HF 63

as introduced - 89th Legislature (2015 - 2016) Posted on 02/06/2015 08:13am

A bill for an act
relating to taxation; individual income; providing for a maximum rate of 7.85
percent on active trade or business income; amending Minnesota Statutes 2014,
sections 290.06, subdivision 2c; 290.0675, subdivisions 1, 3.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:

Section 1.

Minnesota Statutes 2014, section 290.06, subdivision 2c, is amended to read:

Subd. 2c.

Schedules of rates for individuals, estates, and trusts.

(a) The income
taxes imposed by this chapter upon married individuals filing joint returns and surviving
spouses as defined in section 2(a) of the Internal Revenue Code must be computed by
applying to their taxable net income the following schedule of rates:

(1) On the first $35,480, 5.35 percent;

(2) On all over $35,480, but not over $140,960, 7.05 percent;

(3) On all over $140,960, deleted text begin but not over $250,000, deleted text end 7.85 percent;

(4) deleted text begin On all over $250,000, 9.85 percent deleted text end new text begin By applying the rate of 2.0 percent to the
amount of taxable net income, after subtracting active trade or business income, over
$250,000 new text end .

Married individuals filing separate returns, estates, and trusts must compute their
income tax by applying the above rates to their taxable income, except that the income
brackets will be one-half of the above amounts.

(b) The income taxes imposed by this chapter upon unmarried individuals must be
computed by applying to taxable net income the following schedule of rates:

(1) On the first $24,270, 5.35 percent;

(2) On all over $24,270, but not over $79,730, 7.05 percent;

(3) On all over $79,730, deleted text begin but not over $150,000, deleted text end 7.85 percent;

(4) deleted text begin On all over $150,000, 9.85 percent deleted text end new text begin By applying the rate of 2.0 percent to the
amount of taxable net income, after subtracting active trade or business income, over
$150,000 new text end .

(c) The income taxes imposed by this chapter upon unmarried individuals qualifying
as a head of household as defined in section 2(b) of the Internal Revenue Code must be
computed by applying to taxable net income the following schedule of rates:

(1) On the first $29,880, 5.35 percent;

(2) On all over $29,880, but not over $120,070, 7.05 percent;

(3) On all over $120,070, deleted text begin but not over $200,000, deleted text end 7.85 percent;

(4) deleted text begin On all over $200,000, 9.85 percent deleted text end new text begin By applying the rate of 2.0 percent to the
amount of taxable net income, after subtracting active trade or business income, over
$200,000 new text end .

(d) In lieu of a tax computed according to the rates set forth in this subdivision, the
tax of any individual taxpayer whose taxable net income for the taxable year is less than
an amount determined by the commissioner must be computed in accordance with tables
prepared and issued by the commissioner of revenue based on income brackets of not
more than $100. The amount of tax for each bracket shall be computed at the rates set
forth in this subdivision, provided that the commissioner may disregard a fractional part of
a dollar unless it amounts to 50 cents or more, in which case it may be increased to $1.

(e) An individual who is not a Minnesota resident for the entire year must compute
the individual's Minnesota income tax as provided in this subdivision. After the
application of the nonrefundable credits provided in this chapter, the tax liability must
then be multiplied by a fraction in which:

(1) the numerator is the individual's Minnesota source federal adjusted gross income
as defined in section 62 of the Internal Revenue Code and increased by the additions
required under section 290.01, subdivision 19a, clauses (1), (5), (6), (7), (8), (9), and (11)
to (14), and reduced by the Minnesota assignable portion of the subtraction for United
States government interest under section 290.01, subdivision 19b, clause (1), and the
subtractions under section 290.01, subdivision 19b, clauses (8), (9), (13), (14), (16),
and (17), after applying the allocation and assignability provisions of section 290.081,
clause (a), or 290.17; and

(2) the denominator is the individual's federal adjusted gross income as defined in
section 62 of the Internal Revenue Code of 1986, increased by the amounts specified in
section 290.01, subdivision 19a, clauses (1), (5), (6), (7), (8), (9), and (11) to (14), and
reduced by the amounts specified in section 290.01, subdivision 19b, clauses (1), (8), (9),
(13), (14), (16), and (17).

new text begin (f) For purposes of this subdivision, "active trade or business income" means income
derived in the ordinary course of a trade or business, other than income from: (1) a trade or
business that is a passive activity with respect to the taxpayer, as defined in section 469 of
the Internal Revenue Code; or (2) a trade or business of trading in financial instruments or
commodities, as defined in section 475(e)(2) of the Internal Revenue Code. Active trade or
business income also includes net gain or loss on disposition of certain active interests in
partnerships and S corporations, as defined in section 1411(c)(4) of the Internal Revenue
Code. Active trade or business income may not exceed the amount of such income that is
exempt from taxation under section 1411 of the Internal Revenue Code, disregarding the
income threshold amounts in section 1411(b) of the Internal Revenue Code.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxable years beginning after
December 31, 2014.
new text end

Sec. 2.

Minnesota Statutes 2014, section 290.0675, subdivision 1, is amended to read:

Subdivision 1.

Definitions.

(a) For purposes of this section the following terms
have the meanings given.

(b) "Earned income" means the sum of the following, to the extent included in
Minnesota taxable income:

(1) earned income as defined in section 32(c)(2) of the Internal Revenue Code;

(2) income received from a retirement pension, profit-sharing, stock bonus, or
annuity plan; and

(3) Social Security benefits as defined in section 86(d)(1) of the Internal Revenue
Code.

(c) "Taxable income" means net income as defined in section 290.01, subdivision 19.

(d) "Earned income of lesser-earning spouse" means the earned income of the
spouse with the lesser amount of earned income as defined in paragraph (b) for the taxable
year minus the sum of (i) the amount for one exemption under section 151(d) of the
Internal Revenue Code and (ii) one-half the amount of the standard deduction under
section 63(c)(2)(A) and (4) of the Internal Revenue Code minus one-half of any addition
required under section 290.01, subdivision 19a, clause (17), and one-half of the addition
that would have been required under section 290.01, subdivision 19a, clause (17), if the
taxpayer had claimed the standard deduction.

new text begin (e) "Active trade or business income" has the meaning given in section 290.06,
subdivision 2c.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxable years beginning after
December 31, 2014.
new text end

Sec. 3.

Minnesota Statutes 2014, section 290.0675, subdivision 3, is amended to read:

Subd. 3.

Credit amount.

new text begin (a) new text end The credit amount is the difference between deleted text begin the tax
on the couple's joint Minnesota taxable income under the rates and income levels in
section 290.06, subdivision 2c, paragraph (a), as adjusted for the taxable year by section
290.06, subdivision 2d, and the sum of the tax under the rates and income levels of section
290.06, subdivision 2c, paragraph (b), as adjusted for the taxable year by section 290.06,
subdivision 2d, on the earned income of the lesser-earning spouse, and the tax under the
rates and income levels of section 290.06, subdivision 2c, paragraph (b), as adjusted for
the taxable year by section 290.06, subdivision 2d, on the couple's joint Minnesota taxable
income, minus the earned income of the lesser-earning spouse. deleted text end new text begin :
new text end

new text begin (1) the tax on the couple's joint Minnesota taxable income under the rates and
income levels in section 290.06, subdivision 2c, paragraph (a), as adjusted for the taxable
year by section 290.06, subdivision 2d, after subtracting active trade or business income in
calculating the tax under section 290.06, subdivision 2c, paragraph (a), clause (3); and
new text end

new text begin (2) the sum of:
new text end

new text begin (i) the tax under the rates and income levels of section 290.06, subdivision 2c,
paragraph (b), as adjusted for the taxable year by section 290.06, subdivision 2d, on the
earned income of the lesser-earning spouse, after subtracting any active trade or business
income included in the earned income of the lesser-earning spouse in calculating the tax
under section 290.06, subdivision 2c, paragraph (b), clause (3); and
new text end

new text begin (ii) the tax under the rates and income levels of section 290.06, subdivision 2c,
paragraph (b), as adjusted for the taxable year by section 290.06, subdivision 2d, on the
couple's joint Minnesota taxable income, minus the earned income of the lesser-earning
spouse, after subtracting any active trade or business income not included in the
earned income of the lesser-earning spouse in calculating the tax under section 290.06,
subdivision 2c, paragraph (b), clause (3).
new text end

new text begin (b) new text end The commissioner of revenue shall prepare and make available to taxpayers a
comprehensive table showing the credit under this section at brackets of earnings of the
lesser-earning spouse and joint taxable income. The brackets of earnings shall not be
more than $2,000.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxable years beginning after
December 31, 2014.
new text end