Rep. Norm Thurston — Voting Record

Bill

Number

S.B. 72 (2018GS)

Sponsor

Sen. Harper, W.

Final action

Governor Signed 3/27/2018

Outcome

Became law — signed by Gov. Gary R. Herbert

Summary

What it does

• This bill:
• defines terms;
• provides a method for a taxpayer to determine if the taxpayer is an optional apportionment taxpayer;
• requires that, for a taxable year beginning on or after January 1, 2019, a taxpayer that apportioned business income using the single sales factor method in the previous taxable year continue to use the single sales factor method of apportionment in subsequent taxable years; and
• provides the circumstances where a taxpayer that previously apportioned business income using the single sales factor method may change the method of apportionment.

Every vote on this bill

Bill text

BUSINESS INCOME TAX MODIFICATIONS
GENERAL SESSION
STATE OF UTAH
Chief Sponsor: Wayne A. Harper
House Sponsor: 
Daniel McCay
LONG TITLE
General Description:
This bill modifies the business income apportionment provisions.
Highlighted Provisions:
This bill:
▸ defines terms;
▸ provides a method for a taxpayer to determine if the taxpayer is an optional
apportionment taxpayer;
▸ requires that, for a taxable year beginning on or after January 1, 2019, a taxpayer
that apportioned business income using the single sales factor method in the
previous taxable year continue to use the single sales factor method of
apportionment in subsequent taxable years; and
▸ provides the circumstances where a taxpayer that previously apportioned business
income using the single sales factor method may change the method of
apportionment.
Money Appropriated in this Bill:
None
Other Special Clauses:
This bill provides retrospective operation.
Utah Code Sections Affected:
AMENDS:
59-7-302
, as last amended by Laws of Utah 2017, Chapters 181 and 268
59-7-311
, as last amended by Laws of Utah 2016, Chapters 311 and 323
59-7-312
, as last amended by Laws of Utah 2008, Chapter 283
59-7-315
, as last amended by Laws of Utah 2008, Chapter 283
Be it enacted by the Legislature of the state of Utah:
Section 1. Section 
59-7-302
 is amended to read:
59-7-302.
Definitions -- Determination of taxpayer status.
(1) As used in this part, unless the context otherwise requires:
(a) "Aircraft type" means a particular model of aircraft as designated by the
manufacturer of the aircraft.
(b) "Airline" means the same as that term is defined in Section 
59-2-102
.
(c) "Airline revenue ton miles" means, for an airline, the total revenue ton miles during
the airline's tax period.
(d) "Business income" means income arising from transactions and activity in the
regular course of the taxpayer's trade or business and includes income from tangible and
intangible property if the acquisition, management, and disposition of the property constitutes
integral parts of the taxpayer's regular trade or business operations.
(e) "Commercial domicile" means the principal place from which the trade or business
of the taxpayer is directed or managed.
(f) "Compensation" means wages, salaries, commissions, and any other form of
remuneration paid to employees for personal services.
(g) (i) "Excluded NAICS code" means a NAICS code of the 2017 North American
Industry Classification System of the federal Executive Office of the President, Office of
Management and Budget, within:
(A) NAICS Sector 21, Mining;
(B) NAICS Industry Group 2212, Natural Gas Distribution;
(C) except as provided in Subsection (1)(g)(ii), NAICS Sector 31-33, Manufacturing;
(D) NAICS Sector 48-49, Transportation and Warehousing;
(E) except as provided in Subsection (1)(g)(ii), NAICS Sector 51, Information; or
(F) NAICS Sector 52, Finance and Insurance.
(ii) "Excluded NAICS code" does not include a NAICS code of the 2017 North
American Industry Classification System of the federal Executive Office of the President,
Office of Management and Budget, within:
(A) NAICS Subsector 3254, Pharmaceutical and Medicine Manufacturing;
(B) NAICS Subsector 3333, Commercial and Service Industry Machinery
Manufacturing;
(C) NAICS Subsector 334, Computer and Electronic Product Manufacturing;
(D) NAICS Code 336111, Automobile Manufacturing; or
(E) NAICS Subsector 519, Other Information Services.
(h) "Included NAICS code" means a NAICS code of the 2017 North American
Industry Classification System of the federal Executive Office of the President, Office of
Management and Budget, that is not an excluded NAICS code.
[
(g)
] 
(i)
 (i) Except as provided in Subsection (1)[
(g)
]
(i)
(ii), "mobile flight equipment"
means the same as that term is defined in Section 
59-2-102
.
(ii) "Mobile flight equipment" does not include:
(A) a spare engine; or
(B) tangible personal property described in Subsection 
59-2-102
(27) owned by an air
charter service or an air contract service.
[
(h)
] 
(j)
 "Nonbusiness income" means all income other than business income.
[
(i) Subject to Subsection (2), "optional sales factor weighted taxpayer" means:
]
[
(i) for a taxpayer that is not a unitary group, regardless of the number of economic
activities the taxpayer performs, a taxpayer having greater than 50% of the taxpayer's total sales
everywhere generated by economic activities performed by the taxpayer if the economic
activities are classified in a NAICS code within NAICS Subsector 334, Computer and
Electronic Product Manufacturing, of the 2002 or 2007 North American Industry Classification
System of the federal Executive Office of the President, Office of Management and Budget; or
]
[
(ii) for a taxpayer that is a unitary group, a taxpayer having greater than 50% of the
taxpayer's total sales everywhere generated by economic activities performed by the taxpayer if
the economic activities are classified in a NAICS code within NAICS Subsector 334,
Computer and Electronic Product Manufacturing, of the 2002 or 2007 North American
Industry Classification System of the federal Executive Office of the President, Office of
Management and Budget.
]
(k) "Optional apportionment taxpayer" means a taxpayer described in Subsection (2).
(l) (i) "Qualifying status change" means that a taxpayer with business income:
(A) acquires another entity;
(B) is acquired by another entity; or
(C) merges with another entity.
(ii) "Qualifying status change" does not include any change in the structure, ownership,
or management of an entity with business income other than a change described in Subsection
(1)(l)(i).
[
(j)
] 
(m)
 "Revenue ton miles" is determined in accordance with 14 C.F.R. Part 241.
[
(k)
] 
(n)
 "Sales" means all gross receipts of the taxpayer not allocated under Sections
59-7-306
 through 
59-7-310
.
[
(l) Subject to Subsection (2), "sales factor weighted taxpayer" means:
]
[
(i) for a taxpayer that is not a unitary group, regardless of the number of economic
activities the taxpayer performs, a taxpayer having greater than 50% of the taxpayer's total sales
everywhere generated by economic activities performed by the taxpayer if the economic
activities are classified in a NAICS code of the 2002 or 2007 North American Industry
Classification System of the federal Executive Office of the President, Office of Management
and Budget, except for:
]
[
(A) a NAICS code within NAICS Sector 21, Mining;
]
[
(B) a NAICS code within NAICS Industry Group 2212, Natural Gas Distribution;
]
[
(C) a NAICS code within NAICS Sector 31-33, Manufacturing, other than NAICS
Code 336111, Automobile Manufacturing;
]
[
(D) a NAICS code within NAICS Sector 48-49, Transportation and Warehousing;
]
[
(E) a NAICS code within NAICS Sector 51, Information, other than NAICS Subsector
519, Other Information Services; or
]
[
(F) a NAICS code within NAICS Sector 52, Finance and Insurance; or
]
[
(ii) for a taxpayer that is a unitary group, a taxpayer having greater than 50% of the
taxpayer's total sales everywhere generated by economic activities performed by the taxpayer if
the economic activities are classified in a NAICS code of the 2002 or 2007 North American
Industry Classification System of the federal Executive Office of the President, Office of
Management and Budget, except for a NAICS code under Subsections (1)(l)(i)(A) through (F).
]
(o) "Single sales factor taxpayer" means a taxpayer that:
(i) performs economic activities that are classified only in included NAICS codes; or
(ii) does not meet the definition of optional apportionment taxpayer.
[
(m)
] 
(p)
 "State" means any state of the United States, the District of Columbia, the
Commonwealth of Puerto Rico, any territory or possession of the United States, and any
foreign country or political subdivision thereof.
[
(n)
] 
(q)
 "Transportation revenue" means revenue an airline earns from:
(i) transporting a passenger or cargo; or
(ii) from miscellaneous sales of merchandise as part of providing transportation
services.
[
(o)
] 
(r)
 "Utah revenue ton miles" means, for an airline, the total revenue ton miles
within the borders of this state:
(i) during the airline's tax period; and
(ii) from flight stages that originate or terminate in this state.
[
(2) The following apply to Subsections (1)(i) and (l):
]
[
(a) (i) Subject to the other provisions of this Subsection (2), for each taxable year, a
taxpayer shall determine whether the taxpayer is a sales factor weighted taxpayer.
]
[
(ii) A taxpayer shall make the determination required by Subsection (2)(a)(i) before
the due date for filing the taxpayer's return under this chapter for the taxable year, including
extensions.
]
[
(iii) For purposes of making the determination required by Subsection (2)(a)(i), total
sales everywhere include only the total sales everywhere:
]
[
(A) as determined in accordance with this part; and
]
[
(B) made during the taxable year for which a taxpayer makes the determination
required by Subsection (2)(a)(i).
]
[
(b) (i) (A) Subject to other provisions of this Subsection (2), for each taxable year, a
taxpayer that is not a sales factor weighted taxpayer may determine whether the taxpayer is an
optional sales factor weighted taxpayer.
]
[
(B) A taxpayer that is not a sales factor weighted taxpayer shall determine that the
taxpayer is an optional sales factor weighted taxpayer before the taxpayer may use the
apportionment options described in Subsection 
59-7-311
(4).
]
[
(ii) A taxpayer making the determination described in Subsection (2)(b)(i) shall make
the determination before the due date for filing the taxpayer's return under this chapter for the
taxable year, including extensions.
]
[
(iii) For purposes of making the determination described in Subsection (2)(b)(i), total
sales everywhere include only the total sales everywhere:
]
[
(A) as determined in accordance with this part; and
]
[
(B) made during the taxable year for which a taxpayer makes a determination
described in Subsection (2)(b)(i).
]
(2) (a) For the taxable year beginning on or after January 1, 2018, but beginning on or
before December 31, 2018, a taxpayer is an optional apportionment taxpayer if the average
calculated in accordance with Subsection (2)(c) is greater than .50.
(b) For a taxable year beginning on or after January 1, 2019, a taxpayer is an optional
apportionment taxpayer if:
(i) (A) the taxpayer apportioned income in accordance with Subsection 
59-7-311
(2)
during the previous taxable year; or
(B) the taxpayer apportioned income in accordance with Subsection 
59-7-311
(3)
during the previous taxable year but has a qualifying status change for the current taxable year;
and
(ii) the average calculated in accordance with Subsection (2)(c) is greater than .50.
(c) To calculate the average described in Subsection (2)(a) or (b)(ii), a taxpayer shall:
(i) calculate the following two fractions:
(A) the property factor fraction as described in Subsection 
59-7-312
(3); and
(B) the payroll factor fraction as described in Subsection 
59-7-315
(3);
(ii) add together the fractions described in Subsection (2)(c)(i); and
(iii) divide the sum calculated in Subsection (2)(c)(ii):
(A) except as provided in Subsection (2)(c)(iii)(B), by two; or
(B) if either the property factor fraction or the payroll factor fraction has a denominator
of zero or is excluded in accordance with Subsection 
59-7-312
(3)(b) or 
59-7-315
(3)(b), by one.
(d) A taxpayer shall determine if the taxpayer is an optional apportionment taxpayer
before the due date, including extensions, for filing the taxpayer's return under this chapter for
the taxable year.
[
(c)
] 
(3)
 A taxpayer that files a return as a unitary group for a taxable year is considered
to be a unitary group for that taxable year.
[
(d)
] 
(4)
 In accordance with Title 63G, Chapter 3, Utah Administrative Rulemaking
Act, the commission may define the term "economic activity" consistent with the use of the
term "activity" in the 2007 North American Industry Classification System of the federal
Executive Office of the President, Office of Management and Budget.
Section 2. Section 
59-7-311
 is amended to read:
59-7-311.
Method of apportionment of business income.
(1) For a taxable year, all business income shall be apportioned to this state by
multiplying the business income by a fraction calculated as provided in this section.
(2) Subject to the other provisions of this part, [
a taxpayer, except for a sales factor
weighted taxpayer and an optional sales factor weighted taxpayer,
] 
an optional apportionment
taxpayer
 shall calculate the fraction for apportioning business income to this state using one of
the following fractions:
(a) a fraction where:
(i) the numerator of the fraction is the sum of:
(A) the property factor as calculated under Section 
59-7-312
;
(B) the payroll factor as calculated under Section 
59-7-315
; and
(C) the sales factor as calculated under Section 
59-7-317
; and
(ii) the denominator of the fraction is three; or
(b) a fraction where:
(i) the numerator of the fraction is the sum of:
(A) the property factor as calculated under Section 
59-7-312
;
(B) the payroll factor as calculated under Section 
59-7-315
; and
(C) the sales factor as calculated under Section 
59-7-317
 multiplied by two; and
(ii) the denominator of the fraction is four.
(3) Subject to the other provisions of this part, a [
sales factor weighted
] 
single sales
factor
 taxpayer shall calculate the fraction for apportioning business income to this state using
a fraction where:
(a) the numerator of the fraction is the sales factor as calculated under Section
59-7-317
; and
(b) the denominator of the fraction is one.
[
(4) Subject to the other provisions of this part, an optional sales factor weighted
taxpayer shall calculate the fraction for apportioning business income to this state using a
method described in Subsection (2)(a), (2)(b), or (3).
] 
[
(5)
] 
(4)
 (a) The taxpayer shall determine the method for calculating the fraction for
apportioning business income to this state under this section on or before the due date for filing
the taxpayer's return under this chapter for the taxable year, including extensions.
(b) The method described in Subsection [
(5)
] 
(4)
(a) is in effect for the taxable year.
[
(6)
] 
(5)
 In accordance with Title 63G, Chapter 3, Utah Administrative Rulemaking
Act, the commission may make rules providing procedures for a taxpayer to make the election
[
required by Subsections (2) and (4)
] 
allowed by Subsection (2)
. 
Section 3. Section 
59-7-312
 is amended to read:
59-7-312.
Property factor for apportionment of business income -- Mobile flight
equipment of an airline.
(1) Except as provided in [
Subsection (2)
] 
Subsections (2) and (3)
, the property factor
is a fraction[
,
]
:
(a)
 the numerator of which is the average value of the taxpayer's real and tangible
personal property owned or rented and used in this state during the tax period
;
 and
(b)
 the denominator of which is the average value of all the taxpayer's real and tangible
personal property owned or rented and used during the tax period.
(2) The average value of an airline's real and tangible personal property owned or
rented and used in this state attributable to mobile flight equipment for purposes of the
numerator of the fraction described in Subsection (1) shall be calculated for each aircraft type
by [
determining the product of
] 
multiplying
:
(a) the total average value of the airline's mobile flight equipment of the aircraft type
owned or rented and used during the tax period; and
(b) a fraction[
,
]
:
(i)
 the numerator of which is the Utah revenue ton miles for the aircraft type
;
 and
(ii)
 the denominator of which is the airline revenue ton miles for the aircraft type.
(3) (a) For purposes of Subsection 
59-7-302
(2)(c)(i)(A) and subject to Subsection
(3)(b), the property factor is a fraction:
(i) the numerator of which is the value of the property in this state that is attributable to
economic activities that are classified in an excluded NAICS code; and
(ii) the denominator of which is the value of all property in this state.
(b) A taxpayer shall exclude property from the calculation of the property factor
fraction in Subsection (3)(a) if the property may be attributed to economic activities in both
included NAICS codes and excluded NAICS codes.
Section 4. Section 
59-7-315
 is amended to read:
59-7-315.
Payroll factor for apportionment of business income -- Compensation
of flight personnel by an airline.
(1) Except as provided in [
Subsection (2)
] 
Subsections (2) and (3)
, the payroll factor is
a fraction[
,
]
:
(a)
 the numerator of which is the total amount paid in this state during the tax period by
the taxpayer for compensation[
,
]
;
 and
(b)
 the denominator of which is the total compensation paid everywhere during the tax
period.
(2) The total amount paid in this state during the tax period by an airline for
compensation attributable to the compensation of flight personnel for purposes of the
numerator of the fraction described in Subsection (1) shall be calculated for each aircraft type
by [
determining the product of
] 
multiplying
:
(a) the total amount paid during the tax period by the airline to flight personnel for
compensation for the aircraft type; and
(b) a fraction[
,
]
:
(i)
 the numerator of which is the Utah revenue ton miles for the aircraft type
;
 and
(ii)
 the denominator of which is the airline revenue ton miles for the aircraft type.
(3) (a) For purposes of Subsection 
59-7-302
(2)(c)(i)(B) and subject to Subsection
(3)(b), the payroll factor is a fraction:
(i) the numerator of which is the amount of the payroll in this state that is attributable
to economic activities that are classified in an excluded NAICS code; and
(ii) the denominator of which is the total amount of payroll in the state.
(b) A taxpayer engaged in activities in an excluded NAICS code shall exclude an
individual's payroll from the calculation of the payroll factor fraction in Subsection (3)(a) if the
individual's payroll may be attributed:
(i) to economic activities in both included NAICS codes and excluded NAICS codes;
or
(ii) to providing management, information technology, finance, accounting, legal, or
human resource services.
Section 5. 
Retrospective operation.
This bill has retrospective operation for a taxable year beginning on or after January 1,
2018.