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Stricken language would be deleted from and underlined language would be added to the law as it existed prior to this session of the General Assembly. Act 372 of the Regular Session *MAG114* 02-20-2009 09:12 MAG114 State of Arkansas As Engrossed: H2/20/09
1 87th General Assembly A Bill
2 Regular Session, 2009
HOUSE BILL 1480 3
4 By: Representative Maloch 5
6
7 For An Act To Be Entitled 8 AN ACT TO MAKE TECHNICAL CORRECTIONS TO THE 9 ARKANSAS INCOME TAX LAWS BY ADOPTING RECENT 10 CHANGES TO THE INTERNAL REVENUE CODE; AND FOR 11 OTHER PURPOSES. 12
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14 Subtitle 15 TO MAKE TECHNICAL CORRECTIONS TO THE 16 ARKANSAS INCOME TAX LAWS BY ADOPTING 17 CURRENT INTERNAL REVENUE CODE 18 PROVISIONS. 19
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21 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF ARKANSAS: 22
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SECTION 1. Arkansas Code § 26-51-303(a), concerning organizations 24 exempt from income tax, is amended to add the following new subdivision: 25
(10) A political organization that does not have political 26 organization taxable income for the tax year under 26 U.S.C. § 527, as in 27 effect on January 1, 2009. 28
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SECTION 2. Arkansas Code § 26-51-307(c)(1), concerning retirement 30 benefits, is amended to read as follows: 31
(c)(1) Section 72 of the Internal Revenue Code of 1986, as in effect 32 on January 1, 2007 2009, shall provide is the sole method by which a 33 recipient of benefits from an individual retirement account or from public or 34 private employment-related retirement systems, plans, or programs may deduct 35
As Engrossed: H2/20/09 HB1480
2 02-20-2009 09:12 MAG114 or recover his or her cost of contribution to the plan when computing his or 1 her income for state income tax purposes. 2
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SECTION 3. Arkansas Code § 26-51-308 is amended to read as follows: 4
26-51-308. Trusts for qualified deferred compensation plans exempt. 5
An organization or trust described in section 401(a) of the Internal 6 Revenue Code, as in effect on January 1, 2007 2009, shall be is exempt from 7 income taxation under the provisions of the Income Tax Act of 1929, § 26-51- 8 101 et seq. 9
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SECTION 4. Arkansas Code § 26-51-404(b)(1),concerning exclusions from 11 gross income, is amended to read as follows: 12
(1) Section 1033 of the Internal Revenue Code of 1986, as in 13 effect on January 1, 2007 2009, relating to the exclusion from gross income 14 of gain resulting from the involuntary conversion of a taxpayer's property, 15 is adopted for the purpose of computing Arkansas income tax liability; 16
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SECTION 5. Arkansas Code § 26-51-404(b)(2), concerning exclusions from 18 gross income, is amended to read as follows: 19
(2) Section 121 of the Internal Revenue Code of 1986, as in 20 effect on January 1, 2007 2009, relating to the exclusion from gross income 21 of gain from the sale or exchange of property owned and used as the 22 taxpayer’s principal residence, is adopted for the purpose of computing 23 Arkansas income tax liability. 24
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SECTION 6. Arkansas Code § 26-51-404(b)(10),concerning income from the 26 discharge of indebtedness, is amended to read as follows: 27
(10) Sections 108 and 1017 of the Internal Revenue Code of 1986, 28 as in effect on January 1, 1999 2009, regarding income from the discharge of 29 indebtedness, are adopted for the purpose of computing Arkansas income tax 30 liability; 31
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SECTION 7. Arkansas Code § 26-51-404(b)(11), concerning amounts 33 excludable from gross income, is amended to read as follows: 34
(11) Section 125 of the Internal Revenue Code of 1986, in effect 35 on January 1, 1997 2009, is adopted in computing amounts excludible from 36
As Engrossed: H2/20/09 HB1480
3 02-20-2009 09:12 MAG114 gross income under the Income Tax Act of 1929, § 26-51-101 et seq., for 1 payments received under a cafeteria plan; 2
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SECTION 8. Arkansas Code § 26-51-404(b)(19), concerning the exclusion 4 from income of certain fringe benefits, is amended to read as follows: 5
(19) Section 132 of the Internal Revenue Code of 1986, as in 6 effect on January 1, 2003 2009, regarding the exclusion from income of 7 certain fringe benefits, is adopted for the purpose of computing Arkansas 8 income tax liability; 9
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SECTION 9. Arkansas Code § 26-51-404(b)(27), concerning the exclusion 11 from income of certain benefits provided to members of the United States 12 military, is amended to read as follows: 13
(27) Section 134 of the Internal Revenue Code of 1986, as in 14 effect on January 1, 2005 2009, regarding the exclusion from income of child 15 care benefits qualified military benefits provided to members of the United 16 States military, is adopted for the purpose of computing Arkansas income tax 17 liability; and 18
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SECTION 10. Arkansas Code § 26-51-409(a), concerning small business 20 corporations, is amended to read as follows: 21
(a) Subchapter S of the Internal Revenue Code of 1986, as in effect on 22 January 1, 2007 2009, regarding small business corporations, is adopted for 23 the purpose of computing Arkansas income tax liability. 24
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SECTION 11. Arkansas Code § 26-51-412(d), concerning recognition of 26 gain from a corporate organization or reorganization, is amended to read as 27 follows: 28
(d) Sections 351, 354 — 358, 361, 362, 367, and 368 of the Internal 29 Revenue Code of 1986, as in effect on January 1, 2007 2009, regarding 30 corporate organization, reorganization, and recognition of gain, are adopted 31 for the purpose of computing Arkansas income tax liability. 32
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SECTION 12. Arkansas Code § 26-51-414(a)(1),concerning annuities, 34 retirement savings, and income, is amended to read as follows: 35
(a)(1) Sections 72, 219, 401-404, 406-416, and 457 of the Internal 36
As Engrossed: H2/20/09 HB1480
4 02-20-2009 09:12 MAG114 Revenue Code of 1986, as in effect on January 1, 2007 2009, relating to 1 annuities, retirement savings, and employee benefit plans, respectively, are 2 adopted for the purpose of computing Arkansas income tax liability, except 3 Arkansas capital gains treatment and the Arkansas tax rates shall apply. 4
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SECTION 13. Arkansas Code § 26-51-415 is amended to read as follows: 6
26-51-415. Deductions — Interest. 7
Section 163 of the Internal Revenue Code of 1986, as in effect on 8 January 1, 2007 2009, regarding deductions for interest expenses, is adopted 9 for the purpose of computing Arkansas income tax liability. 10
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SECTION 14. Arkansas Code § 26-51-419(a)(1), concerning deductions for 12 charitable contributions, is amended to read as follows: 13
(a)(1)(A) Section 170 of the Internal Revenue Code of 1986, as in 14 effect on January 1, 2007 2009, regarding deductions for charitable 15 contributions, is adopted for the purpose of computing Arkansas income tax 16 liability. 17
(B) This adoption is for taxable years beginning on or 18 after January 1, 2007 2009, and will have no effect on years prior to before 19 its adoption. 20
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SECTION 15. Arkansas Code § 26-51-423(a)(1) concerning business 22 expenses, is amended to read as follows: 23
(1) Business expenses. All of § 162, except subsection (n), of 24 the Internal Revenue Code of 1986, as in effect on January 1, 2005 2009, 25 regarding trade or business expenses, is adopted for the purpose of computing 26 Arkansas income tax liability; 27
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SECTION 16. Arkansas Code § 26-51-423(e), concerning deduction of 29 costs paid or incurred for the cleanup of certain hazardous substances, is 30 amended to read as follows: 31
(e) Section 198 of the Internal Revenue Code of 1986, as in effect on 32 January 1, 2005 2009, regarding the deduction of costs paid or incurred for 33 the cleanup of certain hazardous substances, is adopted for the purpose of 34 computing Arkansas income tax liability. 35
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As Engrossed: H2/20/09 HB1480
5 02-20-2009 09:12 MAG114
SECTION 17. Arkansas Code § 26-51-424 is amended to read as follows: 1
26-51-424. Deductions — Losses. 2
(a)(1) In computing net income there shall be allowed as a deduction 3 any loss sustained during the income year and not compensated for by 4 insurance or otherwise. 5
(2) In the case of an individual, the deduction under 6 subdivision (a)(1) of this section shall be limited to: 7
(A) Losses incurred in a trade or business; or 8
(B) Losses incurred in any transaction entered into for 9 profit, though not connected with the trade or business; or . 10
(C) Losses of property not connected with a trade or 11 business if these losses arise from fires, storms, shipwrecks, other 12 casualty, or theft, only to the extent that the amount of the loss from each 13 casualty or theft shall exceed one hundred dollars ($100) and if the 14 aggregate amount of all such losses sustained by an individual during any one 15 (1) income year exceeds ten percent (10%) of the net income of the individual 16 for that income year. 17
(b)(1) Notwithstanding the provisions of subdivision (a)(1) of this 18 section, any loss attributable to a disaster occurring in an area 19 subsequently determined by the President of the United States to warrant 20 assistance by the United States Government under the Disaster Relief Act of 21 1974 may, at the election of the taxpayer, be deducted for the taxable year 22 immediately preceding the taxable year in which the disaster occurred. 23
(2) The deduction shall not be in excess of so much of the loss 24 as would have been deductible in the taxable year in which the casualty 25 occurred, based on facts existing at the date the taxpayer claims the loss. 26
(3) If an election is made under this subsection, the casualty 27 resulting in the loss will be deemed to have occurred in the taxable year for 28 which the deduction is claimed. 29
(b) Sections 165(h) and 165(i) of the Internal Revenue Code of 1986, as 30 in effect on January 1, 2009, regarding losses arising from a casualty or a 31 disaster, are adopted for the purpose of computing Arkansas income tax 32 liability. 33
(c) Section 183 of the Internal Revenue Code of 1986, as in effect on 34 January 1, 1999, regarding hobby losses, is adopted for the purpose of 35 computing Arkansas income tax liability. 36
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6 02-20-2009 09:12 MAG114
1
SECTION 18. Arkansas Code § 26-51-428(a), concerning the deduction for 2 depreciation and expensing of property, is amended to read as follows: 3
(a) Sections 167, 168, (a) through (j), and 179A of the Internal 4 Revenue Code of 1986, as in effect on January 1, 1999 2009, and section 179 5 of the Internal Revenue Code of 1986, as in effect on January 1, 2007 2009, 6 regarding depreciation and expensing of property, are adopted for the purpose 7 of computing Arkansas income tax liability for property purchased in tax 8 years beginning on or after January 1, 2009. 9
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SECTION 19. Arkansas Code § 26-51-429(b), concerning the deduction for 11 depletion for oil and gas wells, is amended to read as follows: 12
(b) In computing the depletion allowance deduction allowed by this 13 section for oil and gas wells, the provisions of § 613 of the Internal 14 Revenue Code of 1986 shall not be in effect, but instead the computation of 15 the amount of the depletion deduction shall be controlled by the provisions 16 of § 613A of the Internal Revenue Code of 1986, as in effect on January 1, 17 2007 2009, which are adopted as part of the state income tax law. 18
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SECTION 20. Arkansas Code § 26-51-436(4), concerning limits on 20 itemized deductions, is amended to read as follows: 21
(4) Section 68 of the Internal Revenue Code of 1986, as in 22 effect on January 1, 1995 2009, is adopted to limit itemized deductions; 23
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SECTION 21. Arkansas Code § 26-51-436(7), concerning the deduction of 25 certain leasing transactions, is amended to read as follows: 26
(7) Section 470 of the Internal Revenue Code of 1986, as in 27 effect on January 1, 2007 2009, regarding leasing transactions between 28 taxpayers, is adopted for the purpose of computing Arkansas income tax 29 liability. 30
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SECTION 22. Arkansas Code § 26-51-440 is amended to read as follows: 32
26-51-440. Federal Subchapter M adopted. 33
(a)(1) Subchapter M of the Internal Revenue Code of 1986, as in effect 34 on January 1, 2007 2009, relating to regulated investment companies, real 35 estate investment trusts, and financial asset securitization investment 36
As Engrossed: H2/20/09 HB1480
7 02-20-2009 09:12 MAG114 trusts, is adopted for the purpose of computing Arkansas income tax liability 1 and shall govern all corporations which are registered as investment 2 companies under the Investment Company Act of 1940, as in effect on January 3 1, 2007 2009. 4
(2)(A) However, those provisions of Subchapter M addressing the 5 tax rates applied to financial asset securitization investment trust income 6 are not adopted. 7
(B) Any financial asset securitization investment trust 8 income subject to Arkansas income tax shall be taxed at the rates set forth 9 in § 26-51-205. 10
(b) As used in this section: 11
(1)(A) “Captive real estate investment trust” means a real 12 estate investment trust the shares or beneficial interests of which are not 13 regularly traded on an established securities market and more than fifty 14 percent (50%) of the voting power or value of the beneficial interests or 15 shares of which are owned or controlled, directly or indirectly, or 16 constructively, by a single entity that is: 17
(i) Treated as an association taxable as a 18 corporation under the Internal Revenue Code of 1986, as in effect on January 19 1, 2009; and 20
(ii) Not exempt from federal income tax under 26 21 U.S.C. § 501(a), as in effect on January 1, 2009. 22
(B) “Captive real estate investment trust” does not 23 include a real estate investment trust that is intended to be regularly 24 traded on an established securities market, and that satisfies the 25 requirements of 26 U.S.C. § 856(a)(5) and (6), as in effect on January 1, 26 2009, by reason of 26 U.S.C. § 856(h)(2), as in effect on January 1, 2009; 27 and 28
(2) “Real estate investment trust” means the same as defined in 29 26 U.S.C. § 856, as in effect on January 1, 2009. 30
(c) For purposes of applying subsection (b)(1)(A)(i) of this section, 31 the following entities are not considered an association taxable as a 32 corporation under the Internal Revenue Code of 1986, a: 33
(1) A real estate investment trust other than a captive real 34 estate investment trust; 35
(2) A qualified real estate investment trust subsidiary under 26 36
As Engrossed: H2/20/09 HB1480
8 02-20-2009 09:12 MAG114 U.S.C. § 856(i), as in effect on January 1, 2009, other than a qualified real 1 estate investment trust subsidiary of a captive real estate investment trust; 2
(3) A listed Australian Property Trust, meaning an Australian 3 unit trust registered as a Managed Investment Scheme under the Australian 4 Corporations Act in which the principal class of units is listed on a 5 recognized stock exchange in Australia and is regularly traded on an 6 established securities market, or an entity organized as a trust, provided 7 that a Listed Australian Property Trust owns or controls, directly or 8 indirectly, seventy-five percent (75%) or more of the voting power or value 9 of the beneficial interests or shares of such trust; or 10
(4) A qualified Foreign Entity, meaning a corporation, trust, 11 association or partnership organized outside the laws of the United States 12 and which satisfies the following criteria: 13
(A) At least seventy-five percent (75%) of the entity's 14 total asset value at the close of its taxable year is represented by real 15 estate assets, as defined in 26 U.S.C. § 856(c)(5)(B), as in effect on 16 January 1, 2009, including shares or certificates of beneficial interest in 17 any real estate investment trust, cash and cash equivalents, and United 18 States Government securities; 19
(B) The entity is not subject to tax on amounts 20 distributed to its beneficial owners or is exempt from entity-level taxation; 21
(C) The entity distributes at least eighty-five percent 22 (85%) of its taxable income, as computed in the jurisdiction in which it is 23 organized, to the holders of its shares or certificates of beneficial 24 interest on an annual basis; 25
(D) More than ten percent (10%) of the voting power or 26 value in the entity is not held directly, indirectly, or constructively by a 27 single entity or individual, or the shares or beneficial interests of the 28 entity are regularly traded on an established securities market; and 29
(E) The entity is organized in a country that has a tax 30 treaty with the United States. 31
(d) The dividends-paid deduction otherwise allowed by federal law in 32 computing net income of a real estate investment trust that is subject to 33 federal income tax shall be added back in computing the tax imposed by § 26- 34 51-101 et seq. if the real estate investment trust is a captive real estate 35 investment trust. 36
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(e)(1) A real estate investment trust that does not become regularly 1 traded on an established securities market within one (1) year of the date on 2 which it first became a real estate investment trust shall not be considered 3 to have been regularly traded on an established securities market, 4 retroactive to the date it first became a real estate investment trust, and 5 the owner of the real estate investment trust shall file an amended return 6 reflecting the retroactive designation for any tax year or part year 7 occurring during its initial year of status as a real estate investment 8 trust. 9
(2) Under this section, a real estate investment trust becomes a 10 real estate investment trust on the first day that it has: 11
(A) Met the requirements of 26 U.S.C § 856 as in effect on 12 January 1, 2009; and 13
(B) Elected to be treated as a real estate investment 14 trust under 26 U.S.C. § 856(c)(1), as in effect on January 1, 2009, by the 15 owner of the real estate investment trust. 16
(f) Under this section, the constructive ownership rules of 26 U.S.C. 17 § 318(a), as in effect on January 1, 2009, as modified by 26 U.S.C. § 18 856(d)(5), as in effect on January 1, 2009, shall apply in determining the 19 ownership of stock, assets, or net profits of a person. 20
(g) Any An election made for federal income tax purposes under 21 Subchapter M of the Internal Revenue Code of 1986, as in effect on January 1, 22 2007 2009, shall be deemed made for state income tax purposes. 23
(c)(h) This section shall take effect and be enforced for tax years 24 beginning on or after January 1, 2007 2009. 25
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SECTION 23. Arkansas Code § 26-51-448(a) relating to educational 27 individual retirement accounts, is amended to read as follows: 28
(a) Section 530 of the Internal Revenue Code of 1986, as in effect on 29 January 1, 2005 2009, relating to educational individual retirement accounts, 30 is adopted for the purposes of computing Arkansas income tax liability. 31
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SECTION 24. Arkansas Code § 26-51-919(b)(3), concerning the filing 33 date for pass-through entities to report distributions, is amended to read as 34 follows: 35
(3) A pass-through entity shall annually furnish a nonresident 36
As Engrossed: H2/20/09 HB1480
10 02-20-2009 09:12 MAG114 member of the pass-through entity with a record of the amount of tax withheld 1 on behalf of the nonresident member no later than the fifteenth day of the 2 third fourth month following the end of the pass-through entity's tax year. 3
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SECTION 25. EFFECTIVE DATE. This act is effective for tax years 5 beginning on and after January 1, 2009. 6
7 /s/ Maloch 8
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APPROVED: 3/10/2009 10
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