59-7-106 (Effective 01/01/11) - Subtractions from unadjusted income.
59-7-106 (Effective 01/01/11). Subtractions from unadjusted income.
(1) In computing adjusted income the following amounts shall be subtracted fromunadjusted income:
(a) the foreign dividend gross-up included in gross income for federal income taxpurposes under Section 78, Internal Revenue Code;
(b) subject to Subsection (2), the net capital loss, as defined for federal purposes, if thetaxpayer elects to deduct the net capital loss on the return filed under this chapter for the taxableyear for which the net capital loss is incurred;
(c) the decrease in salary expense deduction for federal income tax purposes due toclaiming the federal work opportunity credit under Section 51, Internal Revenue Code;
(d) the decrease in qualified research and basic research expense deduction for federalincome tax purposes due to claiming the federal credit for increasing research activities underSection 41, Internal Revenue Code;
(e) the decrease in qualified clinical testing expense deduction for federal income taxpurposes due to claiming the federal credit for clinical testing expenses for certain drugs for rarediseases or conditions under Section 45C, Internal Revenue Code;
(f) any decrease in any expense deduction for federal income tax purposes due toclaiming any other federal credit;
(g) the safe harbor lease adjustment required under Subsections 59-7-111(1)(b) and(2)(b);
(h) any income on the federal corporation income tax return that has been previouslytaxed by Utah;
(i) an amount included in federal taxable income that is due to a refund of a tax,including a franchise tax, an income tax, a corporate stock and business tax, or an occupation tax:
(i) if that tax is imposed for the privilege of:
(A) doing business; or
(B) exercising a corporate franchise;
(ii) if that tax is paid by the corporation to:
(A) Utah;
(B) another state of the United States;
(C) a foreign country;
(D) a United States possession; or
(E) the Commonwealth of Puerto Rico; and
(iii) to the extent that tax was added to unadjusted income under Section 59-7-105;
(j) a charitable contribution, to the extent the charitable contribution is allowed as asubtraction under Section 59-7-109;
(k) subject to Subsection (3), 50% of a dividend considered to be received or receivedfrom a subsidiary that:
(i) is a member of the unitary group;
(ii) is organized or incorporated outside of the United States; and
(iii) is not included in a combined report under Section 59-7-402 or 59-7-403;
(l) subject to Subsection (4) and Section 59-7-401, 50% of the adjusted income of aforeign operating company;
(m) the amount of gain or loss that is included in unadjusted income but not recognizedfor federal purposes on stock sold or exchanged by a member of a selling consolidated group as
defined in Section 338, Internal Revenue Code, if an election has been made in accordance withSection 338(h)(10), Internal Revenue Code;
(n) the amount of gain or loss that is included in unadjusted income but not recognizedfor federal purposes on stock sold, exchanged, or distributed by a corporation in accordance withSection 336(e), Internal Revenue Code, if an election under Section 336(e), Internal RevenueCode, has been made for federal purposes;
(o) subject to Subsection (5), an adjustment to the following due to a difference betweenbasis for federal purposes and basis as computed under Section 59-7-107:
(i) an amortization expense;
(ii) a depreciation expense;
(iii) a gain;
(iv) a loss; or
(v) an item similar to Subsections (1)(o)(i) through (iv);
(p) an interest expense that is not deducted on a federal corporation income tax returnunder Section 265(b) or 291(e), Internal Revenue Code;
(q) 100% of dividends received from a subsidiary that is an insurance company if thatsubsidiary that is an insurance company is:
(i) exempt from this chapter under Subsection 59-7-102(1)(c); and
(ii) under common ownership;
(r) subject to Subsection 59-7-105(12), the amount of a qualified investment as definedin Section 53B-8a-102 that:
(i) a corporation that is an account owner as defined in Section 53B-8a-102 makes duringthe taxable year;
(ii) the corporation described in Subsection (1)(r)(i) does not deduct on a federalcorporation income tax return; and
(iii) does not exceed the maximum amount of the qualified investment that may besubtracted from unadjusted income for a taxable year in accordance with Subsection53B-8a-106(1); and
(s) for purposes of income included in a combined report under Part 4, CombinedReporting, the entire amount of the dividends a member of a unitary group receives or isconsidered to receive from a captive real estate investment trust.
(2) For purposes of Subsection (1)(b):
(a) the subtraction shall be made by claiming the subtraction on a return filed:
(i) under this chapter for the taxable year for which the net capital loss is incurred; and
(ii) by the due date of the return, including extensions; and
(b) a net capital loss for a taxable year shall be:
(i) subtracted for the taxable year for which the net capital loss is incurred; or
(ii) carried forward as provided in Sections 1212(a)(1)(B) and (C), Internal RevenueCode.
(3) (a) For purposes of calculating the subtraction provided for in Subsection (1)(k), ataxpayer shall first subtract from a dividend considered to be received or received an expensedirectly attributable to that dividend.
(b) For purposes of Subsection (3)(a), the amount of an interest expense that isconsidered to be directly attributable to a dividend is calculated by multiplying the interestexpense by a fraction:
(i) the numerator of which is the taxpayer's average investment in the dividend payingsubsidiaries; and
(ii) the denominator of which is the taxpayer's average total investment in assets.
(c) (i) For purposes of calculating the subtraction allowed by Subsection (1)(k), indetermining income apportionable to this state, a portion of the factors of a foreign subsidiarythat has dividends that are partially subtracted under Subsection (1)(k) shall be included in thecombined report factors as provided in this Subsection (3)(c).
(ii) For purposes of Subsection (3)(c)(i), the portion of the factors of a foreign subsidiarythat has dividends that are partially subtracted under Subsection (1)(k) that shall be included inthe combined report factors is calculated by multiplying each factor of the foreign subsidiary by afraction:
(A) not to exceed 100%; and
(B) (I) the numerator of which is the amount of the dividend paid by the foreignsubsidiary that is included in adjusted income; and
(II) the denominator of which is the current year earnings and profits of the foreignsubsidiary as determined under the Internal Revenue Code.
(4) (a) For purposes of Subsection (1)(l), a taxpayer may not make a subtraction underSubsection (1)(l):
(i) if the taxpayer elects to file a worldwide combined report as provided in Section59-7-403; or
(ii) for the following:
(A) income generated from intangible property; or
(B) a capital gain, dividend, interest, rent, royalty, or other similar item that is generatedfrom an asset held for investment and not from a regular business trading activity.
(b) In calculating the subtraction provided for in Subsection (1)(l), a foreign operatingcompany:
(i) may not subtract an amount provided for in Subsection (1)(k) or (l); and
(ii) prior to determining the subtraction under Subsection (1)(l), shall eliminate atransaction that occurs between members of a unitary group.
(c) For purposes of the subtraction provided for in Subsection (1)(l), in determiningincome apportionable to this state, the factors for a foreign operating company shall be includedin the combined report factors in the same percentages as the foreign operating company'sadjusted income is included in the combined adjusted income.
(d) In accordance with Title 63G, Chapter 3, Utah Administrative Rulemaking Act, thecommission may by rule define what constitutes:
(i) income generated from intangible property; or
(ii) a capital gain, dividend, interest, rent, royalty, or other similar item that is generatedfrom an asset held for investment and not from a regular business trading activity.
(5) (a) For purposes of the subtraction provided for in Subsection (1)(o), the amount of areduction in basis shall be allowed as an expense for the taxable year in which a federal tax creditis claimed if:
(i) there is a reduction in federal basis for a federal tax credit; and
(ii) there is no corresponding tax credit allowed in this state.
(b) In accordance with Title 63G, Chapter 3, Utah Administrative Rulemaking Act, thecommission may by rule define what constitutes an item similar to Subsections (1)(o)(i) through
(iv).
Amended by Chapter 6, 2010 General Session
Amended by Chapter 198, 2010 General Session