H.B. 317

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CORPORATE INCOME TAX AMENDMENTS
2 1997 GENERAL SESSION
3 STATE OF UTAH
4 Sponsor: Wayne A. Harper
5 AN ACT RELATING TO CORPORATE FRANCHISE AND INCOME TAXES; MODIFYING
6 THE DEFINITION OF "CORPORATION"; EXEMPTING THE RENTAL INCOME OF
7 BUILDING AUTHORITIES; MAKING TECHNICAL CHANGES; AND PROVIDING FOR
8 RETROSPECTIVE OPERATION.
9 This act affects sections of Utah Code Annotated 1953 as follows:
10 AMENDS:
11 59-7-101, as last amended by Chapter 311, Laws of Utah 1995
12 59-7-102, as last amended by Chapter 311, Laws of Utah 1995
13 Be it enacted by the Legislature of the state of Utah:
14 Section 1. Section 59-7-101 is amended to read:
15 59-7-101. Definitions.
16 As used in this chapter:
17 (1) "Adjusted income" means unadjusted income as modified by Sections 59-7-105 and
18 59-7-106.
19 (2) (a) "Affiliated group" means one or more chains of corporations that are connected
20 through stock ownership with a common parent corporation that meet the following requirements:
21 (i) at least 80% of the stock of each of the corporations in the group, excluding the
22 common parent corporation, is owned by one or more of the other corporations in the group; and
23 (ii) the common parent directly owns at least 80% of the stock of at least one of the
24 corporations in the group.
25 (b) "Affiliated group" does not include corporations that are qualified to do business but
26 are not otherwise doing business in this state.
27 (c) For purposes of this subsection, "stock" does not include nonvoting stock which is

1 limited and preferred as to dividends.
2 (3) "Apportionable income" means adjusted income less nonbusiness income net of related
3 expenses, to the extent included in adjusted income.
4 (4) "Apportioned income" means apportionable income multiplied by the apportionment
5 fraction as determined in Section 59-7-311.
6 (5) "Business income" means income as defined in Section 59-7-302.
7 (6) "Corporate return" or "return" includes a combined report.
8 (7) (a) "Common ownership" means the direct or indirect control or ownership of more
9 than 50% of the outstanding voting stock of:
10 (i) a parent-subsidiary controlled group as defined in Section 1563, Internal Revenue Code
11 except that 50% shall be substituted for 80%;
12 (ii) a brother-sister controlled group as defined in Section 1563, Internal Revenue Code
13 except that 50% shall be substituted for 80%; or
14 (iii) three or more corporations each of which is a member of a group of corporations
15 described in Subsection (2)(a)(i) or (2)(a)(ii), and one of which is:
16 (A) a common parent corporation included in a group of corporations described in
17 Subsection (2)(a)(i); and
18 (B) included in a group of corporations described in Subsection (2)(a)(ii).
19 (b) Ownership of outstanding voting stock shall be determined by Section 1563, Internal
20 Revenue Code.
21 (8) "Corporation" includes:
22 (a) entities defined as corporations under Sections 7701(a) and 7704, Internal Revenue
23 Code; and
24 (b) other organizations that are taxed as corporations for federal income tax purposes under
25 the Internal Revenue Code.
26 (9) "Dividend" means any distribution, including money or other type of property, made
27 by a corporation to its shareholders out of its earnings or profits accumulated after December 31,
28 1930.
29 (10) "Doing business" includes any transaction in the course of its business by a domestic
30 corporation, or by a foreign corporation qualified to do or doing intrastate business in this state,
31 and, except as provided in Subsection 59-7-102(2), includes the right to do business through

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1 incorporation or qualification, the owning, renting, or leasing of real or personal property within
2 this state, and the participation in joint ventures, working and operating agreements, the
3 performance of which takes place in this state.
4 (11) "Domestic corporation" means a corporation which is incorporated or organized under
5 the laws of this state.
6 (12) "Foreign corporation" means a corporation which is not incorporated or organized
7 under the laws of this state.
8 (13) (a) "Foreign operating company" means a corporation which is incorporated in the
9 United States, 80% or more of whose business activity, as determined under Section 59-7-401, is
10 conducted outside the United States.
11 (b) "Foreign operating company" does not include a corporation which qualifies for the
12 Puerto Rico and Possession Tax Credit as provided in Section 936, Internal Revenue Code.
13 (14) "Foreign sales corporation" means a corporation as defined in Section 922, Internal
14 Revenue Code.
15 (15) "Income" includes losses.
16 (16) "Internal Revenue Code" means Title 26 of the United States Code as effective during
17 the year in which Utah taxable income is determined.
18 (17) "Nonbusiness income" means income as defined in Section 59-7-302.
19 (18) "Nonresident shareholder" means any shareholder of an S corporation who on the last
20 day of the taxable year of the S corporation, is an individual not domiciled in Utah or a nonresident
21 trust or nonresident estate, as defined in Section 59-10-103.
22 (19) "Related expenses" means:
23 (a) expenses directly attributable to nonbusiness income; and
24 (b) the portion of interest or other expense indirectly attributable to both nonbusiness and
25 business income which bears the same ratio to the aggregate amount of such interest or other
26 expense, determined without regard to this subsection, as the average amount of the asset
27 producing the nonbusiness income bears to the average amount of all assets of the taxpayer within
28 the taxable year.
29 (20) "Resident shareholder" means any shareholder of an S corporation who is not a
30 nonresident shareholder.
31 (21) "S corporation" means a small business corporation as defined in Section 1361,

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1 Internal Revenue Code.
2 (22) "Safe harbor lease" means a lease that qualified as a safe harbor lease under Section
3 168, Internal Revenue Code.
4 (23) "State of the United States" includes any of the 50 states or the District of Columbia
5 and "United States" includes the 50 states and the District of Columbia.
6 (24) "Taxable year" means the calendar year or the fiscal year ending during such calendar
7 year upon the basis of which the adjusted income is computed, and also includes, in the case of a
8 return made for a fractional part of a year under this chapter or under rules prescribed by the
9 commission, the period for which such return is made.
10 (25) "Taxpayer" means any corporation subject to the tax imposed by this chapter.
11 (26) "Threshold level of business activity" means business activity in the United States
12 equal to or greater than 20% of the corporation's total business activity as determined under
13 Section 59-7-401.
14 (27) "Unadjusted income" means federal taxable income as determined on a separate
15 return basis before intercompany eliminations as determined by the Internal Revenue Code, before
16 the net operating loss deduction and special deductions for dividends received.
17 (28) (a) "Unitary group" means a group of corporations that:
18 (i) are related through common ownership; and
19 (ii) are economically interdependent with one another as demonstrated by the following
20 factors:
21 (A) centralized management;
22 (B) functional integration;
23 (C) economies of scale.
24 (b) "Unitary group" does not include S corporations.
25 (29) "Utah net loss" means the current year Utah taxable income before Utah net loss
26 deduction, if determined to be less than zero.
27 (30) "Utah net loss deduction" means the amount of Utah net losses from other taxable
28 years which may be carried back or carried forward to the current taxable year in accordance with
29 Section 59-7-110.
30 (31) (a) "Utah taxable income" means Utah taxable income before net loss deduction less
31 Utah net loss deduction.

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1 (b) "Utah taxable income" includes income from tangible or intangible property located
2 or having situs in this state, regardless of whether carried on in intrastate, interstate, or foreign
3 commerce.
4 (32) "Utah taxable income before net loss deduction" means apportioned income plus
5 nonbusiness income allocable to Utah net of related expenses.
6 (33) (a) "Water's edge combined report" means a report combining the income and
7 activities of:
8 (i) all members of a unitary group which are:
9 (A) corporations organized or incorporated in the United States, including those
10 corporations qualifying for the Puerto Rico and Possession Tax Credit as provided in Section 936,
11 Internal Revenue Code in accordance with Subsection (b); and
12 (B) corporations organized or incorporated outside of the United States meeting the
13 threshold level of business activity; and
14 (ii) an affiliated group electing to file a water's edge combined report under Subsection
15 59-7-402(2).
16 (b) There is a rebuttable presumption that a corporation which qualifies for the Puerto Rico
17 and Possession Tax Credit provided in Section 936, Internal Revenue Code is part of a unitary
18 group.
19 (34) "Worldwide combined report" means the combination of the income and activities
20 of all members of a unitary group irrespective of the country in which the corporations are
21 incorporated or conduct business activity.
22 Section 2. Section 59-7-102 is amended to read:
23 59-7-102. Exemptions.
24 (1) Except as provided in Part 8, the following [corporations] are exempt from this chapter:
25 (a) organizations exempt under Sections 501 and 521, Internal Revenue Code and
26 organizations meeting the requirements of Subchapter T, Internal Revenue Code;
27 (b) organizations exempt under Section 528, Internal Revenue Code, provided that to the
28 extent such organization's income is taxable for federal tax purposes under Section 528, such
29 organization's income is also taxable under this chapter; [and]
30 (c) insurance companies which are otherwise taxed on their premiums under Title 59,
31 Chapter 9, Taxation of Admitted Insurers[.]; and

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1 (d) h [rental income of ] h building authorities h [as provided in Section 17A-3-913 ] AS
1a DEFINED IN SECTION 17A-3-902 h .
2 (2) Notwithstanding any other provision in Title 59, Chapter 7 or 8, a person not otherwise
3 subject to the tax imposed by this chapter or Chapter 8 shall not become subject to the tax imposed
4 by Sections 59-7-104, 59-7-201, 59-7-701, and 59-8-104, by reason of:
5 (a) that person's ownership of tangible personal property located at the premises of a
6 printer's facility in this state with which the person has contracted for printing; or
7 (b) the activities of the person's employees or agents who are located solely at the premises
8 of a printer's facility and who are performing services related to quality control, distribution, or
9 printing services performed by the printer's facility in this state with which the person has
10 contracted for printing.
11 Section 3. Retrospective operation.
12 This act has retrospective operation for taxable years beginning on or after January 1, 1997.




Legislative Review Note
as of 1-29-97 3:28 PM

A limited legal review of this bill raises no obvious constitutional or statutory concerns.

Office of Legislative Research and General Counsel

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lilac-February 20, 1997