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H.B. 103

             1     

INDIVIDUAL INCOME TAX DEDUCTION FOR

             2     
NET CAPITAL GAIN

             3     
2002 GENERAL SESSION

             4     
STATE OF UTAH

             5     
Sponsor: James A. Ferrin

             6      This act modifies the Individual Income Tax Act to allow an individual a deduction from
             7      federal taxable income for a portion of income derived from net capital gain, and to make
             8      technical changes. This act has retrospective operation for taxable years beginning on or
             9      after January 1, 2002.
             10      This act affects sections of Utah Code Annotated 1953 as follows:
             11      AMENDS:
             12          59-10-114, as last amended by Chapters 7 and 9, Laws of Utah 2001, First Special Session
             13      Be it enacted by the Legislature of the state of Utah:
             14          Section 1. Section 59-10-114 is amended to read:
             15           59-10-114. Additions to and subtractions from federal taxable income of an
             16      individual.
             17          (1) There shall be added to federal taxable income of a resident or nonresident individual:
             18          (a) the amount of any income tax imposed by this or any predecessor Utah individual
             19      income tax law and the amount of any income tax imposed by the laws of another state, the District
             20      of Columbia, or a possession of the United States, to the extent deducted from federal adjusted
             21      gross income, as defined by Section 62, Internal Revenue Code, in determining federal taxable
             22      income;
             23          (b) a lump sum distribution that the taxpayer does not include in adjusted gross income
             24      on the taxpayer's federal individual income tax return for the taxable year;
             25          (c) for taxable years beginning on or after January 1, 2002, the amount of a child's income
             26      calculated under Subsection (5) that:
             27          (i) a parent elects to report on the parent's federal individual income tax return for the


             28      taxable year; and
             29          (ii) the parent does not include in adjusted gross income on the parent's federal individual
             30      income tax return for the taxable year;
             31          (d) 25% of the personal exemptions, as defined and calculated in the Internal Revenue
             32      Code;
             33          (e) a withdrawal from a medical care savings account and any penalty imposed in the
             34      taxable year if:
             35          (i) the taxpayer did not deduct or include the amounts on his federal tax return pursuant
             36      to Section 220, Internal Revenue Code; and
             37          (ii) the withdrawal is subject to Subsections 31A-32a-105 (1) and (2);
             38          (f) the amount refunded to a participant under Title 53B, Chapter 8a, Higher Education
             39      Savings Incentive Program, in the year in which the amount is refunded; and
             40          (g) except as provided in Subsection (6), for taxable years beginning on or after January
             41      1, 2003, for bonds, notes, and other evidences of indebtedness acquired on or after January 1,
             42      2003, the interest from bonds, notes, and other evidences of indebtedness issued by one or more
             43      of the following entities:
             44          (i) a state other than this state;
             45          (ii) the District of Columbia;
             46          (iii) a political subdivision of a state other than this state; or
             47          (iv) an agency or instrumentality of an entity described in Subsections (1)(g)(i) through
             48      (iii).
             49          (2) There shall be subtracted from federal taxable income of a resident or nonresident
             50      individual:
             51          (a) the interest or dividends on obligations or securities of the United States and its
             52      possessions or of any authority, commission, or instrumentality of the United States, to the extent
             53      includable in gross income for federal income tax purposes but exempt from state income taxes
             54      under the laws of the United States, but the amount subtracted under this Subsection (2)(a) shall
             55      be reduced by any interest on indebtedness incurred or continued to purchase or carry the
             56      obligations or securities described in this Subsection (2)(a), and by any expenses incurred in the
             57      production of interest or dividend income described in this Subsection (2)(a) to the extent that such
             58      expenses, including amortizable bond premiums, are deductible in determining federal taxable


             59      income;
             60          (b) (i) except as provided in Subsection (2)(b)(ii), 1/2 of the net amount of any income tax
             61      paid or payable to the United States after all allowable credits, as reported on the United States
             62      individual income tax return of the taxpayer for the same taxable year; and
             63          (ii) notwithstanding Subsection (2)(b)(i), for taxable years beginning on or after January
             64      1, 2001, the amount of a credit or an advance refund amount reported on a resident or nonresident
             65      individual's United States individual income tax return allowed as a result of the acceleration of
             66      the income tax rate bracket benefit for 2001 in accordance with Section 101, Economic Growth
             67      and Tax Relief Reconciliation Act of 2001, Pub. L. No. 107-16, may not be used in calculating the
             68      amount described in Subsection (2)(b)(i);
             69          (c) the amount of adoption expenses which, for purposes of this Subsection (2)(c), means
             70      any actual medical and hospital expenses of the mother of the adopted child which are incident to
             71      the child's birth and any welfare agency, child placement service, legal, and other fees or costs
             72      relating to the adoption;
             73          (d) amounts received by taxpayers under age 65 as retirement income which, for purposes
             74      of this section, means pensions and annuities, paid from an annuity contract purchased by an
             75      employer under a plan which meets the requirements of Section 404(a)(2), Internal Revenue Code,
             76      or purchased by an employee under a plan which meets the requirements of Section 408, Internal
             77      Revenue Code, or paid by the United States, a state, or political subdivision thereof, or the District
             78      of Columbia, to the employee involved or the surviving spouse;
             79          (e) for each taxpayer age 65 or over before the close of the taxable year, a $7,500 personal
             80      retirement exemption;
             81          (f) 75% of the amount of the personal exemption, as defined and calculated in the Internal
             82      Revenue Code, for each dependent child with a disability and adult with a disability who is
             83      claimed as a dependent on a taxpayer's return;
             84          (g) any amount included in federal taxable income that was received pursuant to any
             85      federal law enacted in 1988 to provide reparation payments, as damages for human suffering, to
             86      United States citizens and resident aliens of Japanese ancestry who were interned during World
             87      War II;
             88          (h) subject to the limitations of Subsection (3)(e), amounts a taxpayer pays during the
             89      taxable year for health care insurance, as defined in Title 31A, Chapter 1, General Provisions:


             90          (i) for:
             91          (A) the taxpayer;
             92          (B) the taxpayer's spouse; and
             93          (C) the taxpayer's dependents; and
             94          (ii) to the extent the taxpayer does not deduct the amounts under Section 125, 162, or 213,
             95      Internal Revenue Code, in determining federal taxable income for the taxable year;
             96          (i) (i) except as otherwise provided in this Subsection (2)(i), the amount of a contribution
             97      made during the taxable year on behalf of the taxpayer to a medical care savings account and
             98      interest earned on a contribution to a medical care savings account established pursuant to Title
             99      31A, Chapter 32a, Medical Care Savings Account Act, to the extent the contribution is accepted
             100      by the account administrator as provided in the Medical Care Savings Account Act, and if the
             101      taxpayer did not deduct or include amounts on the taxpayer's federal individual income tax return
             102      pursuant to Section 220, Internal Revenue Code; and
             103          (ii) a contribution deductible under this Subsection (2)(i) may not exceed either of the
             104      following:
             105          (A) the maximum contribution allowed under the Medical Care Savings Account Act for
             106      the tax year multiplied by two for taxpayers who file a joint return, if neither spouse is covered by
             107      health care insurance as defined in Section 31A-1-301 or self-funded plan that covers the other
             108      spouse, and each spouse has a medical care savings account; or
             109          (B) the maximum contribution allowed under the Medical Care Savings Account Act for
             110      the tax year for taxpayers:
             111          (I) who do not file a joint return; or
             112          (II) who file a joint return, but do not qualify under Subsection (2)(i)(i)(A); and
             113          (j) the amount included in federal taxable income that was derived from money paid by
             114      the taxpayer to the program fund under Title 53B, Chapter 8a, Higher Education Savings Incentive
             115      Program, not to exceed amounts determined under Subsection 53B-8a-106 (1)(d) and investment
             116      income earned on participation agreements under Subsection 53B-8a-106 (1) when used for higher
             117      education costs of the beneficiary;
             118          (k) for taxable years beginning on or after January 1, 2000, any amounts paid for premiums
             119      for long-term care insurance as defined in Section 31A-1-301 to the extent the amounts paid for
             120      long-term care insurance were not deducted under Section 213, Internal Revenue Code, in


             121      determining federal taxable income; [and]
             122          (l) for taxable years beginning on or after January 1, 2000, if the conditions of Subsection
             123      (4)(a) are met, the amount of income derived by a Ute tribal member:
             124          (i) during a time period that the Ute tribal member resides on homesteaded land
             125      diminished from the Uintah and Ouray Reservation; and
             126          (ii) from a source within the Uintah and Ouray Reservation[.]; and
             127          (m) for taxable years beginning on or after January 1, 2002, 50% of the amount of the
             128      individual's net capital gain as defined in Section 1222, Internal Revenue Code.
             129          (3) (a) For purposes of Subsection (2)(d), the amount of retirement income subtracted for
             130      taxpayers under 65 shall be the lesser of the amount included in federal taxable income, or $4,800,
             131      except that:
             132          (i) for married taxpayers filing joint returns, for each $1 of adjusted gross income earned
             133      over $32,000, the amount of the retirement income exemption that may be subtracted shall be
             134      reduced by 50 cents;
             135          (ii) for married taxpayers filing separate returns, for each $1 of adjusted gross income
             136      earned over $16,000, the amount of the retirement income exemption that may be subtracted shall
             137      be reduced by 50 cents; and
             138          (iii) for individual taxpayers, for each $1 of adjusted gross income earned over $25,000,
             139      the amount of the retirement income exemption that may be subtracted shall be reduced by 50
             140      cents.
             141          (b) For purposes of Subsection (2)(e), the amount of the personal retirement exemption
             142      shall be further reduced according to the following schedule:
             143          (i) for married taxpayers filing joint returns, for each $1 of adjusted gross income earned
             144      over $32,000, the amount of the personal retirement exemption shall be reduced by 50 cents;
             145          (ii) for married taxpayers filing separate returns, for each $1 of adjusted gross income
             146      earned over $16,000, the amount of the personal retirement exemption shall be reduced by 50
             147      cents; and
             148          (iii) for individual taxpayers, for each $1 of adjusted gross income earned over $25,000,
             149      the amount of the personal retirement exemption shall be reduced by 50 cents.
             150          (c) For purposes of Subsections (3)(a) and (b), adjusted gross income shall be calculated
             151      by adding to federal adjusted gross income any interest income not otherwise included in federal


             152      adjusted gross income.
             153          (d) For purposes of determining ownership of items of retirement income common law
             154      doctrine will be applied in all cases even though some items may have originated from service or
             155      investments in a community property state. Amounts received by the spouse of a living retiree
             156      because of the retiree's having been employed in a community property state are not deductible as
             157      retirement income of such spouse.
             158          (e) For purposes of Subsection (2)(h), a subtraction for an amount paid for health care
             159      insurance as defined in Title 31A, Chapter 1, General Provisions, is not allowed:
             160          (i) for an amount that is reimbursed or funded in whole or in part by the federal
             161      government, the state, or an agency or instrumentality of the federal government or the state; and
             162          (ii) for a taxpayer who is eligible to participate in a health plan maintained and funded in
             163      whole or in part by the taxpayer's employer or the taxpayer's spouse's employer.
             164          (4) (a) A subtraction for an amount described in Subsection (2)(l) is allowed only if:
             165          (i) the taxpayer is a Ute tribal member; and
             166          (ii) the governor and the Ute tribe execute and maintain an agreement meeting the
             167      requirements of this Subsection (4).
             168          (b) The agreement described in Subsection (4)(a):
             169          (i) may not:
             170          (A) authorize the state to impose a tax in addition to a tax imposed under this chapter;
             171          (B) provide a subtraction under this section greater than or different from the subtraction
             172      described in Subsection (2)(l); or
             173          (C) affect the power of the state to establish rates of taxation; and
             174          (ii) shall:
             175          (A) provide for the implementation of the subtraction described in Subsection (2)(l);
             176          (B) be in writing;
             177          (C) be signed by:
             178          (I) the governor; and
             179          (II) the chair of the Business Committee of the Ute tribe;
             180          (D) be conditioned on obtaining any approval required by federal law; and
             181          (E) state the effective date of the agreement.
             182          (c) (i) The governor shall report to the commission by no later than February 1 of each year


             183      regarding whether or not an agreement meeting the requirements of this Subsection (4) is in effect.
             184          (ii) If an agreement meeting the requirements of this Subsection (4) is terminated, the
             185      subtraction permitted under Subsection (2)(l) is not allowed for taxable years beginning on or after
             186      the January 1 following the termination of the agreement.
             187          (d) For purposes of Subsection (2)(l) and in accordance with Title 63, Chapter 46a, Utah
             188      Administrative Rulemaking Act, the commission may make rules:
             189          (i) for determining whether income is derived from a source within the Uintah and Ouray
             190      Reservation; and
             191          (ii) that are substantially similar to how federal adjusted gross income derived from Utah
             192      sources is determined under Section 59-10-117 .
             193          (5) (a) For purposes of this Subsection (5), "Form 8814" means:
             194          (i) the federal individual income tax Form 8814, Parents' Election To Report Child's
             195      Interest and Dividends; or
             196          (ii) (A) for taxable years beginning on or after January 1, 2002, a form designated by the
             197      commission in accordance with Subsection (5)(a)(ii)(B) as being substantially similar to 2000
             198      Form 8814 if for purposes of federal individual income taxes the information contained on 2000
             199      Form 8814 is reported on a form other than Form 8814; and
             200          (B) for purposes of Subsection (5)(a)(ii)(A) and in accordance with Title 63, Chapter 46a,
             201      Utah Administrative Rulemaking Act, the commission may make rules designating a form as being
             202      substantially similar to 2000 Form 8814 if for purposes of federal individual income taxes the
             203      information contained on 2000 Form 8814 is reported on a form other than Form 8814.
             204          (b) The amount of a child's income added to adjusted gross income under Subsection (1)(c)
             205      is equal to the difference between:
             206          (i) the lesser of:
             207          (A) the base amount specified on Form 8814; and
             208          (B) the sum of the following reported on Form 8814:
             209          (I) the child's taxable interest;
             210          (II) the child's ordinary dividends; and
             211          (III) the child's capital gain distributions; and
             212          (ii) the amount not taxed that is specified on Form 8814.
             213          (6) Notwithstanding Subsection (1)(g), interest from bonds, notes, and other evidences of


             214      indebtedness issued by an entity described in Subsections (1)(g)(i) through (iv) may not be added
             215      to federal taxable income of a resident or nonresident individual if, as annually determined by the
             216      commission:
             217          (a) for an entity described in Subsection (1)(g)(i) or (ii), the entity and all of the political
             218      subdivisions, agencies, or instrumentalities of the entity do not impose a tax based on income on
             219      any part of the bonds, notes, and other evidences of indebtedness of this state; or
             220          (b) for an entity described in Subsection (1)(g)(iii) or (iv), the following do not impose a
             221      tax based on income on any part of the bonds, notes, and other evidences of indebtedness of this
             222      state:
             223          (i) the entity; or
             224          (ii) (A) the state in which the entity is located; or
             225          (B) the District of Columbia, if the entity is located within the District of Columbia.
             226          Section 2. Retrospective operation.
             227          This act has retrospective operation for taxable years beginning on or after January 1, 2002.




Legislative Review Note
    as of 12-10-01 8:11 AM


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

Office of Legislative Research and General Counsel


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