BEFORE THE UTAH STATE TAX COMMISSION
Petitioner : FINDINGS OF FACT,
: CONCLUSIONS OF LAW,
v. : AND FINAL DECISION
AUDITING DIVISION OF THE : Appeal No. 89-2305
UTAH STATE TAX COMMISSION :
: Account No. XXXXX
STATEMENT OF CASE
After submitting briefs on the subject matter of this case, both Petitioner and Respondent waived the right to a formal hearing. This decision is based on the entire contents of the file as presently constituted on XXXXX.
The parties stipulated to the following facts:
1. Prior to XXXXX, XXXXX, "XXXXX", was an architectural firm licensed to do business in Utah.
2. Prior to XXXXX, XXXXX, XXXXX, "XXXXX", was an architectural firm licensed to do business in Utah.
3. On or about XXXXX, XXXXX exchanged ten shares of XXXXX stock for XXXXX shares of XXXXX stock.
4. On or about XXXXX, XXXXX of XXXXX with XXXXX were filed with the XXXXX.
5. As a result of the merger, XXXXX and XXXXX combined to become XXXXX, XXXXX, XXXXX and XXXXX "XXXXX".
6. XXXXX had a net operating loss carry forward of approximately $$$$$ going into the year ending XXXXX.
7. XXXXX used XXXXX's net operating loss to offset income in the year ending XXXXX.
8. The Auditing Division disallowed XXXXX's use of XXXXX's loss.
CONCLUSIONS OF LAW
Utah Code Ann. §59-7-108(14)(f) states that corporations acquiring the assets or stock of another corporation may not deduct any net loss of the acquired corporation incurred prior to the date of acquisition.
In Savage Industries, Inc. v. Utah State Tax Commission, 811 P.2d 664, 670 (Utah 1991), the Utah Supreme Court addressed the above-referenced code section directly when it decided that a corporation was not prohibited from using its loss carryover deduction even though it had since been acquired by another corporation.
Important to the present case, the Court explained that the situation in Savage "differs from instances where the acquired corporation is merged into the acquiring corporation. There, the surviving corporation is the "acquiring" corporation, and it appears that the deduction would be prohibited." Savage, supra, 811 P.2d at 670.
And finally, Utah Admin. CodeR865-6F-14 states that loss carryovers and carrybacks require different treatment under the state and federal statutes.
DECISION AND ORDER
In the present case, the Tax Commission finds that XXXXX merged into the acquiring corporation of XXXXX. Since XXXXX remained as the surviving corporation after the merger, it may not utilize any of XXXXX's deductions. XXXXX ceased to exist.
The situation in this case is unlike the circumstances of Savage wherein the corporation still continued to operate "on its own" after the acquiring corporation acquired it. In the current case, XXXXX actually merged into XXXXX. XXXXX carries on the same business enterprise as XXXXX did in the past, however, XXXXX is no longer continuing to function as a "separate entity."
Petitioner takes exception to the fine line distinction of the semantics involved. An acquisition, however, is not necessarily a merger. The two are treated differently and carry different tax liabilities.
Based upon the foregoing the Tax Commission agrees with the Auditing Division and finds that Petitioner is disallowed from using the loss carryover of XXXXX and XXXXX.
DATED this 12th day of May, 1992.
BY ORDER OF THE UTAH STATE TAX COMMISSION.
R. H. Hansen Roger O. Tew
Joe B. Pacheco S. Blaine Willes