Utah Apportionment Definitions Revised

Utah legislation revises tax definitions that apply when apportioning corporate business income. Specifically, for tax years beginning on or after January 1, 2018:

  • “optional sales factor weighted taxpayer” is eliminated;
  • “optional apportionment taxpayer” is defined; and
  • “sales factor weighted taxpayer” is revised.

Optional Sales Factor Weighted Taxpayer

Prior to this legislation, an “optional sales factor weighted taxpayer” was a corporation that had greater than 50% of its total sales generated by economic activities classified in a North American Industry Classification System (NAICS) code within Subsector 334, Computer and Electronic Product Manufacturing. An optional sales factor weighted taxpayer could elect to apportion business income using:

  • an evenly weighted three-factor formula;
  • a double-weighted sales factor formula; or
  • a single sales factor formula.

The legislation eliminates this separate category of taxpayers.

Optional Apportionment Taxpayer

Beginning with the 2018 tax year, a corporation is an “optional apportionment taxpayer” if its property factor fraction plus its payroll factor fraction divided by two is greater than 0.50. If either the property factor fraction or the payroll factor fraction has a denominator of zero or is excluded, then the corporation must divide its property factor fraction plus payroll factor fraction by one.

For the 2018 tax year, an optional apportionment taxpayer may elect to apportion business income using:

  • an evenly weighted three-factor formula; or
  • a double-weighted sales factor formula.

After the 2018 tax year, H.B. 293, Laws 2018, replaces the double-weighted sales factor option with a phased in sales factor weighted option.

Sales Factor Weighted Taxpayer

For the 2018 tax year, a corporation is a “sales factor weighted taxpayer” if it does not meet the definition of an “optional apportionment taxpayer” and performs economic activities classified only in an NAICS code other than a code within:

  • Sector 21, Mining;
  • Industry Group 2212, Natural Gas Distribution;
  • Sector 31-33, Manufacturing (other than Subsector 3254, Pharmaceutical and Medicine Manufacturing, Subsector 3333, Commercial and Service Industry Machinery Manufacturing, Subsector 334, Computer and Electronic Product Manufacturing, or Code 336111, Automobile Manufacturing);
  • Sector 48-49, Transportation and Warehousing;
  • Sector 51, Information (other than Subsector 519, Other Information Services); or
  • Sector 52, Finance and Insurance.

Previously, a corporation was a “sales factor weighted taxpayer” if it had greater than 50% of its total sales generated by economic activities classified in an NAICS code other than a code within:

  • Sector 21, Mining;
  • Industry Group 2212, Natural Gas Distribution;
  • Sector 31-33, Manufacturing (other than Code 336111, Automobile Manufacturing);
  • Sector 48-49, Transportation and Warehousing;
  • Sector 51, Information (other than Subsector 519, Other Information Services); or
  • Sector 52, Finance and Insurance.

Coordination With H.B. 293

On January 1, 2019, amendments made by H.B. 293 generally supersede the amendments made by this legislation. However, H.B. 293 incorporates the expanded list of included NAICS codes in its definition of a “sales factor weighted taxpayer.”

S.B. 72, Laws 2018, effective May 8, 2018, and operative as noted above

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CCHTaxGroup

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