1.1                          A bill for an act 
  1.2             relating to taxation; income; allowing a subtraction 
  1.3             for charitable contributions to individuals who do not 
  1.4             itemize deductions for federal income tax purposes; 
  1.5             amending Minnesota Statutes 1998, section 290.01, 
  1.6             subdivision 19b. 
  1.7   BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
  1.8      Section 1.  Minnesota Statutes 1998, section 290.01, 
  1.9   subdivision 19b, is amended to read: 
  1.10     Subd. 19b.  [SUBTRACTIONS FROM FEDERAL TAXABLE INCOME.] For 
  1.11  individuals, estates, and trusts, there shall be subtracted from 
  1.12  federal taxable income: 
  1.13     (1) interest income on obligations of any authority, 
  1.14  commission, or instrumentality of the United States to the 
  1.15  extent includable in taxable income for federal income tax 
  1.16  purposes but exempt from state income tax under the laws of the 
  1.17  United States; 
  1.18     (2) if included in federal taxable income, the amount of 
  1.19  any overpayment of income tax to Minnesota or to any other 
  1.20  state, for any previous taxable year, whether the amount is 
  1.21  received as a refund or as a credit to another taxable year's 
  1.22  income tax liability; 
  1.23     (3) the amount paid to others, less the credit allowed 
  1.24  under section 290.0674, not to exceed $1,625 for each dependent 
  1.25  in grades kindergarten to 6 and $2,500 for each dependent in 
  1.26  grades 7 to 12, for tuition, textbooks, and transportation of 
  2.1   each dependent in attending an elementary or secondary school 
  2.2   situated in Minnesota, North Dakota, South Dakota, Iowa, or 
  2.3   Wisconsin, wherein a resident of this state may legally fulfill 
  2.4   the state's compulsory attendance laws, which is not operated 
  2.5   for profit, and which adheres to the provisions of the Civil 
  2.6   Rights Act of 1964 and chapter 363.  For the purposes of this 
  2.7   clause, "tuition" includes fees or tuition as defined in section 
  2.8   290.0674, subdivision 1, clause (1).  As used in this clause, 
  2.9   "textbooks" includes books and other instructional materials and 
  2.10  equipment used in elementary and secondary schools in teaching 
  2.11  only those subjects legally and commonly taught in public 
  2.12  elementary and secondary schools in this state.  Equipment 
  2.13  expenses qualifying for deduction includes expenses as defined 
  2.14  and limited in section 290.0674, subdivision 1, clause (3).  
  2.15  "Textbooks" does not include instructional books and materials 
  2.16  used in the teaching of religious tenets, doctrines, or worship, 
  2.17  the purpose of which is to instill such tenets, doctrines, or 
  2.18  worship, nor does it include books or materials for, or 
  2.19  transportation to, extracurricular activities including sporting 
  2.20  events, musical or dramatic events, speech activities, driver's 
  2.21  education, or similar programs; 
  2.22     (4) to the extent included in federal taxable income, 
  2.23  distributions from a qualified governmental pension plan, an 
  2.24  individual retirement account, simplified employee pension, or 
  2.25  qualified plan covering a self-employed person that represent a 
  2.26  return of contributions that were included in Minnesota gross 
  2.27  income in the taxable year for which the contributions were made 
  2.28  but were deducted or were not included in the computation of 
  2.29  federal adjusted gross income.  The distribution shall be 
  2.30  allocated first to return of contributions until the 
  2.31  contributions included in Minnesota gross income have been 
  2.32  exhausted.  This subtraction applies only to contributions made 
  2.33  in a taxable year prior to 1985; 
  2.34     (5) income as provided under section 290.0802; 
  2.35     (6) the amount of unrecovered accelerated cost recovery 
  2.36  system deductions allowed under subdivision 19g; 
  3.1      (7) to the extent included in federal adjusted gross 
  3.2   income, income realized on disposition of property exempt from 
  3.3   tax under section 290.491; 
  3.4      (8) to the extent not deducted in determining federal 
  3.5   taxable income, the amount paid for health insurance of 
  3.6   self-employed individuals as determined under section 162(l) of 
  3.7   the Internal Revenue Code, except that the 25 percent limit does 
  3.8   not apply.  If the taxpayer deducted insurance payments under 
  3.9   section 213 of the Internal Revenue Code of 1986, the 
  3.10  subtraction under this clause must be reduced by the lesser of: 
  3.11     (i) the total itemized deductions allowed under section 
  3.12  63(d) of the Internal Revenue Code, less state, local, and 
  3.13  foreign income taxes deductible under section 164 of the 
  3.14  Internal Revenue Code and the standard deduction under section 
  3.15  63(c) of the Internal Revenue Code; or 
  3.16     (ii) the lesser of (A) the amount of insurance qualifying 
  3.17  as "medical care" under section 213(d) of the Internal Revenue 
  3.18  Code to the extent not deducted under section 162(1) of the 
  3.19  Internal Revenue Code or excluded from income or (B) the total 
  3.20  amount deductible for medical care under section 213(a); 
  3.21     (9) the exemption amount allowed under Laws 1995, chapter 
  3.22  255, article 3, section 2, subdivision 3; 
  3.23     (10) to the extent included in federal taxable income, 
  3.24  postservice benefits for youth community service under section 
  3.25  124D.42 for volunteer service under United States Code, title 
  3.26  42, section 5011(d), as amended; 
  3.27     (11) to the extent not subtracted under clause (1), the 
  3.28  amount of income or gain included in federal taxable income 
  3.29  under section 1366 of the Internal Revenue Code flowing from a 
  3.30  corporation that has a valid election in effect for the taxable 
  3.31  year under section 1362 of the Internal Revenue Code which is 
  3.32  not allowed to be an "S" corporation under section 290.9725; 
  3.33     (12) in the year stock of a corporation that had made a 
  3.34  valid election under section 1362 of the Internal Revenue Code 
  3.35  but was not an "S" corporation under section 290.9725 is sold or 
  3.36  disposed of in a transaction taxable under the Internal Revenue 
  4.1   Code, the amount of difference between the Minnesota basis of 
  4.2   the stock under subdivision 19f, paragraph (m), and the federal 
  4.3   basis if the Minnesota basis is higher than the shareholder's 
  4.4   federal basis; and 
  4.5      (13) an amount equal to an individual's, trust's, or 
  4.6   estate's net federal income tax liability for the tax year that 
  4.7   is attributable to items of income, expense, gain, loss, or 
  4.8   credits federally flowing to the taxpayer in the tax year from a 
  4.9   corporation, having a valid election in effect for federal tax 
  4.10  purposes under section 1362 of the Internal Revenue Code but not 
  4.11  treated as an "S" corporation for state tax purposes under 
  4.12  section 290.9725; and 
  4.13     (14) to the extent not deducted in determining federal 
  4.14  taxable income by an individual who does not itemize deductions 
  4.15  for federal income tax purposes for the taxable year, an amount 
  4.16  equal to 50 percent of the excess of charitable contributions 
  4.17  allowable as a deduction for the taxable year under section 
  4.18  170(a) of the Internal Revenue Code over $500. 
  4.19     Sec. 2.  [EFFECTIVE DATE.] 
  4.20     Section 1 is effective for taxable years beginning after 
  4.21  December 31, 1998.