First Substitute S.B. 131

Senator Curtis S. Bramble proposes the following substitute bill:

1 INDIVIDUAL INCOME TAX -
2 SUBTRACTIONS FROM FEDERAL TAXABLE
3 INCOME
4 2003 GENERAL SESSION
5 STATE OF UTAH
6 Sponsor: Curtis S. Bramble
7 This act amends the Individual Income Tax Act to provide a subtraction from federal
8 taxable income for certain capital gains that are invested in qualifying stock issued by a
9 Utah small business corporation. This act provides definitions and makes technical
10 changes. This act has retrospective operation for taxable years beginning on or after
11 January 1, 2003.
12 This act affects sections of Utah Code Annotated 1953 as follows:
13 AMENDS:
14 59-10-103, as last amended by Chapter 257, Laws of Utah 2000
15 59-10-114, as last amended by Chapter 211, Laws of Utah 2002
16 Be it enacted by the Legislature of the state of Utah:
17 Section 1. Section 59-10-103 is amended to read:
18 59-10-103. Definitions.
19 (1) As used in this chapter:
20 (a) "Adult with a disability" means an individual who:
21 (i) is 18 years of age or older;
22 (ii) is eligible for services under Title 62A, Chapter 5, Services to People with
23 Disabilities; and
24 (iii) is not enrolled in:
25 (A) an education program for students with disabilities that is authorized under Section

26 53A-15-301 ; or
27 (B) a school established under Title 53A, Chapter 25, Schools for the Deaf and Blind.
28 (b) (i) For purposes of Subsection 59-10-114 (2)(m), "capital gain transaction" means a
29 transaction that results in a:
30 (A) short-term capital gain; or
31 (B) long-term capital gain.
32 (ii) In accordance with Title 63, Chapter 46a, Utah Administrative Rulemaking Act,
33 the commission may by rule define the term "transaction."
34 (c) "Commercial domicile" means the principal place from which the trade or business
35 of a Utah small business corporation is directed or managed.
36 [(b)] (d) "Corporation" includes associations, joint stock companies, and insurance
37 companies.
38 [(c)] (e) "Dependent child with a disability" means an individual 21 years of age or
39 younger who:
40 (i) (A) is diagnosed by a school district representative under rules adopted by the State
41 Board of Education as having a disability classified as:
42 (I) autism;
43 (II) deafness;
44 (III) preschool developmental delay;
45 (IV) dual sensory impairment;
46 (V) hearing impairment;
47 (VI) intellectual disability;
48 (VII) multidisability;
49 (VIII) orthopedic impairment;
50 (IX) other health impairment;
51 (X) traumatic brain injury; or
52 (XI) visual impairment;
53 (B) is not receiving residential services from:
54 (I) the Division of Services for People with Disabilities created under Section
55 62A-5-102 ; or
56 (II) a school established under Title 53A, Chapter 25, Schools for the Deaf and Blind;

57 and
58 (C) is enrolled in:
59 (I) an education program for students with disabilities that is authorized under Section
60 53A-15-301 ; or
61 (II) a school established under Title 53A, Chapter 25, Schools for the Deaf and Blind;
62 or
63 (ii) is identified under guidelines of the Department of Health as qualified for:
64 (A) Early Intervention; or
65 (B) Infant Development Services.
66 [(d)] (f) "Employer," "employee," and "wages" are defined as provided in Section
67 59-10-401 .
68 [(e)] (g) "Fiduciary" means a guardian, trustee, executor, administrator, receiver,
69 conservator, or any person acting in any fiduciary capacity for any individual.
70 [(f)] (h) "Homesteaded land diminished from the Uintah and Ouray Reservation"
71 means the homesteaded land that was held to have been diminished from the Uintah and Ouray
72 Reservation in Hagen v. Utah, 510 U.S. 399 (1994).
73 [(g)] (i) "Individual" means a natural person and includes aliens and minors.
74 (j) For purposes of Subsection 59-10-114 (2)(m), "long-term capital gain" is as defined
75 in Section 1222, Internal Revenue Code.
76 [(h)] (k) "Nonresident individual" means an individual who is not a resident of this
77 state.
78 [(i)] (l) "Nonresident trust" or "nonresident estate" means a trust or estate which is not
79 a resident estate or trust.
80 [(j)] (m) (i) "Partnership" includes a syndicate, group, pool, joint venture, or other
81 unincorporated organization, through or by means of which any business, financial operation,
82 or venture is carried on, and which is not, within the meaning of this chapter, a trust or estate or
83 a corporation.
84 (ii) "Partnership" does not include any organization not included under the definition of
85 "partnership" contained in Section 761, Internal Revenue Code.
86 (iii) "Partner" includes a member in such a syndicate, group, pool, joint venture, or
87 organization.

88 [(k)] (n) "Resident individual" means:
89 (i) an individual who is domiciled in this state for any period of time during the taxable
90 year, but only for the duration of such period; or
91 (ii) an individual who is not domiciled in this state but maintains a permanent place of
92 abode in this state and spends in the aggregate 183 or more days of the taxable year in this
93 state. For purposes of this Subsection (1)[(k)](n)(ii), a fraction of a calendar day shall be
94 counted as a whole day.
95 [(l)] (o) (i) "Resident estate" or "resident trust" means:
96 (A) an estate of a decedent who at his death was domiciled in this state;
97 (B) a trust, or a portion of a trust, consisting of property transferred by will of a
98 decedent who at his death was domiciled in this state; or
99 (C) a trust administered in this state.
100 (ii) For purposes of this chapter, a trust shall be considered to be administered in this
101 state if:
102 (A) the place of business where the fiduciary transacts a major portion of its
103 administration of the trust is in this state; or
104 (B) the usual place of business of the fiduciary is in this state.
105 (iii) Where there are two or more fiduciaries, the residency status of the trust shall be
106 determined by the situs of the corporate or professional fiduciary with primary responsibility
107 for the administration of the trust as defined in the trust instrument.
108 (iv) The commission may, by rule, provide additional guidelines to determine the
109 residency status of a trust.
110 (p) "Qualifying stock" means stock that is:
111 (i) (A) common; or
112 (B) preferred;
113 (ii) as defined by the commission by rule, originally issued to:
114 (A) a resident or nonresident individual; or
115 (B) a partnership if the resident or nonresident individual making a subtraction from
116 federal taxable income in accordance with Subsection 59-10-114 (2)(m):
117 (I) was a partner when the stock was issued; and
118 (II) remains a partner until the last day of the taxable year for which the resident or

119 nonresident individual makes the subtraction from federal taxable income in accordance with
120 Subsection 59-10-114 (2)(m); and
121 (iii) issued:
122 (A) by a Utah small business corporation;
123 (B) on or after January 1, 2003; and
124 (C) for:
125 (I) money; or
126 (II) other property, except for stock or securities.
127 (q) For purposes of Subsection 59-10-114 (2)(m), "short-term capital gain" is as defined
128 in Section 1222, Internal Revenue Code.
129 [(m)] (r) "Taxable income" and "state taxable income" are defined as provided in
130 Sections 59-10-111 , 59-10-112 , 59-10-116 , 59-10-201.1 , and 59-10-204 .
131 [(n)] (s) "Taxpayer" means any individual, estate, or trust or beneficiary of an estate or
132 trust, whose income is subject in whole or part to the tax imposed by this chapter.
133 [(o)] (t) "Uintah and Ouray Reservation" means the lands recognized as being included
134 within the Uintah and Ouray Reservation in:
135 (i) Hagen v. Utah, 510 U.S. 399 (1994); and
136 (ii) Ute Indian Tribe v. Utah, 114 F.3d 1513 (10th Cir. 1997).
137 (u) (i) "Utah small business corporation" means a corporation that:
138 (A) is a small business corporation as defined in Section 1244(c)(3), Internal Revenue
139 Code;
140 (B) except as provided in Subsection (1)(u)(ii), meets the requirements of Section
141 1244(c)(1)(C), Internal Revenue Code; and
142 (C) has its commercial domicile in this state.
143 (ii) Notwithstanding Subsection (1)(u)(i)(B), the time period described in Section
144 1244(c)(1)(C) and Section 1244(c)(2), Internal Revenue Code, for determining the source of a
145 corporation's aggregate gross receipts shall end on the last day of the taxable year for which the
146 resident or nonresident individual makes a subtraction from federal taxable income in
147 accordance with Subsection 59-10-114 (2)(m).
148 [(p)] (v) "Ute tribal member" means a person who is enrolled as a member of the Ute
149 Indian Tribe of the Uintah and Ouray Reservation.

150 [(q)] (w) "Ute tribe" means the Ute Indian Tribe of the Uintah and Ouray Reservation.
151 (2) Any term used in this chapter has the same meaning as when used in comparable
152 context in the laws of the United States relating to federal income taxes unless a different
153 meaning is clearly required. Any reference to the Internal Revenue Code or to the laws of the
154 United States shall mean the Internal Revenue Code or other provisions of the laws of the
155 United States relating to federal income taxes which are in effect for the taxable year. Any
156 reference to a specific section of the Internal Revenue Code or other provision of the laws of
157 the United States relating to federal income taxes shall include any corresponding or
158 comparable provisions of the Internal Revenue Code as hereafter amended, redesignated, or
159 reenacted.
160 Section 2. Section 59-10-114 is amended to read:
161 59-10-114. Additions to and subtractions from federal taxable income of an
162 individual.
163 (1) There shall be added to federal taxable income of a resident or nonresident
164 individual:
165 (a) the amount of any income tax imposed by this or any predecessor Utah individual
166 income tax law and the amount of any income tax imposed by the laws of another state, the
167 District of Columbia, or a possession of the United States, to the extent deducted from federal
168 adjusted gross income, as defined by Section 62, Internal Revenue Code, in determining federal
169 taxable income;
170 (b) a lump sum distribution that the taxpayer does not include in adjusted gross income
171 on the taxpayer's federal individual income tax return for the taxable year;
172 (c) for taxable years beginning on or after January 1, 2002, the amount of a child's
173 income calculated under Subsection (5) that:
174 (i) a parent elects to report on the parent's federal individual income tax return for the
175 taxable year; and
176 (ii) the parent does not include in adjusted gross income on the parent's federal
177 individual income tax return for the taxable year;
178 (d) 25% of the personal exemptions, as defined and calculated in the Internal Revenue
179 Code;
180 (e) a withdrawal from a medical care savings account and any penalty imposed in the

181 taxable year if:
182 (i) the taxpayer did not deduct or include the amounts on [his] the taxpayer's federal
183 individual income tax return pursuant to Section 220, Internal Revenue Code; and
184 (ii) the withdrawal is subject to Subsections 31A-32a-105 (1) and (2);
185 (f) the amount refunded to a participant under Title 53B, Chapter 8a, Higher Education
186 Savings Incentive Program, in the year in which the amount is refunded; and
187 (g) except as provided in Subsection (6), for taxable years beginning on or after
188 January 1, 2003, for bonds, notes, and other evidences of indebtedness acquired on or after
189 January 1, 2003, the interest from bonds, notes, and other evidences of indebtedness issued by
190 one or more of the following entities:
191 (i) a state other than this state;
192 (ii) the District of Columbia;
193 (iii) a political subdivision of a state other than this state; or
194 (iv) an agency or instrumentality of an entity described in Subsections (1)(g)(i) through
195 (iii).
196 (2) There shall be subtracted from federal taxable income of a resident or nonresident
197 individual:
198 (a) the interest or dividends on obligations or securities of the United States and its
199 possessions or of any authority, commission, or instrumentality of the United States, to the
200 extent includable in gross income for federal income tax purposes but exempt from state
201 income taxes under the laws of the United States, but the amount subtracted under this
202 Subsection (2)(a) shall be reduced by any interest on indebtedness incurred or continued to
203 purchase or carry the obligations or securities described in this Subsection (2)(a), and by any
204 expenses incurred in the production of interest or dividend income described in this Subsection
205 (2)(a) to the extent that such expenses, including amortizable bond premiums, are deductible in
206 determining federal taxable income;
207 (b) (i) except as provided in Subsection (2)(b)(ii), 1/2 of the net amount of any income
208 tax paid or payable to the United States after all allowable credits, as reported on the United
209 States individual income tax return of the taxpayer for the same taxable year; and
210 (ii) notwithstanding Subsection (2)(b)(i), for taxable years beginning on or after
211 January 1, 2001, the amount of a credit or an advance refund amount reported on a resident or

212 nonresident individual's United States individual income tax return allowed as a result of the
213 acceleration of the income tax rate bracket benefit for 2001 in accordance with Section 101,
214 Economic Growth and Tax Relief Reconciliation Act of 2001, Pub. L. No. 107-16, may not be
215 used in calculating the amount described in Subsection (2)(b)(i);
216 (c) the amount of adoption expenses which, for purposes of this Subsection (2)(c),
217 means any actual medical and hospital expenses of the mother of the adopted child which are
218 incident to the child's birth and any welfare agency, child placement service, legal, and other
219 fees or costs relating to the adoption;
220 (d) amounts received by taxpayers under age 65 as retirement income which, for
221 purposes of this section, means pensions and annuities, paid from an annuity contract
222 purchased by an employer under a plan which meets the requirements of Section 404(a)(2),
223 Internal Revenue Code, or purchased by an employee under a plan which meets the
224 requirements of Section 408, Internal Revenue Code, or paid by the United States, a state, or
225 political subdivision thereof, or the District of Columbia, to the employee involved or the
226 surviving spouse;
227 (e) for each taxpayer age 65 or over before the close of the taxable year, a $7,500
228 personal retirement exemption;
229 (f) 75% of the amount of the personal exemption, as defined and calculated in the
230 Internal Revenue Code, for each dependent child with a disability and adult with a disability
231 who is claimed as a dependent on a taxpayer's return;
232 (g) any amount included in federal taxable income that was received pursuant to any
233 federal law enacted in 1988 to provide reparation payments, as damages for human suffering,
234 to United States citizens and resident aliens of Japanese ancestry who were interned during
235 World War II;
236 (h) subject to the limitations of Subsection (3)(e), amounts a taxpayer pays during the
237 taxable year for health care insurance, as defined in Title 31A, Chapter 1, General Provisions:
238 (i) for:
239 (A) the taxpayer;
240 (B) the taxpayer's spouse; and
241 (C) the taxpayer's dependents; and
242 (ii) to the extent the taxpayer does not deduct the amounts under Section 125, 162, or

243 213, Internal Revenue Code, in determining federal taxable income for the taxable year;
244 (i) (i) except as otherwise provided in this Subsection (2)(i), the amount of a
245 contribution made during the taxable year on behalf of the taxpayer to a medical care savings
246 account and interest earned on a contribution to a medical care savings account established
247 pursuant to Title 31A, Chapter 32a, Medical Care Savings Account Act, to the extent the
248 contribution is accepted by the account administrator as provided in the Medical Care Savings
249 Account Act, and if the taxpayer did not deduct or include amounts on the taxpayer's federal
250 individual income tax return pursuant to Section 220, Internal Revenue Code; and
251 (ii) a contribution deductible under this Subsection (2)(i) may not exceed either of the
252 following:
253 (A) the maximum contribution allowed under the Medical Care Savings Account Act
254 for the tax year multiplied by two for taxpayers who file a joint return, if neither spouse is
255 covered by health care insurance as defined in Section 31A-1-301 or self-funded plan that
256 covers the other spouse, and each spouse has a medical care savings account; or
257 (B) the maximum contribution allowed under the Medical Care Savings Account Act
258 for the tax year for taxpayers:
259 (I) who do not file a joint return; or
260 (II) who file a joint return, but do not qualify under Subsection (2)(i)(i)(A); [and]
261 (j) the amount included in federal taxable income that was derived from money paid by
262 the taxpayer to the program fund under Title 53B, Chapter 8a, Higher Education Savings
263 Incentive Program, not to exceed amounts determined under Subsection 53B-8a-106 (1)(d), and
264 investment income earned on participation agreements under Subsection 53B-8a-106 (1) that is
265 included in federal taxable income, but only when the funds are used for qualified higher
266 education costs of the beneficiary;
267 (k) for taxable years beginning on or after January 1, 2000, any amounts paid for
268 premiums for long-term care insurance as defined in Section 31A-1-301 to the extent the
269 amounts paid for long-term care insurance were not deducted under Section 213, Internal
270 Revenue Code, in determining federal taxable income; [and]
271 (l) for taxable years beginning on or after January 1, 2000, if the conditions of
272 Subsection (4)(a) are met, the amount of income derived by a Ute tribal member:
273 (i) during a time period that the Ute tribal member resides on homesteaded land

274 diminished from the Uintah and Ouray Reservation; and
275 (ii) from a source within the Uintah and Ouray Reservation[.]; and
276 (m) (i) for taxable years beginning on or after January 1, 2003, the total amount of a
277 resident or nonresident individual's short-term capital gain or long-term capital gain on a
278 capital gain transaction:
279 (A) that occurs on or after January 1, 2003;
280 (B) if 70% or more of the gross proceeds of the capital gain transaction are expended:
281 (I) to purchase qualifying stock in a Utah small business corporation; and
282 (II) within a 12-month period after the day on which the capital gain transaction occurs;
283 and
284 (C) if, prior to the purchase of the qualifying stock described in Subsection
285 (2)(m)(i)(B)(I), the resident or nonresident individual did not have an ownership interest in the
286 Utah small business corporation that issued the qualifying stock; and
287 (ii) in accordance with Title 63, Chapter 46a, Utah Administrative Rulemaking Act, the
288 commission may make rules:
289 (A) defining the term "gross proceeds"; and
290 (B) for purposes of Subsection (2)(m)(i)(C), prescribing the circumstances under which
291 a resident or nonresident individual has an ownership interest in a Utah small business
292 corporation.
293 (3) (a) For purposes of Subsection (2)(d), the amount of retirement income subtracted
294 for taxpayers under 65 shall be the lesser of the amount included in federal taxable income, or
295 $4,800, except that:
296 (i) for married taxpayers filing joint returns, for each $1 of adjusted gross income
297 earned over $32,000, the amount of the retirement income exemption that may be subtracted
298 shall be reduced by 50 cents;
299 (ii) for married taxpayers filing separate returns, for each $1 of adjusted gross income
300 earned over $16,000, the amount of the retirement income exemption that may be subtracted
301 shall be reduced by 50 cents; and
302 (iii) for individual taxpayers, for each $1 of adjusted gross income earned over
303 $25,000, the amount of the retirement income exemption that may be subtracted shall be
304 reduced by 50 cents.

305 (b) For purposes of Subsection (2)(e), the amount of the personal retirement exemption
306 shall be further reduced according to the following schedule:
307 (i) for married taxpayers filing joint returns, for each $1 of adjusted gross income
308 earned over $32,000, the amount of the personal retirement exemption shall be reduced by 50
309 cents;
310 (ii) for married taxpayers filing separate returns, for each $1 of adjusted gross income
311 earned over $16,000, the amount of the personal retirement exemption shall be reduced by 50
312 cents; and
313 (iii) for individual taxpayers, for each $1 of adjusted gross income earned over
314 $25,000, the amount of the personal retirement exemption shall be reduced by 50 cents.
315 (c) For purposes of Subsections (3)(a) and (b), adjusted gross income shall be
316 calculated by adding to federal adjusted gross income any interest income not otherwise
317 included in federal adjusted gross income.
318 (d) For purposes of determining ownership of items of retirement income common law
319 doctrine will be applied in all cases even though some items may have originated from service
320 or investments in a community property state. Amounts received by the spouse of a living
321 retiree because of the retiree's having been employed in a community property state are not
322 deductible as retirement income of such spouse.
323 (e) For purposes of Subsection (2)(h), a subtraction for an amount paid for health care
324 insurance as defined in Title 31A, Chapter 1, General Provisions, is not allowed:
325 (i) for an amount that is reimbursed or funded in whole or in part by the federal
326 government, the state, or an agency or instrumentality of the federal government or the state;
327 and
328 (ii) for a taxpayer who is eligible to participate in a health plan maintained and funded
329 in whole or in part by the taxpayer's employer or the taxpayer's spouse's employer.
330 (4) (a) A subtraction for an amount described in Subsection (2)(l) is allowed only if:
331 (i) the taxpayer is a Ute tribal member; and
332 (ii) the governor and the Ute tribe execute and maintain an agreement meeting the
333 requirements of this Subsection (4).
334 (b) The agreement described in Subsection (4)(a):
335 (i) may not:

336 (A) authorize the state to impose a tax in addition to a tax imposed under this chapter;
337 (B) provide a subtraction under this section greater than or different from the
338 subtraction described in Subsection (2)(l); or
339 (C) affect the power of the state to establish rates of taxation; and
340 (ii) shall:
341 (A) provide for the implementation of the subtraction described in Subsection (2)(l);
342 (B) be in writing;
343 (C) be signed by:
344 (I) the governor; and
345 (II) the chair of the Business Committee of the Ute tribe;
346 (D) be conditioned on obtaining any approval required by federal law; and
347 (E) state the effective date of the agreement.
348 (c) (i) The governor shall report to the commission by no later than February 1 of each
349 year regarding whether or not an agreement meeting the requirements of this Subsection (4) is
350 in effect.
351 (ii) If an agreement meeting the requirements of this Subsection (4) is terminated, the
352 subtraction permitted under Subsection (2)(l) is not allowed for taxable years beginning on or
353 after the January 1 following the termination of the agreement.
354 (d) For purposes of Subsection (2)(l) and in accordance with Title 63, Chapter 46a,
355 Utah Administrative Rulemaking Act, the commission may make rules:
356 (i) for determining whether income is derived from a source within the Uintah and
357 Ouray Reservation; and
358 (ii) that are substantially similar to how federal adjusted gross income derived from
359 Utah sources is determined under Section 59-10-117 .
360 (5) (a) For purposes of this Subsection (5), "Form 8814" means:
361 (i) the federal individual income tax Form 8814, Parents' Election To Report Child's
362 Interest and Dividends; or
363 (ii) (A) for taxable years beginning on or after January 1, 2002, a form designated by
364 the commission in accordance with Subsection (5)(a)(ii)(B) as being substantially similar to
365 2000 Form 8814 if for purposes of federal individual income taxes the information contained
366 on 2000 Form 8814 is reported on a form other than Form 8814; and

367 (B) for purposes of Subsection (5)(a)(ii)(A) and in accordance with Title 63, Chapter
368 46a, Utah Administrative Rulemaking Act, the commission may make rules designating a form
369 as being substantially similar to 2000 Form 8814 if for purposes of federal individual income
370 taxes the information contained on 2000 Form 8814 is reported on a form other than Form
371 8814.
372 (b) The amount of a child's income added to adjusted gross income under Subsection
373 (1)(c) is equal to the difference between:
374 (i) the lesser of:
375 (A) the base amount specified on Form 8814; and
376 (B) the sum of the following reported on Form 8814:
377 (I) the child's taxable interest;
378 (II) the child's ordinary dividends; and
379 (III) the child's capital gain distributions; and
380 (ii) the amount not taxed that is specified on Form 8814.
381 (6) Notwithstanding Subsection (1)(g), interest from bonds, notes, and other evidences
382 of indebtedness issued by an entity described in Subsections (1)(g)(i) through (iv) may not be
383 added to federal taxable income of a resident or nonresident individual if, as annually
384 determined by the commission:
385 (a) for an entity described in Subsection (1)(g)(i) or (ii), the entity and all of the
386 political subdivisions, agencies, or instrumentalities of the entity do not impose a tax based on
387 income on any part of the bonds, notes, and other evidences of indebtedness of this state; or
388 (b) for an entity described in Subsection (1)(g)(iii) or (iv), the following do not impose
389 a tax based on income on any part of the bonds, notes, and other evidences of indebtedness of
390 this state:
391 (i) the entity; or
392 (ii) (A) the state in which the entity is located; or
393 (B) the District of Columbia, if the entity is located within the District of Columbia.
394 Section 3. Retrospective operation.
395 This act has retrospective operation for taxable years beginning on or after January 1,
396 2003.