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