1.1 	A bill for an act
1.2 	relating to taxation; income; allowing a credit for
1.3 	contributions to school tuition organizations;
1.4 	amending Minnesota Statutes 2004, section 290.01,
1.5 	subdivisions 19a, 19b; proposing coding for new law in
1.6 	Minnesota Statutes, chapter 290.
1.7 	BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:

1.8 	Section 1. Minnesota Statutes 2004, section 290.01,
1.9 	subdivision 19a, 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
1.26 	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 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 expense, interest, or taxes disallowed
2.34 	pursuant to section 290.10;
2.35 	(6) the amount of a partner's pro rata share of net income
2.36 	which does not flow through to the partner because the
3.1 	partnership elected to pay the tax on the income under section
3.2 	6242(a)(2) of the Internal Revenue Code; and 
3.3 	(7) 80 percent of the depreciation deduction allowed under
3.4 	section 168(k) of the Internal Revenue Code.  For purposes of
3.5 	this clause, if the taxpayer has an activity that in the taxable
3.6 	year generates a deduction for depreciation under section 168(k)
3.7 	and the activity generates a loss for the taxable year that the
3.8 	taxpayer is not allowed to claim for the taxable year, "the
3.9 	depreciation allowed under section 168(k)" for the taxable year
3.10 	is limited to excess of the depreciation claimed by the activity
3.11 	under section 168(k) over the amount of the loss from the
3.12 	activity that is not allowed in the taxable year.  In succeeding
3.13 	taxable years when the losses not allowed in the taxable year
3.14 	are allowed, the depreciation under section 168(k) is allowed;
3.15 	and 
3.16 	(8) the amount of the deduction under section 170 of the
3.17 	Internal Revenue Code that represents contributions to a school
3.18 	tuition organization for which a credit is claimed under section
3.19 	290.0676.

3.20 	Sec. 2. Minnesota Statutes 2004, section 290.01,
3.21 	subdivision 19b, is amended to read:
3.22 		Subd. 19b.Subtractions from federal taxable income.  For
3.23 	individuals, estates, and trusts, there shall be subtracted from
3.24 	federal taxable income:
3.25 	(1) interest income on obligations of any authority,
3.26 	commission, or instrumentality of the United States to the
3.27 	extent includable in taxable income for federal income tax
3.28 	purposes but exempt from state income tax under the laws of the
3.29 	United States;
3.30 	(2) if included in federal taxable income, the amount of
3.31 	any overpayment of income tax to Minnesota or to any other
3.32 	state, for any previous taxable year, whether the amount is
3.33 	received as a refund or as a credit to another taxable year's
3.34 	income tax liability;
3.35 	(3) the amount paid to others, less the amount used to
3.36 	claim the credit allowed under section 290.0674, not to exceed
4.1 	$1,625 for each qualifying child in grades kindergarten to 6 and
4.2 	$2,500 for each qualifying child in grades 7 to 12, for tuition,
4.3 	textbooks, and transportation of each qualifying child in
4.4 	attending an elementary or secondary school situated in
4.5 	Minnesota, North Dakota, South Dakota, Iowa, or Wisconsin,
4.6 	wherein a resident of this state may legally fulfill the state's
4.7 	compulsory attendance laws, which is not operated for profit,
4.8 	and which adheres to the provisions of the Civil Rights Act of
4.9 	1964 and chapter 363A.  For the purposes of this clause,
4.10 	"tuition" includes fees or tuition as defined in section
4.11 	290.0674, subdivision 1, clause (1).  As used in this clause,
4.12 	"textbooks" includes books and other instructional materials and
4.13 	equipment purchased or leased for use in elementary and
4.14 	secondary schools in teaching only those subjects legally and
4.15 	commonly taught in public elementary and secondary schools in
4.16 	this state.  Equipment expenses qualifying for deduction
4.17 	includes expenses as defined and limited in section 290.0674,
4.18 	subdivision 1, clause (3).  "Textbooks" does not include
4.19 	instructional books and materials used in the teaching of
4.20 	religious tenets, doctrines, or worship, the purpose of which is
4.21 	to instill such tenets, doctrines, or worship, nor does it
4.22 	include books or materials for, or transportation to,
4.23 	extracurricular activities including sporting events, musical or
4.24 	dramatic events, speech activities, driver's education, or
4.25 	similar programs.  For purposes of the subtraction provided by
4.26 	this clause, "qualifying child" has the meaning given in section
4.27 	32(c)(3) of the Internal Revenue Code;
4.28 	(4) income as provided under section 290.0802;
4.29 	(5) to the extent included in federal adjusted gross
4.30 	income, income realized on disposition of property exempt from
4.31 	tax under section 290.491;
4.32 	(6) to the extent included in federal taxable income,
4.33 	postservice benefits for youth community service under section
4.34 	124D.42 for volunteer service under United States Code, title
4.35 	42, sections 12601 to 12604;
4.36 	(7) to the extent not deducted in determining federal
5.1 	taxable income by an individual who does not itemize deductions
5.2 	for federal income tax purposes for the taxable year, an amount
5.3 	equal to 50 percent of the excess of charitable contributions
5.4 	allowable as a deduction for the taxable year under section
5.5 	170(a) of the Internal Revenue Code over $500, but excluding
5.6 	contributions to a school tuition organization in excess of $500
5.7 	that are used to claim the credit allowed in section 290.0676;
5.8 	(8) for taxable years beginning before January 1, 2008, the
5.9 	amount of the federal small ethanol producer credit allowed
5.10 	under section 40(a)(3) of the Internal Revenue Code which is
5.11 	included in gross income under section 87 of the Internal
5.12 	Revenue Code;
5.13 	(9) for individuals who are allowed a federal foreign tax
5.14 	credit for taxes that do not qualify for a credit under section
5.15 	290.06, subdivision 22, an amount equal to the carryover of
5.16 	subnational foreign taxes for the taxable year, but not to
5.17 	exceed the total subnational foreign taxes reported in claiming
5.18 	the foreign tax credit.  For purposes of this clause, "federal
5.19 	foreign tax credit" means the credit allowed under section 27 of
5.20 	the Internal Revenue Code, and "carryover of subnational foreign
5.21 	taxes" equals the carryover allowed under section 904(c) of the
5.22 	Internal Revenue Code minus national level foreign taxes to the
5.23 	extent they exceed the federal foreign tax credit;
5.24 	(10) in each of the five tax years immediately following
5.25 	the tax year in which an addition is required under subdivision
5.26 	19a, clause (7), an amount equal to one-fifth of the delayed
5.27 	depreciation.  For purposes of this clause, "delayed
5.28 	depreciation" means the amount of the addition made by the
5.29 	taxpayer under subdivision 19a, clause (7), minus the positive
5.30 	value of any net operating loss under section 172 of the
5.31 	Internal Revenue Code generated for the tax year of the
5.32 	addition.  The resulting delayed depreciation cannot be less
5.33 	than zero; and
5.34 	(11) job opportunity building zone income as provided under
5.35 	section 469.316.

5.36 	Sec. 3. [290.0676] CREDIT FOR CONTRIBUTIONS TO SCHOOL
6.1 	TUITION ORGANIZATIONS.
6.2 		Subdivision 1.Definitions. (a) For purposes of this
6.3 	section, the following terms have the meanings given.
6.4 	(b) "School tuition organization" means a charitable
6.5 	nonprofit organization that is exempt from federal taxation
6.6 	under section 501(c)(3) of the Internal Revenue Code, maintains
6.7 	funds separate from funding for other activities for the
6.8 	distinct purpose of providing tuition assistance to low-income
6.9 	students in kindergarten through grade 12, and certified by the
6.10 	commissioner of education as meeting the criteria of this
6.11 	section.  The commissioner of education must maintain a list of
6.12 	school tuition organizations, and make the list available on the
6.13 	Department of Education's Web site and by other means.  To
6.14 	qualify as a school tuition organization, the charitable
6.15 	organization:
6.16 	(1) must allocate at least 85 percent of its annual revenue
6.17 	for education scholarships or tuition grants to children to
6.18 	allow them to attend any qualified school of their parents'
6.19 	choosing, of which not more than 25 percent of the annual dollar
6.20 	amount of education scholarships or tuition grants may be
6.21 	awarded to children who were enrolled in a nonpublic school when
6.22 	they first applied for an education scholarship or tuition
6.23 	grant;
6.24 	(2) may only award scholarships or grants to students from
6.25 	families with incomes less than 75 percent of the statewide
6.26 	median family income for their family size;
6.27 	(3) must not restrict the availability of scholarships or
6.28 	grants to students of one single school; and 
6.29 	(4) may not charge a fee of any kind to students or parents
6.30 	of students under consideration for a scholarship or grant.
6.31 	(c) "Statewide median family income" means median income
6.32 	determined by the commissioner for the calendar year preceding
6.33 	the beginning of the school year for which the scholarships or
6.34 	grants are made.
6.35 	(d) "Liability for tax" means the tax imposed under this
6.36 	chapter for the taxable year reduced by the sum of the
7.1 	nonrefundable credits allowed under this chapter.
7.2 	(e) "Qualified school" means a kindergarten, elementary, or
7.3 	secondary school, wherein a resident of this state may legally
7.4 	fulfill the state's compulsory attendance laws, and which is not
7.5 	operated for profit.
7.6 		Subd. 2.Credit allowed. An individual is allowed a
7.7 	credit against the tax due under this chapter equal to 50
7.8 	percent of the amount contributed to a school tuition
7.9 	organization.  The maximum credit allowed in a taxable year is
7.10 	the lesser of $1,000 or the individual's liability for tax for
7.11 	the taxable year.  The credit may not be claimed for
7.12 	contributions designated for the use of a specific student.
7.13 		Subd. 3.Nonresidents and part-year residents. For a
7.14 	nonresident or part-year resident, the credit must be allocated
7.15 	based on the percentage calculated under section 290.06,
7.16 	subdivision 2c, paragraph (e).
7.17 	
EFFECTIVE DATE. This section is effective for taxable
7.18 	years beginning after December 31, 2005.