MINNESOTA Department of Revenue
Individual Income Tax
40% Capital Gains Exclusion
AMT Rate Reduction
March 1, 2000
Department of Revenue
Analysis of H.F. 3028 (Abrams)/S.F. 3299 (Terwilliger)
Revenue Gain or (Loss)
F.Y. 2000
F.Y. 2001
Biennium F.Y. 2002
F.Y. 2003
Biennium
(000’s)
General Fund
$0 ($282,300)
($282,300)
($247,500)
($260,000)
($507,500)
Effective for sales and exchanges occurring after the date of final enactment for tax years beginning after December
31, 1999.
EXPLANATION OF THE BILL
For the Minnesota individual income tax, capital gains are treated the same as other income; no exclusion or
lower rate applies. The bill would allow a subtraction from taxable income equal to 40% of the adjusted net
capital gain, as defined, to the extent that it is included in federal taxable income.
The bill also reduces the alternative minimum tax rate from 6.5% to 5.5%.
REVENUE ANALYSIS DETAIL
• The House Income Tax Simulation (HITS) Model was used to estimate the tax year revenue impact of the
proposal.
• These simulations assume the same economic conditions used by the Minnesota Department of Finance for
the forecast published in November 1999. The model uses a stratified sample of 1997 individual income
tax returns compiled by the Minnesota Department of Revenue.
• It was assumed that the proposed subtraction would not change taxpayer behavior. Therefore, no
adjustment was made to the amount or timing of capital gains realizations compared to what is forecast to
occur under current law. An addendum is attached which addresses the issue of behavioral responses to
the tax treatment of capital gains.
• To take into account the enactment date, the tax year 2000 impact was reduced by one-third. The
allocation of tax year impacts to fiscal years was made according to a standard rule of thumb formula.
Department of Revenue
March 1, 2000
Analysis of H.F. 3028 (Abrams)/S.F. 3299 (Terwilliger)
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ADMINISTRATIVE/OPERATIONAL ISSUES