Thanks to strong legislative leadership and dedicated advocacy by a wide range of nonprofit organizations, Minnesotans subject to the Alternative Minimum Tax (AMT) will continue to have tax incentives for charitable giving.

Previously, persons subject to the state AMT were allowed to take a deduction for their contributions to Minnesota charities.  A State Supreme Court ruling in August of this year threw out this provision of law.  While the AMT affects a relatively small number of taxpayers, AMT tax filers include many persons with high levels of charitable giving.  Fortunately, in the September 19th Special Session of the Minnesota Legislature, the House, Senate, and Governor agreed to a provision that will allow AMT taxpayers to take a deduction for all their charitable donations (regardless of whether the charity is located in Minnesota or not) that exceed 1.3% of the taxpayer's adjusted gross income.

MCN, the Minnesota Council on Foundations, and the Association of Fundraising Professionals - Minnesota Chapter, co-sponsored a briefing on October 16th to learn about the implications of the new tax provision and discuss strategies for future legislation.

Joel Michael, Legislative Analyst with the Minnesota House of Representatives, began the briefing by outlining the history behind the Alternative Minimum Tax and the origins of the charitable deduction.  He emphasized that this new legislation applies ONLY to AMT taxpayers, not to any other taxpayers.

M.J. Hedstrom, a Fiscal Analyst with the Minnesota Senate, explained the effects of the AMT legislation.  The state Supreme Court's decision eliminated the AMT charitable deduction.  To restore the deduction and expand it to include contributions to charities outside of Minnesota would have cost the state $5 to 6 million.  The Ventura administration would only agree to include the issue in the Special Session if the solution was revenue neutral.  The legislation that was passed says contributions to charities in excess of 1.3% of federal adjusted gross income are fully deductible.  Contributions to all charities, whether in Minnesota or outside of Minnesota, are now eligible.  Hedstrom said this legislation was a positive step because it retained the incentive for greater giving and gives charities an edge for encouraging larger donations.  The AMT is likely to come up again in the next legislative session.

Download handout: "Distribution of Returns with AMT Under Current Law, Court Decision, and Proposal."

Bill King, President of the Minnesota Council on Foundations, and Ginger Sisco, with Sisco Public Relations, then discussed strategies for getting the message out.  The key is to be very clear and very consistent with donors to ensure that they have the right information and are not afraid to continue giving.  Remember, the AMT affects only a very small subset of the tax-paying public, so most donors will not be impacted by this legislation.

Download handout: "Key Messages on the AMT Charitable Deduction Legislation"

Representative Ron Abrams, Chair of the House Tax Committee, was also on hand to talk about legislative strategies for the 2003 session.  He questioned the future of the AMT as a whole, since we have a more loophole-free tax code than in the past. However, it is likely that the next governor will at least be willing to remove the 1.3% threshold and make all charitable deductions by AMT taxpayers fully deductible.  Rep. Abrams emphasized the importance of letting legislators know how important these issues are, and letting them know early and often.

Senator Larry Pogemiller, Chair of the Senate Tax Committee was also in attendance to discuss legislative strategy.   He thanked the nonprofit community for providing expedient advice on the AMT in the wake of the Supreme Court decision.  Sen. Pogemiller, however, was less optimistic about expanding the deduction to 100% of contributions in the face of Minnesota's $3.2 billion dollar state budget deficit.  The best chance, he suggested, would be to get the provision included in the Governor's budget, rather than having to lobby both the House and Senate.

During the Q & A period two helpful clarifying questions were asked:
Q - Will charitable deductions made before the State Supreme Court decision now be taxed?
A - No, the new legislation is retroactive and will protect prior donations for this tax year as well as future donations.
Q - Does the 1.3% threshold pertain to each donation, or is it just the cumulative amount that is given?
A - The cumulative amount of all donations must be over 1.3% of an AMT taxpayer's federal adjusted gross income before it is deductible.

Other Resources

• The Minnesota House of Representatives' weekly publication, Session Weekly, has written a very helpful summary of the legislation, including a brief history of the Supreme Court case.  Click here to read the article on their website.
• The Minnesota Planned Giving Council has written several "White Papers" on the AMT Charitable deduction that are available on their website at www.mnpgc.org.