August
26, 1991 Response from Tax
Commission
July
16, 1991 Letter from XXXXX
of XXXXX
XXXXX
Re:
Nexus for Lessor of Aircraft
This
letter is in response to your recent request for a Tax Commission ruling on
whether a corporation in the business of leasing aircraft would have a Utah
nexus created because it leased property brought into the state by the lessee.
Your concerns related to whether the lessor would have nexus in view of the
fact that control of the property has been relinquished to the lessee.
The
Tax Commission policy is to refer such requests to the division most qualified
to analyze the request and make recommendations concerning it. As such, your
request was referred to the Tax Commission's Auditing Division for their
analysis and recommendation. The division's recommendation is as follows:
In
response to your specific questions,
(a)
If the lessee brings the aircraft into the state of Utah, the presence of the
tangible property in Utah during the tax period would create sufficient nexus
to subject "XXXXX" to Utah's corporation income tax.
(b)(l)
All of the three UDITPA factors would be used in the calculation of the Utah
apportionment fraction. However, the only factor that would have any includable
Utah numerator amount is the property factor.
(b)(2)
According to Utah Administrative Rule R865-6-8F(G)(4), the value of the
aircraft for purposes of the Utah property numerator is determined on the basis
of total time within the state during the tax period.
Based
upon the facts presented in your letter, we are in agreement with the Auditing
Division's recommendations. Obviously, if there are deviations from these
facts, this opinion may be negated.
If
you do not agree with this determination, you may appeal to the Tax Commission
for a formal hearing. The results of that hearing would constitute a
declaratory judgment and be appealable to the Utah State Supreme Court. A
Notice of Appeal Rights and a copy of the Utah Taxpayer Bill of Rights are
attached.
For
the Commission,
Joe
B. Pacheco
Commissioner
Mr.
XXXXX
Utah
State Tax Commission
160
East 300 South
Salt
Lake City, Utah 84134
I
am writing this letter respectfully requesting a ruling on the corporate income
or franchise tax consequences of the transaction described below.
Facts
XXXXX
("XXXXX") is incorporated in, leases office space, and has one
part-time employee located within the State of XXXXX. XXXXX is involved in
leasing aircraft to Y corporation, organized and formed under the laws of the
State of XXXXX, within the United States. Moreover, although XXXXX currently
leases only to Y corporation, it plans to lease to other third parties in the
future. XXXXX also leases one parcel of
improved real property in XXXXX to Company X. Y and X corporations are not
affiliated with XXXXX or any of XXXXX's affiliates. XXXXX has no control over where its leased aircraft are to be
used and/or landed; however, the aircraft leases specifically prohibit the
aircraft from landing in or being used within the State of XXXXX. At the
beginning of each lease, the lessor transfers possession of the leased aircraft
to the lessee at the XXXXX plant in the State of XXXXX.
Based
on the foregoing facts, we respectfully request the following rulings:
(a)
whether XXXXX (Lessor) has sufficient nexus with the State of Utah so as to
subject XXXXX to the State of Utah's income or franchise tax;
(b)
if XXXXX (Lessor) has sufficient nexus, how are the lease payments to be
apportioned?
Specifically:
(1)
what apportionment factor or factors should be used in determining the
apportionment fraction, and
(2)
how should the apportionment factor or factors be calculated in apportioning
the lease payments?
If
you wish to discuss this matter in further detail, or if additional facts are
needed, please contact me.
Sincerely,
XXXXX