S.B. 136

1

APPORTIONMENT OF BUSINESS INCOME
2 AMENDMENTS
3 2008 GENERAL SESSION
4 STATE OF UTAH
5 Chief Sponsor: Wayne L. Niederhauser
6 House Sponsor: John Dougall
7
8 LONG TITLE
9 General Description:
10 This bill amends the Corporate Franchise and Income Taxes chapter and the Individual
11 Income Tax Act relating to the apportionment of business income.
12 Highlighted Provisions:
13 This bill:
14 . for purposes of apportionment of business income, addresses the circumstances
15 under which certain receipts, rents, royalties, or sales are considered to be in this
16 state;
17 . addresses the apportionment of business income for purposes of the individual
18 income tax; and
19 . makes technical changes.
20 Monies Appropriated in this Bill:
21 None
22 Other Special Clauses:
23 This bill takes effect for taxable years beginning on or after January 1, 2009.
24 Utah Code Sections Affected:
25 AMENDS:
26 59-7-319, as last amended by Laws of Utah 1992, Chapter 165
27 59-10-118, as last amended by Laws of Utah 1995, Chapter 311

28
29 Be it enacted by the Legislature of the state of Utah:
30 Section 1. Section 59-7-319 is amended to read:
31 59-7-319. Receipt, rent, royalty, or sale in connection with other than tangible
32 personal property -- When considered to be in this state.
33 [(1) Sales, other than sales of tangible personal property, are in this state if:]
34 [(a) the income-producing activity is performed in this state; or]
35 [(b) the income-producing activity is performed both in and outside this state and a
36 greater proportion of the income-producing activity is performed in this state than in any other
37 state, based on costs of performance.]
38 (1) (a) Subject to Subsection (1)(b), as used in this section, "regulated investment
39 company" is as defined in Section 851(a), Internal Revenue Code, in effect for the taxable year.
40 (b) "Regulated investment company" includes a trustee or sponsor of an employee
41 benefit plan that has an account in a regulated investment company.
42 (2) The following are considered to be in this state:
43 (a) a rent in connection with real property if the real property is in this state;
44 (b) a royalty in connection with real property if the real property is in this state;
45 (c) a sale in connection with real property if the real property is in this state; or
46 (d) other income in connection with real property if the real property is in this state.
47 (3) (a) Subject to Subsection (3)(b), a receipt from the performance of a service is
48 considered to be in this state if:
49 (i) the purchaser of the service receives the benefit of the service in this state; or
50 (ii) the receipt is otherwise attributable to this state's marketplace.
51 (b) In accordance with Title 63, Chapter 46a, Utah Administrative Rulemaking Act, the
52 commission may by rule prescribe the circumstances under which:
53 (i) a purchaser of a service receives the benefit of the service in this state; or
54 (ii) a receipt is otherwise attributable to this state's marketplace.
55 (4) (a) Subject to Subsection (4)(b), a receipt in connection with intangible property is
56 considered to be in this state if the intangible property is used in this state.
57 (b) If the intangible property described in Subsection (4)(a) is used in this state and
58 outside this state, a receipt in connection with the intangible property shall be apportioned to

59 this state in accordance with Subsection (4)(c).
60 (c) For purposes of Subsection (4)(b), for a taxable year the percentage of a receipt in
61 connection with intangible property that is considered to be in this state is the percentage of the
62 use of the intangible property that occurs in this state during the taxable year.
63 [(2)] (5) (a) Notwithstanding [Subsection (1), sales, other than sales] Subsections (2)
64 through (4), a sale, other than a sale of tangible personal property, derived, directly or
65 indirectly, from the sale of management, distribution, or administration services to, or on behalf
66 of a regulated investment company, [as defined in Section 851(a) of the Internal Revenue Code
67 of 1986, including trustees or sponsors of employee benefit plans which have accounts in a
68 regulated investment company, shall be assigned to] is considered to be in this state:
69 (i) to the extent that shareholders of the regulated investment company are domiciled in
70 the state [as follows: (a) by multiplying]; and
71 (ii) as provided in this Subsection (5).
72 (b) For purposes of Subsection (5)(a), the amount of a sale, other than a sale of tangible
73 personal property, that is considered to be in this state is calculated by determining the product
74 of:
75 (i) the taxpayer's total dollar amount of sales of [such] the services [by]; and
76 (ii) a fraction, the numerator of which is the average of the sum of the beginning of the
77 year and the end of year balance of shares owned by the investment company shareholders
78 domiciled in this state[;] and the denominator of which is the average of the sum of the
79 beginning of the year and end of year balance of shares owned by the investment company
80 shareholders.
81 [(b)] (c) A separate computation shall be made to determine the sales for each
82 investment company.
83 [(3)] (6) (a) Notwithstanding [Subsection (1)] Subsections (2) through (4) and subject
84 to Subsection (6)(b), the following sales [shall be assigned to the] are considered to be in this
85 state to the extent that customers of a securities brokerage business are domiciled in the state:
86 (i) [sales, other than sales] a sale, other than a sale of tangible personal property,
87 derived, directly or indirectly, from the sale of a securities brokerage [services] service by a
88 taxpayer [which in this state is ] if that taxpayer is primarily engaged in providing [services] a
89 service in this state to a regulated investment company [as described in Subsection (2)]; or

90 (ii) [sales, other than sales] a sale, other than a sale of tangible personal property,
91 derived, directly or indirectly, from the sale of a securities brokerage [services] service by a
92 taxpayer [which] that is an affiliate of a taxpayer [which, in this state,] that provides [services]
93 a service in this state to a regulated investment company [as described in Subsection (2)].
94 [(b) This assignment of sales shall be determined as follows: by multiplying]
95 (b) For purposes of Subsection (6)(a), the amount of a sale, other than a sale of tangible
96 personal property, that is considered to be in this state is calculated by determining the product
97 of:
98 (i) the taxpayer's total dollar amount of sales of securities brokerage services [by]; and
99 (ii) a fraction, the numerator of which is the receipts from securities brokerage
100 services from customers of the taxpayer domiciled in this state, and the denominator of which
101 is the receipts from securities brokerage services from all customers of the taxpayer.
102 Section 2. Section 59-10-118 is amended to read:
103 59-10-118. Division of income for tax purposes.
104 (1) As used in this section [unless the context otherwise requires]:
105 (a) "Business income" means income arising from transactions and activity in the
106 regular course of [the] a taxpayer's trade or business and includes income from tangible and
107 intangible property if the acquisition, management, and disposition of the property constitutes
108 integral parts of the taxpayer's regular trade or business operations.
109 (b) "Commercial domicile" means the principal place from which the trade or business
110 of [the] a taxpayer is directed or managed.
111 [(c) "Compensation" means wages, salaries, commissions, and any other form of
112 remuneration paid to employee for personal services.]
113 [(d)] (c) "Nonbusiness income" means all income other than business income.
114 [(e)] (d) "Sales" means all gross receipts of [the] a taxpayer not allocated under
115 Subsections (3) through (7).
116 [(f)] (e) "State" means any state of the United States, the District of Columbia, the
117 commonwealth of Puerto Rico, [and] or any possession of the United States.
118 (2) [Any] A taxpayer having business income [which] that is taxable both within and
119 without this state, shall allocate and apportion [his] the taxpayer's net income as provided in
120 this section.

121 (3) Rents and royalties from real or tangible personal property, capital gains, interest,
122 dividends, or patent or copyright royalties, to the extent that they constitute nonbusiness
123 income, shall be allocated as provided in Subsections (4) through (7).
124 (4) (a) Net rents and royalties from real property located in this state are allocable to
125 this state.
126 (b) Net rents and royalties from tangible personal property are allocable to this state:
127 (i) if and to the extent that the property is utilized in this state; or
128 (ii) in their entirety if the taxpayer's commercial domicile is in this state and the
129 taxpayer is not organized under the laws of or taxable in the state in which the property is
130 utilized.
131 (c) The extent of utilization of tangible personal property in a state is determined by
132 multiplying the rents and royalties by a fraction, the numerator of which is the number of days
133 of physical location of the property in the state during the rental or royalty period in the taxable
134 year and the denominator of which is the number of days of physical location of the property
135 everywhere during all rental or royalty periods in the taxable year. If the physical location of
136 the property during the rental or royalty period is unknown or unascertainable by the taxpayer,
137 tangible personal property is utilized in the state in which the property was located at the time
138 the rental or royalty payer obtained possession.
139 (5) (a) Capital gains and losses from sales of real property located in this state are
140 allocable to this state.
141 (b) Capital gains and losses from sales of tangible personal property are allocable to
142 this state if:
143 (i) the property [had] has a situs in this state at the time of the sale; or
144 (ii) the taxpayer's commercial domicile is in this state and the taxpayer is not taxable in
145 the state in which the property had a situs.
146 (c) Capital gains and losses from sales of intangible personal property are allocable to
147 this state if the taxpayer's commercial domicile is in this state.
148 (6) Interest and dividends are allocable to this state if the taxpayer's commercial
149 domicile is in this state.
150 (7) (a) Patent and copyright royalties are allocable to this state:
151 (i) if and to the extent that the patent or copyright is utilized by the payer in this state;

152 or
153 (ii) if and to the extent that the patent or copyright is utilized by the payer in a state in
154 which the taxpayer is not taxable and the taxpayer's commercial domicile is in this state.
155 (b) A patent is utilized in a state to the extent that it is employed in production,
156 fabrication, manufacturing, or other processing in the state or to the extent that a patented
157 product is produced in the state. If the basis of receipts from patent royalties does not permit
158 allocation to states or if the accounting procedures do not reflect states of utilization, the patent
159 is utilized in the state in which the taxpayer's commercial domicile is located.
160 (8) All business income shall be apportioned to this state [by multiplying the income
161 by a fraction, the numerator of which is the property factor plus the payroll factor plus the sales
162 factor, and the denominator of which is three] using the same methods, procedures, and
163 requirements of Sections 59-7-311 through 59-7-320 .
164 [(9) The property factor is a fraction, the numerator of which is the average value of the
165 taxpayer's real and tangible personal property owned or rented and used in this state during the
166 tax period and the denominator of which is the average value of all the taxpayer's real and
167 tangible personal property owned or rented and used during the tax period.]
168 [(10) Property owned by the taxpayer is valued at its original cost. Property rented by
169 the taxpayer is valued at eight times the net annual rental rate. Net annual rental rate is the
170 annual rental rate paid by the taxpayer less any annual rental rate received by the taxpayer from
171 subrentals.]
172 [(11) The average value of property shall be determined by averaging the values at the
173 beginning and ending of the tax period but the commission may require the averaging of
174 monthly values during the tax period, if reasonably required to reflect properly the average
175 value of the taxpayer's property.]
176 [(12) The payroll factor is a fraction, the numerator of which is the total amount paid in
177 this state during the tax period by the taxpayer for compensation, and the denominator of which
178 is the total compensation paid everywhere during the tax period.]
179 [(13) Compensation is paid in this state if:]
180 [(a) the individual's service is performed entirely within the state; or]
181 [(b) the individual's service is performed both within and without the state, but the
182 service performed without the state is incidental to the individual's service within the state; or]

183 [(c) some of the service is performed in the state and:]
184 [(i) the base of operations or, if there is no base of operations, the place from which the
185 service is directed or controlled is in the state; or]
186 [(ii) the base of operations or the place from which the service is directed or controlled
187 is not in any state in which some part of the service is performed, but the individual's residence
188 is in this state.]
189 [(14) The sales factor is a fraction, the numerator of which is the total sales of the
190 taxpayer in this state during the tax period, and the denominator of which is the total sales of
191 the taxpayer everywhere during the tax period.]
192 [(15) Sales of tangible personal property are in this state if the property is delivered or
193 shipped to a purchaser within this state regardless of the f.o.b. point or other conditions of the
194 sale.]
195 [(16) Sales, other than sales of tangible personal property, are in this state if:]
196 [(a) the income-producing activity is performed in this state; or]
197 [(b) the income-producing activity is performed both in and outside this state and a
198 greater proportion of the income-producing activity is performed in this state than in any other
199 state, based on costs of performance.]
200 [(17) If the allocation and apportionment provisions of this chapter do not fairly
201 represent the extent of the taxpayer's business activity in this state, the taxpayer may petition
202 for or the commission may require, in respect of all or any part of the taxpayer's business
203 activity, if reasonable:]
204 [(a) separate accounting;]
205 [(b) the exclusion of any one or more of the factors;]
206 [(c) the inclusion of one or more additional factors which will fairly represent the
207 taxpayer's business activity in this state; or]
208 [(d) the employment of any other method to effectuate an equitable allocation and
209 apportionment of the taxpayer's income.]
210 Section 3. Effective date.
211 This bill takes effect for taxable years beginning on or after January 1, 2009.

Legislative Review Note
as of 1-16-08 6:45 AM

Office of Legislative Research and General Counsel