View Bill Status
View Bill Text
View Statement of Purpose / Fiscal Impact
H0445...............................................by REVENUE AND TAXATION
INCOME TAX - Amends existing law relating to state income tax to define
"pass-through entity," "members of pass-through entities" and
"nonresidents"; to authorize composite returns for members of pass-through
entities; to require withholding of state income tax from specified
payments made to certain nonresident members of pass-through entities; and
to apply the highest individual rate, rather than the corporate tax rate,
in certain cases of failure to file or pay tax.
01/23 House intro - 1st rdg - to printing
01/24 Rpt prt - to Rev/Tax
]]]] LEGISLATURE OF THE STATE OF IDAHO ]]]]
Fifty-eighth Legislature Second Regular Session - 2006
IN THE HOUSE OF REPRESENTATIVES
HOUSE BILL NO. 445
BY REVENUE AND TAXATION COMMITTEE
1 AN ACT
2 RELATING TO INCOME TAXES; AMENDING SECTION 63-3022L, IDAHO CODE, TO DEFINE
3 "PASS-THROUGH ENTITY," "MEMBER" OF PASS-THROUGH ENTITIES AND
4 "NONRESIDENTS," TO AUTHORIZE COMPOSITE RETURNS FOR MEMBERS OF PASS-THROUGH
5 ENTITIES, TO REVISE APPLICATION, TO REQUIRE WITHHOLDING OF STATE INCOME
6 TAX FROM SPECIFIED PAYMENTS MADE TO CERTAIN NONRESIDENT MEMBERS OF PASS-
7 THROUGH ENTITIES AND TO APPLY THE HIGHEST INDIVIDUAL RATE RATHER THAN THE
8 CORPORATE TAX RATE IN CERTAIN CASES OF FAILURE TO FILE OR PAY TAX; DECLAR-
9 ING AN EMERGENCY AND PROVIDING RETROACTIVE APPLICATION.
10 Be It Enacted by the Legislature of the State of Idaho:
11 SECTION 1. That Section 63-3022L, Idaho Code, be, and the same is hereby
12 amended to read as follows:
13 63-3022L. INDIVIDUALS WHO ARE OFFICERS, DIRECTORS, SHAREHOLDERS, PARTNERS
14 OR MEMBERS OF A CORPORATION OR PARTNERSHIP OR BENEFICIARIES OF A TRUST OR
15 ESTATE -- COMPOSITE RETURNS -- WITHHOLDING REQUIRED. (1) For purposes of this
16 section:
17 (a) "Member" means a shareholder of an S corporation, a partner in a
18 partnership, a member of a limited liability company or a beneficiary of a
19 trust.
20 (b) "Nonresident" means:
21 (i) An individual who is a nonresident as defined in section
22 63-3014, Idaho Code;
23 (ii) A business entity, other than an individual, that does not have
24 its commercial domicile in the state;
25 (iii) A trust not organized in the state.
26 (c) "Pass-through entity" means a corporation that for the applicable tax
27 year is treated as an S corporation under section 1362(a) of the Internal
28 Revenue Code, partnership, trust, or limited liability company that for
29 the applicable tax year is not taxed as a corporation and which has income
30 during a taxable year from doing or transacting business in this state or
31 derived income from sources within this state.
32 (2) (a) Individuals who are members of a pass-through entity and indi-
33 viduals who are officers, or directors, shareholders, partners or members
34 of a corporation or partnership transacting business in Idaho or who are
35 beneficiaries of a trust or estate with income taxable in Idaho of a pass-
36 through entity may elect to have Idaho tax due under this chapter relating
37 to income described in subsection (23) of this section reported and paid
38 by the corporation, partnership, trust or estate. Income subject to the
39 election in this subsection shall be taxed at the rate applicable to cor-
40 porations pass-through entity. The election in this section is not avail-
41 able to an individual who has Idaho taxable income in addition to income
42 described in subsection (3) of this section.
43 (b) In the event that the election provided in subsection (2)(a) of this
2
1 section is made, the pass-through entity shall file a composite income tax
2 return on behalf of electing members who are individuals, officers and
3 directors reporting and paying income tax at the highest tax rate provided
4 in section 63-3024, Idaho Code, for individuals, estates and trusts, on
5 the income described in subsection (3) of this section.
6 (c) The election shall be made on the return of the corporation, partner-
7 ship, trust or estate by each individual in writing by notice, in the man-
8 ner required by rules of the state tax commission, to the pass-through
9 entity from which the income is received. The election in this section is
10 not available to an individual who has Idaho taxable income in addition to
11 income described in subsection (2) of this section.
12 (d) An individual who has been included in a composite return may file an
13 individual income tax return and shall receive credit for tax paid on that
14 individual's behalf by the pass-through entity.
15 (23) The election in subsection (1) of tThis section applies to:
16 (a) Wages, salary and other compensation paid by the corporation, part-
17 nership, trust or estate a pass-through entity to such officers,
18 directors, shareholders, partners, or members or beneficiaries who are
19 individuals to the extent the compensation is Idaho taxable income of the
20 individual to whom it is paid; and
21 (b) The share of any income, loss, deduction or credit of an S corpora-
22 tion, partnership, trust or estate required to be included on such
23 shareholder's, partner's, member's or beneficiary's Idaho return
24 individual's pro rata or distributive shares of income of a pass-through
25 entity from transacting business in, or deriving income from sources
26 within Idaho.
27 (c) When the gross income attributable to an individual under paragraphs
28 (a) and (b) of this subsection (23) is less than the filing requirement of
29 the individual under section 63-3030, Idaho Code, the income is not income
30 under this subsection required to be included as income in the composite
31 return.
32 (34) (a) A pass-through entity shall withhold income tax at the highest
33 tax rate provided in section 63-3024, Idaho Code, for individuals, estates
34 and trusts, or section 63-3025, Idaho Code, for corporations on the share
35 of income of the entity distributed to each nonresident member and shall
36 report and pay the withheld amount in the manner prescribed by the state
37 tax commission. The pass-through entity shall be liable to this state for
38 the payment of the tax required to be withheld under this section and
39 shall not be liable to such member for the amount withheld and paid over
40 in compliance with this section. A member of a pass-through entity that is
41 itself a pass-through entity or a "lower-tier pass-through entity" shall
42 be subject to this same requirement to withhold and pay over income tax on
43 the share of income distributed by the lower-tier pass-through entity to
44 each of its nonresident members at the rate applicable to corporations in
45 section 63-3025, Idaho Code. The state tax commission shall apply tax
46 withheld and paid over by a pass-through entity on distributions to a
47 lower-tier pass-through entity to the withholding required of that lower-
48 tier pass-through entity.
49 (b) A pass-through entity shall, at the time of payment made pursuant to
50 this section, deliver to the state tax commission a return upon a form
51 prescribed by the state tax commission showing the total amounts paid or
52 credited to its nonresident members, the amount withheld in accordance
53 with this section, and any other information the state tax commission may
54 require. A pass-through entity shall furnish to its nonresident member
55 annually, but not later than the fifteenth day of the third month after
3
1 the end of its taxable year, a record of the amount of tax withheld on
2 behalf of such member on a form prescribed by the state tax commission.
3 (c) Notwithstanding subsection (4)(a) or (4)(b) of this section, a pass-
4 through entity is not required to withhold tax for a nonresident member
5 if:
6 (i) The individual member elects to have the tax due paid as part
7 of a composite return filed by the pass-through entity under subsec-
8 tion (2) of this section; or
9 (ii) The member has a pro rata or distributive share of income of
10 the pass-through entity from doing business in, or deriving income
11 from sources within, this state of less than one thousand dollars
12 ($1,000) per taxable year; or
13 (iii) The entity is a publicly traded partnership as defined in sec-
14 tion 7704(b) of the Internal Revenue Code that is treated as a part-
15 nership for the purposes of the Internal Revenue Code and that has
16 agreed to file an annual information return reporting the name,
17 address, taxpayer identification number and other information
18 requested by the state tax commission of each unit holder with an
19 income in the state in excess of five hundred dollars ($500); or
20 (iv) The state tax commission has determined that the member's
21 income is not subject to withholding.
22 (5) (a) (i) If no election under subsection (2) of this section is
23 made, or
24 (ii) If the election was made, the amount due on a composite return
25 is not paid, or
26 (iii) If any amounts required under subsection (4) of this section to
27 be withheld and paid to the commission are not paid to the commis-
28 sion; and
29 (b) If an officer, director, shareholder, partner, member, or beneficiary
30 of a corporation, partnership, trust or estate transacting business in
31 Idaho or individual member of a pass-through entity fails to file an Idaho
32 income tax return reporting all or any part of the items described in sub-
33 section (23) of this section or fails to pay any tax due thereon, such
34 corporation, partnership, trust or estate pass-through entity shall be
35 liable for tax all taxes due under this chapter on such items at the high-
36 est rate applicable to corporations provided in section 63-3024, Idaho
37 Code, for individuals.
38 (4) The provisions of this section shall not apply to a corporation,
39 other than an S corporation, with less than fifty percent (50%) of its income
40 taxable within this state.
41 SECTION 2. An emergency existing therefor, which emergency is hereby
42 declared to exist, this act shall be in full force and effect on and after its
43 passage and approval, and retroactively to January 1, 2006.
STATEMENT OF PURPOSE
RS 15388
This bill addresses income taxation of "pass-through
entities" (S-Corporations, partnerships, limited liability
companies, and trusts). It authorizes the use of "composite
returns", which codifies a long-standing practice of the State
Tax Commission. It also adds a withholding requirement when
making payments of taxable income to their shareholders,
partners, members, or beneficiaries. The withholding is not
required when these persons elect to participate in a composite
income tax return by which the entity reports the income and pays
the tax of its members.
FISCAL NOTE
Additional one million dollars to the general fund.
CONTACT
Name: Dan John
Agency: State Tax Commission
Phone: 334-7530
STATEMENT OF PURPOSE/FISCAL NOTE H 445