Utah law provides that interest from certain bonds, notes, and other evidences of indebtedness (commonly know as municipal bonds) issued by non-federal governmental entities outside Utah will be subject to Utah's income tax if acquired after January 1, 2003. However, section 59-10-114(6) contains a reciprocity provision concerning such bonds. It provides that interest earned on non-Utah municipal bonds will not be subject to Utah income tax if the state (or political subdivision, agency or instrumentality of the state) issuing the bonds does not impose an income tax on bonds issued by Utah.
Interest earned from bonds, notes and other evidences of indebtedness issued by US Territorial Obligations do not have to be added back to Utah taxable income as they do not meet the requirements of 59-10-114(6). They are not considered a political subdivision, agency or instrumentality of a state.
Fiduciary fees and other investment expenses associated with bonds exempt from federal taxation, yet subject to Utah taxation, are not deductible from Utah taxable income. Utah Code 59-10-114(1)(g) provides the "interest" from certain bonds exempt from federal taxation is subject to Utah taxation; however, it does not provide for any deduction of expenses associated with these taxable bonds. Further, the Commission does not have a rule that would allow for equitable adjustments in these circumstances.
The following is a list of states and political subdivisions that do not impose an income tax on Utah municipal bonds. Accordingly, interest earned on bonds, notes or other evidences of indebtedness issued by one of these jurisdictions is not subject to Utah income tax. If a jurisdiction is not listed that you believe qualifies for the reciprocity exception, please contact us at (801) 297-7705 or 1-800-662-4335, ext. 7705 (toll free outside the Salt Lake area).
