Utah tax staff propose form changes to capture allocated unrelated business income from nonprofits

Tax Commission staff told the Rules Review and General Oversight Committee on a special July meeting that they will publish a revised state form to better record nonprofit unrelated business income and asked for public feedback. Jason Gardner, deputy executive director of the Utah State Tax Commission, said the issue was raised by tax practitioners and stems from changes in how nonprofit entities generate business-like income since Utah adopted unrelated business income taxation in 1994.

Gardner said, “Our current form apportions all income,” and that it does not separately account for allocated income. He explained that “allocated income is … allocated 100% to the state of corporate domicile,” and that the proposed draft form expands the current four-line state form to capture nonbusiness (allocated) income and to avoid “apportioning on top of apportionment” for income already apportioned at the partnership or LLC level. Gardner also said the commission is proposing a two-word statutory clarification to make state law read that unrelated business income is income “apportioned or allocated under the provisions of EDIPA.”

Senator Escamilla asked whether the commission was limiting the rule to certain nonprofit categories: “Is that definition that is provided by the IRS, like, a 5 1 c 3? Is that what we’re talking about, or is this a different type of nonprofit?” Gardner replied that the change would apply to “any type of nonprofit that receives this unrelated business income type,” including 501(c)(3)s and others that generate taxable unrelated business income. He and Commissioner Rebecca Rockwell said the Tax Commission can produce counts of filers if the committee wants more information.

Steve Young, a state and local tax attorney at Holland & Hart representing the Utah Taxpayers Association, told the panel the draft changes “look very good and helpful,” and said practitioners appreciate the commission’s outreach. Committee members pressed staff for clarity about which filers would be affected and asked that the commission publish the draft form and proposed statutory language so stakeholders can comment. The Tax Commission said it has a draft form and will invite public input before finalizing substantive changes.

Discussion only: committee members did not adopt any statutory change during the meeting. Committee chair McKay asked staff to post the draft and to accept public comment; no formal motion or vote on the Tax Commission proposal was recorded in the transcript.

Ending: The Tax Commission staff remained available for follow-up; committee members suggested clarifying the draft form, adding explanatory instructions about allocated vs. apportioned income, and providing the number of nonprofit filers who currently report unrelated business income.