1     
INCOME TAX REVISIONS

2     
2019 GENERAL SESSION

3     
STATE OF UTAH

4     
Chief Sponsor: Curtis S. Bramble

5     
House Sponsor: Steve Eliason

6     

7     LONG TITLE
8     Committee Note:
9          The Revenue and Taxation Interim Committee recommended this bill.
10     General Description:
11          This bill modifies corporate income tax provisions.
12     Highlighted Provisions:
13          This bill:
14          ▸     defines when a corporation is doing business or exercising a corporate franchise in
15     the state for income tax purposes; and
16          ▸     makes technical changes.
17     Money Appropriated in this Bill:
18          None
19     Other Special Clauses:
20          This bill provides retrospective operation.
21     Utah Code Sections Affected:
22     AMENDS:
23          59-7-101, as last amended by Laws of Utah 2018, Second Special Session, Chapters 2
24     and 3
25          59-7-104, as last amended by Laws of Utah 2018, Chapter 456
26          59-7-319, as last amended by Laws of Utah 2011, Chapter 69
27          59-7-402, as last amended by Laws of Utah 2009, Chapter 312
28     

29     Be it enacted by the Legislature of the state of Utah:
30          Section 1. Section 59-7-101 is amended to read:
31          59-7-101. Definitions.
32          As used in this chapter:
33          (1) "Adjusted income" means unadjusted income as modified by Sections 59-7-105
34     and 59-7-106.
35          (2) (a) "Affiliated group" means one or more chains of corporations that are connected
36     through stock ownership with a common parent corporation that meet the following
37     requirements:
38          (i) at least 80% of the stock of each of the corporations in the group, excluding the
39     common parent corporation, is owned by one or more of the other corporations in the group;
40     and
41          (ii) the common parent directly owns at least 80% of the stock of at least one of the
42     corporations in the group.
43          (b) "Affiliated group" does not include corporations that are qualified to do business
44     but are not otherwise doing business in this state.
45          (c) For purposes of this Subsection (2), "stock" does not include nonvoting stock which
46     is limited and preferred as to dividends.
47          (3) "Apportionable income" means adjusted income less nonbusiness income net of
48     related expenses, to the extent included in adjusted income.
49          (4) "Apportioned income" means apportionable income multiplied by the
50     apportionment fraction as determined in Section 59-7-311.
51          (5) "Business income" means the same as that term is defined in Section 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]
103     business in this state.
104          (b) Except as provided in Subsection (12)(c) or Subsection 59-7-102(3), "doing
105     business" includes:
106          (i) the right to do business through incorporation or qualification;
107          (ii) [the] owning, renting, or leasing of real or personal property within this state; [and]
108          (iii) the participation in joint ventures, working and operating agreements, the
109     performance of which takes place in this state[.];
110          (iv) selling or performing a service in this state; and
111          (v) earning income from the use of intangible property in this state.
112          (c) "Doing business" does not include the business activity of a corporation if the
113     corporation's only business activity within the state is the solicitation of orders for sales of
114     tangible personal property that are protected under 15 U.S.C. Secs. 381 through 384.
115          (13) "Domestic corporation" means a corporation that is incorporated or organized
116     under the laws of this state.
117          (14) "Exercising a corporate franchise" does not include the business activity of a
118     corporation if the corporation's only business activity within the state is the solicitation of
119     orders for sales of tangible personal property that are protected under 15 U.S.C. Secs. 381
120     through 384.
121          [(14)] (15) (a) "Farmers' cooperative" means an association, corporation, or other
122     organization that is:
123          (i) (A) an association, corporation, or other organization of farmers or fruit growers; or
124          (B) an association, corporation, or other organization that is similar to an association,
125     corporation, or organization described in Subsection [(14)] (15)(a)(i)(A); and
126          (ii) organized and operated on a cooperative basis to:
127          (A) (I) market the products of members of the cooperative or the products of other
128     producers; and
129          (II) return to the members of the cooperative or other producers the proceeds of sales
130     less necessary marketing expenses on the basis of the quantity of the products of a member or
131     producer or the value of the products of a member or producer; or
132          (B) (I) purchase supplies and equipment for the use of members of the cooperative or
133     other persons; and
134          (II) turn over the supplies and equipment described in Subsection [(14)]
135     (15)(a)(ii)(B)(I) at actual costs plus necessary expenses to the members of the cooperative or
136     other persons.
137          (b) (i) Subject to Subsection [(14)] (15)(b)(ii), for purposes of this Subsection [(14)]
138     (15), the commission by rule, made in accordance with Title 63G, Chapter 3, Utah
139     Administrative Rulemaking Act, shall define:
140          (A) the terms "member" and "producer"; and
141          (B) what constitutes an association, corporation, or other organization that is similar to
142     an association, corporation, or organization described in Subsection [(14)] (15)(a)(i)(A).
143          (ii) The rules made under this Subsection [(14)] (15)(b) shall be consistent with the
144     filing requirements under federal law for a farmers' cooperative.
145          [(15)] (16) "Foreign corporation" means a corporation that is not incorporated or
146     organized under the laws of this state.
147          [(16)] (17) (a) "Foreign operating company" means a corporation that:
148          (i) is incorporated in the United States;
149          (ii) conducts at least 80% of the corporation's business activity, as determined under
150     Section 59-7-401, outside the United States; and
151          (iii) as calculated in accordance with Part 3, Allocation and Apportionment of Income -
152     Utah UDITPA Provisions, has:
153          (A) at least $1,000,000 of payroll located outside the United States; and
154          (B) at least $2,000,000 of property located outside the United States.
155          (b) "Foreign operating company" does not include a corporation that qualifies for the
156     Puerto Rico and possession tax credit as provided in Section 936, Internal Revenue Code.
157          [(17)] (18) (a) "Foreign real estate investment trust" means:
158          (i) a business entity organized outside the laws of the United States if:
159          (A) at least 75% of the business entity's total asset value at the close of the business
160     entity's taxable year is represented by:
161          (I) real estate assets, as defined in Section 856(c)(5)(B), Internal Revenue Code;
162          (II) cash or cash equivalents; or
163          (III) one or more securities issued or guaranteed by the United States;
164          (B) the business entity is:
165          (I) not subject to income taxation:
166          (Aa) on amounts distributed to the business entity's beneficial owners; and
167          (Bb) in the jurisdiction in which the business entity is organized; or
168          (II) exempt from income taxation on an entity level in the jurisdiction in which the
169     business entity is organized;
170          (C) the business entity distributes at least 85% of the business entity's taxable income,
171     as computed in the jurisdiction in which the business entity is organized, to the holders of the
172     business entity's:
173          (I) shares or beneficial interests; and
174          (II) on an annual basis;
175          (D) (I) not more than 10% of the following is held directly, indirectly, or constructively
176     by a single person:
177          (Aa) the voting power of the business entity; or
178          (Bb) the value of the shares or beneficial interests of the business entity; or
179          (II) the shares of the business entity are regularly traded on an established securities
180     market; and
181          (E) the business entity is organized in a country that has a tax treaty with the United
182     States; or
183          (ii) a listed Australian property trust.
184          (b) In accordance with Title 63G, Chapter 3, Utah Administrative Rulemaking Act, the
185     commission may make rules defining:
186          (i) "cash or cash equivalents";
187          (ii) "established securities market"; or
188          (iii) "listed Australian property trust."
189          [(18)] (19) "Income" includes losses.
190          [(19)] (20) "Internal Revenue Code" means Title 26 of the United States Code as
191     effective during the year in which Utah taxable income is determined.
192          [(20)] (21) "Nonbusiness income" means the same as that term is defined in Section
193     59-7-302.
194          [(21)] (22) "Real estate investment trust" means the same as that term is defined in
195     Section 856, Internal Revenue Code.
196          [(22)] (23) "Related expenses" means:
197          (a) expenses directly attributable to nonbusiness income; and
198          (b) the portion of interest or other expense indirectly attributable to both nonbusiness
199     and business income that bears the same ratio to the aggregate amount of such interest or other
200     expense, determined without regard to this Subsection [(22)] (23), as the average amount of the
201     asset producing the nonbusiness income bears to the average amount of all assets of the
202     taxpayer within the taxable year.
203          [(23)] (24) "S corporation" means an S corporation as defined in Section 1361, Internal
204     Revenue Code.
205          [(24)] (25) "Safe harbor lease" means a lease that qualified as a safe harbor lease under
206     Section 168, Internal Revenue Code.
207          [(25)] (26) "State of the United States" includes any of the 50 states or the District of
208     Columbia.
209          [(26)] (27) (a) "Taxable year" means the calendar year or the fiscal year ending during
210     such calendar year upon the basis of which the adjusted income is computed.
211          (b) In the case of a return made for a fractional part of a year under this chapter or
212     under rules prescribed by the commission, "taxable year" includes the period for which such
213     return is made.
214          [(27)] (28) "Taxpayer" means any corporation subject to the tax imposed by this
215     chapter.
216          [(28)] (29) "Threshold level of business activity" means business activity in the United
217     States equal to or greater than 20% of the corporation's total business activity as determined
218     under Section 59-7-401.
219          [(29)] (30) (a) "Unadjusted income" means federal taxable income as determined on a
220     separate return basis before intercompany eliminations as determined by the Internal Revenue
221     Code, before the net operating loss deduction and special deductions for dividends received.
222          (b) For the last taxable year of a taxpayer beginning on or before December 31, 2017,
223     "unadjusted income" includes deferred foreign income described in Section 965(a), Internal
224     Revenue Code.
225          [(30)] (31) (a) "Unitary group" means a group of corporations that:
226          (i) are related through common ownership; and
227          (ii) by a preponderance of the evidence as determined by a court of competent
228     jurisdiction or the commission, are economically interdependent with one another as
229     demonstrated by the following factors:
230          (A) centralized management;
231          (B) functional integration; and
232          (C) economies of scale.
233          (b) "Unitary group" includes a captive real estate investment trust.
234          (c) "Unitary group" does not include an S corporation.
235          [(31)] (32) "United States" includes the 50 states and the District of Columbia.
236          [(32)] (33) "Utah net loss" means the current year Utah taxable income before Utah net
237     loss deduction, if determined to be less than zero.
238          [(33)] (34) "Utah net loss deduction" means the amount of Utah net losses from other
239     taxable years that a taxpayer may carry forward to the current taxable year in accordance with
240     Section 59-7-110.
241          [(34)] (35) (a) "Utah taxable income" means Utah taxable income before net loss
242     deduction less Utah net loss deduction.
243          (b) "Utah taxable income" includes income from tangible or intangible property located
244     or having situs in this state, regardless of whether carried on in intrastate, interstate, or foreign
245     commerce.
246          [(35)] (36) "Utah taxable income before net loss deduction" means apportioned income
247     plus nonbusiness income allocable to Utah net of related expenses.
248          [(36)] (37) (a) "Water's edge combined report" means a report combining the income
249     and activities of:
250          (i) all members of a unitary group that are:
251          (A) corporations organized or incorporated in the United States, including those
252     corporations qualifying for the Puerto Rico and Possession Tax Credit as provided in Section
253     936, Internal Revenue Code, in accordance with Subsection [(36)] (37)(b); and
254          (B) corporations organized or incorporated outside of the United States meeting the
255     threshold level of business activity; and
256          (ii) an affiliated group electing to file a water's edge combined report under Subsection
257     59-7-402(2).
258          (b) There is a rebuttable presumption that a corporation which qualifies for the Puerto
259     Rico and possession tax credit provided in Section 936, Internal Revenue Code, is part of a
260     unitary group.
261          [(37)] (38) "Worldwide combined report" means the combination of the income and
262     activities of all members of a unitary group irrespective of the country in which the
263     corporations are incorporated or conduct business activity.
264          Section 2. Section 59-7-104 is amended to read:
265          59-7-104. Tax -- Minimum tax.
266          (1) Each domestic and foreign corporation, except a corporation that is exempt under
267     Section 59-7-102, shall pay an annual tax to the state based on the corporation's Utah taxable
268     income for the taxable year for the privilege of exercising the corporation's corporate franchise,
269     as defined in Section 59-7-101, or for the privilege of doing business, as defined in Section
270     59-7-101, in the state.
271          (2) The tax shall be 4.95% of a corporation's Utah taxable income.
272          (3) The minimum tax a corporation shall pay under this chapter is $100.
273          Section 3. Section 59-7-319 is amended to read:
274          59-7-319. Circumstances under which a receipt, rent, royalty, or sale is
275     considered to be in this state.
276          (1) (a) Subject to Subsection (1)(b), as used in this section, "regulated investment
277     company" is as defined in Section 851(a), Internal Revenue Code, in effect for the taxable year.
278          (b) "Regulated investment company" includes a trustee or sponsor of an employee
279     benefit plan that has an account in a regulated investment company.
280          (2) The following are considered to be in this state:
281          (a) a rent in connection with:
282          (i) real property if the real property is in this state; or
283          (ii) tangible personal property if the tangible personal property is in this state;
284          (b) a royalty in connection with real property if the real property is in this state;
285          (c) a sale in connection with real property if the real property is in this state; or
286          (d) other income in connection with real property or tangible personal property if the
287     real property or tangible personal property is in this state.
288          (3) (a) Subject to Subsection (3)(b), a receipt from the performance of a service is
289     considered to be in this state if the purchaser of the service receives a greater benefit of the
290     service in this state than in any other [state.] single:
291          (i) foreign country; or
292          (ii) state, as defined in Section 68-3-12.5.
293          (b) In accordance with Title 63G, Chapter 3, Utah Administrative Rulemaking Act, the
294     commission may by rule prescribe the circumstances under which a purchaser of a service
295     receives a greater benefit of the service in this state than in any other [state.] single:
296          (i) foreign country; or
297          (ii) state, as defined in Section 68-3-12.5.
298          (4) (a) Subject to Subsection (4)(b), a receipt in connection with intangible property is
299     considered to be in this state if the intangible property is used in this state.
300          (b) If the intangible property described in Subsection (4)(a) is used in this state and
301     outside this state, a receipt in connection with the intangible property shall be apportioned to
302     this state in accordance with Subsection (4)(c).
303          (c) For purposes of Subsection (4)(b), for a taxable year the percentage of a receipt in
304     connection with intangible property that is considered to be in this state is the percentage of the
305     use of the intangible property that occurs in this state during the taxable year.
306          (5) (a) Notwithstanding Subsections (2) through (4), a sale, other than a sale of tangible
307     personal property, derived, directly or indirectly, from the sale of management, distribution, or
308     administration services to, or on behalf of a regulated investment company, is considered to be
309     in this state:
310          (i) to the extent that shareholders of the regulated investment company are domiciled in
311     the state; and
312          (ii) as provided in this Subsection (5).
313          (b) For purposes of Subsection (5)(a), the amount of a sale, other than a sale of tangible
314     personal property, that is considered to be in this state is calculated by determining the product
315     of:
316          (i) the taxpayer's total dollar amount of sales of the services; and
317          (ii) a fraction, the numerator of which is the average of the sum of the beginning of the
318     year and the end of year balance of shares owned by the investment company shareholders
319     domiciled in this state and the denominator of which is the average of the sum of the beginning
320     of the year and end of year balance of shares owned by the investment company shareholders.
321          (c) A separate computation shall be made to determine the sales for each investment
322     company.
323          (6) (a) Notwithstanding Subsections (2) through (4) and subject to Subsection (6)(b),
324     the following sales are considered to be in this state to the extent that customers of a securities
325     brokerage business are domiciled in the state:
326          (i) a sale, other than a sale of tangible personal property, derived, directly or indirectly,
327     from the sale of a securities brokerage service by a taxpayer if that taxpayer is primarily
328     engaged in providing a service in this state to a regulated investment company; or
329          (ii) a sale, other than a sale of tangible personal property, derived, directly or indirectly,
330     from the sale of a securities brokerage service by a taxpayer that is an affiliate of a taxpayer
331     that provides a service in this state to a regulated investment company.
332          (b) For purposes of Subsection (6)(a), the amount of a sale, other than a sale of tangible
333     personal property, that is considered to be in this state is calculated by determining the product
334     of:
335          (i) the taxpayer's total dollar amount of sales of securities brokerage services; and
336          (ii) a fraction, the numerator of which is the receipts from securities brokerage
337     services from customers of the taxpayer domiciled in this state, and the denominator of which
338     is the receipts from securities brokerage services from all customers of the taxpayer.
339          (7) Whether sales by an airline, other than sales of tangible personal property, are in
340     this state is determined as provided in this section, subject to the calculation required by
341     Subsection 59-7-317(2).
342          Section 4. Section 59-7-402 is amended to read:
343          59-7-402. Water's edge combined report.
344          (1) Except as provided in Section 59-7-403, if any corporation listed in Subsection
345     59-7-101[(36)](37)(a) is doing business in Utah, the unitary group shall file a water's edge
346     combined report.
347          (2) (a) A group of corporations that are not otherwise a unitary group may elect to file a
348     water's edge combined report if each member of the group is:
349          (i) doing business in Utah;
350          (ii) part of the same affiliated group; and
351          (iii) qualified, under Section 1501, Internal Revenue Code, to file a federal
352     consolidated return.
353          (b) Each corporation within the affiliated group that is doing business in Utah must
354     consent to filing a combined report. If an affiliated group elects to file a combined report, each
355     corporation within the affiliated group that is doing business in Utah must file a combined
356     report.
357          (c) Corporations that elect to file a water's edge combined report under this section may
358     not thereafter elect to file a separate return without the consent of the commission.
359          Section 5. Retrospective operation.
360          This bill has retrospective operation for a taxable year beginning on or after January 1,
361     2019.