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S.B. 23 Enrolled

             1     

CORPORATE FRANCHISE AND INCOME TAX

             2     
AMENDMENTS

             3     
2010 GENERAL SESSION

             4     
STATE OF UTAH

             5     
Chief Sponsor: John L. Valentine

             6     
House Sponsor: Wayne A. Harper

             7     
             8      LONG TITLE
             9      General Description:
             10          This bill amends the Corporate Franchise and Income Taxes chapter.
             11      Highlighted Provisions:
             12          This bill:
             13          .    modifies the definition of "foreign operating company" to provide requirements
             14      relating to property and payroll located outside the United States;
             15          .    addresses provisions relating to subtractions from unadjusted income, including a
             16      subtraction for a foreign operating company; and
             17          .    makes technical changes.
             18      Monies Appropriated in this Bill:
             19          None
             20      Other Special Clauses:
             21          This bill takes effect for a taxable year beginning on or after January 1, 2011.
             22      Utah Code Sections Affected:
             23      AMENDS:
             24          59-7-101, as last amended by Laws of Utah 2009, Chapter 312
             25          59-7-105, as last amended by Laws of Utah 2008, Chapter 389
             26          59-7-106, as last amended by Laws of Utah 2009, Chapter 312
             27     
             28      Be it enacted by the Legislature of the state of Utah:
             29          Section 1. Section 59-7-101 is amended to read:


             30           59-7-101. Definitions.
             31          As used in this chapter:
             32          (1) "Adjusted income" means unadjusted income as modified by Sections 59-7-105
             33      and 59-7-106 .
             34          (2) (a) "Affiliated group" means one or more chains of corporations that are connected
             35      through stock ownership with a common parent corporation that meet the following
             36      requirements:
             37          (i) at least 80% of the stock of each of the corporations in the group, excluding the
             38      common parent corporation, is owned by one or more of the other corporations in the group;
             39      and
             40          (ii) the common parent directly owns at least 80% of the stock of at least one of the
             41      corporations in the group.
             42          (b) "Affiliated group" does not include corporations that are qualified to do business
             43      but are not otherwise doing business in this state.
             44          (c) For purposes of this Subsection (2), "stock" does not include nonvoting stock
             45      which is limited and preferred as to dividends.
             46          (3) "Apportionable income" means adjusted income less nonbusiness income net of
             47      related expenses, to the extent included in adjusted income.
             48          (4) "Apportioned income" means apportionable income multiplied by the
             49      apportionment fraction as determined in Section 59-7-311 .
             50          (5) "Business income" is as defined in Section 59-7-302 .
             51          (6) (a) "Captive real estate investment trust" means a real estate investment trust if:
             52          (i) the shares or beneficial interests of the real estate investment trust are not regularly
             53      traded on an established securities market; and
             54          (ii) more than 50% of the voting power or value of the shares or beneficial interests of
             55      the real estate investment trust are directly, indirectly, or constructively:
             56          (A) owned by a controlling entity of the real estate investment trust; or
             57          (B) controlled by a controlling entity of the real estate investment trust.


             58          (b) In accordance with Title 63G, Chapter 3, Utah Administrative Rulemaking Act,
             59      the commission may make rules defining "established securities market."
             60          (7) (a) "Common ownership" means the direct or indirect control or ownership of
             61      more than 50% of the outstanding voting stock of:
             62          (i) a parent-subsidiary controlled group as defined in Section 1563, Internal Revenue
             63      Code, except that 50% shall be substituted for 80%;
             64          (ii) a brother-sister controlled group as defined in Section 1563, Internal Revenue
             65      Code, except that 50% shall be substituted for 80%; or
             66          (iii) three or more corporations each of which is a member of a group of corporations
             67      described in Subsection (2)(a)(i) or [(2)(a)](ii), and one of which is:
             68          (A) a common parent corporation included in a group of corporations described in
             69      Subsection (2)(a)(i); and
             70          (B) included in a group of corporations described in Subsection (2)(a)(ii).
             71          (b) Ownership of outstanding voting stock shall be determined by Section 1563,
             72      Internal Revenue Code.
             73          (8) (a) "Controlling entity of a captive real estate investment trust" means an entity
             74      that:
             75          (i) is treated as an association taxable as a corporation under the Internal Revenue
             76      Code;
             77          (ii) is not exempt from federal income taxation under Section 501(a), Internal Revenue
             78      Code; and
             79          (iii) directly, indirectly, or constructively holds more than 50% of:
             80          (A) the voting power of a captive real estate investment trust; or
             81          (B) the value of the shares or beneficial interests of a captive real estate investment
             82      trust.
             83          (b) "Controlling entity of a captive real estate investment trust" does not include:
             84          (i) a real estate investment trust, except for a captive real estate investment trust;
             85          (ii) a qualified real estate investment subsidiary described in Section 856(i), Internal


             86      Revenue Code, except for a qualified real estate investment trust subsidiary of a captive real
             87      estate investment trust; or
             88          (iii) a foreign real estate investment trust.
             89          (c) In accordance with Title 63G, Chapter 3, Utah Administrative Rulemaking Act, the
             90      commission may make rules defining "established securities market."
             91          (9) "Corporate return" or "return" includes a combined report.
             92          (10) "Corporation" includes:
             93          (a) entities defined as corporations under Sections 7701(a) and 7704, Internal Revenue
             94      Code; and
             95          (b) other organizations that are taxed as corporations for federal income tax purposes
             96      under the Internal Revenue Code.
             97          (11) "Dividend" means any distribution, including money or other type of property,
             98      made by a corporation to its shareholders out of its earnings or profits accumulated after
             99      December 31, 1930.
             100          (12) (a) "Doing business" includes any transaction in the course of its business by a
             101      domestic corporation, or by a foreign corporation qualified to do or doing intrastate business
             102      in this state.
             103          (b) Except as provided in Subsection 59-7-102 (2), "doing business" includes:
             104          (i) the right to do business through incorporation or qualification;
             105          (ii) the owning, renting, or leasing of real or personal property within this state; and
             106          (iii) the participation in joint ventures, working and operating agreements, the
             107      performance of which takes place in this state.
             108          (13) "Domestic corporation" means a corporation that is incorporated or organized
             109      under the laws of this state.
             110          (14) (a) "Farmers' cooperative" means an association, corporation, or other
             111      organization that is:
             112          (i) (A) an association, corporation, or other organization of:
             113          (I) farmers; or


             114          (II) fruit growers; or
             115          (B) an association, corporation, or other organization that is similar to an association,
             116      corporation, or organization described in Subsection (14)(a)(i)(A); and
             117          (ii) organized and operated on a cooperative basis to:
             118          (A) (I) market the products of members of the cooperative or the products of other
             119      producers; and
             120          (II) return to the members of the cooperative or other producers the proceeds of sales
             121      less necessary marketing expenses on the basis of the quantity of the products of a member or
             122      producer or the value of the products of a member or producer; or
             123          (B) (I) purchase supplies and equipment for the use of members of the cooperative or
             124      other persons; and
             125          (II) turn over the supplies and equipment described in Subsection (14)(a)(ii)(B)(I) at
             126      actual costs plus necessary expenses to the members of the cooperative or other persons.
             127          (b) (i) Subject to Subsection (14)(b)(ii), for purposes of this Subsection (14), the
             128      commission by rule, made in accordance with Title 63G, Chapter 3, Utah Administrative
             129      Rulemaking Act, shall define:
             130          (A) the terms:
             131          (I) "member"; and
             132          (II) "producer"; and
             133          (B) what constitutes an association, corporation, or other organization that is similar to
             134      an association, corporation, or organization described in Subsection (14)(a)(i)(A).
             135          (ii) The rules made under this Subsection (14)(b) shall be consistent with the filing
             136      requirements under federal law for a farmers' cooperative.
             137          (15) "Foreign corporation" means a corporation that is not incorporated or organized
             138      under the laws of this state.
             139          (16) (a) "Foreign operating company" means a corporation [that] if:
             140          (i) the corporation is incorporated in the United States; [and]
             141          (ii) at least 80% [or more of whose] of the corporation's business activity, as


             142      determined under Section 59-7-401 , is conducted outside the United States[.]; and
             143          (iii) as calculated in accordance with Part 3, Allocation and Apportionment of Income
             144      - Utah UDITPA Provisions, the corporation has:
             145          (A) at least $1,000,000 of payroll located outside the United States; and
             146          (B) at least $2,000,000 of property located outside the United States.
             147          (b) "Foreign operating company" does not include a corporation that qualifies for the
             148      Puerto Rico and possession tax credit as provided in Section 936, Internal Revenue Code.
             149          (17) (a) "Foreign real estate investment trust" means:
             150          (i) a business entity organized outside the laws of the United States if:
             151          (A) at least 75% of the business entity's total asset value at the close of the business
             152      entity's taxable year is represented by:
             153          (I) real estate assets, as defined in Section 856(c)(5)(B), Internal Revenue Code;
             154          (II) cash or cash equivalents; or
             155          (III) one or more securities issued or guaranteed by the United States;
             156          (B) the business entity is:
             157          (I) not subject to income taxation:
             158          (Aa) on amounts distributed to the business entity's beneficial owners; and
             159          (Bb) in the jurisdiction in which the business entity is organized; or
             160          (II) exempt from income taxation on an entity level in the jurisdiction in which the
             161      business entity is organized;
             162          (C) the business entity distributes at least 85% of the business entity's taxable income,
             163      as computed in the jurisdiction in which the business entity is organized, to the holders of the
             164      business entity's:
             165          (I) shares or beneficial interests; and
             166          (II) on an annual basis;
             167          (D) (I) not more than 10% of the following is held directly, indirectly, or
             168      constructively by a single person:
             169          (Aa) the voting power of the business entity; or


             170          (Bb) the value of the shares or beneficial interests of the business entity; or
             171          (II) the shares of the business entity are regularly traded on an established securities
             172      market; and
             173          (E) the business entity is organized in a country that has a tax treaty with the United
             174      States; or
             175          (ii) a listed Australian property trust.
             176          (b) In accordance with Title 63G, Chapter 3, Utah Administrative Rulemaking Act,
             177      the commission may make rules defining:
             178          (i) "cash or cash equivalents";
             179          (ii) "established securities market"; or
             180          (iii) "listed Australian property trust."
             181          (18) "Income" includes losses.
             182          (19) "Internal Revenue Code" means Title 26 of the United States Code as effective
             183      during the year in which Utah taxable income is determined.
             184          (20) "Nonbusiness income" is as defined in Section 59-7-302 .
             185          (21) "Real estate investment trust" is as defined in Section 856, Internal Revenue
             186      Code.
             187          (22) "Related expenses" means:
             188          (a) expenses directly attributable to nonbusiness income; and
             189          (b) the portion of interest or other expense indirectly attributable to both nonbusiness
             190      and business income which bears the same ratio to the aggregate amount of such interest or
             191      other expense, determined without regard to this Subsection (22), as the average amount of the
             192      asset producing the nonbusiness income bears to the average amount of all assets of the
             193      taxpayer within the taxable year.
             194          (23) "Safe harbor lease" means a lease that qualified as a safe harbor lease under
             195      Section 168, Internal Revenue Code.
             196          (24) "S corporation" means an S corporation as defined in Section 1361, Internal
             197      Revenue Code.


             198          (25) "State of the United States" includes any of the 50 states or the District of
             199      Columbia.
             200          (26) (a) "Taxable year" means the calendar year or the fiscal year ending during such
             201      calendar year upon the basis of which the adjusted income is computed.
             202          (b) In the case of a return made for a fractional part of a year under this chapter or
             203      under rules prescribed by the commission, "taxable year" includes the period for which such
             204      return is made.
             205          (27) "Taxpayer" means any corporation subject to the tax imposed by this chapter.
             206          (28) "Threshold level of business activity" means business activity in the United States
             207      equal to or greater than 20% of the corporation's total business activity as determined under
             208      Section 59-7-401 .
             209          (29) "Unadjusted income" means federal taxable income as determined on a separate
             210      return basis before intercompany eliminations as determined by the Internal Revenue Code,
             211      before the net operating loss deduction and special deductions for dividends received.
             212          (30) (a) "Unitary group" means a group of corporations that:
             213          (i) are related through common ownership; and
             214          (ii) by a preponderance of the evidence as determined by a court of competent
             215      jurisdiction or the commission, are economically interdependent with one another as
             216      demonstrated by the following factors:
             217          (A) centralized management;
             218          (B) functional integration; and
             219          (C) economies of scale.
             220          (b) "Unitary group" includes a captive real estate investment trust.
             221          (c) "Unitary group" does not include an S corporation.
             222          (31) "United States" includes the 50 states and the District of Columbia.
             223          (32) "Utah net loss" means the current year Utah taxable income before Utah net loss
             224      deduction, if determined to be less than zero.
             225          (33) "Utah net loss deduction" means the amount of Utah net losses from other taxable


             226      years that may be carried back or carried forward to the current taxable year in accordance
             227      with Section 59-7-110 .
             228          (34) (a) "Utah taxable income" means Utah taxable income before net loss deduction
             229      less Utah net loss deduction.
             230          (b) "Utah taxable income" includes income from tangible or intangible property
             231      located or having situs in this state, regardless of whether carried on in intrastate, interstate, or
             232      foreign commerce.
             233          (35) "Utah taxable income before net loss deduction" means apportioned income plus
             234      nonbusiness income allocable to Utah net of related expenses.
             235          (36) (a) "Water's edge combined report" means a report combining the income and
             236      activities of:
             237          (i) all members of a unitary group that are:
             238          (A) corporations organized or incorporated in the United States, including those
             239      corporations qualifying for the Puerto Rico and Possession Tax Credit as provided in Section
             240      936, Internal Revenue Code, in accordance with Subsection (36)(b); and
             241          (B) corporations organized or incorporated outside of the United States meeting the
             242      threshold level of business activity; and
             243          (ii) an affiliated group electing to file a water's edge combined report under Subsection
             244      59-7-402 (2).
             245          (b) There is a rebuttable presumption that a corporation which qualifies for the Puerto
             246      Rico and possession tax credit provided in Section 936, Internal Revenue Code, is part of a
             247      unitary group.
             248          (37) "Worldwide combined report" means the combination of the income and
             249      activities of all members of a unitary group irrespective of the country in which the
             250      corporations are incorporated or conduct business activity.
             251          Section 2. Section 59-7-105 is amended to read:
             252           59-7-105. Additions to unadjusted income.
             253          In computing adjusted income the following amounts shall be added to unadjusted


             254      income:
             255          (1) interest from bonds, notes, and other evidences of indebtedness issued by any state
             256      of the United States, including any agency and instrumentality of a state of the United States;
             257          (2) the amount of any deduction taken on a corporation's federal return for taxes paid
             258      by a corporation:
             259          (a) to Utah for taxes imposed by this chapter; and
             260          (b) to another state of the United States, a foreign country, a United States possession,
             261      or the Commonwealth of Puerto Rico for taxes imposed for the privilege of doing business, or
             262      exercising its corporate franchise, including income, franchise, corporate stock and business
             263      and occupation taxes;
             264          (3) the safe harbor lease adjustment required under Subsections 59-7-111 (1)(a) and
             265      (2)(a);
             266          (4) capital losses that have been deducted on a Utah corporate return in previous
             267      years;
             268          (5) any deduction on the federal return that has been previously deducted on the Utah
             269      return;
             270          (6) the amount of contributions claimed as a tax credit pursuant to Section 59-7-602 ;
             271          (7) the amount of the deduction taken pursuant to Section 59-7-603 for sophisticated
             272      technological equipment;
             273          (8) charitable contributions, to the extent deducted on the federal return when
             274      determining federal taxable income;
             275          (9) the amount of gain or loss determined under Section 59-7-114 relating to a target
             276      corporation under Section 338, Internal Revenue Code, unless such gain or loss has already
             277      been included in the unadjusted income of the target corporation;
             278          (10) the amount of gain or loss determined under Section 59-7-115 relating to
             279      corporations treated for federal purposes as having disposed of its assets under Section 336(e),
             280      Internal Revenue Code, unless such gain or loss has already been included in the unadjusted
             281      income of the target corporation;


             282          (11) adjustments to gains, losses, depreciation expense, amortization expense, and
             283      similar items due to a difference between basis for federal purposes and basis as computed
             284      under Section 59-7-107 ;
             285          (12) the amount withdrawn under Title 53B, Chapter 8a, Higher Education Savings
             286      Incentive Program, from the account of a corporation that is an account owner as defined in
             287      Section 53B-8a-102 , for the taxable year for which the amount is withdrawn, if that amount
             288      withdrawn from the account of the corporation that is the account owner:
             289          (a) is not expended for higher education costs as defined in Section 53B-8a-102 ; and
             290          (b) is subtracted by the corporation:
             291          (i) that is the account owner; and
             292          (ii) in accordance with Subsection 59-7-106 [(18)] (1)(r); and
             293          (13) the amount of the deduction for dividends paid, as defined in Section 561,
             294      Internal Revenue Code, that is allowed under Section 857(b)(2)(B), Internal Revenue Code, in
             295      computing the taxable income of a captive real estate investment trust, if that captive real
             296      estate investment trust is subject to federal income taxation.
             297          Section 3. Section 59-7-106 is amended to read:
             298           59-7-106. Subtractions from unadjusted income.
             299          (1) In computing adjusted income the following amounts shall be subtracted from
             300      unadjusted income:
             301          [(1)] (a) the foreign dividend gross-up included in gross income for federal income tax
             302      purposes under Section 78, Internal Revenue Code;
             303          [(2)] (b) subject to Subsection (2), the net capital loss, as defined for federal purposes,
             304      if the taxpayer elects to deduct the net capital loss on the [current Utah return. The deduction
             305      shall be made by claiming the deduction on the current Utah return which shall be filed by the
             306      due date of the return, including extensions. For the purposes of this Subsection (2) all capital
             307      losses in a given year must be:] return filed under this chapter for the taxable year for which
             308      the net capital loss is incurred;
             309          [(a) deducted in the year incurred; or]


             310          [(b) carried forward as provided in Sections 1212(a)(1)(B) and (C), Internal Revenue
             311      Code;]
             312          [(3)] (c) the decrease in salary expense deduction for federal income tax purposes due
             313      to claiming the federal [jobs] work opportunity credit under Section 51, Internal Revenue
             314      Code;
             315          [(4)] (d) the decrease in qualified research and basic research expense deduction for
             316      federal income tax purposes due to claiming the federal [research and development] credit for
             317      increasing research activities under Section 41, Internal Revenue Code;
             318          [(5)] (e) the decrease in qualified clinical testing expense deduction for federal income
             319      tax purposes due to claiming the federal [orphan drug credit under Section 28] credit for
             320      clinical testing expenses for certain drugs for rare diseases or conditions under Section 45C,
             321      Internal Revenue Code;
             322          [(6)] (f) any decrease in any expense deduction for federal income tax purposes due to
             323      claiming any other federal credit;
             324          [(7)] (g) the safe harbor lease adjustment required under Subsections 59-7-111 (1)(b)
             325      and (2)(b);
             326          [(8)] (h) any income on the federal [corporate] corporation income tax return that has
             327      been previously taxed by Utah;
             328          [(9) amounts] (i) an amount included in federal taxable income that [are] is due to
             329      [refunds of taxes] a refund of a tax, including a franchise tax, an income tax, a corporate stock
             330      and business tax, or an occupation tax:
             331          (i) if that tax is imposed for the privilege of:
             332          (A) doing business[,]; or
             333          (B) exercising a corporate franchise[, including income, franchise, corporate stock and
             334      business and occupation taxes];
             335          (ii) if that tax is paid by the corporation to:
             336          (A) Utah[,];
             337          (B) another state of the United States[,];


             338          (C) a foreign country[,];
             339          (D) a United States possession[,]; or
             340          (E) the Commonwealth of Puerto Rico; and
             341          (iii) to the extent that [the taxes were] tax was added to unadjusted income under
             342      Section 59-7-105 ;
             343          [(10)] (j) a charitable [contributions] contribution, to the extent the charitable
             344      contribution is allowed as a subtraction under Section 59-7-109 ;
             345          [(11) (a)] (k) subject to Subsection (3), 50% of [the dividends deemed] a dividend
             346      considered to be received or received from [subsidiaries which are members of the] a
             347      subsidiary that:
             348          (i) is a member of the unitary group [and are];
             349          (ii) is organized or incorporated outside of the United States [unless such subsidiaries
             350      are]; and
             351          (iii) is not included in a combined report under Section 59-7-402 or 59-7-403 [.]; [In
             352      arriving at the amount of the dividend exclusion, the taxpayer shall first deduct from the
             353      dividends deemed received or received, the expense directly attributable to those dividends.
             354      Interest expense attributable to excluded dividends shall be determined by multiplying interest
             355      expense by a fraction, the numerator of which is the taxpayer's average investment in such
             356      dividend paying subsidiaries, and the denominator of which is the taxpayer's average total
             357      investment in assets;]
             358          [(b) in determining income apportionable to this state, a portion of the factors of a
             359      foreign subsidiary whose dividends are partially excluded under Subsection (11)(a) shall be
             360      included in the combined report factors. The portion to be included shall be determined by
             361      multiplying each factor of the foreign subsidiary by a fraction, but not to exceed 100%, the
             362      numerator of which is the amount of the dividend paid by the foreign subsidiary which is
             363      included in adjusted income, and the denominator of which is the current year earnings and
             364      profits of the foreign subsidiary as determined under the Internal Revenue Code;]
             365          [(12) (a)] (l) subject to Subsection (4) and Section 59-7-401 , 50% of the adjusted


             366      income of a foreign operating company [unless the taxpayer has elected to file a worldwide
             367      combined report as provided in Section 59-7-403 . For purposes of this Subsection (12), when
             368      calculating the adjusted income of a foreign operating company, a foreign operating company
             369      may not deduct the subtractions allowable under this Subsection (12) and Subsection (11)];
             370          [(b) in determining income apportionable to this state, the factors for a foreign
             371      operating company shall be included in the combined report factors in the same percentage its
             372      adjusted income is included in the combined adjusted income;]
             373          [(13)] (m) the amount of gain or loss [which] that is included in unadjusted income
             374      but not recognized for federal purposes on stock sold or exchanged by a member of a selling
             375      consolidated group as defined in Section 338, Internal Revenue Code, if an election has been
             376      made [pursuant to] in accordance with Section 338(h)(10), Internal Revenue Code;
             377          [(14)] (n) the amount of gain or loss [which] that is included in unadjusted income but
             378      not recognized for federal purposes on stock sold, exchanged, or distributed by a corporation
             379      [pursuant to] in accordance with Section 336(e), Internal Revenue Code, if an election under
             380      Section 336(e), Internal Revenue Code, has been made for federal purposes;
             381          [(15) (a) adjustments to gains, losses, depreciation expense, amortization expense, and
             382      similar items]
             383          (o) subject to Subsection (5), an adjustment to the following due to a difference
             384      between basis for federal purposes and basis as computed under Section 59-7-107 [; and]:
             385          [(b) if there has been a reduction in federal basis for a federal tax credit where there is
             386      no corresponding Utah tax credit, the amount of the reduction in basis shall be allowed as an
             387      expense in the year of the federal credit;]
             388          (i) an amortization expense;
             389          (ii) a depreciation expense;
             390          (iii) a gain;
             391          (iv) a loss; or
             392          (v) an item similar to Subsections (1)(o)(i) through (iv);
             393          [(16) any] (p) an interest expense that is not deducted on [the] a federal [corporate]


             394      corporation income tax return under Section 265(b) or 291(e), Internal Revenue Code;
             395          [(17)] (q) 100% of [the] dividends received from [subsidiaries which are insurance
             396      companies] a subsidiary that is an insurance company if that subsidiary that is an insurance
             397      company is:
             398          (i) exempt from this chapter under Subsection 59-7-102 (1)(c); and [are]
             399          (ii) under common ownership;
             400          [(18)] (r) subject to Subsection 59-7-105 (12), the amount of a qualified investment as
             401      defined in Section 53B-8a-102 that:
             402          [(a)] (i) a corporation that is an account owner as defined in Section 53B-8a-102
             403      makes during the taxable year;
             404          [(b)] (ii) the corporation described in Subsection [(18)(a)] (1)(r)(i) does not deduct on
             405      a federal corporation income tax return; and
             406          [(c)] (iii) does not exceed the maximum amount of the qualified investment that may
             407      be subtracted from unadjusted income for a taxable year in accordance with Subsections
             408      53B-8a-106 (1)(d) and (f); and
             409          [(19)] (s) for purposes of income included in a combined report under Part 4,
             410      Combined Reporting, the entire amount of the dividends a member of a unitary group receives
             411      or is considered to receive from a captive real estate investment trust.
             412          (2) For purposes of Subsection (1)(b):
             413          (a) the subtraction shall be made by claiming the subtraction on a return filed:
             414          (i) under this chapter for the taxable year for which the net capital loss is incurred; and
             415          (ii) by the due date of the return, including extensions; and
             416          (b) a net capital loss for a taxable year shall be:
             417          (i) subtracted for the taxable year for which the net capital loss is incurred; or
             418          (ii) carried forward as provided in Sections 1212(a)(1)(B) and (C), Internal Revenue
             419      Code.
             420          (3) (a) For purposes of calculating the subtraction provided for in Subsection (1)(k), a
             421      taxpayer shall first subtract from a dividend considered to be received or received an expense


             422      directly attributable to that dividend.
             423          (b) For purposes of Subsection (3)(a), the amount of an interest expense that is
             424      considered to be directly attributable to a dividend is calculated by multiplying the interest
             425      expense by a fraction:
             426          (i) the numerator of which is the taxpayer's average investment in the dividend paying
             427      subsidiaries; and
             428          (ii) the denominator of which is the taxpayer's average total investment in assets.
             429          (c) (i) For purposes of calculating the subtraction allowed by Subsection (1)(k), in
             430      determining income apportionable to this state, a portion of the factors of a foreign subsidiary
             431      that has dividends that are partially subtracted under Subsection (1)(k) shall be included in the
             432      combined report factors as provided in this Subsection (3)(c).
             433          (ii) For purposes of Subsection (3)(c)(i), the portion of the factors of a foreign
             434      subsidiary that has dividends that are partially subtracted under Subsection (1)(k) that shall be
             435      included in the combined report factors is calculated by multiplying each factor of the foreign
             436      subsidiary by a fraction:
             437          (A) not to exceed 100%; and
             438          (B) (I) the numerator of which is the amount of the dividend paid by the foreign
             439      subsidiary that is included in adjusted income; and
             440          (II) the denominator of which is the current year earnings and profits of the foreign
             441      subsidiary as determined under the Internal Revenue Code.
             442          (4) (a) For purposes of Subsection (1)(l), a taxpayer may not make a subtraction under
             443      Subsection (1)(l):
             444          (i) if the taxpayer elects to file a worldwide combined report as provided in Section
             445      59-7-403 ; or
             446          (ii) for the following:
             447          (A) income generated from intangible property; or
             448          (B) a capital gain, dividend, interest, rent, royalty, or other similar item that is
             449      generated from an asset held for investment and not from a regular business trading activity.


             450          (b) In calculating the subtraction provided for in Subsection (1)(l), a foreign operating
             451      company:
             452          (i) may not subtract an amount provided for in Subsection (1)(k) or (l); and
             453          (ii) prior to determining the subtraction under Subsection (1)(l), shall eliminate a
             454      transaction that occurs between members of a unitary group.
             455          (c) For purposes of the subtraction provided for in Subsection (1)(l), in determining
             456      income apportionable to this state, the factors for a foreign operating company shall be
             457      included in the combined report factors in the same percentages as the foreign operating
             458      company's adjusted income is included in the combined adjusted income.
             459          (d) In accordance with Title 63G, Chapter 3, Utah Administrative Rulemaking Act,
             460      the commission may by rule define what constitutes:
             461          (i) income generated from intangible property; or
             462          (ii) a capital gain, dividend, interest, rent, royalty, or other similar item that is
             463      generated from an asset held for investment and not from a regular business trading activity.
             464          (5) (a) For purposes of the subtraction provided for in Subsection (1)(o), the amount of
             465      a reduction in basis shall be allowed as an expense for the taxable year in which a federal tax
             466      credit is claimed if:
             467          (i) there is a reduction in federal basis for a federal tax credit; and
             468          (ii) there is no corresponding tax credit allowed in this state.
             469          (b) In accordance with Title 63G, Chapter 3, Utah Administrative Rulemaking Act,
             470      the commission may by rule define what constitutes an item similar to Subsections (1)(o)(i)
             471      through (iv).
             472          Section 4. Effective date.
             473          This bill takes effect for a taxable year beginning on or after January 1, 2011.


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