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H0460...............................................by REVENUE AND TAXATION INCOME TAX - CORPORATE - Amends existing law to clarify the income tax laws to allow "pass through entities" such as partnerships, S corporations and limited liability companies to pay the tax on behalf of certain individual partners, shareholders, officers, owners or directors and extends the election to beneficiaries of estates and trusts. 01/28 House intro - 1st rdg - to printing 01/31 Rpt prt - to Rev/Tax 02/08 Rpt out - rec d/p - to 2nd rdg 02/09 2nd rdg - to 3rd rdg 02/10 3rd rdg - PASSED - 68-0-2 AYES -- Alltus, Barraclough, Barrett, Bell, Bieter, Black, Boe, Bruneel, Callister, Campbell, Chase, Cheirrett, Clark, Crow, Cuddy, Deal, Denney, Ellsworth, Field(13), Field(20), Geddes, Gould, Hadley, Hammond, Hansen(23), Hansen(29), Henbest, Hornbeck, Jaquet, Jones, Judd, Kellogg, Kempton, Kendell, Kunz, Lake, Linford, Loertscher, Mader, Marley, McKague, Meyer, Montgomery, Mortensen, Moyle, Pearce, Pischner, Pomeroy, Reynolds, Ridinger, Ringo, Robison, Sali, Schaefer, Sellman, Shepherd, Smith, Smylie, Stevenson, Stoicheff, Stone, Taylor, Tilman, Trail(Miller), Wheeler, Wood, Zimmermann, Mr Speaker NAYS -- None Absent and excused -- Gagner, Moss Floor Sponsor - Ridinger Title apvd - to Senate 02/11 Senate intro - 1st rdg - to Loc Gov 02/28 Rpt out - rec d/p - to 2nd rdg 02/29 2nd rdg - to 3rd rdg 03/16 3rd rdg - PASSED - 29-3-3 AYES--Andreason, Boatright, Branch, Bunderson, Burtenshaw, Cameron, Crow, Danielson, Darrington, Deide, Dunklin, Frasure, Geddes, Ingram, Ipsen, Keough, Lee, McLaughlin, Noh, Richardson, Riggs, Risch, Sandy, Schroeder, Sorensen, Stegner, Stennett, Wheeler, Williams NAYS--Hawkins, Parry, Whitworth Absent and excused--Davis, King-Barrutia, Thorne Floor Sponsor - Bunderson Title apvd - to House 03/17 To enrol 03/20 Rpt enrol - Sp signed 03/21 Pres signed 03/22 To Governor Governor signed Session Law Chapter 38 Effective: 01/01/00
|||| LEGISLATURE OF THE STATE OF IDAHO |||| Fifty-fifth Legislature Second Regular Session - 2000 IN THE HOUSE OF REPRESENTATIVES HOUSE BILL NO. 460 BY REVENUE AND TAXATION COMMITTEE 1 AN ACT 2 RELATING TO INCOME TAXES; AMENDING SECTION 63-3022L, IDAHO CODE, TO PROVIDE AN 3 ELECTION FOR THE METHOD OF REPORTING CERTAIN INCOME EARNED IN IDAHO BY 4 BENEFICIARIES OF TRUSTS AND ESTATES AND TO CLARIFY THAT ENTITIES PAYING 5 THE TAX FOR INDIVIDUALS MAKING THE ELECTION DO NOT INCREASE THEIR OWN TAX- 6 ABLE INCOME OR LOSS; AMENDING SECTION 63-3082, IDAHO CODE, TO PROVIDE THAT 7 TRUSTS AND ESTATES THAT ARE PAYING THE TAX OF BENEFICIARIES ALSO PAY THE 8 PERMANENT BUILDING FUND TAX; AMENDING SECTION 63-3021, IDAHO CODE, TO PRO- 9 VIDE A CORRECT CITATION; AMENDING SECTION 63-3022, IDAHO CODE, TO PROVIDE 10 A DATE CHANGE AND TO STRIKE LANGUAGE RENDERED IMMATERIAL AND INCONSTANT; 11 AMENDING SECTION 63-3026A, IDAHO CODE, TO PROVIDE A CORRECT CITATION; 12 DECLARING AN EMERGENCY AND PROVIDING A RETROACTIVE EFFECTIVE DATE. 13 Be It Enacted by the Legislature of the State of Idaho: 14 SECTION 1. That Section 63-3022L, Idaho Code, be, and the same is hereby 15 amended to read as follows: 16 63-3022L. INDIVIDUALS WHO ARE OFFICERS, DIRECTORS, SHAREHOLDERS, PARTNERS 17 OR MEMBERS OF A CORPORATION OR PARTNERSHIP OR BENEFICIARIES OF A TRUST OR 18 ESTATE. (1) Individuals who are officers, directors, shareholders, partners or 19 members of a corporation or partnership transacting business in Idaho or who 20 are beneficiaries of a trust or estate with income taxable in Idaho may elect 21 to have Idaho taxabletax relating to income described in subsection (2) of 22 this section reported and taxed as Idaho taxable income ofpaid by the corpo- 23 ration, orpartnership, trust or estate. Income subject to the election in 24 this subsection shall be taxed at the rate applicable to corporations. The 25 election shall be made on the return of the corporation, orpartnership, trust 26 or estate from which the income is received. and on which the income is27 reported in Idaho taxable income.The election in this section is not avail- 28 able to an individual who has Idaho taxable income in addition to income 29 described in subsection (2) of this section. 30 (2) The election in subsection (1) of this section applies to: 31 (a) Wages, salary and other compensation paid by the corporation, or32 partnership, trust or estate to such officers, directors, shareholders, 33 partners, ormembers or beneficiaries to the extent the compensation is 34 Idaho taxable income of the individual to whom it is paid under section 35 63-3026A, Idaho Code; and 36 (b) The share of any income, loss, deduction or credit of an S corpora- 37 tion, orpartnership, trust or estate required to be included on such 38 shareholder's, partner's, ormember's or beneficiary's federal return 39 except that such amount shall first be apportioned and allocated in the 40 manner provided in section 63-3027, Idaho Code. 41 (c) When the gross income attributable to an individual under paragraphs 42 (a) and (b) of this subsection (2) is less than the filing requirement of 43 the individual under section 63-3030, Idaho Code, the income is not income 2 1 under this subsection. 2 (3) If no election is made and an officer, director, shareholder, 3 partner, ormember, or beneficiary of a corporation, orpartnership, trust or 4 estate transacting business in Idaho fails to file an Idaho income tax return 5 reporting all or any part of the items described in subsection (2) of this 6 section or fails to pay any tax due thereon, such corporation, orpartnership, 7 trust or estate shall includebe liable for tax on such items in its Idaho8 taxable income and be taxedat the rate applicable to corporations. 9 (4) The provisions of this section shall not apply to a corporation, 10 other than an S corporation, with less than fifty percent (50%) of its income 11 taxable within this state. 12 SECTION 2. That Section 63-3082, Idaho Code, be, and the same is hereby 13 amended to read as follows: 14 63-3082. ADDITIONAL TAX REQUIRED WHEN FILING INCOME TAX RETURN. (1) Every 15 person required to file an income tax return shall pay a tax of ten dollars 16 ($10.00). For this purpose, a husband and wife filing a joint return shall be 17 deemed a single person. This tax shall be in the nature of an excise tax upon 18 the receipt of the income which requires the filing of such return. 19 (2) When, pursuant to section 63-3022L, Idaho Code, the income tax of an 20 individual officer, director, shareholder, partner or member of a corporation 21 or partnership, or of a beneficiary of a trust or estate is taxed as Idaho22 taxable income ofpaid by the corporation, orpartnership, trust or estate, 23 the corporation, orpartnership, trust or estate shall also pay the tax 24 imposed in subsection (1) of this section for each individual. 25 (3) For purposes of this section, a husband and wife filing a joint fed- 26 eral return may be deemed a single individual. 27 SECTION 3. That Section 63-3021, Idaho Code, be, and the same is hereby 28 amended to read as follows: 29 63-3021. NET OPERATING LOSS. (a) The term "net operating loss" means the 30 amount by which Idaho taxable income, after making the modifications specified 31 in subsection (b) of this section, is less than zero. 32 (b) Add the following amounts: 33 (1) The amount of any net operating loss deduction included in Idaho tax- 34 able income. 35 (2) In the case of a taxpayer other than a corporation: 36 (i) Any amount deducted due to losses in excess of gains from sales 37 or exchanges of capital assets; and 38 (ii) Any deduction for long-term capital gains provided by this chap- 39 ter. 40 (3) Any deduction allowed under section 151 of the Internal Revenue Code 41 (relating to personal exemption) or any deduction in lieu of any such 42 deduction. 43 (4) Any deduction for the standard or itemized deductions provided for in 44 section 63 of the Internal Revenue Code, or section 63-3022( kj), Idaho 45 Code, except for any deduction allowable under section 165(c)(3) of the 46 Internal Revenue Code (relating to casualty losses) pertaining to property 47 physically located inside Idaho at the time of the casualty. 48 SECTION 4. That Section 63-3022, Idaho Code, be, and the same is hereby 49 amended to read as follows: 3 1 63-3022. ADJUSTMENTS TO TAXABLE INCOME. The additions and subtractions 2 set forth in this section, and in sections 63-3022A through 63-3022M, Idaho 3 Code, are to be applied to the extent allowed in computing Idaho taxable 4 income: 5 (a) Add any state taxes, measured by net income, paid or accrued during 6 the taxable year adjusted for state tax refunds used in arriving at taxable 7 income. 8 (b) Add the net operating loss deduction used in arriving at taxable 9 income. 10 (c) (1) A net operating loss for any taxable year commencing on and after 11 January 1, 19992000, shall be a net operating loss carryback not to 12 exceed a total of one hundred thousand dollars ($100,000) to the two (2) 13 immediately preceding taxable years. Any portion of the net operating loss 14 not subtracted in the two (2) preceding years may be subtracted in the 15 next twenty (20) years succeeding the taxable year in which the loss 16 arises in order until exhausted. The sum of the deductions may not exceed 17 the amount of the net operating loss deduction incurred. At the election 18 of the taxpayer, the two (2) year carryback may be foregone and the loss 19 subtracted from income received in taxable years arising in the next 20 twenty (20) years succeeding the taxable year in which the loss arises in 21 order until exhausted. The election shall be made as under section 22 172(b)(3) of the Internal Revenue Code. An election under this subsection 23 must be in the manner prescribed in the rules of the state tax commission 24 and once made is irrevocable for the year in which it is made. The term 25 "income" as used in this subsection (c) means Idaho taxable income as 26 defined in this chapter as modified by section 63-3021(b)(2), (3) and (4), 27 Idaho Code. 28 (2) Net operating losses incurred by a corporation during a year in which 29 such corporation did not transact business in Idaho or was not included in 30 a group of corporations combined under subsection (t) of section 63-3027, 31 Idaho Code, may not be subtracted. However, if at least one (1) corpora- 32 tion within a group of corporations combined under subsection (t) of sec- 33 tion 63-3027, Idaho Code, was transacting business in Idaho during the 34 taxable year in which the loss was incurred, then the net operating loss 35 may be subtracted. Net operating losses incurred by a person, other than a 36 corporation, in business activities not taxable by Idaho may not be sub- 37 tracted. 38 (d) In the case of a corporation, add the amount deducted under the pro- 39 visions of sections 243(a) and (c), 244, 245 and 246A of the Internal Revenue 40 Code (relating to dividends received by corporations) as limited by section 41 246(b)(1) of said code. 42 (e) In the case of a corporation, subtract an amount determined under 43 section 78 of the Internal Revenue Code to be taxable as dividends. 44 (f) Subtract the amount of any income received or accrued during the tax- 45 able year which is exempt from taxation by this state, under the provisions of 46 any other law of this state or a law of the United States, if not previously 47 subtracted in arriving at taxable income. 48 (g) In the case of corporations and partnerships, add Idaho taxable49 income of nonresident officers, directors, shareholders, partners or members50 to the extent such income is attributed to the corporation or partnership in51 section 63-3022L, Idaho Code.52 (h)For the purpose of determining the Idaho taxable income of the bene- 53 ficiary of a trust or of an estate, distributable net income as defined for 54 federal tax purposes shall be corrected for the other adjustments required by 55 this section. In the event that a nonresident beneficiary of a trust or estate 4 1 fails to file an Idaho income tax return reporting all or any part of distrib- 2 utable net income taxable in Idaho or fails to pay any tax due thereon, the 3 trust or estate making the payment or distribution shall be taxable upon the 4 amount of such distribution or payment at the rates established by section 5 63-3024, Idaho Code. 6 ( ih) In the case of an individual who is on active duty as a full-time 7 officer, enlistee or draftee, with the armed forces of the United States, 8 which full-time duty is or will be continuous and uninterrupted for one hun- 9 dred twenty (120) consecutive days or more, deduct compensation paid by the 10 armed forces of the United States for services performed outside this state. 11 The deduction is allowed only to the extent such income is included in taxable 12 income, and provided that appropriate adjustments shall be made in determining 13 the deductions and exemptions allowed pursuant to section 63-3026A(4), Idaho 14 Code. 15 ( ji) In the case of a corporation, including any corporation included in 16 a group of corporations combined under subsection (t) of section 63-3027, 17 Idaho Code, add any capital loss deducted which loss was incurred during any 18 year in which such corporation did not transact business in Idaho. However, do 19 not add any capital loss deducted if a corporation, including any corporation 20 in a group of corporations combined under subsection (t) of section 63-3027, 21 Idaho Code, was transacting business in Idaho during the taxable year in which 22 the loss was incurred. In the case of persons, other than corporations, add 23 any capital loss deducted which was incurred in business activities not tax- 24 able by Idaho at the time such loss was incurred. In computing the income tax- 25 able to an S corporation or partnership under this section, deduction shall 26 not be allowed for a carryover or carryback of a net operating loss provided 27 for in subsection (c) of this section or a capital loss provided for in sec- 28 tion 1212 of the Internal Revenue Code. 29 ( kj) In the case of an individual, there shall be allowed as a deduction 30 from gross income either (1) or (2) at the option of the taxpayer: 31 (1) The standard deduction as defined in section 63, Internal Revenue 32 Code. 33 (2) Itemized deductions as defined in section 63 of the Internal Revenue 34 Code except state income taxes as specified in section 164 of the Internal 35 Revenue Code. 36 ( lk) Add the taxable amount of any lump sum distribution deducted from 37 gross income pursuant to section 402(d)(3) of the Internal Revenue Code. The 38 taxable amount will include the ordinary income portion and the amount eligi- 39 ble for the capital gain election. 40 ( ml) Deduct any amounts included in gross income under the provisions of 41 section 86 of the Internal Revenue Code relating to certain social security 42 and railroad benefits. 43 ( nm) In the case of a self-employed individual, deduct the actual cost of 44 premiums paid to secure worker's compensation insurance for coverage in Idaho, 45 if such cost has not been deducted in arriving at taxable income. 46 SECTION 5. That Section 63-3026A, Idaho Code, be, and the same is hereby 47 amended to read as follows: 48 63-3026A. COMPUTING IDAHO TAXABLE INCOME OF PART-YEAR OR NONRESIDENT 49 INDIVIDUALS, TRUSTS AND ESTATES. (1) For nonresident individuals, trusts, or 50 estates the term "Idaho taxable income" includes only those components of 51 Idaho taxable income as computed for a resident which are derived from or 52 related to sources within Idaho. This is to be computed without the deductions 53 for either the standard deduction or itemized deductions or personal exemp- 5 1 tions except as provided in subsection (4) of this section. 2 (2) For part-year resident individuals, trusts or estates the term "Idaho 3 taxable income" includes the total of: (a) Idaho taxable income as computed 4 for a resident for the portion of the tax period during which a taxpayer is 5 domiciled in or is residing in Idaho, plus (b) those components of Idaho tax- 6 able income which are derived from or related to sources within Idaho for that 7 portion of the tax period during which a taxpayer is not domiciled in and is 8 not residing in Idaho. This is to be computed without the deductions for 9 either the standard deduction or itemized deductions or personal exemptions 10 except as provided in subsection (4) of this section. 11 (3) For the purposes of subsections (1) and (2) of this section: 12 (a) Income shall be considered derived from or relating to sources within 13 Idaho when such income is attributable to or resulting from: 14 (i) Any business, trade, profession or occupation conducted or car- 15 ried on in this state, including the distributive share of partner- 16 ship income and deductions, and the pro rata share of S corporation 17 income and deductions; 18 (ii) The ownership or disposition of any interest in real or tangi- 19 ble personal property located in this state; 20 (iii) The ownership or disposition of any interest in intangible per- 21 sonal property only to the extent that such property is employed in a 22 business, trade, profession or occupation conducted or carried on in 23 this state. Provided however, that interest income from an install- 24 ment sale of real or tangible personal property shall constitute 25 income from sources within this state to the extent that the prop- 26 erty sold was located within this state. Provided further, that 27 interest income received by a partner or shareholder of a partnership 28 or S corporation from such partnership or S corporation shall consti- 29 tute income from sources within this state to the extent that the 30 partnership or S corporation is transacting business within this 31 state; 32 (iv) A resident estate or trust; 33 (v) A nonresident estate or trust to the extent the income and 34 deductions of the nonresident estate or trust were derived from or 35 related to sources within this state; 36 (vi) The conduct of pari-mutuel wagering, charitable gaming or any 37 other form of gambling taking place within this state, except as 38 expressly limited in section 67-7439, Idaho Code. 39 (b) Notwithstanding the provisions of subsection (3)(a) of this section, 40 transactions and investments made, placed or directed by Idaho resident 41 registered broker-dealers and investment advisers or institutions exempt 42 from registration under the Idaho securities act in securities listed with 43 or through the New York Stock Exchange, the American Stock Exchange or any 44 other stock exchange registered with the United States securities and 45 exchange commission and approved by the director of the department of 46 finance which generate dividends, interest, capital gains or similar prof- 47 its or returns for nonresidents not otherwise subject to Idaho income tax- 48 ation shall not result in the intangible property being deemed to have a 49 situs outside the domicile of the owner. 50 (c) Compensation paid by the United States for active service in the 51 armed forces of the United States, performed by an individual not domi- 52 ciled in this state, shall not constitute income derived from or related 53 to sources within this state. 54 (d) The income of nonresident or part-year resident individuals, trusts 55 or estates which is derived from or related to sources both within and 6 1 without this state shall be attributable to this state in the manner pre- 2 scribed in the rules of the state tax commission. 3 (4) In computing the Idaho taxable income of a part-year or nonresident 4 individual, trust or estate, the standard deduction or itemized deductions, as 5 defined in section 63-3022( kj), Idaho Code, if applicable, and the exemptions, 6 as defined in section 151 of the Internal Revenue Code or any allowance in 7 lieu of such deduction, shall be allowed in the proportion that paragraph (a) 8 of this subsection bears to paragraph (b) of this subsection: 9 (a) The Idaho taxable income of the taxpayer modified as follows: 10 (i) No allowance shall be made for either the standard deduction or 11 itemized deductions; 12 (ii) No deduction shall be made for personal exemptions or any 13 allowance in lieu of such deduction. 14 (b) The Idaho taxable income as would be calculated for a resident of 15 Idaho modified as follows: 16 (i) No allowance shall be made for either a standard deduction or 17 itemized deductions; 18 (ii) No deduction shall be made for personal exemptions or any 19 allowance in lieu of such deduction; 20 (iii) Compensation for active military service in the armed forces 21 shall not be deducted; 22 (iv) Income earned within the original exterior boundaries of any 23 federally created Indian reservation by an enrolled Indian in a fed- 24 erally recognized Indian tribe on a federally recognized Indian res- 25 ervation shall be added if not otherwise included. 26 (5) An adjustment may be made to eliminate distortions in the amount of 27 net income attributable to a taxpayer's activities within the state of Idaho. 28 Such deductions shall be limited to circumstances involving itemized deduc- 29 tions as referred to in subsection (4) of this section and which reflect: 30 (a) A failure to reflect the net income or deduction after reimbursements 31 have been received; or 32 (b) A failure to reflect the net amount of mortgage interest income or 33 expense from activities within Idaho. 34 (6) For the purposes of subsections (1) and (2) of this section, deduc- 35 tions and adjustments allowed in computing the Idaho taxable income of nonres- 36 ident and part-year resident individuals, trusts and estates shall be pre- 37 scribed in the rules of the state tax commission. Such rules shall be based 38 upon: 39 (a) Whether or not the deduction or adjustment is related to the produc- 40 tion of income reportable to Idaho; 41 (b) Whether or not the deduction or adjustment is related to income 42 received, expenses paid, or events of tax consequence which occurred dur- 43 ing a portion of a taxable year that the taxpayer was domiciled in or 44 residing in Idaho; or 45 (c) Any other appropriate basis for making the adjustment. An 46 "appropriate basis" is one which the state tax commission finds is needed 47 to insure that the amount of Idaho taxable income is fairly and reasonably 48 related to a taxpayer's activities in this state. 49 SECTION 6. An emergency existing therefor, which emergency is hereby 50 declared to exist, this act shall be in full force and effect on and after its 51 passage and approval, and retroactively to January 1, 2000.
STATEMENT OF PURPOSE RS09395C1 This bill clarifies the income tax statutes allowing pass-through entities" (partnerships, S-corporations and limited liability companies) to elect to pay the tax of certain individual partners, shareholders, owners, officers, or directors on their behalf. The bill extends the election to the beneficiaries of estates and trusts. The bill also removes the requirement' that the individual's income become part of the taxable income of the entity, thereby eliminating the apparent effect of reducing any unused net operating loss carryover the entity my have available to it. This conforms to present State Tax Commission practice. FISCAL NOTE No fiscal effect. Contact Name: Dan John / Ted Spangler Agency: State Tax Commission Phone: 334-7530 STATEMENT OF PURPOSE/FISCAL NOTE H460