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H0400...............................................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.
04/04 House intro - 1st rdg - to printing
Rpt prt - to 2nd rdg
Rls susp - PASSED - 67-1-2
AYES -- Anderson, Andrus, Barraclough, Barrett, Bastian, Bayer,
Bedke, Bell, Bilbao, Black, Block, Boe, Bolz, Bradford, Cannon,
Chadderdon, Clark, Collins, Crow, Deal, Denney, Edmunson,
Ellsworth(Ellsworth), Eskridge, Field(18), Field(23), Garrett, Hart,
Harwood, Henbest, Henderson, Jaquet, Kemp, Lake, Loertscher,
Martinez, Mathews, McGeachin, McKague, Miller, Mitchell, Moyle,
Nielsen, Nonini, Pasley-Stuart, Pence, Raybould, Ring, Ringo,
Roberts, Rusche, Rydalch, Sali, Sayler(Callen), Schaefer,
Shepherd(2), Shepherd(8), Shirley, Skippen, Smith(30), Smith(24),
Smylie, Snodgrass, Stevenson, Wills, Wood, Mr. Speaker
NAYS -- LeFavour
Absent and excused -- Jones, Trail
Floor Sponsor - Collins
Title apvd - to Senate
04/05 Senate intro - 1st rdg - to Loc Gov
Rpt out - rec d/p - to 2nd rdg
Rls susp - PASSED - 34-0-1
AYES -- Brandt, Broadsword, Bunderson, Burkett, Burtenshaw, Cameron,
Coiner, Compton, Corder, Darrington, Davis, Fulcher(Fulcher), 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 -- Andreason
Floor Sponsor - Hill
Title apvd - to House
04/06 To enrol - Rpt enrol - Sp/Pres signed
To Governor
04/15 Governor signed
Session Law Chapter 405
Effective: 01/01/01
]]]] LEGISLATURE OF THE STATE OF IDAHO ]]]]
Fifty-eighth Legislature First Regular Session - 2005
IN THE HOUSE OF REPRESENTATIVES
HOUSE BILL NO. 400
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 LIMITED LIABILITY COMPANY, PARTNERSHIP OR OTHER ENTITY TAXED AS A PARTNER-
5 SHIP FOR FEDERAL INCOME TAX PURPOSES GENERATES DIVIDENDS, INTEREST, CAPI-
6 TAL GAINS OR SIMILAR PROFITS OR RETURNS, SUCH INCOME SHALL NOT CONSTITUTE
7 INCOME DERIVED FROM OR RELATED TO SOURCES WITHIN IDAHO, PROVIDED THAT THE
8 BUSINESS ACTIVITY OF SUCH ENTITY IS LIMITED TO THE INVESTMENT IN SECURI-
9 TIES AND ACTIVITIES INCIDENT THERETO; DECLARING AN EMERGENCY AND PROVIDING
10 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 limited liability company, partner-
27 ship 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
RS 15235
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 400