SF 1224

as introduced - 89th Legislature (2015 - 2016) Posted on 03/03/2015 08:31am

A bill for an act
relating to taxation; individual income; modifying the K-12 education expense
subtraction and credit; extending the credit to tuition; increasing the subtraction
and credit amounts; increasing the income phaseout for the credit; adjusting
the credit and subtraction amount and credit phaseout threshold for inflation;
amending Minnesota Statutes 2014, sections 290.01, subdivision 19b; 290.0674,
subdivisions 1, 2, by adding a subdivision.

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

Section 1.

Minnesota Statutes 2014, 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 deleted text begin $1,625 deleted text end new text begin $2,500 new text end for each qualifying child in grades
kindergarten to 6 and deleted text begin $2,500 deleted text end new text begin $3,750 new text end 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. No deduction
is permitted for any expense the taxpayer incurred in using the taxpayer's or the qualifying
child's vehicle to provide such transportation for a qualifying child. 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 deleted text begin ; deleted text end new text begin . The maximum amounts allowed for each
qualifying child under this clause must be adjusted for inflation. The commissioner shall
adjust the maximum amount by the percentage determined pursuant to the provisions of
section 1(f) of the Internal Revenue Code, except that in section 1(f)(3)(B) the word
"2014" shall be substituted for the word "1992." For 2016, the commissioner shall then
determine the percent change from the 12 months ending on August 31, 2014, to the 12
months ending on August 31, 2015, and in each subsequent year, from the 12 months
ending August 31, 2014, to the 12 months ending on August 31 of the year preceding the
taxable year. The amounts as adjusted for inflation must be rounded to the nearest $10
amount. If the amount ends in $5, the amount is rounded up to the nearest $10 amount.
The determination of the commissioner under this subdivision is not a rule subject to the
Administrative Procedure Act in chapter 14, including section 14.386;
new text end

(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 or not deductible pursuant to section 408(d)(8)(E)
of the Internal Revenue Code 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,
under the provisions of Public Law 109-1 and Public Law 111-126;

(7) 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;

(8) 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 (12), 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 (12), 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;

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

(10) to the extent included in federal taxable income, the amount of compensation
paid to members of the Minnesota National Guard or other reserve components of the
United States military for active service, including 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); or (ii) federally funded state active service as defined in section 190.05, subdivision
5b, and "active service" includes service performed in accordance with section 190.08,
subdivision 3;

(11) to the extent included in federal taxable income, 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 under United States Code, title 10; or the
authority of the United Nations;

(12) 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;

(13) 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 (13), 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 (13), 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;

(14) to the extent included in the federal taxable income of a nonresident of
Minnesota, compensation paid to a service member as defined in United States Code, title
10, section 101(a)(5), for military service as defined in the Servicemembers Civil Relief
Act, Public Law 108-189, section 101(2);

(15) to the extent included in federal taxable income, the amount of national service
educational awards received from the National Service Trust under United States Code,
title 42, sections 12601 to 12604, for service in an approved Americorps National Service
program;

(16) to the extent included in federal taxable income, discharge of indebtedness
income resulting from reacquisition of business indebtedness included in federal taxable
income under section 108(i) of the Internal Revenue Code. This subtraction applies only
to the extent that the income was included in net income in a prior year as a result of the
addition under subdivision 19a, clause (13);

(17) the amount of the net operating loss allowed under section 290.095, subdivision
11, paragraph (c);

(18) the amount of expenses not allowed for federal income tax purposes due
to claiming the railroad track maintenance credit under section 45G(a) of the Internal
Revenue Code;

(19) the amount of the limitation on itemized deductions under section 68(b) of the
Internal Revenue Code;

(20) the amount of the phaseout of personal exemptions under section 151(d) of
the Internal Revenue Code; and

(21) to the extent included in federal taxable income, the amount of qualified
transportation fringe benefits described in section 132(f)(1)(A) and (B) of the Internal
Revenue Code. The subtraction is limited to the lesser of the amount of qualified
transportation fringe benefits received in excess of the limitations under section
132(f)(2)(A) of the Internal Revenue Code for the year or the difference between the
maximum qualified parking benefits excludable under section 132(f)(2)(B) of the Internal
Revenue Code minus the amount of transit benefits excludable under section 132(f)(2)(A)
of the Internal Revenue Code.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxable years beginning after
December 31, 2014.
new text end

Sec. 2.

Minnesota Statutes 2014, section 290.0674, subdivision 1, is amended to read:

Subdivision 1.

Credit allowed.

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

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

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

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

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

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

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxable years beginning after
December 31, 2014.
new text end

Sec. 3.

Minnesota Statutes 2014, section 290.0674, subdivision 2, is amended to read:

Subd. 2.

Limitations.

(a) For claimants with income not greater than deleted text begin $33,500 deleted text end new text begin
$47,500 new text end , the maximum credit allowed for a family is deleted text begin $1,000 deleted text end new text begin $1,500 new text end multiplied by
the number of qualifying children in kindergarten through grade 12 in the family. The
maximum credit for families with one qualifying child in kindergarten through grade 12
is reduced by $1 for each deleted text begin $4 deleted text end new text begin $6 new text end of household income over deleted text begin $33,500 deleted text end new text begin $47,500 new text end , and the
maximum credit for families with two or more qualifying children in kindergarten through
grade 12 is reduced by deleted text begin $2 deleted text end new text begin $1 new text end for each deleted text begin $4 deleted text end new text begin $3 new text end of household income over deleted text begin $33,500 deleted text end new text begin $47,500 new text end ,
but in no case is the credit less than zero.

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

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

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxable years beginning after
December 31, 2014.
new text end

Sec. 4.

Minnesota Statutes 2014, section 290.0674, is amended by adding a subdivision
to read:

new text begin Subd. 6. new text end

new text begin Inflation adjustment. new text end

new text begin The credit amount and the income threshold
at which the maximum credit begins to be reduced in subdivision 2 must be adjusted
for inflation. The commissioner shall adjust the credit amount and income threshold
by the percentage determined pursuant to the provisions of section 1(f) of the Internal
Revenue Code, except that in section 1(f)(3)(B) the word "2014" shall be substituted for
the word "1992." For 2016, the commissioner shall then determine the percent change
from the 12 months ending on August 31, 2014, to the 12 months ending on August
31, 2015, and in each subsequent year, from the 12 months ending August 31, 2014, to
the 12 months ending on August 31 of the year preceding the taxable year. The credit
amount and income threshold as adjusted for inflation must be rounded to the nearest $10
amount. If the amount ends in $5, the amount is rounded up to the nearest $10 amount.
The determination of the commissioner under this subdivision is not a rule subject to the
Administrative Procedure Act in chapter 14, including section 14.386.
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, 2014.
new text end