HF 1963

as introduced - 85th Legislature (2007 - 2008) Posted on 12/15/2009 12:00am

A bill for an act
relating to taxation; providing an income tax credit for donations to qualified
scholarship-granting organizations; amending Minnesota Statutes 2006, section
290.01, subdivisions 19a, 19c; proposing coding for new law in Minnesota
Statutes, chapter 290.

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

Section 1.

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

Subd. 19a.

Additions to federal taxable income.

For individuals, estates, and
trusts, there shall be added to federal taxable income:

(1)(i) interest income on obligations of any state other than Minnesota or a political
or governmental subdivision, municipality, or governmental agency or instrumentality
of any state other than Minnesota exempt from federal income taxes under the Internal
Revenue Code or any other federal statute; and

(ii) exempt-interest dividends as defined in section 852(b)(5) of the Internal Revenue
Code, except the portion of the exempt-interest dividends derived from interest income
on obligations of the state of Minnesota or its political or governmental subdivisions,
municipalities, governmental agencies or instrumentalities, but only if the portion of the
exempt-interest dividends from such Minnesota sources paid to all shareholders represents
95 percent or more of the exempt-interest dividends that are paid by the regulated
investment company as defined in section 851(a) of the Internal Revenue Code, or the
fund of the regulated investment company as defined in section 851(g) of the Internal
Revenue Code, making the payment; and

(iii) for the purposes of items (i) and (ii), interest on obligations of an Indian tribal
government described in section 7871(c) of the Internal Revenue Code shall be treated as
interest income on obligations of the state in which the tribe is located;

(2) the amount of income or sales and use taxes paid or accrued within the taxable
year under this chapter and the amount of taxes based on net income paid or sales and use
taxes paid to any other state or to any province or territory of Canada, to the extent allowed
as a deduction under section 63(d) of the Internal Revenue Code, but the addition may not
be more than the amount by which the itemized deductions as allowed under section 63(d)
of the Internal Revenue Code exceeds the amount of the standard deduction as defined
in section 63(c) of the Internal Revenue Code. For the purpose of this paragraph, the
disallowance of itemized deductions under section 68 of the Internal Revenue Code of
1986, income or sales and use tax is the last itemized deduction disallowed;

(3) the capital gain amount of a lump sum distribution to which the special tax under
section 1122(h)(3)(B)(ii) of the Tax Reform Act of 1986, Public Law 99-514, applies;

(4) the amount of income taxes paid or accrued within the taxable year under this
chapter and taxes based on net income paid to any other state or any province or territory
of Canada, to the extent allowed as a deduction in determining federal adjusted gross
income. For the purpose of this paragraph, income taxes do not include the taxes imposed
by sections 290.0922, subdivision 1, paragraph (b), 290.9727, 290.9728, and 290.9729;

(5) the amount of expense, interest, or taxes disallowed pursuant to section 290.10
other than expenses or interest used in computing net interest income for the subtraction
allowed under subdivision 19b, clause (1);

(6) the amount of a partner's pro rata share of net income which does not flow
through to the partner because the partnership elected to pay the tax on the income under
section 6242(a)(2) of the Internal Revenue Code;

(7) 80 percent of the depreciation deduction allowed under section 168(k) of the
Internal Revenue Code. For purposes of this clause, if the taxpayer has an activity that
in the taxable year generates a deduction for depreciation under section 168(k) and the
activity generates a loss for the taxable year that the taxpayer is not allowed to claim for
the taxable year, "the depreciation allowed under section 168(k)" for the taxable year is
limited to excess of the depreciation claimed by the activity under section 168(k) over the
amount of the loss from the activity that is not allowed in the taxable year. In succeeding
taxable years when the losses not allowed in the taxable year are allowed, the depreciation
under section 168(k) is allowed;

(8) 80 percent of the amount by which the deduction allowed by section 179 of the
Internal Revenue Code exceeds the deduction allowable by section 179 of the Internal
Revenue Code of 1986, as amended through December 31, 2003;

(9) to the extent deducted in computing federal taxable income, the amount of the
deduction allowable under section 199 of the Internal Revenue Code; deleted text begin and
deleted text end

(10) the exclusion allowed under section 139A of the Internal Revenue Code for
federal subsidies for prescription drug plans new text begin ; and
new text end

new text begin (11) the amount of the deduction under section 170 of the Internal Revenue Code
that represents contributions to a qualified scholarship-granting organization under section
290.0678 new text end .

Sec. 2.

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

Subd. 19c.

Corporations; additions to federal taxable income.

For corporations,
there shall be added to federal taxable income:

(1) the amount of any deduction taken for federal income tax purposes for income,
excise, or franchise taxes based on net income or related minimum taxes, including but not
limited to the tax imposed under section 290.0922, paid by the corporation to Minnesota,
another state, a political subdivision of another state, the District of Columbia, or any
foreign country or possession of the United States;

(2) interest not subject to federal tax upon obligations of: the United States, its
possessions, its agencies, or its instrumentalities; the state of Minnesota or any other
state, any of its political or governmental subdivisions, any of its municipalities, or any
of its governmental agencies or instrumentalities; the District of Columbia; or Indian
tribal governments;

(3) exempt-interest dividends received as defined in section 852(b)(5) of the Internal
Revenue Code;

(4) the amount of any net operating loss deduction taken for federal income tax
purposes under section 172 or 832(c)(10) of the Internal Revenue Code or operations loss
deduction under section 810 of the Internal Revenue Code;

(5) the amount of any special deductions taken for federal income tax purposes
under sections 241 to 247 and 965 of the Internal Revenue Code;

(6) losses from the business of mining, as defined in section 290.05, subdivision 1,
clause (a), that are not subject to Minnesota income tax;

(7) the amount of any capital losses deducted for federal income tax purposes under
sections 1211 and 1212 of the Internal Revenue Code;

(8) the exempt foreign trade income of a foreign sales corporation under sections
921(a) and 291 of the Internal Revenue Code;

(9) the amount of percentage depletion deducted under sections 611 through 614 and
291 of the Internal Revenue Code;

(10) for certified pollution control facilities placed in service in a taxable year
beginning before December 31, 1986, and for which amortization deductions were elected
under section 169 of the Internal Revenue Code of 1954, as amended through December
31, 1985, the amount of the amortization deduction allowed in computing federal taxable
income for those facilities;

(11) the amount of any deemed dividend from a foreign operating corporation
determined pursuant to section 290.17, subdivision 4, paragraph (g);

(12) the amount of a partner's pro rata share of net income which does not flow
through to the partner because the partnership elected to pay the tax on the income under
section 6242(a)(2) of the Internal Revenue Code;

(13) the amount of net income excluded under section 114 of the Internal Revenue
Code;

(14) any increase in subpart F income, as defined in section 952(a) of the Internal
Revenue Code, for the taxable year when subpart F income is calculated without regard
to the provisions of section 103 of Public Law 109-222;

(15) 80 percent of the depreciation deduction allowed under section 168(k)(1)(A)
and (k)(4)(A) of the Internal Revenue Code. For purposes of this clause, if the taxpayer
has an activity that in the taxable year generates a deduction for depreciation under
section 168(k)(1)(A) and (k)(4)(A) and the activity generates a loss for the taxable year
that the taxpayer is not allowed to claim for the taxable year, "the depreciation allowed
under section 168(k)(1)(A) and (k)(4)(A)" for the taxable year is limited to excess of the
depreciation claimed by the activity under section 168(k)(1)(A) and (k)(4)(A) over the
amount of the loss from the activity that is not allowed in the taxable year. In succeeding
taxable years when the losses not allowed in the taxable year are allowed, the depreciation
under section 168(k)(1)(A) and (k)(4)(A) is allowed;

(16) 80 percent of the amount by which the deduction allowed by section 179 of the
Internal Revenue Code exceeds the deduction allowable by section 179 of the Internal
Revenue Code of 1986, as amended through December 31, 2003;

(17) to the extent deducted in computing federal taxable income, the amount of the
deduction allowable under section 199 of the Internal Revenue Code; deleted text begin and
deleted text end

(18) the exclusion allowed under section 139A of the Internal Revenue Code for
federal subsidies for prescription drug plans new text begin ; and
new text end

new text begin (19) the amount of the deduction under section 170 of the Internal Revenue Code
that represents contributions to a qualified scholarship-granting organization under section
290.0678 new text end .

Sec. 3.

new text begin [290.0678] EQUITY AND OPPORTUNITY IN EDUCATION
SCHOLARSHIP TAX CREDIT.
new text end

new text begin Subdivision 1. new text end

new text begin Definitions. new text end

new text begin (a) For purposes of this section, the following terms
have the meanings given.
new text end

new text begin (b) "Program" means the equity and opportunity in education scholarship tax credit
program.
new text end

new text begin (c) "Eligible student" means a student who:
new text end

new text begin (1) is a member of a household whose total annual income during the year, without
consideration of the educational scholarship under this program, does not exceed an
amount equal to two times the income standard used to qualify for a reduced price meal
under the National School Lunch Program established under United States Code, title 42,
section 1751, et seq. Once a student receives a scholarship under this program, the student
remains eligible regardless of household income until the student graduates high school,
leaves high school, or reaches 21 years of age, whichever occurs first;
new text end

new text begin (2) was eligible to attend a public school in the preceding semester or is starting
school in Minnesota for the first time; and
new text end

new text begin (3) resides in Minnesota while receiving an educational scholarship.
new text end

new text begin (d) "Low-income eligible student" means a student who qualifies for a reduced price
meal under the National School Lunch Program established under United States Code,
title 42, section 1751, et seq.
new text end

new text begin (e) "Educational scholarships" means grants to eligible students to cover all or part
of the tuition and fees at a qualified school, including transportation to a public school
outside of an eligible student's resident school district.
new text end

new text begin (f) "Qualified school" means a school operated in Minnesota that is either a public
elementary or secondary school outside an eligible student's resident school district or a
nonpublic elementary or secondary school in Minnesota wherein a resident 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. Qualified
schools must comply with all state laws that apply to a nonpublic school regarding
criminal background checks and exclude from employment any individuals not permitted
under state law to work in a nonpublic school.
new text end

new text begin (g) "Parent" includes a guardian, custodian, or other person with authority to act on
behalf of the child.
new text end

new text begin (h) "Scholarship-granting organization" means a nonprofit organization that
complies with the requirements of this program and provides educational scholarships to
eligible students attending a qualified school of their parents' choice.
new text end

new text begin Subd. 2. new text end

new text begin Credit allowed. new text end

new text begin (a) An individual or corporate taxpayer is allowed a credit
against the tax due under this chapter equal to ... percent of the amount contributed to
a qualified scholarship-granting organization. The maximum credit allowed is $.......
for married joint filers, $....... for all other individual filers, and $....... for all corporate
filers. A taxpayer must provide a copy of the receipt provided by the scholarship-granting
organization when claiming the credit.
new text end

new text begin (b) The maximum amount of the credit must be annually adjusted for inflation. The
commissioner shall make the inflation adjustments in accordance with section 1(f) of the
Internal Revenue Code, except that for the purposes of this subdivision, the percentage
increase must be determined from the year starting September 1, 2006, and ending August
31, 2007, as the base year for adjusting for inflation for the tax year beginning after
December 31, 2007. The determination of the commissioner under this subdivision is not
a rule under the Administrative Procedure Act.
new text end

new text begin Subd. 3. new text end

new text begin Responsibilities of scholarship-granting organizations. new text end

new text begin (a) Each
scholarship-granting organization shall:
new text end

new text begin (1) notify the commissioner of its intent to provide educational scholarships to
students attending qualified schools;
new text end

new text begin (2) demonstrate to the commissioner that it has been granted exemption from the
federal income tax as an organization described in section 501(c)(3) of the Internal
Revenue Code;
new text end

new text begin (3) provide a receipt on a form approved by the commissioner to taxpayers for
donations for scholarships made to the organization;
new text end

new text begin (4) ensure that at least 85 percent of its revenue from donations for scholarships is
spent on educational scholarships;
new text end

new text begin (5) annually spend a portion of its expenditures on scholarships for low-income
eligible students equal to the percentage of low-income eligible students in the county
where the scholarship-granting organization expends the majority of its scholarships;
new text end

new text begin (6) distribute periodic scholarship payments as checks made out to a student's parent
or guardian and mailed to the qualified school where the student is enrolled. The parent or
guardian must endorse the check before it can be deposited;
new text end

new text begin (7) conduct criminal background checks on all of its employees and board members
and exclude from employment or governance any individuals that might reasonably pose a
risk to the appropriate use of contributed funds;
new text end

new text begin (8) ensure that scholarships are portable during the school year and can be used at
any qualified school that accepts the eligible student according to a parent's wishes. If
a student moves to a new qualified school during a school year, the scholarship amount
may be prorated;
new text end

new text begin (9) demonstrate its financial accountability by:
new text end

new text begin (i) submitting a financial information report for the organization that complies with
uniform financial accounting standards established by the commissioner and conducted by
a certified public accountant; and
new text end

new text begin (ii) having the auditor certify that the report is free of material misstatements;
new text end

new text begin (10) demonstrate its financial viability, if they are to receive donations of $50,000 or
more during the school year, by:
new text end

new text begin (i) filing with the commissioner prior to the start of the school year a surety
bond payable to the state of Minnesota in an amount equal to the aggregate amount of
contributions expected to be received during the school year; or
new text end

new text begin (ii) filing with the commissioner prior to September 1 of each year financial
information that demonstrates the financial viability of the scholarship granting
organization.
new text end

new text begin (b) Each scholarship-granting organization shall ensure that participating schools
that accept its scholarship students will:
new text end

new text begin (1) comply with all health and safety laws or codes that apply to nonpublic schools;
new text end

new text begin (2) hold a valid occupancy permit if required by its municipality;
new text end

new text begin (3) certify that it will not discriminate in admissions on the basis of race, color,
national origin, religion, or disability; and
new text end

new text begin (4) provide academic accountability to parents of the students in the program by
regularly reporting to the parent on the student's progress.
new text end

new text begin (c) Scholarship-granting organizations shall not provide educational scholarships for
students to attend any school with paid staff or board members, or relatives thereof, in
common with the scholarship-granting support organization.
new text end

new text begin (d) A scholarship-granting organization shall not provide an educational scholarship
as a quid pro quo for a taxpayer contributing to any scholarship-granting organization
where a specific student is designated the beneficiary of the scholarship.
new text end

new text begin (e) A scholarship-granting organization shall report to the commissioner by June 1
of each year the following information prepared by a certified public accountant regarding
its grants in the previous calendar year:
new text end

new text begin (1) the name and address of the student support organization;
new text end

new text begin (2) the total number and total dollar amount of contributions received during the
previous calendar year; and
new text end

new text begin (3) the total number and total dollar amount of educational scholarships awarded
during the previous calendar year, the total number and total dollar amount of educational
scholarships awarded during the previous year to students qualifying for the National
School Lunch Program, and the percentage of first time recipients of educational
scholarships who were continuously enrolled in a public school during the previous year.
new text end

new text begin (f) If the commissioner decides to bar a scholarship-granting organization from the
program for failure to comply with the requirements above, the scholarship-granting
organization shall notify in writing affected students and their parents of this decision
within 30 days.
new text end

new text begin Subd. 4. new text end

new text begin Responsibilities of the commissioner. new text end

new text begin (a) The commissioner shall
prescribe a standardized format for a receipt to be issued by a scholarship-granting
organization to a taxpayer to indicate the value of a contribution received.
new text end

new text begin (b) The commissioner shall prescribe a standardized format for scholarship-granting
organizations to report the information required under subdivision 3.
new text end

new text begin (c) The commissioner shall cause to be posted on the department's Web site the
names and addresses of eligible scholarship-granting organizations and regularly update
the names and addresses of any scholarship-granting organizations that have been barred
from participating in the program.
new text end

new text begin (d) The commissioner may conduct either a financial review or audit of a
scholarship-granting organization upon finding evidence of fraud or intentional
misreporting.
new text end

new text begin (e) The commissioner may bar a scholarship-granting organization from participating
in the program if the commissioner establishes that the scholarship-granting organization
has intentionally and substantially failed to comply with the requirements in subdivision 3.
If the commissioner determines that a scholarship-granting organization should be barred
from the program, the commissioner must notify the scholarship-granting organization
within 60 days of that determination.
new text end

new text begin Subd. 5. new text end

new text begin Evaluation of the equity and opportunity in education scholarship tax
credit program. new text end

new text begin (a) The legislature may authorize the legislative auditor to perform a
study of the program or to contract with one or more qualified researchers who have
previous experience evaluating school choice programs to conduct a study of the program.
new text end

new text begin (b) The study must assess the following criteria:
new text end

new text begin (1) the level of parental satisfaction with the program;
new text end

new text begin (2) the level of participating students' satisfaction with the program;
new text end

new text begin (3) the impact of the program and the resulting change in use of nonpublic schools
on the resident school districts, public school students, and quality of life in a community;
new text end

new text begin (4) the impact of the program on public and nonpublic school capacity, availability,
and quality; and
new text end

new text begin (5) participating students' academic performance and graduation rates in comparison
to students who applied for a scholarship under this program but did not receive one
because of random selection.
new text end

new text begin (c) The researchers who conduct the study must:
new text end

new text begin (1) apply appropriate analytical and behavioral science methodologies to ensure
public confidence in the study;
new text end

new text begin (2) protect the identity of participating schools and students by, among other things,
keeping anonymous all disaggregated data other than that for the categories of grade
level, gender, and race and ethnicity; and
new text end

new text begin (3) provide the legislature with a final copy of the evaluation of the program.
new text end

new text begin (d) The relevant public and participating nonpublic schools shall cooperate with the
research effort by providing student assessment results and any other data necessary to
complete this study.
new text end

new text begin (e) The legislative auditor may accept grants to assist in funding this study.
new text end

new text begin (f) The study may cover a period of up to 13 years. The legislature may require
periodic reports from the researchers. After publishing their results, the researchers shall
make their data and methodology available for public review while complying with the
requirements of United States Code, title 20, section 1232g.
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