HF 300

1st Engrossment - 85th Legislature (2007 - 2008) Posted on 12/15/2009 12:00am

A bill for an act
relating to military and veterans; income taxation; broadening the deduction for
military pay; creating a subtraction for military pensions, including survivor
benefit payments; amending Minnesota Statutes 2006, sections 290.01,
subdivision 19b; 290.091, subdivision 2; proposing coding for new law in
Minnesota Statutes, chapter 197.

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

Section 1.

new text begin [197.783] TAX POLICY FOR MILITARY PERSONNEL AND
RETIREES.
new text end

new text begin (a) It shall be the policy of the state of Minnesota to attract and welcome to this state
all past, present, and future members of the United States armed forces and their families
who may wish to make their homes within this state. This policy is in recognition of the
fact that the strong military training, demonstrated attitude of selfless public service, and
high moral character of such soldiers and veterans benefits Minnesota's businesses and
economy, as well as its public and private institutions and communities.
new text end

new text begin (b) The state of Minnesota recognizes that military service entails many sacrifices,
including significant personal and family financial sacrifices. One common financial
sacrifice for career service members involves foregoing the opportunity for significant
financial gain that typically accrues from long-term homeownership. By comparison,
homeownership is often the primary investment tool for many Minnesotans employed in
stable civilian occupations.
new text end

new text begin (c) Thus, in recognition of the varied and valuable benefits that veterans constitute
for Minnesota's economy, its public and private institutions, and its communities, and in
recognition of the enduring financial and other sacrifices of military personnel and their
families throughout their lives as a result of their military service to our state and nation,
it is the policy of the state of Minnesota to exempt from state taxation all military pay,
military retirement pay, and survivor benefit payments.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxable years beginning after
December 31, 2006.
new text end

Sec. 2.

Minnesota Statutes 2006, section 290.01, subdivision 19b, is amended to read:

Subd. 19b.

Subtractions from federal taxable income.

For individuals, estates,
and trusts, there shall be subtracted from federal taxable income:

(1) net interest income on obligations of any authority, commission, or
instrumentality of the United States to the extent includable in taxable income for federal
income tax purposes but exempt from state income tax under the laws of the United States;

(2) if included in federal taxable income, the amount of any overpayment of income
tax to Minnesota or to any other state, for any previous taxable year, whether the amount
is received as a refund or as a credit to another taxable year's income tax liability;

(3) the amount paid to others, less the amount used to claim the credit allowed under
section 290.0674, not to exceed $1,625 for each qualifying child in grades kindergarten
to 6 and $2,500 for each qualifying child in grades 7 to 12, for tuition, textbooks, and
transportation of each qualifying child in attending an elementary or secondary school
situated in Minnesota, North Dakota, South Dakota, Iowa, or Wisconsin, wherein a
resident of this state may legally fulfill the state's compulsory attendance laws, which
is not operated for profit, and which adheres to the provisions of the Civil Rights Act
of 1964 and chapter 363A. For the purposes of this clause, "tuition" includes fees or
tuition as defined in section 290.0674, subdivision 1, clause (1). As used in this clause,
"textbooks" includes books and other instructional materials and equipment purchased
or leased for use in elementary and secondary schools in teaching only those subjects
legally and commonly taught in public elementary and secondary schools in this state.
Equipment expenses qualifying for deduction includes expenses as defined and limited in
section 290.0674, subdivision 1, clause (3). "Textbooks" does not include instructional
books and materials used in the teaching of religious tenets, doctrines, or worship, the
purpose of which is to instill such tenets, doctrines, or worship, nor does it include books
or materials for, or transportation to, extracurricular activities including sporting events,
musical or dramatic events, speech activities, driver's education, or similar programs. For
purposes of the subtraction provided by this clause, "qualifying child" has the meaning
given in section 32(c)(3) of the Internal Revenue Code;

(4) income as provided under section 290.0802;

(5) to the extent included in federal adjusted gross income, income realized on
disposition of property exempt from tax under section 290.491;

(6) to the extent not deducted in determining federal taxable income by an individual
who does not itemize deductions for federal income tax purposes for the taxable year, an
amount equal to 50 percent of the excess of charitable contributions over $500 allowable
as a deduction for the taxable year under section 170(a) of the Internal Revenue Code and
under the provisions of Public Law 109-1;

(7) for taxable years beginning before January 1, 2008, the amount of the federal
small ethanol producer credit allowed under section 40(a)(3) of the Internal Revenue Code
which is included in gross income under section 87 of the Internal Revenue Code;

(8) for individuals who are allowed a federal foreign tax credit for taxes that do not
qualify for a credit under section 290.06, subdivision 22, an amount equal to the carryover
of subnational foreign taxes for the taxable year, but not to exceed the total subnational
foreign taxes reported in claiming the foreign tax credit. For purposes of this clause,
"federal foreign tax credit" means the credit allowed under section 27 of the Internal
Revenue Code, and "carryover of subnational foreign taxes" equals the carryover allowed
under section 904(c) of the Internal Revenue Code minus national level foreign taxes to
the extent they exceed the federal foreign tax credit;

(9) in each of the five tax years immediately following the tax year in which an
addition is required under subdivision 19a, clause (7), or 19c, clause (15), in the case
of a shareholder of a corporation that is an S corporation, an amount equal to one-fifth
of the delayed depreciation. For purposes of this clause, "delayed depreciation" means
the amount of the addition made by the taxpayer under subdivision 19a, clause (7), or
subdivision 19c, clause (15), in the case of a shareholder of an S corporation, minus the
positive value of any net operating loss under section 172 of the Internal Revenue Code
generated for the tax year of the addition. The resulting delayed depreciation cannot be
less than zero;

(10) job opportunity building zone income as provided under section 469.316;

(11) new text begin to the extent included in federal adjusted gross income, new text end the amount of
compensation paid to members of the deleted text begin Minnesota National Guard or other deleted text end new text begin active and new text end
reserve components of the United States deleted text begin military deleted text end new text begin armed forces, including the Minnesota
National Guard, new text end for active service performed in Minnesota deleted text begin , excluding compensation for
services performed under the Active Guard Reserve (AGR) program deleted text end . For purposes of
this clause, "active service" means (i) state active service as defined in section 190.05,
subdivision 5a, clause (1); (ii) federally funded state active service as defined in section
190.05, subdivision 5b; or (iii) federal active service as defined in section 190.05,
subdivision 5c deleted text begin , but "active service" excludes services performed exclusively for purposes
of basic combat training, advanced individual training, annual training, and periodic
inactive duty training; special training periodically made available to reserve members;
and service performed in accordance with section 190.08, subdivision 3 deleted text end new text begin . The maximum
subtraction allowed under this clause is the maximum basic pay allowed during the taxable
year for an individual at the rank of E9 with ten years of qualifying military experience new text end ;

(12) the amount of compensation paid to Minnesota residents who are members of
the armed forces of the United States new text begin , including members of the Minnesota National
Guard, new text end or United Nations for active duty performed outside Minnesota new text begin under United
States Code, title 10, section 101(d); United States Code, title 32, section 101(12); or the
authority of the United Nations new text end ;

(13) an amount, not to exceed $10,000, equal to qualified expenses related to a
qualified donor's donation, while living, of one or more of the qualified donor's organs
to another person for human organ transplantation. For purposes of this clause, "organ"
means all or part of an individual's liver, pancreas, kidney, intestine, lung, or bone marrow;
"human organ transplantation" means the medical procedure by which transfer of a human
organ is made from the body of one person to the body of another person; "qualified
expenses" means unreimbursed expenses for both the individual and the qualified donor
for (i) travel, (ii) lodging, and (iii) lost wages net of sick pay, except that such expenses
may be subtracted under this clause only once; and "qualified donor" means the individual
or the individual's dependent, as defined in section 152 of the Internal Revenue Code. An
individual may claim the subtraction in this clause for each instance of organ donation for
transplantation during the taxable year in which the qualified expenses occur;

(14) in each of the five tax years immediately following the tax year in which an
addition is required under subdivision 19a, clause (8), or 19c, clause (16), in the case of a
shareholder of a corporation that is an S corporation, an amount equal to one-fifth of the
addition made by the taxpayer under subdivision 19a, clause (8), or 19c, clause (16), in the
case of a shareholder of a corporation that is an S corporation, minus the positive value of
any net operating loss under section 172 of the Internal Revenue Code generated for the
tax year of the addition. If the net operating loss exceeds the addition for the tax year, a
subtraction is not allowed under this clause;

(15) to the extent included in federal taxable income, compensation paid to a
nonresident who is a service member as defined in United States Code, title 10, section
101(a)(5), for military service as defined in the Service Member Civil Relief Act, Public
Law 108-189, section 101(2); deleted text begin and
deleted text end

(16) international economic development zone income as provided under section
469.325 new text begin ; and
new text end

new text begin (17) to the extent included in federal taxable income, a percentage of compensation,
up to a maximum amount, received from a pension or other retirement pay from the
federal government for service in the military, as computed under United States Code,
title 10, sections 1401 to 1412, 1447 to 1455, and 12733, as follows: (i) for taxable
years beginning after December 31, 2006, and before January 1, 2008, the percentage is
25 percent, and the maximum amount is $7,500; (ii) for taxable years beginning after
December 31, 2007, and before January 1, 2009, the percentage is 50 percent, and the
maximum amount is $15,000; (iii) for taxable years beginning after December 31, 2008,
and before January 1, 2010, the percentage is 75 percent, and the maximum amount is
$22,500; and (iv) for taxable years beginning after December 31, 2009, the percentage is
100 percent, and there is no maximum amount new text end .

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxable years beginning after
December 31, 2006, except that: (1) the changes in clause (12) are retroactive to taxable
years beginning after December 31, 2004, and (2) the changes in clause (11) are phased
in as follows: for tax years beginning after December 31, 2006, and before January 1,
2008, 25 percent of the compensation affected by the changes is an allowable subtraction;
for tax years beginning after December 31, 2007, and before January 1, 2009, 50 percent
is allowed; for tax years beginning after December 31, 2008, and before January 1,
2010, 75 percent is allowed; and for tax years beginning after December 31, 2009, 100
percent is allowed.
new text end

Sec. 3.

Minnesota Statutes 2006, section 290.091, subdivision 2, is amended to read:

Subd. 2.

Definitions.

For purposes of the tax imposed by this section, the following
terms have the meanings given:

(a) "Alternative minimum taxable income" means the sum of the following for
the taxable year:

(1) the taxpayer's federal alternative minimum taxable income as defined in section
55(b)(2) of the Internal Revenue Code;

(2) the taxpayer's itemized deductions allowed in computing federal alternative
minimum taxable income, but excluding:

(i) the charitable contribution deduction under section 170 of the Internal Revenue
Code:

(A) for taxable years beginning before January 1, 2006, to the extent that the
deduction exceeds 1.0 percent of adjusted gross income;

(B) for taxable years beginning after December 31, 2005, to the full extent of the
deduction.

For purposes of this clause, "adjusted gross income" has the meaning given in
section 62 of the Internal Revenue Code;

(ii) the medical expense deduction;

(iii) the casualty, theft, and disaster loss deduction; and

(iv) the impairment-related work expenses of a disabled person;

(3) for depletion allowances computed under section 613A(c) of the Internal
Revenue Code, with respect to each property (as defined in section 614 of the Internal
Revenue Code), to the extent not included in federal alternative minimum taxable income,
the excess of the deduction for depletion allowable under section 611 of the Internal
Revenue Code for the taxable year over the adjusted basis of the property at the end of the
taxable year (determined without regard to the depletion deduction for the taxable year);

(4) to the extent not included in federal alternative minimum taxable income, the
amount of the tax preference for intangible drilling cost under section 57(a)(2) of the
Internal Revenue Code determined without regard to subparagraph (E);

(5) to the extent not included in federal alternative minimum taxable income, the
amount of interest income as provided by section 290.01, subdivision 19a, clause (1); and

(6) the amount of addition required by section 290.01, subdivision 19a, clauses
(7), (8), and (9);

less the sum of the amounts determined under the following:

(1) interest income as defined in section 290.01, subdivision 19b, clause (1);

(2) an overpayment of state income tax as provided by section 290.01, subdivision
19b, clause (2), to the extent included in federal alternative minimum taxable income;

(3) the amount of investment interest paid or accrued within the taxable year on
indebtedness to the extent that the amount does not exceed net investment income, as
defined in section 163(d)(4) of the Internal Revenue Code. Interest does not include
amounts deducted in computing federal adjusted gross income; and

(4) amounts subtracted from federal taxable income as provided by section 290.01,
subdivision 19b, clauses (9) to deleted text begin (16) deleted text end new text begin (17) new text end .

In the case of an estate or trust, alternative minimum taxable income must be
computed as provided in section 59(c) of the Internal Revenue Code.

(b) "Investment interest" means investment interest as defined in section 163(d)(3)
of the Internal Revenue Code.

(c) "Tentative minimum tax" equals 6.4 percent of alternative minimum taxable
income after subtracting the exemption amount determined under subdivision 3.

(d) "Regular tax" means the tax that would be imposed under this chapter (without
regard to this section and section 290.032), reduced by the sum of the nonrefundable
credits allowed under this chapter.

(e) "Net minimum tax" means the minimum tax imposed by this section.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for tax years beginning after
December 31, 2006.
new text end