1     
CORPORATE FRANCHISE AND INCOME TAX CHANGES

2     
2016 GENERAL SESSION

3     
STATE OF UTAH

4     
Chief Sponsor: John Knotwell

5     
Senate Sponsor: Curtis S. Bramble

6     

7     LONG TITLE
8     General Description:
9          This bill addresses corporate franchise and income taxes.
10     Highlighted Provisions:
11          This bill:
12          ▸     addresses the apportionment of business income to the state for purposes of
13     corporate franchise and income taxes; and
14          ▸     makes technical and conforming changes.
15     Money Appropriated in this Bill:
16          None
17     Other Special Clauses:
18          This bill provides retrospective operation.
19     Utah Code Sections Affected:
20     AMENDS:
21          59-7-110, as last amended by Laws of Utah 2010, Chapter 155
22          59-7-302, as last amended by Laws of Utah 2014, Chapters 65 and 398
23          59-7-311, as last amended by Laws of Utah 2010, Chapter 155
24     

25     Be it enacted by the Legislature of the state of Utah:
26          Section 1. Section 59-7-110 is amended to read:
27          59-7-110. Utah net losses -- Carryforwards and carrybacks -- Deduction.
28          (1) The amount of Utah net loss that shall be carried back or forward to offset income
29     of another taxable year is determined as provided in this section.
30          (2) (a) Subject to the other provisions of this section, a Utah net loss from a taxable
31     year beginning before January 1, 1994, shall be carried back three taxable years preceding the
32     taxable year of the loss and any remaining loss shall be carried forward five taxable years
33     following the taxable year of the loss.
34          (b) (i) Subject to the other provisions of this section, a Utah net loss from a taxable
35     year beginning on or after January 1, 1994, may be carried back three taxable years preceding
36     the taxable year of the loss and carried forward 15 taxable years following the taxable year of
37     the loss.
38          (ii) If an election is made to forego the federal net operating loss carryback, a Utah net
39     loss is not eligible to be carried back unless an election is made for state purposes.
40          (3) A Utah net loss shall be carried to the earliest eligible year for which the Utah
41     taxable income before net loss deduction, minus Utah net losses from previous years that were
42     applied or required to be applied to offset income, is not less than zero.
43          (4) (a) Except as provided in Subsection (4)(b), the amount of Utah net loss that shall
44     be carried to the year identified in Subsection (3) is the lesser of:
45          (i) the remaining Utah net loss after deduction of any amounts of the Utah net loss that
46     were carried to previous years; or
47          (ii) the remaining Utah taxable income before net loss deduction of the year identified
48     in Subsection (3) after deduction of Utah net losses from previous years that were carried or
49     required to be carried to the year identified in Subsection (3).
50          (b) (i) The amount of Utah net loss carried back from a taxable year may not exceed
51     $1,000,000 in Utah taxable income for each return filed under this chapter in a taxable year.
52          (ii) A Utah net loss in excess of $1,000,000 may be carried forward.
53          (iii) A remaining Utah net loss shall be available to be carried to one or more taxable
54     years in accordance with this section.
55          (5) (a) (i) Subject to Subsection (5)(a)(ii), a corporation acquiring the assets or stock of
56     another corporation may not deduct any net loss incurred by the acquired corporation prior to
57     the date of acquisition.
58          (ii) Subsection (5)(a)(i) does not apply if the only change in the corporation is that of
59     the state of incorporation.
60          (b) An acquired corporation may deduct the acquired corporation's net losses incurred
61     before the date of acquisition against the acquired corporation's separate income as calculated
62     under Subsections (6) and (7) if the acquired corporation has continued to carry on a trade or
63     business substantially the same as that conducted before the acquisition.
64          (6) For purposes of Subsection (5)(b), the amount of net loss an acquired corporation
65     that is acquired by a unitary group may deduct is calculated by:
66          (a) subject to Subsection (7):
67          (i) except as provided in Subsection (6)(a)(ii), calculating the sum of:
68          (A) an amount determined by dividing the average value of the acquired corporation's
69     real and tangible personal property owned or rented and used in this state during the taxable
70     year by the average value of all of the unitary group's real and tangible personal property owned
71     or rented and used during the taxable year;
72          (B) an amount determined by dividing the total amount paid in this state during the
73     taxable year by the acquired corporation for compensation by the total compensation paid
74     everywhere by the unitary group during the taxable year; and
75          (C) an amount determined by:
76          (I) dividing the total sales of the acquired corporation in this state during the taxable
77     year by the total sales of the unitary group everywhere during the taxable year; and
78          (II) [(Aa)] if the unitary group elects to calculate the fraction for apportioning business
79     income to this state using the method described in Subsection 59-7-311(2)[(d)](b), multiplying
80     the amount calculated under Subsection (6)(a)(i)(C)(I) by two; or
81          [(Bb) if the unitary group is required to calculate the fraction for apportioning business
82     income to this state using the method described in Subsection 59-7-311(3)(a), multiplying the
83     amount calculated under Subsection (6)(a)(i)(C)(I) by four; or]
84          [(Cc) if the unitary group is required to calculate the fraction for apportioning business
85     income to this state using the method described in Subsection 59-7-311(3)(b), multiplying the
86     amount calculated under Subsection (6)(a)(i)(C)(I) by 10; or]
87          (ii) if the unitary group is required or elects to calculate the fraction for apportioning
88     business income to this state using the method described in Subsection 59-7-311(3)[(c)],
89     calculating an amount determined by dividing the total sales of the acquired corporation in this
90     state during the taxable year by the total sales of the unitary group everywhere during the
91     taxable year;
92          (b) dividing the amount calculated under Subsection (6)(a) by the same denominator of
93     the fraction the unitary group uses to apportion business income to this state:
94          (i) for that taxable year; and
95          (ii) in accordance with Section 59-7-311;
96          (c) multiplying the amount calculated under Subsection (6)(b) by the business income
97     of the unitary group for the taxable year that is subject to apportionment under Section
98     59-7-311; and
99          (d) calculating the sum of:
100          (i) the amount calculated under Subsection (6)(c); and
101          (ii) the following amounts allocable to the acquired corporation for the taxable year:
102          (A) nonbusiness income allocable to this state; or
103          (B) nonbusiness loss allocable to this state.
104          (7) The amounts calculated under Subsection (6)(a) shall be derived in the same
105     manner as those amounts are derived for purposes of apportioning the unitary group's business
106     income before deducting the net loss, including a modification made in accordance with
107     Section 59-7-320.
108          Section 2. Section 59-7-302 is amended to read:
109          59-7-302. Definitions.
110          (1) As used in this part, unless the context otherwise requires:
111          (a) "Aircraft type" means a particular model of aircraft as designated by the
112     manufacturer of the aircraft.
113          (b) "Airline" [is as] means the same as that term is defined in Section 59-2-102.
114          (c) "Airline revenue ton miles" means, for an airline, the total revenue ton miles during
115     the airline's tax period.
116          (d) "Business income" means income arising from transactions and activity in the
117     regular course of the taxpayer's trade or business and includes income from tangible and
118     intangible property if the acquisition, management, and disposition of the property constitutes
119     integral parts of the taxpayer's regular trade or business operations.
120          (e) "Commercial domicile" means the principal place from which the trade or business
121     of the taxpayer is directed or managed.
122          (f) "Compensation" means wages, salaries, commissions, and any other form of
123     remuneration paid to employees for personal services.
124          (g) (i) Except as provided in Subsection (1)(g)(ii), "mobile flight equipment" is as
125     defined in Section 59-2-102.
126          (ii) "Mobile flight equipment" does not include:
127          (A) a spare engine; or
128          (B) tangible personal property described in Subsection 59-2-102(26) owned by an:
129          (I) air charter service; or
130          (II) air contract service.
131          (h) "Nonbusiness income" means all income other than business income.
132          (i) "Optional sales factor weighted taxpayer" means:
133          (i) for a taxpayer that is not a unitary group, regardless of the number of economic
134     activities the taxpayer performs, a taxpayer having greater than 50% of the taxpayer's total sales
135     everywhere generated by economic activities performed by the taxpayer if the economic
136     activities are classified in a NAICS code within NAICS Subsector 334 of the 2002 or 2007
137     North American Industry Classification System of the federal Executive Office of the
138     President, Office of Management and Budget; or
139           (ii) for a taxpayer that is a unitary group, a taxpayer having greater than 50% of the
140     taxpayer's total sales everywhere generated by economic activities performed by the taxpayer if
141     the economic activities are classified in a NAICS code within NAICS Subsector 334 of the
142     2002 or 2007 North American Industry Classification System of the federal Executive Office of
143     the President, Office of Management and Budget.
144          [(i)] (j) "Revenue ton miles" is determined in accordance with 14 C.F.R. Part 241.
145          [(j)] (k) "Sales" means all gross receipts of the taxpayer not allocated under Sections
146     59-7-306 through 59-7-310.
147          [(k)] (l) Subject to Subsection (2), "sales factor weighted taxpayer" means:
148          (i) for a taxpayer that is not a unitary group, regardless of the number of economic
149     activities the taxpayer performs, a taxpayer having greater than 50% of the taxpayer's total sales
150     everywhere generated by economic activities performed by the taxpayer if the economic
151     activities are classified in a NAICS code of the 2002 or 2007 North American Industry
152     Classification System of the federal Executive Office of the President, Office of Management
153     and Budget, except for:
154          (A) a NAICS code within NAICS Sector 21, Mining;
155          (B) a NAICS code within NAICS Industry Group 2212, Natural Gas Distribution;
156          (C) a NAICS code within NAICS Sector 31-33, Manufacturing;
157          (D) a NAICS code within NAICS Sector 48-49, Transportation and Warehousing;
158          (E) a NAICS code within NAICS Sector 51, Information, except for NAICS Subsector
159     519, Other Information Services; or
160          (F) a NAICS code within NAICS Sector 52, Finance and Insurance; or
161          (ii) for a taxpayer that is a unitary group, a taxpayer having greater than 50% of the
162     taxpayer's total sales everywhere generated by economic activities performed by the taxpayer if
163     the economic activities are classified in a NAICS code of the 2002 or 2007 North American
164     Industry Classification System of the federal Executive Office of the President, Office of
165     Management and Budget, except for[:] a NAICS code under Subsections (1)(l)(i)(A) through
166     (F).
167          [(A) a NAICS code within NAICS Sector 21, Mining;]
168          [(B) a NAICS code within NAICS Industry Group 2212, Natural Gas Distribution;]
169          [(C) a NAICS code within NAICS Sector 31-33, Manufacturing;]
170          [(D) a NAICS code within NAICS Sector 48-49, Transportation and Warehousing;]
171          [(E) a NAICS code within NAICS Sector 51, Information, except for NAICS Subsector
172     519, Other Information Services; or]
173          [(F) a NAICS code within NAICS Sector 52, Finance and Insurance.]
174          [(l)] (m) "State" means any state of the United States, the District of Columbia, the
175     Commonwealth of Puerto Rico, any territory or possession of the United States, and any
176     foreign country or political subdivision thereof.
177          [(m)] (n) "Transportation revenue" means revenue an airline earns from:
178          (i) transporting a passenger or cargo; or
179          (ii) from miscellaneous sales of merchandise as part of providing transportation
180     services.
181          [(n)] (o) "Utah revenue ton miles" means, for an airline, the total revenue ton miles
182     within the borders of this state:
183          (i) during the airline's tax period; and
184          (ii) from flight stages that originate or terminate in this state.
185          (2) The following apply to Subsection (1)[(k)](l):
186          (a) (i) Subject to the other provisions of this Subsection (2), a taxpayer shall for each
187     taxable year determine whether the taxpayer is a sales factor weighted taxpayer.
188          (ii) A taxpayer shall make the determination required by Subsection (2)(a)(i) before the
189     due date for filing the taxpayer's return under this chapter for the taxable year, including
190     extensions.
191          (iii) For purposes of making the determination required by Subsection (2)(a)(i), total
192     sales everywhere include only the total sales everywhere:
193          (A) as determined in accordance with this part; and
194          (B) made during the taxable year for which a taxpayer makes the determination
195     required by Subsection (2)(a)(i).
196          (b) A taxpayer that files a return as a unitary group for a taxable year is considered to
197     be a unitary group for that taxable year.
198          (c) In accordance with Title 63G, Chapter 3, Utah Administrative Rulemaking Act, the
199     commission may define the term "economic activity" consistent with the use of the term
200     "activity" in the 2007 North American Industry Classification System of the federal Executive
201     Office of the President, Office of Management and Budget.
202          Section 3. Section 59-7-311 is amended to read:
203          59-7-311. Method of apportionment of business income.
204          (1) For a taxable year, all business income shall be apportioned to this state by
205     multiplying the business income by a fraction calculated as provided in this section.
206          [(2) (a) Subject to the other provisions of this part, for the taxable year that begins on
207     or after January 1, 2010, but begins on or before December 31, 2010, a taxpayer, including a
208     sales factor weighted taxpayer, shall elect to calculate the fraction for apportioning business
209     income to this state under this section using:]
210          [(i) the method described in Subsection (2)(c); or]
211          [(ii) the method described in Subsection (2)(d).]
212          [(b) Subject to the other provisions of this part, for a taxable year that begins on or after
213     January 1, 2011, a taxpayer, except for a sales factor weighted taxpayer, shall elect to calculate
214     the fraction for apportioning business income to this state under this section using:]
215          [(i) the method described in Subsection (2)(c); or]
216          [(ii) the method described in Subsection (2)(d).]
217          [(c) For purposes of Subsection (2)(a) or (b), a taxpayer described in Subsection (2)(a)
218     or (b) may elect to calculate the fraction for apportioning business income as follows:]
219          [(i) the numerator of the fraction is the sum of:]
220          [(A) the property factor as calculated under Section 59-7-312;]
221          [(B) the payroll factor as calculated under Section 59-7-315; and]
222          [(C) the sales factor as calculated under Section 59-7-317; and]
223          [(ii) the denominator of the fraction is three.]
224          [(d) For purposes of Subsection (2)(a) or (b), a taxpayer described in Subsection (2)(a)
225     or (b) may elect to calculate the fraction for apportioning business income as follows:]
226          [(i) the numerator of the fraction is the sum of:]
227          [(A) the property factor as calculated under Section 59-7-312;]
228          [(B) the payroll factor as calculated under Section 59-7-315; and]
229          [(C) the product of:]
230          [(I) the sales factor as calculated under Section 59-7-317; and]
231          [(II) two; and]
232          [(ii) the denominator of the fraction is four.]
233          [(e) In accordance with Title 63G, Chapter 3, Utah Administrative Rulemaking Act,
234     the commission may make rules providing procedures for a taxpayer described in Subsection
235     (2)(a) or (b) to make the election required by this Subsection (2).]
236          [(3) (a) Subject to the other provisions of this part, for the taxable year that begins on
237     or after January 1, 2011, but begins on or before December 31, 2011, a sales factor weighted
238     taxpayer shall calculate the fraction for apportioning business income to this state as follows:]
239          [(i) the numerator of the fraction is the sum of:]
240          [(A) the property factor as calculated under Section 59-7-312;]
241          [(B) the payroll factor as calculated under Section 59-7-315; and]
242          [(C) the product of:]
243          [(I) the sales factor as calculated under Section 59-7-317; and]
244          [(II) four; and]
245          [(ii) the denominator of the fraction is six.]
246          [(b) Subject to the other provisions of this part, for the taxable year that begins on or
247     after January 1, 2012, but begins on or before December 31, 2012, a sales factor weighted
248     taxpayer shall calculate the fraction for apportioning business income to this state as follows:]
249          [(i) the numerator of the fraction is the sum of:]
250          [(A) the property factor as calculated under Section 59-7-312;]
251          [(B) the payroll factor as calculated under Section 59-7-315; and]
252          [(C) the product of:]
253          [(I) the sales factor as calculated under Section 59-7-317; and]
254          [(II) 10; and]
255          [(ii) the denominator of the fraction is 12.]
256          [(c) Subject to the other provisions of this part, for a taxable year that begins on or after
257     January 1, 2013, a sales factor weighted taxpayer shall calculate the fraction for apportioning
258     business income to this state as follows:]
259          [(i) the numerator of the fraction is the sales factor as calculated under Section
260     59-7-317; and]
261          [(ii) the denominator of the fraction is one.]
262          [(4) If a taxpayer calculates the fraction for apportioning business income to this state
263     using a method described in this section:]
264          (2) Subject to the other provisions of this part, a taxpayer, except for a sales factor
265     weighted taxpayer and an optional sales factor weighted taxpayer, shall calculate the fraction
266     for apportioning business income to this state using one of the following fractions:
267          (a) a fraction where:
268          (i) the numerator of the fraction is the sum of:
269          (A) the property factor as calculated under Section 59-7-312;
270          (B) the payroll factor as calculated under Section 59-7-315; and
271          (C) the sales factor as calculated under Section 59-7-317; and
272          (ii) the denominator of the fraction is three; or
273          (b) a fraction where:
274          (i) the numerator of the fraction is the sum of:
275          (A) the property factor as calculated under Section 59-7-312;
276          (B) the payroll factor as calculated under Section 59-7-315; and
277          (C) the sales factor as calculated under Section 59-7-317 multiplied by two; and
278          (ii) the denominator of the fraction is four.
279          (3) Subject to the other provisions of this part, a sales factor weighted taxpayer shall
280     calculate the fraction for apportioning business income to this state using a fraction where:
281          (a) the numerator of the fraction is the sales factor as calculated under Section
282     59-7-317; and
283          (b) the denominator of the fraction is one.
284          (4) Subject to the other provisions of this part, an optional sales factor weighted
285     taxpayer shall calculate the fraction for apportioning business income to this state using a
286     method described in Subsection (2)(a), (2)(b), or (3).
287          (5) (a) The taxpayer shall determine the method for calculating the fraction for
288     apportioning business income to this state under this section on or before the due date for filing
289     the taxpayer's return under this chapter for the taxable year, including extensions[; and].
290          (b) The method described in Subsection [(4)] (5)(a) is in effect for the [time period:]
291     taxable year.
292          [(i) beginning on the first day of the taxpayer's taxable year for which the taxpayer
293     makes the determination described in Subsection (4)(a); and]
294          [(ii) ends on the last day of the taxable year described in Subsection (4)(b)(i).]
295          (6) In accordance with Title 63G, Chapter 3, Utah Administrative Rulemaking Act, the
296     commission may make rules providing procedures for a taxpayer to make the election required
297     by Subsections (2) and (4).
298          Section 4. Retrospective operation.
299          This bill has retrospective operation for a taxable year beginning on or after January 1,
300     2016.