INCOME TAX AMENDMENTS
2020 SIXTH SPECIAL SESSION STATE OF UTAH
Chief Sponsor: Wayne A. Harper
House Sponsor: Robert M. Spendlove
LONG TITLE
General Description:
This bill modifies income tax provisions to provide that certain amounts received in response to COVID-19 are not subject to state income tax.
Highlighted Provisions:
This bill:
provides that certain amounts received from a forgiven loan under the Paycheck
Protection Program or similar program are exempt from state corporate franchise and income tax by:
modifying the definition of "unadjusted income"; and
creating a subtraction from unadjusted income;
provides that a grant or a forgiven loan provided by the state, a county within the state, or a municipality within the state in response to COVID-19 using certain federal funds is exempt from state corporate franchise and income tax by creating a subtraction from unadjusted income;
provides that certain amounts received from a forgiven loan under the Paycheck Protection Program or similar program and an amount received as an individual recovery rebate are exempt from state individual income tax by:
modifying the definition of "adjusted gross income"; and
creating a subtraction from adjusted gross income;
provides that a grant or a forgiven loan provided by the state, a county within the state, or a municipality within the state in response to COVID-19 using certain federal funds is exempt from state individual income tax by creating a subtraction from adjusted gross income; and
makes technical changes.
Money Appropriated in this Bill:
None
Other Special Clauses:
This bill provides a special effective date. This bill provides retrospective operation.
Utah Code Sections Affected:
AMENDS:
59-7-101, as last amended by Laws of Utah 2019, Chapters 11, 418, and 466
59-7-106, as last amended by Laws of Utah 2020, Fifth Special Session, Chapter 12
59-7-402, as last amended by Laws of Utah 2019, Chapters 418 and 466
59-10-103, as last amended by Laws of Utah 2019, Chapter 323
59-10-114, as last amended by Laws of Utah 2020, Fifth Special Session, Chapter 12
Be it enacted by the Legislature of the state of Utah:
Section 1. Section 59-7-101 is amended to read:
59-7-101. Definitions.
As used in this chapter:
(1) "Adjusted income" means unadjusted income as modified by Sections 59-7-105 and 59-7-106.
(2)(a) "Affiliated group" means one or more chains of corporations that are connected through stock ownership with a common parent corporation that meet the following requirements:
(i) at least 80% of the stock of each of the corporations in the group, excluding the common parent corporation, is owned by one or more of the other corporations in the group; and
(ii) the common parent directly owns at least 80% of the stock of at least one of the corporations in the group.
(b) "Affiliated group" does not include corporations that are qualified to do business but are not otherwise doing business in this state.
(c) For purposes of this Subsection (2), "stock" does not include nonvoting stock which is limited and preferred as to dividends.
(3) "Apportionable income" means adjusted income less nonbusiness income net of related expenses, to the extent included in adjusted income.
(4) "Apportioned income" means apportionable income multiplied by the apportionment fraction as determined in Section 59-7-311.
(5) "Business income" means the same as that term is defined in Section 59-7-302.
(6) "Captive insurance company" means the same as that term is defined in Section 31A-1-301.
(7)(a) "Captive real estate investment trust" means a real estate investment trust if:
(i) the shares or beneficial interests of the real estate investment trust are not regularly traded on an established securities market; and
(ii) more than 50% of the voting power or value of the shares or beneficial interests of the real estate investment trust are directly, indirectly, or constructively:
(A) owned by a controlling entity of the real estate investment trust; or
(B) controlled by a controlling entity of the real estate investment trust.
(b) In accordance with Title 63G, Chapter 3, Utah Administrative Rulemaking Act, the commission may make rules defining "established securities market."
(8)(a) "Common ownership" means the direct or indirect control or ownership of more than 50% of the outstanding voting stock of:
(i) a parent-subsidiary controlled group as defined in Section 1563, Internal Revenue Code, except that 50% shall be substituted for 80%;
(ii) a brother-sister controlled group as defined in Section 1563, Internal Revenue Code; or
(iii) three or more corporations each of which is a member of a group of corporations described in Subsection (2)(a)(i) or (ii), and one of which is:
(A) a common parent corporation included in a group of corporations described in Subsection (2)(a)(i); and
(B) included in a group of corporations described in Subsection (2)(a)(ii).
(b) Ownership of outstanding voting stock shall be determined by Section 1563, Internal Revenue Code.
(9)(a) "Controlling entity of a captive real estate investment trust" means an entity that:
(i) is treated as an association taxable as a corporation under the Internal Revenue Code;
(ii) is not exempt from federal income taxation under Section 501(a), Internal Revenue Code; and
(iii) directly, indirectly, or constructively holds more than 50% of:
(A) the voting power of a captive real estate investment trust; or
(B) the value of the shares or beneficial interests of a captive real estate investment trust.
(b) "Controlling entity of a captive real estate investment trust" does not include:
(i) a real estate investment trust, except for a captive real estate investment trust;
(ii) a qualified real estate investment subsidiary described in Section 856(i), Internal Revenue Code, except for a qualified real estate investment trust subsidiary of a captive real estate investment trust; or
(iii) a foreign real estate investment trust.
(c) In accordance with Title 63G, Chapter 3, Utah Administrative Rulemaking Act, the commission may make rules defining "established securities market."
(10) "Corporate return" or "return" includes a combined report.
(11) "Corporation" includes:
(a) entities defined as corporations under Sections 7701(a) and 7704, Internal Revenue Code; and
(b) other organizations that are taxed as corporations for federal income tax purposes under the Internal Revenue Code.
(12) "COVID-19" means:
(a) the severe acute respiratory syndrome coronavirus 2; or
(b) the disease caused by severe acute respiratory syndrome coronavirus 2.
[(12)](13) "Dividend" means any distribution, including money or other type of property, made by a corporation to its shareholders out of its earnings or profits accumulated after December 31, 1930.
[(13)](14)(a) "Doing business" includes any transaction in the course of business by a domestic corporation or by a foreign corporation qualified to do or doing business in this state.
(b) Except as provided in Subsection [(13)] (14)(c) or Subsection 59-7-102(3), "doing business" includes:
(i) the right to do business through incorporation or qualification;
(ii) owning, renting, or leasing of real or personal property within this state;
(iii) the participation in joint ventures, working and operating agreements, the performance of which takes place in this state;
(iv) selling or performing a service in this state; and
(v) earning income from the use of intangible property in this state.
(c) "Doing business" does not include the business activity of a corporation if the corporation's only business activity within the state is the solicitation of orders for sales of tangible personal property that are protected under 15 U.S.C. Secs. 381 through 384.
[(14)](15) "Domestic corporation" means a corporation that is incorporated or organized under the laws of this state.
[(15)](16) "Exercising a corporate franchise" does not include the business activity of a corporation if the corporation's only business activity within the state is the solicitation of orders for sales of tangible personal property that are protected under 15 U.S.C. Secs. 381 through 384.
[(16)](17)(a) "Farmers' cooperative" means an association, corporation, or other organization that is:
(i)(A) an association, corporation, or other organization of farmers or fruit growers; or
(B) an association, corporation, or other organization that is similar to an association, corporation, or organization described in Subsection [(16)] (17)(a)(i)(A); and
(ii) organized and operated on a cooperative basis to:
(A)(I) market the products of members of the cooperative or the products of other producers; and
(II) return to the members of the cooperative or other producers the proceeds of sales less necessary marketing expenses on the basis of the quantity of the products of a member or producer or the value of the products of a member or producer; or
(B)(I) purchase supplies and equipment for the use of members of the cooperative or other persons; and
(II) turn over the supplies and equipment described in Subsection [(16)] (17)(a)(ii)(B)(I) at actual costs plus necessary expenses to the members of the cooperative or other persons.
(b)(i) Subject to Subsection [(16)] (17)(b)(ii), for purposes of this Subsection [(16)] (17), the commission by rule, made in accordance with Title 63G, Chapter 3, Utah Administrative Rulemaking Act, shall define:
(A) the terms "member" and "producer"; and
(B) what constitutes an association, corporation, or other organization that is similar to an association, corporation, or organization described in Subsection [(16)] (17)(a)(i)(A).
(ii) The rules made under this Subsection [(16)] (17)(b) shall be consistent with the filing requirements under federal law for a farmers' cooperative.
[(17)](18) "Foreign corporation" means a corporation that is not incorporated or organized under the laws of this state.
[(18)](19)(a) "Foreign operating company" means a corporation that:
(i) is incorporated in the United States;
(ii) conducts at least 80% of the corporation's business activity, as determined under Section 59-7-401, outside the United States; and
(iii) as calculated in accordance with Part 3, Allocation and Apportionment of Income — Utah UDITPA Provisions, has:
(A) at least $1,000,000 of payroll located outside the United States; and
(B) at least $2,000,000 of property located outside the United States.
(b) "Foreign operating company" does not include a corporation that qualifies for the Puerto Rico and possession tax credit as provided in Section 936, Internal Revenue Code.
[(19)] (20)(a) "Foreign real estate investment trust" means:
(i) a business entity organized outside the laws of the United States if:
(A) at least 75% of the business entity's total asset value at the close of the business entity's taxable year is represented by:
(I) real estate assets, as defined in Section 856(c)(5)(B), Internal Revenue Code;
(II) cash or cash equivalents; or
(III) one or more securities issued or guaranteed by the United States;
(B) the business entity is:
(I) not subject to income taxation:
(Aa) on amounts distributed to the business entity's beneficial owners; and
(Bb) in the jurisdiction in which the business entity is organized; or
(II) exempt from income taxation on an entity level in the jurisdiction in which the business entity is organized;
(C) the business entity distributes at least 85% of the business entity's taxable income, as computed in the jurisdiction in which the business entity is organized, to the holders of the business entity's:
(I) shares or beneficial interests; and
(II) on an annual basis;
(D)(I) not more than 10% of the following is held directly, indirectly, or constructively by a single person:
(Aa) the voting power of the business entity; or
(Bb) the value of the shares or beneficial interests of the business entity; or
(II) the shares of the business entity are regularly traded on an established securities market; and
(E) the business entity is organized in a country that has a tax treaty with the United States; or
(ii) a listed Australian property trust.
(b) In accordance with Title 63G, Chapter 3, Utah Administrative Rulemaking Act, the commission may make rules defining:
(i) "cash or cash equivalents";
(ii) "established securities market"; or
(iii) "listed Australian property trust."
[(20)] (21) "Income" includes losses.
[(21)](22) "Internal Revenue Code" means Title 26 of the United States Code as effective during the year in which Utah taxable income is determined.
[(22)](23) "Nonbusiness income" means the same as that term is defined in Section 59-7-302.
[(23)](24) "Real estate investment trust" means the same as that term is defined in Section 856, Internal Revenue Code.
[(24)](25) "Related expenses" means:
(a) expenses directly attributable to nonbusiness income; and
(b) the portion of interest or other expense indirectly attributable to both nonbusiness and business income that bears the same ratio to the aggregate amount of such interest or other expense, determined without regard to this Subsection [(24)] (25), as the average amount of the asset producing the nonbusiness income bears to the average amount of all assets of the taxpayer within the taxable year.
[(25)](26) "S corporation" means an S corporation as defined in Section 1361, Internal Revenue Code.
[(26)](27) "Safe harbor lease" means a lease that qualified as a safe harbor lease under Section 168, Internal Revenue Code.
[(27)](28) "State of the United States" includes any of the 50 states or the District of Columbia.
[(28)](29)(a) "Taxable year" means the calendar year or the fiscal year ending during such calendar year upon the basis of which the adjusted income is computed.
(b) In the case of a return made for a fractional part of a year under this chapter or under rules prescribed by the commission, "taxable year" includes the period for which such return is made.
[(29)](30) "Taxpayer" means any corporation subject to the tax imposed by this chapter.
[(30)](31) "Threshold level of business activity" means business activity in the United States equal to or greater than 20% of the corporation's total business activity as determined under Section 59-7-401.
[(31)](32)(a) "Unadjusted income" means federal taxable income as determined on a separate return basis before intercompany eliminations as determined by the Internal Revenue Code, before the net operating loss deduction and special deductions for dividends received.
(b) "Unadjusted income" includes deferred foreign income described in Section 965(a), Internal Revenue Code.
(c) "Unadjusted income" does not include income received from:
(i) a loan forgiven in accordance with 15 U.S.C. Sec. 636(a)(36), to the extent that a deduction for the expenditures paid with the loan is disallowed; or
(ii) a similar paycheck protection loan that is:
(A) authorized by the federal government;
(B) provided in response to COVID-19;
(C) forgiven if the borrower meets the expenditure requirements; and
(D) exempt from federal income tax, to the extent that a deduction for the expenditures paid with the loan is disallowed.
[(32)](33)(a) "Unitary group" means a group of corporations that:
(i) are related through common ownership; and
(ii) by a preponderance of the evidence as determined by a court of competent jurisdiction or the commission, are economically interdependent with one another as demonstrated by the following factors:
(A) centralized management;
(B) functional integration; and
(C) economies of scale.
(b) "Unitary group" includes a captive real estate investment trust.
(c) "Unitary group" does not include an S corporation.
[(33)](34) "United States" includes the 50 states and the District of Columbia.
[(34)](35) "Utah net loss" means the current year Utah taxable income before Utah net loss deduction, if determined to be less than zero.
[(35)](36) "Utah net loss deduction" means the amount of Utah net losses from other taxable years that a taxpayer may carry forward to the current taxable year in accordance with Section 59-7-110.
[(36)](37)(a) "Utah taxable income" means Utah taxable income before net loss deduction less Utah net loss deduction.
(b) "Utah taxable income" includes income from tangible or intangible property located or having situs in this state, regardless of whether carried on in intrastate, interstate, or foreign commerce.
[(37)](38) "Utah taxable income before net loss deduction" means apportioned income plus nonbusiness income allocable to Utah net of related expenses.
[(38)] (39)(a) "Water's edge combined report" means a report combining the income and activities of:
(i) all members of a unitary group that are:
(A) corporations organized or incorporated in the United States, including those corporations qualifying for the Puerto Rico and Possession Tax Credit as provided in Section 936, Internal Revenue Code, in accordance with Subsection [(38)] (39)(b); and
(B) corporations organized or incorporated outside of the United States meeting the threshold level of business activity; and
(ii) an affiliated group electing to file a water's edge combined report under Subsection 59-7-402(2).
(b) There is a rebuttable presumption that a corporation which qualifies for the Puerto Rico and possession tax credit provided in Section 936, Internal Revenue Code, is part of a unitary group.
[(39)](40) "Worldwide combined report" means the combination of the income and activities of all members of a unitary group irrespective of the country in which the corporations are incorporated or conduct business activity.
Section 2. Section 59-7-106 is amended to read:
59-7-106. Subtractions from unadjusted income.
(1) In computing adjusted income, the following amounts shall be subtracted from unadjusted income:
(a) the foreign dividend gross-up included in gross income for federal income tax purposes under Section 78, Internal Revenue Code;
(b) subject to Subsection (2), the net capital loss, as defined for federal purposes, if the taxpayer elects to deduct the net capital loss on the return filed under this chapter for the taxable year for which the net capital loss is incurred;
(c) the decrease in salary expense deduction for federal income tax purposes due to claiming the federal work opportunity credit under Section 51, Internal Revenue Code;
(d) the decrease in qualified research and basic research expense deduction for federal income tax purposes due to claiming the federal credit for increasing research activities under Section 41, Internal Revenue Code;
(e) the decrease in qualified clinical testing expense deduction for federal income tax purposes due to claiming the federal credit for clinical testing expenses for certain drugs for rare diseases or conditions under Section 45C, Internal Revenue Code;
(f) any decrease in any expense deduction for federal income tax purposes due to claiming any other federal credit;
(g) the safe harbor lease adjustment required under Subsections 59-7-111(1)(b) and (2)(b);
(h) any income on the federal corporation income tax return that has been previously taxed by Utah;
(i) an amount included in federal taxable income that is due to a refund of a tax, including a franchise tax, an income tax, a corporate stock and business tax, or an occupation tax:
(i) if that tax is imposed for the privilege of:
(A) doing business; or
(B) exercising a corporate franchise;
(ii) if that tax is paid by the corporation to:
(A) Utah;
(B) another state of the United States;
(C) a foreign country;
(D) a United States possession; or
(E) the Commonwealth of Puerto Rico; and
(iii) to the extent that tax was added to unadjusted income under Section 59-7-105;
(j) a charitable contribution, to the extent the charitable contribution is allowed as a subtraction under Section 59-7-109;
(k) subject to Subsection (3), 50% of a dividend considered to be received or received from a subsidiary that:
(i) is a member of the unitary group;
(ii) is organized or incorporated outside of the United States; and
(iii) is not included in a combined report under Section 59-7-402 or 59-7-403;
(l) subject to Subsection (4) and Section 59-7-401, 50% of the adjusted income of a foreign operating company;
(m) the amount of gain or loss that is included in unadjusted income but not recognized for federal purposes on stock sold or exchanged by a member of a selling consolidated group as defined in Section 338, Internal Revenue Code, if an election has been made in accordance with Section 338(h)(10), Internal Revenue Code;
(n) the amount of gain or loss that is included in unadjusted income but not recognized for federal purposes on stock sold, exchanged, or distributed by a corporation in accordance with Section 336(e), Internal Revenue Code, if an election under Section 336(e), Internal Revenue Code, has been made for federal purposes;
(o) subject to Subsection (5), an adjustment to the following due to a difference between basis for federal purposes and basis as computed under Section 59-7-107:
(i) an amortization expense;
(ii) a depreciation expense;
(iii) a gain;
(iv) a loss; or
(v) an item similar to Subsections (1)(o)(i) through (iv);
(p) an interest expense that is not deducted on a federal corporation income tax return under Section 265(b) or 291(e), Internal Revenue Code;
(q) 100% of dividends received from a subsidiary that is an insurance company if that subsidiary that is an insurance company is:
(i) exempt from this chapter under Subsection 59-7-102(1)(c); and
(ii) under common ownership;
(r) subject to Subsection 59-7-105(10), for a corporation that is an account owner as defined in Section 53B-8a-102, the amount of a qualified investment as defined in Section 53B-8a-102.5:
(i) that the corporation or a person other than the corporation makes into an account owned by the corporation during the taxable year;
(ii) to the extent that neither the corporation nor the person other than the corporation described in Subsection (1)(r)(i) deducts the qualified investment on a federal income tax return; and
(iii) to the extent the qualified investment does not exceed the maximum amount of the qualified investment that may be subtracted from unadjusted income for a taxable year in accordance with Subsection 53B-8a-106(1);
(s) for a corporation that makes a donation, as that term is defined in Section 53B-8a-201, to the Student Prosperity Savings Program created in Section 53B-8a-202, the amount of the donation to the extent that the corporation did not deduct the donation on a federal income tax return;
(t) for purposes of income included in a combined report under Part 4, Combined Reporting, the entire amount of the dividends a member of a unitary group receives or is considered to receive from a captive real estate investment trust;
(u) the increase in income for federal income tax purposes due to claiming a:
(i) qualified tax credit bond credit under Section 54A, Internal Revenue Code; or
(ii) qualified zone academy bond under Section 1397E, Internal Revenue Code;
(v) for a taxable year beginning on or after January 1, 2019, but beginning on or before December 31, 2019, only:
(i) the amount of any FDIC premium paid or incurred by the taxpayer that is disallowed as a deduction for federal income tax purposes under Section 162(r), Internal Revenue Code, on the taxpayer's 2018 federal income tax return; plus
(ii) the amount of any FDIC premium paid or incurred by the taxpayer that is disallowed as a deduction for federal income tax purposes under Section 162(r), Internal Revenue Code, for the taxable year;
(w) for a taxable year beginning on or after January 1, 2020, the amount of any FDIC premium paid or incurred by the taxpayer that is disallowed as a deduction for federal income tax purposes under Section 162(r), Internal Revenue Code, for the taxable year; and
(x) for a taxable year beginning on or after January 1, 2020, but beginning on or before December 31, 2020, the amount of:
(i) a paycheck protection loan similar to a loan forgiven in accordance with 15 U.S.C. Sec. 636(a)(36) that is:
(A) authorized by the federal government;
(B) provided in response to COVID-19;
(C) forgiven if the borrower meets the expenditure requirements; and
(D) subject to federal income tax, to the extent that a deduction for the expenditures paid with the loan is disallowed; and
(ii) any grant funds [the taxpayer receives under Title 9, Chapter 6, Part 9, COVID-19 Cultural Assistance Grant Program, Subsection 63N-12-508(3), or Title 63N, Chapter 15, COVID-19 Economic Recovery Programs, to the extent that the grant funds are included in unadjusted income] or forgiven loans that:
(A) the taxpayer receives from the state, a county within the state, or a municipality within the state in response to COVID-19;
(B) are funded using federal revenue received by the state, the county, or the municipality to respond to COVID-19; and Code.
(C) are included in unadjusted income.
(2) For purposes of Subsection (1)(b):
(a) the subtraction shall be made by claiming the subtraction on a return filed:
(i) under this chapter for the taxable year for which the net capital loss is incurred; and
(ii) by the due date of the return, including extensions; and
(b) a net capital loss for a taxable year shall be:
(i) subtracted for the taxable year for which the net capital loss is incurred; or
(ii) carried forward as provided in Sections 1212(a)(1)(B) and (C), Internal Revenue
(3)(a) For purposes of calculating the subtraction provided for in Subsection (1)(k), a taxpayer shall first subtract from a dividend considered to be received or received an expense directly attributable to that dividend.
(b) For purposes of Subsection (3)(a), the amount of an interest expense that is considered to be directly attributable to a dividend is calculated by multiplying the interest expense by a fraction:
(i) the numerator of which is the taxpayer's average investment in the dividend paying subsidiaries; and
(ii) the denominator of which is the taxpayer's average total investment in assets. (c) (i) For purposes of calculating the subtraction allowed by Subsection (1)(k), in determining income apportionable to this state, a portion of the factors of a foreign subsidiary that has dividends that are partially subtracted under Subsection (1)(k) shall be included in the combined report factors as provided in this Subsection (3)(c).
(ii) For purposes of Subsection (3)(c)(i), the portion of the factors of a foreign subsidiary that has dividends that are partially subtracted under Subsection (1)(k) that shall be included in the combined report factors is calculated by multiplying each factor of the foreign subsidiary by a fraction:
(A) not to exceed 100%; and
(B)(I) the numerator of which is the amount of the dividend paid by the foreign subsidiary that is included in adjusted income; and
(II) the denominator of which is the current year earnings and profits of the foreign subsidiary as determined under the Internal Revenue Code.
(4) (a) For purposes of Subsection (1)(l), a taxpayer may not make a subtraction under Subsection (1)(l):
(i) if the taxpayer elects to file a worldwide combined report as provided in Section 59-7-403; or
(ii) for the following:
(A) income generated from intangible property; or
(B) a capital gain, dividend, interest, rent, royalty, or other similar item that is generated from an asset held for investment and not from a regular business trading activity.
(b) In calculating the subtraction provided for in Subsection (1)(l), a foreign operating company:
(i) may not subtract an amount provided for in Subsection (1)(k) or (l); and
(ii) prior to determining the subtraction under Subsection (1)(l), shall eliminate a transaction that occurs between members of a unitary group.
(c) For purposes of the subtraction provided for in Subsection (1)(l), in determining income apportionable to this state, the factors for a foreign operating company shall be included in the combined report factors in the same percentages as the foreign operating company's adjusted income is included in the combined adjusted income.
(d) In accordance with Title 63G, Chapter 3, Utah Administrative Rulemaking Act, the commission may by rule define what constitutes:
(i) income generated from intangible property; or
(ii) a capital gain, dividend, interest, rent, royalty, or other similar item that is generated from an asset held for investment and not from a regular business trading activity.
(5)(a) For purposes of the subtraction provided for in Subsection (1)(o), the amount of a reduction in basis shall be allowed as an expense for the taxable year in which a federal tax credit is claimed if:
(i) there is a reduction in federal basis for a federal tax credit; and
(ii) there is no corresponding tax credit allowed in this state.
(b) In accordance with Title 63G, Chapter 3, Utah Administrative Rulemaking Act, the commission may by rule define what constitutes an item similar to Subsections (1)(o)(i) through (iv).
Section 3. Section 59-7-402 is amended to read:
59-7-402. Water's edge combined report.
(1) Except as provided in Section 59-7-403, if any corporation listed in Subsection 59-7-101[(38)](39)(a) is doing business in Utah, the unitary group shall file a water's edge combined report.
(2)(a) A group of corporations that are not otherwise a unitary group may elect to file a water's edge combined report if each member of the group is:
(i) doing business in Utah;
(ii) part of the same affiliated group; and
(iii) qualified, under Section 1501, Internal Revenue Code, to file a federal consolidated return.
(b) Each corporation within the affiliated group that is doing business in Utah must consent to filing a combined report. If an affiliated group elects to file a combined report, each corporation within the affiliated group that is doing business in Utah must file a combined report.
(c) Corporations that elect to file a water's edge combined report under this section may not thereafter elect to file a separate return without the consent of the commission.
Section 4. Section 59-10-103 is amended to read:
59-10-103. Definitions.
(1) As used in this chapter:
(a)(i) "Adjusted gross income":
[(i)] (A) for a resident or nonresident individual, [is as defined] means the same as that term is defined in Section 62, Internal Revenue Code; or
[(ii)] (B) for a resident or nonresident estate or trust, is as calculated in Section 67(e), Internal Revenue Code.
(ii) "Adjusted gross income" does not include:
(A) income received from a loan forgiven in accordance with 15 U.S.C. Sec. 636(a)(36), to the extent that a deduction for the expenditures paid with the loan is disallowed, or a similar paycheck protection loan that is authorized by the federal government, provided in response to COVID-19, forgiven if the borrower meets the expenditure requirements, and exempt from federal income tax, to the extent that a deduction for the expenditures paid with the loan is disallowed; or
(B) an amount that an individual receives in accordance with Section 6428, Internal Revenue Code, or an amount that an individual receives that is authorized by the federal government as a tax credit for the 2020 tax year, provided in response to COVID-19, paid in advance of the filing of the individual's 2020 federal income tax return, and exempt from federal income tax.
(b) "Corporation" includes:
(i) an association;
(ii) a joint stock company; and
(iii) an insurance company.
(c) "COVID-19" means:
(i) the severe acute respiratory syndrome coronavirus 2; or
(ii) the disease caused by severe acute respiratory syndrome coronavirus 2.
[(c)](d) "Distributable net income" [is as defined] means the same as that term is defined in Section 643, Internal Revenue Code.
[(d)](e) "Employee" [is as defined] means the same as that term is defined in Section 59-10-401.
[(e)](f) "Employer" [is as defined] means the same as that term is defined in Section 59-10-401.
[(f)] (g) "Federal taxable income":
(i) for a resident or nonresident individual, means taxable income as defined by Section 63, Internal Revenue Code; or
(ii) for a resident or nonresident estate or trust, is as calculated in Section 641(a) and
(b), Internal Revenue Code.
[(g)](h) "Fiduciary" means:
(i) a guardian;
(ii) a trustee;
(iii) an executor;
(iv) an administrator;
(v) a receiver;
(vi) a conservator; or
(vii) any person acting in any fiduciary capacity for any individual.
[(h)](i) "Guaranteed annuity interest" [is as defined] means the same as that term is defined in 26 C.F.R. Sec. 1.170A-6(c)(2).
[(i)](j) "Homesteaded land diminished from the Uintah and Ouray Reservation" means the homesteaded land that was held to have been diminished from the Uintah and Ouray Reservation in Hagen v. Utah, 510 U.S. 399 (1994).
[(j)](k) "Individual" means a natural person and includes aliens and minors.
[(k)] (l) "Irrevocable trust" means a trust in which the settlor may not revoke or terminate all or part of the trust without the consent of a person who has a substantial beneficial interest in the trust and the interest would be adversely affected by the exercise of the settlor's power to revoke or terminate all or part of the trust.
[(l)](m) "Military service" [is as defined] means the same as that term is defined in Pub. L. No. 108-189, Sec. 101.
[(m)](n) "Nonresident individual" means an individual who is not a resident of this state.
[(n)](o) "Nonresident trust" or "nonresident estate" means a trust or estate which is not a resident estate or trust.
[(o)](p)(i) "Partnership" includes a syndicate, group, pool, joint venture, or other unincorporated organization:
(A) through or by means of which any business, financial operation, or venture is carried on; and
(B) [which] that is not, within the meaning of this chapter[:], a trust, an estate, or a corporation.
[(I) a trust;]
[(II) an estate; or]
[(III) a corporation.]
(ii) "Partnership" does not include any organization not included under the definition of "partnership" in Section 761, Internal Revenue Code.
(iii) "Partner" includes a member in a syndicate, group, pool, joint venture, or organization described in Subsection (1)[(o)](p)(i).
[(p)](q) "Qualified nongrantor charitable lead trust" means a trust:
(i) that is irrevocable;
(ii) that has a trust term measured by:
(A) a fixed term of years; or
(B) the life of a person living on the day on which the trust is created;
(iii) under which:
(A) a portion of the value of the trust assets is distributed during the trust term:
(I) to an organization described in Section 170(c), Internal Revenue Code; and
(II) as a[:] guaranteed annuity interest or a unitrust interest; and
[(Aa) guaranteed annuity interest; or]
[(Bb) unitrust interest; and]
(B) assets remaining in the trust at the termination of the trust term are distributed to a beneficiary:
(I) designated in the trust; and
(II) that is not an organization described in Section 170(c), Internal Revenue Code;
(iv) for which the trust is allowed a deduction under Section 642(c), Internal Revenue Code; and
(v) under which the grantor of the trust is not treated as the owner of any portion of the trust for federal income tax purposes.
[(q)](r) "Resident individual" means an individual who is domiciled in this state for any period of time during the taxable year, but only for the duration of the period during which the individual is domiciled in this state.
[(r)](s) "Resident estate" or "resident trust" [is as defined] means the same as that term is defined in Section 75-7-103.
[(s)](t) "Servicemember" [is as defined] means the same as that term is defined in Pub. L. No. 108-189, Sec. 101.
[(t)](u) "State income tax percentage for a nonresident estate or trust" means a percentage equal to a nonresident estate's or trust's state taxable income for the taxable year divided by the nonresident estate's or trust's total adjusted gross income for that taxable year after making the adjustments required by:
(i) Section 59-10-202;
(ii) Section 59-10-207;
(iii) Section 59-10-209.1; or
(iv) Section 59-10-210.
[(u)](v) "State income tax percentage for a nonresident individual" means a percentage equal to a nonresident individual's state taxable income for the taxable year divided by the difference between:
(i) subject to Section 59-10-1405, the nonresident individual's total adjusted gross income for that taxable year, after making the:
(A) additions and subtractions required by Section 59-10-114; and
(B) adjustments required by Section 59-10-115; and
(ii) if the nonresident individual described in Subsection (1)[(u)](v)(i) is a servicemember, the compensation the servicemember receives for military service if the servicemember is serving in compliance with military orders.
[(v)](w) "State income tax percentage for a part-year resident individual" means, for a taxable year, a fraction:
(i) the numerator of which is the sum of:
(A) subject to Section 59-10-1404.5, for the time period during the taxable year that the part-year resident individual is a resident, the part-year resident individual's total adjusted gross income for that time period, after making the:
(I) additions and subtractions required by Section 59-10-114; and
(II) adjustments required by Section 59-10-115; and
(B) for the time period during the taxable year that the part-year resident individual is a nonresident, an amount calculated by:
(I) determining the part-year resident individual's adjusted gross income for that time period, after making the:
(Aa) additions and subtractions required by Section 59-10-114; and
(Bb) adjustments required by Section 59-10-115; and
(II) calculating the portion of the amount determined under Subsection (1)[(v)](w)(i)(B)(I) that is derived from Utah sources in accordance with Section 59-10-117; and
(ii) the denominator of which is the difference between:
(A) the part-year resident individual's total adjusted gross income for that taxable year, after making the:
(I) additions and subtractions required by Section 59-10-114; and
(II) adjustments required by Section 59-10-115; and
(B) if the part-year resident individual is a servicemember, any compensation the servicemember receives for military service during the portion of the taxable year that the servicemember is a nonresident if the servicemember is serving in compliance with military orders.
[(w)] (x) "Taxable income" or "state taxable income":
(i) subject to Section 59-10-1404.5, for a resident individual, means the resident individual's adjusted gross income after making the:
(A) additions and subtractions required by Section 59-10-114; and
(B) adjustments required by Section 59-10-115;
(ii) for a nonresident individual, is an amount calculated by:
(A) determining the nonresident individual's adjusted gross income for the taxable year, after making the:
(I) additions and subtractions required by Section 59-10-114; and
(II) adjustments required by Section 59-10-115; and
(B) calculating the portion of the amount determined under Subsection (1)[(w)](x)(ii)(A) that is derived from Utah sources in accordance with Section 59-10-117;
(iii) for a resident estate or trust, is as calculated under Section 59-10-201.1; and
(iv) for a nonresident estate or trust, is as calculated under Section 59-10-204.
[(x)](y) "Taxpayer" means any individual, estate, trust, or beneficiary of an estate or trust, that has income subject in whole or part to the tax imposed by this chapter.
[(y)](z) "Trust term" means a time period:
(i) beginning on the day on which a qualified nongrantor charitable lead trust is created; and
(ii) ending on the day on which the qualified nongrantor charitable lead trust described in Subsection (1)[(y)](z)(i) terminates.
[(z)](aa) "Uintah and Ouray Reservation" means the lands recognized as being included within the Uintah and Ouray Reservation in:
(i) Hagen v. Utah, 510 U.S. 399 (1994); and
(ii) Ute Indian Tribe v. Utah, 114 F.3d 1513 (10th Cir. 1997).
[(aa)](bb) "Unadjusted income" means an amount equal to the difference between: (i) the total income required to be reported by a resident or nonresident estate or trust on the resident or nonresident estate's or trust's federal income tax return for estates and trusts for the taxable year; and
(ii) the sum of the following:
(A) fees paid or incurred to the fiduciary of a resident or nonresident estate or trust: (I) for administering the resident or nonresident estate or trust; and
(II) that the resident or nonresident estate or trust deducts as allowed on the resident or nonresident estate's or trust's federal income tax return for estates and trusts for the taxable year;
(B) the income distribution deduction that a resident or nonresident estate or trust deducts under Section 651 or 661, Internal Revenue Code, as allowed on the resident or nonresident estate's or trust's federal income tax return for estates and trusts for the taxable year;
(C) the amount that a resident or nonresident estate or trust deducts as a deduction for estate tax or generation skipping transfer tax under Section 691(c), Internal Revenue Code, as allowed on the resident or nonresident estate's or trust's federal income tax return for estates and trusts for the taxable year; and
(D) the amount that a resident or nonresident estate or trust deducts as a personal exemption under Section 642(b), Internal Revenue Code, as allowed on the resident or nonresident estate's or trust's federal income tax return for estates and trusts for the taxable year.
[(bb)] (cc) "Unitrust interest" [is as defined] means the same as that term is defined in 26 C.F.R. Sec. 1.170A-6(c)(2).
[(cc)](dd) "Ute tribal member" means [a person] an individual who is enrolled as a member of the Ute Indian Tribe of the Uintah and Ouray Reservation.
[(dd)](ee) "Ute tribe" means the Ute Indian Tribe of the Uintah and Ouray Reservation.
[(ee)](ff) "Wages" [is as defined] means the same as that term is defined in Section 59-10-401.
(2)(a) Any term used in this chapter has the same meaning as when used in comparable context in the laws of the United States relating to federal income taxes unless a different meaning is clearly required.
(b) Any reference to the Internal Revenue Code or to the laws of the United States shall mean the Internal Revenue Code or other provisions of the laws of the United States relating to federal income taxes that are in effect for the taxable year.
(c) Any reference to a specific section of the Internal Revenue Code or other provision of the laws of the United States relating to federal income taxes shall include any corresponding or comparable provisions of the Internal Revenue Code as amended, redesignated, or reenacted.
Section 5. Section 59-10-114 is amended to read:
59-10-114. Additions to and subtractions from adjusted gross income of an individual.
(1) There shall be added to adjusted gross income of a resident or nonresident individual:
(a) a lump sum distribution that the taxpayer does not include in adjusted gross income on the taxpayer's federal individual income tax return for the taxable year;
(b) the amount of a child's income calculated under Subsection (4) that:
(i) a parent elects to report on the parent's federal individual income tax return for the taxable year; and
(ii) the parent does not include in adjusted gross income on the parent's federal individual income tax return for the taxable year;
(c)(i) a withdrawal from a medical care savings account and any penalty imposed for the taxable year if:
(A) the resident or nonresident individual does not deduct the amounts on the resident or nonresident individual's federal individual income tax return under Section 220, Internal Revenue Code;
(B) the withdrawal is subject to Subsections 31A-32a-105(1) and (2); and
(C) the withdrawal is subtracted on, or used as the basis for claiming a tax credit on, a return the resident or nonresident individual files under this chapter;
(ii) a disbursement required to be added to adjusted gross income in accordance with Subsection 31A-32a-105(3); or
(iii) an amount required to be added to adjusted gross income in accordance with Subsection 31A-32a-105(5)(c);
(d) the amount withdrawn under Title 53B, Chapter 8a, Utah Educational Savings Plan, from the account of a resident or nonresident individual who is an account owner as defined in Section 53B-8a-102, for the taxable year for which the amount is withdrawn, if that amount withdrawn from the account of the resident or nonresident individual who is the account owner:
(i) is not expended for:
(A) higher education costs as defined in Section 53B-8a-102.5; or
(B) a payment or distribution that qualifies as an exception to the additional tax for distributions not used for educational expenses provided in Sections 529(c) and 530(d), Internal Revenue Code; and
(ii) is:
(A) subtracted by the resident or nonresident individual:
(I) who is the account owner; and
(II) on the resident or nonresident individual's return filed under this chapter for a taxable year beginning on or before December 31, 2007; or
(B) used as the basis for the resident or nonresident individual who is the account owner to claim a tax credit under Section 59-10-1017;
(e) except as provided in Subsection (5), for bonds, notes, and other evidences of indebtedness acquired on or after January 1, 2003, the interest from bonds, notes, and other evidences of indebtedness:
(i) issued by one or more of the following entities:
(A) a state other than this state;
(B) the District of Columbia;
(C) a political subdivision of a state other than this state; or
(D) an agency or instrumentality of an entity described in Subsections (1)(e)(i)(A) through (C); and
(ii) to the extent the interest is not included in adjusted gross income on the taxpayer's federal income tax return for the taxable year;
(f) subject to Subsection (2)(c), any distribution received by a resident beneficiary of a resident trust of income that was taxed at the trust level for federal tax purposes, but was subtracted from state taxable income of the trust pursuant to Subsection 59-10-202(2)(b);
(g) any distribution received by a resident beneficiary of a nonresident trust of undistributed distributable net income realized by the trust on or after January 1, 2004, if that undistributed distributable net income was taxed at the trust level for federal tax purposes, but was not taxed at the trust level by any state, with undistributed distributable net income considered to be distributed from the most recently accumulated undistributed distributable net income; and
(h) any adoption expense:
(i) for which a resident or nonresident individual receives reimbursement from another person; and
(ii) to the extent to which the resident or nonresident individual subtracts that adoption expense:
(A) on a return filed under this chapter for a taxable year beginning on or before December 31, 2007; or
(B) from federal taxable income on a federal individual income tax return.
(2) There shall be subtracted from adjusted gross income of a resident or nonresident individual:
(a) the difference between:
(i) the interest or a dividend on an obligation or security of the United States or an authority, commission, instrumentality, or possession of the United States, to the extent that interest or dividend is:
(A) included in adjusted gross income for federal income tax purposes for the taxable year; and
(B) exempt from state income taxes under the laws of the United States; and
(ii) any interest on indebtedness incurred or continued to purchase or carry the obligation or security described in Subsection (2)(a)(i);
(b) for taxable years beginning on or after January 1, 2000, if the conditions of Subsection (3)(a) are met, the amount of income derived by a Ute tribal member:
(i) during a time period that the Ute tribal member resides on homesteaded land diminished from the Uintah and Ouray Reservation; and
(ii) from a source within the Uintah and Ouray Reservation;
(c) an amount received by a resident or nonresident individual or distribution received by a resident or nonresident beneficiary of a resident trust:
(i) if that amount or distribution constitutes a refund of taxes imposed by:
(A) a state; or
(B) the District of Columbia; and
(ii) to the extent that amount or distribution is included in adjusted gross income for that taxable year on the federal individual income tax return of the resident or nonresident individual or resident or nonresident beneficiary of a resident trust;
(d) the amount of a railroad retirement benefit:
(i) paid:
(A) in accordance with The Railroad Retirement Act of 1974, 45 U.S.C. Sec. 231 et seq.;
(B) to a resident or nonresident individual; and
(C) for the taxable year; and
(ii) to the extent that railroad retirement benefit is included in adjusted gross income on that resident or nonresident individual's federal individual income tax return for that taxable year;
(e) an amount:
(i) received by an enrolled member of an American Indian tribe; and
(ii) to the extent that the state is not authorized or permitted to impose a tax under this part on that amount in accordance with:
(A) federal law;
(B) a treaty; or
(C) a final decision issued by a court of competent jurisdiction;
(f) an amount received:
(i) for the interest on a bond, note, or other obligation issued by an entity for which state statute provides an exemption of interest on its bonds from state individual income tax;
(ii) by a resident or nonresident individual;
(iii) for the taxable year; and
(iv) to the extent the amount is included in adjusted gross income on the taxpayer's federal income tax return for the taxable year;
(g) the amount of all income, including income apportioned to another state, of a nonmilitary spouse of an active duty military member if:
(i) both the nonmilitary spouse and the active duty military member are nonresident individuals;
(ii) the active duty military member is stationed in Utah;
(iii) the nonmilitary spouse is subject to the residency provisions of 50 U.S.C. Sec. 4001(a)(2); and
(iv) the income is included in adjusted gross income for federal income tax purposes for the taxable year;
(h) for a taxable year beginning on or after January 1, 2019, but beginning on or before December 31, 2019, only:
(i) the amount of any FDIC premium paid or incurred by the taxpayer that is disallowed as a deduction for federal income tax purposes under Section 162(r), Internal Revenue Code, on the taxpayer's 2018 federal income tax return; plus
(ii) the amount of any FDIC premium paid or incurred by the taxpayer that is disallowed as a deduction for federal income tax purposes under Section 162(r), Internal Revenue Code, for the taxable year;
(i) for a taxable year beginning on or after January 1, 2020, the amount of any FDIC premium paid or incurred by the taxpayer that is disallowed as a deduction for federal income tax purposes under Section 162(r), Internal Revenue Code, for the taxable year; and
(j) for a taxable year beginning on or after January 1, 2020, but beginning on or before December 31, 2020, the amount [of]:
(i) of a paycheck protection loan similar to a loan forgiven in accordance with 15 U.S.C. Sec. 636(a)(36) that is:
(A) authorized by the federal government;
(B) provided in response to COVID-19;
(C) forgiven if the borrower meets the expenditure requirements; and
(D) subject to federal income tax, to the extent that a deduction for the expenditures paid with the loan is disallowed;
(ii) that a resident or a nonresident individual receives that is:
(A) authorized by the federal government as a tax credit for the 2020 tax year;
(B) provided in response to COVID-19;
(C) paid in advance of the filing of the individual's 2020 federal income tax return; and
(D) subject to federal income tax; and
(iii) of any grant funds [the resident or nonresident individual receives under Title 9, Chapter 6, Part 9, COVID-19 Cultural Assistance Grant Program, Subsection 63N-12-508(3), or Title 63N, Chapter 15, COVID-19 Economic Recovery Programs, to the extent that the grant funds are included in adjusted gross income] or forgiven loans that:
(A) the resident or nonresident individual receives from the state, a county within the state, or a municipality within the state in response to COVID-19;
(B) are funded by using federal revenue received by the state, the county, or the municipality to respond to COVID-19; and
(C) are included in adjusted gross income.
(3) (a) A subtraction for an amount described in Subsection (2)(b) is allowed only if:
(i) the taxpayer is a Ute tribal member; and
(ii) the governor and the Ute tribe execute and maintain an agreement meeting the requirements of this Subsection (3).
(b) The agreement described in Subsection (3)(a):
(i) may not:
(A) authorize the state to impose a tax in addition to a tax imposed under this chapter;
(B) provide a subtraction under this section greater than or different from the subtraction described in Subsection (2)(b); or
(C) affect the power of the state to establish rates of taxation; and
(ii) shall:
(A) provide for the implementation of the subtraction described in Subsection (2)(b);
(B) be in writing;
(C) be signed by:
(I) the governor; and
(II) the chair of the Business Committee of the Ute tribe;
(D) be conditioned on obtaining any approval required by federal law; and
(E) state the effective date of the agreement.
(c)(i) The governor shall report to the commission by no later than February 1 of each year regarding whether or not an agreement meeting the requirements of this Subsection (3) is in effect.
(ii) If an agreement meeting the requirements of this Subsection (3) is terminated, the subtraction permitted under Subsection (2)(b) is not allowed for taxable years beginning on or after the January 1 following the termination of the agreement.
(d) For purposes of Subsection (2)(b) and in accordance with Title 63G, Chapter 3, Utah Administrative Rulemaking Act, the commission may make rules:
(i) for determining whether income is derived from a source within the Uintah and Ouray Reservation; and
(ii) that are substantially similar to how adjusted gross income derived from Utah sources is determined under Section 59-10-117.
(4)(a) For purposes of this Subsection (4), "Form 8814" means:
(i) the federal individual income tax Form 8814, Parents' Election To Report Child's Interest and Dividends; or
(ii)(A) a form designated by the commission in accordance with Subsection (4)(a)(ii)(B) as being substantially similar to 2000 Form 8814 if for purposes of federal individual income taxes the information contained on 2000 Form 8814 is reported on a form other than Form 8814; and
(B) for purposes of Subsection (4)(a)(ii)(A) and in accordance with Title 63G, Chapter 3, Utah Administrative Rulemaking Act, the commission may make rules designating a form as being substantially similar to 2000 Form 8814 if for purposes of federal individual income taxes the information contained on 2000 Form 8814 is reported on a form other than Form 8814.
(b) The amount of a child's income added to adjusted gross income under Subsection
(1)(b) is equal to the difference between:
(i) the lesser of:
(A) the base amount specified on Form 8814; and
(B) the sum of the following reported on Form 8814:
(I) the child's taxable interest;
(II) the child's ordinary dividends; and
(III) the child's capital gain distributions; and
(ii) the amount not taxed that is specified on Form 8814.
(5) Notwithstanding Subsection (1)(e), interest from bonds, notes, and other evidences of indebtedness issued by an entity described in Subsections (1)(e)(i)(A) through (D) may not be added to adjusted gross income of a resident or nonresident individual if, as annually determined by the commission:
(a) for an entity described in Subsection (1)(e)(i)(A) or (B), the entity and all of the political subdivisions, agencies, or instrumentalities of the entity do not impose a tax based on income on any part of the bonds, notes, and other evidences of indebtedness of this state; or
(b) for an entity described in Subsection (1)(e)(i)(C) or (D), the following do not impose a tax based on income on any part of the bonds, notes, and other evidences of indebtedness of this state:
(i) the entity; or
(ii)(A) the state in which the entity is located; or
(B) the District of Columbia, if the entity is located within the District of Columbia.
Section 6. Effective date.
If approved by two-thirds of all the members elected to each house, this bill takes effect upon approval by the governor, or the day following the constitutional time limit of Utah Constitution, Article VII, Section 8, without the governor's signature, or in the case of a veto, the date of veto override.
Section 7. Retrospective operation.
This bill has retrospective operation for a taxable year beginning on or after January 1, 2020.