S.B. 171

1

RESEARCH ACTIVITIES TAX CREDIT
2 AMENDMENTS
3 2007 GENERAL SESSION
4 STATE OF UTAH
5 Chief Sponsor: Howard A. Stephenson
6 House Sponsor: John Dougall
7 Cosponsors:
8 Gregory S. Bell
9 Curtis S. Bramble
10 D. Chris Buttars
11 Margaret Dayton
12 Mike DmitrichDan R. Eastman
Scott K. Jenkins
Patricia W. Jones
Sheldon L. Killpack
Peter C. Knudson
Mark B. MadsenWayne L. Niederhauser
Darin G. Peterson
John L. Valentine
Kevin T. VanTassell
Carlene M. Walker 13
14 LONG TITLE
15 General Description:
16 This bill amends the Corporate Franchise and Income Taxes chapter and the Individual
17 Income Tax Act to modify tax credits for research activities in the state.
18 Highlighted Provisions:
19 This bill:
20 . repeals a repeal date for tax credits for research activities in the state;
21 . modifies tax credits for research activities in the state by allowing a taxpayer to
22 claim a nonrefundable tax credit equal to 5% of a taxpayer's qualified research
23 expenses for the current taxable year;
24 . requires a review of the tax credits by the Utah Tax Review Commission; and
25 . makes technical changes.
26 Monies Appropriated in this Bill:
27 None
28 Other Special Clauses:

29 This bill has retrospective operation for taxable years beginning on or after January 1,
30 2007.
31 Utah Code Sections Affected:
32 AMENDS:
33 59-7-612, as last amended by Chapter 9, Laws of Utah 2001
34 59-10-1012, as renumbered and amended by Chapter 223, Laws of Utah 2006
35
36 Be it enacted by the Legislature of the state of Utah:
37 Section 1. Section 59-7-612 is amended to read:
38 59-7-612. Tax credits for research activities conducted in the state -- Carry
39 forward -- Commission to report modification of certain federal provisions -- Utah Tax
40 Review Commission review.
41 (1) (a) [For taxable years beginning on or after January 1, 1999, but beginning before
42 December 31, 2010, a] A taxpayer meeting the requirements of this section [shall qualify for
43 the following] may claim a nonrefundable [credits for increasing research activities in this
44 state:] tax credit equal to 5% of the taxpayer's qualified research expenses for the current
45 taxable year.
46 [(i) a research credit of 6% of the taxpayer's qualified research expenses for the current
47 taxable year that exceed the base amount provided for under Subsection (4); and]
48 [(ii) a credit for payments to qualified organizations for basic research as provided in
49 Section 41(e), Internal Revenue Code, of 6% for the current taxable year that exceed the base
50 amount provided for under Subsection (4).]
51 (b) If a taxpayer qualifying for a tax credit under Subsection (1)(a) seeks to claim the
52 tax credit, the taxpayer shall:
53 (i) claim the tax credit or a portion of the tax credit for the taxable year immediately
54 following the taxable year for which the taxpayer qualifies for the tax credit;
55 (ii) carry the tax credit or a portion of the tax credit forward as provided in Subsection
56 [(4)(f)] (5); or
57 (iii) claim a portion of the tax credit and carry forward a portion of the tax credit as
58 provided in Subsections (1)(b)(i) and (ii).
59 [(c) The credits provided for in this section do not include the alternative incremental

60 credit provided for in Section 41(c)(4), Internal Revenue Code.]
61 (2) For purposes of claiming a tax credit under this section, a unitary group as defined
62 in Section 59-7-101 is considered to be one taxpayer.
63 (3) Except as specifically provided for in this section[: (a) the credits authorized under
64 Subsection (1) shall be calculated as provided in Section 41, Internal Revenue Code; and (b)],
65 the relevant definitions provided in Section 41, Internal Revenue Code, apply in calculating the
66 tax credits authorized under Subsection (1).
67 (4) For purposes of this section:
68 [(a) the base amount shall be calculated as provided in Sections 41(c) and 41(h),
69 Internal Revenue Code, except that:]
70 [(i) the base amount does not include the calculation of the alternative incremental
71 credit provided for in Section 41(c)(4), Internal Revenue Code;]
72 [(ii) a taxpayer's gross receipts include only those gross receipts attributable to sources
73 within this state as provided in Part 3, Allocation and Apportionment of Income -- Utah
74 UDITPA Provisions; and]
75 [(iii) notwithstanding Section 41(c), Internal Revenue Code, for purposes of calculating
76 the base amount, a taxpayer:]
77 [(A) may elect to be treated as a start-up company as provided in Section 41(c)(3)(B)
78 regardless of whether the taxpayer meets the requirements of Section 41(c)(3)(B)(i)(I) or (II);
79 and]
80 [(B) may not revoke an election to be treated as a start-up company under Subsection
81 (4)(a)(iii)(A);]
82 [(b) "basic research" is as defined in Section 41(e)(7), Internal Revenue Code, except
83 that the term includes only basic research conducted in this state;]
84 [(c)] (a) "Qualified research" is as defined in Section 41(d), Internal Revenue Code,
85 except that the term includes only qualified research conducted in this state[;].
86 [(d)] (b) "Qualified research expenses" is as defined and calculated in Section 41(b),
87 Internal Revenue Code, except that the term includes only [those expenses incurred in
88 conducting qualified research in this state;]:
89 [(e) notwithstanding the provisions of Section 41(h), Internal Revenue Code, the
90 credits]

91 (i) in-house research expenses incurred in this state; and
92 (ii) contract research expenses incurred in this state.
93 (c) The tax credit provided for in this section [shall] is not [terminate] terminated if
94 [the credits terminate] a credit terminates under Section 41, Internal Revenue Code[; and].
95 [(f) notwithstanding the provisions of Sections 39 and 41(g), Internal Revenue Code,
96 governing the carry forward and carry back of federal tax credits, if]
97 (5) If the amount of a tax credit claimed by a taxpayer under this section exceeds the
98 taxpayer's tax liability under this chapter for a taxable year, the amount of the tax credit
99 exceeding the tax liability:
100 [(i)] (a) may be carried forward for a period that does not exceed the next 14 taxable
101 years; and
102 [(ii)] (b) may not be carried back to a taxable year preceding the current taxable year.
103 [(5) In accordance with Title 63, Chapter 46a, Utah Administrative Rulemaking Act,
104 the commission may make rules for purposes of this section prescribing a certification process
105 for qualified organizations to ensure that amounts paid to the qualified organizations are for
106 basic research conducted in this state.]
107 (6) If a [federal tax credit under] provision of Section 41, Internal Revenue Code, is
108 modified or repealed, the commission shall report the modification or repeal to the Utah Tax
109 Review Commission within 60 days after the day on which the modification or repeal becomes
110 effective.
111 (7) (a) [Except as provided in Subsection (7)(b), the] The Utah Tax Review
112 Commission shall review the [credits] tax credit provided for in this section on or before [the
113 earlier of: (i)] October 1 of the year after the year in which the commission reports under
114 Subsection (6) a modification or repeal of a [federal tax credit under] provision of Section 41,
115 Internal Revenue Code[; or].
116 [(ii) October 1, 2004.]
117 (b) Notwithstanding Subsection (7)(a), the Utah Tax Review Commission is not
118 required to review the [credits] tax credit provided for in this section if the only modification to
119 a [federal tax credit under] provision of Section 41, Internal Revenue Code, is the extension of
120 the termination date provided for in Section 41(h), Internal Revenue Code.
121 (c) The Utah Tax Review Commission shall address in a review under this section

122 [the]:
123 (i) the cost of the tax credit provided for in this section;
124 (ii) the purpose and effectiveness of the tax credit provided for in this section;
125 (iii) whether the tax credit provided for in this section benefits the state; and
126 (iv) whether the tax credit provided for in this section should be:
127 (A) continued;
128 (B) modified; or
129 (C) repealed.
130 (d) If the Utah Tax Review Commission reviews the [credits] tax credit provided for in
131 this section, the Utah Tax Review Commission shall report its findings to the Revenue and
132 Taxation Interim Committee on or before the November interim meeting of the year in which
133 the Utah Tax Review Commission reviews the [credits] tax credit.
134 Section 2. Section 59-10-1012 is amended to read:
135 59-10-1012. Tax credits for research activities conducted in the state -- Carry
136 forward -- Commission to report modification of certain federal provisions -- Utah Tax
137 Review Commission review.
138 (1) (a) [For taxable years beginning on or after January 1, 1999, but beginning before
139 December 31, 2010, a] A claimant, estate, or trust meeting the requirements of this section
140 [shall qualify for the following] may claim a nonrefundable tax [credits for increasing research
141 activities in this state:] credit equal to 5% of the taxpayer's qualified research expenses for the
142 current taxable year.
143 [(i) a research tax credit of 6% of the claimant's, estate's, or trust's qualified research
144 expenses for the current taxable year that exceed the base amount provided for under
145 Subsection (4); and]
146 [(ii) a tax credit for payments to qualified organizations for basic research as provided
147 in Section 41(e), Internal Revenue Code of 6% for the current taxable year that exceed the base
148 amount provided for under Subsection (4).]
149 (b) If a claimant, estate, or trust qualifying for a tax credit under Subsection (1)(a)
150 seeks to claim the tax credit, the claimant, estate, or trust shall:
151 (i) claim the tax credit or a portion of the tax credit for the taxable year immediately
152 following the taxable year for which the claimant, estate, or trust qualifies for the tax credit;

153 (ii) carry the tax credit or a portion of the tax credit forward as provided in Subsection
154 (4)[(f)]; or
155 (iii) claim a portion of the tax credit and carry forward a portion of the tax credit as
156 provided in Subsections (1)(b)(i) and (ii).
157 [(c) The tax credits provided for in this section do not include the alternative
158 incremental credit provided for in Section 41(c)(4), Internal Revenue Code.]
159 [(2) For purposes of claiming a tax credit under this section, a unitary group as defined
160 in Section 59-7-101 is considered to be one claimant.]
161 [(3)] (2) Except as specifically provided for in this section[: (a) the tax credits
162 authorized under Subsection (1) shall be calculated as provided in Section 41, Internal Revenue
163 Code; and (b)], the relevant definitions provided in Section 41, Internal Revenue Code, apply
164 in calculating the tax [credits] credit authorized under Subsection (1).
165 [(4)] (3) For purposes of this section:
166 [(a) the base amount shall be calculated as provided in Sections 41(c) and 41(h),
167 Internal Revenue Code, except that:]
168 [(i) the base amount does not include the calculation of the alternative incremental
169 credit provided for in Section 41(c)(4), Internal Revenue Code;]
170 [(ii) a claimant's, estate's, or trust's gross receipts include only those gross receipts
171 attributable to sources within this state as provided in Section 59-10-118 ; and]
172 [(iii) notwithstanding Section 41(c), Internal Revenue Code, for purposes of calculating
173 the base amount, a claimant, estate, or trust:]
174 [(A) may elect to be treated as a start-up company as provided in Section 41(c)(3)(B)
175 regardless of whether the claimant, estate, or trust meets the requirements of Section
176 41(c)(3)(B)(i)(I) or (II); and]
177 [(B) may not revoke an election to be treated as a start-up company under Subsection
178 (4)(a)(iii)(A);]
179 [(b) "basic research" is as defined in Section 41(e)(7), Internal Revenue Code, except
180 that the term includes only basic research conducted in this state;]
181 [(c)] (a) "Qualified research" is as defined in Section 41(d), Internal Revenue Code,
182 except that the term includes only qualified research conducted in this state[;].
183 [(d)] (b) "Qualified research expenses" is as defined and calculated in Section 41(b),

184 Internal Revenue Code, except that the term includes only [those expenses incurred in
185 conducting qualified research in this state;]:
186 [(e) notwithstanding the provisions of Section 41(h), Internal Revenue Code, the tax
187 credits ]
188 (i) in-house research expenses incurred in this state; and
189 (ii) contract research expenses incurred in this state.
190 (c) The tax credit provided for in this section [shall] is not [terminate] terminated if
191 [the credits terminate] a tax credit terminates under Section 41, Internal Revenue Code[; and].
192 [(f) notwithstanding the provisions of Sections 39 and 41(g), Internal Revenue Code,
193 governing the carry forward and carry back of federal tax credits, if]
194 (4) If the amount of a tax credit claimed by a claimant, estate, or trust under this
195 section exceeds the claimant's, estate's, or trust's tax liability under this chapter for a taxable
196 year, the amount of the tax credit exceeding the tax liability:
197 [(i)] (a) may be carried forward for a period that does not exceed the next 14 taxable
198 years; and
199 [(ii)] (b) may not be carried back to a taxable year preceding the current taxable year.
200 [(5) In accordance with Title 63, Chapter 46a, Utah Administrative Rulemaking Act,
201 the commission may make rules for purposes of this section prescribing a certification process
202 for qualified organizations to ensure that amounts paid to the qualified organizations are for
203 basic research conducted in this state.]
204 [(6)] (5) If a [federal credit under] provision of Section 41, Internal Revenue Code, is
205 modified or repealed, the commission shall report the modification or repeal to the Utah Tax
206 Review Commission within 60 days after the day on which the modification or repeal becomes
207 effective.
208 (6) (a) The Utah Tax Review Commission shall review the tax credit provided for in
209 this section on or before October 1 of the year after the year in which the commission reports
210 under Subsection (5) a modification or repeal of a provision of Section 41, Internal Revenue
211 Code.
212 (b) Notwithstanding Subsection (6)(a), the Utah Tax Review Commission is not
213 required to review the tax credit provided for in this section if the only modification to a
214 provision of Section 41, Internal Revenue Code, is the extension of the termination date

215 provided for in Section 41(h), Internal Revenue Code.
216 (c) The Utah Tax Review Commission shall address in a review under this section:
217 (i) the cost of the tax credit provided for in this section;
218 (ii) the purpose and effectiveness of the tax credit provided for in this section;
219 (iii) whether the tax credit provided for in this section benefits the state; and
220 (iv) whether the tax credit provided for in this section should be:
221 (A) continued;
222 (B) modified; or
223 (C) repealed.
224 (d) If the Utah Tax Review Commission reviews the tax credit provided for in this
225 section, the Utah Tax Review Commission shall report its findings to the Revenue and
226 Taxation Interim Committee on or before the November interim meeting of the year in which
227 the Utah Tax Review Commission reviews the tax credit.
228 Section 3. Retrospective operation.
229 This bill has retrospective operation for taxable years beginning on or after January 1,
230 2007.




Legislative Review Note
as of 1-24-07 8:52 AM

Office of Legislative Research and General Counsel