63-3022M. EXPENSES AND INTEREST RELATING TO TAX EXEMPT INCOME. For taxable years commencing on and after January 1, 1999:

(1) Add interest and dividends received or accrued during the taxable year from foreign securities and from securities issued by states and other political subdivisions exempt from federal income tax under the Internal Revenue Code, less applicable amortization.

(2) Subtract any expenses and interest not allowed under sections 265 and 291 of the Internal Revenue Code in computing taxable income, as defined in section 63-3011B, Idaho Code, for interest on indebtedness incurred or continued to purchase or to carry obligations the interest of which is not subject to the taxes imposed under the Internal Revenue Code.

(3) Subtract interest and dividends received or accrued during the taxable year from securities issued:

(a) By the federal government and its instrumentalities to the extent included in taxable income and not subject to taxation by this state, and

(b) By the state of Idaho, its cities and political subdivisions, exempt from federal income tax under the Internal Revenue Code.

(4) No deduction shall be allowed for interest on indebtedness incurred or continued to purchase or to carry obligations the interest of which is not subject to the taxes imposed under this chapter. The amount of interest on indebtedness thus incurred or continued shall be an amount which bears the same ratio to the aggregate amount allowable to the taxpayer as a deduction for interest for the taxable year as the taxpayer’s interest income from the obligations mentioned in the preceding sentence bears to the taxpayer’s total income for the taxable year. "Aggregate amount allowable" means the taxpayer’s total interest expense deducted in determining taxable income as defined in section 63-3011B, Idaho Code, plus interest expense disallowed under sections 265 and 291 of the Internal Revenue Code, plus interest expense from a pass-through entity, plus the interest expense of a foreign corporation that, pursuant to sections 63-3027 and 63-3027B through 63-3027E, Idaho Code, is included in a combined report with the taxpayer less interest expense of any corporation included with the taxpayer in a consolidated federal return but not a part of the combined report filed with the state tax commission for the same taxable year. The deduction under this subsection shall not exceed the amount of interest and dividend income added pursuant to subsection (1) of this section less interest and dividend income from the state of Idaho, its cities and political subdivisions, subtracted pursuant to subsection (3) of this section.

(5) No deduction shall be allowed for expenses (other than interest) attributable to interest or dividend income which is not subject to the taxes imposed under this chapter.

History:

[63-3022M, added 1998, ch. 42, sec. 3, p. 179, am. 1999, ch. 28, sec. 1, p. 39.]