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Senate substitutes pass-through entity tax bill, delays S-corporation change and adds withholding provisions
Summary
First substitute SB23 was adopted and substituted on the floor; it delays treatment of S corporations as full pass-through entities, establishes withholding on Utah-source income paid to nonresidents, and prompted floor discussion about franchise tax impacts and an impending amendment for publicly traded partnerships.
Senator Niederhauser presented a substituted version of Senate Bill 23 to the Senate on Feb. 9, explaining that the first substitute delays part of the bill affecting S corporations and their built-in gains and adds withholding for Utah-source income paid to nonresidents.
Sponsor notes and committee work: Niederhauser said the measure grew from a prior pass-through-entity bill and extensive interim and work-group discussions with industry representatives, CPAs and the Tax Commission. The first substitute delays the S-corporation treatment (effective date noted in discussion as 01/01/2012) because the fiscal note indicated a significant immediate impact; the substitute keeps withholding provisions designed to capture Utah-source income paid to taxpayers with no other contact with Utah. He also said he had received communications from The Williams Company (an oil and gas company) and planned to work with them on a technical amendment to exempt publicly traded partnerships from certain withholding provisions.
Floor debate highlighted fiscal concerns: Senator Valentine questioned whether S corporations would have to continue paying a minimum franchise tax; the sponsor confirmed the franchise tax treatment would remain for the delayed portion. Valentine and others urged close monitoring of whether an amendment for publicly traded partnerships would undercut the withholding aims. With those discussions noted, the Senate substituted the bill and placed the first substitute SB23 on the third-reading calendar.
Ending: The floor-adopted substitution sets up a later amendment process and schedules SB23 for further action; sponsors signaled ongoing stakeholder negotiations.
