1     
BUSINESS INCOME TAX MODIFICATIONS

2     
2018 GENERAL SESSION

3     
STATE OF UTAH

4     
Chief Sponsor: Wayne A. Harper

5     
House Sponsor: Daniel McCay

6     

7     LONG TITLE
8     General Description:
9          This bill modifies the business income apportionment provisions.
10     Highlighted Provisions:
11          This bill:
12          ▸     defines terms;
13          ▸     provides a method for a taxpayer to determine if the taxpayer is an optional
14     apportionment taxpayer;
15          ▸     requires that, for a taxable year beginning on or after January 1, 2019, a taxpayer
16     that apportioned business income using the single sales factor method in the
17     previous taxable year continue to use the single sales factor method of
18     apportionment in subsequent taxable years; and
19          ▸     provides the circumstances where a taxpayer that previously apportioned business
20     income using the single sales factor method may change the method of
21     apportionment.
22     Money Appropriated in this Bill:
23          None
24     Other Special Clauses:
25          This bill provides retrospective operation.
26     Utah Code Sections Affected:
27     AMENDS:
28          59-7-302, as last amended by Laws of Utah 2017, Chapters 181 and 268
29          59-7-311, as last amended by Laws of Utah 2016, Chapters 311 and 323
30          59-7-312, as last amended by Laws of Utah 2008, Chapter 283
31          59-7-315, as last amended by Laws of Utah 2008, Chapter 283
32     

33     Be it enacted by the Legislature of the state of Utah:
34          Section 1. Section 59-7-302 is amended to read:
35          59-7-302. Definitions -- Determination of taxpayer status.
36          (1) As used in this part, unless the context otherwise requires:
37          (a) "Aircraft type" means a particular model of aircraft as designated by the
38     manufacturer of the aircraft.
39          (b) "Airline" means the same as that term is defined in Section 59-2-102.
40          (c) "Airline revenue ton miles" means, for an airline, the total revenue ton miles during
41     the airline's tax period.
42          (d) "Business income" means income arising from transactions and activity in the
43     regular course of the taxpayer's trade or business and includes income from tangible and
44     intangible property if the acquisition, management, and disposition of the property constitutes
45     integral parts of the taxpayer's regular trade or business operations.
46          (e) "Commercial domicile" means the principal place from which the trade or business
47     of the taxpayer is directed or managed.
48          (f) "Compensation" means wages, salaries, commissions, and any other form of
49     remuneration paid to employees for personal services.
50          (g) (i) "Excluded NAICS code" means a NAICS code of the 2017 North American
51     Industry Classification System of the federal Executive Office of the President, Office of
52     Management and Budget, within:
53          (A) NAICS Sector 21, Mining;
54          (B) NAICS Industry Group 2212, Natural Gas Distribution;
55          (C) except as provided in Subsection (1)(g)(ii), NAICS Sector 31-33, Manufacturing;
56          (D) NAICS Sector 48-49, Transportation and Warehousing;
57          (E) except as provided in Subsection (1)(g)(ii), NAICS Sector 51, Information; or
58          (F) NAICS Sector 52, Finance and Insurance.
59          (ii) "Excluded NAICS code" does not include a NAICS code of the 2017 North
60     American Industry Classification System of the federal Executive Office of the President,
61     Office of Management and Budget, within:
62          (A) NAICS Subsector 3254, Pharmaceutical and Medicine Manufacturing;
63          (B) NAICS Subsector 3333, Commercial and Service Industry Machinery
64     Manufacturing;
65          (C) NAICS Subsector 334, Computer and Electronic Product Manufacturing;
66          (D) NAICS Code 336111, Automobile Manufacturing; or
67          (E) NAICS Subsector 519, Other Information Services.
68          (h) "Included NAICS code" means a NAICS code of the 2017 North American
69     Industry Classification System of the federal Executive Office of the President, Office of
70     Management and Budget, that is not an excluded NAICS code.
71          [(g)] (i) (i) Except as provided in Subsection (1)[(g)](i)(ii), "mobile flight equipment"
72     means the same as that term is defined in Section 59-2-102.
73          (ii) "Mobile flight equipment" does not include:
74          (A) a spare engine; or
75          (B) tangible personal property described in Subsection 59-2-102(27) owned by an air
76     charter service or an air contract service.
77          [(h)] (j) "Nonbusiness income" means all income other than business income.
78          [(i) Subject to Subsection (2), "optional sales factor weighted taxpayer" means:]
79          [(i) for a taxpayer that is not a unitary group, regardless of the number of economic
80     activities the taxpayer performs, a taxpayer having greater than 50% of the taxpayer's total sales
81     everywhere generated by economic activities performed by the taxpayer if the economic
82     activities are classified in a NAICS code within NAICS Subsector 334, Computer and
83     Electronic Product Manufacturing, of the 2002 or 2007 North American Industry Classification
84     System of the federal Executive Office of the President, Office of Management and Budget; or]
85           [(ii) for a taxpayer that is a unitary group, a taxpayer having greater than 50% of the
86     taxpayer's total sales everywhere generated by economic activities performed by the taxpayer if
87     the economic activities are classified in a NAICS code within NAICS Subsector 334,
88     Computer and Electronic Product Manufacturing, of the 2002 or 2007 North American
89     Industry Classification System of the federal Executive Office of the President, Office of
90     Management and Budget.]
91          (k) "Optional apportionment taxpayer" means a taxpayer described in Subsection (2).
92          (l) (i) "Qualifying status change" means that a taxpayer with business income:
93          (A) acquires another entity;
94          (B) is acquired by another entity; or
95          (C) merges with another entity.
96          (ii) "Qualifying status change" does not include any change in the structure, ownership,
97     or management of an entity with business income other than a change described in Subsection
98     (1)(l)(i).
99          [(j)] (m) "Revenue ton miles" is determined in accordance with 14 C.F.R. Part 241.
100          [(k)] (n) "Sales" means all gross receipts of the taxpayer not allocated under Sections
101     59-7-306 through 59-7-310.
102          [(l) Subject to Subsection (2), "sales factor weighted taxpayer" means:]
103          [(i) for a taxpayer that is not a unitary group, regardless of the number of economic
104     activities the taxpayer performs, a taxpayer having greater than 50% of the taxpayer's total sales
105     everywhere generated by economic activities performed by the taxpayer if the economic
106     activities are classified in a NAICS code of the 2002 or 2007 North American Industry
107     Classification System of the federal Executive Office of the President, Office of Management
108     and Budget, except for:]
109          [(A) a NAICS code within NAICS Sector 21, Mining;]
110          [(B) a NAICS code within NAICS Industry Group 2212, Natural Gas Distribution;]
111          [(C) a NAICS code within NAICS Sector 31-33, Manufacturing, other than NAICS
112     Code 336111, Automobile Manufacturing;]
113          [(D) a NAICS code within NAICS Sector 48-49, Transportation and Warehousing;]
114          [(E) a NAICS code within NAICS Sector 51, Information, other than NAICS Subsector
115     519, Other Information Services; or]
116          [(F) a NAICS code within NAICS Sector 52, Finance and Insurance; or]
117          [(ii) for a taxpayer that is a unitary group, a taxpayer having greater than 50% of the
118     taxpayer's total sales everywhere generated by economic activities performed by the taxpayer if
119     the economic activities are classified in a NAICS code of the 2002 or 2007 North American
120     Industry Classification System of the federal Executive Office of the President, Office of
121     Management and Budget, except for a NAICS code under Subsections (1)(l)(i)(A) through (F).]
122          (o) "Single sales factor taxpayer" means a taxpayer that:
123          (i) performs economic activities that are classified only in included NAICS codes; or
124          (ii) does not meet the definition of optional apportionment taxpayer.
125          [(m)] (p) "State" means any state of the United States, the District of Columbia, the
126     Commonwealth of Puerto Rico, any territory or possession of the United States, and any
127     foreign country or political subdivision thereof.
128          [(n)] (q) "Transportation revenue" means revenue an airline earns from:
129          (i) transporting a passenger or cargo; or
130          (ii) from miscellaneous sales of merchandise as part of providing transportation
131     services.
132          [(o)] (r) "Utah revenue ton miles" means, for an airline, the total revenue ton miles
133     within the borders of this state:
134          (i) during the airline's tax period; and
135          (ii) from flight stages that originate or terminate in this state.
136          [(2) The following apply to Subsections (1)(i) and (l):]
137          [(a) (i) Subject to the other provisions of this Subsection (2), for each taxable year, a
138     taxpayer shall determine whether the taxpayer is a sales factor weighted taxpayer.]
139          [(ii) A taxpayer shall make the determination required by Subsection (2)(a)(i) before
140     the due date for filing the taxpayer's return under this chapter for the taxable year, including
141     extensions.]
142          [(iii) For purposes of making the determination required by Subsection (2)(a)(i), total
143     sales everywhere include only the total sales everywhere:]
144          [(A) as determined in accordance with this part; and]
145          [(B) made during the taxable year for which a taxpayer makes the determination
146     required by Subsection (2)(a)(i).]
147          [(b) (i) (A) Subject to other provisions of this Subsection (2), for each taxable year, a
148     taxpayer that is not a sales factor weighted taxpayer may determine whether the taxpayer is an
149     optional sales factor weighted taxpayer.]
150          [(B) A taxpayer that is not a sales factor weighted taxpayer shall determine that the
151     taxpayer is an optional sales factor weighted taxpayer before the taxpayer may use the
152     apportionment options described in Subsection 59-7-311(4).]
153          [(ii) A taxpayer making the determination described in Subsection (2)(b)(i) shall make
154     the determination before the due date for filing the taxpayer's return under this chapter for the
155     taxable year, including extensions.]
156          [(iii) For purposes of making the determination described in Subsection (2)(b)(i), total
157     sales everywhere include only the total sales everywhere:]
158          [(A) as determined in accordance with this part; and]
159          [(B) made during the taxable year for which a taxpayer makes a determination
160     described in Subsection (2)(b)(i).]
161          (2) (a) For the taxable year beginning on or after January 1, 2018, but beginning on or
162     before December 31, 2018, a taxpayer is an optional apportionment taxpayer if the average
163     calculated in accordance with Subsection (2)(c) is greater than .50.
164          (b) For a taxable year beginning on or after January 1, 2019, a taxpayer is an optional
165     apportionment taxpayer if:
166          (i) (A) the taxpayer apportioned income in accordance with Subsection 59-7-311(2)
167     during the previous taxable year; or
168          (B) the taxpayer apportioned income in accordance with Subsection 59-7-311(3)
169     during the previous taxable year but has a qualifying status change for the current taxable year;
170     and
171          (ii) the average calculated in accordance with Subsection (2)(c) is greater than .50.
172          (c) To calculate the average described in Subsection (2)(a) or (b)(ii), a taxpayer shall:
173          (i) calculate the following two fractions:
174          (A) the property factor fraction as described in Subsection 59-7-312(3); and
175          (B) the payroll factor fraction as described in Subsection 59-7-315(3);
176          (ii) add together the fractions described in Subsection (2)(c)(i); and
177          (iii) divide the sum calculated in Subsection (2)(c)(ii):
178          (A) except as provided in Subsection (2)(c)(iii)(B), by two; or
179          (B) if either the property factor fraction or the payroll factor fraction has a denominator
180     of zero or is excluded in accordance with Subsection 59-7-312(3)(b) or 59-7-315(3)(b), by one.
181          (d) A taxpayer shall determine if the taxpayer is an optional apportionment taxpayer
182     before the due date, including extensions, for filing the taxpayer's return under this chapter for
183     the taxable year.
184          [(c)] (3) A taxpayer that files a return as a unitary group for a taxable year is considered
185     to be a unitary group for that taxable year.
186          [(d)] (4) In accordance with Title 63G, Chapter 3, Utah Administrative Rulemaking
187     Act, the commission may define the term "economic activity" consistent with the use of the
188     term "activity" in the 2007 North American Industry Classification System of the federal
189     Executive Office of the President, Office of Management and Budget.
190          Section 2. Section 59-7-311 is amended to read:
191          59-7-311. Method of apportionment of business income.
192          (1) For a taxable year, all business income shall be apportioned to this state by
193     multiplying the business income by a fraction calculated as provided in this section.
194          (2) Subject to the other provisions of this part, [a taxpayer, except for a sales factor
195     weighted taxpayer and an optional sales factor weighted taxpayer,] an optional apportionment
196     taxpayer shall calculate the fraction for apportioning business income to this state using one of
197     the following fractions:
198          (a) a fraction where:
199          (i) the numerator of the fraction is the sum of:
200          (A) the property factor as calculated under Section 59-7-312;
201          (B) the payroll factor as calculated under Section 59-7-315; and
202          (C) the sales factor as calculated under Section 59-7-317; and
203          (ii) the denominator of the fraction is three; or
204          (b) a fraction where:
205          (i) the numerator of the fraction is the sum of:
206          (A) the property factor as calculated under Section 59-7-312;
207          (B) the payroll factor as calculated under Section 59-7-315; and
208          (C) the sales factor as calculated under Section 59-7-317 multiplied by two; and
209          (ii) the denominator of the fraction is four.
210          (3) Subject to the other provisions of this part, a [sales factor weighted] single sales
211     factor taxpayer shall calculate the fraction for apportioning business income to this state using
212     a fraction where:
213          (a) the numerator of the fraction is the sales factor as calculated under Section
214     59-7-317; and
215          (b) the denominator of the fraction is one.
216          [(4) Subject to the other provisions of this part, an optional sales factor weighted
217     taxpayer shall calculate the fraction for apportioning business income to this state using a
218     method described in Subsection (2)(a), (2)(b), or (3).]
219          [(5)] (4) (a) The taxpayer shall determine the method for calculating the fraction for
220     apportioning business income to this state under this section on or before the due date for filing
221     the taxpayer's return under this chapter for the taxable year, including extensions.
222          (b) The method described in Subsection [(5)] (4)(a) is in effect for the taxable year.
223          [(6)] (5) In accordance with Title 63G, Chapter 3, Utah Administrative Rulemaking
224     Act, the commission may make rules providing procedures for a taxpayer to make the election
225     [required by Subsections (2) and (4)] allowed by Subsection (2).
226          Section 3. Section 59-7-312 is amended to read:
227          59-7-312. Property factor for apportionment of business income -- Mobile flight
228     equipment of an airline.
229          (1) Except as provided in [Subsection (2)] Subsections (2) and (3), the property factor
230     is a fraction[,]:
231          (a) the numerator of which is the average value of the taxpayer's real and tangible
232     personal property owned or rented and used in this state during the tax period; and
233          (b) the denominator of which is the average value of all the taxpayer's real and tangible
234     personal property owned or rented and used during the tax period.
235          (2) The average value of an airline's real and tangible personal property owned or
236     rented and used in this state attributable to mobile flight equipment for purposes of the
237     numerator of the fraction described in Subsection (1) shall be calculated for each aircraft type
238     by [determining the product of] multiplying:
239          (a) the total average value of the airline's mobile flight equipment of the aircraft type
240     owned or rented and used during the tax period; and
241          (b) a fraction[,]:
242          (i) the numerator of which is the Utah revenue ton miles for the aircraft type; and
243          (ii) the denominator of which is the airline revenue ton miles for the aircraft type.
244          (3) (a) For purposes of Subsection 59-7-302(2)(c)(i)(A) and subject to Subsection
245     (3)(b), the property factor is a fraction:
246          (i) the numerator of which is the value of the property in this state that is attributable to
247     economic activities that are classified in an excluded NAICS code; and
248          (ii) the denominator of which is the value of all property in this state.
249          (b) A taxpayer shall exclude property from the calculation of the property factor
250     fraction in Subsection (3)(a) if the property may be attributed to economic activities in both
251     included NAICS codes and excluded NAICS codes.
252          Section 4. Section 59-7-315 is amended to read:
253          59-7-315. Payroll factor for apportionment of business income -- Compensation
254     of flight personnel by an airline.
255          (1) Except as provided in [Subsection (2)] Subsections (2) and (3), the payroll factor is
256     a fraction[,]:
257          (a) the numerator of which is the total amount paid in this state during the tax period by
258     the taxpayer for compensation[,]; and
259          (b) the denominator of which is the total compensation paid everywhere during the tax
260     period.
261          (2) The total amount paid in this state during the tax period by an airline for
262     compensation attributable to the compensation of flight personnel for purposes of the
263     numerator of the fraction described in Subsection (1) shall be calculated for each aircraft type
264     by [determining the product of] multiplying:
265          (a) the total amount paid during the tax period by the airline to flight personnel for
266     compensation for the aircraft type; and
267          (b) a fraction[,]:
268          (i) the numerator of which is the Utah revenue ton miles for the aircraft type; and
269          (ii) the denominator of which is the airline revenue ton miles for the aircraft type.
270          (3) (a) For purposes of Subsection 59-7-302(2)(c)(i)(B) and subject to Subsection
271     (3)(b), the payroll factor is a fraction:
272          (i) the numerator of which is the amount of the payroll in this state that is attributable
273     to economic activities that are classified in an excluded NAICS code; and
274          (ii) the denominator of which is the total amount of payroll in the state.
275          (b) A taxpayer engaged in activities in an excluded NAICS code shall exclude an
276     individual's payroll from the calculation of the payroll factor fraction in Subsection (3)(a) if the
277     individual's payroll may be attributed:
278          (i) to economic activities in both included NAICS codes and excluded NAICS codes;
279     or
280          (ii) to providing management, information technology, finance, accounting, legal, or
281     human resource services.
282          Section 5. Retrospective operation.
283          This bill has retrospective operation for a taxable year beginning on or after January 1,
284     2018.