Automatic Rebate

The Commissioner of Finance is now required to designate a revenue surplus exceeding 0.5 percent of General Fund biennial revenues at the end of a biennium as available for a tax rebate. The surplus designation must be made for the November forecast of each odd-num bered year and the February forecast of each even-numbered year. The Governor must present a plan to the Legislature to rebate the surplus revenues by August 15 of each odd-numbered year. The Legislature must enact, reject, or modify the

Governor's rebate plan by April 15 of each odd-numbered year. If the forecasted revenue surplus is less than 0.5 percent of biennial revenues,the money is deposited in a tax relief account.

Income Tax The income tax rates for individuals were reduced significantly for the tax year beginning January 1, 1999. See the table for changes to the income tax rates for tax year 1999. A new Marriage Penalty Credit was enacted for married couples filing joint

returns in which both spouses have earned income. The credit is equal to the difference between the tax paid by a married couple filing jointly at a specific income level and the tax which would be paid by two single filers having the same combined income. The credit is limited to $261 per joint return.

The income tax rate cuts and the marriage penalty credit provision are estimated to cost $1,312.3 million in the 1999-2001 biennium and $1,161.1 million in the 2001-2003 biennium.

The Minnesota Working Family Credit for taxpayers with children was modified. The rate ofthe Working Family Credit applied to the first $6,680 of earned income for families with one qualifying child and to the first $9,390 of earned income for families with more than one qualifying child was increased by approximately 10 percent. This increase in the Working Family Credit is estimated to cost $12.1 million in the 1999-2001 biennium and $12.5 million in the 2001-2003 biennium.

Taxpayers who were not allowed to claim the federal deductions for IRA, Keogh, or public pension contributions on their state return in tax years 1982 through 1984 will be allowed to claim these deductions in tax year 2000. The allowance of these deductions is estimated to cost $69.1 million in the 1999-2001 biennium and increase revenues by $9 million in the 2001-2003 biennium.

Two provisions relating to the Education Credit were modified. Under prior law, no credit was allowed to taxpayers having incomes exceeding $33,500. The credit will now be phased out for incomes between $33,500 and $37,500. Beginning with tax year 2000, the credit will be allowed for education expenses paid by a custodial parent in situations where a divorce decree provides that a noncustodial parent is entitled to claim the child as a dependent. These changes to the Education Credit are estimated to cost $9.7 million in the 1999-2001 biennium and $10.8 million in the 2001-2003 biennium.

Beginning in 1999, taxpayers who do not itemize deductions will be able to claim a subtraction on the Minnesota return for 50 percent of charitable contributions in excess of $500. This subtraction is estimated to cost $6.5 million in the 1999-2001 biennium and $7.7 million in the 2001-2003 biennium.

The three factor apportionment formula used to allocate the income of multistate corporations to Minnesota was modified. Under prior law, the income of multistate corporations was allocated to Minnesota based 70 percent on sales occurring within the state, 15 percent on Minnesota payroll, and 15 percent on the value of Minnesota property. Beginning January 1, 2001, income will be allocated to Minnesota based 75 percent on Minnesota sales, 12.5 percent on Minnesota payroll, and 12.5 percent on Minnesota property. This change to the three factor apportionment factor for the corporate franchise tax is estimated to cost $23.4 million in the 2001-2003 biennium.

Change to the Income Tax Rates for Tax Year 1999
Married Filing Joint Return Taxable Income Tax Rate Over But Not Over Old Rate New Rate 0 25,200 6.0% 5.50% 25,200 100,200 8.0% 7.25% 100,200 8.5% 8.00%	Single Taxable Income Tax Rate Over But Not Over Old Rate New Rate 0 17,250 6.0% 5.50% 17,250 56,680 8.0% 7.25% 56,680 8.5% 8.00%
Married Filing Separate Return Taxable Income Tax Rate Over But Not Over Old Rate New Rate 0 12,610 6.0% 5.50% 12,610 50,100 8.0% 7.25% 50,100 8.5% 8.00%	Head of Household Taxable Income Tax Rate Over But Not Over Old Rate New Rate 0 21,240 6.0% 5.50% 21,240 85,350 8.0% 7.25% 85,350 8.5% 8.00%

The prohibition on banks electing the small business corporation (Subchapter S) tax treatment for Minnesota tax purposes was eliminated. Banks that elect the S corporation status will still be subject to the corporate franchise tax, but shareholders will be allowed a credit equal to 80 percent of the franchise tax liability. This provision is estimated to cost $10.6 million in the 1999-2001 biennium and $12.5 million in the 2001-2003 biennium.

Sales and Excise Taxes

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