This document includes Senate 3rd Reading Floor Amendments incorporated into the bill on Wed, Feb 3, 2021 at 3:06 PM by lpoole.
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7 LONG TITLE
8 General Description:
9 This bill amends corporate franchise and income tax provisions related to Utah net loss.
10 Highlighted Provisions:
11 This bill:
12 ▸ allows a taxpayer to carry back, for up to three years, a Utah net loss realized during
13 certain taxable years;
14 ▸ provides a process for carrying back a Utah net loss;
15 ▸ authorizes the State Tax Commission to make rules to administer the Utah net loss
16 carry back;
17 ▸ clarifies the calculation of the 80% limitation on carrying forward a Utah net loss;
18 and
19 ▸ makes technical and conforming changes.
20 Money Appropriated in this Bill:
21 None
22 Other Special Clauses:
23 This bill provides retrospective operation.
24 Utah Code Sections Affected:
25 AMENDS:
26 59-7-101, as last amended by Laws of Utah 2020, Sixth Special Session, Chapter 15
27 59-7-110, as last amended by Laws of Utah 2020, Sixth Special Session, Chapter 10
28 59-7-522, as last amended by Laws of Utah 2018, Second Special Session, Chapter 3
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30 Be it enacted by the Legislature of the state of Utah:
31 Section 1. Section 59-7-101 is amended to read:
32 59-7-101. Definitions.
33 As used in this chapter:
34 (1) "Adjusted income" means unadjusted income as modified by Sections 59-7-105
35 and 59-7-106.
36 (2) (a) "Affiliated group" means one or more chains of corporations that are connected
37 through stock ownership with a common parent corporation that meet the following
38 requirements:
39 (i) at least 80% of the stock of each of the corporations in the group, excluding the
40 common parent corporation, is owned by one or more of the other corporations in the group;
41 and
42 (ii) the common parent directly owns at least 80% of the stock of at least one of the
43 corporations in the group.
44 (b) "Affiliated group" does not include corporations that are qualified to do business
45 but are not otherwise doing business in this state.
46 (c) For purposes of this Subsection (2), "stock" does not include nonvoting stock which
47 is limited and preferred as to dividends.
48 (3) "Apportionable income" means adjusted income less nonbusiness income net of
49 related expenses, to the extent included in adjusted income.
50 (4) "Apportioned income" means apportionable income multiplied by the
51 apportionment fraction as determined in Section 59-7-311.
52 (5) "Business income" means the same as that term is defined in Section 59-7-302.
53 (6) "Captive insurance company" means the same as that term is defined in Section
54 31A-1-301.
55 (7) (a) "Captive real estate investment trust" means a real estate investment trust if:
56 (i) the shares or beneficial interests of the real estate investment trust are not regularly
57 traded on an established securities market; and
58 (ii) more than 50% of the voting power or value of the shares or beneficial interests of
59 the real estate investment trust are directly, indirectly, or constructively:
60 (A) owned by a controlling entity of the real estate investment trust; or
61 (B) controlled by a controlling entity of the real estate investment trust.
62 (b) In accordance with Title 63G, Chapter 3, Utah Administrative Rulemaking Act, the
63 commission may make rules defining "established securities market."
64 (8) (a) "Common ownership" means the direct or indirect control or ownership of more
65 than 50% of the outstanding voting stock of:
66 (i) a parent-subsidiary controlled group as defined in Section 1563, Internal Revenue
67 Code, except that 50% shall be substituted for 80%;
68 (ii) a brother-sister controlled group as defined in Section 1563, Internal Revenue
69 Code; or
70 (iii) three or more corporations each of which is a member of a group of corporations
71 described in Subsection (2)(a)(i) or (ii), and one of which is:
72 (A) a common parent corporation included in a group of corporations described in
73 Subsection (2)(a)(i); and
74 (B) included in a group of corporations described in Subsection (2)(a)(ii).
75 (b) Ownership of outstanding voting stock shall be determined by Section 1563,
76 Internal Revenue Code.
77 (9) (a) "Controlling entity of a captive real estate investment trust" means an entity
78 that:
79 (i) is treated as an association taxable as a corporation under the Internal Revenue
80 Code;
81 (ii) is not exempt from federal income taxation under Section 501(a), Internal Revenue
82 Code; and
83 (iii) directly, indirectly, or constructively holds more than 50% of:
84 (A) the voting power of a captive real estate investment trust; or
85 (B) the value of the shares or beneficial interests of a captive real estate investment
86 trust.
87 (b) "Controlling entity of a captive real estate investment trust" does not include:
88 (i) a real estate investment trust, except for a captive real estate investment trust;
89 (ii) a qualified real estate investment subsidiary described in Section 856(i), Internal
90 Revenue Code, except for a qualified real estate investment trust subsidiary of a captive real
91 estate investment trust; or
92 (iii) a foreign real estate investment trust.
93 (c) In accordance with Title 63G, Chapter 3, Utah Administrative Rulemaking Act, the
94 commission may make rules defining "established securities market."
95 (10) "Corporate return" or "return" includes a combined report.
96 (11) "Corporation" includes:
97 (a) entities defined as corporations under Sections 7701(a) and 7704, Internal Revenue
98 Code; and
99 (b) other organizations that are taxed as corporations for federal income tax purposes
100 under the Internal Revenue Code.
101 (12) "COVID-19" means:
102 (a) the severe acute respiratory syndrome coronavirus 2; or
103 (b) the disease caused by severe acute respiratory syndrome coronavirus 2.
104 (13) "Dividend" means any distribution, including money or other type of property,
105 made by a corporation to its shareholders out of its earnings or profits accumulated after
106 December 31, 1930.
107 (14) (a) "Doing business" includes any transaction in the course of business by a
108 domestic corporation or by a foreign corporation qualified to do or doing business in this state.
109 (b) Except as provided in Subsection (14)(c) or Subsection 59-7-102(3), "doing
110 business" includes:
111 (i) the right to do business through incorporation or qualification;
112 (ii) owning, renting, or leasing of real or personal property within this state;
113 (iii) the participation in joint ventures, working and operating agreements, the
114 performance of which takes place in this state;
115 (iv) selling or performing a service in this state; and
116 (v) earning income from the use of intangible property in this state.
117 (c) "Doing business" does not include the business activity of a corporation if the
118 corporation's only business activity within the state is the solicitation of orders for sales of
119 tangible personal property that are protected under 15 U.S.C. Secs. 381 through 384.
120 (15) "Domestic corporation" means a corporation that is incorporated or organized
121 under the laws of this state.
122 (16) "Exercising a corporate franchise" does not include the business activity of a
123 corporation if the corporation's only business activity within the state is the solicitation of
124 orders for sales of tangible personal property that are protected under 15 U.S.C. Secs. 381
125 through 384.
126 (17) (a) "Farmers' cooperative" means an association, corporation, or other
127 organization that is:
128 (i) (A) an association, corporation, or other organization of farmers or fruit growers; or
129 (B) an association, corporation, or other organization that is similar to an association,
130 corporation, or organization described in Subsection (17)(a)(i)(A); and
131 (ii) organized and operated on a cooperative basis to:
132 (A) (I) market the products of members of the cooperative or the products of other
133 producers; and
134 (II) return to the members of the cooperative or other producers the proceeds of sales
135 less necessary marketing expenses on the basis of the quantity of the products of a member or
136 producer or the value of the products of a member or producer; or
137 (B) (I) purchase supplies and equipment for the use of members of the cooperative or
138 other persons; and
139 (II) turn over the supplies and equipment described in Subsection (17)(a)(ii)(B)(I) at
140 actual costs plus necessary expenses to the members of the cooperative or other persons.
141 (b) (i) Subject to Subsection (17)(b)(ii), for purposes of this Subsection (17), the
142 commission by rule, made in accordance with Title 63G, Chapter 3, Utah Administrative
143 Rulemaking Act, shall define:
144 (A) the terms "member" and "producer"; and
145 (B) what constitutes an association, corporation, or other organization that is similar to
146 an association, corporation, or organization described in Subsection (17)(a)(i)(A).
147 (ii) The rules made under this Subsection (17)(b) shall be consistent with the filing
148 requirements under federal law for a farmers' cooperative.
149 (18) "Foreign corporation" means a corporation that is not incorporated or organized
150 under the laws of this state.
151 (19) (a) "Foreign operating company" means a corporation that:
152 (i) is incorporated in the United States;
153 (ii) conducts at least 80% of the corporation's business activity, as determined under
154 Section 59-7-401, outside the United States; and
155 (iii) as calculated in accordance with Part 3, Allocation and Apportionment of Income -
156 Utah UDITPA Provisions, has:
157 (A) at least $1,000,000 of payroll located outside the United States; and
158 (B) at least $2,000,000 of property located outside the United States.
159 (b) "Foreign operating company" does not include a corporation that qualifies for the
160 Puerto Rico and possession tax credit as provided in Section 936, Internal Revenue Code.
161 (20) (a) "Foreign real estate investment trust" means:
162 (i) a business entity organized outside the laws of the United States if:
163 (A) at least 75% of the business entity's total asset value at the close of the business
164 entity's taxable year is represented by:
165 (I) real estate assets, as defined in Section 856(c)(5)(B), Internal Revenue Code;
166 (II) cash or cash equivalents; or
167 (III) one or more securities issued or guaranteed by the United States;
168 (B) the business entity is:
169 (I) not subject to income taxation:
170 (Aa) on amounts distributed to the business entity's beneficial owners; and
171 (Bb) in the jurisdiction in which the business entity is organized; or
172 (II) exempt from income taxation on an entity level in the jurisdiction in which the
173 business entity is organized;
174 (C) the business entity distributes at least 85% of the business entity's taxable income,
175 as computed in the jurisdiction in which the business entity is organized, to the holders of the
176 business entity's:
177 (I) shares or beneficial interests; and
178 (II) on an annual basis;
179 (D) (I) not more than 10% of the following is held directly, indirectly, or constructively
180 by a single person:
181 (Aa) the voting power of the business entity; or
182 (Bb) the value of the shares or beneficial interests of the business entity; or
183 (II) the shares of the business entity are regularly traded on an established securities
184 market; and
185 (E) the business entity is organized in a country that has a tax treaty with the United
186 States; or
187 (ii) a listed Australian property trust.
188 (b) In accordance with Title 63G, Chapter 3, Utah Administrative Rulemaking Act, the
189 commission may make rules defining:
190 (i) "cash or cash equivalents";
191 (ii) "established securities market"; or
192 (iii) "listed Australian property trust."
193 (21) "Income" includes losses.
194 (22) "Internal Revenue Code" means Title 26 of the United States Code as effective
195 during the year in which Utah taxable income is determined.
196 (23) "Nonbusiness income" means the same as that term is defined in Section
197 59-7-302.
198 (24) "Real estate investment trust" means the same as that term is defined in Section
199 856, Internal Revenue Code.
200 (25) "Related expenses" means:
201 (a) expenses directly attributable to nonbusiness income; and
202 (b) the portion of interest or other expense indirectly attributable to both nonbusiness
203 and business income that bears the same ratio to the aggregate amount of such interest or other
204 expense, determined without regard to this Subsection (25), as the average amount of the asset
205 producing the nonbusiness income bears to the average amount of all assets of the taxpayer
206 within the taxable year.
207 (26) "S corporation" means an S corporation as defined in Section 1361, Internal
208 Revenue Code.
209 (27) "Safe harbor lease" means a lease that qualified as a safe harbor lease under
210 Section 168, Internal Revenue Code.
211 (28) "State of the United States" includes any of the 50 states or the District of
212 Columbia.
213 (29) (a) "Taxable year" means the calendar year or the fiscal year ending during such
214 calendar year upon the basis of which the adjusted income is computed.
215 (b) In the case of a return made for a fractional part of a year under this chapter or
216 under rules prescribed by the commission, "taxable year" includes the period for which such
217 return is made.
218 (30) "Taxpayer" means any corporation subject to the tax imposed by this chapter.
219 (31) "Threshold level of business activity" means business activity in the United States
220 equal to or greater than 20% of the corporation's total business activity as determined under
221 Section 59-7-401.
222 (32) (a) "Unadjusted income" means federal taxable income as determined on a
223 separate return basis before intercompany eliminations as determined by the Internal Revenue
224 Code, before the net operating loss deduction and special deductions for dividends received.
225 (b) "Unadjusted income" includes deferred foreign income described in Section 965(a),
226 Internal Revenue Code.
227 (c) "Unadjusted income" does not include income received from:
228 (i) a loan forgiven in accordance with 15 U.S.C. Sec. 636(a)(36), to the extent that a
229 deduction for the expenditures paid with the loan is disallowed; or
230 (ii) a similar paycheck protection loan that is:
231 (A) authorized by the federal government;
232 (B) provided in response to COVID-19;
233 (C) forgiven if the borrower meets the expenditure requirements; and
234 (D) exempt from federal income tax, to the extent that a deduction for the expenditures
235 paid with the loan is disallowed.
236 (33) (a) "Unitary group" means a group of corporations that:
237 (i) are related through common ownership; and
238 (ii) by a preponderance of the evidence as determined by a court of competent
239 jurisdiction or the commission, are economically interdependent with one another as
240 demonstrated by the following factors:
241 (A) centralized management;
242 (B) functional integration; and
243 (C) economies of scale.
244 (b) "Unitary group" includes a captive real estate investment trust.
245 (c) "Unitary group" does not include an S corporation.
246 (34) "United States" includes the 50 states and the District of Columbia.
247 (35) "Utah net loss" means the current year Utah taxable income before Utah net loss
248 deduction, if determined to be less than zero.
249 (36) "Utah net loss deduction" means the amount of Utah net losses from other taxable
250 years that a taxpayer may carry back or carry forward to the current taxable year in accordance
251 with Section 59-7-110.
252 (37) (a) "Utah taxable income" means Utah taxable income before net loss deduction
253 less Utah net loss deduction.
254 (b) "Utah taxable income" includes income from tangible or intangible property located
255 or having situs in this state, regardless of whether carried on in intrastate, interstate, or foreign
256 commerce.
257 (38) "Utah taxable income before net loss deduction" means apportioned income plus
258 nonbusiness income allocable to Utah net of related expenses.
259 (39) (a) "Water's edge combined report" means a report combining the income and
260 activities of:
261 (i) all members of a unitary group that are:
262 (A) corporations organized or incorporated in the United States, including those
263 corporations qualifying for the Puerto Rico and Possession Tax Credit as provided in Section
264 936, Internal Revenue Code, in accordance with Subsection (39)(b); and
265 (B) corporations organized or incorporated outside of the United States meeting the
266 threshold level of business activity; and
267 (ii) an affiliated group electing to file a water's edge combined report under Subsection
268 59-7-402(2).
269 (b) There is a rebuttable presumption that a corporation which qualifies for the Puerto
270 Rico and possession tax credit provided in Section 936, Internal Revenue Code, is part of a
271 unitary group.
272 (40) "Worldwide combined report" means the combination of the income and activities
273 of all members of a unitary group irrespective of the country in which the corporations are
274 incorporated or conduct business activity.
275 Section 2. Section 59-7-110 is amended to read:
276 59-7-110. Utah net loss -- Carry back and carry forward -- Deduction.
277 (1) A taxpayer shall determine the amount of Utah net loss that the taxpayer may carry
278 back or carry forward to offset income of another taxable year as provided in this section.
279 (2) Subject to the other provisions of this section, a taxpayer:
280 (a) for a taxable year other than a taxable year described in Subsection (2)(b):
281 (i) may carry forward a Utah net loss from a taxable year to a future taxable year; and
282 [
283 (b) for a taxable year that begins on or after July 1, 2019, but ends on or before June
284 29, 2022:
285 (i) Ŝ→ [
285a years
286 immediately preceding the taxable year of the Utah net loss; Ŝ→ [
287 (ii) may carry forward Ŝ→ [
287a ←Ŝ from a taxable
288 year to a future taxable year.
289 (3) (a) A taxpayer that carries back a Utah net loss:
290 (i) shall carry back the Utah net loss in the following order Ŝ→ [
291 forward any Utah net loss
292 (A) to the earliest eligible year for which the Utah taxable income before net loss
293 deduction, minus Utah net losses from previous years that a taxpayer applied or was required to
294 apply to offset income, is not less than zero;
295 (B) to the next earliest year for which the Utah taxable income before net loss
296 deduction, minus Utah net losses from previous years that a taxpayer applied or was required to
297 apply to offset income, is not less than zero, if any; and
298 (C) to the next earliest year for which the Utah taxable income before net loss
299 deduction, minus Utah net losses from previous years that a taxpayer applied or was required to
300 apply to offset income, is not less than zero, if any; and
301 (ii) may not combine a Utah net loss that the taxpayer carries forward from previous
302 taxable years with the amount of the Utah net loss that the taxpayer carries back.
303 (b) (i) The total amount of Utah net loss from a taxable year for each return filed under
304 this chapter that a taxpayer may carry back is $1,000,000, regardless of whether the taxpayer
305 carries the Utah net loss back to one taxable year or multiple taxable years.
306 (ii) A taxpayer may carry forward an amount of Utah net loss that exceeds $1,000,000.
307 (c) In accordance with Title 63G, Chapter 3, Utah Administrative Rulemaking Act, the
308 commission may make rules for administering the carry back of a Utah net loss.
309 [
310 net loss to the earliest eligible year for which the Utah taxable income before net loss
311 deduction, minus Utah net losses from previous years that a taxpayer applied or was required to
312 apply to offset income, is not less than zero.
313 [
314 taxpayer may carry to the year identified in Subsection (3) or (4) is the lesser of:
315 (i) the remaining Utah net loss after deduction of any amounts of the Utah net loss that
316 a taxpayer carried to previous years; or
317 (ii) the remaining Utah taxable income before net loss deduction of the year identified
318 in Subsection (3) or (4) after deduction of Utah net losses from previous years that a taxpayer
319 carried or was required to carry to the year identified in Subsection (3) or (4).
320 (b) (i) For a taxable year beginning on or after January 1, 2021, the amount of Utah net
321 loss that a taxpayer may carry forward to a taxable year may not exceed 80% of Utah taxable
322 income computed without regard to the deduction [
323 net loss.
324 (ii) A taxpayer may carry a remaining Utah net loss to one or more taxable years in
325 accordance with this section.
326 (c) If the only Utah net loss that a taxpayer carries forward is from a taxable year that
327 began before January 1, 2018, the commission:
328 (i) shall instruct the taxpayer to calculate the 80% limitation described in Subsection
329 (5)(b) by following federal guidance for calculating the 80% taxable income limitation for
330 federal income tax purposes; or
331 (ii) if the commission determines that adequate federal corporate guidance on how to
332 calculate the 80% limitation is unavailable, may not apply the 80% limitation to the Utah net
333 loss.
334 (d) If a taxpayer carries forward a Utah net loss from a taxable year beginning before
335 January 1, 2018, and a Utah net loss from a taxable year beginning on or after January 1, 2018,
336 the commission shall instruct the taxpayer to calculate the 80% limitation described in
337 Subsection (5)(b) by:
338 (i) following federal guidance for calculating the 80% of taxable income limitation for
339 federal income tax purposes; or
340 (ii) if the commission determines that adequate federal corporate guidance on how to
341 calculate the 80% limitation is unavailable, by:
342 (A) calculating 80% of Utah taxable income before deducting any Utah net losses from
343 Utah taxable income; and
344 (B) applying the limitation that the Utah net loss that a taxpayer carries forward may
345 not exceed 80% of Utah taxable income to Utah net losses incurred on or after January 1, 2018,
346 without regard to Utah net losses from a previous taxable year that the taxpayer carries
347 forward.
348 (e) The commission shall:
349 (i) make a determination annually, on or before April 15 of the year after the taxable
350 year ends, about whether adequate federal corporate guidance on how to calculate the 80%
351 limitation is available; and
352 (ii) if the commission determines that adequate federal corporate guidance on how to
353 calculate the 80% limitation is unavailable, notify the Revenue and Taxation Interim
354 Committee, electronically before the next interim committee meeting, that the commission
355 intends to issue instructions in accordance with Subsection (5)(c)(ii) or (d)(ii).
356 [
357 or stock of another corporation may not deduct any net loss incurred by the acquired
358 corporation prior to the date of acquisition.
359 (ii) Subsection [
360 of the state of incorporation.
361 (b) An acquired corporation may deduct the acquired corporation's net losses incurred
362 before the date of acquisition against the acquired corporation's separate income as calculated
363 under Subsections [
364 trade or business substantially the same as that conducted before the acquisition.
365 [
366 corporation that is acquired by a unitary group may deduct is calculated by:
367 (a) subject to Subsection [
368 (i) except as provided in Subsection [
369 (A) an amount determined by dividing the average value of the acquired corporation's
370 real and tangible personal property owned or rented and used in this state during the taxable
371 year by the average value of all of the unitary group's real and tangible personal property owned
372 or rented and used during the taxable year;
373 (B) an amount determined by dividing the total amount paid in this state during the
374 taxable year by the acquired corporation for compensation by the total compensation paid
375 everywhere by the unitary group during the taxable year; and
376 (C) an amount determined by:
377 (I) dividing the total sales of the acquired corporation in this state during the taxable
378 year by the total sales of the unitary group everywhere during the taxable year; and
379 (II) if the unitary group elects or is required to calculate the fraction for apportioning
380 business income to this state using the method described in Subsection 59-7-311(4) in taxable
381 year 2019 or taxable year 2020, multiplying the amount calculated under Subsection [
382 (7)(a)(i)(C)(I) by , for the taxable year 2019, four, or, for the taxable year 2020, eight ; or
383 (ii) if the unitary group is required or elects to calculate the fraction for apportioning
384 business income to this state using the method described in Subsection 59-7-311(2), calculating
385 an amount determined by dividing the total sales of the acquired corporation in this state during
386 the taxable year by the total sales of the unitary group everywhere during the taxable year;
387 (b) dividing the amount calculated under Subsection [
388 denominator of the fraction the unitary group uses to apportion business income to this state for
389 that taxable year in accordance with Section 59-7-311;
390 (c) multiplying the amount calculated under Subsection [
391 income of the unitary group for the taxable year that is subject to apportionment under Section
392 59-7-311; and
393 (d) calculating the sum of:
394 (i) the amount calculated under Subsection [
395 (ii) the following amounts allocable to the acquired corporation for the taxable year:
396 (A) nonbusiness income allocable to this state; or
397 (B) nonbusiness loss allocable to this state.
398 [
399 same manner as those amounts are derived for purposes of apportioning the unitary group's
400 business income before deducting the net loss, including a modification made in accordance
401 with Section 59-7-320.
402 Section 3. Section 59-7-522 is amended to read:
403 59-7-522. Overpayments.
404 (1) As used in this section, "overpayment" means the same as that term is defined in
405 Section 59-1-1409.
406 (2) (a) Subject to Subsection (2)(b), a taxpayer shall file a claim for credit or refund of
407 an overpayment that is attributable to a Utah net loss carry forward [
408 back within three years from the due date of the return for the taxable year of the Utah net loss.
409 (b) The three-year period described in Subsection (2)(a) shall be extended by any
410 extension of time provided in statute for filing the return described in Subsection (2)(a).
411 (c) A taxpayer shall file a claim described in Subsection (2)(a) in the format required
412 by the commission.
413 (3) The commission shall make a credit against or refund of any overpayment of a tax
414 under this chapter for a taxable year if, in accordance with Section 59-7-519:
415 (a) (i) a corporation agrees with the commissioner of internal revenue for an extension,
416 or a renewal of an extension, of the period for proposing and assessing a deficiency in federal
417 income tax for that taxable year; or
418 (ii) there is a change in or correction of federal taxable income for that taxable year;
419 and
420 (b) the corporation files a claim for the credit or refund before the expiration of the
421 time period within which the commission may assess a deficiency.
422 (4) The commission shall make a credit or refund within a 30-day period after the day
423 on which a court's decision to require the commission to credit or refund the amount of an
424 overpayment to a taxpayer is final.
425 Section 4. Retrospective operation.
426 This bill has retrospective operation for a taxable year beginning on or after July 1,
427 2019.