Response January 30, 1998
MEETING: January 28, 1998
1. TAXATION:
a. XXXXX County's tax records indicate COMPANY A will be taxed
at about $$$$$ annually or about $$$$$
for land and about $$$$$ for equipment
and buildings. Is this correct? What is
the formula? How frequent is the data
base updated? What is the projected rate for
5-10 years?
b. Sales and Use Tax on Equipment: Utah provides limited tax
credits for equipment purchased in Utah.
How does this effect equipment that
cannot be purchased or manufactured in Utah? Who determines if the equipment is taxable or non-taxable? What
can be used as a guideline for
equipment? When the company uses raw products, are the raw materials
taxed when purchased outside of the
state and shipped to Utah? How are the
taxes determined, or are they taxed? An example, the company brings rice from STATE, hard wheat and brand from
Canada soft grains from STATE, and other raw goods from indigenous areas of the
United States and Canada. How are these products treated with respect
to tax?
c. Inventory Tax: We understand Utah does not charge
manufactured or finished goods tax. It this correct?
d. Corporate Tax: COMPANY A is a type "S"
corporation. It is our understanding
the franchise tax will apply to the company, an income tax will not Is this true?"
e. Can COMPANY A get a summary statement of interpretation
concerning each of these tax questions
and issues?
January
12, 1998
NAME
ADDRESS
CITY
STATE ZIP
Advisory
Opinion: Taxation of Business Located
in XXXXX County
Dear
NAME:
This advisory opinion is a follow-up
to our conversation on Thursday, January 29, 1998. Because we do not have specific information about the business at
issue, this letter provides only general guidelines. If you or the business client need more specific tax guidance,
please contact us again with more detailed information.
1. All real and personal property in Utah
is to be assessed and taxed at its fair market value unless otherwise
exempt. The county assessor will assess
the real property each year. Its value
may vary from year to year with fluctuations in the market.
The personal property will be
assessed each year at market value.
Market value is generally determined by reference to the Tax
Commission’s depreciation schedules.
These schedules are updated each year by the Tax Commission’s Property
Tax Division. The current schedules are
enclosed for your review. There is a
property tax exemption for property held in inventory for resale.
The tax rates in XXXXX County vary
from year to year and from area to area.
The 1997 tax rates for unincorporated XXXXX County ranged from .008895
to .01. The tax rates for incorporated
areas ran from .010260 to .011500.
2. Unless otherwise exempt, sales and use
tax applies to sales, use or consumption of tangible personal property in this
state, as well as to charges for various services. Because we do not have specific details about the types of sales
or purchases that your client makes, we cannot give you specific advice as to
the kinds of exemptions that may apply.
However, from your general description, it appears that your client may
be a manufacturer. On that basis, we
offer the following guidelines.
a. Purchases
or leases of manufacturing equipment by a qualified manufacturer are exempt
from sales tax. To qualify, the
company’s operations must constitute a
new or expanding business and must be an establishment described in SIC Code
2000-3999 of the 1987 Standard Industrial Classification Manual. The machinery or equipment purchased must be
used in the manufacturing process which produces tangible personal property,
and must have an economic life of three or more years.
b. Replacement
parts are eligible for exemption as follows:
1. For
purchases between July 1, 1997 and June 30, 1998, 60% of the sale or lease is
exempt.
2. For
purchases after July 1, 1998, 100% of the sale or lease is exempt.
Replacement parts must also be used
in the manufacturing process, must have an economic life of three or more
years, and must be used to replace or adapt an existing machine to extend the
normal estimated useful life of the machine.
Routine repair and maintenance does not qualify for exemption.
c. Raw
materials that are purchased and used primarily as an ingredient or component
part of the finished product may be purchased tax free for resale. Materials purchased and consumed by the
manufacturer in the manufacturing process are taxable to the manufacturer, even
if they become an incidental part of the finished product.
d. Items
purchased from out-of-state vendors and shipped into Utah are subject to use
tax in the same manner that the sales tax applies to in-state purchases. Therefore, if your client purchases exempt
manufacturing equipment and machinery from out-of-state, it is exempt from use
tax under the guidelines expressed in 2.a. and 2.b. above. Raw materials purchased from outside of Utah
are exempt from use tax under the guidelines expressed in 2.c.
e. Utah
does not charge manufactured or finished goods tax.
3. S corporations are taxed for state
purposes in the same manner as taxed for federal purposes. That is, if a corporation obtains a valid
Sub Chapter "S" election from the IRS, it will be treated as a Utah
Small Business Corporation for tax purposes in Utah.
a. For
Utah resident shareholders, taxable income, expenses, losses and credits pass
through to the shareholders as provided in Subtitle A, Chapter 1S, Part 2 of
the Internal Revenue Code.
b. Nonresident
shareholders are liable for that portion of the corporation’s Utah taxable
income that is derived from Utah sources.
However, the corporation shall make a 5.95 percent payment on behalf of
any nonresident shareholders. The individual nonresident shareholder may
then file a Utah nonresident return to claim a credit for the amount paid by
the corporation on that shareholder’s behalf.
c. A
nonresident individual shareholder who has no other Utah source income may
forego the credit described in 3.b. above and elect not to file a Utah
return. However, if the shareholder
intends to claim the credit, it must use the Utah return to do so.
I
hope this information is helpful.
Again, if you need a more detailed response, we are happy to work with
you further.
For
the Commission,
Joe
B. Pacheco,
Commissioner
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