1.1                          A bill for an act
  1.2             relating to taxation; conforming to certain federal 
  1.3             changes; advancing the effective dates of the 
  1.4             individual income tax credit for long-term care 
  1.5             insurance, the sales tax exemption for inputs to 
  1.6             taxable services, and the sales tax exemption for 
  1.7             certain nonprescription analgesics; providing a 
  1.8             property tax rebate; appropriating money; amending 
  1.9             Minnesota Statutes 1996, section 290.01, subdivision 
  1.10            19e; Minnesota Statutes 1997 Supplement, section 
  1.11            290.01, subdivisions 19b and 19g; Laws 1997, chapter 
  1.12            231, articles 5, section 20, and 7, section 47; 
  1.13            repealing Minnesota Statutes 1997 Supplement, section 
  1.14            290.01, subdivision 19g. 
  1.15  BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
  1.16     Section 1.  Minnesota Statutes 1997 Supplement, section 
  1.17  290.01, subdivision 19b, is amended to read: 
  1.18     Subd. 19b.  [SUBTRACTIONS FROM FEDERAL TAXABLE INCOME.] For 
  1.19  individuals, estates, and trusts, there shall be subtracted from 
  1.20  federal taxable income: 
  1.21     (1) interest income on obligations of any authority, 
  1.22  commission, or instrumentality of the United States to the 
  1.23  extent includable in taxable income for federal income tax 
  1.24  purposes but exempt from state income tax under the laws of the 
  1.25  United States; 
  1.26     (2) if included in federal taxable income, the amount of 
  1.27  any overpayment of income tax to Minnesota or to any other 
  1.28  state, for any previous taxable year, whether the amount is 
  1.29  received as a refund or as a credit to another taxable year's 
  1.30  income tax liability; 
  2.1      (3) the amount paid to others, less the credit allowed 
  2.2   under section 290.0674, not to exceed $1,625 for each dependent 
  2.3   in grades kindergarten to 6 and $2,500 for each dependent in 
  2.4   grades 7 to 12, for tuition, textbooks, and transportation of 
  2.5   each dependent in attending an elementary or secondary school 
  2.6   situated in Minnesota, North Dakota, South Dakota, Iowa, or 
  2.7   Wisconsin, wherein a resident of this state may legally fulfill 
  2.8   the state's compulsory attendance laws, which is not operated 
  2.9   for profit, and which adheres to the provisions of the Civil 
  2.10  Rights Act of 1964 and chapter 363.  For the purposes of this 
  2.11  clause, "tuition" includes fees or tuition as defined in section 
  2.12  290.0674, subdivision 1, clause (1).  As used in this clause, 
  2.13  "textbooks" includes books and other instructional materials and 
  2.14  equipment used in elementary and secondary schools in teaching 
  2.15  only those subjects legally and commonly taught in public 
  2.16  elementary and secondary schools in this state.  Equipment 
  2.17  expenses qualifying for deduction includes expenses as defined 
  2.18  and limited in section 290.0674, subdivision 1, clause (3).  
  2.19  "Textbooks" does not include instructional books and materials 
  2.20  used in the teaching of religious tenets, doctrines, or worship, 
  2.21  the purpose of which is to instill such tenets, doctrines, or 
  2.22  worship, nor does it include books or materials for, or 
  2.23  transportation to, extracurricular activities including sporting 
  2.24  events, musical or dramatic events, speech activities, driver's 
  2.25  education, or similar programs; 
  2.26     (4) contributions made in taxable years beginning after 
  2.27  December 31, 1981, and before January 1, 1985, to the extent 
  2.28  included in federal taxable income, distributions from a 
  2.29  qualified governmental pension plan, an individual retirement 
  2.30  account, simplified employee pension, or qualified plan covering 
  2.31  a self-employed person that represent a return of contributions 
  2.32  that were included in Minnesota gross income in the taxable year 
  2.33  for which the contributions were made but were deducted or were 
  2.34  not included in the computation of federal adjusted gross 
  2.35  income, less any amount subtracted as a distribution under this 
  2.36  subdivision or a predecessor provision in taxable years that 
  3.1   began before January 1, 1998.  The distribution shall be 
  3.2   allocated first to return of contributions until the 
  3.3   contributions included in Minnesota gross income have been 
  3.4   exhausted.  This subtraction applies only to contributions made 
  3.5   in a taxable year prior to 1985 for taxable years beginning 
  3.6   after December 31, 1997, and before January 1, 1999; 
  3.7      (5) income as provided under section 290.0802; 
  3.8      (6) the amount of unrecovered accelerated cost recovery 
  3.9   system deductions allowed under subdivision 19g; 
  3.10     (7) to the extent included in federal adjusted gross 
  3.11  income, income realized on disposition of property exempt from 
  3.12  tax under section 290.491; 
  3.13     (8) to the extent not deducted in determining federal 
  3.14  taxable income, the amount paid for health insurance of 
  3.15  self-employed individuals as determined under section 162(l) of 
  3.16  the Internal Revenue Code, except that the 25 percent limit does 
  3.17  not apply.  If the taxpayer deducted insurance payments under 
  3.18  section 213 of the Internal Revenue Code of 1986, the 
  3.19  subtraction under this clause must be reduced by the lesser of: 
  3.20     (i) the total itemized deductions allowed under section 
  3.21  63(d) of the Internal Revenue Code, less state, local, and 
  3.22  foreign income taxes deductible under section 164 of the 
  3.23  Internal Revenue Code and the standard deduction under section 
  3.24  63(c) of the Internal Revenue Code; or 
  3.25     (ii) the lesser of (A) the amount of insurance qualifying 
  3.26  as "medical care" under section 213(d) of the Internal Revenue 
  3.27  Code to the extent not deducted under section 162(1) of the 
  3.28  Internal Revenue Code or excluded from income or (B) the total 
  3.29  amount deductible for medical care under section 213(a); 
  3.30     (9) the exemption amount allowed under Laws 1995, chapter 
  3.31  255, article 3, section 2, subdivision 3; 
  3.32     (10) to the extent included in federal taxable income, 
  3.33  postservice benefits for youth community service under section 
  3.34  121.707 for volunteer service under United States Code, title 
  3.35  42, section 5011(d), as amended; and 
  3.36     (11) the amount of income or gain included in federal 
  4.1   taxable income under section 1366 of the Internal Revenue Code 
  4.2   flowing from a corporation that has a valid election in effect 
  4.3   for the taxable year under section 1362 of the Internal Revenue 
  4.4   Code which is not allowed to be an "S" corporation under section 
  4.5   290.9725. 
  4.6      Sec. 2.  Minnesota Statutes 1996, section 290.01, 
  4.7   subdivision 19e, is amended to read: 
  4.8      Subd. 19e.  [DEPRECIATION MODIFICATIONS FOR CORPORATIONS.] 
  4.9   In the case of corporations, a modification shall be made for 
  4.10  the accelerated cost recovery system.  The allowable deduction 
  4.11  for the accelerated cost recovery system is the same amount as 
  4.12  provided in section 168 of the Internal Revenue Code with the 
  4.13  following modifications.  The modifications apply to taxable 
  4.14  years beginning after December 31, 1986, and to property for 
  4.15  which deductions under the Tax Reform Act of 1986, Public Law 
  4.16  Number 99-514, are elected or apply.  The modifications in 
  4.17  paragraphs (a) and (c) do not apply to taxable years beginning 
  4.18  after December 31, 1997. 
  4.19     (a) For property placed in service after December 31, 1980, 
  4.20  and before January 1, 1987, 40 percent of the allowance pursuant 
  4.21  to section 168 of the Internal Revenue Code of 1954, as amended 
  4.22  through December 31, 1985, for 15-, 18-, or 19-year real 
  4.23  property shall not be allowed and for all other property 20 
  4.24  percent shall not be allowed.  
  4.25     (b) For property placed in service after December 31, 1987, 
  4.26  no modification shall be made. 
  4.27     (c) For property placed in service after July 31, 1986, and 
  4.28  before January 1, 1987, for which the taxpayer elects the 
  4.29  deduction pursuant to section 203 of the Tax Reform Act of 1986, 
  4.30  Public Law Number 99-514, and for property placed in service 
  4.31  after December 31, 1986, and before January 1, 1988, 15 percent 
  4.32  of the allowance pursuant to section 168 of the Internal Revenue 
  4.33  Code shall not be allowed.  
  4.34     (d) For property placed in service after December 31, 1980, 
  4.35  and before January 1, 1987, for which the taxpayer elects to use 
  4.36  the straight line method provided in section 168(b)(3), (f)(12), 
  5.1   or (j)(1) or a method provided in section 168(e)(2) of the 
  5.2   Internal Revenue Code, as amended through December 31, 1986, but 
  5.3   excluding property for which the taxpayer elects the deduction 
  5.4   pursuant to section 203 of the Tax Reform Act of 1986, Public 
  5.5   Law Number 99-514, the modifications provided in paragraph (a) 
  5.6   do not apply. 
  5.7      (e) For taxable years beginning before January 1, 1998, for 
  5.8   property subject to the modifications contained in paragraphs 
  5.9   (a) and (c) and Minnesota Statutes 1986, section 290.09, 
  5.10  subdivision 7, clause (c), the following modification shall be 
  5.11  made after the entire amount of the allowable deduction has been 
  5.12  allowed for federal tax purposes for that property under the 
  5.13  provisions of section 168 of the Internal Revenue Code.  The 
  5.14  remaining depreciable basis in those assets for Minnesota 
  5.15  purposes, including the amount of any basis reduction to reflect 
  5.16  the investment tax credit for federal purposes under sections 
  5.17  48(q) and 49(d) of the Internal Revenue Code, shall be a 
  5.18  depreciation allowance computed using the straight line method 
  5.19  over the following number of years: 
  5.20     (1) three-year property, one year; 
  5.21     (2) five-year and seven-year property, two years; 
  5.22     (3) ten-year property, five years; and 
  5.23     (4) all other property, seven years. 
  5.24     (f) For taxable years beginning after December 31, 1997, 
  5.25  the amount of any remaining modification made under paragraph 
  5.26  (a) or (c) or Minnesota Statutes 1986, section 290.09, 
  5.27  subdivision 7, clause (c), not previously deducted under 
  5.28  paragraph (e), including the amount of any basis reduction to 
  5.29  reflect the investment tax credit for federal purposes under 
  5.30  sections 48(q) and 49(d) of the Internal Revenue Code, is a 
  5.31  depreciation allowance in the first taxable year beginning after 
  5.32  December 31, 1997. 
  5.33     (g) For taxable years beginning before January 1, 1998, and 
  5.34  for property placed in service after December 31, 1987, the 
  5.35  remaining depreciable basis for Minnesota purposes that is 
  5.36  attributable to the basis reduction for federal purposes to 
  6.1   reflect the investment tax credit under sections 48(q) and 49(d) 
  6.2   of the Internal Revenue Code, shall be allowed as a deduction in 
  6.3   the first taxable year after the entire amount of the allowable 
  6.4   deduction for that property under the provisions of section 168 
  6.5   of the Internal Revenue Code, has been allowed, except that 
  6.6   where the straight line method provided in section 168(b)(3) is 
  6.7   used, the deduction provided in this clause shall be allowed in 
  6.8   the last taxable year in which an allowance for depreciation is 
  6.9   allowed for that property.  
  6.10     (g) (h) For qualified timber property for which the 
  6.11  taxpayer made an election under section 194 of the Internal 
  6.12  Revenue Code, the remaining depreciable basis for Minnesota 
  6.13  purposes is allowed as a deduction in the first taxable year 
  6.14  after the entire allowable deduction has been allowed for 
  6.15  federal tax purposes. 
  6.16     (h) (i) The basis of property to which section 168 of the 
  6.17  Internal Revenue Code applies is its basis as provided in this 
  6.18  chapter including the modifications provided in this subdivision 
  6.19  and in Minnesota Statutes 1986, section 290.09, subdivision 7, 
  6.20  paragraph (c).  The recapture tax provisions provided in 
  6.21  sections 1245 and 1250 of the Internal Revenue Code apply but 
  6.22  must be calculated using the basis provided in the preceding 
  6.23  sentence.  
  6.24     (i) (j) The basis of an asset acquired in an exchange of 
  6.25  assets, including an involuntary conversion, is the same as its 
  6.26  federal basis under the provisions of the Internal Revenue Code, 
  6.27  except that the difference in basis due to the modifications in 
  6.28  this subdivision and in Minnesota Statutes 1986, section 290.09, 
  6.29  subdivision 7, paragraph (c), is a deduction as provided in 
  6.30  paragraph (e). 
  6.31     Sec. 3.  Minnesota Statutes 1997 Supplement, section 
  6.32  290.01, subdivision 19g, is amended to read: 
  6.33     Subd. 19g.  [ACRS MODIFICATION FOR INDIVIDUALS.] (a) An 
  6.34  individual is allowed a subtraction from federal taxable income 
  6.35  for the amount of accelerated cost recovery system deductions 
  6.36  that were added to federal adjusted gross income in computing 
  7.1   Minnesota gross income for taxable year 1981, 1982, 1983, or 
  7.2   1984 and that were not deducted in a later taxable year 
  7.3   beginning before January 1, 1998.  The deduction is 
  7.4   allowed beginning in the first taxable year after the entire 
  7.5   allowable deduction for the property has been allowed under 
  7.6   federal law or the first taxable year beginning after December 
  7.7   31, 1987, whichever is later beginning after December 31, 1997.  
  7.8   The amount of the deduction is computed by deducting equals the 
  7.9   amount added to federal adjusted gross income in computing 
  7.10  Minnesota gross income (, less any: 
  7.11     (1) deduction allowed under Minnesota Statutes 1986, 
  7.12  section 290.01, subdivision 20f) in equal annual amounts over 
  7.13  five years; and 
  7.14     (2) amount deducted under this subdivision in a taxable 
  7.15  year beginning before January 1, 1998. 
  7.16  This paragraph does not apply to property that was sold or 
  7.17  exchanged in a taxable year beginning before January 1, 1999. 
  7.18     (b) In the event of a sale or exchange of the 
  7.19  property occurring during a taxable year beginning after 
  7.20  December 31, 1997, and before January 1, 1999, a deduction is 
  7.21  allowed equal to the lesser of (1) the remaining amount that 
  7.22  would be allowed as a deduction under paragraph (a) or (2) the 
  7.23  amount of capital gain recognized and the amount of cost 
  7.24  recovery deductions that were subject to recapture under 
  7.25  sections 1245 and 1250 of the Internal Revenue Code of 1986 for 
  7.26  the taxable year. 
  7.27     (c) In the case of a corporation treated as an "S" 
  7.28  corporation under section 290.9725, the amount of the 
  7.29  corporation's cost recovery allowances that have been deducted 
  7.30  in computing federal tax, but have been added to federal taxable 
  7.31  income or not deducted in computing tax under this chapter as a 
  7.32  result of the application of subdivision 19e, paragraphs (a) and 
  7.33  (c) or Minnesota Statutes 1986, section 290.09, subdivision 7, 
  7.34  is allowed as a deduction to the shareholders under the 
  7.35  provisions of paragraph (a). 
  7.36     Sec. 4.  Laws 1997, chapter 231, article 5, section 20, is 
  8.1   amended to read: 
  8.2      Sec. 20.  [EFFECTIVE DATE.] 
  8.3      Sections 1, 5, 6, 11, 16, and 18 are effective the day 
  8.4   following final enactment.  
  8.5      Sections 2 to 4, and 9 are effective for taxable years 
  8.6   beginning after December 31, 1996. 
  8.7      Section 7 is effective for taxable years beginning after 
  8.8   December 31, 1998 1997. 
  8.9      Section 8 is effective for tax credit certificates issued 
  8.10  after December 31, 1996, and used in taxable years beginning 
  8.11  after December 31, 1996. 
  8.12     Section 10 is effective January 1, 1998. 
  8.13     Sections 12, 13, 15, and 19 are effective beginning for 
  8.14  property tax refunds based on rent paid after December 31, 1996. 
  8.15     Section 17 is effective April 16, 1997. 
  8.16     Sec. 5.  Laws 1997, chapter 231, article 7, section 47, is 
  8.17  amended to read: 
  8.18     Sec. 47.  [EFFECTIVE DATES.] 
  8.19     Section 1 is effective for refund claims filed after June 
  8.20  30, 1997. 
  8.21     Sections 2, 6, 7, 9, 13, 15, 16, 17, 18, 20, 21, 25, 31, 
  8.22  and 32 are effective for purchases, sales, storage, use, or 
  8.23  consumption occurring after June 30, 1997. 
  8.24     Section 3 is effective on July 1, 1997, or upon adoption of 
  8.25  the corresponding rules, whichever occurs earlier. 
  8.26     Section 4, paragraph (i), clause (iv), is effective for 
  8.27  purchases and sales occurring after September 30, 1987; the 
  8.28  remainder of section 4 is effective for purchases and sales 
  8.29  occurring after June 30, 1997. 
  8.30     Section 5, paragraph (h), is effective for purchases and 
  8.31  sales occurring after June 30, 1997, and paragraph (i) is 
  8.32  effective for purchases and sales occurring after December 31, 
  8.33  1992. 
  8.34     Sections 8 and 46 are effective July 1, 1998. 
  8.35     Sections 10 and 22 are effective for purchases, sales, 
  8.36  storage, use, or consumption occurring after August 31, 1996. 
  9.1      Sections 11, 12, 33, 34, and 35 are effective July 1, 1997. 
  9.2      Sections 14 and 19 are effective for purchases and sales 
  9.3   after June 30, 1999 1998. 
  9.4      Section 23 is effective January 1, 1997. 
  9.5      Section 24 is effective for purchases, sales, storage, use, 
  9.6   or consumption occurring after April 30, 1997. 
  9.7      Sections 26 and 45 are effective for purchases, sales, 
  9.8   storage, use, or consumption occurring after July 31, 1997, and 
  9.9   before August 1, 2003. 
  9.10     Section 27 is effective for purchases, sales, storage, use, 
  9.11  or consumption occurring after May 31, 1997. 
  9.12     Section 28 is effective for sales made after December 31, 
  9.13  1989, and before January 1, 1997.  The provisions of Minnesota 
  9.14  Statutes, section 289A.50, apply to refunds claimed under 
  9.15  section 28.  Refunds claimed under section 28 must be filed by 
  9.16  the later of December 31, 1997, or the time limit under 
  9.17  Minnesota Statutes, section 289A.40, subdivision 1. 
  9.18     Section 29 is effective for sales or first use after May 
  9.19  31, 1997, and before June 1, 1998. 
  9.20     Sections 30, 42, and 43 are effective the day following 
  9.21  final enactment. 
  9.22     Sections 36 to 39 are effective the day after compliance by 
  9.23  the governing body of Cook county with Minnesota Statutes, 
  9.24  section 645.021, subdivision 3. 
  9.25     Section 40 is effective for STAR funds collected after June 
  9.26  30, 1997. 
  9.27     Sec. 6.  [1998 PROPERTY TAX REBATE.] 
  9.28     Subdivision 1.  [PRINCIPAL RESIDENCE.] (a) A credit is 
  9.29  allowed against the tax imposed under Minnesota Statutes, 
  9.30  chapter 290, to an individual equal to 20 percent of the 
  9.31  qualified property tax paid before January 1, 1999, for taxes 
  9.32  assessed in 1997.  The maximum credit is $1,000. 
  9.33     (b) For property owned and occupied by the individual 
  9.34  during 1998, qualified property tax means property taxes payable 
  9.35  as defined in Minnesota Statutes, section 290A.03, subdivision 
  9.36  13, assessed in 1997 and payable in 1998, except the requirement 
 10.1   that the taxpayer own and occupy the property on January 2, 
 10.2   1998, does not apply.  The property tax must be deductible under 
 10.3   section 164 of the Internal Revenue Code to qualify. 
 10.4      (c) For a renter, the qualified property tax means the 
 10.5   amount of rent constituting property taxes under Minnesota 
 10.6   Statutes, section 290A.03, subdivision 11, based on rent paid in 
 10.7   1998.  If two or more renters could be claimants under Minnesota 
 10.8   Statutes, chapter 290A, with regard to the rent constituting 
 10.9   property taxes, the rules under Minnesota Statutes, section 
 10.10  290A.03, subdivision 8, paragraph (f), apply to determine the 
 10.11  amount of the credit for the individual. 
 10.12     (d) For an individual who both owned and rented principal 
 10.13  residences in calendar year 1998, qualified taxes are the sum of 
 10.14  the amounts under paragraphs (a) and (b). 
 10.15     Subd. 2.  [SECOND HOME CREDIT.] (a) In addition to the 
 10.16  credit allowed under subdivision 1, an individual may claim a 
 10.17  credit equal to 20 percent of the net taxes paid before January 
 10.18  1, 1999, for taxes assessed in 1997 on a seasonal residential 
 10.19  property not used for commercial purposes, classified under 
 10.20  Minnesota Statutes, section 273.13, subdivision 25.  The maximum 
 10.21  amount of the credit equals the lesser of: 
 10.22     (1) $250; or 
 10.23     (2) $1,000 less the credit allowed under subdivision 1. 
 10.24     (b) For purposes of this subdivision, net taxes are taxes 
 10.25  after any credit allowed under Minnesota Statutes, sections 
 10.26  290.06, subdivision 25, and 290A.04, subdivision 2j. 
 10.27     (c) To qualify, the individual must own the property, in 
 10.28  whole or part, and the taxes must be deductible under section 
 10.29  164 of the Internal Revenue Code. 
 10.30     Subd. 3.  [DEFINITIONS.] (a) For purposes of this section, 
 10.31  the following terms have the meanings given. 
 10.32     (b) "Individual" excludes a dependent as defined in 
 10.33  sections 151 and 152 of the Internal Revenue Code, disregarding 
 10.34  section 152(b)(3). 
 10.35     (c) "Internal Revenue Code" means the Internal Revenue Code 
 10.36  of 1986, as amended through December 31, 1998. 
 11.1      Subd. 4.  [ADMINISTRATIVE PROVISIONS.] (a) If the amount of 
 11.2   the credit under this section exceeds the taxpayer's tax 
 11.3   liability under Minnesota Statutes, chapter 290, the 
 11.4   commissioner shall refund the excess. 
 11.5      (b) To claim a credit under this section, the taxpayer must 
 11.6   attach a copy of the property tax statement and certificate of 
 11.7   rent paid, as applicable, and provide any additional information 
 11.8   the commissioner requires. 
 11.9      (c) An amount sufficient to pay refunds under this section 
 11.10  is appropriated to the commissioner from the general fund. 
 11.11     (d) This credit applies to taxable years beginning after 
 11.12  December 31, 1997, and before January 1, 1999. 
 11.13     (e) Payment of the credit under this section is subject to 
 11.14  Minnesota Statutes, chapter 270A, and any other provision 
 11.15  applicable to refunds under Minnesota Statutes, chapter 290. 
 11.16     Sec. 7.  [REPEALER.] 
 11.17     Minnesota Statutes 1997 Supplement, section 290.01, 
 11.18  subdivision 19g, is repealed. 
 11.19     Sec. 8.  [EFFECTIVE DATE.] 
 11.20     Sections 1 to 3 are effective for taxable years beginning 
 11.21  after December 31, 1997, and before January 1, 1999. 
 11.22     Sections 4 and 5 are effective the day following final 
 11.23  enactment. 
 11.24     Section 7 is effective for taxable years beginning after 
 11.25  December 31, 1998.