Utah Admin. Code 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

Current through Bulletin 2021-24, December 15, 2021

(1) Definitions.
(a) "Ancillary activities" means those activities that serve no independent business function for the seller apart from their connection to the solicitation of orders.
(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.
(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:
(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.
(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.
(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.
(d) "Solicitation" means:
(i) speech or conduct that explicitly or implicitly invites an order; and
(ii) activities that neither explicitly nor implicitly invite an order, but are entirely ancillary to requests for an order.
(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.
(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:
(a) they maintain no office nor stocks of goods in Utah, and
(b) they engage in no other activities in Utah.
(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.
(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.
(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.
(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.
(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.
(9) Foreign corporations qualified in Utah are subject to the franchise tax even though engaged solely in interstate commerce.
(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 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.
(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.
(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.
(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:
(a) making repairs or providing maintenance or service to the property sold or to be sold;
(b) collecting current or delinquent accounts, whether directly or by third parties, through assignment or otherwise;
(c) investigating credit worthiness;
(d) installation or supervision of installation at or after shipment or delivery;
(e) conducting training courses, seminars, or lectures for personnel other than personnel involved only in solicitation;
(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;
(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;
(h) approving or accepting orders;
(i) repossessing property;
(j) securing deposits on sales;
(k) picking up or replacing damaged or returned property;
(l) hiring, training, or supervising personnel, other than personnel involved only in solicitation;
(m) using agency stock checks or any other instrument or process by which sales are made within this state by sales personnel;
(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;
(o) carrying samples for sale, exchange or distribution in any manner for consideration or other value;
(p) owning, leasing, using, or maintaining any of the following facilities or property in-state:
(i) repair shop;
(ii) parts department;
(iii) any kind of office other than an in-home office;
(iv) warehouse;
(v) meeting place for directors, officers, or employees;
(vi) stock of goods other than samples for sales personnel or that are used entirely ancillary to solicitation;
(vii) telephone answering service that is publicly attributed to the company or to employees or agents of the company in their representative status;
(viii) mobile stores, i.e., vehicles with drivers who are sales personnel making sales from the vehicles;
(ix) real property or fixtures to real property of any kind;
(q) consigning stocks of goods or other tangible personal property to any person, including an independent contractor, for sale;
(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;
(i) 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;
(ii) 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;
(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;
(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.
(12) The following in-state activities will not cause the loss of protection for otherwise protected sales;
(a) soliciting orders for sales by any type of advertising;
(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;
(c) carrying samples and promotional materials only for display or distribution without charge or other consideration;
(d) furnishing and setting up display racks and advising customers on the display of the company's products without charge or other consideration;
(e) providing automobiles to sales personnel for their use in conducting protected activities;
(f) passing orders, inquiries and complaints on to the home office;
(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;
(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;
(i) checking of customer's inventories without a charge therefore if performed for reorder, but not for other purposes such as a quality control;
(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;
(k) recruiting, training or evaluating sales personnel, including occasionally using homes, hotels or similar places for meetings with sales personnel;
(l) mediating direct customer complaints when the purpose thereof is solely for ingratiating the sales personnel with the customer and facilitating requests for orders;
(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.
(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.
(a) Independent contractors may engage in the following limited activities in the state without the company's loss of immunity;
(i) soliciting sales;
(ii) making sales;
(iii) maintaining an office.
(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.
(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.
(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 Subsection 59-7-318(2) will apply.
(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.
(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.
(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.

Notes

Utah Admin. Code R865-6F-6

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