2005 Legislation
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HOUSE BILL NO. 277 – Income tax, Idaho income

HOUSE BILL NO. 277

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Bill Status



H0277...............................................by REVENUE AND TAXATION
INCOME TAX - Amends existing law to provide that for state income tax
purposes when intangible property owned by a partnership, limited liability
company, or other entity taxed as a partnership for federal income tax
purposes generates dividends, interest, capital gains or similar profits or
returns, such income shall not constitute income derived from or related to
sources within Idaho; provided that the business activity of such entity is
limited to the investment in securities and activities incident thereto.
                                                                        
02/28    House intro - 1st rdg - to printing
03/01    Rpt prt - to Rev/Tax
03/14    Rpt out - rec d/p - to 2nd rdg
03/15    2nd rdg - to 3rd rdg
03/16    3rd rdg - PASSED - 68-1-1
      AYES -- Anderson, Andrus, Barraclough, Barrett, Bastian, Bayer,
      Bedke, Bell, Bilbao, Black, Block, Boe, Bolz, Bradford, Cannon,
      Chadderdon, Clark, Collins, Crow, Deal, Denney, Edmunson, Ellsworth,
      Eskridge, Field(18), Field(23), Garrett, Hart(Jacobson), Harwood,
      Henbest, Henderson, Jaquet, Jones, Kemp, Lake, Loertscher, Martinez,
      Mathews, McGeachin, McKague, Miller, Mitchell, Nielsen, Nonini,
      Pasley-Stuart, Pence, Raybould, Ring, Ringo, Roberts, Rusche,
      Rydalch, Sali, Sayler, Schaefer, Shepherd(2), Shepherd(8), Shirley,
      Skippen, Smith(30), Smith(24), Smylie, Snodgrass, Stevenson, Trail,
      Wills, Wood, Mr. Speaker
      NAYS -- LeFavour
      Absent and excused -- Moyle
    Floor Sponsor - Collins
    Title apvd - to Senate
03/17    Senate intro - 1st rdg - to Loc Gov
03/22    Rpt out - rec d/p - to 2nd rdg
03/23    2nd rdg - to 3rd rdg
03/24    3rd rdg - PASSED - 34-0-0, 1 vacancy
      AYES -- Andreason, Brandt, Broadsword, Bunderson, Burkett,
      Burtenshaw, Cameron, Coiner, Compton, Corder, Darrington, Davis,
      Gannon, Geddes, Goedde, Hill, Jorgenson, Kelly, Keough, Langhorst,
      Little, Lodge, Malepeai, Marley, McGee, McKenzie, Pearce, Richardson,
      Schroeder, Stegner, Stennett, Sweet, Werk, Williams
      NAYS -- None
      Absent and excused -- (District 21 seat vacant)
    Floor Sponsor - Hill
    Title apvd - to House
03/24    To enrol
03/28    Rpt enrol - Sp signed
03/29    Pres signed
03/30    To Governor
03/30    Governor VETOED
03/31    Held at Desk
04/06    Filed in Office of the Chief Clerk

Bill Text


                                                                        
                                                                        
  ]]]]              LEGISLATURE OF THE STATE OF IDAHO             ]]]]
 Fifty-eighth Legislature                   First Regular Session - 2005
                                                                        
                                                                        
                              IN THE HOUSE OF REPRESENTATIVES
                                                                        
                                     HOUSE BILL NO. 277
                                                                        
                             BY REVENUE AND TAXATION COMMITTEE
                                                                        
  1                                        AN ACT
  2    RELATING TO INCOME TAXATION; AMENDING SECTION 63-3026A, IDAHO CODE, TO PROVIDE
  3        THAT FOR STATE INCOME TAX PURPOSES  WHEN  INTANGIBLE PROPERTY OWNED  BY  A
  4        PARTNERSHIP,  LIMITED  LIABILITY COMPANY, OR OTHER ENTITY TAXED AS A PART-
  5        NERSHIP FOR FEDERAL INCOME TAX  PURPOSES  GENERATES  DIVIDENDS,  INTEREST,
  6        CAPITAL GAINS OR SIMILAR PROFITS OR RETURNS, SUCH INCOME SHALL NOT CONSTI-
  7        TUTE INCOME DERIVED FROM OR RELATED TO SOURCES WITHIN IDAHO, PROVIDED THAT
  8        THE BUSINESS ACTIVITY OF SUCH ENTITY IS LIMITED TO THE INVESTMENT IN SECU-
  9        RITIES AND ACTIVITIES INCIDENT THERETO; DECLARING AN EMERGENCY AND PROVID-
 10        ING RETROACTIVE APPLICATION.
                                                                        
 11    Be It Enacted by the Legislature of the State of Idaho:
                                                                        
 12        SECTION  1.  That Section 63-3026A, Idaho Code, be, and the same is hereby
 13    amended to read as follows:
                                                                        
 14        63-3026A.  COMPUTING IDAHO TAXABLE  INCOME  OF  PART-YEAR  OR  NONRESIDENT
 15    INDIVIDUALS,  TRUSTS  AND ESTATES. (1) For nonresident individuals, trusts, or
 16    estates the term "Idaho taxable income"  includes  only  those  components  of
 17    Idaho  taxable  income  as  computed  for a resident which are derived from or
 18    related to sources within Idaho. This is to be computed without the deductions
 19    for either the standard deduction or itemized deductions  or  personal  exemp-
 20    tions except as provided in subsection (4) of this section.
 21        (2)  For part-year resident individuals, trusts or estates the term "Idaho
 22    taxable  income"  includes  the total of: (a) Idaho taxable income as computed
 23    for a resident for the portion of the tax period during which  a  taxpayer  is
 24    domiciled  in or is residing in Idaho, plus (b) those components of Idaho tax-
 25    able income which are derived from or related to sources within Idaho for that
 26    portion of the tax period during which a taxpayer is not domiciled in  and  is
 27    not  residing  in  Idaho.  This  is  to be computed without the deductions for
 28    either the standard deduction or itemized deductions  or  personal  exemptions
 29    except as provided in subsection (4) of this section.
 30        (3)  For the purposes of subsections (1) and (2) of this section:
 31        (a)  Income shall be considered derived from or relating to sources within
 32        Idaho when such income is attributable to or resulting from:
 33             (i)   Any business, trade, profession or occupation conducted or car-
 34             ried  on  in this state, including the distributive share of partner-
 35             ship income and deductions, and the pro rata share of  S  corporation
 36             income and deductions;
 37             (ii)  The  ownership or disposition of any interest in real or tangi-
 38             ble personal property located in this state;
 39             (iii) The ownership or disposition of any interest in intangible per-
 40             sonal property only to the extent that such property is employed in a
 41             business, trade, profession or occupation conducted or carried on  in
 42             this  state.  Provided however, that interest income from an install-
 43             ment sale of real or  tangible  personal  property  shall  constitute
                                                                        
                                           2
                                                                        
  1             income from sources within this state to the extent that the property
  2             sold  was  located within this state. Provided further, that interest
  3             income received by a partner or shareholder of  a  partnership  or  S
  4             corporation  from  such partnership or S corporation shall constitute
  5             income from sources within this state to the extent that the partner-
  6             ship or S corporation is transacting business within this state;
  7             (iv)  A resident estate or trust;
  8             (v)   A nonresident estate or trust to  the  extent  the  income  and
  9             deductions  of  the  nonresident estate or trust were derived from or
 10             related to sources within this state;
 11             (vi)  The conduct of pari-mutuel wagering, charitable gaming  or  any
 12             other  form  of  gambling  taking  place within this state, except as
 13             expressly limited in section 67-7439, Idaho Code.
 14        (b)  Notwithstanding the provisions of subsection (3)(a) of this  section,
 15        transactions  and  investments  made, placed or directed by Idaho resident
 16        registered broker-dealers and investment advisers or  institutions  exempt
 17        from registration under the Idaho securities act in securities listed with
 18        or through the New York Stock Exchange, the American Stock Exchange or any
 19        other  stock  exchange  registered  with  the United States securities and
 20        exchange commission and approved by the  director  of  the  department  of
 21        finance which generate dividends, interest, capital gains or similar prof-
 22        its or returns for nonresidents not otherwise subject to Idaho income tax-
 23        ation  shall  not result in the intangible property being deemed to have a
 24        situs outside the domicile of the owner.
 25        (c)  Notwithstanding the provisions of subsection (3)(a) of this  section,
 26        when  intangible  property  owned by a partnership, limited liability com-
 27        pany, or other entity taxed as a partnership for federal income  tax  pur-
 28        poses  generates  dividends, interest, capital gains or similar profits or
 29        returns, such income shall not constitute income derived from  or  related
 30        to  sources  within  Idaho,  provided  that  the business activity of such
 31        entity is limited to the investment in securities and activities  incident
 32        thereto.
 33        (d)  Compensation  paid  by  the  United  States for active service in the
 34        armed forces of the United States, performed by an  individual  not  domi-
 35        ciled  in  this state, shall not constitute income derived from or related
 36        to sources within this state.
 37        (de)  The income of nonresident or part-year resident individuals,  trusts
 38        or  estates  which  is  derived from or related to sources both within and
 39        without this state shall be attributable to this state in the manner  pre-
 40        scribed in the rules of the state tax commission.
 41        (4)  In  computing  the Idaho taxable income of a part-year or nonresident
 42    individual, trust or estate, the standard deduction or itemized deductions, as
 43    defined in section 63-3022(j), Idaho Code, if applicable, and the  exemptions,
 44    as  defined  in  section  151 of the Internal Revenue Code or any allowance in
 45    lieu of such deduction, shall be allowed in the proportion that paragraph  (a)
 46    of this subsection bears to paragraph (b) of this subsection:
 47        (a)  The Idaho taxable income of the taxpayer modified as follows:
 48             (i)   No allowance shall be made for either the standard deduction or
 49             itemized deductions;
 50             (ii)  No  deduction  shall  be  made  for  personal exemptions or any
 51             allowance in lieu of such deduction.
 52        (b)  The Idaho taxable income as would be calculated  for  a  resident  of
 53        Idaho modified as follows:
 54             (i)   No  allowance  shall be made for either a standard deduction or
 55             itemized deductions;
                                                                        
                                           3
                                                                        
  1             (ii)  No deduction shall be  made  for  personal  exemptions  or  any
  2             allowance in lieu of such deduction;
  3             (iii) Compensation  for  active  military service in the armed forces
  4             shall not be deducted;
  5             (iv)  Income earned within the original exterior  boundaries  of  any
  6             federally  created Indian reservation by an enrolled Indian in a fed-
  7             erally recognized Indian tribe on a federally recognized Indian  res-
  8             ervation shall be added if not otherwise included.
  9        (5)  An  adjustment  may be made to eliminate distortions in the amount of
 10    net  income attributable to a taxpayer's activities within the state of Idaho.
 11    Such deductions shall be limited to circumstances  involving  itemized  deduc-
 12    tions as referred to in subsection (4) of this section and which reflect:
 13        (a)  A failure to reflect the net income or deduction after reimbursements
 14        have been received; or
 15        (b)  A  failure  to  reflect the net amount of mortgage interest income or
 16        expense from activities within Idaho.
 17        (6)  For the purposes of subsections (1) and (2) of this  section,  deduc-
 18    tions and adjustments allowed in computing the Idaho taxable income of nonres-
 19    ident  and  part-year  resident  individuals, trusts and estates shall be pre-
 20    scribed in the rules of the state tax commission. Such rules  shall  be  based
 21    upon:
 22        (a)  Whether  or not the deduction or adjustment is related to the produc-
 23        tion of income reportable to Idaho;
 24        (b)  Whether or not the deduction  or  adjustment  is  related  to  income
 25        received,  expenses paid, or events of tax consequence which occurred dur-
 26        ing a portion of a taxable year that the  taxpayer  was  domiciled  in  or
 27        residing in Idaho; or
 28        (c)  Any   other   appropriate   basis   for  making  the  adjustment.  An
 29        "appropriate basis" is one which the state tax commission finds is  needed
 30        to insure that the amount of Idaho taxable income is fairly and reasonably
 31        related to a taxpayer's activities in this state.
                                                                        
 32        SECTION  2.  An  emergency  existing  therefor,  which emergency is hereby
 33    declared to exist, this act shall be in full force and effect on and after its
 34    passage and approval, and retroactively to January 1, 2001.

Statement of Purpose / Fiscal Impact


                                
                      STATEMENT OF PURPOSE
                                
                            RS 15059

This legislation is intended to clarify an income tax
exemption relating to the taxation of interest, dividends and
capital gains from investments placed with Idaho registered
broker-dealers by non-residents.  The Tax Commission has
suggested that the exemption found in section 63-3026A, Idaho
Code, does not apply to investments in hedge funds or other
investment vehicles in which a non-resident investor purchases an
interest owned (with other investors) in whole or in part by an
Idaho broker-dealer.  This bill clarifies that the exemption in
fact applies in such cases.
 
If the exemption does not apply, because the tax commission
lacks jurisdiction to collect the tax from non-resident
investors, it seeks to collect the tax from the Idaho broker-
dealer instead, causing the Idaho broker-dealer to be liable for
the taxes which otherwise would be due from the non-residents.
     

                         Fiscal Impact

There will be no (or negligible) refund liability.  There
may be foregone revenue of an unknown amount if the commission's
assertion of tax liability were to be upheld in court.


Contact:  Ken McClure
Phone:    388-1200


STATEMENT OF PURPOSE/FISCAL NOTE                    H 277