No. 40971 (5-year Review): Rule R865-9I. Income Tax

DAR File No.: 40971
Filed: 11/10/2016 09:44:42 AM

NOTICE OF REVIEW AND STATEMENT OF CONTINUATION

Concise explanation of the particular statutory provisions under which the rule is enacted and how these provisions authorize or require the rule:

Section 31A-32a-106 authorizes the Tax Commission to adopt rules necessary to implement the medical care savings account tax deduction. Section 53B-8a-112 authorizes the Tax Commission to adopt rules necessary to implement the educational saving plan tax deduction. Section 59-1-1301 through Section 59-1-1309 creates the Reportable Transactions Act, which includes defining "material advisor" and "reportable transaction," requiring the disclosure of reportable transactions and lists maintained by a material advisor and providing penalties. Section 59-1-1406 requires a person to keep tax records and books in a form prescribed by the commission; and prescribes Tax Commission authority examine a person's books and records. Sections 59-2-1201 through 59-2-1220 provide general property tax relief for certain persons who own or rent their places of residence through a series of tax credits, refunds, and appropriations from the general fund. Section 59-6-102 requires that each producer of minerals in Utah deduct an amount equal to 5% of the amount that would be paid to the person entitled to the payment. Any person filing an income tax return is entitled to a credit against this tax if the amount withheld is greater than the tax due on the return. Section 59-10-103 defines individual income tax terms. Section 59-10-114 provides for additions to and subtractions from the federal taxable income of an individual in order to determine state taxable income. Section 59-10-116 levies an income tax on nonresidents with income from Utah. This tax shall be based on federal adjusted gross income from Utah sources. Section 59-10-117 lists items includable in federal adjusted gross income from Utah sources. Section 59-10-118 states that any taxpayer having business income which is taxable within and without this state shall allocate and apportion the taxpayer's net income to the state. Statute then provides guidelines for allocation. Section 59-10-119 requires that a husband and wife shall file joint or separate returns with Utah based on how they filed federal returns and provides an exception if one spouse is a Utah resident and the other is a nonresident. Section 59-10-120 requires individuals who change status from resident to nonresident or nonresident to resident during the taxable year to file one return for their resident status and one for their nonresident status, and provides guidance on determining taxable income in this case. Section 59-10-121 states that if two returns must be filed because of a change of status from resident to nonresident, or vice versa, the personal exemptions and standard deductions shall be prorated between the returns based on the Tax Commission rule. Section 59-10-122 establishes that the state taxable year for an individual will coincide with the individual's federal taxable year. Section 59-10-124 states that the Tax Commission shall have the authority to create rules to prevent over or under taxation when an individual switches accounting methods from one taxable year to the next. Section 59-10-136 provides tests for determining when an individual has Utah domicile for income tax purposes; and indicates when an individual is not considered to have domicile. Section 59-10-401 defines terms relating to withholding tax. Section 59-10-402 requires each employer to withhold from wages an amount to be determined by Tax Commission rule; provides an exemption from withholding; and provides that amounts withheld shall be a credit to the tax of the individual from whom they were withheld. Section 59-10-403 provides a withholding exemption for an employee who presents to their employer a certificate stating that the employee incurred no tax liability for the preceding year and does not expect to incur tax liability in the current year. Statute gives rulemaking power to the Tax Commission to implement this section. Section 59-10-405.5 requires a person who withholds income taxes to obtain a withholding tax license from the commission; indicates when a license applicant must post a bond with the Tax Commission and how the bond amount shall be calculated; and provides that a withholding tax license is valid until the person ceases to do business or changes that person�s business address. Section 59-10-406 sets forth requirements for employers on due dates and filing requirements for withholding; gives Tax Commission rulemaking authority to prescribe the manner by which an employer shall notify employees of amounts withheld on their behalf; and provides that employers hold withheld amounts in trust for the Tax Commission. Section 59-10-407 requires employers to make monthly payments of withholding tax to the Tax Commission if their withholding tax liability averages an amount designated in rule by the Tax Commission. Section 59-10-408 allows the Tax Commission to make agreements with the United States government to make provisions necessary to provide for deduction and withholding of tax from wages of federal employees in Utah; and gives the Tax Commission rulemaking authority to administer withholding. Section 59-10-501 requires all persons liable for tax to keep records, render statements, make returns, and comply with the rules that the Tax Commission may from time to time prescribe. Section 59-10-503 provides that a husband and wife may file a joint return with some exceptions. Section 59-10-504 requires that any fiduciary or receiver required to file a federal return must file a state return as well. Section 59-10-507 requires that any partnership receiving income in the state of Utah shall make a return for the taxable year. Section 59-10-512 requires that any return, statement, or other document submitted to the Tax Commission must be signed in accordance with forms or rules prescribed by the Tax Commission. Section 59-10-514 indicates when an individual income tax return, trust and estates tax return, and partnership tax return must be filed with the Tax Commission; and allows the Tax Commission to make rules prescribing what constitutes a filing with the Tax Commission. Section 59-10-516 provides instructions for gaining an extension of time for filing returns. Law states that certain prepayments must be made by original due date or penalties will be assessed on the filing extension. Section 59-10-517 deems the U. S. postmark date as the delivery date; and allows the Tax Commission to provide by rule for postmarks by entities other than the U.S. Post Office. Section 59-10-522 allows the Tax Commission to extend the time for paying tax due on a return under the Tax Commission rules, and for paying tax deficiencies. Section 59-10-536 provides a statute of limitations on the assessment and collection of tax by the Tax Commission. Section 59-10-1003 prevents overtaxation by providing a credit against income tax otherwise due to the state of Utah for the amount of tax imposed on the taxpayer in another state. Section 59-10-1006 provides a Utah resident an income tax credit for an amount equal to 20 percent of qualified rehabilitation expenditures when restoring a historic building. Section 59-10-1014 authorizes the Tax Commission to promulgate rules to address the certification of a nonrefundable renewable energy system tax credit by the Office of Energy Development. Section 59-10-1017 provides an individual income tax credit for a qualified investment made in the Utah Educational Savings Plan. Section 59-10-1021 provides a nonrefundable income tax credit for certain contributions made to a medical care savings account. Section 59-10-1023 provides a nonrefundable income tax credit for certain amounts paid under a health benefit plan. Section 59-10-1106 provides a refundable income tax credit for certain amounts spent for the purchase of a renewable commercial energy system. Section 59-10-1403 provides that a pass-through entity is not subject to an income tax but must file a return; and classifies a pass-through entity that transacts business in the same manner as the pass-through entity is classified for federal income tax purposes. Section 59-10-1403.2 requires a pass-through entity to withhold Utah income tax on the entity's business income and Utah-derived non-business income for anyone other than a resident individual; and provides an exception to the withholding requirement. Section 59-10-1405 indicates how a pass-through entity's additions and subtractions to income shall be allocated among the pass-through entity taxpayers. Section 59-13-202 entitles any person who purchases motor fuel for the use of stationary or self-propelled machinery used for nonhighway farm operation to an income tax refund, and provides methods for obtaining the credit. Section 59-13-301 imposes a special fuels tax on special fuels; provides for transactions exempt from the tax; and requires exemptions to be taken in the form of a tax refund. Sections 63N-2-201 through 63N-2-215 create the Enterprise Zone Act, which provides various nonrefundable income tax credits to certain businesses in an enterprise zone.

Summary of written comments received during and since the last five-year review of the rule from interested persons supporting or opposing the rule:

No written comments have been received.

Reasoned justification for continuation of the rule, including reasons why the agency disagrees with comments in opposition to the rule, if any:

Section R865-9I-2 defines "resident," "resident taxpayer," "nonresident," "nonresident taxpayer," "part year resident," and "domicile" and clarifies domicile for the purposes of a person in active military service. Section R865-9I-3 provides instructions on how to file for an income tax credit for income taxes paid to another state. Section 865-9I-6 provides instructions for a husband and wife, if either one is a nonresident, to file separate returns even though they filed a joint federal return; provides a method to determine each spouse's Federal Adjusted Gross Income (FAGI) when they qualify to file separate state returns. Section R865-9I-7 provides definitions of "part year resident" and "FAGI", provides instructions for determining the FAGI of a part-year resident and a business with income from within and without Utah. Section R864-9I-8 provides that two returns are not required when an individual changes status as resident or nonresident, except in unusual circumstances. Section R865-9I-9 provides instructions for calculating a taxpayer's taxable state income when required to convert income from a period of less than a year to an annual basis for federal tax purposes. Section R865-9I-10 states that a taxpayer must include a statement setting forth all differences when an alternate method of accounting is used to compute income from the method used the previous year. Section R865-9I-13 provides guidance for pass-through entity required withholding of Utah income tax from certain taxpayers. Section R865-9I-14 requires withholding only on Utah income, and allows credit for withholding paid to another state and provides instructions to employers regarding withholding of wages, including income subject to withholding, the number of exemptions that may be claimed, and use of tables published by the Tax Commission. Section R865-9I-15 states that an employer need not withhold wages from an employee with a federal withholding certificate. Section R865-9I-16 prescribes the forms necessary to file withholding returns and sets forth penalties incurred by employers not filing properly. The section also prescribes information that must be on W-2 form. Section R865-9I-17 establishes conditions for employers to file withholding returns on a monthly basis and directions for filing monthly. Section R865-9I-18 clarifies taxpayer responsibility to keep and store adequate records for income tax purposes. Section R865-9I-19 clarifies whether a joint return or a separate return should be filed in a year in which one spouse dies. Section R865-9I-20 clarifies when a fiduciary is required to file a return and the information required to be on the fiduciary return, and establishes liability for payment of the estate's or trust's taxes. Section R865-9I-21 provides income tax filing instructions for individuals involved in a partnership; and clarifies method of filing if one member of partnership is a nonresident and the partnership has income from inside and outside the state. Section R865-9I-22 clarifies that any return filed with the Tax Commission is not valid unless the sender signs the return, and also clarifies the conditions a taxpayer must satisfy to file returns on reproduced or facsimile copies of state tax returns. Section R865-9I-23 provides information for prepaying income tax, and indicates when interest shall be charged on a return filed pursuant to an extension, and the amount of extension Utah residents in military service stationed outside the U.S. have to file their return. Section R865-9I-24 clarifies that provisions relating to prima facie evidence of delivery and the postmark date on registered mail from the United States postal system apply to certified mail as well. Section R865-9I-30 provides for a taxpayer to waive the statute of limitations in order to determine whether an activity is engaged in for profit. Section R865-9I-33 states that all Utah residents keeping forms for reporting rents, royalties, interest, and remuneration from Utah sources not subject to federal withholding must make them available to authorized representatives of the Tax Commission or submit them to the Tax Commission upon request. Section R865-9I-34 states that, for property tax relief purposes, individuals living in an owned trailer home situated on rented land must complete two computations: 1) for property taxes on the mobile home; and 2) for the rental of the land, excluding charges for utilities, services, or furnishings supplied by the landlord; and also states what portions of renter-received assistance may be included in rent paid. Section R865-9I-37 provides definitions for the enterprise zone tax credit and indicates when an investment is a qualifying investment for purposes of the credit. The section provides guidance on how an employer shall determine its base number of employees for purposes of the credit, maintenance of records, and revocation of county's designation as an enterprise zone. Section R865-9I-41 provides instructions for applying for and receiving historic preservation tax credit, and any subsequent carryforwards of that credit. Section R865-9I-42 provides that the order of deducting credits against individual income tax is: 1) nonrefundable credits; 2) nonrefundable credits with a carryforward; and 3) refundable credits. Section R865-9I-44 defines "professional athletic team", "member of a professional athletic team," and "duty days" for purposes of apportioning income subject to Utah tax for all professional athletes performing in the state of Utah; and provides that a professional athletic team is an employer required to withhold state income tax from the team members. Section R865-9I-46 requires medical savings account administrators to file information on each account they administer, along with a reconciliation, with the Tax Commission on an annual basis. The section outlines the content of the form, along with record keeping requirements and the necessity of each account holder to attached the form to their state return. Section R865-9I-47 states that combat pay is excluded from withholding requirements and provides an extension of time to pay income taxes for individuals receiving combat pay. Section R865-9I-49 requires the trustee of the Utah Educational Savings Plan Trust to provide trust participants and the Tax Commission with certain information on the status of the participant's account with the trust. Section R865-9I-50 indicates when the addition to federal taxable income for interest on certain bonds shall apply. Section R865-9I-51 provides conditions under which a withholding tax licensee will be considered to have changed the licensee's business address or ceased to do business. Section R865-9I-52 provides that a credit for health benefit plan insurance shall be determined in the manner that provides the greatest possible credit. Section R865-9I-53 indicates how a taxpayer shall disclose a reportable transaction to the Tax Commission and how a material advisor shall disclose a reportable transaction to the Tax Commission. Section R865-9I-54 provides that, in the absence of fraud, the amount certified as qualifying for the renewable energy systems tax credit shall be the amount allowed by the Tax Commission as a credit. Section R865-9I-55 provides that a qualified subchapter S subsidiary shall be treated in the same manner for Utah taxes as it is for federal taxes. Therefore, this rule should be continued.

The full text of this rule may be inspected, during regular business hours, at the Office of Administrative Rules, or at:

Tax Commission
Auditing
210 N 1950 W
SALT LAKE CITY, UT 84134

Direct questions regarding this rule to:

• Christa Johnson at the above address, by phone at 801-297-3901, by FAX at 801-297-3907, or by Internet E-mail at [e-mail]

Effective:

11/10/2016

Authorized by:

Rebecca Rockwell, Commissioner

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