The Utah Supreme Court handed taxpayers a victory on October 5, 2018 when it issued a unanimous (5-0) decision in the closely-watched Utah State Tax Commission v. See’s Candies, Inc., 2018 UT 57 (Oct. 5, 2018). The Court affirmed the district court’s holding that the Utah State Tax Commission’s (“Commission”) discretionary authority to reallocate a taxpayer’s income under Utah Code Section 59-7-113 (“Section 113”) is limited by the “arm’s-length” standard set forth in the federal…
Statutory definitions often carry ambiguous terms and subtle distinctions. However small these distinctions may seem, their interpretation can mean millions in state tax. In Massachusetts, for example, multistate corporations generally apportion their business income using a three-factor formula based on a property factor, a payroll factor, and a double-weighted sales factor. However, certain out-of-state corporations, like “manufacturing corporations” or “mutual fund service corporations,” may be required to apportion their business income using Massachusetts’s single-sales factor apportionment formula. In the event a single-sales factor apportionment formula applies, an out-of-state company’s Massachusetts corporate excise tax liability may increase, as none of that company’s out-of-state property and payroll expenses are accounted for in apportioning income.
The Utah Tax Court recently issued its decision in See’s Candies, Inc. v. Utah State Tax Commission, Case No. 140401556, holding that the “arm’s-length” standard set forth in the federal treasury regulations relating to section 482 of the Internal Revenue Code (“IRC”) controls for purposes of guiding the Utah State Tax Commission (“Commission”) in reallocating income pursuant to Utah Code section 59-7-113 (“Section 59-7-113”), which is nearly identical to section 482 of the IRC.