HF 392

as introduced - 86th Legislature (2009 - 2010) Posted on 02/09/2010 01:36am

A bill for an act
relating to taxation; federal update; amending Minnesota Statutes 2008, sections
289A.02, subdivision 7; 290.01, subdivisions 19, 19a, 31; 290.067, subdivision
2a; 290A.03, subdivisions 3, 15; 291.005, subdivision 1.

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

Section 1.

Minnesota Statutes 2008, section 289A.02, subdivision 7, is amended to
read:

Subd. 7.

Internal Revenue Code.

Unless specifically defined otherwise, "Internal
Revenue Code" means the Internal Revenue Code of 1986, as amended through deleted text begin February
13 deleted text end new text begin June 17 new text end , 2008.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective the day following final enactment,
except the changes incorporated by federal changes are effective at the same time as the
changes were effective for federal purposes.
new text end

Sec. 2.

Minnesota Statutes 2008, section 290.01, subdivision 19, is amended to read:

Subd. 19.

Net income.

The term "net income" means the federal taxable income,
as defined in section 63 of the Internal Revenue Code of 1986, as amended through the
date named in this subdivision, incorporating the federal effective dates of changes to the
Internal Revenue Code and any elections made by the taxpayer in accordance with the
Internal Revenue Code in determining federal taxable income for federal income tax
purposes, and with the modifications provided in subdivisions 19a to 19f.

In the case of a regulated investment company or a fund thereof, as defined in section
851(a) or 851(g) of the Internal Revenue Code, federal taxable income means investment
company taxable income as defined in section 852(b)(2) of the Internal Revenue Code,
except that:

(1) the exclusion of net capital gain provided in section 852(b)(2)(A) of the Internal
Revenue Code does not apply;

(2) the deduction for dividends paid under section 852(b)(2)(D) of the Internal
Revenue Code must be applied by allowing a deduction for capital gain dividends and
exempt-interest dividends as defined in sections 852(b)(3)(C) and 852(b)(5) of the Internal
Revenue Code; and

(3) the deduction for dividends paid must also be applied in the amount of any
undistributed capital gains which the regulated investment company elects to have treated
as provided in section 852(b)(3)(D) of the Internal Revenue Code.

The net income of a real estate investment trust as defined and limited by section
856(a), (b), and (c) of the Internal Revenue Code means the real estate investment trust
taxable income as defined in section 857(b)(2) of the Internal Revenue Code.

The net income of a designated settlement fund as defined in section 468B(d) of
the Internal Revenue Code means the gross income as defined in section 468B(b) of the
Internal Revenue Code.

The Internal Revenue Code of 1986, as amended through deleted text begin February 13 deleted text end new text begin June 17 new text end ,
2008, new text begin other than changes included in Public Law 110-234, and as amended by division C,
sections 202, 203, and 204 of Public Law 110-343 and sections 3012 and 3023 of Public
Law 110-289, new text end shall be in effect for taxable years beginning after December 31, 1996.

Except as otherwise provided, references to the Internal Revenue Code in
subdivisions 19 to 19f mean the code in effect for purposes of determining net income for
the applicable year.

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 2008, section 290.01, subdivision 19a, is amended to read:

Subd. 19a.

Additions to federal taxable income.

For individuals, estates, and
trusts, there shall be added to federal taxable income:

(1)(i) interest income on obligations of any state other than Minnesota or a political
or governmental subdivision, municipality, or governmental agency or instrumentality
of any state other than Minnesota exempt from federal income taxes under the Internal
Revenue Code or any other federal statute; and

(ii) exempt-interest dividends as defined in section 852(b)(5) of the Internal Revenue
Code, except the portion of the exempt-interest dividends derived from interest income
on obligations of the state of Minnesota or its political or governmental subdivisions,
municipalities, governmental agencies or instrumentalities, but only if the portion of the
exempt-interest dividends from such Minnesota sources paid to all shareholders represents
95 percent or more of the exempt-interest dividends that are paid by the regulated
investment company as defined in section 851(a) of the Internal Revenue Code, or the
fund of the regulated investment company as defined in section 851(g) of the Internal
Revenue Code, making the payment; deleted text begin and deleted text end

deleted text begin (iii) deleted text end For the purposes of deleted text begin items (i) and (ii) deleted text end new text begin this clause new text end , interest on obligations of an Indian
tribal government described in section 7871(c) of the Internal Revenue Code shall be
treated as interest income on obligations of the state in which the tribe is located deleted text begin ; deleted text end new text begin , new text end new text begin and
interest and dividends from obligations guaranteed by a federal home loan bank are
considered exempt from federal taxation to the same extent that they are exempt under
section 3023 of Public Law 110-289; new text end

(2) the amount of income or sales and use taxes paid or accrued within the taxable
year under this chapter and the amount of taxes based on net income paid or sales and use
taxes paid to any other state or to any province or territory of Canada, to the extent allowed
as a deduction under section 63(d) of the Internal Revenue Code, but the addition may not
be more than the amount by which the itemized deductions as allowed under section 63(d)
of the Internal Revenue Code exceeds the amount of the standard deduction as defined
in section 63(c) of the Internal Revenue Code. For the purpose of this paragraph, the
disallowance of itemized deductions under section 68 of the Internal Revenue Code of
1986, income or sales and use tax is the last itemized deduction disallowed;

(3) the capital gain amount of a lump-sum distribution to which the special tax under
section 1122(h)(3)(B)(ii) of the Tax Reform Act of 1986, Public Law 99-514, applies;

(4) the amount of income taxes paid or accrued within the taxable year under this
chapter and taxes based on net income paid to any other state or any province or territory
of Canada, to the extent allowed as a deduction in determining federal adjusted gross
income. For the purpose of this paragraph, income taxes do not include the taxes imposed
by sections 290.0922, subdivision 1, paragraph (b), 290.9727, 290.9728, and 290.9729;

(5) the amount of expense, interest, or taxes disallowed pursuant to section 290.10
other than expenses or interest used in computing net interest income for the subtraction
allowed under subdivision 19b, clause (1);

(6) 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;

(7) 80 percent of the depreciation deduction allowed under section 168(k) 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) 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)" for the taxable year is
limited to excess of the depreciation claimed by the activity under section 168(k) 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) is allowed;

(8) 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;

(9) to the extent deducted in computing federal taxable income, the amount of the
deduction allowable under section 199 of the Internal Revenue Code;

(10) the exclusion allowed under section 139A of the Internal Revenue Code for
federal subsidies for prescription drug plans;

(11) the amount of expenses disallowed under section 290.10, subdivision 2;

(12) deleted text begin for taxable years beginning after December 31, 2006, and before January 1,
2008, deleted text end the amount deducted for qualified tuition and related expenses under section 222 of
the Internal Revenue Code, to the extent deducted from gross income; deleted text begin and deleted text end

(13) deleted text begin for taxable years beginning after December 31, 2006, and before January 1,
2008, deleted text end the amount deducted for certain expenses of elementary and secondary school
teachers under section 62(a)(2)(D) of the Internal Revenue Code, to the extent deducted
from gross income deleted text begin . deleted text end new text begin ; and new text end

new text begin (14) the additional standard deduction for property taxes payable that is allowable
under division C, section 204 of Public Law 110-343 or section 3012 of Public Law
110-289.
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. 4.

Minnesota Statutes 2008, section 290.01, subdivision 31, is amended to read:

Subd. 31.

Internal Revenue Code.

Unless specifically defined otherwise, "Internal
Revenue Code" means the Internal Revenue Code of 1986, as amended through deleted text begin February
13 deleted text end new text begin June 17 new text end , 2008.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective the day following final enactment,
except the changes incorporated by federal changes are effective at the same time as the
changes were effective for federal purposes.
new text end

Sec. 5.

Minnesota Statutes 2008, section 290.067, subdivision 2a, is amended to read:

Subd. 2a.

Income.

(a) For purposes of this section, "income" means the sum of
the following:

(1) federal adjusted gross income as defined in section 62 of the Internal Revenue
Code; and

(2) the sum of the following amounts to the extent not included in clause (1):

(i) all nontaxable income;

(ii) the amount of a passive activity loss that is not disallowed as a result of section
469, paragraph (i) or (m) of the Internal Revenue Code and the amount of passive activity
loss carryover allowed under section 469(b) of the Internal Revenue Code;

(iii) an amount equal to the total of any discharge of qualified farm indebtedness
of a solvent individual excluded from gross income under section 108(g) of the Internal
Revenue Code;

(iv) cash public assistance and relief;

(v) any pension or annuity (including railroad retirement benefits, all payments
received under the federal Social Security Act, supplemental security income, and veterans
benefits), which was not exclusively funded by the claimant or spouse, or which was
funded exclusively by the claimant or spouse and which funding payments were excluded
from federal adjusted gross income in the years when the payments were made;

(vi) interest received from the federal or a state government or any instrumentality
or political subdivision thereof;

(vii) workers' compensation;

(viii) nontaxable strike benefits;

(ix) the gross amounts of payments received in the nature of disability income or
sick pay as a result of accident, sickness, or other disability, whether funded through
insurance or otherwise;

(x) a lump-sum distribution under section 402(e)(3) of the Internal Revenue Code of
1986, as amended through December 31, 1995;

(xi) contributions made by the claimant to an individual retirement account,
including a qualified voluntary employee contribution; simplified employee pension plan;
self-employed retirement plan; cash or deferred arrangement plan under section 401(k)
of the Internal Revenue Code; or deferred compensation plan under section 457 of the
Internal Revenue Code;

(xii) nontaxable scholarship or fellowship grants;

(xiii) the amount of deduction allowed under section 199 of the Internal Revenue
Code; deleted text begin and
deleted text end

(xiv) the amount of deduction allowed under section 220 or 223 of the Internal
Revenue Code deleted text begin . deleted text end new text begin ; and
new text end

new text begin (xv) the amount of tuition expenses and educator expenses required to be added to
income under section 290.01, subdivision 19a, clauses (12) and (13).
new text end

In the case of an individual who files an income tax return on a fiscal year basis, the
term "federal adjusted gross income" means federal adjusted gross income reflected in the
fiscal year ending in the next calendar year. Federal adjusted gross income may not be
reduced by the amount of a net operating loss carryback or carryforward or a capital loss
carryback or carryforward allowed for the year.

(b) "Income" does not include:

(1) amounts excluded pursuant to the Internal Revenue Code, sections 101(a) and
102;

(2) amounts of any pension or annuity that were exclusively funded by the claimant
or spouse if the funding payments were not excluded from federal adjusted gross income
in the years when the payments were made;

(3) surplus food or other relief in kind supplied by a governmental agency;

(4) relief granted under chapter 290A;

(5) child support payments received under a temporary or final decree of dissolution
or legal separation; and

(6) restitution payments received by eligible individuals and excludable interest as
defined in section 803 of the Economic Growth and Tax Relief Reconciliation Act of
2001, Public Law 107-16.

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 2008, section 290A.03, subdivision 3, is amended to read:

Subd. 3.

Income.

(1) "Income" means the sum of the following:

(a) federal adjusted gross income as defined in the Internal Revenue Code; and

(b) the sum of the following amounts to the extent not included in clause (a):

(i) all nontaxable income;

(ii) the amount of a passive activity loss that is not disallowed as a result of section
469, paragraph (i) or (m) of the Internal Revenue Code and the amount of passive activity
loss carryover allowed under section 469(b) of the Internal Revenue Code;

(iii) an amount equal to the total of any discharge of qualified farm indebtedness
of a solvent individual excluded from gross income under section 108(g) of the Internal
Revenue Code;

(iv) cash public assistance and relief;

(v) any pension or annuity (including railroad retirement benefits, all payments
received under the federal Social Security Act, Supplemental Security Income, and
veterans benefits), which was not exclusively funded by the claimant or spouse, or which
was funded exclusively by the claimant or spouse and which funding payments were
excluded from federal adjusted gross income in the years when the payments were made;

(vi) interest received from the federal or a state government or any instrumentality
or political subdivision thereof;

(vii) workers' compensation;

(viii) nontaxable strike benefits;

(ix) the gross amounts of payments received in the nature of disability income or
sick pay as a result of accident, sickness, or other disability, whether funded through
insurance or otherwise;

(x) a lump-sum distribution under section 402(e)(3) of the Internal Revenue Code of
1986, as amended through December 31, 1995;

(xi) contributions made by the claimant to an individual retirement account,
including a qualified voluntary employee contribution; simplified employee pension plan;
self-employed retirement plan; cash or deferred arrangement plan under section 401(k)
of the Internal Revenue Code; or deferred compensation plan under section 457 of the
Internal Revenue Code;

(xii) nontaxable scholarship or fellowship grants;

(xiii) the amount of deduction allowed under section 199 of the Internal Revenue
Code; deleted text begin and
deleted text end

(xiv) the amount of deduction allowed under section 220 or 223 of the Internal
Revenue Code deleted text begin . deleted text end new text begin ; and
new text end

new text begin (xv) the amount of tuition expenses and educator expenses required to be added to
income under section 290.01, subdivision 19a, clauses (12) and (13).
new text end

In the case of an individual who files an income tax return on a fiscal year basis, the
term "federal adjusted gross income" shall mean federal adjusted gross income reflected
in the fiscal year ending in the calendar year. Federal adjusted gross income shall not be
reduced by the amount of a net operating loss carryback or carryforward or a capital loss
carryback or carryforward allowed for the year.

(2) "Income" does not include:

(a) amounts excluded pursuant to the Internal Revenue Code, sections 101(a) and
102;

(b) amounts of any pension or annuity which was exclusively funded by the claimant
or spouse and which funding payments were not excluded from federal adjusted gross
income in the years when the payments were made;

(c) surplus food or other relief in kind supplied by a governmental agency;

(d) relief granted under this chapter;

(e) child support payments received under a temporary or final decree of dissolution
or legal separation; or

(f) restitution payments received by eligible individuals and excludable interest as
defined in section 803 of the Economic Growth and Tax Relief Reconciliation Act of
2001, Public Law 107-16.

(3) The sum of the following amounts may be subtracted from income:

(a) for the claimant's first dependent, the exemption amount multiplied by 1.4;

(b) for the claimant's second dependent, the exemption amount multiplied by 1.3;

(c) for the claimant's third dependent, the exemption amount multiplied by 1.2;

(d) for the claimant's fourth dependent, the exemption amount multiplied by 1.1;

(e) for the claimant's fifth dependent, the exemption amount; and

(f) if the claimant or claimant's spouse was disabled or attained the age of 65
on or before December 31 of the year for which the taxes were levied or rent paid, the
exemption amount.

For purposes of this subdivision, the "exemption amount" means the exemption
amount under section 151(d) of the Internal Revenue Code for the taxable year for which
the income is reported.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for property tax refunds based on
property taxes payable after December 31, 2008, and rent paid after December 31, 2007.
new text end

Sec. 7.

Minnesota Statutes 2008, section 290A.03, subdivision 15, is amended to read:

Subd. 15.

Internal Revenue Code.

"Internal Revenue Code" means the Internal
Revenue Code of 1986, as amended through deleted text begin February 13 deleted text end new text begin June 17 new text end , 2008.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for property tax refunds based on
property taxes payable after December 31, 2008, and rent paid after December 31, 2007.
new text end

Sec. 8.

Minnesota Statutes 2008, section 291.005, subdivision 1, is amended to read:

Subdivision 1.

Scope.

Unless the context otherwise clearly requires, the following
terms used in this chapter shall have the following meanings:

(1) "Federal gross estate" means the gross estate of a decedent as valued and
otherwise determined for federal estate tax purposes by federal taxing authorities pursuant
to the provisions of the Internal Revenue Code.

(2) "Minnesota gross estate" means the federal gross estate of a decedent after (a)
excluding therefrom any property included therein which has its situs outside Minnesota,
and (b) including therein any property omitted from the federal gross estate which is
includable therein, has its situs in Minnesota, and was not disclosed to federal taxing
authorities.

(3) "Personal representative" means the executor, administrator or other person
appointed by the court to administer and dispose of the property of the decedent. If there
is no executor, administrator or other person appointed, qualified, and acting within this
state, then any person in actual or constructive possession of any property having a situs in
this state which is included in the federal gross estate of the decedent shall be deemed
to be a personal representative to the extent of the property and the Minnesota estate tax
due with respect to the property.

(4) "Resident decedent" means an individual whose domicile at the time of death
was in Minnesota.

(5) "Nonresident decedent" means an individual whose domicile at the time of
death was not in Minnesota.

(6) "Situs of property" means, with respect to real property, the state or country in
which it is located; with respect to tangible personal property, the state or country in which
it was normally kept or located at the time of the decedent's death; and with respect to
intangible personal property, the state or country in which the decedent was domiciled
at death.

(7) "Commissioner" means the commissioner of revenue or any person to whom the
commissioner has delegated functions under this chapter.

(8) "Internal Revenue Code" means the United States Internal Revenue Code of
1986, as amended through deleted text begin February 13 deleted text end new text begin June 17 new text end , 2008.

(9) "Minnesota adjusted taxable estate" means federal adjusted taxable estate as
defined by section 2011(b)(3) of the Internal Revenue Code, increased by the amount of
deduction for state death taxes allowed under section 2058 of the Internal Revenue Code.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective the day following final enactment,
except the changes incorporated by federal changes are effective at the same time as the
changes were effective for federal purposes.
new text end

Sec. 9. new text begin WITHHOLDING ON DIFFERENTIAL PAY.
new text end

new text begin The commissioner must not assess tax, penalty, or interest against an employer for
failing to withhold tax from differential wages, as defined in Internal Revenue Code,
section 3401(h)(2), paid before January 1, 2010, to an employee who has been called to
active duty in the military services.
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

Sec. 10. new text begin MINNESOTA HOUSING BONDS EXCLUDED FROM INDIVIDUAL
ALTERNATIVE MINIMUM TAXABLE INCOME.
new text end

new text begin Except to the extent includable in alternative minimum taxable income pursuant to
Minnesota Statutes, section 290.091, subdivision 2, paragraph (a), clause (5), alternative
minimum taxable income under Minnesota Statutes, section 290.091, subdivision 2,
paragraph (a), does not include interest or dividends paid from certain housing bonds
described in section 3022(a) of Public Law 110-289, to the extent the obligations
are issued by Minnesota or a political or governmental subdivision, municipality, or
governmental agency or instrumentality of Minnesota.
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, and applies to interest and dividends paid on bonds issued after
July 30, 2008.
new text end