2004 Legislation
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HOUSE BILL NO. 481 – Income tax, misc. amens

HOUSE BILL NO. 481

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H0481...............................................by REVENUE AND TAXATION
INCOME TAX - Amends existing law to make various changes to the Idaho
Income Tax Act; to clarify the exclusion for certain dividends payable to a
mutual insurance stock holding company or intermediate holding company; to
provide a correct reference to the Internal Revenue Code; to provide
changes in retirement age under the Social Security Act; to provide a
definition of disabled; to clarify that to qualify for the deduction for
certain expenses for household and dependent care, services must be paid by
the individual maintaining the household; and to update the income tax
withholding rate applicable to lottery winnings.
                                                                        
01/20    House intro - 1st rdg - to printing
01/21    Rpt prt - to Rev/Tax
02/03    Rpt out - rec d/p - to 2nd rdg
02/04    2nd rdg - to 3rd rdg
02/09    3rd rdg - PASSED - 68-0-2
      AYES -- Andersen, Barraclough, Barrett, Bauer, Bayer, Bedke, Bell,
      Black, Block, Boe, Bolz, Bradford, Campbell, Cannon, Clark, Collins,
      Crow, Cuddy, Deal, Denney, Douglas, Eberle, Edmunson, Ellsworth,
      Eskridge, Field(18), Field(23), Gagner, Garrett, Harwood, Henbest,
      Jaquet, Jones, Kellogg, Kulczyk, Lake, Langford, Langhorst, Martinez,
      McKague, Meyer, Miller, Mitchell, Moyle, Naccarato, Nielsen,
      Pasley-Stuart, Raybould, Ridinger, Ring, Ringo, Roberts, Robison,
      Rydalch, Sali, Sayler, Schaefer, Shepherd, Shirley, Skippen,
      Smith(30), Smylie, Snodgrass, Stevenson, Trail, Wills, Wood, Mr.
      Speaker
      NAYS -- None
      Absent and excused -- McGeachin, Smith(24)
    Floor Sponsor - Barrett
    Title apvd - to Senate
02/10    Senate intro - 1st rdg - to Loc Gov
02/12    Rpt out - rec d/p - to 2nd rdg
02/13    2nd rdg - to 3rd rdg
03/02    3rd rdg - PASSED - 31-0-4
      AYES -- Andreason, Bailey, Brandt, Burkett, Burtenshaw, Calabretta,
      Cameron, Compton(Duncan), Darrington, Davis, Gannon, Geddes, Goedde,
      Hill, Ingram, Kennedy, Keough, Little, Lodge, Malepeai, Marley,
      McKenzie, Noble(Anderson), Noh, Pearce, Schroeder, Sorensen,
      Stennett, Sweet, Werk, Williams
      NAYS -- None
      Absent and excused -- Bunderson, McWilliams, Richardson, Stegner
    Floor Sponsor - McKenzie
    Title apvd - to House
03/03    To enrol
03/04    Rpt enrol - Sp signed
03/05    Pres signed
03/08    To Governor
03/10    Governor signed
         Session Law Chapter 30
         Effective: 01/01/04

Bill Text


                                                                        
                                                                        
  ]]]]              LEGISLATURE OF THE STATE OF IDAHO             ]]]]
 Fifty-seventh Legislature                 Second Regular Session - 2004
                                                                        
                                                                        
                              IN THE HOUSE OF REPRESENTATIVES
                                                                        
                                     HOUSE BILL NO. 481
                                                                        
                             BY REVENUE AND TAXATION COMMITTEE
                                                                        
  1                                        AN ACT
  2    RELATING TO THE IDAHO INCOME TAX ACT; AMENDING SECTION 41-3821, IDAHO CODE, TO
  3        CLARIFY THE EXCLUSION FOR CERTAIN DIVIDENDS PAYABLE TO A MUTUAL  INSURANCE
  4        STOCK  HOLDING  COMPANY  OR INTERMEDIATE HOLDING COMPANY; AMENDING SECTION
  5        63-3022, IDAHO CODE, TO PROVIDE A CORRECT REFERENCE TO THE INTERNAL  REVE-
  6        NUE  CODE;  AMENDING  SECTION  63-3022A, IDAHO CODE, TO PROVIDE CHANGES IN
  7        RETIREMENT AGE UNDER THE SOCIAL SECURITY ACT AND TO PROVIDE  A  DEFINITION
  8        OF  DISABLED;  AMENDING  SECTION  63-3022D, IDAHO CODE, TO CLARIFY THAT TO
  9        QUALIFY FOR THE DEDUCTION FOR CERTAIN EXPENSES FOR HOUSEHOLD AND DEPENDENT
 10        CARE, SERVICES MUST BE PAID BY THE INDIVIDUAL MAINTAINING  THE  HOUSEHOLD;
 11        AMENDING  SECTION  63-3022N,  IDAHO  CODE,  TO PROVIDE A CORRECT CITATION;
 12        AMENDING SECTION 63-3035A, IDAHO CODE, TO UPDATE THE INCOME TAX  WITHHOLD-
 13        ING  RATE  APPLICABLE  TO LOTTERY WINNINGS; AND DECLARING AN EMERGENCY AND
 14        PROVIDING A RETROACTIVE EFFECTIVE DATE.
                                                                        
 15    Be It Enacted by the Legislature of the State of Idaho:
                                                                        
 16        SECTION 1.  That Section 41-3821, Idaho Code, be, and the same  is  hereby
 17    amended to read as follows:
                                                                        
 18        41-3821.  MUTUAL INSURANCE HOLDING COMPANIES.
 19        (1)  (a) A  domestic  mutual  insurer,  upon approval of the director, may
 20        reorganize by forming an insurance holding  company  system,  "the  mutual
 21        insurance  holding  company,"  based upon a mutual plan and continuing the
 22        corporate existence of the reorganizing insurer as a  stock  insurer.  The
 23        director,  after  a  public  hearing as provided in section 41-3805, Idaho
 24        Code, if satisfied that the interests of the  policyholders  are  properly
 25        protected and that the plan of reorganization is fair and equitable to the
 26        policyholders,  may  approve  the  proposed plan of reorganization and may
 27        require as a condition of approval such modifications of the proposed plan
 28        of reorganization as the director finds necessary for  the  protection  of
 29        the  policyholders' interests. The director may retain consultants as pro-
 30        vided in section 41-3805(4), Idaho Code. A reorganization pursuant to this
 31        subsection is subject to sections 41-3802 and  41-3803,  Idaho  Code.  The
 32        director shall retain jurisdiction over a mutual insurance holding company
 33        organized  pursuant  to this section to assure that policyholder interests
 34        are protected.
 35        (b)  All of the initial shares of the capital  stock  of  the  reorganized
 36        insurer  shall be issued to the mutual insurance holding company. The mem-
 37        bership interests of the policyholders of the  reorganized  insurer  shall
 38        become membership interests in the mutual insurance holding company. Poli-
 39        cyholders of the reorganized insurer shall be members of the mutual insur-
 40        ance  holding company in accordance with the articles of incorporation and
 41        bylaws of the mutual insurance holding company. The mutual insurance hold-
 42        ing company shall at all times own a majority of the voting shares of  the
 43        capital stock of the reorganized insurer.
                                                                        
                                           2
                                                                        
  1        (2)  (a) A domestic mutual insurer, upon the approval of the director, may
  2        reorganize  by  merging  its  policyholders'  membership  interests into a
  3        mutual insurance holding company formed pursuant to subsection (1) of this
  4        section and continuing the corporate existence of the reorganizing insurer
  5        as a stock insurer subsidiary of the mutual insurance holding company. The
  6        director, after a public hearing as provided in section  41-3805,    Idaho
  7        Code,  if  satisfied  that the interests of the policyholders are properly
  8        protected and that the merger is fair and equitable to the  policyholders,
  9        may approve the proposed merger and may require as a condition of approval
 10        such  modifications of the proposed merger as the director finds necessary
 11        for the protection of  the  policyholders'  interests.  The  director  may
 12        retain consultants as provided in section 41-3805(4), Idaho Code. A merger
 13        pursuant  to  this  subsection is subject to sections 41-3802 and 41-3803,
 14        Idaho Code. The director shall retain jurisdiction over the mutual  insur-
 15        ance  holding  company  organized  pursuant to this section to assure that
 16        policyholder interests are protected.
 17        (b)  All of the initial shares of the capital  stock  of  the  reorganized
 18        insurer  shall be issued to the mutual insurance holding company. The mem-
 19        bership interests of the policyholders of the reorganized  insurance  com-
 20        pany  shall  become  membership  interests in the mutual insurance holding
 21        company. Policyholders of the reorganized insurer shall be members of  the
 22        mutual insurance holding company in accordance with the articles of incor-
 23        poration  and  bylaws  of the mutual insurance holding company. The mutual
 24        insurance holding company shall at all times own a majority of the  voting
 25        shares  of the capital stock of the reorganized insurer. A merger of poli-
 26        cyholders' membership interests in a mutual insurer into a  mutual  insur-
 27        ance holding company shall be deemed to be a merger of insurance companies
 28        pursuant  to section 41-2857, Idaho Code, and section 41-2857, Idaho Code,
 29        is also applicable.
 30        (c)  A foreign mutual insurer, which if a domestic  corporation  would  be
 31        organized  under  chapter 3, title 41, Idaho Code, may reorganize upon the
 32        approval of the director and in compliance with the  requirements  of  any
 33        law  or  rule which is applicable to the foreign mutual insurer by merging
 34        its policyholders' membership interests into a  mutual  insurance  holding
 35        company  formed  pursuant to subsection (1) of this section and continuing
 36        the corporate existence of the reorganizing foreign mutual  insurer  as  a
 37        foreign  stock insurer subsidiary of the mutual insurance holding company.
 38        The director, after a public hearing as provided in section 41-3805, Idaho
 39        Code, may approve the proposed merger. The director may retain consultants
 40        as provided in section 41-3805(4), Idaho Code. A merger pursuant  to  this
 41        paragraph  is  subject  to  sections  41-3802 and 41-3803, Idaho Code. The
 42        reorganizing foreign mutual insurer may remain a foreign company  or  for-
 43        eign  corporation  after the merger, and may be admitted to do business in
 44        this state. A foreign mutual insurer which is a party to the merger may at
 45        the same time redomesticate in this state by complying with the applicable
 46        requirements of this state and its state of domicile.  The  provisions  of
 47        subsection (2)(b) shall apply to a merger authorized under this paragraph.
 48        (3)  A  mutual insurance holding company resulting from the reorganization
 49    of a domestic mutual insurer organized under chapter 1, title 30, Idaho  Code,
 50    shall  be  incorporated  pursuant  to  chapter  1,  title 30, Idaho Code. This
 51    requirement shall supersede any conflicting provisions of chapter 1, title 30,
 52    Idaho Code. The articles of incorporation and any amendments to such  articles
 53    of  the  mutual  insurance holding company shall be subject to approval of the
 54    director in the same manner as those of an insurance company.
 55        (4)  A mutual insurance holding company is deemed to be an insurer subject
                                                                        
                                           3
                                                                        
  1    to chapter 33, title 41, Idaho Code, and shall automatically be a party to any
  2    proceeding under chapter 33, title 41, Idaho Code, involving an insurer  which
  3    as a result of a reorganization pursuant to subsection (1) or (2) of this sec-
  4    tion  is a subsidiary of the mutual insurance holding company. In any proceed-
  5    ing under  chapter  33,  title  41,  Idaho  Code,  involving  the  reorganized
  6    insurer,  the  assets of the mutual insurance holding company are deemed to be
  7    assets of the estate of the reorganized insurer for purposes of satisfying the
  8    claims of the reorganized insurer's policyholders. A mutual insurance  holding
  9    company  shall  not dissolve or liquidate without the approval of the director
 10    or as ordered by the district court pursuant to chapter 33,  title  41,  Idaho
 11    Code.
 12        (5)  (a) Section  41-2855,  Idaho Code, is not applicable to a reorganiza-
 13        tion or merger pursuant to this section.
 14        (b)  Section 41-2855, Idaho Code, is applicable to  demutualization  of  a
 15        mutual insurance holding company which resulted from the reorganization of
 16        a domestic mutual insurer organized under chapter 3, title 41, Idaho Code,
 17        as if it were a mutual life insurer.
 18        (6)  A  membership interest in a domestic mutual insurance holding company
 19    shall not constitute a security as defined in section 30-1402(12), Idaho Code.
 20        (7)  The majority of the voting shares of the capital stock of the reorga-
 21    nized insurer, which is required by this section to be at all times owned by a
 22    mutual  insurance  holding  company,  shall  not  be  conveyed,   transferred,
 23    assigned,  pledged,  subject  to  a  security interest or lien, encumbered, or
 24    otherwise hypothecated or alienated by the mutual insurance holding company or
 25    intermediate holding company. Any conveyance,  transfer,  assignment,  pledge,
 26    security interest, lien, encumbrance, or hypothecation or alienation of, in or
 27    on  the  majority  of  the  voting  shares of the reorganized insurer which is
 28    required by this section to be at all times owned by a mutual insurance  hold-
 29    ing  company,  is  in  violation  of this section and shall be void in inverse
 30    chronological order of the date  of  such  conveyance,  transfer,  assignment,
 31    pledge,  security interest, lien, encumbrance, or hypothecation or alienation,
 32    as to the shares necessary to constitute a majority of such voting shares. The
 33    majority of the voting shares of the capital stock of the reorganized  insurer
 34    which  is required by this section to be at all times owned by a mutual insur-
 35    ance holding company shall not be subject to execution and levy as provided in
 36    title 11, Idaho Code. The shares of the capital stock of the surviving or  new
 37    company  resulting  from  a merger or consolidation of two (2) or more reorga-
 38    nized insurers or two (2) or more intermediate holding  companies  which  were
 39    subsidiaries  of  the same mutual insurance holding company are subject to the
 40    same requirements, restrictions, and limitations as provided in  this  section
 41    to  which  the  shares of the merging or consolidating reorganized insurers or
 42    intermediate holding companies were subject  by  this  section  prior  to  the
 43    merger or consolidation.
 44        As  used  in  this  section, "majority of the voting shares of the capital
 45    stock of the reorganized insurer" means shares of the  capital  stock  of  the
 46    reorganized  insurer  which  carry  the  right to cast a majority of the votes
 47    entitled to be cast by all of the outstanding shares of the capital  stock  of
 48    the reorganized insurer for the election of directors and on all other matters
 49    submitted to a vote of the shareholders of the reorganized insurer. The owner-
 50    ship  of  a  majority of the voting shares of the capital stock of the reorga-
 51    nized insurer which are required by this section to be at all times owned by a
 52    parent mutual insurance holding company includes  indirect  ownership  through
 53    one  (1)  or  more  intermediate  holding  companies  in a corporate structure
 54    approved by the director. However, indirect ownership through one (1) or  more
 55    intermediate  holding companies shall not result in the mutual insurance hold-
                                                                        
                                           4
                                                                        
  1    ing company owning less than the equivalent of a majority of the voting shares
  2    of the capital stock of the  reorganized  insurer.  The  director  shall  have
  3    jurisdiction  over  an  intermediate  holding  company  as if it were a mutual
  4    insurance holding company.
  5        As used in this section, "intermediate holding company"  means  a  holding
  6    company    which  is  a  subsidiary of a mutual insurance holding company, and
  7    which either directly or through a subsidiary intermediate holding company has
  8    one (1) or more subsidiary reorganized insurers of which  a  majority  of  the
  9    voting  shares of the capital stock would otherwise have been required by this
 10    section to be at all times owned by the mutual insurance holding company.
 11        (8)  It is the intent of the legislature that the formation  of  a  mutual
 12    insurance  holding  company  should  not  increase the Idaho tax burden of the
 13    mutual insurance holding company system and that a stock insurance  subsidiary
 14    shall  continue  to  be subject to Idaho insurance premium taxation in lieu of
 15    all other taxes except real property taxes  as  provided  in  section  41-405,
 16    Idaho Code. Subject to approval by the director as required under Idaho law, a
 17    stock  insurance subsidiary may issue dividends or distributions to the mutual
 18    insurance holding company or any intermediate holding company, and such  divi-
 19    dends  or distributions shall be excluded from the Idaho taxable income of the
 20    recipients; provided however, that such  exclusion  shall  not  apply  to  the
 21    extent  that if, in the year preceding the year in which the dividends or dis-
 22    tributions were made, the subsidiary insurer's liability for Idaho premium tax
 23    was less than the amount of Idaho income tax,  computed  after  allowance  for
 24    income  tax credits, for which the insurer would have been liable in such year
 25    had the insurer been subject to Idaho income taxation rather than premium tax-
 26    ation.
                                                                        
 27        SECTION 2.  That Section 63-3022, Idaho Code, be, and the same  is  hereby
 28    amended to read as follows:
                                                                        
 29        63-3022.  ADJUSTMENTS  TO  TAXABLE  INCOME. The additions and subtractions
 30    set forth in this section, and in sections 63-3022A  through  63-3022Q,  Idaho
 31    Code,  are  to  be  applied  to  the extent allowed in computing Idaho taxable
 32    income:
 33        (a)  Add any state and local taxes, as  defined  in  section  164  of  the
 34    Internal  Revenue Code and, measured by net income, paid or accrued during the
 35    taxable year adjusted for state or local tax refunds used in arriving at  tax-
 36    able income.
 37        (b)  Add  the  net  operating  loss  deduction used in arriving at taxable
 38    income.
 39        (c)  (1) A net operating loss for any taxable year commencing on and after
 40        January 1, 2000, shall be a net operating loss carryback not to  exceed  a
 41        total  of  one  hundred thousand dollars ($100,000) to the two (2) immedi-
 42        ately preceding taxable years. Any portion of the net operating  loss  not
 43        subtracted  in  the  two (2) preceding years may be subtracted in the next
 44        twenty (20) years succeeding the taxable year in which the loss arises  in
 45        order until exhausted. The sum of the deductions may not exceed the amount
 46        of  the net operating loss deduction incurred. At the election of the tax-
 47        payer, the two (2) year carryback may be foregone and the loss  subtracted
 48        from  income  received  in  taxable  years arising in the next twenty (20)
 49        years succeeding the taxable year in which the loss arises in order  until
 50        exhausted.  The  election  shall be made as under section 172(b)(3) of the
 51        Internal Revenue Code. An election under this subsection must  be  in  the
 52        manner  prescribed  in the rules of the state tax commission and once made
 53        is irrevocable for the year in which it is made. The term "income" as used
                                                                        
                                           5
                                                                        
  1        in this subsection (c) means Idaho taxable income as defined in this chap-
  2        ter as modified by section 63-3021(b)(2), (3) and (4), Idaho Code.
  3        (2)  Net operating losses incurred by a corporation during a year in which
  4        such corporation did not transact business in Idaho or was not included in
  5        a group  of corporations combined under subsection (t) of section 63-3027,
  6        Idaho Code, may not be subtracted. However, if at least one  (1)  corpora-
  7        tion  within a group of corporations combined under subsection (t) of sec-
  8        tion 63-3027, Idaho Code, was transacting business  in  Idaho  during  the
  9        taxable  year  in which the loss was incurred, then the net operating loss
 10        may be subtracted. Net operating losses incurred by a person, other than a
 11        corporation, in activities not taxable by Idaho may not be subtracted.
 12        (d)  In the case of a corporation, add the amount deducted under the  pro-
 13    visions  of sections 243(a) and (c), 244, 245 and 246A of the Internal Revenue
 14    Code (relating to dividends received by corporations) as  limited  by  section
 15    246(b)(1) of said code.
 16        (e)  In  the  case  of  a corporation, subtract an amount determined under
 17    section 78 of the Internal Revenue Code to be taxable as dividends.
 18        (f)  Subtract the amount of any income received or accrued during the tax-
 19    able year which is exempt from taxation by this state, under the provisions of
 20    any other law of this state or a law of the United States, if  not  previously
 21    subtracted in arriving at taxable income.
 22        (g)  For  the purpose of determining the Idaho taxable income of the bene-
 23    ficiary of a trust or of an estate:
 24        (1)  Distributable net income as defined for federal tax purposes shall be
 25        corrected for the other adjustments required by this section.
 26        (2)  Net operating losses attributable to a  beneficiary  of  a  trust  or
 27        estate under section 642 of the Internal Revenue Code shall be a deduction
 28        for  the  beneficiary  to  the extent that income from the trust or estate
 29        would be attributable to this state under the provisions of this chapter.
 30        (h)  In the case of an individual who is on active  duty  as  a  full-time
 31    officer,  enlistee  or  draftee,  with  the armed forces of the United States,
 32    which full-time duty is or will be continuous and uninterrupted for  one  hun-
 33    dred  twenty  (120)  consecutive days or more, deduct compensation paid by the
 34    armed forces of the United States for services performed outside  this  state.
 35    The deduction is allowed only to the extent such income is included in taxable
 36    income, and provided that appropriate adjustments shall be made in determining
 37    the  deductions  and exemptions allowed pursuant to section 63-3026A(4), Idaho
 38    Code.
 39        (i)  In the case of a corporation, including any corporation included in a
 40    group of corporations combined under subsection (t) of section 63-3027,  Idaho
 41    Code, add any capital loss deducted which loss was incurred during any year in
 42    which such corporation did not transact business in Idaho. However, do not add
 43    any  capital  loss  deducted  if a corporation, including any corporation in a
 44    group of corporations combined under subsection (t) of section 63-3027,  Idaho
 45    Code,  was  transacting business in Idaho during the taxable year in which the
 46    loss was incurred. In the case of persons, other than  corporations,  add  any
 47    capital loss deducted which was incurred in activities not taxable by Idaho at
 48    the  time such loss was incurred. In computing the income taxable to an S cor-
 49    poration or partnership under this section, deduction shall not be allowed for
 50    a carryover or carryback of a net operating loss provided  for  in  subsection
 51    (c)  of  this  section  or  a capital loss provided for in section 1212 of the
 52    Internal Revenue Code.
 53        (j)  In the case of an individual, there shall be allowed as  a  deduction
 54    from gross income either (1) or (2) at the option of the taxpayer:
 55        (1)  The  standard  deduction  as  defined in section 63, Internal Revenue
                                                                        
                                           6
                                                                        
  1        Code.
  2        (2)  Itemized deductions as defined in section 63 of the Internal  Revenue
  3        Code  except state or local taxes measured by net income and as defined in
  4        section 164 of the Internal Revenue Code.
  5        (k)  Add the taxable amount of any lump  sum  distribution  excluded  from
  6    gross income for federal income tax purposes under the ten (10) year averaging
  7    method.  The  taxable  amount will include the ordinary income portion and the
  8    amount eligible for the capital gain election.
  9        (l)  Deduct any amounts included in gross income under the  provisions  of
 10    section  86  of  the Internal Revenue Code relating to certain social security
 11    and railroad benefits.
 12        (m)  In the case of a self-employed individual, deduct the actual cost  of
 13    premiums paid to secure worker's compensation insurance for coverage in Idaho,
 14    if such cost has not been deducted in arriving at taxable income.
 15        (n)  In the case of an individual, deduct the amount contributed to a col-
 16    lege  savings  program  pursuant  to chapter 54, title 33, Idaho Code, but not
 17    more than four thousand dollars ($4,000) per tax year. If the contribution  is
 18    made  on or before April 15, 2001, it may be deducted for tax year 2000 and an
 19    individual can make another contribution and claim the deduction according  to
 20    the  limits provided in this subsection during 2001 for tax year 2001, as long
 21    as the contribution is made on or before December 31, 2001.
 22        (o)  In the case of an individual, add the amount of a nonqualified  with-
 23    drawal  from an individual trust account or savings account established pursu-
 24    ant to chapter 54, title 33, Idaho Code, less any amount of such  nonqualified
 25    withdrawal  included  in  the individual's federal gross income pursuant to 26
 26    U.S.C. section 529 of the Internal Revenue Code.
                                                                        
 27        SECTION 3.  That Section 63-3022A, Idaho Code, be, and the same is  hereby
 28    amended to read as follows:
                                                                        
 29        63-3022A.  DEDUCTION  OF CERTAIN RETIREMENT BENEFITS. (a) An amount speci-
 30    fied by subsection (b) of this section of the  following  retirement  benefits
 31    may  be  deducted  by an individual from taxable income if such individual has
 32    either attained age sixty-five (65) years, or has attained age sixty-two  (62)
 33    years and is classified as disabled:
 34        (1)  Retirement  annuities  paid  by  the  United  States  of America to a
 35        retired civil service employee or the unremarried widow of a retired civil
 36        service employee.
 37        (2)  Retirement benefits paid from the firemen's retirement  fund  of  the
 38        state  of Idaho to a retired fireman or the unremarried widow of a retired
 39        fireman.
 40        (3)  Retirement benefits paid from the policemen's retirement  fund  of  a
 41        city  within this state to a retired policeman or the unremarried widow of
 42        a retired policeman.
 43        (4)  Retirement benefits paid by the United States of America to a retired
 44        member of the military services of the United States  or  the  unremarried
 45        widow of such member.
 46        (b)  The  amount  of retirement benefits that may be deducted from taxable
 47    income shall be an amount not in excess of maximum retirement  benefits  under
 48    the  social  security act, as amended, on the date on which this act is passed
 49    and approved, including adjustments to be made based upon consumer price index
 50    adjustments provided in section 215 of the social security act. The state  tax
 51    commission  shall ascertain benefit changes made in accordance with the social
 52    security act and publish the appropriate deduction amounts  provided  by  this
 53    section  reflecting  such  changes annually. Maximum retirement benefits under
                                                                        
                                           7
                                                                        
  1    the social security act shall mean:
  2        (1)  In the case of a taxpayer who files a joint return  with  his  spouse
  3        for  the tax year, an amount equal to the maximum social security benefits
  4        payable for the tax year to a man person  attaining  full  retirement  age
  5        sixty-five (65) years  in the tax year who has earned the maximum earnings
  6        creditable  under social security for the years used in the computation of
  7        his benefits, and whose spouse has  no  social  security  benefits  except
  8        those payable on his record of earnings.
  9        (2)  In the case of a taxpayer who is not married, an amount equal to max-
 10        imum social security benefits payable for the tax year to a person attain-
 11        ing  full  retirement  age  sixty-five  (65) years in the tax year who has
 12        earned the maximum earnings creditable under social security for the years
 13        used in the computation of his benefits.
 14        (3)  In the case of an unremarried widow, an amount equal to  the  maximum
 15        social  security  benefits  payable  for the tax year to a widow attaining
 16        full retirement age sixty-five (65) years in  the  tax  year  who  has  no
 17        social  security  benefits  except  those  to which she is entitled on her
 18        deceased husband's record  and  whose  husband  had  received  no  reduced
 19        retirement  benefits  prior  to his death and whose husband had earned the
 20        maximum earnings creditable under social security for the  years  used  in
 21        the computation of his benefits under social security.
 22        (4)  Maximum retirement benefits shall, in every case, take into consider-
 23        ation  and  be  adjusted to reflect adjustments that would be made to such
 24        amounts had they been received as social security benefits as  the  result
 25        of the receipt of earnings in excess of earnings limitations. The terms in
 26        this paragraph are those defined in the social security act.
 27        (5)  Taxpayers  not described in paragraphs (1), (2),  (3) and (4) of this
 28        subsection may not deduct any amount of  retirement  benefits  under  this
 29        section.
 30        (c)  The  total  deduction  under  this  section  may not exceed the total
 31    amount of retirement benefits or annuities which are described  in  subsection
 32    (a)  of  this section and which are included in the taxpayer's gross income in
 33    the tax year. If the taxpayer or the  taxpayer's  spouse  receives  retirement
 34    benefits under the federal railroad retirement act or the federal social secu-
 35    rity act in the tax year, then the amount of any retirement annuities computed
 36    under  subsection  (b)  of this section shall be reduced by the amount of such
 37    federal railroad retirement act and federal  social  security  act  retirement
 38    benefits  received  by  either  the taxpayer or the taxpayer's spouse, and the
 39    lesser of the amount so computed or the total amount of retirement benefits or
 40    annuities which are described in subsection (a) of this section and which  are
 41    included  in the taxpayer's gross income shall constitute the allowable deduc-
 42    tion. Furthermore, the allowable deduction as calculated  under  this  section
 43    may  be  subject  to  additional  limitations under section 63-3026A(6), Idaho
 44    Code, and the rules promulgated thereunder.
 45        (d)  As used in this section, the word "widow" shall include a widower.
 46        (e)  As used in this section, the word "disabled" shall mean an individual
 47    who is a disabled person described in section 63-701, Idaho Code.
                                                                        
 48        SECTION 4.  That Section 63-3022D, Idaho Code, be, and the same is  hereby
 49    amended to read as follows:
                                                                        
 50        63-3022D.  DEDUCTION  OF  EXPENSES  FOR  HOUSEHOLD AND DEPENDENT CARE SER-
 51    VICES. Allowance of Deduction. In the case of an individual  who  maintains  a
 52    household  which  includes  as a member one (1) or more qualifying individuals
 53    (as defined in section  21(b)(1),  Internal  Revenue  Code),  there  shall  be
                                                                        
                                           8
                                                                        
  1    allowed  as a deduction the employment-related expenses (as defined in section
  2    21(b)(2), Internal Revenue Code, and as further specified and limited  by sec-
  3    tion 21(c), (d), and (e), Internal Revenue Code) paid by such individual  dur-
  4    ing the taxable year.
                                                                        
  5        SECTION  5.  That Section 63-3022N, Idaho Code, be, and the same is hereby
  6    amended to read as follows:
                                                                        
  7        63-3022N.  MARRIAGE PENALTY ADJUSTMENT. (1) To eliminate from the calcula-
  8    tion of Idaho taxable income any marriage penalty that may exist in the  basic
  9    standard deductions provided in the Internal Revenue Code, basic federal stan-
 10    dard deductions shall be adjusted as provided in this section.
 11        (2)  As  used in this section, "the marriage penalty" means the difference
 12    obtained by subtracting:
 13        (a)  The basic standard deduction for joint returns, from
 14        (b)  Two (2) times the basic standard deduction for an individual  who  is
 15        not married and who is not a surviving spouse or head of household.
 16        (3)  For  each  taxable  year  beginning on and after January 1, 2000, the
 17    standard deduction in section 63-3022(kj)(1), Idaho Code, shall be: on a joint
 18    return, the basic federal joint standard deduction plus the marriage  penalty,
 19    rounded  to  the  nearest  dollar,  plus the amount of any additional standard
 20    deduction for the aged or blind for which a taxpayer may qualify under section
 21    63 of the Internal Revenue Code.
 22        (4)  The basic federal standard deduction for an  individual  for  whom  a
 23    deduction  under  section  151  of  the  Internal Revenue Code is allowable to
 24    another taxpayer shall not be reduced below the minimum adjusted  basic  stan-
 25    dard deduction provided by section 63 of the Internal Revenue Code.
                                                                        
 26        SECTION  6.  That Section 63-3035A, Idaho Code, be, and the same is hereby
 27    amended to read as follows:
                                                                        
 28        63-3035A.  STATE INCOME TAX WITHHOLDING TAX ON LOTTERY WINNINGS. (1) When-
 29    ever the Idaho state lottery is required by the Internal Revenue Code to with-
 30    hold, collect and pay over income tax on any prize, proceeds  or  winnings  it
 31    shall,  at  the  time  of  payment  of such prize, proceeds or winnings to the
 32    recipient, withhold from the payment an amount equal to eight  and  two-tenths
 33    percent  (8.2%) the maximum percentage applicable to individuals under section
 34    63-3024, Idaho Code, of the prize, proceeds or winnings to be applied to Idaho
 35    income taxes due from the recipient.
 36        (2)  The state tax commission shall accept amounts withheld  according  to
 37    this  section  as payment by the recipient of the amount so withheld of income
 38    taxes imposed on the recipient for the taxable year in which the  prize,  pro-
 39    ceeds or winnings are includable in the recipient's Idaho taxable income.
 40        (3)  When  the  total amount withheld (along with other credits due, with-
 41    holding or payments attributable to the taxpayer) exceeds the taxes  due  from
 42    the  recipient,  the  state  tax  commission  shall, after examining the state
 43    income tax return filed by the recipient, refund  the  amount  of  the  excess
 44    withheld  in  the  manner  provided  for  refunds of withholding under section
 45    63-3035, Idaho Code.
 46        (4)  The Idaho state lottery shall remit the amounts withheld to the state
 47    tax commission on or before the date similar payments and reports are  due  to
 48    the internal revenue service.
 49        (5)  The  Idaho  state  lottery  shall furnish to the recipient, not later
 50    than thirty (30) days after the end of the calendar year, a record of the  tax
 51    withheld  during  that year and shall, not later than the last day of the fol-
                                                                        
                                           9
                                                                        
  1    lowing February, file a copy of the record with the state tax commission.
  2        (6)  The Idaho state lottery and the state tax  commission  may  agree  to
  3    different  times and procedures for making the remittances or reports required
  4    in this section.
  5        (7)  Nothing in this section relieves any taxpayer from an  obligation  to
  6    file  a  return  or  pay  taxes at the time and in the manner required by this
  7    chapter.
                                                                        
  8        SECTION 7.  An emergency existing  therefor,  which  emergency  is  hereby
  9    declared to exist, this act shall be in full force and effect on and after its
 10    passage and approval, and retroactively to January 1, 2004.

Statement of Purpose / Fiscal Impact




                           STATEMENT OF PURPOSE
                                R.S. 13472C1                       

This bill makes some needed updates and technical changes to
the Idaho Income Tax Act.  
Section 1 clarifies the limitation on the exclusion for
certain dividends payable to a mutual insurance stock holding
company or intermediate holding company.  The exclusion is not
available if the prior year's insurance premium taxes were less
than the amount of income tax the subsidiary would have paid. 
The amendment clarifies that the amount of income tax is
determined after allowance for credits. 
Section 2 corrects a cross-reference to the Internal Revenue
Code. 
Section 3 reflects changes to the federal Social Security
Act increasing the full retirement age and adds a definition of
"disabled."
Section 4 clarifies that the deduction for certain expenses
for household and dependent care services must be paid by the
individual maintaining the household, thus conforming to the
Internal Revenue Code.  
     Section 5 corrects a cross-reference. 
     Section 6 requires that the Lottery Commission withhold
Idaho income tax on prizes in excess of the maximum current
income tax rate (currently 7.8%) rather than at 8.2%. 
The bill is effective January 1, 2004.   

                          FISCAL NOTE

  No fiscal effect. 

   Contact
     Name:  Dan John / Ted Spangler 
   Agency:  State Tax Commission 
    Phone:  334-7530
STATEMENT OF PURPOSE/FISCAL NOTE                   H 481