Second Substitute H.B. 36

Senator Wayne L. Niederhauser proposes the following substitute bill:

1 INCOME TAX ADDITIONS, SUBTRACTIONS, AND
2 CREDITS 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 Higher Education Savings Incentive Program chapter, the
13 Corporate Franchise and Income Taxes chapter, and the Individual Income Tax Act
14 relating the program for higher education savings, additions to and subtractions from
15 income for higher education savings, and to provide a tax credit for higher education
16 savings.
17 Highlighted Provisions:
18 This bill:
19 . provides and modifies definitions;
20 . addresses the taxation of the Utah Educational Savings Plan Trust and its income;
21 . addresses the maximum amount of a qualified investment in the Utah Educational
22 Savings Plan Trust that a person, estate, or trust may:
23 . subtract from income; or
24 . use as the basis for claiming a tax credit;

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

56 53B-8a-111, as enacted by Chapter 4, Laws of Utah 1996, Second Special Session
57 53B-8a-112, as enacted by Chapter 4, Laws of Utah 1996, Second Special Session
58 53B-8a-113, as last amended by Chapter 109, Laws of Utah 2005
59 59-7-105, as last amended by Chapter 109, Laws of Utah 2005
60 59-7-106, as last amended by Chapter 211, Laws of Utah 2002
61 59-10-114, as last amended by Chapter 2, Laws of Utah 2006, Fourth Special Session
62 59-10-201, as last amended by Chapter 223, Laws of Utah 2006
63 59-10-202, as last amended by Chapter 2, Laws of Utah 2006, Fourth Special Session
64 59-10-1202, as enacted by Chapter 2, Laws of Utah 2006, Fourth Special Session
65 59-10-1203, as enacted by Chapter 2, Laws of Utah 2006, Fourth Special Session
66 ENACTS:
67 59-10-1206.1, Utah Code Annotated 1953
68 59-10-1206.9, Utah Code Annotated 1953
69
70 Be it enacted by the Legislature of the state of Utah:
71 Section 1. Section 53B-8a-102 is amended to read:
72 53B-8a-102. Definitions.
73 As used in this chapter:
74 (1) "Account agreement" means an agreement between an account owner and the Utah
75 Educational Savings Plan Trust entered into under this chapter.
76 (2) "Account owner" means [an individual, firm, corporation, or its legal representative
77 or legal successor, who] a person, estate, or trust, if that person, estate, or trust has entered into
78 an account agreement under this chapter for the advance payment of higher education costs on
79 behalf of a beneficiary.
80 (3) "Administrative fund" means the moneys used to administer the Utah Educational
81 Savings Plan Trust.
82 (4) "Beneficiary" means the individual designated in an account agreement to benefit
83 from payments for higher education costs at an institution of higher education.
84 (5) "Benefits" means the payment of higher education costs on behalf of a beneficiary
85 by the Utah Educational Savings Plan Trust during the beneficiary's attendance at an institution
86 of higher education.

87 (6) "Board" means the board of directors of the Utah Educational Savings Plan Trust
88 which is the state Board of Regents acting in its capacity as the Utah Higher Education
89 Assistance Authority under Title 53B, Chapter 12.
90 (7) "Endowment fund" means the endowment fund established under Section
91 53B-8a-107 which is held as a separate fund within the Utah Educational Savings Plan Trust.
92 (8) "Higher education costs" means [the certified costs of tuition, fees, room and board,
93 books, supplies, and equipment required for the enrollment or attendance of a designated
94 beneficiary at an institution of higher education] qualified higher education expenses as defined
95 in Section 529(e)(3), Internal Revenue Code.
96 (9) "Institution of higher education" means a qualified proprietary school approved by
97 the board, a two-year or four-year public or regionally accredited private nonprofit college or
98 university or a Utah college of applied technology, with regard to students enrolled in
99 postsecondary training or education programs.
100 (10) "Program administrator" means the administrator of the Utah Educational Savings
101 Plan Trust appointed by the board to administer and manage the Utah Educational Savings Plan
102 Trust.
103 (11) "Program fund" means the program fund created under Section 53B-8a-107 ,
104 which is held as a separate fund within the Utah Educational Savings Plan Trust.
105 (12) "Qualified investment" means an amount invested in accordance with an account
106 agreement established under this chapter.
107 [(12)] (13) "Tuition and fees" means the quarterly or semester charges imposed to
108 attend an institution of higher education and required as a condition of enrollment.
109 [(13)] (14) "Utah Educational Savings Plan Trust" [or "trust"] means the Utah
110 Educational Savings Plan Trust created under Section 53B-8a-103 .
111 [(14)] (15) "Vested account" means an account agreement which has been in full force
112 and effect during eight continuous years of residency of the beneficiary in the state while
113 participating in the Utah Educational Savings Plan Trust.
114 Section 2. Section 53B-8a-103 is amended to read:
115 53B-8a-103. Creation of Utah Educational Savings Plan Trust.
116 (1) There is created the Utah Educational Savings Plan Trust.
117 (2) The board is the trustee of the Utah Educational Savings Plan Trust.

118 (3) The board, in the capacity of trustee, may:
119 (a) exercise any authority granted by law to the Board of Regents;
120 (b) make and enter into contracts necessary for the administration of the Utah
121 Educational Savings Plan Trust created under this chapter;
122 (c) adopt a corporate seal and change and amend it from time to time;
123 (d) invest moneys within the program fund:
124 (i) (A) in any investments that are determined by the board to be appropriate and are
125 approved by the state treasurer; or
126 (B) in mutual funds registered under the Investment Company Act of 1940, consistent
127 with the best interests of a designated beneficiary's higher education funding needs; and
128 (ii) are in compliance with rules of the State Money Management Council applicable to
129 gift funds;
130 (e) invest moneys within the endowment fund in any investments that are:
131 (i) determined by the board to be appropriate;
132 (ii) approved by the state treasurer; and
133 (iii) in compliance with rules of the State Money Management Council applicable to
134 gift funds;
135 (f) enter into agreements with any institution of higher education, any federal or state
136 agency, or other entity as required to implement this chapter;
137 (g) accept any grants, gifts, legislative appropriations, and other moneys from the state,
138 any unit of federal, state, or local government, or any other person, firm, partnership, or
139 corporation for deposit to the administrative fund, endowment fund, or the program fund;
140 (h) enter into account agreements with account owners;
141 (i) make payments to institutions of higher education pursuant to account agreements
142 on behalf of beneficiaries;
143 (j) make refunds to account owners upon the termination of account agreements
144 pursuant to the provisions of this chapter;
145 (k) appoint a program administrator and determine the duties of the program
146 administrator and other staff as necessary and fix their compensation;
147 (l) make provision for the payment of costs of administration and operation of the Utah
148 Educational Savings Plan Trust; and

149 (m) carry out the duties and obligations of the Utah Educational Savings Plan Trust
150 pursuant to this chapter.
151 Section 3. Section 53B-8a-104 is amended to read:
152 53B-8a-104. Office facilities, clerical, and administrative support for the Utah
153 Educational Savings Plan Trust.
154 (1) The board shall provide to the Utah Educational Savings Plan Trust, by agreement,
155 administrative and clerical support and office facilities and space.
156 (2) Reasonable charges or fees may be levied against the Utah Educational Savings
157 Plan Trust pursuant to the agreement for the services provided by the board.
158 Section 4. Section 53B-8a-105 is amended to read:
159 53B-8a-105. Additional powers of board as to the Utah Educational Savings Plan
160 Trust.
161 The board has all powers necessary to carry out and effectuate the purposes, objectives,
162 and provisions of this chapter pertaining to the Utah Educational Savings Plan Trust, including
163 the power to:
164 (1) engage:
165 (a) one or more investment advisors, registered under the Investment Advisors Act of
166 1940, with at least 5,000 advisory clients and at least $1,000,000,000 under management, to
167 provide investment advice to the board with respect to the assets held in each account;
168 (b) an administrator to perform recordkeeping functions on behalf of the Utah
169 Educational Savings Plan Trust; and
170 (c) a custodian for the safekeeping of the assets of the Utah Educational Savings Plan
171 Trust;
172 (2) carry out studies and projections in order to advise account owners regarding
173 present and estimated future higher education costs and levels of financial participation in the
174 Utah Educational Savings Plan Trust required in order to enable account owners to achieve
175 their educational funding objective;
176 (3) contract for goods and services and engage personnel as necessary, including
177 consultants, actuaries, managers, counsel, and auditors for the purpose of rendering
178 professional, managerial, and technical assistance and advice, all of which contract obligations
179 and services shall be payable from any moneys of the Utah Educational Savings Plan Trust;

180 (4) participate in any other way in any federal, state, or local governmental program for
181 the benefit of the Utah Educational Savings Plan Trust;
182 (5) promulgate, impose, and collect administrative fees and charges in connection with
183 transactions of the Utah Educational Savings Plan Trust, and provide for reasonable service
184 charges, including penalties for cancellations and late payments;
185 (6) procure insurance against any loss in connection with the property, assets, or
186 activities of the Utah Educational Savings Plan Trust;
187 (7) administer the funds of the Utah Educational Savings Plan Trust;
188 (8) solicit and accept for the benefit of the endowment fund gifts, grants, and other
189 moneys, including general fund moneys from the state and grants from any federal or other
190 governmental agency;
191 (9) procure insurance indemnifying any member of the board from personal loss or
192 accountability arising from liability resulting from a member's action or inaction as a member
193 of the board; and
194 (10) make rules and regulations for the administration of the Utah Educational Savings
195 Plan Trust.
196 Section 5. Section 53B-8a-106 is amended to read:
197 53B-8a-106. Account agreements.
198 The Utah Educational Savings Plan Trust may enter into account agreements with
199 account owners on behalf of beneficiaries under the following terms and agreements:
200 (1) (a) An account agreement may require an account owner to agree to invest a
201 specific amount of money in the Utah Educational Savings Plan Trust for a specific period of
202 time for the benefit of a specific beneficiary, not to exceed an amount determined by the
203 program administrator.
204 (b) Account agreements may be amended to provide for adjusted levels of payments
205 based upon changed circumstances or changes in educational plans.
206 (c) An account owner may make additional optional payments as long as the total
207 payments for a specific beneficiary do not exceed the total estimated higher education costs as
208 determined by the program administrator.
209 (d) Subject to Subsection (1)(f), the maximum amount of a qualified investment that a
210 corporation that is an account owner may subtract from unadjusted income for a taxable year in

211 accordance with Title 59, Chapter 7, Corporate Franchise and Income Taxes, is $1,560 for each
212 individual beneficiary for the taxable year beginning on or after January 1, 2006, but beginning
213 on or before December 31, 2006.
214 [(d) The] (e) Subject to Subsection (1)(f), the maximum amount of [investments] a
215 qualified investment that may be subtracted from federal taxable income [of a resident or
216 nonresident individual under Subsection 59-10-114 (2)(i) shall be $1,510] of a resident or
217 nonresident individual for a taxable year in accordance with Section 59-10-114 , a resident or
218 nonresident estate or trust for a taxable year in accordance with Section 59-10-202 , or used as
219 the basis for claiming a tax credit for a taxable year by a resident or nonresident individual in
220 accordance with Section 59-10-1206.1 , is:
221 (i) for a resident or nonresident estate or trust that is an account owner, $1,560 for each
222 individual beneficiary for the [2005 calendar year and an amount adjusted annually thereafter
223 to reflect increases in the Consumer Price Index.] taxable year beginning on or after January 1,
224 2006, but beginning on or before December 31, 2006;
225 (ii) for a resident or nonresident individual that is an account owner, other than a
226 husband and wife who are account owners and file a single return jointly, $1,560 for each
227 individual beneficiary for the taxable year beginning on or after January 1, 2006, but beginning
228 on or before December 31, 2006; or
229 (iii) for a husband and wife who are account owners and file a single return jointly,
230 $3,120 for each individual beneficiary:
231 (A) for the taxable year beginning on or after January 1, 2006, but beginning on or
232 before December 31, 2006; and
233 (B) regardless of whether the Utah Educational Savings Plan Trust has entered into:
234 (I) a separate account agreement with each spouse; or
235 (II) a single account agreement with both spouses jointly.
236 (f) (i) For taxable years beginning on or after January 1, 2007, the program
237 administrator shall increase or decrease the maximum amount of a qualified investment
238 described in Subsections (1)(d) and (1)(e)(i) and (ii), by a percentage equal to the percentage
239 difference between the consumer price index for the preceding calendar year and the consumer
240 price index for the calendar year 2005.
241 (ii) After making an increase or decrease required by Subsection (1)(f)(i), the program

242 administrator shall:
243 (A) round the maximum amount of the qualified investments described in Subsections
244 (1)(d) and (1)(e)(i) and (ii) increased or decreased under Subsection (1)(f)(i) to the nearest ten
245 dollar increment; and
246 (B) increase or decrease the maximum amount of the qualified investment described in
247 Subsection (1)(e)(iii) so that the maximum amount of the qualified investment described in
248 Subsection (1)(e)(iii) is equal to the product of:
249 (I) the maximum amount of the qualified investment described in Subsection (1)(e)(ii)
250 as rounded under Subsection (1)(f)(ii)(A); and
251 (II) two.
252 (iii) For purposes of Subsections (1)(f)(i) and (ii), the program administrator shall
253 calculate the consumer price index as provided in Sections 1(f)(4) and 1(f)(5), Internal Revenue
254 Code.
255 (2) (a) (i) Beneficiaries designated in account agreements must be designated after
256 birth and before age 19 for [the participant] an account owner to:
257 (A) subtract [allowable investments] a qualified investment from [federal taxable]
258 income under [Subsection 59-10-114 (2)(i).]:
259 (I) Title 59, Chapter 7, Corporate Franchise and Income Taxes;
260 (II) Section 59-10-114 ; or
261 (III) Section 59-10-202 ; or
262 (B) use a qualified investment as the basis for claiming a tax credit in accordance with
263 Section 59-10-1206.1 .
264 (ii) If the beneficiary is designated after birth and before age 19, the payment of
265 benefits provided under the account agreement must begin not later than the beneficiary's 27th
266 birthday.
267 (b) (i) Account owners may designate beneficiaries age 19 or older, but investments for
268 those beneficiaries are not eligible for subtraction from federal taxable income.
269 (ii) If a beneficiary age 19 or older is designated, the payment of benefits provided
270 under the account agreement must begin not later than ten years from the account agreement
271 date.
272 (3) Each account agreement shall state clearly that there are no guarantees regarding

273 moneys in the Utah Educational Savings Plan Trust as to the return of principal and that losses
274 could occur.
275 (4) Each account agreement shall provide that:
276 (a) no contributor to, or designated beneficiary under, an account agreement may direct
277 the investment of any contributions or earnings on contributions;
278 (b) no part of the money in any account may be used as security for a loan; and
279 (c) no account owner may borrow from the Utah Educational Savings Plan Trust.
280 (5) The execution of an account agreement by the trust may not guarantee in any way
281 that higher education costs will be equal to projections and estimates provided by the Utah
282 Educational Savings Plan Trust or that the beneficiary named in any participation agreement
283 will:
284 (a) be admitted to an institution of higher education;
285 (b) if admitted, be determined a resident for tuition purposes by the institution of
286 higher education, unless the account agreement is vested;
287 (c) be allowed to continue attendance at the institution of higher education following
288 admission; or
289 (d) graduate from the institution of higher education.
290 (6) Beneficiaries may be changed as permitted by the rules and regulations of the board
291 upon written request of the account owner prior to the date of admission of any beneficiary
292 under an account agreement by an institution of higher education so long as the substitute
293 beneficiary is eligible for participation.
294 (7) Account agreements may be freely amended throughout their terms in order to
295 enable account owners to increase or decrease the level of participation, change the designation
296 of beneficiaries, and carry out similar matters as authorized by rule.
297 (8) Each account agreement shall provide that:
298 (a) the account agreement may be canceled upon the terms and conditions, and upon
299 payment of the fees and costs set forth and contained in the board's rules and regulations; and
300 (b) the program administrator may amend the agreement unilaterally and retroactively,
301 if necessary, to maintain the Utah Educational Savings Plan Trust as a qualified tuition
302 program under Section 529 Internal Revenue Code.
303 Section 6. Section 53B-8a-107 is amended to read:

304 53B-8a-107. Program, endowment, and administrative funds -- Investment and
305 payments from funds.
306 (1) (a) The board shall segregate moneys received by the Utah Educational Savings
307 Plan Trust into three funds, the program fund, the endowment fund, and the administrative
308 fund.
309 (b) No more than two percentage points of the interest earned annually in the
310 endowment fund may be transferred to the administrative fund for the purpose of paying
311 operating costs associated with administering the Utah Educational Savings Plan Trust and as
312 required under Sections 53B-8a-103 through 53B-8a-105 .
313 (c) Transfers may be made from the program fund to the administrative fund to pay
314 operating costs:
315 (i) associated with administering the Utah Educational Savings Plan Trust and as
316 required under Sections 53B-8a-103 through 53B-8a-105 ; and
317 (ii) as included in the budget approved by the board of directors of the Utah
318 Educational Savings Plan Trust.
319 (d) All moneys paid by account owners in connection with account agreements shall be
320 deposited as received into separate accounts within the program fund which shall be promptly
321 invested and accounted for separately.
322 (e) All moneys received by the Utah Educational Savings Plan Trust from the proceeds
323 of gifts and other endowments for the purposes of the Utah Educational Savings Plan Trust
324 shall be deposited as received into the endowment fund, which shall be promptly invested and
325 accounted for separately.
326 (f) Any gifts, grants, or donations made by any governmental unit or any person, firm,
327 partnership, or corporation to the Utah Educational Savings Plan Trust for deposit to the
328 endowment fund shall be a grant, gift, or donation to the state for the accomplishment of a
329 valid public eleemosynary, charitable, and educational purpose and shall not be included in the
330 income of the donor for Utah tax purposes.
331 (2) (a) Through March 31, 2005, each account owner under an account agreement may
332 receive an interest in a portion, as determined by policy, of the investment income derived by
333 the endowment fund in any year during which funds are invested in the program fund on behalf
334 of the beneficiary, to be payable as provided in Subsection (2)(c).

335 (b) The interest in the investment income derived by the endowment fund that accrues
336 to a beneficiary in any year shall be in the ratio that the principal amount paid by the account
337 owner under the account agreement and investment income earned to date under the agreement
338 bears to the principal amount of all moneys, funds, and securities then held in the program fund
339 during the year.
340 (c) (i) Except as provided in Subsection (2)(c)(ii), at the time any payments or
341 disbursements for higher education costs are made from the Utah Educational Savings Plan
342 Trust to any institution of higher education under an account agreement, the Utah Educational
343 Savings Plan Trust shall add to that payment from endowment fund income a pro rata portion
344 of the amount calculated pursuant to Subsection (2)(b), which shall be transferred directly to
345 the institution of higher education simultaneously with the payment made from the program
346 fund and shall be used for payment of the higher education costs of the beneficiary, but not to
347 exceed the amount which, in combination with the current payment due from the program
348 fund, equals the beneficiary's higher education costs for the current period of enrollment.
349 (ii) Effective March 31, 2005, any interest income on the endowment fund accruing to
350 a beneficiary that has not been transferred to an institution of higher education pursuant to
351 Subsection (2)(c)(i) shall be transferred to the beneficiary's program fund account.
352 (3) Beginning on April 1, 2005:
353 (a) interest income on the endowment fund may be used to enhance the savings of low
354 income account owners investing in the Utah Educational Savings Plan Trust, as provided by
355 rules of the board; and
356 (b) the original principal in the endowment fund may be transferred to the
357 administrative fund upon approval by the board.
358 (4) Endowment fund earnings not accruing to a beneficiary under a participation
359 agreement or not transferred to the administrative fund shall be reinvested in the endowment
360 fund.
361 (5) Moneys accrued by account owners in the program fund of the Utah Educational
362 Savings Plan Trust may be used for payments to any institution of higher education.
363 (6) No rights to any moneys derived from the endowment fund shall exist if moneys
364 payable under the account agreement are paid to an education institution which is not an
365 institution of higher education as defined in Section 53B-8a-102 .

366 Section 7. Section 53B-8a-108 is amended to read:
367 53B-8a-108. Cancellation of agreements.
368 (1) Any account owner may cancel an account agreement at will.
369 (2) If an account agreement is cancelled by the account owner, the current account
370 balance shall be disbursed to the account owner less:
371 (a) an administrative refund fee, which may be charged by the Utah Educational
372 Savings Plan Trust, except as provided in Subsection (3); and
373 (b) any penalty or tax required to be withheld by the Internal Revenue Code.
374 (3) An administration refund fee may not be levied by the Utah Educational Savings
375 Plan Trust if the account agreement is cancelled due to:
376 (a) the death of the beneficiary; or
377 (b) the permanent disability or mental incapacity of the beneficiary.
378 (4) The board shall make rules for the disposition of monies transferred to an account
379 pursuant to Subsection [ 53A-8a-107 ] 53B-8a-107 (2)(c)(ii) and the earnings on those monies
380 when an account agreement is cancelled.