First Substitute H.B. 351

This document includes Senate Committee Amendments incorporated into the bill on Thu, Feb 21, 2008 at 9:07 AM by rday. -->

Representative James A. Dunnigan proposes the following substitute bill:

1 INDIVIDUAL INCOME TAX - HEALTH
2 INSURANCE
3 2008 GENERAL SESSION
4 STATE OF UTAH
5 Chief Sponsor: James A. Dunnigan
6 Senate Sponsor: Wayne L. Niederhauser
7
8 LONG TITLE
9 General Description:
10 This bill amends the Individual Income Tax Act to address a subtraction and tax credit
11 for certain health insurance.
12 Highlighted Provisions:
13 This bill:
14 . repeals an income tax subtraction for health care insurance;
15 . defines terms;
16 . enacts a nonrefundable tax credit for certain amounts paid for insurance under a
17 health benefit plan;
18 . grants rulemaking authority to the Department of Insurance; and
19 . makes technical changes.
20 Monies Appropriated in this Bill:
21 None
22 Other Special Clauses:
23 This bill S. [ has retrospective operation ] takes effect .S for taxable years beginning on or after January 1,
24 S. [ 2008 ] 2009 .S .
25 This bill coordinates with S.B. 31, Income Tax Amendments, to provide for

26 apportionment of a tax credit.
27 Utah Code Sections Affected:
28 AMENDS:
29 59-10-103, as last amended by Laws of Utah 2006, Fourth Special Session, Chapter 2
30 59-10-114, as last amended by Laws of Utah 2007, Chapter 100
31 59-10-1204, as enacted by Laws of Utah 2006, Fourth Special Session, Chapter 2
32 ENACTS:
33 59-10-1017, Utah Code Annotated 1953
34
35 Be it enacted by the Legislature of the state of Utah:
36 Section 1. Section 59-10-103 is amended to read:
37 59-10-103. Definitions.
38 (1) As used in this chapter:
39 (a) "Adjusted gross income":
40 (i) for a resident or nonresident individual, is as defined in Section 62, Internal
41 Revenue Code; or
42 (ii) for a resident or nonresident estate or trust, is as calculated in Section 67(e),
43 Internal Revenue Code.
44 (b) "Adoption expenses" means:
45 (i) any actual medical and hospital expenses of the mother of the adopted child which
46 are incident to the child's birth;
47 (ii) any welfare agency fees or costs;
48 (iii) any child placement service fees or costs;
49 (iv) any legal fees or costs; or
50 (v) any other fees or costs relating to an adoption.
51 (c) "Adult with a disability" means an individual who:
52 (i) is 18 years of age or older;
53 (ii) is eligible for services under Title 62A, Chapter 5, Services for People with
54 Disabilities; and
55 (iii) is not enrolled in:
56 (A) an education program for students with disabilities that is authorized under Section

57 53A-15-301 ; or
58 (B) a school established under Title 53A, Chapter 25, Schools for the Deaf and Blind.
59 (d) (i) For purposes of Subsection 59-10-114 (2)[(l)](k), "capital gain transaction"
60 means a transaction that results in a:
61 (A) short-term capital gain; or
62 (B) long-term capital gain.
63 (ii) In accordance with Title 63, Chapter 46a, Utah Administrative Rulemaking Act,
64 the commission may by rule define the term "transaction."
65 (e) "Commercial domicile" means the principal place from which the trade or business
66 of a Utah small business corporation is directed or managed.
67 (f) "Corporation" includes:
68 (i) associations;
69 (ii) joint stock companies; and
70 (iii) insurance companies.
71 (g) "Dependent child with a disability" means an individual 21 years of age or younger
72 who:
73 (i) (A) is diagnosed by a school district representative under rules adopted by the State
74 Board of Education as having a disability classified as:
75 (I) autism;
76 (II) deafness;
77 (III) preschool developmental delay;
78 (IV) dual sensory impairment;
79 (V) hearing impairment;
80 (VI) intellectual disability;
81 (VII) multidisability;
82 (VIII) orthopedic impairment;
83 (IX) other health impairment;
84 (X) traumatic brain injury; or
85 (XI) visual impairment;
86 (B) is not receiving residential services from:
87 (I) the Division of Services for People with Disabilities created under Section

88 62A-5-102 ; or
89 (II) a school established under Title 53A, Chapter 25, Schools for the Deaf and Blind;
90 and
91 (C) is enrolled in:
92 (I) an education program for students with disabilities that is authorized under Section
93 53A-15-301 ; or
94 (II) a school established under Title 53A, Chapter 25, Schools for the Deaf and Blind;
95 or
96 (ii) is identified under guidelines of the Department of Health as qualified for:
97 (A) Early Intervention; or
98 (B) Infant Development Services.
99 (h) "Distributable net income" is as defined in Section 643, Internal Revenue Code.
100 (i) "Employee" is as defined in Section 59-10-401 .
101 (j) "Employer" is as defined in Section 59-10-401 .
102 (k) "Federal taxable income":
103 (i) for a resident or nonresident individual, means taxable income as defined by Section
104 63, Internal Revenue Code; or
105 (ii) for a resident or nonresident estate or trust, is as calculated in Section 641(a) and
106 (b), Internal Revenue Code.
107 (l) "Fiduciary" means:
108 (i) a guardian;
109 (ii) a trustee;
110 (iii) an executor;
111 (iv) an administrator;
112 (v) a receiver;
113 (vi) a conservator; or
114 (vii) any person acting in any fiduciary capacity for any individual.
115 (m) "Homesteaded land diminished from the Uintah and Ouray Reservation" means the
116 homesteaded land that was held to have been diminished from the Uintah and Ouray
117 Reservation in Hagen v. Utah, 510 U.S. 399 (1994).
118 (n) "Individual" means a natural person and includes aliens and minors.

119 (o) "Irrevocable trust" means a trust in which the settlor may not revoke or terminate
120 all or part of the trust without the consent of a person who has a substantial beneficial interest
121 in the trust and the interest would be adversely affected by the exercise of the settlor's power to
122 revoke or terminate all or part of the trust.
123 (p) For purposes of Subsection 59-10-114 (2)[(l)](k), "long-term capital gain" is as
124 defined in Section 1222, Internal Revenue Code.
125 (q) "Nonresident individual" means an individual who is not a resident of this state.
126 (r) "Nonresident trust" or "nonresident estate" means a trust or estate which is not a
127 resident estate or trust.
128 (s) (i) "Partnership" includes a syndicate, group, pool, joint venture, or other
129 unincorporated organization:
130 (A) through or by means of which any business, financial operation, or venture is
131 carried on; and
132 (B) which is not, within the meaning of this chapter:
133 (I) a trust;
134 (II) an estate; or
135 (III) a corporation.
136 (ii) "Partnership" does not include any organization not included under the definition of
137 "partnership" in Section 761, Internal Revenue Code.
138 (iii) "Partner" includes a member in a syndicate, group, pool, joint venture, or
139 organization described in Subsection (1)(s)(i).
140 (t) "Qualifying military servicemember" means a member of:
141 (i) The Utah Army National Guard;
142 (ii) The Utah Air National Guard; or
143 (iii) the following if the member is assigned to a unit that is located in the state:
144 (A) The Army Reserve;
145 (B) The Naval Reserve;
146 (C) The Air Force Reserve;
147 (D) The Marine Corps Reserve; or
148 (E) The Coast Guard Reserve.
149 (u) "Qualifying stock" means stock that is:

150 (i) (A) common; or
151 (B) preferred;
152 (ii) as defined by the commission by rule, originally issued to:
153 (A) a resident or nonresident individual; or
154 (B) a partnership if the resident or nonresident individual making a subtraction from
155 federal taxable income in accordance with Subsection 59-10-114 (2)[(l)](k):
156 (I) was a partner when the stock was issued; and
157 (II) remains a partner until the last day of the taxable year for which the resident or
158 nonresident individual makes the subtraction from federal taxable income in accordance with
159 Subsection 59-10-114 (2)[(l)](k); and
160 (iii) issued:
161 (A) by a Utah small business corporation;
162 (B) on or after January 1, 2003; and
163 (C) for:
164 (I) money; or
165 (II) other property, except for stock or securities.
166 (v) (i) "Resident individual" means:
167 (A) an individual who is domiciled in this state for any period of time during the
168 taxable year, but only for the duration of the period during which the individual is domiciled in
169 this state; or
170 (B) an individual who is not domiciled in this state but:
171 (I) maintains a permanent place of abode in this state; and
172 (II) spends in the aggregate 183 or more days of the taxable year in this state.
173 (ii) For purposes of Subsection (1)(v)(i)(B), a fraction of a calendar day shall be
174 counted as a whole day.
175 (w) "Resident estate" or "resident trust" is as defined in Section 75-7-103 .
176 (x) For purposes of Subsection 59-10-114 (2)[(l)](k), "short-term capital gain" is as
177 defined in Section 1222, Internal Revenue Code.
178 (y) "Taxable income" or "state taxable income":
179 (i) subject to Subsection 59-10-302 (2), for a resident individual other than a resident
180 individual described in Subsection (1)(y)(iii), means the resident individual's federal taxable

181 income after making the:
182 (A) additions and subtractions required by Section 59-10-114 ; and
183 (B) adjustments required by Section 59-10-115 ;
184 (ii) for a nonresident individual other than a nonresident individual described in
185 Subsection (1)(y)(iii), is as defined in Section 59-10-116 ;
186 (iii) for a resident or nonresident individual that collects and pays a tax described in
187 Part 12, Single Rate Individual Income Tax Act, is as defined in Section 59-10-1202 ;
188 (iv) for a resident estate or trust, is as calculated under Section 59-10-201.1 ; and
189 (v) for a nonresident estate or trust, is as calculated under Section 59-10-204 .
190 (z) "Taxpayer" means any individual, estate, or trust or beneficiary of an estate or trust,
191 whose income is subject in whole or part to the tax imposed by this chapter.
192 (aa) "Uintah and Ouray Reservation" means the lands recognized as being included
193 within the Uintah and Ouray Reservation in:
194 (i) Hagen v. Utah, 510 U.S. 399 (1994); and
195 (ii) Ute Indian Tribe v. Utah, 114 F.3d 1513 (10th Cir. 1997).
196 (bb) (i) "Utah small business corporation" means a corporation that:
197 (A) is a small business corporation as defined in Section 1244(c)(3), Internal Revenue
198 Code;
199 (B) except as provided in Subsection (1)(bb)(ii), meets the requirements of Section
200 1244(c)(1)(C), Internal Revenue Code; and
201 (C) has its commercial domicile in this state.
202 (ii) Notwithstanding Subsection (1)(bb)(i)(B), the time period described in Section
203 1244(c)(1)(C) and Section 1244(c)(2), Internal Revenue Code, for determining the source of a
204 corporation's aggregate gross receipts shall end on the last day of the taxable year for which the
205 resident or nonresident individual makes a subtraction from federal taxable income in
206 accordance with Subsection 59-10-114 (2)[(l)](k).
207 (cc) "Ute tribal member" means a person who is enrolled as a member of the Ute
208 Indian Tribe of the Uintah and Ouray Reservation.
209 (dd) "Ute tribe" means the Ute Indian Tribe of the Uintah and Ouray Reservation.
210 (ee) "Wages" is as defined in Section 59-10-401 .
211 (2) (a) Any term used in this chapter has the same meaning as when used in

212 comparable context in the laws of the United States relating to federal income taxes unless a
213 different meaning is clearly required.
214 (b) Any reference to the Internal Revenue Code or to the laws of the United States shall
215 mean the Internal Revenue Code or other provisions of the laws of the United States relating to
216 federal income taxes that are in effect for the taxable year.
217 (c) Any reference to a specific section of the Internal Revenue Code or other provision
218 of the laws of the United States relating to federal income taxes shall include any
219 corresponding or comparable provisions of the Internal Revenue Code as hereafter amended,
220 redesignated, or reenacted.
221 Section 2. Section 59-10-114 is amended to read:
222 59-10-114. Additions to and subtractions from federal taxable income of an
223 individual.
224 (1) There shall be added to federal taxable income of a resident or nonresident
225 individual:
226 (a) the amount of any income tax imposed by this or any predecessor Utah individual
227 income tax law and the amount of any income tax imposed by the laws of another state, the
228 District of Columbia, or a possession of the United States, to the extent deducted from adjusted
229 gross income in determining federal taxable income;
230 (b) a lump sum distribution that the taxpayer does not include in adjusted gross income
231 on the taxpayer's federal individual income tax return for the taxable year;
232 (c) for taxable years beginning on or after January 1, 2002, the amount of a child's
233 income calculated under Subsection (5) that:
234 (i) a parent elects to report on the parent's federal individual income tax return for the
235 taxable year; and
236 (ii) the parent does not include in adjusted gross income on the parent's federal
237 individual income tax return for the taxable year;
238 (d) 25% of the personal exemptions, as defined and calculated in the Internal Revenue
239 Code;
240 (e) a withdrawal from a medical care savings account and any penalty imposed in the
241 taxable year if:
242 (i) the resident or nonresident individual did not deduct or include the amounts on the

243 resident or nonresident individual's federal individual income tax return pursuant to Section
244 220, Internal Revenue Code;
245 (ii) the withdrawal is subject to Subsections 31A-32a-105 (1) and (2); and
246 (iii) the withdrawal is deducted by the resident or nonresident individual under
247 Subsection (2)[(h)](g);
248 (f) the amount withdrawn under Title 53B, Chapter 8a, Higher Education Savings
249 Incentive Program, from the account of a resident or nonresident individual who is an account
250 owner as defined in Section 53B-8a-102 , for the taxable year for which the amount is
251 withdrawn, if that amount withdrawn from the account of the resident or nonresident individual
252 who is the account owner:
253 (i) is not expended for higher education costs as defined in Section 53B-8a-102 ; and
254 (ii) is:
255 (A) subtracted by the resident or nonresident individual:
256 (I) who is the account owner; and
257 (II) in accordance with Subsection (2)[(i)](h); or
258 (B) used as the basis for the resident or nonresident individual who is the account
259 owner to claim a tax credit under Section 59-10-1206.1 ;
260 (g) except as provided in Subsection (6), for taxable years beginning on or after
261 January 1, 2003, for bonds, notes, and other evidences of indebtedness acquired on or after
262 January 1, 2003, the interest from bonds, notes, and other evidences of indebtedness issued by
263 one or more of the following entities:
264 (i) a state other than this state;
265 (ii) the District of Columbia;
266 (iii) a political subdivision of a state other than this state; or
267 (iv) an agency or instrumentality of an entity described in Subsections (1)(g)(i) through
268 (iii);
269 (h) subject to Subsection (2)[(n)](m), any distribution received by a resident
270 beneficiary of a resident trust of income that was taxed at the trust level for federal tax
271 purposes, but was subtracted from state taxable income of the trust pursuant to Subsection
272 59-10-202 (2)(c);
273 (i) any distribution received by a resident beneficiary of a nonresident trust of

274 undistributed distributable net income realized by the trust on or after January 1, 2004, if that
275 undistributed distributable net income was taxed at the trust level for federal tax purposes, but
276 was not taxed at the trust level by any state, with undistributed distributable net income
277 considered to be distributed from the most recently accumulated undistributed distributable net
278 income; and
279 (j) any adoption expense:
280 (i) for which a resident or nonresident individual receives reimbursement from another
281 person; and
282 (ii) to the extent to which the resident or nonresident individual deducts that adoption
283 expense:
284 (A) under Subsection (2)(c); or
285 (B) from federal taxable income on a federal individual income tax return.
286 (2) There shall be subtracted from federal taxable income of a resident or nonresident
287 individual:
288 (a) the interest or a dividend on obligations or securities of the United States and its
289 possessions or of any authority, commission, or instrumentality of the United States, to the
290 extent that interest or dividend is included in gross income for federal income tax purposes for
291 the taxable year but exempt from state income taxes under the laws of the United States, but
292 the amount subtracted under this Subsection (2)(a) shall be reduced by any interest on
293 indebtedness incurred or continued to purchase or carry the obligations or securities described
294 in this Subsection (2)(a), and by any expenses incurred in the production of interest or dividend
295 income described in this Subsection (2)(a) to the extent that such expenses, including
296 amortizable bond premiums, are deductible in determining federal taxable income;
297 (b) 1/2 of the net amount of any income tax paid or payable to the United States after all
298 allowable credits, as reported on the United States individual income tax return of the taxpayer
299 for the same taxable year;
300 (c) the amount of adoption expenses for one of the following taxable years as elected
301 by the resident or nonresident individual:
302 (i) regardless of whether a court issues an order granting the adoption, the taxable year
303 in which the adoption expenses are:
304 (A) paid; or

305 (B) incurred;
306 (ii) the taxable year in which a court issues an order granting the adoption; or
307 (iii) any year in which the resident or nonresident individual may claim the federal
308 adoption expenses credit under Section 23, Internal Revenue Code;
309 (d) amounts received by taxpayers under age 65 as retirement income which, for
310 purposes of this section, means pensions and annuities, paid from an annuity contract
311 purchased by an employer under a plan which meets the requirements of Section 404(a)(2),
312 Internal Revenue Code, or purchased by an employee under a plan which meets the
313 requirements of Section 408, Internal Revenue Code, or paid by the United States, a state, or
314 political subdivision thereof, or the District of Columbia, to the employee involved or the
315 surviving spouse;
316 (e) for each taxpayer age 65 or over before the close of the taxable year, a $7,500
317 personal retirement exemption;
318 (f) 75% of the amount of the personal exemption, as defined and calculated in the
319 Internal Revenue Code, for each dependent child with a disability and adult with a disability
320 who is claimed as a dependent on a taxpayer's return;
321 [(g) subject to the limitations of Subsection (3)(e), amounts a taxpayer pays during the
322 taxable year for health care insurance, as defined in Title 31A, Chapter 1, General Provisions:]
323 [(i) for:]
324 [(A) the taxpayer;]
325 [(B) the taxpayer's spouse; and]
326 [(C) the taxpayer's dependents; and]
327 [(ii) to the extent the taxpayer does not deduct the amounts under Section 125, 162, or
328 213, Internal Revenue Code, in determining federal taxable income for the taxable year;]
329 [(h)] (g) (i) except as provided in this Subsection (2)[(h)](g), the amount of a
330 contribution made during the taxable year on behalf of the taxpayer to a medical care savings
331 account and interest earned on a contribution to a medical care savings account established
332 pursuant to Title 31A, Chapter 32a, Medical Care Savings Account Act, to the extent the
333 contribution is accepted by the account administrator as provided in the Medical Care Savings
334 Account Act, and if the taxpayer did not deduct or include amounts on the taxpayer's federal
335 individual income tax return pursuant to Section 220, Internal Revenue Code; and

336 (ii) a contribution deductible under this Subsection (2)[(h)](g) may not exceed either of
337 the following:
338 (A) the maximum contribution allowed under the Medical Care Savings Account Act
339 for the tax year multiplied by two for taxpayers who file a joint return, if neither spouse is
340 covered by health care insurance as defined in Section 31A-1-301 or self-funded plan that
341 covers the other spouse, and each spouse has a medical care savings account; or
342 (B) the maximum contribution allowed under the Medical Care Savings Account Act
343 for the tax year for taxpayers:
344 (I) who do not file a joint return; or
345 (II) who file a joint return, but do not qualify under Subsection (2)[(h)](g)(ii)(A);
346 [(i)] (h) subject to Subsection (1)(f), the amount of a qualified investment as defined in
347 Section 53B-8a-102 that:
348 (i) a resident or nonresident individual who is an account owner as defined in Section
349 53B-8a-102 makes during the taxable year;
350 (ii) the resident or nonresident individual described in Subsection (2)(i)(i) does not
351 deduct on a federal individual income tax return; and
352 (iii) does not exceed the maximum amount of the qualified investment that may be
353 subtracted from federal taxable income for a taxable year in accordance with Subsections
354 53B-8a-106 (1)(e) and (f);
355 [(j)] (i) for taxable years beginning on or after January 1, 2000, any amounts paid for
356 premiums for long-term care insurance as defined in Section 31A-1-301 to the extent the
357 amounts paid for long-term care insurance were not deducted under Section 213, Internal
358 Revenue Code, in determining federal taxable income;
359 [(k)] (j) for taxable years beginning on or after January 1, 2000, if the conditions of
360 Subsection (4)(a) are met, the amount of income derived by a Ute tribal member:
361 (i) during a time period that the Ute tribal member resides on homesteaded land
362 diminished from the Uintah and Ouray Reservation; and
363 (ii) from a source within the Uintah and Ouray Reservation;
364 [(l)] (k) (i) for taxable years beginning on or after January 1, 2003, the total amount of
365 a resident or nonresident individual's short-term capital gain or long-term capital gain on a
366 capital gain transaction:

367 (A) that occurs on or after January 1, 2003;
368 (B) if 70% or more of the gross proceeds of the capital gain transaction are expended:
369 (I) to purchase qualifying stock in a Utah small business corporation; and
370 (II) within a 12-month period after the day on which the capital gain transaction occurs;
371 and
372 (C) if, prior to the purchase of the qualifying stock described in Subsection
373 (2)[(l)](k)(i)(B)(I), the resident or nonresident individual did not have an ownership interest in
374 the Utah small business corporation that issued the qualifying stock; and
375 (ii) in accordance with Title 63, Chapter 46a, Utah Administrative Rulemaking Act, the
376 commission may make rules:
377 (A) defining the term "gross proceeds"; and
378 (B) for purposes of Subsection (2)[(l)](k)(i)(C), prescribing the circumstances under
379 which a resident or nonresident individual has an ownership interest in a Utah small business
380 corporation;
381 [(m)] (l) for the taxable year beginning on or after January 1, 2005, but beginning on or
382 before December 31, 2005, the first $2,200 of income a qualifying military servicemember
383 receives:
384 (i) for service:
385 (A) as a qualifying military servicemember; or
386 (B) under an order into active service in accordance with Section 39-1-5 ; and