HF 4143

as introduced - 84th Legislature (2005 - 2006) Posted on 12/15/2009 12:00am

A bill for an act
relating to taxation; creating an election for depreciation deduction; amending
Minnesota Statutes 2004, section 290.01, subdivision 19f; Minnesota Statutes
2005 Supplement, section 290.01, subdivisions 19a, 19b.

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

Section 1.

Minnesota Statutes 2005 Supplement, 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; and

(iii) for the purposes of items (i) and (ii), 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;

(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 minus the addition which would
have been required under clause (10) if the taxpayer had claimed the standard deduction.
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 new text begin . If a taxpayer, including a shareholder of an S corporation,
has an activity with a loss that cannot be claimed for the taxable year in full under this
clause, the taxpayer may elect not to apply the depreciation deduction provisions allowed
under section 168(k) of the Internal Revenue Code for Minnesota tax purposes for the
taxable year, including the taxable year to which the unclaimed loss is carried and used.
For purposes of this clause, the loss not allowed for Minnesota tax purposes for the taxable
year is equal to the unclaimed loss for federal tax purposes adjusted for the modifications
set forth in this clause, subdivision 19b, clause (9), and subdivision 19f, paragraph (m). In
cases when all losses not allowed have been used, the excess of depreciation allowed for
federal tax purposes over the depreciation allowed for Minnesota tax purposes shall be
added to federal taxable income new text end ;

(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) for tax years beginning after December 31, 2004, to the extent deducted in
computing federal taxable income, the amount by which the standard deduction allowed
under section 63(c) of the Internal Revenue Code exceeds the standard deduction
allowable under section 63(c) of the Internal Revenue Code of 1986, as amended through
December 31, 2003; and

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

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxable years beginning after
December 31, 2001.
new text end

Sec. 2.

Minnesota Statutes 2005 Supplement, 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 kindergarten
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 new text begin . If a taxpayer elects under subdivision 19a, clause (7), not to include an
activity as a depreciation deduction under section 168(k) of the Internal Revenue Code
for Minnesota tax purposes, the loss is equal to the amount of the unclaimed loss for
federal tax purposes adjusted for the modifications set forth in this clause, subdivision
19a, clause (7), and subdivision 19f, paragraph (m). In cases when all losses not allowed
have been used, the excess of depreciation that is allowed for Minnesota tax purposes over
the depreciation that is allowed for federal tax purposes and the modification set forth in
subdivision 19f, paragraph (m), shall be subtracted from federal taxable income new text end ;

(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, 2001.
new text end

Sec. 3.

Minnesota Statutes 2004, section 290.01, subdivision 19f, is amended to read:

Subd. 19f.

Basis modifications affecting gain or loss on disposition of property.

(a) For individuals, estates, and trusts, the basis of property is its adjusted basis for
federal income tax purposes except as set forth in paragraphs (f), (g), and (m). For
corporations, the basis of property is its adjusted basis for federal income tax purposes,
without regard to the time when the property became subject to tax under this chapter or to
whether out-of-state losses or items of tax preference with respect to the property were not
deductible under this chapter, except that the modifications to the basis for federal income
tax purposes set forth in paragraphs (b) to (j) are allowed to corporations, and the resulting
modifications to federal taxable income must be made in the year in which gain or loss
on the sale or other disposition of property is recognized.

(b) The basis of property shall not be reduced to reflect federal investment tax credit.

(c) The basis of property subject to the accelerated cost recovery system under
section 168 of the Internal Revenue Code shall be modified to reflect the modifications in
depreciation with respect to the property provided for in subdivision 19e. For certified
pollution control facilities for which amortization deductions were elected under section
169 of the Internal Revenue Code of 1954, the basis of the property must be increased by
the amount of the amortization deduction not previously allowed under this chapter.

(d) For property acquired before January 1, 1933, the basis for computing a gain is
the fair market value of the property as of that date. The basis for determining a loss is
the cost of the property to the taxpayer less any depreciation, amortization, or depletion,
actually sustained before that date. If the adjusted cost exceeds the fair market value of the
property, then the basis is the adjusted cost regardless of whether there is a gain or loss.

(e) The basis is reduced by the allowance for amortization of bond premium if an
election to amortize was made pursuant to Minnesota Statutes 1986, section 290.09,
subdivision 13, and the allowance could have been deducted by the taxpayer under this
chapter during the period of the taxpayer's ownership of the property.

(f) For assets placed in service before January 1, 1987, corporations, partnerships,
or individuals engaged in the business of mining ores other than iron ore or taconite
concentrates subject to the occupation tax under chapter 298 must use the occupation
tax basis of property used in that business.

(g) For assets placed in service before January 1, 1990, corporations, partnerships,
or individuals engaged in the business of mining iron ore or taconite concentrates subject
to the occupation tax under chapter 298 must use the occupation tax basis of property
used in that business.

(h) In applying the provisions of sections 301(c)(3)(B), 312(f) and (g), and 316(a)(1)
of the Internal Revenue Code, the dates December 31, 1932, and January 1, 1933, shall be
substituted for February 28, 1913, and March 1, 1913, respectively.

(i) In applying the provisions of section 362(a) and (c) of the Internal Revenue Code,
the date December 31, 1956, shall be substituted for June 22, 1954.

(j) The basis of property shall be increased by the amount of intangible drilling
costs not previously allowed due to differences between this chapter and the Internal
Revenue Code.

(k) The adjusted basis of any corporate partner's interest in a partnership is the same
as the adjusted basis for federal income tax purposes modified as required to reflect the
basis modifications set forth in paragraphs (b) to (j). The adjusted basis of a partnership
in which the partner is an individual, estate, or trust is the same as the adjusted basis for
federal income tax purposes modified as required to reflect the basis modifications set
forth in paragraphs (f) and (g).

(l) The modifications contained in paragraphs (b) to (j) also apply to the basis of
property that is determined by reference to the basis of the same property in the hands of a
different taxpayer or by reference to the basis of different property.

new text begin (m) The basis of property shall be modified to reflect the modifications in
depreciation provided in subdivision 19a, clause (7), and subdivision 19b, clause (9), with
respect to property for which a taxpayer elects not to include an activity as a depreciation
deduction as allowed under section 168(k) of the Internal Revenue Code.
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, 2001.
new text end