7 LONG TITLE
8 General Description:
9 This bill modifies provisions relating to corporate income tax on deferred foreign
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:
20 Other Special Clauses:
21 This bill provides a special effective date.
22 This bill provides retrospective operation.
23 Utah Code Sections Affected:
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
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
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;
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" [
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
76 (i) is treated as an association taxable as a corporation under the Internal Revenue
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
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[
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[
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 [
138 (i) [
139 (ii) conducts at least 80% of the corporation's business activity, as determined under
140 Section 59-7-401, [
141 (iii) as calculated in accordance with Part 3, Allocation and Apportionment of Income -
142 Utah UDITPA Provisions, [
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" [
184 (21) "Real estate investment trust" [
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 [
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.
194 Revenue Code.
196 Section 168, Internal Revenue Code.
197 (25) "State of the United States" includes any of the 50 states or the District of
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
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
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) [
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.