1.1                          A bill for an act 
  1.2             relating to education; providing for a tax exemption 
  1.3             for post-secondary educational savings; amending 
  1.4             Minnesota Statutes 1997 Supplement, section 290.01, 
  1.5             subdivisions 19a and 19b.  
  1.6   BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
  1.7      Section 1.  Minnesota Statutes 1997 Supplement, section 
  1.8   290.01, subdivision 19a, is amended to read: 
  1.9      Subd. 19a.  [ADDITIONS TO FEDERAL TAXABLE INCOME.] For 
  1.10  individuals, estates, and trusts, there shall be added to 
  1.11  federal taxable income: 
  1.12     (1)(i) interest income on obligations of any state other 
  1.13  than Minnesota or a political or governmental subdivision, 
  1.14  municipality, or governmental agency or instrumentality of any 
  1.15  state other than Minnesota exempt from federal income taxes 
  1.16  under the Internal Revenue Code or any other federal statute, 
  1.17  and 
  1.18     (ii) exempt-interest dividends as defined in section 
  1.19  852(b)(5) of the Internal Revenue Code, except the portion of 
  1.20  the exempt-interest dividends derived from interest income on 
  1.21  obligations of the state of Minnesota or its political or 
  1.22  governmental subdivisions, municipalities, governmental agencies 
  1.23  or instrumentalities, but only if the portion of the 
  1.24  exempt-interest dividends from such Minnesota sources paid to 
  1.25  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(h) 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; and 
  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; and 
  3.10     (7) any amounts subtracted under subdivision 19b, clause 
  3.11  (12), that are not used for post-secondary educational purposes. 
  3.12     Sec. 2.  Minnesota Statutes 1997 Supplement, section 
  3.13  290.01, subdivision 19b, is amended to read: 
  3.14     Subd. 19b.  [SUBTRACTIONS FROM FEDERAL TAXABLE INCOME.] For 
  3.15  individuals, estates, and trusts, there shall be subtracted from 
  3.16  federal taxable income: 
  3.17     (1) interest income on obligations of any authority, 
  3.18  commission, or instrumentality of the United States to the 
  3.19  extent includable in taxable income for federal income tax 
  3.20  purposes but exempt from state income tax under the laws of the 
  3.21  United States; 
  3.22     (2) if included in federal taxable income, the amount of 
  3.23  any overpayment of income tax to Minnesota or to any other 
  3.24  state, for any previous taxable year, whether the amount is 
  3.25  received as a refund or as a credit to another taxable year's 
  3.26  income tax liability; 
  3.27     (3) the amount paid to others, less the credit allowed 
  3.28  under section 290.0674, not to exceed $1,625 for each dependent 
  3.29  in grades kindergarten to 6 and $2,500 for each dependent in 
  3.30  grades 7 to 12, for tuition, textbooks, and transportation of 
  3.31  each dependent in attending an elementary or secondary school 
  3.32  situated in Minnesota, North Dakota, South Dakota, Iowa, or 
  3.33  Wisconsin, wherein a resident of this state may legally fulfill 
  3.34  the state's compulsory attendance laws, which is not operated 
  3.35  for profit, and which adheres to the provisions of the Civil 
  3.36  Rights Act of 1964 and chapter 363.  For the purposes of this 
  4.1   clause, "tuition" includes fees or tuition as defined in section 
  4.2   290.0674, subdivision 1, clause (1).  As used in this clause, 
  4.3   "textbooks" includes books and other instructional materials and 
  4.4   equipment used in elementary and secondary schools in teaching 
  4.5   only those subjects legally and commonly taught in public 
  4.6   elementary and secondary schools in this state.  Equipment 
  4.7   expenses qualifying for deduction includes expenses as defined 
  4.8   and limited in section 290.0674, subdivision 1, clause (3).  
  4.9   "Textbooks" does not include instructional books and materials 
  4.10  used in the teaching of religious tenets, doctrines, or worship, 
  4.11  the purpose of which is to instill such tenets, doctrines, or 
  4.12  worship, nor does it include books or materials for, or 
  4.13  transportation to, extracurricular activities including sporting 
  4.14  events, musical or dramatic events, speech activities, driver's 
  4.15  education, or similar programs; 
  4.16     (4) to the extent included in federal taxable income, 
  4.17  distributions from a qualified governmental pension plan, an 
  4.18  individual retirement account, simplified employee pension, or 
  4.19  qualified plan covering a self-employed person that represent a 
  4.20  return of contributions that were included in Minnesota gross 
  4.21  income in the taxable year for which the contributions were made 
  4.22  but were deducted or were not included in the computation of 
  4.23  federal adjusted gross income.  The distribution shall be 
  4.24  allocated first to return of contributions until the 
  4.25  contributions included in Minnesota gross income have been 
  4.26  exhausted.  This subtraction applies only to contributions made 
  4.27  in a taxable year prior to 1985; 
  4.28     (5) income as provided under section 290.0802; 
  4.29     (6) the amount of unrecovered accelerated cost recovery 
  4.30  system deductions allowed under subdivision 19g; 
  4.31     (7) to the extent included in federal adjusted gross 
  4.32  income, income realized on disposition of property exempt from 
  4.33  tax under section 290.491; 
  4.34     (8) to the extent not deducted in determining federal 
  4.35  taxable income, the amount paid for health insurance of 
  4.36  self-employed individuals as determined under section 162(l) of 
  5.1   the Internal Revenue Code, except that the 25 percent limit does 
  5.2   not apply.  If the taxpayer deducted insurance payments under 
  5.3   section 213 of the Internal Revenue Code of 1986, the 
  5.4   subtraction under this clause must be reduced by the lesser of: 
  5.5      (i) the total itemized deductions allowed under section 
  5.6   63(d) of the Internal Revenue Code, less state, local, and 
  5.7   foreign income taxes deductible under section 164 of the 
  5.8   Internal Revenue Code and the standard deduction under section 
  5.9   63(c) of the Internal Revenue Code; or 
  5.10     (ii) the lesser of (A) the amount of insurance qualifying 
  5.11  as "medical care" under section 213(d) of the Internal Revenue 
  5.12  Code to the extent not deducted under section 162(1) of the 
  5.13  Internal Revenue Code or excluded from income or (B) the total 
  5.14  amount deductible for medical care under section 213(a); 
  5.15     (9) the exemption amount allowed under Laws 1995, chapter 
  5.16  255, article 3, section 2, subdivision 3; 
  5.17     (10) to the extent included in federal taxable income, 
  5.18  postservice benefits for youth community service under section 
  5.19  121.707 for volunteer service under United States Code, title 
  5.20  42, section 5011(d), as amended; and 
  5.21     (11) the amount of income or gain included in federal 
  5.22  taxable income under section 1366 of the Internal Revenue Code 
  5.23  flowing from a corporation that has a valid election in effect 
  5.24  for the taxable year under section 1362 of the Internal Revenue 
  5.25  Code which is not allowed to be an "S" corporation under section 
  5.26  290.9725; and 
  5.27     (12) to the extent included in federal adjusted gross 
  5.28  income, interest earned by a minor that is dedicated for 
  5.29  post-secondary educational purposes. 
  5.30     Sec. 3.  [EFFECTIVE DATE.] 
  5.31     Sections 1 and 2 are effective for taxable years beginning 
  5.32  after December 31, 1997.