1.1 	A bill for an act
1.2 	relating to taxes; individual income; disallowing the
1.3 	deduction of wagering losses; amending Minnesota
1.4 	Statutes 2004, section 290.01, subdivision 19a, as
1.5 	amended.
1.6 	BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:

1.7 	Section 1. Minnesota Statutes 2004, section 290.01,
1.8 	subdivision 19a, as amended by Laws 2005, chapter 151, article
1.9 	6, section 12, is amended to read:
1.10 		Subd. 19a.Additions to federal taxable income. For
1.11 	individuals, estates, and trusts, there shall be added to
1.12 	federal taxable income:
1.13 	(1)(i) interest income on obligations of any state other
1.14 	than Minnesota or a political or governmental subdivision,
1.15 	municipality, or governmental agency or instrumentality of any
1.16 	state other than Minnesota exempt from federal income taxes
1.17 	under the Internal Revenue Code or any other federal statute;
1.18 	and
1.19 	(ii) exempt-interest dividends as defined in section
1.20 	852(b)(5) of the Internal Revenue Code, except the portion of
1.21 	the exempt-interest dividends derived from interest income on
1.22 	obligations of the state of Minnesota or its political or
1.23 	governmental subdivisions, municipalities, governmental agencies
1.24 	or instrumentalities, but only if the portion of the
1.25 	exempt-interest dividends from such Minnesota sources paid to
2.1 	all shareholders represents 95 percent or more of the
2.2 	exempt-interest dividends that are paid by the regulated
2.3 	investment company as defined in section 851(a) of the Internal
2.4 	Revenue Code, or the fund of the regulated investment company as
2.5 	defined in section 851(g) of the Internal Revenue Code, making
2.6 	the payment; and
2.7 	(iii) for the purposes of items (i) and (ii), interest on
2.8 	obligations of an Indian tribal government described in section
2.9 	7871(c) of the Internal Revenue Code shall be treated as
2.10 	interest income on obligations of the state in which the tribe
2.11 	is located;
2.12 	(2) the amount of income taxes paid or accrued within the
2.13 	taxable year under this chapter and the amount of taxes based on
2.14 	net income paid to any other state or to any province or
2.15 	territory of Canada, to the extent allowed as a deduction under
2.16 	section 63(d) of the Internal Revenue Code, but the addition may
2.17 	not be more than the amount by which the itemized deductions as
2.18 	allowed under section 63(d) of the Internal Revenue Code exceeds
2.19 	the amount of the standard deduction as defined in section 63(c)
2.20 	of the Internal Revenue Code.  For the purpose of this
2.21 	paragraph, the disallowance of itemized deductions under section
2.22 	68 of the Internal Revenue Code of 1986, income tax is the last
2.23 	itemized deduction disallowed;
2.24 	(3) the capital gain amount of a lump sum distribution to
2.25 	which the special tax under section 1122(h)(3)(B)(ii) of the Tax
2.26 	Reform Act of 1986, Public Law 99-514, applies;
2.27 	(4) the amount of income taxes paid or accrued within the
2.28 	taxable year under this chapter and taxes based on net income
2.29 	paid to any other state or any province or territory of Canada,
2.30 	to the extent allowed as a deduction in determining federal
2.31 	adjusted gross income.  For the purpose of this paragraph,
2.32 	income taxes do not include the taxes imposed by sections
2.33 	290.0922, subdivision 1, paragraph (b), 290.9727, 290.9728, and
2.34 	290.9729;
2.35 	(5) the amount of expense, interest, or taxes disallowed
2.36 	pursuant to section 290.10 other than expenses or interest used
3.1 	in computing net interest income for the subtraction allowed
3.2 	under subdivision 19b, clause (1);
3.3 	(6) the amount of a partner's pro rata share of net income
3.4 	which does not flow through to the partner because the
3.5 	partnership elected to pay the tax on the income under section
3.6 	6242(a)(2) of the Internal Revenue Code; and 
3.7 	(7) 80 percent of the depreciation deduction allowed under
3.8 	section 168(k) of the Internal Revenue Code.  For purposes of
3.9 	this clause, if the taxpayer has an activity that in the taxable
3.10 	year generates a deduction for depreciation under section 168(k)
3.11 	and the activity generates a loss for the taxable year that the
3.12 	taxpayer is not allowed to claim for the taxable year, "the
3.13 	depreciation allowed under section 168(k)" for the taxable year
3.14 	is limited to excess of the depreciation claimed by the activity
3.15 	under section 168(k) over the amount of the loss from the
3.16 	activity that is not allowed in the taxable year.  In succeeding
3.17 	taxable years when the losses not allowed in the taxable year
3.18 	are allowed, the depreciation under section 168(k) is allowed;
3.19 	and 
3.20 	(8) to the extent allowed as a deduction in determining
3.21 	federal taxable income, the deduction for wagering losses
3.22 	allowed under section 165(d) of the Internal Revenue Code.
3.23 	
EFFECTIVE DATE. This section is effective for taxable
3.24 	years beginning after December 31, 2004.