Interoffice
Memo December 14, 1989
M
E M O R A N D U M
TO: R. H. HANSEN, Chairman
Tax
Commission
FROM: XXXXX Director
Auditing
Division
DATE: December 14, 1989
RE: Request for Advisory Opinion
Attached
is a letter from XXXXX, an attorney representing XXXXX. XXXXX is requesting an
opinion on the Utah Corporation Franchise Tax exposure of a customer of XXXXX.
We
have attached the Auditing Division's response for the signature of one of the
commissioners.
October
25, 1989
XXXXX
Utah
State Tax Commission
Auditing
Division
Heber
M. Wells Office Building
160
East 300 South
Salt
Lake City, Utah 84134
Dear
XXXXX:
On
behalf of our client, XXXXX. ("XXXXX"), we request confirmation of our
understanding of the impact of the Utah Corporation Franchise and Income Tax on
certain customers of XXXXX. Certain customers and potential customers are
reluctant to do business with XXXXX because of concerns over the potential of
subjecting themselves to Utah's Corporation Franchise or Income Tax under the
combined reporting requirements for unitary businesses. Hence, this request for
guidance with respect to the situations described below.
The
Utah Code imposes a two-tier system of taxation for corporations. Corporations
which are qualified to do business in Utah or which are actually "doing
business" in Utah are subject to the first-tier, the Utah Corporation
Franchise Tax ("Franchise Tax"). Corporations which derive net income
from sources within Utah, but which are not qualified to do business in Utah
and are not "doing business" in Utah are subject to the second-tier,
the Utah Corporation Income Tax ("Income Tax"). The Income Tax
applies only to foreign corporations which are not already subject to the
Franchise Tax. The Income Tax rates and the Franchise Tax rates are the same.
Administrative Rule R865-06F of the Utah State Tax Commission provides that
foreign corporations which are not qualified to do business in Utah, have no
agents, have no stocks of goods in Utah, and engage in no other activities in
Utah, are not subject to the Franchise Tax, even though goods are shipped to
customers in Utah pursuant to orders received by mail, telephone, telegraph or
taken by independent dealers or brokers. However, foreign corporations not
qualified to do business 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. This includes, but is not limited to, freight and transportation
operations.
XXXXX
is a XXXXX corporation duly qualified to do business in the State of Utah and
its XXXXX facility is engaged in the business of refining precious metals.
XXXXX customers ship a variety of materials to its XXXXX facility for recovery
and refinement of gold and silver. After the refining process is complete,
XXXXX ships the refined precious metals to the customer.
Is
a foreign corporation which is not qualified to do business in Utah and whose
sole activity or contact with the State of Utah is the shipment of precious
metals to the XXXXX facility in XXXXX for recovery and refinement, subject to
the Utah Franchise or Income Tax if, upon the completion of the refinement
process, the materials are returned to the customer?
If
the customer is not subject to the Utah Franchise or Income Tax based on the
foregoing fact situation, would the customer still not be subject to tax if the
customer requested that XXXXX hold the refined precious metals for two months
so that, for example, the customer could accumulate a sufficient quantity of
precious metals in XXXXX's possession to justify the shipping costs prior to
shipment to the customer, or would the customer be considered to be maintaining
a stock of goods in Utah and be subject to tax in Utah?
If
the customer directed XXXXX to ship the refined precious metal to a purchaser
of that customer with title transferring at the site of the customer (i.e.,
outside of Utah) would the [sic]
It
is our belief that, in each of the circumstances described above the XXXXX
customer would not be considered to be doing business in the State of Utah nor
to have derived income from the state of Utah, and, therefore, would not be
subject to the Utah Franchise or Income Tax and the combined reporting requirements
for unitary businesses.
Please
verify the fact that the activity of customers of XXXXX as described above does
not subject those customers to the Utah Franchise or income Tax and the
combined reporting requirements for unitary businesses. If our analysis of the
tax treatment with respect to the foregoing situation is not correct, please
advise us. If you have any questions, please contact me at your earliest
convenience.
Very
truly yours,