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S.B. 23
1
INCOME TAXATION OF PASS-THROUGH
2
ENTITIES AND PASS-THROUGH ENTITY
3
TAXPAYERS
4
2009 GENERAL SESSION
5
STATE OF UTAH
6
Chief Sponsor: Wayne L. Niederhauser
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House Sponsor:
____________
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9
LONG TITLE
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Committee Note:
11
The Revenue and Taxation Interim Committee recommended this bill.
12
The Utah Tax Review Commission recommended this bill.
13
Membership: 6 legislators 10 non-legislators
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Legislative Vote: 10 voting for 0 voting against 6 absent
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General Description:
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This bill amends the Corporate Franchise and Income Taxes chapter and the Individual
17
Income Tax Act to address the income taxation of a pass-through entity and a taxpayer
18
to whom income, gain, loss, deduction, or credit of the pass-through entity is passed
19
through.
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Highlighted Provisions:
21
This bill:
22
. repeals corporate franchise and income taxes on an S corporation;
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. repeals provisions governing the taxation of a limited liability company;
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. addresses the income taxation of a taxpayer to whom income, gain, loss, deduction,
25
or credit of a pass-through entity is passed through;
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. expands withholding requirements to provide that a pass-through entity, including a
27
general partnership, limited partnership, limited liability partnership, limited
28
liability company, or an S corporation, is required to pay or withhold a tax on behalf of a
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resident or nonresident business entity or a nonresident individual;
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. provides exceptions to the withholding requirements;
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. provides withholding procedures;
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. addresses return filing requirements for a pass-through entity or a taxpayer to whom
33
income, gain, loss, deduction, or credit of a pass-through entity is passed through;
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. addresses the characterization of items of income, gain, loss, deduction, or credit for
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purposes of state income taxation of a taxpayer to whom income, gain, loss,
36
deduction, or credit of a pass-through entity is passed through;
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. addresses the determination of a taxpayer's share of certain additions to income,
38
deductions from income, or adjustments to income required by state statute;
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. addresses a refundable tax credit for a taxpayer to whom income, gain, loss,
40
deduction, or credit of a pass-through entity is passed through; and
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. makes technical changes.
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Monies Appropriated in this Bill:
43
None
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Other Special Clauses:
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This bill provides an immediate effective date.
46
This bill has retrospective operation for a taxable year beginning on or after January 1,
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2009.
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Utah Code Sections Affected:
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AMENDS:
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59-7-101, as last amended by Laws of Utah 2008, Chapters 382 and 389
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59-7-102, as last amended by Laws of Utah 2002, Chapters 76 and 286
52
59-7-106, as last amended by Laws of Utah 2008, Chapter 389
53
59-7-402, as last amended by Laws of Utah 2008, Chapter 389
54
59-10-103, as last amended by Laws of Utah 2008, Chapters 382 and 389
55
59-10-117, as last amended by Laws of Utah 2008, Chapters 382 and 389
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59-10-507, as last amended by Laws of Utah 2008, Chapter 389
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59-10-1103, as renumbered and amended by Laws of Utah 2006, Chapter 223
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59-10-1401, as enacted by Laws of Utah 2008, Chapter 389
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59-10-1402, as enacted by Laws of Utah 2008, Chapter 389
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59-10-1403, as renumbered and amended by Laws of Utah 2008, Chapter 389
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59-10-1404, as renumbered and amended by Laws of Utah 2008, Chapter 389
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59-10-1405, as renumbered and amended by Laws of Utah 2008, Chapter 389
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ENACTS:
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59-10-1403.1, Utah Code Annotated 1953
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59-10-1403.2, Utah Code Annotated 1953
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59-10-1404.5, Utah Code Annotated 1953
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REPEALS:
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48-2c-117, as last amended by Laws of Utah 2008, Chapter 389
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59-7-701, as last amended by Laws of Utah 1995, Chapter 311
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59-7-702, as last amended by Laws of Utah 2003, Chapter 110
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59-7-703, as last amended by Laws of Utah 2008, Chapter 382
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59-7-704, as enacted by Laws of Utah 1993, Chapter 169
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59-7-705, as enacted by Laws of Utah 1993, Chapter 169
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59-7-706, as enacted by Laws of Utah 1993, Chapter 169
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59-7-707, as enacted by Laws of Utah 1993, Chapter 169
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Be it enacted by the Legislature of the state of Utah:
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Section 1.
Section
59-7-101
is amended to read:
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59-7-101. Definitions.
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As used in this chapter:
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(1) "Adjusted income" means unadjusted income as modified by Sections
59-7-105
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and
59-7-106
.
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(2) (a) "Affiliated group" means one or more chains of corporations that are connected
84
through stock ownership with a common parent corporation that meet the following
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requirements:
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(i) at least 80% of the stock of each of the corporations in the group, excluding the
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common parent corporation, is owned by one or more of the other corporations in the group;
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and
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(ii) the common parent directly owns at least 80% of the stock of at least one of the
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corporations in the group.
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(b) "Affiliated group" does not include corporations that are qualified to do business
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but are not otherwise doing business in this state.
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(c) For purposes of this Subsection (2), "stock" does not include nonvoting stock which
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is limited and preferred as to dividends.
95
(3) "Apportionable income" means adjusted income less nonbusiness income net of
96
related expenses, to the extent included in adjusted income.
97
(4) "Apportioned income" means apportionable income multiplied by the
98
apportionment fraction as determined in Section
59-7-311
.
99
(5) "Business income" is as defined in Section
59-7-302
.
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(6) (a) "Captive real estate investment trust" means a real estate investment trust if:
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(i) the shares or beneficial interests of the real estate investment trust are not regularly
102
traded on an established securities market; and
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(ii) more than 50% of the voting power or value of the shares or beneficial interests of
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the real estate investment trust are directly, indirectly, or constructively:
105
(A) owned by a controlling entity of the real estate investment trust; or
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(B) controlled by a controlling entity of the real estate investment trust.
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(b) In accordance with Title 63G, Chapter 3, Utah Administrative Rulemaking Act, the
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commission may make rules defining "established securities market."
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[(8)] (7) (a) "Common ownership" means the direct or indirect control or ownership of
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more than 50% of the outstanding voting stock of:
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(i) a parent-subsidiary controlled group as defined in Section 1563, Internal Revenue
112
Code, except that 50% shall be substituted for 80%;
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(ii) a brother-sister controlled group as defined in Section 1563, Internal Revenue
114
Code, except that 50% shall be substituted for 80%; or
115
(iii) three or more corporations each of which is a member of a group of corporations
116
described in Subsection (2)(a)(i) or (2)(a)(ii), and one of which is:
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(A) a common parent corporation included in a group of corporations described in
118
Subsection (2)(a)(i); and
119
(B) included in a group of corporations described in Subsection (2)(a)(ii).
120
(b) Ownership of outstanding voting stock shall be determined by Section 1563,
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Internal Revenue Code.
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[(7)] (8) (a) "Controlling entity of a captive real estate investment trust" means an
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entity that:
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(i) is treated as an association taxable as a corporation under the Internal Revenue
125
Code;
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(ii) is not exempt from federal income taxation under Section 501(a), Internal Revenue
127
Code; and
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(iii) directly, indirectly, or constructively holds more than 50% of:
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(A) the voting power of a captive real estate investment trust; or
130
(B) the value of the shares or beneficial interests of a captive real estate investment
131
trust.
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(b) "Controlling entity of a captive real estate investment trust" does not include:
133
(i) a real estate investment trust, except for a captive real estate investment trust;
134
(ii) a qualified real estate investment subsidiary described in Section 856(i), Internal
135
Revenue Code, except for a qualified real estate investment trust subsidiary of a captive real
136
estate investment trust; or
137
(iii) a foreign real estate investment trust.
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(c) In accordance with Title 63G, Chapter 3, Utah Administrative Rulemaking Act, the
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commission may make rules defining "established securities market."
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(9) "Corporate return" or "return" includes a combined report.
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(10) "Corporation" includes:
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(a) entities defined as corporations under Sections 7701(a) and 7704, Internal Revenue
143
Code; and
144
(b) other organizations that are taxed as corporations for federal income tax purposes
145
under the Internal Revenue Code.
146
(11) "Dividend" means any distribution, including money or other type of property,
147
made by a corporation to its shareholders out of its earnings or profits accumulated after
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December 31, 1930.
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(12) (a) "Doing business" includes any transaction in the course of its business by a
150
domestic corporation, or by a foreign corporation qualified to do or doing intrastate business in
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this state.
152
(b) Except as provided in Subsection
59-7-102
(2), "doing business" includes:
153
(i) the right to do business through incorporation or qualification;
154
(ii) the owning, renting, or leasing of real or personal property within this state; and
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(iii) the participation in joint ventures, working and operating agreements, the
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performance of which takes place in this state.
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(13) "Domestic corporation" means a corporation that is incorporated or organized
158
under the laws of this state.
159
(14) (a) "Farmers' cooperative" means an association, corporation, or other
160
organization that is:
161
(i) (A) an association, corporation, or other organization of:
162
(I) farmers; or
163
(II) fruit growers; or
164
(B) an association, corporation, or other organization that is similar to an association,
165
corporation, or organization described in Subsection (14)(a)(i)(A); and
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(ii) organized and operated on a cooperative basis to:
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(A) (I) market the products of members of the cooperative or the products of other
168
producers; and
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(II) return to the members of the cooperative or other producers the proceeds of sales
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less necessary marketing expenses on the basis of the quantity of the products of a member or
171
producer or the value of the products of a member or producer; or
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(B) (I) purchase supplies and equipment for the use of members of the cooperative or
173
other persons; and
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(II) turn over the supplies and equipment described in Subsection (14)(a)(ii)(B)(I) at
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actual costs plus necessary expenses to the members of the cooperative or other persons.
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(b) (i) Subject to Subsection (14)(b)(ii), for purposes of this Subsection (14), the
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commission by rule, made in accordance with Title 63G, Chapter 3, Utah Administrative
178
Rulemaking Act, shall define:
179
(A) the terms:
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(I) "member"; and
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(II) "producer"; and
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(B) what constitutes an association, corporation, or other organization that is similar to
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an association, corporation, or organization described in Subsection (14)(a)(i)(A).
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(ii) The rules made under this Subsection (14)(b) shall be consistent with the filing
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requirements under federal law for a farmers' cooperative.
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(15) "Foreign corporation" means a corporation that is not incorporated or organized
187
under the laws of this state.
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(16) (a) "Foreign operating company" means a corporation that:
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(i) is incorporated in the United States; and
190
(ii) 80% or more of whose business activity, as determined under Section
59-7-401
, is
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conducted outside the United States.
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(b) "Foreign operating company" does not include a corporation that qualifies for the
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Puerto Rico and Possession Tax Credit as provided in Section 936, Internal Revenue Code.
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(17) (a) "Foreign real estate investment trust" means:
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(i) a business entity organized outside the laws of the United States if:
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(A) at least 75% of the business entity's total asset value at the close of the business
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entity's taxable year is represented by:
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(I) real estate assets, as defined in Section 856(c)(5)(B), Internal Revenue Code;
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(II) cash or cash equivalents; or
200
(III) one or more securities issued or guaranteed by the United States;
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(B) the business entity is:
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(I) not subject to income taxation:
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(Aa) on amounts distributed to the business entity's beneficial owners; and
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(Bb) in the jurisdiction in which the business entity is organized; or
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(II) exempt from income taxation on an entity level in the jurisdiction in which the
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business entity is organized;
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(C) the business entity distributes at least 85% of the business entity's taxable income,
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as computed in the jurisdiction in which the business entity is organized, to the holders of the
209
business entity's:
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(I) shares or beneficial interests; and
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(II) on an annual basis;
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(D) (I) not more than 10% of the following is held directly, indirectly, or constructively
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by a single person:
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(Aa) the voting power of the business entity; or
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(Bb) the value of the shares or beneficial interests of the business entity; or
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(II) the shares of the business entity are regularly traded on an established securities
217
market; and
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(E) the business entity is organized in a country that has a tax treaty with the United
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States; or
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(ii) a listed Australian property trust.
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(b) In accordance with Title 63G, Chapter 3, Utah Administrative Rulemaking Act, the
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commission may make rules defining:
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(i) "cash or cash equivalents";
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(ii) "established securities market"; or
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(iii) "listed Australian property trust."
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(18) "Income" includes losses.
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(19) "Internal Revenue Code" means Title 26 of the United States Code as effective
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during the year in which Utah taxable income is determined.
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(20) "Nonbusiness income" is as defined in Section
59-7-302
.
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[(21) "Nonresident shareholder" means any shareholder of an S corporation who on the
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last day of the taxable year of the S corporation, is:]
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[(a) an individual not domiciled in Utah; or]
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[(b) a nonresident trust or nonresident estate, as defined in Section
59-10-103
.]
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[(22)] (21) "Real estate investment trust" is as defined in Section 856, Internal Revenue
235
Code.
236
[(23)] (22) "Related expenses" means:
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(a) expenses directly attributable to nonbusiness income; and
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(b) the portion of interest or other expense indirectly attributable to both nonbusiness
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and business income which bears the same ratio to the aggregate amount of such interest or
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other expense, determined without regard to this Subsection [(23)] (22), as the average amount
241
of the asset producing the nonbusiness income bears to the average amount of all assets of the
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taxpayer within the taxable year.
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[(24) "Resident shareholder" means any shareholder of an S corporation who is not a
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nonresident shareholder.]
245
[(25)] (23) "Safe harbor lease" means a lease that qualified as a safe harbor lease under
246
Section 168, Internal Revenue Code.
247
[(26)] (24) "S corporation" means an S corporation as defined in Section 1361, Internal
248
Revenue Code.
249
[(27)] (25) "State of the United States" includes any of the 50 states or the District of
250
Columbia.
251
[(28)] (26) (a) "Taxable year" means the calendar year or the fiscal year ending during
252
such calendar year upon the basis of which the adjusted income is computed.
253
(b) In the case of a return made for a fractional part of a year under this chapter or
254
under rules prescribed by the commission, "taxable year" includes the period for which such
255
return is made.
256
[(29)] (27) "Taxpayer" means any corporation subject to the tax imposed by this
257
chapter.
258
[(30)] (28) "Threshold level of business activity" means business activity in the United
259
States equal to or greater than 20% of the corporation's total business activity as determined
260
under Section
59-7-401
.
261
[(31)] (29) "Unadjusted income" means federal taxable income as determined on a
262
separate return basis before intercompany eliminations as determined by the Internal Revenue
263
Code, before the net operating loss deduction and special deductions for dividends received.
264
[(32)] (30) (a) "Unitary group" means a group of corporations that:
265
(i) are related through common ownership; and
266
(ii) by a preponderance of the evidence as determined by a court of competent
267
jurisdiction or the commission, are economically interdependent with one another as
268
demonstrated by the following factors:
269
(A) centralized management;
270
(B) functional integration; and
271
(C) economies of scale.
272
(b) "Unitary group" includes a captive real estate investment trust.
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(c) "Unitary group" does not include an S corporation.
274
[(33)] (31) "United States" includes the 50 states and the District of Columbia.
275
[(34)] (32) "Utah net loss" means the current year Utah taxable income before Utah net
276
loss deduction, if determined to be less than zero.
277
[(35)] (33) "Utah net loss deduction" means the amount of Utah net losses from other
278
taxable years that may be carried back or carried forward to the current taxable year in
279
accordance with Section
59-7-110
.
280
[(36)] (34) (a) "Utah taxable income" means Utah taxable income before net loss
281
deduction less Utah net loss deduction.
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(b) "Utah taxable income" includes income from tangible or intangible property located
283
or having situs in this state, regardless of whether carried on in intrastate, interstate, or foreign
284
commerce.
285
[(37)] (35) "Utah taxable income before net loss deduction" means apportioned income
286
plus nonbusiness income allocable to Utah net of related expenses.
287
[(38)] (36) (a) "Water's edge combined report" means a report combining the income
288
and activities of:
289
(i) all members of a unitary group that are:
290
(A) corporations organized or incorporated in the United States, including those
291
corporations qualifying for the Puerto Rico and Possession Tax Credit as provided in Section
292
936, Internal Revenue Code, in accordance with Subsection [(38)] (36)(b); and
293
(B) corporations organized or incorporated outside of the United States meeting the
294
threshold level of business activity; and
295
(ii) an affiliated group electing to file a water's edge combined report under Subsection
296
59-7-402
(2).
297
(b) There is a rebuttable presumption that a corporation which qualifies for the Puerto
298
Rico and Possession Tax Credit provided in Section 936, Internal Revenue Code, is part of a
299
unitary group.
300
[(39)] (37) "Worldwide combined report" means the combination of the income and
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activities of all members of a unitary group irrespective of the country in which the
302
corporations are incorporated or conduct business activity.
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Section 2.
Section
59-7-102
is amended to read:
304
59-7-102. Exemptions.
305
(1) Except as provided in this section, the following are exempt from a tax under this
306
chapter:
307
(a) an organization exempt under Section 501, Internal Revenue Code;
308
(b) an organization exempt under Section 528, Internal Revenue Code;
309
(c) an insurance company that is otherwise taxed on the insurance company's premiums
310
under Chapter 9, Taxation of Admitted Insurers;
311
(d) a building authority as defined in Section
17A-3-902
;
312
(e) a farmers' cooperative; [or]
313
(f) a public agency, as defined in Section
11-13-103
, with respect to or as a result of an
314
ownership interest in:
315
(i) a project, as defined in Section
11-13-103
; or
316
(ii) facilities providing additional project capacity, as defined in Section
11-13-103
[.];
317
or
318
(g) an S corporation.
319
(2) Notwithstanding any other provision in this chapter or Chapter 8, Gross Receipts
320
Tax on Certain Corporations Not Required to Pay Corporate Franchise or Income Tax Act, a
321
person not otherwise subject to the tax imposed by this chapter or Chapter 8 is not subject to
322
the tax imposed by Sections
59-7-104
,
59-7-201
, [
59-7-701
,] and
59-8-104
, because of:
323
(a) that person's ownership of tangible personal property located at the premises of a
324
printer's facility in this state with which the person has contracted for printing; or
325
(b) the activities of the person's employees or agents who are:
326
(i) located solely at the premises of a printer's facility; and
327
(ii) performing services:
328
(A) related to:
329
(I) quality control;
330
(II) distribution; or
331
(III) printing services; and
332
(B) performed by the printer's facility in this state with which the person has contracted
333
for printing.
334
(3) Notwithstanding Subsection (1), an organization, company, authority, farmers'
335
cooperative, or public agency exempt from this chapter under Subsection (1) is subject to Part
336
8, Unrelated Business Income, to the extent provided in Part 8.
337
(4) Notwithstanding Subsection (1)(b), to the extent the income of an organization
338
described in Subsection (1)(b) is taxable for federal tax purposes under Section 528, Internal
339
Revenue Code, the organization's income is also taxable under this chapter.
340
Section 3.
Section
59-7-106
is amended to read:
341
59-7-106. Subtractions from unadjusted income.
342
In computing adjusted income the following amounts shall be subtracted from
343
unadjusted income:
344
(1) the foreign dividend gross-up included in gross income for federal income tax
345
purposes under Section 78, Internal Revenue Code;
346
(2) the net capital loss, as defined for federal purposes, if the taxpayer elects to deduct
347
the loss on the current Utah return. The deduction shall be made by claiming the deduction on
348
the current Utah return which shall be filed by the due date of the return, including extensions.
349
For the purposes of this Subsection (2) all capital losses in a given year must be:
350
(a) deducted in the year incurred; or
351
(b) carried forward as provided in Sections 1212(a)(1)(B) and (C), Internal Revenue
352
Code;
353
(3) the decrease in salary expense deduction for federal income tax purposes due to
354
claiming the federal jobs credit under Section 51, Internal Revenue Code;
355
(4) the decrease in qualified research and basic research expense deduction for federal
356
income tax purposes due to claiming the federal research and development credit under Section
357
41, Internal Revenue Code;
358
(5) the decrease in qualified clinical testing expense deduction for federal income tax
359
purposes due to claiming the federal orphan drug credit under Section 28, Internal Revenue
360
Code;
361
(6) any decrease in any expense deduction for federal income tax purposes due to
362
claiming any other federal credit;
363
(7) the safe harbor lease adjustment required under Subsections
59-7-111
(1)(b) and
364
(2)(b);
365
(8) any income on the federal corporate return that has been previously taxed by Utah;
366
(9) amounts included in federal taxable income that are due to refunds of taxes
367
imposed for the privilege of doing business, or exercising a corporate franchise, including
368
income, franchise, corporate stock and business and occupation taxes paid by the corporation to
369
Utah, another state of the United States, a foreign country, a United States possession, or the
370
Commonwealth of Puerto Rico to the extent that the taxes were added to unadjusted income
371
under Section
59-7-105
;
372
(10) charitable contributions, to the extent allowed as a subtraction under Section
373
59-7-109
;
374
(11) (a) 50% of the dividends deemed received or received from subsidiaries which are
375
members of the unitary group and are organized or incorporated outside of the United States
376
unless such subsidiaries are included in a combined report under Section
59-7-402
or
59-7-403
.
377
In arriving at the amount of the dividend exclusion, the taxpayer shall first deduct from the
378
dividends deemed received or received, the expense directly attributable to those dividends.
379
Interest expense attributable to excluded dividends shall be determined by multiplying interest
380
expense by a fraction, the numerator of which is the taxpayer's average investment in such
381
dividend paying subsidiaries, and the denominator of which is the taxpayer's average total
382
investment in assets;
383
(b) in determining income apportionable to this state, a portion of the factors of a
384
foreign subsidiary whose dividends are partially excluded under Subsection (11)(a) shall be
385
included in the combined report factors. The portion to be included shall be determined by
386
multiplying each factor of the foreign subsidiary by a fraction, but not to exceed 100%, the
387
numerator of which is the amount of the dividend paid by the foreign subsidiary which is
388
included in adjusted income, and the denominator of which is the current year earnings and
389
profits of the foreign subsidiary as determined under the Internal Revenue Code;
390
(12) (a) 50% of the adjusted income of a foreign operating company unless the
391
taxpayer has elected to file a worldwide combined report as provided in Section
59-7-403
. For
392
purposes of this Subsection (12), when calculating the adjusted income of a foreign operating
393
company, a foreign operating company may not deduct the subtractions allowable under this
394
Subsection (12) and Subsection (11);
395
(b) in determining income apportionable to this state, the factors for a foreign operating
396
company shall be included in the combined report factors in the same percentage its adjusted
397
income is included in the combined adjusted income;
398
(13) the amount of gain or loss which is included in unadjusted income but not
399
recognized for federal purposes on stock sold or exchanged by a member of a selling
400
consolidated group as defined in Section 338, Internal Revenue Code, if an election has been
401
made pursuant to Section 338(h)(10), Internal Revenue Code;
402
(14) the amount of gain or loss which is included in unadjusted income but not
403
recognized for federal purposes on stock sold, exchanged, or distributed by a corporation
404
pursuant to Section 336(e), Internal Revenue Code, if an election under Section 336(e), Internal
405
Revenue Code, has been made for federal purposes;
406
(15) (a) adjustments to gains, losses, depreciation expense, amortization expense, and
407
similar items due to a difference between basis for federal purposes and basis as computed
408
under Section
59-7-107
; and
409
(b) if there has been a reduction in federal basis for a federal tax credit where there is
410
no corresponding Utah tax credit, the amount of the reduction in basis shall be allowed as an
411
expense in the year of the federal credit;
412
(16) any interest expense not deducted on the federal corporate return under Section
413
265(b) or 291(e), Internal Revenue Code;
414
(17) 100% of the dividends received from subsidiaries which are insurance companies
415
exempt from this chapter under Subsection
59-7-102
(1)(c) and are under ["]common
416
ownership[" as defined by Subsection
59-7-101
(8)];
417
(18) subject to Subsection
59-7-105
(12), the amount of a qualified investment as
418
defined in Section
53B-8a-102
that:
419
(a) a corporation that is an account owner as defined in Section
53B-8a-102
makes
420
during the taxable year;
421
(b) the corporation described in Subsection (18)(a) does not deduct on a federal
422
corporation income tax return; and
423
(c) does not exceed the maximum amount of the qualified investment that may be
424
subtracted from unadjusted income for a taxable year in accordance with Subsections
425
53B-8a-106
(1)(d) and (f); and
426
(19) for purposes of income included in a combined report under Part 4, Combined
427
Reporting, the entire amount of the dividends a member of a unitary group receives or is
428
considered to receive from a captive real estate investment trust.
429
Section 4.
Section
59-7-402
is amended to read:
430
59-7-402. Water's edge combined report.
431
(1) Except as provided in Section
59-7-403
, if any corporation listed in Subsection
432
59-7-101
[(38)](36)(a) is doing business in Utah, the unitary group shall file a water's edge
433
combined report.
434
(2) (a) A group of corporations that are not otherwise a unitary group may elect to file a
435
water's edge combined report if each member of the group is:
436
(i) doing business in Utah;
437
(ii) part of the same affiliated group; and
438
(iii) qualified, under Section 1501, Internal Revenue Code, to file a federal
439
consolidated return.
440
(b) Each corporation within the affiliated group that is doing business in Utah must
441
consent to filing a combined report. If an affiliated group elects to file a combined report, each
442
corporation within the affiliated group that is doing business in Utah must file a combined
443
report.
444
(c) Corporations that elect to file a water's edge combined report under this section may
445
not thereafter elect to file a separate return without the consent of the commission.
446
Section 5.
Section
59-10-103
is amended to read:
447
59-10-103. Definitions.
448
(1) As used in this chapter:
449
(a) "Adjusted gross income":
450
(i) for a resident or nonresident individual, is as defined in Section 62, Internal
451
Revenue Code; or
452
(ii) for a resident or nonresident estate or trust, is as calculated in Section 67(e),
453
Internal Revenue Code.
454
(b) "Corporation" includes:
455
(i) an association;
456
(ii) a joint stock company; and
457
(iii) an insurance company.
458
(c) "Distributable net income" is as defined in Section 643, Internal Revenue Code.
459
(d) "Employee" is as defined in Section
59-10-401
.
460
(e) "Employer" is as defined in Section
59-10-401
.
461
(f) "Federal taxable income":
462
(i) for a resident or nonresident individual, means taxable income as defined by Section
463
63, Internal Revenue Code; or
464
(ii) for a resident or nonresident estate or trust, is as calculated in Section 641(a) and
465
(b), Internal Revenue Code.
466
(g) "Fiduciary" means:
467
(i) a guardian;
468
(ii) a trustee;
469
(iii) an executor;
470
(iv) an administrator;
471
(v) a receiver;
472
(vi) a conservator; or
473
(vii) any person acting in any fiduciary capacity for any individual.
474
(h) "Guaranteed annuity interest" is as defined in 26 C.F.R. Sec. 1.170A-6(c)(2).
475
(i) "Homesteaded land diminished from the Uintah and Ouray Reservation" means the
476
homesteaded land that was held to have been diminished from the Uintah and Ouray
477
Reservation in Hagen v. Utah, 510 U.S. 399 (1994).
478
(j) "Individual" means a natural person and includes aliens and minors.
479
(k) "Irrevocable trust" means a trust in which the settlor may not revoke or terminate
480
all or part of the trust without the consent of a person who has a substantial beneficial interest
481
in the trust and the interest would be adversely affected by the exercise of the settlor's power to
482
revoke or terminate all or part of the trust.
483
(l) "Military service" is as defined in Pub. L. No. 108-189, Sec. 101.
484
(m) "Nonresident individual" means an individual who is not a resident of this state.
485
(n) "Nonresident trust" or "nonresident estate" means a trust or estate which is not a
486
resident estate or trust.
487
(o) (i) "Partnership" includes a syndicate, group, pool, joint venture, or other
488
unincorporated organization:
489
(A) through or by means of which any business, financial operation, or venture is
490
carried on; and
491
(B) which is not, within the meaning of this chapter:
492
(I) a trust;
493
(II) an estate; or
494
(III) a corporation.
495
(ii) "Partnership" does not include any organization not included under the definition of
496
"partnership" in Section 761, Internal Revenue Code.
497
(iii) "Partner" includes a member in a syndicate, group, pool, joint venture, or
498
organization described in Subsection (1)(o)(i).
499
(p) "Qualified nongrantor charitable lead trust" means a trust:
500
(i) that is irrevocable;
501
(ii) that has a trust term measured by:
502
(A) a fixed term of years; or
503
(B) the life of a person living on the day on which the trust is created;
504
(iii) under which:
505
(A) a portion of the value of the trust assets is distributed during the trust term:
506
(I) to an organization described in Section 170(c), Internal Revenue Code; and
507
(II) as a:
508
(Aa) guaranteed annuity interest; or
509
(Bb) unitrust interest; and
510
(B) assets remaining in the trust at the termination of the trust term are distributed to a
511
beneficiary:
512
(I) designated in the trust; and
513
(II) that is not an organization described in Section 170(c), Internal Revenue Code;
514
(iv) for which the trust is allowed a deduction under Section 642(c), Internal Revenue
515
Code; and
516
(v) under which the grantor of the trust is not treated as the owner of any portion of the
517
trust for federal income tax purposes.
518
(q) (i) "Resident individual" means:
519
(A) an individual who is domiciled in this state for any period of time during the
520
taxable year, but only for the duration of the period during which the individual is domiciled in
521
this state; or
522
(B) an individual who is not domiciled in this state but:
523
(I) maintains a permanent place of abode in this state; and
524
(II) spends in the aggregate 183 or more days of the taxable year in this state.
525
(ii) For purposes of Subsection (1)(q)(i)(B), a fraction of a calendar day shall be
526
counted as a whole day.
527
(r) "Resident estate" or "resident trust" is as defined in Section
75-7-103
.
528
(s) "Servicemember" is as defined in Pub. L. No. 108-189, Sec. 101.
529
(t) "State income tax percentage for a nonresident estate or trust" means a percentage
530
equal to a nonresident estate's or trust's state taxable income for the taxable year divided by the
531
nonresident estate's or trust's total adjusted gross income for that taxable year after making the
532
adjustments required by:
533
(i) Section
59-10-202
;
534
(ii) Section
59-10-207
;
535
(iii) Section
59-10-209.1
; or
536
(iv) Section
59-10-210
.
537
(u) "State income tax percentage for a nonresident individual" means a percentage
538
equal to a nonresident individual's state taxable income for the taxable year divided by the
539
difference between:
540
(i) subject to Section
59-12-1405
, the nonresident individual's total adjusted gross
541
income for that taxable year, after making the:
542
(A) additions and subtractions required by Section
59-10-114
; and
543
(B) adjustments required by Section
59-10-115
; and
544
(ii) if the nonresident individual described in Subsection (1)(u)(i) is a servicemember,
545
the compensation the servicemember receives for military service if the servicemember is
546
serving in compliance with military orders.
547
(v) "State income tax percentage for a part-year resident individual" means, for a
548
taxable year, a fraction:
549
(i) the numerator of which is the sum of:
550
(A) subject to [Subsections
59-10-1404
(3) and (4)] Section
59-10-1404.5
, for the time
551
period during the taxable year that the part-year resident individual is a resident, the part-year
552
resident individual's total adjusted gross income for that time period, after making the:
553
(I) additions and subtractions required by Section
59-10-114
; and
554
(II) adjustments required by Section
59-10-115
; and
555
(B) for the time period during the taxable year that the part-year resident individual is a
556
nonresident, an amount calculated by:
557
(I) determining the part-year resident individual's adjusted gross income for that time
558
period, after making the:
559
(Aa) additions and subtractions required by Section
59-10-114
; and
560
(Bb) adjustments required by Section
59-10-115
; and
561
(II) calculating the portion of the amount determined under Subsection (1)(v)(i)(B)(I)
562
that is derived from Utah sources in accordance with Section
59-10-117
; and
563
(ii) the denominator of which is the difference between:
564
(A) the part-year resident individual's total adjusted gross income for that taxable year,
565
after making the:
566
(I) additions and subtractions required by Section
59-10-114
; and
567
(II) adjustments required by Section
59-10-115
; and
568
(B) if the part-year resident individual is a servicemember, any compensation the
569
servicemember receives for military service during the portion of the taxable year that the
570
servicemember is a nonresident if the servicemember is serving in compliance with military
571
orders.
572
(w) "Taxable income" or "state taxable income":
573
(i) subject to [Subsection
59-10-1404
(3)] Section
59-10-1404.5
, for a resident
574
individual, means the resident individual's adjusted gross income after making the:
575
(A) additions and subtractions required by Section
59-10-114
; and
576
(B) adjustments required by Section
59-10-115
;
577
(ii) for a nonresident individual, is an amount calculated by:
578
(A) determining the nonresident individual's adjusted gross income for the taxable
579
year, after making the:
580
(I) additions and subtractions required by Section
59-10-114
; and
581
(II) adjustments required by Section
59-10-115
; and
582
(B) calculating the portion of the amount determined under Subsection (1)(w)(ii)(A)
583
that is derived from Utah sources in accordance with Section
59-10-117
;
584
(iii) for a resident estate or trust, is as calculated under Section
59-10-201.1
; and
585
(iv) for a nonresident estate or trust, is as calculated under Section
59-10-204
.
586
(x) "Taxpayer" means any individual, estate, trust, or beneficiary of an estate or trust,
587
that has income subject in whole or part to the tax imposed by this chapter.
588
(y) "Trust term" means a time period:
589
(i) beginning on the day on which a qualified nongrantor charitable lead trust is
590
created; and
591
(ii) ending on the day on which the qualified nongrantor charitable lead trust described
592
in Subsection (1)(y)(i) terminates.
593
(z) "Uintah and Ouray Reservation" means the lands recognized as being included
594
within the Uintah and Ouray Reservation in:
595
(i) Hagen v. Utah, 510 U.S. 399 (1994); and
596
(ii) Ute Indian Tribe v. Utah, 114 F.3d 1513 (10th Cir. 1997).
597
(aa) "Unadjusted income" means an amount equal to the difference between:
598
(i) the total income required to be reported by a resident or nonresident estate or trust
599
on the resident or nonresident estate's or trust's federal income tax return for estates and trusts
600
for the taxable year; and
601
(ii) the sum of the following:
602
(A) fees paid or incurred to the fiduciary of a resident or nonresident estate or trust:
603
(I) for administering the resident or nonresident estate or trust; and
604
(II) that the resident or nonresident estate or trust deducts as allowed on the resident or
605
nonresident estate's or trust's federal income tax return for estates and trusts for the taxable
606
year;
607
(B) the income distribution deduction that a resident or nonresident estate or trust
608
deducts under Section 651 or 661, Internal Revenue Code, as allowed on the resident or
609
nonresident estate's or trust's federal income tax return for estates and trusts for the taxable
610
year;
611
(C) the amount that a resident or nonresident estate or trust deducts as a deduction for
612
estate tax or generation skipping transfer tax under Section 691(c), Internal Revenue Code, as
613
allowed on the resident or nonresident estate's or trust's federal income tax return for estates
614
and trusts for the taxable year; and
615
(D) the amount that a resident or nonresident estate or trust deducts as a personal
616
exemption under Section 642(b), Internal Revenue Code, as allowed on the resident or
617
nonresident estate's or trust's federal income tax return for estates and trusts for the taxable
618
year.
619
(bb) "Unitrust interest" is as defined in 26 C.F.R. Sec. 1.170A-6(c)(2).
620
(cc) "Ute tribal member" means a person who is enrolled as a member of the Ute
621
Indian Tribe of the Uintah and Ouray Reservation.
622
(dd) "Ute tribe" means the Ute Indian Tribe of the Uintah and Ouray Reservation.
623
(ee) "Wages" is as defined in Section
59-10-401
.
624
(2) (a) Any term used in this chapter has the same meaning as when used in
625
comparable context in the laws of the United States relating to federal income taxes unless a
626
different meaning is clearly required.
627
(b) Any reference to the Internal Revenue Code or to the laws of the United States shall
628
mean the Internal Revenue Code or other provisions of the laws of the United States relating to
629
federal income taxes that are in effect for the taxable year.
630
(c) Any reference to a specific section of the Internal Revenue Code or other provision
631
of the laws of the United States relating to federal income taxes shall include any
632
corresponding or comparable provisions of the Internal Revenue Code as amended,
633
redesignated, or reenacted.
634
Section 6.
Section
59-10-117
is amended to read:
635
59-10-117. State taxable income derived from Utah sources.
636
(1) For purposes of Section
59-10-116
, state taxable income includes those items
637
includable in state taxable income attributable to or resulting from:
638
(a) the ownership in this state of any interest in real or tangible personal property,
639
including real property or property rights from which gross income from mining as defined by
640
Section 613(c), Internal Revenue Code, is derived; or
641
(b) the carrying on of a business, trade, profession, or occupation in this state.
642
(2) For the purposes of Subsection (1):
643
(a) income from intangible personal property, including annuities, dividends, interest,
644
and gains from the disposition of intangible personal property shall constitute income derived
645
from Utah sources only to the extent that the income is from property employed in a trade,
646
business, profession, or occupation carried on in this state;
647
(b) a deduction with respect to a capital loss, net long-term capital gain, or net operating
648
loss shall be based solely on income, gain, loss, and deduction connected with Utah sources,
649
under rules prescribed by the commission in accordance with Title 63G, Chapter 3, Utah
650
Administrative Rulemaking Act, but otherwise shall be determined in the same manner as the
651
corresponding federal deductions;
652
(c) a salary, wage, commission, or compensation for personal services rendered outside
653
this state may not be considered to be derived from Utah sources;
654
(d) a nonresident shareholder's distributive share of ordinary income, gain, loss, and
655
deduction derived from or connected with Utah sources shall be determined under Section
656
59-10-118
;
657
(e) a nonresident, other than a dealer holding property primarily for sale to customers
658
in the ordinary course of the dealer's trade or business, may not be considered to carry on a
659
trade, business, profession, or occupation in this state solely by reason of the purchase or sale
660
of property for the nonresident's own account;
661
(f) if a trade, business, profession, or occupation is carried on partly within and partly
662
without this state, an item of income, gain, loss, or a deduction derived from or connected with
663
Utah sources shall be determined in accordance with Section
59-10-118
;
664
(g) a nonresident partner's distributive share of partnership income, gain, loss, [and]
665
deduction, or credit derived from or connected with Utah sources shall be determined under
666
[Section
59-10-1405
] Part 14, Pass-Through Entities and Pass-Through Entity Taxpayers Act;
667
(h) the share of a nonresident estate or trust or a nonresident beneficiary of any estate
668
or trust in income, gain, loss, or deduction derived from or connected with Utah sources shall
669
be determined under Section
59-10-207
; and
670
(i) any dividend, interest, or distributive share of income, gain, or loss from a real
671
estate investment trust, as defined in Section
59-7-101
, distributed or allocated to a nonresident
672
investor in the trust, including any shareholder, beneficiary, or owner of a beneficial interest in
673
the trust, shall be income from intangible personal property under Subsection (2)(a), and shall
674
constitute income derived from Utah sources only to the extent the nonresident investor is
675
employing its beneficial interest in the trust in a trade, business, profession, or occupation
676
carried on by the investor in this state.
677
Section 7.
Section
59-10-507
is amended to read:
678
59-10-507. Return by a pass-through entity.
679
(1) As used in this section:
680
(a) "Pass-through entity" is as defined in Section
59-10-1402
.
681
(b) "Taxable year" means a year or other time period that would be a taxable year of a
682
pass-through entity if the pass-through entity were subject to taxation under this chapter.
683
(2) A pass-through entity having any income derived from or connected with Utah
684
sources [in this state] shall make a return for the taxable year as prescribed by the commission.
685
[(3) For purposes of Subsection (2), a pass-through entity's income derived from
686
sources in this state shall be determined in accordance with the principles of Section
687
59-10-1405
.]
688
Section 8.
Section
59-10-1103
is amended to read:
689
59-10-1103. Tax credit for pass-through entity taxpayer.
690
[(1) (a) A nonresident shareholder of an S corporation]
691
(1) As used in this section:
692
(a) "Pass-through entity" is as defined in Section
59-10-1402
.
693
(b) "Pass-through entity taxpayer" is as defined in Section
59-10-1402
.
694
(2) A pass-through entity taxpayer may claim a refundable tax credit against the tax
695
otherwise due under this chapter if that [nonresident shareholder] pass-through entity taxpayer
696
is a:
697
[(i)] (a) [nonresident] claimant;
698
[(ii)] (b) [nonresident] estate; or
699
[(iii)] (c) [nonresident] trust.
700
[(b)] (3) The tax credit described in Subsection [(1)(a)] (2) is equal to the amount paid
701
or withheld by the [S corporation] pass-through entity on behalf of the [nonresident
702
shareholder] pass-through entity taxpayer described in Subsection [(1)(a)] (2) in accordance
703
with Section [
59-7-703
]
59-10-1403.2
.
704
[(2) A nonresident shareholder described in Subsection (1)(a) that has no other Utah
705
source income may elect:]
706
[(a) not to claim the tax credit provided in Subsection (1); and]
707
[(b) not to file a tax return under this chapter for the taxable year.]
708
[(3) If a nonresident shareholder described in Subsection (1)(a) may claim a
709
nonrefundable tax credit as defined in Section
59-10-1002
or a refundable tax credit other than
710
the tax credit described in Subsection (1), the nonresident shareholder described in Subsection
711
(1)(a) shall file a tax return under this chapter to claim those nonrefundable tax credits or
712
refundable tax credits.]
713
Section 9.
Section
59-10-1401
is amended to read:
714
Part 14. Pass-Through Entities and Pass-Through Entity Taxpayers Act
715
59-10-1401. Title.
716
This part is known as the "[Income Tax Treatment of] Pass-Through Entities and
717
Pass-Through Entity Taxpayers Act."
718
Section 10.
Section
59-10-1402
is amended to read:
719
59-10-1402. Definitions.
720
As used in this part:
721
[(1) "Limited liability company" includes a foreign limited liability company.]
722
(1) "Addition, subtraction, or adjustment" means:
723
(a) for a pass-through entity taxpayer that is classified as a C corporation for federal
724
income tax purposes, under Chapter 7, Corporate Franchise and Income Taxes:
725
(i) an addition to unadjusted income described in Section
59-7-105
; or
726
(ii) a subtraction from unadjusted income described in Section
59-7-106
;
727
(b) for a pass-through entity taxpayer that is classified as an individual, partnership, or
728
S corporation for federal income tax purposes:
729
(i) an addition to or subtraction from adjusted gross income described in Section
730
59-10-114
; or
731
(ii) an adjustment to adjusted gross income described in Section
59-10-115
; or
732
(c) for a pass-through entity taxpayer that is classified as an estate or a trust for federal
733
income tax purposes:
734
(i) an addition to or subtraction from unadjusted income described in Section
735
59-10-202
; or
736
(ii) an adjustment to unadjusted income described in Section
59-10-209.1
.
737
(2) "Business income" means income arising from transactions and activity in the
738
regular course of a pass-through entity's trade or business and includes income from tangible
739
and intangible property if the acquisition, management, and disposition of the property
740
constitutes integral parts of the pass-through entity's regular trade or business operations.
741
(3) "C corporation" is as defined in Section 1361, Internal Revenue Code.
742
(4) "Commercial domicile" means the principal place from which the trade or business
743
of a business entity is directed or managed.
744
(5) "Derived from or connected with Utah sources" means:
745
(a) if a pass-through entity taxpayer is classified as a C corporation for federal income
746
tax purposes, derived from or connected with Utah sources in accordance with Chapter 7, Part
747
3, Allocation and Apportionment of Income -- Utah UDITPA Provisions; or
748
(b) if a pass-through entity or pass-through entity taxpayer is classified as an estate,
749
individual, partnership, S corporation, or a trust for federal income tax purposes, derived from
750
or connected with Utah sources in accordance with Sections
59-10-117
and
59-10-118
.
751
(6) "Nonbusiness income" means all income of a pass-through entity other than
752
business income.
753
(7) "Nonresident business entity" means a business entity that does not have its
754
commercial domicile in this state.
755
(8) "Nonresident pass-through entity taxpayer" means a pass-through entity taxpayer
756
that is a:
757
(a) nonresident individual; or
758
(b) nonresident business entity.
759
[(2)] (9) (a) "Pass-through entity" means a business entity that is:
760
(i) the following if classified as a partnership for federal income tax purposes:
761
[(i)] (A) a general partnership;
762
[(ii)] (B) a limited liability company;
763
[(iii)] (C) a limited liability partnership; or
764
[(iv)] (D) a limited partnership; [or]
765
(ii) an S corporation; or
766
[(v)] (iii) a business entity similar to [Subsections (2)(a)(i) through (iv)] Subsection
767
(9)(a)(i) or (ii):
768
(A) with respect to which the business entity's income [or losses are], gain, loss,
769
deduction, or credit is divided among and passed through to [taxpayers] one or more
770
pass-through entity taxpayers; and
771
(B) as defined by the commission by rule made in accordance with Title 63G, Chapter
772
3, Utah Administrative Rulemaking Act.
773
(b) "Pass-through entity" does not include [a trust] an estate or trust that is classified as
774
an estate or trust for federal income tax purposes.
775
[(3) "Taxpayer" means:]
776
(10) "Pass-through entity taxpayer " means a resident or nonresident individual, a
777
resident or nonresident business entity, or a resident or nonresident estate or trust:
778
(a) that is:
779
[(a)] (i) for a general partnership, a partner;
780
[(b)] (ii) for a limited liability company, a member;
781
[(c)] (iii) for a limited liability partnership, a partner;
782
[(d)] (iv) for a limited partnership, a partner; [or]
783
(v) for an S corporation, a shareholder; or
784
[(e)] (vi) for a business entity described in Subsection [(2)(a)(v)] (9)(a)(iii), a member,
785
partner, shareholder, or other title designated by the commission by rule made in accordance
786
with Title 63G, Chapter 3, Utah Administrative Rulemaking Act[.]; and
787
(b) to which the income, gain, loss, deduction, or credit of a pass-through entity is
788
passed through.
789
(11) "Resident business entity" means a business entity that is not a nonresident
790
business entity.
791
(12) "Resident pass-through entity taxpayer" means a pass-through entity taxpayer that
792
is a:
793
(a) resident individual; or
794
(b) resident business entity.
795
(13) "Return" means a return that a pass-through entity taxpayer files:
796
(a) for a pass-through entity taxpayer that is classified as a C corporation for federal
797
income tax purposes, under Chapter 7, Corporate Franchise and Income Taxes; or
798
(b) for a pass-through entity taxpayer that is classified as an estate, individual,
799
partnership, S corporation, or a trust for federal income tax purposes, under this chapter.
800
(14) "S corporation" is as defined in Section 1361, Internal Revenue Code.
801
(15) "Share of income, gain, loss, deduction, or credit of a pass-through entity" means:
802
(a) for a pass-through entity except for a pass-through entity that is an S corporation:
803
(i) for a resident pass-through entity taxpayer, the resident pass-through entity
804
taxpayer's distributive share of income, gain, loss, deduction, or credit of the pass-through
805
entity as determined under Section 704 et seq., Internal Revenue Code; and
806
(ii) for a nonresident pass-through entity taxpayer, the nonresident pass-through entity
807
taxpayer's distributive share of income, gain, loss, deduction, or credit of the pass-through
808
entity:
809
(A) as determined under Section 704 et seq., Internal Revenue Code; and
810
(B) derived from or connected with Utah sources; or
811
(b) for an S corporation:
812
(i) for a resident pass-through entity taxpayer, the resident pass-through entity
813
taxpayer's pro rata share of income, gain, loss, deduction, or credit of the S corporation, as
814
determined under Sec. 1366 et seq., Internal Revenue Code; or
815
(ii) for a nonresident pass-through entity taxpayer, the nonresident pass-through entity
816
taxpayer's pro rata share of income, gain, loss, deduction, or credit of the S corporation:
817
(A) as determined under Section 1366 et seq., Internal Revenue Code; and
818
(B) derived from or connected with Utah sources.
819
Section 11.
Section
59-10-1403
is amended to read:
820
59-10-1403. Income tax treatment of a pass-through entity -- Returns --
821
Classification same as under Internal Revenue Code.
822
(1) Subject to Subsection (3), a pass-through entity is not subject to a tax imposed by
823
this chapter.
824
(2) The income [or losses], gain, loss, deduction, or credit of a pass-through entity shall
825
be [divided among and] passed through to one or more pass-through entity taxpayers as
826
provided in this part.
827
(3) A pass-through entity is subject to the return filing requirements of Section
828
59-10-507
.
829
(4) A pass-through entity that [is a limited liability company that] transacts business in
830
the state shall be classified for purposes of taxation under this title in the same manner as the
831
[limited liability company] pass-through entity is classified for federal income tax purposes.
832
Section 12.
Section
59-10-1403.1
is enacted to read:
833
59-10-1403.1. Income tax treatment of a pass-through entity taxpayer.
834
(1) Subject to the other provisions of this part, a pass-through entity taxpayer is subject
835
to taxation:
836
(a) for a pass-through entity taxpayer that is classified as a C corporation for federal
837
income tax purposes:
838
(i) if that pass-through entity taxpayer is a resident pass-through entity taxpayer, as a
839
domestic corporation is taxed under Chapter 7, Corporate Franchise and Income Taxes; or
840
(ii) if that pass-through entity taxpayer is a nonresident pass-through entity taxpayer, as
841
a foreign corporation is taxed under Chapter 7, Corporate Franchise and Income Taxes; or
842
(b) for a pass-through entity taxpayer that is classified as an estate, individual,
843
partnership, S corporation, or a trust for federal income tax purposes:
844
(i) if that pass-through entity taxpayer is a resident pass-through entity taxpayer, as a
845
resident estate, resident individual, resident partnership, resident S corporation, or resident trust
846
is taxed under this chapter; or
847
(ii) if that pass-through entity taxpayer is a nonresident pass-through entity taxpayer, as
848
a nonresident estate, nonresident individual, nonresident partnership, nonresident S
849
corporation, or nonresident trust is taxed under this chapter.
850
(2) A pass-through entity taxpayer is subject to taxation on the pass-through entity
851
taxpayer's share of income, gain, loss, deduction, or credit of the pass-through entity.
852
(3) (a) Subject to Subsection (3)(b)(iii), a resident pass-through entity taxpayer shall
853
file a return:
854
(i) if the resident pass-through entity taxpayer is classified as a C corporation for
855
federal income tax purposes, as a domestic corporation under Chapter 7, Corporate Franchise
856
and Income Taxes; or
857
(ii) if the resident pass-through entity taxpayer is classified as an estate, individual,
858
partnership, S corporation, or a trust for federal income tax purposes, as a resident estate,
859
resident individual, resident partnership, resident S corporation, or resident trust under this
860
chapter.
861
(b) (i) Except as provided in Subsection (3)(b)(ii) and subject to Subsection (3)(b)(iii)
862
or (iv), a nonresident pass-through entity taxpayer shall file a return:
863
(A) if the nonresident pass-through entity taxpayer is classified as a C corporation for
864
federal income tax purposes, as a foreign corporation under Chapter 7, Corporate Franchise and
865
Income Taxes; or
866
(B) if the nonresident pass-through entity taxpayer is classified as an estate, individual,
867
partnership, S corporation, or a trust for federal income tax purposes, as a nonresident estate,
868
nonresident individual, nonresident partnership, nonresident S corporation, or nonresident trust
869
under this chapter.
870
(ii) A nonresident pass-through entity taxpayer is not required to file a return if:
871
(A) the nonresident pass-through entity taxpayer does not have:
872
(I) for a nonresident pass-through entity taxpayer that is classified as a C corporation
873
for federal income tax purposes, unadjusted income as defined in Section
59-7-101
derived
874
from or connected with Utah sources, except for the nonresident pass-through entity taxpayer's
875
share of income, gain, loss, deduction, or credit of the pass-through entity;
876
(II) for a nonresident pass-through entity taxpayer that is classified as an individual,
877
partnership, or S corporation for federal income tax purposes, adjusted gross income derived
878
from or connected with Utah sources, except for the nonresident pass-through entity taxpayer's
879
share of income, gain, loss, deduction, or credit of the pass-through entity; or
880
(III) for a nonresident pass-through entity taxpayer that is classified as an estate or a
881
trust for federal income tax purposes, unadjusted income as defined in Section
59-10-103
882
derived from or connected with Utah sources, except for the nonresident pass-through entity
883
taxpayer's share of income, gain, loss, deduction, or credit of the pass-through entity;
884
(B) the nonresident pass-through entity taxpayer does not seek to claim a tax credit
885
allowed against a tax imposed under:
886
(I) Chapter 7, Corporate Franchise and Income Taxes; or
887
(II) this chapter;
888
(C) the pass-through entity pays or withholds a tax on behalf of the nonresident
889
pass-through entity taxpayer and remits that tax to the commission:
890
(I) in accordance with Section
59-10-1403.2
; and
891
(II) if a nonresident pass-through entity taxpayer is classified as a C corporation for
892
federal income tax purposes, in an amount that is equal to or greater than the minimum tax
893
under Section
59-7-104
; and
894
(D) the nonresident pass-through entity taxpayer is not a member of a unitary group as
895
defined in Section
59-7-101
that is required to file a return in this state.
896
(iii) A nonresident pass-through entity taxpayer that is not otherwise required to file a
897
return under this Subsection (3) may file a return under:
898
(A) Chapter 7, Corporate Franchise and Income Taxes; or
899
(B) this chapter.
900
(iv) In accordance with Title 63G, Chapter 3, Utah Administrative Rulemaking Act,
901
the commission may make rules for a pass-through entity taxpayer, except for a pass-through
902
entity taxpayer who is a resident individual, to file a return under this section if two or more
903
pass-through entities pay or withhold a tax in accordance with Section
59-10-1403.2
on behalf
904
of the pass-through entity taxpayer.
905
Section 13.
Section
59-10-1403.2
is enacted to read:
906
59-10-1403.2. Pass-through entity payment or withholding of tax on behalf of a
907
pass-through entity taxpayer -- Exceptions to payment or withholding requirement --
908
Procedures and requirements -- Failure to pay or withhold a tax on behalf of a
909
pass-through entity taxpayer.
910
(1) (a) Except as provided in Subsection (1)(b), for a taxable year, a pass-through entity
911
shall pay or withhold a tax:
912
(i) on:
913
(A) the business income of the pass-through entity; and
914
(B) the nonbusiness income of the pass-through entity derived from or connected with
915
Utah sources; and
916
(ii) on behalf of a pass-through entity taxpayer.
917
(b) A pass-through entity is not required to pay or withhold a tax under Subsection
918
(1)(a):
919
(i) on behalf of a pass-through entity taxpayer who is a resident individual; or
920
(ii) if the pass-through entity is an organization exempt from taxation under Subsection
921
59-7-102
(1)(a).
922
(2) (a) Subject to Subsection (2)(b), the tax a pass-through entity shall pay or withhold
923
on behalf of a pass-through entity taxpayer for a taxable year is an amount:
924
(i) determined by the commission by rule made in accordance with Title 63G, Chapter
925
3, Utah Administrative Rulemaking Act; and
926
(ii) that the commission estimates will be sufficient to pay the tax liability of the
927
pass-through entity taxpayer under this chapter with respect to the income described in
928
Subsection (1)(a)(i) of that pass-through entity for the taxable year.
929
(b) The rules the commission makes in accordance with Subsection (2)(a):
930
(i) except as provided in Subsection (2)(c):
931
(A) shall:
932
(I) for a pass-through entity except for a pass-through entity that is an S corporation,
933
take into account items of income, gain, loss, deduction, and credit as analyzed on the schedule
934
for reporting partners' distributive share items as part of the federal income tax return for the
935
pass-through entity; or
936
(II) for a pass-through entity that is an S corporation, take into account items of
937
income, gain, loss, deduction, and credit as reconciled on the schedule for reporting
938
shareholders' pro rata share items as part of the federal income tax return for the pass-through
939
entity; and
940
(B) notwithstanding Subsection (2)(b)(ii)(D), take into account the refundable tax
941
credit provided in Section
59-6-102
; and
942
(ii) may not take into account the following items if taking those items into account
943
does not result in an accurate estimate of a pass-through entity taxpayer's tax liability under this
944
chapter for the taxable year:
945
(A) a capital loss;
946
(B) a passive loss;
947
(C) another item of deduction or loss if that item of deduction or loss is generally
948
subject to significant reduction or limitation in calculating:
949
(I) for a pass-through entity taxpayer that is classified as a C corporation for federal
950
income tax purposes, unadjusted income as defined in Section
59-7-101
;
951
(II) for a pass-through entity that is classified as an individual, partnership, or S
952
corporation for federal income tax purposes, adjusted gross income; or
953
(III) for a pass-through entity that is classified as an estate or a trust for federal income
954
tax purposes, unadjusted income as defined in Section
59-10-103
; or
955
(D) a tax credit allowed against a tax imposed under:
956
(I) Chapter 7, Corporate Franchise and Income Taxes; or
957
(II) this chapter.
958
(c) The rules the commission makes in accordance with Subsection (2)(a) may
959
establish a method for taking into account items of income, gain, loss, deduction, or credit of a
960
pass-through entity if:
961
(i) for a pass-through entity except for a pass-through entity that is an S corporation,
962
the pass-through entity does not analyze the items of income, gain, loss, deduction, or credit on
963
the schedule for reporting partners' distributive share items as part of the federal income tax
964
return for the pass-through entity; or
965
(ii) for a pass-through entity that is an S corporation, the pass-through entity does not
966
reconcile the items of income, gain, loss, deduction, or credit on the schedule for reporting
967
shareholders' pro rata share items as part of the federal income tax return for the pass-through
968
entity.
969
(3) A pass-through entity shall remit to the commission the tax the pass-through entity
970
pays or withholds on behalf of a pass-through entity taxpayer under this section:
971
(a) on or before the due date of the pass-through entity's return, not including
972
extensions; and
973
(b) on a form provided by the commission.
974
(4) A pass-through entity shall provide a statement to a pass-through entity taxpayer on
975
behalf of whom the pass-through entity pays or withholds a tax under this section showing the
976
amount of tax the pass-through entity pays or withholds under this section for the taxable year
977
on behalf of the pass-through entity taxpayer.
978
(5) Notwithstanding Section
59-1-401
or
59-1-402
, the commission may not collect an
979
amount under this section for a taxable year from a pass-through entity and shall waive a
980
penalty or interest on that amount if:
981
(a) the pass-through entity fails to pay or withhold the tax on the amount as required by
982
this section on behalf of the pass-through entity taxpayer;
983
(b) the pass-through entity taxpayer:
984
(i) files a return on or before the due date for filing the pass-through entity's return,
985
including extensions; and
986
(ii) on or before the due date including extensions described in Subsection (5)(b)(i),
987
pays the tax on the amount for the taxable year:
988
(A) if the pass-through entity taxpayer is classified as a C corporation for federal
989
income tax purposes, under Chapter 7, Corporate Franchise and Income Taxes; or
990
(B) if the pass-through entity taxpayer is classified as an estate, individual, partnership,
991
S corporation, or a trust for federal income tax purposes, under this chapter; and
992
(c) the pass-through entity applies to the commission.
993
Section 14.
Section
59-10-1404
is amended to read:
994
59-10-1404. Character of an item of income, gain, loss, deduction, or credit.
995
[(1) Each item of income, gain, loss, or deduction of a pass-through entity has the same
996
character for a taxpayer under this chapter as that item of income, gain, loss, or deduction has
997
for federal income tax purposes.]
998
[(2) If] Regardless of whether or how an item of income, gain, loss, [or] deduction
999
[described in Subsection (1) is not], or credit is characterized for federal income tax purposes,
1000
that item of income, gain, loss, [or] deduction [has the same character for a taxpayer], or credit
1001
is from the same source and incurred in the same manner for a pass-through entity taxpayer as
1002
if the item of income, gain, loss, [or] deduction, or credit is:
1003
[(a)] (1) realized directly from the source from which the item of income, gain, loss,
1004
[or] deduction, or credit is realized by the pass-through entity; or
1005
[(b)] (2) incurred in the same manner as incurred by the pass-through entity.
1006
[(3) In determining state taxable income of a resident taxpayer, any addition or
1007
subtraction described in Section
59-10-114
that relates to an item of income, gain, loss, or
1008
deduction of a pass-through entity shall be made in accordance with the taxpayer's distributive
1009
share:]
1010
[(a) of the item to which the addition or subtraction relates; and]
1011
[(b) for federal income tax purposes.]
1012
[(4) If a taxpayer's distributive share of an item of income, gain, loss, or deduction
1013
described in Subsection (3) is not required to be taken into account separately for federal
1014
income tax purposes, the taxpayer's distributive share of that item of income, gain, loss, or
1015
deduction shall be determined in accordance with that taxpayer's distributive share:]
1016
[(a) of income or loss relating to the pass-through entity generally; and]
1017
[(b) for federal income tax purposes.]
1018
Section 15.
Section
59-10-1404.5
is enacted to read:
1019
59-10-1404.5. Resident pass-through entity taxpayer's share of an addition,
1020
subtraction, or adjustment that relates to an item of income, gain, loss, deduction, or
1021
credit of a pass-through entity.
1022
(1) In determining the taxable income of a resident pass-through entity taxpayer, an
1023
addition, subtraction, or adjustment that relates to an item of income, gain, loss, deduction, or
1024
credit of a pass-through entity shall be made in accordance with this section.
1025
(2) For a resident pass-through entity taxpayer of a pass-through entity except for a
1026
pass-through entity that is an S corporation, the resident pass-through entity taxpayer's share of
1027
an addition, subtraction, or adjustment that relates to an item of income, gain, loss, deduction,
1028
or credit is:
1029
(a) if the item of income, gain, loss, deduction, or credit is required to be taken into
1030
account separately for federal income tax purposes, the resident pass-through entity taxpayer's
1031
distributive share of the item of income, gain, loss, deduction, or credit:
1032
(i) for federal income tax purposes; and
1033
(ii) determined under Section 704 et seq., Internal Revenue Code; or
1034
(b) if the item of income, gain, loss, deduction, or credit is not required to be taken into
1035
account separately for federal income tax purposes, determined in accordance with the resident
1036
pass-through entity taxpayer's distributive share of income, gain, loss, deduction, or credit:
1037
(i) relating to the pass-through entity generally;
1038
(ii) for federal income tax purposes; and
1039
(iii) under Section 704 et seq., Internal Revenue Code.
1040
(3) For a resident pass-through entity taxpayer of a pass-through entity that is an S
1041
corporation, the resident pass-through entity taxpayer's share of an addition, subtraction, or
1042
adjustment that relates to an item of income, gain, loss, deduction, or credit is:
1043
(a) if the item of income, gain, loss, deduction, or credit is required to be taken into
1044
account separately for federal income tax purposes, the resident pass-through entity taxpayer's
1045
pro rata share of the item of income, gain, loss, deduction, or credit:
1046
(i) for federal income tax purposes; and
1047
(ii) determined under Section 1366 et seq., Internal Revenue Code; or
1048
(b) if the item of income, gain, loss, deduction, or credit is not required to be taken into
1049
account separately for federal income tax purposes, determined in accordance with the resident
1050
pass-through entity taxpayer's pro rata share of the item of income, gain, loss, deduction, or
1051
credit:
1052
(i) relating to the pass-through entity generally;
1053
(ii) for federal income tax purposes; and
1054
(iii) under Section 1366 et seq., Internal Revenue Code.
1055
Section 16.
Section
59-10-1405
is amended to read:
1056
59-10-1405. Nonresident pass-through entity taxpayer's share of an addition,
1057
subtraction, or adjustment that relates to an item of income, gain, loss, deduction, or
1058
credit of a pass-through entity -- In determining source of nonresident pass-through
1059
entity taxpayer's income certain provisions of pass-through entity agreement may not be
1060
considered -- Rulemaking authority.
1061
[(1) Subject to Subsection (2), the adjusted gross income of a nonresident taxpayer
1062
shall be adjusted by only that portion of the taxpayer's distributive share of an item of income,
1063
gain, loss, or deduction of a pass-through entity derived from or connected with sources in this
1064
state.]
1065
[(2) In accordance with Title 63G, Chapter 3, Utah Administrative Rulemaking Act,
1066
the commission may make rules for determining the adjustment required by Subsection (1) if
1067
those rules are consistent with the principles of Section
59-10-116
.]
1068
(1) (a) Except as provided in Subsection (3), in determining the taxable income of a
1069
nonresident pass-through entity taxpayer, an addition, subtraction, or adjustment that relates to
1070
an item of income, gain, loss, deduction, or credit of a pass-through entity shall be made in
1071
accordance with this Subsection (1).
1072
(b) For a nonresident pass-through entity taxpayer of a pass-through entity except for a
1073
pass-through entity that is an S corporation, the nonresident pass-through entity taxpayer's
1074
share of an addition, subtraction, or adjustment that relates to an item of income, gain, loss,
1075
deduction, or credit is:
1076
(i) if the item of income, gain, loss, deduction, or credit is required to be taken into
1077
account separately for federal income tax purposes, the nonresident pass-through entity
1078
taxpayer's distributive share of the item of income, gain, loss, deduction, or credit:
1079
(A) for federal income tax purposes;
1080
(B) determined under Section 704 et seq., Internal Revenue Code; and
1081
(C) derived from or connected with Utah sources; or
1082
(ii) if the item of income, gain, loss, deduction, or credit is not required to be taken into
1083
account separately for federal income tax purposes, determined in accordance with the
1084
nonresident pass-through entity taxpayer's distributive share of income, gain, loss, deduction,
1085
or credit:
1086
(A) relating to the pass-through entity generally;
1087
(B) for federal income tax purposes;
1088
(C) under Section 704 et seq., Internal Revenue Code; and
1089
(D) derived from or connected with Utah sources.
1090
(c) For a nonresident pass-through entity taxpayer of a pass-through entity that is an S
1091
corporation, the nonresident pass-through entity taxpayer's share of an addition, subtraction, or
1092
adjustment that relates to an item of income, gain, loss, deduction, or credit is:
1093
(i) if the item of income, gain, loss, deduction, or credit is required to be taken into
1094
account separately for federal income tax purposes, the nonresident pass-through entity
1095
taxpayer's pro rata share of the item of income, gain, loss, deduction, or credit:
1096
(A) for federal income tax purposes;
1097
(B) determined under Section 1366 et seq., Internal Revenue Code; and
1098
(C) derived from or connected with Utah sources; or
1099
(ii) if the item of income, gain, loss, deduction, or credit is not required to be taken into
1100
account separately for federal income tax purposes, determined in accordance with the
1101
nonresident pass-through entity taxpayer's pro rata share of the item of income, gain, loss,
1102
deduction, or credit:
1103
(A) relating to the pass-through entity generally;
1104
(B) for federal income tax purposes;
1105
(C) under Section 1366 et seq., Internal Revenue Code; and
1106
(D) derived from or connected with Utah sources.
1107
[(3)] (2) In determining the source of a nonresident pass-through entity taxpayer's
1108
income, the following provisions in a pass-through entity agreement may not be considered:
1109
[(a) a provision that characterizes a payment to the taxpayer as being for:]
1110
[(i) a service; or]
1111
[(ii) the use of capital;]
1112
[(b) except as provided in Subsection (5),]
1113
(a) a provision that allocates to the nonresident pass-through entity taxpayer, as income
1114
[or], gain, or credit from a source outside this state, a greater proportion of the nonresident
1115
pass-through entity taxpayer's [distributive] share of income [or], gain, or credit of the
1116
pass-through entity than the ratio of income [or], gain, or credit of the pass-through entity from
1117
sources outside this state to income [or], gain, or credit of the pass-through entity from all
1118
sources; or
1119
[(c) except as provided in Subsection (5),]
1120
(b) a provision that allocates to the nonresident pass-through entity taxpayer a greater
1121
proportion of an item of loss or deduction of the pass-through entity derived from or connected
1122
with Utah sources [in this state] than the taxpayer's [proportionate] share of loss or deduction
1123
generally:
1124
(i) relating to the pass-through entity; and
1125
(ii) for federal income tax purposes.
1126
[(4) Any addition or subtraction described in Section
59-10-114
that relates to an item
1127
of income, gain, loss, or deduction of a pass-through entity shall be made in accordance with
1128
the taxpayer's distributive share:]
1129
[(a) of the portion of the item of income, gain, loss, or deduction required to be added
1130
or subtracted under Section
59-10-114
that is derived from or connected with sources in the
1131
state; and]
1132
[(b) for federal income tax purposes.]
1133
[(5) (a) Subject to Subsection (5)(b), the]
1134
(3) The commission may by rule, made in accordance with Title 63G, Chapter 3, Utah
1135
Administrative Rulemaking Act, [authorize the use of one or more methods, other than a
1136
method described in Subsections (1) through (4), for determining: (i) a nonresident taxpayer's
1137
portion of an] authorize the use of a calculation other than the calculation provided in
1138
Subsection (1), for determining a nonresident pass-through entity taxpayer's share of an
1139
addition, subtraction, or adjustment that relates to an item of income, gain, loss, [or] deduction,
1140
or credit of a pass-through entity derived from or connected with [sources in the state; and]
1141
Utah sources if:
1142
[(ii) the portion of an item of income, gain, loss, or deduction required to be added or
1143
subtracted under Section
59-10-114
that is derived from or connected with sources in the state.]
1144
[(b) For purposes of Subsection (5)(a), the commission may authorize the use of one or
1145
more methods, other than a method described in Subsections (1) through (4), if:]
1146
[(i) the commission finds that the use of the method is appropriate and equitable; and]
1147
[(ii) the taxpayer applies to the commission.]
1148
[(6) (a) A nonresident taxpayer's distributive share of an item of income, gain, loss, or
1149
deduction shall be determined in accordance with the principles of Subsections
59-10-1404
(3)
1150
and (4).]
1151
[(b) The character of an item of income, gain, loss, or deduction for a nonresident
1152
taxpayer shall be determined in accordance with the principles of Subsections
59-10-1404
(1)
1153
and (2).]
1154
(a) the nonresident pass-through entity taxpayer applies to the commission; and
1155
(b) the commission finds that the use of the calculation is appropriate and equitable.
1156
Section 17. Repealer.
1157
This bill repeals:
1158
Section 48-2c-117, Taxation of limited liability companies.
1159
Section 59-7-701, Taxation of S corporations.
1160
Section 59-7-702, Taxation of shareholders.
1161
Section 59-7-703, Payment or withholding of tax on behalf of nonresident
1162
shareholders -- Rate.
1163
Section 59-7-704, Amount taxable.
1164
Section 59-7-705, Application of minimum tax.
1165
Section 59-7-706, Distribution of revenues received.
1166
Section 59-7-707, Commission empowered to make rules.
1167
Section 18. Effective date -- Retrospective operation.
1168
This bill:
1169
(1) if approved by two-thirds of all the members elected to each house, takes effect
1170
upon approval by the governor, or the day following the constitutional time limit of Utah
1171
Constitution Article VII, Section 8, without the governor's signature, or in the case of a veto,
1172
the date of veto override; and
1173
(2) has retrospective operation for a taxable year beginning on or after January 1, 2009.
Legislative Review Note
as of 11-25-08 3:39 PM