Federal law changes enacted through December 31, 1996 were adopted for Minnesota income tax purposes. The federal provisions allowing banks to be treated as Subchapter S corporations under the Internal Revenue Code were not adopted for Minnesota tax purposes. The update to federal law changes is estimated to cost $2.3 million in the 1995-97 biennium and $3.4 million in the 1997-99 biennium.
The limits were increased on education costs qualifying for the dependent education expense deduction. For dependents in kindergarten through grade 6, the expense limits were increased from $650 to $1,625. For dependents in grades 7 through 12, the expense limits were increased from $1,000 to $2,500. The education costs qualifying for this deduction include tuition, nonreligious textbooks, and transportation for dependents attending elementary and secondary schools. The definition of qualifying expenses was expanded to include tutoring and educational summer camps. The definition of equipment qualifying for the deduction was expanded to include computer hardware and software up to a maximum of $200 per family. Qualifying expenses for the deduction must be reduced by the amount of the Minnesota Education Credit. These changes are estimated to cost $14.5 million in the 1997-99 biennium.
The Minnesota Working Family Credit for taxpayers with children was increased from 15 percent to 25 percent of the federal Earned Income Credit beginning with 1998 tax returns. This increase in the Working Family Credit is estimated to cost $27 million in the 1997-99 biennium.
A property tax rebate was enacted for homeowners and renters equal to 20 percent of property taxes paid in 1997. The rebate is a refundable income tax credit which will be claimed on the taxpayer's 1997 individual income tax return. The cost of the rebate is estimated to be $500 million in the 1997-99 biennium.
Sales and Excise Taxes
The temporary sales tax exemption for sales of used farm machinery was made permanent. The cost of this extension is estimated to be $2.5 million in the 1997-99 biennium.
Purchases of replacement capital equipment were exempted from the sales tax effective for purchases made after June 30, 1998. Under prior law, these purchases would have been taxed at the rate of 2 percent. The cost of this exemption is estimated to be $3.1 million in the 1997-99 biennium.
The application of the sales tax to food products was expanded to include most food and drinks prepared by the retailer for immediate consumption, whether heated or not. All food and drinks served on premises where admission is charged are taxable. This extension of the sales tax is estimated to raise $6.3 million in the 1997-99 biennium.
A sales tax exemption was enacted for construction materials used in constructing or improving an adult or juvenile correctional facility, if the construction project is required by state or federal law, rule, or regulation. The cost of this refund is estimated to be $2 million in the 1997-99 biennium.
The amount of the budget reserve was increased from $270 million to $522 million. If the Commissioner of Finance forecasts that additional surplus revenues will be available for the biennium, 60 percent of the additional revenue will be deposited in an account designated to pay the cost of property tax reform as recommended by the Governor. An appropriation of $46 million was made to the property tax reform account for FY 2000. The remaining additional revenue will be an undesignated balance in the General Fund.
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