DAR File No. 27929

Tax Commission, Auditing

R865-6F-35

S Corporation Determination of Tax Pursuant to Utah Code Ann. Section 59-7-703

NOTICE OF PROPOSED RULE

DAR File No.: 27929
Filed: 05/18/2005, 03:29
Received by: NL

RULE ANALYSIS

Purpose of the rule or reason for the change:

Federal form 1120S line labels have changed; statutory citations have not been updated as the statutes have changed; and obsolete language is no longer necessary.

Summary of the rule or change:

The proposed amendment updates statutory citations and federal form 1120S line labels, and deletes obsolete language.

State statutory or constitutional authorization for this rule:

Section 59-7-703

Anticipated cost or savings to:

the state budget:

None--Federal form 1120S line labels have changed; statutory citations have not been updated as statutes have changed; and obsolete language is no longer necessary. All changes are nonsubstantive,and therefore there are no costs or savings to state budget.

local governments:

None--Federal form 1120S line labels have changed; statutory citations have not been updated as statutes have changed; and obsolete language is no longer necessary. All changes are nonsubstantive,and therefore there are no costs or savings to local government.

other persons:

None--Federal form 1120S line labels have changed; statutory citations have not been updated as statutes have changed; and obsolete language is no longer necessary. All changes are nonsubstantive,and therefore there are no costs or savings to other persons.

Compliance costs for affected persons:

None--All changes are nonsubstantive.

Comments by the department head on the fiscal impact the rule may have on businesses:

There will be no fiscal impact. Pam Hendrickson, Commission Chair

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

Direct questions regarding this rule to:

Cheryl Lee at the above address, by phone at 801-297-3900, by FAX at 801-297-3919, or by Internet E-mail at clee@utah.gov

Interested persons may present their views on this rule by submitting written comments to the address above no later than 5:00 p.m. on:

07/15/2005

This rule may become effective on:

07/16/2005

Authorized by:

Pam Hendrickson, Commissioner

RULE TEXT

R865. Tax Commission, Auditing.

R865-6F. Franchise Tax.

R865-6F-35. S Corporation Determination of Tax Pursuant to Utah Code Ann. Section 59-7-703.

[A.](1) For purposes of Section [59-7-703(1)(a)(i)]59-7-703(2)(b)(i), "items of income or loss from Schedule K of the 1120S federal form" shall be calculated by:

[1.](a) adding back to the line on the Schedule K labeled "[Income (loss)]Income/loss reconciliation" the amount included on that schedule for:

[a)](i) charitable contributions; and

[b)](ii) total foreign taxes paid or accrued.

[2.](b) If the S corporation was not required to complete the line labeled "[Income (loss)]Income/loss reconciliation" on the Schedule K, a pro forma calculation of the amounts for charitable contributions and foreign taxes paid or accrued, and of the amount that would have been entered on the "[Income (loss)]Income/loss reconciliation" line shall be used for purposes of this rule.

[B.](2) The [rate]amount that the S corporation shall withhold for nonresident shareholders shall be computed as follows:

[1.](a) [A]The deduction shall be equal to 15 percent of the Utah income attributable to nonresident shareholders.

(b) The deduction in Subsection (2)(a) shall be allowed in place of a standard deduction, itemized deductions, personal exemptions, federal tax determined for the same period, or any other deductions.

[a) An S corporation that is entitled to subtract a loss carryforward and that elected, under the laws in effect prior to January 1, 1994, to use Option A as the method to pay its taxes, shall apply the 15 percent deduction to Utah income attributable to nonresident shareholders after the subtraction for loss carryforwards.

2.](3) The tax shall be computed using the maximum Utah individual income tax rate applied to the combined nonresident shareholders' share of the S corporation's income after deduction of the amount allowed under [B.1]Subsection (2).

[C.](4) An S corporation with nonresident shareholders shall complete Schedule N of form TC-20S, and shall provide the following information for each nonresident shareholder:

[1.](a) name;

[2.](b) social security number;

[3.](c) percentage of S corporation held; and

[4.](d) amount of Utah tax paid or withheld on behalf of that shareholder.

KEY: taxation, franchises, historic preservation, trucking industries

[October 19, 2004]2005

Notice of Continuation April 3, 2002

59-7-703

ADDITIONAL INFORMATION

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For questions regarding the content or application of this rule, please contact Cheryl Lee at the above address, by phone at 801-297-3900, by FAX at 801-297-3919, or by Internet E-mail at clee@utah.gov

For questions about the rulemaking process, please contact the Division of Administrative Rules (801-538-3764). Please Note: The Division of Administrative Rules is NOT able to answer questions about the content or application of these administrative rules.