99-028

Response June 1, 1999

REQUEST LETTER

March 5, 1999

Re: COMPANY B

Dear NAME:

The COMPANY B by this letter requests a determination from the Utah State Tax Commission (the ACommission@) as to whether COMPANY has tax nexus with Utah. The purpose of requesting this determination is to document to the STATE Department of Revenue (ASDOR@) that COMPANY B had tax nexus in Utah from 1993 to 1996.

COMPANY B is requesting this letter because COMPANY B is currently under audit by the SDOR. In the audit, the SDOR is claiming that COMPANY B does not have nexus outside of STATE (which position, if correct, would mean that COMPANY B may not owe taxes to Utah). As shown by COMPANY B=s prior tax returns filed with the Commission, COMPANY B believes (and has consistently filed its tax returns with the Commission on the basis) that COMPANY B had nexus with Utah during the 1993,1994,1995 and 1996 calendar tax years under audit by the SDOR.

Company Background:

COMPANY B is a wholly-owned subsidiary of COMPANY A Holdings Corporation COMPANY A and its affiliates. While the manner in which COMPANY B was held by COMPANY A during the years at audit changed during such years, in each of those years COMPANY B was (either directly or indirectly) a wholly-owned subsidiary of COMPANY A.

COMPANY B was established to mine a deposit of ore located in CITY, STATE. The planning for the COMPANY B mine began in 1992. Mining operations for ore began in 1993 and continued through 1997. Mining activities at the CITY mine ended in 1997 and, since 1997, the CITY mine has been in reclamation.

During 1992 through 1997, COMPANY B's principal officers and directors were all located in Utah. With the exception of one individual, throughout the entire 1993 to 1996 time period under audit, all of COMPANY B's officers and directors were located in Utah. Further, all COMPANY B board meetings were held in Utah and all major contracts were negotiated, documented and signed by personnel in Utah. Further, all budget approvals, permitting, treasury operations (e.g., cash flow management and disbursement of operating funds), legal, tax, payroll, administration of employee benefit plans, accounting for cash management functions, engineering, mine planning, exploration and computer-related services were provided to COMPANY B by COMPANY A or one of its affiliates from COMPANY A=s locations in Utah using personnel located in Utah. This is further discussed in the attachments to the Nexus Questionnaire that accompanies this letter.

Background Of Audit

COMPANY B is currently being audited by the SDOR with respect to COMPANY B=s 1993 to 1996 STATE tax returns. COMPANY B filed those returns on the basis that, as a result of having activities in Utah and Canada, COMPANY B was doing business within and without the state of STATE. These business activities within and without STATE entitled COMPANY B to use the apportionment method of accounting in STATE. The SDOR as part of the audit of COMPANY B=s 1993, 1994, 1995 and 1996 calendar tax years has asserted that COMPANY B is not entitled to use the apportionment method.

Requested Ruling:

As part of COMPANY B's documentation of its activities within and without the state of STATE, COMPANY B is requesting that the Commission review COMPANY B's tax nexus with Utah and, applying Utah's standards for tax nexus, provide COMPANY B with a determination letter stating that during the 1993, 1994, 1995 and 1996 calendar tax years that COMPANY B had nexus with Utah. This letter does not need to be lengthy. However, the text of such a letter would be helpful if it contained language similar to the following (a sample of such a letter is attached):

"The Auditing Division of the Utah State Tax Commission (the "Division") has reviewed the nexus questionnaire provided to it by COMPANY B, which nexus questionnaire is dated March 5, 1999 (the AQuestionnaire"). Based upon the specific activities that COMPANY B has listed in the Questionnaire, it is the opinion of the Division that COMPANY B had nexus in Utah for income tax purposes and/or franchise tax purposes (which franchise tax is measured by net income), for COMPANY B=s calendar tax years 1993,1994,1995 and 1996."

Summary:

Thank you for your agreeing to review COMPANY B's activities in Utah and confirm its tax status for nexus purposes in Utah by issuing a determination letter with text similar to that shown above.

If we can be of any assistance to you in this matter or provide any additional information,

please do not hesitate to call either NAME at ##### or myself at #####.

COMPANY B

Paul D. Judd, Tax Officer

Enclosures

RESPONSE LETTER

June 1, 1999

COMPANY A

ADDRESS

RE: Income Tax Nexus with Utah and COMPANY B

Dear NAME,

We have received your request for a determination that COMPANY B had income tax nexus with Utah for the 1993 to 1996 calendar tax years. Your state in your letter that, with the exception of one individual, all of COMPANY B=s officers and directors were located in Utah during this period. You also state that all of COMPANY B=s board meetings were held in Utah and that all of its major contracts were negotiated, documented, and signed by personnel in Utah. Many budgetary, planning, and personnel functions for the company were also performed in Utah.

Utah Admin. Code R865-6F-6(K) lists a number of activities that will subject a corporation to income tax nexus with Utah, unless those contacts are of a de minimis level. Among the activities listed are using property in Utah as a meeting place for directors, officers, and employees (Subsection 16), and conducting any activity which is not completely ancillary to requests for orders and thus not protected under P.L. 86-272 (Subsection 21). Not only does COMPANY B use property in Utah for all its board meetings, but the activities conducted in Utah clearly exceed mere solicitation of sales and, thus, are not protected under P.L. 86-272. Because all but one of COMPANY B=s officers and directors were based in Utah and performed their duties on behalf of COMPANY B in this state, all board meetings were held in Utah, and the majority of major decisions concerning COMPANY B occurred in Utah, these contacts exceed the de minimis level. Accordingly, COMPANY B had income tax nexus with Utah for the 1993 to 1996 calendar tax years.

As a taxpayer having income tax nexus with Utah and having income from business activities in other states, COMPANY B must allocate and apportion its adjusted income among the various states, including Utah, in which it did business. Utah Code Ann. '59-7-303. Business income is apportioned to Utah by multiplying the income by a fraction that is comprised of the property, payroll, and sales factors associated with Utah. Utah Code. Ann. '59-7-311. If, for any reason, COMPANY B has no Utah taxable income, the Utah tax liability would be the $100 minimum tax required under Utah Code. Ann. '59-7-104(3).

Please contact us if you have any other questions.

For the Commission,

R. Bruce Johnson

Commissioner

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