1.1                          A bill for an act 
  1.2             relating to education; providing for a tax deduction 
  1.3             and education credit; appropriating money; amending 
  1.4             Minnesota Statutes 1996, section 290.01, subdivision 
  1.5             19b; proposing coding for new law in Minnesota 
  1.6             Statutes, chapter 290. 
  1.7   BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
  1.8      Section 1.  Minnesota Statutes 1996, 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 290.0672, not to exceed $650 $1,950 for each 
  1.25  dependent in grades kindergarten to 6 and $1,000 $3,000 for each 
  1.26  dependent in grades 7 to 12, for tuition, textbooks, and 
  2.1   transportation of each dependent in attending an elementary or 
  2.2   secondary school situated in Minnesota, North Dakota, South 
  2.3   Dakota, Iowa, or Wisconsin, wherein a resident of this state may 
  2.4   legally fulfill the state's compulsory attendance laws, which is 
  2.5   not operated for profit, and which adheres to the provisions of 
  2.6   the Civil Rights Act of 1964 and chapter 363.  For the purposes 
  2.7   of this clause, "tuition" includes not only tuition and fees for 
  2.8   attendance needed to fulfill the requirements of sections 
  2.9   120.101 and 120.102, but also fees and tuition paid for a 
  2.10  dependent in kindergarten through grade 12 for any study 
  2.11  conducted by a person meeting the teaching licensing 
  2.12  requirements of section 120.101, subdivision 7, clauses (1) to 
  2.13  (5), designed to improve the dependents' knowledge of core 
  2.14  curriculum areas and to expand the dependents' knowledge and 
  2.15  skills beyond foundational skills pursuant to the graduation 
  2.16  rule under section 121.11, subdivision 7c.  As used in this 
  2.17  clause, "textbooks" includes books and other instructional 
  2.18  materials and equipment used in elementary and secondary schools 
  2.19  in teaching only those subjects legally and commonly taught in 
  2.20  public elementary and secondary schools in this 
  2.21  state.  Equipment qualifying for deduction includes personal 
  2.22  computer hardware and educational software that assists a 
  2.23  dependent to improve knowledge of core curriculum areas and to 
  2.24  expand knowledge and skills pursuant to the graduation rule 
  2.25  under section 121.11, subdivision 7c, purchased for use in the 
  2.26  taxpayer's home and not used in a trade or business regardless 
  2.27  of whether the computer is required by the dependent's school.  
  2.28  "Textbooks" does not include instructional books and materials 
  2.29  used in the teaching of religious tenets, doctrines, or worship, 
  2.30  the purpose of which is to instill such tenets, doctrines, or 
  2.31  worship, nor does it include books or materials for, or 
  2.32  transportation to, extracurricular activities including sporting 
  2.33  events, musical or dramatic events, speech activities, driver's 
  2.34  education, or similar programs.  In order to qualify for the 
  2.35  subtraction under this clause the taxpayer must elect to itemize 
  2.36  deductions under section 63(e) of the Internal Revenue Code; 
  3.1      (4) to the extent included in federal taxable income, 
  3.2   distributions from a qualified governmental pension plan, an 
  3.3   individual retirement account, simplified employee pension, or 
  3.4   qualified plan covering a self-employed person that represent a 
  3.5   return of contributions that were included in Minnesota gross 
  3.6   income in the taxable year for which the contributions were made 
  3.7   but were deducted or were not included in the computation of 
  3.8   federal adjusted gross income.  The distribution shall be 
  3.9   allocated first to return of contributions until the 
  3.10  contributions included in Minnesota gross income have been 
  3.11  exhausted.  This subtraction applies only to contributions made 
  3.12  in a taxable year prior to 1985; 
  3.13     (5) income as provided under section 290.0802; 
  3.14     (6) the amount of unrecovered accelerated cost recovery 
  3.15  system deductions allowed under subdivision 19g; 
  3.16     (7) to the extent included in federal adjusted gross 
  3.17  income, income realized on disposition of property exempt from 
  3.18  tax under section 290.491; 
  3.19     (8) to the extent not deducted in determining federal 
  3.20  taxable income, the amount paid for health insurance of 
  3.21  self-employed individuals as determined under section 162(l) of 
  3.22  the Internal Revenue Code, except that the 25 percent limit does 
  3.23  not apply.  If the taxpayer deducted insurance payments under 
  3.24  section 213 of the Internal Revenue Code of 1986, the 
  3.25  subtraction under this clause must be reduced by the lesser of: 
  3.26     (i) the total itemized deductions allowed under section 
  3.27  63(d) of the Internal Revenue Code, less state, local, and 
  3.28  foreign income taxes deductible under section 164 of the 
  3.29  Internal Revenue Code and the standard deduction under section 
  3.30  63(c) of the Internal Revenue Code; or 
  3.31     (ii) the lesser of (A) the amount of insurance qualifying 
  3.32  as "medical care" under section 213(d) of the Internal Revenue 
  3.33  Code to the extent not deducted under section 162(1) of the 
  3.34  Internal Revenue Code or excluded from income or (B) the total 
  3.35  amount deductible for medical care under section 213(a); and 
  3.36     (9) the exemption amount allowed under Laws 1995, chapter 
  4.1   255, article 3, section 2, subdivision 3. 
  4.2      Sec. 2.  [290.0672] [MINNESOTA EDUCATION CREDIT.] 
  4.3      Subdivision 1.  [CREDIT ALLOWED.] A taxpayer may take as a 
  4.4   credit against the tax due from the taxpayer and a spouse, if 
  4.5   any, under this chapter in an amount equal to the amount the 
  4.6   taxpayer pays in fees or tuition for a dependent of the taxpayer 
  4.7   in kindergarten through grade 12 for the instruction of the 
  4.8   dependent by a person qualified to be an instructor pursuant to 
  4.9   section 120.101, subdivision 7, clauses (1) to (5), in the 
  4.10  curriculum core areas and knowledge and skills pursuant to the 
  4.11  graduation rule under section 121.11, subdivision 7c. 
  4.12     Subd. 2.  [LIMITATIONS.] The credit is limited to $1,000 
  4.13  per child and $2,000 per family.  No credit is allowed if the 
  4.14  taxpayer's income, as defined in section 290.067, subdivision 
  4.15  2a, exceeds $39,000.  In the case of a married taxpayer, the 
  4.16  credit is not allowed unless a joint income tax return is 
  4.17  filed.  For a nonresident or part-year resident, the credit 
  4.18  determined under subdivision 1 and the $1,000 per child and 
  4.19  $2,000 per family limits are further limited to amounts 
  4.20  determined by multiplying the percentage calculated under 
  4.21  section 290.06, subdivision 2c, paragraph (e), by the credit 
  4.22  determined by subdivision 1 and the $1,000 per child and $2,000 
  4.23  per family limits. 
  4.24     Subd. 3.  [HOME SCHOOL.] If a dependent is educated in a 
  4.25  school where the taxpayer or spouse provides the instruction 
  4.26  necessary to meet the compulsory instruction requirements of 
  4.27  sections 120.101 and 120.102 in the taxpayer's home, the family 
  4.28  of the dependent is deemed to have incurred $1,000 of fees or 
  4.29  tuition qualifying under subdivision 1.  The limit on income 
  4.30  under subdivision 2 does not apply to the credit allowed on the 
  4.31  deemed amount under this subdivision.  A family is limited to 
  4.32  only one deemed amount of $1,000 per year. 
  4.33     Subd. 4.  [CREDIT TO BE REFUNDABLE.] If the amount of 
  4.34  credit which a taxpayer would be eligible to receive pursuant to 
  4.35  this section exceeds the taxpayer's tax liability under this 
  4.36  chapter, the excess amount shall be refunded to the taxpayer by 
  5.1   the commissioner of revenue. 
  5.2      Subd. 5.  [INFLATION ADJUSTMENT.] The dollar amount of the 
  5.3   income threshold in subdivision 2 must be adjusted for 
  5.4   inflation.  The commissioner shall adjust the threshold amount 
  5.5   starting with tax years beginning after December 31, 1997, by 
  5.6   the percentage determined under section 290.06, subdivision 2d, 
  5.7   for the taxable year. 
  5.8      Subd. 6.  [APPROPRIATION.] An amount sufficient to pay the 
  5.9   refunds required by this section is appropriated to the 
  5.10  commissioner from the general fund. 
  5.11     Sec. 3.  [EFFECTIVE DATE.] 
  5.12     Sections 1 and 2 are effective for tax years beginning 
  5.13  after December 31, 1996.