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Internet at: www.house.mn/hrd/.
INFORMATION BRIEF
Research Department
Minnesota House of Representatives
600 State Office Building
St. Paul, MN 55155
Nina Manzi, Legislative Analyst, 651-296-5204
Joel Michael, Legislative Analyst Updated: June 2017
Income Tax Deductions and Credits for
Public and Nonpublic Education in Minnesota
Minnesota has had an income tax credit for public and nonpublic education-
related expenses since 1998 and a dependent education expense deduction since
1955. This information brief discusses the deduction and credit and their effects
on tax liability.
Contents
Executive Summary .......................................................................................................................2
Dependent Education Expense Deduction ...........................................................................2
Education Tax Credit ...........................................................................................................2
Dependent Education Deduction ..................................................................................................4
Description ...........................................................................................................................4
Effect on Tax Liability .........................................................................................................7
Education Tax Credit ....................................................................................................................8
Description ...........................................................................................................................8
Effect on Tax Liability .......................................................................................................11
Appendix: 1971-1973 Education Credit.....................................................................................13
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Income Tax Deductions and Credits for Public and Nonpublic Education in Minnesota Page 2
Executive Summary
Dependent Education Expense Deduction
Minnesota has allowed an income tax deduction for dependent education expenses paid to others
since 1955. Taxpayers may deduct up to $1,625 for students in grades K-6, and up to $2,500 for
students in grades 7-12. Expenses qualifying for the deduction include tuition, transportation,
textbooks, instructional materials, tutoring, academic summer school and camps, and up to $200
of the cost of a computer or education-related software. The U.S. Supreme Court upheld
Minnesota’s deduction in 1983.
A deduction reduces the amount of income subject to tax; the benefit a taxpayer receives equals
the taxpayer’s marginal tax rate times the amount of the deduction. Most Minnesota taxpayers
are in the 7.05 percent bracket, where a $2,500 deduction decreases taxes by $176.25.
Education Tax Credit
Minnesota allows a refundable education tax credit, equal to 75 percent of qualifying expenses.
Because credits directly offset tax liability, the credit decreases a taxpayer’s liability dollar-for-
dollar. If the credit exceeds a taxpayer’s liability, the excess is paid to the taxpayer as a refund
since the credit is refundable. Taxpayers may claim the credit for all expenses allowed under the
deduction, with the exception of nonpublic school tuition. The maximum credit is $1,000 per
child. The credit was enacted in the 1997 first special session
1
and was initially equal to 100
percent of qualifying expenses. In tax year 1998, the credit was available only to families with
incomes under $33,500;
2
the 1999 Legislature provided for the credit to phase out for families
with incomes between $33,500 and $37,500.
3
The 2001 Legislature limited the credit to 75
percent of qualifying expenses, effective in tax year 2002.
4
The 2005 Legislature eliminated the
so-called family cap and allowed families to claim the $1,000 credit for an unlimited number of
children in grades K-12.
5
Prior to tax year 2005 the maximum credit per family was $2,000,
effectively limiting the credit to two children per family.
6
1
Laws 1997, 1
st
spec. sess., ch. 4, art. 13.
2
The income measure used is the same as for determining the property tax refund and the child care credit; it is
a broad measure that includes welfare benefits, tax-exempt interest, and nontaxable Social Security.
3
Laws 1999, ch. 243, art. 2, § 14.
4
Laws 2001, 1
st
spec. sess., ch. 5, art. 9.
5
Laws 2005, 1
st
spec. sess., ch. 3, art. 3.
6
Minnesota allowed a refundable tax credit for nonpublic school tuition from 1971 to 1973. Pupil unit
weighting made the $100-credit worth $50 for kindergarten students, $100 for students in grades 1 to 6, and $140 for
students in grades 7 to 12. In 1974, the Minnesota Supreme Court, following a U.S. Supreme Court decision that
invalidated a similar New York tax credit, struck down the Minnesota credit. The appendix describes the 1971-1973
credit.
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Income Tax Deductions and Credits for Public and Nonpublic Education in Minnesota Page 3
Table 1 shows the number of taxpayers claiming the deduction and credit in tax year 2015.
Table 1
Fiscal Impact of Dependent Education Expense
Deduction and Education Credit, Tax Year 2015
Cost (millions)
Number of Taxpayers
Affected
Deduction $17.8 207,000
Credit $12.4 48,787
Source: Minnesota Department of Revenue, Tax Expenditure Budget, Fiscal
Years 2016-2019; and report on refundable income tax credits.
House Research Department
House Research Department Updated: June 2017
Income Tax Deductions and Credits for Public and Nonpublic Education in Minnesota Page 4
Dependent Education
Deduction
Description
Minnesota allows a deduction
7
for education-
related expenses of up to $2,500 for each
dependent in grades 7 to 12, and up to $1,625
for each dependent in grades K to 6. The
dollar limits for the deduction were increased
from $1,000 and $650 to the current levels in
1998.
8
When first enacted in 1955, the
deduction was limited to $200 per dependent,
regardless of grade.
9
The accompanying box
shows the history of the deduction.
The deduction applies to the following
categories of expenses:
• tuition, including tutoring and
academic summer school and camps
• textbooks, including instructional
materials, supplies, and equipment
• transportation
Tuition. Taxpayers may claim the deduction
for tuition paid for instruction at nonpublic
schools. The 1997 legislation added tutoring
and academic summer school and camps to the
list of items qualifying as “tuition.” Tutoring and academic summer school and camps must help
to improve knowledge of academic standards required to graduate, including world languages, in
order to qualify for the deduction.
Textbooks. Textbooks include instructional materials and equipment. The law excludes books
and materials used to teach religious tenets, doctrines, and worship. The 1997 legislation added
7
A deduction reduces tax liability by an amount equal to the taxpayer’s marginal tax rate times the amount of
the deduction. The greatest tax decrease possible for the maximum $2,500 deduction is $246.25, which goes to
higher income taxpayers in the 9.85 percent bracket. Taxpayers in the 5.35 percent bracket receive a tax decrease of
$133.75 for a $2,500 deduction. Those with no tax liability receive no benefit from a deduction.
8
Laws 1997, first special session, chapter 4, article 13, made the expanded deduction contingent on
adequate
revenue being available in the November 1997 economic forecast for the expanded deduction, the new
education credit, and an increase in the working family credit. Adequate revenue was available so the three items
took effect in tax year 1998.
9
Laws 1955, ch. 741, § 1.
Timeline: Dependent Education Expense
Deduction
1955* $200 per dependent, for tuition and
transportation expenses paid to
others
1975 Amount increased to $500 for grades
K-6 and $700 for dependents in
grades 7-12. Deduction allowed for
nonreligious textbooks, instructional
materials, and equipment
1978 Deduction not allowed for
extracurricular activities
1983
U.S. Supreme Court upholds
deduction in Mueller v. Allen
463 U.S. 388 (1983)
1985 Amount increased to $650 for grades
K-6 and $1,000 for grades 7-12
1998 Amount increased to $1,625 for
grades K-6 and $2,500 for grades 7-
12. Deduction allowed for tutoring,
academic summer school and camp,
and computers
2001 Deduction allowed for purchase of
musical instruments
* Years shown are effective years
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Income Tax Deductions and Credits for Public and Nonpublic Education in Minnesota Page 5
computers and education-related software to the definition. However, only $200 per year per
family may be deducted for computer equipment and software.
Transportation. This includes the cost of transporting children to school during the regular
school year, but not to summer school or camps.
Extracurricular activities, such as sporting events, music, and drama and speech activities, do not
qualify.
The list of expenses qualifying for the deduction has expanded since the credit was enacted.
Tutoring, academic summer school and camps, and up to $200 of computer hardware and
educational software first qualified in 1998. Beginning in 1999, parents could deduct tuition
paid to teachers who are members of the Minnesota Music Teachers Association. Rental of
musical instruments has long qualified for the deduction; purchase of instruments first qualified
in tax year 2001. Each year the Department of Revenue provides information on what expenses
qualify for the deduction. The information in Table 3 is from the 2016 income tax instructions
and gives examples of expenses that do and do not qualify for the deduction. Note that fees for
all-day kindergarten may be used to claim the K-12 education expense deduction and credit, or
the dependent care credit, but not both.
Table 3
Qualifying Educational Expenses: Dependent Education Deduction and Credit
Educational expense Qualifies for:
Credit Deduction
Private school tuition X
Tuition for college courses used to meet high school
graduation requirements
X
Fees for after-school enrichment programs X X
Tuition for academic summer camps X X
Instructor fees for driver’s education if offered as part
of school curriculum
X X
Fees for all-day kindergarten X X
Tutoring X X
Music lessons X X
Purchase of required educational material for use
during regular public, private, or homeschool day
X X
Purchase or rental of musical instruments used during
regular school day
X X
Fees paid to others for transportation to/from school
or for field trips during the normal school day
X X
Home computer hardware and educational software
(up to $200 for credit and $200 for deduction)
X X
House Research Department Updated: June 2017
Income Tax Deductions and Credits for Public and Nonpublic Education in Minnesota Page 6
Expenses that do not qualify:
• Costs to drive your child to/from school, tutoring, enrichment programs, or camps that are not
part of the school day
• Travel expenses, lodging, and meals for overnight class trips
• Fees for materials and textbooks purchased for use in religious teachings
• Sports camps or lessons
• Books and materials used for tutoring, enrichment programs, academic camps, or after-school
activities
• Tuition and expenses for preschool or post-high school classes
• Costs of school lunches
• Costs of uniforms used for school, band, or sports
• Monthly Internet fees
• Noneducational software
Source: Instructions for 2016 Form M-1, the standard Minnesota income tax form, Minnesota Department of Revenue
House Research Department
Taxpayers are not required to claim itemized deductions to claim the dependent education
expense deduction. Taxpayers may claim either a standard deduction amount, which is indexed
annually for inflation, or the sum of a list of itemized deductions, whichever benefits them
most.
10
Before 1998, only taxpayers who claimed itemized deductions were allowed to claim the
dependent education expense deduction.
11
The cost of the deduction in foregone revenue is estimated at $17.8 million in tax year 2015
(fiscal year 2016) and was claimed by about 207,000 filers.
12
The number of filers claiming
the deduction roughly doubled from 1997 to 1998, from about 73,000 to 144,000.
13
The substantial increase in both the number of taxpayers claiming deductions and the dollar
value of deductions is due to the 1997 legislation that:
• increased the amount of the deduction;
• expanded the list of eligible expenses to include tutoring, academic summer schools and
camps, and limited computer hardware and software purchases; and
10
The decision to itemize or claim the standard deduction is made under the federal income tax and flows
through to the Minnesota income tax as part of federal taxable income. See note 11 for background on this.
Taxpayers who own their homes are more likely to itemize than those who rent, since deductions are allowed for
property taxes and mortgage interest paid. Other itemized deductions include medical expenses and casualty/theft
losses that exceed a percentage of income, state income taxes, charitable contributions, and certain business-related
expenses.
11
When the deduction was enacted in 1955, Minnesota’s income tax was not as closely tied to the federal
income tax as it is today. For many years Minnesota allowed taxpayers to claim either a state standard deduction
amount or state itemized deductions. The dependent education expense deduction was allowed as a state deduction,
but was not allowed for taxpayers who claimed the Minnesota standard deduction amount. In the 1987 legislative
session, Minnesota responded to the Federal Tax Reform Act of 1986 by conforming to the federal definition of
income after deductions, but continued to allow the dependent education expense deduction in addition to itemized
deductions allowed at the federal level. Laws of Minnesota, First Special Session 1997 chapter 4, article 13,
section 1, eliminated the requirement that taxpayers itemize in order to claim the deduction.
12
Minnesota Department of Revenue, Tax Expenditure Budget, Fiscal Years 2016-2019, 64 (February 2016).
13
Minnesota Department of Revenue, estimates prepared during the 1997 Special Session and in 1999.
House Research Department Updated: June 2017
Income Tax Deductions and Credits for Public and Nonpublic Education in Minnesota Page 7
•
allowed the deduction to parents who claimed the federal standard deduction.
The U.S. Supreme Court upheld the constitutionality of the dependent education expense
deduction in a 1983 case, Mueller v. Allen.
14
The taxpayer plaintiffs claimed that the deduction
amounted to an establishment of religion in violation of the First Amendment because almost all
of the taxpayers using the deduction had children in parochial schools.
15
In a five-to-four
decision, the Court held that the deduction had a valid secular purpose, did not have a primary
purpose of advancing religion, nor did it create excessive church-state entanglement. As a result,
the Court concluded (over a vigorous dissent) that the deduction did not violate the
Establishment Clause of the First Amendment.
Effect on Tax Liability
The tax reduction a taxpayer sees from claiming the deduction depends on the taxpayer’s
income and the total amount deducted.
16
The value of an income tax deduction equals the
taxpayer’s marginal income tax rate times the amount of the deduction. Minnesota has a
progressive rate structure, with higher marginal rates for higher income taxpayers. Table 4
shows the income ranges, or brackets, and tax rates for tax year 2017 by filing status. The
income ranges shown are Minnesota taxable income, which equals income after federal
deductions and exemptions, and after Minnesota additions and subtractions. Taxable income is
significantly lower than gross income. For example, in tax year 2017 a typical married couple
with two dependents must have at least $32,950 in gross income before having any Minnesota
taxable income.
Table 4
Income Tax Rates and Brackets for Tax Year 2017
Filing Status 5.35 percent 7.05 percent 7.85 percent 9.85 percent
Married joint* $0 to $37,110 $37,111 to $147,450 $147,451 to $261,510 over $261,510
Single 0 to 25,390 25,391 to 83,400 83,401 to 156,910 over 156,910
Head of household** 0 to 31,260 31,261 to 125,600 125,601 to 209,210 over 209,210
* Brackets for married separate filers are half the brackets for married joint filers.
** Head of household filers are typically single parents.
House Research Department
14
463 U.S. 388 (1983). Mueller was a taxpayer challenge. In a 2011 case, the U.S. Supreme Court held that
taxpayer standing under the Flast v. Cohen rule for establishment clause challenges did not apply to tax
expenditures, such as a tax deduction or credit. Arizona Christian School Tuition Org. v. Winn, 131 S. Ct. 1436
(2011). As a result, the taxpayers in Mueller would now not have standing to bring suit in federal court; whether
taxpayers would have standing to file a challenge under the Minnesota Constitution is unclear.
15
The plaintiffs showed that more than 95 percent of Minnesota’s 91,000 nonpublic school students attended
parochial schools during the 1979-1980 school year. Plaintiffs also showed that while the 87,000 parochial school
students represented about 10 percent of the state’s total elementary and secondary school population, 71 percent of
the $2.4 million state revenue lost through the tuition deduction was due to taxpayers with children in parochial
schools; 820,000 students attended the state’s public schools at the time.
16
For more information on tax deductions, see the House Research Department publication Income Tax Terms:
Deductions and Credits, July 2015.
House Research Department Updated: June 2017
Income Tax Deductions and Credits for Public and Nonpublic Education in Minnesota Page 8
Tax deductions under a progressive income tax provide greater benefits to taxpayers in higher
tax brackets than to those in lower tax brackets, and no benefits to taxpayers who do not have
taxable income. A taxpayer who claims a $1,000-dependent education expense deduction and
whose top tax bracket is 5.35 percent will see a tax decrease of $53.50, or 5.35 percent of $1,000.
If the taxpayer’s income is high enough to reach the 9.85-percent bracket, the tax decrease will
be $98.50.
17
If the taxpayer’s income is low enough to be totally offset by the standard deduction
and exemptions ($28,900 for a family of four in 2017), a deduction provides no benefit at all.
Education Tax Credit
Description
Minnesota enacted an education tax credit in the first special session of 1997, with the credit
first available in tax year 1998.
18
Parents can claim the credit for all education-related expenses
that qualify for the dependent education expense deduction, except nonpublic school tuition.
Thus, the credit is allowed for transportation; tuition for academic summer school and summer
camps; tutoring; textbooks, defined to include instructional materials and equipment, including
the purchase of musical instruments; and up to $200 per family of computer hardware and
educational software.
The maximum credit per family is $1,000 multiplied by the number of children in the household
in grades K-12. The credit is refundable. Any amount that exceeds tax liability is paid to the
claimant as a refund. The credit equals 75 percent of qualifying expenses up to the maximum
per child.
19
A family with one child and $1,333 of expenses will qualify for the maximum
$1,000 credit ($1,000 is 75 percent of $1,333). A family with two children will need to spend
$2,667 on qualifying purchases in order to receive the maximum $2,000 credit.
Before 2005, the maximum credit per family was $2,000, effectively limiting families to
claiming the maximum $1,000 per child for only two children. Since 2005 families may claim
up to the maximum $1,000 per child for each child in kindergarten through grade 12, and
families may allocate qualifying expenses among children in grade K-12 as they choose. For
example, a family with two children in grades K-12 may claim the entire $2,000 credit ($1,000
times two children) for expenses related to one child.
20
This change made the credit more closely
17
Until tax year 1998, the deduction was available only to taxpayers who claim itemized deductions at the
federal level. Beginning in tax year 1998, taxpayers who claim the standard deduction are also allowed to claim the
dependent education expense deduction; however, many of those claiming the deduction will be itemizers. For
itemizers, the tax decrease realized at the state level is offset in part in the following year by a tax increase at the
federal level. This is because itemizers also deduct state income taxes in computing federal tax. The amount of the
federal offset will equal the tax value of the state deduction, multiplied by the taxpayer’s federal marginal tax rate.
Federal marginal rates for tax year 2010 range from 10 percent to 35 percent, depending on income.
18
Laws 1997, ch. 4, art. 13, § 3.
19
Laws 2001, first special session, chapter 5, article 9, reduced the credit from 100 percent to 75 percent of
qualifying expenses. This change was enacted in 2001 but did not take effect until tax year 2002, so as not to reduce
the expected credits of families who had already made qualifying expenditures in tax year 2001.
20
Laws 2005, 1
st
spec. sess., ch. 3, art. 3, § 10.
House Research Department Updated: June 2017
Income Tax Deductions and Credits for Public and Nonpublic Education in Minnesota Page 9
parallel the deduction, since there is no limit on the number of children for whom parents may
claim the deduction.
The credit phases out for taxpayers with incomes over $33,500. The $1,000 maximum for
one child phases out at a rate of $1 for each $4 of income over $33,500, and the maximum for
more than one child ($1,000 times the number of qualifying children) phases out at a rate of $2
for each $4 of income over $33,500. The credit phaseout took effect in tax year 1999;
21
in tax
year 1998 the credit was limited to claimants with incomes under $33,500 without a phaseout.
The 2005 legislation that eliminated the two-child “family cap” effectively extended the
phaseout by $2,000 for each additional child eligible for the credit. Thus, the credit is fully
phased out when income reaches $37,500 for families with two qualifying children, when
income reaches $39,500 for families with three qualifying children, at $41,500 for families with
four qualifying children, and so on. The income measure used to determine eligibility for the
credit is a broad measure that includes nontaxable interest, Social Security, and public welfare
benefits; the same income measure is used under the property tax refund and the dependent care
credit.
A total of 48,787 families claimed the education credit in tax year 2015, at an estimated
average benefit of $254 each, for a total of $12.4 million. Table 5 shows the credit amount
and number of recipients in tax years 1998 through 2015.
21
Laws 1999, ch. 243, art. 2, § 14.
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Income Tax Deductions and Credits for Public and Nonpublic Education in Minnesota Page 10
Table 5
Fiscal Impact of K-12 Education Credit
Tax Years 1998 to 2015
Tax Year
Cost
(millions)
Number of taxpayers
claiming credit
1998 $14.2 38,500
1999 $21.4 57,962
2000 $21.3 55,941
2001 $19.4 56,414
2002 $16.0 60,996
2003 $15.9 61,253
2004 $15.0 58,593
2005 $15.3 56,937
2006 $14.8 55,742
2007 $14.2 54,437
2008 $14.2 54,031
2009 $14.7 55,958
2010 $15.3 56,776
2011 $15.7 57,331
2012 $14.7 53,516
2013 $14.6 53,713
2014 $13.3 51,317
2015 $12.4 48,787
Source: Department of Revenue income tax processing file or
summary reports.
House Research Department
Families eligible for the credit may assign their anticipated refunds to participating
financial institutions and tax-exempt foundations. The organizations accepting assignment of
refunds will make loans to families, with the loan amount paid directly to a third-party vendor
for providing education-related products and services. Low-income families with perhaps only
small amounts of disposable income and savings can use the loans to obtain education-related
products and services in anticipation of qualifying for the tax credit when they file their tax
returns in the following year. The Department of Education must certify that the products and
services qualify for the credit, in order for the assignment to be valid. The third-party vendor
must disclose to the taxpayer the cost of products and services to be provided and information on
how to obtain repair or replacement of defective products. Taxpayers may not assign more than
the maximum credit of $1,000 per child or $2,000 per family. Refund assignment first became
House Research Department Updated: June 2017
Income Tax Deductions and Credits for Public and Nonpublic Education in Minnesota Page 11
available on a temporary basis in tax year 2002,
22
and has since been made permanent.
23
Very
few taxpayers have used the refund assignment option—fewer than ten per year from 2013 to
2015.
Assignments have last claim on income tax refunds, after claims for delinquent taxes, child
support, restitution, and revenue recapture. The Commissioner of Revenue may disclose the
aggregate amount of outstanding claims to participating organizations before the organization
decides to accept an assignment. Once an assignment exists, the Department of Revenue will
subtract delinquent taxes, child support, restitution, and revenue recapture claims from any
income tax refund amount due the taxpayer, and pay the remaining amount to the organization
that accepted the assignment, up to the amount of the assignment. Any refund amount in excess
of the assignment will be paid directly to the taxpayer.
Effect on Tax Liability
Tax credits directly offset tax liability, unlike deductions, which reduce taxable income.
The benefit of a refundable credit to the taxpayer exactly equals the amount of the credit
claimed. If a refundable credit exceeds a taxpayer’s income tax liability, the excess is refunded
to the taxpayer.
A refundable credit provides the same benefit to claimants with equal qualifying expenses,
regardless of income or tax liability. As a result, filers who claim an education tax credit of
$1,000 receive a $1,000 benefit. For those with tax liability, the benefit comes in the form of
reduced taxes. Filers without tax liability receive a $1,000 refund check. Since the credit equals
75 percent of qualifying expenses, a taxpayer must purchase $1,333 of qualifying products and
services in order to claim the maximum $1,000 credit.
Taxpayers may not claim the deduction and credit for the same expenses. Parents who qualify
for both the deduction and credit will receive the greatest benefit by first claiming up to the
maximum allowable under the credit, and then claiming any remaining expenses under the
deduction. Table 6 shows how the deduction and credit interact for a married couple with two
children who purchase a $1,000 computer and have $500 of tutoring expenses.
22
Laws 2001, 1
st
spec. sess., ch. 5, art. 9, § 12.
23
Laws 2003, ch. 127, art. 3, § 23.
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Income Tax Deductions and Credits for Public and Nonpublic Education in Minnesota Page 12
Table 6
Education Deduction and Credit Example
Married Couple with Two Children, Tax Year 2017
Gross income $35,000
Taxable income $6,100
Education-related expenses $500 for tutoring
$1,000 for computer
Tax deduction $200 for computer
Tax decrease from deduction
$11 ($200 x 5.35% tax rate)
Tax credit $500 for tutoring
$200 for computer
Credit rate 75%
Tax decrease from credit
$525 ($700 x 75% credit rate)
Total tax decrease
$536
House Research Department
Claimants are limited to $200 in computer-related expenses for both the deduction and the credit.
Because this couple has $1,000 of computer expenses, they can claim $200 as a deduction and 75
percent of $200 as a credit. Combined with their $500 of tutoring expenses, which qualifies for
the credit at the 75 percent rate, the couple experiences a total tax decrease of $536.
House Research Department Updated: June 2017
Income Tax Deductions and Credits for Public and Nonpublic Education in Minnesota Page 13
Appendix
The 1971-1973 Education Credit
Minnesota enacted a nonpublic education tax credit in 1971.
24
The credit was allowed for
“education costs,” defined to include tuition, classroom instructional fees, and textbooks. The
statute used the same language as the deduction, specifying that the credit was not allowed for
purchase of textbooks used in the teaching of religious tenets, doctrines, or worship.
The credit was set at $100 per pupil unit for
1971 and 1972. The way Minnesota
weighted pupil units made the credit worth
$50 for kindergarten students, $100 for
students in grades 1 to 6, and $140 for
students in grades 7 to 12. For 1973 and
following years, the credit was adjusted by
the percentage growth in school foundation
aid.
Taxpayers claiming the credit had to
document their eligibility. Their income tax
returns had to include nonpublic school
receipts listing the following:
• the name and location of the
nonpublic school
• the amount paid for education costs
and textbooks and the date of payment
• the grade in which the student was
enrolled
• the student’s name and name of the
person who paid for tuition and
textbooks
The legislation also required taxpayers to
include certification from the nonpublic
school indicating the following:
• that the school satisfied the
requirements of compulsory attendance
• the restricted maintenance cost of education per pupil
25
• the total amount paid by the taxpayer for education costs
24
Laws 1971, ch. 944.
25
The statute defined “restricted maintenance cost” as 80 percent of the levy portion of school expenses.
Timeline: Education Tax Credit
(in effect from 1971 to 1973)
1971 $100 per pupil unit tax credit enacted
1972 Ramsey County District Court finds
state tax credit permissible under
then-existing law
Plaintiffs appeal district court
judgment
1973 Legislation restricts credit to
Minnesota residents
U.S. Supreme Court finds similar
New York credit unconstitutional in
Nyquist
1974 Minnesota Supreme Court follows
precedent set in Nyquist and strikes
down the Minnesota credit
State Department of Revenue
disallows the credit for tax year 1974
and following years
1980 Repeal of credit included in
Department of Revenue technical
legislation
House Research Department Updated: June 2017
Income Tax Deductions and Credits for Public and Nonpublic Education in Minnesota Page 14
•
the maximum allowable tax credit for each month of enrollment
26
• the student’s name and the number of months the student was enrolled
The tax credit was refundable, with any amount in excess of tax liability refunded to the
taxpayer. In addition, there was no limit on the number of students for whom a taxpayer could
claim the credit. However, only one credit could be claimed for each student, and taxpayers had
to choose between claiming the credit and claiming the already existing dependent education
expense deduction.
Department of Revenue records show that between 44,000 and 45,000 taxpayers claimed the
credit in each of the three years it was available. Taxpayers claimed $7.4 million in credits in
1971; $8.6 million in 1972; and $10.6 million in 1973. The average credit claimed increased
from about $170 in 1971 to about $240 in 1973.
27
In 1974, the Minnesota Supreme Court ruled the state’s education tax credit impermissible on
federal constitutional grounds. The state court relied on a 1973 U.S. Supreme Court decision
finding New York’s tuition reimbursement program unconstitutional under the federal
Establishment Clause because it had the effect of promoting religion. Taxpayers were allowed to
keep credits issued from 1971 to 1973. The court did not consider the constitutionality of 1974
state legislation that prohibited the Commissioner of Revenue from recovering credits paid in
previous years.
28
The credit was not allowed for 1974 and following years because it was found
unconstitutional before the end of the 1974 tax year. The tax credit remained in statute until
1980, when it was repealed in a Department of Revenue technical bill.
For more information about income tax credits, visit the income tax area of our website,
www.house.mn/hrd/.
26
The statute based the total claim for the credit on a ten-month school year, so that a taxpayer could claim 10
percent of the full credit amount for each month of student enrollment.
27
Available data on tuition costs suggest that the increase in the amount claimed per family resulted from
increased tuition at nonpublic schools.
28
Laws 1974, ch. 556, § 20.
