1.1                          A bill for an act 
  1.2             relating to income taxes; providing a credit for 
  1.3             certain higher education expenses; proposing coding 
  1.4             for new law in Minnesota Statutes, chapter 290. 
  1.5   BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
  1.6      Section 1.  [290.0675] [MINNESOTA HIGHER EDUCATION CREDIT.] 
  1.7      Subdivision 1.  [DEFINITIONS.] For purposes of this 
  1.8   section, the following terms have the meanings given. 
  1.9      (a) "Qualifying higher education expenses" means tuition 
  1.10  and fees of an eligible student for the student's first or 
  1.11  second year of post-secondary education, net of (i) any refunds 
  1.12  of tuition and fees received from the institution; and (ii) 
  1.13  employer reimbursement of post-secondary tuition, grants, and 
  1.14  scholarships, to the extent the total of these items exceeds the 
  1.15  cost of attendance, as defined in section 136A.121, subdivision 
  1.16  6, after subtracting actual tuition and fees and any federal 
  1.17  HOPE scholarship and lifetime learning credits under section 25A 
  1.18  of the Internal Revenue Code for which the student is eligible, 
  1.19  net of tuition and fees paid for the third year of the student's 
  1.20  post-secondary education, if applicable. 
  1.21     (b) "Eligible student" means the (i) taxpayer or spouse, if 
  1.22  not claimed as a dependent by another taxpayer; or (ii) person 
  1.23  claimed as a dependent of the taxpayer under section 152 of the 
  1.24  Internal Revenue Code.  An "eligible student" must also be a 
  1.25  Minnesota resident enrolled at least half-time in an eligible 
  2.1   institution. 
  2.2      (c) "Eligible institution" means eligible institutions as 
  2.3   defined in section 136A.101, subdivision 4. 
  2.4      (d) "Income" means the federal adjusted gross income as 
  2.5   defined in section 62 of the Internal Revenue Code. 
  2.6      Subd. 2.  [CREDIT ALLOWED.] An individual is allowed a 
  2.7   credit against the tax imposed by this chapter equal to 100 
  2.8   percent of qualifying higher education expenses for an eligible 
  2.9   student.  Only one credit per year is allowed for each eligible 
  2.10  student and the maximum credit is $1,000.  For married couples 
  2.11  filing joint returns, the maximum credit is reduced by five 
  2.12  percent for each $1,000 of income over a threshold.  For all 
  2.13  other taxpayers, the maximum credit is reduced by ten percent 
  2.14  for each $1,000 of income over a threshold.  For married couples 
  2.15  filing joint returns, the threshold is $80,000.  For all other 
  2.16  taxpayers, the threshold is $40,000.  In no case is the credit 
  2.17  less than zero.  The credit is allowed for two taxable years 
  2.18  with respect to each eligible student. 
  2.19     The credit in this section is subtracted from liability 
  2.20  before the refundable credits in sections 290.067, 290.0671, and 
  2.21  290.0674 are subtracted. 
  2.22     For a nonresident or part-year resident, the credit 
  2.23  determined under this section must be allocated based on the 
  2.24  percentage calculated under section 290.06, subdivision 2c, 
  2.25  paragraph (e). 
  2.26     Subd. 3.  [INFLATION ADJUSTMENT.] The maximum credit amount 
  2.27  and the thresholds at which the credit begins to be reduced 
  2.28  under subdivision 2 must be adjusted for inflation.  The 
  2.29  commissioner shall adjust the maximum credit and the threshold 
  2.30  amounts by the percentage determined under section 290.06, 
  2.31  subdivision 2d, for the taxable year. 
  2.32     Sec. 2.  [EFFECTIVE DATE.] 
  2.33     Section 1, subdivisions 1 and 2, are effective for tax 
  2.34  years beginning after December 31, 1998.  Section 1, subdivision 
  2.35  3, is effective for tax years beginning after December 31, 2001.