1.1                          A bill for an act 
  1.2             relating to children; requiring the state to make a 
  1.3             cash investment for each child in the state; 
  1.4             restricting the use of the amount invested; amending 
  1.5             Minnesota Statutes 1998, section 290.01, subdivision 
  1.6             19b; proposing coding for new law in Minnesota 
  1.7             Statutes, chapter 11A. 
  1.8   BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
  1.9      Section 1.  [11A.26] [STATE INVESTMENT IN CHILDREN.] 
  1.10     Subdivision 1.  [DEFINITIONS.] (a) The definitions in this 
  1.11  subdivision apply to this section. 
  1.12     (b) "Beneficiary" means an individual for whom an account 
  1.13  is established under this section. 
  1.14     (c) "Eligible educational institution" means: 
  1.15     (1) an institution described in United States Code, title 
  1.16  20, section 1088(a)(1) or section 1141(a); and 
  1.17     (2) an area vocational education school as defined in 
  1.18  United States Code, title 20, section 2471(4)(C) or (D). 
  1.19     (d) "Financial institution" means an office of a bank, 
  1.20  trust company, savings bank, savings association, or credit 
  1.21  union. 
  1.22     (e) "Post-secondary educational expenses" means: 
  1.23     (1) tuition and fees required for the enrollment or 
  1.24  attendance of a student at an eligible educational institution; 
  1.25  and 
  1.26     (2) fees, books, supplies, and equipment required for 
  2.1   courses of instruction at an eligible educational institution. 
  2.2      Subd. 2.  [DEPOSIT AT BIRTH.] The commissioner of health 
  2.3   shall notify the state board of investment of the birth of a 
  2.4   child in the state of Minnesota.  Upon receipt of the 
  2.5   notification, the executive director of the state board of 
  2.6   investment shall deposit $1,000 in a trust account established 
  2.7   for that child. 
  2.8      Subd. 3.  [LATER DEPOSITS.] When any child reaches the 
  2.9   child's first through tenth birthday while a Minnesota resident, 
  2.10  the executive director of the state board of investment must 
  2.11  deposit $100 in a trust account established for that child.  For 
  2.12  purposes of this section, a child is considered to be a resident 
  2.13  of Minnesota if the child's parents or custodial parent files a 
  2.14  Minnesota income tax return or property tax refund claim for the 
  2.15  year when the child reaches the birthday.  The individual income 
  2.16  tax forms and the property tax refund claim form must include a 
  2.17  space where the filer identifies, by name and social security 
  2.18  number, any children who reach those birthdays during the 
  2.19  taxable year or the year of the claim.  The commissioner of 
  2.20  revenue shall provide this information to the executive director 
  2.21  of the state board of investment.  If a child is eligible for 
  2.22  more than one deposit under this subdivision and subdivision 2, 
  2.23  the deposits must be made into a single account established for 
  2.24  that child. 
  2.25     Subd. 4.  [ADMINISTRATION.] The state board of investment 
  2.26  shall enter into a contract with one or more financial 
  2.27  institutions to maintain the accounts created under this 
  2.28  section, selecting financial institutions that will provide the 
  2.29  highest rate of return on the accounts consistent with 
  2.30  safeguarding the assets.  The financial institution must agree 
  2.31  to provide annual statements concerning the accounts to each 
  2.32  beneficiary. 
  2.33     Subd. 5.  [PERMISSIBLE USES.] Money in the accounts may be 
  2.34  withdrawn only by the beneficiary.  The terms of the account 
  2.35  must provide that the financial institution will permit 
  2.36  withdrawal only by a beneficiary who is a resident of Minnesota 
  3.1   at the time of the withdrawal and only for the following 
  3.2   purposes: 
  3.3      (1) for a beneficiary who is at least 18 years of age or a 
  3.4   secondary school graduate, in order to pay for post-secondary 
  3.5   educational expenses at an eligible educational institution in 
  3.6   Minnesota; 
  3.7      (2) to pay costs incurred for the purchase of the 
  3.8   beneficiary's first principle residence in Minnesota; or 
  3.9      (3) to pay for health care costs incurred by the 
  3.10  beneficiary if the beneficiary is a child with a disability as 
  3.11  defined in section 125A.02. 
  3.12     Subd. 6.  [CONDITIONS OF FORFEITURE.] If the beneficiary 
  3.13  fails to withdraw the money in the account before reaching the 
  3.14  age of 40, the money remaining in the account forfeits to the 
  3.15  state, and shall be deposited in the general fund. 
  3.16     Subd. 7.  [APPROPRIATION.] The amount sufficient to pay the 
  3.17  costs of the program established in this section is annually 
  3.18  appropriated from the general fund to the executive director of 
  3.19  the state board of investment. 
  3.20     Sec. 2.  Minnesota Statutes 1998, section 290.01, 
  3.21  subdivision 19b, is amended to read: 
  3.22     Subd. 19b.  [SUBTRACTIONS FROM FEDERAL TAXABLE INCOME.] For 
  3.23  individuals, estates, and trusts, there shall be subtracted from 
  3.24  federal taxable income: 
  3.25     (1) interest income on obligations of any authority, 
  3.26  commission, or instrumentality of the United States to the 
  3.27  extent includable in taxable income for federal income tax 
  3.28  purposes but exempt from state income tax under the laws of the 
  3.29  United States; 
  3.30     (2) if included in federal taxable income, the amount of 
  3.31  any overpayment of income tax to Minnesota or to any other 
  3.32  state, for any previous taxable year, whether the amount is 
  3.33  received as a refund or as a credit to another taxable year's 
  3.34  income tax liability; 
  3.35     (3) the amount paid to others, less the credit allowed 
  3.36  under section 290.0674, not to exceed $1,625 for each dependent 
  4.1   in grades kindergarten to 6 and $2,500 for each dependent in 
  4.2   grades 7 to 12, for tuition, textbooks, and transportation of 
  4.3   each dependent in attending an elementary or secondary school 
  4.4   situated in Minnesota, North Dakota, South Dakota, Iowa, or 
  4.5   Wisconsin, wherein a resident of this state may legally fulfill 
  4.6   the state's compulsory attendance laws, which is not operated 
  4.7   for profit, and which adheres to the provisions of the Civil 
  4.8   Rights Act of 1964 and chapter 363.  For the purposes of this 
  4.9   clause, "tuition" includes fees or tuition as defined in section 
  4.10  290.0674, subdivision 1, clause (1).  As used in this clause, 
  4.11  "textbooks" includes books and other instructional materials and 
  4.12  equipment used in elementary and secondary schools in teaching 
  4.13  only those subjects legally and commonly taught in public 
  4.14  elementary and secondary schools in this state.  Equipment 
  4.15  expenses qualifying for deduction includes expenses as defined 
  4.16  and limited in section 290.0674, subdivision 1, clause (3).  
  4.17  "Textbooks" does not include instructional books and materials 
  4.18  used in the teaching of religious tenets, doctrines, or worship, 
  4.19  the purpose of which is to instill such tenets, doctrines, or 
  4.20  worship, nor does it include books or materials for, or 
  4.21  transportation to, extracurricular activities including sporting 
  4.22  events, musical or dramatic events, speech activities, driver's 
  4.23  education, or similar programs; 
  4.24     (4) to the extent included in federal taxable income, 
  4.25  distributions from a qualified governmental pension plan, an 
  4.26  individual retirement account, simplified employee pension, or 
  4.27  qualified plan covering a self-employed person that represent a 
  4.28  return of contributions that were included in Minnesota gross 
  4.29  income in the taxable year for which the contributions were made 
  4.30  but were deducted or were not included in the computation of 
  4.31  federal adjusted gross income.  The distribution shall be 
  4.32  allocated first to return of contributions until the 
  4.33  contributions included in Minnesota gross income have been 
  4.34  exhausted.  This subtraction applies only to contributions made 
  4.35  in a taxable year prior to 1985; 
  4.36     (5) income as provided under section 290.0802; 
  5.1      (6) the amount of unrecovered accelerated cost recovery 
  5.2   system deductions allowed under subdivision 19g; 
  5.3      (7) to the extent included in federal adjusted gross 
  5.4   income, income realized on disposition of property exempt from 
  5.5   tax under section 290.491; 
  5.6      (8) to the extent not deducted in determining federal 
  5.7   taxable income, the amount paid for health insurance of 
  5.8   self-employed individuals as determined under section 162(l) of 
  5.9   the Internal Revenue Code, except that the 25 percent limit does 
  5.10  not apply.  If the taxpayer deducted insurance payments under 
  5.11  section 213 of the Internal Revenue Code of 1986, the 
  5.12  subtraction under this clause must be reduced by the lesser of: 
  5.13     (i) the total itemized deductions allowed under section 
  5.14  63(d) of the Internal Revenue Code, less state, local, and 
  5.15  foreign income taxes deductible under section 164 of the 
  5.16  Internal Revenue Code and the standard deduction under section 
  5.17  63(c) of the Internal Revenue Code; or 
  5.18     (ii) the lesser of (A) the amount of insurance qualifying 
  5.19  as "medical care" under section 213(d) of the Internal Revenue 
  5.20  Code to the extent not deducted under section 162(1) of the 
  5.21  Internal Revenue Code or excluded from income or (B) the total 
  5.22  amount deductible for medical care under section 213(a); 
  5.23     (9) the exemption amount allowed under Laws 1995, chapter 
  5.24  255, article 3, section 2, subdivision 3; 
  5.25     (10) to the extent included in federal taxable income, 
  5.26  postservice benefits for youth community service under section 
  5.27  124D.42 for volunteer service under United States Code, title 
  5.28  42, section 5011(d), as amended; 
  5.29     (11) to the extent not subtracted under clause (1), the 
  5.30  amount of income or gain included in federal taxable income 
  5.31  under section 1366 of the Internal Revenue Code flowing from a 
  5.32  corporation that has a valid election in effect for the taxable 
  5.33  year under section 1362 of the Internal Revenue Code which is 
  5.34  not allowed to be an "S" corporation under section 290.9725; 
  5.35     (12) in the year stock of a corporation that had made a 
  5.36  valid election under section 1362 of the Internal Revenue Code 
  6.1   but was not an "S" corporation under section 290.9725 is sold or 
  6.2   disposed of in a transaction taxable under the Internal Revenue 
  6.3   Code, the amount of difference between the Minnesota basis of 
  6.4   the stock under subdivision 19f, paragraph (m), and the federal 
  6.5   basis if the Minnesota basis is higher than the shareholder's 
  6.6   federal basis; ~~and~~ 
  6.7      (13) an amount equal to an individual's, trust's, or 
  6.8   estate's net federal income tax liability for the tax year that 
  6.9   is attributable to items of income, expense, gain, loss, or 
  6.10  credits federally flowing to the taxpayer in the tax year from a 
  6.11  corporation, having a valid election in effect for federal tax 
  6.12  purposes under section 1362 of the Internal Revenue Code but not 
  6.13  treated as an "S" corporation for state tax purposes under 
  6.14  section 290.9725; and 
  6.15     (14) the amount earned during the calendar year as 
  6.16  interest, dividends, or other earnings on a children's 
  6.17  investment account as provided in section 1. 
  6.18     Sec. 3.  [EFFECTIVE DATE.] 
  6.19     Section 1 is effective for deposits to be made for children 
  6.20  who are born or attain the ages of one through ten years after 
  6.21  December 31, 1999.  Section 2 is effective for taxable years 
  6.22  beginning after December 31, 1999.