The Utah State Tax Commission has amended its rules for apportioning financial institution receipts attributable to services from a costs-of-performance sourcing rule to a market-based sourcing rule (Utah Admin. R. R865-6F-32(3)(l)). Effective December 9, 2010, financial institutions must include in the sales factor numerator receipts from services not otherwise specifically addressed in the regulation “if the purchaser of the services receives a greater benefit of the services in Utah than in any other state.”
The change in sourcing methodology is consistent with Utah’s recently amended general corporation apportionment statute, Utah Code Ann. § 59-7-319, which similarly provides for the market sourcing of services (based on where the purchaser receives a greater benefit of the service). The change to market sourcing for financial institutions is another departure by Utah from the Multistate Tax Commission’s (MTC) model regulations for the apportionment of financial institution income.
The MTC’s model regulation currently provides, in Section 3(l), for sourcing of financial institution receipts from services based on where the services are performed, or in the case of services performed in more than one state, on the costs of performing the income-producing activity. Interestingly, the MTC has proposed amendments to its financial institution apportionment regulations, although the section pertaining to the sourcing of receipts from services currently could continue to follow the costs-of-performance sourcing methodology.
Utah’s change to market sourcing for services not otherwise specifically addressed in its regulation seems to establish a certain consistency in the sourcing rules for financial institutions, because many of the other receipts addressed in the regulation are also sourced in a way to reflect a taxpayer’s market. For example, interest from loans not secured by real property are sourced to the state where the borrower is located, and receipts from credit card receivables are sourced to the state of the billing address of the cardholder.