First Substitute H.B. 78

Representative James A. Dunnigan proposes the following substitute bill:

1 CORPORATE FRANCHISE AND INCOME TAX
2 AMENDMENTS
3 2005 GENERAL SESSION
4 STATE OF UTAH
5 Sponsor: Wayne A. Harper
6
7 LONG TITLE
8 General Description:
9 This bill amends the Corporate Franchise and Income Taxes chapter relating to the
10 minimum tax, tax rates, and apportionment of income.
11 Highlighted Provisions:
12 This bill:
13 . for taxable years beginning on or after January 1, 2006, allows a taxpayer to elect to
14 calculate the apportionment of business income on the basis of a fraction that
15 increases the weighting of the sales factor;
16 . provides that a taxpayer making such an election may not revoke the election for a
17 period of five taxable years;
18 . grants rulemaking authority to the State Tax Commission;
19 . addresses the State Tax Commission's authority to make adjustments in the
20 accounting, allocation, or apportionment of income; and
21 . makes technical changes.
22 Monies Appropriated in this Bill:
23 None
24 Other Special Clauses:
25 This bill takes effect for taxable years beginning on or after January 1, 2006.

26 Utah Code Sections Affected:
27 AMENDS:
28 59-7-311, as renumbered and amended by Chapter 2, Laws of Utah 1987
29 59-7-320, as last amended by Chapter 83, Laws of Utah 1994
30 59-7-401, as enacted by Chapter 169, Laws of Utah 1993
31 59-7-801, as enacted by Chapter 178, Laws of Utah 1994
32
33 Be it enacted by the Legislature of the state of Utah:
34 Section 1. Section 59-7-311 is amended to read:
35 59-7-311. Method of apportionment of business income.
36 (1) All business income shall be apportioned to this state by multiplying the business
37 income by a fraction[,] calculated as provided in Subsection (2).
38 (2) The fraction described in Subsection (1) is calculated as follows:
39 (a) for a taxpayer that does not make an election authorized by Subsection (3):
40 (i) the numerator of [which is] the fraction is the sum of:
41 (A) the property factor [plus] as calculated under Section 59-7-312 ;
42 (B) the payroll factor [plus] as calculated under Section 59-7-315 ; and
43 (C) the sales factor[, and] as calculated under Section 59-7-317 ; and
44 (ii) the denominator of [which] the fraction is three[.]; and
45 (b) for a taxpayer that makes an election authorized by Subsection (3):
46 (i) the numerator of the fraction is the sum of:
47 (A) the property factor as calculated under Section 59-7-312 ;
48 (B) the payroll factor as calculated under Section 59-7-315 ; and
49 (C) the product of:
50 (I) the sales factor as calculated under Section 59-7-317 ; and
51 (II) two; and
52 (ii) the denominator of the fraction is four.
53 (3) (a) For purposes of Subsection (2) and subject to Subsection (3)(b), for taxable
54 years beginning on or after January 1, 2006, a taxpayer may elect to calculate the fraction for
55 apportioning business income under this section in accordance with Subsection (2)(b).
56 (b) If a taxpayer makes the election described in Subsection (3)(a), the taxpayer may

57 not revoke the election for a period of five taxable years.
58 (c) In accordance with Title 63, Chapter 46a, Utah Administrative Rulemaking Act, the
59 commission may make rules providing procedures for a taxpayer to make the election
60 described in Subsection (3)(a).
61 Section 2. Section 59-7-320 is amended to read:
62 59-7-320. Equitable adjustment of standard allocation or apportionment.
63 [If] Notwithstanding any other provision of this part, if the allocation and
64 apportionment provisions of this [chapter] part do not fairly represent the extent of the
65 taxpayer's business activity in this state, the taxpayer may petition for or the commission may
66 require, in respect to all or any part of the taxpayer's business activity, if reasonable:
67 (1) separate accounting;
68 (2) the exclusion of any one or more of the factors;
69 (3) the inclusion of one or more additional factors which will fairly represent the
70 taxpayer's business activity in this state; or
71 (4) the employment of any other method to effectuate an equitable allocation and
72 apportionment of the taxpayer's income.
73 Section 3. Section 59-7-401 is amended to read:
74 59-7-401. Determining threshold level of business activity for corporations
75 organized or incorporated outside of the United States.
76 (1) Except as provided in Subsection (2), in determining whether a corporation is a
77 foreign operating company or has met the threshold level of business activity, business activity
78 within and without the United States shall be measured by means of the factors ordinarily
79 applicable under Sections 59-7-312 through 59-7-319 .
80 (2) (a) Any taxpayer who would ordinarily be required to apportion business income
81 [by means of the three-factor formula] in accordance with Part 3, Allocation and
82 Apportionment of Income -- Utah UDITPA Provisions, shall use a two-factor formula of
83 property and payroll.
84 (b) The results of the property and payroll factor computation shall be divided by two,
85 or by one if either the property or payroll factor has a denominator of zero.
86 Section 4. Section 59-7-801 is amended to read:
87 59-7-801. Definitions.

88 For purposes of this part:
89 (1) "Unrelated business income" means unrelated business income as determined under
90 Section 512, Internal Revenue Code.
91 (2) "Utah unrelated business income" means the unrelated business income
92 apportioned to Utah [by the apportionment method provided] in accordance with Part 3 [of this
93 chapter], Allocation and Apportionment of Income -- Utah UDITPA Provisions.
94 Section 5. Effective date.
95 This bill takes effect for taxable years beginning on or after January 1, 2006.