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S.B. 67

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INCOME TAX - PERSONAL EXEMPTION INCREASE

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1997 GENERAL SESSION

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STATE OF UTAH

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Sponsor: Howard C. Nielson

5    AN ACT RELATING TO THE INDIVIDUAL INCOME TAX ACT; INCREASING THE
6    PERSONAL EXEMPTION AMOUNT; MODIFYING THE MANNER IN WHICH STATE
7    TAXABLE INCOME IS CALCULATED; MAKING TECHNICAL CHANGES; AND
8    PROVIDING FOR RETROSPECTIVE OPERATION.
9    This act affects sections of Utah Code Annotated 1953 as follows:
10    AMENDS:
11         59-10-112, as last amended by Chapter 345, Laws of Utah 1995
12         59-10-114, as last amended by Chapter 4, Laws of Utah 1996, Second Special Session
13         59-10-116, as renumbered and amended by Chapter 2, Laws of Utah 1987
14         59-10-117, as last amended by Chapters 311 and 345, Laws of Utah 1995
15    Be it enacted by the Legislature of the state of Utah:
16        Section 1. Section 59-10-112 is amended to read:
17         59-10-112. State taxable income of resident individual.
18        (1) "State taxable income" in the case of a resident individual means [his] the individual's
19    federal [taxable] adjusted gross income [(as defined by Section 59-10-111)] with the
20    modifications, subtractions, and adjustments provided in Section 59-10-114.
21        (2) The state taxable income of a resident individual who is the beneficiary of an estate
22    or trust shall be modified by the adjustments provided in Section 59-10-209.
23        Section 2. Section 59-10-114 is amended to read:
24         59-10-114. Additions to and subtractions from federal adjusted gross income of an
25     individual.
26        (1) There shall be added to the federal [taxable] adjusted gross income of a resident or
27    nonresident individual:


1        (a) the amount of any income tax imposed by this or any predecessor Utah individual
2    income tax law and the amount of any income tax imposed by the laws of another state, the
3    District of Columbia, or a possession of the United States[,]:
4        (i) if the taxpayer subtracts under Subsection (2)(1)(i) federal itemized deductions from
5    the taxpayer's federal adjusted gross income; and
6        (ii) to the extent [deducted] the taxpayer deducts the income taxes from federal adjusted
7    gross income, as defined by Section 62, Internal Revenue Code, in determining federal taxable
8    income;
9        (b) a lump sum distribution allowable as a deduction under Section 402(e)(3), Internal
10    Revenue Code, to the extent deductible under Section 62(a)(8), Internal Revenue Code, in
11    determining federal adjusted gross income;
12        [(c) 25% of the personal exemptions, as defined and calculated in the Internal Revenue
13    Code;]
14        [(d)] (c) to the extent not included in federal taxable income, if a withdrawal from a
15    medical care savings account is subject to Subsections 31A-32-105(1) and (2), the amount of
16    money withdrawn by the taxpayer in the tax year from the medical care savings account, and any
17    penalty imposed in the tax year; and
18        [(e)] (d) the amount refunded to a participant under Title 53B, Chapter 8a, Higher
19    Education Savings Incentive Program, in the year in which the amount is refunded.
20        (2) There shall be subtracted from federal [taxable] adjusted gross income of a resident or
21    nonresident individual:
22        (a) the interest or dividends on obligations or securities of the United States and its
23    possessions or of any authority, commission, or instrumentality of the United States, to the extent
24    includable in gross income for federal income tax purposes but exempt from state income taxes
25    under the laws of the United States, but the amount subtracted under this subsection shall be
26    reduced by any interest on indebtedness incurred or continued to purchase or carry the obligations
27    or securities described in this subsection, and by any expenses incurred in the production of
28    interest or dividend income described in this subsection to the extent that such expenses, including
29    amortizable bond premiums, are deductible in determining federal taxable income;
30        (b) 1/2 of the net amount of any income tax paid or payable to the United States after all
31    allowable credits, as reported on the United States individual income tax return of the taxpayer for

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1    the same taxable year;
2        (c) the amount of adoption expenses which, for purposes of this subsection, means any
3    actual medical and hospital expenses of the mother of the adopted child which are incident to the
4    child's birth and any welfare agency, child placement service, legal, and other fees or costs relating
5    to the adoption;
6        (d) amounts received by taxpayers under age 65 as retirement income which, for purposes
7    of this section, means pensions and annuities, paid from an annuity contract purchased by an
8    employer under a plan which meets the requirements of Section 404 (a)(2), Internal Revenue Code,
9    or purchased by an employee under a plan which meets the requirements of Section 408, Internal
10    Revenue Code, or paid by the United States, a state, or political subdivision thereof, or the District
11    of Columbia, to the employee involved or the surviving spouse;
12        (e) for each taxpayer age 65 or over before the close of the taxable year, a $7,500 personal
13    retirement exemption;
14        (f) 75% of the amount of the personal exemption, as defined and calculated in the Internal
15    Revenue Code, for each dependent child with a disability and adult with a disability who is
16    claimed as a dependent on a taxpayer's return;
17        (g) any amount included in federal taxable income that was received pursuant to any
18    federal law enacted in 1988 to provide reparation payments, as damages for human suffering, to
19    United States citizens and resident aliens of Japanese ancestry who were interned during World
20    War II;
21        (h) subject to the limitations of Subsection (3)(e), 60% of the amounts paid by the taxpayer
22    during the taxable year for health care insurance, as defined in Title 31A, Chapter 1, Insurance
23    Code, for the taxpayer, the taxpayer's spouse, and the taxpayer's dependents to the extent the
24    amounts paid for health insurance were not deductible under Sections 125, 162, or 213, Internal
25    Revenue Code, in determining federal taxable income;
26        (i) except as otherwise provided in this subsection, the amount of a contribution made in
27    the tax year on behalf of the taxpayer to a medical care savings account and interest earned on a
28    contribution to a medical care savings account established pursuant to Title 31A, Chapter 32,
29    Medical Care Savings Account Act, to the extent the contribution is accepted by the account
30    administrator as provided in the Medical Care Savings Account Act, and to the extent the
31    contribution amount is included in federal taxable income. A contribution deductible under this

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1    subsection may not exceed either of the following:
2        (i) the maximum contribution allowed under the Medical Care Savings Account Act for
3    the tax year multiplied by two for taxpayers who file a joint return, if neither spouse is covered by
4    health care insurance as defined in Section 31A-1-301 or self-funded plan that covers the other
5    spouse, and each spouse has a medical care savings account; or
6        (ii) the maximum contribution allowed under the Medical Care Savings Account Act for
7    the tax year for taxpayers:
8        (A) who do not file a joint return; or
9        (B) who file a joint return, but do not qualify under Subsection (2)(i)(i); [and]
10        (j) the amount included in federal taxable income that was derived from money paid by
11    the taxpayer to the program fund and investment income earned on those payments under Title
12    53B, Chapter 8a, Higher Education Savings Incentive Program[.];
13        (k) the amount of the taxpayer's federal personal exemptions; and
14        (l) (i) the amount of the federal standard deduction claimed by the taxpayer for the taxable
15    year; or
16        (ii) the amount of the federal itemized deductions claimed by the taxpayer for the taxable
17    year.
18        (3) (a) For purposes of Subsection (2)(d), the amount of retirement income subtracted for
19    taxpayers under 65 shall be the lesser of the amount included in federal taxable income, or $4,800,
20    except that:
21        (i) for married taxpayers filing joint returns, for each $1 of adjusted gross income earned
22    over $32,000, the amount of the retirement income exemption that may be subtracted shall be
23    reduced by 50 cents;
24        (ii) for married taxpayers filing separate returns, for each $1 of adjusted gross income
25    earned over $16,000, the amount of the retirement income exemption that may be subtracted shall
26    be reduced by 50 cents; and
27        (iii) for individual taxpayers, for each $1 of adjusted gross income earned over $25,000,
28    the amount of the retirement income exemption that may be subtracted shall be reduced by 50
29    cents.
30        (b) For purposes of Subsection (2)(e), the amount of the personal retirement exemption
31    shall be further reduced according to the following schedule:

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1        (i) for married taxpayers filing joint returns, for each $1 of adjusted gross income earned
2    over $32,000, the amount of the personal retirement exemption shall be reduced by 50 cents;
3        (ii) for married taxpayers filing separate returns, for each $1 of adjusted gross income
4    earned over $16,000, the amount of the personal retirement exemption shall be reduced by 50
5    cents; and
6        (iii) for individual taxpayers, for each $1 of adjusted gross income earned over $25,000,
7    the amount of the personal retirement exemption shall be reduced by 50 cents.
8        (c) For purposes of Subsections (3)(a) and (b), adjusted gross income shall be calculated
9    by adding to federal adjusted gross income any interest income not otherwise included in federal
10    adjusted gross income.
11        (d) For purposes of determining ownership of items of retirement income common law
12    doctrine will be applied in all cases even though some items may have originated from service or
13    investments in a community property state. Amounts received by the spouse of a living retiree
14    because of the retiree's having been employed in a community property state are not deductible
15    as retirement income of such spouse.
16        (e) For purposes of Subsection (2)(h), a subtraction for an amount paid for health care
17    insurance as defined in Title 31A, Chapter 1, Insurance Code, is not allowed:
18        (i) for an amount that is reimbursed or funded in whole or in part by the federal
19    government, the state, or an agency or instrumentality of the federal government or the state; and
20        (ii) for a taxpayer who is eligible to participate in a health plan maintained and funded in
21    whole or in part by the taxpayer's employer or the taxpayer's spouse's employer.
22        Section 3. Section 59-10-116 is amended to read:
23         59-10-116. Tax on nonresident individual's state taxable income.
24        A tax is [hereby] imposed on the state taxable income, as defined in [Sections 59-10-111
25    and] Section 59-10-112, of every nonresident individual in accordance with the schedules in
26    Section 59-10-104, [but] except that the individual's Utah tax shall be only the portion of the
27    resident tax [so calculated as] that the individual's federal adjusted gross income received from
28    Utah sources [(] as determined under Section 59-10-117[)] for the taxable year bears to the
29    individual's total federal adjusted gross income for the same taxable year.
30        Section 4. Section 59-10-117 is amended to read:
31         59-10-117. Federal adjusted gross income derived from Utah sources.

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1        (1) For the purpose of Section 59-10-116, federal adjusted gross income derived from Utah
2    sources [shall include] includes those items includable in federal ["]adjusted gross income[" (as
3    defined by Section 62 of the Internal Revenue Code)] attributable to or resulting from:
4        (a) the ownership in this state of any interest in real or tangible personal property
5    (including real property or property rights from which "gross income from mining" as defined by
6    Section 613(c) of the Internal Revenue Code is derived); or
7        (b) the carrying on of a business, trade, profession, or occupation in this state.
8        (2) For the purposes of Subsection (1):
9        (a) Income from intangible personal property, including annuities, dividends, interest, and
10    gains from the disposition of intangible personal property shall constitute income derived from
11    Utah sources only to the extent that such income is from property employed in a trade, business,
12    profession, or occupation carried on in this state.
13        (b) Deductions with respect to capital losses, net long-term capital gains, and net operating
14    losses shall be based solely on income, gain, loss, and deduction connected with Utah sources,
15    under rules prescribed by the commission, but otherwise shall be determined in the same manner
16    as the corresponding federal deductions.
17        (c) Salaries, wages, commissions, and compensation for personal services rendered outside
18    this state shall not be considered to be derived from Utah sources.
19        (d) A nonresident shareholder's distributive share of ordinary income, gain, loss, and
20    deduction derived from or connected with Utah sources shall be determined under Section
21    59-10-118.
22        (e) A nonresident, other than a dealer holding property primarily for sale to customers in
23    the ordinary course of his trade or business, shall not be considered to carry on a trade, business,
24    profession, or occupation in this state solely by reason of the purchase or sale of property for his
25    own account.
26        (f) If a trade, business, profession, or occupation is carried on partly within and partly
27    without this state, items of income, gain, loss, and deductions derived from or connected with Utah
28    sources shall be determined in accordance with the provisions of Section 59-10-118.
29        (g) A nonresident partner's distributive share of partnership income, gain, loss, and
30    deduction derived from or connected with Utah sources shall be determined under Section
31    59-10-303.

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1        (h) The share of a nonresident estate or trust and nonresident beneficiaries of any estate
2    or trust in income, gain, loss, and deduction derived from or connected with Utah sources shall be
3    determined under Section 59-10-207.
4        (i) Any dividend, interest, or distributive share of income, gain, or loss from a real estate
5    investment trust, as defined in Section 59-7-116.5, distributed or allocated to a nonresident
6    investor in the trust, including any shareholder, beneficiary, or owner of a beneficial interest in the
7    trust, shall be income from intangible personal property under Subsection (2)(a), and shall
8    constitute income derived from Utah sources only to the extent the nonresident investor is
9    employing its beneficial interest in the trust in a trade, business, profession, or occupation carried
10    on by the investor in this state.
11        Section 5. Retrospective operation.
12        This act has retrospective operation for taxable years beginning on or after January 1, 1997.




Legislative Review Note
    as of 2-11-97 2:43 PM


A limited legal review of this bill raises no obvious constitutional or statutory concerns.

Office of Legislative Research and General Counsel


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