HF 1264

1st Engrossment - 85th Legislature (2007 - 2008) Posted on 12/15/2009 12:00am

A bill for an act
relating to taxation; individual income; allowing a credit for contributions
for early childhood education access grants and a credit for early childhood
educational expenses; requiring a report; amending Minnesota Statutes 2006,
sections 119B.09, subdivision 1; 290.01, subdivisions 19b, 19c; 290.0674,
subdivisions 1, 2, by adding a subdivision; proposing coding for new law in
Minnesota Statutes, chapter 290.

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

Section 1.

Minnesota Statutes 2006, section 119B.09, subdivision 1, is amended to read:

Subdivision 1.

General eligibility requirements for all applicants for child
care assistance.

(a) Child care services must be available to families who need child
care to find or keep employment or to obtain the training or education necessary to find
employment and who:

(1) have household income less than or equal to 250 percent of the federal poverty
guidelines, adjusted for family size, and meet the requirements of section 119B.05;
receive MFIP assistance; and are participating in employment and training services under
chapter 256J or 256K; or

(2) have household income less than or equal to 175 percent of the federal poverty
guidelines, adjusted for family size, at program entry and less than 250 percent of the
federal poverty guidelines, adjusted for family size, at program exit.

(b) Child care services must be made available as in-kind services.

(c) All applicants for child care assistance and families currently receiving child care
assistance must be assisted and required to cooperate in establishment of paternity and
enforcement of child support obligations for all children in the family as a condition
of program eligibility. For purposes of this section, a family is considered to meet the
requirement for cooperation when the family complies with the requirements of section
256.741.

new text begin (d) All applicants for and recipients of child care assistance under section 119B.03
who meet all eligibility requirements under this chapter but are receiving one or more
early childhood education access grants under section 290.0678, subdivision 2, clause (2),
must have the amount of the early childhood education access grant or grants deducted
from the total amount of assistance for which the family would otherwise be eligible
under this chapter.
new text end

Sec. 2.

Minnesota Statutes 2006, section 290.01, subdivision 19b, is amended to read:

Subd. 19b.

Subtractions from federal taxable income.

For individuals, estates,
and trusts, there shall be subtracted from federal taxable income:

(1) net interest income on obligations of any authority, commission, or
instrumentality of the United States to the extent includable in taxable income for federal
income tax purposes but exempt from state income tax under the laws of the United States;

(2) if included in federal taxable income, the amount of any overpayment of income
tax to Minnesota or to any other state, for any previous taxable year, whether the amount
is received as a refund or as a credit to another taxable year's income tax liability;

(3) the amount paid to others, less the amount used to claim the credit allowed under
section 290.0674, not to exceed $1,625 for each qualifying child in grades deleted text begin kindergarten deleted text end
new text begin 1 new text end to 6 and $2,500 for each qualifying child in grades 7 to 12, for tuition, textbooks, and
transportation of each qualifying child in attending an elementary or secondary school
situated in Minnesota, North Dakota, South Dakota, Iowa, or Wisconsin, wherein a
resident of this state may legally fulfill the state's compulsory attendance laws, which
is not operated for profit, and which adheres to the provisions of the Civil Rights Act
of 1964 and chapter 363A. For the purposes of this clause, "tuition" includes fees or
tuition as defined in section 290.0674, subdivision 1, clause (1). As used in this clause,
"textbooks" includes books and other instructional materials and equipment purchased
or leased for use in elementary and secondary schools in teaching only those subjects
legally and commonly taught in public elementary and secondary schools in this state.
Equipment expenses qualifying for deduction includes expenses as defined and limited in
section 290.0674, subdivision 1, clause (3). "Textbooks" does not include instructional
books and materials used in the teaching of religious tenets, doctrines, or worship, the
purpose of which is to instill such tenets, doctrines, or worship, nor does it include books
or materials for, or transportation to, extracurricular activities including sporting events,
musical or dramatic events, speech activities, driver's education, or similar programs. For
purposes of the subtraction provided by this clause, "qualifying child" has the meaning
given in section 32(c)(3) of the Internal Revenue Code;

(4) income as provided under section 290.0802;

(5) to the extent included in federal adjusted gross income, income realized on
disposition of property exempt from tax under section 290.491;

(6) to the extent not deducted in determining federal taxable income by an individual
who does not itemize deductions for federal income tax purposes for the taxable year, an
amount equal to 50 percent of the excess of charitable contributions over $500 allowable
as a deduction for the taxable year under section 170(a) of the Internal Revenue Code and
under the provisions of Public Law 109-1;

(7) for taxable years beginning before January 1, 2008, the amount of the federal
small ethanol producer credit allowed under section 40(a)(3) of the Internal Revenue Code
which is included in gross income under section 87 of the Internal Revenue Code;

(8) for individuals who are allowed a federal foreign tax credit for taxes that do not
qualify for a credit under section 290.06, subdivision 22, an amount equal to the carryover
of subnational foreign taxes for the taxable year, but not to exceed the total subnational
foreign taxes reported in claiming the foreign tax credit. For purposes of this clause,
"federal foreign tax credit" means the credit allowed under section 27 of the Internal
Revenue Code, and "carryover of subnational foreign taxes" equals the carryover allowed
under section 904(c) of the Internal Revenue Code minus national level foreign taxes to
the extent they exceed the federal foreign tax credit;

(9) in each of the five tax years immediately following the tax year in which an
addition is required under subdivision 19a, clause (7), or 19c, clause (15), in the case
of a shareholder of a corporation that is an S corporation, an amount equal to one-fifth
of the delayed depreciation. For purposes of this clause, "delayed depreciation" means
the amount of the addition made by the taxpayer under subdivision 19a, clause (7), or
subdivision 19c, clause (15), in the case of a shareholder of an S corporation, minus the
positive value of any net operating loss under section 172 of the Internal Revenue Code
generated for the tax year of the addition. The resulting delayed depreciation cannot be
less than zero;

(10) job opportunity building zone income as provided under section 469.316;

(11) the amount of compensation paid to members of the Minnesota National Guard
or other reserve components of the United States military for active service performed
in Minnesota, excluding compensation for services performed under the Active Guard
Reserve (AGR) program. For purposes of this clause, "active service" means (i) state
active service as defined in section 190.05, subdivision 5a, clause (1); (ii) federally
funded state active service as defined in section 190.05, subdivision 5b; or (iii) federal
active service as defined in section 190.05, subdivision 5c, but "active service" excludes
services performed exclusively for purposes of basic combat training, advanced individual
training, annual training, and periodic inactive duty training; special training periodically
made available to reserve members; and service performed in accordance with section
190.08, subdivision 3;

(12) the amount of compensation paid to Minnesota residents who are members
of the armed forces of the United States or United Nations for active duty performed
outside Minnesota;

(13) an amount, not to exceed $10,000, equal to qualified expenses related to a
qualified donor's donation, while living, of one or more of the qualified donor's organs
to another person for human organ transplantation. For purposes of this clause, "organ"
means all or part of an individual's liver, pancreas, kidney, intestine, lung, or bone marrow;
"human organ transplantation" means the medical procedure by which transfer of a human
organ is made from the body of one person to the body of another person; "qualified
expenses" means unreimbursed expenses for both the individual and the qualified donor
for (i) travel, (ii) lodging, and (iii) lost wages net of sick pay, except that such expenses
may be subtracted under this clause only once; and "qualified donor" means the individual
or the individual's dependent, as defined in section 152 of the Internal Revenue Code. An
individual may claim the subtraction in this clause for each instance of organ donation for
transplantation during the taxable year in which the qualified expenses occur;

(14) in each of the five tax years immediately following the tax year in which an
addition is required under subdivision 19a, clause (8), or 19c, clause (16), in the case of a
shareholder of a corporation that is an S corporation, an amount equal to one-fifth of the
addition made by the taxpayer under subdivision 19a, clause (8), or 19c, clause (16), in the
case of a shareholder of a corporation that is an S corporation, minus the positive value of
any net operating loss under section 172 of the Internal Revenue Code generated for the
tax year of the addition. If the net operating loss exceeds the addition for the tax year, a
subtraction is not allowed under this clause;

(15) to the extent included in federal taxable income, compensation paid to a
nonresident who is a service member as defined in United States Code, title 10, section
101(a)(5), for military service as defined in the Service Member Civil Relief Act, Public
Law 108-189, section 101(2); and

(16) international economic development zone income as provided under section
469.325.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxable years beginning after
December 31, 2007.
new text end

Sec. 3.

Minnesota Statutes 2006, section 290.01, subdivision 19c, is amended to read:

Subd. 19c.

Corporations; additions to federal taxable income.

For corporations,
there shall be added to federal taxable income:

(1) the amount of any deduction taken for federal income tax purposes for income,
excise, or franchise taxes based on net income or related minimum taxes, including but not
limited to the tax imposed under section 290.0922, paid by the corporation to Minnesota,
another state, a political subdivision of another state, the District of Columbia, or any
foreign country or possession of the United States;

(2) interest not subject to federal tax upon obligations of: the United States, its
possessions, its agencies, or its instrumentalities; the state of Minnesota or any other
state, any of its political or governmental subdivisions, any of its municipalities, or any
of its governmental agencies or instrumentalities; the District of Columbia; or Indian
tribal governments;

(3) exempt-interest dividends received as defined in section 852(b)(5) of the Internal
Revenue Code;

(4) the amount of any net operating loss deduction taken for federal income tax
purposes under section 172 or 832(c)(10) of the Internal Revenue Code or operations loss
deduction under section 810 of the Internal Revenue Code;

(5) the amount of any special deductions taken for federal income tax purposes
under sections 241 to 247 and 965 of the Internal Revenue Code;

(6) losses from the business of mining, as defined in section 290.05, subdivision 1,
clause (a), that are not subject to Minnesota income tax;

(7) the amount of any capital losses deducted for federal income tax purposes under
sections 1211 and 1212 of the Internal Revenue Code;

(8) the exempt foreign trade income of a foreign sales corporation under sections
921(a) and 291 of the Internal Revenue Code;

(9) the amount of percentage depletion deducted under sections 611 through 614 and
291 of the Internal Revenue Code;

(10) for certified pollution control facilities placed in service in a taxable year
beginning before December 31, 1986, and for which amortization deductions were elected
under section 169 of the Internal Revenue Code of 1954, as amended through December
31, 1985, the amount of the amortization deduction allowed in computing federal taxable
income for those facilities;

(11) the amount of any deemed dividend from a foreign operating corporation
determined pursuant to section 290.17, subdivision 4, paragraph (g);

(12) the amount of a partner's pro rata share of net income which does not flow
through to the partner because the partnership elected to pay the tax on the income under
section 6242(a)(2) of the Internal Revenue Code;

(13) the amount of net income excluded under section 114 of the Internal Revenue
Code;

(14) any increase in subpart F income, as defined in section 952(a) of the Internal
Revenue Code, for the taxable year when subpart F income is calculated without regard
to the provisions of section 103 of Public Law 109-222;

(15) 80 percent of the depreciation deduction allowed under section 168(k)(1)(A)
and (k)(4)(A) of the Internal Revenue Code. For purposes of this clause, if the taxpayer
has an activity that in the taxable year generates a deduction for depreciation under
section 168(k)(1)(A) and (k)(4)(A) and the activity generates a loss for the taxable year
that the taxpayer is not allowed to claim for the taxable year, "the depreciation allowed
under section 168(k)(1)(A) and (k)(4)(A)" for the taxable year is limited to excess of the
depreciation claimed by the activity under section 168(k)(1)(A) and (k)(4)(A) over the
amount of the loss from the activity that is not allowed in the taxable year. In succeeding
taxable years when the losses not allowed in the taxable year are allowed, the depreciation
under section 168(k)(1)(A) and (k)(4)(A) is allowed;

(16) 80 percent of the amount by which the deduction allowed by section 179 of the
Internal Revenue Code exceeds the deduction allowable by section 179 of the Internal
Revenue Code of 1986, as amended through December 31, 2003;

(17) to the extent deducted in computing federal taxable income, the amount of the
deduction allowable under section 199 of the Internal Revenue Code; deleted text begin and
deleted text end

(18) the exclusion allowed under section 139A of the Internal Revenue Code for
federal subsidies for prescription drug plans new text begin ; and
new text end

new text begin (19) the amount deducted under section 170 of the Internal Revenue Code that
represents contributions for early childhood education access grants for which a credit is
claimed under section 290.0678 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, 2006.
new text end

Sec. 4.

Minnesota Statutes 2006, section 290.0674, subdivision 1, is amended to read:

Subdivision 1.

Credit allowed new text begin ; grades 1 through 12 new text end .

new text begin (a) new text end An individual is allowed
a credit against the tax imposed by this chapter in an amount equal to 75 percent of
the amount paid for education-related expenses for a qualifying child in deleted text begin kindergarten deleted text end
new text begin grade 1 new text end through grade 12. For purposes of this deleted text begin section deleted text end new text begin subdivision new text end , "education-related
expenses" means:

(1) fees or tuition for instruction by an instructor under section 120A.22, subdivision
10, clause (1), (2), (3), (4), or (5), or a member of the Minnesota Music Teachers
Association, and who is not a lineal ancestor or sibling of the dependent for instruction
outside the regular school day or school year, including tutoring, driver's education
offered as part of school curriculum, regardless of whether it is taken from a public or
private entity or summer camps, in grade or age appropriate curricula that supplement
curricula and instruction available during the regular school year, that assists a dependent
to improve knowledge of core curriculum areas or to expand knowledge and skills under
the required academic standards under section 120B.021, subdivision 1, and the elective
standard under section 120B.022, subdivision 1, clause (2), and that do not include the
teaching of religious tenets, doctrines, or worship, the purpose of which is to instill such
tenets, doctrines, or worship;

(2) expenses for textbooks, including books and other instructional materials and
equipment purchased or leased for use in elementary and secondary schools in teaching
only those subjects legally and commonly taught in public elementary and secondary
schools in this state. "Textbooks" does not include instructional books and materials
used in the teaching of religious tenets, doctrines, or worship, the purpose of which is
to instill such tenets, doctrines, or worship, nor does it include books or materials for
extracurricular activities including sporting events, musical or dramatic events, speech
activities, driver's education, or similar programs;

(3) a maximum expense of $200 per family for personal computer hardware,
excluding single purpose processors, and educational software that assists a dependent to
improve knowledge of core curriculum areas or to expand knowledge and skills under
the required academic standards under section 120B.021, subdivision 1, and the elective
standard under section 120B.022, subdivision 1, clause (2), purchased for use in the
taxpayer's home and not used in a trade or business regardless of whether the computer is
required by the dependent's school; and

(4) the amount paid to others for transportation of a qualifying child attending an
elementary or secondary school situated in Minnesota, North Dakota, South Dakota, Iowa,
or Wisconsin, wherein a resident of this state may legally fulfill the state's compulsory
attendance laws, which is not operated for profit, and which adheres to the provisions of
the Civil Rights Act of 1964 and chapter 363A.

For purposes of this section, "qualifying child" has the meaning given in section
32(c)(3) of the Internal Revenue Code.

new text begin (b) The maximum credit for grades 1 through 12 allowed under this subdivision is
$1,000 multiplied by the number of qualifying children in grades 1 through 12 in the
family. The maximum credit for families with one qualifying child in grade 1 through
grade 12 is reduced by $1 for each $4 of household income over $33,500, and the
maximum credit for families with two or more qualifying children in grade 1 through
grade 12 is reduced by $2 for each $4 of household income over $33,500, but in no case is
the credit less than zero.
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, 2007.
new text end

Sec. 5.

Minnesota Statutes 2006, section 290.0674, is amended by adding a subdivision
to read:

new text begin Subd. 1a. new text end

new text begin Credit allowed; prekindergarten and kindergarten. new text end

new text begin (a) An individual
is allowed a credit against the tax imposed by this chapter in an amount equal to 75 percent
of the amount paid for education-related expenses for a qualifying child who is younger
than age seven and not yet enrolled in first grade at the start of the tax year. For purposes
of this subdivision, "education-related expenses" means "education-related expenses" as
defined in subdivision 1, and also:
new text end

new text begin (1) fees or tuition charged for enrollment in an all-day kindergarten;
new text end

new text begin (2) fees or tuition charged for enrollment in a qualified early childhood educational
program. As used in this subdivision, "qualified early childhood educational program" has
the meaning given in section 290.0678; and
new text end

new text begin (3) expenses for age-appropriate educational books, games, and computer software.
new text end

new text begin (b) The maximum credit allowed under this subdivision is $5,000 multiplied by the
number of qualifying children who are younger than age seven and not yet enrolled in first
grade at the start of the tax year. The credit for qualifying children in prekindergarten and
kindergarten under this subdivision is not subject to reduction.
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, 2007.
new text end

Sec. 6.

Minnesota Statutes 2006, section 290.0674, subdivision 2, is amended to read:

Subd. 2.

Limitations.

deleted text begin (a) For claimants with income not greater than $33,500, the
maximum credit allowed for a family is $1,000 multiplied by the number of qualifying
children in kindergarten through grade 12 in the family. The maximum credit for families
with one qualifying child in kindergarten through grade 12 is reduced by $1 for each $4 of
household income over $33,500, and the maximum credit for families with two or more
qualifying children in kindergarten through grade 12 is reduced by $2 for each $4 of
household income over $33,500, but in no case is the credit less than zero.
deleted text end

new text begin (a) new text end For purposes of this section "income" has the meaning given in section 290.067,
subdivision 2a. In the case of a married claimant, a credit is not allowed unless a joint
income tax return is filed.

(b) For a nonresident or part-year resident, the credit determined under subdivision 1
and the maximum credit amount in paragraph (a) must be allocated using the percentage
calculated in section 290.06, subdivision 2c, paragraph (e).

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxable years beginning after
December 31, 2007.
new text end

Sec. 7.

new text begin [290.0678] CREDIT FOR CONTRIBUTIONS FOR EARLY
CHILDHOOD EDUCATION ACCESS GRANTS.
new text end

new text begin Subdivision 1. new text end

new text begin Definitions. new text end

new text begin (a) For purposes of this section, the following terms
have the meanings given.
new text end

new text begin (b) "Federal poverty guidelines" mean the poverty guidelines for the 48 contiguous
states used by the United States Department of Health and Human Services as most
recently published in the Federal Register.
new text end

new text begin (c) A "qualified student" must be:
new text end

new text begin (1) younger than age seven, not yet enrolled in kindergarten or first grade, and a
Minnesota resident; and
new text end

new text begin (2) a member of a household with an income less than 200 percent of the federal
poverty guideline for the household size.
new text end

new text begin (d) "Early childhood education access grant organization" means a charitable
nonprofit organization that is exempt from federal taxation under section 501(c)(3) of the
Internal Revenue Code, maintains funds separate from funding for other activities for the
distinct purpose of providing early childhood education access grants to qualified students,
and is certified by the commissioner of education as meeting the criteria of this section.
new text end

new text begin (e) A "qualified early childhood educational program" means a program included
in guidelines prepared by the commissioner of education in consultation with the
commissioner of human services and must accept access grants granted under this section
in payment of tuition for a qualified student under paragraph (c) enrolled in the program.
new text end

new text begin Subd. 2. new text end

new text begin Early childhood education access grant organizations. new text end

new text begin Early childhood
education access grant organizations must:
new text end

new text begin (1) accept contributions from corporations and others for use in providing early
childhood education access grants and allocate at least 85 percent of annual contributions
received for making early childhood education access grants to qualified students;
new text end

new text begin (2) develop a process for parents of qualified students to apply for and receive a
$5,000 early childhood education access grant, which the parents must use to enroll the
student in the qualified early childhood educational program of their choice;
new text end

new text begin (3) not charge parents of qualified students a fee of any kind;
new text end

new text begin (4) not restrict the availability of access grants to students of any one qualified early
childhood educational program;
new text end

new text begin (5) report annually to the commissioner of education on:
new text end

new text begin (i) the number of students awarded access grants from contributions under the tax
credit program;
new text end

new text begin (ii) the total amount awarded in access grants from contributions under the tax
credit program; and
new text end

new text begin (iii) the total number of early childhood educational programs attended by access
grant recipients; and
new text end

new text begin (6) report annually no later than October 15 to the commissioner of education on
the names of students receiving access grants for the current school year, so that the
commissioner may reduce the amount of child care assistance under section 119B.03
provided to the students' families in the next calendar year as provided in section 119B.09,
subdivision 1, paragraph (d).
new text end

new text begin Parents of more than one qualified student are eligible to apply for and receive an access
grant for each qualified student.
new text end

new text begin Subd. 3. new text end

new text begin Credit allowed. new text end

new text begin A corporation is allowed a credit against the corporate
franchise tax due under this chapter equal to 75 percent of the amount contributed to early
childhood education access grant organizations for early childhood education access
grants. The maximum credit allowed any corporation in a taxable year is $2,500,000. The
credit may not be claimed for contributions designated for the use of a specific student.
The credit for the taxable year may not exceed the corporation's liability for tax. The
commissioner of revenue shall prescribe the manner in which the credit may be claimed.
This may include allowing the credit only as a separately processed claim for refund.
new text end

new text begin Subd. 4. new text end

new text begin Commissioner of education. new text end

new text begin (a) The commissioner of education must, on
application, certify organizations that meet the criteria provided in this section for early
childhood access grant organizations. The commissioner must maintain a list of certified
early childhood access grant organizations, and make the list available on the Department
of Education's Web site and by other means.
new text end

new text begin (b) The commissioner of education, in consultation with the commissioner of
revenue, must report annually to the committees of the legislature with jurisdiction over
early childhood education on:
new text end

new text begin (i) the total number of students awarded access grants from contributions under the
tax credit program, and summary information on the geographic distribution throughout
the state of access grant recipients;
new text end

new text begin (ii) the total amount awarded in access grants from contributions under the tax
credit program; and
new text end

new text begin (iii) the total number of early childhood educational programs attended by access
grant recipients.
new text end

new text begin Subd. 5. new text end

new text begin Application for credit certificate. new text end

new text begin A corporation shall apply to the
commissioner of education for a tax credit certificate. Tax credit certificates under this
section shall be made available by the commissioner of education on a first-come,
first-served basis until the maximum statewide credit amount has been reached. The
statewide credit maximum amount is $100,000,000 in fiscal year 2008 and following
years. A contribution by a corporation to an early childhood access grant organization
must be made no later than 60 days following written notification of the approval by the
commissioner of education of the application. The commissioner of education shall issue
the tax credit certificate in the amount of 75 percent of the amount contributed to an early
childhood access grant organization after the corporation has made the contribution. The
commissioner of education shall not issue a tax credit certificate for an amount greater
than $2,500,000.
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, 2006.
new text end