REQUEST LETTER

01-031

Response 11/27/01

NAME

COMPANY

ADDRESS

RE: House Bill 1006

Dear Mr. NAME,

Ms. Lynn Solarczyk recommended I contact you regarding interpretative questions related to House bill 1006. In reviewing the now enacted legislation it appears section 59-10-114(6) provides for reciprocal tax treatment of entities not imposing a tax based on income of any obligation issued by the State of Utah. If my reading of this language is correct, I have two questions I would appreciate clarification on:

1. Would obligations of states not imposing a state income tax, such as STATE and STATE, be exempt from state income taxes in Utah?

2. Would obligations of states imposing indirect income taxes based on securities holdings, such as the STATE intangibles tax, be exempt from state income taxes in Utah?

Thanks you for reviewing and addressing these questions. If you have any questions or concerns regarding my inquiry please do not hesitate to contact me at PHONE

Sincerely,

NAME

TITLE

RESPONSE LETTER

DATE

NAME

COOMPANY

ADDRESS

RE: Advisory Opinion – House Bill 1006 (“HB 1006”)

Dear Mr. NAME,

You have requested the Commission to provide interpretation of HB 1006, which was passed in the 2001 First Special Session of the Utah Legislature. HB 1006 provides that interest from certain bonds, notes, and other evidences of indebtedness (hereinafter referred to as “bonds”) issued by non-federal governmental entities outside Utah will be subject to Utah’s income tax after January 1, 2003 (see Utah Code Ann. §59-10-114(1)(g)). However, Section 59-10-114(6) of the bill also contains a reciprocity provision concerning such bonds. This provision provides that interest earned on the bonds will not be subject to taxation in Utah if the state where the entity (as well as its political subdivisions, agencies, and instrumentalities) issuing the bonds is located does not impose a tax based on income on bonds issued by Utah. Given this statutory framework, we address your two questions as follows.

1. States without Income Tax. States such as STATE and STATE do not impose a state income tax. Accordingly, we assume that such states would not impose any taxes -based on income that would apply to Utah-issued bonds. Also, we would assume that such states’ political subdivisions, agencies, and instrumentalities are not empowered with the authority to do so either. If these assumptions are correct, then Utah would not impose its income tax on the interest earned on bonds issued by such states or their political subdivisions, agencies, or instrumentalities.

2. Indirect Income Taxes. Regardless of what a tax is called, if an entity in another state imposes a tax based on any part of the income earned by Utah-issued bonds, then HB 1006 imposes Utah’s income tax on the income earned by bonds issues by that state or its subordinate entities. It is our understanding that STATE intangible personal property tax is a tax based on the current market value of the property. As such, STATE imposition of this particular tax does not, by itself, result in HB 1006 mandating the Utah taxation of income earned on STATE -issued bonds. However, were a state to impose an “intangibles” tax or any other tax on the income earned by Utah-issued bonds, then, in accordance with Subsection 114(6), Utah would impose its income tax on income earned on bonds issued by that state.

If you have any other questions, please contact us.

For the Commission,

Marc B. Johnson

Commissioner

MBJ/KC

01-031