DAR File No. 29020

Tax Commission, Auditing

R865-6F-29

Taxation of Railroads Pursuant to Utah Code Ann. Sections 59-7-302 through 59-7-321

NOTICE OF PROPOSED RULE

DAR File No.: 29020
Filed: 09/14/2006, 02:40
Received by: NL

RULE ANALYSIS

Purpose of the rule or reason for the change:

H.B. 78 (2005 General Session) provides that taxpayers may elect a double-weighted sales factor to apportion their business income to Utah. (DAR NOTE: H.B. 78 (2005) is found at Chapter 225, Laws of Utah 2005, and was effective 01/01/2006.)

Summary of the rule or change:

The proposed amendment indicates how the double-weighted sales factor shall be calculated if one of the factors is missing.

State statutory or constitutional authorization for this rule:

Sections 59-7-302 through 59-7-321

Anticipated cost or savings to:

the state budget:

None--Any fiscal impact was taken into account in H.B. 78 (2005).

local governments:

None--Any fiscal impact was taken into account in H.B. 78 (2005).

other persons:

None--Any fiscal impact was taken into account in H.B. 78 (2005).

Compliance costs for affected persons:

None--Taxpayers may choose between two methods (the traditional three factor and the double-weighted sales factor) to apportion business income to Utah.

Comments by the department head on the fiscal impact the rule may have on businesses:

Taxpayers may choose between two methods to apportion business income to Utah. D'Arcy Dixon, Commissioner

The full text of this rule may be inspected, during regular business hours, at the Division of Administrative Rules, or at:

Tax Commission
Auditing
210 N 1950 W
SALT LAKE CITY UT 84134

Direct questions regarding this rule to:

Cheryl Lee at the above address, by phone at 801-297-3900, by FAX at 801-297-3919, or by Internet E-mail at clee@utah.gov

Interested persons may present their views on this rule by submitting written comments to the address above no later than 5:00 p.m. on:

10/31/2006

This rule may become effective on:

11/07/2006

Authorized by:

D'Arcy Dixon, Commissioner

R865. Tax Commission, Auditing.

R865-6F. Franchise Tax.

R865-6F-29. Taxation of Railroads Pursuant to Utah Code Ann. Sections 59-7-302 through 59-7-321.

[A.](1) Definitions.

[1.](a) "Average value" of property means the amount determined by averaging the values of real and personal property at the beginning and ending of the income tax year. The Tax Commission may require the averaging of monthly values during the income year or other averaging as necessary to reflect properly the average value of the railroad's property.

[2.](b) "Business and nonbusiness income" are as defined in R865-6F-8[(A)](1).

[3.](c) "Car-mile" means a movement of a unit of car equipment a distance of one mile.

[4.](d) "Locomotive" means a self-propelled unit of equipment designed solely for moving other equipment.

[5.](e) "Locomotive-mile" means the movement of a locomotive a distance of one mile under its own power.

[6.](f) "Net annual rental rate" means the annual rental rate paid by the taxpayer less any annual rental rate received by the taxpayer from subrentals.

[7.](g) "Original cost" means the basis of the property for federal income tax purposes (prior to any federal income tax adjustments except for subsequent capital additions, improvements thereto or partial dispositions). If the original cost of property is unascertainable under the foregoing valuation standards, the property is included in the property factor at its fair market value as of the date of acquisition by the taxpayer.

[8.](h) "Property used during the income year" means property that is available for use in the taxpayer's trade or business during the income year.

[9.](i) "Rent" does not include the per diem and mileage charges paid by the taxpayer for the temporary use of railroad cars owned or operated by another railroad.

[10.](j) "Value of owned real and tangible personal property" means the original cost of owned real and tangible personal property.

[11.](k) "Value of rented real and tangible personal property" means the product of eight times the net annual rental rate of rented real and tangible personal property.

[B.](2) When a railroad has income from sources both within and without this state, the amount of business income from sources within this state shall be determined pursuant to this rule. In those cases, the first step is to determine what portion of the railroad's income constitutes business income and what portion constitutes nonbusiness income. Nonbusiness income is directly allocable to specific states and business income is apportioned among the states in which the business is conducted and pursuant to the property, payroll, and sales apportionment factors set forth in this rule. The sum of the items of nonbusiness income directly allocated to this state, plus the amount of business income apportioned to this state, constitutes the amount of the taxpayer's entire net income subject to tax in this state.

[C.](3) [In general, the]The fraction by which business income shall be apportioned to the state shall be determined in accordance with rule R865-6F-8(3) and (6). Except as modified by this rule, the property factor shall be determined in accordance with R865-6F-8[(G)](7), the payroll factor in accordance with R865-6F-[08(H)]8(8),and the sales factor in accordance with R865-6F- 8[(I)](9)[, except as modified by this rule].

[D.](4) The denominator of the property factor shall be the average value of the total of the taxpayer's real and tangible personal property owned or rented and used within and without this state during the income year. The numerator of the property factor shall be the average value of the taxpayer's real and tangible personal property owned or rented and used within this state during the income year.

[1.](a) In determining the numerator of the property factor, all property except mobile or movable property such as passenger cars, freight cars, locomotives and freight containers located within and without this state during the income year shall be included in the numerator of the property factor.

[2.](b) Mobile or movable property such as passenger cars, freight cars, locomotives and freight containers located within and without this state during the income year shall be included in the numerator of the property factor in the ratio that locomotive-miles and car-miles in the state bear to the total of locomotive-miles and car-miles both within and without this state.

[E.](5) The denominator of the payroll factor is the total compensation paid within and without this state by the taxpayer during the income year for the production of business income. The numerator of the payroll factor is the amount of compensation paid within this state during the income year for the production of business income.

[1.](a) With respect to all personnel except engine men and trainmen performing services on interstate trains, compensation shall be included in the numerator as provided in R865-6F-8[(H)](8).

[2.](b) With respect to engine men and trainmen performing services on interstate trains, compensation shall be included in the numerator of the payroll factor in the ratio that their services performed in this state bear to their services performed within and without this state.

[3.](c) Compensation for services performed in this state shall be deemed to be the compensation reported or required to be reported by employees for determination of their income tax liability to this state.

[F.](6) In general, all revenue derived from transactions and activities in the regular course of the taxpayer's trade or business within and without this state that produce business income, except per diem and mileage charges that are calculated by the taxpayer, shall be included in the denominator of the revenue factor. The numerator of the revenue factor is the total revenue of the taxpayer within this state during the income year.

[1.](a) The total revenue of the taxpayer in this state during the income year, other than revenue from hauling freight, passengers, mail and express, shall be attributable to this state in accordance with R865-6F-8[(I)](9).

[2.](b) The total revenue of the taxpayer attributable to this state during the income year for the numerator of the revenue factor from hauling freight, mail and express shall be attributable to this state as follows:

[a)](i) Intrastate: all receipts from shipments that both originate and terminate within this state; and

[b)](ii) Interstate: that portion of the receipts from each movement or shipment passing through, into, or out of this state is determined by the ratio that the miles traveled by the movement or shipment in this state bears to the total miles traveled by the movement or shipment from point of origin to destination.

[3.](c) The total revenue of the taxpayer attributable to this state during the income year for the numerator of the revenue factor from hauling passengers shall be attributable to this state as follows:

[a)](i) Intrastate: all receipts from the transportation of passengers, including mail and express handled in passenger service, that both originate and terminate within this state; and

[b)](ii) Interstate: that portion of the receipts from the transportation of interstate passengers, including mail and express handled in passenger service, determined by the ratio that passenger miles in this state bear to the total of passenger miles within and without this state.

[G.](7) The taxpayer shall maintain the records necessary to identify mobile property and to enumerate by state the mobile property miles traveled by mobile property. These records are subject to review by the Tax Commission or its agents.

 

KEY: taxation, franchises, historic preservation, trucking industries

Date of Enactment or Last Substantive Amendment: [July 20, 2005]2006

Notice of Continuation: April 3, 2002

Authorizing, and Implemented or Interpreted Law: 59-7-302 through 59-7-321