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S.B. 23 Enrolled

             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
             18      corporation through the taxable year beginning on or after January 1, 2012, but
             19      beginning on or before December 31, 2012;
             20          .    requires the Revenue and Taxation Interim Committee to conduct a study and
             21      prescribes the scope of the study;
             22          .    repeals provisions governing the taxation of a limited liability company;
             23          .    addresses the income taxation of a taxpayer to whom income, gain, loss, deduction,
             24      or credit of a pass-through entity is passed through;
             25          .    expands withholding requirements to provide that a pass-through entity, including
             26      a general partnership, limited partnership, limited liability partnership, limited
             27      liability company, or an S corporation, is required to pay or withhold a tax on
             28      behalf of a resident or nonresident business entity or a nonresident individual;
             29          .    provides exceptions to the withholding requirements;


             30          .    provides withholding procedures;
             31          .    addresses return filing requirements for a pass-through entity or a taxpayer to
             32      whom income, gain, loss, deduction, or credit of a pass-through entity is passed
             33      through;
             34          .    addresses the characterization of items of income, gain, loss, deduction, or credit
             35      for purposes of state income taxation of a taxpayer to whom income, gain, loss,
             36      deduction, or credit of a pass-through entity is passed through;
             37          .    addresses the determination of a taxpayer's share of certain additions to income,
             38      deductions from income, or adjustments to income required by state statute;
             39          .    addresses a refundable tax credit for a taxpayer to whom income, gain, loss,
             40      deduction, or credit of a pass-through entity is passed through; and
             41          .    makes technical changes.
             42      Monies Appropriated in this Bill:
             43          None
             44      Other Special Clauses:
             45          This bill provides an immediate effective date.
             46          This bill has retrospective operation for a taxable year beginning on or after January 1,
             47      2009.
             48          This bill provides revisor instructions.
             49      Utah Code Sections Affected:
             50      AMENDS:
             51          59-7-101, as last amended by Laws of Utah 2008, Chapters 382 and 389
             52          59-7-102, as last amended by Laws of Utah 2002, Chapters 76 and 286
             53          59-7-106, as last amended by Laws of Utah 2008, Chapter 389
             54          59-7-402, as last amended by Laws of Utah 2008, Chapter 389
             55          59-7-701, as last amended by Laws of Utah 1995, Chapter 311
             56          59-7-705, as enacted by Laws of Utah 1993, Chapter 169
             57          59-7-706, as enacted by Laws of Utah 1993, Chapter 169


             58          59-7-707, as enacted by Laws of Utah 1993, Chapter 169
             59          59-10-103, as last amended by Laws of Utah 2008, Chapters 382 and 389
             60          59-10-117, as last amended by Laws of Utah 2008, Chapters 382 and 389
             61          59-10-507, as last amended by Laws of Utah 2008, Chapter 389
             62          59-10-1103, as renumbered and amended by Laws of Utah 2006, Chapter 223
             63          59-10-1401, as enacted by Laws of Utah 2008, Chapter 389
             64          59-10-1402, as enacted by Laws of Utah 2008, Chapter 389
             65          59-10-1403, as renumbered and amended by Laws of Utah 2008, Chapter 389
             66          59-10-1404, as renumbered and amended by Laws of Utah 2008, Chapter 389
             67          59-10-1405, as renumbered and amended by Laws of Utah 2008, Chapter 389
             68      ENACTS:
             69          59-7-614.4, Utah Code Annotated 1953
             70          59-10-1403.1, Utah Code Annotated 1953
             71          59-10-1403.2, Utah Code Annotated 1953
             72          59-10-1404.5, Utah Code Annotated 1953
             73      REPEALS:
             74          48-2c-117, as last amended by Laws of Utah 2008, Chapter 389
             75          59-7-702, as last amended by Laws of Utah 2003, Chapter 110
             76          59-7-703, as last amended by Laws of Utah 2008, Chapter 382
             77          59-7-704, as enacted by Laws of Utah 1993, Chapter 169
             78     
             79      Be it enacted by the Legislature of the state of Utah:
             80          Section 1. Section 59-7-101 is amended to read:
             81           59-7-101. Definitions.
             82          As used in this chapter:
             83          (1) "Adjusted income" means unadjusted income as modified by Sections 59-7-105
             84      and 59-7-106 .
             85          (2) (a) "Affiliated group" means one or more chains of corporations that are connected


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


             114      Code, except that 50% shall be substituted for 80%;
             115          (ii) a brother-sister controlled group as defined in Section 1563, Internal Revenue
             116      Code, except that 50% shall be substituted for 80%; or
             117          (iii) three or more corporations each of which is a member of a group of corporations
             118      described in Subsection (2)(a)(i) or (2)(a)(ii), and one of which is:
             119          (A) a common parent corporation included in a group of corporations described in
             120      Subsection (2)(a)(i); and
             121          (B) included in a group of corporations described in Subsection (2)(a)(ii).
             122          (b) Ownership of outstanding voting stock shall be determined by Section 1563,
             123      Internal Revenue Code.
             124          [(7)] (8) (a) "Controlling entity of a captive real estate investment trust" means an
             125      entity that:
             126          (i) is treated as an association taxable as a corporation under the Internal Revenue
             127      Code;
             128          (ii) is not exempt from federal income taxation under Section 501(a), Internal Revenue
             129      Code; and
             130          (iii) directly, indirectly, or constructively holds more than 50% of:
             131          (A) the voting power of a captive real estate investment trust; or
             132          (B) the value of the shares or beneficial interests of a captive real estate investment
             133      trust.
             134          (b) "Controlling entity of a captive real estate investment trust" does not include:
             135          (i) a real estate investment trust, except for a captive real estate investment trust;
             136          (ii) a qualified real estate investment subsidiary described in Section 856(i), Internal
             137      Revenue Code, except for a qualified real estate investment trust subsidiary of a captive real
             138      estate investment trust; or
             139          (iii) a foreign real estate investment trust.
             140          (c) In accordance with Title 63G, Chapter 3, Utah Administrative Rulemaking Act, the
             141      commission may make rules defining "established securities market."


             142          (9) "Corporate return" or "return" includes a combined report.
             143          (10) "Corporation" includes:
             144          (a) entities defined as corporations under Sections 7701(a) and 7704, Internal Revenue
             145      Code; and
             146          (b) other organizations that are taxed as corporations for federal income tax purposes
             147      under the Internal Revenue Code.
             148          (11) "Dividend" means any distribution, including money or other type of property,
             149      made by a corporation to its shareholders out of its earnings or profits accumulated after
             150      December 31, 1930.
             151          (12) (a) "Doing business" includes any transaction in the course of its business by a
             152      domestic corporation, or by a foreign corporation qualified to do or doing intrastate business
             153      in this state.
             154          (b) Except as provided in Subsection 59-7-102 (2), "doing business" includes:
             155          (i) the right to do business through incorporation or qualification;
             156          (ii) the owning, renting, or leasing of real or personal property within this state; and
             157          (iii) the participation in joint ventures, working and operating agreements, the
             158      performance of which takes place in this state.
             159          (13) "Domestic corporation" means a corporation that is incorporated or organized
             160      under the laws of this state.
             161          (14) (a) "Farmers' cooperative" means an association, corporation, or other
             162      organization that is:
             163          (i) (A) an association, corporation, or other organization of:
             164          (I) farmers; or
             165          (II) fruit growers; or
             166          (B) an association, corporation, or other organization that is similar to an association,
             167      corporation, or organization described in Subsection (14)(a)(i)(A); and
             168          (ii) organized and operated on a cooperative basis to:
             169          (A) (I) market the products of members of the cooperative or the products of other


             170      producers; and
             171          (II) return to the members of the cooperative or other producers the proceeds of sales
             172      less necessary marketing expenses on the basis of the quantity of the products of a member or
             173      producer or the value of the products of a member or producer; or
             174          (B) (I) purchase supplies and equipment for the use of members of the cooperative or
             175      other persons; and
             176          (II) turn over the supplies and equipment described in Subsection (14)(a)(ii)(B)(I) at
             177      actual costs plus necessary expenses to the members of the cooperative or other persons.
             178          (b) (i) Subject to Subsection (14)(b)(ii), for purposes of this Subsection (14), the
             179      commission by rule, made in accordance with Title 63G, Chapter 3, Utah Administrative
             180      Rulemaking Act, shall define:
             181          (A) the terms:
             182          (I) "member"; and
             183          (II) "producer"; and
             184          (B) what constitutes an association, corporation, or other organization that is similar to
             185      an association, corporation, or organization described in Subsection (14)(a)(i)(A).
             186          (ii) The rules made under this Subsection (14)(b) shall be consistent with the filing
             187      requirements under federal law for a farmers' cooperative.
             188          (15) "Foreign corporation" means a corporation that is not incorporated or organized
             189      under the laws of this state.
             190          (16) (a) "Foreign operating company" means a corporation that:
             191          (i) is incorporated in the United States; and
             192          (ii) 80% or more of whose business activity, as determined under Section 59-7-401 , is
             193      conducted outside the United States.
             194          (b) "Foreign operating company" does not include a corporation that qualifies for the
             195      Puerto Rico and Possession Tax Credit as provided in Section 936, Internal Revenue Code.
             196          (17) (a) "Foreign real estate investment trust" means:
             197          (i) a business entity organized outside the laws of the United States if:


             198          (A) at least 75% of the business entity's total asset value at the close of the business
             199      entity's taxable year is represented by:
             200          (I) real estate assets, as defined in Section 856(c)(5)(B), Internal Revenue Code;
             201          (II) cash or cash equivalents; or
             202          (III) one or more securities issued or guaranteed by the United States;
             203          (B) the business entity is:
             204          (I) not subject to income taxation:
             205          (Aa) on amounts distributed to the business entity's beneficial owners; and
             206          (Bb) in the jurisdiction in which the business entity is organized; or
             207          (II) exempt from income taxation on an entity level in the jurisdiction in which the
             208      business entity is organized;
             209          (C) the business entity distributes at least 85% of the business entity's taxable income,
             210      as computed in the jurisdiction in which the business entity is organized, to the holders of the
             211      business entity's:
             212          (I) shares or beneficial interests; and
             213          (II) on an annual basis;
             214          (D) (I) not more than 10% of the following is held directly, indirectly, or
             215      constructively by a single person:
             216          (Aa) the voting power of the business entity; or
             217          (Bb) the value of the shares or beneficial interests of the business entity; or
             218          (II) the shares of the business entity are regularly traded on an established securities
             219      market; and
             220          (E) the business entity is organized in a country that has a tax treaty with the United
             221      States; or
             222          (ii) a listed Australian property trust.
             223          (b) In accordance with Title 63G, Chapter 3, Utah Administrative Rulemaking Act,
             224      the commission may make rules defining:
             225          (i) "cash or cash equivalents";


             226          (ii) "established securities market"; or
             227          (iii) "listed Australian property trust."
             228          (18) "Income" includes losses.
             229          (19) "Internal Revenue Code" means Title 26 of the United States Code as effective
             230      during the year in which Utah taxable income is determined.
             231          (20) "Nonbusiness income" is as defined in Section 59-7-302 .
             232          [(21) "Nonresident shareholder" means any shareholder of an S corporation who on
             233      the last day of the taxable year of the S corporation, is:]
             234          [(a) an individual not domiciled in Utah; or]
             235          [(b) a nonresident trust or nonresident estate, as defined in Section 59-10-103 .]
             236          [(22)] (21) "Real estate investment trust" is as defined in Section 856, Internal
             237      Revenue Code.
             238          [(23)] (22) "Related expenses" means:
             239          (a) expenses directly attributable to nonbusiness income; and
             240          (b) the portion of interest or other expense indirectly attributable to both nonbusiness
             241      and business income which bears the same ratio to the aggregate amount of such interest or
             242      other expense, determined without regard to this Subsection [(23)] (22), as the average amount
             243      of the asset producing the nonbusiness income bears to the average amount of all assets of the
             244      taxpayer within the taxable year.
             245          [(24) "Resident shareholder" means any shareholder of an S corporation who is not a
             246      nonresident shareholder.]
             247          [(25)] (23) "Safe harbor lease" means a lease that qualified as a safe harbor lease under
             248      Section 168, Internal Revenue Code.
             249          [(26)] (24) "S corporation" means an S corporation as defined in Section 1361,
             250      Internal Revenue Code.
             251          [(27)] (25) "State of the United States" includes any of the 50 states or the District of
             252      Columbia.
             253          [(28)] (26) (a) "Taxable year" means the calendar year or the fiscal year ending during


             254      such calendar year upon the basis of which the adjusted income is computed.
             255          (b) In the case of a return made for a fractional part of a year under this chapter or
             256      under rules prescribed by the commission, "taxable year" includes the period for which such
             257      return is made.
             258          [(29)] (27) "Taxpayer" means any corporation subject to the tax imposed by this
             259      chapter.
             260          [(30)] (28) "Threshold level of business activity" means business activity in the United
             261      States equal to or greater than 20% of the corporation's total business activity as determined
             262      under Section 59-7-401 .
             263          [(31)] (29) "Unadjusted income" means federal taxable income as determined on a
             264      separate return basis before intercompany eliminations as determined by the Internal Revenue
             265      Code, before the net operating loss deduction and special deductions for dividends received.
             266          [(32)] (30) (a) "Unitary group" means a group of corporations that:
             267          (i) are related through common ownership; and
             268          (ii) by a preponderance of the evidence as determined by a court of competent
             269      jurisdiction or the commission, are economically interdependent with one another as
             270      demonstrated by the following factors:
             271          (A) centralized management;
             272          (B) functional integration; and
             273          (C) economies of scale.
             274          (b) "Unitary group" includes a captive real estate investment trust.
             275          (c) "Unitary group" does not include an S corporation.
             276          [(33)] (31) "United States" includes the 50 states and the District of Columbia.
             277          [(34)] (32) "Utah net loss" means the current year Utah taxable income before Utah
             278      net loss deduction, if determined to be less than zero.
             279          [(35)] (33) "Utah net loss deduction" means the amount of Utah net losses from other
             280      taxable years that may be carried back or carried forward to the current taxable year in
             281      accordance with Section 59-7-110 .


             282          [(36)] (34) (a) "Utah taxable income" means Utah taxable income before net loss
             283      deduction less Utah net loss deduction.
             284          (b) "Utah taxable income" includes income from tangible or intangible property
             285      located or having situs in this state, regardless of whether carried on in intrastate, interstate, or
             286      foreign commerce.
             287          [(37)] (35) "Utah taxable income before net loss deduction" means apportioned
             288      income plus nonbusiness income allocable to Utah net of related expenses.
             289          [(38)] (36) (a) "Water's edge combined report" means a report combining the income
             290      and activities of:
             291          (i) all members of a unitary group that are:
             292          (A) corporations organized or incorporated in the United States, including those
             293      corporations qualifying for the Puerto Rico and Possession Tax Credit as provided in Section
             294      936, Internal Revenue Code, in accordance with Subsection [(38)] (36)(b); and
             295          (B) corporations organized or incorporated outside of the United States meeting the
             296      threshold level of business activity; and
             297          (ii) an affiliated group electing to file a water's edge combined report under Subsection
             298      59-7-402 (2).
             299          (b) There is a rebuttable presumption that a corporation which qualifies for the Puerto
             300      Rico and Possession Tax Credit provided in Section 936, Internal Revenue Code, is part of a
             301      unitary group.
             302          [(39)] (37) "Worldwide combined report" means the combination of the income and
             303      activities of all members of a unitary group irrespective of the country in which the
             304      corporations are incorporated or conduct business activity.
             305          Section 2. Section 59-7-102 is amended to read:
             306           59-7-102. Exemptions.
             307          (1) Except as provided in this section, the following are exempt from a tax under this
             308      chapter:
             309          (a) an organization exempt under Section 501, Internal Revenue Code;


             310          (b) an organization exempt under Section 528, Internal Revenue Code;
             311          (c) an insurance company that is otherwise taxed on the insurance company's
             312      premiums under Chapter 9, Taxation of Admitted Insurers;
             313          (d) a building authority as defined in Section 17A-3-902 ;
             314          (e) a farmers' cooperative; or
             315          (f) a public agency, as defined in Section 11-13-103 , with respect to or as a result of
             316      an ownership interest in:
             317          (i) a project, as defined in Section 11-13-103 ; or
             318          (ii) facilities providing additional project capacity, as defined in Section 11-13-103 .
             319          (2) Notwithstanding any other provision in this chapter or Chapter 8, Gross Receipts
             320      Tax on Certain Corporations Not Required to Pay Corporate Franchise or Income Tax Act, a
             321      person not otherwise subject to the tax imposed by this chapter or Chapter 8 is not subject to
             322      [the] a tax imposed by [Sections] Section 59-7-104 , 59-7-201 , 59-7-701 , [and] or 59-8-104 ,
             323      because of:
             324          (a) that person's ownership of tangible personal property located at the premises of a
             325      printer's facility in this state with which the person has contracted for printing; or
             326          (b) the activities of the person's employees or agents who are:
             327          (i) located solely at the premises of a printer's facility; and
             328          (ii) performing services:
             329          (A) related to:
             330          (I) quality control;
             331          (II) distribution; or
             332          (III) printing services; and
             333          (B) performed by the printer's facility in this state with which the person has
             334      contracted for printing.
             335          (3) Notwithstanding Subsection (1), an organization, company, authority, farmers'
             336      cooperative, or public agency exempt from this chapter under Subsection (1) is subject to Part
             337      8, Unrelated Business Income, to the extent provided in Part 8.


             338          (4) Notwithstanding Subsection (1)(b), to the extent the income of an organization
             339      described in Subsection (1)(b) is taxable for federal tax purposes under Section 528, Internal
             340      Revenue Code, the organization's income is also taxable under this chapter.
             341          Section 3. Section 59-7-106 is amended to read:
             342           59-7-106. Subtractions from unadjusted income.
             343          In computing adjusted income the following amounts shall be subtracted from
             344      unadjusted income:
             345          (1) the foreign dividend gross-up included in gross income for federal income tax
             346      purposes under Section 78, Internal Revenue Code;
             347          (2) the net capital loss, as defined for federal purposes, if the taxpayer elects to deduct
             348      the loss on the current Utah return. The deduction shall be made by claiming the deduction on
             349      the current Utah return which shall be filed by the due date of the return, including extensions.
             350      For the purposes of this Subsection (2) all capital losses in a given year must be:
             351          (a) deducted in the year incurred; or
             352          (b) carried forward as provided in Sections 1212(a)(1)(B) and (C), Internal Revenue
             353      Code;
             354          (3) the decrease in salary expense deduction for federal income tax purposes due to
             355      claiming the federal jobs credit under Section 51, Internal Revenue Code;
             356          (4) the decrease in qualified research and basic research expense deduction for federal
             357      income tax purposes due to claiming the federal research and development credit under
             358      Section 41, Internal Revenue Code;
             359          (5) the decrease in qualified clinical testing expense deduction for federal income tax
             360      purposes due to claiming the federal orphan drug credit under Section 28, Internal Revenue
             361      Code;
             362          (6) any decrease in any expense deduction for federal income tax purposes due to
             363      claiming any other federal credit;
             364          (7) the safe harbor lease adjustment required under Subsections 59-7-111 (1)(b) and
             365      (2)(b);


             366          (8) any income on the federal corporate return that has been previously taxed by Utah;
             367          (9) amounts included in federal taxable income that are due to refunds of taxes
             368      imposed for the privilege of doing business, or exercising a corporate franchise, including
             369      income, franchise, corporate stock and business and occupation taxes paid by the corporation
             370      to Utah, another state of the United States, a foreign country, a United States possession, or
             371      the Commonwealth of Puerto Rico to the extent that the taxes were added to unadjusted
             372      income under Section 59-7-105 ;
             373          (10) charitable contributions, to the extent allowed as a subtraction under Section
             374      59-7-109 ;
             375          (11) (a) 50% of the dividends deemed received or received from subsidiaries which
             376      are members of the unitary group and are organized or incorporated outside of the United
             377      States unless such subsidiaries are included in a combined report under Section 59-7-402 or
             378      59-7-403 . In arriving at the amount of the dividend exclusion, the taxpayer shall first deduct
             379      from the dividends deemed received or received, the expense directly attributable to those
             380      dividends. Interest expense attributable to excluded dividends shall be determined by
             381      multiplying interest expense by a fraction, the numerator of which is the taxpayer's average
             382      investment in such dividend paying subsidiaries, and the denominator of which is the
             383      taxpayer's average total investment in assets;
             384          (b) in determining income apportionable to this state, a portion of the factors of a
             385      foreign subsidiary whose dividends are partially excluded under Subsection (11)(a) shall be
             386      included in the combined report factors. The portion to be included shall be determined by
             387      multiplying each factor of the foreign subsidiary by a fraction, but not to exceed 100%, the
             388      numerator of which is the amount of the dividend paid by the foreign subsidiary which is
             389      included in adjusted income, and the denominator of which is the current year earnings and
             390      profits of the foreign subsidiary as determined under the Internal Revenue Code;
             391          (12) (a) 50% of the adjusted income of a foreign operating company unless the
             392      taxpayer has elected to file a worldwide combined report as provided in Section 59-7-403 . For
             393      purposes of this Subsection (12), when calculating the adjusted income of a foreign operating


             394      company, a foreign operating company may not deduct the subtractions allowable under this
             395      Subsection (12) and Subsection (11);
             396          (b) in determining income apportionable to this state, the factors for a foreign
             397      operating company shall be included in the combined report factors in the same percentage its
             398      adjusted income is included in the combined adjusted income;
             399          (13) the amount of gain or loss which is included in unadjusted income but not
             400      recognized for federal purposes on stock sold or exchanged by a member of a selling
             401      consolidated group as defined in Section 338, Internal Revenue Code, if an election has been
             402      made pursuant to Section 338(h)(10), Internal Revenue Code;
             403          (14) the amount of gain or loss which is included in unadjusted income but not
             404      recognized for federal purposes on stock sold, exchanged, or distributed by a corporation
             405      pursuant to Section 336(e), Internal Revenue Code, if an election under Section 336(e),
             406      Internal Revenue Code, has been made for federal purposes;
             407          (15) (a) adjustments to gains, losses, depreciation expense, amortization expense, and
             408      similar items due to a difference between basis for federal purposes and basis as computed
             409      under Section 59-7-107 ; and
             410          (b) if there has been a reduction in federal basis for a federal tax credit where there is
             411      no corresponding Utah tax credit, the amount of the reduction in basis shall be allowed as an
             412      expense in the year of the federal credit;
             413          (16) any interest expense not deducted on the federal corporate return under Section
             414      265(b) or 291(e), Internal Revenue Code;
             415          (17) 100% of the dividends received from subsidiaries which are insurance companies
             416      exempt from this chapter under Subsection 59-7-102 (1)(c) and are under ["]common
             417      ownership[" as defined by Subsection 59-7-101 (8)];
             418          (18) subject to Subsection 59-7-105 (12), the amount of a qualified investment as
             419      defined in Section 53B-8a-102 that:
             420          (a) a corporation that is an account owner as defined in Section 53B-8a-102 makes
             421      during the taxable year;


             422          (b) the corporation described in Subsection (18)(a) does not deduct on a federal
             423      corporation income tax return; and
             424          (c) does not exceed the maximum amount of the qualified investment that may be
             425      subtracted from unadjusted income for a taxable year in accordance with Subsections
             426      53B-8a-106 (1)(d) and (f); and
             427          (19) for purposes of income included in a combined report under Part 4, Combined
             428      Reporting, the entire amount of the dividends a member of a unitary group receives or is
             429      considered to receive from a captive real estate investment trust.
             430          Section 4. Section 59-7-402 is amended to read:
             431           59-7-402. Water's edge combined report.
             432          (1) Except as provided in Section 59-7-403 , if any corporation listed in Subsection
             433      59-7-101 [(38)](36)(a) is doing business in Utah, the unitary group shall file a water's edge
             434      combined report.
             435          (2) (a) A group of corporations that are not otherwise a unitary group may elect to file
             436      a water's edge combined report if each member of the group is:
             437          (i) doing business in Utah;
             438          (ii) part of the same affiliated group; and
             439          (iii) qualified, under Section 1501, Internal Revenue Code, to file a federal
             440      consolidated return.
             441          (b) Each corporation within the affiliated group that is doing business in Utah must
             442      consent to filing a combined report. If an affiliated group elects to file a combined report,
             443      each corporation within the affiliated group that is doing business in Utah must file a
             444      combined report.
             445          (c) Corporations that elect to file a water's edge combined report under this section
             446      may not thereafter elect to file a separate return without the consent of the commission.
             447          Section 5. Section 59-7-614.4 is enacted to read:
             448          59-7-614.4. Tax credit for pass-through entity taxpayer.
             449          (1) As used in this section:


             450          (a) "Pass-through entity" is as defined in Section 59-10-1402 .
             451          (b) "Pass-through entity taxpayer" is as defined in Section 59-10-1402 .
             452          (2) A pass-through entity taxpayer may claim a refundable tax credit against the tax
             453      otherwise due under this chapter.
             454          (3) The tax credit described in Subsection (2) is equal to the amount paid or withheld
             455      by the pass-through entity on behalf of the pass-through entity taxpayer described in
             456      Subsection (2) in accordance with Section 59-10-1403.2 .
             457          (4) A pass-through entity taxpayer may not claim a tax credit under this section for an
             458      amount for which the pass-through entity taxpayer claims a tax credit under Section
             459      59-10-1103 .
             460          Section 6. Section 59-7-701 is amended to read:
             461           59-7-701. Taxation of S corporations -- Revenue and Taxation Interim
             462      Committee study.
             463          [An] (1) Except as provided in Section 59-7-102 and subject to the other provisions of
             464      this part, beginning on July 1, 1994, and ending on the last day of the taxable year that begins
             465      on or after January 1, 2012, but begins on or before December 31, 2012, an S corporation[,
             466      except one described in Subsection 59-7-102 (2), shall be taxed for state purposes] is subject to
             467      taxation in the same manner as that S corporation is taxed [for federal purposes as provided in
             468      Subtitle A, Chapter 1S] under Subchapter S - Tax Treatment of S Corporations and Their
             469      Shareholders, Sec. 1361 et seq., Internal Revenue Code[, and as modified by this chapter. The
             470      tax rate for S corporations shall be the rate provided for corporations under Section 59-7-104 .
             471      Taxes owed under this section shall be subject to the estimated tax payments as provided in
             472      Section 59-7-504 ].
             473          (2) An S corporation is taxed at the tax rate provided in Section 59-7-104 .
             474          (3) The business income and nonbusiness income of an S corporation is subject to Part
             475      3, Allocation and Apportionment of Income - Utah UDITPA Provisions.
             476          (4) An S corporation having income derived from or connected with Utah sources
             477      shall make a return in accordance with Section 59-10-507 .


             478          (5) An S corporation shall make payments of estimated tax as required by Section
             479      59-7-504 .
             480          (6) An S corporation is subject to Chapter 10, Part 14, Pass-Through Entities and
             481      Pass-Through Entity Taxpayers Act.
             482          (7) A pass-through entity taxpayer as defined in Section 59-10-1402 of an S
             483      corporation is subject to Chapter 10, Part 14, Pass-Through Entities and Pass-Through Entity
             484      Taxpayers Act.
             485          (8) Provisions under this chapter governing the following apply to an S corporation:
             486          (a) an assessment;
             487          (b) a penalty;
             488          (c) a refund; or
             489          (d) a record required for an S corporation.
             490          (9) (a) During the 2011 interim, the Revenue and Taxation Interim Committee shall
             491      study the fiscal impacts of:
             492          (i) the enactment of this bill; and
             493          (ii) the taxation of S corporations under this part.
             494          (b) On or before November 30, 2011, the Revenue and Taxation Interim Committee
             495      shall report its findings and recommendations on the study to the Executive Appropriations
             496      Committee.
             497          Section 7. Section 59-7-705 is amended to read:
             498           59-7-705. Minimum tax not applicable to an S corporation.
             499          The minimum tax provided in Section 59-7-104 does not apply to [S corporations
             500      taxed under this part] an S corporation subject to taxation under Section 59-7-701 .
             501          Section 8. Section 59-7-706 is amended to read:
             502           59-7-706. Distribution and credit of revenues.
             503          [Any revenues] Revenues collected or received by the commission under this part shall
             504      be deposited daily with the state treasurer and distributed and credited as provided in Section
             505      59-10-544 .


             506          Section 9. Section 59-7-707 is amended to read:
             507           59-7-707. Commission rulemaking authority.
             508          [The] In accordance with Title 63G, Chapter 3, Utah Administrative Rulemaking Act,
             509      the commission may [adopt] make rules to implement this part.
             510          Section 10. Section 59-10-103 is amended to read:
             511           59-10-103. Definitions.
             512          (1) As used in this chapter:
             513          (a) "Adjusted gross income":
             514          (i) for a resident or nonresident individual, is as defined in Section 62, Internal
             515      Revenue Code; or
             516          (ii) for a resident or nonresident estate or trust, is as calculated in Section 67(e),
             517      Internal Revenue Code.
             518          (b) "Corporation" includes:
             519          (i) an association;
             520          (ii) a joint stock company; and
             521          (iii) an insurance company.
             522          (c) "Distributable net income" is as defined in Section 643, Internal Revenue Code.
             523          (d) "Employee" is as defined in Section 59-10-401 .
             524          (e) "Employer" is as defined in Section 59-10-401 .
             525          (f) "Federal taxable income":
             526          (i) for a resident or nonresident individual, means taxable income as defined by
             527      Section 63, Internal Revenue Code; or
             528          (ii) for a resident or nonresident estate or trust, is as calculated in Section 641(a) and
             529      (b), Internal Revenue Code.
             530          (g) "Fiduciary" means:
             531          (i) a guardian;
             532          (ii) a trustee;
             533          (iii) an executor;


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


             562      organization described in Subsection (1)(o)(i).
             563          (p) "Qualified nongrantor charitable lead trust" means a trust:
             564          (i) that is irrevocable;
             565          (ii) that has a trust term measured by:
             566          (A) a fixed term of years; or
             567          (B) the life of a person living on the day on which the trust is created;
             568          (iii) under which:
             569          (A) a portion of the value of the trust assets is distributed during the trust term:
             570          (I) to an organization described in Section 170(c), Internal Revenue Code; and
             571          (II) as a:
             572          (Aa) guaranteed annuity interest; or
             573          (Bb) unitrust interest; and
             574          (B) assets remaining in the trust at the termination of the trust term are distributed to a
             575      beneficiary:
             576          (I) designated in the trust; and
             577          (II) that is not an organization described in Section 170(c), Internal Revenue Code;
             578          (iv) for which the trust is allowed a deduction under Section 642(c), Internal Revenue
             579      Code; and
             580          (v) under which the grantor of the trust is not treated as the owner of any portion of the
             581      trust for federal income tax purposes.
             582          (q) (i) "Resident individual" means:
             583          (A) an individual who is domiciled in this state for any period of time during the
             584      taxable year, but only for the duration of the period during which the individual is domiciled
             585      in this state; or
             586          (B) an individual who is not domiciled in this state but:
             587          (I) maintains a permanent place of abode in this state; and
             588          (II) spends in the aggregate 183 or more days of the taxable year in this state.
             589          (ii) For purposes of Subsection (1)(q)(i)(B), a fraction of a calendar day shall be


             590      counted as a whole day.
             591          (r) "Resident estate" or "resident trust" is as defined in Section 75-7-103 .
             592          (s) "Servicemember" is as defined in Pub. L. No. 108-189, Sec. 101.
             593          (t) "State income tax percentage for a nonresident estate or trust" means a percentage
             594      equal to a nonresident estate's or trust's state taxable income for the taxable year divided by the
             595      nonresident estate's or trust's total adjusted gross income for that taxable year after making the
             596      adjustments required by:
             597          (i) Section 59-10-202 ;
             598          (ii) Section 59-10-207 ;
             599          (iii) Section 59-10-209.1 ; or
             600          (iv) Section 59-10-210 .
             601          (u) "State income tax percentage for a nonresident individual" means a percentage
             602      equal to a nonresident individual's state taxable income for the taxable year divided by the
             603      difference between:
             604          (i) subject to Section 59-10-1405 , the nonresident individual's total adjusted gross
             605      income for that taxable year, after making the:
             606          (A) additions and subtractions required by Section 59-10-114 ; and
             607          (B) adjustments required by Section 59-10-115 ; and
             608          (ii) if the nonresident individual described in Subsection (1)(u)(i) is a servicemember,
             609      the compensation the servicemember receives for military service if the servicemember is
             610      serving in compliance with military orders.
             611          (v) "State income tax percentage for a part-year resident individual" means, for a
             612      taxable year, a fraction:
             613          (i) the numerator of which is the sum of:
             614          (A) subject to [Subsections 59-10-1404 (3) and (4)] Section 59-10-1404.5 , for the time
             615      period during the taxable year that the part-year resident individual is a resident, the part-year
             616      resident individual's total adjusted gross income for that time period, after making the:
             617          (I) additions and subtractions required by Section 59-10-114 ; and


             618          (II) adjustments required by Section 59-10-115 ; and
             619          (B) for the time period during the taxable year that the part-year resident individual is
             620      a nonresident, an amount calculated by:
             621          (I) determining the part-year resident individual's adjusted gross income for that time
             622      period, after making the:
             623          (Aa) additions and subtractions required by Section 59-10-114 ; and
             624          (Bb) adjustments required by Section 59-10-115 ; and
             625          (II) calculating the portion of the amount determined under Subsection (1)(v)(i)(B)(I)
             626      that is derived from Utah sources in accordance with Section 59-10-117 ; and
             627          (ii) the denominator of which is the difference between:
             628          (A) the part-year resident individual's total adjusted gross income for that taxable year,
             629      after making the:
             630          (I) additions and subtractions required by Section 59-10-114 ; and
             631          (II) adjustments required by Section 59-10-115 ; and
             632          (B) if the part-year resident individual is a servicemember, any compensation the
             633      servicemember receives for military service during the portion of the taxable year that the
             634      servicemember is a nonresident if the servicemember is serving in compliance with military
             635      orders.
             636          (w) "Taxable income" or "state taxable income":
             637          (i) subject to [Subsection 59-10-1404 (3)] Section 59-10-1404.5 , for a resident
             638      individual, means the resident individual's adjusted gross income after making the:
             639          (A) additions and subtractions required by Section 59-10-114 ; and
             640          (B) adjustments required by Section 59-10-115 ;
             641          (ii) for a nonresident individual, is an amount calculated by:
             642          (A) determining the nonresident individual's adjusted gross income for the taxable
             643      year, after making the:
             644          (I) additions and subtractions required by Section 59-10-114 ; and
             645          (II) adjustments required by Section 59-10-115 ; and


             646          (B) calculating the portion of the amount determined under Subsection (1)(w)(ii)(A)
             647      that is derived from Utah sources in accordance with Section 59-10-117 ;
             648          (iii) for a resident estate or trust, is as calculated under Section 59-10-201.1 ; and
             649          (iv) for a nonresident estate or trust, is as calculated under Section 59-10-204 .
             650          (x) "Taxpayer" means any individual, estate, trust, or beneficiary of an estate or trust,
             651      that has income subject in whole or part to the tax imposed by this chapter.
             652          (y) "Trust term" means a time period:
             653          (i) beginning on the day on which a qualified nongrantor charitable lead trust is
             654      created; and
             655          (ii) ending on the day on which the qualified nongrantor charitable lead trust described
             656      in Subsection (1)(y)(i) terminates.
             657          (z) "Uintah and Ouray Reservation" means the lands recognized as being included
             658      within the Uintah and Ouray Reservation in:
             659          (i) Hagen v. Utah, 510 U.S. 399 (1994); and
             660          (ii) Ute Indian Tribe v. Utah, 114 F.3d 1513 (10th Cir. 1997).
             661          (aa) "Unadjusted income" means an amount equal to the difference between:
             662          (i) the total income required to be reported by a resident or nonresident estate or trust
             663      on the resident or nonresident estate's or trust's federal income tax return for estates and trusts
             664      for the taxable year; and
             665          (ii) the sum of the following:
             666          (A) fees paid or incurred to the fiduciary of a resident or nonresident estate or trust:
             667          (I) for administering the resident or nonresident estate or trust; and
             668          (II) that the resident or nonresident estate or trust deducts 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          (B) the income distribution deduction that a resident or nonresident estate or trust
             672      deducts under Section 651 or 661, Internal Revenue Code, as allowed on the resident or
             673      nonresident estate's or trust's federal income tax return for estates and trusts for the taxable


             674      year;
             675          (C) the amount that a resident or nonresident estate or trust deducts as a deduction for
             676      estate tax or generation skipping transfer tax under Section 691(c), Internal Revenue Code, as
             677      allowed on the resident or nonresident estate's or trust's federal income tax return for estates
             678      and trusts for the taxable year; and
             679          (D) the amount that a resident or nonresident estate or trust deducts as a personal
             680      exemption under Section 642(b), Internal Revenue Code, as allowed on the resident or
             681      nonresident estate's or trust's federal income tax return for estates and trusts for the taxable
             682      year.
             683          (bb) "Unitrust interest" is as defined in 26 C.F.R. Sec. 1.170A-6(c)(2).
             684          (cc) "Ute tribal member" means a person who is enrolled as a member of the Ute
             685      Indian Tribe of the Uintah and Ouray Reservation.
             686          (dd) "Ute tribe" means the Ute Indian Tribe of the Uintah and Ouray Reservation.
             687          (ee) "Wages" is as defined in Section 59-10-401 .
             688          (2) (a) Any term used in this chapter has the same meaning as when used in
             689      comparable context in the laws of the United States relating to federal income taxes unless a
             690      different meaning is clearly required.
             691          (b) Any reference to the Internal Revenue Code or to the laws of the United States
             692      shall mean the Internal Revenue Code or other provisions of the laws of the United States
             693      relating to federal income taxes that are in effect for the taxable year.
             694          (c) Any reference to a specific section of the Internal Revenue Code or other provision
             695      of the laws of the United States relating to federal income taxes shall include any
             696      corresponding or comparable provisions of the Internal Revenue Code as amended,
             697      redesignated, or reenacted.
             698          Section 11. Section 59-10-117 is amended to read:
             699           59-10-117. State taxable income derived from Utah sources.
             700          (1) For purposes of Section 59-10-116 , state taxable income includes those items
             701      includable in state taxable income attributable to or resulting from:


             702          (a) the ownership in this state of any interest in real or tangible personal property,
             703      including real property or property rights from which gross income from mining as defined by
             704      Section 613(c), Internal Revenue Code, is derived; or
             705          (b) the carrying on of a business, trade, profession, or occupation in this state.
             706          (2) For the purposes of Subsection (1):
             707          (a) income from intangible personal property, including annuities, dividends, interest,
             708      and gains from the disposition of intangible personal property shall constitute income derived
             709      from Utah sources only to the extent that the income is from property employed in a trade,
             710      business, profession, or occupation carried on in this state;
             711          (b) a deduction with respect to a capital loss, net long-term capital gain, or net
             712      operating loss shall be based solely on income, gain, loss, and deduction connected with Utah
             713      sources, under rules prescribed by the commission in accordance with Title 63G, Chapter 3,
             714      Utah Administrative Rulemaking Act, but otherwise shall be determined in the same manner
             715      as the corresponding federal deductions;
             716          (c) a salary, wage, commission, or compensation for personal services rendered outside
             717      this state may not be considered to be derived from Utah sources;
             718          (d) a nonresident shareholder's distributive share of ordinary income, gain, loss, and
             719      deduction derived from or connected with Utah sources shall be determined under Section
             720      59-10-118 ;
             721          (e) a nonresident, other than a dealer holding property primarily for sale to customers
             722      in the ordinary course of the dealer's trade or business, may not be considered to carry on a
             723      trade, business, profession, or occupation in this state solely by reason of the purchase or sale
             724      of property for the nonresident's own account;
             725          (f) if a trade, business, profession, or occupation is carried on partly within and partly
             726      without this state, an item of income, gain, loss, or a deduction derived from or connected with
             727      Utah sources shall be determined in accordance with Section 59-10-118 ;
             728          (g) a nonresident partner's distributive share of partnership income, gain, loss, [and]
             729      deduction, or credit derived from or connected with Utah sources shall be determined under


             730      [Section 59-10-1405 ] Part 14, Pass-Through Entities and Pass-Through Entity Taxpayers Act;
             731          (h) the share of a nonresident estate or trust or a nonresident beneficiary of any estate
             732      or trust in income, gain, loss, or deduction derived from or connected with Utah sources shall
             733      be determined under Section 59-10-207 ; and
             734          (i) any dividend, interest, or distributive share of income, gain, or loss from a real
             735      estate investment trust, as defined in Section 59-7-101 , distributed or allocated to a
             736      nonresident investor in the trust, including any shareholder, beneficiary, or owner of a
             737      beneficial interest in the trust, shall be income from intangible personal property under
             738      Subsection (2)(a), and shall constitute income derived from Utah sources only to the extent the
             739      nonresident investor is employing its beneficial interest in the trust in a trade, business,
             740      profession, or occupation carried on by the investor in this state.
             741          Section 12. Section 59-10-507 is amended to read:
             742           59-10-507. Return by a pass-through entity.
             743          (1) As used in this section:
             744          (a) "Pass-through entity" is as defined in Section 59-10-1402 .
             745          (b) "Taxable year" means a year or other time period that would be a taxable year of a
             746      pass-through entity if the pass-through entity were subject to taxation under this chapter.
             747          (2) A pass-through entity having any income derived from or connected with Utah
             748      sources [in this state] shall make a return for the taxable year as prescribed by the commission.
             749          [(3) For purposes of Subsection (2), a pass-through entity's income derived from
             750      sources in this state shall be determined in accordance with the principles of Section
             751      59-10-1405 .]
             752          Section 13. Section 59-10-1103 is amended to read:
             753           59-10-1103. Tax credit for pass-through entity taxpayer.
             754          [(1) (a) A nonresident shareholder of an S corporation]
             755          (1) As used in this section:
             756          (a) "Pass-through entity" is as defined in Section 59-10-1402 .
             757          (b) "Pass-through entity taxpayer" is as defined in Section 59-10-1402 .


             758          (2) A pass-through entity taxpayer may claim a refundable tax credit against the tax
             759      otherwise due under this chapter if that [nonresident shareholder] pass-through entity taxpayer
             760      is a:
             761          [(i)] (a) [nonresident] claimant;
             762          [(ii)] (b) [nonresident] estate; or
             763          [(iii)] (c) [nonresident] trust.
             764          [(b)] (3) The tax credit described in Subsection [(1)(a)] (2) is equal to the amount
             765      paid or withheld by the [S corporation] pass-through entity on behalf of the [nonresident
             766      shareholder] pass-through entity taxpayer described in Subsection [(1)(a)] (2) in accordance
             767      with Section [ 59-7-703 ] 59-10-1403.2 .
             768          [(2) A nonresident shareholder described in Subsection (1)(a) that has no other Utah
             769      source income may elect:]
             770          [(a) not to claim the tax credit provided in Subsection (1); and]
             771          [(b) not to file a tax return under this chapter for the taxable year.]
             772          [(3) If a nonresident shareholder described in Subsection (1)(a) may claim a
             773      nonrefundable tax credit as defined in Section 59-10-1002 or a refundable tax credit other than
             774      the tax credit described in Subsection (1), the nonresident shareholder described in Subsection
             775      (1)(a) shall file a tax return under this chapter to claim those nonrefundable tax credits or
             776      refundable tax credits.]
             777          (4) A pass-through entity taxpayer may not claim a tax credit under this section for an
             778      amount for which the pass-through entity taxpayer claims a tax credit under Section
             779      59-7-614.4 .
             780          Section 14. Section 59-10-1401 is amended to read:
             781     
Part 14. Pass-Through Entities and Pass-Through Entity Taxpayers Act

             782           59-10-1401. Title.
             783          This part is known as the "[Income Tax Treatment of] Pass-Through Entities and
             784      Pass-Through Entity Taxpayers Act."
             785          Section 15. Section 59-10-1402 is amended to read:


             786           59-10-1402. Definitions.
             787          As used in this part:
             788          [(1) "Limited liability company" includes a foreign limited liability company.]
             789          (1) "Addition, subtraction, or adjustment" means:
             790          (a) for a pass-through entity taxpayer that is classified as a C corporation for federal
             791      income tax purposes, under Chapter 7, Corporate Franchise and Income Taxes:
             792          (i) an addition to unadjusted income described in Section 59-7-105 ; or
             793          (ii) a subtraction from unadjusted income described in Section 59-7-106 ;
             794          (b) for a pass-through entity taxpayer that is classified as an individual, partnership, or
             795      S corporation for federal income tax purposes:
             796          (i) an addition to or subtraction from adjusted gross income described in Section
             797      59-10-114 ; or
             798          (ii) an adjustment to adjusted gross income described in Section 59-10-115 ; or
             799          (c) for a pass-through entity taxpayer that is classified as an estate or a trust for federal
             800      income tax purposes:
             801          (i) an addition to or subtraction from unadjusted income described in Section
             802      59-10-202 ; or
             803          (ii) an adjustment to unadjusted income described in Section 59-10-209.1 .
             804          (2) "Business income" means income arising from transactions and activity in the
             805      regular course of a pass-through entity's trade or business and includes income from tangible
             806      and intangible property if the acquisition, management, and disposition of the property
             807      constitutes integral parts of the pass-through entity's regular trade or business operations.
             808          (3) "C corporation" is as defined in Section 1361, Internal Revenue Code.
             809          (4) "Commercial domicile" means the principal place from which the trade or business
             810      of a business entity is directed or managed.
             811          (5) "Derived from or connected with Utah sources" means:
             812          (a) if a pass-through entity taxpayer is classified as a C corporation for federal income
             813      tax purposes, derived from or connected with Utah sources in accordance with Chapter 7, Part


             814      3, Allocation and Apportionment of Income - Utah UDITPA Provisions; or
             815          (b) if a pass-through entity or pass-through entity taxpayer is classified as an estate,
             816      individual, partnership, S corporation, or a trust for federal income tax purposes, derived from
             817      or connected with Utah sources in accordance with Sections 59-10-117 and 59-10-118 .
             818          (6) "Nonbusiness income" means all income of a pass-through entity other than
             819      business income.
             820          (7) "Nonresident business entity" means a business entity that does not have its
             821      commercial domicile in this state.
             822          (8) "Nonresident pass-through entity taxpayer" means a pass-through entity taxpayer
             823      that is a:
             824          (a) nonresident individual; or
             825          (b) nonresident business entity.
             826          [(2)] (9) (a) "Pass-through entity" means a business entity that is:
             827          (i) the following if classified as a partnership for federal income tax purposes:
             828          [(i)] (A) a general partnership;
             829          [(ii)] (B) a limited liability company;
             830          [(iii)] (C) a limited liability partnership; or
             831          [(iv)] (D) a limited partnership; [or]
             832          (ii) an S corporation; or
             833          [(v)] (iii) a business entity similar to [Subsections (2)(a)(i) through (iv)] Subsection
             834      (9)(a)(i) or (ii):
             835          (A) with respect to which the business entity's income [or losses are], gain, loss,
             836      deduction, or credit is divided among and passed through to [taxpayers] one or more
             837      pass-through entity taxpayers; and
             838          (B) as defined by the commission by rule made in accordance with Title 63G, Chapter
             839      3, Utah Administrative Rulemaking Act.
             840          (b) "Pass-through entity" does not include [a trust] an estate or trust that is classified
             841      as an estate or trust for federal income tax purposes.


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


             870          (i) for a resident pass-through entity taxpayer, the resident pass-through entity
             871      taxpayer's distributive share of income, gain, loss, deduction, or credit of the pass-through
             872      entity as determined under Section 704 et seq., Internal Revenue Code; and
             873          (ii) for a nonresident pass-through entity taxpayer, the nonresident pass-through entity
             874      taxpayer's distributive share of income, gain, loss, deduction, or credit of the pass-through
             875      entity:
             876          (A) as determined under Section 704 et seq., Internal Revenue Code; and
             877          (B) derived from or connected with Utah sources; or
             878          (b) for an S corporation:
             879          (i) for a resident pass-through entity taxpayer, the resident pass-through entity
             880      taxpayer's pro rata share of income, gain, loss, deduction, or credit of the S corporation, as
             881      determined under Sec. 1366 et seq., Internal Revenue Code; or
             882          (ii) for a nonresident pass-through entity taxpayer, the nonresident pass-through entity
             883      taxpayer's pro rata share of income, gain, loss, deduction, or credit of the S corporation:
             884          (A) as determined under Section 1366 et seq., Internal Revenue Code; and
             885          (B) derived from or connected with Utah sources.
             886          Section 16. Section 59-10-1403 is amended to read:
             887           59-10-1403. Income tax treatment of a pass-through entity -- Returns --
             888      Classification same as under Internal Revenue Code.
             889          (1) Subject to Subsection (3), a pass-through entity is not subject to a tax imposed by
             890      this chapter.
             891          (2) The income [or losses], gain, loss, deduction, or credit of a pass-through entity
             892      shall be [divided among and] passed through to one or more pass-through entity taxpayers as
             893      provided in this part.
             894          (3) A pass-through entity is subject to the return filing requirements of Section
             895      59-10-507 .
             896          (4) A pass-through entity that [is a limited liability company that] transacts business in
             897      the state shall be classified for purposes of taxation under this title in the same manner as the


             898      [limited liability company] pass-through entity is classified for federal income tax purposes.
             899          Section 17. Section 59-10-1403.1 is enacted to read:
             900          59-10-1403.1. Income tax treatment of a pass-through entity taxpayer -- Return
             901      filing requirements.
             902          (1) Subject to the other provisions of this part, a pass-through entity taxpayer is
             903      subject to taxation:
             904          (a) for a pass-through entity taxpayer that is classified as a C corporation for federal
             905      income tax purposes:
             906          (i) if that pass-through entity taxpayer is a resident pass-through entity taxpayer, as a
             907      domestic corporation is taxed under Chapter 7, Corporate Franchise and Income Taxes; or
             908          (ii) if that pass-through entity taxpayer is a nonresident pass-through entity taxpayer,
             909      as a foreign corporation is taxed under Chapter 7, Corporate Franchise and Income Taxes; or
             910          (b) for a pass-through entity taxpayer that is classified as an estate, individual,
             911      partnership, S corporation, or a trust for federal income tax purposes:
             912          (i) if that pass-through entity taxpayer is a resident pass-through entity taxpayer, as a
             913      resident estate, resident individual, resident partnership, resident S corporation, or resident
             914      trust is taxed under this chapter; or
             915          (ii) if that pass-through entity taxpayer is a nonresident pass-through entity taxpayer,
             916      as a nonresident estate, nonresident individual, nonresident partnership, nonresident S
             917      corporation, or nonresident trust is taxed under this chapter.
             918          (2) A pass-through entity taxpayer is subject to taxation on the pass-through entity
             919      taxpayer's share of income, gain, loss, deduction, or credit of the pass-through entity.
             920          (3) (a) Subject to Subsection (3)(b)(iii), a resident pass-through entity taxpayer shall
             921      file a return:
             922          (i) if the resident pass-through entity taxpayer is classified as a C corporation for
             923      federal income tax purposes, as a domestic corporation under Chapter 7, Corporate Franchise
             924      and Income Taxes; or
             925          (ii) if the resident pass-through entity taxpayer is classified as an estate, individual,


             926      partnership, S corporation, or a trust for federal income tax purposes, as a resident estate,
             927      resident individual, resident partnership, resident S corporation, or resident trust under this
             928      chapter.
             929          (b) (i) Except as provided in Subsection (3)(b)(ii) and subject to Subsection (3)(b)(iii)
             930      or (iv), a nonresident pass-through entity taxpayer shall file a return:
             931          (A) if the nonresident pass-through entity taxpayer is classified as a C corporation for
             932      federal income tax purposes, as a foreign corporation under Chapter 7, Corporate Franchise
             933      and Income Taxes; or
             934          (B) if the nonresident pass-through entity taxpayer is classified as an estate,
             935      individual, partnership, S corporation, or a trust for federal income tax purposes, as a
             936      nonresident estate, nonresident individual, nonresident partnership, nonresident S corporation,
             937      or nonresident trust under this chapter.
             938          (ii) A nonresident pass-through entity taxpayer is not required to file a return if:
             939          (A) the nonresident pass-through entity taxpayer does not have:
             940          (I) for a nonresident pass-through entity taxpayer that is classified as a C corporation
             941      for federal income tax purposes, unadjusted income as defined in Section 59-7-101 derived
             942      from or connected with Utah sources, except for the nonresident pass-through entity taxpayer's
             943      share of income, gain, loss, deduction, or credit of the pass-through entity;
             944          (II) for a nonresident pass-through entity taxpayer that is classified as an individual,
             945      partnership, or S corporation for federal income tax purposes, adjusted gross income derived
             946      from or connected with Utah sources, except for the nonresident pass-through entity taxpayer's
             947      share of income, gain, loss, deduction, or credit of the pass-through entity; or
             948          (III) for a nonresident pass-through entity taxpayer that is classified as an estate or a
             949      trust for federal income tax purposes, unadjusted income as defined in Section 59-10-103
             950      derived from or connected with Utah sources, except for the nonresident pass-through entity
             951      taxpayer's share of income, gain, loss, deduction, or credit of the pass-through entity;
             952          (B) the nonresident pass-through entity taxpayer does not seek to claim a tax credit
             953      allowed against a tax imposed under:


             954          (I) Chapter 7, Corporate Franchise and Income Taxes; or
             955          (II) this chapter;
             956          (C) the pass-through entity pays or withholds a tax on behalf of the nonresident
             957      pass-through entity taxpayer and remits that tax to the commission:
             958          (I) in accordance with Section 59-10-1403.2 ; and
             959          (II) if a nonresident pass-through entity taxpayer is classified as a C corporation for
             960      federal income tax purposes, in an amount that is equal to or greater than the minimum tax
             961      under Section 59-7-104 ; and
             962          (D) the nonresident pass-through entity taxpayer is not a member of a unitary group as
             963      defined in Section 59-7-101 that is required to file a return in this state.
             964          (iii) A nonresident pass-through entity taxpayer that is not otherwise required to file a
             965      return under this Subsection (3) may file a return under:
             966          (A) Chapter 7, Corporate Franchise and Income Taxes; or
             967          (B) this chapter.
             968          (iv) In accordance with Title 63G, Chapter 3, Utah Administrative Rulemaking Act,
             969      the commission may make rules for a pass-through entity taxpayer, except for a pass-through
             970      entity taxpayer who is a resident individual, to file a return under this section if two or more
             971      pass-through entities pay or withhold a tax in accordance with Section 59-10-1403.2 on behalf
             972      of the pass-through entity taxpayer.
             973          Section 18. Section 59-10-1403.2 is enacted to read:
             974          59-10-1403.2. Pass-through entity payment or withholding of tax on behalf of a
             975      pass-through entity taxpayer -- Exceptions to payment or withholding requirement --
             976      Procedures and requirements -- Failure to pay or withhold a tax on behalf of a
             977      pass-through entity taxpayer.
             978          (1) (a) Except as provided in Subsection (1)(b), for a taxable year, a pass-through
             979      entity shall pay or withhold a tax:
             980          (i) on:
             981          (A) the business income of the pass-through entity; and


             982          (B) the nonbusiness income of the pass-through entity derived from or connected with
             983      Utah sources; and
             984          (ii) on behalf of a pass-through entity taxpayer.
             985          (b) A pass-through entity is not required to pay or withhold a tax under Subsection
             986      (1)(a):
             987          (i) on behalf of a pass-through entity taxpayer who is a resident individual;
             988          (ii) if the pass-through entity is an organization exempt from taxation under
             989      Subsection 59-7-102 (1)(a); or
             990          (iii) if the pass-through entity is a publicly traded partnership:
             991          (A) as defined in Section 7704(b), Internal Revenue Code;
             992          (B) that is classified as a partnership for federal income tax purposes; and
             993          (C) that files an annual information return reporting the following with respect to each
             994      partner of the publicly traded partnership with income derived from or connected with Utah
             995      sources that exceeds $500 in a taxable year:
             996          (I) the partner's name;
             997          (II) the partner's address;
             998          (III) the partner's taxpayer identification number; and
             999          (IV) other information required by the commission.
             1000          (2) (a) Subject to Subsection (2)(b), the tax a pass-through entity shall pay or withhold
             1001      on behalf of a pass-through entity taxpayer for a taxable year is an amount:
             1002          (i) determined by the commission by rule made in accordance with Title 63G, Chapter
             1003      3, Utah Administrative Rulemaking Act; and
             1004          (ii) that the commission estimates will be sufficient to pay the tax liability of the
             1005      pass-through entity taxpayer under this chapter with respect to the income described in
             1006      Subsection (1)(a)(i) of that pass-through entity for the taxable year.
             1007          (b) The rules the commission makes in accordance with Subsection (2)(a):
             1008          (i) except as provided in Subsection (2)(c):
             1009          (A) shall:


             1010          (I) for a pass-through entity except for a pass-through entity that is an S corporation,
             1011      take into account items of income, gain, loss, deduction, and credit as analyzed on the
             1012      schedule for reporting partners' distributive share items as part of the federal income tax return
             1013      for the pass-through entity; or
             1014          (II) for a pass-through entity that is an S corporation, take into account items of
             1015      income, gain, loss, deduction, and credit as reconciled on the schedule for reporting
             1016      shareholders' pro rata share items as part of the federal income tax return for the pass-through
             1017      entity; and
             1018          (B) notwithstanding Subsection (2)(b)(ii)(D), take into account the refundable tax
             1019      credit provided in Section 59-6-102 ; and
             1020          (ii) may not take into account the following items if taking those items into account
             1021      does not result in an accurate estimate of a pass-through entity taxpayer's tax liability under
             1022      this chapter for the taxable year:
             1023          (A) a capital loss;
             1024          (B) a passive loss;
             1025          (C) another item of deduction or loss if that item of deduction or loss is generally
             1026      subject to significant reduction or limitation in calculating:
             1027          (I) for a pass-through entity taxpayer that is classified as a C corporation for federal
             1028      income tax purposes, unadjusted income as defined in Section 59-7-101 ;
             1029          (II) for a pass-through entity that is classified as an individual, partnership, or S
             1030      corporation for federal income tax purposes, adjusted gross income; or
             1031          (III) for a pass-through entity that is classified as an estate or a trust for federal income
             1032      tax purposes, unadjusted income as defined in Section 59-10-103 ; or
             1033          (D) a tax credit allowed against a tax imposed under:
             1034          (I) Chapter 7, Corporate Franchise and Income Taxes; or
             1035          (II) this chapter.
             1036          (c) The rules the commission makes in accordance with Subsection (2)(a) may
             1037      establish a method for taking into account items of income, gain, loss, deduction, or credit of a


             1038      pass-through entity if:
             1039          (i) for a pass-through entity except for a pass-through entity that is an S corporation,
             1040      the pass-through entity does not analyze the items of income, gain, loss, deduction, or credit
             1041      on the schedule for reporting partners' distributive share items as part of the federal income tax
             1042      return for the pass-through entity; or
             1043          (ii) for a pass-through entity that is an S corporation, the pass-through entity does not
             1044      reconcile the items of income, gain, loss, deduction, or credit on the schedule for reporting
             1045      shareholders' pro rata share items as part of the federal income tax return for the pass-through
             1046      entity.
             1047          (3) A pass-through entity shall remit to the commission the tax the pass-through entity
             1048      pays or withholds on behalf of a pass-through entity taxpayer under this section:
             1049          (a) on or before the due date of the pass-through entity's return, not including
             1050      extensions; and
             1051          (b) on a form provided by the commission.
             1052          (4) A pass-through entity shall provide a statement to a pass-through entity taxpayer
             1053      on behalf of whom the pass-through entity pays or withholds a tax under this section showing
             1054      the amount of tax the pass-through entity pays or withholds under this section for the taxable
             1055      year on behalf of the pass-through entity taxpayer.
             1056          (5) Notwithstanding Section 59-1-401 or 59-1-402 , the commission may not collect an
             1057      amount under this section for a taxable year from a pass-through entity and shall waive a
             1058      penalty or interest on that amount if:
             1059          (a) the pass-through entity fails to pay or withhold the tax on the amount as required
             1060      by this section on behalf of the pass-through entity taxpayer;
             1061          (b) the pass-through entity taxpayer:
             1062          (i) files a return on or before the due date for filing the pass-through entity's return,
             1063      including extensions; and
             1064          (ii) on or before the due date including extensions described in Subsection (5)(b)(i),
             1065      pays the tax on the amount for the taxable year:


             1066          (A) if the pass-through entity taxpayer is classified as a C corporation for federal
             1067      income tax purposes, under Chapter 7, Corporate Franchise and Income Taxes; or
             1068          (B) if the pass-through entity taxpayer is classified as an estate, individual,
             1069      partnership, S corporation, or a trust for federal income tax purposes, under this chapter; and
             1070          (c) the pass-through entity applies to the commission.
             1071          Section 19. Section 59-10-1404 is amended to read:
             1072           59-10-1404. Character of an item of income, gain, loss, deduction, or credit.
             1073          [(1) Each item of income, gain, loss, or deduction of a pass-through entity has the
             1074      same character for a taxpayer under this chapter as that item of income, gain, loss, or
             1075      deduction has for federal income tax purposes.]
             1076          [(2) If] Regardless of whether or how an item of income, gain, loss, [or] deduction
             1077      [described in Subsection (1) is not], or credit is characterized for federal income tax purposes,
             1078      that item of income, gain, loss, [or] deduction [has the same character for a taxpayer], or credit
             1079      is from the same source and incurred in the same manner for a pass-through entity taxpayer as
             1080      if the item of income, gain, loss, [or] deduction, or credit is:
             1081          [(a)] (1) realized directly from the source from which the item of income, gain, loss,
             1082      [or] deduction, or credit is realized by the pass-through entity; or
             1083          [(b)] (2) incurred in the same manner as incurred by the pass-through entity.
             1084          [(3) In determining state taxable income of a resident taxpayer, any addition or
             1085      subtraction described in Section 59-10-114 that relates to an item of income, gain, loss, or
             1086      deduction of a pass-through entity shall be made in accordance with the taxpayer's distributive
             1087      share:]
             1088          [(a) of the item to which the addition or subtraction relates; and]
             1089          [(b) for federal income tax purposes.]
             1090          [(4) If a taxpayer's distributive share of an item of income, gain, loss, or deduction
             1091      described in Subsection (3) is not required to be taken into account separately for federal
             1092      income tax purposes, the taxpayer's distributive share of that item of income, gain, loss, or
             1093      deduction shall be determined in accordance with that taxpayer's distributive share:]


             1094          [(a) of income or loss relating to the pass-through entity generally; and]
             1095          [(b) for federal income tax purposes.]
             1096          Section 20. Section 59-10-1404.5 is enacted to read:
             1097          59-10-1404.5. Resident pass-through entity taxpayer's share of an addition,
             1098      subtraction, or adjustment that relates to an item of income, gain, loss, deduction, or
             1099      credit of a pass-through entity.
             1100          (1) In determining the taxable income of a resident pass-through entity taxpayer, an
             1101      addition, subtraction, or adjustment that relates to an item of income, gain, loss, deduction, or
             1102      credit of a pass-through entity shall be made in accordance with this section.
             1103          (2) For a resident pass-through entity taxpayer of a pass-through entity except for a
             1104      pass-through entity that is an S corporation, the resident pass-through entity taxpayer's share
             1105      of an addition, subtraction, or adjustment that relates to an item of income, gain, loss,
             1106      deduction, or credit is:
             1107          (a) if the item of income, gain, loss, deduction, or credit is required to be taken into
             1108      account separately for federal income tax purposes, the resident pass-through entity taxpayer's
             1109      distributive share of the item of income, gain, loss, deduction, or credit:
             1110          (i) for federal income tax purposes; and
             1111          (ii) determined under Section 704 et seq., Internal Revenue Code; or
             1112          (b) if the item of income, gain, loss, deduction, or credit is not required to be taken
             1113      into account separately for federal income tax purposes, determined in accordance with the
             1114      resident pass-through entity taxpayer's distributive share of income, gain, loss, deduction, or
             1115      credit:
             1116          (i) relating to the pass-through entity generally;
             1117          (ii) for federal income tax purposes; and
             1118          (iii) under Section 704 et seq., Internal Revenue Code.
             1119          (3) For a resident pass-through entity taxpayer of a pass-through entity that is an S
             1120      corporation, the resident pass-through entity taxpayer's share of an addition, subtraction, or
             1121      adjustment that relates to an item of income, gain, loss, deduction, or credit is:


             1122          (a) if the item of income, gain, loss, deduction, or credit is required to be taken into
             1123      account separately for federal income tax purposes, the resident pass-through entity taxpayer's
             1124      pro rata share of the item of income, gain, loss, deduction, or credit:
             1125          (i) for federal income tax purposes; and
             1126          (ii) determined under Section 1366 et seq., Internal Revenue Code; or
             1127          (b) if the item of income, gain, loss, deduction, or credit is not required to be taken
             1128      into account separately for federal income tax purposes, determined in accordance with the
             1129      resident pass-through entity taxpayer's pro rata share of the item of income, gain, loss,
             1130      deduction, or credit:
             1131          (i) relating to the pass-through entity generally;
             1132          (ii) for federal income tax purposes; and
             1133          (iii) under Section 1366 et seq., Internal Revenue Code.
             1134          Section 21. Section 59-10-1405 is amended to read:
             1135           59-10-1405. Nonresident pass-through entity taxpayer's share of an addition,
             1136      subtraction, or adjustment that relates to an item of income, gain, loss, deduction, or
             1137      credit of a pass-through entity -- In determining source of nonresident pass-through
             1138      entity taxpayer's income certain provisions of pass-through entity agreement may not be
             1139      considered -- Rulemaking authority.
             1140          [(1) Subject to Subsection (2), the adjusted gross income of a nonresident taxpayer
             1141      shall be adjusted by only that portion of the taxpayer's distributive share of an item of income,
             1142      gain, loss, or deduction of a pass-through entity derived from or connected with sources in this
             1143      state.]
             1144          [(2) In accordance with Title 63G, Chapter 3, Utah Administrative Rulemaking Act,
             1145      the commission may make rules for determining the adjustment required by Subsection (1) if
             1146      those rules are consistent with the principles of Section 59-10-116 .]
             1147          (1) (a) Except as provided in Subsection (3), in determining the taxable income of a
             1148      nonresident pass-through entity taxpayer, an addition, subtraction, or adjustment that relates to
             1149      an item of income, gain, loss, deduction, or credit of a pass-through entity shall be made in


             1150      accordance with this Subsection (1).
             1151          (b) For a nonresident pass-through entity taxpayer of a pass-through entity except for a
             1152      pass-through entity that is an S corporation, the nonresident pass-through entity taxpayer's
             1153      share of an addition, subtraction, or adjustment that relates to an item of income, gain, loss,
             1154      deduction, or credit is:
             1155          (i) if the item of income, gain, loss, deduction, or credit is required to be taken into
             1156      account separately for federal income tax purposes, the nonresident pass-through entity
             1157      taxpayer's distributive share of the item of income, gain, loss, deduction, or credit:
             1158          (A) for federal income tax purposes;
             1159          (B) determined under Section 704 et seq., Internal Revenue Code; and
             1160          (C) derived from or connected with Utah sources; or
             1161          (ii) if the item of income, gain, loss, deduction, or credit is not required to be taken
             1162      into account separately for federal income tax purposes, determined in accordance with the
             1163      nonresident pass-through entity taxpayer's distributive share of income, gain, loss, deduction,
             1164      or credit:
             1165          (A) relating to the pass-through entity generally;
             1166          (B) for federal income tax purposes;
             1167          (C) under Section 704 et seq., Internal Revenue Code; and
             1168          (D) derived from or connected with Utah sources.
             1169          (c) For a nonresident pass-through entity taxpayer of a pass-through entity that is an S
             1170      corporation, the nonresident pass-through entity taxpayer's share of an addition, subtraction, or
             1171      adjustment that relates to an item of income, gain, loss, deduction, or credit is:
             1172          (i) if the item of income, gain, loss, deduction, or credit is required to be taken into
             1173      account separately for federal income tax purposes, the nonresident pass-through entity
             1174      taxpayer's pro rata share of the item of income, gain, loss, deduction, or credit:
             1175          (A) for federal income tax purposes;
             1176          (B) determined under Section 1366 et seq., Internal Revenue Code; and
             1177          (C) derived from or connected with Utah sources; or


             1178          (ii) if the item of income, gain, loss, deduction, or credit is not required to be taken
             1179      into account separately for federal income tax purposes, determined in accordance with the
             1180      nonresident pass-through entity taxpayer's pro rata share of the item of income, gain, loss,
             1181      deduction, or credit:
             1182          (A) relating to the pass-through entity generally;
             1183          (B) for federal income tax purposes;
             1184          (C) under Section 1366 et seq., Internal Revenue Code; and
             1185          (D) derived from or connected with Utah sources.
             1186          [(3)] (2) In determining the source of a nonresident pass-through entity taxpayer's
             1187      income, the following provisions in a pass-through entity agreement may not be considered:
             1188          [(a) a provision that characterizes a payment to the taxpayer as being for:]
             1189          [(i) a service; or]
             1190          [(ii) the use of capital;]
             1191          [(b) except as provided in Subsection (5),]
             1192          (a) a provision that allocates to the nonresident pass-through entity taxpayer, as
             1193      income [or], gain, or credit from a source outside this state, a greater proportion of the
             1194      nonresident pass-through entity taxpayer's [distributive] share of income [or], gain, or credit of
             1195      the pass-through entity than the ratio of income [or], gain, or credit of the pass-through entity
             1196      from sources outside this state to income [or], gain, or credit of the pass-through entity from
             1197      all sources; or
             1198          [(c) except as provided in Subsection (5),]
             1199          (b) a provision that allocates to the nonresident pass-through entity taxpayer a greater
             1200      proportion of an item of loss or deduction of the pass-through entity derived from or connected
             1201      with Utah sources [in this state] than the taxpayer's [proportionate] share of loss or deduction
             1202      generally:
             1203          (i) relating to the pass-through entity; and
             1204          (ii) for federal income tax purposes.
             1205          [(4) Any addition or subtraction described in Section 59-10-114 that relates to an item


             1206      of income, gain, loss, or deduction of a pass-through entity shall be made in accordance with
             1207      the taxpayer's distributive share:]
             1208          [(a) of the portion of the item of income, gain, loss, or deduction required to be added
             1209      or subtracted under Section 59-10-114 that is derived from or connected with sources in the
             1210      state; and]
             1211          [(b) for federal income tax purposes.]
             1212          [(5) (a) Subject to Subsection (5)(b), the]
             1213          (3) The commission may by rule, made in accordance with Title 63G, Chapter 3, Utah
             1214      Administrative Rulemaking Act, [authorize the use of one or more methods, other than a
             1215      method described in Subsections (1) through (4), for determining: (i) a nonresident taxpayer's
             1216      portion of an] authorize the use of a calculation other than the calculation provided in
             1217      Subsection (1), for determining a nonresident pass-through entity taxpayer's share of an
             1218      addition, subtraction, or adjustment that relates to an item of income, gain, loss, [or]
             1219      deduction, or credit of a pass-through entity derived from or connected with [sources in the
             1220      state; and] Utah sources if:
             1221          [(ii) the portion of an item of income, gain, loss, or deduction required to be added or
             1222      subtracted under Section 59-10-114 that is derived from or connected with sources in the
             1223      state.]
             1224          [(b) For purposes of Subsection (5)(a), the commission may authorize the use of one
             1225      or more methods, other than a method described in Subsections (1) through (4), if:]
             1226          [(i) the commission finds that the use of the method is appropriate and equitable; and]
             1227          [(ii) the taxpayer applies to the commission.]
             1228          [(6) (a) A nonresident taxpayer's distributive share of an item of income, gain, loss, or
             1229      deduction shall be determined in accordance with the principles of Subsections 59-10-1404 (3)
             1230      and (4).]
             1231          [(b) The character of an item of income, gain, loss, or deduction for a nonresident
             1232      taxpayer shall be determined in accordance with the principles of Subsections 59-10-1404 (1)
             1233      and (2).]


             1234          (a) the nonresident pass-through entity taxpayer applies to the commission; and
             1235          (b) the commission finds that the use of the calculation is appropriate and equitable.
             1236          Section 22. Repealer.
             1237          This bill repeals:
             1238          Section 48-2c-117, Taxation of limited liability companies.
             1239          Section 59-7-702, Taxation of shareholders.
             1240          Section 59-7-703, Payment or withholding of tax on behalf of nonresident
             1241      shareholders -- Rate.
             1242          Section 59-7-704, Amount taxable.
             1243          Section 23. Effective date -- Retrospective operation.
             1244          This bill:
             1245          (1) if approved by two-thirds of all the members elected to each house, takes effect
             1246      upon approval by the governor, or the day following the constitutional time limit of Utah
             1247      Constitution Article VII, Section 8, without the governor's signature, or in the case of a veto,
             1248      the date of veto override; and
             1249          (2) has retrospective operation for a taxable year beginning on or after January 1,
             1250      2009.
             1251          Section 24. Revisor instructions.
             1252          It is the intent of the Legislature that, in preparing the Utah Code database for
             1253      publication, the Office of Legislative Research and General Counsel shall replace the reference
             1254      in Subsection 59-7-701 (9) from "this bill" to the bill's designated chapter and section number
             1255      in the Laws of Utah.


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