HF 375

1st Engrossment - 80th Legislature (1997 - 1998) Posted on 12/15/2009 12:00am

  1.1                          A bill for an act 
  1.2             relating to education; providing for education 
  1.3             investment; appropriating money; amending Minnesota 
  1.4             Statutes 1996, sections 47.75, subdivision 1; 48.15, 
  1.5             subdivision 4; 290.01, subdivisions 19a and 19b; and 
  1.6             290.091, subdivisions 2 and 6; proposing coding for 
  1.7             new law in Minnesota Statutes, chapters 136A; and 290. 
  1.8   BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
  1.9      Section 1.  Minnesota Statutes 1996, section 47.75, 
  1.10  subdivision 1, is amended to read: 
  1.11     Subdivision 1.  [RETIREMENT AND HIGHER EDUCATION SAVINGS 
  1.12  ACCOUNTS.] A commercial bank, savings bank, savings association, 
  1.13  credit union, or industrial loan and thrift company may act as 
  1.14  trustee or custodian under the Federal Self-Employed Individual 
  1.15  Tax Retirement Act of 1962, as amended, of a higher education 
  1.16  trust account under section 290.0803, and also under the Federal 
  1.17  Employee Retirement Income Security Act of 1974, as amended.  
  1.18  The trustee or custodian may accept the trust funds if the funds 
  1.19  are invested only in savings accounts or time deposits in the 
  1.20  commercial bank, savings bank, savings association, credit 
  1.21  union, or industrial loan and thrift company.  All funds held in 
  1.22  the fiduciary capacity may be commingled by the financial 
  1.23  institution in the conduct of its business, but individual 
  1.24  records shall be maintained by the fiduciary for each 
  1.25  participant and shall show in detail all transactions engaged 
  1.26  under authority of this subdivision.  
  2.1      Sec. 2.  Minnesota Statutes 1996, section 48.15, 
  2.2   subdivision 4, is amended to read: 
  2.3      Subd. 4.  [RETIREMENT AND HIGHER EDUCATION SAVINGS 
  2.4   ACCOUNTS.] A state bank may act as trustee or custodian of a 
  2.5   self-employed retirement plan under the Federal Self-Employed 
  2.6   Individual Tax Retirement Act of 1962, as amended, higher 
  2.7   education trust under section 290.0803, and of an individual 
  2.8   retirement account under the Federal Employee Retirement Income 
  2.9   Security Act of 1974, as amended, if the bank's duties as 
  2.10  trustee or custodian are essentially ministerial or custodial in 
  2.11  nature and the funds are invested only (1) in the bank's own 
  2.12  savings or time deposits; or (2) in any other assets at the 
  2.13  direction of the customer if the bank does not exercise any 
  2.14  investment discretion, invest the funds in collective investment 
  2.15  funds administered by it, or provide any investment advice with 
  2.16  respect to those account assets. 
  2.17     Affiliated discount brokers may be utilized by the bank 
  2.18  acting as trustee or custodian for self-directed IRAs, if 
  2.19  specifically authorized and directed in appropriate documents.  
  2.20  The relationship between the affiliated broker and the bank must 
  2.21  be fully disclosed.  Brokerage commissions to be charged to the 
  2.22  IRA by the affiliated broker should be accurately disclosed.  
  2.23  Provisions should be made for disclosure of any changes in 
  2.24  commission rates prior to their becoming effective.  The 
  2.25  affiliated broker may not provide investment advice to the 
  2.26  customer.  All funds held in the fiduciary capacity may be 
  2.27  commingled by the financial institution in the conduct of its 
  2.28  business, but individual records shall be maintained by the 
  2.29  fiduciary for each participant and shall show in detail all 
  2.30  transactions engaged under authority of this subdivision.  The 
  2.31  authority granted by this section is in addition to, and not 
  2.32  limited by, section 47.75. 
  2.33     Sec. 3.  [136A.1211] [EFFECT OF HIGHER EDUCATION TRUSTS ON 
  2.34  STATE GRANTS.] 
  2.35     The first $25,000 of the amount in a higher education trust 
  2.36  under section 290.0803 must not be considered in determining the 
  3.1   eligibility of an applicant for the state grant program under 
  3.2   section 136A.121, provided that no asset exclusion is given to 
  3.3   the same applicant through the Edvest savings program under 
  3.4   section 136A.90. 
  3.5      Sec. 4.  [136A.90] [EDVEST PROGRAM ESTABLISHED.] 
  3.6      An Edvest savings program is established.  In establishing 
  3.7   this program, the legislature seeks to encourage individuals to 
  3.8   save for post-secondary education by: 
  3.9      (1) providing a qualified state tuition program under 
  3.10  federal tax law; 
  3.11     (2) providing matching grants for contributions to the 
  3.12  program; and 
  3.13     (3) encouraging individuals, foundations, and businesses to 
  3.14  provide additional grants to participating students. 
  3.15     Sec. 5.  [136A.91] [DEFINITIONS.] 
  3.16     Subdivision 1.  [GENERAL.] For purposes of sections 136A.90 
  3.17  to 136A.94, the following terms have the meanings given. 
  3.18     Subd. 2.  [BENEFICIARY.] "Beneficiary" means the designated 
  3.19  beneficiary for the account, as defined in section 529(e)(1) of 
  3.20  the Internal Revenue Code. 
  3.21     Subd. 3.  [BOARD.] "Board" means the state board of 
  3.22  investment. 
  3.23     Subd. 4.  [DIRECTOR.] "Director" means the director of the 
  3.24  higher education services office. 
  3.25     Subd. 5.  [EXECUTIVE DIRECTOR.] "Executive director" means 
  3.26  the executive director of the state board of investment. 
  3.27     Subd. 6.  [HESO OR OFFICE.] "HESO" or "office" means the 
  3.28  higher education services office. 
  3.29     Subd. 7.  [INTERNAL REVENUE CODE.] "Internal Revenue Code" 
  3.30  means the Internal Revenue Code of 1986, as amended. 
  3.31     Subd. 8.  [PROGRAM OR EDVEST.] "Program" or "Edvest" refers 
  3.32  to the program established under section 136A.90. 
  3.33     Sec. 6.  [136A.92] [HESO'S RESPONSIBILITIES.] 
  3.34     Subdivision 1.  [ESTABLISH TERMS.] (a) The director shall 
  3.35  establish the rules, terms, and conditions for the program, 
  3.36  subject to the requirements of sections 136A.90 to 136A.94. 
  4.1      (b) The director shall prescribe the application forms, 
  4.2   procedures, and other requirements that apply to the program. 
  4.3      Subd. 2.  [ACCOUNTS TYPE PROGRAM.] The office must 
  4.4   establish the program and the program must be operated as an 
  4.5   accounts type program that permits individuals to save for 
  4.6   qualified higher education costs incurred at any institution, 
  4.7   regardless of whether it is private or public or whether it is 
  4.8   located within or outside of this state.  A separate account 
  4.9   must be maintained for each beneficiary for whom contributions 
  4.10  are made. 
  4.11     Subd. 3.  [CONSULTATION WITH STATE BOARD OF INVESTMENT.] In 
  4.12  designing and establishing the program's requirements and in 
  4.13  negotiating or entering contracts with third parties under 
  4.14  subdivision 8, the director shall consult with the executive 
  4.15  director. 
  4.16     Subd. 4.  [PROGRAM TO COMPLY WITH FEDERAL LAW.] The 
  4.17  director shall take steps to ensure that the program meets the 
  4.18  requirements for a qualified state tuition program under section 
  4.19  529 of the Internal Revenue Code.  The director may request a 
  4.20  private letter ruling or rulings from the Internal Revenue 
  4.21  Service or take any other steps to ensure that the program 
  4.22  qualifies under section 529 of the Internal Revenue Code or 
  4.23  other relevant provisions of federal law.  
  4.24     Subd. 5.  [MINIMUM PENALTY.] In establishing the terms of 
  4.25  the program, the office must provide that refunds of amounts in 
  4.26  an account are subject to a minimum penalty, as required by 
  4.27  section 529(b)(3) of the Internal Revenue Code.  If the refunds 
  4.28  or payments are not used for qualified higher education expenses 
  4.29  of the designated beneficiary, this penalty must equal, at 
  4.30  least, the proportionate amount of any matching grants deposited 
  4.31  in the account under section 136A.94 and the investment return 
  4.32  on the grants, plus an additional penalty that meets the 
  4.33  requirement of federal law. 
  4.34     Subd. 6.  [THREE-YEAR PERIOD FOR WITHDRAWAL OF GRANTS.] A 
  4.35  matching grant deposited in the account under section 136A.94 
  4.36  may not be withdrawn within three years of the establishment of 
  5.1   the account of the beneficiary.  In calculating the three-year 
  5.2   period, the period held in another account is included, if the 
  5.3   account includes a rollover from another account under section 
  5.4   529(c)(3)(C) of the Internal Revenue Code. 
  5.5      Subd. 7.  [MARKETING.] The director shall make parents and 
  5.6   other interested individuals aware of the availability and 
  5.7   advantages of the program as a way to save for higher education 
  5.8   costs.  The cost of these promotional efforts must be paid 
  5.9   entirely from state general fund appropriations and may not be 
  5.10  funded with fees imposed on participants. 
  5.11     Subd. 8.  [ADMINISTRATION.] The director shall administer 
  5.12  the program, including accepting and processing applications, 
  5.13  maintaining account records, making payments, making matching 
  5.14  grants under section 136A.94, and undertaking any other 
  5.15  necessary tasks to administer the program.  The office may 
  5.16  contract with one or more third parties to carry out some or all 
  5.17  of these administrative duties, including promotion and 
  5.18  marketing of the program.  The office and the board may jointly 
  5.19  contract with third-party providers, if the office and board 
  5.20  determine that it is desirable to contract with the same entity 
  5.21  or entities for administration and investment management. 
  5.22     Subd. 9.  [EFFECT ON STUDENT GRANTS.] The first $25,000 of 
  5.23  the amount in an account under the program must not be 
  5.24  considered in determining the financial aid of an applicant for 
  5.25  the state grant program under section 136A.121, provided that no 
  5.26  asset exclusion is given to the same applicant through a higher 
  5.27  education trust under section 290.0803. 
  5.28     Subd. 10.  [AUTHORITY TO IMPOSE FEES.] The office may 
  5.29  impose fees on participants in the program to recover the costs 
  5.30  of administration.  The office must use its best efforts to keep 
  5.31  these fees as low as possible, consistent with efficient 
  5.32  administration, so that the returns on savings invested in the 
  5.33  program will be as high as possible.  
  5.34     Subd. 11.  [RULEMAKING.] (a) The office may adopt 
  5.35  administrative rules under chapter 14 to carry out the 
  5.36  provisions of sections 136A.90 to 136A.94. 
  6.1      (b) The office may adopt emergency rules under chapter 14.  
  6.2   Any emergency rules adopted under this authority expire on July 
  6.3   1, 1998. 
  6.4      Sec. 7.  [136A.93] [INVESTMENT OF ACCOUNTS.] 
  6.5      Subdivision 1.  [STATE BOARD TO INVEST.] The state board of 
  6.6   investment shall invest the money deposited in accounts in the 
  6.7   program. 
  6.8      Subd. 2.  [PERMITTED INVESTMENTS.] The board may invest the 
  6.9   accounts in any permitted investment under section 11A.24.  The 
  6.10  legislature intends that each account be invested in a mix of 
  6.11  investments that is appropriate to the number of years remaining 
  6.12  before the funds will be withdrawn, if this is feasible given 
  6.13  the costs and any other relevant factors. 
  6.14     Subd. 3.  [CONTRACTING AUTHORITY.] The board may contract 
  6.15  with one or more third parties for investment management, 
  6.16  recordkeeping, or other services in connection with investing 
  6.17  the accounts.  The board and office may jointly contract with 
  6.18  third-party providers, if the office and board determine that it 
  6.19  is desirable to contract with the same entity or entities for 
  6.20  administration and investment management. 
  6.21     Subd. 4.  [FEES.] The board may impose fees on participants 
  6.22  in the program to recover the cost of investment management and 
  6.23  related tasks for the program.  The board must use its best 
  6.24  efforts to keep these fees as low as possible, consistent with 
  6.25  high quality investment management, so that the returns on 
  6.26  savings invested in the program will be as high as possible. 
  6.27     Sec. 8.  [136A.94] [MATCHING GRANTS.] 
  6.28     Subdivision 1.  [MATCHING GRANT QUALIFICATION.] A state 
  6.29  matching grant must be added to each account established under 
  6.30  the program by March 1 of each year, if the following conditions 
  6.31  are met: 
  6.32     (1) the contributor applies, in writing in a form 
  6.33  prescribed by the director, for a matching grant; 
  6.34     (2) a minimum contribution of $200 was made during the 
  6.35  preceding calendar year; and 
  6.36     (3) the contributor did not make and agrees not to make a 
  7.1   contribution during the year to a higher education trust under 
  7.2   section 290.0803. 
  7.3      Subd. 2.  [AMOUNT OF MATCHING GRANT.] The amount of the 
  7.4   matching grant for a beneficiary equals 15 percent of the sum of 
  7.5   the contributions made to the beneficiary's account during the 
  7.6   calendar year not to exceed $300. 
  7.7      Subd. 3.  [BUDGET LIMIT.] If the amount of matching grants 
  7.8   determined under subdivision 2 exceed the amount of the 
  7.9   appropriation for the fiscal year, the director shall 
  7.10  proportionately reduce each grant so that the total equals the 
  7.11  available appropriation. 
  7.12     Subd. 4.  [PRIVATE CONTRIBUTIONS.] (a) The office may 
  7.13  solicit and accept contributions from private corporations, 
  7.14  other businesses, foundations, or individuals to provide: 
  7.15     (1) matching grants under this section in addition to those 
  7.16  funded with direct appropriations; or 
  7.17     (2) grants to students who withdraw money from accounts 
  7.18  established under the program. 
  7.19     (b) Amounts contributed may only be used for those purposes.
  7.20  Amounts contributed are appropriated to the director to make 
  7.21  grants. 
  7.22     (c) Contributors may designate a specific field of study, 
  7.23  geographic area, or other criteria that govern use of the grants 
  7.24  funded with their contributions, but may not discriminate on the 
  7.25  basis of race, ethnicity, or gender.  The office may refuse 
  7.26  contributions that are subject, in the judgment of the director, 
  7.27  to unacceptable conditions on their use. 
  7.28     Sec. 9.  Minnesota Statutes 1996, section 290.01, 
  7.29  subdivision 19a, is amended to read: 
  7.30     Subd. 19a.  [ADDITIONS TO FEDERAL TAXABLE INCOME.] For 
  7.31  individuals, estates, and trusts, there shall be added to 
  7.32  federal taxable income: 
  7.33     (1)(i) interest income on obligations of any state other 
  7.34  than Minnesota or a political or governmental subdivision, 
  7.35  municipality, or governmental agency or instrumentality of any 
  7.36  state other than Minnesota exempt from federal income taxes 
  8.1   under the Internal Revenue Code or any other federal statute, 
  8.2   and 
  8.3      (ii) exempt-interest dividends as defined in section 
  8.4   852(b)(5) of the Internal Revenue Code, except the portion of 
  8.5   the exempt-interest dividends derived from interest income on 
  8.6   obligations of the state of Minnesota or its political or 
  8.7   governmental subdivisions, municipalities, governmental agencies 
  8.8   or instrumentalities, but only if the portion of the 
  8.9   exempt-interest dividends from such Minnesota sources paid to 
  8.10  all shareholders represents 95 percent or more of the 
  8.11  exempt-interest dividends that are paid by the regulated 
  8.12  investment company as defined in section 851(a) of the Internal 
  8.13  Revenue Code, or the fund of the regulated investment company as 
  8.14  defined in section 851(h) of the Internal Revenue Code, making 
  8.15  the payment; and 
  8.16     (iii) for the purposes of items (i) and (ii), interest on 
  8.17  obligations of an Indian tribal government described in section 
  8.18  7871(c) of the Internal Revenue Code shall be treated as 
  8.19  interest income on obligations of the state in which the tribe 
  8.20  is located; 
  8.21     (2) the amount of income taxes paid or accrued within the 
  8.22  taxable year under this chapter and income taxes paid to any 
  8.23  other state or to any province or territory of Canada, to the 
  8.24  extent allowed as a deduction under section 63(d) of the 
  8.25  Internal Revenue Code, but the addition may not be more than the 
  8.26  amount by which the itemized deductions as allowed under section 
  8.27  63(d) of the Internal Revenue Code exceeds the amount of the 
  8.28  standard deduction as defined in section 63(c) of the Internal 
  8.29  Revenue Code.  For the purpose of this paragraph, the 
  8.30  disallowance of itemized deductions under section 68 of the 
  8.31  Internal Revenue Code of 1986, income tax is the last itemized 
  8.32  deduction disallowed; 
  8.33     (3) the capital gain amount of a lump sum distribution to 
  8.34  which the special tax under section 1122(h)(3)(B)(ii) of the Tax 
  8.35  Reform Act of 1986, Public Law Number 99-514, applies; and 
  8.36     (4) the amount of income taxes paid or accrued within the 
  9.1   taxable year under this chapter and income taxes paid to any 
  9.2   other state or any province or territory of Canada, to the 
  9.3   extent allowed as a deduction in determining federal adjusted 
  9.4   gross income.  For the purpose of this paragraph, income taxes 
  9.5   do not include the taxes imposed by sections 290.0922, 
  9.6   subdivision 1, paragraph (b), 290.9727, 290.9728, and 290.9729; 
  9.7   and 
  9.8      (5) the amount provided by section 290.0803, subdivision 3. 
  9.9      Sec. 10.  Minnesota Statutes 1996, section 290.01, 
  9.10  subdivision 19b, is amended to read: 
  9.11     Subd. 19b.  [SUBTRACTIONS FROM FEDERAL TAXABLE INCOME.] For 
  9.12  individuals, estates, and trusts, there shall be subtracted from 
  9.13  federal taxable income: 
  9.14     (1) interest income on obligations of any authority, 
  9.15  commission, or instrumentality of the United States to the 
  9.16  extent includable in taxable income for federal income tax 
  9.17  purposes but exempt from state income tax under the laws of the 
  9.18  United States; 
  9.19     (2) if included in federal taxable income, the amount of 
  9.20  any overpayment of income tax to Minnesota or to any other 
  9.21  state, for any previous taxable year, whether the amount is 
  9.22  received as a refund or as a credit to another taxable year's 
  9.23  income tax liability; 
  9.24     (3) the amount paid to others not to exceed $650 for each 
  9.25  dependent in grades kindergarten to 6 and $1,000 for each 
  9.26  dependent in grades 7 to 12, for tuition, textbooks, and 
  9.27  transportation of each dependent in attending an elementary or 
  9.28  secondary school situated in Minnesota, North Dakota, South 
  9.29  Dakota, Iowa, or Wisconsin, wherein a resident of this state may 
  9.30  legally fulfill the state's compulsory attendance laws, which is 
  9.31  not operated for profit, and which adheres to the provisions of 
  9.32  the Civil Rights Act of 1964 and chapter 363.  As used in this 
  9.33  clause, "textbooks" includes books and other instructional 
  9.34  materials and equipment used in elementary and secondary schools 
  9.35  in teaching only those subjects legally and commonly taught in 
  9.36  public elementary and secondary schools in this state.  
 10.1   "Textbooks" does not include instructional books and materials 
 10.2   used in the teaching of religious tenets, doctrines, or worship, 
 10.3   the purpose of which is to instill such tenets, doctrines, or 
 10.4   worship, nor does it include books or materials for, or 
 10.5   transportation to, extracurricular activities including sporting 
 10.6   events, musical or dramatic events, speech activities, driver's 
 10.7   education, or similar programs.  In order to qualify for the 
 10.8   subtraction under this clause the taxpayer must elect to itemize 
 10.9   deductions under section 63(e) of the Internal Revenue Code; 
 10.10     (4) to the extent included in federal taxable income, 
 10.11  distributions from a qualified governmental pension plan, an 
 10.12  individual retirement account, simplified employee pension, or 
 10.13  qualified plan covering a self-employed person that represent a 
 10.14  return of contributions that were included in Minnesota gross 
 10.15  income in the taxable year for which the contributions were made 
 10.16  but were deducted or were not included in the computation of 
 10.17  federal adjusted gross income.  The distribution shall be 
 10.18  allocated first to return of contributions until the 
 10.19  contributions included in Minnesota gross income have been 
 10.20  exhausted.  This subtraction applies only to contributions made 
 10.21  in a taxable year prior to 1985; 
 10.22     (5) income as provided under section 290.0802; 
 10.23     (6) the amount of unrecovered accelerated cost recovery 
 10.24  system deductions allowed under subdivision 19g; 
 10.25     (7) to the extent included in federal adjusted gross 
 10.26  income, income realized on disposition of property exempt from 
 10.27  tax under section 290.491; 
 10.28     (8) to the extent not deducted in determining federal 
 10.29  taxable income, the amount paid for health insurance of 
 10.30  self-employed individuals as determined under section 162(l) of 
 10.31  the Internal Revenue Code, except that the 25 percent limit does 
 10.32  not apply.  If the taxpayer deducted insurance payments under 
 10.33  section 213 of the Internal Revenue Code of 1986, the 
 10.34  subtraction under this clause must be reduced by the lesser of: 
 10.35     (i) the total itemized deductions allowed under section 
 10.36  63(d) of the Internal Revenue Code, less state, local, and 
 11.1   foreign income taxes deductible under section 164 of the 
 11.2   Internal Revenue Code and the standard deduction under section 
 11.3   63(c) of the Internal Revenue Code; or 
 11.4      (ii) the lesser of (A) the amount of insurance qualifying 
 11.5   as "medical care" under section 213(d) of the Internal Revenue 
 11.6   Code to the extent not deducted under section 162(1) of the 
 11.7   Internal Revenue Code or excluded from income or (B) the total 
 11.8   amount deductible for medical care under section 213(a); and 
 11.9      (9) the exemption amount allowed under Laws 1995, chapter 
 11.10  255, article 3, section 2, subdivision 3; and 
 11.11     (10) the subtraction provided by section 290.0803, 
 11.12  subdivision 2. 
 11.13     Sec. 11.  [290.0803] [HIGHER EDUCATION TRUSTS.] 
 11.14     Subdivision 1.  [DEFINITIONS.] (a) For the purposes of this 
 11.15  section, the following terms have the meanings given them.  
 11.16     (b) "Higher education trust" means a grantor trust created 
 11.17  or organized in Minnesota for the purpose of funding the 
 11.18  qualified education expenses of the grantor, but only if the 
 11.19  written governing instrument creating the trust meets the 
 11.20  following requirements: 
 11.21     (1) No contributions shall be accepted unless it is in 
 11.22  cash, and contributions shall not be accepted for the taxable 
 11.23  year in excess of $2,000. 
 11.24     (2) The trustee is a bank or other person who demonstrates 
 11.25  to the satisfaction of the commissioner that the manner in which 
 11.26  the other person will administer the trust will be consistent 
 11.27  with the requirements of this section. 
 11.28     (3) No part of the trust funds shall be invested in life 
 11.29  insurance contracts. 
 11.30     (4) The interest of an individual in the balance of the 
 11.31  individual's account is nonforfeitable. 
 11.32     (5) The assets of the trust shall not be commingled with 
 11.33  other property except in a common trust fund or common 
 11.34  investment fund. 
 11.35     (6) The trust is not taxed for federal tax purposes as an 
 11.36  individual retirement account under section 408 of the Internal 
 12.1   Revenue Code. 
 12.2      (c) "Qualified education expense of the grantor" means 
 12.3   tuition, books, and fees required for the enrollment or 
 12.4   attendance at an eligible education institution of the grantor; 
 12.5   the grantor's spouse; or any child, grandchild, or ancestor of 
 12.6   the grantor or grantor's spouse.  A qualified education expense 
 12.7   of the grantor does not include expenses with respect to any 
 12.8   course or other education involving sports, games, or hobbies 
 12.9   other than as part of a degree program. 
 12.10     The amount of qualified higher education expenses otherwise 
 12.11  taken into account under this paragraph with respect to the 
 12.12  education of an individual shall be reduced, before the 
 12.13  application of this paragraph, by the sum of the amounts 
 12.14  received with respect to the individual for the taxable year as: 
 12.15     (1) a qualified scholarship which under section 117 of the 
 12.16  Internal Revenue Code of 1986 is not includable in gross income; 
 12.17     (2) an educational assistance allowance under United States 
 12.18  Code, title 38, chapter 30, 31, 32, 34, or 35; 
 12.19     (3) a payment, other than a gift, bequest, devise, or 
 12.20  inheritance within the meaning of section 102(a) of the Internal 
 12.21  Revenue Code for educational expenses, or attributable to 
 12.22  attendance at an eligible educational institution, which is 
 12.23  exempt from income taxation by any law of the United States; or 
 12.24     (4) amounts excluded from federal taxable income under 
 12.25  section 135 of the Internal Revenue Code. 
 12.26     (d) For the purposes of paragraph (c), "eligible 
 12.27  educational institution" means: 
 12.28     (1) an institution described in section 1201(a) or 
 12.29  subparagraph (C) or (D) of section 481(a)(1) of the Higher 
 12.30  Education Act of 1965; or 
 12.31     (2) an area vocational education school, as defined in 
 12.32  subparagraph (C) or (D) of section 521(3) of the Carl D. 
 12.33  Perkins' Vocational Education Act, that is in any state, as 
 12.34  defined in section 521(27) of the Carl D. Perkins' Vocational 
 12.35  Education Act. 
 12.36     Subd. 2.  [SUBTRACTION.] The grantor is allowed a 
 13.1   subtraction from federal taxable income in the amount of (1) the 
 13.2   contribution made by the grantor to a higher education trust in 
 13.3   the grantor's taxable year, and (2) any net income or net 
 13.4   capital gain other than income which is excluded from Minnesota 
 13.5   tax by section 290.01, subdivision 19b, clause (1), generated by 
 13.6   the higher education trust that is included in the grantor's 
 13.7   federal taxable income for the year. 
 13.8      Subd. 3.  [ADDITION.] The net income or capital loss of a 
 13.9   higher education trust for a tax year which is included in the 
 13.10  computation of the grantor's federal taxable income must be 
 13.11  added to federal taxable income to the extent the loss is 
 13.12  included in the grantor's computation of federal taxable income. 
 13.13     Subd. 4.  [TAX ON DISTRIBUTION FROM A HIGHER EDUCATION 
 13.14  TRUST.] In the event of distribution from a higher education 
 13.15  trust within five years of the establishment of the higher 
 13.16  education trust or in a year in which the distribution exceeds 
 13.17  the qualified education expense of the grantor for the year 
 13.18  notwithstanding any provision to the contrary, there is imposed 
 13.19  on the grantor or the grantor's estate an additional tax in the 
 13.20  amount of (1) two percent plus the highest marginal tax rate 
 13.21  applicable to the grantor's net income in the year of 
 13.22  distribution under section 290.06, subdivision 2c, paragraph 
 13.23  (a), multiplied by the amount of the distribution if the 
 13.24  distribution is made within five years of the establishment of 
 13.25  the trust; or (2) the percentage determined under clause (1) 
 13.26  multiplied by the amount of the distribution which exceeds the 
 13.27  qualified education expense of the grantor for the year for 
 13.28  distributions from a trust in existence for more than five years.
 13.29     This tax applies regardless of whether the true grantor is 
 13.30  a resident or nonresident of Minnesota in the year of 
 13.31  distribution. 
 13.32     In no event shall the cumulative distributions subject to 
 13.33  the tax in this subdivision exceed the cumulative amount of 
 13.34  subtractions less cumulative additions claimed by the grantor on 
 13.35  the grantor's Minnesota individual income tax returns for tax 
 13.36  years prior to the year of distribution.  Notwithstanding the 
 14.1   filing requirements of section 289A.08, subdivision 1, a grantor 
 14.2   is required to file a Minnesota individual tax return for any 
 14.3   year in which the tax provided by this subdivision is imposed. 
 14.4      Subd. 5.  [RETURNS OF HIGHER EDUCATION TRUSTS.] For each 
 14.5   year a higher education trust is in existence, the grantor of 
 14.6   the trust is required to file a return with the commissioner by 
 14.7   October 15 of the year following the tax year.  The return must 
 14.8   include the social security number of the grantor, the amount of 
 14.9   the contributions made to the trust by the grantor in the year, 
 14.10  the amount of net income or loss of the trust for the year, the 
 14.11  amount of distributions made in the year, and the amount of the 
 14.12  qualified higher education expense incurred by the grantor in 
 14.13  the year. 
 14.14     Subd. 6.  [SUNSET OF THE SUBTRACTION AND ADDITION.] If the 
 14.15  federal government enacts an income tax provision providing for 
 14.16  nondeductible individual retirement accounts similar to the 
 14.17  provision proposed by Congress in section 11015 of Revenue 
 14.18  Reconciliation and Tax Simplification Provisions from Conference 
 14.19  Report on HR 2491, Seven-Year Balanced Budget Reconciliation Act 
 14.20  of 1995, filed November 16, 1995, the subtraction and additions 
 14.21  provided by subdivisions 2 and 3 will not be allowed for tax 
 14.22  years beginning after the year of federal enactment. 
 14.23     Subd. 7.  [ROLL-OVER OF DISTRIBUTIONS FROM HIGHER EDUCATION 
 14.24  TRUSTS MADE AFTER THE YEAR OF THE SUNSET OF SUBDIVISION 2.] If 
 14.25  the federal government enacts a tax provision as provided in 
 14.26  subdivision 6, the tax imposed by subdivision 4 will be reduced 
 14.27  by 8.5 percent of the amount contributed by the grantor to the 
 14.28  nondeductible individual retirement account established by the 
 14.29  grantor, other than the roll-over proceeds from an individual 
 14.30  retirement account governed by section 407 of the Internal 
 14.31  Revenue Code, in the year of distribution. 
 14.32     Sec. 12.  Minnesota Statutes 1996, section 290.091, 
 14.33  subdivision 2, is amended to read: 
 14.34     Subd. 2.  [DEFINITIONS.] For purposes of the tax imposed by 
 14.35  this section, the following terms have the meanings given: 
 14.36     (a) "Alternative minimum taxable income" means the sum of 
 15.1   the following for the taxable year: 
 15.2      (1) the taxpayer's federal alternative minimum taxable 
 15.3   income as defined in section 55(b)(2) of the Internal Revenue 
 15.4   Code; 
 15.5      (2) the taxpayer's itemized deductions allowed in computing 
 15.6   federal alternative minimum taxable income, but excluding the 
 15.7   Minnesota charitable contribution deduction and the medical 
 15.8   expense deduction; 
 15.9      (3) for depletion allowances computed under section 613A(c) 
 15.10  of the Internal Revenue Code, with respect to each property (as 
 15.11  defined in section 614 of the Internal Revenue Code), to the 
 15.12  extent not included in federal alternative minimum taxable 
 15.13  income, the excess of the deduction for depletion allowable 
 15.14  under section 611 of the Internal Revenue Code for the taxable 
 15.15  year over the adjusted basis of the property at the end of the 
 15.16  taxable year (determined without regard to the depletion 
 15.17  deduction for the taxable year); 
 15.18     (4) to the extent not included in federal alternative 
 15.19  minimum taxable income, the amount of the tax preference for 
 15.20  intangible drilling cost under section 57(a)(2) of the Internal 
 15.21  Revenue Code determined without regard to subparagraph (E); 
 15.22     (5) to the extent not included in federal alternative 
 15.23  minimum taxable income, the amount of interest income as 
 15.24  provided by section 290.01, subdivision 19a, clause (1); 
 15.25     less the sum of the amounts determined under the following 
 15.26  clauses (1) to (3) (4): 
 15.27     (1) interest income as defined in section 290.01, 
 15.28  subdivision 19b, clause (1); 
 15.29     (2) an overpayment of state income tax as provided by 
 15.30  section 290.01, subdivision 19b, clause (2), to the extent 
 15.31  included in federal alternative minimum taxable income; and 
 15.32     (3) the amount of investment interest paid or accrued 
 15.33  within the taxable year on indebtedness to the extent that the 
 15.34  amount does not exceed net investment income, as defined in 
 15.35  section 163(d)(4) of the Internal Revenue Code.  Interest does 
 15.36  not include amounts deducted in computing federal adjusted gross 
 16.1   income; and 
 16.2      (4) the amount provided in section 290.01, subdivision 19b, 
 16.3   clause (10). 
 16.4      In the case of an estate or trust, alternative minimum 
 16.5   taxable income must be computed as provided in section 59(c) of 
 16.6   the Internal Revenue Code. 
 16.7      (b) "Investment interest" means investment interest as 
 16.8   defined in section 163(d)(3) of the Internal Revenue Code. 
 16.9      (c) "Tentative minimum tax" equals seven percent of 
 16.10  alternative minimum taxable income after subtracting the 
 16.11  exemption amount determined under subdivision 3. 
 16.12     (d) "Regular tax" means the tax that would be imposed under 
 16.13  this chapter (without regard to this section and section 
 16.14  290.032), reduced by the sum of the nonrefundable credits 
 16.15  allowed under this chapter.  
 16.16     (e) "Net minimum tax" means the minimum tax imposed by this 
 16.17  section. 
 16.18     (f) "Minnesota charitable contribution deduction" means a 
 16.19  charitable contribution deduction under section 170 of the 
 16.20  Internal Revenue Code to or for the use of an entity described 
 16.21  in section 290.21, subdivision 3, clauses (a) to (e).  When the 
 16.22  federal deduction for charitable contributions is limited under 
 16.23  section 170(b) of the Internal Revenue Code, the allowable 
 16.24  contributions in the year of contribution are deemed to be first 
 16.25  contributions to entities described in section 290.21, 
 16.26  subdivision 3, clauses (a) to (e). 
 16.27     Sec. 13.  Minnesota Statutes 1996, section 290.091, 
 16.28  subdivision 6, is amended to read: 
 16.29     Subd. 6.  [CREDIT FOR PRIOR YEARS' LIABILITY.] (a) A credit 
 16.30  is allowed against the tax imposed by this chapter on 
 16.31  individuals, trusts, and estates equal to the minimum tax credit 
 16.32  for the taxable year.  The minimum tax credit equals the 
 16.33  adjusted net minimum tax for taxable years beginning after 
 16.34  December 31, 1988, reduced by the minimum tax credits allowed in 
 16.35  a prior taxable year.  The credit may not exceed the excess (if 
 16.36  any) for the taxable year of 
 17.1      (1) the regular tax, over 
 17.2      (2) the greater of (i) the tentative alternative minimum 
 17.3   tax, or (ii) zero. 
 17.4      (b) The adjusted net minimum tax for a taxable year equals 
 17.5   the lesser of the net minimum tax or the excess (if any) of 
 17.6      (1) the tentative minimum tax, over 
 17.7      (2) seven percent of the sum of 
 17.8      (i) adjusted gross income as defined in section 62 of the 
 17.9   Internal Revenue Code, 
 17.10     (ii) interest income as defined in section 290.01, 
 17.11  subdivision 19a, clause (1), 
 17.12     (iii) interest on specified private activity bonds, as 
 17.13  defined in section 57(a)(5) of the Internal Revenue Code, to the 
 17.14  extent not included under clause (ii), 
 17.15     (iv) depletion as defined in section 57(a)(1), determined 
 17.16  without regard to the last sentence of paragraph (1), of the 
 17.17  Internal Revenue Code, less 
 17.18     (v) the deductions provided in subdivision 2, paragraph 
 17.19  (a), clauses (5), items (i), (ii), and (iii) (1) to (4) of the 
 17.20  second series of clauses, and 
 17.21     (vi) the exemption amount determined under subdivision 3. 
 17.22     In the case of an individual who is not a Minnesota 
 17.23  resident for the entire year, adjusted net minimum tax must be 
 17.24  multiplied by the fraction defined in section 290.06, 
 17.25  subdivision 2c, paragraph (e).  In the case of a trust or 
 17.26  estate, adjusted net minimum tax must be multiplied by the 
 17.27  fraction defined under subdivision 4, paragraph (b). 
 17.28     Sec. 14.  [APPROPRIATION.] 
 17.29     $....... is appropriated from the general fund for the 
 17.30  1998-1999 biennium for the purposes of sections 4 to 8.  This 
 17.31  appropriation is allocated as follows: 
 17.32     (a) To the director of higher education services: 
 17.33     (1) $....... for matching grants under section 136A.94; 
 17.34     (2) $....... for start-up costs for the program; and 
 17.35     (3) $....... for marketing and promotion of the program. 
 17.36     (b) To the executive director of the state board of 
 18.1   investment for initial start-up investment management and 
 18.2   related costs, $........ 
 18.3      Any amount of this appropriation that remains unexpended 
 18.4   may be carried forward to the 2000-2001 biennium. 
 18.5      Sec. 15.  [EFFECTIVE DATE.] 
 18.6      Sections 9 to 13 are effective for tax years beginning 
 18.7   after December 31, 1996.