HF 1922

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; income; restructuring the 
  1.3             individual income tax; conforming to federal S 
  1.4             corporation rules; disallowing itemized deductions; 
  1.5             allowing standard deduction and personal exemption 
  1.6             amounts; allowing certain previously taxed retirement 
  1.7             benefits to be deducted in tax year 1999; repealing 
  1.8             the individual alternative minimum tax; amending 
  1.9             Minnesota Statutes 1998, sections 290.01, subdivisions 
  1.10            19a, 19b, 19e, 19f, 19g, and by adding a subdivision; 
  1.11            290.06, by adding a subdivision; 290.091, subdivision 
  1.12            6; 290.491; and 290.9725; proposing coding for new law 
  1.13            in Minnesota Statutes, chapter 290; repealing 
  1.14            Minnesota Statutes 1998, sections 290.01, subdivisions 
  1.15            19b and 19g; 290.0671, subdivision 3; 290.0674, 
  1.16            subdivision 3; and 290.091, subdivisions 1, 2, 3, 4, 
  1.17            5, and 6. 
  1.18  BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
  1.19     Section 1.  Minnesota Statutes 1998, section 290.01, 
  1.20  subdivision 19a, is amended to read: 
  1.21     Subd. 19a.  [ADDITIONS TO FEDERAL TAXABLE INCOME.] For 
  1.22  individuals, estates, and trusts, there shall be added to 
  1.23  federal taxable income: 
  1.24     (1)(i) interest income on obligations of any state other 
  1.25  than Minnesota or a political or governmental subdivision, 
  1.26  municipality, or governmental agency or instrumentality of any 
  1.27  state other than Minnesota exempt from federal income taxes 
  1.28  under the Internal Revenue Code or any other federal statute, 
  1.29  and 
  1.30     (ii) exempt-interest dividends as defined in section 
  1.31  852(b)(5) of the Internal Revenue Code, except the portion of 
  2.1   the exempt-interest dividends derived from interest income on 
  2.2   obligations of the state of Minnesota or its political or 
  2.3   governmental subdivisions, municipalities, governmental agencies 
  2.4   or instrumentalities, but only if the portion of the 
  2.5   exempt-interest dividends from such Minnesota sources paid to 
  2.6   all shareholders represents 95 percent or more of the 
  2.7   exempt-interest dividends that are paid by the regulated 
  2.8   investment company as defined in section 851(a) of the Internal 
  2.9   Revenue Code, or the fund of the regulated investment company as 
  2.10  defined in section 851(g) of the Internal Revenue Code, making 
  2.11  the payment; and 
  2.12     (iii) for the purposes of items (i) and (ii), interest on 
  2.13  obligations of an Indian tribal government described in section 
  2.14  7871(c) of the Internal Revenue Code shall be treated as 
  2.15  interest income on obligations of the state in which the tribe 
  2.16  is located; 
  2.17     (2) the amount of income taxes paid or accrued within the 
  2.18  taxable year under this chapter and income taxes paid to any 
  2.19  other state or to any province or territory of Canada, to the 
  2.20  extent allowed as a deduction under section 63(d) of the 
  2.21  Internal Revenue Code, but the addition may not be more than the 
  2.22  amount by which the itemized deductions as allowed under section 
  2.23  63(d) of the Internal Revenue Code exceeds the amount of the 
  2.24  standard deduction as defined in section 63(c) of the Internal 
  2.25  Revenue Code.  For the purpose of this paragraph, the 
  2.26  disallowance of itemized deductions under section 68 of the 
  2.27  Internal Revenue Code of 1986, income tax is the last itemized 
  2.28  deduction disallowed; 
  2.29     (3) the capital gain amount of a lump sum distribution to 
  2.30  which the special tax under section 1122(h)(3)(B)(ii) of the Tax 
  2.31  Reform Act of 1986, Public Law Number 99-514, applies; 
  2.32     (4) the amount of income taxes paid or accrued within the 
  2.33  taxable year under this chapter and income taxes paid to any 
  2.34  other state or any province or territory of Canada, to the 
  2.35  extent allowed as a deduction in determining federal adjusted 
  2.36  gross income.  For the purpose of this paragraph, income taxes 
  3.1   do not include the taxes imposed by sections 290.0922, 
  3.2   subdivision 1, paragraph (b), 290.9727, 290.9728, and 290.9729; 
  3.3      (5) the amount of loss or expense included in federal 
  3.4   taxable income under section 1366 of the Internal Revenue Code 
  3.5   flowing from a corporation that has a valid election in effect 
  3.6   for the taxable year under section 1362 of the Internal Revenue 
  3.7   Code, but which is not allowed to be an "S" corporation under 
  3.8   section 290.9725; 
  3.9      (6) the amount of any distributions in cash or property 
  3.10  made to a shareholder during the taxable year by a corporation 
  3.11  that has a valid election in effect for the taxable year under 
  3.12  section 1362 of the Internal Revenue Code, but which is not 
  3.13  allowed to be an "S" corporation under section 290.9725 to the 
  3.14  extent not already included in federal taxable income under 
  3.15  section 1368 of the Internal Revenue Code; 
  3.16     (7) in the year stock of a corporation that had made a 
  3.17  valid election under section 1362 of the Internal Revenue Code 
  3.18  but was not an "S" corporation under section 290.9725 is sold or 
  3.19  disposed of in a transaction taxable under the Internal Revenue 
  3.20  Code, the amount of difference between the Minnesota basis of 
  3.21  the stock under subdivision 19f, paragraph (m), and the federal 
  3.22  basis if the Minnesota basis is lower than the shareholder's 
  3.23  federal basis; 
  3.24     (8) the amount of expense, interest, or taxes disallowed 
  3.25  pursuant to section 290.10; and 
  3.26     (9) (6) the amount of a partner's pro rata share of net 
  3.27  income which does not flow through to the partner because the 
  3.28  partnership elected to pay the tax on the income under section 
  3.29  6242(a)(2) of the Internal Revenue Code; 
  3.30     (7) the amount of the standard deduction provided by 
  3.31  section 63(c) of the Internal Revenue Code, or the itemized 
  3.32  deductions as defined in section 63(d) of the Internal Revenue 
  3.33  Code reduced by the amount by which the itemized deductions were 
  3.34  reduced for federal income tax return purposes according to 
  3.35  section 68 of the Internal Revenue Code, in accordance with 
  3.36  whether the standard deduction or itemized deductions were 
  4.1   claimed on the federal income tax return; and 
  4.2      (8) the amount of the deduction for personal exemptions 
  4.3   provided by section 151 of the Internal Revenue Code and claimed 
  4.4   on the federal income tax return. 
  4.5      Sec. 2.  Minnesota Statutes 1998, section 290.01, 
  4.6   subdivision 19b, is amended to read: 
  4.7      Subd. 19b.  [SUBTRACTIONS FROM FEDERAL TAXABLE INCOME.] For 
  4.8   individuals, estates, and trusts, there shall be subtracted from 
  4.9   federal taxable income: 
  4.10     (1) interest income on obligations of any authority, 
  4.11  commission, or instrumentality of the United States to the 
  4.12  extent includable in taxable income for federal income tax 
  4.13  purposes but exempt from state income tax under the laws of the 
  4.14  United States; 
  4.15     (2) if included in federal taxable income, the amount of 
  4.16  any overpayment of income tax to Minnesota or to any other 
  4.17  state, for any previous taxable year, whether the amount is 
  4.18  received as a refund or as a credit to another taxable year's 
  4.19  income tax liability; 
  4.20     (3) the amount paid to others, less the credit allowed 
  4.21  under section 290.0674, not to exceed $1,625 for each dependent 
  4.22  in grades kindergarten to 6 and $2,500 for each dependent in 
  4.23  grades 7 to 12, for tuition, textbooks, and transportation of 
  4.24  each dependent in attending an elementary or secondary school 
  4.25  situated in Minnesota, North Dakota, South Dakota, Iowa, or 
  4.26  Wisconsin, wherein a resident of this state may legally fulfill 
  4.27  the state's compulsory attendance laws, which is not operated 
  4.28  for profit, and which adheres to the provisions of the Civil 
  4.29  Rights Act of 1964 and chapter 363.  For the purposes of this 
  4.30  clause, "tuition" includes fees or tuition as defined in section 
  4.31  290.0674, subdivision 1, clause (1).  As used in this clause, 
  4.32  "textbooks" includes books and other instructional materials and 
  4.33  equipment used in elementary and secondary schools in teaching 
  4.34  only those subjects legally and commonly taught in public 
  4.35  elementary and secondary schools in this state.  Equipment 
  4.36  expenses qualifying for deduction includes expenses as defined 
  5.1   and limited in section 290.0674, subdivision 1, clause (3).  
  5.2   "Textbooks" does not include instructional books and materials 
  5.3   used in the teaching of religious tenets, doctrines, or worship, 
  5.4   the purpose of which is to instill such tenets, doctrines, or 
  5.5   worship, nor does it include books or materials for, or 
  5.6   transportation to, extracurricular activities including sporting 
  5.7   events, musical or dramatic events, speech activities, driver's 
  5.8   education, or similar programs; 
  5.9      (4) contributions made in taxable years beginning after 
  5.10  December 31, 1981, and before January 1, 1985, to the extent 
  5.11  included in federal taxable income, distributions from a 
  5.12  qualified governmental pension plan, an individual retirement 
  5.13  account, simplified employee pension, or qualified plan covering 
  5.14  a self-employed person that represent a return of contributions 
  5.15  that were included in Minnesota gross income in the taxable year 
  5.16  for which the contributions were made but were deducted or were 
  5.17  not included in the computation of federal adjusted gross 
  5.18  income.  The distribution shall be allocated first to return of 
  5.19  contributions until the contributions included in Minnesota 
  5.20  gross income have been exhausted, less any amount subtracted as 
  5.21  a distribution under this subdivision or a predecessor provision 
  5.22  in taxable years that began before January 1, 1999.  This 
  5.23  subtraction applies only to contributions made in a taxable year 
  5.24  prior to 1985 for taxable years beginning after December 31, 
  5.25  1998, and before January 1, 2000; 
  5.26     (5) income as provided under section 290.0802; 
  5.27     (6) the amount of unrecovered accelerated cost recovery 
  5.28  system deductions allowed under subdivision 19g; 
  5.29     (7) to the extent included in federal adjusted gross 
  5.30  income, income realized on disposition of property exempt from 
  5.31  tax under section 290.491; 
  5.32     (8) to the extent not deducted in determining federal 
  5.33  taxable income, the amount paid for health insurance of 
  5.34  self-employed individuals as determined under section 162(l) of 
  5.35  the Internal Revenue Code, except that the 25 percent limit does 
  5.36  not apply.  If the taxpayer deducted insurance payments under 
  6.1   section 213 of the Internal Revenue Code of 1986, the 
  6.2   subtraction under this clause must be reduced by the lesser of: 
  6.3      (i) the total itemized deductions allowed under section 
  6.4   63(d) of the Internal Revenue Code, less state, local, and 
  6.5   foreign income taxes deductible under section 164 of the 
  6.6   Internal Revenue Code and the standard deduction under section 
  6.7   63(c) of the Internal Revenue Code; or 
  6.8      (ii) the lesser of (A) the amount of insurance qualifying 
  6.9   as "medical care" under section 213(d) of the Internal Revenue 
  6.10  Code to the extent not deducted under section 162(1) of the 
  6.11  Internal Revenue Code or excluded from income or (B) the total 
  6.12  amount deductible for medical care under section 213(a); 
  6.13     (9) the exemption amount allowed under Laws 1995, chapter 
  6.14  255, article 3, section 2, subdivision 3; and 
  6.15     (10) to the extent included in federal taxable income, 
  6.16  postservice benefits for youth community service under section 
  6.17  124D.42 for volunteer service under United States Code, title 
  6.18  42, section 5011(d), as amended;. 
  6.19     (11) to the extent not subtracted under clause (1), the 
  6.20  amount of income or gain included in federal taxable income 
  6.21  under section 1366 of the Internal Revenue Code flowing from a 
  6.22  corporation that has a valid election in effect for the taxable 
  6.23  year under section 1362 of the Internal Revenue Code which is 
  6.24  not allowed to be an "S" corporation under section 290.9725; 
  6.25     (12) in the year stock of a corporation that had made a 
  6.26  valid election under section 1362 of the Internal Revenue Code 
  6.27  but was not an "S" corporation under section 290.9725 is sold or 
  6.28  disposed of in a transaction taxable under the Internal Revenue 
  6.29  Code, the amount of difference between the Minnesota basis of 
  6.30  the stock under subdivision 19f, paragraph (m), and the federal 
  6.31  basis if the Minnesota basis is higher than the shareholder's 
  6.32  federal basis; and 
  6.33     (13) an amount equal to an individual's, trust's, or 
  6.34  estate's net federal income tax liability for the tax year that 
  6.35  is attributable to items of income, expense, gain, loss, or 
  6.36  credits federally flowing to the taxpayer in the tax year from a 
  7.1   corporation, having a valid election in effect for federal tax 
  7.2   purposes under section 1362 of the Internal Revenue Code but not 
  7.3   treated as an "S" corporation for state tax purposes under 
  7.4   section 290.9725. 
  7.5      Sec. 3.  Minnesota Statutes 1998, section 290.01, 
  7.6   subdivision 19e, is amended to read: 
  7.7      Subd. 19e.  [DEPRECIATION MODIFICATIONS FOR CORPORATIONS.] 
  7.8   In the case of corporations, a modification shall be made for 
  7.9   the accelerated cost recovery system.  The allowable deduction 
  7.10  for the accelerated cost recovery system is the same amount as 
  7.11  provided in section 168 of the Internal Revenue Code with the 
  7.12  following modifications.  The modifications apply to taxable 
  7.13  years beginning after December 31, 1986, and to property for 
  7.14  which deductions under the Tax Reform Act of 1986, Public Law 
  7.15  Number 99-514, are elected or apply.  The modifications in 
  7.16  paragraphs (a) and (c) do not apply to taxable years beginning 
  7.17  after December 31, 1998. 
  7.18     (a) For property placed in service after December 31, 1980, 
  7.19  and before January 1, 1987, 40 percent of the allowance pursuant 
  7.20  to section 168 of the Internal Revenue Code of 1954, as amended 
  7.21  through December 31, 1985, for 15-, 18-, or 19-year real 
  7.22  property shall not be allowed and for all other property 20 
  7.23  percent shall not be allowed.  
  7.24     (b) For property placed in service after December 31, 1987, 
  7.25  no modification shall be made. 
  7.26     (c) For property placed in service after July 31, 1986, and 
  7.27  before January 1, 1987, for which the taxpayer elects the 
  7.28  deduction pursuant to section 203 of the Tax Reform Act of 1986, 
  7.29  Public Law Number 99-514, and for property placed in service 
  7.30  after December 31, 1986, and before January 1, 1988, 15 percent 
  7.31  of the allowance pursuant to section 168 of the Internal Revenue 
  7.32  Code shall not be allowed.  
  7.33     (d) For property placed in service after December 31, 1980, 
  7.34  and before January 1, 1987, for which the taxpayer elects to use 
  7.35  the straight line method provided in section 168(b)(3), (f)(12), 
  7.36  or (j)(1) or a method provided in section 168(e)(2) of the 
  8.1   Internal Revenue Code, as amended through December 31, 1986, but 
  8.2   excluding property for which the taxpayer elects the deduction 
  8.3   pursuant to section 203 of the Tax Reform Act of 1986, Public 
  8.4   Law Number 99-514, the modifications provided in paragraph (a) 
  8.5   do not apply. 
  8.6      (e) For taxable years beginning before January 1, 1999, for 
  8.7   property subject to the modifications contained in paragraphs 
  8.8   (a) and (c) and Minnesota Statutes 1986, section 290.09, 
  8.9   subdivision 7, clause (c), the following modification shall be 
  8.10  made after the entire amount of the allowable deduction has been 
  8.11  allowed for federal tax purposes for that property under the 
  8.12  provisions of section 168 of the Internal Revenue Code.  The 
  8.13  remaining depreciable basis in those assets for Minnesota 
  8.14  purposes, including the amount of any basis reduction to reflect 
  8.15  the investment tax credit for federal purposes under sections 
  8.16  48(q) and 49(d) of the Internal Revenue Code, shall be a 
  8.17  depreciation allowance computed using the straight line method 
  8.18  over the following number of years: 
  8.19     (1) three-year property, one year; 
  8.20     (2) five-year and seven-year property, two years; 
  8.21     (3) ten-year property, five years; and 
  8.22     (4) all other property, seven years.  
  8.23     (f) For taxable years beginning after December 31, 1998, 
  8.24  the amount of any remaining modifications made under paragraph 
  8.25  (a) or (c) or Minnesota Statutes 1986, section 290.09, 
  8.26  subdivision 7, clause (c), not previously deducted under 
  8.27  paragraph (e), including the amount of any basis reduction to 
  8.28  reflect the investment tax credit for federal purposes under 
  8.29  section 48(q) and 49(d) of the Internal Revenue Code, is a 
  8.30  depreciation in the first taxable year beginning after December 
  8.31  31, 1998. 
  8.32     (g) For taxable years beginning before January 1, 1999, and 
  8.33  for property placed in service after December 31, 1987, the 
  8.34  remaining depreciable basis for Minnesota purposes that is 
  8.35  attributable to the basis reduction for federal purposes to 
  8.36  reflect the investment tax credit under sections 48(q) and 49(d) 
  9.1   of the Internal Revenue Code, shall be allowed as a deduction in 
  9.2   the first taxable year after the entire amount of the allowable 
  9.3   deduction for that property under the provisions of section 168 
  9.4   of the Internal Revenue Code, has been allowed, except that 
  9.5   where the straight line method provided in section 168(b)(3) is 
  9.6   used, the deduction provided in this clause shall be allowed in 
  9.7   the last taxable year in which an allowance for depreciation is 
  9.8   allowed for that property.  
  9.9      (g) (h) For qualified timber property for which the 
  9.10  taxpayer made an election under section 194 of the Internal 
  9.11  Revenue Code, the remaining depreciable basis for Minnesota 
  9.12  purposes is allowed as a deduction in the first taxable year 
  9.13  after the entire allowable deduction has been allowed for 
  9.14  federal tax purposes. 
  9.15     (h) (i) The basis of property to which section 168 of the 
  9.16  Internal Revenue Code applies is its basis as provided in this 
  9.17  chapter including the modifications provided in this subdivision 
  9.18  and in Minnesota Statutes 1986, section 290.09, subdivision 7, 
  9.19  paragraph (c).  The recapture tax provisions provided in 
  9.20  sections 1245 and 1250 of the Internal Revenue Code apply but 
  9.21  must be calculated using the basis provided in the preceding 
  9.22  sentence.  
  9.23     (i) (j) The basis of an asset acquired in an exchange of 
  9.24  assets, including an involuntary conversion, is the same as its 
  9.25  federal basis under the provisions of the Internal Revenue Code, 
  9.26  except that the difference in basis due to the modifications in 
  9.27  this subdivision and in Minnesota Statutes 1986, section 290.09, 
  9.28  subdivision 7, paragraph (c), is a deduction as provided in 
  9.29  paragraph (e). 
  9.30     Sec. 4.  Minnesota Statutes 1998, section 290.01, 
  9.31  subdivision 19f, is amended to read: 
  9.32     Subd. 19f.  [BASIS MODIFICATIONS AFFECTING GAIN OR LOSS ON 
  9.33  DISPOSITION OF PROPERTY.] (a) For individuals, estates, and 
  9.34  trusts, the basis of property is its adjusted basis for federal 
  9.35  income tax purposes except as set forth in paragraphs 
  9.36  (f), and (g), and (m).  For corporations, the basis of property 
 10.1   is its adjusted basis for federal income tax purposes, without 
 10.2   regard to the time when the property became subject to tax under 
 10.3   this chapter or to whether out-of-state losses or items of tax 
 10.4   preference with respect to the property were not deductible 
 10.5   under this chapter, except that the modifications to the basis 
 10.6   for federal income tax purposes set forth in paragraphs (b) to 
 10.7   (j) are allowed to corporations, and the resulting modifications 
 10.8   to federal taxable income must be made in the year in which gain 
 10.9   or loss on the sale or other disposition of property is 
 10.10  recognized. 
 10.11     (b) The basis of property shall not be reduced to reflect 
 10.12  federal investment tax credit.  
 10.13     (c) The basis of property subject to the accelerated cost 
 10.14  recovery system under section 168 of the Internal Revenue Code 
 10.15  shall be modified to reflect the modifications in depreciation 
 10.16  with respect to the property provided for in subdivision 19e.  
 10.17  For certified pollution control facilities for which 
 10.18  amortization deductions were elected under section 169 of the 
 10.19  Internal Revenue Code of 1954, the basis of the property must be 
 10.20  increased by the amount of the amortization deduction not 
 10.21  previously allowed under this chapter. 
 10.22     (d) For property acquired before January 1, 1933, the basis 
 10.23  for computing a gain is the fair market value of the property as 
 10.24  of that date.  The basis for determining a loss is the cost of 
 10.25  the property to the taxpayer less any depreciation, 
 10.26  amortization, or depletion, actually sustained before that 
 10.27  date.  If the adjusted cost exceeds the fair market value of the 
 10.28  property, then the basis is the adjusted cost regardless of 
 10.29  whether there is a gain or loss.  
 10.30     (e) The basis is reduced by the allowance for amortization 
 10.31  of bond premium if an election to amortize was made pursuant to 
 10.32  Minnesota Statutes 1986, section 290.09, subdivision 13, and the 
 10.33  allowance could have been deducted by the taxpayer under this 
 10.34  chapter during the period of the taxpayer's ownership of the 
 10.35  property.  
 10.36     (f) For assets placed in service before January 1, 1987, 
 11.1   corporations, partnerships, or individuals engaged in the 
 11.2   business of mining ores other than iron ore or taconite 
 11.3   concentrates subject to the occupation tax under chapter 298 
 11.4   must use the occupation tax basis of property used in that 
 11.5   business. 
 11.6      (g) For assets placed in service before January 1, 1990, 
 11.7   corporations, partnerships, or individuals engaged in the 
 11.8   business of mining iron ore or taconite concentrates subject to 
 11.9   the occupation tax under chapter 298 must use the occupation tax 
 11.10  basis of property used in that business.  
 11.11     (h) In applying the provisions of sections 301(c)(3)(B), 
 11.12  312(f) and (g), and 316(a)(1) of the Internal Revenue Code, the 
 11.13  dates December 31, 1932, and January 1, 1933, shall be 
 11.14  substituted for February 28, 1913, and March 1, 1913, 
 11.15  respectively.  
 11.16     (i) In applying the provisions of section 362(a) and (c) of 
 11.17  the Internal Revenue Code, the date December 31, 1956, shall be 
 11.18  substituted for June 22, 1954.  
 11.19     (j) The basis of property shall be increased by the amount 
 11.20  of intangible drilling costs not previously allowed due to 
 11.21  differences between this chapter and the Internal Revenue Code.  
 11.22     (k) The adjusted basis of any corporate partner's interest 
 11.23  in a partnership is the same as the adjusted basis for federal 
 11.24  income tax purposes modified as required to reflect the basis 
 11.25  modifications set forth in paragraphs (b) to (j).  The adjusted 
 11.26  basis of a partnership in which the partner is an individual, 
 11.27  estate, or trust is the same as the adjusted basis for federal 
 11.28  income tax purposes modified as required to reflect the basis 
 11.29  modifications set forth in paragraphs (f) and (g).  
 11.30     (l) The modifications contained in paragraphs (b) to (j) 
 11.31  also apply to the basis of property that is determined by 
 11.32  reference to the basis of the same property in the hands of a 
 11.33  different taxpayer or by reference to the basis of different 
 11.34  property.  
 11.35     (m) If a corporation has a valid election in effect for the 
 11.36  taxable year under section 1362 of the Internal Revenue Code, 
 12.1   but is not allowed to be an "S" corporation under section 
 12.2   290.9725, and the corporation is liquidated or the individual 
 12.3   shareholder disposes of the stock, the Minnesota basis in the 
 12.4   shareholder's stock in the corporation shall be computed as if 
 12.5   the corporation were not an "S" corporation for federal tax 
 12.6   purposes. 
 12.7      Sec. 5.  Minnesota Statutes 1998, section 290.01, 
 12.8   subdivision 19g, is amended to read: 
 12.9      Subd. 19g.  [ACRS MODIFICATION FOR INDIVIDUALS.] (a) An 
 12.10  individual is allowed a subtraction from federal taxable income 
 12.11  for the amount of accelerated cost recovery system deductions 
 12.12  that were added to federal adjusted gross income in computing 
 12.13  Minnesota gross income for taxable year 1981, 1982, 1983, or 
 12.14  1984 and that were not deducted in a later taxable year 
 12.15  beginning before January 1, 1999.  The deduction is 
 12.16  allowed beginning in the first taxable year after the entire 
 12.17  allowable deduction for the property has been allowed under 
 12.18  federal law or the first taxable year beginning after December 
 12.19  31, 1987, whichever is later beginning after December 31, 1998.  
 12.20  The amount of the deduction is computed by deducting equals the 
 12.21  amount added to federal adjusted gross income in computing 
 12.22  Minnesota gross income (, less any: 
 12.23     (1) deduction allowed under Minnesota Statutes 1986, 
 12.24  section 290.01, subdivision 20f) in equal annual amounts over 
 12.25  five years; and 
 12.26     (2) amount deducted under this subdivision in a taxable 
 12.27  year beginning before January 1, 1999. 
 12.28     This paragraph does not apply to property that was sold or 
 12.29  exchanged in a taxable year beginning before January 1, 2000. 
 12.30     (b) In the event of a sale or exchange of the 
 12.31  property occurring during a taxable year beginning after 
 12.32  December 31, 1998, and before January 1, 2000, a deduction is 
 12.33  allowed equal to the lesser of (1) the remaining amount that 
 12.34  would be allowed as a deduction under paragraph (a) or (2) the 
 12.35  amount of capital gain recognized and the amount of cost 
 12.36  recovery deductions that were subject to recapture under 
 13.1   sections 1245 and 1250 of the Internal Revenue Code of 1986 for 
 13.2   the taxable year. 
 13.3      (c) In the case of a corporation treated as an "S" 
 13.4   corporation under section 290.9725, the amount of the 
 13.5   corporation's cost recovery allowances that have been deducted 
 13.6   in computing federal tax, but have been added to federal taxable 
 13.7   income or not deducted in computing tax under this chapter as a 
 13.8   result of the application of subdivision 19e, paragraphs (a) and 
 13.9   (c) or Minnesota Statutes 1986, section 290.09, subdivision 7, 
 13.10  is allowed as a deduction to the shareholders under the 
 13.11  provisions of paragraph (a). 
 13.12     Sec. 6.  Minnesota Statutes 1998, section 290.01, is 
 13.13  amended by adding a subdivision to read: 
 13.14     Subd. 19h.  [SUBTRACTIONS FROM TAXABLE INCOME; 
 13.15  INDIVIDUALS.] For taxable years beginning after December 31, 
 13.16  1999, the following subtractions are allowed from federal 
 13.17  taxable income to individuals, trusts, and estates: 
 13.18     (1) if included in federal taxable income, the amount of 
 13.19  any overpayment of income tax to Minnesota or to any other 
 13.20  state, for any previous taxable year, whether the amount is 
 13.21  received as a refund or as a credit to another taxable year's 
 13.22  income tax liability; 
 13.23     (2) the greater of the subtractions allowed under sections 
 13.24  290.0802 and 290.0803 or the standard deduction under section 
 13.25  290.0804; and 
 13.26     (3) the allowance for personal and dependent exemptions 
 13.27  under section 290.0805. 
 13.28     Sec. 7.  Minnesota Statutes 1998, section 290.06, is 
 13.29  amended by adding a subdivision to read: 
 13.30     Subd. 26.  [CHARITABLE CONTRIBUTION CREDIT.] An individual 
 13.31  is allowed a credit against the tax imposed under this section 
 13.32  equal to eight percent of the contributions, as defined in 
 13.33  section 170(c) of the Internal Revenue Code, made during the 
 13.34  taxable year. 
 13.35     Sec. 8.  [290.0803] [SUBTRACTIONS; INDIVIDUALS.] 
 13.36     Subdivision 1.  [ALLOWANCE.] The amounts specified in this 
 14.1   section are allowed as subtractions from federal taxable income 
 14.2   to individuals, trusts, and estates, but only to the extent the 
 14.3   item was included in federal taxable income or was added to 
 14.4   federal taxable income under section 290.01, subdivision 19a. 
 14.5      Subd. 2.  [UNITED STATES BOND INTEREST.] Interest income on 
 14.6   obligations of any authority, commission, or instrumentality of 
 14.7   the United States exempt from state income tax under the laws of 
 14.8   the United States may be subtracted. 
 14.9      Subd. 3.  [K-12 EDUCATION EXPENSES.] (a) The amount paid to 
 14.10  others not to exceed $1,625 for each dependent in grades 
 14.11  kindergarten to 6 and $2,500 for each dependent in grades 7 to 
 14.12  12, for tuition, textbooks, and transportation of each dependent 
 14.13  in attending an elementary or secondary school may be subtracted.
 14.14     (b) To qualify the school must: 
 14.15     (1) be situated in Minnesota, North Dakota, South Dakota, 
 14.16  Iowa, or Wisconsin; 
 14.17     (2) permit a resident of this state to legally fulfill the 
 14.18  compulsory attendance laws; 
 14.19     (3) not be operated for profit; and 
 14.20     (4) adhere to the provisions of the Civil Rights Act of 
 14.21  1964 and chapter 363. 
 14.22     (c)  For the purposes of this subdivision: 
 14.23     (1) "Tuition" includes fees or tuition for instruction by 
 14.24  an instructor under section 120A.22, subdivision 10, clause (1), 
 14.25  (2), (3), (4), or (5), for instruction outside the regular 
 14.26  school day or school year, including tutoring, driver's 
 14.27  education offered as part of the school curriculum, regardless 
 14.28  of whether it is taken from a public or private entity or summer 
 14.29  camps, in grade or age appropriate curricula that supplement 
 14.30  curricula and instruction available during the regular school 
 14.31  year, that assists a dependent to improve knowledge of core 
 14.32  curriculum areas or to expand knowledge and skills under the 
 14.33  graduation rule under section 120B.02 and that do not include 
 14.34  the teaching of religious tenets, doctrines, or worship, the 
 14.35  purpose of which is to instill such tenets, doctrines, or 
 14.36  worship. 
 15.1      (2) "Textbooks" includes books and other instructional 
 15.2   materials and equipment used in elementary and secondary schools 
 15.3   in teaching only those subjects legally and commonly taught in 
 15.4   public elementary and secondary schools in this state, but 
 15.5   "textbooks" does not include instructional books and materials 
 15.6   used in the teaching of religious tenets, doctrines, or worship, 
 15.7   the purpose of which is to instill such tenets, doctrines, or 
 15.8   worship, nor does it include books or materials for, or 
 15.9   transportation to, extracurricular activities including sporting 
 15.10  events, musical or dramatic events, speech activities, driver's 
 15.11  education, or similar programs. 
 15.12     (3) "Equipment expenses" are limited to a maximum expense 
 15.13  of $200 per family for personal computer hardware, excluding 
 15.14  single purpose processors, and educational software that assists 
 15.15  a dependent to improve knowledge of core curriculum areas or to 
 15.16  expand knowledge and skills under the graduation rule under 
 15.17  section 120B.02 purchased for use in the taxpayer's home and not 
 15.18  used in a trade or business regardless of whether the computer 
 15.19  is required by the dependent's school. 
 15.20     Subd. 4.  [FARM BANKRUPTCIES.] Income realized on 
 15.21  disposition of property exempt from tax under section 290.491 
 15.22  may be subtracted. 
 15.23     Subd. 5.  [YOUTH COMMUNITY SERVICE.] Postservice benefits 
 15.24  for youth community service under section 124D.42 for volunteer 
 15.25  service under United States Code, title 42, section 5011(d), as 
 15.26  amended, may be subtracted. 
 15.27     Subd. 6.  [URBAN REVITALIZATION AND STABILIZATION 
 15.28  ZONES.] The exemption amount allowed under Laws 1995, chapter 
 15.29  255, article 3, section 2, subdivision 3, may be subtracted. 
 15.30     Subd. 7.  [EMPLOYEE BUSINESS EXPENSES.] The amount of 
 15.31  deductions of an employee in connection with employment that is 
 15.32  deductible only as itemized deductions, as defined in section 
 15.33  63(d) of the Internal Revenue Code, may be subtracted. 
 15.34     Subd. 8.  [EXPENSES FOR THE PRODUCTION OF INCOME.] The 
 15.35  amount of the deductions for the production of income that is 
 15.36  allowable under section 212 of the Internal Revenue Code but 
 16.1   that can only be deducted as itemized deductions, as defined in 
 16.2   section 63(d) of the Internal Revenue Code, may be deducted. 
 16.3      Sec. 9.  [290.0804] [STANDARD DEDUCTION.] 
 16.4      Subdivision 1.  [ALLOWANCE.] In lieu of the subtractions 
 16.5   allowed under section 290.0803, an individual, trust, or estate 
 16.6   may subtract the following amount from federal taxable income: 
 16.7      (1) for married couples filing a joint return and surviving 
 16.8   spouses as defined in section 2(a) of the Internal Revenue Code, 
 16.9   $9,000; and 
 16.10     (2) for all other returns, $4,500. 
 16.11     Subd. 2.  [INFLATION ADJUSTMENT.] The dollar amount of the 
 16.12  standard deduction must be annually adjusted for inflation.  The 
 16.13  commissioner shall adjust the dollar amount by the percentage 
 16.14  determined under section 290.06, subdivision 2d, for the taxable 
 16.15  year.  The commissioner may round the dollar amount to the 
 16.16  nearest $10 amount. 
 16.17     Sec. 10.  [290.0805] [EXEMPTIONS.] 
 16.18     Subdivision 1.  [ALLOWANCE.] An individual may subtract 
 16.19  $5,000 as an exemption amount for each of the following: 
 16.20     (1) the taxpayer; 
 16.21     (2) the spouse for a married joint return; and 
 16.22     (3) each dependent exemption, as defined in sections 151 
 16.23  and 152 of the Internal Revenue Code. 
 16.24     Subd. 2.  [INFLATION ADJUSTMENT.] The dollar amount of the 
 16.25  exemption must be annually adjusted for inflation.  The 
 16.26  commissioner shall adjust the dollar amount by the percentage 
 16.27  determined under section 290.06, subdivision 2d, for the taxable 
 16.28  year.  The commissioner may round the dollar amount to the 
 16.29  nearest $10 amount. 
 16.30     Sec. 11.  Minnesota Statutes 1998, section 290.091, 
 16.31  subdivision 6, is amended to read: 
 16.32     Subd. 6.  [CREDIT FOR PRIOR YEARS' LIABILITY.] (a) A credit 
 16.33  is allowed against the tax imposed by this chapter on 
 16.34  individuals, trusts, and estates equal to the minimum tax credit 
 16.35  for the taxable year.  The minimum tax credit equals the 
 16.36  adjusted net minimum tax for taxable years beginning after 
 17.1   December 31, 1988, and before January 1, 1999, reduced by the 
 17.2   minimum tax credits allowed in a prior taxable year.  The credit 
 17.3   may not exceed the excess (if any) for the taxable year of 
 17.4      (1) the regular tax, over 
 17.5      (2) the greater of (i) the tentative alternative minimum 
 17.6   tax, or (ii) zero liability for tax under section 290.06, 
 17.7   subdivision 2c. 
 17.8      (b) The adjusted net minimum tax for a taxable year equals 
 17.9   the lesser of the net minimum tax or the excess (if any) of 
 17.10     (1) the tentative minimum tax, over 
 17.11     (2) seven percent of the sum of 
 17.12     (i) adjusted gross income as defined in section 62 of the 
 17.13  Internal Revenue Code, 
 17.14     (ii) interest income as defined in section 290.01, 
 17.15  subdivision 19a, clause (1), 
 17.16     (iii) the amount added to federal taxable income as 
 17.17  provided by section 290.01, subdivision 19a, clauses (5), (6), 
 17.18  and (7), 
 17.19     (iv) interest on specified private activity bonds, as 
 17.20  defined in section 57(a)(5) of the Internal Revenue Code, to the 
 17.21  extent not included under clause (ii), 
 17.22     (v) depletion as defined in section 57(a)(1), determined 
 17.23  without regard to the last sentence of paragraph (1), of the 
 17.24  Internal Revenue Code, less 
 17.25     (vi) the deductions allowed in computing alternative 
 17.26  minimum taxable income provided in subdivision 2, paragraph (a), 
 17.27  clause (2) of the first series of clauses and clauses (1), (2), 
 17.28  (3), and (4) of the second series of clauses, and 
 17.29     (vii) the exemption amount determined under subdivision 3. 
 17.30     In the case of an individual who is not a Minnesota 
 17.31  resident for the entire year, adjusted net minimum tax must be 
 17.32  multiplied by the fraction defined in section 290.06, 
 17.33  subdivision 2c, paragraph (e).  In the case of a trust or 
 17.34  estate, adjusted net minimum tax must be multiplied by the 
 17.35  fraction defined under subdivision 4, paragraph (b). 
 17.36     Sec. 12.  Minnesota Statutes 1998, section 290.491, is 
 18.1   amended to read: 
 18.2      290.491 [TAX ON GAIN; DISCHARGE IN BANKRUPTCY.] 
 18.3      (a) Any tax due under this chapter on a gain realized on a 
 18.4   forced sale pursuant to foreclosure of a mortgage or other 
 18.5   security interest in agricultural production property, other 
 18.6   real property, or equipment, used in a farm business that was 
 18.7   owned and operated by the taxpayer shall be a dischargeable debt 
 18.8   in a bankruptcy proceeding under United States Code, title 11, 
 18.9   section 727. 
 18.10     (b) Income realized on a sale or exchange of agricultural 
 18.11  production property, other real property, or equipment, used in 
 18.12  a farm business that was owned and operated by the taxpayer 
 18.13  shall be exempt from taxation under this chapter, if the 
 18.14  taxpayer was insolvent at the time of the sale and the proceeds 
 18.15  of the sale were used solely to discharge indebtedness secured 
 18.16  by a mortgage, lien, or other security interest on the property 
 18.17  sold.  For purposes of this section, "insolvent" means insolvent 
 18.18  as defined in section 108(d)(3) of the Internal Revenue Code. 
 18.19  This paragraph applies only to the extent that the gain is 
 18.20  includable in federal taxable income or in the computation of 
 18.21  the alternative minimum taxable income under section 290.091 for 
 18.22  purposes of the alternative minimum tax.  The amount of the 
 18.23  exemption is limited to the excess of the taxpayer's (1) 
 18.24  liabilities over (2) the total assets and any exclusion claimed 
 18.25  under section 108 of the Internal Revenue Code determined 
 18.26  immediately before application of this paragraph. 
 18.27     (c) For purposes of this section, any tax due under this 
 18.28  chapter specifically includes, but is not limited to, tax 
 18.29  imposed under sections 290.02 and 290.03 on income derived from 
 18.30  a sale or exchange, whether constituting gain, discharge of 
 18.31  indebtedness or recapture of depreciation deductions, or the 
 18.32  alternative minimum tax imposed under section 290.091. 
 18.33     Sec. 13.  Minnesota Statutes 1998, section 290.9725, is 
 18.34  amended to read: 
 18.35     290.9725 [S CORPORATION.] 
 18.36     For purposes of this chapter, the term "S corporation" 
 19.1   means any corporation having a valid election in effect for the 
 19.2   taxable year under section 1362 of the Internal Revenue Code, 
 19.3   except that a corporation which either: 
 19.4      (1) is a financial institution to which either section 585 
 19.5   or section 593 of the Internal Revenue Code applies; or 
 19.6      (2) has a wholly owned subsidiary as described in section 
 19.7   1361(b)(3)(B) of the Internal Revenue Code which is a financial 
 19.8   institution as described above 
 19.9   is not an "S" corporation for the purposes of this chapter.  An 
 19.10  S corporation shall not be subject to the taxes imposed by this 
 19.11  chapter, except the taxes imposed under sections 290.0922, 
 19.12  290.92, 290.9727, 290.9728, and 290.9729. 
 19.13     Sec. 14.  [REPEALER.] 
 19.14     Minnesota Statutes 1998, sections 290.01, subdivisions 19b 
 19.15  and 19g; 290.0671, subdivision 3; 290.0674, subdivision 3; and 
 19.16  290.091, subdivisions 1, 2, 3, 4, 5, and 6, are repealed. 
 19.17     Sec. 15.  [EFFECTIVE DATE.] 
 19.18     (a) Sections 1, 2, 4, 5, 6, 11, 12, 13, and 14, paragraph 
 19.19  (a), are effective for taxable years beginning after December 
 19.20  31, 1998, except the amendment in section 1 adding new clauses 
 19.21  (7) and (8) to Minnesota Statutes, section 290.01, subdivision 
 19.22  19a. 
 19.23     (b) The amendment to section 1 adding new clauses (7) and 
 19.24  (8) to Minnesota Statutes, section 290.01, subdivision 19a, and 
 19.25  sections 3, 7, 8, 9, 10, and 14, paragraph (b), are effective 
 19.26  for taxable years beginning after December 31, 1999.