Income/Franchise Tax Utah: New law phases in single sales factor apportionment for certain industry taxpayers

S.B. 165, signed by gov. 3/25/10. Effective May 11, 2010, and retroactive to taxable years beginning on or after January 1, 2010, new law begins to phase in single sales factor apportionment for select industry taxpayers that will come into full effect for tax years beginning on or after January 1, 2013.

To qualify, taxpayers that are not included in a unitary group must have greater than 50% of their total sales everywhere generated by economic activities that they perform and the activities must be classified in a code of the 2002 or 2007 North American Industry Classification System (NAICS), though certain mining, manufacturing, transportation and warehousing, information, and finance/insurance industry classifications are specifically excluded.

For taxpayers that are members of a unitary group to qualify, a taxpayer must have greater than 50% of the taxpayer's total sales everywhere generated by economic activities performed by the unitary group and the activities must be classified in a 2002 or 2007 NAICS code, though certain mining, manufacturing, transportation and warehousing, information, and finance/insurance industry classifications are specifically excluded.

For tax year 2010, the sales factor is double-weighted with a denominator of 4 for such taxpayers; for tax year 2011, the sales factor is quadruple-weighted with a denominator of 6 for such taxpayers; for tax year 2012, the sales factor is weighted ten times with a denominator of 12 for such taxpayers; and for tax year 2013 and onward, single sales factor apportionment becomes fully implemented with the property and payroll factors completely eliminated for such taxpayers.

The new law also addresses related changes to the amount of net loss deduction (NOL) a corporation that is acquired by a unitary group may deduct.