Sec. 28. 36 MRSA §5122, sub-§2, ¶M is enacted to read:

M.__Interest or dividends on obligations or securities of this State and its political subdivisions and authorities to the extent included in federal adjusted gross income.

Sec. 29. 36 MRSA §5125, sub-§3, as repealed and replaced by PL 1995, c. 281, §28, is amended to read:

3. Amount. The sum of an individual's allowable federal itemized deductions must be:

A. Reduced by any amount representing income taxes imposed by this State or any other taxing jurisdiction and interest or expenses incurred in the production of income exempt from tax under this Part; and

B. Increased by any amount of interest or expense incurred in the production of income taxable under this Part but exempt from federal income tax, and which has not been deducted in determining federal adjusted gross income. ; and

C.__Reduced by any amount of deduction related to income taxable to financial institutions under chapter 819.

Sec. 30. 36 MRSA §5164, sub-§1, as enacted by P&SL 1969, c. 154, Sec. F, §1, is amended to read:

1. Fiduciary adjustment defined. The fiduciary adjustment shall be is the net amount of the modifications described in section 5122, including subsection 3 if the estate or trust is a beneficiary of another estate or trust, which relates to items of income or deduction of an estate or trust. Income taxes imposed by this State or any other taxing jurisdiction and interest or expenses incurred in the production of income exempt from tax under this Part deducted in arriving at federal taxable income must be added back to the fiduciary adjustment.__Interest or expenses incurred in the production of income taxable under this Part but exempt from federal income tax must be subtracted from the fiduciary adjustment.

Sec. 31. 36 MRSA §5200-A, sub-§2, ¶I, as amended by PL 1999, c. 521, Pt. B, §4 and affected by §11, is further amended to read:

I. For income tax years beginning on or after January 1, 1997, all items of income, gain, interest, dividends,