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First Substitute S.B. 23


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House Floor Amendments 3-12-2009 je/
This document includes Senate 3rd Reading Floor Amendments incorporated into the bill on Tue, Feb 17, 2009 at 11:15 AM by rday. --> This document includes House Floor Amendments incorporated into the bill on Thu, Mar 12, 2009 at 11:18 AM by jeyring. -->
Senator Wayne L. Niederhauser proposes the following substitute bill:


             1     
INCOME TAXATION OF PASS-THROUGH

             2     
ENTITIES AND PASS-THROUGH ENTITY

             3     
TAXPAYERS

             4     
2009 GENERAL SESSION

             5     
STATE OF UTAH

             6     
Chief Sponsor: Wayne L. Niederhauser

             7     
House Sponsor: John Dougall

             8     

             9      LONG TITLE
             10      General Description:
             11          This bill amends the Corporate Franchise and Income Taxes chapter and the Individual
             12      Income Tax Act to address the income taxation of a pass-through entity and a taxpayer
             13      to whom income, gain, loss, deduction, or credit of the pass-through entity is passed
             14      through.
             15      Highlighted Provisions:
             16          This bill:
             17          .    provides that corporate franchise and income taxes are imposed on an S corporation
             18      through the taxable year beginning on or after January 1, 2012, but beginning on or
             19      before December 31, 2012;
             19a      H. . requires the Revenue and Taxation Interim Committee to conduct a study and
             19b      prescribes the scope of the study; .H
             20          .    repeals provisions governing the taxation of a limited liability company;
             21          .    addresses the income taxation of a taxpayer to whom income, gain, loss, deduction,
             22      or credit of a pass-through entity is passed through;
             23          .    expands withholding requirements to provide that a pass-through entity, including a
             24      general partnership, limited partnership, limited liability partnership, limited
             25      liability company, or an S corporation, is required to pay or withhold a tax on behalf



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House Floor Amendments 3-12-2009 je/
             26
     of a resident or nonresident business entity or a nonresident individual;
             27          .    provides exceptions to the withholding requirements;
             28          .    provides withholding procedures;
             29          .    addresses return filing requirements for a pass-through entity or a taxpayer to whom
             30      income, gain, loss, deduction, or credit of a pass-through entity is passed through;
             31          .    addresses the characterization of items of income, gain, loss, deduction, or credit for
             32      purposes of state income taxation of a taxpayer to whom income, gain, loss,
             33      deduction, or credit of a pass-through entity is passed through;
             34          .    addresses the determination of a taxpayer's share of certain additions to income,
             35      deductions from income, or adjustments to income required by state statute;
             36          .    addresses a refundable tax credit for a taxpayer to whom income, gain, loss,
             37      deduction, or credit of a pass-through entity is passed through; and
             38          .    makes technical changes.
             39      Monies Appropriated in this Bill:
             40          None
             41      Other Special Clauses:
             42          This bill provides an immediate effective date.
             43          This bill has retrospective operation for a taxable year beginning on or after January 1,
             44      2009.
             44a      H. This bill provides revisor instructions. .H
             45      Utah Code Sections Affected:
             46      AMENDS:
             47          59-7-101, as last amended by Laws of Utah 2008, Chapters 382 and 389
             48          59-7-102, as last amended by Laws of Utah 2002, Chapters 76 and 286
             49          59-7-106, as last amended by Laws of Utah 2008, Chapter 389
             50          59-7-402, as last amended by Laws of Utah 2008, Chapter 389
             51          59-7-701, as last amended by Laws of Utah 1995, Chapter 311
             52          59-7-705, as enacted by Laws of Utah 1993, Chapter 169
             53          59-7-706, as enacted by Laws of Utah 1993, Chapter 169
             54          59-7-707, as enacted by Laws of Utah 1993, Chapter 169
             55          59-10-103, as last amended by Laws of Utah 2008, Chapters 382 and 389
             56          59-10-117, as last amended by Laws of Utah 2008, Chapters 382 and 389



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             57
         59-10-507, as last amended by Laws of Utah 2008, Chapter 389
             58          59-10-1103, as renumbered and amended by Laws of Utah 2006, Chapter 223
             59          59-10-1401, as enacted by Laws of Utah 2008, Chapter 389
             60          59-10-1402, as enacted by Laws of Utah 2008, Chapter 389
             61          59-10-1403, as renumbered and amended by Laws of Utah 2008, Chapter 389
             62          59-10-1404, as renumbered and amended by Laws of Utah 2008, Chapter 389
             63          59-10-1405, as renumbered and amended by Laws of Utah 2008, Chapter 389
             64      ENACTS:
             65          59-7-614.4, Utah Code Annotated 1953
             66          59-10-1403.1, Utah Code Annotated 1953
             67          59-10-1403.2, Utah Code Annotated 1953
             68          59-10-1404.5, Utah Code Annotated 1953
             69      REPEALS:
             70          48-2c-117, as last amended by Laws of Utah 2008, Chapter 389
             71          59-7-702, as last amended by Laws of Utah 2003, Chapter 110
             72          59-7-703, as last amended by Laws of Utah 2008, Chapter 382
             73          59-7-704, as enacted by Laws of Utah 1993, Chapter 169
             74     

             75      Be it enacted by the Legislature of the state of Utah:
             76          Section 1. Section 59-7-101 is amended to read:
             77           59-7-101. Definitions.
             78          As used in this chapter:
             79          (1) "Adjusted income" means unadjusted income as modified by Sections 59-7-105
             80      and 59-7-106 .
             81          (2) (a) "Affiliated group" means one or more chains of corporations that are connected
             82      through stock ownership with a common parent corporation that meet the following
             83      requirements:
             84          (i) at least 80% of the stock of each of the corporations in the group, excluding the
             85      common parent corporation, is owned by one or more of the other corporations in the group;
             86      and
             87          (ii) the common parent directly owns at least 80% of the stock of at least one of the



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             88
     corporations in the group.
             89          (b) "Affiliated group" does not include corporations that are qualified to do business
             90      but are not otherwise doing business in this state.
             91          (c) For purposes of this Subsection (2), "stock" does not include nonvoting stock which
             92      is limited and preferred as to dividends.
             93          (3) "Apportionable income" means adjusted income less nonbusiness income net of
             94      related expenses, to the extent included in adjusted income.
             95          (4) "Apportioned income" means apportionable income multiplied by the
             96      apportionment fraction as determined in Section 59-7-311 .
             97          (5) "Business income" is as defined in Section 59-7-302 .
             98          (6) (a) "Captive real estate investment trust" means a real estate investment trust if:
             99          (i) the shares or beneficial interests of the real estate investment trust are not regularly
             100      traded on an established securities market; and
             101          (ii) more than 50% of the voting power or value of the shares or beneficial interests of
             102      the real estate investment trust are directly, indirectly, or constructively:
             103          (A) owned by a controlling entity of the real estate investment trust; or
             104          (B) controlled by a controlling entity of the real estate investment trust.
             105          (b) In accordance with Title 63G, Chapter 3, Utah Administrative Rulemaking Act, the
             106      commission may make rules defining "established securities market."
             107          [(8)] (7) (a) "Common ownership" means the direct or indirect control or ownership of
             108      more than 50% of the outstanding voting stock of:
             109          (i) a parent-subsidiary controlled group as defined in Section 1563, Internal Revenue
             110      Code, except that 50% shall be substituted for 80%;
             111          (ii) a brother-sister controlled group as defined in Section 1563, Internal Revenue
             112      Code, except that 50% shall be substituted for 80%; or
             113          (iii) three or more corporations each of which is a member of a group of corporations
             114      described in Subsection (2)(a)(i) or (2)(a)(ii), and one of which is:
             115          (A) a common parent corporation included in a group of corporations described in
             116      Subsection (2)(a)(i); and
             117          (B) included in a group of corporations described in Subsection (2)(a)(ii).
             118          (b) Ownership of outstanding voting stock shall be determined by Section 1563,



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             119
     Internal Revenue Code.
             120          [(7)] (8) (a) "Controlling entity of a captive real estate investment trust" means an
             121      entity that:
             122          (i) is treated as an association taxable as a corporation under the Internal Revenue
             123      Code;
             124          (ii) is not exempt from federal income taxation under Section 501(a), Internal Revenue
             125      Code; and
             126          (iii) directly, indirectly, or constructively holds more than 50% of:
             127          (A) the voting power of a captive real estate investment trust; or
             128          (B) the value of the shares or beneficial interests of a captive real estate investment
             129      trust.
             130          (b) "Controlling entity of a captive real estate investment trust" does not include:
             131          (i) a real estate investment trust, except for a captive real estate investment trust;
             132          (ii) a qualified real estate investment subsidiary described in Section 856(i), Internal
             133      Revenue Code, except for a qualified real estate investment trust subsidiary of a captive real
             134      estate investment trust; or
             135          (iii) a foreign real estate investment trust.
             136          (c) In accordance with Title 63G, Chapter 3, Utah Administrative Rulemaking Act, the
             137      commission may make rules defining "established securities market."
             138          (9) "Corporate return" or "return" includes a combined report.
             139          (10) "Corporation" includes:
             140          (a) entities defined as corporations under Sections 7701(a) and 7704, Internal Revenue
             141      Code; and
             142          (b) other organizations that are taxed as corporations for federal income tax purposes
             143      under the Internal Revenue Code.
             144          (11) "Dividend" means any distribution, including money or other type of property,
             145      made by a corporation to its shareholders out of its earnings or profits accumulated after
             146      December 31, 1930.
             147          (12) (a) "Doing business" includes any transaction in the course of its business by a
             148      domestic corporation, or by a foreign corporation qualified to do or doing intrastate business in
             149      this state.



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             150
         (b) Except as provided in Subsection 59-7-102 (2), "doing business" includes:
             151          (i) the right to do business through incorporation or qualification;
             152          (ii) the owning, renting, or leasing of real or personal property within this state; and
             153          (iii) the participation in joint ventures, working and operating agreements, the
             154      performance of which takes place in this state.
             155          (13) "Domestic corporation" means a corporation that is incorporated or organized
             156      under the laws of this state.
             157          (14) (a) "Farmers' cooperative" means an association, corporation, or other
             158      organization that is:
             159          (i) (A) an association, corporation, or other organization of:
             160          (I) farmers; or
             161          (II) fruit growers; or
             162          (B) an association, corporation, or other organization that is similar to an association,
             163      corporation, or organization described in Subsection (14)(a)(i)(A); and
             164          (ii) organized and operated on a cooperative basis to:
             165          (A) (I) market the products of members of the cooperative or the products of other
             166      producers; and
             167          (II) return to the members of the cooperative or other producers the proceeds of sales
             168      less necessary marketing expenses on the basis of the quantity of the products of a member or
             169      producer or the value of the products of a member or producer; or
             170          (B) (I) purchase supplies and equipment for the use of members of the cooperative or
             171      other persons; and
             172          (II) turn over the supplies and equipment described in Subsection (14)(a)(ii)(B)(I) at
             173      actual costs plus necessary expenses to the members of the cooperative or other persons.
             174          (b) (i) Subject to Subsection (14)(b)(ii), for purposes of this Subsection (14), the
             175      commission by rule, made in accordance with Title 63G, Chapter 3, Utah Administrative
             176      Rulemaking Act, shall define:
             177          (A) the terms:
             178          (I) "member"; and
             179          (II) "producer"; and
             180          (B) what constitutes an association, corporation, or other organization that is similar to



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             181
     an association, corporation, or organization described in Subsection (14)(a)(i)(A).
             182          (ii) The rules made under this Subsection (14)(b) shall be consistent with the filing
             183      requirements under federal law for a farmers' cooperative.
             184          (15) "Foreign corporation" means a corporation that is not incorporated or organized
             185      under the laws of this state.
             186          (16) (a) "Foreign operating company" means a corporation that:
             187          (i) is incorporated in the United States; and
             188          (ii) 80% or more of whose business activity, as determined under Section 59-7-401 , is
             189      conducted outside the United States.
             190          (b) "Foreign operating company" does not include a corporation that qualifies for the
             191      Puerto Rico and Possession Tax Credit as provided in Section 936, Internal Revenue Code.
             192          (17) (a) "Foreign real estate investment trust" means:
             193          (i) a business entity organized outside the laws of the United States if:
             194          (A) at least 75% of the business entity's total asset value at the close of the business
             195      entity's taxable year is represented by:
             196          (I) real estate assets, as defined in Section 856(c)(5)(B), Internal Revenue Code;
             197          (II) cash or cash equivalents; or
             198          (III) one or more securities issued or guaranteed by the United States;
             199          (B) the business entity is:
             200          (I) not subject to income taxation:
             201          (Aa) on amounts distributed to the business entity's beneficial owners; and
             202          (Bb) in the jurisdiction in which the business entity is organized; or
             203          (II) exempt from income taxation on an entity level in the jurisdiction in which the
             204      business entity is organized;
             205          (C) the business entity distributes at least 85% of the business entity's taxable income,
             206      as computed in the jurisdiction in which the business entity is organized, to the holders of the
             207      business entity's:
             208          (I) shares or beneficial interests; and
             209          (II) on an annual basis;
             210          (D) (I) not more than 10% of the following is held directly, indirectly, or constructively
             211      by a single person:



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             212
         (Aa) the voting power of the business entity; or
             213          (Bb) the value of the shares or beneficial interests of the business entity; or
             214          (II) the shares of the business entity are regularly traded on an established securities
             215      market; and
             216          (E) the business entity is organized in a country that has a tax treaty with the United
             217      States; or
             218          (ii) a listed Australian property trust.
             219          (b) In accordance with Title 63G, Chapter 3, Utah Administrative Rulemaking Act, the
             220      commission may make rules defining:
             221          (i) "cash or cash equivalents";
             222          (ii) "established securities market"; or
             223          (iii) "listed Australian property trust."
             224          (18) "Income" includes losses.
             225          (19) "Internal Revenue Code" means Title 26 of the United States Code as effective
             226      during the year in which Utah taxable income is determined.
             227          (20) "Nonbusiness income" is as defined in Section 59-7-302 .
             228          [(21) "Nonresident shareholder" means any shareholder of an S corporation who on the
             229      last day of the taxable year of the S corporation, is:]
             230          [(a) an individual not domiciled in Utah; or]
             231          [(b) a nonresident trust or nonresident estate, as defined in Section 59-10-103 .]
             232          [(22)] (21) "Real estate investment trust" is as defined in Section 856, Internal Revenue
             233      Code.
             234          [(23)] (22) "Related expenses" means:
             235          (a) expenses directly attributable to nonbusiness income; and
             236          (b) the portion of interest or other expense indirectly attributable to both nonbusiness
             237      and business income which bears the same ratio to the aggregate amount of such interest or
             238      other expense, determined without regard to this Subsection [(23)] (22), as the average amount
             239      of the asset producing the nonbusiness income bears to the average amount of all assets of the
             240      taxpayer within the taxable year.
             241          [(24) "Resident shareholder" means any shareholder of an S corporation who is not a
             242      nonresident shareholder.]



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             243
         [(25)] (23) "Safe harbor lease" means a lease that qualified as a safe harbor lease under
             244      Section 168, Internal Revenue Code.
             245          [(26)] (24) "S corporation" means an S corporation as defined in Section 1361, Internal
             246      Revenue Code.
             247          [(27)] (25) "State of the United States" includes any of the 50 states or the District of
             248      Columbia.
             249          [(28)] (26) (a) "Taxable year" means the calendar year or the fiscal year ending during
             250      such calendar year upon the basis of which the adjusted income is computed.
             251          (b) In the case of a return made for a fractional part of a year under this chapter or
             252      under rules prescribed by the commission, "taxable year" includes the period for which such
             253      return is made.
             254          [(29)] (27) "Taxpayer" means any corporation subject to the tax imposed by this
             255      chapter.
             256          [(30)] (28) "Threshold level of business activity" means business activity in the United
             257      States equal to or greater than 20% of the corporation's total business activity as determined
             258      under Section 59-7-401 .
             259          [(31)] (29) "Unadjusted income" means federal taxable income as determined on a
             260      separate return basis before intercompany eliminations as determined by the Internal Revenue
             261      Code, before the net operating loss deduction and special deductions for dividends received.
             262          [(32)] (30) (a) "Unitary group" means a group of corporations that:
             263          (i) are related through common ownership; and
             264          (ii) by a preponderance of the evidence as determined by a court of competent
             265      jurisdiction or the commission, are economically interdependent with one another as
             266      demonstrated by the following factors:
             267          (A) centralized management;
             268          (B) functional integration; and
             269          (C) economies of scale.
             270          (b) "Unitary group" includes a captive real estate investment trust.
             271          (c) "Unitary group" does not include an S corporation.
             272          [(33)] (31) "United States" includes the 50 states and the District of Columbia.
             273          [(34)] (32) "Utah net loss" means the current year Utah taxable income before Utah net



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             274
     loss deduction, if determined to be less than zero.
             275          [(35)] (33) "Utah net loss deduction" means the amount of Utah net losses from other
             276      taxable years that may be carried back or carried forward to the current taxable year in
             277      accordance with Section 59-7-110 .
             278          [(36)] (34) (a) "Utah taxable income" means Utah taxable income before net loss
             279      deduction less Utah net loss deduction.
             280          (b) "Utah taxable income" includes income from tangible or intangible property located
             281      or having situs in this state, regardless of whether carried on in intrastate, interstate, or foreign
             282      commerce.
             283          [(37)] (35) "Utah taxable income before net loss deduction" means apportioned income
             284      plus nonbusiness income allocable to Utah net of related expenses.
             285          [(38)] (36) (a) "Water's edge combined report" means a report combining the income
             286      and activities of:
             287          (i) all members of a unitary group that are:
             288          (A) corporations organized or incorporated in the United States, including those
             289      corporations qualifying for the Puerto Rico and Possession Tax Credit as provided in Section
             290      936, Internal Revenue Code, in accordance with Subsection [(38)] (36)(b); and
             291          (B) corporations organized or incorporated outside of the United States meeting the
             292      threshold level of business activity; and
             293          (ii) an affiliated group electing to file a water's edge combined report under Subsection
             294      59-7-402 (2).
             295          (b) There is a rebuttable presumption that a corporation which qualifies for the Puerto
             296      Rico and Possession Tax Credit provided in Section 936, Internal Revenue Code, is part of a
             297      unitary group.
             298          [(39)] (37) "Worldwide combined report" means the combination of the income and
             299      activities of all members of a unitary group irrespective of the country in which the
             300      corporations are incorporated or conduct business activity.
             301          Section 2. Section 59-7-102 is amended to read:
             302           59-7-102. Exemptions.
             303          (1) Except as provided in this section, the following are exempt from a tax under this
             304      chapter:



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             305
         (a) an organization exempt under Section 501, Internal Revenue Code;
             306          (b) an organization exempt under Section 528, Internal Revenue Code;
             307          (c) an insurance company that is otherwise taxed on the insurance company's premiums
             308      under Chapter 9, Taxation of Admitted Insurers;
             309          (d) a building authority as defined in Section 17A-3-902 ;
             310          (e) a farmers' cooperative; or
             311          (f) a public agency, as defined in Section 11-13-103 , with respect to or as a result of an
             312      ownership interest in:
             313          (i) a project, as defined in Section 11-13-103 ; or
             314          (ii) facilities providing additional project capacity, as defined in Section 11-13-103 .
             315          (2) Notwithstanding any other provision in this chapter or Chapter 8, Gross Receipts
             316      Tax on Certain Corporations Not Required to Pay Corporate Franchise or Income Tax Act, a
             317      person not otherwise subject to the tax imposed by this chapter or Chapter 8 is not subject to
             318      [the] a tax imposed by [Sections] Section 59-7-104 , 59-7-201 , 59-7-701 , [and] or 59-8-104 ,
             319      because of:
             320          (a) that person's ownership of tangible personal property located at the premises of a
             321      printer's facility in this state with which the person has contracted for printing; or
             322          (b) the activities of the person's employees or agents who are:
             323          (i) located solely at the premises of a printer's facility; and
             324          (ii) performing services:
             325          (A) related to:
             326          (I) quality control;
             327          (II) distribution; or
             328          (III) printing services; and
             329          (B) performed by the printer's facility in this state with which the person has contracted
             330      for printing.
             331          (3) Notwithstanding Subsection (1), an organization, company, authority, farmers'
             332      cooperative, or public agency exempt from this chapter under Subsection (1) is subject to Part
             333      8, Unrelated Business Income, to the extent provided in Part 8.
             334          (4) Notwithstanding Subsection (1)(b), to the extent the income of an organization
             335      described in Subsection (1)(b) is taxable for federal tax purposes under Section 528, Internal



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             336
     Revenue Code, the organization's income is also taxable under this chapter.
             337          Section 3. Section 59-7-106 is amended to read:
             338           59-7-106. Subtractions from unadjusted income.
             339          In computing adjusted income the following amounts shall be subtracted from
             340      unadjusted income:
             341          (1) the foreign dividend gross-up included in gross income for federal income tax
             342      purposes under Section 78, Internal Revenue Code;
             343          (2) the net capital loss, as defined for federal purposes, if the taxpayer elects to deduct
             344      the loss on the current Utah return. The deduction shall be made by claiming the deduction on
             345      the current Utah return which shall be filed by the due date of the return, including extensions.
             346      For the purposes of this Subsection (2) all capital losses in a given year must be:
             347          (a) deducted in the year incurred; or
             348          (b) carried forward as provided in Sections 1212(a)(1)(B) and (C), Internal Revenue
             349      Code;
             350          (3) the decrease in salary expense deduction for federal income tax purposes due to
             351      claiming the federal jobs credit under Section 51, Internal Revenue Code;
             352          (4) the decrease in qualified research and basic research expense deduction for federal
             353      income tax purposes due to claiming the federal research and development credit under Section
             354      41, Internal Revenue Code;
             355          (5) the decrease in qualified clinical testing expense deduction for federal income tax
             356      purposes due to claiming the federal orphan drug credit under Section 28, Internal Revenue
             357      Code;
             358          (6) any decrease in any expense deduction for federal income tax purposes due to
             359      claiming any other federal credit;
             360          (7) the safe harbor lease adjustment required under Subsections 59-7-111 (1)(b) and
             361      (2)(b);
             362          (8) any income on the federal corporate return that has been previously taxed by Utah;
             363          (9) amounts included in federal taxable income that are due to refunds of taxes
             364      imposed for the privilege of doing business, or exercising a corporate franchise, including
             365      income, franchise, corporate stock and business and occupation taxes paid by the corporation to
             366      Utah, another state of the United States, a foreign country, a United States possession, or the



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             367
     Commonwealth of Puerto Rico to the extent that the taxes were added to unadjusted income
             368      under Section 59-7-105 ;
             369          (10) charitable contributions, to the extent allowed as a subtraction under Section
             370      59-7-109 ;
             371          (11) (a) 50% of the dividends deemed received or received from subsidiaries which are
             372      members of the unitary group and are organized or incorporated outside of the United States
             373      unless such subsidiaries are included in a combined report under Section 59-7-402 or 59-7-403 .
             374      In arriving at the amount of the dividend exclusion, the taxpayer shall first deduct from the
             375      dividends deemed received or received, the expense directly attributable to those dividends.
             376      Interest expense attributable to excluded dividends shall be determined by multiplying interest
             377      expense by a fraction, the numerator of which is the taxpayer's average investment in such
             378      dividend paying subsidiaries, and the denominator of which is the taxpayer's average total
             379      investment in assets;
             380          (b) in determining income apportionable to this state, a portion of the factors of a
             381      foreign subsidiary whose dividends are partially excluded under Subsection (11)(a) shall be
             382      included in the combined report factors. The portion to be included shall be determined by
             383      multiplying each factor of the foreign subsidiary by a fraction, but not to exceed 100%, the
             384      numerator of which is the amount of the dividend paid by the foreign subsidiary which is
             385      included in adjusted income, and the denominator of which is the current year earnings and
             386      profits of the foreign subsidiary as determined under the Internal Revenue Code;
             387          (12) (a) 50% of the adjusted income of a foreign operating company unless the
             388      taxpayer has elected to file a worldwide combined report as provided in Section 59-7-403 . For
             389      purposes of this Subsection (12), when calculating the adjusted income of a foreign operating
             390      company, a foreign operating company may not deduct the subtractions allowable under this
             391      Subsection (12) and Subsection (11);
             392          (b) in determining income apportionable to this state, the factors for a foreign operating
             393      company shall be included in the combined report factors in the same percentage its adjusted
             394      income is included in the combined adjusted income;
             395          (13) the amount of gain or loss which is included in unadjusted income but not
             396      recognized for federal purposes on stock sold or exchanged by a member of a selling
             397      consolidated group as defined in Section 338, Internal Revenue Code, if an election has been



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             398
     made pursuant to Section 338(h)(10), Internal Revenue Code;
             399          (14) the amount of gain or loss which is included in unadjusted income but not
             400      recognized for federal purposes on stock sold, exchanged, or distributed by a corporation
             401      pursuant to Section 336(e), Internal Revenue Code, if an election under Section 336(e), Internal
             402      Revenue Code, has been made for federal purposes;
             403          (15) (a) adjustments to gains, losses, depreciation expense, amortization expense, and
             404      similar items due to a difference between basis for federal purposes and basis as computed
             405      under Section 59-7-107 ; and
             406          (b) if there has been a reduction in federal basis for a federal tax credit where there is
             407      no corresponding Utah tax credit, the amount of the reduction in basis shall be allowed as an
             408      expense in the year of the federal credit;
             409          (16) any interest expense not deducted on the federal corporate return under Section
             410      265(b) or 291(e), Internal Revenue Code;
             411          (17) 100% of the dividends received from subsidiaries which are insurance companies
             412      exempt from this chapter under Subsection 59-7-102 (1)(c) and are under ["]common
             413      ownership[" as defined by Subsection 59-7-101 (8)];
             414          (18) subject to Subsection 59-7-105 (12), the amount of a qualified investment as
             415      defined in Section 53B-8a-102 that:
             416          (a) a corporation that is an account owner as defined in Section 53B-8a-102 makes
             417      during the taxable year;
             418          (b) the corporation described in Subsection (18)(a) does not deduct on a federal
             419      corporation income tax return; and
             420          (c) does not exceed the maximum amount of the qualified investment that may be
             421      subtracted from unadjusted income for a taxable year in accordance with Subsections
             422      53B-8a-106 (1)(d) and (f); and
             423          (19) for purposes of income included in a combined report under Part 4, Combined
             424      Reporting, the entire amount of the dividends a member of a unitary group receives or is
             425      considered to receive from a captive real estate investment trust.
             426          Section 4. Section 59-7-402 is amended to read:
             427           59-7-402. Water's edge combined report.
             428          (1) Except as provided in Section 59-7-403 , if any corporation listed in Subsection



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             429
     59-7-101 [(38)](36)(a) is doing business in Utah, the unitary group shall file a water's edge
             430      combined report.
             431          (2) (a) A group of corporations that are not otherwise a unitary group may elect to file a
             432      water's edge combined report if each member of the group is:
             433          (i) doing business in Utah;
             434          (ii) part of the same affiliated group; and
             435          (iii) qualified, under Section 1501, Internal Revenue Code, to file a federal
             436      consolidated return.
             437          (b) Each corporation within the affiliated group that is doing business in Utah must
             438      consent to filing a combined report. If an affiliated group elects to file a combined report, each
             439      corporation within the affiliated group that is doing business in Utah must file a combined
             440      report.
             441          (c) Corporations that elect to file a water's edge combined report under this section may
             442      not thereafter elect to file a separate return without the consent of the commission.
             443          Section 5. Section 59-7-614.4 is enacted to read:
             444          59-7-614.4. Tax credit for pass-through entity taxpayer.
             445          (1) As used in this section:
             446          (a) "Pass-through entity" is as defined in Section 59-10-1402 .
             447          (b) "Pass-through entity taxpayer" is as defined in Section 59-10-1402 .
             448          (2) A pass-through entity taxpayer may claim a refundable tax credit against the tax
             449      otherwise due under this chapter.
             450          (3) The tax credit described in Subsection (2) is equal to the amount paid or withheld
             451      by the pass-through entity on behalf of the pass-through entity taxpayer described in Subsection
             452      (2) in accordance with Section 59-10-1403.2 .
             453          (4) A pass-through entity taxpayer may not claim a tax credit under this section for an
             454      amount for which the pass-through entity taxpayer claims a tax credit under Section
             455      59-10-1103 .
             456          Section 6. Section 59-7-701 is amended to read:
             457           59-7-701. Taxation of S corporations H. -- Revenue and Taxation Interim Committee
             457a      study .H .
             458          [An] (1) Except as provided in Section 59-7-102 and subject to the other provisions of
             459      this part, beginning on July 1, 1994, and ending on the last day of the taxable year that begins



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             460
     on or after January 1, 2012, but begins on or before December 31, 2012, an S corporation[,
             461      except one described in Subsection 59-7-102 (2), shall be taxed for state purposes] is subject to
             462      taxation in the same manner as that S corporation is taxed [for federal purposes as provided in
             463      Subtitle A, Chapter 1S] under Subchapter S - Tax Treatment of S Corporations and Their
             464      Shareholders, Sec. 1361 et seq., Internal Revenue Code[, and as modified by this chapter. The
             465      tax rate for S corporations shall be the rate provided for corporations under Section 59-7-104 .
             466      Taxes owed under this section shall be subject to the estimated tax payments as provided in
             467      Section 59-7-504 ].
             468          (2) An S corporation is taxed at the tax rate provided in Section 59-7-104 .
             469          (3) The business income and nonbusiness income of an S corporation is subject to Part
             470      3, Allocation and Apportionment of Income - Utah UDITPA Provisions.
             471          (4) An S corporation having income derived from or connected with Utah sources shall
             472      make a return in accordance with Section 59-10-507 .
             473          (5) An S corporation shall make payments of estimated tax as required by Section
             474      59-7-504 .
             475          (6) An S corporation is subject to Chapter 10, Part 14, Pass-Through Entities and
             476      Pass-Through Entity Taxpayers Act.
             477          (7) A pass-through entity taxpayer as defined in Section 59-10-1402 of an S
             478      corporation is subject to Chapter 10, Part 14, Pass-Through Entities and Pass-Through Entity
             479      Taxpayers Act.
             480          (8) Provisions under this chapter governing the following apply to an S corporation:
             481          (a) an assessment;
             482          (b) a penalty;
             483          (c) a refund; or
             484          (d) a record required for an S corporation.
             484a      H. (9) (a) During the 2011 interim, the Revenue and Taxation Interim Committee shall
             484b      study the fiscal impacts of:
             484c          (i) the enactment of this bill; and
             484d          (ii) the taxation of S corporations under this part.
             484e          (b) On or before November 30, 2011, the Revenue and Taxation Interim Committee
             484f      shall report its findings and recommendations on the study to the Executive Appropriations
             484g      Committee. .H
             485          Section 7. Section 59-7-705 is amended to read:
             486           59-7-705. Minimum tax not applicable to an S corporation.
             487          The minimum tax provided in Section 59-7-104 does not apply to [S corporations taxed
             488      under this part] an S corporation subject to taxation under Section 59-7-701 .
             489          Section 8. Section 59-7-706 is amended to read:
             490           59-7-706. Distribution and credit of revenues.



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             491
         [Any revenues] Revenues collected or received by the commission under this part shall
             492      be deposited daily with the state treasurer and distributed and credited as provided in Section
             493      59-10-544 .
             494          Section 9. Section 59-7-707 is amended to read:
             495           59-7-707. Commission rulemaking authority.
             496          [The] In accordance with Title 63G, Chapter 3, Utah Administrative Rulemaking Act,
             497      the commission may [adopt] make rules to implement this part.
             498          Section 10. Section 59-10-103 is amended to read:
             499           59-10-103. Definitions.
             500          (1) As used in this chapter:
             501          (a) "Adjusted gross income":
             502          (i) for a resident or nonresident individual, is as defined in Section 62, Internal
             503      Revenue Code; or
             504          (ii) for a resident or nonresident estate or trust, is as calculated in Section 67(e),
             505      Internal Revenue Code.
             506          (b) "Corporation" includes:
             507          (i) an association;
             508          (ii) a joint stock company; and
             509          (iii) an insurance company.
             510          (c) "Distributable net income" is as defined in Section 643, Internal Revenue Code.
             511          (d) "Employee" is as defined in Section 59-10-401 .
             512          (e) "Employer" is as defined in Section 59-10-401 .
             513          (f) "Federal taxable income":
             514          (i) for a resident or nonresident individual, means taxable income as defined by Section
             515      63, Internal Revenue Code; or
             516          (ii) for a resident or nonresident estate or trust, is as calculated in Section 641(a) and
             517      (b), Internal Revenue Code.
             518          (g) "Fiduciary" means:
             519          (i) a guardian;
             520          (ii) a trustee;
             521          (iii) an executor;



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             522
         (iv) an administrator;
             523          (v) a receiver;
             524          (vi) a conservator; or
             525          (vii) any person acting in any fiduciary capacity for any individual.
             526          (h) "Guaranteed annuity interest" is as defined in 26 C.F.R. Sec. 1.170A-6(c)(2).
             527          (i) "Homesteaded land diminished from the Uintah and Ouray Reservation" means the
             528      homesteaded land that was held to have been diminished from the Uintah and Ouray
             529      Reservation in Hagen v. Utah, 510 U.S. 399 (1994).
             530          (j) "Individual" means a natural person and includes aliens and minors.
             531          (k) "Irrevocable trust" means a trust in which the settlor may not revoke or terminate
             532      all or part of the trust without the consent of a person who has a substantial beneficial interest
             533      in the trust and the interest would be adversely affected by the exercise of the settlor's power to
             534      revoke or terminate all or part of the trust.
             535          (l) "Military service" is as defined in Pub. L. No. 108-189, Sec. 101.
             536          (m) "Nonresident individual" means an individual who is not a resident of this state.
             537          (n) "Nonresident trust" or "nonresident estate" means a trust or estate which is not a
             538      resident estate or trust.
             539          (o) (i) "Partnership" includes a syndicate, group, pool, joint venture, or other
             540      unincorporated organization:
             541          (A) through or by means of which any business, financial operation, or venture is
             542      carried on; and
             543          (B) which is not, within the meaning of this chapter:
             544          (I) a trust;
             545          (II) an estate; or
             546          (III) a corporation.
             547          (ii) "Partnership" does not include any organization not included under the definition of
             548      "partnership" in Section 761, Internal Revenue Code.
             549          (iii) "Partner" includes a member in a syndicate, group, pool, joint venture, or
             550      organization described in Subsection (1)(o)(i).
             551          (p) "Qualified nongrantor charitable lead trust" means a trust:
             552          (i) that is irrevocable;



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             553
         (ii) that has a trust term measured by:
             554          (A) a fixed term of years; or
             555          (B) the life of a person living on the day on which the trust is created;
             556          (iii) under which:
             557          (A) a portion of the value of the trust assets is distributed during the trust term:
             558          (I) to an organization described in Section 170(c), Internal Revenue Code; and
             559          (II) as a:
             560          (Aa) guaranteed annuity interest; or
             561          (Bb) unitrust interest; and
             562          (B) assets remaining in the trust at the termination of the trust term are distributed to a
             563      beneficiary:
             564          (I) designated in the trust; and
             565          (II) that is not an organization described in Section 170(c), Internal Revenue Code;
             566          (iv) for which the trust is allowed a deduction under Section 642(c), Internal Revenue
             567      Code; and
             568          (v) under which the grantor of the trust is not treated as the owner of any portion of the
             569      trust for federal income tax purposes.
             570          (q) (i) "Resident individual" means:
             571          (A) an individual who is domiciled in this state for any period of time during the
             572      taxable year, but only for the duration of the period during which the individual is domiciled in
             573      this state; or
             574          (B) an individual who is not domiciled in this state but:
             575          (I) maintains a permanent place of abode in this state; and
             576          (II) spends in the aggregate 183 or more days of the taxable year in this state.
             577          (ii) For purposes of Subsection (1)(q)(i)(B), a fraction of a calendar day shall be
             578      counted as a whole day.
             579          (r) "Resident estate" or "resident trust" is as defined in Section 75-7-103 .
             580          (s) "Servicemember" is as defined in Pub. L. No. 108-189, Sec. 101.
             581          (t) "State income tax percentage for a nonresident estate or trust" means a percentage
             582      equal to a nonresident estate's or trust's state taxable income for the taxable year divided by the
             583      nonresident estate's or trust's total adjusted gross income for that taxable year after making the



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             584
     adjustments required by:
             585          (i) Section 59-10-202 ;
             586          (ii) Section 59-10-207 ;
             587          (iii) Section 59-10-209.1 ; or
             588          (iv) Section 59-10-210 .
             589          (u) "State income tax percentage for a nonresident individual" means a percentage
             590      equal to a nonresident individual's state taxable income for the taxable year divided by the
             591      difference between:
             592          (i) subject to Section 59-10-1405 , the nonresident individual's total adjusted gross
             593      income for that taxable year, after making the:
             594          (A) additions and subtractions required by Section 59-10-114 ; and
             595          (B) adjustments required by Section 59-10-115 ; and
             596          (ii) if the nonresident individual described in Subsection (1)(u)(i) is a servicemember,
             597      the compensation the servicemember receives for military service if the servicemember is
             598      serving in compliance with military orders.
             599          (v) "State income tax percentage for a part-year resident individual" means, for a
             600      taxable year, a fraction:
             601          (i) the numerator of which is the sum of:
             602          (A) subject to [Subsections 59-10-1404 (3) and (4)] Section 59-10-1404.5 , for the time
             603      period during the taxable year that the part-year resident individual is a resident, the part-year
             604      resident individual's total adjusted gross income for that time period, after making the:
             605          (I) additions and subtractions required by Section 59-10-114 ; and
             606          (II) adjustments required by Section 59-10-115 ; and
             607          (B) for the time period during the taxable year that the part-year resident individual is a
             608      nonresident, an amount calculated by:
             609          (I) determining the part-year resident individual's adjusted gross income for that time
             610      period, after making the:
             611          (Aa) additions and subtractions required by Section 59-10-114 ; and
             612          (Bb) adjustments required by Section 59-10-115 ; and
             613          (II) calculating the portion of the amount determined under Subsection (1)(v)(i)(B)(I)
             614      that is derived from Utah sources in accordance with Section 59-10-117 ; and



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             615
         (ii) the denominator of which is the difference between:
             616          (A) the part-year resident individual's total adjusted gross income for that taxable year,
             617      after making the:
             618          (I) additions and subtractions required by Section 59-10-114 ; and
             619          (II) adjustments required by Section 59-10-115 ; and
             620          (B) if the part-year resident individual is a servicemember, any compensation the
             621      servicemember receives for military service during the portion of the taxable year that the
             622      servicemember is a nonresident if the servicemember is serving in compliance with military
             623      orders.
             624          (w) "Taxable income" or "state taxable income":
             625          (i) subject to [Subsection 59-10-1404 (3)] Section 59-10-1404.5 , for a resident
             626      individual, means the resident individual's adjusted gross income after making the:
             627          (A) additions and subtractions required by Section 59-10-114 ; and
             628          (B) adjustments required by Section 59-10-115 ;
             629          (ii) for a nonresident individual, is an amount calculated by:
             630          (A) determining the nonresident individual's adjusted gross income for the taxable
             631      year, after making the:
             632          (I) additions and subtractions required by Section 59-10-114 ; and
             633          (II) adjustments required by Section 59-10-115 ; and
             634          (B) calculating the portion of the amount determined under Subsection (1)(w)(ii)(A)
             635      that is derived from Utah sources in accordance with Section 59-10-117 ;
             636          (iii) for a resident estate or trust, is as calculated under Section 59-10-201.1 ; and
             637          (iv) for a nonresident estate or trust, is as calculated under Section 59-10-204 .
             638          (x) "Taxpayer" means any individual, estate, trust, or beneficiary of an estate or trust,
             639      that has income subject in whole or part to the tax imposed by this chapter.
             640          (y) "Trust term" means a time period:
             641          (i) beginning on the day on which a qualified nongrantor charitable lead trust is
             642      created; and
             643          (ii) ending on the day on which the qualified nongrantor charitable lead trust described
             644      in Subsection (1)(y)(i) terminates.
             645          (z) "Uintah and Ouray Reservation" means the lands recognized as being included



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             646
     within the Uintah and Ouray Reservation in:
             647          (i) Hagen v. Utah, 510 U.S. 399 (1994); and
             648          (ii) Ute Indian Tribe v. Utah, 114 F.3d 1513 (10th Cir. 1997).
             649          (aa) "Unadjusted income" means an amount equal to the difference between:
             650          (i) the total income required to be reported by a resident or nonresident estate or trust
             651      on the resident or nonresident estate's or trust's federal income tax return for estates and trusts
             652      for the taxable year; and
             653          (ii) the sum of the following:
             654          (A) fees paid or incurred to the fiduciary of a resident or nonresident estate or trust:
             655          (I) for administering the resident or nonresident estate or trust; and
             656          (II) that the resident or nonresident estate or trust deducts as allowed on the resident or
             657      nonresident estate's or trust's federal income tax return for estates and trusts for the taxable
             658      year;
             659          (B) the income distribution deduction that a resident or nonresident estate or trust
             660      deducts under Section 651 or 661, Internal Revenue Code, as allowed on the resident or
             661      nonresident estate's or trust's federal income tax return for estates and trusts for the taxable
             662      year;
             663          (C) the amount that a resident or nonresident estate or trust deducts as a deduction for
             664      estate tax or generation skipping transfer tax under Section 691(c), Internal Revenue Code, as
             665      allowed on the resident or nonresident estate's or trust's federal income tax return for estates
             666      and trusts for the taxable year; and
             667          (D) the amount that a resident or nonresident estate or trust deducts as a personal
             668      exemption under Section 642(b), Internal Revenue Code, as allowed on the resident or
             669      nonresident estate's or trust's federal income tax return for estates and trusts for the taxable
             670      year.
             671          (bb) "Unitrust interest" is as defined in 26 C.F.R. Sec. 1.170A-6(c)(2).
             672          (cc) "Ute tribal member" means a person who is enrolled as a member of the Ute
             673      Indian Tribe of the Uintah and Ouray Reservation.
             674          (dd) "Ute tribe" means the Ute Indian Tribe of the Uintah and Ouray Reservation.
             675          (ee) "Wages" is as defined in Section 59-10-401 .
             676          (2) (a) Any term used in this chapter has the same meaning as when used in



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             677
     comparable context in the laws of the United States relating to federal income taxes unless a
             678      different meaning is clearly required.
             679          (b) Any reference to the Internal Revenue Code or to the laws of the United States shall
             680      mean the Internal Revenue Code or other provisions of the laws of the United States relating to
             681      federal income taxes that are in effect for the taxable year.
             682          (c) Any reference to a specific section of the Internal Revenue Code or other provision
             683      of the laws of the United States relating to federal income taxes shall include any
             684      corresponding or comparable provisions of the Internal Revenue Code as amended,
             685      redesignated, or reenacted.
             686          Section 11. Section 59-10-117 is amended to read:
             687           59-10-117. State taxable income derived from Utah sources.
             688          (1) For purposes of Section 59-10-116 , state taxable income includes those items
             689      includable in state taxable income attributable to or resulting from:
             690          (a) the ownership in this state of any interest in real or tangible personal property,
             691      including real property or property rights from which gross income from mining as defined by
             692      Section 613(c), Internal Revenue Code, is derived; or
             693          (b) the carrying on of a business, trade, profession, or occupation in this state.
             694          (2) For the purposes of Subsection (1):
             695          (a) income from intangible personal property, including annuities, dividends, interest,
             696      and gains from the disposition of intangible personal property shall constitute income derived
             697      from Utah sources only to the extent that the income is from property employed in a trade,
             698      business, profession, or occupation carried on in this state;
             699          (b) a deduction with respect to a capital loss, net long-term capital gain, or net operating
             700      loss shall be based solely on income, gain, loss, and deduction connected with Utah sources,
             701      under rules prescribed by the commission in accordance with Title 63G, Chapter 3, Utah
             702      Administrative Rulemaking Act, but otherwise shall be determined in the same manner as the
             703      corresponding federal deductions;
             704          (c) a salary, wage, commission, or compensation for personal services rendered outside
             705      this state may not be considered to be derived from Utah sources;
             706          (d) a nonresident shareholder's distributive share of ordinary income, gain, loss, and
             707      deduction derived from or connected with Utah sources shall be determined under Section



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             708
     59-10-118 ;
             709          (e) a nonresident, other than a dealer holding property primarily for sale to customers
             710      in the ordinary course of the dealer's trade or business, may not be considered to carry on a
             711      trade, business, profession, or occupation in this state solely by reason of the purchase or sale
             712      of property for the nonresident's own account;
             713          (f) if a trade, business, profession, or occupation is carried on partly within and partly
             714      without this state, an item of income, gain, loss, or a deduction derived from or connected with
             715      Utah sources shall be determined in accordance with Section 59-10-118 ;
             716          (g) a nonresident partner's distributive share of partnership income, gain, loss, [and]
             717      deduction, or credit derived from or connected with Utah sources shall be determined under
             718      [Section 59-10-1405 ] Part 14, Pass-Through Entities and Pass-Through Entity Taxpayers Act;
             719          (h) the share of a nonresident estate or trust or a nonresident beneficiary of any estate
             720      or trust in income, gain, loss, or deduction derived from or connected with Utah sources shall
             721      be determined under Section 59-10-207 ; and
             722          (i) any dividend, interest, or distributive share of income, gain, or loss from a real
             723      estate investment trust, as defined in Section 59-7-101 , distributed or allocated to a nonresident
             724      investor in the trust, including any shareholder, beneficiary, or owner of a beneficial interest in
             725      the trust, shall be income from intangible personal property under Subsection (2)(a), and shall
             726      constitute income derived from Utah sources only to the extent the nonresident investor is
             727      employing its beneficial interest in the trust in a trade, business, profession, or occupation
             728      carried on by the investor in this state.
             729          Section 12. Section 59-10-507 is amended to read:
             730           59-10-507. Return by a pass-through entity.
             731          (1) As used in this section:
             732          (a) "Pass-through entity" is as defined in Section 59-10-1402 .
             733          (b) "Taxable year" means a year or other time period that would be a taxable year of a
             734      pass-through entity if the pass-through entity were subject to taxation under this chapter.
             735          (2) A pass-through entity having any income derived from or connected with Utah
             736      sources [in this state] shall make a return for the taxable year as prescribed by the commission.
             737          [(3) For purposes of Subsection (2), a pass-through entity's income derived from
             738      sources in this state shall be determined in accordance with the principles of Section



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             739
     59-10-1405 .]
             740          Section 13. Section 59-10-1103 is amended to read:
             741           59-10-1103. Tax credit for pass-through entity taxpayer.
             742          [(1) (a) A nonresident shareholder of an S corporation]
             743          (1) As used in this section:
             744          (a) "Pass-through entity" is as defined in Section 59-10-1402 .
             745          (b) "Pass-through entity taxpayer" is as defined in Section 59-10-1402 .
             746          (2) A pass-through entity taxpayer may claim a refundable tax credit against the tax
             747      otherwise due under this chapter if that [nonresident shareholder] pass-through entity taxpayer
             748      is a:
             749          [(i)] (a) [nonresident] claimant;
             750          [(ii)] (b) [nonresident] estate; or
             751          [(iii)] (c) [nonresident] trust.
             752          [(b)] (3) The tax credit described in Subsection [(1)(a)] (2) is equal to the amount paid
             753      or withheld by the [S corporation] pass-through entity on behalf of the [nonresident
             754      shareholder] pass-through entity taxpayer described in Subsection [(1)(a)] (2) in accordance
             755      with Section [ 59-7-703 ] 59-10-1403.2 .
             756          [(2) A nonresident shareholder described in Subsection (1)(a) that has no other Utah
             757      source income may elect:]
             758          [(a) not to claim the tax credit provided in Subsection (1); and]
             759          [(b) not to file a tax return under this chapter for the taxable year.]
             760          [(3) If a nonresident shareholder described in Subsection (1)(a) may claim a
             761      nonrefundable tax credit as defined in Section 59-10-1002 or a refundable tax credit other than
             762      the tax credit described in Subsection (1), the nonresident shareholder described in Subsection
             763      (1)(a) shall file a tax return under this chapter to claim those nonrefundable tax credits or
             764      refundable tax credits.]
             765          (4) A pass-through entity taxpayer may not claim a tax credit under this section for an
             766      amount for which the pass-through entity taxpayer claims a tax credit under Section
             767      59-7-614.4 .
             768          Section 14. Section 59-10-1401 is amended to read:
             769     
Part 14. Pass-Through Entities and Pass-Through Entity Taxpayers Act



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             770
          59-10-1401. Title.
             771          This part is known as the "[Income Tax Treatment of] Pass-Through Entities and
             772      Pass-Through Entity Taxpayers Act."
             773          Section 15. Section 59-10-1402 is amended to read:
             774           59-10-1402. Definitions.
             775          As used in this part:
             776          [(1) "Limited liability company" includes a foreign limited liability company.]
             777          (1) "Addition, subtraction, or adjustment" means:
             778          (a) for a pass-through entity taxpayer that is classified as a C corporation for federal
             779      income tax purposes, under Chapter 7, Corporate Franchise and Income Taxes:
             780          (i) an addition to unadjusted income described in Section 59-7-105 ; or
             781          (ii) a subtraction from unadjusted income described in Section 59-7-106 ;
             782          (b) for a pass-through entity taxpayer that is classified as an individual, partnership, or
             783      S corporation for federal income tax purposes:
             784          (i) an addition to or subtraction from adjusted gross income described in Section
             785      59-10-114 ; or
             786          (ii) an adjustment to adjusted gross income described in Section 59-10-115 ; or
             787          (c) for a pass-through entity taxpayer that is classified as an estate or a trust for federal
             788      income tax purposes:
             789          (i) an addition to or subtraction from unadjusted income described in Section
             790      59-10-202 ; or
             791          (ii) an adjustment to unadjusted income described in Section 59-10-209.1 .
             792          (2) "Business income" means income arising from transactions and activity in the
             793      regular course of a pass-through entity's trade or business and includes income from tangible
             794      and intangible property if the acquisition, management, and disposition of the property
             795      constitutes integral parts of the pass-through entity's regular trade or business operations.
             796          (3) "C corporation" is as defined in Section 1361, Internal Revenue Code.
             797          (4) "Commercial domicile" means the principal place from which the trade or business
             798      of a business entity is directed or managed.
             799          (5) "Derived from or connected with Utah sources" means:
             800          (a) if a pass-through entity taxpayer is classified as a C corporation for federal income



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             801
     tax purposes, derived from or connected with Utah sources in accordance with Chapter 7, Part
             802      3, Allocation and Apportionment of Income - Utah UDITPA Provisions; or
             803          (b) if a pass-through entity or pass-through entity taxpayer is classified as an estate,
             804      individual, partnership, S corporation, or a trust for federal income tax purposes, derived from
             805      or connected with Utah sources in accordance with Sections 59-10-117 and 59-10-118 .
             806          (6) "Nonbusiness income" means all income of a pass-through entity other than
             807      business income.
             808          (7) "Nonresident business entity" means a business entity that does not have its
             809      commercial domicile in this state.
             810          (8) "Nonresident pass-through entity taxpayer" means a pass-through entity taxpayer
             811      that is a:
             812          (a) nonresident individual; or
             813          (b) nonresident business entity.
             814          [(2)] (9) (a) "Pass-through entity" means a business entity that is:
             815          (i) the following if classified as a partnership for federal income tax purposes:
             816          [(i)] (A) a general partnership;
             817          [(ii)] (B) a limited liability company;
             818          [(iii)] (C) a limited liability partnership; or
             819          [(iv)] (D) a limited partnership; [or]
             820          (ii) an S corporation; or
             821          [(v)] (iii) a business entity similar to [Subsections (2)(a)(i) through (iv)] Subsection
             822      (9)(a)(i) or (ii):
             823          (A) with respect to which the business entity's income [or losses are], gain, loss,
             824      deduction, or credit is divided among and passed through to [taxpayers] one or more
             825      pass-through entity taxpayers; and
             826          (B) as defined by the commission by rule made in accordance with Title 63G, Chapter
             827      3, Utah Administrative Rulemaking Act.
             828          (b) "Pass-through entity" does not include [a trust] an estate or trust that is classified as
             829      an estate or trust for federal income tax purposes.
             830          [(3) "Taxpayer" means:]
             831          (10) "Pass-through entity taxpayer " means a resident or nonresident individual, a



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             832
     resident or nonresident business entity, or a resident or nonresident estate or trust:
             833          (a) that is:
             834          [(a)] (i) for a general partnership, a partner;
             835          [(b)] (ii) for a limited liability company, a member;
             836          [(c)] (iii) for a limited liability partnership, a partner;
             837          [(d)] (iv) for a limited partnership, a partner; [or]
             838          (v) for an S corporation, a shareholder; or
             839          [(e)] (vi) for a business entity described in Subsection [(2)(a)(v)] (9)(a)(iii), a member,
             840      partner, shareholder, or other title designated by the commission by rule made in accordance
             841      with Title 63G, Chapter 3, Utah Administrative Rulemaking Act[.]; and
             842          (b) to which the income, gain, loss, deduction, or credit of a pass-through entity is
             843      passed through.
             844          (11) "Resident business entity" means a business entity that is not a nonresident
             845      business entity.
             846          (12) "Resident pass-through entity taxpayer" means a pass-through entity taxpayer that
             847      is a:
             848          (a) resident individual; or
             849          (b) resident business entity.
             850          (13) "Return" means a return that a pass-through entity taxpayer files:
             851          (a) for a pass-through entity taxpayer that is classified as a C corporation for federal
             852      income tax purposes, under Chapter 7, Corporate Franchise and Income Taxes; or
             853          (b) for a pass-through entity taxpayer that is classified as an estate, individual,
             854      partnership, S corporation, or a trust for federal income tax purposes, under this chapter.
             855          (14) "S corporation" is as defined in Section 1361, Internal Revenue Code.
             856          (15) "Share of income, gain, loss, deduction, or credit of a pass-through entity" means:
             857          (a) for a pass-through entity except for a pass-through entity that is an S corporation:
             858          (i) for a resident pass-through entity taxpayer, the resident pass-through entity
             859      taxpayer's distributive share of income, gain, loss, deduction, or credit of the pass-through
             860      entity as determined under Section 704 et seq., Internal Revenue Code; and
             861          (ii) for a nonresident pass-through entity taxpayer, the nonresident pass-through entity
             862      taxpayer's distributive share of income, gain, loss, deduction, or credit of the pass-through



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             863
     entity:
             864          (A) as determined under Section 704 et seq., Internal Revenue Code; and
             865          (B) derived from or connected with Utah sources; or
             866          (b) for an S corporation:
             867          (i) for a resident pass-through entity taxpayer, the resident pass-through entity
             868      taxpayer's pro rata share of income, gain, loss, deduction, or credit of the S corporation, as
             869      determined under Sec. 1366 et seq., Internal Revenue Code; or
             870          (ii) for a nonresident pass-through entity taxpayer, the nonresident pass-through entity
             871      taxpayer's pro rata share of income, gain, loss, deduction, or credit of the S corporation:
             872          (A) as determined under Section 1366 et seq., Internal Revenue Code; and
             873          (B) derived from or connected with Utah sources.
             874          Section 16. Section 59-10-1403 is amended to read:
             875           59-10-1403. Income tax treatment of a pass-through entity -- Returns --
             876      Classification same as under Internal Revenue Code.
             877          (1) Subject to Subsection (3), a pass-through entity is not subject to a tax imposed by
             878      this chapter.
             879          (2) The income [or losses], gain, loss, deduction, or credit of a pass-through entity shall
             880      be [divided among and] passed through to one or more pass-through entity taxpayers as
             881      provided in this part.
             882          (3) A pass-through entity is subject to the return filing requirements of Section
             883      59-10-507 .
             884          (4) A pass-through entity that [is a limited liability company that] transacts business in
             885      the state shall be classified for purposes of taxation under this title in the same manner as the
             886      [limited liability company] pass-through entity is classified for federal income tax purposes.
             887          Section 17. Section 59-10-1403.1 is enacted to read:
             888          59-10-1403.1. Income tax treatment of a pass-through entity taxpayer.
             889          (1) Subject to the other provisions of this part, a pass-through entity taxpayer is subject
             890      to taxation:
             891          (a) for a pass-through entity taxpayer that is classified as a C corporation for federal
             892      income tax purposes:
             893          (i) if that pass-through entity taxpayer is a resident pass-through entity taxpayer, as a



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             894
     domestic corporation is taxed under Chapter 7, Corporate Franchise and Income Taxes; or
             895          (ii) if that pass-through entity taxpayer is a nonresident pass-through entity taxpayer, as
             896      a foreign corporation is taxed under Chapter 7, Corporate Franchise and Income Taxes; or
             897          (b) for a pass-through entity taxpayer that is classified as an estate, individual,
             898      partnership, S corporation, or a trust for federal income tax purposes:
             899          (i) if that pass-through entity taxpayer is a resident pass-through entity taxpayer, as a
             900      resident estate, resident individual, resident partnership, resident S corporation, or resident trust
             901      is taxed under this chapter; or
             902          (ii) if that pass-through entity taxpayer is a nonresident pass-through entity taxpayer, as
             903      a nonresident estate, nonresident individual, nonresident partnership, nonresident S
             904      corporation, or nonresident trust is taxed under this chapter.
             905          (2) A pass-through entity taxpayer is subject to taxation on the pass-through entity
             906      taxpayer's share of income, gain, loss, deduction, or credit of the pass-through entity.
             907          (3) (a) Subject to Subsection (3)(b)(iii), a resident pass-through entity taxpayer shall
             908      file a return:
             909          (i) if the resident pass-through entity taxpayer is classified as a C corporation for
             910      federal income tax purposes, as a domestic corporation under Chapter 7, Corporate Franchise
             911      and Income Taxes; or
             912          (ii) if the resident pass-through entity taxpayer is classified as an estate, individual,
             913      partnership, S corporation, or a trust for federal income tax purposes, as a resident estate,
             914      resident individual, resident partnership, resident S corporation, or resident trust under this
             915      chapter.
             916          (b) (i) Except as provided in Subsection (3)(b)(ii) and subject to Subsection (3)(b)(iii)
             917      or (iv), a nonresident pass-through entity taxpayer shall file a return:
             918          (A) if the nonresident pass-through entity taxpayer is classified as a C corporation for
             919      federal income tax purposes, as a foreign corporation under Chapter 7, Corporate Franchise and
             920      Income Taxes; or
             921          (B) if the nonresident pass-through entity taxpayer is classified as an estate, individual,
             922      partnership, S corporation, or a trust for federal income tax purposes, as a nonresident estate,
             923      nonresident individual, nonresident partnership, nonresident S corporation, or nonresident trust
             924      under this chapter.



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             925
         (ii) A nonresident pass-through entity taxpayer is not required to file a return if:
             926          (A) the nonresident pass-through entity taxpayer does not have:
             927          (I) for a nonresident pass-through entity taxpayer that is classified as a C corporation
             928      for federal income tax purposes, unadjusted income as defined in Section 59-7-101 derived
             929      from or connected with Utah sources, except for the nonresident pass-through entity taxpayer's
             930      share of income, gain, loss, deduction, or credit of the pass-through entity;
             931          (II) for a nonresident pass-through entity taxpayer that is classified as an individual,
             932      partnership, or S corporation for federal income tax purposes, adjusted gross income derived
             933      from or connected with Utah sources, except for the nonresident pass-through entity taxpayer's
             934      share of income, gain, loss, deduction, or credit of the pass-through entity; or
             935          (III) for a nonresident pass-through entity taxpayer that is classified as an estate or a
             936      trust for federal income tax purposes, unadjusted income as defined in Section 59-10-103
             937      derived from or connected with Utah sources, except for the nonresident pass-through entity
             938      taxpayer's share of income, gain, loss, deduction, or credit of the pass-through entity;
             939          (B) the nonresident pass-through entity taxpayer does not seek to claim a tax credit
             940      allowed against a tax imposed under:
             941          (I) Chapter 7, Corporate Franchise and Income Taxes; or
             942          (II) this chapter;
             943          (C) the pass-through entity pays or withholds a tax on behalf of the nonresident
             944      pass-through entity taxpayer and remits that tax to the commission:
             945          (I) in accordance with Section 59-10-1403.2 ; and
             946          (II) if a nonresident pass-through entity taxpayer is classified as a C corporation for
             947      federal income tax purposes, in an amount that is equal to or greater than the minimum tax
             948      under Section 59-7-104 ; and
             949          (D) the nonresident pass-through entity taxpayer is not a member of a unitary group as
             950      defined in Section 59-7-101 that is required to file a return in this state.
             951          (iii) A nonresident pass-through entity taxpayer that is not otherwise required to file a
             952      return under this Subsection (3) may file a return under:
             953          (A) Chapter 7, Corporate Franchise and Income Taxes; or
             954          (B) this chapter.
             955          (iv) In accordance with Title 63G, Chapter 3, Utah Administrative Rulemaking Act,



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             956
     the commission may make rules for a pass-through entity taxpayer, except for a pass-through
             957      entity taxpayer who is a resident individual, to file a return under this section if two or more
             958      pass-through entities pay or withhold a tax in accordance with Section 59-10-1403.2 on behalf
             959      of the pass-through entity taxpayer.
             960          Section 18. Section 59-10-1403.2 is enacted to read:
             961          59-10-1403.2. Pass-through entity payment or withholding of tax on behalf of a
             962      pass-through entity taxpayer -- Exceptions to payment or withholding requirement --
             963      Procedures and requirements -- Failure to pay or withhold a tax on behalf of a
             964      pass-through entity taxpayer.
             965          (1) (a) Except as provided in Subsection (1)(b), for a taxable year, a pass-through entity
             966      shall pay or withhold a tax:
             967          (i) on:
             968          (A) the business income of the pass-through entity; and
             969          (B) the nonbusiness income of the pass-through entity derived from or connected with
             970      Utah sources; and
             971          (ii) on behalf of a pass-through entity taxpayer.
             972          (b) A pass-through entity is not required to pay or withhold a tax under Subsection
             973      (1)(a):
             974          (i) on behalf of a pass-through entity taxpayer who is a resident individual; S. [ or ] .S
             975          (ii) if the pass-through entity is an organization exempt from taxation under Subsection
             976      59-7-102 (1)(a) S. [ . ] ; or
             976a          (iii) if the pass-through entity is a publicly traded partnership:
             976b          (A) as defined in Section 7704(b), Internal Revenue Code;
             976c          (B) that is classified as a partnership for federal income tax purposes; and
             976d          (C) that files an annual information return reporting the following with respect to each
             976e      partner of the publicly traded partnership with income derived from or connected with Utah
             976f      sources that exceeds $500 in a taxable year:
             976g          (I) the partner's name;
             976h          (II) the partner's address;
             976i          (III) the partner's taxpayer identification number; and
             976j          (IV) other information required by the commission. .S
             977          (2) (a) Subject to Subsection (2)(b), the tax a pass-through entity shall pay or withhold
             978      on behalf of a pass-through entity taxpayer for a taxable year is an amount:
             979          (i) determined by the commission by rule made in accordance with Title 63G, Chapter


            
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980
     3, Utah Administrative Rulemaking Act; and
             981          (ii) that the commission estimates will be sufficient to pay the tax liability of the
             982      pass-through entity taxpayer under this chapter with respect to the income described in
             983      Subsection (1)(a)(i) of that pass-through entity for the taxable year.
             984          (b) The rules the commission makes in accordance with Subsection (2)(a):
             985          (i) except as provided in Subsection (2)(c):
             986          (A) shall:



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             987
         (I) for a pass-through entity except for a pass-through entity that is an S corporation,
             988      take into account items of income, gain, loss, deduction, and credit as analyzed on the schedule
             989      for reporting partners' distributive share items as part of the federal income tax return for the
             990      pass-through entity; or
             991          (II) for a pass-through entity that is an S corporation, take into account items of
             992      income, gain, loss, deduction, and credit as reconciled on the schedule for reporting
             993      shareholders' pro rata share items as part of the federal income tax return for the pass-through
             994      entity; and
             995          (B) notwithstanding Subsection (2)(b)(ii)(D), take into account the refundable tax
             996      credit provided in Section 59-6-102 ; and
             997          (ii) may not take into account the following items if taking those items into account
             998      does not result in an accurate estimate of a pass-through entity taxpayer's tax liability under this
             999      chapter for the taxable year:
             1000          (A) a capital loss;
             1001          (B) a passive loss;
             1002          (C) another item of deduction or loss if that item of deduction or loss is generally
             1003      subject to significant reduction or limitation in calculating:
             1004          (I) for a pass-through entity taxpayer that is classified as a C corporation for federal
             1005      income tax purposes, unadjusted income as defined in Section 59-7-101 ;
             1006          (II) for a pass-through entity that is classified as an individual, partnership, or S
             1007      corporation for federal income tax purposes, adjusted gross income; or
             1008          (III) for a pass-through entity that is classified as an estate or a trust for federal income
             1009      tax purposes, unadjusted income as defined in Section 59-10-103 ; or
             1010          (D) a tax credit allowed against a tax imposed under:
             1011          (I) Chapter 7, Corporate Franchise and Income Taxes; or
             1012          (II) this chapter.
             1013          (c) The rules the commission makes in accordance with Subsection (2)(a) may
             1014      establish a method for taking into account items of income, gain, loss, deduction, or credit of a
             1015      pass-through entity if:
             1016          (i) for a pass-through entity except for a pass-through entity that is an S corporation,
             1017      the pass-through entity does not analyze the items of income, gain, loss, deduction, or credit on



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             1018
     the schedule for reporting partners' distributive share items as part of the federal income tax
             1019      return for the pass-through entity; or
             1020          (ii) for a pass-through entity that is an S corporation, the pass-through entity does not
             1021      reconcile the items of income, gain, loss, deduction, or credit on the schedule for reporting
             1022      shareholders' pro rata share items as part of the federal income tax return for the pass-through
             1023      entity.
             1024          (3) A pass-through entity shall remit to the commission the tax the pass-through entity
             1025      pays or withholds on behalf of a pass-through entity taxpayer under this section:
             1026          (a) on or before the due date of the pass-through entity's return, not including
             1027      extensions; and
             1028          (b) on a form provided by the commission.
             1029          (4) A pass-through entity shall provide a statement to a pass-through entity taxpayer on
             1030      behalf of whom the pass-through entity pays or withholds a tax under this section showing the
             1031      amount of tax the pass-through entity pays or withholds under this section for the taxable year
             1032      on behalf of the pass-through entity taxpayer.
             1033          (5) Notwithstanding Section 59-1-401 or 59-1-402 , the commission may not collect an
             1034      amount under this section for a taxable year from a pass-through entity and shall waive a
             1035      penalty or interest on that amount if:
             1036          (a) the pass-through entity fails to pay or withhold the tax on the amount as required by
             1037      this section on behalf of the pass-through entity taxpayer;
             1038          (b) the pass-through entity taxpayer:
             1039          (i) files a return on or before the due date for filing the pass-through entity's return,
             1040      including extensions; and
             1041          (ii) on or before the due date including extensions described in Subsection (5)(b)(i),
             1042      pays the tax on the amount for the taxable year:
             1043          (A) if the pass-through entity taxpayer is classified as a C corporation for federal
             1044      income tax purposes, under Chapter 7, Corporate Franchise and Income Taxes; or
             1045          (B) if the pass-through entity taxpayer is classified as an estate, individual, partnership,
             1046      S corporation, or a trust for federal income tax purposes, under this chapter; and
             1047          (c) the pass-through entity applies to the commission.
             1048          Section 19. Section 59-10-1404 is amended to read:



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             1049
          59-10-1404. Character of an item of income, gain, loss, deduction, or credit.
             1050          [(1) Each item of income, gain, loss, or deduction of a pass-through entity has the same
             1051      character for a taxpayer under this chapter as that item of income, gain, loss, or deduction has
             1052      for federal income tax purposes.]
             1053          [(2) If] Regardless of whether or how an item of income, gain, loss, [or] deduction
             1054      [described in Subsection (1) is not], or credit is characterized for federal income tax purposes,
             1055      that item of income, gain, loss, [or] deduction [has the same character for a taxpayer], or credit
             1056      is from the same source and incurred in the same manner for a pass-through entity taxpayer as
             1057      if the item of income, gain, loss, [or] deduction, or credit is:
             1058          [(a)] (1) realized directly from the source from which the item of income, gain, loss,
             1059      [or] deduction, or credit is realized by the pass-through entity; or
             1060          [(b)] (2) incurred in the same manner as incurred by the pass-through entity.
             1061          [(3) In determining state taxable income of a resident taxpayer, any addition or
             1062      subtraction described in Section 59-10-114 that relates to an item of income, gain, loss, or
             1063      deduction of a pass-through entity shall be made in accordance with the taxpayer's distributive
             1064      share:]
             1065          [(a) of the item to which the addition or subtraction relates; and]
             1066          [(b) for federal income tax purposes.]
             1067          [(4) If a taxpayer's distributive share of an item of income, gain, loss, or deduction
             1068      described in Subsection (3) is not required to be taken into account separately for federal
             1069      income tax purposes, the taxpayer's distributive share of that item of income, gain, loss, or
             1070      deduction shall be determined in accordance with that taxpayer's distributive share:]
             1071          [(a) of income or loss relating to the pass-through entity generally; and]
             1072          [(b) for federal income tax purposes.]
             1073          Section 20. Section 59-10-1404.5 is enacted to read:
             1074          59-10-1404.5. Resident pass-through entity taxpayer's share of an addition,
             1075      subtraction, or adjustment that relates to an item of income, gain, loss, deduction, or
             1076      credit of a pass-through entity.
             1077          (1) In determining the taxable income of a resident pass-through entity taxpayer, an
             1078      addition, subtraction, or adjustment that relates to an item of income, gain, loss, deduction, or
             1079      credit of a pass-through entity shall be made in accordance with this section.



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             1080
         (2) For a resident pass-through entity taxpayer of a pass-through entity except for a
             1081      pass-through entity that is an S corporation, the resident pass-through entity taxpayer's share of
             1082      an addition, subtraction, or adjustment that relates to an item of income, gain, loss, deduction,
             1083      or credit is:
             1084          (a) if the item of income, gain, loss, deduction, or credit is required to be taken into
             1085      account separately for federal income tax purposes, the resident pass-through entity taxpayer's
             1086      distributive share of the item of income, gain, loss, deduction, or credit:
             1087          (i) for federal income tax purposes; and
             1088          (ii) determined under Section 704 et seq., Internal Revenue Code; or
             1089          (b) if the item of income, gain, loss, deduction, or credit is not required to be taken into
             1090      account separately for federal income tax purposes, determined in accordance with the resident
             1091      pass-through entity taxpayer's distributive share of income, gain, loss, deduction, or credit:
             1092          (i) relating to the pass-through entity generally;
             1093          (ii) for federal income tax purposes; and
             1094          (iii) under Section 704 et seq., Internal Revenue Code.
             1095          (3) For a resident pass-through entity taxpayer of a pass-through entity that is an S
             1096      corporation, the resident pass-through entity taxpayer's share of an addition, subtraction, or
             1097      adjustment that relates to an item of income, gain, loss, deduction, or credit is:
             1098          (a) if the item of income, gain, loss, deduction, or credit is required to be taken into
             1099      account separately for federal income tax purposes, the resident pass-through entity taxpayer's
             1100      pro rata share of the item of income, gain, loss, deduction, or credit:
             1101          (i) for federal income tax purposes; and
             1102          (ii) determined under Section 1366 et seq., Internal Revenue Code; or
             1103          (b) if the item of income, gain, loss, deduction, or credit is not required to be taken into
             1104      account separately for federal income tax purposes, determined in accordance with the resident
             1105      pass-through entity taxpayer's pro rata share of the item of income, gain, loss, deduction, or
             1106      credit:
             1107          (i) relating to the pass-through entity generally;
             1108          (ii) for federal income tax purposes; and
             1109          (iii) under Section 1366 et seq., Internal Revenue Code.
             1110          Section 21. Section 59-10-1405 is amended to read:



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             1111
          59-10-1405. Nonresident pass-through entity taxpayer's share of an addition,
             1112      subtraction, or adjustment that relates to an item of income, gain, loss, deduction, or
             1113      credit of a pass-through entity -- In determining source of nonresident pass-through
             1114      entity taxpayer's income certain provisions of pass-through entity agreement may not be
             1115      considered -- Rulemaking authority.
             1116          [(1) Subject to Subsection (2), the adjusted gross income of a nonresident taxpayer
             1117      shall be adjusted by only that portion of the taxpayer's distributive share of an item of income,
             1118      gain, loss, or deduction of a pass-through entity derived from or connected with sources in this
             1119      state.]
             1120          [(2) In accordance with Title 63G, Chapter 3, Utah Administrative Rulemaking Act,
             1121      the commission may make rules for determining the adjustment required by Subsection (1) if
             1122      those rules are consistent with the principles of Section 59-10-116 .]
             1123          (1) (a) Except as provided in Subsection (3), in determining the taxable income of a
             1124      nonresident pass-through entity taxpayer, an addition, subtraction, or adjustment that relates to
             1125      an item of income, gain, loss, deduction, or credit of a pass-through entity shall be made in
             1126      accordance with this Subsection (1).
             1127          (b) For a nonresident pass-through entity taxpayer of a pass-through entity except for a
             1128      pass-through entity that is an S corporation, the nonresident pass-through entity taxpayer's
             1129      share of an addition, subtraction, or adjustment that relates to an item of income, gain, loss,
             1130      deduction, or credit is:
             1131          (i) if the item of income, gain, loss, deduction, or credit is required to be taken into
             1132      account separately for federal income tax purposes, the nonresident pass-through entity
             1133      taxpayer's distributive share of the item of income, gain, loss, deduction, or credit:
             1134          (A) for federal income tax purposes;
             1135          (B) determined under Section 704 et seq., Internal Revenue Code; and
             1136          (C) derived from or connected with Utah sources; or
             1137          (ii) if the item of income, gain, loss, deduction, or credit is not required to be taken into
             1138      account separately for federal income tax purposes, determined in accordance with the
             1139      nonresident pass-through entity taxpayer's distributive share of income, gain, loss, deduction,
             1140      or credit:
             1141          (A) relating to the pass-through entity generally;



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             1142
         (B) for federal income tax purposes;
             1143          (C) under Section 704 et seq., Internal Revenue Code; and
             1144          (D) derived from or connected with Utah sources.
             1145          (c) For a nonresident pass-through entity taxpayer of a pass-through entity that is an S
             1146      corporation, the nonresident pass-through entity taxpayer's share of an addition, subtraction, or
             1147      adjustment that relates to an item of income, gain, loss, deduction, or credit is:
             1148          (i) if the item of income, gain, loss, deduction, or credit is required to be taken into
             1149      account separately for federal income tax purposes, the nonresident pass-through entity
             1150      taxpayer's pro rata share of the item of income, gain, loss, deduction, or credit:
             1151          (A) for federal income tax purposes;
             1152          (B) determined under Section 1366 et seq., Internal Revenue Code; and
             1153          (C) derived from or connected with Utah sources; or
             1154          (ii) if the item of income, gain, loss, deduction, or credit is not required to be taken into
             1155      account separately for federal income tax purposes, determined in accordance with the
             1156      nonresident pass-through entity taxpayer's pro rata share of the item of income, gain, loss,
             1157      deduction, or credit:
             1158          (A) relating to the pass-through entity generally;
             1159          (B) for federal income tax purposes;
             1160          (C) under Section 1366 et seq., Internal Revenue Code; and
             1161          (D) derived from or connected with Utah sources.
             1162          [(3)] (2) In determining the source of a nonresident pass-through entity taxpayer's
             1163      income, the following provisions in a pass-through entity agreement may not be considered:
             1164          [(a) a provision that characterizes a payment to the taxpayer as being for:]
             1165          [(i) a service; or]
             1166          [(ii) the use of capital;]
             1167          [(b) except as provided in Subsection (5),]
             1168          (a) a provision that allocates to the nonresident pass-through entity taxpayer, as income
             1169      [or], gain, or credit from a source outside this state, a greater proportion of the nonresident
             1170      pass-through entity taxpayer's [distributive] share of income [or], gain, or credit of the
             1171      pass-through entity than the ratio of income [or], gain, or credit of the pass-through entity from
             1172      sources outside this state to income [or], gain, or credit of the pass-through entity from all



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             1173
     sources; or
             1174          [(c) except as provided in Subsection (5),]
             1175          (b) a provision that allocates to the nonresident pass-through entity taxpayer a greater
             1176      proportion of an item of loss or deduction of the pass-through entity derived from or connected
             1177      with Utah sources [in this state] than the taxpayer's [proportionate] share of loss or deduction
             1178      generally:
             1179          (i) relating to the pass-through entity; and
             1180          (ii) for federal income tax purposes.
             1181          [(4) Any addition or subtraction described in Section 59-10-114 that relates to an item
             1182      of income, gain, loss, or deduction of a pass-through entity shall be made in accordance with
             1183      the taxpayer's distributive share:]
             1184          [(a) of the portion of the item of income, gain, loss, or deduction required to be added
             1185      or subtracted under Section 59-10-114 that is derived from or connected with sources in the
             1186      state; and]
             1187          [(b) for federal income tax purposes.]
             1188          [(5) (a) Subject to Subsection (5)(b), the]
             1189          (3) The commission may by rule, made in accordance with Title 63G, Chapter 3, Utah
             1190      Administrative Rulemaking Act, [authorize the use of one or more methods, other than a
             1191      method described in Subsections (1) through (4), for determining: (i) a nonresident taxpayer's
             1192      portion of an] authorize the use of a calculation other than the calculation provided in
             1193      Subsection (1), for determining a nonresident pass-through entity taxpayer's share of an
             1194      addition, subtraction, or adjustment that relates to an item of income, gain, loss, [or] deduction,
             1195      or credit of a pass-through entity derived from or connected with [sources in the state; and]
             1196      Utah sources if:
             1197          [(ii) the portion of an item of income, gain, loss, or deduction required to be added or
             1198      subtracted under Section 59-10-114 that is derived from or connected with sources in the state.]
             1199          [(b) For purposes of Subsection (5)(a), the commission may authorize the use of one or
             1200      more methods, other than a method described in Subsections (1) through (4), if:]
             1201          [(i) the commission finds that the use of the method is appropriate and equitable; and]
             1202          [(ii) the taxpayer applies to the commission.]
             1203          [(6) (a) A nonresident taxpayer's distributive share of an item of income, gain, loss, or



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House Floor Amendments 3-12-2009 je/
             1204
     deduction shall be determined in accordance with the principles of Subsections 59-10-1404 (3)
             1205      and (4).]
             1206          [(b) The character of an item of income, gain, loss, or deduction for a nonresident
             1207      taxpayer shall be determined in accordance with the principles of Subsections 59-10-1404 (1)
             1208      and (2).]
             1209          (a) the nonresident pass-through entity taxpayer applies to the commission; and
             1210          (b) the commission finds that the use of the calculation is appropriate and equitable.
             1211          Section 22. Repealer.
             1212          This bill repeals:
             1213          Section 48-2c-117, Taxation of limited liability companies.
             1214          Section 59-7-702, Taxation of shareholders.
             1215          Section 59-7-703, Payment or withholding of tax on behalf of nonresident
             1216      shareholders -- Rate.
             1217          Section 59-7-704, Amount taxable.
             1218          Section 23. Effective date -- Retrospective operation.
             1219          This bill:
             1220          (1) if approved by two-thirds of all the members elected to each house, takes effect
             1221      upon approval by the governor, or the day following the constitutional time limit of Utah
             1222      Constitution Article VII, Section 8, without the governor's signature, or in the case of a veto,
             1223      the date of veto override; and
             1224          (2) has retrospective operation for a taxable year beginning on or after January 1, 2009.
             1224a      H. Section 24. Revisor instructions.
             1224b      It is the intent of the Legislature that, in preparing the Utah Code database for publication, the
             1224c      Office of Legislative Research and General Counsel shall replace the reference in Subsection
             1224d      59-7-701(9) from "this bill" to the bill's designated chapter and section number in the Laws of
             1224e      Utah. .H


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