First Substitute S.B. 47

Representative John L. Valentine proposes to substitute the following bill:

1 RESEARCH TAX CREDIT
2 1998 GENERAL SESSION
3 STATE OF UTAH
4 Sponsor: Howard C. Nielson
5 Lyle W. Hillyard
6 Lane Beattie
7 Leonard M. Blackham
8 David L. Buhler
9 Mike Dmitrich
10 R. Mont Evans
11 John P. Holmgren
12 Scott N. Howell
13 Joseph L. Hull
Lorin V. Jones
L. Alma Mansell
George Mantes
Eddie P. Mayne
LeRay McAllister
Robert F. Montgomery
Robert M. Muhlestein
Alarik Myrin
Craig A. Peterson
Millie M. Peterson
L. Steven Poulton
David H. Steele
Robert C. Steiner
Howard A. Stephenson
Pete Suazo
Nathan C. Tanner
Craig L. Taylor
Blaze D. Wharton

14 AN ACT RELATING TO REVENUE AND TAXATION; PROVIDING INDIVIDUAL INCOME
15 TAX AND CORPORATE FRANCHISE AND INCOME TAX CREDITS FOR RESEARCH
16 ACTIVITIES CONDUCTED IN THE STATE; AND PROVIDING FOR REVENUE AND
17 TAXATION INTERIM COMMITTEE AND TAX REVIEW COMMISSION STUDIES.
18 This act affects sections of Utah Code Annotated 1953 as follows:
19 ENACTS:
20 59-7-612, Utah Code Annotated 1953
21 59-10-131, Utah Code Annotated 1953
22 This act enacts uncodified material.
23 Be it enacted by the Legislature of the state of Utah:
24 Section 1. Section 59-7-612 is enacted to read:
25 59-7-612. Credits for research activities conducted in the state -- Carry forward --
26 Commission to report modification or repeal of federal credits -- Tax Review Commission
27 study.

1 (1) (a) For taxable years beginning on or after January 1, 1999, but beginning before
2 December 31, 2010, a taxpayer meeting the requirements of this section shall qualify for the
3 following nonrefundable credits for increasing research activities in this state:
4 (i) a research credit of 6% of the taxpayer's qualified research expenses for the current
5 taxable year that exceed the base amount provided for under Subsection (4); and
6 (ii) a credit for payments to qualified organizations for basic research as provided in
7 Section 41(e), Internal Revenue Code of 6% for the current taxable year that exceed the base
8 amount provided for under Subsection (4).
9 (b) If a taxpayer qualifying for a credit under Subsection (1)(a) seeks to claim the credit,
10 the taxpayer shall:
11 (i) claim the credit or a portion of the credit for the taxable year immediately following
12 the taxable year for which the taxpayer qualifies for the credit;
13 (ii) carry the credit or a portion of the credit forward as provided in Subsection (4)(f); or
14 (iii) claim a portion of the credit and carry forward a portion of the credit as provided in
15 Subsections (1)(b)(i) and (ii).
16 (c) The credits provided for in this section do not include the alternative incremental credit
17 provided for in Section 41(c)(4), Internal Revenue Code.
18 (2) For purposes of claiming a credit under this section, a unitary group as defined in
19 Section 59-7-101 is considered to be one taxpayer.
20 (3) Except as specifically provided for in this section:
21 (a) the credits authorized under Subsection (1) shall be calculated as provided in Section
22 41, Internal Revenue Code; and
23 (b) the definitions provided in Section 41, Internal Revenue Code, apply in calculating the
24 credits authorized under Subsection (1).
25 (4) For purposes of this section:
26 (a) the base amount shall be calculated as provided in Sections 41(c) and 41(h), Internal
27 Revenue Code, except that:
28 (i) the base amount does not include the calculation of the alternative incremental credit
29 provided for in Section 41(c)(4), Internal Revenue Code; and
30 (ii) a taxpayer's gross receipts include only those gross receipts attributable to sources
31 within this state as provided in Part 3, Allocation and Apportionment of Income -- Utah UDITPA

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1 Provisions;
2 (b) "basic research" is as defined in Section 41(e)(7), Internal Revenue Code, except that
3 the term includes only basic research conducted in this state;
4 (c) "qualified research" is as defined in Section 41(d), Internal Revenue Code, except that
5 the term includes only qualified research conducted in this state;
6 (d) "qualified research expenses" is as defined and calculated in Section 41(b), Internal
7 Revenue Code, except that the term includes only those expenses incurred in conducting qualified
8 research in this state;
9 (e) notwithstanding the provisions of Section 41(h), Internal Revenue Code, the credits
10 provided for in this section shall not terminate if the credits terminate under Section 41, Internal
11 Revenue Code; and
12 (f) notwithstanding the provisions of Sections 39 and 41(g), Internal Revenue Code,
13 governing the carry forward and carry back of federal tax credits, if the amount of a tax credit
14 claimed by a taxpayer under this section exceeds the taxpayer's tax liability under this chapter for
15 a taxable year, the amount of the credit exceeding the liability:
16 (i) may be carried forward for a period that does not exceed the next 14 taxable years; and
17 (ii) may not be carried back to a taxable year preceding the current taxable year.
18 (5) In accordance with Title 63, Chapter 46a, Utah Administrative Rulemaking Act, the
19 commission may make rules for purposes of this section prescribing a certification process for
20 qualified organizations to ensure that amounts paid to the qualified organizations are for basic
21 research conducted in this state.
22 (6) If a federal tax credit under Section 41, Internal Revenue Code, is modified or repealed,
23 the commission shall report the modification or repeal to the Tax Review Commission within 60
24 days after the day on which the modification or repeal becomes effective.
25 (7) (a) Except as provided in Subsection (7)(b), the Tax Review Commission shall review
26 the credits provided for in this section on or before the earlier of:
27 (i) October 1 of the year after the year in which the commission reports under Subsection
28 (6) a modification or repeal of a federal tax credit under Section 41, Internal Revenue Code; or
29 (ii) October 1, 2004.
30 (b) Notwithstanding Subsection (7)(a), the Tax Review Commission is not required to
31 review the credits provided for in this section if the only modification to a federal tax credit under

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1 Section 41, Internal Revenue Code, is the extension of the termination date provided for in Section
2 41(h), Internal Revenue Code.
3 (c) The Tax Review Commission shall address in a review under this section the:
4 (i) cost of the credit;
5 (ii) purpose and effectiveness of the credit;
6 (iii) whether the credit benefits the state; and
7 (iv) whether the credit should be:
8 (A) continued;
9 (B) modified; or
10 (C) repealed.
11 (d) If the Tax Review Commission reviews the credits provided for in this section, the Tax
12 Review Commission shall report its findings to the Revenue and Taxation Interim Committee on
13 or before the November interim meeting of the year in which the Tax Review Commission reviews
14 the credits.
15 Section 2. Section 59-10-131 is enacted to read:
16 59-10-131. Credits for research activities conducted in the state -- Carry forward --
17 Commission to report modification or repeal of federal credits -- Tax Review Commission
18 study.
19 (1) (a) For taxable years beginning on or after January 1, 1999, but beginning before
20 December 31, 2010, a taxpayer meeting the requirements of this section shall qualify for the
21 following nonrefundable credits for increasing research activities in this state:
22 (i) a research credit of 6% of the taxpayer's qualified research expenses for the current
23 taxable year that exceed the base amount provided for under Subsection (4); and
24 (ii) a credit for payments to qualified organizations for basic research as provided in
25 Section 41(e), Internal Revenue Code of 6% for the current taxable year that exceed the base
26 amount provided for under Subsection (4).
27 (b) If a taxpayer qualifying for a credit under Subsection (1)(a) seeks to claim the credit
28 the taxpayer shall:
29 (i) claim the credit or a portion of the credit for the taxable year immediately following
30 the taxable year for which the taxpayer qualifies for the credit;
31 (ii) carry the credit or a portion of the credit forward as provided in Subsection (4)(f); or

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1 (iii) claim a portion of the credit and carry forward a portion of the credit as provided in
2 Subsections (1)(b)(i) and (ii).
3 (c) The credits provided for in this section do not include the alternative incremental credit
4 provided for in Section 41(c)(4), Internal Revenue Code.
5 (2) For purposes of claiming a credit under this section, a unitary group as defined in
6 Section 59-7-101 is considered to be one taxpayer.
7 (3) Except as specifically provided for in this section:
8 (a) the credits authorized under Subsection (1) shall be calculated as provided in Section
9 41, Internal Revenue Code; and
10 (b) the definitions provided in Section 41, Internal Revenue Code, apply in calculating the
11 credits authorized under Subsection (1).
12 (4) For purposes of this section:
13 (a) the base amount shall be calculated as provided in Sections 41(c) and 41(h), Internal
14 Revenue Code, except that:
15 (i) the base amount does not include the calculation of the alternative incremental credit
16 provided for in Section 41(c)(4), Internal Revenue Code; and
17 (ii) a taxpayer's gross receipts include only those gross receipts attributable to sources
18 within this state as provided in Chapter 7, Part 3, Allocation and Apportionment of Income -- Utah
19 UDITPA Provisions;
20 (b) "basic research" is as defined in Section 41(e)(7), Internal Revenue Code, except that
21 the term includes only basic research conducted in this state;
22 (c) "qualified research" is as defined in Section 41(d), Internal Revenue Code, except that
23 the term includes only qualified research conducted in this state;
24 (d) "qualified research expenses" is as defined and calculated in Section 41(b), Internal
25 Revenue Code, except that the term includes only those expenses incurred in conducting qualified
26 research in this state;
27 (e) notwithstanding the provisions of Section 41(h), Internal Revenue Code, the credits
28 provided for in this section shall not terminate if the credits terminate under Section 41, Internal
29 Revenue Code; and
30 (f) notwithstanding the provisions of Sections 39 and 41(g), Internal Revenue Code,
31 governing the carry forward and carry back of federal tax credits, if the amount of a tax credit

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1 claimed by a taxpayer under this section exceeds the taxpayer's tax liability under this chapter for
2 a taxable year, the amount of the credit exceeding the liability:
3 (i) may be carried forward for a period that does not exceed the next 14 taxable years; and
4 (ii) may not be carried back to a taxable year preceding the current taxable year.
5 (5) In accordance with Title 63, Chapter 46a, Utah Administrative Rulemaking Act, the
6 commission may make rules for purposes of this section prescribing a certification process for
7 qualified organizations to ensure that amounts paid to the qualified organizations are for basic
8 research conducted in this state.
9 (6) If a federal tax credit under Section 41, Internal Revenue Code, is modified or repealed,
10 the commission shall report the modification or repeal to the Tax Review Commission within 60
11 days after the day on which the modification or repeal becomes effective.
12 (7) (a) Except as provided in Subsection (7)(b), the Tax Review Commission shall review
13 the credits provided for in this section on or before the earlier of:
14 (i) October 1 of the year after the year in which the commission reports under Subsection
15 (6) a modification or repeal of a federal tax credit under Section 41, Internal Revenue Code; or
16 (ii) October 1, 2004.
17 (b) Notwithstanding Subsection (7)(a), the Tax Review Commission is not required to
18 review the credits provided for in this section if the only modification to a federal tax credit under
19 Section 41, Internal Revenue Code, is the extension of the termination date provided for in Section
20 41(h), Internal Revenue Code.
21 (c) The Tax Review Commission shall address in a review under this section the:
22 (i) cost of the credit;
23 (ii) purpose and effectiveness of the credit;
24 (iii) whether the credit benefits the state; and
25 (iv) whether the credit should be:
26 (A) continued;
27 (B) modified; or
28 (C) repealed.
29 (d) If the Tax Review Commission reviews the credits provided for in this section, the Tax
30 Review Commission shall report its findings to the Revenue and Taxation Interim Committee on
31 or before the November interim meeting of the year in which the Tax Review Commission reviews

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1 the credits.
2 Section 3. Revenue and Taxation Interim Committee study.
3 (1) The Revenue and Taxation Interim Committee shall, beginning on the May 1998
4 interim meeting and ending on or before the November 1998 interim meeting, study the credits
5 provided for in Sections 59-7-612 and 59-10-131.
6 (2) The Revenue and Taxation Interim Committee shall include in its study an analysis of:
7 (a) the cost of the credits;
8 (b) the purpose and effectiveness of the credits;
9 (c) whether the credits will benefit the state;
10 (d) whether to impose a limitation on the amount of credit a taxpayer may claim; and
11 (e) whether the credits should be:
12 (i) modified; or
13 (ii) repealed.
14 (3) The Revenue and Taxation Interim Committee may request assistance from the Tax
15 Review Commission in conducting the study under this section.

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