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H0240...............................................by REVENUE AND TAXATION
INCOME TAX - Amends existing law to provide that when tax is paid to
another state on income of an S corporation, partnership, limited liability
company, or trust, the income tax limitation with respect to that income
shall be based on the proportion that the individual taxpayer's share of
the entity's taxable income correctly reported to the other state under the
laws of the other state bears to the individual's adjusted gross income; to
provide that the limitation shall apply whether the tax is paid to the
other state by the individual or by the S corporation, partnership, limited
liability company or trust; and to provide that the credit provided under
this section shall further be limited to the tax paid to the other state.
02/26 House intro - 1st rdg - to printing
02/27 Rpt prt - to Rev/Tax
02/28 Rpt out - rec d/p - to 2nd rdg
03/01 2nd rdg - to 3rd rdg
03/02 3rd rdg - PASSED - 65-0-5
AYES -- Anderson, Andrus, Barrett, Bayer, Bedke, Bell, Bilbao, Black,
Block, Bock, Boe, Bolz, Brackett, Bradford, Chadderdon, Chavez, Chew,
Clark, Collins, Crane, Durst, Eskridge, Hagedorn, Hart, Henbest,
Jaquet, Killen, King, Kren, Labrador, Lake, LeFavour, Loertscher,
Luker, Marriott, Mathews, McGeachin, Mortimer, Moyle, Nielsen,
Pasley-Stuart, Patrick, Pence, Raybould, Ring, Ringo, Roberts,
Ruchti, Rusche, Sayler, Schaefer, Shepherd(2), Shepherd(8), Shirley,
Shively, Smith(30), Smith(24), Snodgrass, Stevenson, Thayn, Trail,
Vander Woude, Wills, Wood(27), Mr. Speaker
NAYS -- None
Absent and excused -- Edmunson, Harwood, Henderson, Nonini, Wood(35)
Floor Sponsor - Clark
Title apvd - to Senate
03/05 Senate intro - 1st rdg - to Loc Gov
03/09 Rpt out - rec d/p - to 2nd rdg
03/12 2nd rdg - to 3rd rdg
03/16 3rd rdg - PASSED - 35-0-0
AYES -- Andreason, Bair, Bastian, Bilyeu, Broadsword, Burkett,
Cameron, Coiner, Corder, Darrington, Davis, Fulcher, Gannon, Geddes,
Goedde, Hammond, Heinrich, Hill, Jorgenson, Kelly, Keough, Langhorst,
Little, Lodge, Malepeai, McGee, McKague, McKenzie, Pearce,
Richardson, Schroeder, Siddoway, Stegner, Stennett, Werk
NAYS -- None
Absent and excused -- None
Floor Sponsor - Hill
Title apvd - to House
03/19 To enrol - Rpt enrol - Sp signed
03/20 Pres signed - To Governor
03/26 Governor signed
Session Law Chapter 191
Effective: 03/26/07 Applicable to all
proceedings pending before the State Tax
Commission & Board of Tax Appeals
]]]] LEGISLATURE OF THE STATE OF IDAHO ]]]]
Fifty-ninth Legislature First Regular Session - 2007
IN THE HOUSE OF REPRESENTATIVES
HOUSE BILL NO. 240
BY REVENUE AND TAXATION COMMITTEE
1 AN ACT
2 RELATING TO CREDIT FOR INCOME TAXES PAID TO ANOTHER STATE; AMENDING SECTION
3 63-3029, IDAHO CODE, TO PROVIDE THAT WHEN TAX IS PAID TO ANOTHER STATE ON
4 INCOME OF AN S CORPORATION, PARTNERSHIP, LIMITED LIABILITY COMPANY, OR
5 TRUST, THE INCOME TAX LIMITATION WITH RESPECT TO THAT INCOME SHALL BE
6 BASED ON THE PROPORTION THAT THE INDIVIDUAL TAXPAYER'S SHARE OF THE
7 ENTITY'S TAXABLE INCOME CORRECTLY REPORTED TO THE OTHER STATE UNDER THE
8 LAWS OF THE OTHER STATE BEARS TO THE INDIVIDUAL'S ADJUSTED GROSS INCOME,
9 TO PROVIDE THAT THE LIMITATION SHALL APPLY WHETHER THE TAX IS PAID TO THE
10 OTHER STATE BY THE INDIVIDUAL OR BY THE S CORPORATION, PARTNERSHIP, LIM-
11 ITED LIABILITY COMPANY OR TRUST AND TO PROVIDE THAT THE CREDIT PROVIDED
12 UNDER THIS SECTION SHALL FURTHER BE LIMITED TO THE TAX PAID TO THE OTHER
13 STATE; DECLARING AN EMERGENCY AND PROVIDING APPLICATION.
14 Be It Enacted by the Legislature of the State of Idaho:
15 SECTION 1. That Section 63-3029, Idaho Code, be, and the same is hereby
16 amended to read as follows:
17 63-3029. CREDIT FOR INCOME TAXES PAID ANOTHER STATE. (1) A resident indi-
18 vidual shall be allowed a credit against the tax otherwise due under this
19 chapter for the amount of any income tax imposed on the individual, an S cor-
20 poration, partnership, limited liability company, or trust of which the indi-
21 vidual is a shareholder, partner, member, or beneficiary (to the extent
22 attributable to the individual as a result of the individual's share of the S
23 corporation's, partnership's, limited liability company's or trust's taxable
24 income in another state), for the taxable year by another state on income
25 derived from sources therein while domiciled in Idaho and that is also subject
26 to tax under this chapter.
27 (2) For purposes of this section, "state" shall include any state of the
28 United States, the District of Columbia, or any possession or territory of the
29 United States.
30 (3) (a) Except as provided in subsection (3)(b), tThe credit provided
31 under this section shall not exceed the proportion of the tax otherwise
32 due under this chapter that the amount of the adjusted gross income of the
33 taxpayer derived from sources in the other state as modified by this chap-
34 ter bears to the adjusted gross income of the taxpayer as modified by this
35 chapter. This limitation applies to all individuals. whether the tax paid
36 to the other state is paid by the individual or by an S corporation, part-
37 nership, limited liability company, or trust. Further, the credit shall
38 not exceed the tax paid to the other state.
39 (b) When tax is paid to another state on income of an S corporation,
40 partnership, limited liability company, or trust, the limitation calcu-
41 lated in subsection (3)(a) with respect to that income shall be based on
42 the proportion that the individual taxpayer's share of the entity's tax-
43 able income correctly reported to the other state under the laws of the
2
1 other state bears to the individual's adjusted gross income. This limita-
2 tion shall apply whether the tax is paid to the other state by the indi-
3 vidual or by the S corporation, partnership, limited liability company or
4 trust.
5 (c) The credit provided under this section shall further be limited to
6 the tax paid to the other state.
7 (4) To substantiate the credit allowed under this section, the state tax
8 commission may require a copy of any receipt showing payment of income taxes
9 to the other state or a copy of any return or returns filed with such other
10 state, or both.
11 (5) No credit allowed under this section shall be applied in calculating
12 tax due under this chapter if the tax upon which the credit is based has been
13 claimed as a deduction, unless the tax is restored to income on the Idaho
14 return.
15 (6) The credit shall not be allowed if such other state allows a credit
16 against taxes imposed by such state for taxes paid or payable under this act.
17 (7) For purposes of this section an income tax imposed on an S corpora-
18 tion, partnership, limited liability company, or trust includes:
19 (a) A direct tax imposed upon the income for the taxable year of the S
20 corporation, partnership, limited liability company or trust; and
21 (b) An excise or franchise tax that is measured by the income for the
22 taxable year of the S corporation, partnership, limited liability company,
23 or trust.
24 (8) For purposes of subsection (7) of this section, an excise or fran-
25 chise tax is "measured by income" only if the statute imposing the excise or
26 franchise tax provides that the base for the tax:
27 (a) Includes:
28 (i) Revenue from sales;
29 (ii) Revenue from services rendered; and
30 (iii) Income from investments; and
31 (b) Permits a deduction for the cost of goods sold and the cost of ser-
32 vices rendered.
33 (9) A part-year resident is entitled to a credit, determined in the man-
34 ner prescribed by the state tax commission, for income taxes paid to another
35 state in regard to income which is:
36 (a) Earned while the taxpayer is domiciled in this state; and
37 (b) Subject to tax in such other state.
38 (10) If the interest in an S corporation, partnership, or limited liabil-
39 ity company was held for less than the entire taxable year, the share attrib-
40 utable to the individual shall be allocated in the same manner as for federal
41 purposes.
42 SECTION 2. An emergency existing therefor, which emergency is hereby
43 declared to exist, this act shall be in full force and effect on and after its
44 passage and approval and shall apply to all proceedings pending before the
45 State Tax Commission, the Board of Tax Appeals or the courts of this state on
46 the effective date of this act.
STATEMENT OF PURPOSE
RS 17018
This legislation clarifies the statute that allows a credit
for taxes paid by a taxpayer in another state. Idaho law
requires the calculation of tax on all of an Idaho resident's
income, even if that income is earned in another state, but then
allows a credit against that tax for the tax paid in the other
state. The credit is limited, however, by the amount of the tax
that would have been assessed by the State of Idaho if the same
amount of income had been earned in Idaho rather than the other
state. The limitation requires a recalculation of the adjusted
income earned by the Idaho resident in the other state, using
Idaho's rules for the calculation of that income, which assures
that the credit is no more than would be paid in Idaho on the
same amount of income.
The statute should not be applied, however, to require a
recalculation of the adjusted gross income of entities in which
the Idaho resident owns an interest and the income from which is
allocated to the taxpayer, such as Subchapter S corporations and
partnerships (i.e. "pass-through entities"). Such a recalculation
is too complex and in many cases the taxpayer has no access to
the information which would be necessary to make such a
calculation at the entity level.
Further, such a requirement would go beyond the rationale for
limiting the credit allowable to the taxpayer. This legislation
clarifies that the limitation should be calculated only at the
individual taxpayer level, and not for every pass-through entity
in which the taxpayer has an interest.
FISCAL NOTE
The fiscal impact estimated for this bill by the Tax Commission
is $500,000 annually.
Contact
Name: Senator Brent Hill
Phone: 332-1316
STATEMENT OF PURPOSE/FISCAL NOTE H 240