Amends existing law to update references to the current Internal Revenue Code and to revise certain tax credits related to capital investments and research activities.

LEGISLATURE OF THE STATE OF IDAHO Sixty-eighth Legislature Second Regular Session - 2026 IN THE HOUSE OF REPRESENTATIVES HOUSE BILL NO. 519 BY REVENUE AND TAXATION COMMITTEE AN ACT1 RELATING TO TAXATION; AMENDING SECTION 63-3004, IDAHO CODE, TO REVISE A PRO-2 VISION REGARDING THE APPLICATION OF THE INTERNAL REVENUE CODE; AMENDING3 SECTION 63-3029B, IDAHO CODE, TO REVISE PROVISIONS REGARDING THE IN-4 COME TAX CREDIT FOR CAPITAL INVESTMENT; AMENDING SECTION 63-3029G,5 IDAHO CODE, TO REVISE PROVISIONS REGARDING CREDITS FOR RESEARCH ACTIV-6 ITIES CONDUCTED IN THIS STATE AND CERTAIN CARRYFORWARD PROVISIONS; AND7 DECLARING AN EMERGENCY AND PROVIDING RETROACTIVE APPLICATION.8

Be It Enacted by the Legislature of the State of Idaho:9

SECTION 1. That Section 63-3004, Idaho Code, be, and the same is hereby10 amended to read as follows:11 63-3004. INTERNAL REVENUE CODE. The term "Internal Revenue Code"12 means the Internal Revenue Code as amended and in effect on the first day of13 January 2025 2026, except that Internal Revenue Code section 85 is applied14 as in effect on January 1, 2020.15

SECTION 2. That Section 63-3029B, Idaho Code, be, and the same is hereby16 amended to read as follows:17 63-3029B. INCOME TAX CREDIT FOR CAPITAL INVESTMENT. (1) At the elec-18 tion of the taxpayer, there shall be allowed, subject to the applicable limi-19 tations provided herein as a credit against the income tax imposed by chapter20 30, title 63, Idaho Code, an amount equal to the sum of:21 (a) The tax credit carryovers; and22 (b) The tax credit for the taxable year.23 (2) The maximum allowable amount of the credit for the current taxable24 year shall be three percent (3%) of the amount of qualified investments made25 during the taxable year.26 (3) As used in this section, "qualified investment" means certain prop-27 erty that:28 (a)(i) Is eligible for the federal investment tax credit, as de-29 fined in sections 46(c) and 48 of the Internal Revenue Code, sub-30 ject to the limitations provided for certain regulated companies31 in section 46(f) of the Internal Revenue Code, and is not a motor32 vehicle under eight thousand (8,000) pounds gross weight; or33 (ii) Is qualified broadband equipment, as defined in section34 63-3029I, Idaho Code;35 (b) Is acquired, constructed, reconstructed, erected or placed into36 service after December 31, 1981; and37 (c) Has a situs in Idaho, as determined pursuant to subsection (9) of38 this section.39

2 (4)(a) For qualified investments placed in service in 2003 and there-1 after, a taxpayer, other than a person whose rate of charge or rate of2 return or both is regulated or limited according to federal or state3 law, may elect, in lieu of the credit provided by this section, a two4 (2) year exemption from all taxes on personal property on the qualified5 investment. The exemption from personal property tax shall apply to the6 year the election is filed as provided in this section and the immedi-7 ately following year. The election provided by this paragraph is avail-8 able only to a taxpayer whose Idaho taxable income, before application9 of net operating losses carried back or forward, in the second preceding10 taxable year in which the investment is placed in service is negative.11 (b) The election shall be made in the form prescribed by the state tax12 commission and shall include a specific description and location of13 all qualified investments placed into service and located in the ju-14 risdiction of the assessing authority, a designation of the specific15 assets for which the exemption is claimed, and such other information16 as the state tax commission may require. The election must be made17 by including the election form with the listing of personal property18 required by section 63-302, Idaho Code, or, in the case of operating19 property assessed under chapter 4, title 63, Idaho Code, with the op-20 erator's statement required by section 63-404, Idaho Code. Once made,21 the election is irrevocable. If no election is made, the election is not22 otherwise available. A copy of the election form must also be attached23 to the original income tax return due for the taxable year in which the24 claim was made.25 (c) The state tax commission and the various county assessors are au-26 thorized to exchange information as necessary to properly coordinate27 the exemption provided in this subsection. Information disclosed to28 county officials under this subsection may be used only to determine the29 validity or amount of a taxpayer's entitlement to the exemption pro-30 vided in this section and is not otherwise subject to public disclosure31 as provided in section 74-107, Idaho Code.32 (d) In the event that an investment in regard to which the election un-33 der this subsection was made is determined by the state tax commission:34 (i) To not be a qualified investment;35 (ii) To have ceased to qualify during the recapture period; or36 (iii) To be otherwise not qualified for the election;37 the taxpayer shall be subject to recapture of the property tax benefit.38 (e) The benefit to be recaptured in paragraph (d) of this subsection39 shall be computed in the manner required in subsection (7) of this sec-40 tion, and such recapture amount shall be subject to assessment in the41 same manner as a deficiency in tax under this chapter. For purposes of42 calculating the recapture, the property tax benefit shall be:43 (i) In the case of locally assessed property located in a single44 county or nonapportioned centrally assessed property, the market45 value of exempted property times the average property tax levy46 for that county in the year or years for which the exemption was47 claimed; or48 (ii) In the case of other centrally assessed property and property49 located in more than one (1) county, the market value of exempted50

3 property times the average urban property tax levy of the state1 as determined by the state tax commission in each of the years for2 which the exemption was claimed.3 (f) In the event that a recapture of the exemption is required under4 this subsection, the person claiming the exemption shall report the5 event to the state tax commission in the manner the state tax commission6 may by rule require. The report shall be due no later than the due date7 of that person's income tax return under this chapter for the taxable8 year in which the event occurs. The recapture amount is due and payable9 with the report. Any amount of recapture not paid is a deficiency within10 the meaning of section 63-3044, Idaho Code.11 (g) All moneys collected by the state tax commission pursuant to this12 subsection, which amounts are continuously appropriated for this pur-13 pose, shall be deposited with the state treasurer and placed in the14 state refund account, as provided by section 63-3067, Idaho Code, to be15 remitted to the county within which the property was located that was16 not a qualified investment or ceased to qualify during the recapture17 period. The county shall distribute this remittance to all appropriate18 taxing districts based on the proportion each appropriate taxing dis-19 trict's levy is to the total of all the levies of the taxing districts20 for the tax code area where the property was located for each year the21 exemption was granted. If any taxing district is dissolved or disincor-22 porated, the proportionate share of the remittance to be distributed to23 that taxing district shall be deposited in the county current expense24 fund.25 (h) For purposes of the limitation provided by section 63-802, Idaho26 Code, moneys received pursuant to this subsection shall be treated as27 property tax revenue by taxing districts.28 (5) Notwithstanding the provisions of subsections (1) and (2) of this29 section, the amount of the credit allowed shall not exceed fifty percent30 (50%) of the tax liability of the taxpayer. The tax liability of the taxpayer31 shall be the tax after deducting the credit allowed by section 63-3029, Idaho32 Code.33 (6) If the sum of credit carryovers from the credit allowed by subsec-34 tion (2) of this section and the amount of credit for the taxable year from35 the credit allowed by subsection (2) of this section exceed the limitation36 imposed by subsection (5) of this section for the current taxable year, the37 excess attributable to the current taxable year's credit shall be an invest-38 ment credit carryover to the fourteen (14) succeeding taxable years as long39 as the qualified investment property for which the unused credit was granted40 otherwise remains a qualified investment as determined under subsection (3)41 of this section in each of the taxable years during the recapture period.42 In the case of a group of corporations filing a combined report under sec-43 tion 63-3027, Idaho Code, or sections 63-3027B through 63-3027E, Idaho Code,44 credit earned by one (1) member of the group but not used by that member may45 be used by another member of the group, subject to the provisions of subsec-46 tion (5) of this section, instead of carried over. The entire amount of un-47 used credit shall be carried forward to the earliest of the succeeding years,48 wherein the oldest available unused credit shall be used first. For a com-49 bined group of corporations, credit carried forward may be claimed by any50

4 member of the group, unless the member who earned the credit is no longer in-1 cluded in the combined group.2 (7) Any recapture of the credit allowed by subsection (2) of this sec-3 tion on property disposed of or ceasing to qualify, prior to the close of4 the recapture period, shall be determined according to the applicable recap-5 ture provisions of the Internal Revenue Code. In the case of a unitary group6 of corporations, the increase in tax due to the recapture of investment tax7 credit must be reported by the member of the group who earned the credit re-8 gardless of which member claimed the credit against tax.9 (8) For the purpose of determining whether property placed in service10 is a "qualified investment" as defined in subsection (3) of this section, the11 provisions of section 49 of the Internal Revenue Code shall be disregarded.12 "Qualified investment" shall not include any amount for which a deduction is13 allowed under section 168(k) or section 179 of the Internal Revenue Code in14 computing Idaho taxable income.15 (9) For purposes of this section, property has a situs in Idaho during a16 taxable year if it is used in Idaho at any time during the taxable year. Prop-17 erty not used in Idaho during a taxable year does not have a situs in Idaho18 in the taxable year during which the property is not used in Idaho or in any19 subsequent taxable year. The Idaho situs of property must be established by20 records maintained by the taxpayer that are created reasonably contempora-21 neously with the use of the property.22 (10) In the case of property used both in and outside Idaho, the taxpayer23 electing to claim the credit provided in this section must elect to compute24 the qualified investment in property with a situs in Idaho for all such in-25 vestments first qualifying during that year in one (1), but only one (1), of26 the following ways:27 (a) The amount of each qualified investment in a specific asset shall28 be separately computed based on the percentage of the actual use of the29 property in Idaho by using a measure of the use, such as total miles or30 total machine hours, that most accurately reflects the beneficial use31 during the taxable year in which it is first acquired, constructed,32 reconstructed, erected, or placed into service; provided that the as-33 set is placed in service more than ninety (90) days before the end of34 the taxable year. In the case of assets acquired, constructed, recon-35 structed, erected, or placed into service within ninety (90) days prior36 to the end of the taxable year in which the investment first qualifies,37 the measure of the use of that asset within Idaho for that year shall be38 based on the percentage of use in Idaho during the first ninety (90) days39 of use of the asset; or40 (b) The investment in qualified property used both inside and out-41 side Idaho during the taxable year in which it is first acquired,42 constructed, reconstructed, erected, or placed into service shall be43 multiplied by the percent of the investment that would be included in44 the numerator of the Idaho property factor determined pursuant to sec-45 tion 63-3027, Idaho Code, for the same year; provided that the asset is46 placed in service more than ninety (90) days before the end of the tax-47 able year. In the case of assets acquired, constructed, reconstructed,48 erected, or placed into service within ninety (90) days prior to the end49 of the taxable year in which the investment first qualifies, the invest-50

5 ment in qualified property used both inside and outside Idaho shall be1 multiplied by the percent of the investment that would be included in2 the numerator of the Idaho property factor determined pursuant to sec-3 tion 63-3027, Idaho Code, during the first ninety (90) days of use of the4 asset.5 (11) Any amounts claimed by a taxpayer as a deduction pursuant to sec-6 tion 174 of the Internal Revenue Code that constitute qualified investments,7 as defined in subsection (3) of this section, shall not be eligible for the8 credit provided in this section.9 (11) (12) References to sections 46, 48 and 49 of the Internal Revenue10 Code mean those sections as they existed in the Internal Revenue Code of 198611 prior to November 5, 1990.12

SECTION 3. That Section 63-3029G, Idaho Code, be, and the same is hereby13 amended to read as follows:14 63-3029G. CREDITS FOR RESEARCH ACTIVITIES CONDUCTED IN THIS STATE --15 CARRYFORWARD.16 (1)(a) Subject to the limitations of this section, there shall be al-17 lowed to a taxpayer a nonrefundable credit against taxes imposed by sec-18 tions 63-3024, 63-3025, and 63-3025A, Idaho Code, for increasing re-19 search activities in Idaho.20 (b) The credit allowed by paragraph (a) of this subsection shall be the21 sum of:22 (i) Five percent (5%) of the excess of qualified research expenses23 for research conducted in Idaho over the base amount; and24 (ii) Five percent (5%) basic research payments allowable under25 section 41(e) of the Internal Revenue Code for basic research con-26 ducted in Idaho.27 (c) The credit allowed by paragraph (a) of this subsection shall be com-28 puted without regard to the calculation of the alternative incremental29 credit provided for in section 41(c)(4) of the Internal Revenue Code or30 the alternative simplified credit provided for in section 41(c)(5) of31 the Internal Revenue Code.32 (2) As used in this section:33 (a) The terms "qualified research expenses," "qualified research,"34 "basic research payments" and "basic research" shall be as defined in35 section 41 of the Internal Revenue Code, except that the research must36 be conducted in Idaho.37 (b) The term "base amount" shall mean an amount calculated as provided38 in section 41(c) and (h) of the Internal Revenue Code, except that:39 (i) A taxpayer's gross receipts include only those gross receipts40 attributable to sources within this state as provided in subsec-41 tions (12) and (13) of section 63-3027, Idaho Code; and42 (ii) Notwithstanding section 41(c) of the Internal Revenue Code,43 for purposes of calculating the base amount, a taxpayer:44 (A) May elect to be treated as a start-up company as provided45 in section 41(c)(3)(B) of the Internal Revenue Code, regard-46 less of whether the taxpayer meets the requirements of sec-47 tion 41(c)(3)(B)(i)(I) or (II) of the Internal Revenue Code;48 and49

6 (B) May not revoke an election to be treated as a start-up1 company.2 (3) The credit allowed by subsection (1)(a) of this section together3 with any credits carried forward under subsection (5) of this section4 shall not exceed the amount of tax due under sections 63-3024, 63-3025, and5 63-3025A, Idaho Code, after allowance for all other credits permitted by6 this chapter. When credits earned in more than one (1) taxable year are7 available, the oldest credits shall be applied first.8 (4) In the case of a group of corporations filing a combined report9 under section 63-3027(22), Idaho Code, credit earned by one (1) member of10 the group but not used by that member may be used by another member of the11 group. For a combined group of corporations, any member of the group may12 claim credit carried forward unless the member who earned the credit is no13 longer included in the combined group.14 (5) The credit allowed by subsection (1)(a) of this section shall be15 claimed for the taxable year during which the taxpayer qualifies for the16 credit. If the credit exceeds the limitation under subsection (3) of this17 section, the excess amount may be carried forward for a period that does18 not exceed the next fourteen (14) taxable years. Any amounts claimed by a19 taxpayer as a deduction pursuant to section 174 of the Internal Revenue Code20 that constitute qualified research expenses, qualified research, basic re-21 search payments, or basic research, as those terms are defined in subsection22 (2) of this section, shall not be eligible for the credit provided in this23 section.24 (6) In addition to other needed rules, the state tax commission may25 promulgate rules prescribing, in the case of S corporations, partnerships,26 trusts, or estates, a method of attributing the credit under this section to27 the shareholders, partners, or beneficiaries in proportion to their share of28 the income from the S corporation, partnership, trust, or estate.29

SECTION 4. An emergency existing therefor, which emergency is hereby30 declared to exist, this act shall be in full force and effect on and after its31 passage and approval, and retroactively to January 1, 2025.32