HF 816

as introduced - 90th Legislature (2017 - 2018) Posted on 05/01/2017 02:32pm

A bill for an act
relating to taxation; income; providing an administrative mechanism for conforming
to certain future federal tax legislation; transferring money; proposing coding for
new law in Minnesota Statutes, chapter 290.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:

Section 1.

new text begin [290.016] CONFORMITY TO FEDERAL TAX EXTENDERS BY
ADMINISTRATIVE ACTION.
new text end

new text begin Subdivision 1. new text end

new text begin Legislative purpose. new text end

new text begin (a) The legislature intends this section to provide
an ongoing mechanism for conforming the Minnesota individual income and corporate
franchise taxes and the property tax refund and homestead credit refund programs to federal
tax legislation enacted after the legislature has adjourned that extends existing provisions
of federal law, if the provisions affect a taxable year that ends before the legislature is
scheduled to reconvene in regular session. Congress has regularly enacted changes of that
type that affect computation of Minnesota tax through its links to federal law. The federal
changes consist mainly of extending provisions that reduce revenues and are scheduled to
expire. Because Minnesota law is linked to federal law as of a specific date, taxpayers and
the Department of Revenue must assume that Minnesota law does not include the effect of
these federal changes even though the legislature regularly adopts most of the federal
provisions retroactively in the next legislative session. This situation undermines compliance
and administration of Minnesota taxes, causing delay, uncertainty, and added costs. This
section provides an administrative mechanism to conform to most of these federal changes.
The legislature's intent is to conform to the federal tax extenders, including minor
modifications of them, and to set aside the necessary state budget resources to do so.
new text end

new text begin (b) By expressing its intent regarding specific federal provisions and indicating how to
treat each federal extender provision, the legislature is exercising its legislative power and
is not delegating to Congress or the commissioner the authority to determine Minnesota tax
law. The legislature believes that this section is consistent with the Minnesota Supreme
Court's ruling in the case of Wallace v. Commissioner of Taxation, 289 Minn. 220 (1971).
new text end

new text begin Subd. 2. new text end

new text begin Federal tax conformity account established; transfer. new text end

new text begin (a) A federal tax
conformity account is established in the general fund. Money in the account is available for
transfer to the general fund to offset the reduction in general fund revenues resulting from
conforming Minnesota tax law to federal law under this section.
new text end

new text begin (b) $20,000,000 is transferred from the general fund to the federal tax conformity account,
effective July 1, 2017. On January 1 of each fiscal year in which a transfer is made under
paragraph (c), the commissioner shall transfer an amount to the account necessary to maintain
a $20,000,000 balance in the account or the amount necessary to offset the estimated annual
revenue reduction from conforming to eligible federal tax preferences that are scheduled
to expire under federal law, whichever is less.
new text end

new text begin (c) Each year, within ten days after receiving notice of the amount from the commissioner,
the commissioner of management and budget shall transfer from the account to the general
fund the amount the commissioner determines is required under subdivision 4.
new text end

new text begin (d) Amounts sufficient to make the transfers under:
new text end

new text begin (1) paragraph (b) are appropriated from the general fund; and
new text end

new text begin (2) paragraph (c) are appropriated from the federal tax conformity account.
new text end

new text begin Subd. 3. new text end

new text begin Eligible federal tax preferences. new text end

new text begin For purposes of this section and section
290.01, the term "eligible federal tax preferences" means any of the following items that
are not in effect under the Internal Revenue Code for future taxable years beginning after
December 31, 2016:
new text end

new text begin (1) discharge of qualified principal residence indebtedness under section 108(a)(1)(E)
of the Internal Revenue Code;
new text end

new text begin (2) mortgage insurance premiums treated as qualified residence interest under section
163(h)(3)(E) of the Internal Revenue Code;
new text end

new text begin (3) qualified tuition and related expenses under section 222 of the Internal Revenue
Code;
new text end

new text begin (4) the special rules for itemized deductions of the expenses of medical care by individuals
who have attained the age of 65 under section 213(f) of the Internal Revenue Code;
new text end

new text begin (5) classification of certain race horses as three-year property under section
168(e)(3)(A)(i) and (ii) of the Internal Revenue Code;
new text end

new text begin (6) the seven-year recovery period for motorsports entertainment complexes under
section 168(i)(15) of the Internal Revenue Code;
new text end

new text begin (7) the accelerated depreciation for business property on an Indian reservation under
section 168(j) of the Internal Revenue Code;
new text end

new text begin (8) the election to expense mine safety equipment under section 179E of the Internal
Revenue Code;
new text end

new text begin (9) the special expensing rules for certain film and television productions under section
181 of the Internal Revenue Code;
new text end

new text begin (10) the special allowance for second-generation biofuel plant property under section
168(l) of the Internal Revenue Code;
new text end

new text begin (11) the energy efficient commercial buildings deduction under section 179D of the
Internal Revenue Code;
new text end

new text begin (12) the five-year recovery period for property described in section 168(e)(3)(B)(vi)(I)
of the Internal Revenue Code and qualifying for an energy credit under section 48(a)(3)(A)
of the Internal Revenue Code; and
new text end

new text begin (13) the amount of the additional section 179 allowance in an empowerment zone under
section 1397A of the Internal Revenue Code.
new text end

new text begin Subd. 4. new text end

new text begin Designation of qualifying federal conformity items. new text end

new text begin (a) If, after final
adjournment of a regular session of the legislature, Congress enacts a law that extends one
or more of the eligible federal tax preferences to taxable years beginning during the calendar
year in which the legislature adjourned, the commissioner shall prepare a list of qualifying
federal conformity items and publish it on the Department of Revenue's Web site within 30
days following enactment of the law. In preparing the list, the commissioner shall estimate
the change in revenue resulting from allowing the eligible federal tax preferences, including
the effect of subdivision 6, for the current and succeeding fiscal year only. The commissioner
shall not include an item on the list of qualifying federal conformity items if the commissioner
estimates that its inclusion would reduce general fund revenues for the current and succeeding
fiscal year by more than the balance in the federal tax conformity account.
new text end

new text begin (b) The commissioner shall consider the provisions of subdivision 6 as the first item to
include on the list of qualifying conformity items. The commissioner shall apply the following
priorities in determining which additional items to include:
new text end

new text begin (1) the effect of all eligible federal tax preferences on computation of federal adjusted
gross income under this chapter and household income under chapter 290A, is the first
priority;
new text end

new text begin (2) the effect of the federal law on computation of Minnesota tax credits is the second
priority;
new text end

new text begin (3) the items in subdivision 3, clauses (5) to (13), in that order, are the third priority;
and
new text end

new text begin (4) the items in subdivision 3, clauses (1) to (4), in that order, are the last priority.
new text end

new text begin (c) In determining whether to include an eligible federal tax preference on the list of
qualifying federal conformity items, the commissioner may include items in which
nonmaterial changes were made in the federal law extending allowance of the eligible federal
tax preferences, compared to the provision that was in effect for the prior federal taxable
year. For purposes of this determination, nonmaterial changes are limited to changes that
are estimated to increase or decrease Minnesota tax revenues by no more than $1,000,000
for the affected eligible federal tax preference item for the taxable year.
new text end

new text begin (d) Within ten days after the commissioner's final determination of qualifying federal
conformity items under this subdivision, the commissioner shall notify the commissioner
of management and budget, in writing, of the amounts of the federal tax conformity account
transfers under subdivision 2.
new text end

new text begin Subd. 5. new text end

new text begin Provisions in effect. new text end

new text begin (a) For purposes of determining tax and credits under this
chapter, including the taxes under sections 290.091 and 290.0921, and household income
under chapter 290A, qualifying federal conformity items and bonus depreciation rules under
subdivision 6 apply for the designated taxable year and the provisions of this chapter apply
as if the definition of the Internal Revenue Code under section 290.01, subdivision 31,
included the amendments to the qualifying federal conformity items.
new text end

new text begin (b) The commissioner shall administer the taxes under this chapter and refunds under
chapter 290A as if Minnesota had conformed to the federal definitions of net income,
adjusted gross income, and tax credits that affect computation of Minnesota tax or refunds
resulting from extension of the qualifying federal conformity items.
new text end

new text begin (c) For purposes of this subdivision and subdivision 6, "designated taxable year" means
a taxable year that begins during a calendar year in which an eligible federal tax preference
is enacted after the legislature adjourned its regular session and is effective for taxable years
beginning during that calendar year.
new text end

new text begin Subd. 6. new text end

new text begin Bonus depreciation; 80 percent rule applies. new text end

new text begin If, following final adjournment
of a regular session of the legislature, Congress enacts a law that extends application of the
depreciation special allowances under section 168(k) of the Internal Revenue Code to taxable
years beginning during the same calendar year, the allowance must be determined using
the rules under sections 290.0131, subdivision 9, and 290.0133, subdivision 11, for the
designated taxable year; and the rules under sections 290.0132, subdivision 9, and 290.0134,
subdivision 13, for the five tax years immediately following the designated taxable year.
new text end

new text begin Subd. 7. new text end

new text begin Forms preparation. new text end

new text begin If the provisions of subdivisions 3 and 4 apply to a taxable
year, the commissioner shall prepare forms and instructions that reflect the qualifying federal
conformity items and bonus depreciation rules under subdivision 6, if applicable, for the
taxable year consistent with the provisions of this section.
new text end

new text begin Subd. 8. new text end

new text begin Draft legislation. new text end

new text begin For a taxable year for which the commissioner publishes a
list of qualifying federal conformity items under this section, the commissioner shall provide
the chairs of the legislative committees with jurisdiction over taxes with draft legislation
that would conform Minnesota Statutes to the qualifying federal conformity items and any
other conformity items that the commissioner recommends be adopted, including application
to taxable years beyond those to which this section applies. The draft legislation is intended
to make the statutes consistent with application of the designated qualifying federal
conformity items under this section for the convenience of members of the public. Failure
to pass the draft legislation does not affect computation of Minnesota tax liability for the
affected taxable years under this section.
new text end

new text begin Subd. 9. new text end

new text begin Administrative Procedure Act. new text end

new text begin Designation of qualifying federal conformity
items or any other action of the commissioner under this section is not a rule and is not
subject to the Administrative Procedure Act under chapter 14, including section 14.386.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective the day following final enactment.
new text end