Liquid certificate of deposit

UTAH: Income Tax: Apportionment Rule Addresses Gross Receipts and Liquid Assets

A Utah corporation franchise (income) tax allocation and apportionment rule defines "gross receipts" as the gross amounts realized on the sale or exchange of property, the performance of services, or the use of property or capital in a transaction that produces business income, in which the income or loss would be recognized under the Internal Revenue Code. Gross receipts are not reduced by the cost of goods sold or the basis of property exchanged. Furthermore, gross receipts do not include, among others, such items as:

* the repayment, maturity, or redemption of the principal of a loan, bond, or mutual fund or certificate of deposit;

* the principal amount received under a repurchase agreement;

* the proceeds from the issuance of a taxpayer 's own stock or from the sale of treasury stock;

* damages and other amounts received as the result of litigation;

* the property acquired by an agent on behalf of another; or

* tax refunds and other tax benefit recoveries.

Special Sales Factor Definitions

For purposes of the sales factor component of the apportionment formula, if a taxpayer holds "liquid assets" in connection with one or more "treasury functions" of a taxpayer, and the liquid assets produce business income when sold, exchanged, or otherwise disposed, then the "overall net gain" from those transactions for each treasury function for the tax period is included in the sales factor.

"Liquid assets" include:

* foreign currency other than functional currency used in the regular course of a taxpayer's trade or business;

* "marketable instruments;" and

* mutual funds that hold such liquid assets.

A "marketable instrument" is one that is traded in an established stock or securities market and is regularly quoted by brokers or dealers; however, stock in a corporation that has a substantial business relationship with a taxpayer is not considered to be marketable stock.

A "treasury function" is the pooling and management of liquid assets for the purpose of satisfying the cash flow needs of a trade or business. A taxpayer principally engaged in the trade or business of purchasing and selling instruments or other items included in the definition of liquid assets is not performing a treasury function with respect to the income produced.

Finally, "overall net gain" refers to the total net gain from all transactions incurred at each treasury function for the entire tax period, not the net gain from a specific transaction. (R865-6F-8, Utah State Tax Commission, effective October 19, 2004.)