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H.B. 191
1
CORPORATE FRANCHISE AND INCOME TAX
2
AMENDMENTS
3
2004 GENERAL SESSION
4
STATE OF UTAH
5
Sponsor: Gordon E. Snow
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LONG TITLE
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General Description:
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This bill amends the Corporate Franchise and Income Taxes chapter.
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Highlighted Provisions:
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This bill:
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. amends the definition of "nonresident shareholder" to repeal language providing
13
that an organization exempt under Section 501, Internal Revenue Code, is a
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nonresident shareholder;
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. amends the definition of "S corporation";
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. repeals references to foreign sales corporations that have been repealed under
17
federal law; and
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. makes technical changes.
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Monies Appropriated in this Bill:
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None
21
Other Special Clauses:
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This bill provides an effective date.
23
Utah Code Sections Affected:
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AMENDS:
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59-7-101 (Contingently Superseded 05/02/05), as last amended by Chapter 110, Laws
26
of Utah 2003
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59-7-101 (Contingently Effective 05/02/05), as last amended by Chapter 327, Laws of
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Utah 2003
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59-7-402, as last amended by Chapter 76, Laws of Utah 2002
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REPEALS:
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59-7-106.5, as enacted by Chapter 178, Laws of Utah 1994
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Be it enacted by the Legislature of the state of Utah:
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Section 1.
Section
59-7-101 (Contingently Superseded 05/02/05)
is amended to read:
35
59-7-101 (Contingently Superseded 05/02/05). Definitions.
36
As used in this chapter:
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(1) "Adjusted income" means unadjusted income as modified by Sections
59-7-105
38
and
59-7-106
.
39
(2) (a) "Affiliated group" means one or more chains of corporations that are connected
40
through stock ownership with a common parent corporation that meet the following
41
requirements:
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(i) at least 80% of the stock of each of the corporations in the group, excluding the
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common parent corporation, is owned by one or more of the other corporations in the group;
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and
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(ii) the common parent directly owns at least 80% of the stock of at least one of the
46
corporations in the group.
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(b) "Affiliated group" does not include corporations that are qualified to do business
48
but are not otherwise doing business in this state.
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(c) For purposes of this Subsection (2), "stock" does not include nonvoting stock which
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is limited and preferred as to dividends.
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(3) "Apportionable income" means adjusted income less nonbusiness income net of
52
related expenses, to the extent included in adjusted income.
53
(4) "Apportioned income" means apportionable income multiplied by the
54
apportionment fraction as determined in Section
59-7-311
.
55
(5) "Business income" [means income] is as defined in Section
59-7-302
.
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(6) "Corporate return" or "return" includes a combined report.
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(7) (a) "Common ownership" means the direct or indirect control or ownership of more
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than 50% of the outstanding voting stock of:
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(i) a parent-subsidiary controlled group as defined in Section 1563, Internal Revenue
60
Code, except that 50% shall be substituted for 80%;
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(ii) a brother-sister controlled group as defined in Section 1563, Internal Revenue
62
Code, except that 50% shall be substituted for 80%; or
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(iii) three or more corporations each of which is a member of a group of corporations
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described in Subsection (2)(a)(i) or (2)(a)(ii), and one of which is:
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(A) a common parent corporation included in a group of corporations described in
66
Subsection (2)(a)(i); and
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(B) included in a group of corporations described in Subsection (2)(a)(ii).
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(b) Ownership of outstanding voting stock shall be determined by Section 1563,
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Internal Revenue Code.
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(8) "Corporation" includes:
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(a) entities defined as corporations under Sections 7701(a) and 7704, Internal Revenue
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Code; and
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(b) other organizations that are taxed as corporations for federal income tax purposes
74
under the Internal Revenue Code.
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(9) "Dividend" means any distribution, including money or other type of property,
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made by a corporation to its shareholders out of its earnings or profits accumulated after
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December 31, 1930.
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(10) (a) "Doing business" includes any transaction in the course of its business by a
79
domestic corporation, or by a foreign corporation qualified to do or doing intrastate business in
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this state.
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(b) Except as provided in Subsection
59-7-102
(2), "doing business" includes:
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(i) the right to do business through incorporation or qualification;
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(ii) the owning, renting, or leasing of real or personal property within this state; and
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(iii) the participation in joint ventures, working and operating agreements, the
85
performance of which takes place in this state.
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(11) "Domestic corporation" means a corporation that is incorporated or organized
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under the laws of this state.
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(12) (a) "Farmers' cooperative" means an association, corporation, or other
89
organization that is:
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(i) (A) an association, corporation, or other organization of:
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(I) farmers; or
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(II) fruit growers; or
93
(B) an association, corporation, or other organization that is similar to an association,
94
corporation, or organization described in Subsection (12)(a)(i)(A); and
95
(ii) organized and operated on a cooperative basis to:
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(A) (I) market the products of members of the cooperative or the products of other
97
producers; and
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(II) return to the members of the cooperative or other producers the proceeds of sales
99
less necessary marketing expenses on the basis of the quantity of the products of a member or
100
producer or the value of the products of a member or producer; or
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(B) (I) purchase supplies and equipment for the use of members of the cooperative or
102
other persons; and
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(II) turn over the supplies and equipment described in Subsection (12)(a)(ii)(B)(I) at
104
actual costs plus necessary expenses to the members of the cooperative or other persons.
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(b) (i) Subject to Subsection (12)(b)(ii), for purposes of this Subsection (12), the
106
commission by rule, made in accordance with Title 63, Chapter 46a, Utah Administrative
107
Rulemaking Act, shall define:
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(A) the terms:
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(I) "member"; and
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(II) "producer"; and
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(B) what constitutes an association, corporation, or other organization that is similar to
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an association, corporation, or organization described in Subsection (12)(a)(i)(A).
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(ii) The rules made under this Subsection (12)(b) shall be consistent with the filing
114
requirements under federal law for a farmers' cooperative.
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(13) "Foreign corporation" means a corporation that is not incorporated or organized
116
under the laws of this state.
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(14) (a) "Foreign operating company" means a corporation that:
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(i) is incorporated in the United States; and
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(ii) 80% or more of whose business activity, as determined under Section
59-7-401
, is
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conducted outside the United States.
121
(b) "Foreign operating company" does not include a corporation that qualifies for the
122
Puerto Rico and Possession Tax Credit as provided in Section 936, Internal Revenue Code.
123
[(15) "Foreign sales corporation" means a corporation as defined in Section 922,
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Internal Revenue Code.]
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[(16)] (15) "Income" includes losses.
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[(17)] (16) "Internal Revenue Code" means Title 26 of the United States Code as
127
effective during the year in which Utah taxable income is determined.
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[(18)] (17) "Nonbusiness income" [means income] is as defined in Section
59-7-302
.
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[(19)] (18) "Nonresident shareholder" means any shareholder of an S corporation who
130
on the last day of the taxable year of the S corporation, is:
131
(a) an individual not domiciled in Utah; or
132
(b) a nonresident trust or nonresident estate, as defined in Section
59-10-103
[; or].
133
[(c) an organization exempt under Section 501, Internal Revenue Code.]
134
[(20)] (19) "Related expenses" means:
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(a) expenses directly attributable to nonbusiness income; and
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(b) the portion of interest or other expense indirectly attributable to both nonbusiness
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and business income which bears the same ratio to the aggregate amount of such interest or
138
other expense, determined without regard to this Subsection [(20)] (19), as the average amount
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of the asset producing the nonbusiness income bears to the average amount of all assets of the
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taxpayer within the taxable year.
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[(21)] (20) "Resident shareholder" means any shareholder of an S corporation who is
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not a nonresident shareholder.
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[(22)] (21) "S corporation" means [a small business] an S corporation as defined in
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Section 1361, Internal Revenue Code.
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[(23)] (22) "Safe harbor lease" means a lease that qualified as a safe harbor lease under
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Section 168, Internal Revenue Code.
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[(24)] (23) "State of the United States" includes any of the 50 states or the District of
148
Columbia and "United States" includes the 50 states and the District of Columbia.
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[(25)] (24) (a) "Taxable year" means the calendar year or the fiscal year ending during
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such calendar year upon the basis of which the adjusted income is computed.
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(b) In the case of a return made for a fractional part of a year under this chapter or
152
under rules prescribed by the commission, "taxable year" includes the period for which such
153
return is made.
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[(26)] (25) "Taxpayer" means any corporation subject to the tax imposed by this
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chapter.
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[(27)] (26) "Threshold level of business activity" means business activity in the United
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States equal to or greater than 20% of the corporation's total business activity as determined
158
under Section
59-7-401
.
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[(28)] (27) "Unadjusted income" means federal taxable income as determined on a
160
separate return basis before intercompany eliminations as determined by the Internal Revenue
161
Code, before the net operating loss deduction and special deductions for dividends received.
162
[(29)] (28) (a) "Unitary group" means a group of corporations that:
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(i) are related through common ownership; and
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(ii) by a preponderance of the evidence as determined by a court of competent
165
jurisdiction or the commission, are economically interdependent with one another as
166
demonstrated by the following factors:
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(A) centralized management;
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(B) functional integration; and
169
(C) economies of scale.
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(b) "Unitary group" does not include S corporations.
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[(30)] (29) "Utah net loss" means the current year Utah taxable income before Utah net
172
loss deduction, if determined to be less than zero.
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[(31)] (30) "Utah net loss deduction" means the amount of Utah net losses from other
174
taxable years that may be carried back or carried forward to the current taxable year in
175
accordance with Section
59-7-110
.
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[(32)] (31) (a) "Utah taxable income" means Utah taxable income before net loss
177
deduction less Utah net loss deduction.
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(b) "Utah taxable income" includes income from tangible or intangible property located
179
or having situs in this state, regardless of whether carried on in intrastate, interstate, or foreign
180
commerce.
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[(33)] (32) "Utah taxable income before net loss deduction" means apportioned income
182
plus nonbusiness income allocable to Utah net of related expenses.
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[(34)] (33) (a) "Water's edge combined report" means a report combining the income
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and activities of:
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(i) all members of a unitary group that are:
186
(A) corporations organized or incorporated in the United States, including those
187
corporations qualifying for the Puerto Rico and Possession Tax Credit as provided in Section
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936, Internal Revenue Code, in accordance with Subsection [(34)] (33)(b); and
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(B) corporations organized or incorporated outside of the United States meeting the
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threshold level of business activity; and
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(ii) an affiliated group electing to file a water's edge combined report under Subsection
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59-7-402
(2).
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(b) There is a rebuttable presumption that a corporation which qualifies for the Puerto
194
Rico and Possession Tax Credit provided in Section 936, Internal Revenue Code, is part of a
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unitary group.
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[(35)] (34) "Worldwide combined report" means the combination of the income and
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activities of all members of a unitary group irrespective of the country in which the
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corporations are incorporated or conduct business activity.
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Section 2.
Section
59-7-101 (Contingently Effective 05/02/05)
is amended to read:
200
59-7-101 (Contingently Effective 05/02/05). Definitions.
201
As used in this chapter:
202
(1) "Adjusted income" means unadjusted income as modified by Sections
59-7-105
203
and
59-7-106
.
204
(2) (a) "Affiliated group" means one or more chains of corporations that are connected
205
through stock ownership with a common parent corporation that meet the following
206
requirements:
207
(i) at least 80% of the stock of each of the corporations in the group, excluding the
208
common parent corporation, is owned by one or more of the other corporations in the group;
209
and
210
(ii) the common parent directly owns at least 80% of the stock of at least one of the
211
corporations in the group.
212
(b) "Affiliated group" does not include corporations that are qualified to do business
213
but are not otherwise doing business in this state.
214
(c) For purposes of this Subsection (2), "stock" does not include nonvoting stock which
215
is limited and preferred as to dividends.
216
(3) "Apportionable income" means adjusted income less nonbusiness income net of
217
related expenses, to the extent included in adjusted income.
218
(4) "Apportioned income" means apportionable income multiplied by the
219
apportionment fraction as determined in Section
59-7-311
.
220
(5) "Business income" [means income] is as defined in Section
59-7-302
.
221
(6) "Corporate return" or "return" includes a combined report.
222
(7) (a) "Common ownership" means the direct or indirect control or ownership of more
223
than 50% of the outstanding voting stock of:
224
(i) a parent-subsidiary controlled group as defined in Section 1563, Internal Revenue
225
Code, except that 50% shall be substituted for 80%;
226
(ii) a brother-sister controlled group as defined in Section 1563, Internal Revenue
227
Code, except that 50% shall be substituted for 80%; or
228
(iii) three or more corporations each of which is a member of a group of corporations
229
described in Subsection (2)(a)(i) or (2)(a)(ii), and one of which is:
230
(A) a common parent corporation included in a group of corporations described in
231
Subsection (2)(a)(i); and
232
(B) included in a group of corporations described in Subsection (2)(a)(ii).
233
(b) Ownership of outstanding voting stock shall be determined by Section 1563,
234
Internal Revenue Code.
235
(8) "Corporation" includes:
236
(a) entities defined as corporations under Sections 7701(a) and 7704, Internal Revenue
237
Code; and
238
(b) other organizations that are taxed as corporations for federal income tax purposes
239
under the Internal Revenue Code.
240
(9) "Dividend" means any distribution, including money or other type of property,
241
made by a corporation to its shareholders out of its earnings or profits accumulated after
242
December 31, 1930.
243
(10) (a) "Doing business" includes any transaction in the course of its business by a
244
domestic corporation, or by a foreign corporation qualified to do or doing intrastate business in
245
this state.
246
(b) Except as provided in Subsection
59-7-102
(2), "doing business" includes:
247
(i) the right to do business through incorporation or qualification;
248
(ii) the owning, renting, or leasing of real or personal property within this state; and
249
(iii) the participation in joint ventures, working and operating agreements, the
250
performance of which takes place in this state.
251
(11) "Domestic corporation" means a corporation that is incorporated or organized
252
under the laws of this state.
253
(12) (a) "Farmers' cooperative" means an association, corporation, or other
254
organization that is:
255
(i) (A) an association, corporation, or other organization of:
256
(I) farmers; or
257
(II) fruit growers; or
258
(B) an association, corporation, or other organization that is similar to an association,
259
corporation, or organization described in Subsection (12)(a)(i)(A); and
260
(ii) organized and operated on a cooperative basis to:
261
(A) (I) market the products of members of the cooperative or the products of other
262
producers; and
263
(II) return to the members of the cooperative or other producers the proceeds of sales
264
less necessary marketing expenses on the basis of the quantity of the products of a member or
265
producer or the value of the products of a member or producer; or
266
(B) (I) purchase supplies and equipment for the use of members of the cooperative or
267
other persons; and
268
(II) turn over the supplies and equipment described in Subsection (12)(a)(ii)(B)(I) at
269
actual costs plus necessary expenses to the members of the cooperative or other persons.
270
(b) (i) Subject to Subsection (12)(b)(ii), for purposes of this Subsection (12), the
271
commission by rule, made in accordance with Title 63, Chapter 46a, Utah Administrative
272
Rulemaking Act, shall define:
273
(A) the terms:
274
(I) "member"; and
275
(II) "producer"; and
276
(B) what constitutes an association, corporation, or other organization that is similar to
277
an association, corporation, or organization described in Subsection (12)(a)(i)(A).
278
(ii) The rules made under this Subsection (12)(b) shall be consistent with the filing
279
requirements under federal law for a farmers' cooperative.
280
(13) "Foreign corporation" means a corporation that is not incorporated or organized
281
under the laws of this state.
282
(14) (a) "Foreign operating company" means a corporation that:
283
(i) is incorporated in the United States; and
284
(ii) 80% or more of whose business activity, as determined under Section
59-7-401
, is
285
conducted outside the United States.
286
(b) "Foreign operating company" does not include a corporation that qualifies for the
287
Puerto Rico and Possession Tax Credit as provided in Section 936, Internal Revenue Code.
288
[(15) "Foreign sales corporation" means a corporation as defined in Section 922,
289
Internal Revenue Code.]
290
[(16)] (15) "Income" includes losses.
291
[(17)] (16) "Internal Revenue Code" means Title 26 of the United States Code as
292
effective during the year in which Utah taxable income is determined.
293
[(18)] (17) "Nonbusiness income" [means income] is as defined in Section
59-7-302
.
294
[(19)] (18) "Nonresident shareholder" means any shareholder of an S corporation who
295
on the last day of the taxable year of the S corporation, is:
296
(a) an individual not domiciled in Utah; or
297
(b) a nonresident trust or nonresident estate, as defined in Section
59-10-103
[; or].
298
[(c) an organization exempt under Section 501, Internal Revenue Code.]
299
[(20)] (19) "Related expenses" means:
300
(a) expenses directly attributable to nonbusiness income; and
301
(b) the portion of interest or other expense indirectly attributable to both nonbusiness
302
and business income which bears the same ratio to the aggregate amount of such interest or
303
other expense, determined without regard to this Subsection [(20)] (19), as the average amount
304
of the asset producing the nonbusiness income bears to the average amount of all assets of the
305
taxpayer within the taxable year.
306
[(21)] (20) "Resident shareholder" means any shareholder of an S corporation who is
307
not a nonresident shareholder.
308
[(22)] (21) "S corporation" means [a small business] an S corporation as defined in
309
Section 1361, Internal Revenue Code.
310
[(23)] (22) "Safe harbor lease" means a lease that qualified as a safe harbor lease under
311
Section 168, Internal Revenue Code.
312
[(24)] (23) "State of the United States" includes any of the 50 states or the District of
313
Columbia and "United States" includes the 50 states and the District of Columbia.
314
[(25)] (24) (a) "Taxable year" means the calendar year or the fiscal year ending during
315
such calendar year upon the basis of which the adjusted income is computed.
316
(b) In the case of a return made for a fractional part of a year under this chapter or
317
under rules prescribed by the commission, "taxable year" includes the period for which such
318
return is made.
319
[(26)] (25) "Taxpayer" means any corporation subject to the tax imposed by this
320
chapter.
321
[(27)] (26) "Threshold level of business activity" means business activity in the United
322
States equal to or greater than 20% of the corporation's total business activity as determined
323
under Section
59-7-401
.
324
[(28)] (27) Except as provided in Section
59-7-102
, "unadjusted income" means federal
325
taxable income as determined on a separate return basis before intercompany eliminations as
326
determined by the Internal Revenue Code, before the net operating loss deduction and special
327
deductions for dividends received.
328
[(29)] (28) (a) "Unitary group" means a group of corporations that:
329
(i) are related through common ownership; and
330
(ii) by a preponderance of the evidence as determined by a court of competent
331
jurisdiction or the commission, are economically interdependent with one another as
332
demonstrated by the following factors:
333
(A) centralized management;
334
(B) functional integration; and
335
(C) economies of scale.
336
(b) "Unitary group" does not include S corporations.
337
[(30)] (29) "Utah net loss" means the current year Utah taxable income before Utah net
338
loss deduction, if determined to be less than zero.
339
[(31)] (30) "Utah net loss deduction" means the amount of Utah net losses from other
340
taxable years that may be carried back or carried forward to the current taxable year in
341
accordance with Section
59-7-110
.
342
[(32)] (31) (a) "Utah taxable income" means Utah taxable income before net loss
343
deduction less Utah net loss deduction.
344
(b) "Utah taxable income" includes income from tangible or intangible property located
345
or having situs in this state, regardless of whether carried on in intrastate, interstate, or foreign
346
commerce.
347
[(33)] (32) "Utah taxable income before net loss deduction" means apportioned income
348
plus nonbusiness income allocable to Utah net of related expenses.
349
[(34)] (33) (a) "Water's edge combined report" means a report combining the income
350
and activities of:
351
(i) all members of a unitary group that are:
352
(A) corporations organized or incorporated in the United States, including those
353
corporations qualifying for the Puerto Rico and Possession Tax Credit as provided in Section
354
936, Internal Revenue Code, in accordance with Subsection [(34)] (33)(b); and
355
(B) corporations organized or incorporated outside of the United States meeting the
356
threshold level of business activity; and
357
(ii) an affiliated group electing to file a water's edge combined report under Subsection
358
59-7-402
(2).
359
(b) There is a rebuttable presumption that a corporation which qualifies for the Puerto
360
Rico and Possession Tax Credit provided in Section 936, Internal Revenue Code, is part of a
361
unitary group.
362
[(35)] (34) "Worldwide combined report" means the combination of the income and
363
activities of all members of a unitary group irrespective of the country in which the
364
corporations are incorporated or conduct business activity.
365
Section 3.
Section
59-7-402
is amended to read:
366
59-7-402. Water's edge combined report.
367
(1) Except as provided in Section
59-7-403
, if any corporation listed in Subsection
368
59-7-101
[(34)](33)(a) is doing business in Utah, the unitary group shall file a water's edge
369
combined report.
370
(2) (a) A group of corporations that are not otherwise a unitary group may elect to file a
371
water's edge combined report if each member of the group is:
372
(i) doing business in Utah;
373
(ii) part of the same affiliated group; and
374
(iii) qualified, under Section 1501, Internal Revenue Code, to file a federal
375
consolidated return.
376
(b) Each corporation within the affiliated group that is doing business in Utah must
377
consent to filing a combined report. If an affiliated group elects to file a combined report, each
378
corporation within the affiliated group that is doing business in Utah must file a combined
379
report.
380
(c) Corporations that elect to file a water's edge combined report under this section may
381
not thereafter elect to file a separate return without the consent of the commission.
382
Section 4. Repealer.
383
This bill repeals:
384
Section 59-7-106.5, Foreign sales corporations.
385
Section 5. Retrospective operation -- Effective date.
386
(1) Except as provided in Subsection (2), this bill has retrospective operation for
387
taxable years beginning on or after January 1, 2004.
388
(2) The amendments in this bill to Section 59-7-101 (Contingently Effective 05/02/05)
389
take effect as provided in Chapter 327, Section 30, Laws of Utah 2003.
Legislative Review Note
as of 12-10-03 2:49 PM
A limited legal review of this legislation raises no obvious constitutional or statutory concerns.