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H.F. No. 6 - Federal tax conformity; Destination Medical Center financing; first engrossment
 
Author: Senator Rod Skoe
 
Prepared By: Nora Pollock, Senate Counsel (651/297-8066)
 
Date: January 20, 2015



 

This bill adopts federal changes to the Internal Revenue Code for tax year 2014 and future years, for some provisions, and clarifies the formula for state aid for the Destination Medical Center (DMC), which was authorized in 2013.  The bill also makes clarifying changes to the types of expenditures that count toward the local match funding requirement for the city of Rochester.

Section

Provision

1

Adopts references to the federal administrative provisions made between March 26, 2014, and December 20, 2014, referenced in the administrative chapter in Minnesota Statutes.  Effective the day following final enactment. 
 

2

Adopts changes to the Internal Revenue Code (IRC) made at the federal level to federal taxable income for tax year 2014 only.  The federal provisions are described below. 

Provisions extended at the federal level and adopted by Minnesota include:

  • Deduction in adjusted gross income of up to $250 for classroom expenses paid by a K-12 grade educator;
  • Deduction in adjusted gross income for up to $4,000 of qualified tuition and related expenses;
  • Exclusion for discharge indebtedness income on principal residence;
  • Itemized deduction for mortgage insurance premiums on a principal residence;
  • For taxpayers 70 ½ or older, exclusion from gross income up to $100,000 of IRA distributions made directly to charitable organizations (the amount excluded is not allowed as a charitable deduction);
  • Parity for in allowable deduction for employer-provided transit expenses with employer-provided parking expenses;
  • Enhanced deduction for donations of food inventory;
  • Classification of certain racehorses as 3-year property;
  • First-year 50% bonus depreciation and alternative minimum depreciation adjustment exemption for qualified second generation biofuel plant property;
  • Deduction for energy efficient commercial building property placed in service in 2014;
  • Allowed expensing for the first $15 million of production costs of films and television shows;
  • Allowed depreciation of leasehold improvements and qualified restaurant property, including new restaurant property and improvements to retail property over 15 years (rather than 39 years) for to property placed in service through 2014;
  • Allowed accelerated depreciation of qualified Indian reservation property for property placed in service through 2014;
  • For contributions made in taxable years beginning through 2014, extension of basis adjustment to S corporation stock when the S corporation donates appreciated property, which is equal to the tax basis of the property rather than the fair market value;
  • Allowed depreciation of certain motorsports entertainment complex property over 7 years rather than 15 or 39 years for property placed in service through 2014.
  • Allowed expensing of 50% of the cost of advanced mine safety equipment for equipment placed in service through 2014;
  • Increased limitation on valuation of qualified conservation contributions of appreciated real property for contributions made in tax years beginning before Jan. 1, 2015;
  • Increased exclusion for gain from the sale of qualified small business stock sold by an individual from 50% to 100% for original issue C corporation stock acquired in 2014. The exclusion applies to certain stock purchased in businesses with less than $50 million of assets that is held for at least five years;
  • Treatment of dividends of regulated investment companies;
  • Exclusion of active financing income from the definition of Subpart F income for U.S. shareholders with at least ten percent interest in a controlled foreign corporation;
  • Extension of the special rule limiting payments from controlled subsidiaries of tax-exempt organizations that are subject to the unrelated business income tax to the amount in excess of allowable payments under arm’s length transactions rules, only if a binding written contract between the entities was in effect on August 17, 2006;
  • Reduction in the minimum holding period for built-in gains on sales of assets of S corporations that converted from C corporations from ten years to five years so that S corporations can sell assets held more than five years without being taxed on built-in gains;
  • Extension of first-year 50% bonus depreciation and increased section 179 expensing and phaseout threshold for tax year 2014.  Minnesota would not conform to the extension of increased section 179 amounts but would retain its current law requirement that 80 percent of the expensing amount be added back in the first year and then subtract 20 percent of the add back amount each of the following five years; and
  • Exclusion from income of earnings on contributions to and qualifying distributions from Achieving a Better Life Experience (ABLE) accounts, effective beginning tax year 2015
     

3

Updates the reference to the IRC to adopt changes to federal adjusted gross income (FAGI) for purposes of calculating individual alternative minimum tax (AMT) and withholding.
 

4

Updates the reference to the IRC in the property tax refund chapter. 
 

5

Updates the reference to the IRC in the estate tax chapter. 
 

6

Provides that preparation and modification of the development plan for the DMC is included in the definition of “public infrastructure project.”  With this proposed change, payments from city funds for public infrastructure costs will count 100 percent toward the city’s $128 million match requirement, and public infrastructure costs may be paid with state aid.
 

7

Under current law, public infrastructure projects are defined, in part, as projects funded in whole or in part by public funds, and the city may incur costs for public infrastructure projects before the development plan has been adopted, provided that the Destination Medical Center Corporation (DMCC) has approved the expenditure.  This section provides that these payments may be paid with state aid, provided that the DMCC has approved the expenditure.
 

8

Amends the definition of “qualified expenditures” to create a new definition, “qualified expenditures for a year”, which is the amount used to calculate state aid.  The new definition clarifies that these expenditures are the cumulative amount of expenditures made since June 30, 2013, minus $200 million.
 

9

Removes the requirement that state aid may not be paid until total expenditures exceed $200 million and removes the “sum of” annual expenditures language from the state aid formula.  This language is no longer necessary given the new definition of “qualified expenditures for a year” in section 8.  Clarifies the carryover provisions for state aid.  Carryover aid payments apply when the city has not met its local match requirement, but the private investment threshold has been reached.  If the city meets its match requirement in a later year, the state may pay the previous year or years’ carryover aid amounts, but the carryover aid payment plus the aid payment for the current year must not exceed $30 million in any year.
 

10

Provides that payments by the city for preparation of the development plan count toward the city’s match requirement.  Corrects an erroneous cross reference.
 

11

Amends the language in the formula for state transit aid to correspond with the changes in section 9.
 

12

Extends the deadline for claiming Minnesota refunds for employees who received payments in certain airline bankruptcy cases and rolled over payments into traditional IRAs after previously being allowed to only roll over the payments into Roth IRAs.  Under 2012 federal legislation, taxpayers were to file amended returns to claim refunds of federal income taxes reflecting the reduction in taxable income resulting from the deduction of rolled-over amounts.  Minnesota conformed to this provision in 2013.  Many taxpayers did not timely file a claim for refund, and the statute of limitations was extended to file a claim for refund to April 15, 2015.
 

13

Provides that sections 6-11 are effective upon approval by the city of Rochester and its filing the approval with the Secretary of State.  The provisions would then apply retroactively to the original effective date of the DMC legislation.

 

 

 
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