Keep itemized sales taxes in Utah's taxpayer credit base

changelog.d/ut-taxpayer-credit-sales-tax.fixed.md

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+Keep itemized sales taxes, including a sales-tax election shown by a supplied sales-or-income amount, in Utah's taxpayer credit base; Utah Code 59-10-1018 removes only state and local income taxes.

policyengine_us/tests/core/test_ut_taxpayer_credit_sales_tax_properties.py

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+"""Properties of the federal deductions in Utah's taxpayer credit base.
+
+Utah Code 59-10-1018 starts from the federal itemized deductions and removes
+only state or local income tax: in (2)(a)(ii)(A) of the edition superseded on
+May 8, 2018, which the 2017 draws use, and after that in the definition of
+the Utah itemized deduction ((1)(f)(i) in the 2021, 2023 and 2026 editions).
+A tax unit whose sales taxes strictly exceed its income taxes takes the
+sales tax under the federal formula (state_and_local_sales_or_income_tax is
+the larger of the two), so:
+
+1. Sales-tax election: nothing is removed. The base is never above the
+   supplied federal itemized total, and equals it; with no total supplied,
+   it equals the non-SALT itemized deductions plus the allowed SALT
+   deduction.
+2. Income-tax election: the base never exceeds the larger of the federal
+   itemized total and the non-SALT deductions plus capped real-estate tax,
+   and it never falls below the latter.
+3. Raising sales tax above income tax, with every other input fixed, never
+   lowers the base when the supplied total is not cut below the
+   reconstruction.
+
+Section 68 enters through the supplied total: the draws cut it by up to 80%
+of the reconstructed total, which can leave it below the non-SALT deductions
+plus the allowed SALT deduction. Before this change (1) and (3) failed
+whenever the allowed SALT deduction exceeded capped real-estate taxes: the
+sales tax was removed from the base. With max(itemized, non-SALT + SALT) as
+the sales-tax base, (1) failed whenever the cut left the total below that
+reconstruction. Each example builds one small household simulation holding
+every drawn tax unit twice, once as drawn and once with sales tax raised
+above income tax.
+"""
+
+import numpy as np
+from hypothesis import HealthCheck, example, given, settings
+from hypothesis import strategies as st
+
+from policyengine_us import Simulation
+
+YEARS = (2017, 2018, 2024, 2025, 2026)
+FILING_STATUSES = ("SINGLE", "JOINT", "SEPARATE", "HEAD_OF_HOUSEHOLD")
+AMOUNT = st.integers(min_value=0, max_value=60_000)
+
+UNIT = st.fixed_dictionaries(
+    {
+        "filing_status": st.sampled_from(FILING_STATUSES),
+        "charitable": AMOUNT,
+        "real_estate": AMOUNT,
+        "income_tax": AMOUNT,
+        "sales_tax": AMOUNT,
+        "extra_itemized": AMOUNT,
+        # Percent of the reconstructed total that section 68 removes from the
+        # supplied federal itemized deductions (at most 80% before 2018).
+        "section_68_cut": st.integers(min_value=0, max_value=80),
+        "supply_itemized": st.booleans(),
+    }
+)
+
+
+def _salt_cap(filing_status, year):
+    # 26 U.S.C. 164(b)(6) and (b)(7) caps before any phase-down: none in
+    # 2017, $10,000 ($5,000 separate) from 2018 through 2024, $40,000
+    # ($20,000) in 2025 and $40,400 ($20,200) in 2026.
+    full = {
+        2017: np.inf,
+        2018: 10_000,
+        2024: 10_000,
+        2025: 40_000,
+        2026: 40_400,
+    }[year]
+    return full / 2 if filing_status == "SEPARATE" else full
+
+
+def _salt(unit, year):
+    return min(
+        unit["real_estate"] + max(unit["income_tax"], unit["sales_tax"]),
+        _salt_cap(unit["filing_status"], year),
+    )
+
+
+def _itemized(unit, year):
+    if not unit["supply_itemized"]:
+        return 0
+    total = unit["charitable"] + _salt(unit, year) + unit["extra_itemized"]
+    # Whole dollars keep the values exact in float32.
+    return total - total * unit["section_68_cut"] // 100
+
+
+def _situation(year, units):
+    period = str(year)
+    people, tax_units, households = {}, {}, {}
+    for i, unit in enumerate(units):
+        name = f"p{i}"
+        people[name] = {
+            "age": {period: 40},
+            "real_estate_taxes": {period: unit["real_estate"]},
+        }
+        tax_units[f"t{i}"] = {
+            "members": [name],
+            "filing_status": {period: unit["filing_status"]},
+            "tax_unit_itemizes": {period: True},
+            "charitable_deduction": {period: unit["charitable"]},
+            "interest_deduction": {period: 0},
+            "medical_expense_deduction": {period: 0},
+            "casualty_loss_deduction": {period: 0},
+            "misc_deduction": {period: 0},
+            "state_withheld_income_tax": {period: unit["income_tax"]},
+            "local_income_tax": {period: 0},
+            "state_sales_tax": {period: unit["sales_tax"]},
+            "local_sales_tax": {period: 0},
+            "salt_deduction": {period: _salt(unit, year)},
+            "itemized_taxable_income_deductions": {period: _itemized(unit, year)},
+        }
+        households[f"h{i}"] = {"members": [name], "state_code": {period: "UT"}}
+    return {"people": people, "tax_units": tax_units, "households": households}
+
+
+def _with_sales_election(unit):
+    return {**unit, "sales_tax": unit["income_tax"] + 1 + unit["sales_tax"]}
+
+
+@settings(
+    max_examples=6,
+    deadline=None,
+    derandomize=True,
+    suppress_health_check=[HealthCheck.too_slow],
+)
+@given(
+    year=st.sampled_from(YEARS),
+    units=st.lists(UNIT, min_size=4, max_size=12),
+)
+# Section 68 cuts the supplied total below the reconstruction under both
+# elections: $15,000 - 10% = $13,500 against $6,000 + $9,000 for the first
+# unit, so (1) holds only if the base stays at $13,500.
+@example(
+    year=2026,
+    units=[
+        {
+            "filing_status": "JOINT",
+            "charitable": 6_000,
+            "real_estate": 0,
+            "income_tax": 0,
+            "sales_tax": 9_000,
+            "extra_itemized": 0,
+            "section_68_cut": 10,
+            "supply_itemized": True,
+        },
+        {
+            "filing_status": "SINGLE",
+            "charitable": 6_000,
+            "real_estate": 4_000,
+            "income_tax": 9_000,
+            "sales_tax": 2_000,
+            "extra_itemized": 0,
+            "section_68_cut": 10,
+            "supply_itemized": True,
+        },
+    ],
+)
+def test_utah_credit_base_keeps_sales_tax(year, units):
+    paired = units + [_with_sales_election(unit) for unit in units]
+    situation = _situation(year, paired)
+    sim = Simulation(situation=situation)
+    base = sim.calculate("ut_federal_deductions_for_taxpayer_credit", year)
+    period = str(year)
+    tu = situation["tax_units"]
+    itemized = np.array(
+        [
+            tu[f"t{i}"]["itemized_taxable_income_deductions"][period]
+            for i in range(len(paired))
+        ]
+    )
+    salt = np.array([tu[f"t{i}"]["salt_deduction"][period] for i in range(len(paired))])
+    other = np.array([u["charitable"] for u in paired])
+    real_estate = np.array([u["real_estate"] for u in paired])
+    cap = np.array([_salt_cap(u["filing_status"], year) for u in paired])
+    sales_elected = np.array([u["sales_tax"] > u["income_tax"] for u in paired])
+
+    # (1) Sales-tax election removes nothing: never above the supplied
+    # federal itemized total, and equal to it, or to the fallback when no
+    # total is supplied.
+    supplied = sales_elected & (itemized > 0)
+    assert np.all(base[supplied] <= itemized[supplied] + 1e-6)
+    assert np.allclose(base[supplied], itemized[supplied])
+    not_supplied = sales_elected & (itemized == 0)
+    assert np.allclose(base[not_supplied], (other + salt)[not_supplied])
+
+    # (2) Income-tax election stays within its bounds.
+    income_floor = other + np.minimum(real_estate, cap)
+    income = ~sales_elected
+    assert np.all(base[income] >= income_floor[income] - 1e-6)
+    assert np.all(base[income] <= np.maximum(itemized, income_floor)[income] + 1e-6)
+
+    # (3) Moving to a sales-tax election never lowers the base. A pair whose
+    # supplied total is cut is left out: the income-tax branch floors its
+    # base at the reconstruction before section 68, which the sales-tax
+    # branch does not.
+    n = len(units)
+    uncut = np.array(
+        [u["section_68_cut"] == 0 or not u["supply_itemized"] for u in units],
+        dtype=bool,
+    )
+    assert np.all(base[n:][uncut] >= base[:n][uncut] - 1e-6)