PUBLICATION 33

Rev. 09/11

Utah State Tax Commission Official Seal

Interest from U.S. Obligations, Individual Income Tax

Utah State Tax Commission

P.O. Box 30412

Salt Lake City, Utah 84130

801-297-2200

1-800-368-8824

tax.utah.gov

General Information

Utah law allows taxpayers to subtract interest or dividends earned on qualifying U.S. government obligations from their federal adjusted gross income. This publication identifies the types of obligations that are tax-free on the Utah individual income tax return.

See Utah Code §59-10-114(2)(a).

Questions & Answers

Q: Why is the interest from U.S. government obligations tax­-free in Utah?

A:  Federal obligations are exempt from tax by states or local governments when they are issued to secure credit to carry on the necessary functions of government.

Q: What kind of U.S. government income is tax-free in Utah?

A:  Income from the following sources is exempt from Utah income tax:

Interest income on bonds or other direct obligations of the U.S. government or its possessions (treasury bonds, treasury notes, treasury bills, certificates and savings bonds).

   Interest or dividends on bonds or securities issued by entities exempt from state income taxes under federal  law. See the detailed list following these questions.

Q: How can I tell which obligations are tax-free?

A:  U.S. obligations exempt from state taxation must:

  1. be a written document,
  2. bear interest,
  3. contain a promise by the U.S. government to pay a specific sum on a specific date, and
  4. have congressional authorization which pledges the full faith and credit of the U.S. government.

(See U.S. Supreme Court decision under Smith v. Davis, 323 U.S. 111(1944).)

Q: May I subtract all of my income and dividends from tax-free U.S. government obligations?

A:  No. Exempt U.S. government interest claimed as a subtraction from Utah income must be reduced by the following expenses if these expenses were claimed as deductions from your federal taxable income:

Interest on money you borrowed to buy or carry the bonds or securities.

Ordinary and necessary expenses to produce exempt income.

Q: How do I subtract this income?

A:  Claim this subtraction on Utah from TC-40A, Part 2. Use code 71.

Q: What types of income received from the U.S. government is taxable under Utah state law?

A:  Income from the following sources is subject to Utah income tax:

Interest or dividends from the Federal National Mortgage Association (FNMA) and Government National Mortgage Association (GNMA).

Refunds or interest on refunds from the Internal Revenue Service or any other federal agency or department. See below for details.

Exempt U.S. Government Obligations

The following income received from U.S. government obligations is exempt from Utah income tax:

United States Treasury bonds, notes, bills, certificates and savings bonds – E, EE, H, HH and I bond interest is exempt

Banks for Cooperatives – Income from notes, debentures and other obligations issued by Banks for Cooperatives

Commodity Credit Corporation – Interest from bonds, notes, debentures and other obligations issued by Commodity Credit Corporation

Farm Credit System Financial Assistance Corporation (Financial Assistance Corporation) – Interest from notes, bonds and other obligations issued by the Financial Assistance Corporation

Federal Deposit Insurance Corporation – Interest derived from notes, bonds and other obligations issued by Federal Deposit Insurance Corporation

Federal Farm Credit Banks – Income from consolidated system-wide notes, bonds and other obligations issued jointly and severally by Banks of the Federal Farm Credit System

Federal Financing Bank – Income from obligations issued by the Federal Financing Bank

Federal Home Loan Banks – Interest from notes, bonds and other obligations issued by Federal Home Loan Banks and from consolidated Federal Home Loan bonds and debentures

Federal Intermediate Credit Banks – Income from notes, bonds and other obligations issued by Federal Intermediate Credit Banks

Federal Land Bank and Federal Land Bank Association – Income from notes, bonds and other obligations issued by Federal Land Banks and Federal Land Bank Associations

Federal Savings and Loan Insurance Corporation – Interest from notes, bonds and other obligations issued by Federal Savings and Loan Insurance Corporation

Financing Corporation (FICO) – Interest from obligations issued by the Financing Corporation

General Insurance Fund:

  1. Interest from debentures issued by the General Insurance Fund under the War Housing Insurance Law
  2. Interest derived from debentures issued by the General Insurance Fund to acquire rental housing projects
  3. Interest derived from Armed Services Housing Mortgage Insurance Debentures issued by the General Insurance Fund
  4. General Insurance Fund of the Department of Housing and Urban Development
  5. Interest from National Defense Housing Insurance debentures issued by the General Insurance Fund
  6. Interest from Mutual Mortgage Insurance Fund debentures issued by the General Insurance Fund
  7. Interest from debentures issued by the General Insurance Fund under the Neighborhood Conservation Housing Insurance Law

GSA Public Building Trust Participation Certificates – Income from First Series, Series A through E; Second Series, Series F; Third Series, Series G; Fourth Series, Series H and I

National Credit Union Administration Central Liquidity – Interest from notes, bonds and other obligations issued on behalf of the Central Liquidity Facility

Participation Certificates in the Federal Assets Financing Trust – Income from Series A through D, due in 1987 and 1988; and income from Participation Certificates in the Federal Assets Liquidation Trust, Series B, due in 1987, issued by the Federal National Mortgage Association as trustee (the Government National Mortgage Association is the current trustee)

Production Credit Association – Income from notes and other obligations issued by Production Credit Association

Resolution Funding Corporation – Interest from obligations issued by the Resolution Funding Corporation

Student Loan Marketing Association – Interest from obligations issued by the Student Loan Marketing Association

Tennessee Valley Authority – Interest from bonds issued by the Tennessee Valley Authority

Territorial Obligations:

  1. American Samoa – Interest from industrial development bonds for Eastern Samoa issued by the government of Samoa
  2. Guam – Interest from bonds issued by the government of Guam
  3. Northern Mariana – Interest from bonds or other obligations issued by the government of the Northern Mariana Islands
  4. Puerto Rico – Interest from bonds issued by the government of Puerto Rico
  5. Virgin Islands – Interest from bonds issued by the government of the Virgin Islands

  Note: Interest in these U.S. territorial obligations is not currently included in federal adjusted gross income. Do not subtract such interest from Utah adjusted gross income in computing Utah taxable income.

U.S. Postal Service – Interest from obligations issued by the U.S. Postal Service

Non-U.S. Government Obligations

The Following are NOT Considered U.S. Government Obligations and are NOT exempt from Utah income tax.

This list is NOT all-inclusive.

Asian Development Bank Bonds

Export-Import Bank of the United States debentures

Federal Home Loan Mortgage Corporation – Participation certificates, discount notes and guaranteed mortgage certificates

Federal National Mortgage Association – Short-term notes, mortgage backed pass-through securities, dividends and other obligations from FNMA stock

Government National Mortgage Association – Participation certificates, graduated payments, mortgage-backed bonds and mortgage-backed pass-through securities

Interest on refunds or refunds from the Internal Revenue Service or any other federal agency or department

Federal or State Savings and Loan Associations

International Bank for Reconstruction and Development

Inter-American Development Bank

Panama Canal Bonds

Verification Required

All subtractions from Utah income for U.S. government interest will be subject to audit. You must keep the following documents to support claimed amounts:

Any information about U.S. government obligations and related interest.

If the source of the U.S. government obligation interest is a trust, partnership or S corporation, you must provide a statement from the entity identifying the sources and amounts of interest earned. A federal or Utah Schedule K-1 is not sufficient, unless it cites the source and amount of interest.

If the source of the U.S. government obligation interest is from a mutual fund, you must provide a statement from the mutual fund identifying the percent of mutual fund income earned from U.S. government obligations, the source of the U.S. government obligations, and the percent of U.S. government obligation interest earned from each source. A form 1099 is not sufficient if it does not provide the detail listed above.

Translation

To help visitors understand information on this page in a variety of languages, the Tax Commission has added a link at the top to an automated translation service. This type of service is not perfect, and context or meaning may be inaccurately or incompletely translated. As a result, the Tax Commission cannot guarantee the accuracy of translated information. Anyone relying on translated information does so at their own risk. In the event of any disagreement or ambiguity between a translation and the original English document, the original English document is correct.

If you need an accommodation under the Americans with Disabilities Act, email taxada@utah.gov, or call 801-297-3811 or TDD 801-297-2020. Please allow three working days for a response.

Please note . . .

TAP Scheduled Upgrade

Taxpayer Access Point (TAP) will be upgraded Friday, December 11 at 5:00pm through Monday, December 14 at 7:00am. TAP will be unavailable during this time.

Please note . . .

TC-69 Form Usually Requires Additional Schedules

When submitting a TC-69 paper form, you MUST also include the appropriate schedule(s). If you do not include the correct schedule(s), your business registration will be delayed.

Note: To save time and ensure all needed schedules are included, you can apply for a tax account online.

Please note . . .

Sales tax filing is changing

All Utah sales and use tax returns and other sales-related tax returns must be filed electronically, beginning with returns due Nov. 2, 2020. File electronically using Taxpayer Access Point at tap.utah.gov.

This includes:

  • Third quarter, July-Sept 2020 (quarterly filers)
  • September 2020 (monthly filers)
  • Jan – Dec 2020 (annual filers)
  • All related schedules

You can continue to the PDF form below, or go to TAP to register and begin filing electronically now—no need to wait until the deadline!