| Governor's Changes |
| (Dollars in Thousands) |
| FY 14 |
| FY 15 |
| FY 14-15 |
| Biennium |
| FY 16 |
| FY 17 |
| FY 16-17 |
| Biennium |
| New Bracket on Top Two Percent - Revised |
| The Governor recommends creating a new 4th tier income tax bracket for upper incomes at a marginal income tax rate of |
| 9.85 percent beginning in tax year 2013. The new marginal rate will apply only to taxable income above $250,000 for |
| married joint filers, $125,000 for married separate filers, $150,000 for single filers, and $200,000 for head of household |
| filers. Taxable income is less than total household income because it is calculated after deductions. The new bracket |
| would be adjusted yearly for inflation. For tax year 2013, an estimated 54,400 returns, or 2.1 percent of all Minnesota |
| resident returns, would pay an average of $7,168 more tax. |
| Performance Measures: |
| The Department of Revenue’s Tax Incidence Study shows that the state and local tax system in Minnesota is regressive. |
| That is higher income households pay a smaller share of their income to support state and local services than do lower- |
| and middle-income households. Among the major tax types, the state income tax is the only progressive tax. A new 4th |
| tier income tax bracket for the top 2 percent of Minnesota income earners is progressive. |
| 592,500 |
| 526,400 |
| 1,118,900 |
| 554,300 |
| 590,300 |
| 1,144,600 |
| Net Change |
| (592,500) |
| (526,400) |
| (1,118,900) |
| (554,300) |
| (590,300) |
| (1,144,600) |
| Sales and Use Tax Reform - Revised |
| Performance Measures: |
| N/A |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
| Net Change |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
| Sales and Use Tax Rate Reduction - Revised |
| Performance Measures: |
| N/A |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
| Net Change |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
| Sales Tax Upfront Capital Equipment Exemption - Revised |
| Performance Measures: |
| N/A |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
| Net Change |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
| Corporate Tax Rate Reduction from 9.8 percent to 8.4 percent - Revised |
| Performance Measures: |
| N/A |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
| Net Change |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
| FY 14 |
| FY 15 |
| FY 14-15 |
| Biennium |
| FY 16 |
| FY 17 |
| FY 16-17 |
| Biennium |
| Corporate Tax Reform - Revised |
| The Governor recommends several changes to the corporate franchise tax intended to level the playing field for |
| businesses and lower the corporate tax rate. Recommended changes to the corporate tax base include: 1) Repealing the |
| current law subtraction for foreign royalties and provisions for foreign operating corporations (FOCs). 2) Amending |
| statutes to require that all sales to this state of a unitary business be included in the sales factor for this state. 3) Adopting |
| statutory language requiring business transactions to meet an economic substance test to be allowed in determining |
| Minnesota taxable income. 4) Amending statutes to conform to the federal law treatment of foreign entities in Section |
| 701 of the Internal Revenue Code. Under federal law, the distributive share of income from all domestic and foreign |
| partnerships flows to its domestic owners. Current Minnesota law excludes the net income and apportionment factors of |
| foreign partnerships in calculating net income and apportionment factors for a unitary business. 5) Eliminating the |
| unintended double-deduction by excluding dividends received from a real estate investment trust (REIT) in calculating the |
| deduction allowed to a corporation for dividends received deduction (DRD) from another corporation. |
| Performance Measures: |
| Reforming the corporate tax promotes good tax policy by broadening the base. The change will reduce the number and |
| amount of tax expenditures thereby simplifying Minnesota’s tax code. |
| 172,500 |
| 125,100 |
| 297,600 |
| 125,250 |
| 126,900 |
| 252,150 |
| Net Change |
| (172,500) |
| (125,100) |
| (297,600) |
| (125,250) |
| (126,900) |
| (252,150) |
| Property Tax Rebate - Revised |
| Performance Measures: |
| N/A |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
| Net Change |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
| State Business Levy Reduction - Revised |
| Performance Measures: |
| N/A |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
| Net Change |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
| Local Government Aid Increase / New Formula |
| The Governor recommends increasing the annual appropriation for Local Government Aid (LGA) for cities, and adjusting |
| the distribution formula to make the program more understandable and more stable. The annual appropriation will |
| increase by $80 million, or 19 percent, to $506 million beginning with aids payable in calendar year 2014 (state FY2015). |
| Further, recognizing how repeated cuts in LGA funding from a high of $565 million to the current law level of $426 million |
| has destabilized the existing formula and the reliability of the program, the Governor recommends a simplified new |
| distribution formula. |
| Performance Measures: |
| This proposal will reduce city property taxes in recipient cities. Cities across the state are better able to offer their residents |
| access to comparable services at a relatively similar tax cost. |
| 0 |
| 80,000 |
| 80,000 |
| 80,000 |
| 80,000 |
| 160,000 |
| Net Change |
| 0 |
| 80,000 |
| 80,000 |
| 80,000 |
| 80,000 |
| 160,000 |
| County Program Aid Increase |
| The Governor recommends increasing the annual appropriation for County Program Aid by $40 million per year to $205.6 |
| million beginning with aids payable in calendar 2014 (state FY2015). This program has been cut repeatedly over the past |
| decade. The proposal nearly returns County Program Aid to its 2005 level of $206 million. |
| Performance Measures: |
| This proposal will reduce county property taxes. Counties across the state are better able to offer their residents access to |
| comparable services at a relatively similar tax cost. |
| 0 |
| 40,000 |
| 40,000 |
| 40,000 |
| 40,000 |
| 80,000 |
| Net Change |
| 0 |
| 40,000 |
| 40,000 |
| 40,000 |
| 40,000 |
| 80,000 |
| FY 14 |
| FY 15 |
| FY 14-15 |
| Biennium |
| FY 16 |
| FY 17 |
| FY 16-17 |
| Biennium |
| Part Year Residents Maintaining a Minnesota Abode |
| The Governor recommends extending the income tax to persons who are present in the state for more than 60 days but |
| less than 183 days and who maintain an abode in Minnesota for at least six months. Individuals who meet these criteria |
| will be considered “part-year residents.” Part-year residents will be subject to tax on their Minnesota-sourced income (as |
| they are now) and a pro-rata share of all other income based on the number of days they are present in the state. A credit |
| will be granted for income taxes paid on the same income to other states if the other state does not allow a credit for tax |
| paid to Minnesota. An exception is made for days an individual is in the state for the purpose of receiving medical |
| services. The proposed change will be effective beginning in tax year 2013. |
| Performance Measures: |
| This proposal will make Minnesota’s overall tax system more fair by requiring those who benefit from Minnesota state and |
| local public services for a substantial portion of the year to also contribute to the cost of providing those services. |
| 15,000 |
| 15,000 |
| 30,000 |
| 15,000 |
| 15,000 |
| 30,000 |
| Net Change |
| (15,000) |
| (15,000) |
| (30,000) |
| (15,000) |
| (15,000) |
| (30,000) |
| Increase Cigarette and Tobacco Products Excise Tax - Revised |
| The Governor recommends increasing the cigarette excise tax from 48 cents per pack to $1.42 per pack, an increase of |
| 94 cents per pack. The additional amount would be deposited in the General Fund. No change is proposed for the |
| cigarette health impact fee of 75 cents per pack. The total cigarette excise tax and fee would increase from $1.23 to $2.17 |
| per pack. The tobacco products excise tax of 35 percent will increase 20 percentage points to a total of 55 percent of the |
| wholesale price. The tobacco products health impact fee of 35 percent of the wholesale price would not be changed. |
| The total tax and fee on tobacco products will increase from 70 percent to 90 percent of the whole-sale price. This |
| proposal will reduce the amount of revenue generated by the health impact fee as increasing cigarette and tobacco taxes |
| reduces cigarette and tobacco use overall. |
| Performance Measures: |
| Increasing cigarette and tobacco taxes has been shown to reduce the percentage of Minnesotan’s who smoke or use |
| tobacco products. |
| 184,200 |
| 180,800 |
| 365,000 |
| 180,900 |
| 180,500 |
| 361,400 |
| (23,300) |
| (24,800) |
| (48,100) |
| (25,000) |
| (24,400) |
| (49,400) |
| (23,279) |
| (24,779) |
| (48,058) |
| (24,979) |
| (24,370) |
| (49,349) |
| (23,300) |
| (24,800) |
| (48,100) |
| (25,000) |
| (24,400) |
| (49,400) |
| Net Change |
| (160,921) |
| (156,021) |
| (316,942) |
| (155,921) |
| (156,130) |
| (312,051) |
| Motor Vehicle Rental Tax - 3% Point Increase - Revised |
| The Governor recommends increasing the car rental tax from 6.2 percent to 9.2 percent. The revenue from this rate |
| increase will fund an increased appropriation to Explore Minnesota Tourism of $15 million for the FY 2014-15 biennium. |
| Most car rental tax revenues are captured at the Minneapolis-St. Paul International Airport and are paid primarily by |
| out-of-state visitors. |
| Performance Measures: |
| The increase in funding for Explore Minnesota Tourism will be successful if it increases awareness of Minnesota and |
| results in additional tourism-related economic activity. |
| 7,300 |
| 7,700 |
| 15,000 |
| 8,100 |
| 8,400 |
| 16,500 |
| Net Change |
| (7,300) |
| (7,700) |
| (15,000) |
| (8,100) |
| (8,400) |
| (16,500) |
| Levy Change Interactions: Income Tax and Property Tax Refund - Revised |
| The Governor’s budget recommendations for increases in Local Government Aid and County Program Aid, and school |
| levy changes interact with property tax refund claims and the income tax system. It is assumed that due to the |
| recommended changes there will be an overall reduction in property taxes levied statewide. Resulting from this is a |
| decrease in property tax refunds paid to homeowners and an increase individual and corporate tax receipts. |
| Performance Measures: |
| The revenue and expenditure changes resulting from interaction effects are a result of the Governor’s priority to provide |
| property tax relief for Minnesotans. |
| 0 |
| (2,870) |
| (2,870) |
| (2,960) |
| (3,000) |
| (5,960) |
| 0 |
| 2,860 |
| 2,860 |
| 2,950 |
| 3,000 |
| 5,950 |
| Net Change |
| 0 |
| (5,730) |
| (5,730) |
| (5,910) |
| (6,000) |
| (11,910) |
| FY 14 |
| FY 15 |
| FY 14-15 |
| Biennium |
| FY 16 |
| FY 17 |
| FY 16-17 |
| Biennium |
| Federal Tax Conformity - New |
| The Governor recommends conforming to selected provisions of the American Taxpayer Relief Act of 2012, Public Law |
| 112-240, enacted January 2, 2013, including the higher phase-out range for the working family credit for married joint |
| returns, and the following 13 provisions: parity for exclusion of employer provided mass transit and parking benefits; |
| special rule for contributions to qualified conservation property; tax-free IRA distributions to certain pubic charities; |
| 15-year straight line depreciation for qualified leasehold, restaurants and retail improvements; 7-year recovery period for |
| certain motorsports racing track facilities; accelerated depreciation for business property on Indian reservations; increased |
| Sec. 179 expensing, with 80% addback and 5-year recovery; election to expense mine safety equipment; special |
| expensing rules for certain film and television productions; exception under Subpart F for active financing income; |
| Increase from 50% to 100% the exclusion of gain on certain small business stock; and 50% bonus depreciation with 80% |
| addback and 5-year recovery. |
| Performance Measures: |
| Federal conformity for the working family credit will provide tax relief and income assistance for low- and moderate-income |
| working families making Minnesota’s tax system more progressive. Conforming to other provisions will simplify tax filing |
| and eliminate the need for businesses to keep two sets of books for tax purposes (one for federal tax and one for |
| Minnesota tax). |
| (20,525) |
| 4,930 |
| (15,595) |
| (19,355) |
| (31,685) |
| (51,040) |
| Net Change |
| 20,525 |
| (4,930) |
| 15,595 |
| 19,355 |
| 31,685 |
| 51,040 |
| Renter Property Tax Refund Modifications - New |
| The Governor recommends increased funding for the renter’s property tax refund (or renter’s credit) to |
| enhance tax fairness for Minnesota’s low- and moderate-income renters. Changes to the formula include reducing |
| the copayments, increasing the maximum refund, increasing the income subtraction for seniors and disabled, allowing the |
| income subtraction for seniors and disabled to be claimed by both members of a married couple if both are |
| seniors/disabled, and increasing the income subtraction for qualifying dependents. The Governor’s |
| recommendation will increase renter's credit refunds for approximately 93% of the 334,000 renters who currently file for a |
| refund. The average refund will increase $57. |
| Performance Measures: |
| This proposal provides property tax relief to renters whose imputed property tax burdens are high compared with their |
| incomes. Property taxes will be less regressive for the 311,000 renters receiving an increased renter’s property tax refund. |
| 0 |
| 18,400 |
| 18,400 |
| 19,100 |
| 19,700 |
| 38,800 |
| Net Change |
| 0 |
| 18,400 |
| 18,400 |
| 19,100 |
| 19,700 |
| 38,800 |
| Affiliate Nexus - New |
| The Governor recomends broadening the definition of "affiliated entity" in sales tax law in order to collect sales |
| tax on online purchases used and consumed in Minnesota. Under current law, a large portion of the sales on internet |
| retailers go uncollected because many internet retailers do not have a physical presence in the State. This proposal would |
| change the legal definition of affiliated entity to include entities who refer potential customers, whether by a link on an |
| internet web site or otherwise, to the out-of-state retailer. This item will be effective July 1, 2013. |
| Performance Measures: |
| This proposal will create fairness by leveling the playing field between brick and mortar businesses located in Minnesota |
| and out-of-state sellers who do not have a physical presence in Minnesota. This proposal also reduces the burden on |
| purchasers of taxable goods from internet sellers to file and remit use tax on their purchases making Minnesota’s tax |
| system more efficient and easier to administer. |
| 4,300 |
| 5,400 |
| 9,700 |
| 5,940 |
| 6,520 |
| 12,460 |
| 260 |
| 309 |
| 569 |
| 339 |
| 379 |
| 718 |
| Net Change |
| (4,560) |
| (5,709) |
| (10,269) |
| (6,279) |
| (6,899) |
| (13,178) |
| Index Minimum Fee Brackets - New |
| The Governor recommends indexing the minimum fee brackets and tax amounts for inflation since 1990. The minimum |
| fee was established in 1990 and has not been adjusted since that time. As adopted in 1990, the minimum fee is based on |
| the sum of property, payroll and sales in Minnesota and is paid annually by S-corporations, partnerships, and |
| C-corporations. Indexing the minimum fee brackets will prevent taxpayers from being subject to the next higher bracket |
| based solely on economic changes while updating the brackets and amounts since 1990 will ensure that corporations |
| benefiting from sales to the Minnesota market place will pay a minimum tax to support the public investments that sustain |
| that marketplace. The indexing method used to compute the fee and factor brackets is the same method used to index |
| tax brackets for the individual income tax. This provision is effective for tax year 2013. |
| Performance Measures: |
| Indexing the minimum fee brackets and tax amounts updates and aligns the revenue system with current economic |
| activities. It also makes our tax system more fair by requiring business to pay something in tax to reflect the business done |
| in Minnesota. |
| 9,300 |
| 9,400 |
| 18,700 |
| 9,600 |
| 9,800 |
| 19,400 |
| Net Change |
| (9,300) |
| (9,400) |
| (18,700) |
| (9,600) |
| (9,800) |
| (19,400) |
| FY 14 |
| FY 15 |
| FY 14-15 |
| Biennium |
| FY 16 |
| FY 17 |
| FY 16-17 |
| Biennium |
| Net All Change |
| Items |
| (941,275) |
| (717,260) |
| (1,658,535) |
| (747,635) |
| (1,469,180) |
| (721,545) |
| (281) |
| (330) |
| (611) |
| (409) |
| (769) |
| (360) |
| Net Change |
| (941,556) |
| (717,590) |
| (1,659,146) |
| (721,905) |
| (748,044) |
| (1,469,949) |