HF 190

as introduced - 81st Legislature (1999 - 2000) Posted on 12/15/2009 12:00am

  1.1                          A bill for an act 
  1.2             relating to taxation; providing for conformity with 
  1.3             federal tax treatment of certain S corporations; 
  1.4             amending Minnesota Statutes 1998, sections 290.01, 
  1.5             subdivisions 19a, 19b, and 19f; 290.06, subdivision 
  1.6             2c; 290.091, subdivisions 2 and 6; and 290.9725. 
  1.7   BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
  1.8      Section 1.  Minnesota Statutes 1998, section 290.01, 
  1.9   subdivision 19a, is amended to read: 
  1.10     Subd. 19a.  [ADDITIONS TO FEDERAL TAXABLE INCOME.] For 
  1.11  individuals, estates, and trusts, there shall be added to 
  1.12  federal taxable income: 
  1.13     (1)(i) interest income on obligations of any state other 
  1.14  than Minnesota or a political or governmental subdivision, 
  1.15  municipality, or governmental agency or instrumentality of any 
  1.16  state other than Minnesota exempt from federal income taxes 
  1.17  under the Internal Revenue Code or any other federal statute, 
  1.18  and 
  1.19     (ii) exempt-interest dividends as defined in section 
  1.20  852(b)(5) of the Internal Revenue Code, except the portion of 
  1.21  the exempt-interest dividends derived from interest income on 
  1.22  obligations of the state of Minnesota or its political or 
  1.23  governmental subdivisions, municipalities, governmental agencies 
  1.24  or instrumentalities, but only if the portion of the 
  1.25  exempt-interest dividends from such Minnesota sources paid to 
  1.26  all shareholders represents 95 percent or more of the 
  2.1   exempt-interest dividends that are paid by the regulated 
  2.2   investment company as defined in section 851(a) of the Internal 
  2.3   Revenue Code, or the fund of the regulated investment company as 
  2.4   defined in section 851(g) of the Internal Revenue Code, making 
  2.5   the payment; and 
  2.6      (iii) for the purposes of items (i) and (ii), interest on 
  2.7   obligations of an Indian tribal government described in section 
  2.8   7871(c) of the Internal Revenue Code shall be treated as 
  2.9   interest income on obligations of the state in which the tribe 
  2.10  is located; 
  2.11     (2) the amount of income taxes paid or accrued within the 
  2.12  taxable year under this chapter and income taxes paid to any 
  2.13  other state or to any province or territory of Canada, to the 
  2.14  extent allowed as a deduction under section 63(d) of the 
  2.15  Internal Revenue Code, but the addition may not be more than the 
  2.16  amount by which the itemized deductions as allowed under section 
  2.17  63(d) of the Internal Revenue Code exceeds the amount of the 
  2.18  standard deduction as defined in section 63(c) of the Internal 
  2.19  Revenue Code.  For the purpose of this paragraph, the 
  2.20  disallowance of itemized deductions under section 68 of the 
  2.21  Internal Revenue Code of 1986, income tax is the last itemized 
  2.22  deduction disallowed; 
  2.23     (3) the capital gain amount of a lump sum distribution to 
  2.24  which the special tax under section 1122(h)(3)(B)(ii) of the Tax 
  2.25  Reform Act of 1986, Public Law Number 99-514, applies; 
  2.26     (4) the amount of income taxes paid or accrued within the 
  2.27  taxable year under this chapter and income taxes paid to any 
  2.28  other state or any province or territory of Canada, to the 
  2.29  extent allowed as a deduction in determining federal adjusted 
  2.30  gross income.  For the purpose of this paragraph, income taxes 
  2.31  do not include the taxes imposed by sections 290.0922, 
  2.32  subdivision 1, paragraph (b), 290.9727, 290.9728, and 290.9729; 
  2.33     (5) the amount of loss or expense included in federal 
  2.34  taxable income under section 1366 of the Internal Revenue Code 
  2.35  flowing from a corporation that has a valid election in effect 
  2.36  for the taxable year under section 1362 of the Internal Revenue 
  3.1   Code, but which is not allowed to be an "S" corporation under 
  3.2   section 290.9725; 
  3.3      (6) the amount of any distributions in cash or property 
  3.4   made to a shareholder during the taxable year by a corporation 
  3.5   that has a valid election in effect for the taxable year under 
  3.6   section 1362 of the Internal Revenue Code, but which is not 
  3.7   allowed to be an "S" corporation under section 290.9725 to the 
  3.8   extent not already included in federal taxable income under 
  3.9   section 1368 of the Internal Revenue Code; 
  3.10     (7) in the year stock of a corporation that had made a 
  3.11  valid election under section 1362 of the Internal Revenue Code 
  3.12  but was not an "S" corporation under section 290.9725 is sold or 
  3.13  disposed of in a transaction taxable under the Internal Revenue 
  3.14  Code, the amount of difference between the Minnesota basis of 
  3.15  the stock under subdivision 19f, paragraph (m), and the federal 
  3.16  basis if the Minnesota basis is lower than the shareholder's 
  3.17  federal basis; 
  3.18     (8) (5) the amount of expense, interest, or taxes 
  3.19  disallowed pursuant to section 290.10; and 
  3.20     (9) (6) the amount of a partner's pro rata share of net 
  3.21  income which does not flow through to the partner because the 
  3.22  partnership elected to pay the tax on the income under section 
  3.23  6242(a)(2) of the Internal Revenue Code. 
  3.24     Sec. 2.  Minnesota Statutes 1998, section 290.01, 
  3.25  subdivision 19b, is amended to read: 
  3.26     Subd. 19b.  [SUBTRACTIONS FROM FEDERAL TAXABLE INCOME.] For 
  3.27  individuals, estates, and trusts, there shall be subtracted from 
  3.28  federal taxable income: 
  3.29     (1) interest income on obligations of any authority, 
  3.30  commission, or instrumentality of the United States to the 
  3.31  extent includable in taxable income for federal income tax 
  3.32  purposes but exempt from state income tax under the laws of the 
  3.33  United States; 
  3.34     (2) if included in federal taxable income, the amount of 
  3.35  any overpayment of income tax to Minnesota or to any other 
  3.36  state, for any previous taxable year, whether the amount is 
  4.1   received as a refund or as a credit to another taxable year's 
  4.2   income tax liability; 
  4.3      (3) the amount paid to others, less the credit allowed 
  4.4   under section 290.0674, not to exceed $1,625 for each dependent 
  4.5   in grades kindergarten to 6 and $2,500 for each dependent in 
  4.6   grades 7 to 12, for tuition, textbooks, and transportation of 
  4.7   each dependent in attending an elementary or secondary school 
  4.8   situated in Minnesota, North Dakota, South Dakota, Iowa, or 
  4.9   Wisconsin, wherein a resident of this state may legally fulfill 
  4.10  the state's compulsory attendance laws, which is not operated 
  4.11  for profit, and which adheres to the provisions of the Civil 
  4.12  Rights Act of 1964 and chapter 363.  For the purposes of this 
  4.13  clause, "tuition" includes fees or tuition as defined in section 
  4.14  290.0674, subdivision 1, clause (1).  As used in this clause, 
  4.15  "textbooks" includes books and other instructional materials and 
  4.16  equipment used in elementary and secondary schools in teaching 
  4.17  only those subjects legally and commonly taught in public 
  4.18  elementary and secondary schools in this state.  Equipment 
  4.19  expenses qualifying for deduction includes expenses as defined 
  4.20  and limited in section 290.0674, subdivision 1, clause (3).  
  4.21  "Textbooks" does not include instructional books and materials 
  4.22  used in the teaching of religious tenets, doctrines, or worship, 
  4.23  the purpose of which is to instill such tenets, doctrines, or 
  4.24  worship, nor does it include books or materials for, or 
  4.25  transportation to, extracurricular activities including sporting 
  4.26  events, musical or dramatic events, speech activities, driver's 
  4.27  education, or similar programs; 
  4.28     (4) to the extent included in federal taxable income, 
  4.29  distributions from a qualified governmental pension plan, an 
  4.30  individual retirement account, simplified employee pension, or 
  4.31  qualified plan covering a self-employed person that represent a 
  4.32  return of contributions that were included in Minnesota gross 
  4.33  income in the taxable year for which the contributions were made 
  4.34  but were deducted or were not included in the computation of 
  4.35  federal adjusted gross income.  The distribution shall be 
  4.36  allocated first to return of contributions until the 
  5.1   contributions included in Minnesota gross income have been 
  5.2   exhausted.  This subtraction applies only to contributions made 
  5.3   in a taxable year prior to 1985; 
  5.4      (5) income as provided under section 290.0802; 
  5.5      (6) the amount of unrecovered accelerated cost recovery 
  5.6   system deductions allowed under subdivision 19g; 
  5.7      (7) to the extent included in federal adjusted gross 
  5.8   income, income realized on disposition of property exempt from 
  5.9   tax under section 290.491; 
  5.10     (8) to the extent not deducted in determining federal 
  5.11  taxable income, the amount paid for health insurance of 
  5.12  self-employed individuals as determined under section 162(l) of 
  5.13  the Internal Revenue Code, except that the 25 percent limit does 
  5.14  not apply.  If the taxpayer deducted insurance payments under 
  5.15  section 213 of the Internal Revenue Code of 1986, the 
  5.16  subtraction under this clause must be reduced by the lesser of: 
  5.17     (i) the total itemized deductions allowed under section 
  5.18  63(d) of the Internal Revenue Code, less state, local, and 
  5.19  foreign income taxes deductible under section 164 of the 
  5.20  Internal Revenue Code and the standard deduction under section 
  5.21  63(c) of the Internal Revenue Code; or 
  5.22     (ii) the lesser of (A) the amount of insurance qualifying 
  5.23  as "medical care" under section 213(d) of the Internal Revenue 
  5.24  Code to the extent not deducted under section 162(1) of the 
  5.25  Internal Revenue Code or excluded from income or (B) the total 
  5.26  amount deductible for medical care under section 213(a); 
  5.27     (9) the exemption amount allowed under Laws 1995, chapter 
  5.28  255, article 3, section 2, subdivision 3; and 
  5.29     (10) to the extent included in federal taxable income, 
  5.30  postservice benefits for youth community service under section 
  5.31  124D.42 for volunteer service under United States Code, title 
  5.32  42, section 5011(d), as amended;. 
  5.33     (11) to the extent not subtracted under clause (1), the 
  5.34  amount of income or gain included in federal taxable income 
  5.35  under section 1366 of the Internal Revenue Code flowing from a 
  5.36  corporation that has a valid election in effect for the taxable 
  6.1   year under section 1362 of the Internal Revenue Code which is 
  6.2   not allowed to be an "S" corporation under section 290.9725; 
  6.3      (12) in the year stock of a corporation that had made a 
  6.4   valid election under section 1362 of the Internal Revenue Code 
  6.5   but was not an "S" corporation under section 290.9725 is sold or 
  6.6   disposed of in a transaction taxable under the Internal Revenue 
  6.7   Code, the amount of difference between the Minnesota basis of 
  6.8   the stock under subdivision 19f, paragraph (m), and the federal 
  6.9   basis if the Minnesota basis is higher than the shareholder's 
  6.10  federal basis; and 
  6.11     (13) an amount equal to an individual's, trust's, or 
  6.12  estate's net federal income tax liability for the tax year that 
  6.13  is attributable to items of income, expense, gain, loss, or 
  6.14  credits federally flowing to the taxpayer in the tax year from a 
  6.15  corporation, having a valid election in effect for federal tax 
  6.16  purposes under section 1362 of the Internal Revenue Code but not 
  6.17  treated as an "S" corporation for state tax purposes under 
  6.18  section 290.9725. 
  6.19     Sec. 3.  Minnesota Statutes 1998, section 290.01, 
  6.20  subdivision 19f, is amended to read: 
  6.21     Subd. 19f.  [BASIS MODIFICATIONS AFFECTING GAIN OR LOSS ON 
  6.22  DISPOSITION OF PROPERTY.] (a) For individuals, estates, and 
  6.23  trusts, the basis of property is its adjusted basis for federal 
  6.24  income tax purposes except as set forth in paragraphs (f), (g), 
  6.25  and (m).  For corporations, the basis of property is its 
  6.26  adjusted basis for federal income tax purposes, without regard 
  6.27  to the time when the property became subject to tax under this 
  6.28  chapter or to whether out-of-state losses or items of tax 
  6.29  preference with respect to the property were not deductible 
  6.30  under this chapter, except that the modifications to the basis 
  6.31  for federal income tax purposes set forth in paragraphs (b) to 
  6.32  (j) are allowed to corporations, and the resulting modifications 
  6.33  to federal taxable income must be made in the year in which gain 
  6.34  or loss on the sale or other disposition of property is 
  6.35  recognized. 
  6.36     (b) The basis of property shall not be reduced to reflect 
  7.1   federal investment tax credit.  
  7.2      (c) The basis of property subject to the accelerated cost 
  7.3   recovery system under section 168 of the Internal Revenue Code 
  7.4   shall be modified to reflect the modifications in depreciation 
  7.5   with respect to the property provided for in subdivision 19e.  
  7.6   For certified pollution control facilities for which 
  7.7   amortization deductions were elected under section 169 of the 
  7.8   Internal Revenue Code of 1954, the basis of the property must be 
  7.9   increased by the amount of the amortization deduction not 
  7.10  previously allowed under this chapter. 
  7.11     (d) For property acquired before January 1, 1933, the basis 
  7.12  for computing a gain is the fair market value of the property as 
  7.13  of that date.  The basis for determining a loss is the cost of 
  7.14  the property to the taxpayer less any depreciation, 
  7.15  amortization, or depletion, actually sustained before that 
  7.16  date.  If the adjusted cost exceeds the fair market value of the 
  7.17  property, then the basis is the adjusted cost regardless of 
  7.18  whether there is a gain or loss.  
  7.19     (e) The basis is reduced by the allowance for amortization 
  7.20  of bond premium if an election to amortize was made pursuant to 
  7.21  Minnesota Statutes 1986, section 290.09, subdivision 13, and the 
  7.22  allowance could have been deducted by the taxpayer under this 
  7.23  chapter during the period of the taxpayer's ownership of the 
  7.24  property.  
  7.25     (f) For assets placed in service before January 1, 1987, 
  7.26  corporations, partnerships, or individuals engaged in the 
  7.27  business of mining ores other than iron ore or taconite 
  7.28  concentrates subject to the occupation tax under chapter 298 
  7.29  must use the occupation tax basis of property used in that 
  7.30  business. 
  7.31     (g) For assets placed in service before January 1, 1990, 
  7.32  corporations, partnerships, or individuals engaged in the 
  7.33  business of mining iron ore or taconite concentrates subject to 
  7.34  the occupation tax under chapter 298 must use the occupation tax 
  7.35  basis of property used in that business.  
  7.36     (h) In applying the provisions of sections 301(c)(3)(B), 
  8.1   312(f) and (g), and 316(a)(1) of the Internal Revenue Code, the 
  8.2   dates December 31, 1932, and January 1, 1933, shall be 
  8.3   substituted for February 28, 1913, and March 1, 1913, 
  8.4   respectively.  
  8.5      (i) In applying the provisions of section 362(a) and (c) of 
  8.6   the Internal Revenue Code, the date December 31, 1956, shall be 
  8.7   substituted for June 22, 1954.  
  8.8      (j) The basis of property shall be increased by the amount 
  8.9   of intangible drilling costs not previously allowed due to 
  8.10  differences between this chapter and the Internal Revenue Code.  
  8.11     (k) The adjusted basis of any corporate partner's interest 
  8.12  in a partnership is the same as the adjusted basis for federal 
  8.13  income tax purposes modified as required to reflect the basis 
  8.14  modifications set forth in paragraphs (b) to (j).  The adjusted 
  8.15  basis of a partnership in which the partner is an individual, 
  8.16  estate, or trust is the same as the adjusted basis for federal 
  8.17  income tax purposes modified as required to reflect the basis 
  8.18  modifications set forth in paragraphs (f) and (g).  
  8.19     (l) The modifications contained in paragraphs (b) to (j) 
  8.20  also apply to the basis of property that is determined by 
  8.21  reference to the basis of the same property in the hands of a 
  8.22  different taxpayer or by reference to the basis of different 
  8.23  property.  
  8.24     (m) If a corporation has a valid election in effect for the 
  8.25  taxable year under section 1362 of the Internal Revenue Code, 
  8.26  but is not allowed to be an "S" corporation under section 
  8.27  290.9725, and the corporation is liquidated or the individual 
  8.28  shareholder disposes of the stock, the Minnesota basis in the 
  8.29  shareholder's stock in the corporation shall be computed as if 
  8.30  the corporation were not an "S" corporation for federal tax 
  8.31  purposes. 
  8.32     Sec. 4.  Minnesota Statutes 1998, section 290.06, 
  8.33  subdivision 2c, is amended to read: 
  8.34     Subd. 2c.  [SCHEDULES OF RATES FOR INDIVIDUALS, ESTATES, 
  8.35  AND TRUSTS.] (a) The income taxes imposed by this chapter upon 
  8.36  married individuals filing joint returns and surviving spouses 
  9.1   as defined in section 2(a) of the Internal Revenue Code must be 
  9.2   computed by applying to their taxable net income the following 
  9.3   schedule of rates: 
  9.4      (1) On the first $19,910, 6 percent; 
  9.5      (2) On all over $19,910, but not over $79,120, 8 percent; 
  9.6      (3) On all over $79,120, 8.5 percent. 
  9.7      Married individuals filing separate returns, estates, and 
  9.8   trusts must compute their income tax by applying the above rates 
  9.9   to their taxable income, except that the income brackets will be 
  9.10  one-half of the above amounts.  
  9.11     (b) The income taxes imposed by this chapter upon unmarried 
  9.12  individuals must be computed by applying to taxable net income 
  9.13  the following schedule of rates: 
  9.14     (1) On the first $13,620, 6 percent; 
  9.15     (2) On all over $13,620, but not over $44,750, 8 percent; 
  9.16     (3) On all over $44,750, 8.5 percent. 
  9.17     (c) The income taxes imposed by this chapter upon unmarried 
  9.18  individuals qualifying as a head of household as defined in 
  9.19  section 2(b) of the Internal Revenue Code must be computed by 
  9.20  applying to taxable net income the following schedule of rates: 
  9.21     (1) On the first $16,770, 6 percent; 
  9.22     (2) On all over $16,770, but not over $67,390, 8 percent; 
  9.23     (3) On all over $67,390, 8.5 percent. 
  9.24     (d) In lieu of a tax computed according to the rates set 
  9.25  forth in this subdivision, the tax of any individual taxpayer 
  9.26  whose taxable net income for the taxable year is less than an 
  9.27  amount determined by the commissioner must be computed in 
  9.28  accordance with tables prepared and issued by the commissioner 
  9.29  of revenue based on income brackets of not more than $100.  The 
  9.30  amount of tax for each bracket shall be computed at the rates 
  9.31  set forth in this subdivision, provided that the commissioner 
  9.32  may disregard a fractional part of a dollar unless it amounts to 
  9.33  50 cents or more, in which case it may be increased to $1. 
  9.34     (e) An individual who is not a Minnesota resident for the 
  9.35  entire year must compute the individual's Minnesota income tax 
  9.36  as provided in this subdivision.  After the application of the 
 10.1   nonrefundable credits provided in this chapter, the tax 
 10.2   liability must then be multiplied by a fraction in which:  
 10.3      (1) the numerator is the individual's Minnesota source 
 10.4   federal adjusted gross income as defined in section 62 of the 
 10.5   Internal Revenue Code disregarding income or loss flowing from a 
 10.6   corporation having a valid election for the taxable year under 
 10.7   section 1362 of the Internal Revenue Code but which is not an 
 10.8   "S" corporation under section 290.9725 and increased by the 
 10.9   additions required under section 290.01, subdivision 19a, 
 10.10  clauses (1) and (9) (6), after applying the allocation and 
 10.11  assignability provisions of section 290.081, clause (a), or 
 10.12  290.17; and 
 10.13     (2) the denominator is the individual's federal adjusted 
 10.14  gross income as defined in section 62 of the Internal Revenue 
 10.15  Code of 1986, increased by the amounts specified in section 
 10.16  290.01, subdivision 19a, clauses (1), (5), (6), (7), and 
 10.17  (9) (6), and reduced by the amounts specified in section 290.01, 
 10.18  subdivision 19b, clauses clause (1), (11), and (12). 
 10.19     Sec. 5.  Minnesota Statutes 1998, section 290.091, 
 10.20  subdivision 2, is amended to read: 
 10.21     Subd. 2.  [DEFINITIONS.] For purposes of the tax imposed by 
 10.22  this section, the following terms have the meanings given: 
 10.23     (a) "Alternative minimum taxable income" means the sum of 
 10.24  the following for the taxable year: 
 10.25     (1) the taxpayer's federal alternative minimum taxable 
 10.26  income as defined in section 55(b)(2) of the Internal Revenue 
 10.27  Code; 
 10.28     (2) the taxpayer's itemized deductions allowed in computing 
 10.29  federal alternative minimum taxable income, but excluding: 
 10.30     (i) the Minnesota charitable contribution deduction; 
 10.31     (ii) the medical expense deduction; 
 10.32     (iii) the casualty, theft, and disaster loss deduction; and 
 10.33     (iv) the impairment-related work expenses of a disabled 
 10.34  person; 
 10.35     (3) for depletion allowances computed under section 613A(c) 
 10.36  of the Internal Revenue Code, with respect to each property (as 
 11.1   defined in section 614 of the Internal Revenue Code), to the 
 11.2   extent not included in federal alternative minimum taxable 
 11.3   income, the excess of the deduction for depletion allowable 
 11.4   under section 611 of the Internal Revenue Code for the taxable 
 11.5   year over the adjusted basis of the property at the end of the 
 11.6   taxable year (determined without regard to the depletion 
 11.7   deduction for the taxable year); 
 11.8      (4) to the extent not included in federal alternative 
 11.9   minimum taxable income, the amount of the tax preference for 
 11.10  intangible drilling cost under section 57(a)(2) of the Internal 
 11.11  Revenue Code determined without regard to subparagraph (E); 
 11.12     (5) to the extent not included in federal alternative 
 11.13  minimum taxable income, the amount of interest income as 
 11.14  provided by section 290.01, subdivision 19a, clause (1); 
 11.15     (6) amounts added to federal taxable income as provided by 
 11.16  section 290.01, subdivision 19a, clauses (5), (6), and (7); 
 11.17     less the sum of the amounts determined under the following 
 11.18  clauses (1) to (4) (3): 
 11.19     (1) interest income as defined in section 290.01, 
 11.20  subdivision 19b, clause (1); 
 11.21     (2) an overpayment of state income tax as provided by 
 11.22  section 290.01, subdivision 19b, clause (2), to the extent 
 11.23  included in federal alternative minimum taxable income; and 
 11.24     (3) the amount of investment interest paid or accrued 
 11.25  within the taxable year on indebtedness to the extent that the 
 11.26  amount does not exceed net investment income, as defined in 
 11.27  section 163(d)(4) of the Internal Revenue Code.  Interest does 
 11.28  not include amounts deducted in computing federal adjusted gross 
 11.29  income; and. 
 11.30     (4) amounts subtracted from federal taxable income as 
 11.31  provided by section 290.01, subdivision 19b, clauses (11) and 
 11.32  (12). 
 11.33     In the case of an estate or trust, alternative minimum 
 11.34  taxable income must be computed as provided in section 59(c) of 
 11.35  the Internal Revenue Code. 
 11.36     (b) "Investment interest" means investment interest as 
 12.1   defined in section 163(d)(3) of the Internal Revenue Code. 
 12.2      (c) "Tentative minimum tax" equals seven percent of 
 12.3   alternative minimum taxable income after subtracting the 
 12.4   exemption amount determined under subdivision 3. 
 12.5      (d) "Regular tax" means the tax that would be imposed under 
 12.6   this chapter (without regard to this section and section 
 12.7   290.032), reduced by the sum of the nonrefundable credits 
 12.8   allowed under this chapter.  
 12.9      (e) "Net minimum tax" means the minimum tax imposed by this 
 12.10  section. 
 12.11     (f) "Minnesota charitable contribution deduction" means a 
 12.12  charitable contribution deduction under section 170 of the 
 12.13  Internal Revenue Code to or for the use of an entity described 
 12.14  in section 290.21, subdivision 3, clauses (a) to (e).  When the 
 12.15  federal deduction for charitable contributions is limited under 
 12.16  section 170(b) of the Internal Revenue Code, the allowable 
 12.17  contributions in the year of contribution are deemed to be first 
 12.18  contributions to entities described in section 290.21, 
 12.19  subdivision 3, clauses (a) to (e). 
 12.20     Sec. 6.  Minnesota Statutes 1998, section 290.091, 
 12.21  subdivision 6, is amended to read: 
 12.22     Subd. 6.  [CREDIT FOR PRIOR YEARS' LIABILITY.] (a) A credit 
 12.23  is allowed against the tax imposed by this chapter on 
 12.24  individuals, trusts, and estates equal to the minimum tax credit 
 12.25  for the taxable year.  The minimum tax credit equals the 
 12.26  adjusted net minimum tax for taxable years beginning after 
 12.27  December 31, 1988, reduced by the minimum tax credits allowed in 
 12.28  a prior taxable year.  The credit may not exceed the excess (if 
 12.29  any) for the taxable year of 
 12.30     (1) the regular tax, over 
 12.31     (2) the greater of (i) the tentative alternative minimum 
 12.32  tax, or (ii) zero. 
 12.33     (b) The adjusted net minimum tax for a taxable year equals 
 12.34  the lesser of the net minimum tax or the excess (if any) of 
 12.35     (1) the tentative minimum tax, over 
 12.36     (2) seven percent of the sum of 
 13.1      (i) adjusted gross income as defined in section 62 of the 
 13.2   Internal Revenue Code, 
 13.3      (ii) interest income as defined in section 290.01, 
 13.4   subdivision 19a, clause (1), 
 13.5      (iii) the amount added to federal taxable income as 
 13.6   provided by section 290.01, subdivision 19a, clauses (5), (6), 
 13.7   and (7), 
 13.8      (iv) interest on specified private activity bonds, as 
 13.9   defined in section 57(a)(5) of the Internal Revenue Code, to the 
 13.10  extent not included under clause (ii), 
 13.11     (v) (iv) depletion as defined in section 57(a)(1), 
 13.12  determined without regard to the last sentence of paragraph (1), 
 13.13  of the Internal Revenue Code, less 
 13.14     (vi) (v) the deductions allowed in computing alternative 
 13.15  minimum taxable income provided in subdivision 2, paragraph (a), 
 13.16  clause (2) of the first series of clauses and clauses (1), 
 13.17  (2), and (3), and (4) of the second series of clauses, and 
 13.18     (vii) (vi) the exemption amount determined under 
 13.19  subdivision 3. 
 13.20     In the case of an individual who is not a Minnesota 
 13.21  resident for the entire year, adjusted net minimum tax must be 
 13.22  multiplied by the fraction defined in section 290.06, 
 13.23  subdivision 2c, paragraph (e).  In the case of a trust or 
 13.24  estate, adjusted net minimum tax must be multiplied by the 
 13.25  fraction defined under subdivision 4, paragraph (b). 
 13.26     Sec. 7.  Minnesota Statutes 1998, section 290.9725, is 
 13.27  amended to read: 
 13.28     290.9725 [S CORPORATION.] 
 13.29     For purposes of this chapter, the term "S corporation" 
 13.30  means any corporation having a valid election in effect for the 
 13.31  taxable year under section 1362 of the Internal Revenue Code, 
 13.32  except that a corporation which either: 
 13.33     (1) is a financial institution to which either section 585 
 13.34  or section 593 of the Internal Revenue Code applies; or 
 13.35     (2) has a wholly owned subsidiary as described in section 
 13.36  1361(b)(3)(B) of the Internal Revenue Code which is a financial 
 14.1   institution as described above 
 14.2   is not an "S" corporation for the purposes of this chapter.  An 
 14.3   S corporation shall not be subject to the taxes imposed by this 
 14.4   chapter, except the taxes imposed under sections 290.0922, 
 14.5   290.92, 290.9727, 290.9728, and 290.9729. 
 14.6      Sec. 8.  [EFFECTIVE DATE.] 
 14.7      Sections 1 to 7 are effective for tax years beginning after 
 14.8   December 31, 1998.