Opinion ID: 1191944
Heading Depth: 2
Heading Rank: 1

Heading: Uniform Division of Income for Tax Purposes Act (UDITPA)

Text: ¶ 2 This case requires a short explanation of Utah corporate income tax under the UDITPA, Utah Code Ann. tit. 59, ch. 7, pt. 3 (1987). [3] This Act applies to corporations that receive income from business activities in more than one state. Like many states, Utah distinguishes between the business and nonbusiness income of such corporations. Business income arises from transactions and activity in the regular course of the taxpayer's trade or business. Id. § 59-7-302(1). All income is presumed business income unless clearly classifiable as nonbusiness income. Utah Admin. Code R.865-08F-1(A) (1987). Nonbusiness income is all income other than business income, Utah Code Ann. § 59-7-302(7), and is narrowly construed. Utah Admin. Code R.865-08F-1(A)(1). A corporation that is incorporated in Utah or that has its principal place of business in Utah must pay a franchise tax in Utah. See Utah Admin. Code R.865-6F-1(A) (1997); see also Utah Code Ann. §§ 59-7-101(5), -102. This tax is based on all of its nonbusiness income and a portion of its business income. See Utah Code Ann. §§ 59-7-306, -308, -311. The portion of business income that is taxed is based on a statutory apportioning formula. See id. § 59-7-311. Conversely, when losses occur, such a corporation may deduct from its income the entire amount of a nonbusiness loss and a portion of a business loss. See id. §§ 59-7-108(5), 306, -308. ¶ 3 It is undisputed that a corporation's gain or loss from the sale of stock of a subsidiary is treated as a business income gain or loss if the corporation and the subsidiary are a unitary business. Before 1986, neither the Code nor the Commission's Rules defined unitary business, but the Commission considered commonly used factors such as centralization of management, functional integration, common ownership, and economies of scale, to determine if a parent and a subsidiary operated a unitary business. See 1987 Decision at 4-5. ¶ 4 In 1986 the Legislature included a definition of unitary business in Utah Code Ann. § 59-7-302(15) (1987): (a) Unitary business and unitary group are interchangeable and mean two or more corporations related through common ownership whose business activities are integrated with, dependent upon, and contribute to each other. (b) Unitary business or unitary group does not include any corporation related by stock ownership or otherwise to any corporation liable to report under §§ 59-7-301 through 59-7-321 whose principle business activities relate to a separate and distinct line of business. Utah Code Ann. § 59-7-302(15). This definition is specific to the UDITPA. [4]