State Taxes Only See Separate Analysis for Property Taxes and Local Aids

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1 House Omnibus Tax Bill May 9, 2008 State Taxes Only See Separate Analysis for Property Taxes and Local Aids DOR Administrative Costs/Savings Yes X No Department of Revenue Analysis of H.F (Lenczewski), 3 rd Engrossment Fund Impact F.Y F.Y F.Y F.Y (000 s) Individual Income Tax Disallow Itemized Deduction for Real and Personal Property Taxes (1/1/09) $0 $0 $182,500 $197,500 - Interaction with Ch. 152 Registration Tax $0 $0 $1,400 $2,400 Subtraction for Military Pensions (1/1/09) $0 $0 ($4,800) ($10,000) For AMT, Allow Non-Itemizer Charitable Contribution Subtraction (1/1/08) $0 (Negligible) (Negl.) (Negl.) Corporate Franchise Tax Addition to Income for Minnesota Development Subsidies (1/1/09) $0 $0 $6,100 $5,600 Repeal 100% Sales Apportionment for Mail Order Companies (1/1/09) $0 $30 $100 $100 25% Investment Tax Credits* (1/1/08) - High Technology Field $0 ($2,000) ($2,000) ($2,000) - Biotechnology/ Medical Devices $0 ($2,000) ($2,000) ($2,000) - Green Manufacturing $0 ($2,000) ($2,000) ($2,000) 20% Research Credit for Certain Businesses* (1/1/08) $0 ($3,000) ($3,000) ($3,000) Reduce Current Research Credit (1/1/08) $0 $9,100 $10,400 $10,900 Sales and Use Tax Exemptions for Northstar Commuter Rail Vehicles, Parts, and Construction Materials, and Central Corridor Light Rail Construction Materials; Appropriation $0 ($15,000) $0 $0 Expand Exemption for Low-Income Housing Construction Materials (7/1/08) $0 ($600) ($670) ($700) Extend Public Safety Radio Exemption to Itasca County (retroactive to 7/1/07) $0 ($370) (Negl) (Negl.)

2 Page 2 Fund Impact F.Y F.Y F.Y F.Y (000 s) Motor Vehicle Sales Tax Exempt Vehicles Purchased Abroad by Military Active Service Members (1/1/08) $0 ($8) ($5) ($2) Exempt Vehicles Sold by a Charitable Org. in a Lease-to-Own Program (7/1/08) $0 (Negl.) (Negl.) Negl.) Increase June Accelerated Payments from 80% to 85% (June 2009 and after) Sales and Use Tax $0 $13,600 $300 $600 Cigarette Excise Tax $0 $600 ($20) ($20) Cigarette in-lieu Sales Tax $0 $340 $5 $5 Tobacco Products Excise Tax $0 $80 Negl. $5 Alcoholic Beverages Taxes $0 $380 $5 $5 Designated Zones Terminate Designation of JOBZ Businesses (6/1/08) $0 $1,300 $3,200 $4,900 Seed Capital Investment Credit in Border City Zones** (1/1/08) $0 $0 $0 $0 Other Expenditures Eliminate Political Contribution Refund Program (7/1/08) $0 $5,400 $5,700 $6,800 Appropriations for Grants - Minneapolis for Target Center $0 ($750) $0 $0 - St. Paul for RiverCentre $0 ($750) $0 $0 Appropriation for Taxpayer Assistance Grants $0 ($100) $0 $0 General Fund Total $0 $4,252 $195,215 $209,093 Health Impact Fund Increase June Accelerated Payments from 80% to 85% (June 2009 and after) Cigarette Fee $0 $900 ($25) ($25) Tobacco Products Fee $0 $80 Negl. $5 Health Impact Fund Total $0 $980 ($25) ($20)

3 Page 3 Fund Impact F.Y F.Y F.Y F.Y (000 s) Highway User Tax Distribution Fund Exempt from the Motor Vehicle Sales Tax Vehicles Purchased Abroad by Military Active Service Members (1/1/08) $0 ($13) ($15) ($17) Exempt from the Motor Vehicle Sales Tax Vehicles Sold by a Charitable Org. in a Lease-to-Own Program (7/1/08) $0 (Negl.) ($5) ($5) Exempt Spotter Trucks from the Registration Tax (day after enactment until 6/30/13) $0 ($75) ($75) ($75) Exempt from the Registration Tax Disaster Response Vehicles Owned by Charities (7/1/08) $0 (Negl.) (Negl.) (Negl.) Change Intra-City Bus Registration Tax (7/1/08) $0 (Negl.) (Negl.) (Negl.) Highway User Tax Distribution Fund Total $0 ($88) ($95) ($97) Transit Assistance Fund Exempt from the Motor Vehicle Sales Tax Vehicles Purchased Abroad by Military Active Service Members (1/1/08) $0 ($9) ($10) ($11) Exempt from the Motor Vehicle Sales Tax Vehicles Sold by a Charitable Org. in a Lease-to-Own Program (7/1/08) $0 (Negl.) ($3) ($3) Transit Assistance Fund Total $0 ($9) ($13) ($14) Total All Funds $0 $5,135 $195,082 $208,962 *Estimates include individual and corporate taxpayers. **Funded with existing appropriations for border city zones. EXPLANATION OF THE BILL Disallow Itemized Deduction for Real and Personal Property Taxes For taxpayers who itemize deductions, the proposal adds back to Minnesota taxable income the amounts deducted for real and personal property taxes reported from federal Schedule A. The addition of real and personal property taxes and state income taxes cannot be more than the amount that total itemized deductions on Schedule A exceeds the federal standard deduction. The motor vehicle registration tax was changed in Laws 2008, Chapter 152. The ad valorem portion of the registration tax is allowed as an itemized deduction for personal property taxes.

4 Page 4 EXPLANATION OF THE BILL (Cont.) Subtraction for Military Pensions The subtraction for military pensions would be phased in over four years and would be allowed to military retirees and their survivors. For tax year 2009 a subtraction of 25% of the pension would be allowed, up to a limit of $7,500; for tax year 2010 a subtraction of 50% of the pension would be allowed, up to a limit of $15,000: for tax year 2011 a subtraction of 75% of the pension would be allowed, up to a limit of $22,500; and for tax year 2012 and subsequent years a subtraction of 100% of the pension would be allowed, up to a limit of $30,000. For AMT, Allow Non-Itemizer Charitable Contribution Subtraction The proposal allows a subtraction from Minnesota alternative minimum taxable income equal to the charitable contribution subtraction allowed on the Minnesota return for the regular tax. The subtraction is 50% of the contribution in excess of $500 for those taxpayers that take the federal standard deduction. The current law allows charitable contributions to be deducted from alternative minimum taxable income for only those taxpayers that itemize their deductions. Addition to Income for Minnesota Development Subsidies The bill defines the term Minnesota development subsidy. If an expense is classified as a development subsidy, it must be added back to income for the corporate franchise tax. The greater of two types of development subsidies would be added back to income: a) 50% of amounts deducted in computing federal taxable income for property taxes or other expenses for property in a tax increment financing district or property that receives an abatement if the owner of the property or related party has entered into a development agreement; or b) Payments received or reimbursements from the proceeds of a tax increment financing district or from an abatement. Reimbursements under a development action response plan, as defined, would be excluded from the addback. The term tax increment financing district excludes housing districts, soils condition districts, and hazardous substance subdistricts. Repeal 100% Apportionment for Mail Order Companies The bill repeals a provision that allows mail order companies to use 100% sales apportionment if they have 99% of their property and payroll located in Minnesota. 25% Investment Tax Credits Individual income and corporate franchise taxpayers would be allowed a 25% tax credit on investments in qualified business ventures. Business ventures in three areas are covered by the credit: high technology, biotechnology or medical devices, and green manufacturing. For each area there is a $2 million limit on the amount of tax credit that can be issued during a tax year. These limits would be administered under a certificate program.

5 Page 5 EXPLANATION OF THE BILL (Cont.) The maximum tax credit per taxpayer is the smaller of the regular tax plus the AMT or $25,000 for individual taxpayers and $300,000 for pass-through entities and for C corporations. If the credit exceeds the tax, the excess can be carried forward ten years. The maximum carryover credit per year is $25,000 for individual taxpayers and $300,000 for all other taxpayers. Qualified taxpayers are defined as accredited investors under SEC Regulation D who do not own 20% or more of the outstanding securities of the qualified business. Under Regulation D, accredited investors generally are high income and net worth individuals or entities with substantial assets. A qualified business must have its headquarters in Minnesota, employ no more than 25 full-time employees, have gross receipts less than $1 million, be in operation for less than ten years, and have investments of capital received in previous years of less than $2 million. Also, there is a list of activities such as real estate where the business venture must not be engaged. - High Technology Field: Business ventures in a qualifying high technology field include but are not limited to: aerospace, agricultural processing, alternative energy, environmental engineering, food technology, cellulosic ethanol, information technology, green manufacturing, materials science technology, nanotechnology, and telecommunications. - Biotechnology/ Medical Devices: Business ventures in qualified biotechnology / medical devices include manufacturing, processing, assembling, researching or developing biotechnology or medical device products, including biotechnology and device products used in agriculture. - Green Manufacturing: Business ventures in green manufacturing include production of products, processes, methods, technologies, or services intended to do one or more of the following: to increase the use of energy from renewable sources; to increase the energy efficiency of the electric utility infrastructure system or to increase energy conservation related to electricity use; to reduce greenhouse gas emissions; to monitor, protect, restore, and preserve the quality of surface waters; and to expand use of biofuels. 20% Research Credit for Qualified Businesses This provision creates a new research credit for qualified businesses. The definition of a qualified business is the same as for the 25% investment tax credits. Unlike the current research credit, the special credit is refundable, and the credit applies to both the individual income tax and the corporate franchise tax. The credit would be based on 20% of qualified research expenditures. The total amount of tax credits is limited to $3 million per tax year. The limit would be administered under a certificate program.

6 Page 6 EXPLANATION OF THE BILL (Cont.) Reduce Current Research Credit Corporations are allowed to claim a nonrefundable research and development credit. For tax year 2008 the tax credit is reduced from 5% to 3.75% of the first $2 million of qualified research expenses and from 2.5% to 1.88% on qualified research expenses over $2 million. For tax years after 2008, the tax credit rates are reduced respectively to 3% and 1.5%. Any unused amount is carried forward and is used against tax liability in future years. Exemptions for Northstar Commuter Rail Vehicles, Parts, and Construction Materials, and for Central Corridor Light Rail Construction Materials; Appropriation Under current law, purchases by the Metropolitan Council of vehicles and repair parts to equip operations of a light rail transit system are exempt from the sales and use tax. This currently applies to the Hiawatha line and would apply to the proposed Central Corridor project. The bill would expand the vehicle and repair parts exemption to include purchases of vehicles and parts by the Department of Transportation for commuter rail facilities. The bill also provides an exemption for materials and supplies used or consumed in and equipment incorporated into the construction or improvement of the Northstar Corridor rail project. The bill also exempts materials and supplies used or consumed in and equipment incorporated into the construction or improvement of the Central Corridor light rail transit line. For both exemptions, the tax is to be paid at the time of purchase and subsequently refunded. The bill makes an appropriation of $15 million in fiscal year 2009 that does not cancel and is available until expended. The appropriation is to pay the refunds for the construction exemptions for the Northstar Corridor rail project and the Central Corridor light rail transit line. The appropriation is also to be used to reimburse the revenue loss due to the vehicle and parts exemption for commuter rail operations, including the Northstar Corridor rail project. Expand Exemption for Low-Income Housing Construction Materials A sales tax exemption is in effect for materials and supplies, and equipment incorporated into, the construction, improvement, or expansion of low-income housing projects under specified conditions. The bill would extend the exemption to include construction of low-income housing by limited partnerships in which the sole or managing general partner is a nonprofit entity. Extend Public Safety Radio Exemption to Itasca County A sales and use tax exemption is in effect for items purchased in constructing, operating, maintaining, and enhancing phases I and II (most of the metropolitan area) and the portion of phase III that is located in the southeast district of the state patrol and in the counties of Benton, Sherburne, Stearns, and Wright, of the public safety radio communication system, also known as the Allied Radio Matrix for Emergency Response, or ARMER. The bill adds to the exemption that portion of the system that is located in Itasca County.

7 Page 7 EXPLANATION OF THE BILL (Cont.) Exempt Vehicles Purchased Abroad by Military Active Service Members Currently, a vehicle not previously titled and registered in the United States that is brought into Minnesota is generally subject to the 6.5% motor vehicle sales tax. The bill would provide an exemption for the purchase outside the United States of a passenger automobile or motorcycle by a member of the United States armed forces while the member is serving outside the United States in federal active military service. The exemption is limited to one qualifying motor vehicle during the lifetime of the armed forces member. Exempt Vehicles Sold by a Charitable Organization in a Lease-to-Own Program An exemption from the motor vehicle sales tax would be allowed for the purchase of a vehicle by the lessee who had participated in a lease-to-own program. The exemption would apply if the vehicle was purchased from a charitable organization that operated the program and is licensed as a motor vehicle lessor Increase June Accelerated Payments from 80% to 85% Taxpayers liable for the general sales tax, the cigarette taxes and fees, the tobacco products tax and fee, and the taxes on alcoholic beverages, and that have a liability of $120,000 or more during the prior fiscal year, must pay a portion of the estimated June liability two business days before June 30. Any additional amount of tax not remitted in June is due by the following August 20. The amount of the June liability required to be paid in June of 2007 was 78%. Current law (Chapter 154) raises the portion to be paid in June to 80%, beginning in June The proposal increases from 80% to 85% the required portion of the June liability that must be paid in June, starting with payments due in June Terminate Designation of JOBZ Businesses Under current law, the duration of the Job Opportunity Building Zone (JOBZ) program is twelve years, from January 1, 2004, through December 31, Qualifying businesses are eligible for tax benefits for the duration of the zone. The proposal would terminate the designation of qualified businesses into the JOBZ program. Only qualified businesses that entered into business subsidy agreements before June 1, 2008, would be eligible for JOBZ tax benefits. Seed Capital Investment Credit in Border City Zones A nonrefundable credit against the individual income tax would be allowed equal to 45% of investment in a qualified business. The business must have its principal office and a majority of its activity performed in a designated border city zone and must meet other specified requirements. The Commissioner of Employment and Economic Development would certify businesses qualifying for the credit. If the credit exceeds the tax, the excess credit can be carried over four years. The credit would be funded by existing appropriations to border city zones.

8 Page 8 EXPLANATION OF THE BILL (Cont.) Eliminate Political Contribution Refund The bill would eliminate the political contribution refund. The political contribution refund provides a refund to individuals for contributions made to qualifying political parties and candidates. The maximum refund is $50 for an individual and $100 for a married couple filing jointly. The refund claim must be filed no later than April 15 th following the calendar year in which the contribution was made. Appropriations for Grants to Minneapolis for Target Center and St. Paul for RiverCentre The bill appropriates $1.5 million in fiscal year 2009 from the General Fund to the Commissioner of Employment and Economic Development for grants of $750,000 each to the cities of Minneapolis and St. Paul for capital improvements to Target Center and RiverCentre. Appropriation for Taxpayer Assistance Grants The bill appropriates $100,000 in fiscal year 2009 from the General Fund to the Commissioner of Revenue to make grants to one or more nonprofit organizations to coordinate, facilitate, encourage, and aid in providing taxpayer assistance services. The grants are to increase the availability of services after April 15 th to assist homeowners in filing claims for the homestead credit state refund proposed in the bill. Exempt Spotter Trucks from the Registration Tax Under current law, there is no separate classification for spotter trucks. Trucks used in freight operations should be titled and registered under the general truck classification if they meet onroad use requirements and are used on public streets and highways. Otherwise, they should not be titled and licensed. The bill defines spotter trucks and exempts these trucks from the motor vehicle registration tax and titling requirements. Spotter trucks are defined as trucks that do not meet requirements for on-road use and are used exclusively for staging or shuttling semi-trailers for freight operations. The bill provides for limited use of spotter trucks on the public streets and highways and defines them as commercial motor vehicles. Exempt from the Registration Tax Disaster Response Vehicles Owned by Charities The bill would provide an exemption from the motor vehicle registration tax for vehicles owned by nonprofit charities and used exclusively for disaster response and related activities. Change Intra-City Bus Registration Tax The registration tax on intra-city buses operated by an auto transportation company is set at $40, $10, and $2 depending on the population of the city. The city size classifications are: 1) over 200,000, 2) between 70,000 and 200,000, and 3) less than 70,000. The proposal would eliminate the population distinctions and set the tax rate at $2 per bus.

9 Page 9 REVENUE ANALYSIS DETAIL Disallow Itemized Deduction for Real and Personal Property Tax The House Income Tax Simulation (HITS 5.6) Model was used to estimate the tax year revenue impact. These simulations assume the same economic conditions used by the Minnesota Department of Finance for the forecast published in February The model uses a stratified sample of 2005 individual income tax returns compiled by the Minnesota Department of Revenue. Tax year impact would be reflected in the following fiscal year. For tax year 2009 an estimated 844,800 returns would receive an increase in tax of an average of $218 per return. The impact on individual income tax revenues due to the change in the motor vehicle registration tax in Laws 2008, Chapter 152, was estimated using the House Income Tax Simulation Model. Subtraction for Military Pensions According to information from the Department of Defense Statistical Report on the Military Retirement System for federal fiscal year 2006, the number of people receiving military retirement pay or survivors pay in Minnesota was 18,013. Average annual pensions range from about $3,000 to nearly $30,000. The average marginal rate was assumed to be 6%. Annual growth was estimated at 5%. Tax year impact was allocated to the following fiscal year. For AMT, Allow Non-Itemizer Charitable Contribution Subtraction The House Income Tax Simulation (HITS 5.6) Model was used to estimate the tax year revenue impact. These simulations assume the same economic conditions used by the Minnesota Department of Finance for the forecast published in February The model uses a stratified sample of 2005 individual income tax returns compiled by the Minnesota Department of Revenue. Tax year impact would be reflected in the following fiscal year. Information from the department s data warehouse was used to estimate the number of taxpayers affected by the proposal. For tax year 2006, there were 130,000 taxpayers that took the standard deduction and had the charitable contribution subtraction reported on Form M1M; however, only 25 of these taxpayers paid the alternative minimum tax.

10 Page 10 REVENUE ANALYSIS DETAIL (Cont.) Addition to Income for Minnesota Development Subsidies Estimates for the amount of the addback were developed by the Property Tax Division, Research Unit. The estimates for TIF districts are based on Office of State Auditor data on the revenue and expenses flowing through TIF districts in The totals were reduced by the amounts attributable to housing districts, soils condition districts, and hazardous substance subdistricts. It is assumed that 80% of the net TIF revenue was earned by districts with bond obligations and the other 20% of net TIF revenue was earned by pay-as-you districts. The estimates were reduced by 30% for benefits received by parties who were not part of the development agreement. Revenue from the addback decreases in fiscal year 2011 due to the decertification of pre TIF districts. The total amount of abatements in 2008 was $8.3 million. It was assumed that abatements equal about 33% of the total tax that affected properties would pay without the abatement. It is assumed that 70% of the addback would be attributed to corporations subject to the corporate franchise tax and that 70% of the addback would affect taxable income. Repeal 100% Sales Apportionment for Mail Order Companies The estimate is based on estimates published in the 2008 Tax Expenditure Budget. 25% Investment Tax Credits The estimates for the new credits are equal to the limits specified in the proposal. Tax year impact was allocated to the following fiscal year. 20% Research Credit for Qualified Businesses The estimates for the new credit are equal to the limits specified in the proposal. Tax year impact was allocated to the following fiscal year. Reduce Current Research Credit The estimate for the reduction of the current law research credit is based on credit data from returns filed during calendar year Tax year estimates are allocated 30/70 to fiscal years. Because the change is considered retroactive, the tax year 2008 revenue gain associated with the proposal that normally would occur in fiscal year 2008 is shifted to fiscal year Growth in overall corporate tax collections as projected by the Department of Finance in the February 2008 forecast is used to project future revenue gains. Exemptions for Northstar Commuter Rail Vehicles, Parts, and Construction Materials, and for Central Corridor Light Rail Construction Materials; Appropriation The fund impact assumes that the full appropriation would be used.

11 Page 11 REVENUE ANALYSIS DETAIL (Cont.) Expand Exemption for Low-Income Housing Construction Materials Based on information from the Minnesota Housing Finance Agency, it was estimated that 275 additional housing units would be created annually under the expanded exemption. It was assumed that 60% or 165 of the units would be new construction and 40% or 110 would be rehabilitated existing units. In fiscal year 2007, the average amount of sales tax per new housing unit was estimated at $2,700, and the average sales tax per rehabilitated unit was estimated at $1,900. Because of current economic conditions, annual growth was held flat in fiscal years 2008 and 2009 and was estimated at 2.5% in 2010 and 3% in FY The estimate for fiscal year 2009 was adjusted for an effective date of July 1, Four or five developments would likely be affected per year. Extend Public Safety Radio Exemption to Itasca County The estimate is based on information from the Itasca County sheriff s office. The total project cost is $9.4 million. Equipment has already been purchased and sales tax has been paid on the purchases for a total of $5.67 million on otherwise taxable equipment. Built-in radios in marked squad cars and emergency rescue vehicles are currently exempt under another provision. The estimate reflects this fact. It is assumed that refunds for the retroactive period would be paid in fiscal year The impact of exempting on-going expenses was estimated to be less than $5,000. Exempt Vehicles Purchased Abroad by Military Active Service Members The Exchange New Car Sales program was authorized by Congress and created by the Department of Defense to provide members of the overseas military community with preferential pricing on new cars. This program sells approximately 12,000 new vehicles annually to overseas military personnel. Minnesota military personnel stationed abroad may also purchase other vehicles during their military duty and subsequently title them in Minnesota. The percentage of Minnesota military personnel is estimated to be approximately 1% of the active duty military stationed abroad. It is estimated that approximately 100 purchases from the Exchange New Car Sales program to active duty military personnel stationed abroad are by military personnel from Minnesota. There are some timing issues related to when the vehicle is purchased abroad and when it is subsequently titled and registered in Minnesota. The vehicles may first be registered in another state. Contacts were made to representatives from the Department of Public Safety, Driver and Vehicle Services Division, and the Department of Military Affairs to determine how many of the vehicle purchases annually by Minnesota military personnel stationed abroad from Minnesota may become subject to the motor vehicle sales tax in Minnesota. It is estimated that this exemption might directly apply to approximately 20 vehicles annually in each of the next three fiscal years.

12 Page 12 REVENUE ANALYSIS DETAIL (Cont.) Ward s Automotive reports the average price of a motor vehicle as $23,040 for This average price is estimated to be the price of vehicles qualifying for this exemption. New car prices are estimated to increase 1.5% annually. Exempt Vehicles Sold by a Charitable Organization in a Lease-to-Own Program It is assumed that the Greater Twin Cities United Way is the only charitable organization to qualify. The organization operates a lease-to-own program for low-income families. Vehicles it acquires through donation are leased to program beneficiaries for two years and, at the end of the lease, title is transferred to the lessee without charge. The Greater Twin Cities United Way plans to acquire 10 to 15 donated vehicles starting in state fiscal year 2009 and 50 vehicles annually thereafter. The average value of a vehicle at time of transfer to the program beneficiary (the former lessee) is estimated at $2,500. In fiscal year 2009 it was assumed that 13 vehicles will be transferred for a total revenue loss of about $2,000. The transfer of 50 vehicles each in fiscal years 2010 and 2011 has an estimated loss of about $8,000 for all funds. Increase June Accelerated Payments from 80% to 85% The estimates were based on accelerated payments received in June Annual growth was based on the February 2008 revenue forecast. The fiscal tails for the cigarette tax and fee are negative because sales of packs of cigarette are projected to continue declining. Terminate Designation of JOBZ Businesses According to the Department of Employment and Economic Development, there are 328 businesses in the JOBZ program as of April 21, JOBZ program business subsidy agreements signed by year are as follows: 119 in CY 2004, 91 in CY 2005, 69 in CY 2006, 47 in CY 2007, and 2 in CY 2008 to date. Under current law, the number of businesses entering the program would be expected to decline each year. It is assumed the number of business entering the program would be: 31 in 2008, 28 in 2009, and 24 in It is assumed that 13 of the 31 businesses in 2008 would enter the program before June 1, The JOBZ program would not be available to the other 18 businesses in 2008 and all the businesses that would have signed agreements in subsequent years. It was assumed that the average annual state revenue savings per business would be similar to the tax benefits reported by JOBZ business submitting Form M500 for tax years 2004 to 2006, which was approximately $70,000. Calendar year impact was allocated to the following fiscal year. The total savings for FY 2009 to FY 2016 is estimated at $43.0 million.

13 Page 13 REVENUE ANALYSIS DETAIL (Cont.) Seed Capital Investment Credit in Border City Zones Because the credit is funded with existing appropriations, there is no revenue impact. Eliminate Political Contribution Refund This estimate corresponds to the February 2008 Department of Finance economic forecast. Fiscal year 2009 was adjusted to reflect the effective date. Refunds will be paid after June 30, 2008, for contributions made before July 1, It is expected that the monthly refund claims paid in July and August of 2008 for refunds claimed prior to July 1, 2008, will be comparable to monthly amounts paid in July and August of previous years. It is estimated that the claims paid in July and August will be $850,000. An additional amount will be disbursed from September 2008 through April 15, 2008, for refund claims for contributions made January 1, 2008, through June 30, It is estimated that the amount of these claims will be $250,000. About 100,000 political contribution refunds are made annually. Appropriations for Grants to Minneapolis for Target Center and St. Paul for RiverCentre The fund impact assumes that the full appropriation would be used. Appropriation for Taxpayer Assistance Grants The fund impact assumes that the full appropriation would be used. Exempt Spotter Trucks from the Registration Tax The Minnesota Trucking Association and the Department of Public Safety, Driver and Vehicle Services Division, estimate that there are approximately 1,000 trucks in Minnesota being used for freight operations. Of these 1,000 trucks, there are three categories of use. It is estimated that: 500 of the 1,000 trucks meet the requirements for on-road use, are being titled and licensed, and will continue to be titled and licensed; 250 trucks do not meet the requirements for on-road use, are not being used on public streets, and do not need to be titled and licensed; and the remaining 250 trucks may not meet the requirements for on-road use, may have been titled and licensed, and may be using public streets. The exemption would apply to the last category of 250 trucks. The registration tax is estimated to be approximately $300 per truck annually. The bill would define these trucks as spotter trucks, allow them limited use of public roads, and allow them an exemption from the registration tax through the end of fiscal year At the expiration of the exemption, current law would be re-implemented and there would be no separate classification for spotter trucks. These vehicles would fall under the general classification of trucks. They would be titled and licensed if they meet requirements for onroad use and are used on public streets. Otherwise, they would not be titled and licensed for road use.

14 Page 14 REVENUE ANALYSIS DETAIL (Cont.) Exempt from the Registration Tax Disaster Response Vehicles Owned by Charities Discussions with representatives from the Department of Public Safety, Driver and Vehicle Services Division, and the Red Cross indicate that this exemption might apply to approximately 20 vehicles in each of the next three fiscal years. The vehicles may be van-type vehicles with an average registration tax of approximately $100 and transitioning to an average registration tax of about $200 as the vehicles are replaced and are subject to the revised registration tax schedule. Truck type vehicles pay registration tax based on weight and the average registration tax for this type of vehicle is less than $100 and will continue to be less than $100 with the revised registration schedule. Change Intra-City Bus Registration Tax Information from Driver and Vehicle Services at the Department of Public Safety indicates that there is only one private company in the state providing common carrier intra-city bus service. The total number of buses paying this tax in calendar year 2007 was 69 buses. For the years being estimated, the buses that are currently subject to the tax would pay $10 per bus under current law. The proposal would reduce the tax to $2 per bus. The proposal is intended to provide administrative consolidation for license plate categories that are being used minimally. There is currently one taxpayer that would be affected. hf3149(sf2869)_4/ cc, mjr, gt, dkd, tfe, rrs, nrg, ew Source: Minnesota Department of Revenue Tax Research Division