94-1440
Corporate Franchise
Signed 11/3/95
BEFORE
THE UTAH STATE TAX COMMISSION
____________________________________
XXXXX )
:
Petitioner, ) FINDINGS OF FACT,
: CONCLUSIONS
OF LAW,
v. ) AND FINAL DECISION
:
AUDITING DIVISION OF THE ) Appeal
No. 94-1440
UTAH STATE TAX COMMISSION, :
) Tax
Type: Franchise Tax
:
Respondent. )
_____________________________________
STATEMENT
OF CASE
This matter came before the Utah State Tax Commission for a Formal Hearing on XXXXX. Commission
Chairman W. Val Oveson, heard the matter for the Commission. Present and representing Petitioner was
XXXXX. Present and representing
Respondent were XXXXX, XXXXX, XXXXX.
Based upon the evidence and testimony presented at the hearing, the Tax
Commission hereby makes its:
FINDINGS
OF FACT
1. The tax in question is Corporation Franchise tax for XXXXX Utah
franchise tax return (collectively referred to as "Petitioner").
2. The period in question is XXXXX.
3. Petitioner timely reported
and paid Utah corporate franchise tax for XXXXX in the amount of $$$$$.
4. Petitioner has recalculated its XXXXX Utah corporate franchise tax
by excluding from the Utah sales factor numerator all sales XXXXX return was
subject to tax, the so-called XXXXX rule.
5. Petitioner's XXXXX franchise tax liability, properly calculated
according to the XXXXX rule, is $$$$$.
6. Petitioner timely applied for a Utah franchise tax refund of $$$$$
and has properly completed all procedural steps necessary to obtain a refund.
APPLICABLE LAW
Utah Code Ann. '59-7-317 and 318 provides the instructions for the sales factor formula
for the apportionment of business income and the "throw back" of
sales to the state from which the property is shipped if the taxpayer is not
taxable in the state of the purchaser.
59-7-317 Sales factor for
apportionment of business income. The sales factor is a fraction, the
numerator of which is the total sales of the taxpayer in this state during the
tax period, and the denominator of which is the total sales of the taxpayer
everywhere during the tax period.
59‑7‑318. Sales
of tangible personal property. Sales of tangible personal property are in
this state if:
(1)
the property is delivered or shipped to a purchaser, other than the
United States Government, within this state regardless of the f.o.b. point or
other conditions of the sale; or
(2) the property is shipped from an office, store, warehouse, factory,
or other place of storage in this state, and:
(a)
the purchaser is the United States Government; or
(b)
the taxpayer is not taxable in the state of the purchaser.
Administrative rule R865-6F-24 interprets Utah Code Ann. '59-7-318 regarding the applicability of the
"throw back" of sales when dealing with a unitary group.
Attribution of Sales of Tangible Property to
the Sales Factor for Apportionment of Business Income Pursuant to Utah Code
Ann. Section 59‑7‑317.
A. For purposes of 15 U.S.C.
Section 381, the phrase "activities within such state by or on behalf of
such person" means the activities of any member of a unitary business as
that term is defined in Section 59‑7‑302.
B. If the activity in this
state of any member of a unitary business exceeds the activity protected by 15
U.S.C. Section 381, sales of tangible property into this state, from an out‑of‑state
location by any member of the unitary business shall be included in this
state's sales factor numerator under Section 59‑7‑317.
C. If any member of a unitary
business is taxable in another state under Section 59‑7‑305, sales
of tangible property from a Utah location, into that state by any member of the
unitary business shall not be thrown back to this state as ordinarily provided
under Section 59‑7‑318.
D. This rule is effective for
taxable years beginning after December 31, 1992.
ANALYSIS
The "sales factor of the XXXXX generally attributes sales to the
state of the purchaser. However, when
the seller is not taxable in the purchaser's state, those sales are
"thrown back" to the state from which the property is shipped.
In calculating these throw-back sales, two approaches exist. The first approach determines a
corporation's taxability in a state based solely on the nexus which that
corporation has with the state. This
approach was promulgated by the California Board of Equalization in Appeal
of Joyce Inc., Cal. Bd. of Equalization, Nov. 23, 1966. This approach is known as the "Joyce"
rule. The
second approach determines a corporation's taxability in a state based on
whether any member of the unitary group of the corporation has a sufficient
nexus with the state. This approach was
followed in Appeal of Finnigan Corporation, Cal. Bd. of Equalization,
Jan. 24, 1990.
For the XXXXX period, Petitioner was assessed under the "Joyce"
rule. Petitioner argues that its throw-back sales for the XXXXX period should be measured by Tax Commission
Rule R865-6-24F (Rule 24F), effective XXXXX.
Rule 24F provides that throw-back sales in Utah should be measured under
the "Finnigan" rule.
Under Rule 24F, Petitioner's sales would only be "thrown back"
to the state from where the property is shipped if Petitioner's unitary group
has an insufficient nexus with the destination state.
Petitioner's claim is without merit because Rule 24F applies
prospectively only. Statutes, rules and
other regulations are presumed to only apply prospectively unless expressly
made retroactive. In State v. Abeyta,
852, P.2d 993, 995 (Utah 1993), the Utah Supreme Court stated "[t]he law
is well settled in this state that
amendments to statutes are prospective only unless expressly made
retroactive......However, exceptions to nonretroactivity exist for statutes
that are procedural or remedial in nature." Utah courts have held that the "procedural" exception to
nonretroactivity is a narrow one. In
re J.P., 648 P.2d 1364, 1370 (Utah 1982).
Any change in the law which affects substantive rights may be applied
prospectively only. See, e.g.,
Thornson v. Thornson, 810 P.2d 428, 432 (Utah App. 1991); Layton v.
Layton, 777 P.2d 504, 505 (Utah App. 1989; Madsen v. Borthick, 679
P.2d 245, 253 (Utah 1988); Stephens v. Henderson, 741 P.2d 952, 953-54
(Utah 1987).
A law is substantive if it changes "the substantive criteria for
decision." Matter of
Disconnection of Certain Territory, 668 P.2d 544, 549 (Utah 1993). Under this standard, a change is considered
substantive if it "enlarges, eliminates, or destroys vested
rights." Smith v. Cook, 803
P.2d 788, 792 (Utah 1990). In Petty v. Clark, 192 P.2d 589, 593-94 (Utah
1948), the Utah Supreme Court set forth the definition of a substantive change:
Substantive law is defined as the positive
law which creates, defines and regulates the rights and duties of the parties
and which may give rise to a cause of action, as distinguished from adjective
law which pertains to and prescribes the practice and procedure or the legal
machinery by which the substantive law is determined or made effective." (citations omitted.)
In this case, it is clear that Rule 24F is a substantive change in the
law. Rule 24F changes the method of
computing "throw-back" sales in Utah. This change affects more than the "legal machinery" of
the Tax Commission; it affects the "substantive criteria" upon which
that Tax Commission makes its decision.
Furthermore, Rule 24F is a "positive law" which "defines
and regulates" the liability of taxpayers in this state.
When the Tax Commission promulgated Rule 24F, it is evident that it
considered the change a substantive one.
When the Tax Commission considers a new rule, it requires that a
"review checklist" be completed before the proposed rule is
adopted. When Rule 24F was considered,
the checklist which accompanied it clearly stated that the changes were
"substantive." The checklist
also stated that a new rule was required "to give prospective notice of
the change in policy."
The plain language of Rule 24F also indicates the intent of the Tax
Commission that it apply only prospectively.
Subsection D of Rule 24F states that it "is effective for taxable
years beginning after December 31, 1992."
The law is well settled that a substantive change in the law applies
only prospectively. Rule 24F is a
substantive change because it affects the vested rights of taxpayers in
Utah. The Tax Commission intended Rule
24F to be a substantive change and to apply prospectively. Accordingly, because Rule 24F is not
retroactive and was enacted after the XXXXX audit period, it does not apply to
the subject refund period of Petitioner.
DECISION AND ORDER
Tax Commission finds in favor of Respondent. Petitioner's refund request is denied. It is so ordered.
BY ORDER OF THE UTAH STATE TAX COMMISSION.
Dated this 3rd day of November, 1995.
W. Val Oveson Roger
O. Tew
Chairman Commissioner
Joe B. Pacheco Alice Shearer
Commissioner Commissioner
NOTICE:
You have twenty (20) days after the date of a final order to file a
Request for Reconsideration with the Commission. If you do not file a Request for Reconsideration with the
Commission, you have thirty (30) days after the date of a final order to file
a.) a Petition for Judicial Review in the Supreme Court, or b.) a Petition for
Judicial Review by trial de novo in district court. (Utah Administrative Rule R861-1-5A(P) and Utah Code Ann. ''59-1-601(1), 63-46b-13(1), 63-46-14(3)(a).)
^^