HF 1996

as introduced - 79th Legislature (1995 - 1996) Posted on 12/15/2009 12:00am

  1.1                          A bill for an act
  1.2             relating to insurance; authorizing the establishment 
  1.3             and use of medical savings accounts; exempting 
  1.4             contributions from taxation; amending Minnesota 
  1.5             Statutes 1994, section 290.01, subdivisions 19a, 19b, 
  1.6             and 19d; proposing coding for new law as Minnesota 
  1.7             Statutes, chapter 62S. 
  1.8   BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
  1.9      Section 1.  [62S.01] [CITATION.] 
  1.10     This act shall be known and may be cited as the "medical 
  1.11  care savings account act." 
  1.12     Sec. 2.  [62S.02] [DEFINITIONS.] 
  1.13     Subdivision 1.  [APPLICABILITY.] For purposes of this 
  1.14  chapter, the terms defined in this section have the meanings 
  1.15  given. 
  1.16     Subd. 2.  [ACCOUNT ADMINISTRATOR.] "Account administrator" 
  1.17  means any of the following: 
  1.18     (1) a health plan company as defined in section 62Q.01, 
  1.19  subdivision 4; 
  1.20     (2) a third-party administrator licensed under section 
  1.21  60A.23, subdivision 8; 
  1.22     (3) a certified public accountant licensed to practice in 
  1.23  this state under section 326.19; 
  1.24     (4) an attorney licensed to practice in this state; or 
  1.25     (5) an employer that participates in the medical care 
  1.26  savings account program, but with respect only to the employer's 
  2.1   own plan and the plans of related organizations as defined in 
  2.2   sections 302A.011, 317A.011, and 322B.03.  For purposes of this 
  2.3   clause, a self-employed individual is not an employer. 
  2.4      Subd. 3.  [CONTRIBUTOR.] "Contributor" means a participant, 
  2.5   a dependent of a participant, or an employer who contributes 
  2.6   money into a medical care savings account.  For purposes of this 
  2.7   subdivision, a self-employed individual who has employees is an 
  2.8   employer. 
  2.9      Subd. 4.  [DEDUCTIBLE.] "Deductible" means the total 
  2.10  deductible for a participant and all the dependents of that 
  2.11  participant for a plan year. 
  2.12     Subd. 5.  [DEPENDENT.] "Dependent" means a participant's 
  2.13  spouse, unmarried child who is under the age of 19 years, 
  2.14  unmarried child under the age of 25 years who is a full-time 
  2.15  student as defined in section 62A.301, dependent child of any 
  2.16  age who is handicapped and who meets the eligibility criteria in 
  2.17  section 62A.14, subdivision 2, or any other person whom state or 
  2.18  federal law requires to be treated as a dependent for purposes 
  2.19  of health plans.  For the purpose of this definition, a child 
  2.20  includes a child for whom the participant or the participant's 
  2.21  spouse has been appointed legal guardian. 
  2.22     Subd. 6.  [ELIGIBLE EXPENSE.] "Eligible expense" means an 
  2.23  expense incurred by an individual for medical, dental, or vision 
  2.24  care as described in section 213(d) of the Internal Revenue Code 
  2.25  of 1986, as amended.  Eligible expense includes expenses 
  2.26  incurred by an individual for services received from a 
  2.27  physician, as defined in subdivision 11.  Eligible expense 
  2.28  includes expenses for long-term care as described in section 
  2.29  62A.46, subdivision 2, or premiums for a long-term care policy 
  2.30  as defined under that section. 
  2.31     Subd. 7.  [HIGHER DEDUCTIBLE.] "Higher deductible" means a 
  2.32  deductible of not less than $1,000 and not more than $5,000 for 
  2.33  calendar year 1995.  The commissioner of commerce shall annually 
  2.34  adjust this minimum and maximum to reflect changes in the 
  2.35  Consumer Price Index for urban consumers (CPI-U).  The 
  2.36  adjustment must be issued no later than October 1 of each year 
  3.1   and must be based upon the most recent index available as of 
  3.2   September 1 of that year. 
  3.3      Subd. 8.  [MEDICAL CARE SAVINGS ACCOUNT OR ACCOUNT.] 
  3.4   "Medical care savings account" or "account" means an account 
  3.5   established by an individual, or by an employer on behalf of an 
  3.6   employee, as part of a medical care savings account plan. 
  3.7      Subd. 9.  [MEDICAL CARE SAVINGS ACCOUNT PLAN OR PLAN.] 
  3.8   "Medical care savings account plan" or "plan" means an 
  3.9   arrangement that meets the requirements of this chapter, 
  3.10  including the following: 
  3.11     (1) the purchase by an employer or individual of a 
  3.12  qualified higher deductible health plan for the benefit of a 
  3.13  participant and the participant's dependents; 
  3.14     (2) contribution to a medical care savings account by a 
  3.15  contributor; and 
  3.16     (3) an account administrator to administer the medical care 
  3.17  savings account from which payment of claims is made. 
  3.18     Subd. 10.  [PARTICIPANT.] "Participant" means an employed, 
  3.19  self-employed, or nonemployed individual who:  (1) has 
  3.20  established a medical care savings account, or has had a medical 
  3.21  care savings account established by an employer on the 
  3.22  individual's behalf; and (2) participates in a medical care 
  3.23  savings account plan. 
  3.24     Subd. 11.  [PHYSICIAN.] "Physician" means:  (1) a doctor of 
  3.25  medicine or osteopathy licensed under chapter 147; (2) a doctor 
  3.26  of dental surgery or of dental medicine licensed under chapter 
  3.27  150A; (3) a doctor of podiatric medicine licensed under chapter 
  3.28  153; (4) an optometrist licensed under chapter 148; or (5) a 
  3.29  chiropractor licensed under chapter 148. 
  3.30     Subd. 12.  [QUALIFIED HIGHER DEDUCTIBLE HEALTH PLAN.] 
  3.31  "Qualified higher deductible health plan" means a health plan, 
  3.32  as defined in section 62A.011, that provides for payments for 
  3.33  covered benefits that exceed a specified higher deductible and 
  3.34  that is purchased by an employer or individual for the benefit 
  3.35  of a participant under a medical care savings account plan. 
  3.36     Subd. 13.  [SELF-EMPLOYED INDIVIDUAL.] "Self-employed 
  4.1   individual" has the meaning given in section 401(c) of the 
  4.2   Internal Revenue Code of 1986, as amended. 
  4.3      Sec. 3.  [62S.03] [ESTABLISHMENT.] 
  4.4      Subdivision 1.  [EMPLOYERS.] Beginning January 1, 1996, an 
  4.5   employer, except as otherwise provided by law, contract, or 
  4.6   collective bargaining agreement, may offer to employees a 
  4.7   medical care savings account plan, subject to the requirements 
  4.8   of this chapter.  The plan must be on a calendar year basis.  
  4.9   For purposes of this subdivision, a self-employed individual who 
  4.10  has employees is an employer. 
  4.11     An employer that offers a medical care savings account plan 
  4.12  shall inform all employees in writing, before making any 
  4.13  contributions, of the federal tax status of contributions made 
  4.14  under this chapter. 
  4.15     Subd. 2.  [INDIVIDUALS.] For tax years beginning on or 
  4.16  after January 1, 1996, an employed, self-employed, or 
  4.17  nonemployed individual may establish a medical care savings 
  4.18  account and participate in a medical care savings account plan, 
  4.19  subject to the requirements of this chapter.  A plan established 
  4.20  by an individual must be on a calendar year basis, unless the 
  4.21  individual's tax year is not on a calendar year basis, in which 
  4.22  case the plan year must correspond with the individual's tax 
  4.23  year. 
  4.24     Subd. 3.  [CONTRIBUTIONS INTO ACCOUNT.] A contributor may 
  4.25  deposit into a medical care savings account, on behalf of a 
  4.26  participant, all or part of the deductible of the qualified 
  4.27  higher deductible health plan purchased. 
  4.28     Sec. 4.  [62S.04] [ADMINISTRATION.] 
  4.29     Subdivision 1.  [NOTIFICATION.] No later than 30 days after 
  4.30  an account administrator begins to administer an account, and no 
  4.31  later than November 1 of subsequent years, the administrator 
  4.32  shall notify in writing each participant of the date of the last 
  4.33  business day of the medical care savings account plan year. 
  4.34     Subd. 2.  [USE OF FUNDS.] The account administrator shall 
  4.35  use the funds held in a medical care savings account solely for 
  4.36  the purpose of paying the eligible expenses of the participant 
  5.1   or the participant's dependents.  Funds held in a medical care 
  5.2   savings account must not be used to cover eligible expenses of a 
  5.3   participant or a participant's dependents that are otherwise 
  5.4   covered under private coverage, including, but not limited to, 
  5.5   expenses covered by an automobile insurance policy or 
  5.6   self-insured plan, workers' compensation insurance policy or 
  5.7   self-insured plan, or another health coverage policy, contract, 
  5.8   or certificate. 
  5.9      Subd. 3.  [REIMBURSEMENT.] Upon receipt of documentation of 
  5.10  eligible expenses incurred by a participant in the plan year, 
  5.11  the account administrator shall reimburse the participant from 
  5.12  the participant's account for eligible expenses.  Eligible 
  5.13  expenses incurred during a plan year and not submitted to the 
  5.14  account administrator during that plan year, or submitted to the 
  5.15  plan administrator during that plan year but not reimbursed 
  5.16  during that plan year, may be reimbursed by the account 
  5.17  administrator in the subsequent plan year. 
  5.18     Subd. 4.  [ADVANCE TO PARTICIPANT.] If an employer makes 
  5.19  contributions to a participant's medical care savings account on 
  5.20  a periodic installment basis, the employer shall advance to the 
  5.21  participant, interest free, the amount necessary to cover 
  5.22  eligible expenses incurred by the participant that exceed the 
  5.23  amount in the participant's medical care savings account at the 
  5.24  time the expense is incurred, if the participant agrees in 
  5.25  writing to repay the advance from future installments.  The 
  5.26  total amount advanced by an employer during a tax year must not 
  5.27  exceed the total to be contributed by the employer to the 
  5.28  participant's medical care savings account during that plan year.
  5.29     Subd. 5.  [CARRYOVER.] Money remaining in a participant's 
  5.30  medical care savings account at the end of a plan year remains 
  5.31  in the account for the next plan year, and may be used to pay 
  5.32  for future eligible expenses of the participant or the 
  5.33  participant's dependents. 
  5.34     Subd. 6.  [PARTICIPATION AT START OF PLAN YEAR.] Employers 
  5.35  that offer a medical care savings account plan may, at their 
  5.36  option, allow employees to begin participation only at the start 
  6.1   of a plan year.  Employers may offer alternative health care 
  6.2   coverage to employees who become eligible for or choose to 
  6.3   enroll in employee-sponsored health care coverage during the 
  6.4   interim period before the start of a plan year. 
  6.5      Subd. 7.  [INTEREST.] A medical care savings account may 
  6.6   earn interest, to be credited to the account, but the principal 
  6.7   balance of the account, including accrued interest, must not 
  6.8   vary in any way based upon market conditions. 
  6.9      Sec. 5.  [62S.05] [TAXATION OF WITHDRAWALS.] 
  6.10     Subdivision 1.  [WITHDRAWALS FOR OTHER PURPOSES.] A 
  6.11  participant may withdraw money from a medical care savings 
  6.12  account for any purpose other than a purpose described in 
  6.13  section 62S.04, subdivision 2, only on the last business day of 
  6.14  the medical care savings account plan year.  Money withdrawn 
  6.15  under this subdivision is subject to taxation as income to the 
  6.16  extent provided in section 290.01, subdivision 19a. 
  6.17     Subd. 2.  [BANKRUPTCY.] The disbursement of any assets of a 
  6.18  medical care savings account as a result of a filing for 
  6.19  protection under the federal bankruptcy code, United States 
  6.20  Code, title 11, sections 101 to 1330, as amended, by a 
  6.21  participant or other person for whose benefit the account was 
  6.22  established is not considered a withdrawal for purposes of this 
  6.23  section.  The disbursement is not subject to taxation under 
  6.24  chapter 290. 
  6.25     Sec. 6.  [62S.06] [CHANGES IN PARTICIPANT STATUS.] 
  6.26     Subdivision 1.  [DEATH OF PARTICIPANT.] (a) For purposes of 
  6.27  this subdivision, the following terms have the meanings given: 
  6.28     (1) "Designated beneficiary" means one or more individuals 
  6.29  designated in a written document, signed by the participant and 
  6.30  given to the employer or account administrator prior to the 
  6.31  participant's death, in which the participant designates the 
  6.32  individuals to receive the account balance upon the death of the 
  6.33  participant.  The designation may designate a class of unnamed 
  6.34  individuals, such as "my children" or "my spouse." 
  6.35     (2) "Successor" means a person or persons entitled to the 
  6.36  account balance of a deceased participant under chapter 524 or 
  7.1   525, including but not limited to, a personal representative or 
  7.2   a successor described in section 524.3-401 or 524.3-1201. 
  7.3      (b) If the participant dies, a designated beneficiary has 
  7.4   priority over a successor with respect to paragraph (c). 
  7.5      (c) Upon the death of a participant, the account 
  7.6   administrator shall distribute the principal and accumulated 
  7.7   interest of the medical care savings account to the designated 
  7.8   beneficiary or successor of the participant, unless the 
  7.9   participant's designated beneficiary or successor requests the 
  7.10  account administrator to continue to administer the medical care 
  7.11  savings account.  If this request is made, the account 
  7.12  administrator shall retain the account balance for use by the 
  7.13  designated beneficiary or successor for eligible expenses, 
  7.14  including health plan continuation premiums, and withdrawals 
  7.15  under section 62S.05 until the medical care savings account fund 
  7.16  balance is exhausted.  If the account balance is distributed to 
  7.17  the designated beneficiary or successor of the participant, the 
  7.18  funds are subject to taxation to the extent provided in section 
  7.19  290.01, subdivision 19a, unless the participant's designated 
  7.20  beneficiary or successor deposits the account balance in another 
  7.21  medical care savings account within 60 days of the distribution. 
  7.22     Subd. 2.  [CHANGES IN EMPLOYMENT STATUS.] (a) If an 
  7.23  employee who was a participant in an employer's medical care 
  7.24  savings account plan is no longer employed by the employer, the 
  7.25  employee may transfer the account to the administrator of a 
  7.26  medical care savings account plan offered by the employee's new 
  7.27  employer.  The employee must notify the new administrator of the 
  7.28  request for transfer within 60 days after the employee's final 
  7.29  day of employment with the previous employer.  An employer 
  7.30  sponsoring a medical care savings account plan shall accept all 
  7.31  requests for account transfers by new employees, if the request 
  7.32  for a transfer is made within this 60-day period, regardless of 
  7.33  whether the new employee is then otherwise eligible to 
  7.34  participate in the new employer's plan.  The new administrator 
  7.35  must arrange with the former administrator for transfer of the 
  7.36  account, and the former administrator must transfer the full 
  8.1   account balance promptly.  An amount transferred under this 
  8.2   paragraph is not subject to taxation. 
  8.3      (b) If the employee does not request a transfer under 
  8.4   paragraph (a), the employee may request in writing to the former 
  8.5   employer's account administrator, no later than 60 days after 
  8.6   the employee's final day of employment, that the account remain 
  8.7   with that administrator.  If the administrator rejects the 
  8.8   employee's request, the former employer shall mail a check 
  8.9   payable to the former employee, in the amount of the former 
  8.10  employee's account balance, to the employee's last known address 
  8.11  no later than 30 days after the expiration of the 60-day period, 
  8.12  or 30 days after rejecting the request, whichever is earlier.  
  8.13  That amount is subject to taxation to the extent provided under 
  8.14  section 290.01, subdivision 19a, unless the employee establishes 
  8.15  or becomes a participant in another medical care savings account 
  8.16  and deposits the full amount received from the former employer 
  8.17  in that account, within 60 days of receipt. 
  8.18     Sec. 7.  [REQUIREMENTS; HEALTH PLAN COMPANIES.] 
  8.19     Subdivision 1.  [HEALTH PLAN REQUIREMENTS.] A qualified 
  8.20  higher deductible health plan used in connection with a medical 
  8.21  care savings account plan must meet all requirements applicable 
  8.22  to the health plan under state or federal law, including but not 
  8.23  limited to, coverage of child health supervision services and 
  8.24  prenatal services without a deductible, copayment, or other 
  8.25  coinsurance or dollar limitation requirements, as required under 
  8.26  section 62A.047. 
  8.27     Subd. 2.  [SMALL EMPLOYER MARKET AND REINSURANCE 
  8.28  PARTICIPATION.] A health plan company that serves as an account 
  8.29  administrator or issues a qualified higher deductible health 
  8.30  plan in connection with a medical care savings account sponsored 
  8.31  by a small employer as defined under section 62L.02, subdivision 
  8.32  26, must: 
  8.33     (1) actively participate in the small employer market under 
  8.34  chapter 62L, including the active marketing of qualified plans 
  8.35  in that market as required under sections 62E.04, subdivision 3, 
  8.36  and 62L.04, subdivision 1; and 
  9.1      (2) be a member of the health coverage reinsurance 
  9.2   association established in section 62L.13 and must not elect 
  9.3   nonparticipation in that association under section 62L.17. 
  9.4      Subd. 3.  [RISK ADJUSTMENT PARTICIPATION.] A health plan 
  9.5   company that serves as an account administrator or issues a 
  9.6   qualified higher deductible health plan in connection with a 
  9.7   medical care savings account shall be a member of and 
  9.8   participate in the risk adjustment association established in 
  9.9   section 62Q.03.  If that association offers members an option to 
  9.10  elect not to participate in risk adjustment, the health plan 
  9.11  company shall not elect not to participate. 
  9.12     Sec. 8.  Minnesota Statutes 1994, section 290.01, 
  9.13  subdivision 19a, is amended to read: 
  9.14     Subd. 19a.  [ADDITIONS TO FEDERAL TAXABLE INCOME.] For 
  9.15  individuals, estates, and trusts, there shall be added to 
  9.16  federal taxable income: 
  9.17     (1)(i) interest income on obligations of any state other 
  9.18  than Minnesota or a political or governmental subdivision, 
  9.19  municipality, or governmental agency or instrumentality of any 
  9.20  state other than Minnesota exempt from federal income taxes 
  9.21  under the Internal Revenue Code or any other federal statute, 
  9.22  and 
  9.23     (ii) exempt-interest dividends as defined in section 
  9.24  852(b)(5) of the Internal Revenue Code, except the portion of 
  9.25  the exempt-interest dividends derived from interest income on 
  9.26  obligations of the state of Minnesota or its political or 
  9.27  governmental subdivisions, municipalities, governmental agencies 
  9.28  or instrumentalities, but only if the portion of the 
  9.29  exempt-interest dividends from such Minnesota sources paid to 
  9.30  all shareholders represents 95 percent or more of the 
  9.31  exempt-interest dividends that are paid by the regulated 
  9.32  investment company as defined in section 851(a) of the Internal 
  9.33  Revenue Code, or the fund of the regulated investment company as 
  9.34  defined in section 851(h) of the Internal Revenue Code, making 
  9.35  the payment; and 
  9.36     (iii) for the purposes of items (i) and (ii), interest on 
 10.1   obligations of an Indian tribal government described in section 
 10.2   7871(c) of the Internal Revenue Code shall be treated as 
 10.3   interest income on obligations of the state in which the tribe 
 10.4   is located; 
 10.5      (2) the amount of income taxes paid or accrued within the 
 10.6   taxable year under this chapter and income taxes paid to any 
 10.7   other state or to any province or territory of Canada, to the 
 10.8   extent allowed as a deduction under section 63(d) of the 
 10.9   Internal Revenue Code, but the addition may not be more than the 
 10.10  amount by which the itemized deductions as allowed under section 
 10.11  63(d) of the Internal Revenue Code exceeds the amount of the 
 10.12  standard deduction as defined in section 63(c) of the Internal 
 10.13  Revenue Code.  For the purpose of this paragraph, the 
 10.14  disallowance of itemized deductions under section 68 of the 
 10.15  Internal Revenue Code of 1986, income tax is the last itemized 
 10.16  deduction disallowed; 
 10.17     (3) the capital gain amount of a lump sum distribution to 
 10.18  which the special tax under section 1122(h)(3)(B)(ii) of the Tax 
 10.19  Reform Act of 1986, Public Law Number 99-514, applies; and 
 10.20     (4) the amount of income taxes paid or accrued within the 
 10.21  taxable year under this chapter and income taxes paid to any 
 10.22  other state or any province or territory of Canada, to the 
 10.23  extent allowed as a deduction in determining federal adjusted 
 10.24  gross income.  For the purpose of this paragraph, income taxes 
 10.25  do not include the taxes imposed by sections 290.0922, 
 10.26  subdivision 1, paragraph (b), 290.9727, 290.9728, and 290.9729; 
 10.27  and 
 10.28     (5) a withdrawal from a medical care savings account under 
 10.29  section 62S.05, subdivision 1, other than a withdrawal that 
 10.30  qualifies under section 62S.05, subdivision 2. 
 10.31     Sec. 9.  Minnesota Statutes 1994, section 290.01, 
 10.32  subdivision 19b, is amended to read: 
 10.33     Subd. 19b.  [SUBTRACTIONS FROM FEDERAL TAXABLE INCOME.] For 
 10.34  individuals, estates, and trusts, there shall be subtracted from 
 10.35  federal taxable income: 
 10.36     (1) interest income on obligations of any authority, 
 11.1   commission, or instrumentality of the United States to the 
 11.2   extent includable in taxable income for federal income tax 
 11.3   purposes but exempt from state income tax under the laws of the 
 11.4   United States; 
 11.5      (2) if included in federal taxable income, the amount of 
 11.6   any overpayment of income tax to Minnesota or to any other 
 11.7   state, for any previous taxable year, whether the amount is 
 11.8   received as a refund or as a credit to another taxable year's 
 11.9   income tax liability; 
 11.10     (3) the amount paid to others not to exceed $650 for each 
 11.11  dependent in grades kindergarten to 6 and $1,000 for each 
 11.12  dependent in grades 7 to 12, for tuition, textbooks, and 
 11.13  transportation of each dependent in attending an elementary or 
 11.14  secondary school situated in Minnesota, North Dakota, South 
 11.15  Dakota, Iowa, or Wisconsin, wherein a resident of this state may 
 11.16  legally fulfill the state's compulsory attendance laws, which is 
 11.17  not operated for profit, and which adheres to the provisions of 
 11.18  the Civil Rights Act of 1964 and chapter 363.  As used in this 
 11.19  clause, "textbooks" includes books and other instructional 
 11.20  materials and equipment used in elementary and secondary schools 
 11.21  in teaching only those subjects legally and commonly taught in 
 11.22  public elementary and secondary schools in this state.  
 11.23  "Textbooks" does not include instructional books and materials 
 11.24  used in the teaching of religious tenets, doctrines, or worship, 
 11.25  the purpose of which is to instill such tenets, doctrines, or 
 11.26  worship, nor does it include books or materials for, or 
 11.27  transportation to, extracurricular activities including sporting 
 11.28  events, musical or dramatic events, speech activities, driver's 
 11.29  education, or similar programs.  In order to qualify for the 
 11.30  subtraction under this clause the taxpayer must elect to itemize 
 11.31  deductions under section 63(e) of the Internal Revenue Code; 
 11.32     (4) to the extent included in federal taxable income, 
 11.33  distributions from a qualified governmental pension plan, an 
 11.34  individual retirement account, simplified employee pension, or 
 11.35  qualified plan covering a self-employed person that represent a 
 11.36  return of contributions that were included in Minnesota gross 
 12.1   income in the taxable year for which the contributions were made 
 12.2   but were deducted or were not included in the computation of 
 12.3   federal adjusted gross income.  The distribution shall be 
 12.4   allocated first to return of contributions until the 
 12.5   contributions included in Minnesota gross income have been 
 12.6   exhausted.  This subtraction applies only to contributions made 
 12.7   in a taxable year prior to 1985; 
 12.8      (5) income as provided under section 290.0802; 
 12.9      (6) the amount of unrecovered accelerated cost recovery 
 12.10  system deductions allowed under subdivision 19g; 
 12.11     (7) to the extent included in federal adjusted gross 
 12.12  income, income realized on disposition of property exempt from 
 12.13  tax under section 290.491; and 
 12.14     (8) to the extent not deducted in determining federal 
 12.15  taxable income, the amount paid for health insurance of 
 12.16  self-employed individuals as determined under section 162(l) of 
 12.17  the Internal Revenue Code, except that the 25 percent limit does 
 12.18  not apply.  If the taxpayer deducted insurance payments under 
 12.19  section 213 of the Internal Revenue Code of 1986, the 
 12.20  subtraction under this clause must be reduced by the lesser of: 
 12.21     (i) the total itemized deductions allowed under section 
 12.22  63(d) of the Internal Revenue Code, less state, local, and 
 12.23  foreign income taxes deductible under section 164 of the 
 12.24  Internal Revenue Code and the standard deduction under section 
 12.25  63(c) of the Internal Revenue Code; or 
 12.26     (ii) the lesser of (A) the amount of insurance qualifying 
 12.27  as "medical care" under section 213(d) of the Internal Revenue 
 12.28  Code to the extent not deducted under section 162(1) of the 
 12.29  Internal Revenue Code or excluded from income or (B) the total 
 12.30  amount deductible for medical care under section 213(a); and 
 12.31     (9) contributions to and investment income attributable to 
 12.32  medical care savings accounts, as defined in section 62S.02. 
 12.33     Sec. 10.  Minnesota Statutes 1994, section 290.01, 
 12.34  subdivision 19d, is amended to read: 
 12.35     Subd. 19d.  [CORPORATIONS; MODIFICATIONS DECREASING FEDERAL 
 12.36  TAXABLE INCOME.] For corporations, there shall be subtracted 
 13.1   from federal taxable income after the increases provided in 
 13.2   subdivision 19c:  
 13.3      (1) the amount of foreign dividend gross-up added to gross 
 13.4   income for federal income tax purposes under section 78 of the 
 13.5   Internal Revenue Code; 
 13.6      (2) the amount of salary expense not allowed for federal 
 13.7   income tax purposes due to claiming the federal jobs credit 
 13.8   under section 51 of the Internal Revenue Code; 
 13.9      (3) any dividend (not including any distribution in 
 13.10  liquidation) paid within the taxable year by a national or state 
 13.11  bank to the United States, or to any instrumentality of the 
 13.12  United States exempt from federal income taxes, on the preferred 
 13.13  stock of the bank owned by the United States or the 
 13.14  instrumentality; 
 13.15     (4) amounts disallowed for intangible drilling costs due to 
 13.16  differences between this chapter and the Internal Revenue Code 
 13.17  in taxable years beginning before January 1, 1987, as follows: 
 13.18     (i) to the extent the disallowed costs are represented by 
 13.19  physical property, an amount equal to the allowance for 
 13.20  depreciation under Minnesota Statutes 1986, section 290.09, 
 13.21  subdivision 7, subject to the modifications contained in 
 13.22  subdivision 19e; and 
 13.23     (ii) to the extent the disallowed costs are not represented 
 13.24  by physical property, an amount equal to the allowance for cost 
 13.25  depletion under Minnesota Statutes 1986, section 290.09, 
 13.26  subdivision 8; 
 13.27     (5) the deduction for capital losses pursuant to sections 
 13.28  1211 and 1212 of the Internal Revenue Code, except that: 
 13.29     (i) for capital losses incurred in taxable years beginning 
 13.30  after December 31, 1986, capital loss carrybacks shall not be 
 13.31  allowed; 
 13.32     (ii) for capital losses incurred in taxable years beginning 
 13.33  after December 31, 1986, a capital loss carryover to each of the 
 13.34  15 taxable years succeeding the loss year shall be allowed; 
 13.35     (iii) for capital losses incurred in taxable years 
 13.36  beginning before January 1, 1987, a capital loss carryback to 
 14.1   each of the three taxable years preceding the loss year, subject 
 14.2   to the provisions of Minnesota Statutes 1986, section 290.16, 
 14.3   shall be allowed; and 
 14.4      (iv) for capital losses incurred in taxable years beginning 
 14.5   before January 1, 1987, a capital loss carryover to each of the 
 14.6   five taxable years succeeding the loss year to the extent such 
 14.7   loss was not used in a prior taxable year and subject to the 
 14.8   provisions of Minnesota Statutes 1986, section 290.16, shall be 
 14.9   allowed; 
 14.10     (6) an amount for interest and expenses relating to income 
 14.11  not taxable for federal income tax purposes, if (i) the income 
 14.12  is taxable under this chapter and (ii) the interest and expenses 
 14.13  were disallowed as deductions under the provisions of section 
 14.14  171(a)(2), 265 or 291 of the Internal Revenue Code in computing 
 14.15  federal taxable income; 
 14.16     (7) in the case of mines, oil and gas wells, other natural 
 14.17  deposits, and timber for which percentage depletion was 
 14.18  disallowed pursuant to subdivision 19c, clause (11), a 
 14.19  reasonable allowance for depletion based on actual cost.  In the 
 14.20  case of leases the deduction must be apportioned between the 
 14.21  lessor and lessee in accordance with rules prescribed by the 
 14.22  commissioner.  In the case of property held in trust, the 
 14.23  allowable deduction must be apportioned between the income 
 14.24  beneficiaries and the trustee in accordance with the pertinent 
 14.25  provisions of the trust, or if there is no provision in the 
 14.26  instrument, on the basis of the trust's income allocable to 
 14.27  each; 
 14.28     (8) for certified pollution control facilities placed in 
 14.29  service in a taxable year beginning before December 31, 1986, 
 14.30  and for which amortization deductions were elected under section 
 14.31  169 of the Internal Revenue Code of 1954, as amended through 
 14.32  December 31, 1985, an amount equal to the allowance for 
 14.33  depreciation under Minnesota Statutes 1986, section 290.09, 
 14.34  subdivision 7; 
 14.35     (9) the amount included in federal taxable income 
 14.36  attributable to the credits provided in Minnesota Statutes 1986, 
 15.1   section 273.1314, subdivision 9, or Minnesota Statutes, section 
 15.2   469.171, subdivision 6; 
 15.3      (10) amounts included in federal taxable income that are 
 15.4   due to refunds of income, excise, or franchise taxes based on 
 15.5   net income or related minimum taxes paid by the corporation to 
 15.6   Minnesota, another state, a political subdivision of another 
 15.7   state, the District of Columbia, or a foreign country or 
 15.8   possession of the United States to the extent that the taxes 
 15.9   were added to federal taxable income under section 290.01, 
 15.10  subdivision 19c, clause (1), in a prior taxable year; 
 15.11     (11) the following percentage of royalties, fees, or other 
 15.12  like income accrued or received from a foreign operating 
 15.13  corporation or a foreign corporation which is part of the same 
 15.14  unitary business as the receiving corporation: 
 15.15        Taxable Year 
 15.16        Beginning After .......... Percentage 
 15.17        December 31, 1988 ........ 50 percent 
 15.18        December 31, 1990 ........ 80 percent;    
 15.19     (12) income or gains from the business of mining as defined 
 15.20  in section 290.05, subdivision 1, clause (a), that are not 
 15.21  subject to Minnesota franchise tax; 
 15.22     (13) the amount of handicap access expenditures in the 
 15.23  taxable year which are not allowed to be deducted or capitalized 
 15.24  under section 44(d)(7) of the Internal Revenue Code of 1986; 
 15.25     (14) the amount of qualified research expenses not allowed 
 15.26  for federal income tax purposes under section 280C(c) of the 
 15.27  Internal Revenue Code, but only to the extent that the amount 
 15.28  exceeds the amount of the credit allowed under section 290.068; 
 15.29  and 
 15.30     (15) the amount of salary expenses not allowed for federal 
 15.31  income tax purposes due to claiming the Indian employment credit 
 15.32  under section 45A(a) of the Internal Revenue Code of 1986, as 
 15.33  amended through December 31, 1993; and 
 15.34     (16) to the extent included in federal taxable income for 
 15.35  the taxable year, investment income attributable to a medical 
 15.36  care savings account, as defined in section 62S.02. 
 16.1      Sec. 11.  [EFFECTIVE DATE.] 
 16.2      Sections 1 to 10 are effective January 1, 1997, and apply 
 16.3   to all tax years beginning on or after that date.