1.1                          A bill for an act
  1.2             relating to taxation; providing a credit for 
  1.3             charitable contributions; amending Minnesota Statutes 
  1.4             1998, section 290.01, subdivision 19a; proposing 
  1.5             coding for new law in Minnesota Statutes, chapter 290. 
  1.6   BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
  1.7      Section 1.  Minnesota Statutes 1998, section 290.01, 
  1.8   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(g) 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; 
  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; 
  3.10     (7) in the year stock of a corporation that had made a 
  3.11  valid election under section 1362 of the Internal Revenue Code 
  3.12  but was not an "S" corporation under section 290.9725 is sold or 
  3.13  disposed of in a transaction taxable under the Internal Revenue 
  3.14  Code, the amount of difference between the Minnesota basis of 
  3.15  the stock under subdivision 19f, paragraph (m), and the federal 
  3.16  basis if the Minnesota basis is lower than the shareholder's 
  3.17  federal basis; 
  3.18     (8) the amount of expense, interest, or taxes disallowed 
  3.19  pursuant to section 290.10; and 
  3.20     (9) the amount of a partner's pro rata share of net income 
  3.21  which does not flow through to the partner because the 
  3.22  partnership elected to pay the tax on the income under section 
  3.23  6242(a)(2) of the Internal Revenue Code; and 
  3.24     (10) the amount of any credit allowed under section 
  3.25  290.0675, to the extent claimed as a deduction under section 
  3.26  170(c) of the Internal Revenue Code. 
  3.27     Sec. 2.  [290.0675] [CHARITABLE CONTRIBUTIONS CREDIT.] 
  3.28     Subdivision 1.  [CREDIT ALLOWED.] An individual is allowed 
  3.29  a credit against the tax imposed by this chapter equal to 75 
  3.30  percent of qualified charitable contributions.  The maximum 
  3.31  credit allowed is $200 for surviving spouses and married 
  3.32  taxpayers filing joint returns and $100 for all other taxpayers. 
  3.33  For surviving spouses and married couples filing joint returns, 
  3.34  the maximum credit is reduced by five percent for each $1,000 of 
  3.35  income over a threshold.  For all other taxpayers, the maximum 
  3.36  credit is reduced by ten percent for each $1,000 of income over 
  4.1   a threshold.  For surviving spouses and married couples filing 
  4.2   joint returns, the threshold is $80,000.  For all other 
  4.3   taxpayers, the threshold is $40,000.  In no case is the credit 
  4.4   less than zero.  For purposes of this section, "qualified 
  4.5   charitable contributions" means contributions allowed as 
  4.6   deductions under section 170(c) of the Internal Revenue Code, 
  4.7   but only to the extent those contributions are to a qualified 
  4.8   charity. 
  4.9      Subd. 2.  [DEFINITIONS.] (a) For purposes of this section, 
  4.10  "qualified charity" means an organization that applies to the 
  4.11  commissioner of revenue for certification on or before April 1 
  4.12  of the tax year for which the taxpayer is claiming the credit 
  4.13  and that the commissioner certifies for that tax year as meeting 
  4.14  all of the following requirements: 
  4.15     (1) meets the requirements of section 501(c)(3) of the 
  4.16  Internal Revenue Code; 
  4.17     (2) is exempt from tax under section 501(a) of the Internal 
  4.18  Revenue Code; 
  4.19     (3) uses at least 70 percent of its total expenditures for 
  4.20  direct services, with not more than 30 percent of its 
  4.21  expenditures used for administrative expenses in support of 
  4.22  direct services and fund raising; 
  4.23     (4) receives less than 50 percent of its funding from 
  4.24  federal, state, or local governments; and 
  4.25     (5) has as its predominant activity the provision of direct 
  4.26  services to individuals whose annual incomes generally do not 
  4.27  exceed 185 percent of the federal poverty guidelines. 
  4.28     In the case of charities that serve multiple purposes but 
  4.29  maintain a dedicated fund for providing direct services to 
  4.30  individuals described in clause (5), the requirements in clauses 
  4.31  (3) and (5) apply only to the dedicated fund.  Contributions to 
  4.32  such charities only qualify for the credit to the extent the 
  4.33  contributions are deposited in the dedicated fund. 
  4.34     Organizations that provide services in the form of 
  4.35  donations of food or meals or temporary shelter shall be 
  4.36  considered to meet the requirement of clause (5) if the location 
  5.1   and operation of such services are such that the organization 
  5.2   may reasonably conclude that the beneficiaries of such services 
  5.3   are predominantly individuals described in clause (5). 
  5.4      (b) For purposes of this section, "direct services" means 
  5.5   any benefit or service intended to prevent or alleviate poverty, 
  5.6   including, but not limited to, provision of food, meals, 
  5.7   shelter, employment counseling and training, and drug or alcohol 
  5.8   abuse counseling. 
  5.9      Subd. 3.  [TIMING OF CONTRIBUTIONS.] For purposes of this 
  5.10  section, at the election of the taxpayer, a contribution which 
  5.11  is made not later than the time prescribed by law for filing the 
  5.12  return for the tax year, not including extensions, and before 
  5.13  the return is filed, is treated as made on the last day of the 
  5.14  tax year. 
  5.15     Subd. 4.  [DOCUMENTATION.] A qualified charity that accepts 
  5.16  a contribution shall provide the donor with a receipt 
  5.17  acknowledging the contribution, which the donor may use in 
  5.18  claiming the credit described in this section.  The receipt must 
  5.19  also state that the contribution is to be used for the provision 
  5.20  of services in Minnesota.  Each qualified charity must report 
  5.21  annually if it has accepted contributions that qualify for the 
  5.22  credit under this section to the department of revenue in a form 
  5.23  and manner prescribed by the commissioner. 
  5.24     Subd. 5.  [ANNUAL RETURNS OF QUALIFIED 
  5.25  CHARITIES.] Qualified charities as defined in subdivision 2 
  5.26  shall, upon request of an individual, provide a copy of the 
  5.27  organization's annual return filed under section 6033 of the 
  5.28  Internal Revenue Code.  The organization shall not charge for 
  5.29  the return other than a reasonable fee for any reproduction and 
  5.30  mailing costs.  If the request is made in person, such copies 
  5.31  shall be provided immediately and, if made other than in person, 
  5.32  shall be provided within 30 days. 
  5.33     Sec. 3.  [EFFECTIVE DATE.] 
  5.34     Sections 1 and 2 are effective for taxable years beginning 
  5.35  after December 31, 1998.