HF 386

2nd Engrossment - 90th Legislature (2017 - 2018) Posted on 02/13/2017 12:26pm

A bill for an act
relating to taxation; income; providing a credit for donations to fund K-12
scholarships; extending the K-12 education credit to tuition; amending Minnesota
Statutes 2016, sections 290.0131, by adding a subdivision; 290.0133, by adding
a subdivision; 290.0674, subdivision 1, by adding a subdivision; proposing coding
for new law in Minnesota Statutes, chapter 290.

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

Section 1.

Minnesota Statutes 2016, section 290.0131, is amended by adding a subdivision
to read:

Subd. 14.

Equity and opportunity donations to qualified foundations.

The amount
of the deduction under section 170 of the Internal Revenue Code that represents contributions
to a qualified foundation under section 290.0693 is an addition.

EFFECTIVE DATE.

This section is effective for taxable years beginning after December
31, 2017.

Sec. 2.

Minnesota Statutes 2016, section 290.0133, is amended by adding a subdivision
to read:

Subd. 15.

Equity and opportunity donations to qualified foundations.

The amount
of the deduction under section 170 of the Internal Revenue Code that represents contributions
to a qualified foundation under section 290.0693 is an addition.

EFFECTIVE DATE.

This section is effective for taxable years beginning after December
31, 2017.

Sec. 3.

Minnesota Statutes 2016, 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 tuition and 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. Amounts under this clause exclude any
expense the taxpayer incurred in using the taxpayer's or the qualifying child's vehicle.

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

EFFECTIVE DATE.

This section is effective for taxable years beginning after December
31, 2017.

Sec. 4.

Minnesota Statutes 2016, section 290.0674, is amended by adding a subdivision
to read:

Subd. 6.

Inflation adjustment.

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
2019, the commissioner shall then determine the percent change from the 12 months ending
on August 31, 2017, to the 12 months ending on August 31, 2018, and in each subsequent
year, from the 12 months ending August 31, 2017, 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.

EFFECTIVE DATE.

This section is effective for taxable years beginning after December
31, 2018.

Sec. 5.

[290.0693] EQUITY AND OPPORTUNITY IN EDUCATION TAX CREDIT.

Subdivision 1.

Definitions.

(a) For purposes of this section, the following terms have
the meanings given.

(b) "Eligible student" means a student who:

(1) resides in Minnesota;

(2) is a member of a household that has total annual income during the year prior to
initial receipt of a qualified scholarship, without consideration of the benefits under this
program, does not exceed an amount equal to two times the income standard used to qualify
for a reduced-price meal under the National School Lunch Program, as specified in United
States Code, title 42, section 1758; and

(3) meets one of the following criteria:

(i) attended a school, as defined in section 120A.22, subdivision 4, in the semester
preceding initial receipt of a qualified scholarship;

(ii) is younger than age seven and not enrolled in kindergarten or first grade in the
semester preceding initial receipt of a qualified scholarship;

(iii) previously received a qualified scholarship under this section; or

(iv) lived in Minnesota for less than a year prior to initial receipt of a qualified
scholarship.

(c) "Equity and opportunity in education donation" means a donation to a qualified public
school foundation or to a qualified foundation that awards qualified scholarships or makes
qualified grants.

(d) "Household" means household as used to determine eligibility under the National
School Lunch Program in United States Code, title 42, section 1758.

(e) "Qualified charter school" means a charter elementary or secondary school in
Minnesota at which at least 30 percent of students qualify for a reduced-price meal under
the National School Lunch Program.

(f) "Qualified school" means a school operated in Minnesota that is a nonpublic
elementary or secondary school in Minnesota wherein a resident may legally fulfill the
state's compulsory attendance laws that is not operated for profit, and that adheres to the
provisions of United States Code, title 42, section 1981, and chapter 363A.

(g) "Qualified foundation" means a nonprofit organization granted an exemption from
the federal income tax under section 501(c)(3) of the Internal Revenue Code that has been
approved as a qualified foundation by the commissioner of revenue under subdivision 5.

(h) "Qualified grant" means a grant from a qualified foundation to a qualified charter
school for use in support of the school's mission of educating students in academics, arts,
or athletics, including transportation.

(i) "Qualified public school foundation" means a qualified foundation formed for the
primary purpose of supporting one or more public schools or school districts in Minnesota
at which at least 30 percent of students qualify for a reduced-price meal under the National
School Lunch Program.

(j) "Qualified scholarship" means a payment from a qualified foundation to or on behalf
of the parent or guardian of a qualified student for payment of tuition for enrollment in
grades kindergarten through 12 at a qualified school. A qualified scholarship must not
exceed an amount greater than 70 percent of the state average general education revenue
under section 126C.10, subdivision 1, per pupil unit.

(k) "Total annual income" means the income measure used to determine eligibility under
the National School Lunch Program in United States Code, title 42, section 1758.

Subd. 2.

Credit allowed.

(a) An individual or corporate taxpayer who has been issued
a credit certificate under subdivision 3 is allowed a credit against the tax due under this
chapter equal to 70 percent of the amount donated during the taxable year to the qualified
foundation or qualified public school foundation designated on the taxpayer's credit
certificate. No credit is allowed if the taxpayer designates a specific child as the beneficiary
of the contribution. No credit is allowed to a taxpayer for an equity and opportunity in
education donation made before the taxpayer was issued a credit certificate as provided in
subdivision 3.

(b) The maximum annual credit allowed is:

(1) $21,000 for married joint filers for a one-year donation of $30,000;

(2) $10,500 for other individual filers for a one-year donation of $15,000; and

(3) $105,000 for corporate filers for a one-year donation of $150,000.

(c) A taxpayer must provide a copy of the receipt provided by the qualified foundation
or qualified public school foundation when claiming the credit for the donation if requested
by the commissioner.

(d) The credit is limited to the liability for tax under this chapter, including the tax
imposed by sections 290.0921 and 290.0922.

(e) If the amount of the credit under this subdivision for any taxable year exceeds the
limitations under paragraph (d), the excess is a credit carryover to each of the five succeeding
taxable years. The entire amount of the excess unused credit for the taxable year must be
carried first to the earliest of the taxable years to which the credit may be carried. The
amount of the unused credit that may be added under this paragraph may not exceed the
taxpayer's liability for tax, less the credit for the taxable year. No credit may be carried to
a taxable year more than five years after the taxable year in which the credit was earned.

Subd. 3.

Application for credit certificate.

(a) The commissioner must make applications
for tax credits for 2018 available on the department's Web site by January 1, 2018.
Applications for subsequent years must be made available by January 1 of the taxable year.

(b) A taxpayer must apply to the commissioner for an equity and opportunity in education
tax credit certificate. The application must be in the form and manner specified by the
commissioner and must designate the qualified foundation or qualified public school
foundation to which the taxpayer intends to make a donation. The commissioner must begin
accepting applications for a taxable year on January 1. The commissioner must issue tax
credit certificates under this section on a first-come, first-served basis until the maximum
statewide credit amount has been reached. The certificates must list the qualified foundation
or qualified public school foundation the taxpayer designated on the application. The
maximum statewide credit amount is $35,000,000 per taxable year for taxable years beginning
after December 31, 2017.

(c) The commissioner must not issue a tax credit certificate for an amount greater than
the limits in subdivision 2.

(d) The commissioner must not issue a credit certificate for an application that designates
a qualified foundation or qualified public school foundation that the commissioner has
barred from participation as provided in subdivision 5.

Subd. 4.

Responsibilities of qualified foundations.

(a) A qualified foundation that
awards qualified scholarships must:

(1) award qualified scholarships to eligible students;

(2) not restrict the availability of scholarships to students of one qualified school;

(3) not charge a fee of any kind for a child to be considered for a scholarship; and

(4) require a qualified school receiving payment of tuition through a scholarship funded
by contributions qualifying for the tax credit under this section to sign an agreement that it
will not use different admissions standards for a student with a qualified scholarship.

(b) An entity that is eligible to be a qualified foundation must apply to the commissioner
by September 15 of the year preceding the year in which it will first receive equity and
opportunity in education donations. The application must be in the form and manner
prescribed by the commissioner. The application must:

(1) demonstrate to the commissioner that the entity has been granted an exemption from
the federal income tax as an organization described in section 501(c)(3) of the Internal
Revenue Code; and

(2) demonstrate the entity's financial accountability by submitting its most recent audited
financial statement prepared by a certified public accountant firm licensed under chapter
326A using the Statements on Auditing Standards issued by the Audit Standards Board of
the American Institute of Certified Public Accountants.

(c) A qualified foundation must provide to taxpayers who make donations or
commitments to donate a receipt or verification on a form approved by the commissioner.

(d) A qualified foundation that awards qualified scholarships must, in each year it awards
qualified scholarships to eligible students to enroll in a qualified school, obtain from the
qualified school documentation that the school:

(i) complies with all health and safety laws or codes that apply to nonpublic schools;

(ii) holds a valid occupancy permit if required by its municipality;

(iii) certifies that it adheres to the provisions of chapter 363A and United States Code,
title 42, section 1981; and

(iv) provides academic accountability to parents of students in the program by regularly
reporting to the parents on the student's progress.

A qualified foundation must make the documentation available to the commissioner on
request.

(e) A qualified foundation must, by June 1 of each year following a year in which it
receives donations, provide the following information to the commissioner:

(1) financial information that demonstrates the financial viability of the qualified
foundation, if it is to receive donations of $150,000 or more during the year;

(2) documentation that it has conducted criminal background checks on all of its
employees and board members and has excluded from employment or governance any
individuals who might reasonably pose a risk to the appropriate use of contributed funds;

(3) consistent with paragraph (f), document that it has used amounts received as donations
to provide qualified scholarships, to make qualified grants, or in support of the mission of
one or more public schools or school districts of educating students in academics, arts, or
athletics, including transportation within one calendar year of the calendar year in which it
received the donation;

(4) if the qualified foundation awards qualified scholarships, a list of qualified schools
that enrolled eligible students to whom the qualified foundation awarded qualified
scholarships;

(5) if the qualified foundation makes qualified grants, a list of qualified charter schools
to which the qualified foundation made qualified grants;

(6) if the qualified foundation is a qualified public school foundation, a list of expenditures
made in support of the mission of one or more public schools or school districts of educating
students in academics, arts, or athletics, including transportation; and

(7) the following information prepared by a certified public accountant regarding
donations received in the previous calendar year:

(i) the total number and total dollar amount of donations received from taxpayers;

(ii) the dollar amount of donations used for administrative expenses, as allowed by
paragraph (f);

(iii) if the qualified foundation awarded qualified scholarships, the total number and
dollar amount of qualified scholarships awarded;

(iv) if the qualified foundation made qualified grants, the total number and dollar amount
of qualified grants made; and

(v) if the qualified foundation is a qualified public school foundation, the total number
and dollar amount of expenditures made in support of the mission of one or more public
schools or school districts of educating students in academics, arts, or athletics, including
transportation.

(f) The foundation may use up to five percent of the amounts received as donations for
reasonable administrative expenses, including but not limited to fund-raising, scholarship
tracking, and reporting requirements.

Subd. 5.

Responsibilities of commissioner.

(a) The commissioner must make
applications for an entity to be approved as a qualified foundation for a taxable year available
on the department's Web site by August 1 of the year preceding the taxable year. The
commissioner must approve an application that provides the documentation required in
subdivision 4, paragraph (b), clauses (1) and (2), within 60 days of receiving the application.
The commissioner must notify a foundation that provides incomplete documentation and
the foundation may resubmit its application within 30 days.

(b) By November 15 of each year, the commissioner must post on the department's Web
site the names and addresses of qualified foundations for the next taxable year. The
commissioner must regularly update the names and addresses of any qualified foundations
that have been barred from participating in the program.

(c) The commissioner must prescribe a standardized format for a receipt to be issued by
a qualified foundation to a taxpayer to indicate the value of a donation received and of a
commitment to make a donation.

(d) The commissioner must prescribe a standardized format for qualified foundations
to report the information required under subdivision 4, paragraph (e).

(e) The commissioner may conduct either a financial review or audit of a qualified
foundation upon finding evidence of fraud or intentional misreporting. If the commissioner
determines that the qualified foundation committed fraud or intentionally misreported
information, the qualified foundation is barred from further program participation.

(f) If a qualified foundation fails to submit the documentation required under subdivision
4, paragraph (c), by June 1, the commissioner must notify the qualified foundation by July
1. A qualified foundation that fails to submit the required information by August 1 is barred
from participation for the next taxable year.

(g) If a qualified foundation fails to comply with the requirements of subdivision 4,
paragraph (c), the commissioner must by September 1 notify the qualified foundation that
it has until November 1 to document that it has remedied its noncompliance. A qualified
foundation that fails to document that it has remedied its noncompliance by November 1 is
barred from participation for the next taxable year.

(h) A qualified foundation barred under paragraph (f) or (g) may become eligible to
participate by submitting the required information in future years.

EFFECTIVE DATE.

This section is effective the day following final enactment for
donations made and credits allowed in taxable years beginning after December 31, 2017.

Sec. 6. PURPOSE STATEMENT; TAX EXPENDITURES.

Subdivision 1.

Authority.

This section is intended to fulfill the requirement under
Minnesota Statutes, section 3.192, that a bill creating, renewing, or continuing a tax
expenditure provide a purpose for the tax expenditure and a standard or goal against which
its effectiveness is measured.

Subd. 2.

Credit providing equity and opportunity in education tax credit.

The
provisions of section 3, providing a tax credit to expand educational choice, are intended
to give financial assistance to low-income and middle-income families who seek better
educational opportunities for their children. The standard against which the effectiveness
of the credit is to be measured is the total number of eligible students who receive opportunity
scholarships and better educational opportunities as a result of donations from corporations
and individuals that qualify for the tax credit.