96-051
Response
April 9, 1996
Request
February
29, 1996
IN
RE: XXXXX
Dear
Sir/Madam:
This
company, XXXXX, would like to obtain a ruling regarding the applicability of
Utah Corporate Income Tax Law, i.e. the filing of state corporate income tax
returns and tax liability.
XXXXX,
a California corporation, is qualified to do business as a foreign corporation
in the state of Utah, evidenced by the issuance of a Certificate of Authority
on XXXXX. All applicable (if required) sales finance and/or consumer credit
licences have been issued.
The
following is relevant information in making a decision regarding the
applicability of state income taxes:
1) XXXXX is a California
corporation;
2) XXXXX has been issued a
Certificate of Authority to conduct business in Utah as a foreign corporation;
3) XXXXX has no more than 2
employees who reside in the state of Utah (see employee activity description
below);
4) XXXXX owns no property within the
state of Utah;
5) XXXXX has a sales force based in
California which may visit automobile dealerships from time to time, both in
person and telephonically; XXXXX may also utilize the services of authorized
corporations as sub-originators.
XXXXX
is in the business of purchasing retail motor vehicle installment contracts
(commercial paper) from auto dealers in the state of Utah as it does in other
states. Final approval of said vehicle installment sales contracts will be
given in the state of California after all necessary documents are received at
XXXXX's California principal office.
XXXXX
will also purchase retail motor vehicle installment contracts (commercial
paper) from suboriginators who will have contacts and contracts with auto
dealers in the state of Utah. Final approval of said vehicle installment
contracts will be given in the state of California after all necessary
documents are received at XXXXX's principal office in California.
All
contracts that are purchased by XXXXX are subsequently sold (within 30 days) to
other financial institutions that service the contracts. XXXXX does not perform
any servicing duties and, consequently, does not carry any consumer credit
volume nor collect any payments.
Ordinarily,
making loans or creating or acquiring evidence of debt is not considered
transacting business in most states. In addition, states generally require
nexus in order to be subject to state corporation tax laws. Nexus is usually
defined as requiring both of the following: 1) employees within the state and
2) owning substantial property within the state. XXXXX acquired a Certificate
of Authority within Utah for purpose of establishing a "legal standing"
in case of contract default and enforcement was required. XXXXX has no more
than 2 resident employees and owns no real or personal property in the state of
Utah.
XXXXX's
resident employees are individuals who contact auto dealerships in hopes of interesting
them in placing consumer debt with our company. The employee works from their
home and there is no business office. XXXXX would continue to own no property
in the state of Utah. The individual's contact with the auto dealerships
generally includes explaining our finance program, train the dealers on how to
complete loan documents and explain our loan guidelines. They would perform all
the functions of our current sales staff domiciled in California and would not
have any authority to approve loan contracts; all contracts would continue to
be approved and deemed made in California.
It
is our opinion that all of our income is considered to be generated within the
state of California and should be reported accordingly. As previously
indicated, pursuant to most state statutes, XXXXX is engaged in an activity
which, by definition, does not constitute doing business, i.e. creating as a
lender and acquiring obligations and security interests in personal property
arising out of the financing of retail installment sale contracts. All
contracts are approved in California and are deemed to be created in
California.
We
request a ruling at your earliest opportunity as to whether XXXXX is subject to
Utah corporate income tax. Please provide us with the following information:
1. Is there nexus in the state of
Utah for purposes of corporate income tax;
2. Is XXXXX required to allocate any
of its corporate revenues and expenses to the state of Utah;
3. If there are no revenues deemed
to be generated in the state of Utah, is XXXXX required to file a corporate
income tax return showing zero activity for your state or are we exempt and
need not file these forms at all; and
4. For purposes of completing any
other state forms requiring information regarding financial activity, i.e.
Annual Reports, etc., are we to report any income or show $0.00. We realize
that all consumer credit and/or finance sales license reports must show the
volume of loans purchased.
Thank
you for your assistance in rendering a ruling in this matter. Our aim is to
remain in compliance with all obligatory reporting and licensing requirements.
If you need any additional information regarding our activities in the state of
Utah, l will be happy to provide it to you. Again, thank you for your help in
this matter.
Sincerely,
XXXXX
Compliance
Officer
XXXXX
RE: Application of Utah income tax laws to
XXXXX’s business.
Dear
XXXXX,
We
have received your request for an advisory opinion regarding income tax
issues. We find as follows:
1.
XXXXX (XXXXX) has nexus in Utah for income tax purposes because XXXXX
has two employees working in Utah and because Public Law 86-272 does not
provide an exemption for the types of activities that XXXXX conducts in
Utah. The wages, salaries or
compensation paid to your Utah-based employees must be included in the payroll
factor of the apportionment formula under Utah’s UDITPA provisions. §59-7-315 Utah Code Ann.
2.
Whether XXXXX is required to include any of its gross receipts in the
Utah sales factor depends on where the bulk of the income-producing activity
occurs. Income from sales other than
sales of tangible personal property is included in the sales numerator of the
state that bears the greatest portion of the income-producing activity as
measured by the cost of performance.
§59-12-319 Utah Code Ann.; Utah Admin. R. R865-6F-8. We cannot determine
with certainty from the facts presented in your request whether Utah or California
bears the greatest portion of income-producing activity related to your Utah
contracts. Presumably, the costs of
performance include the costs of purchasing Utah contracts (or paying
commissions to dealers for placing loans with your company) plus the payroll
costs of your sales force in Utah. If
those costs constitute the greatest portion of the total cost of processing and
selling the contracts, gross receipts derived from the Utah contracts must be
attributed to Utah’s sales factor.
3.
As a corporation that is qualified to do business in Utah, XXXXX must
file a corporate franchise tax return which apportions income using the UDIPTA
formula as described above. Utah law
sets the minimum franchise tax at $100.
§59-7-104 Utah Code Ann.; Utah Admin. R. R865-6F-6.
4.
We cannot advise you as to the other state forms or financial
disclosures that may be required by other state agencies because we are not
familiar with their operations or policies.
However, we encourage you to contact the Department of Commerce at the
address and phone number listed below if you further questions.
XXXXX
Please
let us know if you have additional questions.
For the Commission,
Alice Shearer,
Commissioner