the district under section 469.1763, subdivision 6. This requirement does not apply to any available increments of a qualified housing district~~, as defined in section 273.1399, subdivision 1~~.

(d) If a tax increment financing district does not qualify under paragraphs (b) and (c), the governing body may elect to establish a special taxing district under this section. If the city elects to exercise this authority, increments from the tax increment financing district and the proceeds of the tax imposed under this section may only be used to pay preexisting obligations and reasonable administrative expenses of the authority for the tax increment financing district. The tax increment financing district must be decertified when all preexisting obligations have been paid.

Sec. 23. Minnesota Statutes 2002, section 469.1792, subdivision 1, is amended to read:

Subdivision 1. [SCOPE.] This section applies only to an authority with a preexisting district for which:

(1) the increments from the district were insufficient to pay preexisting obligations as a result of the class rate changes or the elimination of the state-determined general education property tax levy under this act, or both; or

(2)(i) the development authority has a binding contract, entered into before August 1, 2001, with a person requiring the authority to pay to the person an amount that may not exceed the increment from the district or a specific development within the district; and

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(ii) the authority is unable to pay the full amount under the contract from the pledged increments or other increments from the district that would have been due if the class rate changes or elimination of the state-determined general education property tax levy or both had not been made under Laws 2001, First Special Session chapter 5.

[EFFECTIVE DATE.] This section is effective retroactively to the effective date of the original enactment of section 469.1792, subdivision 1, and applies to all districts for which the request for certification was made after July 1, 1979.

Sec. 24. Minnesota Statutes 2002, section 469.1792, subdivision 2, is amended to read:

Subd. 2. [DEFINITIONS.] (a) For purposes of this section, the following terms have the meanings given.

(b) "Preexisting district" means a tax increment financing district for which the request for certification was made before August 1, 2001.

(1)(i) was issued or approved before August 1, 2001, or was issued pursuant to a binding contract entered into before ~~August~~ July 1, 2001; or

(ii) was issued to refinance an obligation under item (i), if the refinancing does not increase the present value of the debt service; and

(2) is secured by increments from a preexisting district.

[EFFECTIVE DATE.] This section is effective the day following final enactment and applies to districts for which the request for certification was made on, before, or after August 1, 1979, and before August 1, 2001.

Sec. 25. Minnesota Statutes 2002, section 469.1792, subdivision 3, is amended to read:

Subd. 3. [ACTIONS AUTHORIZED.] (a) An authority with a district qualifying under this section may take either or both of the following actions for any or all of its preexisting districts:

(1) the authority may elect that the original local tax rate under section 469.177, subdivision 1a, does not apply to the district; and

(2) the authority may elect the fiscal disparities contribution will be computed under section 469.177, subdivision 3, paragraph (a), regardless of the election that was made for the district or if the district is an economic development district for which the request for certification was made after June 30, 1997.

(b) The authority may take action under this subdivision only after the municipality approves the action, by resolution, after notice and public hearing in the manner provided under section 469.175, subdivision 2 3.

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Sec. 26. Minnesota Statutes 2002, section 469.1813, subdivision 8, is amended to read:

Subd. 8. [LIMITATION ON ABATEMENTS.] In any year, the total amount of property taxes abated by a political subdivision under this section may not exceed (1) five percent of the current levy, or (2) $100,000, whichever is greater. The limit under this subdivision does not apply to an uncollected abatement from a prior year that is added to the abatement levy.

[EFFECTIVE DATE.] This section is effective beginning with property taxes levied in 2003, payable in 2004.

Sec. 27. Minnesota Statutes 2002, section 469.1815, subdivision 1, is amended to read:

Subdivision 1. [INCLUSION IN PROPOSED AND FINAL LEVIES.] The political subdivision must add to its levy amount for the current year under sections 275.065 and 275.07 the total estimated amount of all current year abatements granted. If all or a portion of an abatement levy for a prior year was uncollected, the political subdivision may add the uncollected amount to its abatement levy for the current year. The tax amounts shown on the proposed notice under section 275.065, subdivision 3, and on the property tax statement under section 276.04, subdivision 2, are the total amounts before the reduction of any abatements that will be granted on the property.

[EFFECTIVE DATE.] This section is effective beginning with property taxes levied in 2003, payable in 2004.

Sec. 28. Laws 1997, chapter 231, article 10, section 25, is amended to read:

Sec. 25. [EFFECTIVE DATE.]

Sections 1, 3 to 6, 7, and 10, are effective for districts for which the requests for certification are made after June 30, 1997.

Section 2, ~~clauses~~ clause (1) ~~and~~ is effective for all districts, regardless of whether the request for certification was made before, on, or after August 1, 1979. Section 2, clause (4), ~~are~~ is effective for districts for which the requests for certification were made after July 31, 1979, and for payments and investment earnings received after July 1, 1997. Section 2, clauses (2) and (3), are effective for districts for which the request for certification was made after June 30, 1982, and proceeds from sales and leases of properties purchased by the authority after June 30, 1997, and repayments of advances and loans that were made after June 30, 1997.

Sections 8 and 9 apply to all tax increment districts, whenever certified, insofar as the underlying law applies to them, and any uses of tax increment expended prior to the date of enactment of this act which are in compliance with the provisions of those sections are deemed valid.

Sections 12 and 13 are effective on the day the chief clerical officer of the city of Columbia Heights complies with Minnesota Statutes, sections 645.021, subdivision 3.

Sections 17 to 20 are effective the day following final enactment and upon compliance by the governing body with Minnesota Statutes, section 645.021, subdivision 3.

Section 24 is effective the day following final enactment.

[EFFECTIVE DATE.] This section is effective the day following final enactment.

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Sec. 29. Laws 2002, chapter 377, article 7, section 3, the effective date, is amended to read:

[EFFECTIVE DATE.] This section is effective for ~~increments payable in 2002~~ deficits occurring in calendar year 2000 and thereafter.

Sec. 30. Laws 2002, chapter 377, article 11, section 1, is amended to read:

Section 1. [CITY OF MOORHEAD; TAX LEVY AUTHORIZED.]

(a) Each year the city of Moorhead may impose a tax on all class 3a and class 3b property located in the city in an amount which the city determines is equal to the reduction in revenues from increment from all tax increment financing districts in the city resulting from the class rate changes and the elimination of the state-determined general education property levy under Laws 2001, First Special Session chapter 5. The proceeds of this tax and increments from the district may only be used to pay preexisting obligations as defined in Minnesota Statutes, section 469.1763, subdivision 6, whether general obligations or payable wholly from tax increments, and administrative expenses. The tax must be levied and collected in the same manner and as part of the property tax levied by the city and is subject to the same administrative, penalty, and enforcement provisions. A tax imposed under this section is a special levy and is not subject to levy limitations under Minnesota Statutes, section 275.71.

(b) This section expires December 31, ~~2005~~ 2010.

[EFFECTIVE DATE.] This section is effective upon approval by and compliance with Minnesota Statutes, section 645.021, subdivision 3, by the governing body of the city of Moorhead.

Sec. 31. [HOPKINS TAX INCREMENT FINANCING DISTRICT.]

Subdivision 1. [DISTRICT EXTENSION.] (a) The governing body of the city of Hopkins may elect to extend the duration of its redevelopment tax increment financing district 2-11 by up to four additional years.

(b) Notwithstanding any law to the contrary, effective upon approval of this subdivision, no increments may be spent on activities located outside of the area of the district, other than to pay administrative expenses.

Subd. 2. [FIVE-YEAR RULE.] The requirements of Minnesota Statutes, section 469.1763, subdivision 3, that activities must be undertaken within a five-year period from the date of certification of tax increment financing district must be considered to be met for the city of Hopkins redevelopment tax increment district 2-11, if the activities are undertaken within nine years from the date of certification of the district.

[EFFECTIVE DATE.] Subdivision 1 is effective upon compliance with the provisions of Minnesota Statutes, sections 469.1782, subdivision 2, and 645.021. Subdivision 2 is effective upon compliance by the governing body of the city of Hopkins with the provisions of Minnesota Statutes, section 645.021.

ARTICLE 11

MINERALS TAXES

Section 1. Minnesota Statutes 2002, section 273.134, is amended to read:

273.134 [TACONITE AND IRON ORE AREAS; TAX RELIEF AREA; DEFINITIONS.]

(a) For purposes of this section and ~~section~~ sections 273.135 and 273.1391, "municipality" means any city, however organized, or town, ~~and~~ which meets the following qualifications:

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(1) it is a municipality in which the assessed valuation of unmined iron ore on May 1, 1941, was not less than 40 percent of the assessed valuation of all real property; or

(2) it is a municipality in which, on January 1, 1977, or the applicable assessment date, there is a taconite concentrating plant or where taconite is mined or quarried or where there is located an electric generating plant which qualifies as a taconite facility.

"The applicable assessment date" is the date as of which property is listed and assessed for the tax in question.

(b) For the purposes of section 273.135, "tax relief area" means the geographic area contained within the boundaries of a school district ~~on January 2, 2000, which contains a municipality~~ which meets the following qualifications:

(1) it is a ~~municipality~~ school district in which the assessed valuation of unmined iron ore on May 1, 1941, was not less than 40 percent of the assessed valuation of all real property and whose boundaries are within 20 miles of a taconite mine or plant; or

(2) it is a ~~municipality~~ school district in which, on January 1, 1977 or the applicable assessment date, there is a taconite concentrating plant or where taconite is mined or quarried or where there is located an electric generating plant which qualifies as a taconite facility.

For purposes of this paragraph, a "tax relief area" does not include a school district whose boundaries are more than 20 miles from a taconite mine or plant or in which the assessed valuation of unmined iron ore on May 1, 1941, was less than 40 percent of the assessed valuation of all real property.

(b) For purposes of section 273.1391, subdivision 2, paragraph (c), and chapter 298, "tax relief area" means the geographic area contained within the boundaries of a school district which contains a municipality that meets the following qualifications:

~~(1) it is a municipality in which the assessed valuation of unmined iron ore on May 1, 1941, was not less than 40 percent of the assessed valuation of all real property; or~~

[EFFECTIVE DATE.] This section is effective for taxes payable in 2004 and thereafter.

Sec. 2. [273.1341] [TACONITE ASSISTANCE AREA.]

A "taconite assistance area" means the geographic area that falls within the boundaries of a school district that contains a municipality in which the assessed valuation of unmined iron ore on May 1, 1941, was not less than 40 percent of the assessed valuation of all real property.

[EFFECTIVE DATE.] This section is effective for taxes payable in 2004 and thereafter.

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Sec. 3. Minnesota Statutes 2002, section 273.135, subdivision 1, is amended to read:

Subdivision 1. The property tax to be paid in respect to property taxable within a tax relief area as defined in section 273.134, paragraph ~~(a)~~ (b), on homestead property, as otherwise determined by law and regardless of the market value of the property, for all purposes shall be reduced in the amount prescribed by subdivision 2, subject to the limitations contained therein.

[EFFECTIVE DATE.] This section is effective for taxes payable in 2004 and thereafter.

Sec. 4. Minnesota Statutes 2002, section 273.135, subdivision 2, is amended to read:

Subd. 2. The amount of the reduction authorized by subdivision 1 shall be:

(a) In the case of property located within a ~~tax relief area~~ municipality as defined under section 273.134, paragraph (a), ~~that is within the boundaries of a municipality which meets the qualifications prescribed in section 273.134, paragraph (a),~~ 66 percent of the tax, provided that the reduction shall not exceed the maximum amounts specified in paragraph (c).

(b) In the case of property located within the boundaries of a school district which qualifies as a tax relief area under section 273.134, paragraph ~~(a)~~ (b), but which is outside the boundaries of a municipality which meets the qualifications prescribed in section 273.134, paragraph (a), 57 percent of the tax, provided that the reduction shall not exceed the maximum amounts specified in paragraph (c).

(c) The maximum reduction of the tax is $315.10 on property described in paragraph (a) and $289.80 on property described in paragraph (b).

[EFFECTIVE DATE.] This section is effective for taxes payable in 2004 and thereafter.

Sec. 5. Minnesota Statutes 2002, section 273.1391, subdivision 2, is amended to read:

Subd. 2. The amount of the reduction authorized by subdivision 1 shall be:

(a) In the case of property located within a school district which does not meet the qualifications of section 273.134, paragraph (b), as a tax relief area, but which is located in a county with a population of less than 100,000 in which taconite is mined or quarried and wherein a school district is located which does meet the qualifications of a tax relief area, and provided that at least 90 percent of the area of the school district which does not meet the qualifications of section 273.134, paragraph (b), lies within such county, 57 percent of the tax on qualified property located in the school district that does not meet the qualifications of section 273.134, paragraph (b), provided that the amount of said reduction shall not exceed the maximum amounts specified in paragraph (d). The reduction provided by this paragraph shall only be applicable to property located within the boundaries of the county described therein.

(b) In the case of property located within a school district which does not meet the qualifications of section 273.134, paragraph (b), as a tax relief area, but which is located in a school district in a county containing a city of the first class and a ~~qualifying~~ municipality as defined in section 273.134, paragraph (a), but not in a school district containing a city of the first class or adjacent to a school district containing a city of the first class unless the school district so adjacent contains a ~~qualifying~~ municipality as defined in section 273.134, paragraph (a), 57 percent of the tax, but not to exceed the maximums specified in paragraph (d).

(c) In the case of property located within the boundaries of a municipality that meets the qualifications in section 273.134, paragraph ~~(b)~~ (a), but not the qualifications of a tax relief area in section 273.134, paragraph ~~(a)~~ (b), 66 percent of the tax, provided that the reduction shall not exceed $315.10. In the case of property located within the

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boundaries of a school district which qualifies as a ~~tax relief~~ taconite assistance area under section ~~273.134, paragraph (b)~~ 273.1341, but does not qualify as a tax relief area under section 273.134, paragraph ~~(a)~~ (b), but which is outside the boundaries of a municipality which meets the qualifications of the preceding sentence, 57 percent of the tax, provided that the reduction shall not exceed the maximum amounts specified in paragraph (d).

(d) Except as otherwise provided in this section, the maximum reduction of the tax is $289.80.

[EFFECTIVE DATE.] This section is effective for taxes payable in 2004 and thereafter.

Sec. 6. Minnesota Statutes 2002, section 298.2211, subdivision 1, is amended to read:

Subdivision 1. [PURPOSE; GRANT OF AUTHORITY.] In order to accomplish the legislative purposes specified in sections 469.142 to 469.165 and chapter 462C, within tax relief areas as defined in section 273.134, the commissioner of iron range resources and rehabilitation may exercise the following powers: (1) all powers conferred upon a rural development financing authority under sections 469.142 to 469.149; (2) all powers conferred upon a city under chapter 462C; (3) all powers conferred upon a municipality or a redevelopment agency under sections 469.152 to 469.165; (4) all powers provided by sections 469.142 to 469.151 to further any of the purposes and objectives of chapter 462C and sections 469.152 to 469.165; ~~and~~ (5) apply for, borrow, receive, and expend grant and loan money made available from federal sources and from federally funded programs; and (6) all powers conferred upon a municipality or an authority under sections 469.174 to 469.177, 469.178, except subdivision 2 thereof, and 469.179, subject to compliance with the provisions of section 469.175, subdivisions 1, 2, and 3; provided that any tax increments derived by the commissioner from the exercise of this authority may be used only to finance or pay premiums or fees for insurance, letters of credit, or other contracts guaranteeing the payment when due of net rentals under a project lease or the payment of principal and interest due on or repurchase of bonds issued to finance a project or program, to accumulate and maintain reserves securing the payment when due on bonds issued to finance a project or program, or to provide an interest rate reduction program pursuant to section 469.012, subdivision 7. Tax increments and earnings thereon remaining in any bond reserve account after payment or discharge of any bonds secured thereby shall be used within one year thereafter in furtherance of this section or returned to the county auditor of the county in which the tax increment financing district is located. If returned to the county auditor, the county auditor shall immediately allocate the amount among all government units which would have shared therein had the amount been received as part of the other ad valorem taxes on property in the district most recently paid, in the same proportions as other taxes were distributed, and shall immediately distribute it to the government units in accordance with the allocation.

[EFFECTIVE DATE.] This section is effective the day following final enactment.

Sec. 7. Minnesota Statutes 2002, section 298.27, is amended to read:

298.27 [COLLECTION AND PAYMENT OF TAX.]

The taxes provided by section 298.24 shall be paid directly to each eligible county and the iron range resources and rehabilitation board. The commissioner of revenue shall notify each producer of the amount to be paid each recipient prior to February 15. Every person subject to taxes imposed by section 298.24 shall file a correct report covering the preceding year. The report must contain the information required by the commissioner. The report shall be filed by each producer on or before February 1. A remittance equal to 50 percent of the total tax required to be paid hereunder ~~in 2003 and 100 percent of the total tax required to be paid hereunder in 2004 and thereafter~~ shall be paid on or before February 24. A remittance equal to the remaining total tax required to be paid hereunder ~~in 2003~~ shall be paid on or before August 24. On or before February 25, and ~~in 2003,~~ August 25, the county auditor shall make distribution of the payments previously received by the county in the manner provided by section 298.28. Reports shall be made and hearings held upon the determination of the tax in accordance with procedures established by the commissioner of revenue. The commissioner of revenue shall have authority to make reasonable

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rules as to the form and manner of filing reports necessary for the determination of the tax hereunder, and by such rules may require the production of such information as may be reasonably necessary or convenient for the determination and apportionment of the tax. All the provisions of the occupation tax law with reference to the assessment and determination of the occupation tax, including all provisions for appeals from or review of the orders of the commissioner of revenue relative thereto, but not including provisions for refunds, are applicable to the taxes imposed by section 298.24 except in so far as inconsistent herewith. If any person subject to section 298.24 shall fail to make the report provided for in this section at the time and in the manner herein provided, the commissioner of revenue shall in such case, upon information possessed or obtained, ascertain the kind and amount of ore mined or produced and thereon find and determine the amount of the tax due from such person. There shall be added to the amount of tax due a penalty for failure to report on or before February 1, which penalty shall equal ten percent of the tax imposed and be treated as a part thereof.

If any person responsible for making a tax payment at the time and in the manner herein provided fails to do so, there shall be imposed a penalty equal to ten percent of the amount so due, which penalty shall be treated as part of the tax due.

In the case of any underpayment of the tax payment required herein, there may be added and be treated as part of the tax due a penalty equal to ten percent of the amount so underpaid.

A person having a liability of $120,000 or more during a calendar year must remit all liabilities by means of a funds transfer as defined in section 336.4A-104, paragraph (a). The funds transfer payment date, as defined in section 336.4A-401, must be on or before the date the tax is due. If the date the tax is due is not a funds transfer business day, as defined in section 336.4A-105, paragraph (a), clause (4), the payment date must be on or before the funds transfer business day next following the date the tax is due.

[EFFECTIVE DATE.] This section is effective for taxes payable in 2004 and thereafter.

Sec. 8. Minnesota Statutes 2002, section 298.28, subdivision 4, is amended to read:

Subd. 4. [SCHOOL DISTRICTS.] (a) 17.15 cents per taxable ton plus the increase provided in paragraph (d) must be allocated to qualifying school districts to be distributed, based upon the certification of the commissioner of revenue, under paragraphs (b) and (c), except as otherwise provided in paragraph (f).

(b) 3.43 cents per taxable ton must be distributed to the school districts in which the lands from which taconite was mined or quarried were located or within which the concentrate was produced. The distribution must be based on the apportionment formula prescribed in subdivision 2.

(c)(i) 13.72 cents per taxable ton, less any amount distributed under paragraph (e), shall be distributed to a group of school districts comprised of those school districts in which ~~the taconite was mined or quarried or the concentrate produced~~ qualify as a tax relief area under section 273.134, paragraph (b), or in which there is a qualifying municipality as defined by section 273.134, paragraph ~~(b)~~ (a), in direct proportion to school district indexes as follows: for each school district, its pupil units determined under section 126C.05 for the prior school year shall be multiplied by the ratio of the average adjusted net tax capacity per pupil unit for school districts receiving aid under this clause as calculated pursuant to chapters 122A, 126C, and 127A for the school year ending prior to distribution to the adjusted net tax capacity per pupil unit of the district. Each district shall receive that portion of the distribution which its index bears to the sum of the indices for all school districts that receive the distributions.

(ii) Notwithstanding clause (i), each school district that receives a distribution under sections 298.018; 298.23 to 298.28, exclusive of any amount received under this clause; 298.34 to 298.39; 298.391 to 298.396; 298.405; or any law imposing a tax on severed mineral values after reduction for any portion distributed to cities and towns under section 126C.48, subdivision 8, paragraph (5), that is less than the amount of its levy reduction under

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section 126C.48, subdivision 8, for the second year prior to the year of the distribution shall receive a distribution equal to the difference; the amount necessary to make this payment shall be derived from proportionate reductions in the initial distribution to other school districts under clause (i).

(d) Any school district described in paragraph (c) where a levy increase pursuant to section 126C.17, subdivision 9, was authorized by referendum for taxes payable in 2001, shall receive a distribution ~~from a fund that receives a distribution in 1998~~ of 21.3 cents per ton. On July 15 of 1999, and each year thereafter, the increase over the amount established for the prior year shall be determined according to the increase in the implicit price deflator as provided in section 298.24, subdivision 1. Each district shall receive $175 times the pupil units identified in section 126C.05, subdivision 1, enrolled in the second previous year or the 1983-1984 school year, whichever is greater, less the product of 1.8 percent times the district's taxable net tax capacity in the second previous year.

If the total amount provided by paragraph (d) is insufficient to make the payments herein required then the entitlement of $175 per pupil unit shall be reduced uniformly so as not to exceed the funds available. Any amounts received by a qualifying school district in any fiscal year pursuant to paragraph (d) shall not be applied to reduce general education aid which the district receives pursuant to section 126C.13 or the permissible levies of the district. Any amount remaining after the payments provided in this paragraph shall be paid to the commissioner of iron range resources and rehabilitation who shall deposit the same in the taconite environmental protection fund and the northeast Minnesota economic protection trust fund as provided in subdivision 11.

Each district receiving money according to this paragraph shall reserve $25 times the number of pupil units in the district. It may use the money for early childhood programs or for outcome-based learning programs that enhance the academic quality of the district's curriculum. The outcome-based learning programs must be approved by the commissioner of children, families, and learning.

(e) There shall be distributed to any school district the amount which the school district was entitled to receive under section 298.32 in 1975.

(f) Effective for the distribution in 2003 only, five percent of the distributions to school districts under paragraphs (b), (c), and (e); subdivision 6, paragraph (c); subdivision 11; and section 298.225, shall be distributed to the general fund. The remainder less any portion distributed to cities and towns under section 126C.48, subdivision 8, paragraph (5), shall be distributed to the northeast Minnesota economic protection trust fund created in section 298.292. Fifty percent of the amount distributed to the ~~northeast Minnesota~~ Douglas J. Johnson economic protection trust fund shall be made available for expenditure under section 298.293 as governed by section 298.296. Effective in 2003 only, 100 percent of the distributions to school districts under section 477A.15 less any portion distributed to cities and towns under section 126C.48, subdivision 8, paragraph (5), shall be distributed to the general fund.

[EFFECTIVE DATE.] This section is effective for distributions in 2004 and thereafter.

Sec. 9. Minnesota Statutes 2002, section 298.292, subdivision 2, is amended to read:

Subd. 2. [USE OF MONEY.] Money in the northeast Minnesota economic protection trust fund may be used for the following purposes:

(1) to provide loans, loan guarantees, interest buy-downs and other forms of participation with private sources of financing, but a loan to a private enterprise shall be for a principal amount not to exceed one-half of the cost of the project for which financing is sought, and the rate of interest on a loan to a private enterprise shall be no less than the lesser of eight percent or an interest rate three percentage points less than a full faith and credit obligation of the United States government of comparable maturity, at the time that the loan is approved;

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(2) to fund reserve accounts established to secure the payment when due of the principal of and interest on bonds issued pursuant to section 298.2211;

(3) to pay in periodic payments or in a lump sum payment any or all of the interest on bonds issued pursuant to chapter 474 for the purpose of constructing, converting, or retrofitting heating facilities in connection with district heating systems or systems utilizing alternative energy sources; and

(4) to invest in a venture capital fund or enterprise that will provide capital to other entities that are engaging in, or that will engage in, projects or programs that have the purposes set forth in subdivision 1. No investments may be made in a venture capital fund or enterprise unless at least two other unrelated investors make investments of at least $500,000 in the venture capital fund or enterprise, and the investment by the northeast Minnesota economic protection trust fund may not exceed the amount of the largest investment by an unrelated investor in the venture capital fund or enterprise. For purposes of this subdivision, an "unrelated investor" is a person or entity that is not related to the entity in which the investment is made or to any individual who owns more than 40 percent of the value of the entity, in any of the following relationships: spouse, parent, child, sibling, employee, or owner of an interest in the entity that exceeds ten percent of the value of all interests in it. For purposes of determining the limitations under this clause, the amount of investments made by an investor other than the northeast Minnesota economic protection trust fund is the sum of all investments made in the venture capital fund or enterprise during the period beginning one year before the date of the investment by the northeast Minnesota economic protection trust fund.

Money from the trust fund shall be expended only in or for the benefit of the tax relief area defined in section 273.134, paragraph (b).

[EFFECTIVE DATE.] This section is effective for loans executed on or after the day following final enactment.

Sec. 10. Minnesota Statutes 2002, section 298.296, subdivision 4, is amended to read:

Subd. 4. [TEMPORARY LOAN AUTHORITY.] (a) The board may recommend that up to $7,500,000 from the corpus of the trust may be used for loans, loan guarantees, grants, or equity investments as provided in this subdivision. The money would be available for loans for construction and equipping of facilities constituting (1) a value added iron products plant, which may be either a new plant or a facility incorporated into an existing plant that produces iron upgraded to a minimum of 75 percent iron content or any iron alloy with a total minimum metallic content of 90 percent; or (2) a new mine or minerals processing plant for any mineral subject to the net proceeds tax imposed under section 298.015. A loan or loan guarantee under this paragraph may not exceed $5,000,000 for any facility.

(b) Additionally, the board must reserve the first $2,000,000 of the net interest, dividends, and earnings arising from the investment of the trust after June 30, 1996, to be used for ~~additional~~ grants, loans, loan guarantees, or equity investments for the purposes set forth in paragraph (a). This amount must be reserved until it is used ~~for the grants~~ as described in this subdivision.

(c) Additionally, the board may recommend that up to $5,500,000 from the corpus of the trust may be used for additional grants, loans, loan guarantees, or equity investments for the purposes set forth in paragraph (a).

(d) The board may require that it receive an equity percentage in any project to which it contributes under this section.

[EFFECTIVE DATE.] This section is effective the day following final enactment.

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Sec. 11. Minnesota Statutes 2002, section 298.2961, is amended by adding a subdivision to read:

Subd. 3. [REDISTRIBUTION.] (a) If a taconite production facility is sold after operations at the facility had ceased, any money remaining in the taconite environmental fund for the former producer may be released to the purchaser of the facility on the terms otherwise applicable to the former producer under this section.

(b) Any portion of the taconite environmental fund that is not released by the commissioner within three years of its deposit in the taconite environmental fund shall be divided between the taconite environmental protection fund created in section 298.223 and the Douglas J. Johnson economic protection trust fund created in section 298.292 for placement in their respective special accounts. Two-thirds of the unreleased funds must be distributed to the taconite environmental protection fund and one-third to the Douglas J. Johnson economic protection trust fund.

[EFFECTIVE DATE.] This section is effective the day following final enactment.

Sec. 12. [REVISOR INSTRUCTION.]

The revisor of statutes shall change the phrase "Northeast Minnesota Economic Protection Trust Fund" or a similar phrase referring to the fund, to the "Douglas J. Johnson Economic Protection Trust Fund" wherever it appears in Minnesota Statutes.

Sec. 13. [REPEALER.]

Minnesota Statutes 2002, section 298.24, subdivision 3, is repealed effective for concentrates produced after January 1, 2003.

ARTICLE 12

PUBLIC FINANCE

Section 1. [37.31] [ISSUANCE OF BONDS.]

Subdivision 1. [BONDING AUTHORITY.] The society may issue negotiable bonds in a principal amount that the society determines necessary to provide sufficient money for achieving its purposes, including the payment of interest on bonds of the society, the establishment of reserves to secure its bonds, the payment of fees to a third party providing credit enhancement, and the payment of all other expenditures of the society incident to and necessary or convenient to carry out its corporate purposes and powers. Bonds of the society may be issued as bonds or notes or in any other form authorized by law. The principal amount of bonds issued and outstanding under this section at any time may not exceed $20,000,000, excluding bonds for which refunding bonds or crossover refunding bonds have been issued.

Subd. 2. [REFUNDING OF BONDS.] The society may issue bonds to refund outstanding bonds of the society, to pay any redemption premiums on those bonds, and to pay interest accrued or to accrue to the redemption date next succeeding the date of delivery of the refunding bonds. The society may apply the proceeds of any refunding bonds to the purchase or payment at maturity of the bonds to be refunded, or to the redemption of outstanding bonds on the redemption date next succeeding the date of delivery of the refunding bonds and may, pending the application, place the proceeds in escrow to be applied to the purchase, retirement, or redemption of the bonds. Pending use, escrowed proceeds may be invested and reinvested in obligations issued or guaranteed by the state or the United States or by any agency or instrumentality of the state or the United States, or in certificates of deposit or time deposits secured in a manner determined by the society, maturing at a time appropriate to assure the prompt payment of the principal and interest and redemption premiums, if any, on the bonds to be refunded. The income

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realized on any investment may also be applied to the payment of the bonds to be refunded. After the terms of the escrow have been fully satisfied, any balance of the proceeds and any investment income may be returned to the society for use by it in any lawful manner. All refunding bonds issued under this subdivision must be issued and secured in the manner provided by resolution of the society.

Subd. 3. [KIND OF BONDS.] Bonds issued under this section must be negotiable investment securities within the meaning and for all purposes of the Uniform Commercial Code, subject only to the provisions of the bonds for registration. The bonds issued must be limited obligations of the society not secured by its full faith and credit and payable solely from specified sources or assets.

Subd. 4. [RESOLUTION AND TERMS OF SALE.] The bonds of the society must be authorized by a resolution or resolutions adopted by the society. The bonds must bear the date or dates, mature at the time or times, bear interest at a fixed or variable rate, including a rate varying periodically at the time or times and on the terms determined by the society, or any combination of fixed and variable rates, be in the denominations, be in the form, carry the registration privileges, be executed in the manner, be payable in lawful money of the United States, at the place or places within or without the state, and be subject to the terms of redemption or purchase before maturity as the resolutions or certificates provide. If, for any reason existing at the date of issue of the bonds or existing at the date of making or purchasing any loan or securities from the proceeds or after that date, the interest on the bonds is or becomes subject to federal income taxation, this fact does not affect the validity or the provisions made for the security of the bonds. The society may make covenants and take or have taken actions that are in its judgment necessary or desirable to comply with conditions established by federal law or regulations for the exemption of interest on its obligations. The society may refrain from compliance with those conditions if in its judgment this would serve the purposes and policies set forth in this chapter with respect to any particular issue of bonds, unless this would violate covenants made by the society. The maximum maturity of a bond, whether or not issued for the purpose of refunding, must be 30 years from its date. The bonds of the society may be sold at public or private sale, at a price or prices determined by the society; provided that:

(1) the aggregate price at which an issue of bonds is initially offered by underwriters to investors, as stated in the authority's official statement with respect to the offering, must not exceed by more than three percent the aggregate price paid by the underwriters to the society at the time of delivery;

(2) the commission paid by the society to an underwriter for placing an issue of bonds with investors must not exceed three percent of the aggregate price at which the issue is offered to investors as stated in the society's offering statement; and

(3) the spread or commission must be an amount determined by the society to be reasonable in light of the risk assumed and the expenses of issuance, if any, required to be paid by the underwriters.

Subd. 5. [EXEMPTION.] The notes and bonds of the society are not subject to sections 16C.03, subdivision 4, and 16C.05.

Subd. 6. [RESERVES; FUNDS; ACCOUNTS.] The society may establish reserves, funds, or accounts necessary to carry out the purposes of the society or to comply with any agreement made by or any resolution passed by the society.

Subd. 7. [APPROVAL; COMMISSIONER OF FINANCE.] Before issuing bonds under this section, the society must obtain the approval, in writing, of the commissioner of finance.

Subd. 8. [EXPIRATION.] The authority to issue bonds, other than bonds to refund outstanding bonds, under this section expires July 1, 2009.

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Sec. 2. [37.32] [TENDER OPTION.]

An obligation may be issued giving its owner the right to tender or the society to demand tender of the obligation to the society or another person designated by it, for purchase at a specified time or times, if the society has first entered into an agreement with a suitable financial institution obligating the financial institution to provide funds on a timely basis for purchase of bonds tendered. The obligation is not considered to mature on any tender date and the purchase of a tendered obligation is not considered a payment or discharge of the obligation by the society. Obligations tendered for purchase may be remarketed by or on behalf of the society or another purchaser. The society may enter into agreements it considers appropriate to provide for the purchase and remarketing of tendered obligations, including:

(1) provisions under which undelivered obligations may be considered tendered for purchase and new obligations may be substituted for them;

(2) provisions for the payment of charges of tender agents, remarketing agents, and financial institutions extending lines of credit or letters of credit assuring repurchase; and

(3) provisions for reimbursement of advances under letters of credit that may be paid from the proceeds of the obligations or from tax and other revenues appropriated for the payment and security of the obligations and similar or related provisions.

Sec. 3. [37.33] [BOND FUND.]

Subdivision 1. [CREATION AND CONTENTS.] The society may establish a special fund or funds for the security of one or more or all series of its bonds. The funds must be known as debt service reserve funds. The society may pay into each debt service reserve fund:

(1) the proceeds of sale of bonds to the extent provided in the resolution or indenture authorizing the issuance of them;

(2) money directed to be transferred by the society to the debt service reserve fund; and

(3) other money made available to the society from any other source only for the purpose of the fund.

Subd. 2. [USE OF FUNDS.] Except as provided in this section, the money credited to each debt service reserve fund must be used only for the payment of the principal of bonds of the society as they mature, the purchase of the bonds, the payment of interest on them, or the payment of any premium required when the bonds are redeemed before maturity. Money in a debt service reserve fund must not be withdrawn at a time and in an amount that reduces the amount of the fund to less than the amount the society determines to be reasonably necessary for the purposes of the fund. However, money may be withdrawn to pay principal or interest due on bonds secured by the fund if other money of the society is not available.

Subd. 3. [INVESTMENT.] Money in a debt service reserve fund not required for immediate use may be invested in accordance with section 37.07.

Subd. 4. [MINIMUM AMOUNT OF RESERVE AT ISSUANCE.] If the society establishes a debt service reserve fund for the security of any series of bonds, it shall not issue additional bonds that are similarly secured if the amount of any of the debt service reserve funds at the time of issuance does not equal or exceed the minimum amount required by the resolution creating the fund, unless the society deposits in each fund at the time of issuance, from the proceeds of the bonds, or otherwise, an amount that when added together with the amount then in the fund will be at least the minimum amount required.

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Subd. 5. [TRANSFER OF EXCESS.] To the extent consistent with the resolutions and indentures securing outstanding bonds, the society may at the close of a fiscal year transfer to any other fund or account from any debt service reserve fund any excess in that reserve fund over the amount determined by the society to be reasonably necessary for the purpose of the reserve fund.

Sec. 4. [37.34] [MONEY OF THE SOCIETY.]

The society may contract with the holders of any of its bonds as to the custody, collection, securing, investment, and payment of money of the society or money held in trust or otherwise for the payment of bonds, and to carry out the contract. Money held in trust or otherwise for the payment of bonds or in any way to secure bonds and deposits of the money may be secured in the same manner as money of the society, and all banks and trust companies are authorized to give security for the deposits.

Sec. 5. [37.35] [NONLIABILITY.]

Subdivision 1. [NONLIABILITY OF INDIVIDUALS.] No member of the society or other person executing the bonds is liable personally on the bonds or is subject to any personal liability or accountability by reason of their issuance.

Subd. 2. [NONLIABILITY OF STATE.] The state is not liable on bonds of the society issued under section 37.31 and those bonds are not a debt of the state. The bonds must contain on their face a statement to that effect.

Sec. 6. [37.36] [PURCHASE AND CANCELLATION BY SOCIETY.]

Subject to agreements with bondholders that may then exist, the society may purchase out of money available for the purpose, bonds of the society which shall then be canceled, at a price not exceeding the following amounts:

(1) if the bonds are then redeemable, the redemption price then applicable plus accrued interest to the next interest payment date of the bonds; or

(2) if the bonds are not redeemable, the redemption price applicable on the first date after the purchase upon which the bonds become subject to redemption plus accrued interest to that date.

Sec. 7. [37.37] [STATE PLEDGE AGAINST IMPAIRMENT OF CONTRACTS.]

The state pledges and agrees with the holders of bonds issued under section 37.31 that the state will not limit or alter the rights vested in the society to fulfill the terms of any agreements made with the bondholders or in any way impair the rights and remedies of the holders until the bonds, together with interest on them, with interest on any unpaid installments of interest, and all costs and expenses in connection with any action or proceeding by or on behalf of the bondholders, are fully met and discharged. The society may include this pledge and agreement of the state in any agreement with the holders of bonds issued under section 37.31.

Sec. 8. Minnesota Statutes 2002, section 373.01, subdivision 3, is amended to read:

Subd. 3. [CAPITAL NOTES.] A county board may, by resolution and without referendum, issue capital notes subject to the county debt limit to purchase capital equipment useful for county purposes that has an expected useful life at least equal to the term of the notes. The notes shall be payabl