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
(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
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