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Personal Income Tax in Utah

April 13, 2006

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If you are a resident or nonresident of Utah and receive taxable income individually from property owned or business transacted in Utah, you are subject to tax on net income. Therefore, if you are operating your business as an S corporation, partnership, limited liability company, or sole proprietorship, you will be subject to a personal income tax on your business income that passes through to you.

The following individual income tax rates are applicable for the 2006 tax year:

If your individual income in Utah consists solely of sales and you don't own or rent realty or personal property in Utah and your gross annual sales do not exceed $100,000, you may elect to pay an alternative tax. The alternative tax is 0.5 percent of the volume of sales.

New flat tax option. For taxable years beginning after 2006, a resident or nonresident individual is allowed to calculate and pay either a flat 5.35% rate tax on the basis of adjusted gross income with limited deductions or a multi-rate tax under the tax bracket system on the basis of federal taxable income with traditional deductions. An individual that calculates and pays the flat rate tax is prohibited from making additions to, subtractions from, and adjustments to adjusted gross income, except for the following:

• addition for the amount of any state income tax imposed, to the extent deducted from adjusted gross income by an estate or trust in determining federal taxable income;
• addition for a lump sum distribution that the individual does not include in adjusted gross income on the individual's federal return for the taxable year;
• addition for the amount of a child's income that a parent elects to report and does not include in adjusted gross income on the parent's federal return for the taxable year;
• addition for certain medical care savings account withdrawals and penalties for which amounts were deducted on the state return;
• addition for nonqualified Higher Education Savings Incentive Program account disbursements for which amounts were deducted on the state return;
• addition for interest from bonds, notes, and other evidences of indebtedness issued by other state or local agencies;
• addition for a distribution received by a resident beneficiary of a resident trust of income that was taxed at the trust level for federal tax purposes, but was subtracted from state taxable income;
• addition for a distribution received by a resident beneficiary of a nonresident trust of undistributed distributable net income realized by the trust, if the undistributed distributable net income was taxed at the trust level for federal tax purposes, but was not taxed at the trust level by any state;
• addition for any deducted adoption expense for which an individual receives reimbursement from another person;
• subtraction for interest or dividends on federal obligations, to the extent included in gross income for federal income tax purposes but exempt from state income taxes;
• subtraction for income derived by a Ute tribal member from a source within the Uintah and Ouray Reservation during a time when the Ute tribal member resides on homesteaded land diminished from the Uintah and Ouray Reservation;
• subtraction for an amount received by an individual or distribution received by a beneficiary of a resident trust, if the amount or distribution constitutes a refund of state income taxes and is included in adjusted gross income on the individual's federal return for that taxable year;
• subtraction for railroad retirement benefits paid for the taxable year and included in adjusted gross income on the individual's federal return for that taxable year;
• subtraction for an amount received by an enrolled member of an American Indian tribe, to the extent that the state is not authorized or permitted to impose a tax on that amount;
• adjustment to prevent a double tax benefit; and
• adjustment to prevent a double tax detriment.

An individual that calculates and pays the flat rate tax is allowed to claim, carry forward, or carry back nonrefundable and refundable tax credits and make checkoff contributions.

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