1     
REPATRIATION TAX AMENDMENTS

2     
2018 SECOND SPECIAL SESSION

3     
STATE OF UTAH

4     
Chief Sponsor: Steve Eliason

5     
Senate Sponsor: Howard A. Stephenson

6     

7     LONG TITLE
8     General Description:
9          This bill modifies provisions relating to corporate income tax on deferred foreign
10     income.
11     Highlighted Provisions:
12          This bill:
13          ▸     adds deferred foreign income to the definition of unadjusted income for corporate
14     income tax purposes;
15          ▸     modifies the payment schedule for a corporate taxpayer to pay the income tax on
16     deferred foreign income; and
17          ▸     makes technical changes.
18     Money Appropriated in this Bill:
19          None
20     Other Special Clauses:
21          This bill provides a special effective date.
22          This bill provides retrospective operation.
23     Utah Code Sections Affected:
24     AMENDS:
25          59-7-101, as last amended by Laws of Utah 2011, Chapter 69
26          59-7-118, as enacted by Laws of Utah 2018, Chapter 405
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 which
45     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] means the same as that term is defined in Section
51     59-7-302.
52          (6) (a) "Captive real estate investment trust" means a real estate investment trust if:
53          (i) the shares or beneficial interests of the real estate investment trust are not regularly
54     traded on an established securities market; and
55          (ii) more than 50% of the voting power or value of the shares or beneficial interests of
56     the real estate investment trust are directly, indirectly, or constructively:
57          (A) owned by a controlling entity of the real estate investment trust; or

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

86          (ii) a qualified real estate investment subsidiary described in Section 856(i), Internal
87     Revenue Code, except for a qualified real estate investment trust subsidiary of a captive real
88     estate investment trust; or
89          (iii) a foreign real estate investment trust.
90          (c) In accordance with Title 63G, Chapter 3, Utah Administrative Rulemaking Act, the
91     commission may make rules defining "established securities market."
92          (9) "Corporate return" or "return" includes a combined report.
93          (10) "Corporation" includes:
94          (a) entities defined as corporations under Sections 7701(a) and 7704, Internal Revenue
95     Code; and
96          (b) other organizations that are taxed as corporations for federal income tax purposes
97     under the Internal Revenue Code.
98          (11) "Dividend" means any distribution, including money or other type of property,
99     made by a corporation to its shareholders out of its earnings or profits accumulated after
100     December 31, 1930.
101          (12) (a) "Doing business" includes any transaction in the course of its business by a
102     domestic corporation, or by a foreign corporation qualified to do or doing intrastate business in
103     this state.
104          (b) Except as provided in Subsection 59-7-102(3), "doing business" includes:
105          (i) the right to do business through incorporation or qualification;
106          (ii) the owning, renting, or leasing of real or personal property within this state; and
107          (iii) the participation in joint ventures, working and operating agreements, the
108     performance of which takes place in this state.
109          (13) "Domestic corporation" means a corporation that is incorporated or organized
110     under the laws of this state.
111          (14) (a) "Farmers' cooperative" means an association, corporation, or other
112     organization that is:
113          (i) (A) an association, corporation, or other organization of[: (I)] farmers[;] or [(II)]

114     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[: (I)] "member"[;] and [(II)] "producer"; and
131          (B) what constitutes an association, corporation, or other organization that is similar to
132     an association, corporation, or organization described in Subsection (14)(a)(i)(A).
133          (ii) The rules made under this Subsection (14)(b) shall be consistent with the filing
134     requirements under federal law for a farmers' cooperative.
135          (15) "Foreign corporation" means a corporation that is not incorporated or organized
136     under the laws of this state.
137          (16) (a) "Foreign operating company" means a corporation [if] that:
138          (i) [the corporation] is incorporated in the United States;
139          (ii) conducts at least 80% of the corporation's business activity, as determined under
140     Section 59-7-401, [is conducted] outside the United States; and
141          (iii) as calculated in accordance with Part 3, Allocation and Apportionment of Income -

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

170     market; and
171          (E) the business entity is organized in a country that has a tax treaty with the United
172     States; or
173          (ii) a listed Australian property trust.
174          (b) In accordance with Title 63G, Chapter 3, Utah Administrative Rulemaking Act, the
175     commission may make rules defining:
176          (i) "cash or cash equivalents";
177          (ii) "established securities market"; or
178          (iii) "listed Australian property trust."
179          (18) "Income" includes losses.
180          (19) "Internal Revenue Code" means Title 26 of the United States Code as effective
181     during the year in which Utah taxable income is determined.
182          (20) "Nonbusiness income" [is as] means the same as that term is defined in Section
183     59-7-302.
184          (21) "Real estate investment trust" [is as] means the same as that term is defined in
185     Section 856, Internal Revenue Code.
186          (22) "Related expenses" means:
187          (a) expenses directly attributable to nonbusiness income; and
188          (b) the portion of interest or other expense indirectly attributable to both nonbusiness
189     and business income [which] that bears the same ratio to the aggregate amount of such interest
190     or other expense, determined without regard to this Subsection (22), as the average amount of
191     the asset producing the nonbusiness income bears to the average amount of all assets of the
192     taxpayer within the taxable year.
193          [(24)] (23) "S corporation" means an S corporation as defined in Section 1361, Internal
194     Revenue Code.
195          [(23)] (24) "Safe harbor lease" means a lease that qualified as a safe harbor lease under
196     Section 168, Internal Revenue Code.
197          (25) "State of the United States" includes any of the 50 states or the District of

198     Columbia.
199          (26) (a) "Taxable year" means the calendar year or the fiscal year ending during such
200     calendar year upon the basis of which the adjusted income is computed.
201          (b) In the case of a return made for a fractional part of a year under this chapter or
202     under rules prescribed by the commission, "taxable year" includes the period for which such
203     return is made.
204          (27) "Taxpayer" means any corporation subject to the tax imposed by this chapter.
205          (28) "Threshold level of business activity" means business activity in the United States
206     equal to or greater than 20% of the corporation's total business activity as determined under
207     Section 59-7-401.
208          (29) (a) "Unadjusted income" means federal taxable income as determined on a
209     separate return basis before intercompany eliminations as determined by the Internal Revenue
210     Code, before the net operating loss deduction and special deductions for dividends received.
211          (b) For the last taxable year of a taxpayer beginning on or before December 31, 2017,
212     "unadjusted income" includes deferred foreign income described in Section 965(a), Internal
213     Revenue Code.
214          (30) (a) "Unitary group" means a group of corporations that:
215          (i) are related through common ownership; and
216          (ii) by a preponderance of the evidence as determined by a court of competent
217     jurisdiction or the commission, are economically interdependent with one another as
218     demonstrated by the following factors:
219          (A) centralized management;
220          (B) functional integration; and
221          (C) economies of scale.
222          (b) "Unitary group" includes a captive real estate investment trust.
223          (c) "Unitary group" does not include an S corporation.
224          (31) "United States" includes the 50 states and the District of Columbia.
225          (32) "Utah net loss" means the current year Utah taxable income before Utah net loss

226     deduction, if determined to be less than zero.
227          (33) "Utah net loss deduction" means the amount of Utah net losses from other taxable
228     years that may be carried back or carried forward to the current taxable year in accordance with
229     Section 59-7-110.
230          (34) (a) "Utah taxable income" means Utah taxable income before net loss deduction
231     less Utah net loss deduction.
232          (b) "Utah taxable income" includes income from tangible or intangible property located
233     or having situs in this state, regardless of whether carried on in intrastate, interstate, or foreign
234     commerce.
235          (35) "Utah taxable income before net loss deduction" means apportioned income plus
236     nonbusiness income allocable to Utah net of related expenses.
237          (36) (a) "Water's edge combined report" means a report combining the income and
238     activities of:
239          (i) all members of a unitary group that are:
240          (A) corporations organized or incorporated in the United States, including those
241     corporations qualifying for the Puerto Rico and Possession Tax Credit as provided in Section
242     936, Internal Revenue Code, in accordance with Subsection (36)(b); and
243          (B) corporations organized or incorporated outside of the United States meeting the
244     threshold level of business activity; and
245          (ii) an affiliated group electing to file a water's edge combined report under Subsection
246     59-7-402(2).
247          (b) There is a rebuttable presumption that a corporation which qualifies for the Puerto
248     Rico and possession tax credit provided in Section 936, Internal Revenue Code, is part of a
249     unitary group.
250          (37) "Worldwide combined report" means the combination of the income and activities
251     of all members of a unitary group irrespective of the country in which the corporations are
252     incorporated or conduct business activity.
253          Section 2. Section 59-7-118 is amended to read:

254          59-7-118. Section 965, Internal Revenue Code -- Installment payments.
255          (1) Subject to the other provisions of this section, a corporation may pay in
256     installments the tax owed under this chapter on deferred foreign income described in Section
257     965, Internal Revenue Code.
258          (2) Subsection (1) applies:
259          (a) to a corporation that:
260          (i) is authorized to make an election under Section 965(h), Internal Revenue Code; and
261          (ii) apportions deferred foreign income described in Section 965, Internal Revenue
262     Code, to this state; and
263          (b) for a tax year in which a corporation makes an election under Section 965(h),
264     Internal Revenue Code, for purposes of the corporation's federal income tax.
265          (3) [The] (a) Except as provided in Subsection (3)(b), the same provisions that apply
266     to an election made under Section 965(h), Internal Revenue Code, for federal purposes apply to
267     an installment payment made under this section.
268          (b) A corporation shall make:
269          (i) the first installment under this section on or before the due date, including any
270     extension, of the 2017 tax return filed under this chapter; and
271          (ii) a subsequent installment on or before the due date, including any extension, of the
272     tax return filed under this chapter in each of the following seven years.
273          Section 3. Effective date.
274          If approved by two-thirds of all the members elected to each house, this bill takes effect
275     upon approval by the governor, or the day following the constitutional time limit of Utah
276     Constitution, Article VII, Section 8, without the governor's signature, or in the case of a veto,
277     the date of veto override.
278          Section 4. Retrospective operation.
279          This bill has retrospective operation for the last taxable year of a taxpayer beginning on
280     or before December 31, 2017.