HF 2282

as introduced - 89th Legislature (2015 - 2016) Posted on 05/01/2015 11:18am

A bill for an act
relating to taxation; individual income and corporate franchise tax; providing
for contingent federal conformity; reducing taxes; creating a contingent federal
conformity account; transferring and appropriating money; proposing coding for
new law in Minnesota Statutes, chapter 290.

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

Section 1.

new text begin [290.016] CONTINGENT FEDERAL CONFORMITY; TAX YEARS
2015 AND 2016.
new text end

new text begin Subdivision 1. new text end

new text begin Legislative purpose. new text end

new text begin (a) The legislature intends this section to
provide a mechanism for conforming the Minnesota individual income and corporate
franchise taxes to federal tax legislation that Congress regularly passes after the legislature
has adjourned and that affect a taxable year that ends before the legislature reconvenes
in a regular legislative session. In recent years, Congress has repeatedly passed tax laws
late in the year, often in November or December, that affect computation of the tax for
that taxable year. Many of these changes affect computation of Minnesota tax through its
linkage to federal taxable income or other provisions of federal law. The federal changes
consist mainly of extending provisions that reduce revenues and that are scheduled to
expire so that Congress can create the appearance that it is not permanently reducing the
federal budget in enacting these provisions. Because the legislature does not reconvene in
regular legislative session until January at the earliest under the Minnesota Constitution,
after the end of the taxable year, and because Minnesota law is linked to federal law
as it exists on a specific date, taxpayers and the Department of Revenue must assume
that Minnesota law does not include the effect of these federal extenders, even though
the legislature regularly adopts most of the federal provisions retroactively in the next
legislative session. This situation affects the ability to determine how to comply with and
administer Minnesota income tax law, causing delay, uncertainty, and added costs for all
concerned and making it difficult for taxpayers to do routine tax planning.
new text end

new text begin (b) The purpose of this section is to provide clear notice to the taxpayers, software
providers, tax preparers, and the Department of Revenue as to how Minnesota law will
treat these federal extender provisions when Congress adopts them. The mechanism is
intended to allow for timely preparation of forms, modification of software, and a prompt
and smooth start to the Minnesota tax filing season as the congressional action will allow,
given that the legislature may not be in session until after the start of the filing season.
Absent this or a similar mechanism, taxpayers and the Department of Revenue will be
unable to determine how to compute their tax liability until the legislature can convene
and pass a new law, which it may not be practical to do until well after the tax filing
season has begun. This is especially true in 2016 when reconstruction of the Capitol may
delay the reconvening of the legislature. The legislature's intent, as expressed in the
substantive provisions of this section, is to conform to the federal extenders, including
minor modifications of them, in order to make Minnesota tax law easier to comply with
and administer. The legislature also recognizes that the primary effect of this situation is to
reduce taxes and is allocating a specific dollar amount that will be used for tax reductions
without regard to the action that congress takes.
new text end

new text begin (c) By expressing its clear intent regarding specific federal provisions and providing
guidance as to how to treat the federal extender provisions, the legislature is exercising its
legislative power and is not unconstitutionally delegating to congress or the commissioner
of revenue the authority to determine Minnesota tax law. The legislature believes that this
section is consistent with the Minnesota Supreme Court's ruling in the case of Wallace v.
Commissioner of Taxation, 289 Minn. 220 (1971).
new text end

new text begin Subd. 2. new text end

new text begin Contingent federal conformity account established; transfer. new text end

new text begin (a) A
contingent federal conformity account is established in the general fund. Money in the
account is available for transfer to the general fund to offset the reduction in general
fund revenues resulting from conforming Minnesota tax law to federal tax law under this
section if Congress enacts a law that extends an eligible federal tax preference to apply to
a taxable year beginning after December 31, 2014, and before January 1, 2017.
new text end

new text begin (b) On July 1, 2015, $105,000,000 is transferred from the general fund to the
contingent federal conformity account. Of this amount, $68,000,000 is set aside to
offset the revenue loss from conforming to eligible federal preferences for taxable years
beginning during calendar year 2015 and $37,000,000 for taxable years beginning during
calendar year 2016. Any amount allocated for 2015 that is not used is carried over to 2016.
new text end

new text begin (c) Any amounts not used under paragraph (b) must be used to reduce the tax
imposed under section 290.06, subdivision 2c. To carry out this requirement, the
commissioner shall, in making the annual adjustment of the dollar amounts of the tax rate
brackets under section 290.06, subdivision 2d, for taxable years beginning during 2017,
proportionately increase each dollar amount of the 5.35 rate bracket by amounts, rounded
to the nearest $10 amount, sufficient to eliminate any remaining amounts in the contingent
federal conformity account. The resulting increases in the dollar amounts are onetime
adjustments and subsequent adjustments for taxable years beginning in calendar year 2018
and later must be made without regard to any increases made under this subdivision.
new text end

new text begin Subd. 3. new text end

new text begin Eligible federal tax preferences. new text end

new text begin For purposes of this section and section
290.01, the term "eligible federal tax preferences" means any of the following items that
are not in effect under the Internal Revenue Code for either the taxable years beginning
during calendar year 2015 or 2016:
new text end

new text begin (1) discharge of qualified principal residence indebtedness under subparagraph (E),
section 108(a)(1), of the Internal Revenue Code;
new text end

new text begin (2) qualified tuition and related expenses under section 222 of the Internal Revenue
Code;
new text end

new text begin (3) expenses of elementary and secondary school teachers under subparagraph (D),
section 62(a)(2), of the Internal Revenue Code;
new text end

new text begin (4) mortgage insurance premiums treated as qualified residence interest under
subparagraph (E), section 163(h)(3), of the Internal Revenue Code;
new text end

new text begin (5) the special rule for contributions of capital gain real property made for
conservation purposes under sections 170(b)(1)(E) and 170(b)(2)(B) of the Internal
Revenue Code;
new text end

new text begin (6) tax-free distributions from individual retirement accounts for charitable purposes
under section 408(d)(8) of the Internal Revenue Code;
new text end

new text begin (7) classification of certain race horses as 3-year property under clauses (i) and (ii)
of section 168(e)(3)(A) of the Internal Revenue Code;
new text end

new text begin (8) 15-year straight-line cost recovery for qualified leasehold improvements,
qualified restaurant buildings and improvements, and qualified retail improvements under
clauses (iv), (v), and (ix) of section 168(e)(3)(E) of the Internal Revenue Code;
new text end

new text begin (9) 7-year recovery period for motorsports entertainment complexes under section
168(i)(15) of the Internal Revenue Code;
new text end

new text begin (10) accelerated depreciation for business property on an Indian reservation under
section 168(j) of the Internal Revenue Code;
new text end

new text begin (11) enhanced deduction for contributions of food inventory under section
170(e)(3)(C) of the Internal Revenue Code;
new text end

new text begin (12) election to expense mine safety equipment under section 179E of the Internal
Revenue Code;
new text end

new text begin (13) special expensing rules for certain film and television productions under section
181 of the Internal Revenue Code;
new text end

new text begin (14) modification of tax treatment of certain payments to controlling exempt
organizations under subparagraph (E), section 512(b)(13), of the Internal Revenue Code;
new text end

new text begin (15) treatment of certain dividends of regulated investment companies under section
871(k) of the Internal Revenue Code;
new text end

new text begin (16) subpart F exception for active financing income under section 953(e) of the
Internal Revenue Code;
new text end

new text begin (17) temporary exclusion of 100 percent of gain on certain small business stock
under section 1202(a) of the Internal Revenue Code;
new text end

new text begin (18) basis adjustment of stock of S corporations making charitable contributions of
property under section 1367(a) of the Internal Revenue Code;
new text end

new text begin (19) reduction in S corporation recognition period for built-in gains tax under section
1374(d)(7) of the Internal Revenue Code;
new text end

new text begin (20) special allowance for second-generation biofuel plant property under section
168(l) of the Internal Revenue Code;
new text end

new text begin (21) energy efficient commercial buildings deduction under section 179D of the
Internal Revenue Code; and
new text end

new text begin (22) the $500,000 and $2,000,000 limitations under section 179 of the Internal
Revenue Code.
new text end

new text begin Subd. 4. new text end

new text begin Designation of qualifying federal conformity items. new text end

new text begin (a) If following
final adjournment of the 2015 Minnesota legislature or final adjournment of the 2016
Minnesota legislature, Congress enacts a law that extends one or more of the eligible
federal tax preferences respectively to taxable years beginning during calendar year 2015
or to taxable years beginning during calendar 2016, the commissioner shall prepare a list
of qualifying federal conformity items and publish it on the Department of Revenue Web
site within 30 days following enactment of the law. In preparing the list, the commissioner
shall estimate the reduction in revenue resulting from allowing the eligible federal tax
preferences, including the effect of subdivision 8, for the current and succeeding fiscal
year only. The commissioner shall not include an item on the list of qualifying federal
conformity items if its inclusion would cause the estimated total reduction in general fund
revenues to exceed the amount available in the contingent federal conformity account for
transfer to the general fund for the taxable year.
new text end

new text begin (b) In determining whether there are sufficient funds in the account, the commissioner
shall consider the provisions of subdivision 8 as the first item to include on the list of
qualifying conformity items, and shall consider the $500,000 and $2,000,000 limits under
section 179 of the Internal Revenue Code as the last item to include on the list of qualifying
conformity items. If there are insufficient funds in the account to offset full conformity to
section 179 deductions in the taxable year the expense is allowed for federal purposes,
then the provisions of section 290.01, subdivisions 19a, clause (8); 19b, clause (13); 19c,
clause (13); and 19d, clause (15), apply to determine the appropriate taxable year in which
the section 179 expenses are allowed. If there are insufficient funds in the account to offset
full conformity for all of the eligible federal tax preferences other than section 179, the
commissioner shall apply the following priorities in determining which items to include:
new text end

new text begin (1) the effect of all the eligible federal tax preferences on computation of federal
adjusted gross income and household income under chapter 290A is the first priority;
new text end

new text begin (2) the items in subdivision 3, clauses (6) to (21), in that order are the second priority;
new text end

new text begin (3) the items in subdivision 3, clauses (1) to (5), in that order are the third priority; and
new text end

new text begin (4) the effect of the federal law on computation of Minnesota tax credits is the
last priority.
new text end

new text begin (c) In determining whether to include an eligible federal tax preference on the list
of qualifying federal conformity items, the commissioner may include items in which
nonmaterial changes were made in the federal law extending allowance of the eligible
federal tax preferences as compared to the provision that was in effect for the prior federal
taxable year. For purposes of this determination, nonmaterial changes are limited to
changes that are estimated to increase or decrease Minnesota tax revenues by no more
than $1,000,000 for the affected eligible federal tax preference item.
new text end

new text begin Subd. 5. new text end

new text begin Provisions in effect. new text end

new text begin (a) For purposes of determining tax and credits under
this chapter, including the taxes under sections 290.091 and 290.0921, and household
income under chapter 290A, qualifying federal conformity items and bonus depreciation
rules under subdivision 8 apply for the relevant taxable year and all the provisions of this
chapter apply as if the definition of the Internal Revenue Code under section 290.01,
subdivision 31, included the amendments to the qualifying federal conformity items.
new text end

new text begin (b) The commissioner shall administer the taxes under this chapter and refunds
under chapter 290A as if Minnesota had conformed to the federal definitions of net
income, adjusted gross income, and tax credits that affect computation of Minnesota taxes
or refunds resulting from extension of the qualifying federal conformity items.
new text end

new text begin Subd. 6. new text end

new text begin Forms preparation. new text end

new text begin The commissioner shall prepare forms and
instructions that reflect the qualifying federal conformity items and bonus depreciation
rules under subdivision 8, if applicable, for taxable years 2015 and 2016 consistent with
the provisions of this section.
new text end

new text begin Subd. 7. new text end

new text begin Transfer to general fund. new text end

new text begin By the first February 15 following publication
of a list of qualifying federal conformity items, the commissioner of revenue shall
transfer from the contingent federal conformity account an amount sufficient to offset the
estimated reduction in general fund revenues resulting from allowing the eligible federal
tax preferences on the list.
new text end

new text begin Subd. 8. new text end

new text begin Bonus depreciation; 80 percent rule applies. new text end

new text begin If following final
adjournment of the 2015 Minnesota legislature or final adjournment of the 2016 Minnesota
legislature, Congress enacts a law that extends application of the depreciation special
allowances under section 168(k) of the Internal Revenue Code to taxable years beginning
either during calendar year 2015 or 2016, the rules under section 290.01, subdivisions 19a,
clause (7); 19b, clause (8); 19c, clause (12); and 19d, clause (14), apply to determine the
amount of the special allowance of depreciation that applies to the relevant taxable years.
new text end

new text begin Subd. 9. new text end

new text begin Appropriations. new text end

new text begin Amounts sufficient to make the transfers required under
subdivisions 2 and 7 are appropriated to the commissioner from the general fund or the
contingent federal conformity account in the general fund, as appropriate.
new text end

new text begin Subd. 10. new text end

new text begin Draft legislation. new text end

new text begin For each taxable year for which the commissioner
publishes a list of qualifying federal conformity items under this section, the commissioner
shall provide the chairs and ranking minority members of the house of representatives and
senate committees with jurisdiction over taxes with draft legislation that would conform
this chapter to the qualifying federal conformity items and any other conformity items
that the commissioner recommends be adopted. The draft legislation is intended to make
the statutes consistent with application of the designated qualifying federal conformity
items under this section for the convenience of members of the public. Failure to pass the
draft legislation does not affect computation of Minnesota tax liability for the affected
taxable years under this section.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective the day following final enactment.
new text end