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H0541...............................................by REVENUE AND TAXATION
INCOME TAX - Amends and adds to existing law relating to income taxes to
match taxable income with related expenses, to provide for deduction of
expenses incurred in earning income subject to Idaho income tax and to deny
deductions for expenses not related to Idaho taxable income.
01/28 House intro - 1st rdg - to printing
01/29 Rpt prt - to Rev/Tax
02/10 Rpt out - rec d/p - to 2nd rdg
02/11 2nd rdg - to 3rd rdg
02/17 3rd rdg - PASSED - 66-0-4
AYES -- Alltus, Barraclough, Barrett, Bell, Bieter, Bivens,
Black(15), Boe, Bruneel, Callister, Campbell, Chase, Clark, Crane,
Crow, Cuddy, Deal, Denney, Ellsworth, Field(13), Field(20), Gagner,
Geddes, Gould, Hadley, Hansen, Henbest, Hornbeck, Jaquet, Jones(9),
Jones(22), Jones(20), Judd, Kellogg, Kempton, Kendell, Kjellander,
Kunz, Lake, Linford, Loertscher, Mader, Marley, McKague, Meyer,
Miller, Mortensen, Newcomb, Pischner, Pomeroy, Reynolds, Richman,
Ridinger, Robison, Sali, Schaefer, Stevenson, Stoicheff, Taylor,
Tilman, Tippets, Trail, Watson, Wheeler, Wood, Zimmermann
NAYS -- None
Absent and excused -- Black(23), Stone, Stubbs, Mr Speaker
Floor Sponsor - Kempton
Title apvd - to Senate
02/18 Senate intro - 1st rdg - to Loc Gov
02/24 Rpt out - rec d/p - to 2nd rdg
02/25 2nd rdg - to 3rd rdg
03/10 3rd rdg - PASSED - 34-0-1
AYES--Andreason, Boatright, Branch, Bunderson, Burtenshaw, Cameron,
Crow, Danielson, Darrington, Deide, Dunklin, Frasure, Geddes, Hansen,
Hawkins, Ingram, Ipsen, Keough, King, Lee, McLaughlin, Noh, Parry,
Richardson, Riggs, Risch, Sandy, Schroeder, Stennett, Sweeney,
Thorne, Twiggs, Wheeler, Whitworth
NAYS--None
Absent and excused--Sorensen
Floor Sponsor - Thorne
Title apvd - to House
03/11 To enrol
03/12 Rpt enrol - Sp signed
03/13 Pres signed
03/16 To Governor
03/17 Governor signed
Session Law Chapter 42
Effective: 01/01/98
H0541|||| LEGISLATURE OF THE STATE OF IDAHO |||| Fifty-fourth Legislature Second Regular Session - 1998IN THE HOUSE OF REPRESENTATIVES HOUSE BILL NO. 541 BY REVENUE AND TAXATION COMMITTEE 1 AN ACT 2 RELATING TO INCOME TAXES; AMENDING SECTION 63-3021, IDAHO CODE, TO PROVIDE A 3 CORRECT CODE REFERENCE; AMENDING SECTION 63-3022, IDAHO CODE, TO DELETE 4 PROVISIONS RELATING TO INTEREST OFFSETS, TO ALLOW CERTAIN DEDUCTIONS FOR 5 CORPORATIONS IN A COMBINED REPORT AND TO DELETE AN OBSOLETE PROVISION; 6 AMENDING CHAPTER 30, TITLE 63, IDAHO CODE, BY THE ADDITION OF A NEW SEC- 7 TION 63-3022M, IDAHO CODE, TO PROVIDE FOR EXPENSES AND INTEREST RELATING 8 TO TAX EXEMPT INCOME; AMENDING SECTION 63-3026A, IDAHO CODE, TO PROVIDE A 9 CORRECT CODE REFERENCE AND TO MAKE A TECHNICAL CORRECTION; AMENDING SEC- 10 TION 63-3027, IDAHO CODE, TO PROVIDE FOR EXPENSES AND INTEREST RELATING TO 11 NONBUSINESS INCOME, TO PROVIDE CORRECT CODE REFERENCES AND TO MAKE A TECH- 12 NICAL CORRECTION; DECLARING AN EMERGENCY AND PROVIDING A RETROACTIVE 13 EFFECTIVE DATE. 14 Be It Enacted by the Legislature of the State of Idaho: 15 SECTION 1. That Section 63-3021, Idaho Code, be, and the same is hereby 16 amended to read as follows: 17 63-3021. NET OPERATING LOSS. (a) The term "net operating loss" means the 18 amount by which Idaho taxable income, after making the modifications specified 19 in subsection (b) of this section, is less than zero. 20 (b) Add the following amounts: 21 (1) The amount of any net operating loss deduction included in Idaho tax- 22 able income. 23 (2) In the case of a taxpayer other than a corporation: 24 (i) Any amount deducted due to losses in excess of gains from sales 25 or exchanges of capital assets; and 26 (ii) Any deduction for long-term capital gains provided by this chap- 27 ter. 28 (3) Any deduction allowed under section 151 of the Internal Revenue Code 29 (relating to personal exemption) or any deduction in lieu of any such 30 deduction. 31 (4) Any deduction for the standard or itemized deductions provided for in 32 section 63 of the Internal Revenue Code, or section 63-3022(l33k ), Idaho Code, except for any deduction allowable 34 under section 165(c)(3) of the Internal Revenue Code (relating to casualty 35 losses) pertaining to property physically located inside Idaho at the time 36 of the casualty. 37 SECTION 2. That Section 63-3022, Idaho Code, be, and the same is hereby 38 amended to read as follows: 39 63-3022. ADJUSTMENTS TO TAXABLE INCOME. The additions and subtractions 40 set forth in this section, and in sections 63-3022A through 63-3022L41M , Idaho Code, are to be applied to the extent allowed in 2 1 computing Idaho taxable income: 2 (a)Add interest and dividends received or accrued during the tax-3able year from foreign securities and from securities issued by states and4other political subdivisions, other than those issued by the state of Idaho,5its cities and political subdivisions, exempt from federal income tax under6the Internal Revenue Code, less applicable amortization.7(1) In the case of a corporation whose income is taxable under this chap-8ter, no deduction shall be allowed for interest on indebtedness incurred9or continued to purchase after January 1, 1983, or to carry obligations10acquired after January 1, 1983, the interest of which is wholly exempt11from the taxes imposed under this chapter. The amount of interest on12indebtedness thus incurred or continued shall be an amount which bears the13same ratio to the aggregate amount allowable (determined without regard to14this section) to the taxpayer as a deduction for interest for the taxable15year as the taxpayer's average adjusted basis of the obligations mentioned16in the preceding sentence bears to such average adjusted basis for all17assets of the taxpayer, or, at the option of the taxpayer, an amount which18bears the same ratio to the aggregate amount allowable (determined without19regard to this section) to the taxpayer as a deduction for interest for20the taxable year as the taxpayer's interest income from the obligations21mentioned in the preceding sentence bears to the taxpayer's total income22for the taxable year.23(2) In the case of a corporation whose Idaho taxable income is computed24pursuant to section 63-3027, Idaho Code, the interest expense deductible25shall be an amount equal to interest and dividend income subject to26apportionment, plus the amount, if any, by which the balance of interest27expense exceeds interest and dividend income not subject to apportionment.28Interest expense not included in the preceding sentence shall be directly29offset against interest and dividend income not subject to apportionment.30This provision shall not apply to dividend income excluded pursuant to31section 63-3027C(c) and (e), Idaho Code.32(b)Add any state taxes, measured by net income, paid or accrued 33 during the taxable year adjusted for state tax refunds used in arriving at 34 taxable income. 35 (cb ) Add the net operating loss deduction used 36 in arriving at taxable income. 37 (dc ) (1) A net operating loss for any taxable 38 year commencing on and after January 1, 1990, shall be a net operating 39 loss carryback not to exceed a total of one hundred thousand dollars 40 ($100,000) to the three (3) immediately preceding taxable years. Any por- 41 tion of the net operating loss not subtracted in the three (3) preceding 42 years may be subtracted in the next fifteen (15) years succeeding the tax- 43 able year in which the loss arises in order until exhausted. The sum of 44 the deductions may not exceed the amount of the net operating loss deduc- 45 tion incurred. At the election of the taxpayer, the three (3) year carry- 46 back may be foregone and the loss subtracted from income received in tax- 47 able years arising in the next fifteen (15) years succeeding the taxable 48 year in which the loss arises in order until exhausted. The election shall 49 be made as under section 172(b)(3) of the Internal Revenue Code. An elec- 50 tion under this subsection must be in the manner prescribed in the rules 51 of the state tax commission and once made is irrevocable for the year in 52 which it is made. The term "income" as used in this subsection (d53c ) means Idaho taxable income as defined in this chap- 54 ter as modified by section 63-3021(b)(2), (3) and (4), Idaho Code. 55 (2) Net operating losses incurred by a corporation during a year in which 3 1 such corporation did not transact business in Idaho or was not 2 included in a group of corporations combined under subsection (t) of sec- 3 tion 63-3027, Idaho Code, may not be subtracted. Net operating 4 losses incurred by a person, other than a corporation, in business activi- 5 ties not taxable by Idaho may not be subtracted. 6 (ed ) In the case of a corporation, add the 7 amount deducted under the provisions of sections 243(a) and (c), 244, 245 and 8 246A of the Internal Revenue Code (relating to dividends received by corpora- 9 tions) as limited by section 246(b)(1) of said code. 10 (fe ) In the case of a corporation, subtract an 11 amount determined under section 78 of the Internal Revenue Code to be taxable 12 as dividends. 13 (gf ) Subtract the amount of any income received 14 or accrued during the taxable year which is exempt from taxation by this 15 state, under the provisions of any other law of this state or a law of the 16 United States, if not previously subtracted in arriving at taxable income. 17 (hg ) In the case of corporations and partner- 18 ships, add Idaho taxable income of nonresident officers, directors, share- 19 holders, partners or members to the extent such income is attributed to the 20 corporation or partnership in section 63-3022L, Idaho Code. 21 (ih ) For the purpose of determining the Idaho 22 taxable income of the beneficiary of a trust or of an estate, distributable 23 net income as defined for federal tax purposes shall be corrected for the 24 other adjustments required by this section. In the event that a nonresident 25 beneficiary of a trust or estate fails to file an Idaho income tax return 26 reporting all or any part of distributable net income taxable in Idaho or 27 fails to pay any tax due thereon, the trust or estate making the payment or 28 distribution shall be taxable upon the amount of such distribution or payment 29 at the rates established by section 63-3024, Idaho Code. 30 (ji ) In the case of an individual who is on 31 active duty as a full-time officer, enlistee or draftee, with the armed forces 32 of the United States, which full-time duty is or will be continuous and unin- 33 terrupted for one hundred twenty (120) consecutive days or more, deduct com- 34 pensation paid by the armed forces of the United States for services performed 35 outside this state. The deduction is allowed only to the extent such income is 36 included in taxable income, and provided that appropriate adjustments shall be 37 made in determining the deductions and exemptions allowed pursuant to section 38 63-3026A(4), Idaho Code. 39 (kj ) In the case of a corporation, add any cap- 40 ital loss deducted which loss was incurred during any year in which such cor- 41 poration did not transact business in Idaho unless the corporation was 42 included in a group of corporations combined under subsection (t) of section 43 63-3027, Idaho Code . In the case of persons, other than corporations, 44 add any capital loss deducted which was incurred in business activities not 45 taxable by Idaho at the time such loss was incurred. In computing the income 46 taxable to an S corporation or partnership under this section, deduction shall 47 not be allowed for a carryover or carryback of a net operating loss provided 48 for in subsection (dc ) of this section or a capital 49 loss provided for in section 1212 of the Internal Revenue Code. 50 (lk ) In the case of an individual, there shall 51 be allowed as a deduction from gross income either (1) or (2) at the option of 52 the taxpayer: 53 (1) a. The standard deduction as defined in section 63, Internal Revenue 54 Code, plus contributions made to the state of Idaho for credit to the 55 medical assistance account, if such contributions were not previously 4 1 subtracted in arriving at taxable income, plus 2 b. Itemized expenditures of not to exceed one thousand dollars 3 ($1,000) per cared for member incurred in providing personal care 4 services to or for an immediate member of the taxpayer's family; such 5 services may be provided either in the taxpayer's home or the family 6 member's home; personal care services shall be as defined in chapter 7 56, title 39, Idaho Code, but the cared for member need not be medic- 8 aid eligible for the purposes of this section only, if he substan- 9 tially meets all of the other requirements of chapter 56, title 39, 10 Idaho Code; in order for the deduction under this paragraph to be 11 allowed, the expenditures claimed must not have been reimbursed by 12 medicare, medicaid or private insurance, and such expenditures must 13 not have been previously subtracted in arriving at taxable income. 14 (2) a. Itemized deductions as defined in section 63 of the Internal Rev- 15 enue Code except state income taxes as specified in section 164 of 16 the Internal Revenue Code, plus 17 b. Contributions made to the state of Idaho for credit to the medi- 18 cal assistance account, if such contributions were not previously 19 subtracted in arriving at taxable income, plus 20 c. Itemized expenditures of not to exceed one thousand dollars 21 ($1,000) per cared for member incurred in providing personal care 22 services to or for an immediate member of the taxpayer's family; such 23 services may be provided either in the taxpayer's home or the family 24 member's home; personal care services shall be as defined in chapter 25 56, title 39, Idaho Code, but the cared for member need not be medic- 26 aid eligible for the purposes of this section only, if he substan- 27 tially meets all of the other requirements of chapter 56, title 39, 28 Idaho Code; in order for the deduction under this paragraph c. to be 29 allowed, the expenditures claimed must not have been reimbursed by 30 medicare, medicaid or private insurance, and such expenditures must 31 not have been previously subtracted in arriving at taxable income. 32 (ml ) Deduct any amounts added to gross income 33 under section 87 of the Internal Revenue Code for tax credits allowable to the 34 taxpayer under section 40 of the Internal Revenue Code. 35 (nm ) Add the taxable amount of any lump sum 36 distribution deducted from gross income pursuant to section 402(d)(3) of the 37 Internal Revenue Code. The taxable amount will include the ordinary income 38 portion and the amount eligible for the capital gain election. 39 (on ) Deduct any amounts included in gross 40 income under the provisions of section 86 of the Internal Revenue Code relat- 41 ing to certain social security and railroad benefits. 42 (po ) In the case of a self-employed individual, 43 deduct the actual cost of premiums paid to secure worker's compensation insur- 44 ance for coverage in Idaho, if such cost has not been deducted in arriving at 45 taxable income. 46(q) Add the amount claimed as a credit under section 63-3029G,47Idaho Code, if previously deducted in arriving at taxable income.48 SECTION 3. That Chapter 30, Title 63, Idaho Code, be, and the same is 49 hereby amended by the addition thereto of a NEW SECTION , to be 50 known and designated as Section 63-3022M, Idaho Code, and to read as follows: 51 63-3022M. EXPENSES AND INTEREST RELATING TO TAX EXEMPT INCOME. For tax- 52 able years commencing on and after January 1, 1998: 53 (1) Add interest and dividends received or accrued during the taxable 5 1 year from foreign securities and from securities issued by states and other 2 political subdivisions exempt from federal income tax under the Internal Reve- 3 nue Code, less applicable amortization. 4 (2) Subtract interest and dividends received or accrued during the tax- 5 able year from securities issued: 6 (a) By the federal government and its instrumentalities to the extent 7 included in taxable income and not subject to taxation by this state, and 8 (b) By the state of Idaho, its cities and political subdivisions, exempt 9 from federal income tax under the Internal Revenue Code. 10 (3) No deduction shall be allowed for interest on indebtedness incurred 11 or continued to purchase or to carry obligations the interest of which is not 12 subject to the taxes imposed under this chapter. The amount of interest on 13 indebtedness thus incurred or continued shall be an amount which bears the 14 same ratio to the aggregate amount allowable (determined without regard to 15 this section) to the taxpayer as a deduction for interest for the taxable year 16 as the taxpayer's interest income from the obligations mentioned in the pre- 17 ceding sentence bears to the taxpayer's total income for the taxable year. 18 (4) No deduction shall be allowed for expenses (other than interest) 19 attributable to interest or dividend income which is not subject to the taxes 20 imposed under this chapter. 21 (5) A deduction shall be allowed for expenses disallowed under sections 22 265 and 291 of the Internal Revenue Code to the extent such expenses are 23 attributable to interest and dividends received or accrued during the taxable 24 year from foreign securities and from securities issued by states and other 25 political subdivisions exempt from federal income tax under the Internal Reve- 26 nue Code and not excluded under subsection (3) or (4) of this section. The 27 deduction under this subsection shall not exceed the amount of interest and 28 dividend income added pursuant to subsection (1) of this section less interest 29 and dividend income from the state of Idaho, its cities and political subdivi- 30 sions, subtracted pursuant to subsection (2) of this section. 31 SECTION 4. That Section 63-3026A, Idaho Code, be, and the same is hereby 32 amended to read as follows: 33 63-3026A. COMPUTING IDAHO TAXABLE INCOME OF PART-YEAR OR NONRESIDENT 34 INDIVIDUALS, TRUSTS AND ESTATES. (1) For nonresident individuals, trusts, or 35 estates the term "Idaho taxable income" includes only those components of 36 Idaho taxable income as computed for a resident which are derived from or 37 related to sources within Idaho. This is to be computed without the deductions 38 for either the standard deduction or itemized deductions or personal exemp- 39 tions except as provided in subsection (4) of this section. 40 (2) For part-year resident individuals, trusts or estates the term "Idaho 41 taxable income" includes the total of: (a) Idaho taxable income as computed 42 for a resident for the portion of the tax period during which a taxpayer is 43 domiciled in or is residing in Idaho, plus (b) those components of Idaho tax- 44 able income which are derived from or related to sources within Idaho for that 45 portion of the tax period during which a taxpayer is not domiciled in and is 46 not residing in Idaho. This is to be computed without the deductions for 47 either the standard deduction or itemized deductions or personal exemptions 48 except as provided in subsection (4) of this section. 49 (3) For the purposes of subsections (1) and (2) of this section: 50 (a) Income shall be considered derived from or relating to sources within 51 Idaho when such income is attributable to or resulting from: 52 (i) Any business, trade, profession or occupation conducted or car- 53 ried on in this state, including the distributive share of partner- 6 1 ship income and deductions, and the pro rata share of S corporation 2 income and deductions; 3 (ii) The ownership or disposition of any interest in real or tangi- 4 ble personal property located in this state; 5 (iii) The ownership or disposition of any interest in intangible per- 6 sonal property only to the extent that such property is employed in a 7 business, trade, profession or occupation conducted or carried on in 8 this state. Provided however, that interest income from an install- 9 ment sale of real or tangible personal property shall constitute 10 income from sources within this state to the extent that the prop- 11 erty sold was located within this state. Provided further, that 12 interest income received by a partner or shareholder of a partnership 13 or S corporation from such partnership or S corporation shall consti- 14 tute income from sources within this state to the extent that the 15 partnership or S corporation is transacting business within this 16 state; 17 (iv) A resident estate or trust; 18 (v) A nonresident estate or trust to the extent the income and 19 deductions of the nonresident estate or trust were derived from or 20 related to sources within this state; 21 (vi) The conduct of pari-mutuel wagering, charitable gaming or any 22 other form of gambling taking place within this state, except as 23 expressly limited in section 67-7439, Idaho Code. 24 (b) Notwithstanding the provisions of subsection (3)(a) of this section, 25 transactions and investments made, placed or directed by Idaho resident 26 registered broker-dealers and investment advisers or institutions exempt 27 from registration under the Idaho securities act in securities listed with 28 or through the New York Stock Exchange, the American Stock Exchange or any 29 other stock exchange registered with the United States securities and 30 exchange commission and approved by the director of the department of 31 finance which generate dividends, interest, capital gains or similar prof- 32 its or returns for nonresidents not otherwise subject to Idaho income tax- 33 ation shall not result in the intangible property being deemed to have a 34 situs outside the domicile of the owner. 35 (c) Compensation paid by the United States for active service in the 36 armed forces of the United States, performed by an individual not domi- 37 ciled in this state, shall not constitute income derived from or related 38 to sources within this state. 39 (d) The income of nonresident or part-year resident individuals, trusts 40 or estates which is derived from or related to sources both within and 41 without this state shall be attributable to this state in the manner pre- 42 scribed in the rules of the state tax commission. 43 (4) In computing the Idaho taxable income of a part-year or nonresident 44 individual, trust or estate, the standard deduction or itemized deductions, as 45 defined in section 63-3022(1k ), Idaho Code, if 46 applicable, and the exemptions, as defined in section 151 of thei47I nternalrR evenuec48C ode or any allowance in lieu of such deduction, shall be 49 allowed in the proportion that paragraph (a) of this subsection bears to para- 50 graph (b) of this subsection: 51 (a) The Idaho taxable income of the taxpayer modified as follows: 52 (i) No allowance shall be made for either the standard deduction or 53 itemized deductions; 54 (ii) No deduction shall be made for personal exemptions or any 55 allowance in lieu of such deduction. 7 1 (b) The Idaho taxable income as would be calculated for a resident of 2 Idaho modified as follows: 3 (i) No allowance shall be made for either a standard deduction or 4 itemized deductions; 5 (ii) No deduction shall be made for personal exemptions or any 6 allowance in lieu of such deduction; 7 (iii) Compensation for active military service in the armed forces 8 shall not be deducted; 9 (iv) Income earned within the original exterior boundaries of any 10 federally created Indian reservation by an enrolled Indian in a fed- 11 erally recognized Indian tribe on a federally recognized Indian res- 12 ervation shall be added if not otherwise included. 13 (5) An adjustment may be made to eliminate distortions in the amount of 14 net income attributable to a taxpayer's activities within the state of Idaho. 15 Such deductions shall be limited to circumstances involving itemized deduc- 16 tions as referred to in subsection (4) of this section and which reflect: 17 (a) A failure to reflect the net income or deduction after reimbursements 18 have been received; or 19 (b) A failure to reflect the net amount of mortgage interest income or 20 expense from activities within Idaho. 21 (6) For the purposes of subsections (1) and (2) of this section, deduc- 22 tions and adjustments allowed in computing the Idaho taxable income of nonres- 23 ident and part-year resident individuals, trusts and estates shall be pre- 24 scribed in the rules of the state tax commission. Such rules shall be based 25 upon: 26 (a) Whether or not the deduction or adjustment is related to the produc- 27 tion of income reportable to Idaho; 28 (b) Whether or not the deduction or adjustment is related to income 29 received, expenses paid, or events of tax consequence which occurred dur- 30 ing a portion of a taxable year that the taxpayer was domiciled in or 31 residing in Idaho; or 32 (c) Any other appropriate basis for making the adjustment. An 33 "appropriate basis" is one which the state tax commission finds is needed 34 to insure that the amount of Idaho taxable income is fairly and reasonably 35 related to a taxpayer's activities in this state. 36 SECTION 5. That Section 63-3027, Idaho Code, be, and the same is hereby 37 amended to read as follows: 38 63-3027. COMPUTING IDAHO TAXABLE INCOME OF MULTISTATE OR UNITARY CORPORA- 39 TIONS. The Idaho taxable income of any multistate or unitary corporation 40 transacting business both within and without this state shall be computed in 41 accordance with the rules set forth in this section: 42 (a) As used in this section, unless the context otherwise requires: 43 (1) "Business income" means income arising from transactions and activity 44 in the regular course of the taxpayer's trade or business and includes 45 income from the acquisition, management, or disposition of tangible and 46 intangible property when such acquisition, management, or disposition con- 47 stitute integral or necessary parts of the taxpayer's trade or business 48 operations. Gains or losses and dividend and interest income from stock 49 and securities of any foreign or domestic corporation shall be presumed to 50 be income from intangible property, the acquisition, management, or dispo- 51 sition of which constitute an integral part of the taxpayer's trade or 52 business; such presumption may only be overcome by clear and convincing 53 evidence to the contrary. 8 1 (2) "Commercial domicile" means the principal place from which the trade 2 or business of the taxpayer is directed or managed. 3 (3) "Compensation" means wages, salaries, commissions and any other form 4 of remuneration paid to employees for personal services. 5 (4) "Nonbusiness income" means all income other than business income. 6 (5) "Sales" mean s all gross receipts of the taxpayer not 7 allocated under subsections (d) through (h) of this section. 8 (6) "State" means any state of the United States, the District of Colum- 9 bia, the Commonwealth of Puerto Rico, any territory or possession of the 10 United States, and any foreign country or political subdivision thereof. 11 (b) Any taxpayer having income from business activity which is taxable 12 both within and without this state shall allocate and apportion such net 13 income as provided in this section. 14 (c) For purposes of allocation and apportionment of income under this 15 section, a taxpayer is taxable in another state if: 16 (1) In that state he is subject to a net income tax, a franchise tax mea- 17 sured by net income, a franchise tax for the privilege of doing business, 18 or a corporate stock tax; or 19 (2) That state has jurisdiction to subject the taxpayer to a net income 20 tax regardless of whether, in fact, the state does or does not. 21 (d) Rents and royalties from real or tangible personal property, capital 22 gains interest, dividends, or patent or copyright royalties, to the extent 23 that they constitute nonbusiness income, shall be allocated as provided in 24 subsections (e) through (h) of this section. Allocable nonbusiness 25 income shall be limited to the total nonbusiness income received which is in 26 excess of any related expenses which have been allowed as a deduction during 27 the taxable year. In the case of allocable nonbusiness interest or dividends, 28 related expenses include interest on indebtedness incurred or continued to 29 purchase or carry assets on which the interest or dividends are nonbusiness 30 income. 31 (e) (1) Net rents and royalties from real property located in this state 32 are allocable to this state. 33 (2) Net rents and royalties from tangible personal property are allocable 34 to this state: 35 (i) if and to the extent that the property is utilized in this 36 state, or 37 (ii) in their entirety if the taxpayer's commercial domicile is in 38 this state and the taxpayer is not organized under the laws of or 39 taxable in the state in which the property is utilized. 40 (3) The extent of utilization of tangible personal property in a state is 41 determined by multiplying the rents and royalties by a fraction, the 42 numerator of which is the number of days of physical location of the prop- 43 erty in the state during the rental or royalty period in the taxable year 44 and the denominator of which is the number of days of physical location of 45 the property everywhere during all rental or royalty periods in the tax- 46 able year. If the physical location of the property during the rental or 47 royalty period is unknown or unascertainable by the taxpayer, tangible 48 personal property is utilized in the state in which the property was 49 located at the time the rental or royalty payer obtained possession. 50 (f) (1) Capital gains and losses from sales of real property located in 51 this state are allocable to this state. 52 (2) Capital gains and losses from sales of tangible personal property are 53 allocable to this state if: 54 (i) the property had a situs in this state at the time of the sale, 55 or 9 1 (ii) the taxpayer's commercial domicile is in this state and the tax- 2 payer is not taxable in the state in which the property had a situs. 3 (3) Capital gains and losses from sales of intangible personal property 4 are allocable to this state if the taxpayer's commercial domicile is in 5 this state, unless such gains and losses constitute business income as 6 defined in this section. 7 (g) Interest and dividends are allocable to this state if the taxpayer's 8 commercial domicile is in this state unless such interest or dividends consti- 9 tute business income as defined in this section. 10 (h) (1) Patent and copyright royalties are allocable to this state: 11 (i) if and to the extent that the patent or copyright is utilized by 12 the payer in this state, or 13 (ii) if and to the extent that the patent or copyright is utilized by 14 the payer in a state in which the taxpayer is not taxable and the 15 taxpayer's commercial domicile is in this state. 16 (2) A patent is utilized in a state to the extent that it is employed in 17 production, fabrication, manufacturing, or other processing in the state 18 or to the extent that a patent product is produced in the state. If the 19 basis of receipts from patent royalties does not permit allocation to 20 states or if the accounting procedures do not reflect states of utiliza- 21 tion, the patent is utilized in the state in which the taxpayer's commer- 22 cial domicile is located. 23 (3) A copyright is utilized in a state to the extent that printing or 24 other publication originates in the state. If the basis of receipts from 25 copyright royalties does not permit allocation to states or if the 26 accounting procedures do not reflect states of utilization, the copyright 27 is utilized in the state in which the taxpayer's commercial domicile is 28 located. 29 (i) (1) Notwithstanding the election allowed in Article III.1 of the 30 multistate tax compact enacted as section 63-3701, Idaho Code, all busi- 31 ness income shall be apportioned to this state under subsection (j) of 32 this section by multiplying the income by a fraction, the numerator of 33 which is the property factor plus the payroll factor plus two (2) times 34 the sales factor, and the denominator of which is four (4), except as pro- 35 vided in paragraph (2) of this subsection. 36 (2) If a corporation, or a parent corporation of a combined group filing 37 a combined report under sections 63-3027 and 63-3701, Idaho Code, is an 38 electrical corporation as defined in section 61-119, Idaho Code, or is a 39 telephone corporation as defined in section 62-603, Idaho Code, all busi- 40 ness income of the corporation shall be apportioned to this state by mul- 41 tiplying the income by a fraction, the numerator of which is the property 42 factor plus the payroll factor plus the sales factor, and the denominator 43 of which is three (3). 44 (j) (1) In the case of a corporation or group of corporations combined 45 under subsection (t) of this section, Idaho taxable income or loss of the 46 corporation or combined group shall be determined as follows: 47 (i) from the income or loss of the corporation or combined group of 48 corporations, subtract any nonbusiness income, and add any 49 nonbusiness loss, included in the total, 50 (ii) multiply the amounts determined under paragraph (1)(i) of this 51 subsection by the Idaho apportionment percentage defined in subsec- 52 tion (i) of this section, taking into account, where applicable, the 53 property, payroll and sales of all corporations, wherever incorpo- 54 rated, which are included in the combined group. The resulting prod- 55 uct shall be the amount of business income or loss apportioned to 10 1 Idaho. 2 (2) To the amount determined as apportioned business income or loss under 3 paragraph (1)(ii) of this subsection, add nonbusiness income allocable 4 entirely to Idaho under the provisions of this section or subtract 5 nonbusiness loss allocable entirely to Idaho under this section. The 6 resulting sum is the Idaho taxable income or loss of the corporation. 7 (3) In the case of a corporation not subject to subsection (t) of this 8 section, the income or loss referred to in paragraph (1)(i) of this sub- 9 section, shall be the taxable income of the corporation after making 10 appropriate adjustments under the provisions of section 63-3022, Idaho 11 Code. 12 (k) The property factor is a fraction, the numerator of which is the 13 average value of the taxpayer's real and tangible personal property owned or 14 rented and used in this state during the tax period and the denominator of 15 which is the average value of all the taxpayer's real and tangible personal 16 property owned or rented and used during the tax period. 17 (l) Property owned by the taxpayer is valued at its original cost. Prop- 18 erty rented by the taxpayer is valued at eight (8) times the net annual rental 19 rate. Net annual rental rate is the annual rental rate paid by the taxpayer 20 less any annual rental rate received by the taxpayer from subrentals. 21 (m) The average value of property shall be determined by averaging the 22 values at the beginning and ending of the tax period, but the state tax com- 23 mission may require the averaging of monthly values during the tax period if 24 reasonably required to reflect properly the average value of the taxpayer's 25 property. 26 (n) The payroll factor is a fraction, the numerator of which is the total 27 amount paid in this state during the tax period by the taxpayer for compensa- 28 tion, and the denominator of which is the total compensation paid everywhere 29 during the tax period. 30 (o) Compensation is paid in this state if: 31 (1) The individual's service is performed entirely within the state; or 32 (2) The individual's service is performed both within and without the 33 state, but the service performed without the state is incidental to the 34 individual's service within the state; or 35 (3) Some of the service is performed in the state and 36 (i) the base of operations or, if there is no base of operations, 37 the place from which the service is directed or controlled is in the 38 state, or 39 (ii) the base of operations or the place from which the service is 40 directed or controlled is not in any state in which some part of the 41 service is performed, but the individual's residence is in this 42 state. 43 (p) The sales factor is a fraction, the numerator of which is the total 44 sales of the taxpayer in this state during the tax period, and the denominator 45 of which is the total sales of the taxpayer everywhere during the tax period. 46 (q) Sales of tangible personal property are in this state if: 47 (1) The property is delivered or shipped to a purchaser, other than the 48 United States government, within this state regardless of the f.o.b. point 49 or other conditions of the sale, or 50 (2) The property is shipped from an office, store, warehouse, factory, or 51 other place of storage in this state and 52 (i) the purchaser is the United States government or 53 (ii) the taxpayer is not taxable in the state of the purchaser. 54 (r) Sales, other than sales of tangible property, are in this state, if: 55 (1) The income-producing activity is performed in this state; or 11 1 (2) The income-producing activity is performed both in and outside this 2 state and a greater proportion of the income-producing activity is per- 3 formed in this state than in any other state, based on costs of perfor- 4 mance. 5 (s) If the allocation and apportionment provisions of this section do not 6 fairly represent the extent of the taxpayer's business activity in this state, 7 the taxpayer may petition for or the state tax commission may require, in 8 respect to all or any part of the taxpayer's business activity, if reasonable: 9 (1) Separate accounting, provided that only that portion of general 10 expenses clearly identifiable with Idaho business operations shall be 11 allowed as a deduction; 12 (2) The exclusion of any one (1) or more of the factors; 13 (3) The inclusion of one (1) or more additional factors which will fairly 14 represent the taxpayer's business activity in this state; or 15 (4) The employment of any other method to effectuate an equitable alloca- 16 tion and apportionment of the taxpayer's income. 17 (t) For purposes of this section and sections 63-3027B through 63-3027E, 18 Idaho Code, the income of two (2) or more corporations, wherever incorporated, 19 the voting stock of which is more than fifty percent (50%) owned directly or 20 indirectly by a common owner or owners, when necessary to accurately reflect 21 income, shall be allocated or apportioned as if the group of corporations were 22 a single corporation, in which event: 23 (1) The Idaho taxable income of any corporation subject to taxation in 24 this state shall be determined by use of a combined report which includes 25 the income, determined under subparagraph (2) of this subsection, of all 26 corporations which are members of a unitary business, allocated and appor- 27 tioned using apportionment factors for all corporations included in the 28 combined report and methods set out in this section. The use of a combined 29 report does not disregard the separate corporate identities of the members 30 of the unitary group. Each corporation which is transacting business in 31 this state is responsible for its apportioned share of the combined busi- 32 ness income plus its nonbusiness income or loss allocated to Idaho, minus 33 its net operating loss carryover or carryback. 34 (2) The income of a corporation to be included in a combined report shall 35 be determined as follows: 36 (i) for a corporation incorporated in the United States or included 37 in a consolidated federal corporation income tax return, the income 38 to be included in the combined report shall be the taxable income for 39 the corporation after making appropriate adjustments under the provi- 40 sions of section 63-3022, Idaho Code; 41 (ii) for a corporation incorporated outside the United States, but 42 not included in subsection (t)(2)(i) of this section, the income to 43 be included in the combined report shall be the net income before 44 income taxes of such corporation stated on the profit and loss state- 45 ments of such corporation which are included within the consolidated 46 profit and loss statement prepared for the group of related corpora- 47 tions of which the corporation is a member, which statement is pre- 48 pared for filing with the United States securities and exchange com- 49 mission. If the group of related companies is not required to file 50 such profit and loss statement with the United States securities and 51 exchange commission, the profit and loss statement prepared for 52 reporting to shareholders and subject to review by an independent 53 auditor may be used to obtain net income before income taxes. In the 54 alternative, and subject to reasonable substantiation and consistent 55 application by the group of related companies, adjustments may be 12 1 made to the profit and loss statements of the corporation incorpo- 2 rated outside the United States, if necessary, to conform such state- 3 ments to tax accounting standards as required by the Internal Revenue 4 Code as if such corporation were incorporated in the United States 5 and required to file a federal income tax return, subject to appro- 6 priate adjustments under the provisions of section 63-3022, Idaho 7 Code; and 8 (iii) if the income computation for a group under paragraphs (i) and 9 (ii) of this subsection results in a loss, such loss shall be taken 10 into account in other years, subject to the provisions of subsections 11 (cb ) and (dc ) of 12 section 63-3022, Idaho Code. 13 (u) If compensation is paid in the form of a reasonable cash fee for the 14 performance of management services directly for the United States government 15 at the Idaho national engineering laboratory, separate accounting for that 16 part of the business activity without regard to other activity of the taxpayer 17 in the state of Idaho or elsewhere shall be required; provided that only that 18 portion of general expenses clearly identifiable with Idaho business opera- 19 tions of that activity shall be allowed as a deduction. 20 SECTION 6. An emergency existing therefor, which emergency is hereby 21 declared to exist, this act shall be in full force and effect on and after its 22 passage and approval, and retroactively to January 1, 1998.
STATEMENT OF PURPOSE
RS07390
This bill provides more specific rules for matching taxable income with related expenses.
It allows deductions for expenses incurred in earning income subject to Idaho income tax
and denies deductions for expenses not related to Idaho taxable income.
In section 63-3022 subsection (a) is repealed. New provisions are added in new section
63-3022M. Subsections (c) (2) and (h) are amended to state that the net operating and
capital losses incurred by corporations included in a combined report are deductible even
if the corporation incurring the loss is not doing business in Idaho.
A new section 63-3022M is added to provide:
1. An addition to federal taxable income of income received from foreign securities and
state and local securities.
2. An Idaho deduction for income from Idaho state and local securities exempt from
federal tax and US securities Idaho can not tax.
3. A disallowance of deductions for interest expense related to non-taxable interest
income or other expenses related to earning non-taxable interest.
4. A deduction for expenses (including interest) related to earning interest and dividends
exempt from federal tax but that are subject to Idaho tax.
Section 63-3027(d) is amended to require an offset against non-business income of
expenses (including interest) included in earning the income.
Sections 63-3021 and 63-3026A are amended only to correct cross-references to
subsections renumbered in the bill.
FISCAL IMPACT
Additional $50,000 to the General Fund.
CONTACT
Name: Dan John/Ted Spangler
Agency: State Tax Commission
Phone: 334-7530
Statement of Purpose/Fiscal Impact
H 541