1.1                          A bill for an act 
  1.2             relating to taxation; individual income; providing a 
  1.3             subtraction for personal and dependent exemptions; 
  1.4             reducing rates of tax; amending Minnesota Statutes 
  1.5             2000, sections 290.01, subdivision 19b; 290.06, 
  1.6             subdivision 2c; 290.091, subdivisions 1, 2, 6. 
  1.7   BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
  1.8      Section 1.  Minnesota Statutes 2000, section 290.01, 
  1.9   subdivision 19b, is amended to read: 
  1.10     Subd. 19b.  [SUBTRACTIONS FROM FEDERAL TAXABLE INCOME.] For 
  1.11  individuals, estates, and trusts, there shall be subtracted from 
  1.12  federal taxable income: 
  1.13     (1) interest income on obligations of any authority, 
  1.14  commission, or instrumentality of the United States to the 
  1.15  extent includable in taxable income for federal income tax 
  1.16  purposes but exempt from state income tax under the laws of the 
  1.17  United States; 
  1.18     (2) if included in federal taxable income, the amount of 
  1.19  any overpayment of income tax to Minnesota or to any other 
  1.20  state, for any previous taxable year, whether the amount is 
  1.21  received as a refund or as a credit to another taxable year's 
  1.22  income tax liability; 
  1.23     (3) the amount paid to others, less the credit allowed 
  1.24  under section 290.0674, not to exceed $1,625 for each qualifying 
  1.25  child in grades kindergarten to 6 and $2,500 for each qualifying 
  1.26  child in grades 7 to 12, for tuition, textbooks, and 
  2.1   transportation of each qualifying child in attending an 
  2.2   elementary or secondary school situated in Minnesota, North 
  2.3   Dakota, South Dakota, Iowa, or Wisconsin, wherein a resident of 
  2.4   this state may legally fulfill the state's compulsory attendance 
  2.5   laws, which is not operated for profit, and which adheres to the 
  2.6   provisions of the Civil Rights Act of 1964 and chapter 363.  For 
  2.7   the purposes of this clause, "tuition" includes fees or tuition 
  2.8   as defined in section 290.0674, subdivision 1, clause (1).  As 
  2.9   used in this clause, "textbooks" includes books and other 
  2.10  instructional materials and equipment used in elementary and 
  2.11  secondary schools in teaching only those subjects legally and 
  2.12  commonly taught in public elementary and secondary schools in 
  2.13  this state.  Equipment expenses qualifying for deduction 
  2.14  includes expenses as defined and limited in section 290.0674, 
  2.15  subdivision 1, clause (3).  "Textbooks" does not include 
  2.16  instructional books and materials used in the teaching of 
  2.17  religious tenets, doctrines, or worship, the purpose of which is 
  2.18  to instill such tenets, doctrines, or worship, nor does it 
  2.19  include books or materials for, or transportation to, 
  2.20  extracurricular activities including sporting events, musical or 
  2.21  dramatic events, speech activities, driver's education, or 
  2.22  similar programs.  For purposes of the subtraction provided by 
  2.23  this clause, "qualifying child" has the meaning given in section 
  2.24  32(c)(3) of the Internal Revenue Code; 
  2.25     (4) contributions made in taxable years beginning after 
  2.26  December 31, 1981, and before January 1, 1985, to a qualified 
  2.27  governmental pension plan, an individual retirement account, 
  2.28  simplified employee pension, or qualified plan covering a 
  2.29  self-employed person that were included in Minnesota gross 
  2.30  income in the taxable year for which the contributions were made 
  2.31  but were deducted or were not included in the computation of 
  2.32  federal adjusted gross income, less any amount allowed to be 
  2.33  subtracted as a distribution under this subdivision or a 
  2.34  predecessor provision in taxable years that began before January 
  2.35  1, 2000.  This subtraction applies only for taxable years 
  2.36  beginning after December 31, 1999, and before January 1, 2001.  
  3.1   If an individual's subtraction under this clause exceeds the 
  3.2   individual's taxable income, the excess may be carried forward 
  3.3   to taxable years beginning after December 31, 2000, and before 
  3.4   January 1, 2002; 
  3.5      (5) income as provided under section 290.0802; 
  3.6      (6) the amount of unrecovered accelerated cost recovery 
  3.7   system deductions allowed under subdivision 19g; 
  3.8      (7) to the extent included in federal adjusted gross 
  3.9   income, income realized on disposition of property exempt from 
  3.10  tax under section 290.491; 
  3.11     (8) to the extent not deducted in determining federal 
  3.12  taxable income or used to claim the long-term care insurance 
  3.13  credit under section 290.0672, the amount paid for health 
  3.14  insurance of self-employed individuals as determined under 
  3.15  section 162(l) of the Internal Revenue Code, except that the 
  3.16  percent limit does not apply.  If the individual deducted 
  3.17  insurance payments under section 213 of the Internal Revenue 
  3.18  Code of 1986, the subtraction under this clause must be reduced 
  3.19  by the lesser of: 
  3.20     (i) the total itemized deductions allowed under section 
  3.21  63(d) of the Internal Revenue Code, less state, local, and 
  3.22  foreign income taxes deductible under section 164 of the 
  3.23  Internal Revenue Code and the standard deduction under section 
  3.24  63(c) of the Internal Revenue Code; or 
  3.25     (ii) the lesser of (A) the amount of insurance qualifying 
  3.26  as "medical care" under section 213(d) of the Internal Revenue 
  3.27  Code to the extent not deducted under section 162(1) of the 
  3.28  Internal Revenue Code or excluded from income or (B) the total 
  3.29  amount deductible for medical care under section 213(a); 
  3.30     (9) the exemption amount allowed under Laws 1995, chapter 
  3.31  255, article 3, section 2, subdivision 3; 
  3.32     (10) to the extent included in federal taxable income, 
  3.33  postservice benefits for youth community service under section 
  3.34  124D.42 for volunteer service under United States Code, title 
  3.35  42, sections 12601 to 12604; 
  3.36     (11) to the extent not deducted in determining federal 
  4.1   taxable income by an individual who does not itemize deductions 
  4.2   for federal income tax purposes for the taxable year, an amount 
  4.3   equal to 50 percent of the excess of charitable contributions 
  4.4   allowable as a deduction for the taxable year under section 
  4.5   170(a) of the Internal Revenue Code over $500; 
  4.6      (12) to the extent included in federal taxable income, 
  4.7   holocaust victims' settlement payments for any injury incurred 
  4.8   as a result of the holocaust, if received by an individual who 
  4.9   was persecuted for racial or religious reasons by Nazi Germany 
  4.10  or any other Axis regime or an heir of such a person; and 
  4.11     (13) for taxable years beginning before January 1, 2008, 
  4.12  the amount of the federal small ethanol producer credit allowed 
  4.13  under section 40(a)(3) of the Internal Revenue Code which is 
  4.14  included in gross income under section 87 of the Internal 
  4.15  Revenue Code.; 
  4.16     (14) for taxable years beginning after December 31, 2000, 
  4.17  and before January 1, 2004, an amount equal to $1,000 for each 
  4.18  of the taxpayer's personal and dependent exemptions, as defined 
  4.19  in sections 151 and 152 of the Internal Revenue Code, and 
  4.20  allowed on the taxpayer's federal income tax return for the tax 
  4.21  year; and 
  4.22     (15) for taxable years beginning after December 31, 2003, 
  4.23  an amount equal to $2,200 for each of the taxpayer's personal 
  4.24  and dependent exemptions, as defined in sections 151 and 152 of 
  4.25  the Internal Revenue Code, and allowed on the taxpayer's federal 
  4.26  income tax return.  Beginning with the 2005 taxable year, the 
  4.27  amount of the subtraction for each personal and dependent 
  4.28  exemption must be adjusted for inflation by the commissioner of 
  4.29  revenue in the manner provided in section 290.06, subdivision 2d.
  4.30     <b>[EFFECTIVE DATE.]</b> This section is effective for taxable 
  4.31  years beginning after December 31, 2000. 
  4.32     Sec. 2.  Minnesota Statutes 2000, section 290.06, 
  4.33  subdivision 2c, is amended to read: 
  4.34     Subd. 2c.  [SCHEDULES OF RATES FOR INDIVIDUALS, ESTATES, 
  4.35  AND TRUSTS.] (a) The income taxes imposed by this chapter upon 
  4.36  married individuals filing joint returns and surviving spouses 
  5.1   as defined in section 2(a) of the Internal Revenue Code must be 
  5.2   computed by applying to their taxable net income the following 
  5.3   schedule of rates: 
  5.4      (1) On the first $25,680, 5.35 5.25 percent; 
  5.5      (2) On all over $25,680, but not over $102,030, 7.05 6.95 
  5.6   percent; 
  5.7      (3) On all over $102,030, 7.85 7.75 percent. 
  5.8      Married individuals filing separate returns, estates, and 
  5.9   trusts must compute their income tax by applying the above rates 
  5.10  to their taxable income, except that the income brackets will be 
  5.11  one-half of the above amounts.  
  5.12     (b) The income taxes imposed by this chapter upon unmarried 
  5.13  individuals must be computed by applying to taxable net income 
  5.14  the following schedule of rates: 
  5.15     (1) On the first $17,570, 5.35 5.25 percent; 
  5.16     (2) On all over $17,570, but not over $57,710, 7.05 6.95 
  5.17  percent; 
  5.18     (3) On all over $57,710, 7.85 7.75 percent. 
  5.19     (c) The income taxes imposed by this chapter upon unmarried 
  5.20  individuals qualifying as a head of household as defined in 
  5.21  section 2(b) of the Internal Revenue Code must be computed by 
  5.22  applying to taxable net income the following schedule of rates: 
  5.23     (1) On the first $21,630, 5.35 5.25 percent; 
  5.24     (2) On all over $21,630, but not over $86,910, 7.05 6.95 
  5.25  percent; 
  5.26     (3) On all over $86,910, 7.85 7.75 percent. 
  5.27  For tax years beginning after December 31, 2003, all of the 
  5.28  percentage rates in this section are reduced by four-tenths of 
  5.29  one percent. 
  5.30     (d) In lieu of a tax computed according to the rates set 
  5.31  forth in this subdivision, the tax of any individual taxpayer 
  5.32  whose taxable net income for the taxable year is less than an 
  5.33  amount determined by the commissioner must be computed in 
  5.34  accordance with tables prepared and issued by the commissioner 
  5.35  of revenue based on income brackets of not more than $100.  The 
  5.36  amount of tax for each bracket shall be computed at the rates 
  6.1   set forth in this subdivision, provided that the commissioner 
  6.2   may disregard a fractional part of a dollar unless it amounts to 
  6.3   50 cents or more, in which case it may be increased to $1. 
  6.4      (e) An individual who is not a Minnesota resident for the 
  6.5   entire year must compute the individual's Minnesota income tax 
  6.6   as provided in this subdivision.  After the application of the 
  6.7   nonrefundable credits provided in this chapter, the tax 
  6.8   liability must then be multiplied by a fraction in which:  
  6.9      (1) the numerator is the individual's Minnesota source 
  6.10  federal adjusted gross income as defined in section 62 of the 
  6.11  Internal Revenue Code and increased by the additions required 
  6.12  under section 290.01, subdivision 19a, clauses (1) and (6), 
  6.13  after applying the allocation and assignability provisions of 
  6.14  section 290.081, clause (a), or 290.17; and 
  6.15     (2) the denominator is the individual's federal adjusted 
  6.16  gross income as defined in section 62 of the Internal Revenue 
  6.17  Code of 1986, increased by the amounts specified in section 
  6.18  290.01, subdivision 19a, clauses (1) and (6), and reduced by the 
  6.19  amounts specified in section 290.01, subdivision 19b, clause (1).
  6.20     <b>[EFFECTIVE DATE.]</b> This section is effective for tax years 
  6.21  beginning after December 31, 2000. 
  6.22     Sec. 3.  Minnesota Statutes 2000, section 290.091, 
  6.23  subdivision 1, is amended to read: 
  6.24     Subdivision 1.  [IMPOSITION OF TAX.] In addition to all 
  6.25  other taxes imposed by this chapter a tax is imposed on 
  6.26  individuals, estates, and trusts equal to the excess (if any) of 
  6.27     (a) an amount equal to 6.4 6.3 percent of alternative 
  6.28  minimum taxable income after subtracting the exemption amount, 
  6.29  over 
  6.30     (b) the regular tax for the taxable year. 
  6.31  For tax years beginning after December 31, 2003, the percentage 
  6.32  rate in this section is reduced by four-tenths of one percent. 
  6.33     <b>[EFFECTIVE DATE.]</b> This section is effective for tax years 
  6.34  beginning after December 31, 2000. 
  6.35     Sec. 4.  Minnesota Statutes 2000, section 290.091, 
  6.36  subdivision 2, is amended to read: 
  7.1      Subd. 2.  [DEFINITIONS.] For purposes of the tax imposed by 
  7.2   this section, the following terms have the meanings given: 
  7.3      (a) "Alternative minimum taxable income" means the sum of 
  7.4   the following for the taxable year: 
  7.5      (1) the taxpayer's federal alternative minimum taxable 
  7.6   income as defined in section 55(b)(2) of the Internal Revenue 
  7.7   Code; 
  7.8      (2) the taxpayer's itemized deductions allowed in computing 
  7.9   federal alternative minimum taxable income, but excluding: 
  7.10     (i) the Minnesota charitable contribution deduction; 
  7.11     (ii) the medical expense deduction; 
  7.12     (iii) the casualty, theft, and disaster loss deduction; 
  7.13     (iv) the impairment-related work expenses of a disabled 
  7.14  person; and 
  7.15     (v) holocaust victims' settlement payments to the extent 
  7.16  allowed under section 290.01, subdivision 19b; 
  7.17     (3) for depletion allowances computed under section 613A(c) 
  7.18  of the Internal Revenue Code, with respect to each property (as 
  7.19  defined in section 614 of the Internal Revenue Code), to the 
  7.20  extent not included in federal alternative minimum taxable 
  7.21  income, the excess of the deduction for depletion allowable 
  7.22  under section 611 of the Internal Revenue Code for the taxable 
  7.23  year over the adjusted basis of the property at the end of the 
  7.24  taxable year (determined without regard to the depletion 
  7.25  deduction for the taxable year); 
  7.26     (4) to the extent not included in federal alternative 
  7.27  minimum taxable income, the amount of the tax preference for 
  7.28  intangible drilling cost under section 57(a)(2) of the Internal 
  7.29  Revenue Code determined without regard to subparagraph (E); and 
  7.30     (5) to the extent not included in federal alternative 
  7.31  minimum taxable income, the amount of interest income as 
  7.32  provided by section 290.01, subdivision 19a, clause (1); 
  7.33     less the sum of the amounts determined under the following: 
  7.34     (1) interest income as defined in section 290.01, 
  7.35  subdivision 19b, clause (1); 
  7.36     (2) an overpayment of state income tax as provided by 
  8.1   section 290.01, subdivision 19b, clause (2), to the extent 
  8.2   included in federal alternative minimum taxable income; 
  8.3      (3) the amount of investment interest paid or accrued 
  8.4   within the taxable year on indebtedness to the extent that the 
  8.5   amount does not exceed net investment income, as defined in 
  8.6   section 163(d)(4) of the Internal Revenue Code.  Interest does 
  8.7   not include amounts deducted in computing federal adjusted gross 
  8.8   income; and 
  8.9      (4) amounts subtracted from federal taxable income as 
  8.10  provided by section 290.01, subdivision 19b, clauses (4) and (6).
  8.11     In the case of an estate or trust, alternative minimum 
  8.12  taxable income must be computed as provided in section 59(c) of 
  8.13  the Internal Revenue Code. 
  8.14     (b) "Investment interest" means investment interest as 
  8.15  defined in section 163(d)(3) of the Internal Revenue Code. 
  8.16     (c) "Tentative minimum tax" equals 6.4 6.3 percent of 
  8.17  alternative minimum taxable income after subtracting the 
  8.18  exemption amount determined under subdivision 3.  For tax years 
  8.19  beginning after December 31, 2003, the percentage rate in this 
  8.20  clause is reduced by four-tenths of one percent.  
  8.21     (d) "Regular tax" means the tax that would be imposed under 
  8.22  this chapter (without regard to this section and section 
  8.23  290.032), reduced by the sum of the nonrefundable credits 
  8.24  allowed under this chapter.  
  8.25     (e) "Net minimum tax" means the minimum tax imposed by this 
  8.26  section. 
  8.27     (f) "Minnesota charitable contribution deduction" means a 
  8.28  charitable contribution deduction under section 170 of the 
  8.29  Internal Revenue Code to or for the use of an entity described 
  8.30  in section 290.21, subdivision 3, clauses (a) to (e).  When the 
  8.31  federal deduction for charitable contributions is limited under 
  8.32  section 170(b) of the Internal Revenue Code, the allowable 
  8.33  contributions in the year of contribution are deemed to be first 
  8.34  contributions to entities described in section 290.21, 
  8.35  subdivision 3, clauses (a) to (e). 
  8.36     <b>[EFFECTIVE DATE.]</b> This section is effective for tax years 
  9.1   beginning after December 31, 2000. 
  9.2      Sec. 5.  Minnesota Statutes 2000, section 290.091, 
  9.3   subdivision 6, is amended to read: 
  9.4      Subd. 6.  [CREDIT FOR PRIOR YEARS' LIABILITY.] (a) A credit 
  9.5   is allowed against the tax imposed by this chapter on 
  9.6   individuals, trusts, and estates equal to the minimum tax credit 
  9.7   for the taxable year.  The minimum tax credit equals the 
  9.8   adjusted net minimum tax for taxable years beginning after 
  9.9   December 31, 1988, reduced by the minimum tax credits allowed in 
  9.10  a prior taxable year.  The credit may not exceed the excess (if 
  9.11  any) for the taxable year of 
  9.12     (1) the regular tax, over 
  9.13     (2) the greater of (i) the tentative alternative minimum 
  9.14  tax, or (ii) zero. 
  9.15     (b) The adjusted net minimum tax for a taxable year equals 
  9.16  the lesser of the net minimum tax or the excess (if any) of 
  9.17     (1) the tentative minimum tax, over 
  9.18     (2) 6.4 6.3 percent of the sum of 
  9.19     (i) adjusted gross income as defined in section 62 of the 
  9.20  Internal Revenue Code, 
  9.21     (ii) interest income as defined in section 290.01, 
  9.22  subdivision 19a, clause (1), 
  9.23     (iii) interest on specified private activity bonds, as 
  9.24  defined in section 57(a)(5) of the Internal Revenue Code, to the 
  9.25  extent not included under clause (ii), 
  9.26     (iv) depletion as defined in section 57(a)(1), determined 
  9.27  without regard to the last sentence of paragraph (1), of the 
  9.28  Internal Revenue Code, less 
  9.29     (v) the deductions allowed in computing alternative minimum 
  9.30  taxable income provided in subdivision 2, paragraph (a), clause 
  9.31  (2) of the first series of clauses and clauses (1), (2), and (3) 
  9.32  of the second series of clauses, and 
  9.33     (vi) the exemption amount determined under subdivision 3. 
  9.34     In the case of an individual who is not a Minnesota 
  9.35  resident for the entire year, adjusted net minimum tax must be 
  9.36  multiplied by the fraction defined in section 290.06, 
 10.1   subdivision 2c, paragraph (e).  In the case of a trust or 
 10.2   estate, adjusted net minimum tax must be multiplied by the 
 10.3   fraction defined under subdivision 4, paragraph (b). 
 10.4   For tax years beginning after December 31, 2003, the percentage 
 10.5   rate in this section is reduced by four-tenths of one percent. 
 10.6      <b>[EFFECTIVE DATE.]</b> This section is effective for tax years 
 10.7   beginning after December 31, 2000.