First Substitute S.B. 171

Senator Howard A. Stephenson proposes the following substitute bill:

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 . increases the percentage of expenses or payments that serve as the basis for
22 calculating tax credits for research activities in the state;
23 . provides a nonrefundable tax credit equal to 5% of a taxpayer's qualified research
24 expenses for the current taxable year in addition to other tax credits for research
25 activities in the state allowed under current statute;
26 . provides that the tax credit for qualified research expenses may not be carried

27 forward;
28 . requires a review of the tax credits by the Utah Tax Review Commission; and
29 . makes technical changes.
30 Monies Appropriated in this Bill:
31 None
32 Other Special Clauses:
33 This bill has retrospective operation for taxable years beginning on or after January 1,
34 2007.
35 Utah Code Sections Affected:
36 AMENDS:
37 59-7-612, as last amended by Chapter 9, Laws of Utah 2001
38 59-10-1012, as renumbered and amended by Chapter 223, Laws of Utah 2006
39
40 Be it enacted by the Legislature of the state of Utah:
41 Section 1. Section 59-7-612 is amended to read:
42 59-7-612. Tax credits for research activities conducted in the state -- Carry
43 forward -- Commission to report modification or repeal of certain federal provisions --
44 Utah Tax Review Commission study.
45 (1) (a) [For taxable years beginning on or after January 1, 1999, but beginning before
46 December 31, 2010, a] A taxpayer meeting the requirements of this section [shall qualify for]
47 may claim the following nonrefundable tax credits [for increasing research activities in this
48 state]:
49 (i) a research tax credit of [6%] 8% of the taxpayer's qualified research expenses for
50 the current taxable year that exceed the base amount provided for under Subsection (4); [and]
51 (ii) a tax credit for payments to qualified organizations for basic research as provided
52 in Section 41(e), Internal Revenue Code, of [6%] 8% for the current taxable year that exceed
53 the base amount provided for under Subsection (4)[.]; and
54 (iii) a tax credit equal to 5% of the taxpayer's qualified research expenses for the
55 current taxable year.
56 [(b) If a taxpayer qualifying for a credit under Subsection (1)(a) seeks to claim the
57 credit, the taxpayer shall:]

58 (b) (i) Except as provided in Subsection (1)(b)(ii), a taxpayer may:
59 [(i)] (A) claim the tax credit or a portion of the tax credit for the taxable year
60 immediately following the taxable year for which the taxpayer qualifies for the tax credit;
61 [(ii)] (B) carry forward the tax credit or a portion of the tax credit [forward] as
62 provided in Subsection [(4)(f)] (5); or
63 [(iii)] (C) claim a portion of the tax credit and carry forward a portion of the tax credit
64 as provided in Subsections (1)(b)(i)(A) and [(ii)] (B).
65 (ii) A taxpayer may not carry forward the tax credit allowed by Subsection (1)(a)(iii).
66 (c) The tax credits provided for in this section do not include the alternative
67 incremental credit provided for in Section 41(c)(4), Internal Revenue Code.
68 (2) For purposes of claiming a tax credit under this section, a unitary group as defined
69 in Section 59-7-101 is considered to be one taxpayer.
70 (3) Except as specifically provided for in this section:
71 (a) the tax credits authorized under Subsection (1) shall be calculated as provided in
72 Section 41, Internal Revenue Code; and
73 (b) the definitions provided in Section 41, Internal Revenue Code, apply in calculating
74 the tax credits authorized under Subsection (1).
75 (4) For purposes of this section:
76 (a) the base amount shall be calculated as provided in Sections 41(c) and 41(h),
77 Internal Revenue Code, except that:
78 (i) the base amount does not include the calculation of the alternative incremental
79 credit provided for in Section 41(c)(4), Internal Revenue Code;
80 (ii) a taxpayer's gross receipts include only those gross receipts attributable to sources
81 within this state as provided in Part 3, Allocation and Apportionment of Income -- Utah
82 UDITPA Provisions; and
83 (iii) notwithstanding Section 41(c), Internal Revenue Code, for purposes of calculating
84 the base amount, a taxpayer:
85 (A) may elect to be treated as a start-up company as provided in Section 41(c)(3)(B)
86 regardless of whether the taxpayer meets the requirements of Section 41(c)(3)(B)(i)(I) or (II);
87 and
88 (B) may not revoke an election to be treated as a start-up company under Subsection

89 (4)(a)(iii)(A);
90 (b) "basic research" is as defined in Section 41(e)(7), Internal Revenue Code, except
91 that the term includes only basic research conducted in this state;
92 (c) "qualified research" is as defined in Section 41(d), Internal Revenue Code, except
93 that the term includes only qualified research conducted in this state;
94 (d) "qualified research expenses" is as defined and calculated in Section 41(b), Internal
95 Revenue Code, except that the term includes only [those expenses incurred in conducting
96 qualified research in this state;]:
97 (i) in-house research expenses incurred in this state; and
98 (ii) contract research expenses incurred in this state; and
99 (e) [notwithstanding the provisions of Section 41(h), Internal Revenue Code, the
100 credits] a tax credit provided for in this section [shall] is not [terminate] terminated if [the
101 credits terminate] a credit terminates under Section 41, Internal Revenue Code[; and].
102 [(f) notwithstanding the provisions of Sections 39 and 41(g), Internal Revenue Code,
103 governing the carry forward and carry back of federal tax credits, if]
104 (5) If the amount of a tax credit claimed by a taxpayer under [this section] Subsection
105 (1)(a)(i) or (ii) exceeds the taxpayer's tax liability under this chapter for a taxable year, the
106 amount of the tax credit exceeding the tax liability:
107 [(i)] (a) may be carried forward for a period that does not exceed the next 14 taxable
108 years; and
109 [(ii)] (b) may not be carried back to a taxable year preceding the current taxable year.
110 [(5)] (6) In accordance with Title 63, Chapter 46a, Utah Administrative Rulemaking
111 Act, the commission may make rules for purposes of this section prescribing a certification
112 process for qualified organizations to ensure that amounts paid to the qualified organizations
113 are for basic research conducted in this state.
114 [(6)] (7) If a [federal tax credit under] provision of Section 41, Internal Revenue Code,
115 is modified or repealed, the commission shall report the modification or repeal to the Utah Tax
116 Review Commission within 60 days after the day on which the modification or repeal becomes
117 effective.
118 [(7)] (8) (a) [Except as provided in Subsection (7)(b), the] The Utah Tax Review
119 Commission shall review the tax credits provided for in this section on or before [the earlier of:

120 (i)] October 1 of the year after the year in which the commission reports under Subsection [(6)]
121 (7) a modification or repeal of a [federal tax credit under] provision of Section 41, Internal
122 Revenue Code[; or (ii) October 1, 2004].
123 (b) Notwithstanding Subsection [(7)] (8)(a), the Utah Tax Review Commission is not
124 required to review the tax credits provided for in this section if the only modification to a
125 [federal tax credit under] provision of Section 41, Internal Revenue Code, is the extension of
126 the termination date provided for in Section 41(h), Internal Revenue Code.
127 (c) The Utah Tax Review Commission shall address in a review under this section
128 [the]:
129 (i) the cost of the [credit] tax credits provided for in this section;
130 (ii) the purpose and effectiveness of the [credit] tax credits provided for in this section;
131 (iii) whether the [credit benefits] tax credits provided for in this section benefit the
132 state; and
133 (iv) whether the [credit] tax credits provided for in this section should be:
134 (A) continued;
135 (B) modified; or
136 (C) repealed.
137 (d) If the Utah Tax Review Commission reviews the tax credits provided for in this
138 section, the Utah Tax Review Commission shall report its findings to the Revenue and
139 Taxation Interim Committee on or before the November interim meeting of the year in which
140 the Utah Tax Review Commission reviews the tax credits.
141 Section 2. Section 59-10-1012 is amended to read:
142 59-10-1012. Tax credits for research activities conducted in the state -- Carry
143 forward -- Commission to report modification or repeal of certain federal provisions --
144 Utah Tax Review Commission study.
145 (1) (a) [For taxable years beginning on or after January 1, 1999, but beginning before
146 December 31, 2010, a] A claimant, estate, or trust meeting the requirements of this section
147 [shall qualify for] may claim the following nonrefundable tax credits [for increasing research
148 activities in this state]:
149 (i) a research tax credit of [6%] 8% of the claimant's, estate's, or trust's qualified
150 research expenses for the current taxable year that exceed the base amount provided for under

151 Subsection [(4)] (3); [and]
152 (ii) a tax credit for payments to qualified organizations for basic research as provided
153 in Section 41(e), Internal Revenue Code of [6%] 8% for the current taxable year that exceed
154 the base amount provided for under Subsection [(4).] (3); and
155 (iii) a tax credit equal to 5% of the taxpayer's qualified research expenses for the
156 current taxable year.
157 (b) (i) [If a claimant, estate, or trust qualifying for a tax credit under Subsection (1)(a)
158 seeks to claim the tax credit, the] Except as provided in Subsection (1)(b)(ii), a claimant, estate,
159 or trust [shall] may:
160 [(i)] (A) claim the tax credit or a portion of the tax credit for the taxable year
161 immediately following the taxable year for which the claimant, estate, or trust qualifies for the
162 tax credit;
163 [(ii)] (B) carry forward the tax credit or a portion of the tax credit [forward] as
164 provided in Subsection (4)[(f)]; or
165 [(iii)] (C) claim a portion of the tax credit and carry forward a portion of the tax credit
166 as provided in Subsections (1)(b)(i)(A) and [(ii)] (B).
167 (ii) A taxpayer may not carry forward the tax credit allowed by Subsection (1)(a)(iii).
168 (c) The tax credits provided for in this section do not include the alternative
169 incremental credit provided for in Section 41(c)(4), Internal Revenue Code.
170 [(2) For purposes of claiming a tax credit under this section, a unitary group as defined
171 in Section 59-7-101 is considered to be one claimant.]
172 [(3)] (2) Except as specifically provided for in this section:
173 (a) the tax credits authorized under Subsection (1) shall be calculated as provided in
174 Section 41, Internal Revenue Code; and
175 (b) the definitions provided in Section 41, Internal Revenue Code, apply in calculating
176 the tax credits authorized under Subsection (1).
177 [(4)] (3) For purposes of this section:
178 (a) the base amount shall be calculated as provided in Sections 41(c) and 41(h),
179 Internal Revenue Code, except that:
180 (i) the base amount does not include the calculation of the alternative incremental
181 credit provided for in Section 41(c)(4), Internal Revenue Code;

182 (ii) a claimant's, estate's, or trust's gross receipts include only those gross receipts
183 attributable to sources within this state as provided in Section 59-10-118 ; and
184 (iii) notwithstanding Section 41(c), Internal Revenue Code, for purposes of calculating
185 the base amount, a claimant, estate, or trust:
186 (A) may elect to be treated as a start-up company as provided in Section 41(c)(3)(B)
187 regardless of whether the claimant, estate, or trust meets the requirements of Section
188 41(c)(3)(B)(i)(I) or (II); and
189 (B) may not revoke an election to be treated as a start-up company under Subsection
190 (4)(a)(iii)(A);
191 (b) "basic research" is as defined in Section 41(e)(7), Internal Revenue Code, except
192 that the term includes only basic research conducted in this state;
193 (c) "qualified research" is as defined in Section 41(d), Internal Revenue Code, except
194 that the term includes only qualified research conducted in this state;
195 (d) "qualified research expenses" is as defined and calculated in Section 41(b), Internal
196 Revenue Code, except that the term includes only [those expenses incurred in conducting
197 qualified research in this state;]:
198 (i) in-house research expenses incurred in this state; and
199 (ii) contract research expenses incurred in this state; and
200 (e) [notwithstanding the provisions of Section 41(h), Internal Revenue Code, the tax
201 credits] a tax credit provided for in this section [shall] is not [terminate] terminated if [the
202 credits terminate] a credit terminates under Section 41, Internal Revenue Code[; and].
203 [(f) notwithstanding the provisions of Sections 39 and 41(g), Internal Revenue Code,
204 governing the carry forward and carry back of federal tax credits, if]
205 (4) If the amount of a tax credit claimed by a claimant, estate, or trust under [this
206 section] Subsection (1)(a)(i) or (ii) exceeds the claimant's, estate's, or trust's tax liability under
207 this chapter for a taxable year, the amount of the tax credit exceeding the tax liability:
208 [(i)] (a) may be carried forward for a period that does not exceed the next 14 taxable
209 years; and
210 [(ii)] (b) may not be carried back to a taxable year preceding the current taxable year.
211 (5) In accordance with Title 63, Chapter 46a, Utah Administrative Rulemaking Act, the
212 commission may make rules for purposes of this section prescribing a certification process for

213 qualified organizations to ensure that amounts paid to the qualified organizations are for basic
214 research conducted in this state.
215 (6) If a [federal credit under] provision of Section 41, Internal Revenue Code, is
216 modified or repealed, the commission shall report the modification or repeal to the Utah Tax
217 Review Commission within 60 days after the day on which the modification or repeal becomes
218 effective.
219 (7) (a) The Utah Tax Review Commission shall review the tax credits provided for in
220 this section on or before October 1 of the year after the year in which the commission reports
221 under Subsection (6) a modification or repeal of a provision of Section 41, Internal Revenue
222 Code.
223 (b) Notwithstanding Subsection (7)(a), the Utah Tax Review Commission is not
224 required to review the tax credits provided for in this section if the only modification to a
225 provision of Section 41, Internal Revenue Code, is the extension of the termination date
226 provided for in Section 41(h), Internal Revenue Code.
227 (c) The Utah Tax Review Commission shall address in a review under this section:
228 (i) the cost of the tax credits provided for in this section;
229 (ii) the purpose and effectiveness of the tax credits provided for in this section;
230 (iii) whether the tax credits provided for in this section benefit the state; and
231 (iv) whether the tax credits provided for in this section should be:
232 (A) continued;
233 (B) modified; or
234 (C) repealed.
235 (d) If the Utah Tax Review Commission reviews the tax credits provided for in this
236 section, the Utah Tax Review Commission shall report its findings to the Revenue and
237 Taxation Interim Committee on or before the November interim meeting of the year in which
238 the Utah Tax Review Commission reviews the tax credits.
239 Section 3. Retrospective operation.
240 This bill has retrospective operation for taxable years beginning on or after January 1,
241 2007.