1.1                          A bill for an act
  1.2             relating to income taxation and higher education; 
  1.3             extending the number of years of education provided by 
  1.4             the state to 13; proposing coding for new law in 
  1.5             Minnesota Statutes, chapters 135A; and 290. 
  1.6   BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
  1.7      Section 1.  [LEGISLATIVE POLICY.] 
  1.8      The legislature has found that it is in the best interest 
  1.9   of the state and its citizens to encourage more students to 
  1.10  continue their education and training beyond high school.  
  1.11  Additionally, the legislature has found that the changing 
  1.12  society and economy have made it necessary for most students to 
  1.13  continue their education in order to have productive careers 
  1.14  that contribute to their personal well-being and to the economic 
  1.15  growth and competitiveness of the state.  Therefore, the 
  1.16  legislature has chosen to extend the number of years of 
  1.17  education that are provided to students by the state through 
  1.18  grade 13.  In order to accomplish this, the families of new high 
  1.19  school graduates may claim an income tax credit of up to $500 
  1.20  per year for the cost of the student's tuition.  This credit, 
  1.21  coupled with the newly established $1,500 federal income tax 
  1.22  credit, will provide the equivalent of the cost of the first 
  1.23  year of tuition at any Minnesota public two-year college. 
  1.24     Sec. 2.  [135A.60] [GRADE 13.] 
  1.25     Subdivision 1.  [ESTABLISHED.] A program is established to 
  2.1   provide new high school graduates with the first year of 
  2.2   post-secondary education at a public two-year college 
  2.3   tuition-free.  The program also reduces the cost of the first 
  2.4   year of post-secondary education at an eligible four-year 
  2.5   college or university.  The maximum credit allowed for each 
  2.6   eligible student is $500.  This maximum is subject to income 
  2.7   limitations and adjusted for inflation as described in section 
  2.8   290.0675.  Students whose family income falls below the level 
  2.9   necessary to qualify for a full tax credit shall receive similar 
  2.10  benefits through state and federal financial aid. 
  2.11     Subd. 2.  [ELIGIBLE STUDENTS.] To be eligible for the grade 
  2.12  13 program, students must: 
  2.13     (1) be Minnesota residents; 
  2.14     (2) graduate from a Minnesota high school in 1998 or later; 
  2.15     (3) enroll full time in an eligible Minnesota 
  2.16  post-secondary institution, as defined in subdivision 3, in the 
  2.17  fall immediately following their high school graduation; and 
  2.18     (4) be claimed as a dependent as defined in section 152 of 
  2.19  the Internal Revenue Code. 
  2.20     Subd. 3.  [ELIGIBLE INSTITUTIONS.] Taxpayers who claim 
  2.21  eligible students as dependents may claim a tax credit for 
  2.22  qualifying higher education expenses at any of the following 
  2.23  post-secondary institutions located in Minnesota: 
  2.24     (1) a two-year public community college, technical college, 
  2.25  or consolidated community/technical college; 
  2.26     (2) a state university; 
  2.27     (3) the University of Minnesota; or 
  2.28     (4) a private nonprofit, degree granting, two- or four-year 
  2.29  liberal arts or vocational technical school. 
  2.30     Subd. 4.  [QUALIFYING HIGHER EDUCATION EXPENSES.] For 
  2.31  purposes of this section and section 290.0675, "qualifying 
  2.32  higher education expenses" means tuition and fees actually paid 
  2.33  during the taxable year to an eligible institution by a taxpayer 
  2.34  on behalf of an eligible student for the student's first year of 
  2.35  post-secondary education, net of any refunds of tuition and fees 
  2.36  received from the institution.  In tax years in which the 
  3.1   taxpayer pays qualifying higher education expenses that relate 
  3.2   to only the first year of the student's post-secondary 
  3.3   education, the taxpayer must subtract from qualifying higher 
  3.4   education expenses any federal HOPE scholarship credit under 
  3.5   section 25A of the Internal Revenue Code for which the student 
  3.6   is eligible.  Otherwise the taxpayer must subtract from 
  3.7   qualifying higher education expenses any federal HOPE 
  3.8   scholarship credit under section 25A of the Internal Revenue 
  3.9   Code for which the student is eligible, net of tuition and fees 
  3.10  paid for the second year of the student's post-secondary 
  3.11  education. 
  3.12     Sec. 3.  [290.0675] [MINNESOTA HIGHER EDUCATION CREDIT.] 
  3.13     Subdivision 1.  [DEFINITIONS.] For purposes of this 
  3.14  section, the following terms have the meanings given. 
  3.15     (a) "Qualifying higher education expenses" has the meaning 
  3.16  given in section 135A.60, subdivision 4. 
  3.17     (b) "Eligible student" has the meaning given in section 
  3.18  135A.60, subdivision 2. 
  3.19     (c) "Income" means federal adjusted gross income as defined 
  3.20  in section 62 of the Internal Revenue Code. 
  3.21     Subd. 2.  [CREDIT ALLOWED.] An individual is allowed a 
  3.22  credit against the tax imposed by this chapter equal to 100 
  3.23  percent of qualifying higher education expenses for an eligible 
  3.24  student.  The maximum credit allowed for each eligible student 
  3.25  is $500.  For married couples filing joint returns, the maximum 
  3.26  credit is reduced by five percent for each $1,000 of income over 
  3.27  a threshold.  For all other taxpayers, the maximum credit is 
  3.28  reduced by ten percent for each $1,000 of income over a 
  3.29  threshold.  For married couples filing joint returns, the 
  3.30  threshold is $80,000.  For all other taxpayers, the threshold is 
  3.31  $40,000.  In no case is the credit less than zero.  This credit 
  3.32  is allowed for only one taxable year with respect to each 
  3.33  eligible student. 
  3.34     For a nonresident or part-year resident, the credit 
  3.35  determined under this section must be allocated based on the 
  3.36  percentage calculated under section 290.06, subdivision 2c, 
  4.1   paragraph (e). 
  4.2      Subd. 3.  [INFLATION ADJUSTMENT.] The maximum credit amount 
  4.3   and the thresholds at which the credit begins to be reduced 
  4.4   under subdivision 2 must be adjusted for inflation.  The 
  4.5   commissioner shall adjust the maximum credit and the threshold 
  4.6   amounts by the percentage determined under section 290.06, 
  4.7   subdivision 2d, for the taxable year. 
  4.8      Sec. 4.  [EFFECTIVE DATE.] 
  4.9      Sections 1, 2, and 3, subdivisions 1 and 2, are effective 
  4.10  for tax years beginning after December 31, 1997.  Section 3, 
  4.11  subdivision 3, is effective for tax years beginning after 
  4.12  December 31, 2001.