S.B. 8

1

RESEARCH TAX CREDITS MODIFICATIONS
2 1999 GENERAL SESSION
3 STATE OF UTAH
4 Sponsor: Howard C. Nielson
5 AN ACT RELATING TO REVENUE AND TAXATION; MODIFYING THE INDIVIDUAL
6 INCOME TAX AND CORPORATE FRANCHISE AND INCOME TAX CREDITS FOR
7 RESEARCH ACTIVITIES CONDUCTED IN THE STATE TO ALLOW CERTAIN
8 TAXPAYERS AN IRREVOCABLE ELECTION TO BE TREATED AS A START-UP
9 COMPANY FOR PURPOSES OF CALCULATING THE BASE AMOUNT; PROVIDING
10 THAT A TAXPAYER QUALIFYING FOR A CREDIT FOR A PURCHASE OF
11 MACHINERY, EQUIPMENT, OR BOTH MAY NOT CLAIM THE CREDIT OR CARRY
12 THE CREDIT FORWARD IF THE MACHINERY, EQUIPMENT, OR BOTH IS PRIMARILY
13 USED TO CONDUCT QUALIFIED RESEARCH IN THE STATE FOR A TIME PERIOD
14 THAT IS LESS THAN 12 CONSECUTIVE MONTHS; CLARIFYING THE
15 REQUIREMENTS FOR ELIGIBILITY FOR THE INDIVIDUAL INCOME TAX AND
16 CORPORATE FRANCHISE AND INCOME TAX CREDITS FOR MACHINERY,
17 EQUIPMENT, OR BOTH, USED FOR QUALIFIED RESEARCH OR BASIC RESEARCH;
18 MAKING TECHNICAL CHANGES; AND PROVIDING FOR RETROSPECTIVE
19 OPERATION.
20 This act affects sections of Utah Code Annotated 1953 as follows:
21 AMENDS:
22 59-7-612, as enacted by Chapter 367, Laws of Utah 1998
23 59-7-613, as enacted by Chapter 371, Laws of Utah 1998
24 59-10-131, as enacted by Chapter 367, Laws of Utah 1998
25 59-10-132, as enacted by Chapter 371, Laws of Utah 1998
26 Be it enacted by the Legislature of the state of Utah:
27 Section 1. Section 59-7-612 is amended to read:

28 59-7-612. Credits for research activities conducted in the state -- Carry forward --
29 Commission to report modification or repeal of federal credits -- Tax Review Commission
30 study.
31 (1) (a) For taxable years beginning on or after January 1, 1999, but beginning before
32 December 31, 2010, a taxpayer meeting the requirements of this section shall qualify for the
33 following nonrefundable credits for increasing research activities in this state:
34 (i) a research credit of 6% of the taxpayer's qualified research expenses for the current
35 taxable year that exceed the base amount provided for under Subsection (4); and
36 (ii) a credit for payments to qualified organizations for basic research as provided in
37 Section 41(e), Internal Revenue Code of 6% for the current taxable year that exceed the base
38 amount provided for under Subsection (4).
39 (b) If a taxpayer qualifying for a credit under Subsection (1)(a) seeks to claim the credit,
40 the taxpayer shall:
41 (i) claim the credit or a portion of the credit for the taxable year immediately following the
42 taxable year for which the taxpayer qualifies for the credit;
43 (ii) carry the credit or a portion of the credit forward as provided in Subsection (4)(f); or
44 (iii) claim a portion of the credit and carry forward a portion of the credit as provided in
45 Subsections (1)(b)(i) and (ii).
46 (c) The credits provided for in this section do not include the alternative incremental credit
47 provided for in Section 41(c)(4), Internal Revenue Code.
48 (2) For purposes of claiming a credit under this section, a unitary group as defined in
49 Section 59-7-101 is considered to be one taxpayer.
50 (3) Except as specifically provided for in this section:
51 (a) the credits authorized under Subsection (1) shall be calculated as provided in Section
52 41, Internal Revenue Code; and
53 (b) the definitions provided in Section 41, Internal Revenue Code, apply in calculating the
54 credits authorized under Subsection (1).
55 (4) For purposes of this section:
56 (a) the base amount shall be calculated as provided in Sections 41(c) and 41(h), Internal
57 Revenue Code, except that:
58 (i) the base amount does not include the calculation of the alternative incremental credit

59 provided for in Section 41(c)(4), Internal Revenue Code; [and]
60 (ii) a taxpayer's gross receipts include only those gross receipts attributable to sources
61 within this state as provided in Part 3, Allocation and Apportionment of Income -- Utah UDITPA
62 Provisions; and
63 (iii) notwithstanding Section 41(c), Internal Revenue Code, for purposes of calculating the
64 base amount, a taxpayer:
65 (A) may elect to be treated as a start-up company as provided in Section 41(c)(3)(B)
66 regardless of whether the taxpayer meets the requirements of Section 41(c)(3)(B)(i)(I) or (II); and
67 (B) may not revoke an election to be treated as a start-up company under Subsection
68 (4)(a)(iii)(A);
69 (b) "basic research" is as defined in Section 41(e)(7), Internal Revenue Code, except that
70 the term includes only basic research conducted in this state;
71 (c) "qualified research" is as defined in Section 41(d), Internal Revenue Code, except that
72 the term includes only qualified research conducted in this state;
73 (d) "qualified research expenses" is as defined and calculated in Section 41(b), Internal
74 Revenue Code, except that the term includes only those expenses incurred in conducting qualified
75 research in this state;
76 (e) notwithstanding the provisions of Section 41(h), Internal Revenue Code, the credits
77 provided for in this section shall not terminate if the credits terminate under Section 41, Internal
78 Revenue Code; and
79 (f) notwithstanding the provisions of Sections 39 and 41(g), Internal Revenue Code,
80 governing the carry forward and carry back of federal tax credits, if the amount of a tax credit
81 claimed by a taxpayer under this section exceeds the taxpayer's tax liability under this chapter for
82 a taxable year, the amount of the credit exceeding the liability:
83 (i) may be carried forward for a period that does not exceed the next 14 taxable years; and
84 (ii) may not be carried back to a taxable year preceding the current taxable year.
85 (5) In accordance with Title 63, Chapter 46a, Utah Administrative Rulemaking Act, the
86 commission may make rules for purposes of this section prescribing a certification process for
87 qualified organizations to ensure that amounts paid to the qualified organizations are for basic
88 research conducted in this state.
89 (6) If a federal tax credit under Section 41, Internal Revenue Code, is modified or repealed,

90 the commission shall report the modification or repeal to the Tax Review Commission within 60
91 days after the day on which the modification or repeal becomes effective.
92 (7) (a) Except as provided in Subsection (7)(b), the Tax Review Commission shall review
93 the credits provided for in this section on or before the earlier of:
94 (i) October 1 of the year after the year in which the commission reports under Subsection
95 (6) a modification or repeal of a federal tax credit under Section 41, Internal Revenue Code; or
96 (ii) October 1, 2004.
97 (b) Notwithstanding Subsection (7)(a), the Tax Review Commission is not required to
98 review the credits provided for in this section if the only modification to a federal tax credit under
99 Section 41, Internal Revenue Code, is the extension of the termination date provided for in Section
100 41(h), Internal Revenue Code.
101 (c) The Tax Review Commission shall address in a review under this section the:
102 (i) cost of the credit;
103 (ii) purpose and effectiveness of the credit;
104 (iii) whether the credit benefits the state; and
105 (iv) whether the credit should be:
106 (A) continued;
107 (B) modified; or
108 (C) repealed.
109 (d) If the Tax Review Commission reviews the credits provided for in this section, the Tax
110 Review Commission shall report its findings to the Revenue and Taxation Interim Committee on
111 or before the November interim meeting of the year in which the Tax Review Commission reviews
112 the credits.
113 Section 2. Section 59-7-613 is amended to read:
114 59-7-613. Credits for either machinery, equipment, or both primarily used for
115 conducting qualified research or basic research -- Carry forward -- Commission to report
116 modification or repeal of federal credits -- Tax Review Commission study.
117 (1) As used in this section:
118 (a) "Basic research" is as defined in Section 41(e)(7), Internal Revenue Code, except that
119 the term includes only basic research conducted in this state.
120 (b) "Equipment" includes:

121 (i) computers;
122 (ii) computer equipment; and
123 (iii) computer software.
124 (c) "Purchase price":
125 (i) includes the cost of installing an item of machinery or equipment; and
126 (ii) does not include sales or use taxes imposed on an item of machinery or equipment.
127 (d) "Qualified organization" is as defined in Section 41(e)(6), Internal Revenue Code.
128 (e) "Qualified research" is as defined in Section 41(d), Internal Revenue Code, except that
129 the term includes only qualified research conducted in this state.
130 (2) (a) [For] Except as provided in Subsection (2)(c), for taxable years beginning on or
131 after January 1, 1999, but beginning before December 31, 2010, a taxpayer [meeting the
132 requirements of this section] shall qualify for the following nonrefundable credits for the taxable
133 year in which the machinery, equipment, or both meets the requirements of either Subsection
134 (2)(a)(i) or (2)(a)(ii):
135 (i) a credit of 6% of the purchase price of either machinery, equipment, or both:
136 (A) purchased by the taxpayer during the taxable year;
137 (B) that is not exempt from sales or use taxes; and
138 (C) that is primarily used to conduct qualified research in this state; and
139 (ii) a credit of 6% of the purchase price of either machinery, equipment, or both:
140 (A) purchased by the taxpayer during the taxable year;
141 (B) that is not exempt from sales or use taxes; [and]
142 (C) that is donated to a qualified organization [to be]; and
143 (D) that is primarily used to conduct basic research in this state.
144 (b) If a taxpayer qualifying for a credit under Subsection (2)(a) seeks to claim the credit,
145 the taxpayer shall:
146 (i) claim the credit or a portion of the credit for the taxable year immediately following the
147 taxable year for which the taxpayer qualifies for the credit;
148 (ii) carry the credit or a portion of the credit forward as provided in Subsection (5); or
149 (iii) claim a portion of the credit and carry forward a portion of the credit as provided in
150 Subsections (2)(b)(i) and (ii).
151 (c) Notwithstanding Subsection (2)(a), if a taxpayer qualifies for a credit under Subsection

152 (2)(a) for a purchase of machinery, equipment, or both, the taxpayer may not claim the credit or
153 carry the credit forward if the machinery, equipment, or both is primarily used to conduct qualified
154 research in the state for a time period that is less than 12 consecutive months.
155 (3) For purposes of claiming a credit under this section, a unitary group as defined in
156 Section 59-7-101 is considered to be one taxpayer.
157 (4) Notwithstanding the provisions of Section 41(h), Internal Revenue Code, the credits
158 provided for in this section shall not terminate if the credits terminate under Section 41, Internal
159 Revenue Code.
160 (5) Notwithstanding the provisions of Sections 39 and 41(g), Internal Revenue Code,
161 governing the carry forward and carry back of federal tax credits, if the amount of a tax credit
162 claimed by a taxpayer under this section exceeds the taxpayer's tax liability under this chapter for
163 a taxable year, the amount of the credit exceeding the liability:
164 (a) may be carried forward for a period that does not exceed the next 14 taxable years; and
165 (b) may not be carried back to a taxable year preceding the current taxable year.
166 (6) In accordance with Title 63, Chapter 46a, Utah Administrative Rulemaking Act, the
167 commission may make rules for purposes of this section prescribing a certification process for
168 qualified organizations to ensure that either machinery, equipment, or both provided to the
169 qualified organization is to be primarily used to conduct basic research in this state.
170 (7) If a federal tax credit under Section 41, Internal Revenue Code, is modified or repealed,
171 the commission shall report the modification or repeal to the Tax Review Commission within 60
172 days after the day on which the modification or repeal becomes effective.
173 (8) (a) Except as provided in Subsection (8)(b), the Tax Review Commission shall review
174 the credits provided for in this section on or before the earlier of:
175 (i) October 1 of the year after the year in which the commission reports under Subsection
176 (7) a modification or repeal of a federal tax credit under Section 41, Internal Revenue Code; or
177 (ii) October 1, 2004.
178 (b) Notwithstanding Subsection (8)(a), the Tax Review Commission is not required to
179 review the credits provided for in this section if the only modification to a federal tax credit under
180 Section 41, Internal Revenue Code, is the extension of the termination date provided for in Section
181 41(h), Internal Revenue Code.
182 (c) The Tax Review Commission shall address in a review under this section the:

183 (i) cost of the credit;
184 (ii) purpose and effectiveness of the credit;
185 (iii) whether the credit benefits the state; and
186 (iv) whether the credit should be:
187 (A) continued;
188 (B) modified; or
189 (C) repealed.
190 (d) If the Tax Review Commission reviews the credits provided for in this section, the Tax
191 Review Commission shall report its findings to the Revenue and Taxation Interim Committee on
192 or before the November interim meeting of the year in which the Tax Review Commission reviews
193 the credits.
194 Section 3. Section 59-10-131 is amended to read:
195 59-10-131. Credits for research activities conducted in the state -- Carry forward
196 -- Commission to report modification or repeal of federal credits -- Tax Review Commission
197 study.
198 (1) (a) For taxable years beginning on or after January 1, 1999, but beginning before
199 December 31, 2010, a taxpayer meeting the requirements of this section shall qualify for the
200 following nonrefundable credits for increasing research activities in this state:
201 (i) a research credit of 6% of the taxpayer's qualified research expenses for the current
202 taxable year that exceed the base amount provided for under Subsection (4); and
203 (ii) a credit for payments to qualified organizations for basic research as provided in
204 Section 41(e), Internal Revenue Code of 6% for the current taxable year that exceed the base
205 amount provided for under Subsection (4).
206 (b) If a taxpayer qualifying for a credit under Subsection (1)(a) seeks to claim the credit
207 the taxpayer shall:
208 (i) claim the credit or a portion of the credit for the taxable year immediately following the
209 taxable year for which the taxpayer qualifies for the credit;
210 (ii) carry the credit or a portion of the credit forward as provided in Subsection (4)(f); or
211 (iii) claim a portion of the credit and carry forward a portion of the credit as provided in
212 Subsections (1)(b)(i) and (ii).
213 (c) The credits provided for in this section do not include the alternative incremental credit

214 provided for in Section 41(c)(4), Internal Revenue Code.
215 (2) For purposes of claiming a credit under this section, a unitary group as defined in
216 Section 59-7-101 is considered to be one taxpayer.
217 (3) Except as specifically provided for in this section:
218 (a) the credits authorized under Subsection (1) shall be calculated as provided in Section
219 41, Internal Revenue Code; and
220 (b) the definitions provided in Section 41, Internal Revenue Code, apply in calculating the
221 credits authorized under Subsection (1).
222 (4) For purposes of this section:
223 (a) the base amount shall be calculated as provided in Sections 41(c) and 41(h), Internal
224 Revenue Code, except that:
225 (i) the base amount does not include the calculation of the alternative incremental credit
226 provided for in Section 41(c)(4), Internal Revenue Code; [and]
227 (ii) a taxpayer's gross receipts include only those gross receipts attributable to sources
228 within this state as provided in Chapter 7, Part 3, Allocation and Apportionment of Income -- Utah
229 UDITPA Provisions; and
230 (iii) notwithstanding Section 41(c), Internal Revenue Code, for purposes of calculating the
231 base amount, a taxpayer:
232 (A) may elect to be treated as a start-up company as provided in Section 41(c)(3)(B)
233 regardless of whether the taxpayer meets the requirements of Section 41(c)(3)(B)(i)(I) or (II); and
234 (B) may not revoke an election to be treated as a start-up company under Subsection
235 (4)(a)(iii)(A);
236 (b) "basic research" is as defined in Section 41(e)(7), Internal Revenue Code, except that
237 the term includes only basic research conducted in this state;
238 (c) "qualified research" is as defined in Section 41(d), Internal Revenue Code, except that
239 the term includes only qualified research conducted in this state;
240 (d) "qualified research expenses" is as defined and calculated in Section 41(b), Internal
241 Revenue Code, except that the term includes only those expenses incurred in conducting qualified
242 research in this state;
243 (e) notwithstanding the provisions of Section 41(h), Internal Revenue Code, the credits
244 provided for in this section shall not terminate if the credits terminate under Section 41, Internal

245 Revenue Code; and
246 (f) notwithstanding the provisions of Sections 39 and 41(g), Internal Revenue Code,
247 governing the carry forward and carry back of federal tax credits, if the amount of a tax credit
248 claimed by a taxpayer under this section exceeds the taxpayer's tax liability under this chapter for
249 a taxable year, the amount of the credit exceeding the liability:
250 (i) may be carried forward for a period that does not exceed the next 14 taxable years; and
251 (ii) may not be carried back to a taxable year preceding the current taxable year.
252 (5) In accordance with Title 63, Chapter 46a, Utah Administrative Rulemaking Act, the
253 commission may make rules for purposes of this section prescribing a certification process for
254 qualified organizations to ensure that amounts paid to the qualified organizations are for basic
255 research conducted in this state.
256 (6) If a federal tax credit under Section 41, Internal Revenue Code, is modified or repealed,
257 the commission shall report the modification or repeal to the Tax Review Commission within 60
258 days after the day on which the modification or repeal becomes effective.
259 (7) (a) Except as provided in Subsection (7)(b), the Tax Review Commission shall review
260 the credits provided for in this section on or before the earlier of:
261 (i) October 1 of the year after the year in which the commission reports under Subsection
262 (6) a modification or repeal of a federal tax credit under Section 41, Internal Revenue Code; or
263 (ii) October 1, 2004.
264 (b) Notwithstanding Subsection (7)(a), the Tax Review Commission is not required to
265 review the credits provided for in this section if the only modification to a federal tax credit under
266 Section 41, Internal Revenue Code, is the extension of the termination date provided for in Section
267 41(h), Internal Revenue Code.
268 (c) The Tax Review Commission shall address in a review under this section the:
269 (i) cost of the credit;
270 (ii) purpose and effectiveness of the credit;
271 (iii) whether the credit benefits the state; and
272 (iv) whether the credit should be:
273 (A) continued;
274 (B) modified; or
275 (C) repealed.

276 (d) If the Tax Review Commission reviews the credits provided for in this section, the Tax
277 Review Commission shall report its findings to the Revenue and Taxation Interim Committee on
278 or before the November interim meeting of the year in which the Tax Review Commission reviews
279 the credits.
280 Section 4. Section 59-10-132 is amended to read:
281 59-10-132. Credits for either machinery, equipment, or both primarily used for
282 conducting qualified research or basic research -- Carry forward -- Commission to report
283 modification or repeal of federal credits -- Tax Review Commission study.
284 (1) As used in this section:
285 (a) "Basic research" is as defined in Section 41(e)(7), Internal Revenue Code, except that
286 the term includes only basic research conducted in this state.
287 (b) "Equipment" includes:
288 (i) computers;
289 (ii) computer equipment; and
290 (iii) computer software.
291 (c) "Purchase price":
292 (i) includes the cost of installing an item of machinery or equipment; and
293 (ii) does not include sales or use taxes imposed on an item of machinery or equipment.
294 (d) "Qualified organization" is as defined in Section 41(e)(6), Internal Revenue Code.
295 (e) "Qualified research" is as defined in Section 41(d), Internal Revenue Code, except that
296 the term includes only qualified research conducted in this state.
297 (2) (a) [For] Except as provided in Subsection (2)(c), for taxable years beginning on or
298 after January 1, 1999, but beginning before December 31, 2010, a taxpayer [meeting the
299 requirements of this section] shall qualify for the following nonrefundable credits for the taxable
300 year in which the machinery, equipment, or both, meets the requirements of either Subsection
301 (2)(a)(i) or (2)(a)(ii):
302 (i) a credit of 6% of the purchase price of either machinery, equipment, or both:
303 (A) purchased by the taxpayer during the taxable year;
304 (B) that is not exempt from sales or use taxes; and
305 (C) that is primarily used to conduct qualified research in this state; and
306 (ii) a credit of 6% of the purchase price paid by the taxpayer for either machinery,

307 equipment, or both:
308 (A) purchased by the taxpayer during the taxable year;
309 (B) that is not exempt from sales or use taxes; [and]
310 (C) that is donated to a qualified organization [to be]; and
311 (D) that is primarily used to conduct basic research in this state.
312 (b) If a taxpayer qualifying for a credit under Subsection (2)(a) seeks to claim the credit,
313 the taxpayer shall:
314 (i) claim the credit or a portion of the credit for the taxable year immediately following the
315 taxable year for which the taxpayer qualifies for the credit;
316 (ii) carry the credit or a portion of the credit forward as provided in Subsection (5);
317 (iii) claim a portion of the credit and carry forward a portion of the credit as provided in
318 Subsections (2)(b)(i) and (ii).
319 (c) Notwithstanding Subsection (2)(a), if a taxpayer qualifies for a credit under Subsection
320 (2)(a) for a purchase of machinery, equipment, or both, the taxpayer may not claim the credit or
321 carry the credit forward if the machinery, equipment, or both, is primarily used to conduct qualified
322 research in the state for a time period that is less than 12 consecutive months.
323 (3) For purposes of claiming a credit under this section, a unitary group as defined in
324 Section 59-7-101 is considered to be one taxpayer.
325 (4) Notwithstanding the provisions of Section 41(h), Internal Revenue Code, the credits
326 provided for in this section shall not terminate if the credits terminate under Section 41, Internal
327 Revenue Code.
328 (5) Notwithstanding the provisions of Sections 39 and 41(g), Internal Revenue Code,
329 governing the carry forward and carry back of federal tax credits, if the amount of a tax credit
330 claimed by a taxpayer under this section exceeds a taxpayer's tax liability under this chapter for
331 a taxable year, the amount of the credit exceeding the liability:
332 (a) may be carried forward for a period that does not exceed the next 14 taxable years; and
333 (b) may not be carried back to a taxable year preceding the current taxable year.
334 (6) In accordance with Title 63, Chapter 46a, Utah Administrative Rulemaking Act, the
335 commission may make rules for purposes of this section prescribing a certification process for
336 qualified organizations to ensure that either machinery, equipment, or both provided to the
337 qualified organization is to be primarily used to conduct basic research in this state.

338 (7) If a federal tax credit under Section 41, Internal Revenue Code, is modified or repealed,
339 the commission shall report the modification or repeal to the Tax Review Commission within 60
340 days after the day on which the modification or repeal becomes effective.
341 (8) (a) Except as provided in Subsection (8)(b), the Tax Review Commission shall review
342 the credits provided for in this section on or before the earlier of:
343 (i) October 1 of the year after the year in which the commission reports under Subsection
344 (7) a modification or repeal of a federal tax credit under Section 41, Internal Revenue Code; or
345 (ii) October 1, 2004.
346 (b) Notwithstanding Subsection (8)(a), the Tax Review Commission is not required to
347 review the credits provided for in this section if the only modification to a federal tax credit under
348 Section 41, Internal Revenue Code, is the extension of the termination date provided for in Section
349 41(h), Internal Revenue Code.
350 (c) The Tax Review Commission shall address in a review under this section the:
351 (i) cost of the credit;
352 (ii) purpose and effectiveness of the credit;
353 (iii) whether the credit benefits the state; and
354 (iv) whether the credit should be:
355 (A) continued;
356 (B) modified; or
357 (C) repealed.
358 (d) If the Tax Review Commission reviews the credits provided for in this section, the Tax
359 Review Commission shall report its findings to the Revenue and Taxation Interim Committee on
360 or before the November interim meeting of the year in which the Tax Review Commission reviews
361 the credits.
362 Section 5. Retrospective operation.
363 This act has retrospective operation for taxable years beginning on or after January 1, 1999.

Legislative Review Note
as of 11-19-98 12:12 PM

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

Office of Legislative Research and General Counsel

Committee Note

The Revenue and Taxation Interim Committee recommended this bill.