Income Tax

Signed 5/10/01


                                     BEFORE THE UTAH STATE TAX COMMISSION



PETITIONER,                                                 )

)     ORDER

Petitioner,                                          )    

)     Appeal No.      00-1474

v.                                                                     )                            


TAXPAYER SERVICES DIVISION OF        )     Tax Type:         Income Tax

THE UTAH STATE TAX                                )

COMMISSION,                                             )     Judge:               Phan


Respondent.                                      )    




Jane Phan, Administrative Law Judge



For Petitioner:         PETITIONER REP., CPA



For Respondent:     Susan Barnum, Assistant Attorney General

Ed Coleman



                                                      STATEMENT OF THE CASE

This matter came before the Utah State Tax Commission for an Initial Hearing pursuant to the provisions of Utah Code Ann. '59-1-502.5, on April 2, 2001.

Petitioner is appealing Respondent's denial of a refund request for the years 1996 through 1998 and denial of credit for taxes paid to another state for the year 1999.  Petitioner is a Utah resident and he filed Utah Resident Individual Income Tax Returns for each of the years at issue.  In October 2000 Petitioner filed amended returns for the years 1996 through 1998 claiming  a credit for corporate franchise taxes paid to the State of STATE.  On his 1999 original tax return he also claimed a credit for corporate franchise taxes paid to STATE.

Petitioner is a shareholder in COMPANY ("COMPANY"), a subchapter S corporation.  During each of the years at issue, COMPANY had been required by STATE law to pay corporate franchise tax.  The STATE corporate franchise tax is based on the greater of the corporation's assets or an income factor.  In Petitioner's particular case the tax was based on the income of the COMPANY because it was the larger amount.    Petitioner argues that he is entitled to a credit for the corporate franchise tax paid to STATE pursuant to Utah Code Ann. Section 59-10-106(1). 

Respondent argues that this statutory provision allows a credit only for Aincome tax@ paid to another state and that the STATE corporate franchise tax is not an Aincome tax.@  Respondent points out that STATE courts have specifically found that the STATE corporate franchise tax is not an income tax and is, instead, an excise tax or a license for the privilege of doing business in the state.[1]  Although the Utah State Tax Commissioners have not specifically considered the STATE corporate franchise tax in the context of the exemption set out at Utah Code Ann. Sec. 59-10-106 (1), it has considered similar arguments, including double taxation, dealing with the STATE single business tax and determined that the taxpayers in those cases were not entitled to the credit on the amount paid for the STATE single business tax.  Respondent pointed to the Commission=s decision in Petitioner v. Auditing Division of the Utah State Tax Comm=n, Appeal No. 88-0583.  The Tax Commission also considered the issue more recently in Petitioner v. Auditing Division of the Utah State Tax Comm=n, Appeal No. 98-0593.   In Appeal No. 98-0593 the income at issue, like the subject case, came from a subchapter S corporation.  

                                                              APPLICABLE LAW

A resident individual shall be allowed a credit against the tax otherwise due under  this chapter equal to the amount of the tax imposed on him from the taxable year by another state of the Untied States, the District of Columbia, or a possession of the Untied States, on income derived from sources therein which is also subject to tax under this chapter.  (Utah Code Ann. Sec. 59-10-106(1).)

                                                         DECISION AND ORDER

After review of the parties' arguments in this matter, it is the conclusion of the Utah State Tax Commission that Petitioner is not entitled to the credit provided in Utah Code Ann. Sec. 59-10-106(1) for the corporate franchise taxes paid by COMPANY to the State of STATE.  Petitioner=s appeal in this matter is denied.

This decision does not limit a party's right to a Formal Hearing.  However, this Decision and Order will become the Final Decision and Order of the Commission unless any party  to this case files a written request within thirty (30) days of the date of this decision to proceed to a Formal Hearing.  Such a request shall be mailed to the address listed below and must include the Petitioner's name, address, and appeal number:


                                                         Utah State Tax Commission

                                                                 Appeals Division

                                                             210 North 1950 West

                                                         Salt Lake City, Utah  84134

Failure to request a Formal Hearing will preclude any further appeal rights in this matter.

DATED this   10th   day of   May  , 2001.



Jane Phan

Administrative Law Judge




The Commission has reviewed this case and the undersigned concur in this decision.

DATED this  10th   day of   May  , 2001.



Pam Hendrickson                                                                     R. Bruce Johnson

Commission Chair                                                                    Commissioner





Palmer DePaulis                                                                       Marc B. Johnson

Commissioner                                                                           Commissioner  


[1]Respondent sites to Bullock v. National Bancshares Corp., 584 S.W.2d 268, 270 (Tex. 1979); UpJohn Comp. v. Rylander, 2000 WL 1534890 (Tex. App. 2000); and General Dynamics Corp. v. Bullock, 547 S.W. 2d. 255, 258 (Tex. 1976).