96-177
Response
January 6, 1997
Request
XXXXX
Utah
State Tax Commission
210
North 1950 West
Salt
Lake City, Utah 84134
RE: Company A: Request for Letter Ruling on Applicable
Corporate Tax; Nexus
Dear
XXXXX,
This firm represent XXXXX, A XXXXX
corporation which is engaged in first mortgage lending in fifteen state,
including Utah. The purpose of this
letter is to request a Letter Ruling addressing which corporate and/or other
Utah taxes, if any, our client may be liable for. I have sent several letters to XXXXX, in the Internal Research
Department, and have received two letters responding to the issue of nexus and
taxation of foreign corporations, but have not received any guidance as to our
client’s particular situation.
I have received and reviewed a copy
of Utah administrative rule R865-6F-6.
I have also reviewed 15 U.S.C. 381-384 which is mentioned under the
administrative rule. After reviewing
the statutes, administrative rule, and correspondence from the State Tax
Commission, I am still uncertain as to which taxes, if any our client may be
liable for. Any help that you may
provide will be greatly appreciated.
The following facts apply to your
state, and to every state in which COMPANY conducts mortgage lending. COMPANY
is a non-depository, residential first mortgage lender and, at some time in the
future, may become a mortgage servicer. The Corporation first obtains a Certificate of Authority to
conduct business as a foreign corporation.
Second,COMPANY then applies for a mortgage lending license, if necessary.
COMPANY contracts with local title companies and appraisers, on a case-by-case
basis, in the various communities where each mortgage customer lives. Closings are held at the locale title
company offices. In some states
COMPANY, Incorporated contracts with, and buys loans from independent licensed
loan brokers. In addition, in some
states COMPANY has one or more employees to solicit loans from independent
licensed loan brokers. COMPANY does not have any employees in Utah. After closing a mortgage loan, the
Corporation immediately sells it to an institutional investor.
With respect to the issue of
nexus,COMPANY, Incorporated operates its business entirely in STATE and does
not have any offices, assets, employees, or any physical presence in any other
state, with the exception of those state where the Corporation has employees to
solicit loans from brokers. In those
states where the Corporation has employees to solicit loans from brokers, the
employees operate out of their homes and their business cards and stationary
have the Corporation’s address and
telephone number listed on them. The
Corporation itself does not have any offices, telephone numbers, etc. outside
of STATE. The Corporation advertises is
lending services in the various state through television advertising, and all
communication with customers is done entirely by telephone and mail.
Please provide our firm with an
opinion letter outlining which corporate and/or other state taxes, if any, our
client may be liable for. Please also
indicate which tax returns, if any must be filed in your state, and the respective
deadlines for filing. I encourage you
to contact me at my office is you have any questions concerning this matter.
Thank you in advance for your
courtesy and cooperation.
Very
Truly yours,
XXXXX
NAME
ADDRESS
CITY,
STATE, ZIP
Advisory
Opinion - Corporate Income Tax
Dear
XXXXX,
We have received your request for an
opinion as to the Utah tax liability of your client, COMPANY. We offer the following tax guidance:
1. Nexus -COMPANY is subject to Utah corporate tax
provisions if it has nexus in Utah.
Every corporation doing business in
Utah or qualified to do business in Utah is subject to Utah corporate franchise
tax. A foreign corporation that is
qualified in Utah is subject to the tax even though engaged solely in
interstate commerce.
Although a company that registers
here or is otherwise qualified to do business here is entitled to certain
protections under Public Law 86-272, those provisions are not relevant here. COMPANY
is qualified to do business in Utah and it has nexus for income tax
purposes. Therefore, COMPANY must file under Utah’s corporate tax
provisions.
2. Apportionment of Income - The tax imposed on COMPANY is
5% of its income apportioned to Utah or a minimum of $100.
A portion of COMPANY’S income must be apportioned to Utah under
Utah’s UDITPA provisions. The amount of
income apportioned to Utah is determined by multiplying COMPANY total income by a fraction, the numerator of
which is the property factor, plus the payroll factor, plus the sales factor,
and the denominator of which is three.
The three factors are explained below.
Any non-business income is allocated
under the UDITPA provisions (see attached copies of Utah Code sections 59-7-306
through 59-7-310).
A. The Property Factor.
The property factor is a fraction which is calculated on the basis of
the average value of the company’s real and personal property in this state
during the tax period compared to the average value of all of the company’s
real and personal property. You
indicate that COMPANY does not own or lease property in Utah. Therefore, the property factor is zero.
B. The Payroll Factor.
The payroll factor is a fraction, the numerator of which includes the
total compensation paid by COMPANY in Utah during the tax period and the
denominator of which includes the total compensation paid by COMPANY everywhere
during the tax period. Compensation
includes wages, salaries, commissions or other forms of remuneration paid to
employees for personal services.
“Employee” means an officer of the corporation, or any person who is included by COMPANY as an employee
for purposes of payroll taxes. Payments
made to an independent contractor or other person who is not classified as an
employee are excluded from the payroll factor.
You indicate that COMPANY has no
employees in Utah. If that is so,
COMPANY’s Utah payroll factor is zero.
C. The Sales Factor. The
sales factor is a fraction, the numerator of which is the total income from
Utah sales during the tax period, and the denominator of which is the total of
all sales for the tax period. Income
from COMPANY’s activities must be included in the Utah sales factor if the
income-producing activity takes place solely in Utah. If an income-producing activity is performed both in Utah and
elsewhere, the income from that activity is attributable to Utah if the greater
proportion of the income-producing activity takes place here, as measured by
cost of performance.
“Income” means business income
arising from transactions and activities in the regular course of COMPANY’s
business and includes income from sales or property or services, interest,
compensation, or other gross receipts arising from Utah loan accounts or sales
in Utah of loan accounts. “Cost of
performance” refers to direct costs of COMPANY’s income-producing activity
(such as commissions or fees paid to a Utah title company) determined in a
manner consistent with generally accepted accounting principles. Costs for personal services are attributable
to Utah to the extent that the services are performed in Utah.
From the facts presented in your
request, we assume that COMPANY has income which must be attributed to the Utah
sales factor. The formula for
determining the amount of income apportioned to Utah is as follows:
Utah Income = Property
Factor + Payroll Factor + Sales Factor X Total Apportionable
Income
3
As stated above, the amount of tax
due is 5% of the Utah income or a minimum of $100.
For
the Commission,
XXXXX,
Commissioner