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, 2020, 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 a special effective date.
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 Classification System of the federal Executive Office of the President, Office of
61     Management and Budget, within:
62          (A) NAICS Subsector 3254, Pharmaceutical and Medicine Manufacturing;
63          (B) NAICS Subsector 334, Computer and Electronic Product Manufacturing;
64          (C) NAICS Code 336111, Automobile Manufacturing; or
65          (D) NAICS Subsector 519, Other Information Services.
66          (h) "Included NAICS code" means a NAICS code of the 2017 North American
67     Industry Classification System of the federal Executive Office of the President, Office of
68     Management and Budget, that is not an excluded NAICS code.
69          [(g)] (i) (i) Except as provided in Subsection (1)[(g)](i)(ii), "mobile flight equipment"
70     means the same as that term is defined in Section 59-2-102.
71          (ii) "Mobile flight equipment" does not include:
72          (A) a spare engine; or
73          (B) tangible personal property described in Subsection 59-2-102(27) owned by an air
74     charter service or an air contract service.
75          [(h)] (j) "Nonbusiness income" means all income other than business income.
76          [(i) Subject to Subsection (2), "optional sales factor weighted taxpayer" means:]
77          [(i) for a taxpayer that is not a unitary group, regardless of the number of economic
78     activities the taxpayer performs, a taxpayer having greater than 50% of the taxpayer's total sales
79     everywhere generated by economic activities performed by the taxpayer if the economic
80     activities are classified in a NAICS code within NAICS Subsector 334, Computer and
81     Electronic Product Manufacturing, of the 2002 or 2007 North American Industry Classification
82     System of the federal Executive Office of the President, Office of Management and Budget; or]
83           [(ii) for a taxpayer that is a unitary group, a taxpayer having greater than 50% of the
84     taxpayer's total sales everywhere generated by economic activities performed by the taxpayer if
85     the economic activities are classified in a NAICS code within NAICS Subsector 334,
86     Computer and Electronic Product Manufacturing, of the 2002 or 2007 North American
87     Industry Classification System of the federal Executive Office of the President, Office of
88     Management and Budget.]
89          (k) "Optional apportionment taxpayer" means a taxpayer described in Subsection (2).
90          (l) (i) "Qualifying status change" means that a taxpayer with business income:
91          (A) acquires another entity;
92          (B) is acquired by another entity; or
93          (C) merges with another entity.
94          (ii) "Qualifying status change" does not include any change in the structure, ownership,
95     or management of an entity with business income other than a change described in Subsection
96     (1)(l)(i).
97          [(j)] (m) "Revenue ton miles" is determined in accordance with 14 C.F.R. Part 241.
98          [(k)] (n) "Sales" means all gross receipts of the taxpayer not allocated under Sections
99     59-7-306 through 59-7-310.
100          [(l) Subject to Subsection (2), "sales factor weighted taxpayer" means:]
101          [(i) for a taxpayer that is not a unitary group, regardless of the number of economic
102     activities the taxpayer performs, a taxpayer having greater than 50% of the taxpayer's total sales
103     everywhere generated by economic activities performed by the taxpayer if the economic
104     activities are classified in a NAICS code of the 2002 or 2007 North American Industry
105     Classification System of the federal Executive Office of the President, Office of Management
106     and Budget, except for:]
107          [(A) a NAICS code within NAICS Sector 21, Mining;]
108          [(B) a NAICS code within NAICS Industry Group 2212, Natural Gas Distribution;]
109          [(C) a NAICS code within NAICS Sector 31-33, Manufacturing, other than NAICS
110     Code 336111, Automobile Manufacturing;]
111          [(D) a NAICS code within NAICS Sector 48-49, Transportation and Warehousing;]
112          [(E) a NAICS code within NAICS Sector 51, Information, other than NAICS Subsector
113     519, Other Information Services; or]
114          [(F) a NAICS code within NAICS Sector 52, Finance and Insurance; or]
115          [(ii) for a taxpayer that is a unitary group, a taxpayer having greater than 50% of the
116     taxpayer's total sales everywhere generated by economic activities performed by the taxpayer if
117     the economic activities are classified in a NAICS code of the 2002 or 2007 North American
118     Industry Classification System of the federal Executive Office of the President, Office of
119     Management and Budget, except for a NAICS code under Subsections (1)(l)(i)(A) through (F).]
120          (o) "Single sales factor taxpayer" means a taxpayer that:
121          (i) performs economic activities that are classified only in included NAICS codes; or
122          (ii) does not meet the definition of optional apportionment taxpayer.
123          [(m)] (p) "State" means any state of the United States, the District of Columbia, the
124     Commonwealth of Puerto Rico, any territory or possession of the United States, and any
125     foreign country or political subdivision thereof.
126          [(n)] (q) "Transportation revenue" means revenue an airline earns from:
127          (i) transporting a passenger or cargo; or
128          (ii) from miscellaneous sales of merchandise as part of providing transportation
129     services.
130          [(o)] (r) "Utah revenue ton miles" means, for an airline, the total revenue ton miles
131     within the borders of this state:
132          (i) during the airline's tax period; and
133          (ii) from flight stages that originate or terminate in this state.
134          [(2) The following apply to Subsections (1)(i) and (l):]
135          [(a) (i) Subject to the other provisions of this Subsection (2), for each taxable year, a
136     taxpayer shall determine whether the taxpayer is a sales factor weighted taxpayer.]
137          [(ii) A taxpayer shall make the determination required by Subsection (2)(a)(i) before
138     the due date for filing the taxpayer's return under this chapter for the taxable year, including
139     extensions.]
140          [(iii) For purposes of making the determination required by Subsection (2)(a)(i), total
141     sales everywhere include only the total sales everywhere:]
142          [(A) as determined in accordance with this part; and]
143          [(B) made during the taxable year for which a taxpayer makes the determination
144     required by Subsection (2)(a)(i).]
145          [(b) (i) (A) Subject to other provisions of this Subsection (2), for each taxable year, a
146     taxpayer that is not a sales factor weighted taxpayer may determine whether the taxpayer is an
147     optional sales factor weighted taxpayer.]
148          [(B) A taxpayer that is not a sales factor weighted taxpayer shall determine that the
149     taxpayer is an optional sales factor weighted taxpayer before the taxpayer may use the
150     apportionment options described in Subsection 59-7-311(4).]
151          [(ii) A taxpayer making the determination described in Subsection (2)(b)(i) shall make
152     the determination before the due date for filing the taxpayer's return under this chapter for the
153     taxable year, including extensions.]
154          [(iii) For purposes of making the determination described in Subsection (2)(b)(i), total
155     sales everywhere include only the total sales everywhere:]
156          [(A) as determined in accordance with this part; and]
157          [(B) made during the taxable year for which a taxpayer makes a determination
158     described in Subsection (2)(b)(i).]
159          (2) (a) For the taxable year beginning on or after January 1, 2019, but beginning on or
160     before December 31, 2019, a taxpayer is an optional apportionment taxpayer if the average
161     calculated in accordance with Subsection (2)(c) is greater than .50.
162          (b) For a taxable year beginning on or after January 1, 2020, a taxpayer is an optional
163     apportionment taxpayer if:
164          (i) (A) the taxpayer apportioned income in accordance with Subsection 59-7-311(2)
165     during the previous taxable year; or
166          (B) the taxpayer apportioned income in accordance with Subsection 59-7-311(3)
167     during the previous taxable year but has a qualifying status change for the current taxable year;
168     and
169          (ii) the average calculated in accordance with Subsection (2)(c) is greater than .50.
170          (c) To calculate the average described in Subsection (2)(a) or (b)(ii), a taxpayer shall:
171          (i) calculate the following two fractions:
172          (A) the property factor fraction as described in Subsection 59-7-312(3); and
173          (B) the payroll factor fraction as described in Subsection 59-7-315(3);
174          (ii) add together the fractions described in Subsection (2)(c)(i); and
175          (iii) divide the sum calculated in Subsection (2)(c)(ii):
176          (A) except as provided in Subsection (2)(c)(iii)(B), by two; or
177          (B) if either the property factor fraction or the payroll factor fraction has a denominator
178     of zero or is excluded in accordance with Subsection 59-7-312(3)(b) or 59-7-315(3)(b), by one.
179          (d) A taxpayer shall determine if the taxpayer is an optional apportionment taxpayer
180     before the due date, including extensions, for filing the taxpayer's return under this chapter for
181     the taxable year.
182          [(c)] (3) A taxpayer that files a return as a unitary group for a taxable year is considered
183     to be a unitary group for that taxable year.
184          [(d)] (4) In accordance with Title 63G, Chapter 3, Utah Administrative Rulemaking
185     Act, the commission may define the term "economic activity" consistent with the use of the
186     term "activity" in the 2007 North American Industry Classification System of the federal
187     Executive Office of the President, Office of Management and Budget.
188          Section 2. Section 59-7-311 is amended to read:
189          59-7-311. Method of apportionment of business income.
190          (1) For a taxable year, all business income shall be apportioned to this state by
191     multiplying the business income by a fraction calculated as provided in this section.
192          (2) Subject to the other provisions of this part, [a taxpayer, except for a sales factor
193     weighted taxpayer and an optional sales factor weighted taxpayer,] an optional apportionment
194     taxpayer shall calculate the fraction for apportioning business income to this state using one of
195     the following fractions:
196          (a) a fraction where:
197          (i) the numerator of the fraction is the sum of:
198          (A) the property factor as calculated under Section 59-7-312;
199          (B) the payroll factor as calculated under Section 59-7-315; and
200          (C) the sales factor as calculated under Section 59-7-317; and
201          (ii) the denominator of the fraction is three; or
202          (b) a fraction where:
203          (i) the numerator of the fraction is the sum of:
204          (A) the property factor as calculated under Section 59-7-312;
205          (B) the payroll factor as calculated under Section 59-7-315; and
206          (C) the sales factor as calculated under Section 59-7-317 multiplied by two; and
207          (ii) the denominator of the fraction is four.
208          (3) Subject to the other provisions of this part, a [sales factor weighted] single sales
209     factor taxpayer shall calculate the fraction for apportioning business income to this state using
210     a fraction where:
211          (a) the numerator of the fraction is the sales factor as calculated under Section
212     59-7-317; and
213          (b) the denominator of the fraction is one.
214          [(4) Subject to the other provisions of this part, an optional sales factor weighted
215     taxpayer shall calculate the fraction for apportioning business income to this state using a
216     method described in Subsection (2)(a), (2)(b), or (3).]
217          [(5)] (4) (a) The taxpayer shall determine the method for calculating the fraction for
218     apportioning business income to this state under this section on or before the due date for filing
219     the taxpayer's return under this chapter for the taxable year, including extensions.
220          (b) The method described in Subsection [(5)] (4)(a) is in effect for the taxable year.
221          [(6)] (5) In accordance with Title 63G, Chapter 3, Utah Administrative Rulemaking
222     Act, the commission may make rules providing procedures for a taxpayer to make the election
223     [required by Subsections (2) and (4)] allowed by Subsection (2).
224          Section 3. Section 59-7-312 is amended to read:
225          59-7-312. Property factor for apportionment of business income -- Mobile flight
226     equipment of an airline.
227          (1) Except as provided in [Subsection (2)] Subsections (2) and (3), the property factor
228     is a fraction[,]:
229          (a) the numerator of which is the average value of the taxpayer's real and tangible
230     personal property owned or rented and used in this state during the tax period; and
231          (b) the denominator of which is the average value of all the taxpayer's real and tangible
232     personal property owned or rented and used during the tax period.
233          (2) The average value of an airline's real and tangible personal property owned or
234     rented and used in this state attributable to mobile flight equipment for purposes of the
235     numerator of the fraction described in Subsection (1) shall be calculated for each aircraft type
236     by [determining the product of] multiplying:
237          (a) the total average value of the airline's mobile flight equipment of the aircraft type
238     owned or rented and used during the tax period; and
239          (b) a fraction[,]:
240          (i) the numerator of which is the Utah revenue ton miles for the aircraft type; and
241          (ii) the denominator of which is the airline revenue ton miles for the aircraft type.
242          (3) (a) For purposes of Subsection 59-7-302(2)(c)(i)(A) and subject to Subsection
243     (3)(b), the property factor is a fraction:
244          (i) the numerator of which is the value of the property in this state that is attributable to
245     economic activities that are classified in an excluded NAICS code; and
246          (ii) the denominator of which is the value of all property in this state.
247          (b) A taxpayer shall exclude property from the calculation of the property factor
248     fraction in Subsection (3)(a) if the property may be attributed to economic activities in both
249     included NAICS codes and excluded NAICS codes.
250          Section 4. Section 59-7-315 is amended to read:
251          59-7-315. Payroll factor for apportionment of business income -- Compensation
252     of flight personnel by an airline.
253          (1) Except as provided in [Subsection (2)] Subsections (2) and (3), the payroll factor is
254     a fraction[,]:
255          (a) the numerator of which is the total amount paid in this state during the tax period by
256     the taxpayer for compensation[,]; and
257          (b) the denominator of which is the total compensation paid everywhere during the tax
258     period.
259          (2) The total amount paid in this state during the tax period by an airline for
260     compensation attributable to the compensation of flight personnel for purposes of the
261     numerator of the fraction described in Subsection (1) shall be calculated for each aircraft type
262     by [determining the product of] multiplying:
263          (a) the total amount paid during the tax period by the airline to flight personnel for
264     compensation for the aircraft type; and
265          (b) a fraction[,]:
266          (i) the numerator of which is the Utah revenue ton miles for the aircraft type; and
267          (ii) the denominator of which is the airline revenue ton miles for the aircraft type.
268          (3) (a) For purposes of Subsection 59-7-302(2)(c)(i)(B) and subject to Subsection
269     (3)(b), the payroll factor is a fraction:
270          (i) the numerator of which is the amount of the payroll in this state that is attributable
271     to economic activities that are classified in an excluded NAICS code; and
272          (ii) the denominator of which is the total amount of payroll in the state.
273          (b) A taxpayer engaged in activities in an excluded NAICS code shall exclude an
274     individual's payroll from the calculation of the payroll factor fraction in Subsection (3)(a) if the
275     individual's payroll may be attributed:
276          (i) to economic activities in both included NAICS codes and excluded NAICS codes;
277     or
278          (ii) to providing management, information technology, finance, accounting, legal, or
279     human resource services.
280          Section 5. Effective date.
281          This bill takes effect for a taxable year beginning on or after January 1, 2019.




Legislative Review Note
Office of Legislative Research and General Counsel