Second Substitute H.B. 36

Senator Wayne L. Niederhauser proposes the following substitute bill:

1 INCOME TAX ADDITIONS, SUBTRACTIONS, AND
2 CREDITS FOR HIGHER EDUCATION
3 SAVINGS
4 2007 GENERAL SESSION
5 STATE OF UTAH
6 Chief Sponsor: Fred R. Hunsaker
7 Senate Sponsor: Wayne L. Niederhauser
8 Cosponsor:Sheryl L. Allen 9
10 LONG TITLE
11 General Description:
12 This bill amends the Higher Education Savings Incentive Program chapter, the
13 Corporate Franchise and Income Taxes chapter, and the Individual Income Tax Act
14 relating the program for higher education savings, additions to and subtractions from
15 income for higher education savings, and to provide a tax credit for higher education
16 savings.
17 Highlighted Provisions:
18 This bill:
19 . provides and modifies definitions;
20 . addresses the taxation of the Utah Educational Savings Plan Trust and its income;
21 . addresses the maximum amount of a qualified investment in the Utah Educational
22 Savings Plan Trust that a person, estate, or trust may:
23 . subtract from income; or
24 . use as the basis for claiming a tax credit;

25 . modifies and clarifies the amount of a qualified investment in the Utah Educational
26 Savings Plan Trust that a corporation or a resident or nonresident individual may
27 subtract from income;
28 . modifies an addition to income for a corporation or a resident or nonresident
29 individual who is an account owner under the Utah Educational Savings Plan Trust
30 for amounts not expended for higher education costs under certain circumstances;
31 . provides that a resident or nonresident estate or trust may subtract certain qualified
32 investments in the Utah Educational Savings Plan Trust from income;
33 . requires a resident or nonresident estate or trust that is an account owner under the
34 Utah Educational Savings Plan Trust to add to income amounts not expended for
35 higher education costs under certain circumstances;
36 . allows a tax credit under the Single Rate Individual Income Tax Act for qualified
37 investments in the Utah Educational Savings Plan Trust; and
38 . makes technical changes.
39 Monies Appropriated in this Bill:
40 None
41 Other Special Clauses:
42 This bill has retrospective operation for taxable years beginning on or after January 1,
43 2007.
44 This bill coordinates with S.B. 223, Tax Amendments, by merging substantive
45 amendments.
46 Utah Code Sections Affected:
47 AMENDS:
48 53B-8a-102, as last amended by Chapter 109, Laws of Utah 2005
49 53B-8a-103, as last amended by Chapter 109, Laws of Utah 2005
50 53B-8a-104, as enacted by Chapter 4, Laws of Utah 1996, Second Special Session
51 53B-8a-105, as last amended by Chapter 109, Laws of Utah 2005
52 53B-8a-106, as last amended by Chapter 223, Laws of Utah 2006
53 53B-8a-107, as last amended by Chapter 109, Laws of Utah 2005
54 53B-8a-108, as last amended by Chapter 109, Laws of Utah 2005
55 53B-8a-109, as last amended by Chapter 109, Laws of Utah 2005

56 53B-8a-111, as enacted by Chapter 4, Laws of Utah 1996, Second Special Session
57 53B-8a-112, as enacted by Chapter 4, Laws of Utah 1996, Second Special Session
58 53B-8a-113, as last amended by Chapter 109, Laws of Utah 2005
59 59-7-105, as last amended by Chapter 109, Laws of Utah 2005
60 59-7-106, as last amended by Chapter 211, Laws of Utah 2002
61 59-10-114, as last amended by Chapter 2, Laws of Utah 2006, Fourth Special Session
62 59-10-201, as last amended by Chapter 223, Laws of Utah 2006
63 59-10-202, as last amended by Chapter 2, Laws of Utah 2006, Fourth Special Session
64 59-10-1202, as enacted by Chapter 2, Laws of Utah 2006, Fourth Special Session
65 59-10-1203, as enacted by Chapter 2, Laws of Utah 2006, Fourth Special Session
66 ENACTS:
67 59-10-1206.1, Utah Code Annotated 1953
68 59-10-1206.9, Utah Code Annotated 1953
69
70 Be it enacted by the Legislature of the state of Utah:
71 Section 1. Section 53B-8a-102 is amended to read:
72 53B-8a-102. Definitions.
73 As used in this chapter:
74 (1) "Account agreement" means an agreement between an account owner and the Utah
75 Educational Savings Plan Trust entered into under this chapter.
76 (2) "Account owner" means [an individual, firm, corporation, or its legal representative
77 or legal successor, who] a person, estate, or trust, if that person, estate, or trust has entered into
78 an account agreement under this chapter for the advance payment of higher education costs on
79 behalf of a beneficiary.
80 (3) "Administrative fund" means the moneys used to administer the Utah Educational
81 Savings Plan Trust.
82 (4) "Beneficiary" means the individual designated in an account agreement to benefit
83 from payments for higher education costs at an institution of higher education.
84 (5) "Benefits" means the payment of higher education costs on behalf of a beneficiary
85 by the Utah Educational Savings Plan Trust during the beneficiary's attendance at an institution
86 of higher education.

87 (6) "Board" means the board of directors of the Utah Educational Savings Plan Trust
88 which is the state Board of Regents acting in its capacity as the Utah Higher Education
89 Assistance Authority under Title 53B, Chapter 12.
90 (7) "Endowment fund" means the endowment fund established under Section
91 53B-8a-107 which is held as a separate fund within the Utah Educational Savings Plan Trust.
92 (8) "Higher education costs" means [the certified costs of tuition, fees, room and board,
93 books, supplies, and equipment required for the enrollment or attendance of a designated
94 beneficiary at an institution of higher education] qualified higher education expenses as defined
95 in Section 529(e)(3), Internal Revenue Code.
96 (9) "Institution of higher education" means a qualified proprietary school approved by
97 the board, a two-year or four-year public or regionally accredited private nonprofit college or
98 university or a Utah college of applied technology, with regard to students enrolled in
99 postsecondary training or education programs.
100 (10) "Program administrator" means the administrator of the Utah Educational Savings
101 Plan Trust appointed by the board to administer and manage the Utah Educational Savings Plan
102 Trust.
103 (11) "Program fund" means the program fund created under Section 53B-8a-107 ,
104 which is held as a separate fund within the Utah Educational Savings Plan Trust.
105 (12) "Qualified investment" means an amount invested in accordance with an account
106 agreement established under this chapter.
107 [(12)] (13) "Tuition and fees" means the quarterly or semester charges imposed to
108 attend an institution of higher education and required as a condition of enrollment.
109 [(13)] (14) "Utah Educational Savings Plan Trust" [or "trust"] means the Utah
110 Educational Savings Plan Trust created under Section 53B-8a-103 .
111 [(14)] (15) "Vested account" means an account agreement which has been in full force
112 and effect during eight continuous years of residency of the beneficiary in the state while
113 participating in the Utah Educational Savings Plan Trust.
114 Section 2. Section 53B-8a-103 is amended to read:
115 53B-8a-103. Creation of Utah Educational Savings Plan Trust.
116 (1) There is created the Utah Educational Savings Plan Trust.
117 (2) The board is the trustee of the Utah Educational Savings Plan Trust.

118 (3) The board, in the capacity of trustee, may:
119 (a) exercise any authority granted by law to the Board of Regents;
120 (b) make and enter into contracts necessary for the administration of the Utah
121 Educational Savings Plan Trust created under this chapter;
122 (c) adopt a corporate seal and change and amend it from time to time;
123 (d) invest moneys within the program fund:
124 (i) (A) in any investments that are determined by the board to be appropriate and are
125 approved by the state treasurer; or
126 (B) in mutual funds registered under the Investment Company Act of 1940, consistent
127 with the best interests of a designated beneficiary's higher education funding needs; and
128 (ii) are in compliance with rules of the State Money Management Council applicable to
129 gift funds;
130 (e) invest moneys within the endowment fund in any investments that are:
131 (i) determined by the board to be appropriate;
132 (ii) approved by the state treasurer; and
133 (iii) in compliance with rules of the State Money Management Council applicable to
134 gift funds;
135 (f) enter into agreements with any institution of higher education, any federal or state
136 agency, or other entity as required to implement this chapter;
137 (g) accept any grants, gifts, legislative appropriations, and other moneys from the state,
138 any unit of federal, state, or local government, or any other person, firm, partnership, or
139 corporation for deposit to the administrative fund, endowment fund, or the program fund;
140 (h) enter into account agreements with account owners;
141 (i) make payments to institutions of higher education pursuant to account agreements
142 on behalf of beneficiaries;
143 (j) make refunds to account owners upon the termination of account agreements
144 pursuant to the provisions of this chapter;
145 (k) appoint a program administrator and determine the duties of the program
146 administrator and other staff as necessary and fix their compensation;
147 (l) make provision for the payment of costs of administration and operation of the Utah
148 Educational Savings Plan Trust; and

149 (m) carry out the duties and obligations of the Utah Educational Savings Plan Trust
150 pursuant to this chapter.
151 Section 3. Section 53B-8a-104 is amended to read:
152 53B-8a-104. Office facilities, clerical, and administrative support for the Utah
153 Educational Savings Plan Trust.
154 (1) The board shall provide to the Utah Educational Savings Plan Trust, by agreement,
155 administrative and clerical support and office facilities and space.
156 (2) Reasonable charges or fees may be levied against the Utah Educational Savings
157 Plan Trust pursuant to the agreement for the services provided by the board.
158 Section 4. Section 53B-8a-105 is amended to read:
159 53B-8a-105. Additional powers of board as to the Utah Educational Savings Plan
160 Trust.
161 The board has all powers necessary to carry out and effectuate the purposes, objectives,
162 and provisions of this chapter pertaining to the Utah Educational Savings Plan Trust, including
163 the power to:
164 (1) engage:
165 (a) one or more investment advisors, registered under the Investment Advisors Act of
166 1940, with at least 5,000 advisory clients and at least $1,000,000,000 under management, to
167 provide investment advice to the board with respect to the assets held in each account;
168 (b) an administrator to perform recordkeeping functions on behalf of the Utah
169 Educational Savings Plan Trust; and
170 (c) a custodian for the safekeeping of the assets of the Utah Educational Savings Plan
171 Trust;
172 (2) carry out studies and projections in order to advise account owners regarding
173 present and estimated future higher education costs and levels of financial participation in the
174 Utah Educational Savings Plan Trust required in order to enable account owners to achieve
175 their educational funding objective;
176 (3) contract for goods and services and engage personnel as necessary, including
177 consultants, actuaries, managers, counsel, and auditors for the purpose of rendering
178 professional, managerial, and technical assistance and advice, all of which contract obligations
179 and services shall be payable from any moneys of the Utah Educational Savings Plan Trust;

180 (4) participate in any other way in any federal, state, or local governmental program for
181 the benefit of the Utah Educational Savings Plan Trust;
182 (5) promulgate, impose, and collect administrative fees and charges in connection with
183 transactions of the Utah Educational Savings Plan Trust, and provide for reasonable service
184 charges, including penalties for cancellations and late payments;
185 (6) procure insurance against any loss in connection with the property, assets, or
186 activities of the Utah Educational Savings Plan Trust;
187 (7) administer the funds of the Utah Educational Savings Plan Trust;
188 (8) solicit and accept for the benefit of the endowment fund gifts, grants, and other
189 moneys, including general fund moneys from the state and grants from any federal or other
190 governmental agency;
191 (9) procure insurance indemnifying any member of the board from personal loss or
192 accountability arising from liability resulting from a member's action or inaction as a member
193 of the board; and
194 (10) make rules and regulations for the administration of the Utah Educational Savings
195 Plan Trust.
196 Section 5. Section 53B-8a-106 is amended to read:
197 53B-8a-106. Account agreements.
198 The Utah Educational Savings Plan Trust may enter into account agreements with
199 account owners on behalf of beneficiaries under the following terms and agreements:
200 (1) (a) An account agreement may require an account owner to agree to invest a
201 specific amount of money in the Utah Educational Savings Plan Trust for a specific period of
202 time for the benefit of a specific beneficiary, not to exceed an amount determined by the
203 program administrator.
204 (b) Account agreements may be amended to provide for adjusted levels of payments
205 based upon changed circumstances or changes in educational plans.
206 (c) An account owner may make additional optional payments as long as the total
207 payments for a specific beneficiary do not exceed the total estimated higher education costs as
208 determined by the program administrator.
209 (d) Subject to Subsection (1)(f), the maximum amount of a qualified investment that a
210 corporation that is an account owner may subtract from unadjusted income for a taxable year in

211 accordance with Title 59, Chapter 7, Corporate Franchise and Income Taxes, is $1,560 for each
212 individual beneficiary for the taxable year beginning on or after January 1, 2006, but beginning
213 on or before December 31, 2006.
214 [(d) The] (e) Subject to Subsection (1)(f), the maximum amount of [investments] a
215 qualified investment that may be subtracted from federal taxable income [of a resident or
216 nonresident individual under Subsection 59-10-114 (2)(i) shall be $1,510] of a resident or
217 nonresident individual for a taxable year in accordance with Section 59-10-114 , a resident or
218 nonresident estate or trust for a taxable year in accordance with Section 59-10-202 , or used as
219 the basis for claiming a tax credit for a taxable year by a resident or nonresident individual in
220 accordance with Section 59-10-1206.1 , is:
221 (i) for a resident or nonresident estate or trust that is an account owner, $1,560 for each
222 individual beneficiary for the [2005 calendar year and an amount adjusted annually thereafter
223 to reflect increases in the Consumer Price Index.] taxable year beginning on or after January 1,
224 2006, but beginning on or before December 31, 2006;
225 (ii) for a resident or nonresident individual that is an account owner, other than a
226 husband and wife who are account owners and file a single return jointly, $1,560 for each
227 individual beneficiary for the taxable year beginning on or after January 1, 2006, but beginning
228 on or before December 31, 2006; or
229 (iii) for a husband and wife who are account owners and file a single return jointly,
230 $3,120 for each individual beneficiary:
231 (A) for the taxable year beginning on or after January 1, 2006, but beginning on or
232 before December 31, 2006; and
233 (B) regardless of whether the Utah Educational Savings Plan Trust has entered into:
234 (I) a separate account agreement with each spouse; or
235 (II) a single account agreement with both spouses jointly.
236 (f) (i) For taxable years beginning on or after January 1, 2007, the program
237 administrator shall increase or decrease the maximum amount of a qualified investment
238 described in Subsections (1)(d) and (1)(e)(i) and (ii), by a percentage equal to the percentage
239 difference between the consumer price index for the preceding calendar year and the consumer
240 price index for the calendar year 2005.
241 (ii) After making an increase or decrease required by Subsection (1)(f)(i), the program

242 administrator shall:
243 (A) round the maximum amount of the qualified investments described in Subsections
244 (1)(d) and (1)(e)(i) and (ii) increased or decreased under Subsection (1)(f)(i) to the nearest ten
245 dollar increment; and
246 (B) increase or decrease the maximum amount of the qualified investment described in
247 Subsection (1)(e)(iii) so that the maximum amount of the qualified investment described in
248 Subsection (1)(e)(iii) is equal to the product of:
249 (I) the maximum amount of the qualified investment described in Subsection (1)(e)(ii)
250 as rounded under Subsection (1)(f)(ii)(A); and
251 (II) two.
252 (iii) For purposes of Subsections (1)(f)(i) and (ii), the program administrator shall
253 calculate the consumer price index as provided in Sections 1(f)(4) and 1(f)(5), Internal Revenue
254 Code.
255 (2) (a) (i) Beneficiaries designated in account agreements must be designated after
256 birth and before age 19 for [the participant] an account owner to:
257 (A) subtract [allowable investments] a qualified investment from [federal taxable]
258 income under [Subsection 59-10-114 (2)(i).]:
259 (I) Title 59, Chapter 7, Corporate Franchise and Income Taxes;
260 (II) Section 59-10-114 ; or
261 (III) Section 59-10-202 ; or
262 (B) use a qualified investment as the basis for claiming a tax credit in accordance with
263 Section 59-10-1206.1 .
264 (ii) If the beneficiary is designated after birth and before age 19, the payment of
265 benefits provided under the account agreement must begin not later than the beneficiary's 27th
266 birthday.
267 (b) (i) Account owners may designate beneficiaries age 19 or older, but investments for
268 those beneficiaries are not eligible for subtraction from federal taxable income.
269 (ii) If a beneficiary age 19 or older is designated, the payment of benefits provided
270 under the account agreement must begin not later than ten years from the account agreement
271 date.
272 (3) Each account agreement shall state clearly that there are no guarantees regarding

273 moneys in the Utah Educational Savings Plan Trust as to the return of principal and that losses
274 could occur.
275 (4) Each account agreement shall provide that:
276 (a) no contributor to, or designated beneficiary under, an account agreement may direct
277 the investment of any contributions or earnings on contributions;
278 (b) no part of the money in any account may be used as security for a loan; and
279 (c) no account owner may borrow from the Utah Educational Savings Plan Trust.
280 (5) The execution of an account agreement by the trust may not guarantee in any way
281 that higher education costs will be equal to projections and estimates provided by the Utah
282 Educational Savings Plan Trust or that the beneficiary named in any participation agreement
283 will:
284 (a) be admitted to an institution of higher education;
285 (b) if admitted, be determined a resident for tuition purposes by the institution of
286 higher education, unless the account agreement is vested;
287 (c) be allowed to continue attendance at the institution of higher education following
288 admission; or
289 (d) graduate from the institution of higher education.
290 (6) Beneficiaries may be changed as permitted by the rules and regulations of the board
291 upon written request of the account owner prior to the date of admission of any beneficiary
292 under an account agreement by an institution of higher education so long as the substitute
293 beneficiary is eligible for participation.
294 (7) Account agreements may be freely amended throughout their terms in order to
295 enable account owners to increase or decrease the level of participation, change the designation
296 of beneficiaries, and carry out similar matters as authorized by rule.
297 (8) Each account agreement shall provide that:
298 (a) the account agreement may be canceled upon the terms and conditions, and upon
299 payment of the fees and costs set forth and contained in the board's rules and regulations; and
300 (b) the program administrator may amend the agreement unilaterally and retroactively,
301 if necessary, to maintain the Utah Educational Savings Plan Trust as a qualified tuition
302 program under Section 529 Internal Revenue Code.
303 Section 6. Section 53B-8a-107 is amended to read:

304 53B-8a-107. Program, endowment, and administrative funds -- Investment and
305 payments from funds.
306 (1) (a) The board shall segregate moneys received by the Utah Educational Savings
307 Plan Trust into three funds, the program fund, the endowment fund, and the administrative
308 fund.
309 (b) No more than two percentage points of the interest earned annually in the
310 endowment fund may be transferred to the administrative fund for the purpose of paying
311 operating costs associated with administering the Utah Educational Savings Plan Trust and as
312 required under Sections 53B-8a-103 through 53B-8a-105 .
313 (c) Transfers may be made from the program fund to the administrative fund to pay
314 operating costs:
315 (i) associated with administering the Utah Educational Savings Plan Trust and as
316 required under Sections 53B-8a-103 through 53B-8a-105 ; and
317 (ii) as included in the budget approved by the board of directors of the Utah
318 Educational Savings Plan Trust.
319 (d) All moneys paid by account owners in connection with account agreements shall be
320 deposited as received into separate accounts within the program fund which shall be promptly
321 invested and accounted for separately.
322 (e) All moneys received by the Utah Educational Savings Plan Trust from the proceeds
323 of gifts and other endowments for the purposes of the Utah Educational Savings Plan Trust
324 shall be deposited as received into the endowment fund, which shall be promptly invested and
325 accounted for separately.
326 (f) Any gifts, grants, or donations made by any governmental unit or any person, firm,
327 partnership, or corporation to the Utah Educational Savings Plan Trust for deposit to the
328 endowment fund shall be a grant, gift, or donation to the state for the accomplishment of a
329 valid public eleemosynary, charitable, and educational purpose and shall not be included in the
330 income of the donor for Utah tax purposes.
331 (2) (a) Through March 31, 2005, each account owner under an account agreement may
332 receive an interest in a portion, as determined by policy, of the investment income derived by
333 the endowment fund in any year during which funds are invested in the program fund on behalf
334 of the beneficiary, to be payable as provided in Subsection (2)(c).

335 (b) The interest in the investment income derived by the endowment fund that accrues
336 to a beneficiary in any year shall be in the ratio that the principal amount paid by the account
337 owner under the account agreement and investment income earned to date under the agreement
338 bears to the principal amount of all moneys, funds, and securities then held in the program fund
339 during the year.
340 (c) (i) Except as provided in Subsection (2)(c)(ii), at the time any payments or
341 disbursements for higher education costs are made from the Utah Educational Savings Plan
342 Trust to any institution of higher education under an account agreement, the Utah Educational
343 Savings Plan Trust shall add to that payment from endowment fund income a pro rata portion
344 of the amount calculated pursuant to Subsection (2)(b), which shall be transferred directly to
345 the institution of higher education simultaneously with the payment made from the program
346 fund and shall be used for payment of the higher education costs of the beneficiary, but not to
347 exceed the amount which, in combination with the current payment due from the program
348 fund, equals the beneficiary's higher education costs for the current period of enrollment.
349 (ii) Effective March 31, 2005, any interest income on the endowment fund accruing to
350 a beneficiary that has not been transferred to an institution of higher education pursuant to
351 Subsection (2)(c)(i) shall be transferred to the beneficiary's program fund account.
352 (3) Beginning on April 1, 2005:
353 (a) interest income on the endowment fund may be used to enhance the savings of low
354 income account owners investing in the Utah Educational Savings Plan Trust, as provided by
355 rules of the board; and
356 (b) the original principal in the endowment fund may be transferred to the
357 administrative fund upon approval by the board.
358 (4) Endowment fund earnings not accruing to a beneficiary under a participation
359 agreement or not transferred to the administrative fund shall be reinvested in the endowment
360 fund.
361 (5) Moneys accrued by account owners in the program fund of the Utah Educational
362 Savings Plan Trust may be used for payments to any institution of higher education.
363 (6) No rights to any moneys derived from the endowment fund shall exist if moneys
364 payable under the account agreement are paid to an education institution which is not an
365 institution of higher education as defined in Section 53B-8a-102 .

366 Section 7. Section 53B-8a-108 is amended to read:
367 53B-8a-108. Cancellation of agreements.
368 (1) Any account owner may cancel an account agreement at will.
369 (2) If an account agreement is cancelled by the account owner, the current account
370 balance shall be disbursed to the account owner less:
371 (a) an administrative refund fee, which may be charged by the Utah Educational
372 Savings Plan Trust, except as provided in Subsection (3); and
373 (b) any penalty or tax required to be withheld by the Internal Revenue Code.
374 (3) An administration refund fee may not be levied by the Utah Educational Savings
375 Plan Trust if the account agreement is cancelled due to:
376 (a) the death of the beneficiary; or
377 (b) the permanent disability or mental incapacity of the beneficiary.
378 (4) The board shall make rules for the disposition of monies transferred to an account
379 pursuant to Subsection [ 53A-8a-107 ] 53B-8a-107 (2)(c)(ii) and the earnings on those monies
380 when an account agreement is cancelled.
381 Section 8. Section 53B-8a-109 is amended to read:
382 53B-8a-109. Repayment and ownership of payments and investment income --
383 Transfer of ownership rights.
384 (1) (a) The account owner retains ownership of all payments made under the account
385 agreement until utilized to pay higher education costs for the beneficiary.
386 (b) All income derived from the investment of the payments made by the account
387 owner shall be considered to be held in trust for the benefit of the beneficiary.
388 (2) The institution of higher education shall obtain ownership of the payments made
389 for the higher education costs paid to the institution at the time each payment is made to the
390 institution.
391 (3) Any amounts that may be paid pursuant to the Utah Educational Savings Plan Trust
392 that are not listed in this section are owned by the Utah Educational Savings Plan Trust.
393 (4) (a) An account owner may transfer ownership rights to another eligible person.
394 (b) The transfer shall be affected and the property distributed in accordance with
395 administrative regulations promulgated by the board or the terms of the account agreement.
396 Section 9. Section 53B-8a-111 is amended to read:

397 53B-8a-111. Annual audited financial report to governor, Legislature, and state
398 auditor.
399 (1) The board shall submit an annual audited financial report, prepared in accordance
400 with generally accepted accounting principles, on the operations of the Utah Educational
401 Savings Plan Trust by November 1 to the governor, the Legislature, and the state auditor.
402 (2) The annual audit shall be made either by the state auditor or by an independent
403 certified public accountant designated by the state auditor and shall include direct and indirect
404 costs attributable to the use of outside consultants, independent contractors, and any other
405 persons who are not state employees.
406 (3) The annual audit shall be supplemented by the following information prepared by
407 the board:
408 (a) any studies or evaluations prepared in the preceding year;
409 (b) a summary of the benefits provided by the Utah Educational Savings Plan Trust
410 including the number of participants and beneficiaries in the Utah Educational Savings Plan
411 Trust; and
412 (c) any other information which is relevant in order to make a full, fair, and effective
413 disclosure of the operations of the Utah Educational Savings Plan Trust.
414 Section 10. Section 53B-8a-112 is amended to read:
415 53B-8a-112. Tax considerations.
416 (1) For tax purposes the property of the Utah Educational Savings Plan Trust and its
417 income are governed by [Sections 59-7-105 , 59-7-106 , 59-10-114 , and] Section 59-10-201 .
418 (2) The tax commission, in consultation with the board, may adopt rules necessary to
419 monitor and implement the tax provisions referred to in Subsection (1) as related to the
420 property of the Utah Educational Savings Plan Trust and its income.
421 Section 11. Section 53B-8a-113 is amended to read:
422 53B-8a-113. Property rights to assets in Utah Educational Savings Plan Trust.
423 (1) The assets of the Utah Educational Savings Plan Trust, including the program fund
424 and the endowment fund, shall at all times be preserved, invested, and expended solely and
425 only for the purposes of the Utah Educational Savings Plan Trust and shall be held in trust for
426 the account owners and beneficiaries.
427 (2) No property rights in the Utah Educational Savings Plan Trust shall exist in favor

428 of the state.
429 (3) The assets may not be transferred or used by the state for any purposes other than
430 the purposes of the Utah Educational Savings Plan Trust.
431 Section 12. Section 59-7-105 is amended to read:
432 59-7-105. Additions to unadjusted income.
433 In computing adjusted income the following amounts shall be added to unadjusted
434 income:
435 (1) interest from bonds, notes, and other evidences of indebtedness issued by any state
436 of the United States, including any agency and instrumentality of a state of the United States;
437 (2) the amount of any deduction taken on a corporation's federal return for taxes paid
438 by a corporation:
439 (a) to Utah for taxes imposed by this chapter; and
440 (b) to another state of the United States, a foreign country, a United States possession,
441 or the Commonwealth of Puerto Rico for taxes imposed for the privilege of doing business, or
442 exercising its corporate franchise, including income, franchise, corporate stock and business
443 and occupation taxes;
444 (3) the safe harbor lease adjustment required under Subsections 59-7-111 (1)(a) and
445 (2)(a);
446 (4) capital losses that have been deducted on a Utah corporate return in previous years;
447 (5) any deduction on the federal return that has been previously deducted on the Utah
448 return;
449 (6) the amount of contributions claimed as a tax credit pursuant to Section 59-7-602 ;
450 (7) the amount of the deduction taken pursuant to Section 59-7-603 for sophisticated
451 technological equipment;
452 (8) charitable contributions, to the extent deducted on the federal return when
453 determining federal taxable income;
454 (9) the amount of gain or loss determined under Section 59-7-114 relating to a target
455 corporation under Section 338, Internal Revenue Code, unless such gain or loss has already
456 been included in the unadjusted income of the target corporation;
457 (10) the amount of gain or loss determined under Section 59-7-115 relating to
458 corporations treated for federal purposes as having disposed of its assets under Section 336(e),

459 Internal Revenue Code, unless such gain or loss has already been included in the unadjusted
460 income of the target corporation;
461 (11) adjustments to gains, losses, depreciation expense, amortization expense, and
462 similar items due to a difference between basis for federal purposes and basis as computed
463 under Section 59-7-107 ; and
464 (12) the amount [disbursed to] withdrawn under Title 53B, Chapter 8a, Higher
465 Education Savings Incentive Program, from the account of a corporation that is an account
466 owner [under Title 53B, Chapter 8a, Higher Education Savings Incentive Program, to the
467 extent deducted on a Utah return in previous years and not used for qualified higher education
468 costs of the beneficiary, in the year in which the amount is disbursed.] as defined in Section
469 53B-8a-102 , for the taxable year for which the amount is withdrawn, if that amount withdrawn
470 from the account of the corporation that is the account owner:
471 (a) is not expended for higher education costs as defined in Section 53B-8a-102 ; and
472 (b) is subtracted by the corporation:
473 (i) that is the account owner; and
474 (ii) in accordance with Subsection 59-7-106 (18).
475 Section 13. Section 59-7-106 is amended to read:
476 59-7-106. Subtractions from unadjusted income.
477 In computing adjusted income the following amounts shall be subtracted from
478 unadjusted income:
479 (1) the foreign dividend gross-up included in gross income for federal income tax
480 purposes under Section 78, Internal Revenue Code;
481 (2) the net capital loss, as defined for federal purposes, if the taxpayer elects to deduct
482 the loss on the current Utah return. The deduction shall be made by claiming the deduction on
483 the current Utah return which shall be filed by the due date of the return, including extensions.
484 For the purposes of this Subsection all capital losses in a given year must be:
485 (a) deducted in the year incurred; or
486 (b) carried forward as provided in Sections 1212(a)(1)(B) and (C), Internal Revenue
487 Code;
488 (3) the decrease in salary expense deduction for federal income tax purposes due to
489 claiming the federal jobs credit under Section 51, Internal Revenue Code;

490 (4) the decrease in qualified research and basic research expense deduction for federal
491 income tax purposes due to claiming the federal research and development credit under Section
492 41, Internal Revenue Code;
493 (5) the decrease in qualified clinical testing expense deduction for federal income tax
494 purposes due to claiming the federal orphan drug credit under Section 28, Internal Revenue
495 Code;
496 (6) any decrease in any expense deduction for federal income tax purposes due to
497 claiming any other federal credit;
498 (7) the safe harbor lease adjustment required under Subsections 59-7-111 (1)(b) and
499 (2)(b);
500 (8) any income on the federal corporate return that has been previously taxed by Utah;
501 (9) amounts included in federal taxable income that are due to refunds of taxes
502 imposed for the privilege of doing business, or exercising a corporate franchise, including
503 income, franchise, corporate stock and business and occupation taxes paid by the corporation to
504 Utah, another state of the United States, a foreign country, a United States possession, or the
505 Commonwealth of Puerto Rico to the extent that the taxes were added to unadjusted income
506 under Section 59-7-105 ;
507 (10) charitable contributions, to the extent allowed as a subtraction under Section
508 59-7-109 ;
509 (11) (a) 50% of the dividends deemed received or received from subsidiaries which are
510 members of the unitary group and are organized or incorporated outside of the United States
511 unless such subsidiaries are included in a combined report under Section 59-7-402 or 59-7-403 .
512 In arriving at the amount of the dividend exclusion, the taxpayer shall first deduct from the
513 dividends deemed received or received, the expense directly attributable to those dividends.
514 Interest expense attributable to excluded dividends shall be determined by multiplying interest
515 expense by a fraction, the numerator of which is the taxpayer's average investment in such
516 dividend paying subsidiaries, and the denominator of which is the taxpayer's average total
517 investment in assets;
518 (b) in determining income apportionable to this state, a portion of the factors of a
519 foreign subsidiary whose dividends are partially excluded under Subsection (11)(a) shall be
520 included in the combined report factors. The portion to be included shall be determined by

521 multiplying each factor of the foreign subsidiary by a fraction, but not to exceed 100%, the
522 numerator of which is the amount of the dividend paid by the foreign subsidiary which is
523 included in adjusted income, and the denominator of which is the current year earnings and
524 profits of the foreign subsidiary as determined under the Internal Revenue Code;
525 (12) (a) 50% of the adjusted income of a foreign operating company unless the
526 taxpayer has elected to file a worldwide combined report as provided in Section 59-7-403 . For
527 purposes of this Subsection, when calculating the adjusted income of a foreign operating
528 company, a foreign operating company may not deduct the subtractions allowable under this
529 Subsection (12) and Subsection (11);
530 (b) in determining income apportionable to this state, the factors for a foreign operating
531 company shall be included in the combined report factors in the same percentage its adjusted
532 income is included in the combined adjusted income;
533 (13) the amount of gain or loss which is included in unadjusted income but not
534 recognized for federal purposes on stock sold or exchanged by a member of a selling
535 consolidated group as defined in Section 338, Internal Revenue Code, if an election has been
536 made pursuant to Section 338(h)(10), Internal Revenue Code;
537 (14) the amount of gain or loss which is included in unadjusted income but not
538 recognized for federal purposes on stock sold, exchanged, or distributed by a corporation
539 pursuant to Section 336(e), Internal Revenue Code, if an election under Section 336(e), Internal
540 Revenue Code, has been made for federal purposes;
541 (15) (a) adjustments to gains, losses, depreciation expense, amortization expense, and
542 similar items due to a difference between basis for federal purposes and basis as computed
543 under Section 59-7-107 ; and
544 (b) if there has been a reduction in federal basis for a federal tax credit where there is
545 no corresponding Utah tax credit, the amount of the reduction in basis shall be allowed as an
546 expense in the year of the federal credit;
547 (16) any interest expense not deducted on the federal corporate return under Section
548 265(b) or 291(e), Internal Revenue Code;
549 (17) 100% of the dividends received from subsidiaries which are insurance companies
550 exempt from this chapter under Subsection 59-7-102 (1)(c) and are under "common ownership"
551 as defined by Subsection 59-7-101 (7); and

552 [(18) any amount included in unadjusted income that was derived from money paid by
553 the taxpayer to the program fund and investment income earned on those payments under Title
554 53B, Chapter 8a, Higher Education Savings Incentive Program, that is included in federal
555 taxable income, but only when the monies are used for qualified higher education costs of the
556 beneficiary.]
557 (18) subject to Subsection 59-7-105 (12), the amount of a qualified investment as
558 defined in Section 53B-8a-102 that:
559 (a) a corporation that is an account owner as defined in Section 53B-8a-102 makes
560 during the taxable year;
561 (b) the corporation described in Subsection (18)(a) does not deduct on a federal
562 corporation income tax return; and
563 (c) does not exceed the maximum amount of the qualified investment that may be
564 subtracted from unadjusted income for a taxable year in accordance with Subsections
565 53B-8a-106 (1)(d) and (f).
566 Section 14. Section 59-10-114 is amended to read:
567 59-10-114. Additions to and subtractions from federal taxable income of an
568 individual.
569 (1) There shall be added to federal taxable income of a resident or nonresident
570 individual:
571 (a) the amount of any income tax imposed by this or any predecessor Utah individual
572 income tax law and the amount of any income tax imposed by the laws of another state, the
573 District of Columbia, or a possession of the United States, to the extent deducted from adjusted
574 gross income in determining federal taxable income;
575 (b) a lump sum distribution that the taxpayer does not include in adjusted gross income
576 on the taxpayer's federal individual income tax return for the taxable year;
577 (c) for taxable years beginning on or after January 1, 2002, the amount of a child's
578 income calculated under Subsection (5) that:
579 (i) a parent elects to report on the parent's federal individual income tax return for the
580 taxable year; and
581 (ii) the parent does not include in adjusted gross income on the parent's federal
582 individual income tax return for the taxable year;

583 (d) 25% of the personal exemptions, as defined and calculated in the Internal Revenue
584 Code;
585 (e) a withdrawal from a medical care savings account and any penalty imposed in the
586 taxable year if:
587 (i) the resident or nonresident individual did not deduct or include the amounts on the
588 resident or nonresident individual's federal individual income tax return pursuant to Section
589 220, Internal Revenue Code;
590 (ii) the withdrawal is subject to Subsections 31A-32a-105 (1) and (2); and
591 (iii) the withdrawal is deducted by the resident or nonresident individual under
592 Subsection (2)(h);
593 (f) the amount [disbursed to] withdrawn under Title 53B, Chapter 8a, Higher
594 Education Savings Incentive Program, from the account of a resident or nonresident individual
595 who is an account owner [under Title 53B, Chapter 8a, Higher Education Savings Incentive
596 Program] as defined in Section 53B-8a-102 , for the taxable year for which the amount is
597 [disbursed] withdrawn, if that amount [disbursed to] withdrawn from the account of the
598 resident or nonresident individual who is the account owner:
599 (i) is not expended for higher education costs as defined in Section 53B-8a-102 ; and
600 (ii) is [deducted]:
601 (A) subtracted by the resident or nonresident individual:
602 (I) who is the account owner [under]; and
603 (II) in accordance with Subsection (2)(i); or
604 (B) used as the basis for the resident or nonresident individual who is the account
605 owner to claim a tax credit under Section 59-10-1206.1 ;
606 (g) except as provided in Subsection (6), for taxable years beginning on or after
607 January 1, 2003, for bonds, notes, and other evidences of indebtedness acquired on or after
608 January 1, 2003, the interest from bonds, notes, and other evidences of indebtedness issued by
609 one or more of the following entities:
610 (i) a state other than this state;
611 (ii) the District of Columbia;
612 (iii) a political subdivision of a state other than this state; or
613 (iv) an agency or instrumentality of an entity described in Subsections (1)(g)(i) through

614 (iii);
615 (h) subject to Subsection (2)(n), any distribution received by a resident beneficiary of a
616 resident trust of income that was taxed at the trust level for federal tax purposes, but was
617 subtracted from state taxable income of the trust pursuant to Subsection 59-10-202 (2)(c);
618 (i) any distribution received by a resident beneficiary of a nonresident trust of
619 undistributed distributable net income realized by the trust on or after January 1, 2004, if that
620 undistributed distributable net income was taxed at the trust level for federal tax purposes, but
621 was not taxed at the trust level by any state, with undistributed distributable net income
622 considered to be distributed from the most recently accumulated undistributed distributable net
623 income; and
624 (j) any adoption expense:
625 (i) for which a resident or nonresident individual receives reimbursement from another
626 person; and
627 (ii) to the extent to which the resident or nonresident individual deducts that adoption
628 expense:
629 (A) under Subsection (2)(c); or
630 (B) from federal taxable income on a federal individual income tax return.
631 (2) There shall be subtracted from federal taxable income of a resident or nonresident
632 individual:
633 (a) the interest or a dividend on obligations or securities of the United States and its
634 possessions or of any authority, commission, or instrumentality of the United States, to the
635 extent that interest or dividend is included in gross income for federal income tax purposes for
636 the taxable year but exempt from state income taxes under the laws of the United States, but
637 the amount subtracted under this Subsection (2)(a) shall be reduced by any interest on
638 indebtedness incurred or continued to purchase or carry the obligations or securities described
639 in this Subsection (2)(a), and by any expenses incurred in the production of interest or dividend
640 income described in this Subsection (2)(a) to the extent that such expenses, including
641 amortizable bond premiums, are deductible in determining federal taxable income;
642 (b) 1/2 of the net amount of any income tax paid or payable to the United States after all
643 allowable credits, as reported on the United States individual income tax return of the taxpayer
644 for the same taxable year;

645 (c) the amount of adoption expenses for one of the following taxable years as elected
646 by the resident or nonresident individual:
647 (i) regardless of whether a court issues an order granting the adoption, the taxable year
648 in which the adoption expenses are:
649 (A) paid; or
650 (B) incurred;
651 (ii) the taxable year in which a court issues an order granting the adoption; or
652 (iii) any year in which the resident or nonresident individual may claim the federal
653 adoption expenses credit under Section 23, Internal Revenue Code;
654 (d) amounts received by taxpayers under age 65 as retirement income which, for
655 purposes of this section, means pensions and annuities, paid from an annuity contract
656 purchased by an employer under a plan which meets the requirements of Section 404(a)(2),
657 Internal Revenue Code, or purchased by an employee under a plan which meets the
658 requirements of Section 408, Internal Revenue Code, or paid by the United States, a state, or
659 political subdivision thereof, or the District of Columbia, to the employee involved or the
660 surviving spouse;
661 (e) for each taxpayer age 65 or over before the close of the taxable year, a $7,500
662 personal retirement exemption;
663 (f) 75% of the amount of the personal exemption, as defined and calculated in the
664 Internal Revenue Code, for each dependent child with a disability and adult with a disability
665 who is claimed as a dependent on a taxpayer's return;
666 (g) subject to the limitations of Subsection (3)(e), amounts a taxpayer pays during the
667 taxable year for health care insurance, as defined in Title 31A, Chapter 1, General Provisions:
668 (i) for:
669 (A) the taxpayer;
670 (B) the taxpayer's spouse; and
671 (C) the taxpayer's dependents; and
672 (ii) to the extent the taxpayer does not deduct the amounts under Section 125, 162, or
673 213, Internal Revenue Code, in determining federal taxable income for the taxable year;
674 (h) (i) except as provided in this Subsection (2)(h), the amount of a contribution made
675 during the taxable year on behalf of the taxpayer to a medical care savings account and interest

676 earned on a contribution to a medical care savings account established pursuant to Title 31A,
677 Chapter 32a, Medical Care Savings Account Act, to the extent the contribution is accepted by
678 the account administrator as provided in the Medical Care Savings Account Act, and if the
679 taxpayer did not deduct or include amounts on the taxpayer's federal individual income tax
680 return pursuant to Section 220, Internal Revenue Code; and
681 (ii) a contribution deductible under this Subsection (2)(h) may not exceed either of the
682 following:
683 (A) the maximum contribution allowed under the Medical Care Savings Account Act
684 for the tax year multiplied by two for taxpayers who file a joint return, if neither spouse is
685 covered by health care insurance as defined in Section 31A-1-301 or self-funded plan that
686 covers the other spouse, and each spouse has a medical care savings account; or
687 (B) the maximum contribution allowed under the Medical Care Savings Account Act
688 for the tax year for taxpayers:
689 (I) who do not file a joint return; or
690 (II) who file a joint return, but do not qualify under Subsection (2)(h)(ii)(A);
691 [(i) the amount included in federal taxable income that was derived from money paid
692 by an account owner to the program fund under Title 53B, Chapter 8a, Higher Education
693 Savings Incentive Program, not to exceed amounts determined under Subsection
694 53B-8a-106 (1)(d), and investment income earned on account agreements entered into under
695 Section 53B-8a-106 that is included in federal taxable income, but only when the funds are
696 used for qualified higher education costs of the beneficiary;]
697 (i) subject to Subsection (1)(f), the amount of a qualified investment as defined in
698 Section 53B-8a-102 that:
699 (i) a resident or nonresident individual who is an account owner as defined in Section
700 53B-8a-102 makes during the taxable year;
701 (ii) the resident or nonresident individual described in Subsection (2)(i)(i) does not
702 deduct on a federal individual income tax return; and
703 (iii) does not exceed the maximum amount of the qualified investment that may be
704 subtracted from federal taxable income for a taxable year in accordance with Subsections
705 53B-8a-106 (1)(e) and (f);
706 (j) for taxable years beginning on or after January 1, 2000, any amounts paid for

707 premiums for long-term care insurance as defined in Section 31A-1-301 to the extent the
708 amounts paid for long-term care insurance were not deducted under Section 213, Internal
709 Revenue Code, in determining federal taxable income;
710 (k) for taxable years beginning on or after January 1, 2000, if the conditions of
711 Subsection (4)(a) are met, the amount of income derived by a Ute tribal member:
712 (i) during a time period that the Ute tribal member resides on homesteaded land
713 diminished from the Uintah and Ouray Reservation; and
714 (ii) from a source within the Uintah and Ouray Reservation;
715 (l) (i) for taxable years beginning on or after January 1, 2003, the total amount of a
716 resident or nonresident individual's short-term capital gain or long-term capital gain on a
717 capital gain transaction:
718 (A) that occurs on or after January 1, 2003;
719 (B) if 70% or more of the gross proceeds of the capital gain transaction are expended:
720 (I) to purchase qualifying stock in a Utah small business corporation; and
721 (II) within a 12-month period after the day on which the capital gain transaction occurs;
722 and
723 (C) if, prior to the purchase of the qualifying stock described in Subsection
724 (2)(l)(i)(B)(I), the resident or nonresident individual did not have an ownership interest in the
725 Utah small business corporation that issued the qualifying stock; and
726 (ii) in accordance with Title 63, Chapter 46a, Utah Administrative Rulemaking Act, the
727 commission may make rules:
728 (A) defining the term "gross proceeds"; and
729 (B) for purposes of Subsection (2)(l)(i)(C), prescribing the circumstances under which
730 a resident or nonresident individual has an ownership interest in a Utah small business
731 corporation;
732 (m) for the taxable year beginning on or after January 1, 2005, but beginning on or
733 before December 31, 2005, the first $2,200 of income a qualifying military servicemember
734 receives:
735 (i) for service:
736 (A) as a qualifying military servicemember; or
737 (B) under an order into active service in accordance with Section 39-1-5 ; and

738 (ii) to the extent that income is included in adjusted gross income on that resident or
739 nonresident individual's federal individual income tax return for that taxable year;
740 (n) an amount received by a resident or nonresident individual or distribution received
741 by a resident or nonresident beneficiary of a resident trust:
742 (i) if that amount or distribution constitutes a refund of taxes imposed by:
743 (A) a state; or
744 (B) the District of Columbia; and
745 (ii) to the extent that amount or distribution is included in adjusted gross income for
746 that taxable year on the federal individual income tax return of the resident or nonresident
747 individual or resident or nonresident beneficiary of a resident trust;
748 (o) the amount of a railroad retirement benefit:
749 (i) paid:
750 (A) in accordance with The Railroad Retirement Act of 1974, 45 U.S.C. Sec. 231 et
751 seq.;
752 (B) to a resident or nonresident individual; and
753 (C) for the taxable year; and
754 (ii) to the extent that railroad retirement benefit is included in adjusted gross income on
755 that resident or nonresident individual's federal individual income tax return for that taxable
756 year; and
757 (p) an amount:
758 (i) received by an enrolled member of an American Indian tribe; and
759 (ii) to the extent that the state is not authorized or permitted to impose a tax under this
760 part on that amount in accordance with:
761 (A) federal law;
762 (B) a treaty; or
763 (C) a final decision issued by a court of competent jurisdiction.
764 (3) (a) For purposes of Subsection (2)(d), the amount of retirement income subtracted
765 for taxpayers under 65 shall be the lesser of the amount included in federal taxable income, or
766 $4,800, except that:
767 (i) for married taxpayers filing joint returns, for each $1 of adjusted gross income
768 earned over $32,000, the amount of the retirement income exemption that may be subtracted

769 shall be reduced by 50 cents;
770 (ii) for married taxpayers filing separate returns, for each $1 of adjusted gross income
771 earned over $16,000, the amount of the retirement income exemption that may be subtracted
772 shall be reduced by 50 cents; and
773 (iii) for individual taxpayers, for each $1 of adjusted gross income earned over
774 $25,000, the amount of the retirement income exemption that may be subtracted shall be
775 reduced by 50 cents.
776 (b) For purposes of Subsection (2)(e), the amount of the personal retirement exemption
777 shall be further reduced according to the following schedule:
778 (i) for married taxpayers filing joint returns, for each $1 of adjusted gross income
779 earned over $32,000, the amount of the personal retirement exemption shall be reduced by 50
780 cents;
781 (ii) for married taxpayers filing separate returns, for each $1 of adjusted gross income
782 earned over $16,000, the amount of the personal retirement exemption shall be reduced by 50
783 cents; and
784 (iii) for individual taxpayers, for each $1 of adjusted gross income earned over
785 $25,000, the amount of the personal retirement exemption shall be reduced by 50 cents.
786 (c) For purposes of Subsections (3)(a) and (b), adjusted gross income shall be
787 calculated by adding to adjusted gross income any interest income not otherwise included in
788 adjusted gross income.
789 (d) For purposes of determining ownership of items of retirement income common law
790 doctrine will be applied in all cases even though some items may have originated from service
791 or investments in a community property state. Amounts received by the spouse of a living
792 retiree because of the retiree's having been employed in a community property state are not
793 deductible as retirement income of such spouse.
794 (e) For purposes of Subsection (2)(g), a subtraction for an amount paid for health care
795 insurance as defined in Title 31A, Chapter 1, General Provisions, is not allowed:
796 (i) for an amount that is reimbursed or funded in whole or in part by the federal
797 government, the state, or an agency or instrumentality of the federal government or the state;
798 and
799 (ii) for a taxpayer who is eligible to participate in a health plan maintained and funded

800 in whole or in part by the taxpayer's employer or the taxpayer's spouse's employer.
801 (4) (a) A subtraction for an amount described in Subsection (2)(k) is allowed only if:
802 (i) the taxpayer is a Ute tribal member; and
803 (ii) the governor and the Ute tribe execute and maintain an agreement meeting the
804 requirements of this Subsection (4).
805 (b) The agreement described in Subsection (4)(a):
806 (i) may not:
807 (A) authorize the state to impose a tax in addition to a tax imposed under this chapter;
808 (B) provide a subtraction under this section greater than or different from the
809 subtraction described in Subsection (2)(k); or
810 (C) affect the power of the state to establish rates of taxation; and
811 (ii) shall:
812 (A) provide for the implementation of the subtraction described in Subsection (2)(k);
813 (B) be in writing;
814 (C) be signed by:
815 (I) the governor; and
816 (II) the chair of the Business Committee of the Ute tribe;
817 (D) be conditioned on obtaining any approval required by federal law; and
818 (E) state the effective date of the agreement.
819 (c) (i) The governor shall report to the commission by no later than February 1 of each
820 year regarding whether or not an agreement meeting the requirements of this Subsection (4) is
821 in effect.
822 (ii) If an agreement meeting the requirements of this Subsection (4) is terminated, the
823 subtraction permitted under Subsection (2)(k) is not allowed for taxable years beginning on or
824 after the January 1 following the termination of the agreement.
825 (d) For purposes of Subsection (2)(k) and in accordance with Title 63, Chapter 46a,
826 Utah Administrative Rulemaking Act, the commission may make rules:
827 (i) for determining whether income is derived from a source within the Uintah and
828 Ouray Reservation; and
829 (ii) that are substantially similar to how adjusted gross income derived from Utah
830 sources is determined under Section 59-10-117 .

831 (5) (a) For purposes of this Subsection (5), "Form 8814" means:
832 (i) the federal individual income tax Form 8814, Parents' Election To Report Child's
833 Interest and Dividends; or
834 (ii) (A) for taxable years beginning on or after January 1, 2002, a form designated by
835 the commission in accordance with Subsection (5)(a)(ii)(B) as being substantially similar to
836 2000 Form 8814 if for purposes of federal individual income taxes the information contained
837 on 2000 Form 8814 is reported on a form other than Form 8814; and
838 (B) for purposes of Subsection (5)(a)(ii)(A) and in accordance with Title 63, Chapter
839 46a, Utah Administrative Rulemaking Act, the commission may make rules designating a form
840 as being substantially similar to 2000 Form 8814 if for purposes of federal individual income
841 taxes the information contained on 2000 Form 8814 is reported on a form other than Form
842 8814.
843 (b) The amount of a child's income added to adjusted gross income under Subsection
844 (1)(c) is equal to the difference between:
845 (i) the lesser of:
846 (A) the base amount specified on Form 8814; and
847 (B) the sum of the following reported on Form 8814:
848 (I) the child's taxable interest;
849 (II) the child's ordinary dividends; and
850 (III) the child's capital gain distributions; and
851 (ii) the amount not taxed that is specified on Form 8814.
852 (6) Notwithstanding Subsection (1)(g), interest from bonds, notes, and other evidences
853 of indebtedness issued by an entity described in Subsections (1)(g)(i) through (iv) may not be
854 added to federal taxable income of a resident or nonresident individual if, as annually
855 determined by the commission:
856 (a) for an entity described in Subsection (1)(g)(i) or (ii), the entity and all of the
857 political subdivisions, agencies, or instrumentalities of the entity do not impose a tax based on
858 income on any part of the bonds, notes, and other evidences of indebtedness of this state; or
859 (b) for an entity described in Subsection (1)(g)(iii) or (iv), the following do not impose
860 a tax based on income on any part of the bonds, notes, and other evidences of indebtedness of
861 this state:

862 (i) the entity; or
863 (ii) (A) the state in which the entity is located; or
864 (B) the District of Columbia, if the entity is located within the District of Columbia.
865 Section 15. Section 59-10-201 is amended to read:
866 59-10-201. Taxation of resident trusts and estates.
867 (1) A tax determined in accordance with the rates prescribed by Section 59-10-104 for
868 individuals filing separately is imposed for each taxable year on the state taxable income of
869 each resident estate or trust, except for trusts taxed as corporations.
870 (2) A resident estate or trust shall be allowed the credit provided in Section
871 59-10-1003 , relating to an income tax imposed by another state, except that the limitation shall
872 be computed by reference to the taxable income of the estate or trust.
873 (3) The property of the Utah Educational Savings Plan trust established in Title 53B,
874 Chapter 8a, Higher Education Savings Incentive Program, and its income from operations and
875 investments are exempt from all taxation by the state under this chapter.
876 Section 16. Section 59-10-202 is amended to read:
877 59-10-202. Additions to and subtractions from federal taxable income of a
878 resident or nonresident estate or trust.
879 (1) There shall be added to federal taxable income of a resident or nonresident estate or
880 trust:
881 (a) the amount of any income tax imposed by this or any predecessor Utah individual
882 income tax law and the amount of any income tax imposed by the laws of another state, the
883 District of Columbia, or a possession of the United States, to the extent deducted from federal
884 adjusted total income as defined in Section 62, Internal Revenue Code, in determining federal
885 taxable income;
886 (b) a lump sum distribution allowable as a deduction under Section 402(d)(3) of the
887 Internal Revenue Code, to the extent deductible under Section 62(a)(8) of the Internal Revenue
888 Code in determining adjusted gross income;
889 (c) except as provided in Subsection (3), for taxable years beginning on or after
890 January 1, 2003, for bonds, notes, and other evidences of indebtedness acquired on or after
891 January 1, 2003, the interest from bonds, notes, and other evidences of indebtedness issued by
892 one or more of the following entities:

893 (i) a state other than this state;
894 (ii) the District of Columbia;
895 (iii) a political subdivision of a state other than this state; or
896 (iv) an agency or instrumentality of an entity described in Subsections (1)(c)(i) through
897 (iii);
898 (d) any portion of federal taxable income for a taxable year if that federal taxable
899 income is derived from stock:
900 (i) in an S corporation; and
901 (ii) that is held by an electing small business trust; [and]
902 (e) (i) the amount withdrawn under Title 53B, Chapter 8a, Higher Education Savings
903 Incentive Program, from the account of a resident or nonresident estate or trust that is an
904 account owner as defined in Section 53B-8a-102 , for the taxable year for which the amount is
905 withdrawn, if that amount withdrawn from the account of the resident or nonresident estate or
906 trust that is the account owner:
907 (A) is not expended for higher education costs as defined in Section 53B-8a-102 ; and
908 (B) is subtracted by the resident or nonresident estate or trust:
909 (I) that is the account owner; and
910 (II) in accordance with Subsection (2)(j)(i); and
911 (ii) the amount withdrawn under Title 53B, Chapter 8a, Higher Education Savings
912 Incentive Program, from the account of a resident or nonresident estate or trust that is an
913 account owner as defined in Section 53B-8a-102 , for the taxable year beginning on or after
914 January 1, 2007, but beginning on or before December 31, 2007, if that amount withdrawn
915 from the account of the resident or nonresident estate or trust that is the account owner:
916 (A) is not expended for higher education costs as defined in Section 53B-8a-102 ; and
917 (B) is subtracted by the resident or nonresident estate or trust:
918 (I) that is the account owner; and
919 (II) in accordance with Subsection (2)(j)(ii); and
920 [(e)] (f) any fiduciary adjustments required by Section 59-10-210 .
921 (2) There shall be subtracted from federal taxable income of a resident or nonresident
922 estate or trust:
923 (a) the interest or a dividend on obligations or securities of the United States and its

924 possessions or of any authority, commission, or instrumentality of the United States, to the
925 extent that interest or dividend is included in gross income for federal income tax purposes for
926 the taxable year but exempt from state income taxes under the laws of the United States, but
927 the amount subtracted under this Subsection (2) shall be reduced by any interest on
928 indebtedness incurred or continued to purchase or carry the obligations or securities described
929 in this Subsection (2), and by any expenses incurred in the production of interest or dividend
930 income described in this Subsection (2) to the extent that such expenses, including amortizable
931 bond premiums, are deductible in determining federal taxable income;
932 (b) 1/2 of the net amount of any income tax paid or payable to the United States after
933 all allowable credits, as per the United States fiduciary income tax return of the taxpayer for the
934 same taxable year;
935 (c) income of an irrevocable resident trust if:
936 (i) the income would not be treated as state taxable income derived from Utah sources
937 under Section 59-10-204 if received by a nonresident trust;
938 (ii) the trust first became a resident trust on or after January 1, 2004;
939 (iii) no assets of the trust were held, at any time after January 1, 2003, in another
940 resident irrevocable trust created by the same settlor or the spouse of the same settlor;
941 (iv) the trustee of the trust is a trust company as defined in Subsection 7-5-1 (1)(d);
942 (v) the amount subtracted under this Subsection (2) is reduced to the extent the settlor
943 or any other person is treated as an owner of any portion of the trust under Subtitle A,
944 Subchapter J, Subpart E of the Internal Revenue Code; and
945 (vi) the amount subtracted under this Subsection (2) is reduced by any interest on
946 indebtedness incurred or continued to purchase or carry the assets generating the income
947 described in this Subsection (2), and by any expenses incurred in the production of income
948 described in this Subsection (2), to the extent that those expenses, including amortizable bond
949 premiums, are deductible in determining federal taxable income;
950 (d) if the conditions of Subsection (4)(a) are met, the amount of income of a resident or
951 nonresident estate or trust derived from a deceased Ute tribal member:
952 (i) during a time period that the Ute tribal member resided on homesteaded land
953 diminished from the Uintah and Ouray Reservation; and
954 (ii) from a source within the Uintah and Ouray Reservation;

955 (e) (i) for taxable years beginning on or after January 1, 2003, the total amount of a
956 resident or nonresident estate's or trust's short-term capital gain or long-term capital gain on a
957 capital gain transaction:
958 (A) that occurs on or after January 1, 2003;
959 (B) if 70% or more of the gross proceeds of the capital gain transaction are expended:
960 (I) to purchase qualifying stock in a Utah small business corporation; and
961 (II) within a 12-month period after the day on which the capital gain transaction occurs;
962 and
963 (C) if, prior to the purchase of the qualifying stock described in Subsection
964 (2)(e)(i)(B)(I), the resident or nonresident estate or trust did not have an ownership interest in
965 the Utah small business corporation that issued the qualifying stock; and
966 (ii) in accordance with Title 63, Chapter 46a, Utah Administrative Rulemaking Act, the
967 commission may make rules:
968 (A) defining the term "gross proceeds"; and
969 (B) for purposes of Subsection (2)(e)(i)(C), prescribing the circumstances under which
970 a resident or nonresident estate or trust has an ownership interest in a Utah small business
971 corporation;
972 (f) for the taxable year beginning on or after January 1, 2005, but beginning on or
973 before December 31, 2005, the first $2,200 of income of a resident or nonresident estate or
974 trust that is derived from a deceased qualifying military servicemember:
975 (i) for service:
976 (A) as a qualifying military servicemember; or
977 (B) under an order into active service in accordance with Section 39-1-5 ; and
978 (ii) to the extent that income is included in total income on that resident or nonresident
979 estate's or trust's federal income tax return for estates and trusts for that taxable year;
980 (g) any amount:
981 (i) received by a resident or nonresident estate or trust;
982 (ii) that constitutes a refund of taxes imposed by:
983 (A) a state; or
984 (B) the District of Columbia; and
985 (iii) to the extent that amount is included in total income on that resident or nonresident

986 estate's or trust's federal tax return for estates and trusts for that taxable year;
987 (h) the amount of a railroad retirement benefit:
988 (i) paid:
989 (A) in accordance with The Railroad Retirement Act of 1974, 45 U.S.C. Sec. 231 et
990 seq.;
991 (B) to a resident or nonresident estate or trust derived from a deceased resident or
992 nonresident individual; and
993 (C) for the taxable year; and
994 (ii) to the extent that railroad retirement benefit is included in total income on that
995 resident or nonresident estate's or trust's federal tax return for estates and trusts;
996 (i) an amount:
997 (i) received by a resident or nonresident estate or trust if that amount is derived from a
998 deceased enrolled member of an American Indian tribe; and
999 (ii) to the extent that the state is not authorized or permitted to impose a tax under this
1000 part on that amount in accordance with:
1001 (A) federal law;
1002 (B) a treaty; or
1003 (C) a final decision issued by a court of competent jurisdiction; [and]
1004 (j) (i) subject to Subsection (1)(e)(i), for taxable years beginning on or after January 1,
1005 2007, the amount of a qualified investment as defined in Section 53B-8a-102 that:
1006 (A) a resident or nonresident estate or trust that is an account owner as defined in
1007 Section 53B-8a-102 makes during the taxable year;
1008 (B) the resident or nonresident estate or trust described in Subsection (2)(j)(i)(A) does
1009 not deduct on a federal tax return for estates and trusts; and
1010 (C) does not exceed the maximum amount of the qualified investment that may be
1011 subtracted from federal taxable income for a taxable year in accordance with Subsections
1012 53B-8a-106 (1)(e) and (f); and
1013 (ii) subject to Subsection (1)(e)(ii), for the taxable year beginning on or after January 1,
1014 2007, but beginning on or before December 31, 2007 only, and in addition to any subtraction a
1015 resident or nonresident estate or trust that is an account owner as defined in Section
1016 53B-8a-102 makes in accordance with Subsection (2)(j)(i), the amount of a qualified

1017 investment as defined in Section 53B-8a-102 that:
1018 (A) a resident or nonresident estate or trust that is an account owner as defined in
1019 Section 53B-8a-102 could have subtracted under Subsection (2)(j)(i) for the taxable year
1020 beginning on or after January 1, 2006, but beginning on or before December 31, 2006, had the
1021 subtraction under Subsection (2)(j)(i) been in effect for the taxable year beginning on or after
1022 January 1, 2006, but beginning on or before December 31, 2006;
1023 (B) the resident or nonresident estate or trust described in Subsection (2)(j)(ii)(A)
1024 makes during the taxable year beginning on or after January 1, 2006, but beginning on or
1025 before December 31, 2006;
1026 (C) the resident or nonresident estate or trust described in Subsection (2)(j)(ii)(A) does
1027 not deduct on a federal tax return for estates and trusts; and
1028 (D) does not exceed the maximum amount of the qualified investment that may be
1029 subtracted from federal taxable income:
1030 (I) for the taxable year beginning on or after January 1, 2006, but beginning on or
1031 before December 31, 2006; and
1032 (II) in accordance with Subsections 53B-8a-106 (1)(e) and (f); and
1033 [(j)] (k) any fiduciary adjustments required by Section 59-10-210 .
1034 (3) Notwithstanding Subsection (1)(c), interest from bonds, notes, and other evidences
1035 of indebtedness issued by an entity described in Subsections (1)(c)(i) through (iv) may not be
1036 added to federal taxable income of a resident or nonresident estate or trust if, as annually
1037 determined by the commission:
1038 (a) for an entity described in Subsection (1)(c)(i) or (ii), the entity and all of the
1039 political subdivisions, agencies, or instrumentalities of the entity do not impose a tax based on
1040 income on any part of the bonds, notes, and other evidences of indebtedness of this state; or
1041 (b) for an entity described in Subsection (1)(c)(iii) or (iv), the following do not impose
1042 a tax based on income on any part of the bonds, notes, and other evidences of indebtedness of
1043 this state:
1044 (i) the entity; or
1045 (ii) (A) the state in which the entity is located; or
1046 (B) the District of Columbia, if the entity is located within the District of Columbia.
1047 (4) (a) A subtraction for an amount described in Subsection (2)(d) is allowed only if:

1048 (i) the income is derived from a deceased Ute tribal member; and
1049 (ii) the governor and the Ute tribe execute and maintain an agreement meeting the
1050 requirements of this Subsection (4).
1051 (b) The agreement described in Subsection (4)(a):
1052 (i) may not:
1053 (A) authorize the state to impose a tax in addition to a tax imposed under this chapter;
1054 (B) provide a subtraction under this section greater than or different from the
1055 subtraction described in Subsection (2)(d); or
1056 (C) affect the power of the state to establish rates of taxation; and
1057 (ii) shall:
1058 (A) provide for the implementation of the subtraction described in Subsection (2)(d);
1059 (B) be in writing;
1060 (C) be signed by:
1061 (I) the governor; and
1062 (II) the chair of the Business Committee of the Ute tribe;
1063 (D) be conditioned on obtaining any approval required by federal law; and
1064 (E) state the effective date of the agreement.
1065 (c) (i) The governor shall report to the commission by no later than February 1 of each
1066 year regarding whether or not an agreement meeting the requirements of this Subsection (4) is
1067 in effect.
1068 (ii) If an agreement meeting the requirements of this Subsection (4) is terminated, the
1069 subtraction permitted under Subsection (2)(d) is not allowed for taxable years beginning on or
1070 after the January 1 following the termination of the agreement.
1071 (d) For purposes of Subsection (2)(d) and in accordance with Title 63, Chapter 46a,
1072 Utah Administrative Rulemaking Act, the commission may make rules:
1073 (i) for determining whether income is derived from a source within the Uintah and
1074 Ouray Reservation; and
1075 (ii) that are substantially similar to how adjusted gross income derived from Utah
1076 sources is determined under Section 59-10-117 .
1077 Section 17. Section 59-10-1202 is amended to read:
1078 59-10-1202. Definitions.

1079 As used in this part:
1080 (1) "Military service" is as defined in Pub. L. No. 108-189, Sec. 101.
1081 (2) "Servicemember" is as defined in Pub. L. No. 108-189, Sec. 101.
1082 (3) "State income tax percentage for a nonresident individual" means a percentage
1083 equal to a nonresident individual's adjusted gross income for the taxable year received from
1084 Utah sources, as determined under Section 59-10-117 , divided by the difference between:
1085 (a) the nonresident individual's total adjusted gross income for that taxable year; and
1086 (b) if the nonresident individual described in Subsection (3)(a) is a servicemember, the
1087 compensation the servicemember receives for military service if the servicemember is serving
1088 in compliance with military orders.
1089 (4) "State income tax percentage for a part-year resident individual" means, for a
1090 taxable year, a fraction:
1091 (a) the numerator of which is the sum of:
1092 (i) for the time period during the taxable year that the part-year resident individual is a
1093 resident, the part-year resident individual's total adjusted gross income for that time period; and
1094 (ii) for the time period during the taxable year that the part-year resident individual is a
1095 nonresident, the part-year resident individual's adjusted gross income for that time period
1096 received from Utah sources, as determined under Section 59-10-117 ; and
1097 (b) the denominator of which is the difference between:
1098 (i) the part-year resident individual's total adjusted gross income for that taxable year;
1099 and
1100 (ii) if the part-year resident individual is a servicemember, any compensation the
1101 servicemember receives for military service during the portion of the taxable year that the
1102 servicemember is a nonresident if the servicemember is serving in compliance with military
1103 orders.
1104 [(4)] (5) "State taxable income" means a resident or nonresident individual's adjusted
1105 gross income after making the:
1106 (a) additions and subtractions required by Section 59-10-1204 ; and
1107 (b) adjustments required by Section 59-10-1205 .
1108 [(5)] (6) "Unapportioned state tax" means the product of the:
1109 (a) difference between:

1110 (i) a nonresident individual's state taxable income; and
1111 (ii) if the nonresident individual described in Subsection [(5)] (6)(a)(i) is a
1112 servicemember, compensation the servicemember receives for military service if the
1113 servicemember is serving in compliance with military orders; and
1114 (b) percentage listed in Subsection 59-10-1203 (2)(a)(i)(B).
1115 Section 18. Section 59-10-1203 is amended to read:
1116 59-10-1203. Single rate tax for resident or nonresident individual -- Tax rate --
1117 Contributions -- Exemption -- Amended returns.
1118 (1) For taxable years beginning on or after January 1, 2007, a resident or nonresident
1119 individual may calculate and pay a tax under this section as provided in this part.
1120 (2) (a) A resident individual that calculates and pays a tax under this section:
1121 (i) shall pay for a taxable year an amount equal to the product of:
1122 (A) the resident individual's state taxable income for that taxable year; and
1123 (B) 5.35%; and
1124 (ii) is exempt from paying the tax imposed by Section 59-10-104 .
1125 (b) A nonresident individual that calculates and pays a tax under this section:
1126 (i) shall pay for a taxable year an amount equal to the product of the nonresident
1127 individual's:
1128 (A) unapportioned state tax; and
1129 (B) state income tax percentage for the nonresident individual; and
1130 (ii) is exempt from paying the tax imposed by Section 59-10-116 .
1131 (3) Except as required by Section 59-10-1204 or 59-10-1205 , a resident or nonresident
1132 individual that calculates and pays a tax under this section may not make any addition or
1133 adjustment to or subtraction from adjusted gross income.
1134 (4) A resident or nonresident individual that calculates and pays a tax under this
1135 section may designate on the resident or nonresident individual's individual income tax return
1136 for a taxable year a contribution allowed by:
1137 (a) Section 59-10-530 ;
1138 (b) Section 59-10-530.5 ;
1139 (c) Section 59-10-547 ;
1140 (d) Section 59-10-549 ;

1141 (e) Section 59-10-550 ;
1142 (f) Section 59-10-550.1 ; or
1143 (g) Section 59-10-550.2 .
1144 (5) This section does not apply to a resident or nonresident individual exempt from
1145 taxation under Section 59-10-104.1 .
1146 (6) (a) A resident or nonresident individual may determine for each taxable year for
1147 which the resident or nonresident individual files an individual income tax return under this
1148 chapter whether to calculate and pay a tax under this section as provided in this part.
1149 (b) If a resident or nonresident individual files an amended return for a taxable year
1150 beginning on or after January 1, 2007, the resident or nonresident individual may determine
1151 whether to calculate and pay a tax under this section as provided in this part for that taxable
1152 year.
1153 Section 19. Section 59-10-1206.1 is enacted to read:
1154 59-10-1206.1. Utah Educational Savings Plan tax credit.
1155 (1) As used in this section:
1156 (a) "Account owner" is as defined in Section 53B-8a-102 .
1157 (b) "Claimant" means a resident or nonresident individual that has state taxable income
1158 under this part.
1159 (c) "Higher education costs" is as defined in Section 53B-8a-102 .
1160 (d) "Maximum amount of a qualified investment for the taxable year" means, for a
1161 taxable year:
1162 (i) for a claimant that is an account owner, if that claimant is a person other than
1163 husband and wife account owners who file a single return jointly, the maximum amount of a
1164 qualified investment:
1165 (A) listed in Subsection 53B-8a-106 (1)(e)(ii); and
1166 (B) increased or decreased for that taxable year in accordance with Subsection
1167 53B-8a-106 (1)(f); or
1168 (ii) for claimants who are husband and wife account owners who file a single return
1169 jointly, the maximum amount of a qualified investment:
1170 (A) listed in Subsection 53B-8a-106 (1)(e)(iii); and
1171 (B) increased or decreased for that taxable year in accordance with Subsection

1172 53B-8a-106 (1)(f).
1173 (e) "Qualified investment" is as defined in Section 53B-8a-102 .
1174 (2) For taxable years beginning on or after January 1, 2007, a claimant that is an
1175 account owner may claim a nonrefundable tax credit equal to the product of:
1176 (a) the lesser of:
1177 (i) the amount of a qualified investment the claimant:
1178 (A) makes during the taxable year; and
1179 (B) does not deduct on the claimant's federal individual income tax return; or
1180 (ii) the maximum amount of a qualified investment for the taxable year if the amount
1181 described in Subsection (2)(a)(i) is greater than the maximum amount of a qualified investment
1182 for the taxable year; and
1183 (b) 5.35%.
1184 (3) A tax credit under this section may not be carried forward or carried back.
1185 Section 20. Section 59-10-1206.9 is enacted to read:
1186 59-10-1206.9. Apportionment of tax credit.
1187 A nonresident individual or a part-year resident individual that claims a tax credit in
1188 accordance with Section 59-10-1206.1 may only claim an apportioned amount of the tax credit
1189 equal to:
1190 (1) for a nonresident individual, the product of:
1191 (a) the state income tax percentage for the nonresident individual; and
1192 (b) the amount of the tax credit that the nonresident individual would have been
1193 allowed to claim but for the apportionment requirements of this section; or
1194 (2) for a part-year resident individual, the product of:
1195 (a) the state income tax percentage for the part-year resident individual; and
1196 (b) the amount of the tax credit that the part-year resident individual would have been
1197 allowed to claim but for the apportionment requirements of this section.
1198 Section 21. Retrospective operation.
1199 This bill has retrospective operation for taxable years beginning on or after January 1,
1200 2007.
1201 Section 22. Coordinating H.B. 36 with S.B. 223 -- Merging substantive
1202 amendments.

1203 If this H.B. 36 and S.B. 223, Tax Amendments, both pass, it is the intent of the
1204 Legislature that the Office of Legislative Research and General Counsel, in preparing the Utah
1205 Code database for publication, modify Subsection 59-10-1206.1 (2)(b) in this H.B. 36 to read:
1206 "(b) (i) for the taxable year beginning on or after January 1, 2007, but beginning on or
1207 before December 31, 2007, 5.35%; or
1208 (ii) for taxable years beginning on or after January 1, 2008, 5%."