PLEASE NOTE:

THIS DOCUMENT INCLUDES BOTH THE BILL AND ALSO A TRANSMITTAL LETTER THAT CONTAINS PASSED AMENDMENTS BUT NOT INCORPORATED INTO THE BILL.

UTAH STATE SENATE

UTAH STATE CAPITOL COMPLEX ● WEST OFFICE BUILDING, SUITE W115

P.O. BOX 145115 ● SALT LAKE CITY, UTAH 84114-5115 ● (801) 538-1035

September 19, 2006 (4:04pm)

Mr. Speaker:

             The Senate passed S.B. 4001, INCOME TAX AMENDMENTS, by Senator C. Bramble, with the following amendments:

1.         Page 1, Lines 12 through 14:                   

12      This bill:

13      ►         modifies tax brackets for taxable years beginning on or after January 1, 2006;

14      ►         modifies additions to and subtractions from federal taxable income for purposes of

2.         Page 9, Line 250 through Page 10, Line 287:

250    Section 2. Section 59-10-104 is amended to read:

251    59-10-104. Tax basis -- Rates -- Exemption.

252    (1) Except as provided in Subsection

253Act, for taxable years beginning on or after January 1, [2001] 2006, a tax is imposed on the

254state taxable income[, as defined in Section 59-10-112,] of every resident individual as

255provided in this section.

256    (2) For an individual, other than a husband and wife or head of household required to

257use the tax table under Subsection (3), the tax under this section is imposed in accordance with

258the following

259If the state taxable income is:                               The tax is:

260Less than or equal to [$863] $1,105                     2.3% of the state taxable income

261Greater than [$863] $1,105 but less than             [$20] $25, plus 3.3% of state taxable

262    or equal to [$1,726] $2,208                              income greater than [$863] $1,105

263Greater than [$1,726] $2,208 but less than          [$48] $62, plus 4.2% of state taxable

264    or equal to [$2,588] $3,313                              income greater than [$1,726] $2,208

265Greater than [$2,588] $3,313 but less than          [$85] $108, plus 5.2% of state taxable

266    or equal to [$3,450] $4,416                              income greater than [$2,588] $3,313

267Greater than [$3,450] $4,416 but less than          [$129] $166, plus 6% of state taxable

268    or equal to [$4,313] $5,521                              income greater than [$3,450] $4,416

269Greater than [$4,313] $5,521                               [$181] $232, plus 7% of state taxable

270                                                                    income greater than [$4,313] $5,521

271    (3) For a husband and wife filing a single return jointly, or a head of household as

272defined in Section 2(b), Internal Revenue Code, filing a single return, the tax under this section

273is imposed in accordance with the following

274If the state taxable income is:                               The tax is:

275Less than or equal to [$1,726] $2,210       2.3% of the state taxable income

276Greater than [$1,726] $2,210 but less than          [$40] $51, plus 3.3% of state taxable

277    or equal to [$3,450] $4,416                              income greater than [$1,726] $2,210

278Greater than [$3,450] $4,416 but less than          [$97] $124, plus 4.2% of state taxable

279    or equal to [$5,176] $6,626                              income greater than [$3,450] $4,416

280Greater than [$5,176] $6,626 but less than          [$169] $216, plus 5.2% of state taxable

281    or equal to [$6,900] $8,832                              income greater than [$5,176] $6,626

282Greater than [$6,900] $8,832 but less than          [$259] $331, plus 6% of state taxable

283    or equal to [$8,626] $11,042                            income greater than [$6,900] $8,832

284Greater than [$8,626] $11,042                   [$362] $464, plus 7% of state taxable

285                                                                    income greater than [$8,626] $11,042

          (i) make the following adjustments to the income brackets under Subsection (2):

          (A) increase or decrease the income brackets under Subsection (2) by a percentage equal to the percentage difference between the consumer price index for the preceding calendar year and the consumer price index for the calendar year 2007; and

          (B) after making an increase or decrease under Subsection (4)(a)(i)(A), round the income brackets under Subsection (2) to the nearest whole dollar;

          (ii) after making the adjustments described in Subsection (4)(a)(i) to the income brackets under Subsection (2), adjust the income brackets under Subsection (3) so that for each income bracket under Subsection (2) there is a corresponding income bracket under Subsection (3) that is equal to the product of:

          (A) each income bracket under Subsection (2); and

          (B) two; and

          (iii) to the extent necessary to reflect an adjustment under Subsection (4)(a)(i) or (ii):

          (A) increase or decrease the amount of tax under Subsection (2) or (3) prior to adding in the portion of the tax calculated as a percentage of state taxable income; and

          (B) after making an increase or decrease under Subsection (4)(a)(iii)(A), round the amount of tax under Subsection (2) or (3) to the nearest whole dollar.

          (b) The commission may not increase or decrease the tax rate percentages provided in Subsection (2) or (3).

          (c) For purposes of Subsection (4)(a)(i), the commission shall calculate the consumer price index as provided in Sections 1(f)(4) and 1(f)(5), Internal Revenue Code. 

286    

287Section 59-10-104.1.

and it is transmitted for consideration.

                                                                               Respectfully,

                                                                                           Annette B. Moore

                                                                              Secretary of the Senate

35 SB4001.amd.wpd 4:04 pm RLR/rday

1                                       INCOME TAX AMENDMENTS

2                                                 2006 FOURTH SPECIAL SESSION

3                                                               STATE OF UTAH

4                                            Chief Sponsor: Curtis S. Bramble

5                                             House Sponsor: Wayne A. Harper

6

7LONG TITLE

8General Description:

9          This bill amends the Individual Income Tax Act relating to tax brackets, additions, and

10subtractions, and enacts of the Single Rate Individual Income Tax Act.

11Highlighted Provisions:

12        This bill:

13        ►    modifies tax brackets for taxable years beginning on or after January 1, 2006;

14        ►    modifies additions to and subtractions from federal taxable income for purposes of

15calculating individual income taxes;

16        ►    enacts the Single Rate Individual Income Tax Act:

17             ∙    for taxable years beginning on or after January 1, 2007; and

18             ∙    that allows a resident or nonresident individual to determine each time the

19resident or nonresident individual files a state individual income tax return or

20amended return, whether to calculate and pay a single rate individual income tax

21on the basis of adjusted gross income or pay a multi-rate individual income tax

22on the basis of federal taxable income;

23        ►    enacts, modifies, and repeals definitions;

24        ►    repeals the authority for the State Tax Commission to prescribe tax tables and for an

25individual to elect to pay an individual income tax on the basis of those tax tables;

26        ►    repeals an intent statement relating to the Individual Income Tax Act;

27        ►    grants rulemaking authority to the State Tax Commission; and

28        ►    makes technical changes.

29Monies Appropriated in this Bill:

30        None

31Other Special Clauses:

32        This bill provides an effective date and provides for retrospective operation.

33Utah Code Sections Affected:

34AMENDS:

35        59-10-103, as last amended by Chapters 223 and 224, Laws of Utah 2006

36        59-10-104, as last amended by Chapters 323 and 324, Laws of Utah 2001

37        59-10-104.1, as enacted by Chapter 323, Laws of Utah 2001

38        59-10-114, as last amended by Chapters 223 and 224, Laws of Utah 2006

39        59-10-115, as last amended by Chapter 223, Laws of Utah 2006

40        59-10-116, as last amended by Chapter 79, Laws of Utah 2004

41        59-10-117, as last amended by Chapters 311 and 345, Laws of Utah 1995

42        59-10-202, as last amended by Chapter 223, Laws of Utah 2006

43        59-10-303, as renumbered and amended by Chapter 2, Laws of Utah 1987

44        59-10-1002, as enacted by Chapter 223, Laws of Utah 2006

45        59-10-1005, as renumbered and amended by Chapter 223, Laws of Utah 2006

46ENACTS:

47        59-10-1201, Utah Code Annotated 1953

48        59-10-1202, Utah Code Annotated 1953

49        59-10-1203, Utah Code Annotated 1953

50        59-10-1204, Utah Code Annotated 1953

51        59-10-1205, Utah Code Annotated 1953

52        59-10-1206, Utah Code Annotated 1953

53        59-10-1207, Utah Code Annotated 1953

54REPEALS:

55        59-10-102, as renumbered and amended by Chapter 2, Laws of Utah 1987

56        59-10-105, as last amended by Chapter 323, Laws of Utah 2001

57        59-10-111, as last amended by Chapter 96, Laws of Utah 1987

58        59-10-112, as last amended by Chapter 223, Laws of Utah 2006

59

60Be it enacted by the Legislature of the state of Utah:

61        Section 1. Section 59-10-103 is amended to read:

62        59-10-103. Definitions.

63        (1) As used in this chapter:

64        (a) "Adjusted gross income":

65        (i) for a resident or nonresident individual, is as defined in Section 62, Internal

66Revenue Code; or

67        (ii) for a resident or nonresident estate or trust, is as calculated in Section 67(e),

68Internal Revenue Code.

69        [(a)] (b) "Adoption expenses" means:

70        (i) any actual medical and hospital expenses of the mother of the adopted child which

71are incident to the child's birth;

72        (ii) any welfare agency fees or costs;

73        (iii) any child placement service fees or costs;

74        (iv) any legal fees or costs; or

75        (v) any other fees or costs relating to an adoption.

76        [(b)] (c) "Adult with a disability" means an individual who:

77        (i) is 18 years of age or older;

78        (ii) is eligible for services under Title 62A, Chapter 5, Services for People with

79Disabilities; and

80        (iii) is not enrolled in:

81        (A) an education program for students with disabilities that is authorized under Section

8253A-15-301; or

83        (B) a school established under Title 53A, Chapter 25, Schools for the Deaf and Blind.

84        [(c)] (d) (i) For purposes of Subsection 59-10-114(2)(l), "capital gain transaction"

85means a transaction that results in a:

86        (A) short-term capital gain; or

87        (B) long-term capital gain.

88        (ii) In accordance with Title 63, Chapter 46a, Utah Administrative Rulemaking Act,

89the commission may by rule define the term "transaction."

90        [(d)] (e) "Commercial domicile" means the principal place from which the trade or

91business of a Utah small business corporation is directed or managed.

92        [(e)] (f) "Corporation" includes:

93        (i) associations;

94        (ii) joint stock companies; and

95        (iii) insurance companies.

96        [(f)] (g) "Dependent child with a disability" means an individual 21 years of age or

97younger who:

98        (i) (A) is diagnosed by a school district representative under rules adopted by the State

99Board of Education as having a disability classified as:

100      (I) autism;

101      (II) deafness;

102      (III) preschool developmental delay;

103      (IV) dual sensory impairment;

104      (V) hearing impairment;

105      (VI) intellectual disability;

106      (VII) multidisability;

107      (VIII) orthopedic impairment;

108      (IX) other health impairment;

109      (X) traumatic brain injury; or

110      (XI) visual impairment;

111      (B) is not receiving residential services from:

112      (I) the Division of Services for People with Disabilities created under Section

11362A-5-102; or

114      (II) a school established under Title 53A, Chapter 25, Schools for the Deaf and Blind;

115and

116      (C) is enrolled in:

117      (I) an education program for students with disabilities that is authorized under Section

11853A-15-301; or

119      (II) a school established under Title 53A, Chapter 25, Schools for the Deaf and Blind;

120or

121      (ii) is identified under guidelines of the Department of Health as qualified for:

122      (A) Early Intervention; or

123      (B) Infant Development Services.

124      [(g)] (h) "Distributable net income" is as defined in Section 643, Internal Revenue

125Code.

126      [(h)] (i) "Employee" is as defined in Section 59-10-401.

127      [(i)] (j) "Employer" is as defined in Section 59-10-401.

128      (k) "Federal taxable income":

129      (i) for a resident or nonresident individual, means taxable income as defined by Section

13063, Internal Revenue Code; or

131      (ii) for a resident or nonresident estate or trust, is as calculated in Section 641(a) and

132(b), Internal Revenue Code.

133      [(j)] (l) "Fiduciary" means:

134      (i) a guardian;

135      (ii) a trustee;

136      (iii) an executor;

137      (iv) an administrator;

138      (v) a receiver;

139      (vi) a conservator; or

140      (vii) any person acting in any fiduciary capacity for any individual.

141      [(k)] (m) "Homesteaded land diminished from the Uintah and Ouray Reservation"

142means the homesteaded land that was held to have been diminished from the Uintah and Ouray

143Reservation in Hagen v. Utah, 510 U.S. 399 (1994).

144      [(l)] (n) "Individual" means a natural person and includes aliens and minors.

145      [(m)] (o) "Irrevocable trust" means a trust in which the settlor may not revoke or

146terminate all or part of the trust without the consent of a person who has a substantial beneficial

147interest in the trust and the interest would be adversely affected by the exercise of the settlor's

148power to revoke or terminate all or part of the trust.

149      [(n)] (p) For purposes of Subsection 59-10-114(2)(l), "long-term capital gain" is as

150defined in Section 1222, Internal Revenue Code.

151      [(o)] (q) "Nonresident individual" means an individual who is not a resident of this

152state.

153      [(p)] (r) "Nonresident trust" or "nonresident estate" means a trust or estate which is not

154a resident estate or trust.

155      [(q)] (s) (i) "Partnership" includes a syndicate, group, pool, joint venture, or other

156unincorporated organization:

157      (A) through or by means of which any business, financial operation, or venture is

158carried on; and

159      (B) which is not, within the meaning of this chapter:

160      (I) a trust;

161      (II) an estate; or

162      (III) a corporation.

163      (ii) "Partnership" does not include any organization not included under the definition of

164"partnership" in Section 761, Internal Revenue Code.

165      (iii) "Partner" includes a member in a syndicate, group, pool, joint venture, or

166organization described in Subsection (1)[(q)] (s)(i).

167      [(r)] (t) "Qualifying military service member" means a member of:

168      (i) The Utah Army National Guard;

169      (ii) The Utah Air National Guard; or

170      (iii) the following if the member is assigned to a unit that is located in the state:

171      (A) The Army Reserve;

172      (B) The Naval Reserve;

173      (C) The Air Force Reserve;

174      (D) The Marine Corps Reserve; or

175      (E) The Coast Guard Reserve.

176      [(s)] (u) "Qualifying stock" means stock that is:

177      (i) (A) common; or

178      (B) preferred;

179      (ii) as defined by the commission by rule, originally issued to:

180      (A) a resident or nonresident individual; or

181      (B) a partnership if the resident or nonresident individual making a subtraction from

182federal taxable income in accordance with Subsection 59-10-114(2)(l):

183      (I) was a partner when the stock was issued; and

184      (II) remains a partner until the last day of the taxable year for which the resident or

185nonresident individual makes the subtraction from federal taxable income in accordance with

186Subsection 59-10-114(2)(l); and

187      (iii) issued:

188      (A) by a Utah small business corporation;

189      (B) on or after January 1, 2003; and

190      (C) for:

191      (I) money; or

192      (II) other property, except for stock or securities.

193      [(t)] (v) (i) "Resident individual" means:

194      (A) an individual who is domiciled in this state for any period of time during the

195taxable year, but only for the duration of the period during which the individual is domiciled in

196this state; or

197      (B) an individual who is not domiciled in this state but:

198      (I) maintains a permanent place of abode in this state; and

199      (II) spends in the aggregate 183 or more days of the taxable year in this state.

200      (ii) For purposes of Subsection (1)[(t)] (v)(i)(B), a fraction of a calendar day shall be

201counted as a whole day.

202      [(u)] (w) "Resident estate" or "resident trust" is as defined in Section 75-7-103.

203      [(v)] (x) For purposes of Subsection 59-10-114(2)(l), "short-term capital gain" is as

204defined in Section 1222, Internal Revenue Code.

205      [(w)] (y) "Taxable income" [and] or "state taxable income" [are defined as provided in

206Sections 59-10-111, 59-10-112, 59-10-201.1, and 59-10-204.]:

207      (i) subject to Subsection 59-10-302(2), for a resident individual other than a resident

208individual described in Subsection (1)(y)(iii), means the resident individual's federal taxable

209income after making the:

210      (A) additions and subtractions required by Section 59-10-114; and

211      (B) adjustments required by Section 59-10-115;

212      (ii) for a nonresident individual other than a nonresident individual described in

213Subsection (1)(y)(iii), is as defined in Section 59-10-116;

214      (iii) for a resident or nonresident individual that collects and pays a tax described in

215Part 12, Single Rate Individual Income Tax Act, is as defined in Section 59-10-1202;

216      (iv) for a resident estate or trust, is as calculated under Section 59-10-201.1; and

217      (v) for a nonresident estate or trust, is as calculated under Section 59-10-204.

218      [(x)] (z) "Taxpayer" means any individual, estate, or trust or beneficiary of an estate or

219trust, whose income is subject in whole or part to the tax imposed by this chapter.

220      [(y)] (aa) "Uintah and Ouray Reservation" means the lands recognized as being

221included within the Uintah and Ouray Reservation in:

222      (i) Hagen v. Utah, 510 U.S. 399 (1994); and

223      (ii) Ute Indian Tribe v. Utah, 114 F.3d 1513 (10th Cir. 1997).

224      [(z)] (bb) (i) "Utah small business corporation" means a corporation that:

225      (A) is a small business corporation as defined in Section 1244(c)(3), Internal Revenue

226Code;

227      (B) except as provided in Subsection (1)[(z)](bb)(ii), meets the requirements of Section

2281244(c)(1)(C), Internal Revenue Code; and

229      (C) has its commercial domicile in this state.

230      (ii) Notwithstanding Subsection (1)[(z)](bb)(i)(B), the time period described in Section

2311244(c)(1)(C) and Section 1244(c)(2), Internal Revenue Code, for determining the source of a

232corporation's aggregate gross receipts shall end on the last day of the taxable year for which the

233resident or nonresident individual makes a subtraction from federal taxable income in

234accordance with Subsection 59-10-114(2)(l).

235      [(aa)] (cc) "Ute tribal member" means a person who is enrolled as a member of the Ute

236Indian Tribe of the Uintah and Ouray Reservation.

237      [(bb)] (dd) "Ute tribe" means the Ute Indian Tribe of the Uintah and Ouray

238Reservation.

239      [(cc)] (ee) "Wages" is as defined in Section 59-10-401.

240      (2) (a) Any term used in this chapter has the same meaning as when used in

241comparable context in the laws of the United States relating to federal income taxes unless a

242different meaning is clearly required.

243      (b) Any reference to the Internal Revenue Code or to the laws of the United States shall

244mean the Internal Revenue Code or other provisions of the laws of the United States relating to

245federal income taxes that are in effect for the taxable year.

246      (c) Any reference to a specific section of the Internal Revenue Code or other provision

247of the laws of the United States relating to federal income taxes shall include any

248corresponding or comparable provisions of the Internal Revenue Code as hereafter amended,

249redesignated, or reenacted.

250      Section 2. Section 59-10-104 is amended to read:

251      59-10-104. Tax basis -- Rates -- Exemption.

252      (1) Except as provided in Subsection (4) or Part 12, Single Rate Individual Income Tax

253Act, for taxable years beginning on or after January 1, [2001] 2006, a tax is imposed on the

254state taxable income[, as defined in Section 59-10-112,] of every resident individual as

255provided in this section.

256      (2) For an individual, other than a husband and wife or head of household required to

257use the tax table under Subsection (3), the tax under this section is imposed in accordance with

258the following table:

259If the state taxable income is:                               The tax is:

260Less than or equal to [$863] $1,105                     2.3% of the state taxable income

261Greater than [$863] $1,105 but less than              [$20] $25, plus 3.3% of state taxable

262      or equal to [$1,726] $2,208                             income greater than [$863] $1,105

263Greater than [$1,726] $2,208 but less than           [$48] $62, plus 4.2% of state taxable

264      or equal to [$2,588] $3,313                             income greater than [$1,726] $2,208

265Greater than [$2,588] $3,313 but less than           [$85] $108, plus 5.2% of state taxable

266      or equal to [$3,450] $4,416                             income greater than [$2,588] $3,313

267Greater than [$3,450] $4,416 but less than           [$129] $166, plus 6% of state taxable

268      or equal to [$4,313] $5,521                             income greater than [$3,450] $4,416

269Greater than [$4,313] $5,521                                [$181] $232, plus 7% of state taxable

270                                                                               income greater than [$4,313] $5,521

271      (3) For a husband and wife filing a single return jointly, or a head of household as

272defined in Section 2(b), Internal Revenue Code, filing a single return, the tax under this section

273is imposed in accordance with the following table:

274If the state taxable income is:                               The tax is:

275Less than or equal to [$1,726] $2,210                  2.3% of the state taxable income

276Greater than [$1,726] $2,210 but less than           [$40] $51, plus 3.3% of state taxable

277      or equal to [$3,450] $4,416                             income greater than [$1,726] $2,210

278Greater than [$3,450] $4,416 but less than           [$97] $124, plus 4.2% of state taxable

279      or equal to [$5,176] $6,626                             income greater than [$3,450] $4,416

280Greater than [$5,176] $6,626 but less than           [$169] $216, plus 5.2% of state taxable

281      or equal to [$6,900] $8,832                             income greater than [$5,176] $6,626

282Greater than [$6,900] $8,832 but less than           [$259] $331, plus 6% of state taxable

283      or equal to [$8,626] $11,042                           income greater than [$6,900] $8,832

284Greater than [$8,626] $11,042                              [$362] $464, plus 7% of state taxable

285                                                                               income greater than [$8,626] $11,042

286      (4) This section does not apply to a resident individual exempt from taxation under

287Section 59-10-104.1.

288      Section 3. Section 59-10-104.1 is amended to read:

289      59-10-104.1. Exemption from taxation.

290      (1) For purposes of this section:

291      (a) "Personal exemptions" means the total exemption amount an individual is allowed

292to claim for the taxable year under Section 151, Internal Revenue Code, for:

293      (i) the individual;

294      (ii) the individual's spouse; and

295      (iii) the individual's dependents[; and].

296      (b) "Standard deduction":

297      (i) except as provided in Subsection (1)(b)(ii), means the standard deduction an

298individual is allowed to claim for the taxable year under Section 63, Internal Revenue Code;

299and

300      (ii) notwithstanding Subsection (1)(b)(i), does not include an additional amount

301allowed under Section 63(f), Internal Revenue Code, for an individual or an individual's spouse

302who is:

303      (A) blind; or

304      (B) 65 years of age or older.

305      (2) For taxable years beginning on or after January 1, 2002, an individual is exempt

306from a tax imposed by Section 59-10-104[, 59-10-105,] or 59-10-116 or described in Section

30759-10-1203 if the individual's adjusted gross income on the individual's federal individual

308income tax return for the taxable year is less than or equal to the sum of the individual's:

309      (a) personal exemptions for that taxable year; and

310      (b) standard deduction for that taxable year.

311      Section 4. Section 59-10-114 is amended to read:

312      59-10-114. Additions to and subtractions from federal taxable income of an

313individual.

314      (1) There shall be added to federal taxable income of a resident or nonresident

315individual:

316      (a) the amount of any income tax imposed by this or any predecessor Utah individual

317income tax law and the amount of any income tax imposed by the laws of another state, the

318District of Columbia, or a possession of the United States, to the extent deducted from [federal]

319adjusted gross income[, as defined by Section 62, Internal Revenue Code,] in determining

320federal taxable income;

321      (b) a lump sum distribution that the taxpayer does not include in adjusted gross income

322on the taxpayer's federal individual income tax return for the taxable year;

323      (c) for taxable years beginning on or after January 1, 2002, the amount of a child's

324income calculated under Subsection (5) that:

325      (i) a parent elects to report on the parent's federal individual income tax return for the

326taxable year; and

327      (ii) the parent does not include in adjusted gross income on the parent's federal

328individual income tax return for the taxable year;

329      (d) 25% of the personal exemptions, as defined and calculated in the Internal Revenue

330Code;

331      (e) a withdrawal from a medical care savings account and any penalty imposed in the

332taxable year if:

333      (i) the [taxpayer] resident or nonresident individual did not deduct or include the

334amounts on the [taxpayer's] resident or nonresident individual's federal individual income tax

335return pursuant to Section 220, Internal Revenue Code; [and]

336      (ii) the withdrawal is subject to Subsections 31A-32a-105(1) and (2); and

337      (iii) the withdrawal is deducted by the resident or nonresident individual under

338Subsection (2)(h);

339      (f) the amount disbursed to an account owner under Title 53B, Chapter 8a, Higher

340Education Savings Incentive Program, [in] for the taxable year [in] for which the amount is

341disbursed[;], if that amount disbursed to the account owner:

342      (i) is not expended for higher education costs as defined in Section 53B-8a-102; and

343      (ii) is deducted by the account owner under Subsection (2)(i);

344      (g) except as provided in Subsection (6), for taxable years beginning on or after

345January 1, 2003, for bonds, notes, and other evidences of indebtedness acquired on or after

346January 1, 2003, the interest from bonds, notes, and other evidences of indebtedness issued by

347one or more of the following entities:

348      (i) a state other than this state;

349      (ii) the District of Columbia;

350      (iii) a political subdivision of a state other than this state; or

351      (iv) an agency or instrumentality of an entity described in Subsections (1)(g)(i) through

352(iii);

353      (h) subject to Subsection (2)(n), any distribution received by a resident beneficiary of a

354resident trust of income that was taxed at the trust level for federal tax purposes, but was

355subtracted from state taxable income of the trust pursuant to Subsection 59-10-202(2)(c);

356      (i) any distribution received by a resident beneficiary of a nonresident trust of

357undistributed distributable net income realized by the trust on or after January 1, 2004, if that

358undistributed distributable net income was taxed at the trust level for federal tax purposes, but

359was not taxed at the trust level by any state, with undistributed distributable net income

360considered to be distributed from the most recently accumulated undistributed distributable net

361income; and

362      (j) any adoption expense:

363      (i) for which a resident or nonresident individual receives reimbursement from another

364person; and

365      (ii) to the extent to which the resident or nonresident individual deducts that adoption

366expense:

367      (A) under Subsection (2)(c); or

368      (B) from federal taxable income on a [state or] federal individual income tax return.

369      (2) There shall be subtracted from federal taxable income of a resident or nonresident

370individual:

371      (a) the interest or a dividend on obligations or securities of the United States and its

372possessions or of any authority, commission, or instrumentality of the United States, to the

373extent that interest or dividend is included in gross income for federal income tax purposes for

374the taxable year but exempt from state income taxes under the laws of the United States, but

375the amount subtracted under this Subsection (2)(a) shall be reduced by any interest on

376indebtedness incurred or continued to purchase or carry the obligations or securities described

377in this Subsection (2)(a), and by any expenses incurred in the production of interest or dividend

378income described in this Subsection (2)(a) to the extent that such expenses, including

379amortizable bond premiums, are deductible in determining federal taxable income;

380      (b) 1/2 of the net amount of any income tax paid or payable to the United States after all

381allowable credits, as reported on the United States individual income tax return of the taxpayer

382for the same taxable year;

383      (c) the amount of adoption expenses for one of the following taxable years as elected

384by the resident or nonresident individual:

385      (i) regardless of whether a court issues an order granting the adoption, the taxable year

386in which the adoption expenses are:

387      (A) paid; or

388      (B) incurred;

389      (ii) the taxable year in which a court issues an order granting the adoption; or

390      (iii) any year in which the resident or nonresident individual may claim the federal

391adoption expenses credit under Section 23, Internal Revenue Code;

392      (d) amounts received by taxpayers under age 65 as retirement income which, for

393purposes of this section, means pensions and annuities, paid from an annuity contract

394purchased by an employer under a plan which meets the requirements of Section 404(a)(2),

395Internal Revenue Code, or purchased by an employee under a plan which meets the

396requirements of Section 408, Internal Revenue Code, or paid by the United States, a state, or

397political subdivision thereof, or the District of Columbia, to the employee involved or the

398surviving spouse;

399      (e) for each taxpayer age 65 or over before the close of the taxable year, a $7,500

400personal retirement exemption;

401      (f) 75% of the amount of the personal exemption, as defined and calculated in the

402Internal Revenue Code, for each dependent child with a disability and adult with a disability

403who is claimed as a dependent on a taxpayer's return;

404      (g) subject to the limitations of Subsection (3)(e), amounts a taxpayer pays during the

405taxable year for health care insurance, as defined in Title 31A, Chapter 1, General Provisions:

406      (i) for:

407      (A) the taxpayer;

408      (B) the taxpayer's spouse; and

409      (C) the taxpayer's dependents; and

410      (ii) to the extent the taxpayer does not deduct the amounts under Section 125, 162, or

411213, Internal Revenue Code, in determining federal taxable income for the taxable year;

412      (h) (i) except as provided in this Subsection (2)(h), the amount of a contribution made

413during the taxable year on behalf of the taxpayer to a medical care savings account and interest

414earned on a contribution to a medical care savings account established pursuant to Title 31A,

415Chapter 32a, Medical Care Savings Account Act, to the extent the contribution is accepted by

416the account administrator as provided in the Medical Care Savings Account Act, and if the

417taxpayer did not deduct or include amounts on the taxpayer's federal individual income tax

418return pursuant to Section 220, Internal Revenue Code; and

419      (ii) a contribution deductible under this Subsection (2)(h) may not exceed either of the

420following:

421      (A) the maximum contribution allowed under the Medical Care Savings Account Act

422for the tax year multiplied by two for taxpayers who file a joint return, if neither spouse is

423covered by health care insurance as defined in Section 31A-1-301 or self-funded plan that

424covers the other spouse, and each spouse has a medical care savings account; or

425      (B) the maximum contribution allowed under the Medical Care Savings Account Act

426for the tax year for taxpayers:

427      (I) who do not file a joint return; or

428      (II) who file a joint return, but do not qualify under Subsection (2)(h)(ii)(A);

429      (i) the amount included in federal taxable income that was derived from money paid by

430an account owner to the program fund under Title 53B, Chapter 8a, Higher Education Savings

431Incentive Program, not to exceed amounts determined under Subsection 53B-8a-106(1)(d), and

432investment income earned on account agreements entered into under Section 53B-8a-106 that

433is included in federal taxable income, but only when the funds are used for qualified higher

434education costs of the beneficiary;

435      (j) for taxable years beginning on or after January 1, 2000, any amounts paid for

436premiums for long-term care insurance as defined in Section 31A-1-301 to the extent the

437amounts paid for long-term care insurance were not deducted under Section 213, Internal

438Revenue Code, in determining federal taxable income;

439      (k) for taxable years beginning on or after January 1, 2000, if the conditions of

440Subsection (4)(a) are met, the amount of income derived by a Ute tribal member:

441      (i) during a time period that the Ute tribal member resides on homesteaded land

442diminished from the Uintah and Ouray Reservation; and

443      (ii) from a source within the Uintah and Ouray Reservation;

444      (l) (i) for taxable years beginning on or after January 1, 2003, the total amount of a

445resident or nonresident individual's short-term capital gain or long-term capital gain on a

446capital gain transaction:

447      (A) that occurs on or after January 1, 2003;

448      (B) if 70% or more of the gross proceeds of the capital gain transaction are expended:

449      (I) to purchase qualifying stock in a Utah small business corporation; and

450      (II) within a 12-month period after the day on which the capital gain transaction occurs;

451and

452      (C) if, prior to the purchase of the qualifying stock described in Subsection

453(2)(l)(i)(B)(I), the resident or nonresident individual did not have an ownership interest in the

454Utah small business corporation that issued the qualifying stock; and

455      (ii) in accordance with Title 63, Chapter 46a, Utah Administrative Rulemaking Act, the

456commission may make rules:

457      (A) defining the term "gross proceeds"; and

458      (B) for purposes of Subsection (2)(l)(i)(C), prescribing the circumstances under which

459a resident or nonresident individual has an ownership interest in a Utah small business

460corporation;

461      (m) for the taxable year beginning on or after January 1, 2005, but beginning on or

462before December 31, 2005, the first $2,200 of income a qualifying military service member

463receives:

464      (i) for service:

465      (A) as a qualifying military service member; or

466      (B) under an order into active service in accordance with Section 39-1-5; and

467      (ii) to the extent that income is included in adjusted gross income on that resident or

468nonresident individual's federal individual income tax return for that taxable year;

469      (n) an amount received by a resident or nonresident individual or distribution received

470by a resident or nonresident beneficiary of a resident trust:

471      (i) if that amount or distribution constitutes a refund of taxes imposed by:

472      (A) a state; or

473      (B) the District of Columbia; and

474      (ii) to the extent that amount or distribution is included in adjusted gross income for

475that taxable year on the federal individual income tax return of the resident or nonresident

476individual or resident or nonresident beneficiary of a resident trust;

477      (o) the amount of a railroad retirement benefit:

478      (i) paid:

479      (A) in accordance with The Railroad Retirement Act of 1974, 45 U.S.C. Sec. 231 et

480seq.;

481      (B) to a resident or nonresident individual; and

482      (C) for the taxable year; and

483      (ii) to the extent that railroad retirement benefit is included in adjusted gross income on

484that resident or nonresident individual's federal individual income tax return for that taxable

485year; and

486      (p) an amount:

487      (i) received by an enrolled member of an American Indian tribe; and

488      (ii) to the extent that the state is not authorized or permitted to impose a tax under this

489part on that amount in accordance with:

490      (A) federal law;

491      (B) a treaty; or

492      (C) a final decision issued by a court of competent jurisdiction.

493      (3) (a) For purposes of Subsection (2)(d), the amount of retirement income subtracted

494for taxpayers under 65 shall be the lesser of the amount included in federal taxable income, or

495$4,800, except that:

496      (i) for married taxpayers filing joint returns, for each $1 of adjusted gross income

497earned over $32,000, the amount of the retirement income exemption that may be subtracted

498shall be reduced by 50 cents;

499      (ii) for married taxpayers filing separate returns, for each $1 of adjusted gross income

500earned over $16,000, the amount of the retirement income exemption that may be subtracted

501shall be reduced by 50 cents; and

502      (iii) for individual taxpayers, for each $1 of adjusted gross income earned over

503$25,000, the amount of the retirement income exemption that may be subtracted shall be

504reduced by 50 cents.

505      (b) For purposes of Subsection (2)(e), the amount of the personal retirement exemption

506shall be further reduced according to the following schedule:

507      (i) for married taxpayers filing joint returns, for each $1 of adjusted gross income

508earned over $32,000, the amount of the personal retirement exemption shall be reduced by 50

509cents;

510      (ii) for married taxpayers filing separate returns, for each $1 of adjusted gross income

511earned over $16,000, the amount of the personal retirement exemption shall be reduced by 50

512cents; and

513      (iii) for individual taxpayers, for each $1 of adjusted gross income earned over

514$25,000, the amount of the personal retirement exemption shall be reduced by 50 cents.

515      (c) For purposes of Subsections (3)(a) and (b), adjusted gross income shall be

516calculated by adding to [federal] adjusted gross income any interest income not otherwise

517included in [federal] adjusted gross income.

518      (d) For purposes of determining ownership of items of retirement income common law

519doctrine will be applied in all cases even though some items may have originated from service

520or investments in a community property state. Amounts received by the spouse of a living

521retiree because of the retiree's having been employed in a community property state are not

522deductible as retirement income of such spouse.

523      (e) For purposes of Subsection (2)(g), a subtraction for an amount paid for health care

524insurance as defined in Title 31A, Chapter 1, General Provisions, is not allowed:

525      (i) for an amount that is reimbursed or funded in whole or in part by the federal

526government, the state, or an agency or instrumentality of the federal government or the state;

527and

528      (ii) for a taxpayer who is eligible to participate in a health plan maintained and funded

529in whole or in part by the taxpayer's employer or the taxpayer's spouse's employer.

530      (4) (a) A subtraction for an amount described in Subsection (2)(k) is allowed only if:

531      (i) the taxpayer is a Ute tribal member; and

532      (ii) the governor and the Ute tribe execute and maintain an agreement meeting the

533requirements of this Subsection (4).

534      (b) The agreement described in Subsection (4)(a):

535      (i) may not:

536      (A) authorize the state to impose a tax in addition to a tax imposed under this chapter;

537      (B) provide a subtraction under this section greater than or different from the

538subtraction described in Subsection (2)(k); or

539      (C) affect the power of the state to establish rates of taxation; and

540      (ii) shall:

541      (A) provide for the implementation of the subtraction described in Subsection (2)(k);

542      (B) be in writing;

543      (C) be signed by:

544      (I) the governor; and

545      (II) the chair of the Business Committee of the Ute tribe;

546      (D) be conditioned on obtaining any approval required by federal law; and

547      (E) state the effective date of the agreement.

548      (c) (i) The governor shall report to the commission by no later than February 1 of each

549year regarding whether or not an agreement meeting the requirements of this Subsection (4) is

550in effect.

551      (ii) If an agreement meeting the requirements of this Subsection (4) is terminated, the

552subtraction permitted under Subsection (2)(k) is not allowed for taxable years beginning on or

553after the January 1 following the termination of the agreement.

554      (d) For purposes of Subsection (2)(k) and in accordance with Title 63, Chapter 46a,

555Utah Administrative Rulemaking Act, the commission may make rules:

556      (i) for determining whether income is derived from a source within the Uintah and

557Ouray Reservation; and

558      (ii) that are substantially similar to how [federal] adjusted gross income derived from

559Utah sources is determined under Section 59-10-117.

560      (5) (a) For purposes of this Subsection (5), "Form 8814" means:

561      (i) the federal individual income tax Form 8814, Parents' Election To Report Child's

562Interest and Dividends; or

563      (ii) (A) for taxable years beginning on or after January 1, 2002, a form designated by

564the commission in accordance with Subsection (5)(a)(ii)(B) as being substantially similar to

5652000 Form 8814 if for purposes of federal individual income taxes the information contained

566on 2000 Form 8814 is reported on a form other than Form 8814; and

567      (B) for purposes of Subsection (5)(a)(ii)(A) and in accordance with Title 63, Chapter

56846a, Utah Administrative Rulemaking Act, the commission may make rules designating a form

569as being substantially similar to 2000 Form 8814 if for purposes of federal individual income

570taxes the information contained on 2000 Form 8814 is reported on a form other than Form

5718814.

572      (b) The amount of a child's income added to adjusted gross income under Subsection

573(1)(c) is equal to the difference between:

574      (i) the lesser of:

575      (A) the base amount specified on Form 8814; and

576      (B) the sum of the following reported on Form 8814:

577      (I) the child's taxable interest;

578      (II) the child's ordinary dividends; and

579      (III) the child's capital gain distributions; and

580      (ii) the amount not taxed that is specified on Form 8814.

581      (6) Notwithstanding Subsection (1)(g), interest from bonds, notes, and other evidences

582of indebtedness issued by an entity described in Subsections (1)(g)(i) through (iv) may not be

583added to federal taxable income of a resident or nonresident individual if, as annually

584determined by the commission:

585      (a) for an entity described in Subsection (1)(g)(i) or (ii), the entity and all of the

586political subdivisions, agencies, or instrumentalities of the entity do not impose a tax based on

587income on any part of the bonds, notes, and other evidences of indebtedness of this state; or

588      (b) for an entity described in Subsection (1)(g)(iii) or (iv), the following do not impose

589a tax based on income on any part of the bonds, notes, and other evidences of indebtedness of

590this state:

591      (i) the entity; or

592      (ii) (A) the state in which the entity is located; or

593      (B) the District of Columbia, if the entity is located within the District of Columbia.

594      Section 5. Section 59-10-115 is amended to read:

595      59-10-115. Adjustments to federal taxable income.

596      (1) The commission shall allow an adjustment to [state] federal taxable income of a

597taxpayer if the taxpayer would otherwise:

598      (a) receive a double tax benefit under this part; or

599      (b) suffer a double tax detriment under this part.

600      (2) In accordance with Title 63, Chapter 46a, Utah Administrative Rulemaking Act, the

601commission may make rules to allow for the adjustment to [state] federal taxable income

602required by Subsection (1).

603      Section 6. Section 59-10-116 is amended to read:

604      59-10-116. Definitions -- Tax on nonresident individual -- Calculation --

605Exemption.

606      (1) For purposes of this section:

607      (a) "Military service" is as defined in Pub. L. No. 108-189, Sec. 101[;].

608      (b) "Servicemember" is as defined in Pub. L. No. 108-189, Sec. 101[;].

609      (c) "State income tax percentage" means a percentage equal to a nonresident

610individual's [federal] adjusted gross income for the taxable year received from Utah sources, as

611determined under Section 59-10-117, divided by the difference between:

612      (i) the nonresident individual's total [federal] adjusted gross income for that taxable

613year; and

614      (ii) if the nonresident individual described in Subsection (1)(c)(i) is a servicemember,

615the compensation the servicemember receives for military service if the servicemember is

616serving in compliance with military orders[; and].

617      (d) "State taxable income" means a nonresident individual's federal taxable income

618after making the:

619      (i) additions and subtractions required by Section 59-10-114; and

620      (ii) adjustments required by Section 59-10-115.

621      [(d)] (e) "Unapportioned state tax" means the product of the:

622      (i) difference between:

623      (A) a nonresident individual's [federal taxable income, as defined in Section

62459-10-111, with the modifications, subtractions, and adjustments provided for in Section

62559-10-114] state taxable income; and

626      (B) if the nonresident individual described in Subsection (1)[(d)](e)(i)(A) is a

627servicemember, compensation the servicemember receives for military service if the

628servicemember is serving in compliance with military orders; and

629      (ii) tax rate imposed under Section 59-10-104.

630      (2) Except as provided in Subsection (3) or Part 12, Single Rate Individual Income Tax

631Act, a tax is imposed on a nonresident individual in an amount equal to the product of the

632nonresident individual's:

633      (a) unapportioned state tax; and

634      (b) state income tax percentage.

635      (3) This section does not apply to a nonresident individual exempt from taxation under

636Section 59-10-104.1.

637      (4) In accordance with Title 63, Chapter 46a, Utah Administrative Rulemaking Act, for

638purposes of Subsection (1), the commission may by rule define what constitutes compensation.

639      Section 7. Section 59-10-117 is amended to read:

640      59-10-117. Adjusted gross income derived from Utah sources.

641      (1) For [the purpose] purposes of Section 59-10-116, [federal] adjusted gross income

642derived from Utah sources [shall include] includes those items includable in [federal "]adjusted

643gross income[" (as defined by Section 62 of the Internal Revenue Code)] attributable to or

644resulting from:

645      (a) the ownership in this state of any interest in real or tangible personal property,

646[(]including real property or property rights from which "gross income from mining," as

647defined by Section 613(c) [of the], Internal Revenue Code, is derived[)]; or

648      (b) the carrying on of a business, trade, profession, or occupation in this state.

649      (2) For the purposes of Subsection (1):

650      (a) income from intangible personal property, including annuities, dividends, interest,

651and gains from the disposition of intangible personal property shall constitute income derived

652from Utah sources only to the extent that such income is from property employed in a trade,

653business, profession, or occupation carried on in this state[.];

654      (b) deductions with respect to capital losses, net long-term capital gains, and net

655operating losses shall be based solely on income, gain, loss, and deduction connected with Utah

656sources, under rules prescribed by the commission in accordance with Title 63, Chapter 46a,

657Utah Administrative Rulemaking Act, but otherwise shall be determined in the same manner as

658the corresponding federal deductions[.];

659      (c) salaries, wages, commissions, and compensation for personal services rendered

660outside this state shall not be considered to be derived from Utah sources[.];

661      (d) a nonresident shareholder's distributive share of ordinary income, gain, loss, and

662deduction derived from or connected with Utah sources shall be determined under Section

66359-10-118[.];

664      (e) a nonresident, other than a dealer holding property primarily for sale to customers

665in the ordinary course of [his] the dealer's trade or business, [shall] may not be considered to

666carry on a trade, business, profession, or occupation in this state solely by reason of the

667purchase or sale of property for [his] the nonresident's own account[.];

668      (f) if a trade, business, profession, or occupation is carried on partly within and partly

669without this state, items of income, gain, loss, and deductions derived from or connected with

670Utah sources shall be determined in accordance with the provisions of Section 59-10-118[.];

671      (g) a nonresident partner's distributive share of partnership income, gain, loss, and

672deduction derived from or connected with Utah sources shall be determined under Section

67359-10-303[.];

674      (h) the share of a nonresident estate or trust and nonresident beneficiaries of any estate

675or trust in income, gain, loss, and deduction derived from or connected with Utah sources shall

676be determined under Section 59-10-207[.]; and

677      (i) any dividend, interest, or distributive share of income, gain, or loss from a real

678estate investment trust, as defined in Section 59-7-116.5, distributed or allocated to a

679nonresident investor in the trust, including any shareholder, beneficiary, or owner of a

680beneficial interest in the trust, shall be income from intangible personal property under

681Subsection (2)(a), and shall constitute income derived from Utah sources only to the extent the

682nonresident investor is employing its beneficial interest in the trust in a trade, business,

683profession, or occupation carried on by the investor in this state.

684      Section 8. Section 59-10-202 is amended to read:

685      59-10-202. Additions to and subtractions from federal taxable income of a

686resident or nonresident estate or trust.

687      (1) There shall be added to federal taxable income of a resident or nonresident estate or

688trust:

689      (a) the amount of any income tax imposed by this or any predecessor Utah individual

690income tax law and the amount of any income tax imposed by the laws of another state, the

691District of Columbia, or a possession of the United States, to the extent deducted from federal

692adjusted total income as defined in Section 62, Internal Revenue Code, in determining federal

693taxable income;

694      (b) a lump sum distribution allowable as a deduction under Section 402(d)(3) of the

695Internal Revenue Code, to the extent deductible under Section 62(a)(8) of the Internal Revenue

696Code in determining [federal] adjusted gross income;

697      (c) except as provided in Subsection (3), for taxable years beginning on or after

698January 1, 2003, for bonds, notes, and other evidences of indebtedness acquired on or after

699January 1, 2003, the interest from bonds, notes, and other evidences of indebtedness issued by

700one or more of the following entities:

701      (i) a state other than this state;

702      (ii) the District of Columbia;

703      (iii) a political subdivision of a state other than this state; or

704      (iv) an agency or instrumentality of an entity described in Subsections (1)(c)(i) through

705(iii);

706      (d) any portion of federal taxable income for a taxable year if that federal taxable

707income is derived from stock:

708      (i) in an S corporation; and

709      (ii) that is held by an electing small business trust; and

710      (e) any fiduciary adjustments required by Section 59-10-210.

711      (2) There shall be subtracted from federal taxable income of a resident or nonresident

712estate or trust:

713      (a) the interest or a dividend on obligations or securities of the United States and its

714possessions or of any authority, commission, or instrumentality of the United States, to the

715extent that interest or dividend is included in gross income for federal income tax purposes for

716the taxable year but exempt from state income taxes under the laws of the United States, but

717the amount subtracted under this Subsection (2) shall be reduced by any interest on

718indebtedness incurred or continued to purchase or carry the obligations or securities described

719in this Subsection (2), and by any expenses incurred in the production of interest or dividend

720income described in this Subsection (2) to the extent that such expenses, including amortizable

721bond premiums, are deductible in determining federal taxable income;

722      (b) 1/2 of the net amount of any income tax paid or payable to the United States after

723all allowable credits, as per the United States fiduciary income tax return of the taxpayer for the

724same taxable year;

725      (c) income of an irrevocable resident trust if:

726      (i) the income would not be treated as state taxable income derived from Utah sources

727under Section 59-10-204 if received by a nonresident trust;

728      (ii) the trust first became a resident trust on or after January 1, 2004;

729      (iii) no assets of the trust were held, at any time after January 1, 2003, in another

730resident irrevocable trust created by the same settlor or the spouse of the same settlor;

731      (iv) the trustee of the trust is a trust company as defined in Subsection 7-5-1(1)(d);

732      (v) the amount subtracted under this Subsection (2) is reduced to the extent the settlor

733or any other person is treated as an owner of any portion of the trust under Subtitle A,

734Subchapter J, Subpart E of the Internal Revenue Code; and

735      (vi) the amount subtracted under this Subsection (2) is reduced by any interest on

736indebtedness incurred or continued to purchase or carry the assets generating the income

737described in this Subsection (2), and by any expenses incurred in the production of income

738described in this Subsection (2), to the extent that those expenses, including amortizable bond

739premiums, are deductible in determining federal taxable income;

740      (d) if the conditions of Subsection (4)(a) are met, the amount of income of a resident or

741nonresident estate or trust derived from a deceased Ute tribal member:

742      (i) during a time period that the Ute tribal member resided on homesteaded land

743diminished from the Uintah and Ouray Reservation; and

744      (ii) from a source within the Uintah and Ouray Reservation;

745      (e) (i) for taxable years beginning on or after January 1, 2003, the total amount of a

746resident or nonresident estate's or trust's short-term capital gain or long-term capital gain on a

747capital gain transaction:

748      (A) that occurs on or after January 1, 2003;

749      (B) if 70% or more of the gross proceeds of the capital gain transaction are expended:

750      (I) to purchase qualifying stock in a Utah small business corporation; and

751      (II) within a 12-month period after the day on which the capital gain transaction occurs;

752and

753      (C) if, prior to the purchase of the qualifying stock described in Subsection

754(2)(e)(i)(B)(I), the resident or nonresident estate or trust did not have an ownership interest in

755the Utah small business corporation that issued the qualifying stock; and

756      (ii) in accordance with Title 63, Chapter 46a, Utah Administrative Rulemaking Act, the

757commission may make rules:

758      (A) defining the term "gross proceeds"; and

759      (B) for purposes of Subsection (2)(e)(i)(C), prescribing the circumstances under which

760a resident or nonresident estate or trust has an ownership interest in a Utah small business

761corporation;

762      (f) for the taxable year beginning on or after January 1, 2005, but beginning on or

763before December 31, 2005, the first $2,200 of income of a resident or nonresident estate or

764trust that is derived from a deceased qualifying military service member:

765      (i) for service:

766      (A) as a qualifying military service member; or

767      (B) under an order into active service in accordance with Section 39-1-5; and

768      (ii) to the extent that income is included in total income on that resident or nonresident

769estate's or trust's federal income tax return for estates and trusts for that taxable year;

770      (g) any amount:

771      (i) received by a resident or nonresident estate or trust;

772      (ii) that constitutes a refund of taxes imposed by:

773      (A) a state; or

774      (B) the District of Columbia; and

775      (iii) to the extent that amount is included in total income on that resident or nonresident

776estate's or trust's federal tax return for estates and trusts for that taxable year;

777      (h) the amount of a railroad retirement benefit:

778      (i) paid:

779      (A) in accordance with The Railroad Retirement Act of 1974, 45 U.S.C. Sec. 231 et

780seq.;

781      (B) to a resident or nonresident estate or trust derived from a deceased resident or

782nonresident individual; and

783      (C) for the taxable year; and

784      (ii) to the extent that railroad retirement benefit is included in total income on that

785resident or nonresident estate's or trust's federal tax return for estates and trusts;

786      (i) an amount:

787      (i) received by a resident or nonresident estate or trust if that amount is derived from a

788deceased enrolled member of an American Indian tribe; and

789      (ii) to the extent that the state is not authorized or permitted to impose a tax under this

790part on that amount in accordance with:

791      (A) federal law;

792      (B) a treaty; or

793      (C) a final decision issued by a court of competent jurisdiction; and

794      (j) any fiduciary adjustments required by Section 59-10-210.

795      (3) Notwithstanding Subsection (1)(c), interest from bonds, notes, and other evidences

796of indebtedness issued by an entity described in Subsections (1)(c)(i) through (iv) may not be

797added to federal taxable income of a resident or nonresident estate or trust if, as annually

798determined by the commission:

799      (a) for an entity described in Subsection (1)(c)(i) or (ii), the entity and all of the

800political subdivisions, agencies, or instrumentalities of the entity do not impose a tax based on

801income on any part of the bonds, notes, and other evidences of indebtedness of this state; or

802      (b) for an entity described in Subsection (1)(c)(iii) or (iv), the following do not impose

803a tax based on income on any part of the bonds, notes, and other evidences of indebtedness of

804this state:

805      (i) the entity; or

806      (ii) (A) the state in which the entity is located; or

807      (B) the District of Columbia, if the entity is located within the District of Columbia.

808      (4) (a) A subtraction for an amount described in Subsection (2)(d) is allowed only if:

809      (i) the income is derived from a deceased Ute tribal member; and

810      (ii) the governor and the Ute tribe execute and maintain an agreement meeting the

811requirements of this Subsection (4).

812      (b) The agreement described in Subsection (4)(a):

813      (i) may not:

814      (A) authorize the state to impose a tax in addition to a tax imposed under this chapter;

815      (B) provide a subtraction under this section greater than or different from the

816subtraction described in Subsection (2)(d); or

817      (C) affect the power of the state to establish rates of taxation; and

818      (ii) shall:

819      (A) provide for the implementation of the subtraction described in Subsection (2)(d);

820      (B) be in writing;

821      (C) be signed by:

822      (I) the governor; and

823      (II) the chair of the Business Committee of the Ute tribe;

824      (D) be conditioned on obtaining any approval required by federal law; and

825      (E) state the effective date of the agreement.

826      (c) (i) The governor shall report to the commission by no later than February 1 of each

827year regarding whether or not an agreement meeting the requirements of this Subsection (4) is

828in effect.

829      (ii) If an agreement meeting the requirements of this Subsection (4) is terminated, the

830subtraction permitted under Subsection (2)(d) is not allowed for taxable years beginning on or

831after the January 1 following the termination of the agreement.

832      (d) For purposes of Subsection (2)(d) and in accordance with Title 63, Chapter 46a,

833Utah Administrative Rulemaking Act, the commission may make rules:

834      (i) for determining whether income is derived from a source within the Uintah and

835Ouray Reservation; and

836      (ii) that are substantially similar to how [federal] adjusted gross income derived from

837Utah sources is determined under Section 59-10-117.

838      Section 9. Section 59-10-303 is amended to read:

839      59-10-303. Nonresident's share of partnership income.

840      (1) In determining the adjusted gross income of a nonresident partner of any

841partnership, there shall be included only that part derived from or connected with sources in

842this state of the partner's distributive share of items of partnership income, gain, loss, and

843deduction entering into [his federal] the partner's adjusted gross income, as such part is

844determined under rules prescribed by the commission in accordance with the general rules in

845Section 59-10-116.

846      (2) In determining the sources of a nonresident partner's income, no effect shall be

847given to a provision in the partnership agreement which:

848      (a) characterizes payments to the partner as being for services or for the use of capital,

849or allocates to the partner, as income or gain from sources outside this state, a greater

850proportion of [his] the partner's distributive share of partnership income or gain than the ratio

851of partnership income or gain from sources outside this state to partnership income or gain

852from all sources, except as authorized in Subsection (4);

853      (b) allocates to the partner a greater proportion of a partnership item of loss or

854deduction connected with sources in this state than [his] the partner's proportionate share, for

855federal income tax purposes, of partnership loss or deduction generally, except as authorized in

856Subsection (4).

857      (3) Any modification described in Section 59-10-114 that relates to an item of

858partnership income, gain, loss, or deduction, shall be made in accordance with the partner's

859distributive share for federal income tax purposes of the item to which the modification relates,

860but limited to the portion of such item derived from or connected with sources in this state.

861      (4) The commission may, on application, authorize the use of such other methods of

862determining a nonresident partner's portion of partnership items derived from or connected

863with sources in this state, and the modifications related thereto, as may be appropriate and

864equitable, on such terms and conditions as [it] the commission may require.

865      (5) (a) A nonresident partner's distributive share of items of income, gain, loss, or

866deduction shall be determined under Subsection 59-10-302(2).

867      (b) The character of partnership items for a nonresident partner shall [also] be

868determined under Subsection 59-10-302(1).

869      Section 10. Section 59-10-1002 is amended to read:

870      59-10-1002. Definitions.

871      As used in this part:

872      (1) (a) Except as provided in Subsection (1)(b) or Subsection 59-10-1003(2),

873"claimant" means a resident or nonresident person that has state taxable income [under Part 1,

874Determination and Reporting of Tax Liability and Information].

875      (b) "Claimant" does not include an estate or trust.

876      (2) Except as provided in Subsection 59-10-1003(2), "estate" means a nonresident

877estate or a resident estate that has state taxable income [under Part 2, Trusts and Estates].

878      (3) "Nonrefundable tax credit" or "tax credit" means a tax credit that a claimant, estate,

879or trust may:

880      (a) claim:

881      (i) as provided by statute; and

882      (ii) in an amount that does not exceed the claimant's, estate's, or trust's tax liability

883under this chapter for a taxable year; and

884      (b) carry forward or carry back:

885      (i) if allowed by statute; and

886      (ii) to the extent that the amount of the tax credit exceeds the claimant's, estate's, or

887trust's tax liability under this chapter for a taxable year.

888      (4) Except as provided in Subsection 59-10-1003(2), "trust" means a nonresident trust

889or a resident trust that has state taxable income [under Part 2, Trusts and Estates].

890      Section 11. Section 59-10-1005 is amended to read:

891      59-10-1005. Tax credit for at-home parent.

892      (1) As used in this section:

893      (a) "At-home parent" means a parent:

894      (i) who provides full-time care at the parent's residence for one or more of the parent's

895own qualifying children;

896      (ii) who claims the qualifying child as a dependent on the parent's individual income

897tax return for the taxable year for which the parent claims the credit; and

898      (iii) if the sum of the following amounts are $3,000 or less for the taxable year for

899which the parent claims the credit:

900      (A) the total wages, tips, and other compensation listed on all of the parent's federal

901Forms W-2; and

902      (B) the gross income listed on the parent's federal Form 1040 Schedule C, Profit or

903Loss From Business.

904      (b) "Parent" means an individual who:

905      (i) is the biological mother or father of a qualifying child;

906      (ii) is the stepfather or stepmother of a qualifying child;

907      (iii) (A) legally adopts a qualifying child; or

908      (B) has a qualifying child placed in the individual's home:

909      (I) by a child placing agency as defined in Section 62A-4a-601; and

910      (II) for the purpose of legally adopting the child;

911      (iv) is a foster parent of a qualifying child; or

912      (v) is a legal guardian of a qualifying child.

913      (c) "Qualifying child" means a child who is no more than 12 months of age on the last

914day of the taxable year for which the tax credit is claimed.

915      (2) For taxable years beginning on or after January 1, 2000, a claimant may claim on

916the claimant's individual income tax return a nonrefundable tax credit of $100 for each

917qualifying child if:

918      (a) the claimant or another claimant filing a joint individual income tax return with the

919claimant is an at-home parent; and

920      (b) the [federal] adjusted gross income of all of the claimants filing the individual

921income tax return is less than or equal to $50,000.

922      (3) A claimant may not carry forward or carry back a tax credit authorized by this

923section.

924      (4) It is the intent of the Legislature that for fiscal years beginning on or after fiscal

925year 2000-01, the Legislature appropriate from the General Fund a sufficient amount to replace

926Uniform School Fund revenues expended to provide for the tax credit under this section.

927      Section 12. Section 59-10-1201 is enacted to read:

928                                  Part 12. Single Rate Individual Income Tax Act

929      59-10-1201. Title.

930      This part is known as the "Single Rate Individual Income Tax Act."

931      Section 13. Section 59-10-1202 is enacted to read:

932      59-10-1202. Definitions.

933      As used in this part:

934      (1) "Military service" is as defined in Pub. L. No. 108-189, Sec 101.

935      (2) "Servicemember" is as defined in Pub. L. No. 108-189, Sec 101.

936      (3) "State income tax percentage" means a percentage equal to a nonresident

937individual's adjusted gross income for the taxable year received from Utah sources, as

938determined under Section 59-10-117, divided by the difference between:

939      (a) the nonresident individual's total adjusted gross income for that taxable year; and

940      (b) if the nonresident individual described in Subsection (3)(a) is a servicemember, the

941compensation the servicemember receives for military service if the servicemember is serving

942in compliance with military orders.

943      (4) "State taxable income" means a resident or nonresident individual's adjusted gross

944income after making the:

945      (a) additions and subtractions required by Section 59-10-1204; and

946      (b) adjustments required by Section 59-10-1205.

947      (5) "Unapportioned state tax" means the product of the:

948      (a) difference between:

949      (i) a nonresident individual's state taxable income; and

950      (ii) if the nonresident individual described in Subsection (5)(a)(i) is a servicemember,

951compensation the servicemember receives for military service if the servicemember is serving

952in compliance with military orders; and

953      (b) percentage listed in Subsection 59-10-1203(2)(a)(i)(B).

954      Section 14. Section 59-10-1203 is enacted to read:

955      59-10-1203. Single rate tax for resident or nonresident individual -- Tax rate --

956Contributions -- Exemption -- Amended returns.

957      (1) For taxable years beginning on or after January 1, 2007, a resident or nonresident

958individual may calculate and pay a tax under this section as provided in this part.

959      (2) (a) A resident individual that calculates and pays a tax under this section:

960      (i) shall pay for a taxable year an amount equal to the product of:

961      (A) the resident individual's state taxable income for that taxable year; and

962      (B) 5.35%; and

963      (ii) is exempt from paying the tax imposed by Section 59-10-104.

964      (b) A nonresident individual that calculates and pays a tax under this section:

965      (i) shall pay for a taxable year an amount equal to the product of the nonresident

966individual's:

967      (A) unapportioned state tax; and

968      (B) state income tax percentage; and

969      (ii) is exempt from paying the tax imposed by Section 59-10-116.

970      (3) Except as required by Section 59-10-1204 or 59-10-1205, a resident or nonresident

971individual that calculates and pays a tax under this section may not make any addition or

972adjustment to or subtraction from adjusted gross income.

973      (4) A resident or nonresident individual that calculates and pays a tax under this

974section may designate on the resident or nonresident individual's individual income tax return

975for a taxable year a contribution allowed by:

976      (a) Section 59-10-530;

977      (b) Section 59-10-530.5;

978      (c) Section 59-10-547;

979      (d) Section 59-10-549;

980      (e) Section 59-10-550;

981      (f) Section 59-10-550.1; or

982      (g) Section 59-10-550.2.

983      (5) This section does not apply to a resident or nonresident individual exempt from

984taxation under Section 59-10-104.1.

985      (6) (a) A resident or nonresident individual may determine for each taxable year for

986which the resident or nonresident individual files an individual income tax return under this

987chapter whether to calculate and pay a tax under this section as provided in this part.

988      (b) If a resident or nonresident individual files an amended return for a taxable year

989beginning on or after January 1, 2007, the resident or nonresident individual may determine

990whether to calculate and pay a tax under this section as provided in this part for that taxable

991year.

992      Section 15. Section 59-10-1204 is enacted to read:

993      59-10-1204. Additions to and subtractions from adjusted gross income of a

994resident or nonresident individual.

995      (1) In calculating state taxable income for purposes of this part, the following amounts

996shall be added to the adjusted gross income of a resident or nonresident individual:

997      (a) the amount described in Subsection 59-10-114(1)(a), if that amount is deducted by

998a resident or nonresident estate or trust in determining federal taxable income;

999      (b) the lump sum distribution described in Subsection 59-10-114(1)(b);

1000    (c) subject to Subsection 59-10-114(5), the amount described in Subsection

100159-10-114(1)(c);

1002    (d) a withdrawal described in Subsection 59-10-114(1)(e);

1003    (e) the amount described in Subsection 59-10-114(1)(f);

1004    (f) subject to Subsection 59-10-114(6), the interest described in Subsection

100559-10-114(1)(g);

1006    (g) a distribution described in Subsection 59-10-114(1)(h);

1007    (h) a distribution described in Subsection 59-10-114(1)(i); or

1008    (i) an expense described in Subsection 59-10-114 (1)(j).

1009    (2) In calculating state taxable income for purposes of this part, the following amounts

1010shall be subtracted from the adjusted gross income of a resident or nonresident individual:

1011    (a) the interest or dividends described in Subsection 59-10-114(2)(a);

1012    (b) subject to Subsection 59-10-114(4), the amount described in Subsection

101359-10-114(2)(k);

1014    (c) an amount described in Subsection 59-10-114(2)(n);

1015    (d) the amount described in Subsection 59-10-114(2)(o); and

1016    (e) an amount described in Subsection 59-10-114(2)(p).

1017    Section 16. Section 59-10-1205 is enacted to read:

1018    59-10-1205. Adjustments to adjusted gross income of a resident or nonresident

1019individual.

1020    (1) In calculating state taxable income for purposes of this part, the commission shall

1021allow an adjustment to adjusted gross income of a resident or nonresident individual if the

1022resident or nonresident individual would otherwise:

1023    (a) receive a double tax benefit under this part; or

1024    (b) suffer a double tax detriment under this part.

1025    (2) In accordance with Title 63, Chapter 46a, Utah Administrative Rulemaking Act, the

1026commission may make rules to allow for the adjustment to adjusted gross income required by

1027Subsection (1).

1028    Section 17. Section 59-10-1206 is enacted to read:

1029    59-10-1206. Tax credits.

1030    (1) Subject to Subsections (2) and (3), a resident or nonresident individual that

1031calculates and pays a tax as provided in this part may claim, carry forward, or carry back any

1032tax credit for a taxable year:

1033    (a) against the tax liability that the resident or nonresident individual would otherwise

1034be required to pay; and

1035    (b) that the resident or nonresident individual would have been allowed to claim, carry

1036forward, or carry back for the taxable year had the resident or nonresident individual been

1037subject to a tax imposed by Part 1, Determination and Reporting of Tax Liability and

1038Information, for that taxable year.

1039    (2) A resident or nonresident individual that calculates and pays a tax as provided in

1040this part shall:

1041    (a) determine the resident or nonresident individual's eligibility to claim a tax credit on

1042the basis of the resident or nonresident individual's tax liability under this part; and

1043    (b) calculate a tax credit on the basis of the resident or nonresident individual's tax

1044liability under this part.

1045    (3) If a resident or nonresident individual that calculates and pays a tax as provided in

1046this part claims a refundable tax credit, the resident or nonresident individual may receive a

1047refund for the amount of the tax credit that exceeds the resident or nonresident individual's tax

1048liability for the taxable year as allowed by the statute authorizing the refundable tax credit.

1049    (4) The commission shall administer a tax credit that a resident or nonresident

1050individual claims, carries forward, or carries back in accordance with the statute authorizing the

1051tax credit.

1052    Section 18. Section 59-10-1207 is enacted to read:

1053    59-10-1207. Administration, collection, and enforcement of tax.

1054    (1) Except as provided in this part, the commission shall administer, collect, and

1055enforce a tax described in Subsection 59-10-1203(2) in accordance with:

1056    (a) (i) for a tax described in Subsection 59-10-1203(2)(a), the procedures used to

1057administer, collect, and enforce the tax described in Section 59-10-104; or

1058    (ii) for a tax described in Subsection 59-10-1203(2)(b), the procedures used to

1059administer, collect, and enforce the tax described in Section 59-10-116; and

1060    (b) the procedures established in:

1061    (i) Part 1, Determination and Reporting of Tax Liability and Information;

1062    (ii) Part 3, Partnerships;

1063    (iii) Part 4, Withholding of Tax;

1064    (iv) Part 5, Procedure and Administration; and

1065    (v) Part 8, Limited Liability Companies.

1066    (2) In administering, collecting, and enforcing a tax described in Subsection

106759-10-1203(2), the commission shall interpret:

1068    (a) the references to the term "federal taxable income" in Section 59-10-119 to be

1069changed to "adjusted gross income";

1070    (b) the references to Section 59-10-114 in Sections 59-10-302 and 59-10-303 to be

1071changed to Section 59-10-1204; and

1072    (c) any other reference to a term or provision in the following to be consistent with the

1073calculation of a tax under this part:

1074    (i) Part 1, Determination and Reporting of Tax Liability and Information;

1075    (ii) Part 3, Partnerships;

1076    (iii) Part 4, Withholding of Tax;

1077    (iv) Part 5, Procedure and Administration; and

1078    (v) Part 8, Limited Liability Companies.

1079    Section 19. Repealer.

1080    This bill repeals:

1081    Section 59-10-102, Declaration of intent.

1082    Section 59-10-105, Optional tax -- Calculation -- Commission authority to

1083prescribed tax tables -- Exemption.

1084    Section 59-10-111, Federal taxable income defined.

1085    Section 59-10-112, State taxable income of a resident individual.

1086    Section 20. Effective date -- Retrospective operation.

1087    (1) Except as provided in Subsection (2), this bill takes effect for taxable years

1088beginning on or after January 1, 2007.

1089    (2) The amendments in this bill to Section 59-10-104 have retrospective operation for

1090taxable years beginning on or after January 1, 2006.

Legislative Review Note

as of 9-12-06 11:55 AM

Based on a limited legal review, this legislation has not been determined to have a high

probability of being held unconstitutional.

Office of Legislative Research and General Counsel