Form Tc-20 - Utah Corporation Franchise Or Income Tax Return Instructions

A captive real estate investment trust must be included

• part of the same afﬁ liated group, and

as a member of a unitary group. A real estate invest-

• qualiﬁ ed under IRC §1501 to ﬁ le a federal consoli-

ment trust (REIT) is a captive real estate investment

dated return.

trust if the shares or beneﬁ cial interests of the REIT

are not regularly traded on an established securities

Each corporation within the afﬁ liated group doing busi-

market and more than 50 percent of the voting power

ness in Utah must consent to ﬁ ling the combined report.

or value of the shares or beneﬁ cial interests of the

If an afﬁ liated group elects to ﬁ le a combined report, each

REIT are directly, indirectly, or constructively owned or

corporation within the afﬁ liated group doing business

controlled by a controlling entity of the REIT.

in Utah must be included in the combined report.

Corporations that elect to ﬁ le a water’s edge combined report

Unitary Business

under this section may not thereafter elect to ﬁ le a separate

A unitary business exists if the activities of the corpo-

return without the consent of the Tax Commission.

rations (subsidiary or afﬁ liated corporations related

through common ownership) are economically interde-

Worldwide

pendent as demonstrated by the following factors:

A unitary group may elect to ﬁ le a worldwide combined

• Strong centralized management

report. When the worldwide combined reporting method

is elected, the income or loss of each corporation within

• Functional integration

the unitary group must be included regardless of the

• Attainment of operational economies of scale

country in which the corporations are incorporated or

conduct business.

Instructions for Combining Captive

Real Estate Investment Trusts

Corporations electing to ﬁ le a worldwide combined

report may not thereafter elect to ﬁ le a return on a

The income and factors for a captive real estate invest-

basis other than a worldwide combined report without

ment trust are included in a manner similar to other uni-

the consent of the Tax Commission.

tary corporations in the combined group. Utah statutes

include taxable income from federal form 1120-REIT

Threshold Level of Business Activity

before the net operating loss deduction and the deduc-

tion for dividends paid. A Utah deduction is allowed for

Foreign corporations that conduct 20 percent or more of

the IRC §857(b)(2)(E) deduction. A subtraction is also

their business activity in the United States, as measured

allowed for dividends received from a captive real estate

by the average of the property and payroll factors, must

investment trust by a member of the unitary group. This

be included 100 percent in a water’s edge combined

subtraction is essentially an intercompany elimination

report. Any business activity in Utah will subject a foreign

since the 1120-REIT taxable income is included before

corporation to Utah franchise tax. The threshold test for

the federal dividends paid deduction.

purposes of combined reporting determines whether the

foreign corporation is a member of a unitary group.

The property, payroll and sales of a REIT are included

in the factors of the combined group to the extent oth-

Foreign Dividends

erwise provided in Utah laws and rules. Intercompany

Fifty percent of unitary foreign dividends are in-

transactions between a captive REIT and any member

cluded in adjusted income. The remaining 50 per-

of the unitary group must be removed from the sales

cent, less certain expenses, are excluded. (See

factor. Similarly, intercompany rents must be removed

UC §59-7-106(1)(k) and (3).) A portion of the property,

from the combined property factor.

payroll and sales of each dividend paying subsidiary is

allowed to be included in the combined apportionment

WaterÊs Edge Combined Report

denominators at the ratio the amount of the dividend

A unitary group must ﬁ le on a water’s edge basis unless

included in Utah combined income bears to the total

the worldwide combination method has been elected. A

earnings and proﬁ ts for each dividend paying company.

water’s edge combined report includes the income and

activities of all members of a unitary group that are:

Preparation of Combined Report(s)

• corporations organized or incorporated in the United

A group ﬁ ling a combined report will calculate adjusted

States, including those corporations qualifying for the

income of the combined group by:

Puerto Rico and Possession Tax Credit as provided

1. determining which corporations are unitary;

in IRC §936, and

2. computing unadjusted income on a separate return

• corporations organized or incorporated outside of

basis;

the United States meeting the threshold level of

3. combining income or loss of the members included

business activity.

in the combined report;

4. making appropriate eliminations and adjustments

WaterÊs Edge Election

between members included in the combined report

A group of corporations that are not otherwise a unitary

to arrive at unadjusted income on a combined basis;

group may elect to ﬁ le a water’s edge combined report

and

under UC §59-7-402(2) if each member of the group is:

5. making additions and subtractions to unadjusted

income as outlined in Schedules B, C and D to ar-

• doing business in Utah,

rive at adjusted income.

Page 4

Form Tc-20 - Utah Corporation Franchise Or Income Tax Return Instructions - 2011 Page 6

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