Agenda Packets - 1993/05/10 - Laserfiche WebLink

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Tax Exemption 4111 At closing Briggs and Morgan, Professional Association, Bond Counsel, will render an opinion that, based on present federal and Minnesota laws, regulations, rulings and decisions, at the time of the issuance and delivery of the Bonds to the original purchaser thereof, the interest on the Bonds is excluded from gross income for United States income tax purposes and is excluded, to the same extent, from both gross income and taxable net income for State of Minnesota income tax purposes (other than Minnesota franchise taxes measured by income and imposed on corporations and financial institutions), and is not an item of tax preference for purposes of federal alternative minimum tax imposed on individuals and corporations or the Minnesota alternative minimum tax applicable to individuals, estates or trust; provided, however, that for the purpose of computing the federal alternative minimum tax imposed on corporations, such interest is taken into account in determining adjusted current earnings. No opinion will be expressed by Bond Counsel regarding other State or federal tax consequences caused by the receipt or accrual of interest on the Bonds or arising with respect to ownership of the Bonds. Preservation of the exclusion of interest on the Bonds from federal gross income and state gross and taxable net income, however, depends upon compliance by the City with all requirements of the Internal Revenue Code of 1986, as amended, (the "Code") that must be satisfied subsequent to the issuance of the Bonds in order that interest thereon be (or continue to be) excluded from federal gross income and state gross and taxable net income. The City will covenant to comply with requirements necessary under the Code to establish and maintain the Bonds as tax-exempt under Section 103 thereof, including without limitation, requirements relating to temporary periods for investments and limitations on amounts invested at a yield greater than the yield on the Bonds. • Other Federal Tax Considerations Property and Casualty Insurance Companies Under the Tax Reform Act of 1986, property and casualty insurance companies are required for taxable years beginning after December 31, 1986, to reduce the amount of their loss reserve deduction by 15% of the amount of tax-exempt interest received or accrued during the taxable year on certain obligations acquired after August 7, 1986, including interest on the Bonds. Foreign Insurance Companies The federal Omnibus Budget Reconciliation Act of 1987 was enacted in December, 1987, and subjects foreign companies carrying on an insurance business in the United States to a tax on income which is effectively connected with their conduct of any trade or business in the United States. Such income includes "net investment income" which is effectively connected, which shall not be less than the product of (A) the "required U.S. assets" of such company, and (B) the "domestic investment yield" applicable to such company for such year. Net investment income includes, according to the conference report accompanying the law, "interest (including tax-exempt interest)". Branch Profits Tax The Tax Reform Act of 1986 includes an income tax section entitled "Branch Profits Tax" which imposes on any foreign corporation a tax equal to 30% of the "dividend equivalent amount" for the taxable year. The "dividend equivalent amount" is the foreign corporation's "effectively • connected earnings and profits", reduced for increase (or increased for decrease) in "U.S. net equity". According to the conference report accompanying the law, "the conferees intend that a branch's earnings and profits include income that would be effectively connected with a U.S. trade or business if such income were taxable, such as tax-exempt municipal bond interest". - 3 -