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First Substitute H.B. 36

This document includes House Committee Amendments incorporated into the bill on Mon, Feb 5, 2007 at 1:23 PM by ddonat. -->

Representative Fred R. Hunsaker proposes the following substitute bill:


             1     
INCOME TAX ADDITIONS AND

             2     
SUBTRACTIONS FOR HIGHER EDUCATION

             3     
SAVINGS

             4     
2007 GENERAL SESSION

             5     
STATE OF UTAH

             6     
Chief Sponsor: Fred R. Hunsaker

             7     
Senate Sponsor: Wayne L. Niederhauser

             8      Cosponsor:Sheryl L. Allen              9     
             10      LONG TITLE
             11      General Description:
             12          This bill amends the Corporate Franchise and Income Taxes chapter and the Individual
             13      Income Tax Act relating to additions to and subtractions from federal taxable income
             14      for higher education savings.
             15      Highlighted Provisions:
             16          This bill:
             17          .    provides and modifies definitions;
             18          .    provides that a resident or nonresident estate or trust may subtract certain qualified
             19      investments in the Utah Educational Savings Plan Trust from federal taxable
             20      income;
             21          .    requires a resident or nonresident estate or trust that is an account owner under the
             22      Utah Educational Savings Plan Trust to add to federal taxable income amounts not
             23      expended for higher education costs under certain circumstances;
             24          .    addresses the maximum amount of a qualified investment in the Utah Educational


             25      Savings Plan Trust that a resident or nonresident individual or a resident or nonresident estate
             26      or trust may subtract from federal taxable income;
             27          .    modifies and clarifies the amount of a qualified investment in the Utah Educational
             28      Savings Plan Trust that a corporation or a resident or nonresident individual may
             29      subtract from federal taxable income;
             30          .    modifies an addition to income for a corporation or a resident or nonresident
             31      individual who is an account owner under the Utah Educational Savings Plan Trust
             32      for amounts not expended for higher education costs under certain circumstances;
             33      and
             34          .    makes technical changes.
             35      Monies Appropriated in this Bill:
             36          None
             37      Other Special Clauses:
             38          This bill has retrospective operation for taxable years beginning on or after January 1,
             39      2007.
             40      Utah Code Sections Affected:
             41      AMENDS:
             42          53B-8a-102, as last amended by Chapter 109, Laws of Utah 2005
             43          53B-8a-103, as last amended by Chapter 109, Laws of Utah 2005
             44          53B-8a-104, as enacted by Chapter 4, Laws of Utah 1996, Second Special Session
             45          53B-8a-105, as last amended by Chapter 109, Laws of Utah 2005
             46          53B-8a-106, as last amended by Chapter 223, Laws of Utah 2006
             47          53B-8a-107, as last amended by Chapter 109, Laws of Utah 2005
             48          53B-8a-108, as last amended by Chapter 109, Laws of Utah 2005
             49          53B-8a-109, as last amended by Chapter 109, Laws of Utah 2005
             50          53B-8a-111, as enacted by Chapter 4, Laws of Utah 1996, Second Special Session
             51          53B-8a-112, as enacted by Chapter 4, Laws of Utah 1996, Second Special Session
             52          53B-8a-113, as last amended by Chapter 109, Laws of Utah 2005
             53          59-7-105, as last amended by Chapter 109, Laws of Utah 2005
             54          59-7-106, as last amended by Chapter 211, Laws of Utah 2002
             55          59-10-114, as last amended by Chapter 2, Laws of Utah 2006, Fourth Special Session


             56          59-10-202, as last amended by Chapter 2, Laws of Utah 2006, Fourth Special Session
             57     
             58      Be it enacted by the Legislature of the state of Utah:
             59          Section 1. Section 53B-8a-102 is amended to read:
             60           53B-8a-102. Definitions.
             61          As used in this chapter:
             62          (1) "Account agreement" means an agreement between an account owner and the Utah
             63      Educational Savings Plan Trust entered into under this chapter.
             64          (2) "Account owner" means [an individual, firm, corporation, or its legal representative
             65      or legal successor, who] a person, estate, or trust, if that person, estate, or trust has entered into
             66      an account agreement under this chapter for the advance payment of higher education costs on
             67      behalf of a beneficiary.
             68          (3) "Administrative fund" means the moneys used to administer the Utah Educational
             69      Savings Plan Trust.
             70          (4) "Beneficiary" means the individual designated in an account agreement to benefit
             71      from payments for higher education costs at an institution of higher education.
             72          (5) "Benefits" means the payment of higher education costs on behalf of a beneficiary
             73      by the Utah Educational Savings Plan Trust during the beneficiary's attendance at an institution
             74      of higher education.
             75          (6) "Board" means the board of directors of the Utah Educational Savings Plan Trust
             76      which is the state Board of Regents acting in its capacity as the Utah Higher Education
             77      Assistance Authority under Title 53B, Chapter 12.
             78          (7) "Endowment fund" means the endowment fund established under Section
             79      53B-8a-107 which is held as a separate fund within the Utah Educational Savings Plan Trust.
             80          (8) "Higher education costs" means [the certified costs of tuition, fees, room and board,
             81      books, supplies, and equipment required for the enrollment or attendance of a designated
             82      beneficiary at an institution of higher education] qualified higher education expenses as defined
             83      in Section 529(e)(3), Internal Revenue Code.
             84          (9) "Institution of higher education" means a qualified proprietary school approved by
             85      the board, a two-year or four-year public or regionally accredited private nonprofit college or
             86      university or a Utah college of applied technology, with regard to students enrolled in


             87      postsecondary training or education programs.
             88          (10) "Program administrator" means the administrator of the Utah Educational Savings
             89      Plan Trust appointed by the board to administer and manage the Utah Educational Savings Plan
             90      Trust.
             91          (11) "Program fund" means the program fund created under Section 53B-8a-107 ,
             92      which is held as a separate fund within the Utah Educational Savings Plan Trust.
             93          (12) "Qualified investment" means an amount invested in accordance with an account
             94      agreement established under this chapter.
             95          [(12)] (13) "Tuition and fees" means the quarterly or semester charges imposed to
             96      attend an institution of higher education and required as a condition of enrollment.
             97          [(13)] (14) "Utah Educational Savings Plan Trust" [or "trust"] means the Utah
             98      Educational Savings Plan Trust created under Section 53B-8a-103 .
             99          [(14)] (15) "Vested account" means an account agreement which has been in full force
             100      and effect during eight continuous years of residency of the beneficiary in the state while
             101      participating in the Utah Educational Savings Plan Trust.
             102          Section 2. Section 53B-8a-103 is amended to read:
             103           53B-8a-103. Creation of Utah Educational Savings Plan Trust.
             104          (1) There is created the Utah Educational Savings Plan Trust.
             105          (2) The board is the trustee of the Utah Educational Savings Plan Trust.
             106          (3) The board, in the capacity of trustee, may:
             107          (a) exercise any authority granted by law to the Board of Regents;
             108          (b) make and enter into contracts necessary for the administration of the Utah
             109      Educational Savings Plan Trust created under this chapter;
             110          (c) adopt a corporate seal and change and amend it from time to time;
             111          (d) invest moneys within the program fund:
             112          (i) (A) in any investments that are determined by the board to be appropriate and are
             113      approved by the state treasurer; or
             114          (B) in mutual funds registered under the Investment Company Act of 1940, consistent
             115      with the best interests of a designated beneficiary's higher education funding needs; and
             116          (ii) are in compliance with rules of the State Money Management Council applicable to
             117      gift funds;


             118          (e) invest moneys within the endowment fund in any investments that are:
             119          (i) determined by the board to be appropriate;
             120          (ii) approved by the state treasurer; and
             121          (iii) in compliance with rules of the State Money Management Council applicable to
             122      gift funds;
             123          (f) enter into agreements with any institution of higher education, any federal or state
             124      agency, or other entity as required to implement this chapter;
             125          (g) accept any grants, gifts, legislative appropriations, and other moneys from the state,
             126      any unit of federal, state, or local government, or any other person, firm, partnership, or
             127      corporation for deposit to the administrative fund, endowment fund, or the program fund;
             128          (h) enter into account agreements with account owners;
             129          (i) make payments to institutions of higher education pursuant to account agreements
             130      on behalf of beneficiaries;
             131          (j) make refunds to account owners upon the termination of account agreements
             132      pursuant to the provisions of this chapter;
             133          (k) appoint a program administrator and determine the duties of the program
             134      administrator and other staff as necessary and fix their compensation;
             135          (l) make provision for the payment of costs of administration and operation of the Utah
             136      Educational Savings Plan Trust; and
             137          (m) carry out the duties and obligations of the Utah Educational Savings Plan Trust
             138      pursuant to this chapter.
             139          Section 3. Section 53B-8a-104 is amended to read:
             140           53B-8a-104. Office facilities, clerical, and administrative support for the Utah
             141      Educational Savings Plan Trust.
             142          (1) The board shall provide to the Utah Educational Savings Plan Trust, by agreement,
             143      administrative and clerical support and office facilities and space.
             144          (2) Reasonable charges or fees may be levied against the Utah Educational Savings
             145      Plan Trust pursuant to the agreement for the services provided by the board.
             146          Section 4. Section 53B-8a-105 is amended to read:
             147           53B-8a-105. Additional powers of board as to the Utah Educational Savings Plan
             148      Trust.


             149          The board has all powers necessary to carry out and effectuate the purposes, objectives,
             150      and provisions of this chapter pertaining to the Utah Educational Savings Plan Trust, including
             151      the power to:
             152          (1) engage:
             153          (a) one or more investment advisors, registered under the Investment Advisors Act of
             154      1940, with at least 5,000 advisory clients and at least $1,000,000,000 under management, to
             155      provide investment advice to the board with respect to the assets held in each account;
             156          (b) an administrator to perform recordkeeping functions on behalf of the Utah
             157      Educational Savings Plan Trust; and
             158          (c) a custodian for the safekeeping of the assets of the Utah Educational Savings Plan
             159      Trust;
             160          (2) carry out studies and projections in order to advise account owners regarding
             161      present and estimated future higher education costs and levels of financial participation in the
             162      Utah Educational Savings Plan Trust required in order to enable account owners to achieve
             163      their educational funding objective;
             164          (3) contract for goods and services and engage personnel as necessary, including
             165      consultants, actuaries, managers, counsel, and auditors for the purpose of rendering
             166      professional, managerial, and technical assistance and advice, all of which contract obligations
             167      and services shall be payable from any moneys of the Utah Educational Savings Plan Trust;
             168          (4) participate in any other way in any federal, state, or local governmental program for
             169      the benefit of the Utah Educational Savings Plan Trust;
             170          (5) promulgate, impose, and collect administrative fees and charges in connection with
             171      transactions of the Utah Educational Savings Plan Trust, and provide for reasonable service
             172      charges, including penalties for cancellations and late payments;
             173          (6) procure insurance against any loss in connection with the property, assets, or
             174      activities of the Utah Educational Savings Plan Trust;
             175          (7) administer the funds of the Utah Educational Savings Plan Trust;
             176          (8) solicit and accept for the benefit of the endowment fund gifts, grants, and other
             177      moneys, including general fund moneys from the state and grants from any federal or other
             178      governmental agency;
             179          (9) procure insurance indemnifying any member of the board from personal loss or


             180      accountability arising from liability resulting from a member's action or inaction as a member
             181      of the board; and
             182          (10) make rules and regulations for the administration of the Utah Educational Savings
             183      Plan Trust.
             184          Section 5. Section 53B-8a-106 is amended to read:
             185           53B-8a-106. Account agreements.
             186          The Utah Educational Savings Plan Trust may enter into account agreements with
             187      account owners on behalf of beneficiaries under the following terms and agreements:
             188          (1) (a) An account agreement may require an account owner to agree to invest a
             189      specific amount of money in the Utah Educational Savings Plan Trust for a specific period of
             190      time for the benefit of a specific beneficiary, not to exceed an amount determined by the
             191      program administrator.
             192          (b) Account agreements may be amended to provide for adjusted levels of payments
             193      based upon changed circumstances or changes in educational plans.
             194          (c) An account owner may make additional optional payments as long as the total
             195      payments for a specific beneficiary do not exceed the total estimated higher education costs as
             196      determined by the program administrator.
             197          (d) Subject to Subsection (1)(f), the maximum amount of a qualified investment that a
             198      corporation that is an account owner may subtract from unadjusted income for a taxable year in
             199      accordance with Title 59, Chapter 7, Corporate Franchise and Income Taxes, is $1,560 for each
             200      individual beneficiary for the taxable year beginning on or after January 1, 2006, but beginning
             201      on or before December 31, 2006.
             202          [(d) The] (e) Subject to Subsection (1)(f), the maximum amount of [investments] a
             203      qualified investment that may be subtracted from federal taxable income [of a resident or
             204      nonresident individual under Subsection 59-10-114 (2)(i) shall be $1,510] for a taxable year in
             205      accordance with Title 59, Chapter 10, Individual Income Tax Act, is:
             206          (i) for a resident or nonresident estate or trust that is an account owner, $1,560 for each
             207      individual beneficiary for the [2005 calendar year and an amount adjusted annually thereafter
             208      to reflect increases in the Consumer Price Index.] taxable year beginning on or after January 1,
             209      2006, but beginning on or before December 31, 2006;
             210          (ii) for a resident or nonresident individual that is an account owner, other than a


             211      husband and wife who file a single return jointly, $1,560 for each individual beneficiary for the
             212      taxable year beginning on or after January 1, 2006, but beginning on or before December 31,
             213      2006;
             214          (iii) for a husband and wife who are account owners and file a single return jointly,
             215      $3,120 for each individual beneficiary:
             216          (A) for the taxable year beginning on or after January 1, 2006, but beginning on or
             217      before December 31, 2006; and
             218          (B) regardless of whether the Utah Educational Savings Plan Trust has entered into:
             219          (I) a separate account agreement with each spouse; or
             220          (II) a single account agreement with both spouses jointly.
             221          (f) (i) For taxable years beginning on or after January 1, 2007, the program
             222      administrator shall increase or decrease the maximum amount of a qualified investment
             223      described in Subsections (1)(d) and (1)(e)(i) and (ii) that may be subtracted from income for a
             224      taxable year, by a percentage equal to the percentage difference between the consumer price
             225      index for the preceding calendar year and the consumer price index for the calendar year 2005.
             226          (ii) After making an increase or decrease required by Subsection (1)(f)(i), the program
             227      administrator shall:
             228          (A) round the maximum amount of the qualified investments described in Subsections
             229      (1)(d) and (1)(e)(i) and (ii) increased or decreased under Subsection (1)(f)(i) to the nearest ten
             230      dollar increment; and
             231          (B) increase or decrease the maximum amount of the qualified investment described in
             232      Subsection (1)(e)(iii) so that the maximum amount of the qualified investment described in
             233      Subsection (1)(e)(iii) is equal to the product of:
             234          (I) the maximum amount of the qualified investment described in Subsection (1)(e)(ii)
             235      as rounded under Subsection (1)(f)(ii)(A); and
             236          (II) two.
             237          (iii) For purposes of Subsections (1)(f)(i) and (ii), the program administrator shall
             238      calculate the consumer price index as provided in Sections 1(f)(4) and 1(f)(5), Internal Revenue
             239      Code.
             240          (2) (a) (i) Beneficiaries designated in account agreements must be designated after
             241      birth and before age 19 for [the participant] an account owner to subtract [allowable


             242      investments] a qualified investment from [federal taxable] income under [Subsection
             243      59-10-114 (2)(i)]:
             244          (A) Title 59, Chapter 7, Corporate Franchise and Income Taxes; or
             245          (B) Title 59, Chapter 10, Individual Income Tax Act.
             246          (ii) If the beneficiary is designated after birth and before age 19, the payment of
             247      benefits provided under the account agreement must begin not later than the beneficiary's 27th
             248      birthday.
             249          (b) (i) Account owners may designate beneficiaries age 19 or older, but investments for
             250      those beneficiaries are not eligible for subtraction from federal taxable income.
             251          (ii) If a beneficiary age 19 or older is designated, the payment of benefits provided
             252      under the account agreement must begin not later than ten years from the account agreement
             253      date.
             254          (3) Each account agreement shall state clearly that there are no guarantees regarding
             255      moneys in the Utah Educational Savings Plan Trust as to the return of principal and that losses
             256      could occur.
             257          (4) Each account agreement shall provide that:
             258          (a) no contributor to, or designated beneficiary under, an account agreement may direct
             259      the investment of any contributions or earnings on contributions;
             260          (b) no part of the money in any account may be used as security for a loan; and
             261          (c) no account owner may borrow from the Utah Educational Savings Plan Trust.
             262          (5) The execution of an account agreement by the trust may not guarantee in any way
             263      that higher education costs will be equal to projections and estimates provided by the Utah
             264      Educational Savings Plan Trust or that the beneficiary named in any participation agreement
             265      will:
             266          (a) be admitted to an institution of higher education;
             267          (b) if admitted, be determined a resident for tuition purposes by the institution of
             268      higher education, unless the account agreement is vested;
             269          (c) be allowed to continue attendance at the institution of higher education following
             270      admission; or
             271          (d) graduate from the institution of higher education.
             272          (6) Beneficiaries may be changed as permitted by the rules and regulations of the board


             273      upon written request of the account owner prior to the date of admission of any beneficiary
             274      under an account agreement by an institution of higher education so long as the substitute
             275      beneficiary is eligible for participation.
             276          (7) Account agreements may be freely amended throughout their terms in order to
             277      enable account owners to increase or decrease the level of participation, change the designation
             278      of beneficiaries, and carry out similar matters as authorized by rule.
             279          (8) Each account agreement shall provide that:
             280          (a) the account agreement may be canceled upon the terms and conditions, and upon
             281      payment of the fees and costs set forth and contained in the board's rules and regulations; and
             282          (b) the program administrator may amend the agreement unilaterally and retroactively,
             283      if necessary, to maintain the Utah Educational Savings Plan Trust as a qualified tuition
             284      program under Section 529 Internal Revenue Code.
             285          Section 6. Section 53B-8a-107 is amended to read:
             286           53B-8a-107. Program, endowment, and administrative funds -- Investment and
             287      payments from funds.
             288          (1) (a) The board shall segregate moneys received by the Utah Educational Savings
             289      Plan Trust into three funds, the program fund, the endowment fund, and the administrative
             290      fund.
             291          (b) No more than two percentage points of the interest earned annually in the
             292      endowment fund may be transferred to the administrative fund for the purpose of paying
             293      operating costs associated with administering the Utah Educational Savings Plan Trust and as
             294      required under Sections 53B-8a-103 through 53B-8a-105 .
             295          (c) Transfers may be made from the program fund to the administrative fund to pay
             296      operating costs:
             297          (i) associated with administering the Utah Educational Savings Plan Trust and as
             298      required under Sections 53B-8a-103 through 53B-8a-105 ; and
             299          (ii) as included in the budget approved by the board of directors of the Utah
             300      Educational Savings Plan Trust.
             301          (d) All moneys paid by account owners in connection with account agreements shall be
             302      deposited as received into separate accounts within the program fund which shall be promptly
             303      invested and accounted for separately.


             304          (e) All moneys received by the Utah Educational Savings Plan Trust from the proceeds
             305      of gifts and other endowments for the purposes of the Utah Educational Savings Plan Trust
             306      shall be deposited as received into the endowment fund, which shall be promptly invested and
             307      accounted for separately.
             308          (f) Any gifts, grants, or donations made by any governmental unit or any person, firm,
             309      partnership, or corporation to the Utah Educational Savings Plan Trust for deposit to the
             310      endowment fund shall be a grant, gift, or donation to the state for the accomplishment of a
             311      valid public eleemosynary, charitable, and educational purpose and shall not be included in the
             312      income of the donor for Utah tax purposes.
             313          (2) (a) Through March 31, 2005, each account owner under an account agreement may
             314      receive an interest in a portion, as determined by policy, of the investment income derived by
             315      the endowment fund in any year during which funds are invested in the program fund on behalf
             316      of the beneficiary, to be payable as provided in Subsection (2)(c).
             317          (b) The interest in the investment income derived by the endowment fund that accrues
             318      to a beneficiary in any year shall be in the ratio that the principal amount paid by the account
             319      owner under the account agreement and investment income earned to date under the agreement
             320      bears to the principal amount of all moneys, funds, and securities then held in the program fund
             321      during the year.
             322          (c) (i) Except as provided in Subsection (2)(c)(ii), at the time any payments or
             323      disbursements for higher education costs are made from the Utah Educational Savings Plan
             324      Trust to any institution of higher education under an account agreement, the Utah Educational
             325      Savings Plan Trust shall add to that payment from endowment fund income a pro rata portion
             326      of the amount calculated pursuant to Subsection (2)(b), which shall be transferred directly to
             327      the institution of higher education simultaneously with the payment made from the program
             328      fund and shall be used for payment of the higher education costs of the beneficiary, but not to
             329      exceed the amount which, in combination with the current payment due from the program
             330      fund, equals the beneficiary's higher education costs for the current period of enrollment.
             331          (ii) Effective March 31, 2005, any interest income on the endowment fund accruing to
             332      a beneficiary that has not been transferred to an institution of higher education pursuant to
             333      Subsection (2)(c)(i) shall be transferred to the beneficiary's program fund account.
             334          (3) Beginning on April 1, 2005:


             335          (a) interest income on the endowment fund may be used to enhance the savings of low
             336      income account owners investing in the Utah Educational Savings Plan Trust, as provided by
             337      rules of the board; and
             338          (b) the original principal in the endowment fund may be transferred to the
             339      administrative fund upon approval by the board.
             340          (4) Endowment fund earnings not accruing to a beneficiary under a participation
             341      agreement or not transferred to the administrative fund shall be reinvested in the endowment
             342      fund.
             343          (5) Moneys accrued by account owners in the program fund of the Utah Educational
             344      Savings Plan Trust may be used for payments to any institution of higher education.
             345          (6) No rights to any moneys derived from the endowment fund shall exist if moneys
             346      payable under the account agreement are paid to an education institution which is not an
             347      institution of higher education as defined in Section 53B-8a-102 .
             348          Section 7. Section 53B-8a-108 is amended to read:
             349           53B-8a-108. Cancellation of agreements.
             350          (1) Any account owner may cancel an account agreement at will.
             351          (2) If an account agreement is cancelled by the account owner, the current account
             352      balance shall be disbursed to the account owner less:
             353          (a) an administrative refund fee, which may be charged by the Utah Educational
             354      Savings Plan Trust, except as provided in Subsection (3); and
             355          (b) any penalty or tax required to be withheld by the Internal Revenue Code.
             356          (3) An administration refund fee may not be levied by the Utah Educational Savings
             357      Plan Trust if the account agreement is cancelled due to:
             358          (a) the death of the beneficiary; or
             359          (b) the permanent disability or mental incapacity of the beneficiary.
             360          (4) The board shall make rules for the disposition of monies transferred to an account
             361      pursuant to Subsection 53A-8a-107 (2)(c)(ii) and the earnings on those monies when an account
             362      agreement is cancelled.
             363          Section 8. Section 53B-8a-109 is amended to read:
             364           53B-8a-109. Repayment and ownership of payments and investment income --
             365      Transfer of ownership rights.


             366          (1) (a) The account owner retains ownership of all payments made under the account
             367      agreement until utilized to pay higher education costs for the beneficiary.
             368          (b) All income derived from the investment of the payments made by the account
             369      owner shall be considered to be held in trust for the benefit of the beneficiary.
             370          (2) The institution of higher education shall obtain ownership of the payments made
             371      for the higher education costs paid to the institution at the time each payment is made to the
             372      institution.
             373          (3) Any amounts that may be paid pursuant to the Utah Educational Savings Plan Trust
             374      that are not listed in this section are owned by the Utah Educational Savings Plan Trust.
             375          (4) (a) An account owner may transfer ownership rights to another eligible person.
             376          (b) The transfer shall be affected and the property distributed in accordance with
             377      administrative regulations promulgated by the board or the terms of the account agreement.
             378          Section 9. Section 53B-8a-111 is amended to read:
             379           53B-8a-111. Annual audited financial report to governor, Legislature, and state
             380      auditor.
             381          (1) The board shall submit an annual audited financial report, prepared in accordance