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H.B. 1008

             1     

INDIVIDUAL INCOME TAX -- 2001

             2     
FEDERAL RATE BRACKET BENEFIT

             3     
2001 FIRST SPECIAL SESSION

             4     
STATE OF UTAH

             5     
Sponsor: Matt Throckmorton

             6      Wayne A. Harper




             7      This act modifies the Individual Income Tax Act by providing that a federal individual
             8      income tax credit or advance refund amount allowed as a result of the 2001 federal rate
             9      bracket benefit is not subject to state individual income taxation, and making technical
             10      changes. This act has retrospective operation for taxable years beginning on or after
             11      January 1, 2001.
             12      This act affects sections of Utah Code Annotated 1953 as follows:
             13      AMENDS:
             14          59-10-114, as last amended by Chapters 116 and 233, Laws of Utah 2001
             15      Be it enacted by the Legislature of the state of Utah:
             16          Section 1. Section 59-10-114 is amended to read:
             17           59-10-114. Additions to and subtractions from federal taxable income of an
             18      individual.
             19          (1) There shall be added to federal taxable income of a resident or nonresident individual:
             20          (a) the amount of any income tax imposed by this or any predecessor Utah individual
             21      income tax law and the amount of any income tax imposed by the laws of another state, the District
             22      of Columbia, or a possession of the United States, to the extent deducted from federal adjusted
             23      gross income, as defined by Section 62, Internal Revenue Code, in determining federal taxable
             24      income;
             25          (b) a lump sum distribution that the taxpayer does not include in adjusted gross income
             26      on the taxpayer's federal individual income tax return for the taxable year;
             27          (c) for taxable years beginning on or after January 1, 2002, the amount of a child's income


             28      calculated under Subsection (5) that:
             29          (i) a parent elects to report on the parent's federal individual income tax return for the
             30      taxable year; and
             31          (ii) the parent does not include in adjusted gross income on the parent's federal individual
             32      income tax return for the taxable year;
             33          (d) 25% of the personal exemptions, as defined and calculated in the Internal Revenue
             34      Code;
             35          (e) a withdrawal from a medical care savings account and any penalty imposed in the
             36      taxable year if:
             37          (i) the taxpayer did not deduct or include the amounts on his federal tax return pursuant
             38      to Section 220, Internal Revenue Code; and
             39          (ii) the withdrawal is subject to Subsections 31A-32a-105 (1) and (2); and
             40          (f) the amount refunded to a participant under Title 53B, Chapter 8a, Higher Education
             41      Savings Incentive Program, in the year in which the amount is refunded.
             42          (2) There shall be subtracted from federal taxable income of a resident or nonresident
             43      individual:
             44          (a) the interest or dividends on obligations or securities of the United States and its
             45      possessions or of any authority, commission, or instrumentality of the United States, to the extent
             46      includable in gross income for federal income tax purposes but exempt from state income taxes
             47      under the laws of the United States, but the amount subtracted under this Subsection (2)(a) shall
             48      be reduced by any interest on indebtedness incurred or continued to purchase or carry the
             49      obligations or securities described in this Subsection (2)(a), and by any expenses incurred in the
             50      production of interest or dividend income described in this Subsection (2)(a) to the extent that such
             51      expenses, including amortizable bond premiums, are deductible in determining federal taxable
             52      income;
             53          (b) (i) except as provided in Subsection (2)(b)(ii), 1/2 of the net amount of any income tax
             54      paid or payable to the United States after all allowable credits, as reported on the United States
             55      individual income tax return of the taxpayer for the same taxable year; and
             56          (ii) notwithstanding Subsection (2)(b)(i), for taxable years beginning on or after January
             57      1, 2001, the amount of a credit or an advance refund amount reported on a resident or nonresident
             58      individual's United States individual income tax return allowed as a result of the acceleration of


             59      the income tax rate bracket benefit for 2001 in accordance with Section 101, Economic Growth
             60      and Tax Relief Reconciliation Act of 2001, Pub. L. No. 107-16, may not be used in calculating the
             61      amount described in Subsection (2)(b)(i);
             62          (c) the amount of adoption expenses which, for purposes of this Subsection (2)(c), means
             63      any actual medical and hospital expenses of the mother of the adopted child which are incident to
             64      the child's birth and any welfare agency, child placement service, legal, and other fees or costs
             65      relating to the adoption;
             66          (d) amounts received by taxpayers under age 65 as retirement income which, for purposes
             67      of this section, means pensions and annuities, paid from an annuity contract purchased by an
             68      employer under a plan which meets the requirements of Section 404(a)(2), Internal Revenue Code,
             69      or purchased by an employee under a plan which meets the requirements of Section 408, Internal
             70      Revenue Code, or paid by the United States, a state, or political subdivision thereof, or the District
             71      of Columbia, to the employee involved or the surviving spouse;
             72          (e) for each taxpayer age 65 or over before the close of the taxable year, a $7,500 personal
             73      retirement exemption;
             74          (f) 75% of the amount of the personal exemption, as defined and calculated in the Internal
             75      Revenue Code, for each dependent child with a disability and adult with a disability who is
             76      claimed as a dependent on a taxpayer's return;
             77          (g) any amount included in federal taxable income that was received pursuant to any
             78      federal law enacted in 1988 to provide reparation payments, as damages for human suffering, to
             79      United States citizens and resident aliens of Japanese ancestry who were interned during World
             80      War II;
             81          (h) subject to the limitations of Subsection (3)(e), amounts a taxpayer pays during the
             82      taxable year for health care insurance, as defined in Title 31A, Chapter 1, General Provisions:
             83          (i) for:
             84          (A) the taxpayer;
             85          (B) the taxpayer's spouse; and
             86          (C) the taxpayer's dependents; and
             87          (ii) to the extent the taxpayer does not deduct the amounts under Section 125, 162, or 213,
             88      Internal Revenue Code, in determining federal taxable income for the taxable year;
             89          (i) (i) except as otherwise provided in this Subsection (2)(i), the amount of a contribution


             90      made [in] during the [tax] taxable year on behalf of the taxpayer to a medical care savings account
             91      and interest earned on a contribution to a medical care savings account established pursuant to
             92      Title 31A, Chapter 32a, Medical Care Savings Account Act, to the extent the contribution is
             93      accepted by the account administrator as provided in the Medical Care Savings Account Act, and
             94      if the taxpayer did not deduct or include amounts on [his] the taxpayer's federal individual income
             95      tax return pursuant to Section 220, Internal Revenue Code[. A]; and
             96          (ii) contribution deductible under this Subsection (2)(i) may not exceed either of the
             97      following:
             98          [(i)] (A) the maximum contribution allowed under the Medical Care Savings Account Act
             99      for the tax year multiplied by two for taxpayers who file a joint return, if neither spouse is covered
             100      by health care insurance as defined in Section 31A-1-301 or self-funded plan that covers the other
             101      spouse, and each spouse has a medical care savings account; or
             102          [(ii)] (B) the maximum contribution allowed under the Medical Care Savings Account Act
             103      for the tax year for taxpayers:
             104          [(A)] (I) who do not file a joint return; or
             105          [(B)] (II) who file a joint return, but do not qualify under Subsection (2)(i)(i)(A); and
             106          (j) the amount included in federal taxable income that was derived from money paid by
             107      the taxpayer to the program fund under Title 53B, Chapter 8a, Higher Education Savings Incentive
             108      Program, not to exceed amounts determined under Subsection 53B-8a-106 (1)(d) and investment
             109      income earned on participation agreements under Subsection 53B-8a-106 (1) when used for higher
             110      education costs of the beneficiary;
             111          (k) for [tax] taxable years beginning on or after January 1, 2000, any amounts paid for
             112      premiums for long-term care insurance as defined in Section 31A-1-301 to the extent the amounts
             113      paid for long-term care insurance were not deducted under Section 213, Internal Revenue Code,
             114      in determining federal taxable income; and
             115          (l) for taxable years beginning on or after January 1, 2000, if the conditions of Subsection
             116      (4)(a) are met, the amount of income derived by a Ute tribal member:
             117          (i) during a time period that the Ute tribal member resides on homesteaded land
             118      diminished from the Uintah and Ouray Reservation; and
             119          (ii) from a source within the Uintah and Ouray Reservation.
             120          (3) (a) For purposes of Subsection (2)(d), the amount of retirement income subtracted for


             121      taxpayers under 65 shall be the lesser of the amount included in federal taxable income, or $4,800,
             122      except that:
             123          (i) for married taxpayers filing joint returns, for each $1 of adjusted gross income earned
             124      over $32,000, the amount of the retirement income exemption that may be subtracted shall be
             125      reduced by 50 cents;
             126          (ii) for married taxpayers filing separate returns, for each $1 of adjusted gross income
             127      earned over $16,000, the amount of the retirement income exemption that may be subtracted shall
             128      be reduced by 50 cents; and
             129          (iii) for individual taxpayers, for each $1 of adjusted gross income earned over $25,000,
             130      the amount of the retirement income exemption that may be subtracted shall be reduced by 50
             131      cents.
             132          (b) For purposes of Subsection (2)(e), the amount of the personal retirement exemption
             133      shall be further reduced according to the following schedule:
             134          (i) for married taxpayers filing joint returns, for each $1 of adjusted gross income earned
             135      over $32,000, the amount of the personal retirement exemption shall be reduced by 50 cents;
             136          (ii) for married taxpayers filing separate returns, for each $1 of adjusted gross income
             137      earned over $16,000, the amount of the personal retirement exemption shall be reduced by 50
             138      cents; and
             139          (iii) for individual taxpayers, for each $1 of adjusted gross income earned over $25,000,
             140      the amount of the personal retirement exemption shall be reduced by 50 cents.
             141          (c) For purposes of Subsections (3)(a) and (b), adjusted gross income shall be calculated
             142      by adding to federal adjusted gross income any interest income not otherwise included in federal
             143      adjusted gross income.
             144          (d) For purposes of determining ownership of items of retirement income common law
             145      doctrine will be applied in all cases even though some items may have originated from service or
             146      investments in a community property state. Amounts received by the spouse of a living retiree
             147      because of the retiree's having been employed in a community property state are not deductible as
             148      retirement income of such spouse.
             149          (e) For purposes of Subsection (2)(h), a subtraction for an amount paid for health care
             150      insurance as defined in Title 31A, Chapter 1, General Provisions, is not allowed:
             151          (i) for an amount that is reimbursed or funded in whole or in part by the federal


             152      government, the state, or an agency or instrumentality of the federal government or the state; and
             153          (ii) for a taxpayer who is eligible to participate in a health plan maintained and funded in
             154      whole or in part by the taxpayer's employer or the taxpayer's spouse's employer.
             155          (4) (a) A subtraction for an amount described in Subsection (2)(l) is allowed only if:
             156          (i) the taxpayer is a Ute tribal member; and
             157          (ii) the governor and the Ute tribe execute and maintain an agreement meeting the
             158      requirements of this Subsection (4).
             159          (b) The agreement described in Subsection (4)(a):
             160          (i) may not:
             161          (A) authorize the state to impose a tax in addition to a tax imposed under this chapter;
             162          (B) provide a subtraction under this section greater than or different from the subtraction
             163      described in Subsection (2)(l); or
             164          (C) affect the power of the state to establish rates of taxation; and
             165          (ii) shall:
             166          (A) provide for the implementation of the subtraction described in Subsection (2)(l);
             167          (B) be in writing;
             168          (C) be signed by:
             169          (I) the governor; and
             170          (II) the chair of the Business Committee of the Ute tribe;
             171          (D) be conditioned on obtaining any approval required by federal law; and
             172          (E) state the effective date of the agreement.
             173          (c) (i) The governor shall report to the commission by no later than February 1 of each year
             174      regarding whether or not an agreement meeting the requirements of this Subsection (4) is in effect.
             175          (ii) If an agreement meeting the requirements of this Subsection (4) is terminated, the
             176      subtraction permitted under Subsection (2)(l) is not allowed for taxable years beginning on or after
             177      the January 1 following the termination of the agreement.
             178          (d) For purposes of Subsection (2)(l) and in accordance with Title 63, Chapter 46a, Utah
             179      Administrative Rulemaking Act, the commission may make rules:
             180          (i) for determining whether income is derived from a source within the Uintah and Ouray
             181      Reservation; and
             182          (ii) that are substantially similar to how federal adjusted gross income derived from Utah


             183      sources is determined under Section 59-10-117 .
             184          (5) (a) For purposes of this Subsection (5), "Form 8814" means:
             185          (i) the federal individual income tax Form 8814, Parents' Election To Report Child's
             186      Interest and Dividends; or
             187          (ii) (A) for taxable years beginning on or after January 1, 2002, a form designated by the
             188      commission in accordance with Subsection (5)(a)(ii)(B) as being substantially similar to 2000
             189      Form 8814 if for purposes of federal individual income taxes the information contained on 2000
             190      Form 8814 is reported on a form other than Form 8814; and
             191          (B) for purposes of Subsection (5)(a)(ii)(A) and in accordance with Title 63, Chapter 46a,
             192      Utah Administrative Rulemaking Act, the commission may make rules designating a form as being
             193      substantially similar to 2000 Form 8814 if for purposes of federal individual income taxes the
             194      information contained on 2000 Form 8814 is reported on a form other than Form 8814.
             195          (b) The amount of a child's income added to adjusted gross income under Subsection (1)(c)
             196      is equal to the difference between:
             197          (i) the lesser of:
             198          (A) the base amount specified on Form 8814; and
             199          (B) the sum of the following reported on Form 8814:
             200          (I) the child's taxable interest;
             201          (II) the child's ordinary dividends; and
             202          (III) the child's capital gain distributions; and
             203          (ii) the amount not taxed that is specified on Form 8814.
             204          Section 2. Retrospective operation.
             205          This act has retrospective operation for taxable years beginning on or after January 1, 2001.




Legislative Review Note
    as of 6-19-01 3:01 PM


A limited legal review of this legislation raises no obvious constitutional or statutory concerns.

Office of Legislative Research and General Counsel



Committee Note

The Revenue and Taxation Interim Committee recommended this bill.


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