SF 2112

as introduced - 82nd Legislature (2001 - 2002) Posted on 12/15/2009 12:00am

  1.1                          A bill for an act 
  1.2             relating to taxation; individual income; exempting 
  1.3             contributions to and interest earned on certain 
  1.4             educational savings plan accounts from income taxes; 
  1.5             amending Minnesota Statutes 2000, section 290.01, 
  1.6             subdivision 19b; proposing coding for new law in 
  1.7             Minnesota Statutes, chapter 290. 
  1.8   BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
  1.9      Section 1.  Minnesota Statutes 2000, section 290.01, 
  1.10  subdivision 19b, is amended to read: 
  1.11     Subd. 19b.  [SUBTRACTIONS FROM FEDERAL TAXABLE INCOME.] For 
  1.12  individuals, estates, and trusts, there shall be subtracted from 
  1.13  federal taxable income: 
  1.14     (1) interest income on obligations of any authority, 
  1.15  commission, or instrumentality of the United States to the 
  1.16  extent includable in taxable income for federal income tax 
  1.17  purposes but exempt from state income tax under the laws of the 
  1.18  United States; 
  1.19     (2) if included in federal taxable income, the amount of 
  1.20  any overpayment of income tax to Minnesota or to any other 
  1.21  state, for any previous taxable year, whether the amount is 
  1.22  received as a refund or as a credit to another taxable year's 
  1.23  income tax liability; 
  1.24     (3) the amount paid to others, less the credit allowed 
  1.25  under section 290.0674, not to exceed $1,625 for each qualifying 
  1.26  child in grades kindergarten to 6 and $2,500 for each qualifying 
  2.1   child in grades 7 to 12, for tuition, textbooks, and 
  2.2   transportation of each qualifying child in attending an 
  2.3   elementary or secondary school situated in Minnesota, North 
  2.4   Dakota, South Dakota, Iowa, or Wisconsin, wherein a resident of 
  2.5   this state may legally fulfill the state's compulsory attendance 
  2.6   laws, which is not operated for profit, and which adheres to the 
  2.7   provisions of the Civil Rights Act of 1964 and chapter 363.  For 
  2.8   the purposes of this clause, "tuition" includes fees or tuition 
  2.9   as defined in section 290.0674, subdivision 1, clause (1).  As 
  2.10  used in this clause, "textbooks" includes books and other 
  2.11  instructional materials and equipment used in elementary and 
  2.12  secondary schools in teaching only those subjects legally and 
  2.13  commonly taught in public elementary and secondary schools in 
  2.14  this state.  Equipment expenses qualifying for deduction 
  2.15  includes expenses as defined and limited in section 290.0674, 
  2.16  subdivision 1, clause (3).  "Textbooks" does not include 
  2.17  instructional books and materials used in the teaching of 
  2.18  religious tenets, doctrines, or worship, the purpose of which is 
  2.19  to instill such tenets, doctrines, or worship, nor does it 
  2.20  include books or materials for, or transportation to, 
  2.21  extracurricular activities including sporting events, musical or 
  2.22  dramatic events, speech activities, driver's education, or 
  2.23  similar programs.  For purposes of the subtraction provided by 
  2.24  this clause, "qualifying child" has the meaning given in section 
  2.25  32(c)(3) of the Internal Revenue Code; 
  2.26     (4) contributions made in taxable years beginning after 
  2.27  December 31, 1981, and before January 1, 1985, to a qualified 
  2.28  governmental pension plan, an individual retirement account, 
  2.29  simplified employee pension, or qualified plan covering a 
  2.30  self-employed person that were included in Minnesota gross 
  2.31  income in the taxable year for which the contributions were made 
  2.32  but were deducted or were not included in the computation of 
  2.33  federal adjusted gross income, less any amount allowed to be 
  2.34  subtracted as a distribution under this subdivision or a 
  2.35  predecessor provision in taxable years that began before January 
  2.36  1, 2000.  This subtraction applies only for taxable years 
  3.1   beginning after December 31, 1999, and before January 1, 2001.  
  3.2   If an individual's subtraction under this clause exceeds the 
  3.3   individual's taxable income, the excess may be carried forward 
  3.4   to taxable years beginning after December 31, 2000, and before 
  3.5   January 1, 2002; 
  3.6      (5) income as provided under section 290.0802; 
  3.7      (6) the amount of unrecovered accelerated cost recovery 
  3.8   system deductions allowed under subdivision 19g; 
  3.9      (7) to the extent included in federal adjusted gross 
  3.10  income, income realized on disposition of property exempt from 
  3.11  tax under section 290.491; 
  3.12     (8) to the extent not deducted in determining federal 
  3.13  taxable income or used to claim the long-term care insurance 
  3.14  credit under section 290.0672, the amount paid for health 
  3.15  insurance of self-employed individuals as determined under 
  3.16  section 162(l) of the Internal Revenue Code, except that the 
  3.17  percent limit does not apply.  If the individual deducted 
  3.18  insurance payments under section 213 of the Internal Revenue 
  3.19  Code of 1986, the subtraction under this clause must be reduced 
  3.20  by the lesser of: 
  3.21     (i) the total itemized deductions allowed under section 
  3.22  63(d) of the Internal Revenue Code, less state, local, and 
  3.23  foreign income taxes deductible under section 164 of the 
  3.24  Internal Revenue Code and the standard deduction under section 
  3.25  63(c) of the Internal Revenue Code; or 
  3.26     (ii) the lesser of (A) the amount of insurance qualifying 
  3.27  as "medical care" under section 213(d) of the Internal Revenue 
  3.28  Code to the extent not deducted under section 162(1) of the 
  3.29  Internal Revenue Code or excluded from income or (B) the total 
  3.30  amount deductible for medical care under section 213(a); 
  3.31     (9) the exemption amount allowed under Laws 1995, chapter 
  3.32  255, article 3, section 2, subdivision 3; 
  3.33     (10) to the extent included in federal taxable income, 
  3.34  postservice benefits for youth community service under section 
  3.35  124D.42 for volunteer service under United States Code, title 
  3.36  42, sections 12601 to 12604; 
  4.1      (11) to the extent not deducted in determining federal 
  4.2   taxable income by an individual who does not itemize deductions 
  4.3   for federal income tax purposes for the taxable year, an amount 
  4.4   equal to 50 percent of the excess of charitable contributions 
  4.5   allowable as a deduction for the taxable year under section 
  4.6   170(a) of the Internal Revenue Code over $500; 
  4.7      (12) to the extent included in federal taxable income, 
  4.8   holocaust victims' settlement payments for any injury incurred 
  4.9   as a result of the holocaust, if received by an individual who 
  4.10  was persecuted for racial or religious reasons by Nazi Germany 
  4.11  or any other Axis regime or an heir of such a person; and 
  4.12     (13) for taxable years beginning before January 1, 2008, 
  4.13  the amount of the federal small ethanol producer credit allowed 
  4.14  under section 40(a)(3) of the Internal Revenue Code which is 
  4.15  included in gross income under section 87 of the Internal 
  4.16  Revenue Code; and 
  4.17     (14) the amounts deposited in or earned on deposits in an 
  4.18  educational savings plan account under section 290.055. 
  4.19     Sec. 2.  [290.055] [EDUCATIONAL SAVINGS PLAN ACCOUNTS.] 
  4.20     Subdivision 1.  [EXCLUSION.] (a) Gross income does not 
  4.21  include the amount, up to a maximum of $10,000, paid in cash 
  4.22  during the taxable year by an individual taxpayer to an 
  4.23  educational savings plan account established under this section, 
  4.24  together with all income earned within the taxable year on the 
  4.25  account.  In the case of a married couple filing separate 
  4.26  returns, the total amount excludable from gross income for 
  4.27  contributions to an educational savings plan account during the 
  4.28  taxable year must not exceed $10,000.  This total exclusion for 
  4.29  a married couple may be taken by either spouse or divided 
  4.30  between them as they elect.  The amount of income earned on any 
  4.31  amount contributed in excess of $10,000 during a taxable year or 
  4.32  in excess of the maximum contribution permitted by paragraph (b) 
  4.33  during all taxable years is not excluded from gross income. 
  4.34     (b) The amounts excludable from gross income for 
  4.35  contributions to an educational savings plan account by an 
  4.36  individual for all taxable years must not exceed $75,000.  In 
  5.1   the case of a married individual whose spouse has filed separate 
  5.2   returns, the $75,000 amount must be reduced by an amount equal 
  5.3   to the sum of the contributions excluded from gross income under 
  5.4   this subdivision for all taxable years by the spouse on a 
  5.5   separate return.  
  5.6      Subd. 2.  [DEFINITIONS.] For purposes of this section, the 
  5.7   following terms have the meanings given. 
  5.8      (a) "Educational savings plan account" means a trust 
  5.9   created or organized in Minnesota for the exclusive benefit of 
  5.10  an individual taxpayer who has not reached age 19 when the first 
  5.11  deposit is made in the account, but only if the written 
  5.12  governing instrument creating the trust meets the following 
  5.13  requirements: 
  5.14     (1) Contributions will not be accepted for the taxable year 
  5.15  in excess of $10,000 or in excess of $75,000 for all taxable 
  5.16  years, exclusive of income paid or accrued. 
  5.17     (2) The trustee is a financial institution, as defined in 
  5.18  section 47.015, or a credit union, chartered or supervised under 
  5.19  federal or state law, whose accounts are insured by the Federal 
  5.20  Deposit Insurance Corporation, the Federal Savings and Loan 
  5.21  Insurance Corporation, the National Credit Union Administration, 
  5.22  or any agency of this state or any federal agency established 
  5.23  for the purpose of insuring accounts in these financial 
  5.24  institutions. 
  5.25     (3) The assets of the trust must be invested only in 
  5.26  savings or time deposits in amounts fully insured as prescribed 
  5.27  in clause (2).  Funds held in the trust may be commingled for 
  5.28  purposes of investment, but individual records must be 
  5.29  maintained by the trustee for each educational savings plan 
  5.30  account holder that show all transactions in detail. 
  5.31     (4) The entire interest of an individual for whose benefit 
  5.32  the trust is maintained will be distributed for the benefit of 
  5.33  the individual no sooner than the day the individual becomes 18 
  5.34  years of age and no later than the day the individual becomes 30 
  5.35  years of age. 
  5.36     (5) Except as provided in subdivision 4 in the case of a 
  6.1   disability or death, the trustee will distribute no part of the 
  6.2   funds in the account unless the trustee:  (i) verifies that the 
  6.3   money is to be used for a qualified expenditure and provides 
  6.4   that the instrument of payment is payable to the post-secondary 
  6.5   institution; or (ii) withholds eight percent of the amount 
  6.6   withdrawn from the account and remits it to the commissioner of 
  6.7   revenue within ten days after the date of the withdrawal.  The 
  6.8   amount so withheld must be applied to the liability of the 
  6.9   taxpayer under subdivision 4. 
  6.10     (b) "Qualified expenditure" means an expenditure for a 
  6.11  beneficiary student for tuition for a program or course of study 
  6.12  that applies to an accredited degree, diploma, or certificate at 
  6.13  a public or private post-secondary institution.  The student 
  6.14  must be at least 18 years of age and no more than 21 years of 
  6.15  age. 
  6.16     Subd. 3.  [SANCTIONS ON TRUSTEE.] Except as provided in 
  6.17  subdivision 4, a trustee who fails to pay to or deposit with the 
  6.18  commissioner any sum required by subdivision 2 to be deducted, 
  6.19  withheld, and paid, shall be personally and individually liable 
  6.20  to the state for payment of that sum.  Failure to comply with 
  6.21  the requirements of subdivision 2, paragraph (a), clause (5), 
  6.22  shall be subject to the penalties and interest applicable to 
  6.23  withholding tax violations under chapter 289A. 
  6.24     If the trustee, in violation of subdivision 2, fails to 
  6.25  deduct and withhold the amounts required by subdivision 2 and 
  6.26  thereafter the taxes against which any amount withheld may be 
  6.27  credited are paid, the amounts required to be deducted and 
  6.28  withheld shall not be collected from the trustee.  Payment of 
  6.29  the tax due under subdivision 4 does not relieve the trustee 
  6.30  from liability for any penalties and interest otherwise 
  6.31  applicable in respect of its failure to deduct and withhold.  
  6.32     Subd. 4.  [DISTRIBUTIONS; TAX LIABILITY.] (a) Any amount 
  6.33  paid or distributed out of an educational savings plan account 
  6.34  must be included in gross income by the taxpayer for the taxable 
  6.35  year in which the distribution is received, unless the amount is 
  6.36  used exclusively in connection with a qualified expenditure. 
  7.1   This paragraph does not apply to a distribution out of an 
  7.2   educational savings plan account to the extent that it was not 
  7.3   excluded from gross income either as educational savings plan 
  7.4   account contributions or income derived from the contribution. 
  7.5      (b) If a distribution from an education savings plan 
  7.6   account to an individual for whose benefit the account was 
  7.7   established is made and not used in connection with a qualified 
  7.8   expenditure, the tax liability of the taxpayer who made the 
  7.9   deposit in the account under this chapter for the taxable year 
  7.10  in which the distribution is received must be increased by ten 
  7.11  percent of the amount of the distribution which is also 
  7.12  includable in the gross income of that taxpayer for the taxable 
  7.13  year.  It shall not be reduced by any nonrefundable credits.  
  7.14  If, during any taxable year, the taxpayer or other individual 
  7.15  for whose benefit the account was established uses the account 
  7.16  or any portion of it as security for a loan, the portion so used 
  7.17  is treated as distributed to the taxpayer.  The liability is not 
  7.18  imposed if the payment or distribution is attributable to the 
  7.19  death or disability of the taxpayer or the other individual for 
  7.20  whose benefit the account was established.  For purposes of this 
  7.21  paragraph, disability has the meaning given it in section 
  7.22  290A.03, subdivision 10.  An individual is not disabled unless 
  7.23  the individual furnishes proof of the disability in the form and 
  7.24  manner required by the commissioner of revenue.  Upon the death 
  7.25  of the taxpayer who made deposits in the account, the money in 
  7.26  the account is payable to the estate of the taxpayer.  Upon the 
  7.27  death of an individual for whose benefit the account had been 
  7.28  established, the money in the account is payable to the taxpayer 
  7.29  who made deposits in the account. 
  7.30     Subd. 5.  [REPORTS.] The trustee of an educational savings 
  7.31  plan account shall make reports regarding the account to the 
  7.32  commissioner of revenue, to the taxpayer who made the deposits 
  7.33  in the account, and to the individual for whom the account is 
  7.34  maintained with respect to contributions, distributions, and 
  7.35  other matters required by rules adopted by the commissioner of 
  7.36  revenue.  The reports required by this subdivision must be filed 
  8.1   at a time and in a manner required by the rules.  A person who 
  8.2   fails to file a required report is subject to a penalty of $10 
  8.3   to be paid to the commissioner of revenue for each instance of 
  8.4   failure to file. 
  8.5      Sec. 3.  [EFFECTIVE DATE.] 
  8.6      Sections 1 and 2 are effective for taxable years beginning 
  8.7   after December 31, 2000.