File No. 36170
This rule was published in the June 1, 2012, issue (Vol. 2012, No. 11) of the Utah State Bulletin.
Tax Commission, Auditing
Section R865-6F-6
Application of Corporation Franchise or Income Tax Acts to Qualified Corporations and to Nonqualified Foreign Corporations Pursuant to Utah Code Ann. Section 59-7-104
Notice of Proposed Rule
(Amendment)
DAR File No.: 36170
Filed: 05/11/2012 12:09:51 PM
RULE ANALYSIS
Purpose of the rule or reason for the change:
The proposed amendment deletes language to conform with case law and Multistate Tax Commission model rule changes.
Summary of the rule or change:
The proposed amendment deletes language providing that delivery of goods in a seller's own vehicle, if above a de minimis level, creates nexus for corporation income, and franchise tax purposes. This change reflects current agency practice and results from case law and amendments to the corresponding Multistate Tax Commission model rule.
State statutory or constitutional authorization for this rule:
- Section 59-7-104
Anticipated cost or savings to:
the state budget:
None--The proposed amendment amends the rule to match long-standing agency practice.
local governments:
None--The proposed amendment amends the rule to match long-standing agency practice.
small businesses:
None--The proposed amendment amends the rule to match long-standing agency practice.
persons other than small businesses, businesses, or local governmental entities:
None--The proposed amendment amends the rule to match long-standing agency practice.
Compliance costs for affected persons:
None--The proposed amendment amends the rule to match long-standing agency practice.
Comments by the department head on the fiscal impact the rule may have on businesses:
This change conforms the rule with law and practice thus creating no fiscal impact.
Michael Cragun, Commissioner
The full text of this rule may be inspected, during regular business hours, at the Division of Administrative Rules, or at:
Tax CommissionAuditing
210 N 1950 W
SALT LAKE CITY, UT 84134
Direct questions regarding this rule to:
- Christa Johnson at the above address, by phone at 801-297-3901, by FAX at 801-297-3907, or by Internet E-mail at cj@utah.gov
Interested persons may present their views on this rule by submitting written comments to the address above no later than 5:00 p.m. on:
07/02/2012
This rule may become effective on:
07/09/2012
Authorized by:
Michael Cragun, Tax Commissioner
RULE TEXT
R865. Tax Commission, Auditing.
R865-6F. Franchise Tax.
R865-6F-6. Application of Corporation Franchise or Income Tax Acts to Qualified Corporations and to Nonqualified Foreign Corporations Pursuant to Utah Code Ann. Section 59-7-104.
[A.](1) Definitions.
[1.](a) "Ancillary activities" means those activities
that serve no independent business function for the seller apart
from their connection to the solicitation of orders.
[2.](b) "De minimis activities" means those activities
that, when taken together, establish only a trivial connection with
the taxing state. An activity conducted within Utah on a regular or
systematic basis or pursuant to a company policy, whether or not in
writing, shall not normally be considered trivial.
[3.](c) "In-home office" means an office or place of
business located within the residence of the employee or
representative of a company that satisfies the following
conditions:
[a)](i) The office may not be publicly attributed to the
company, or to the employee or representative of the company in an
employee or representative capacity.
[b)](ii) The use of the office shall be limited to soliciting
and receiving orders from customers; transmitting orders outside
the state for acceptance or rejection by the company; or for other
activities that are protected under Public Law 86-272, 15 U.S.C.
381-384 (hereafter P.L. 86-272) and this rule.
[c)](iii) Neither the company nor the employee or representative
shall maintain a telephone listing or other public listing for the
company within the state, nor use advertising or business
literature indicating that the company or its employee or
representative can be contacted at a specific address within the
state. However, the normal distribution and use of business cards
and stationery identifying the employee's or
representative's name, address, telephone, and fax numbers and
affiliation with the company shall not, by itself, be considered as
advertising or otherwise publicly attributing an office to the
company or its employee or representative.
[4.](d) "Solicitation" means:
[a)](i) speech or conduct that explicitly or implicitly invites
an order; and
[b)](ii) activities that neither explicitly nor implicitly
invite an order, but are entirely ancillary to requests for an
order.
[B.](2) Every corporation doing business in Utah whether
qualified or not, and every corporation incorporated or qualified
in Utah whether or not doing business therein is subject to the
Utah corporation franchise tax, unless exempted under the
provisions of Section 59-7-102. If liability for the tax exists,
the tax must be computed under the provisions of Section 59-7-104,
at the rate provided by statute, but in no case shall the tax be
less than the minimum tax prescribed.
[C.](3) Foreign corporations not qualified in Utah which ship
goods to customers in this state from points outside this state,
pursuant to orders solicited but not accepted by agents or
employees in this state, and which are not doing business in Utah
are not taxable under the Utah Corporation Franchise Tax Act
if:
[1.](a) they maintain no office nor stocks of goods in Utah,
and
[2.](b) they engage in no other activities in Utah.
[D.](4) Foreign corporations not qualified in Utah that make
deliveries from stocks of goods located in this state are doing
business in this state and are taxable under the Corporation
Franchise Tax Act, even though they have no office or regular place
of business in this state.
[E.](5) Foreign corporations not qualified in Utah are subject
to the franchise tax if performing the necessary duties to fulfill
contracts or subcontracts in Utah, whether through their own
employees or by furnishing of supervisory personnel.
[F.](6) Corporations that own real property within this state
and rent or lease such properties to others are subject to the
franchise tax whether or not qualified under the laws of this
state. This also applies to corporations deriving royalty, lease,
or rental income from properties located within this state, whether
or not such properties are owned by the corporation.
[G.](7) Foreign corporations not qualified in Utah are subject
to the franchise or income tax if they derive income from
revenue-producing properties located in Utah or moving through Utah
or from services performed by personnel in this state. This
includes, but is not limited to, freight and transportation
operations, sales of real property having a Utah situs, leasing or
sales of franchises, sporting or entertaining events, etc.
[H.](8) Corporations that participate in joint ventures or
working and operating agreements which are performed in this state
are subject to the franchise tax whether qualified or not.
[I.](9) Foreign corporations qualified in Utah are subject to
the franchise tax even though engaged solely in interstate
commerce.
[J.](10) P.L. 86-272 restricts a state from imposing a net
income tax on income derived within its borders from interstate
commerce if the only business activity of the company within the
state consists of the solicitation of orders for sales of tangible
personal property, which orders are sent outside the state for
acceptance or rejection, and, if accepted, are filled by shipment
or delivery from a point outside the state. The term "net
income tax" includes a franchise tax measured by net income.
If any sales of tangible personal property are made from Utah into
a state which is precluded by P.L. 86-272 from taxing the income of
the seller, such sales remain subject to throwback to Utah pursuant
to [Section]Subsection 59-7-318(2). Similarly, a sale into Utah from
another state would not subject a corporation to the Utah tax if
the corporation's activities do not exceed those allowed under
P.L. 86-272.
[1.](a) Only the solicitation to sell personal property is
afforded immunity under P.L. 86-272; therefore, the leasing,
renting licensing or other disposition of tangible personal
property, or transactions involving intangibles such as franchises,
patents, copyrights, trade marks, service marks and the like, or
any other type of property are not protected activities under P. L.
86-272. The sale or delivery and the solicitation for the sale or
delivery of any type of service that is not either (1) ancillary to
solicitation, or (2) otherwise set forth as a protected activity
below is also not protected under P.L. 86-272 or this rule.
[2.](b) For the in-state activity to be a protected activity
under P.L. 86-272, it must be limited solely to solicitation,
except for de minimis activities and activities conducted by
independent contractors as described below.
[K.](11) The following in-state activities, assuming they are
not of a de minimis level, will constitute doing business in Utah
under P.L. 86-272 and will subject the corporation to the Utah
corporation franchise tax:
[1.](a) making repairs or providing maintenance or service to
the property sold or to be sold;
[2.](b) collecting current or delinquent accounts, whether
directly or by third parties, through assignment or otherwise;
[3.](c) investigating credit worthiness;
[4.](d) installation or supervision of installation at or after
shipment or delivery;
[5.](e) conducting training courses, seminars, or lectures for
personnel other than personnel involved only in solicitation;
[6.](f) providing any kind of technical assistance or service
including engineering assistance or design service, when one of the
purposes thereof is other than the facilitation of the solicitation
of orders;
[7.](g) investigating, handling, or otherwise assisting in
resolving customer complaints, other than mediating direct customer
complaints when the sole purpose of such mediation is to ingratiate
the sales personnel with the customer;
[8.](h) approving or accepting orders;
[9.](i) repossessing property;
[10.](j) securing deposits on sales;
[11.](k) picking up or replacing damaged or returned
property;
[12.](l) hiring, training, or supervising personnel, other than
personnel involved only in solicitation;
[13.](m) using agency stock checks or any other instrument or
process by which sales are made within this state by sales
personnel;
[14.](n) maintaining a sample or display room in excess of two
weeks (14 days) at any one location within the state during the tax
year;
[15.](o) carrying samples for sale, exchange or distribution in
any manner for consideration or other value;
[16.](p) owning, leasing, using, or maintaining any of the
following facilities or property in-state:
[(a)](i) repair shop;
[(b)](ii) parts department;
[(c)](iii) any kind of office other than an in-home office;
[(d)](iv) warehouse;
[(e)](v) meeting place for directors, officers, or employees;
[(f)](vi) stock of goods other than samples for sales personnel
or that are used entirely ancillary to solicitation;
[(g)](vii) telephone answering service that is publicly
attributed to the company or to employees or agents of the company
in their representative status;
[(h)](viii) mobile stores, i.e., vehicles with drivers who are
sales personnel making sales from the vehicles;
[(i)](ix) real property or fixtures to real property of any kind[.];
[17.](q) consigning stocks of goods or other tangible personal
property to any person, including an independent contractor, for
sale;
[18.](r) maintaining, by either an in-state or an out-of-state
resident employee, an office or place of business (in-home or
otherwise) of any kind other than an in-home office;
[(b)](i) [The]the maintenance of any office or other place of business in
this state that does not strictly qualify as an in-home office
under this subsection shall, by itself cause the loss of protection
under this rule[.];
[(c)](ii) [For]for purposes of this subsection it is not relevant whether
the company pays directly, indirectly, or not at all for the cost
of maintaining the in-home office[.];
[19.](s) entering into franchising of licensing agreements;
selling or otherwise disposing of franchises and licenses; or
selling or otherwise transferring tangible personal property
pursuant to such franchise or license by the franchisor or licensor
to its franchisee or licensee within the state;
[
20. shipping or delivering of goods into this state by
means of private vehicle, rail, water, air or other carrier,
irrespective of whether a shipment of delivery fee or other charge
is imposed, directly or indirectly, upon the
purchaser;
] [21.](t) conducting any activity not listed as a protected
activity below which is not entirely ancillary to requests for
orders, even if such activity helps to increase purchases.
[L.](12) The following in-state activities will not cause the
loss of protection for otherwise protected sales;
[1.](a) soliciting orders for sales by any type of
advertising;
[2.](b) soliciting of orders by an in-state resident employee or
representative of the company, so long as such person does not
maintain or use any office or other place of business in the state
other than an in-home office;
[3.](c) carrying samples and promotional materials only for
display or distribution without charge or other consideration;
[4.](d) furnishing and setting up display racks and advising
customers on the display of the company's products without
charge or other consideration;
[5.](e) providing automobiles to sales personnel for their use
in conducting protected activities;
[6.](f) passing orders, inquiries and complaints on to the home
office;
[7.](g) missionary sales activities, i.e. the solicitation of
indirect customers for the company's goods. For example, a
manufacturer's solicitation of retailers to buy the
manufacturer's goods from the manufacturer's wholesale
customers would be protected if such solicitation activities are
otherwise immune;
[8.](h) coordinating shipment or delivery without payment or
other consideration and providing information relating thereto
either prior or subsequent to the placement of an order;
[9.](i) checking of customer's inventories without a charge
therefore if performed for reorder, but not for other purposes such
as a quality control;
[10.](j) maintaining a sample or display room for two weeks (14
days) or less at any one location within the state during the tax
year;
[11.](k) recruiting, training or evaluating sales personnel,
including occasionally using homes, hotels or similar places for
meetings with sales personnel;
[12.](l) mediating direct customer complaints when the purpose
thereof is solely for ingratiating the sales personnel with the
customer and facilitating requests for orders;
[13.](m) owning, leasing, using or maintaining personal property
for use in the employee or representative's in-home office or
automobile that is solely limited to the conducting of protected
activities. Therefore, the use of personal property such as a
cellular telephone, facsimile machine, duplicating equipment,
personal computer and computer software that is limited to the
carrying on of protected solicitation and activity entirely
ancillary to such solicitation or permitted by the provisions of
this rule shall not, by itself, remove the protection of P.L.
86-272.
[M.](13) P.L. 86-272 provides protection to certain in-state
activities if conducted by an independent contractor that would not
be afforded if performed by the company or its employees or other
representatives.
[1.](a) Independent contractors may engage in the following
limited activities in the state without the company's loss of
immunity;
[a)](i) soliciting sales;
[b)](ii) making sales;
[c)](iii) maintaining an office.
[2.](b) Sales representatives who represent a single principal
are not considered to be independent contractors and are subject to
the same limitations as those provided under P.L. 86-272 and this
rule.
[3.](c) Maintenance of stock of goods in the state by the
independent contractor under consignment or any other type of
arrangement with the company, except for purposes of display and
solicitation, shall remove the protection.
[N.](14) The Tax Commission will apply the provisions of P.L.
86-272 and of this rule to business activities conducted in foreign
commerce. Therefore, whether business activities are conducted by
(i) a foreign or domestic company selling tangible personal
property into a county outside of the United States from a point
within this state or by (ii) either company selling such property
into this state from a point outside of the United States, the
principles under this rule apply equally to determine whether the
sales transactions are protected and the company immune from
taxation in either this state or in the foreign county, as the case
might be, and whether, if applicable, the throwback provisions of [Section]Subsection 59-7-318(2) will apply.
[O.](15) The protection afforded by P.L. 86-272 and the
provisions of this rule do not apply to any corporation that is
incorporated or domiciled in this state.
[P.](16) A company that registers or otherwise formally
qualifies to do business within this state does not, by that fact
alone, lose its protection under P.L. 86-272. Where, separate from
or ancillary to such registration or qualification, the company
receives and seeks to use or protect any additional benefit or
protection from this state through activity not otherwise protected
under P.L. 86-272 or this rule, such protection shall be
removed.
[Q.](17) The protection afforded under P.L. 86-272 and the
provisions of this rule shall be determined on a year by year tax
basis. Therefore, if at any time during a tax year the company
conducts activities that are not protected under P.L. 86-272 or
this rule, no sales in this state or income earned by the company
attributed to this state during any part of said tax year shall be
protected from taxation for purposes of the corporate franchise
tax.
KEY: taxation, franchises, historic preservation, trucking industries
Date of Enactment or Last Substantive Amendment: [December 22, 2011]2012
Notice of Continuation: January 3, 2012
Authorizing, and Implemented or Interpreted Law: 9-2-401 through 9-2-415; 16-10a-1501 through 16-10a-1533; 53B-8a-112; 59-1-1301 through 59-1-1309; 59-6-102; 59-7; 59-7-101; 59-7-102; 59-7-104 through 59-7-106; 59-7-108; 59-7-109; 59-7-110; 59-7-112; 59-7-302 through 59-7-321; 59-7-402; 59-7-403; 59-7-501; 59-7-502; 59-7-505; 59-7-601 through 59-7-614; 59-7-608; 59-7-701; 59-7-703; 59-10-603; 59-13-202; 59-13-301; 63M-1; 63M-1-401 through 63M-1-416
Additional Information
The Portable Document Format (PDF) version of the Bulletin is the official version. The PDF version of this issue is available at https://rules.utah.gov/publicat/bull-pdf/2012/b20120601.pdf. The HTML edition of the Bulletin is a convenience copy. Any discrepancy between the PDF version and HTML version is resolved in favor of the PDF version.
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For questions regarding the content or application of this rule, please contact Christa Johnson at the above address, by phone at 801-297-3901, by FAX at 801-297-3907, or by Internet E-mail at cj@utah.gov.