H.B. 436

1

LIFE SCIENCE DEVELOPMENT ACT
2 2011 GENERAL SESSION
3 STATE OF UTAH
4 Chief Sponsor: David Clark
5 Senate Sponsor: ____________
6
7 LONG TITLE
8 General Description:
9 This bill provides for tax credits related to certain life science companies.
10 Highlighted Provisions:
11 This bill:
12 . enacts a nonrefundable income tax credit related to the purchase of an ownership
13 interest in certain business entities;
14 . amends a nonrefundable income tax credit related to certain capital gain
15 transactions; and
16 . makes technical and conforming changes.
17 Money Appropriated in this Bill:
18 None
19 Other Special Clauses:
20 This bill provides for retrospective operation for a taxable year beginning on or after
21 January 1, 2011.
22 Utah Code Sections Affected:
23 AMENDS:
24 59-10-1022, as enacted by Laws of Utah 2008, Chapter 389
25 ENACTS:
26 59-10-1025, Utah Code Annotated 1953
27

28 Be it enacted by the Legislature of the state of Utah:
29 Section 1. Section 59-10-1022 is amended to read:
30 59-10-1022. Nonrefundable tax credit for capital gain transactions.
31 (1) As used in this section:
32 (a) (i) "Capital gain transaction" means a transaction that results in a:
33 (A) short-term capital gain; or
34 (B) long-term capital gain.
35 (ii) In accordance with Title 63G, Chapter 3, Utah Administrative Rulemaking Act, the
36 commission may by rule define the term "transaction."
37 (b) "Commercial domicile" means the principal place from which the trade or business
38 of a Utah small business corporation is directed or managed.
39 (c) "Long-term capital gain" is as defined in Section 1222, Internal Revenue Code.
40 (d) "Qualifying [stock"] ownership interest" means [stock that is] an ownership interest
41 that is:
42 (i) (A) common stock; [or]
43 (B) preferred stock; or
44 (C) an ownership interest in a limited liability company or a limited liability
45 partnership;
46 (ii) [as defined by the commission by rule made in accordance with Title 63G, Chapter
47 3, Utah Administrative Rulemaking Act,] originally issued to:
48 (A) a claimant, estate, or trust; [or]
49 (B) a partnership if the claimant, estate, or trust that claims a tax credit under this
50 section[: (I)] was a partner on the day on which the [stock] qualifying ownership interest was
51 issued[;] and [(II)] remains a partner until the last day of the taxable year for which the
52 claimant, estate, or trust claims a tax credit under this section; [and] or
53 (C) a limited liability company or a limited liability partnership if the claimant, estate,
54 or trust that claims a tax credit under this section was an owner on the day on which the
55 qualifying ownership interest was issued and remains an owner until the last day of the taxable
56 year for which the claimant, estate, or trust claims a tax credit under this section; and
57 (iii) issued:
58 (A) by a Utah small business corporation;

59 (B) on or after January 1, 2008; and
60 (C) for[: (I)] money[;] or [(II)] other property, except for stock or securities.
61 (e) "Short-term capital gain" is as defined in Section 1222, Internal Revenue Code.
62 (f) (i) "Utah small business corporation" means a corporation that:
63 (A) except as provided in Subsection (1)(f)(ii), is a small business corporation as
64 defined in Section 1244(c)(3), Internal Revenue Code;
65 (B) except as provided in Subsection (1)(f)(iii), meets the requirements of Section
66 1244(c)(1)(C), Internal Revenue Code; and
67 (C) has its commercial domicile in this state.
68 (ii) For purposes of this section:
69 [(ii) The] (A) the dollar amount listed in Section 1244(c)(3)(A), Internal Revenue
70 Code, is considered to be $2,500,000[.]; and
71 (B) a corporation under Section 1244(c)(3)(A), Internal Revenue Code, is considered to
72 include a limited liability company and a limited liability partnership.
73 (iii) The phrase "the date the loss on such stock was sustained" in Sections
74 1244(c)(1)(C) and 1244(c)(2), Internal Revenue Code, is considered to be "the last day of the
75 taxable year for which the claimant, estate, or trust claims a tax credit under this section."
76 (2) For a taxable [years] year beginning on or after January 1, [2008] 2011, a claimant,
77 estate, or trust that, except as provided in Subsection (4), meets the requirements of Subsection
78 (3) may claim a nonrefundable tax credit equal to the product of:
79 (a) the total amount of the claimant's, estate's, or trust's short-term capital gain or
80 long-term capital gain on a capital gain transaction that occurs on or after January 1, [2008]
81 2011; and
82 (b) [5%] the tax rate imposed under Section 59-10-104 (2)(b).
83 (3) [For] Except as provided in Subsection (4), for purposes of Subsection (2), a
84 claimant, estate, or trust may claim the nonrefundable tax credit allowed by Subsection (2) if:
85 (a) 70% or more of the gross proceeds of the capital gain transaction are expended:
86 (i) to purchase a qualifying [stock] ownership interest in a Utah small business
87 corporation; and
88 (ii) within a 12-month period after the day on which the capital gain transaction occurs;
89 and

90 (b) prior to the purchase of the qualifying [stock] ownership interest described in
91 Subsection (3)(a)(i), the claimant, estate, or trust did not have an ownership interest in the Utah
92 small business corporation that issued the qualifying [stock] ownership interest.
93 (4) Notwithstanding Subsection (3), a claimant, estate, or trust may claim the
94 nonrefundable tax credit allowed by Subsection (2) if:
95 (a) the gross proceeds of the capital gain transaction result from the sale of qualifying
96 ownership interest:
97 (i) held for at least two years prior to the sale of the qualifying ownership interest; and
98 (ii) in a Utah small business corporation described in one of the following NAICS
99 codes of the 2007 North American Industry Classification System of the federal Executive
100 Office of the President, Office of Management and Budget:
101 (A) NAICS Code 33911, Medical Equipment and Supplies Manufacturing;
102 (B) NAICS Code 334510, Electromedical and Electrotherapeutic Apparatus
103 Manufacturing; or
104 (C) NAICS Code 334517, Irradiation Apparatus Manufacturing; and
105 (b) on the last day of the taxable year of the capital gain transaction, the Utah small
106 business corporation has at least 50% of its employees in the state.
107 [(4)] (5) A claimant, estate, or trust may not carry forward or carry back a tax credit
108 under this section.
109 [(5)] (6) In accordance with Title 63G, Chapter 3, Utah Administrative Rulemaking
110 Act, the commission may make rules:
111 (a) defining the term "gross proceeds"; and
112 (b) prescribing the circumstances under which a claimant, estate, or trust has an
113 ownership interest in a Utah small business corporation.
114 Section 2. Section 59-10-1025 is enacted to read:
115 59-10-1025. Nonrefundable tax credit for investment in certain businesses.
116 (1) As used in this section:
117 (a) "Commercial domicile" means the principal place from which the trade or business
118 of a Utah small business corporation is directed or managed.
119 (b) "Qualifying ownership interest" means an ownership interest that is:
120 (i) (A) common stock;

121 (B) preferred stock; or
122 (C) an ownership interest in a limited liability company or a limited liability
123 partnership;
124 (ii) originally issued to:
125 (A) a claimant, estate, or trust;
126 (B) a partnership if the claimant, estate, or trust that claims a tax credit under this
127 section was a partner on the day on which the stock was issued and remains a partner until the
128 last day of the taxable year for which the claimant, estate, or trust claims a tax credit under this
129 section; or
130 (C) a limited liability company or a limited liability partnership if the claimant, estate,
131 or trust that claims a tax credit under this section was an owner on the day on which the
132 qualifying ownership interest was issued and remains an owner until the last day of the taxable
133 year for which the claimant, estate, or trust claims a tax credit under this section; and
134 (iii) issued:
135 (A) by a Utah small business corporation;
136 (B) on or after January 1, 2011; and
137 (C) for money or other property, except for stock or securities.
138 (c) (i) "Utah small business corporation" means a corporation that:
139 (A) except as provided in Subsection (1)(c)(ii), is a small business corporation as
140 defined in Section 1244(c)(3), Internal Revenue Code;
141 (B) except as provided in Subsection (1)(c)(iii), meets the requirements of Section
142 1244(c)(1)(C), Internal Revenue Code; and
143 (C) has its commercial domicile in this state.
144 (ii) For purposes of this section:
145 (A) the dollar amount listed in Section 1244(c)(3)(A), Internal Revenue Code, is
146 considered to be $2,500,000; and
147 (B) a corporation under Section 1244(c)(3)(A), Internal Revenue Code, is considered to
148 include a limited liability company and a limited liability partnership.
149 (iii) The phrase "the date the loss on such stock was sustained" in Sections
150 1244(c)(1)(C) and 1244(c)(2), Internal Revenue Code, is considered to be "the last day of the
151 taxable year for which the claimant, estate, or trust claims a tax credit under this section."

152 (2) Except as provided in Subsection (3), for a taxable year beginning on or after
153 January 1, 2011, a claimant, estate, or trust may claim a nonrefundable tax credit in an amount
154 equal to 35% of the purchase price of a qualifying ownership interest if:
155 (a) the qualifying ownership interest is issued by a Utah small business corporation
156 described in one of the following NAICS codes of the 2007 North American Industry
157 Classification System of the federal Executive Office of the President, Office of Management
158 and Budget:
159 (i) NAICS Code 33911, Medical Equipment and Supplies Manufacturing;
160 (ii) NAICS Code 334510, Electromedical and Electrotherapeutic Apparatus
161 Manufacturing; or
162 (iii) NAICS Code 334517, Irradiation Apparatus Manufacturing;
163 (b) the qualifying ownership interest in the Utah small business corporation is
164 purchased for at least $25,000;
165 (c) the claimant, estate, or trust owned less than 30% of the qualifying ownership
166 interest of the Utah small business corporation at the time of the purchase of the qualifying
167 ownership interest; and
168 (d) on the last day of the taxable year of the purchase of the qualifying ownership
169 interest, the Utah small business corporation has at least 50% of its employees in the state.
170 (3) Except as provided in Subsection (4), the tax credit under Subsection (2):
171 (a) may be carried forward for two years from the year of the purchase of the qualifying
172 ownership interest;
173 (b) (i) may not exceed 10% of the purchase price of the qualifying ownership interest
174 in:
175 (A) the year of the purchase of the qualifying ownership interest; and
176 (B) the year after the year described in Subsection (3)(b)(i)(A); and
177 (ii) may not exceed 15% of the purchase price of the qualifying ownership interest in
178 the year two years after the year described in Subsection (3)(b)(i)(A); and
179 (c) may not exceed $350,000 in a year.
180 (4) A claimant, estate, or trust may not claim a tax credit under this section for a
181 taxable year if the claimant, estate, or trust has sold any of the qualifying ownership interest
182 during the taxable year.

183 (5) If a Utah small business corporation from which a claimant, estate, or trust
184 purchases qualifying ownership interest fails, dissolves, or otherwise goes out of business, the
185 claimant, estate, or trust may not claim both the credit provided in Subsection (2) and a capital
186 loss on the qualifying ownership interest.
187 (6) A claimant, estate, or trust may not carry back a credit under this section.
188 Section 3. Effective date.
189 This bill provides for retrospective operation for a taxable year beginning on or after
190 January 1, 2011.




Legislative Review Note
as of 2-25-11 2:17 PM

Office of Legislative Research and General Counsel