Subject: HOUSE BILL NO. 498 - Income tax, employees, certain
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Date: Sat, 14 Aug 2010 22:24:26 -0700

HOUSE BILL NO. 498
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Fiscal Impact

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Bill Status

H0498...............................................................by HART
INCOME TAX - Adds to and amends existing law relating to income tax to
provide a definition of "income"; to revise the definition of "Idaho
taxable income"; to revise the definition of "employee"; and to provide a
definition of "trade or business" for purposes of the State Income Tax Law.

01/27 House intro - 1st rdg - to printing
01/30 Rpt prt - to Rev/Tax

Bill Text

]]]] LEGISLATURE OF THE STATE OF IDAHO ]]]]
Fifty-eighth Legislature Second Regular Session - 2006

IN THE HOUSE OF REPRESENTATIVES

HOUSE BILL NO. 498

BY HART

1 AN ACT
2 RELATING TO THE STATE INCOME TAX; AMENDING CHAPTER 30, TITLE 63, IDAHO CODE,
3 BY THE ADDITION OF A NEW SECTION 63-3010A, IDAHO CODE, TO PROVIDE A DEFI-
4 NITION OF "INCOME"; AMENDING SECTION 63-3011C, IDAHO CODE, TO REVISE THE
5 DEFINITION OF "IDAHO TAXABLE INCOME"; AMENDING SECTION 63-3018, IDAHO
6 CODE, TO REVISE THE DEFINITION OF "EMPLOYEE"; AMENDING CHAPTER 30, TITLE
7 63, IDAHO CODE, BY THE ADDITION OF A NEW SECTION 63-3019, IDAHO CODE, TO
8 PROVIDE A DEFINITION OF "TRADE OR BUSINESS"; DECLARING AN EMERGENCY AND
9 PROVIDING RETROACTIVE APPLICATION.

10 Be It Enacted by the Legislature of the State of Idaho:

11 SECTION 1. That Chapter 30, Title 63, Idaho Code, be, and the same is
12 hereby amended by the addition thereto of a NEW SECTION, to be known and des-
13 ignated as Section 63-3010A, Idaho Code, and to read as follows:

14 63-3010A. INCOME DEFINED. "Income" is the annual gain derived from capi-
15 tal, from the employment of another's labor, or from both combined. Income is
16 annual profit severed from an underlying investment. Income is generated from
17 a privileged economic activity, which is managed with skill and organized for
18 profit. Indirect taxes on income diminish only net income while the underlying
19 capital investment remains whole. Net income is that which is calculated using
20 generally accepted accounting principles.

21 SECTION 2. That Section 63-3011C, Idaho Code, be, and the same is hereby
22 amended to read as follows:

23 63-3011C. IDAHO TAXABLE INCOME. The term "Idaho taxable income" means
24 taxable income as defined in section 63-3010A, Idaho Code, and as modified
25 pursuant to the Idaho adjustments specifically provided in this chapter.

26 SECTION 3. That Section 63-3018, Idaho Code, be, and the same is hereby
27 amended to read as follows:

28 63-3018. EMPLOYEE. The For the purposes of this chapter, the term
29 "employee" means "employee" as defined in the Internal Revenue Code an offi-
30 cer, employee or elected official of the United States, a Federal State, or
31 any political subdivision thereof, or the District of Columbia or any agency
32 or instrumentality of any one (1) or more of the foregoing. The term
33 "employee" also means an officer of a corporation effectively connected with
34 the foregoing.

35 SECTION 4. That Chapter 30, Title 63, Idaho Code, be, and the same is
36 hereby amended by the addition thereto of a NEW SECTION, to be known and des-
37 ignated as Section 63-3019, Idaho Code, and to read as follows:

2

1 63-3019. TRADE OR BUSINESS. The term "trade or business" means the per-
2 formance of the functions of a public office.

3 SECTION 5. An emergency existing therefor, which emergency is hereby
4 declared to exist, this act shall be in full force and effect on and after its
5 passage and approval, and retroactively to January 1, 2006.

Statement of Purpose / Fiscal Impact

STATEMENT OF PURPOSE

RS15821C1

The purpose of the proposed language is to clarify the definition of four terms such that the
income tax, as it is imposed by the state of Idaho, conforms to the original intent of the
Sixteenth Amendment to the Federal Constitution. As the Idaho Code has adopted the provisions
of the Federal Internal Revenue Code, this legislation will insure that the interpretation of
the Idaho statutes levying an income tax do not have their provisions, by implication, extended
beyond the clear import of the language used, nor enlarged their operations so as to embrace
matters not specifically pointed out. The proposed language will insure that the Idaho Code,
where it levies an income tax, will be strictly construed.

FISCAL NOTE

Enactment of this proposed legislation will clarify that taxes on wages and salaries of persons
working for a private enterprise or for a state, county, city government or subdivision thereof
constitute capitation taxes and are not, therefore, taxable as income under the Idaho Code. The
legislation will also further clarify that the taxable income of natural persons must be income
effectively connected with a government granted privilege. It can be expected that enactment of
this legislation will reduce the state s personal income tax revenue by $650 million.

Contact
Name: Representative Phil Hart
Phone: 332-1000

STATEMENT OF PURPOSE / FISCAL NOTE H498