99-015

Response June 9, 1999

REQUEST LETTER

(E-mail request)

Irene,

I'm the state coordinator of the PROGRAM, DIVISION, which assists communities with various aspects of downtown development, including the restoration of downtown's historic character. We do so through education, technical (architectural) assistance, and grants to owners of historic commercial buildings. These grants provide an incentive to restore buildings to their original historic character and are made on a one-to-one matching basis.

We are now entering our fourth year of this program, and have recently learned that the IRS has ruled that grants offered through a similar program in Colorado may qualify as taxable income.

I'm not sure whether you're the person to whom I should be directing this question, but I would like to get a determination on this from the Tax Commission, so that we can inform applicants as to the potential tax implications of receiving a grant.

I'd appreciate your response to this e-mail--either by e-mail or phone (538-8638)--or your forwarding this inquiry, as necessary. I'd be happy to provide more details on how the grants program works, if you need them.

Thanks,

Bim Oliver

RESPONSE LETTER

June 9, 1999

COMPANY

ADDRESS

RE: Taxability of Grants Issued by the PROGRAM

Dear NAME,

We have received your request for information concerning the taxability for income purposes of grants issued by the PROGRAM (AProgram@), which is authorized under Utah Code Ann. ''9-8-901 through 905. You mention in your request that the Internal Revenue Service (AIRS@) may consider such grants to be taxable income for federal tax purposes. Accordingly, you ask the Tax Commission what the potential state tax obligations would be to the Program=s applicants.

Utah=s income tax statutes are designed to tax each Utah resident based on his or her taxable income, as determined for federal income tax purposes, subject to certain adjustments. Utah Code Ann. '59-10-102(1). Thus, taxable income for Utah purposes is determined by making these Aadjustments,@ as found in Utah law, to the federal taxable income. None of the adjustments currently found in Utah law relate to grants issued by the Program. As a result, the taxability of the Program=s grants for Utah income purposes would depend on whether the grants are taxable for federal income purposes. If the grants are taxable for federal income tax purposes, they are taxable for Utah income tax purposes. Likewise, if they are not federally taxable, they are not taxable in Utah.

The Tax Commission does not have jurisdiction over the federal taxation of income and, accordingly, is unable to opine whether the grants are includable in taxable income for federal purposes. We would recommend that you contact the IRS for guidance on that question. If, as you suggest, the grants are taxable for federal purposes, they would also be taxable for state purposes.

Finally, even if the grants are normally taxable for federal purposes and state purposes, no state tax would be due if the grant recipient is itself an exempt entity.

Please contact us if you have any other questions.

For the Commission,

R. Bruce Johnson

^^