Tax on unearned income.

21LSO-0114
2021
STATE OF WYOMING
21LSO-0114
Numbered
2.0

HOUSE BILL NO. HB0138

Tax on unearned income.

Sponsored by: Representative(s) Schwartz, Connolly and Zwonitzer and Senator(s) Kost and Rothfuss

A BILL

for

AN ACT relating to taxation; creating the Wyoming Unearned Income Tax Act; imposing a tax on unearned income as specified; providing for administration; providing penalties; requiring rulemaking; requiring a report; and providing for effective dates.

Be It Enacted by the Legislature of the State of Wyoming:

Section 1.

W.S. 39
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102 through 39
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111 are created to read:

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102.

Administration; confidentiality.

(a)

This chapter is known and may be cited as the "
Wyoming Unearned Income Tax Act
".

(b)

The administration of this chapter is vested in the department of revenue. The department shall administer this chapter using the multistate tax compact as a guide to the extent that the compact does not conflict with this chapter or other Wyoming law.

(c)

The department shall, to the extent practical, obtain information from the federal Internal Revenue Service to verify taxable unearned income under this chapter. The department shall adopt rules and regulations necessary to efficiently secure the payment, collection and accounting for taxes imposed by this chapter.

(d)

Notices required to be mailed by the department under this chapter if mailed to the address shown on the records of the department shall be sufficient for the purposes of this chapter. If offered by the department and upon request of the taxpayer, notices under this chapter may be delivered by electronic transmission.

(e)

No state employee or other person who by his employment in connection with the state gains knowledge of the business affairs of any person filing or required to file any tax returns under this chapter shall make known their contents in any manner or permit any person to have access to any returns or information contained therein except as provided by law. The department may also allow the following:

(i)

The delivery to the taxpayer or his legal representatives upon written request of a copy of any return or report in connection with the tax imposed by this chapter;

(ii)

The publication of statistics formatted to prevent the identification of particular returns or reports;

(iii)

The inspection by the Wyoming attorney general of the report or return of any person who brings an action against the state relating to the report or return,
or against whom an action is contemplated or has been instituted;

(iv)

If otherwise admissible as evidence, the introduction into evidence of any report or return or information therefrom in any administrative or court proceeding relating to the report or return and to which the person making the report or return is a party;

(v)

The furnishing of any information to the United States government and its territories, the District of Columbia, any state allowing similar privileges to the department or to the multistate tax commission for relay to tax officials of cooperating states. Information furnished shall be only for tax purposes;

(vi)

The inspection of tax returns and records by the state department of audit.

(f)

The district court of the county in which violations of this subsection occur shall have jurisdiction over those violations.

No person shall:

(i)

Fail or refuse to make any return or payment required by this chapter;

(ii)

Make any false return or statement;

(iii)

Evade the payment of any tax due;

(iv)

Aid or abet another in any attempt to evade payment of the tax due;

(v)

Knowingly attest by signature to a false or fraudulent return.

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103.

Imposition.

(a)

Taxable event. There is levied an income tax upon the taxable unearned income of each taxpayer in this state who is required to pay the tax as provided in this chapter.

(b)

Apportionment of unearned income shall be as follows for the purposes of W.S. 39
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101(b)(iv)(E):

(i)

If a taxpayer has no unearned income from activity that is taxable in another state, the taxpayer's entire taxable unearned income shall be allocated to Wyoming;

(ii)

A taxpayer having unearned income from activity that is taxable both in another state and in Wyoming shall apportion and allocate the unearned income as provided in this subsection;

(iii)

Income is taxable in another state if:

(A)

In that other state, the income is subject to a net income tax, a franchise tax measured by net income, a franchise tax for the privilege of doing business, a corporate stock tax or any similar tax; or

(B)

That other state has jurisdiction to subject the income to a net income tax regardless of whether, in fact, the state subjects the taxpayer to the tax.

(iv)

Unearned taxable income under this subsection shall be apportioned to Wyoming by multiplying the income by a fraction, the numerator of which is the total unearned income attributable to Wyoming during the tax period and the denominator of which is the unearned income of the taxpayer everywhere during the tax period. To the extent necessary, the department shall by rule and regulation determine whether income is attributable to Wyoming or elsewhere.

(c)

The department may require taxpayers to provide additional information and documentation related to the apportionment and allocation of unearned income to support an income tax return under this chapter.

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104.

Taxation rate.

(a)

There is levied and shall be paid by the taxpayer an annual income tax on that portion of taxable unearned income of the taxpayer that is allocated and apportioned to Wyoming as follows:

(i)

Zero percent (0%) on the first two hundred thousand dollars ($200,000.00) of taxable unearned income; and

(ii)

Four percent (4%) on all taxable unearned income over two hundred thousand dollars ($200,000.00).

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105.

Exemptions.

There are no specific applicable provisions for exemptions for this chapter.

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106.

Licenses and permits.

There are no specific applicable provisions for licenses and permits for this chapter.

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107.

Compliance; collection procedures.

(a)

Returns and reports. Except as otherwise provided in this subsection, each taxpayer shall report their total
unearned taxable income and the portion of the taxable income that is apportioned to Wyoming as provided in W.S. 39
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103 to the department not more than thirty (30) days after the date the taxpayer is required to file a federal income tax return under the provisions of the Internal Revenue Code including any extensions authorized for filing of the federal income tax return. If the taxpayer has two hundred thousand dollars ($200,000.00) or less in taxable unearned income in any tax year the taxpayer shall not be required to file a return under this subsection for that year, provided that the department may require any person to file a return if the department has reason to believe that the taxpayer has taxable income that exceeds two hundred thousand dollars ($200,000.00).

(b)

Payment. Any taxpayer owing a tax under this chapter shall pay the tax once each year at the same time the report under subsection (a) of this section is provided. The tax shall be collected by the department.

(c)

Timelines. There are no specific applicable provisions for timelines for this chapter.

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108.

Enforcement.

(a)

Audits. To assess credits and deficiencies against taxpayers, the department is authorized to rely on final audit findings made by the department of audit, taxpayer information or information reported by the taxpayer to the Internal Revenue Service or to the department of revenue subject to the following conditions:

(i)

Audits shall commence when the taxpayer receives written notice of the engagement of the audit. The issuance of the written notice of the audit shall toll the statute of limitations provided in W.S. 39
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110 for the audit period specified in this subsection;

(ii)

After receiving notice of an audit under this subsection, the taxpayer shall preserve all records and books necessary to determine the amount of tax due for the time period that is being audited;

(iii)

Except as otherwise provided in this paragraph, audits shall encompass a time period not to exceed three (3) years immediately preceding the reporting period when the audit is engaged. The three (3) year limit shall not apply to an audit if there is evidence of gross negligence or intent to evade by the taxpayer in reporting or remitting taxes for the reporting period being audited;

(iv)

If a taxpayer is not willing or able to produce adequate records to demonstrate taxes due, the department or the department of audit may determine taxes based on the best information available;

(v)

The department of audit may contract with or employ auditors or other technical assistance necessary to determine whether the taxes imposed by this chapter have been properly reported and paid;

(vi)

Audits under this subsection are subject to the authority and procedures provided in W.S. 9
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2003.

(b)

Interest. The following shall apply:

(i)

Interest at an annual rate equal to the average prime interest as determined by the state treasurer during the preceding fiscal year, plus four percent (4%), shall be added to all delinquent taxes under this chapter. To determine the average prime interest rate, the state treasurer shall average the prime interest for at least seventy
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five percent (75%) of the thirty (30) largest banks in the United States.

The interest rate on delinquent taxes shall be adjusted on January 1 of each year following the year in which the taxes first became delinquent. In no instance shall the delinquent interest rate be less than twelve percent (12%) nor greater than eighteen percent (18%);

(ii)

The department may credit or waive interest imposed by this subsection as part of a settlement or for any other good cause.

(c)

Penalties. The following shall apply:

(i)

If any part of a deficiency is due to negligence or intentional disregard of statute or rules and regulations but without intent to defraud there shall be added a penalty of ten percent (10%) of the amount of the deficiency plus interest as provided by paragraph (b)(i) of this section. The taxes, penalty and interest shall be paid by the taxpayer within ten (10) days after notice and demand is made by the department;

(ii)

If any part of the deficiency is due to fraud with intent to evade there shall be added a penalty of twenty
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five percent (25%) of the amount of the deficiency plus interest as provided by paragraph (b)(i) of this section. The taxes, penalty and interest shall be paid by the taxpayer within ten (10) days after notice and demand is made by the department;

(iii)

Any person who files a false or fraudulent return is subject to the provisions of W.S. 6
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303;

(iv)

Any person who violates any provision of this chapter for which there are no specific penalties is
guilty of a misdemeanor and upon conviction shall be fined not more than one thousand dollars ($1,000.00). Each violation is a separate offense;

(v)

If a taxpayer fails to file a return as required by this chapter, the department shall give written notice by mail to the taxpayer to file a return on or before the last day of the month following the notice of delinquency. If a taxpayer then fails to file a return the department shall make a return from the best information available, which will be prima facie correct and the tax due therein is a deficiency and subject to penalties and interest as provided by this chapter;

(vi)

The department may credit or waive penalties imposed by this subsection as part of a settlement or for any other good cause.

(d)

Liens. The following shall apply:

(i)

Any tax due under this chapter constitutes a debt to the state from the taxpayer, and is a lien from the
date the tax is due on all the real and personal property of the taxpayer. Notice of the lien shall be filed with the county clerk of the county in which the taxpayer resides or conducts business. The lien does not have preference over preexisting secured indebtedness but shall have priority from and after the date of filing or recording. The department shall cancel lien statements within sixty (60) days after taxes due are paid or collected. No other action by the department is required to perfect a lien under this paragraph regardless of the type of property involved.

(e)

Tax sales. The following shall apply:

(i)

The tax due together with interest, penalties and costs may be collected by appropriate judicial proceedings or the department or its representative may, with board approval, seize and sell at public auction so much of the taxpayer's property as will pay all the tax then due plus interest, penalties and costs. Notice of the auction shall be published for four (4) weeks in a newspaper published in the resident county
of the taxpayer or the county in which the majority of the property is located.

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109.

Taxpayer remedies.

(a)

Interpretation requests. A taxpayer may request and the department shall provide written interpretations of these statutes and rules adopted by the department. When requesting an interpretation, a taxpayer shall set forth the facts and circumstances pertinent to the issue. If the department deems the facts and circumstances provided to be insufficient, it may request additional information. A taxpayer may act in reliance upon a written interpretation through the end of the calendar year in which the interpretation was issued, or until revoked by the department, whichever occurs last if the pertinent facts and circumstances were substantially correct and fully disclosed.

(b)

Appeals. Except as provided by this subsection, no person aggrieved by the payment of the taxes, penalty and interest imposed by this chapter may appeal a decision
of the state board of equalization until all taxes, penalty and interest have been paid. For good cause shown, the court to which the decision of the board is appealed may stay enforcement of the tax during the pendency of the appeal. The court's stay of enforcement shall not affect the accrual of interest upon any assessment and levy.

(c)

Refunds. The following shall apply:

(i)

Any tax, penalty or interest under this chapter which has been erroneously paid, computed or remitted to the department by a taxpayer shall either be credited against any subsequent tax liability of the taxpayer or refunded. No credit or refund shall be allowed after three (3) years from the date of overpayment. The receipt of a claim for a refund by the department shall toll the statute of limitations under W.S. 39
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110. All refund requests received by the department shall be approved or denied within ninety (90) days of receipt. Any credit or refund erroneously made or allowed may be recovered in an action brought by the attorney general in any court of competent jurisdiction.

(d)

Credits. The following shall apply:

(i)

Pursuant to article 15, section 18 of the Wyoming Constitution, each taxpayer is entitled to a credit against tax liability under this chapter for all excise, sales, use, severance and ad valorem taxes paid in the tax year by the same taxpayer to any taxing authority in Wyoming. No credit shall be allowed for any tax collected or remitted by the taxpayer on behalf of another person including property taxes paid by the taxpayer on property that is not owned by the taxpayer. The taxpayer shall report the credit to the department on the return filed under W.S. 39
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107. The department may require supporting documentation on the credit claimed under this paragraph. In no case shall any refund be due or payable if the amount of the credit claimed by any taxpayer under this paragraph exceeds the amount of tax due under this chapter. False claims are punishable as provided by W.S. 6
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303;

(ii)

The taxpayer is entitled to receive an offsetting credit for any overpaid tax identified by an
audit that is within the scope of the audit period, without regard to the limitation period for requesting refunds.

(e)

Redemption. There are no specific applicable provisions for redemption for this chapter.

(f)

Escrow. There are no specific applicable provisions for escrow for this chapter.

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110.

Statute of limitations.

(a)

Except as otherwise provided in this chapter, no credit or refund shall be allowed after three (3) years from the date of overpayment. The receipt of a claim for a refund by the department shall toll the statute of limitations.

(b)

Except as otherwise provided in this chapter, the department may bring an action to recover any delinquent taxes, penalty or interest in any court of competent jurisdiction within three (3) years following the delinquency. In the case of an assessment created by an
audit, the delinquency period is deemed to start thirty (30) days after the date the audit assessment letter is sent. Any tax penalty and interest related to the audit assessment shall be calculated from the date on which the deficiency occurred. In any such action a certificate by the department is prima facie evidence of the amount due.

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111.

Distribution.

Revenues collected under W.S. 39
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104 during each fiscal year shall be recognized as revenue during that fiscal year for accounting purposes. For all revenue collected by the department under W.S. 39
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104, the department shall transfer the funds to the state treasurer for credit to the school foundation program account.

Section 2.

W.S. 39
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101 is amended to read:

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101.

Preemption by state; definitions.

(a)

The state of Wyoming does hereby preempt for itself the field of imposing and levying income taxes,
earning taxes, or any other form of tax based on wages or other income and no county, city, town or other political subdivision shall have the right to impose, levy or collect such taxes.

(b)

To the extent they do not conflict with the provisions of this chapter, the terms and definitions of the Internal Revenue Code shall apply to this chapter. As used in this chapter:

(i)

"Business income" means income arising from transactions and activity in the regular course of the taxpayer's trade or business and includes income from tangible and intangible property if the acquisition, management or disposition of the property constitute an integral part of the taxpayer's regular trade or business operations;

(ii)

"Earned income" means business income and any salaries, wages, tips, professional fees and other amounts received as pay for work actually performed.
"Earned income" also includes a taxable distribution from a qualified disability trust;

(iii)

"Tax year" means the taxable year used by the taxpayer for purposes of the federal income tax;

(iv)

"Taxable income" or "taxable unearned income" means the unearned income, as provided in paragraph (vi) of this subsection, of a taxpayer as computed under the Internal Revenue Code and reported by the taxpayer to the Internal Revenue Service, adjusted as follows:

(A)

Reduced by any interest received from obligations of the United States that is included in unearned income or in the computation of unearned taxable income on the federal tax return;

(B)

Reduced by any other income included in the taxable income or in the computation of taxable income which is exempt from taxation by this state because of the provisions of the Constitution of Wyoming or the Constitution of the United States;

(C)

Increased by the amount of any income taxes, including income taxes of foreign countries, or franchise or privilege taxes measured by income, to the extent that the taxes were applicable to unearned income and were deducted to determine federal taxable income;

(D)

Increased to remove any deductions taken for sales, use and ad valorem taxes paid in the tax year by the same taxpayer to any taxing authority in Wyoming, provided that this subparagraph shall not apply to any credit taken under W.S. 39
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109(d)(i);

(E)

Reduced by the amount of income not allocated and apportioned to this state under the provisions of W.S. 39
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103, but only to the extent that the amount of net income not allocated and apportioned to this state under the provisions of that section is not included in any adjustment made pursuant to the preceding subparagraphs of this paragraph.

(v)

"Taxpayer" means any person who has taxable income in Wyoming and who files or is required to file federal income taxes with the Internal Revenue Service. "Taxpayer" includes a married couple filing jointly if the married couple files jointly for purposes of the federal income tax;

(vi)

"Unearned income" means income other than earned income and includes interest, dividends and capital gains including capital gain distributions. Distributions of interest, dividends, capital gains and other unearned income from a trust are also unearned income to a beneficiary of the trust to the extent they are not considered earned income under paragraph (ii) of this subsection. As used in this paragraph, "capital gains" shall not include any gains generated from the sale of the taxpayer's primary residence.

Section 3.

The department of revenue shall adopt rules under W.S. 39
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102 as necessary to begin collection of the tax created by this act for tax years beginning on or after January 1, 2022.

Section 4.

The department of revenue shall investigate the advisability of Wyoming becoming a member state of the multistate tax commission and the advisability of adopting all or a portion of the multistate tax compact. The investigation shall include a determination of what statutory changes would be required for Wyoming to become a member of the multistate tax commission and any other actions that would be necessary for membership. The department shall report the results of the investigation under this section to the joint revenue interim committee not later than September 1, 2021.

Section 5
.

(a)

Sections 3 through 5 of this act
are

effective immediately upon completion of all acts necessary for a bill to become law as provided by Article 4, Section 8 of the Wyoming Constitution.

(b)

Except as otherwise provided in subsection (a) of this section, t
his act is effective January 1, 2022.

(END)

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HB0138