HOUSE BILL NO. 26

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Bill Status



H0026...............................................by REVENUE AND TAXATION
INCOME TAX - Amends existing law relating to income taxes to require, in
the case of real estate investment trusts, that the taxpayer add back
dividends paid and deducted pursuant to sections 561 and 857 of the
Internal Revenue Code.
                                                                        
01/20    House intro - 1st rdg - to printing
01/21    Rpt prt - to Rev/Tax

Bill Text


                                                                        
                                                                        
  ]]]]              LEGISLATURE OF THE STATE OF IDAHO             ]]]]
 Fifty-eighth Legislature                   First Regular Session - 2005
                                                                        
                                                                        
                              IN THE HOUSE OF REPRESENTATIVES
                                                                        
                                     HOUSE BILL NO. 26
                                                                        
                             BY REVENUE AND TAXATION COMMITTEE
                                                                        
  1                                        AN ACT
  2    RELATING TO INCOME TAXES; AMENDING SECTION 63-3022, IDAHO  CODE,  TO  REQUIRE,
  3        IN  THE  CASE OF REAL ESTATE INVESTMENT TRUSTS, THAT THE TAXPAYER ADD BACK
  4        DIVIDENDS PAID AND DEDUCTED PURSUANT TO SECTIONS 561 AND 857 OF THE INTER-
  5        NAL REVENUE CODE; DECLARING  AN  EMERGENCY  AND  PROVIDING  A  RETROACTIVE
  6        EFFECTIVE DATE.
                                                                        
  7    Be It Enacted by the Legislature of the State of Idaho:
                                                                        
  8        SECTION  1.  That  Section 63-3022, Idaho Code, be, and the same is hereby
  9    amended to read as follows:
                                                                        
 10        63-3022.  ADJUSTMENTS TO TAXABLE INCOME. The  additions  and  subtractions
 11    set  forth  in  this section, and in sections 63-3022A through 63-3022Q, Idaho
 12    Code, are to be applied to the  extent  allowed  in  computing  Idaho  taxable
 13    income:
 14        (a)  Add  any  state  and  local  taxes,  as defined in section 164 of the
 15    Internal Revenue Code and, measured by net income, paid or accrued during  the
 16    taxable  year adjusted for state or local tax refunds used in arriving at tax-
 17    able income.
 18        (b)  Add the net operating loss deduction  used  in  arriving  at  taxable
 19    income.
 20        (c)  (1) A net operating loss for any taxable year commencing on and after
 21        January  1,  2000, shall be a net operating loss carryback not to exceed a
 22        total of one hundred thousand dollars ($100,000) to the  two  (2)  immedi-
 23        ately  preceding  taxable years. Any portion of the net operating loss not
 24        subtracted in the two (2) preceding years may be subtracted  in  the  next
 25        twenty  (20) years succeeding the taxable year in which the loss arises in
 26        order until exhausted. The sum of the deductions may not exceed the amount
 27        of the net operating loss deduction incurred. At the election of the  tax-
 28        payer,  the two (2) year carryback may be foregone and the loss subtracted
 29        from income received in taxable years arising  in  the  next  twenty  (20)
 30        years  succeeding the taxable year in which the loss arises in order until
 31        exhausted. The election shall be made as under section  172(b)(3)  of  the
 32        Internal  Revenue  Code.  An election under this subsection must be in the
 33        manner prescribed in the rules of the state tax commission and  once  made
 34        is irrevocable for the year in which it is made. The term "income" as used
 35        in this subsection (c) means Idaho taxable income as defined in this chap-
 36        ter as modified by section 63-3021(b)(2), (3) and (4), Idaho Code.
 37        (2)  Net operating losses incurred by a corporation during a year in which
 38        such corporation did not transact business in Idaho or was not included in
 39        a  group of corporations combined under subsection (t) of section 63-3027,
 40        Idaho Code, may not be subtracted. However, if at least one  (1)  corpora-
 41        tion  within a group of corporations combined under subsection (t) of sec-
 42        tion 63-3027, Idaho Code, was transacting business  in  Idaho  during  the
 43        taxable  year  in which the loss was incurred, then the net operating loss
                                                                        
                                           2
                                                                        
  1        may be subtracted. Net operating losses incurred by a person, other than a
  2        corporation, in activities not taxable by Idaho may not be subtracted.
  3        (d)  (1)  In the case of a corporation, add the amount deducted under  the
  4        provisions  of  sections 243(a) and (c), 244, 245 and 246A of the Internal
  5        Revenue Code (relating to dividends received by corporations)  as  limited
  6        by section 246(b)(1) of said code.
  7        (2)  In  the  case  of  a  real  estate  investment  trust, add the amount
  8        described in section 857 of the Internal Revenue Code (relating  to  taxa-
  9        tion  of  real  estate  investment  trusts  and  their  beneficiaries) and
 10        deducted on the taxpayer's federal return pursuant to section 561  of  the
 11        Internal Revenue Code (relating to the definition of a deduction for divi-
 12        dends paid).
 13        (e)  In  the  case  of  a corporation, subtract an amount determined under
 14    section 78 of the Internal Revenue Code to be taxable as dividends.
 15        (f)  Subtract the amount of any income received or accrued during the tax-
 16    able year which is exempt from taxation by this state, under the provisions of
 17    any other law of this state or a law of the United States, if  not  previously
 18    subtracted in arriving at taxable income.
 19        (g)  For  the purpose of determining the Idaho taxable income of the bene-
 20    ficiary of a trust or of an estate:
 21        (1)  Distributable net income as defined for federal tax purposes shall be
 22        corrected for the other adjustments required by this section.
 23        (2)  Net operating losses attributable to a  beneficiary  of  a  trust  or
 24        estate under section 642 of the Internal Revenue Code shall be a deduction
 25        for  the  beneficiary  to  the extent that income from the trust or estate
 26        would be attributable to this state under the provisions of this chapter.
 27        (h)  In the case of an individual who is on active  duty  as  a  full-time
 28    officer,  enlistee  or  draftee,  with  the armed forces of the United States,
 29    which full-time duty is or will be continuous and uninterrupted for  one  hun-
 30    dred  twenty  (120)  consecutive days or more, deduct compensation paid by the
 31    armed forces of the United States for services performed outside  this  state.
 32    The deduction is allowed only to the extent such income is included in taxable
 33    income, and provided that appropriate adjustments shall be made in determining
 34    the  deductions  and exemptions allowed pursuant to section 63-3026A(4), Idaho
 35    Code.
 36        (i)  In the case of a corporation, including any corporation included in a
 37    group of corporations combined under subsection (t) of section 63-3027,  Idaho
 38    Code, add any capital loss deducted which loss was incurred during any year in
 39    which such corporation did not transact business in Idaho. However, do not add
 40    any  capital  loss  deducted  if a corporation, including any corporation in a
 41    group of corporations combined under subsection (t) of section 63-3027,  Idaho
 42    Code,  was  transacting business in Idaho during the taxable year in which the
 43    loss was incurred. In the case of persons, other than  corporations,  add  any
 44    capital loss deducted which was incurred in activities not taxable by Idaho at
 45    the  time such loss was incurred. In computing the income taxable to an S cor-
 46    poration or partnership under this section, deduction shall not be allowed for
 47    a carryover or carryback of a net operating loss provided  for  in  subsection
 48    (c)  of  this  section  or  a capital loss provided for in section 1212 of the
 49    Internal Revenue Code.
 50        (j)  In the case of an individual, there shall be allowed as  a  deduction
 51    from gross income either (1) or (2) at the option of the taxpayer:
 52        (1)  The  standard  deduction  as  defined in section 63, Internal Revenue
 53        Code.
 54        (2)  Itemized deductions as defined in section 63 of the Internal  Revenue
 55        Code  except state or local taxes measured by net income and as defined in
                                                                        
                                           3
                                                                        
  1        section 164 of the Internal Revenue Code.
  2        (k)  Add the taxable amount of any lump  sum  distribution  excluded  from
  3    gross income for federal income tax purposes under the ten (10) year averaging
  4    method.  The  taxable  amount will include the ordinary income portion and the
  5    amount eligible for the capital gain election.
  6        (l)  Deduct any amounts included in gross income under the  provisions  of
  7    section  86  of  the Internal Revenue Code relating to certain social security
  8    and railroad benefits.
  9        (m)  In the case of a self-employed individual, deduct the actual cost  of
 10    premiums paid to secure worker's compensation insurance for coverage in Idaho,
 11    if such cost has not been deducted in arriving at taxable income.
 12        (n)  In the case of an individual, deduct the amount contributed to a col-
 13    lege  savings  program  pursuant  to chapter 54, title 33, Idaho Code, but not
 14    more than four thousand dollars ($4,000) per tax year. If the contribution  is
 15    made  on or before April 15, 2001, it may be deducted for tax year 2000 and an
 16    individual can make another contribution and claim the deduction according  to
 17    the  limits provided in this subsection during 2001 for tax year 2001, as long
 18    as the contribution is made on or before December 31, 2001.
 19        (o)  In the case of an individual, add the amount of a nonqualified  with-
 20    drawal  from an individual trust account or savings account established pursu-
 21    ant to chapter 54, title 33, Idaho Code, less any amount of such  nonqualified
 22    withdrawal  included in the individual's federal gross income pursuant to sec-
 23    tion 529 of the Internal Revenue Code.
                                                                        
 24        SECTION 2.  An emergency existing  therefor,  which  emergency  is  hereby
 25    declared to exist, this act shall be in full force and effect on and after its
 26    passage and approval, and retroactively to January 1, 2005.

Statement of Purpose / Fiscal Impact



                       STATEMENT OF PURPOSE
                            RS RS14438

This bill taxes Real Estate Investment Trusts (REIT) on income
earned from investments in Idaho realty.  It requires an REIT to
add its federal deduction for dividends paid to it federal
taxable income when calculating Idaho taxable income.  As a
result, income earned on real property in Idaho will be subject
to the Idaho corporate income tax and not exported to the state
in which the investor resides.
                                                                 
The bill is effective January 1, 2005.


                          FISCAL IMPACT

Increases general fund revenue $500,000.



Contact
Name:  Dan John, State Tax Commission 
Phone: 334-7530


STATEMENT OF PURPOSE/FISCAL NOTE                     H 26