99-035

Response April 2, 2000

REQUEST LETTER

May 24, 1999

Dear Ms. Reese:

I will be retiring in STATE within the next 3 years, and have two questions regarding my Utah income tax responsibility after moving to STATE. I would like to receive the answers to these questions in writing for both my tax records and to share with my CPA in STATE.

The first question concerns my Utah income tax responsibility for a charitable remainder TRUST. I am the trustee for a charitable remainder TRUST with UNIVERSITY in CITY. The trust is invested in mutual funds, and I am receiving monthly income from it on a lifetime basis.

My understanding is that the trust is required by law to always remain in Utah; therefore, what is my Utah income tax responsibility on the monthly income from this trust when I establish residency in STATE?

My second question concerns monthly income from a pension after I establish residency STATE. Upon retirement from UNIVERSITY at age 56, I will be receiving a monthly

pension for 6 years until I reach the age of 62. The amount of the monthly pension is equal to

20% of my base wage at age 56. What is my Utah income tax responsibility on the monthly

pension income I receive from STATE when I establish residency in STATE?

Thank you for your assistance.

Sincerely,

NAME

RESPONSE LETTER

April 2, 2000

NAME

ADDRESS

RE: Utah Income Liability for Pension and Charitable Remainder Trust

Dear NAME,

You have requested information regarding your Utah income tax liability after you move from Utah to another state. Your letter indicates that, after your move, you will receive income from a pension and a charitable remainder TRUST. You state that the pension is part of a retirement package from UNIVERSITY and will pay you a monthly income for approximately six years (from age 56 to 62). The charitable remainder TRUST, with yourself as trustee, is also established through UNIVERSITY and provides you a monthly income for life. Upon your retirement, you also indicate that you will transfer your domicile from Utah to STATE.

The Utah Individual Income Act imposes an income tax on the state taxable income of every nonresident individual for income derived from Utah sources. Utah Code Ann. '59-10-116. At issue, assuming you have transferred your domicile from Utah to another state, is whether income you receive from the pension and charitable remainder trust would be considered Aderived from Utah sources@ and , thus, subject to Utah income taxes.

Pension. Beginning January 1, 1996, a law passed by the United States Congress and signed by the President prohibited a state to tax certain retirement plan distributions paid to a nonresident of that state. Specifically, H.R. 394, Public Law 104-95, 109 Stat 979 (APublic Law 104-95"), prevents a state from taxing distributions from retirement plans and arrangements that are considered Aqualified plans@ under the Internal Revenue Code (AIRC@). Qualified plans are designated under IRC sections 401(a), 408(k), 403(a), 403(b), 7701(a)(37), 457, 414(d), 501(c)(18). In addition, the bill prohibits a state from taxing a distribution from a nonqualified deferred compensation plan (as described in IRC section 3121(v)(2)(C)) in two cases:

(1) When the distribution is paid out in annuity form over the life expectancy of the individual or a period of not less than 10 years; and

(2) When the distribution is paid in either annuity or lump sum from arrangements known commonly as Amirror@ plans.

While it is probable that your UNIVERSITY pension is a qualified plan as designated above, you have not provided us information from which we could confirm such a conclusion. Accordingly, we cannot confirm that the pension is a qualified plan under Public Law 104-95. Nevertheless, if the pension is a qualified plan, or a nonqualified deferred compensation plan that meets the above requirements, the monthly pension payments will not be subject to Utah income tax once you transfer your domicile from Utah to another state.

Charitable Remainder TRUST. Public Law 104-95 provides that an IRC section 401(a) trust is one of the qualified plans whose distributions cannot be taxed by a state when those distributions are made to a nonresident. Section 401(a)(1) includes those trusts where contributions are made to that trust Aby a charitable remainder trust pursuant to a qualified gratuitous transfer (as defined in section 664(g)(1))...@ As IRC section 664 provides that charitable remainder trusts include both charitable remainder annuity trusts and charitable remainder TURSTS, the UNIVERISY charitable remainder trust would qualify as a section 401(a) trust if it meets the requirements of section 664(g)(1).

While it is likely that your charitable remainder TRUST is a qualified section 401(a) plan under Public Law 104-95, we are unable to confirm that it meets the requirements of section 664(g)(1) without additional, specific information. For this reason, we include a copy of section 664 for your review. With this information, you or your accountant should be able to confirm whether the charitable remainder TRUST meets the section 664(g)(1) requirements and, thus, qualifies as a section 401(a) trust. If it is such a trust, any distributions you receive from it would not be subject to Utah income tax once your domicile has transferred from Utah to another state, pursuant to Public Law 104-95.

Transfer of Domicile. The Utah Individual Income Tax Act imposes an income tax on the state taxable income of every resident individual. Utah Code Ann. '59-10-104. Thus, as long as you are considered a resident of Utah, Utah will impose income tax on distributions you receive from your pension and charitable remainder trust. While you have not asked specific questions concerning what constitutes a transfer of domicile from Utah to another state, it may be helpful for you to know under what circumstances Utah would no longer consider you a resident for income tax purposes.

A taxpayer will be a Aresident@ if he or she meets either of two tests set out in Utah Code '59-10-103(j). First, an individual will be a Aresident@ if that individual is domiciled in the state for any period of time during the year, but only for the duration of such period. The individual will also be a resident if he or she is not domiciled in Utah but maintains a permanent place of abode here and spends 183 or more days in the state during the taxable year. Utah Admin. Code R865-9I-2.D establishes the definition of Adomicile@ as follows:

"Domicile" means the place where an individual has a true, fixed, permanent home and principal establishment, and to which place he has (whenever he is absent) the intention of returning. It is the place in which a person has voluntarily fixed the habitation of himself and family, not for a mere special or temporary purpose, but with the present intention of making a permanent home. After domicile has been established, two things are necessary to create a new domicile: first, an abandonment of the old domicile; and second, the intention and establishment of a new domicile. The mere intention to abandon a domicile once established is not of itself sufficient to create a new domicile; for before a person can be said to have changed his domicile, a new domicile must be shown.

Thus, your subjective intention is critical in determining if you have abandoned your Utah domicile and established a new domicile in another state. For example, should you divest yourself of all Utah ties and establish all ties in another state, you will have almost certainly transferred your domicile. Should you maintain some Utah ties and only establish some ties in another state, then there would be a greater question as to whether your domicile has transferred. However, each case is dependent upon the unique facts relative to it.

Please contact us if you have any other questions.

For the Commission,

Marc B. Johnson

Commissioner

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