1.1                          A bill for an act 
  1.2             relating to income taxes; adjusting the dependent 
  1.3             education expense amount annually for inflation; 
  1.4             adjusting the maximum education credit amounts and 
  1.5             income limits annually for inflation; amending 
  1.6             Minnesota Statutes 1999 Supplement, sections 290.01, 
  1.7             subdivision 19b; and 290.0674, subdivision 2.  
  1.8   BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
  1.9      Section 1.  Minnesota Statutes 1999 Supplement, section 
  1.10  290.01, 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.  The commissioner shall 
  2.26  adjust the maximum deduction amounts by the percentage 
  2.27  determined under section 290.06, subdivision 2d, for the taxable 
  2.28  year; 
  2.29     (4) contributions made in taxable years beginning after 
  2.30  December 31, 1981, and before January 1, 1985, to a qualified 
  2.31  governmental pension plan, an individual retirement account, 
  2.32  simplified employee pension, or qualified plan covering a 
  2.33  self-employed person that were included in Minnesota gross 
  2.34  income in the taxable year for which the contributions were made 
  2.35  but were deducted or were not included in the computation of 
  2.36  federal adjusted gross income, less any amount allowed to be 
  3.1   subtracted as a distribution under this subdivision or a 
  3.2   predecessor provision in taxable years that began before January 
  3.3   1, 2000.  This subtraction applies only for taxable years 
  3.4   beginning after December 31, 1999, and before January 1, 2001; 
  3.5      (5) income as provided under section 290.0802; 
  3.6      (6) the amount of unrecovered accelerated cost recovery 
  3.7   system deductions allowed under subdivision 19g; 
  3.8      (7) to the extent included in federal adjusted gross 
  3.9   income, income realized on disposition of property exempt from 
  3.10  tax under section 290.491; 
  3.11     (8) to the extent not deducted in determining federal 
  3.12  taxable income, the amount paid for health insurance of 
  3.13  self-employed individuals as determined under section 162(l) of 
  3.14  the Internal Revenue Code, except that the percent limit does 
  3.15  not apply.  If the taxpayer deducted insurance payments under 
  3.16  section 213 of the Internal Revenue Code of 1986, the 
  3.17  subtraction under this clause must be reduced by the lesser of: 
  3.18     (i) the total itemized deductions allowed under section 
  3.19  63(d) of the Internal Revenue Code, less state, local, and 
  3.20  foreign income taxes deductible under section 164 of the 
  3.21  Internal Revenue Code and the standard deduction under section 
  3.22  63(c) of the Internal Revenue Code; or 
  3.23     (ii) the lesser of (A) the amount of insurance qualifying 
  3.24  as "medical care" under section 213(d) of the Internal Revenue 
  3.25  Code to the extent not deducted under section 162(1) of the 
  3.26  Internal Revenue Code or excluded from income or (B) the total 
  3.27  amount deductible for medical care under section 213(a); 
  3.28     (9) the exemption amount allowed under Laws 1995, chapter 
  3.29  255, article 3, section 2, subdivision 3; 
  3.30     (10) to the extent included in federal taxable income, 
  3.31  postservice benefits for youth community service under section 
  3.32  124D.42 for volunteer service under United States Code, title 
  3.33  42, section 5011(d), as amended; 
  3.34     (11) to the extent not deducted in determining federal 
  3.35  taxable income by an individual who does not itemize deductions 
  3.36  for federal income tax purposes for the taxable year, an amount 
  4.1   equal to 50 percent of the excess of charitable contributions 
  4.2   allowable as a deduction for the taxable year under section 
  4.3   170(a) of the Internal Revenue Code over $500; and 
  4.4      (12) to the extent included in federal taxable income, 
  4.5   holocaust victims' settlement payments for any injury incurred 
  4.6   as a result of the holocaust, if received by an individual who 
  4.7   was persecuted for racial or religious reasons by Nazi Germany 
  4.8   or any other Axis regime or an heir of such a person. 
  4.9      Sec. 2.  Minnesota Statutes 1999 Supplement, section 
  4.10  290.0674, subdivision 2, is amended to read: 
  4.11     Subd. 2.  [LIMITATIONS.] (a) For claimants with income not 
  4.12  greater than $33,500, the maximum credit allowed is $1,000 per 
  4.13  qualifying child and $2,000 per family.  No credit is allowed 
  4.14  for education-related expenses for claimants with income greater 
  4.15  than $37,500.  The maximum credit per child is reduced by $1 for 
  4.16  each $4 of household income over $33,500, and the maximum credit 
  4.17  per family is reduced by $2 for each $4 of household income over 
  4.18  $33,500, but in no case is the credit less than zero.  The 
  4.19  commissioner shall adjust the maximum credit per qualifying 
  4.20  child and per family and the dollar amount of the income 
  4.21  threshold at which the maximum credit begins to be reduced by 
  4.22  the percentage determined under section 290.06, subdivision 2d, 
  4.23  for the taxable year.  
  4.24     For purposes of this section "income" has the meaning given 
  4.25  in section 290.067, subdivision 2a.  In the case of a married 
  4.26  claimant, a credit is not allowed unless a joint income tax 
  4.27  return is filed. 
  4.28     (b) For a nonresident or part-year resident, the credit 
  4.29  determined under subdivision 1 and the maximum credit amount in 
  4.30  paragraph (a) must be allocated using the percentage calculated 
  4.31  in section 290.06, subdivision 2c, paragraph (e). 
  4.32     Sec. 3.  [EFFECTIVE DATE.] 
  4.33     Sections 1 and 2 are effective for taxable years beginning 
  4.34  after December 31, 1999.