Utah approves comprehensive tax reform package

In late March 2025, Utah Gov. Spencer Cox approved a package of tax reforms in legislation that is generally intended to provide tax relief.¹ The legislation reduces the income tax rates, amends the apportionment of income for financial institutions, and amends or repeals various credits. Also, the legislation eliminates the transaction threshold for the sales tax nexus statute for remote sellers and provides a new sales tax exemption for qualifying energy storage manufacturing facilities.

Income tax rates 

For tax years beginning in 2025 and thereafter, H.B. 106 lowers the corporate franchise tax, corporate income tax, and individual income tax rates from 4.55% to 4.5%.² This continues Utah’s policy to annually lower the tax rates by incremental amounts since 2022.

Financial institution apportionment 

For tax years beginning in 2026 and thereafter, S.B. 219 significantly modifies the formula for apportioning the business income of financial institutions for corporate franchise and income tax purposes.³ In calculating the sales factor of a financial institution, sales from investment activities and assets and trading activities and assets are excluded from the sales factor numerator and are included in the sales factor denominator.⁴ Other than these sales, the Utah Tax Commission is directed to establish the sales to be included in the sales factor fraction of a financial institution.⁵

“Sales from investment activities and assets and trading activities and assets” is defined as receipts from numerous types of passive sources, including interest, dividends, a net gain (but not less than zero), or other income from an investment security, a trading account asset, federal funds, a security purchased and sold under an agreement to resell or repurchase, an option, a future contract, a forward contract, equities, a foreign currency transaction, or a notional principal contract (such as a swap).⁶ However, the definition excludes: (i) receipts from the lease of real or tangible personal property; (ii) interest from, and net gains from the sale of, a loan; (iii) receipts from, and net gains from the sale of, a credit card receivable; (iv) a credit card issuer’s reimbursement fees; (v) receipts from a merchant discount; (vi) loan servicing fees; (vii) receipts from a service; and (viii) other receipts not specifically included in the definition.⁷

Tax credits 

Beginning with the 2025 tax year, H.B. 264 repeals the nonrefundable corporate and individual income tax credit that may be taken for alternative energy development as well as the individual income tax credit for qualifying solar projects.⁸ Also, the eligibility for the corporate and individual income credits for clean energy systems is limited to systems that are completed and placed in service before Jan. 1, 2028.⁹

H.B. 60 extends the carryforward period from five to 10 tax years for the excess amount of the nonrefundable tax credit available to an owner of a pass-through entity who receives income from an entity that paid pass-through entity tax on the income.¹⁰

Sales and use tax 

Effective July 1, 2025, S.B. 47 repeals the transaction threshold requiring a remote seller or marketplace facilitator to collect and remit sales and use tax if it annually sells tangible personal property, products transferred electronically, or services for storage, use, or consumption in the state in 200 or more separate transactions.¹¹ A remote seller still has a tax collection and remittance obligation if it annually receives gross revenue from the sale of tangible personal property, products transferred electronically, or services for storage, use, or consumption in the state of more than $100,000.

S.B. 213 enacts a sales and use tax exemption for qualifying energy storage manufacturing facilities that is effective July 1, 2025.¹² Specifically, the exemption applies for amounts paid or charged by an operator of a qualifying energy storage facility for: (i) a purchase of tangible personal property if it is incorporated into equipment or a device that stores and discharges energy at the facility and (ii) a purchase or lease of machinery, equipment, or normal operating repair or replacement parts that are used exclusively in the operation of the facility.

Commentary

The recent Utah tax legislation amends numerous tax statutes and is designed to provide relief to many taxpayers. The flat tax rate applied to corporate franchise and income taxes as well as individual income tax is further reduced beginning with the 2025 tax year. The 4.95% tax rate that applied to the 2021 tax year has been consistently reduced each year to the present rate of 4.5%.

The apportionment legislation is significant for many financial institutions. Most corporations in Utah use single sales factor apportionment,¹³ but an existing regulation provides that financial institutions apportion their income using an equally weighted three-factor formula based on sales, property, and payroll.¹⁴ Beginning with the 2026 tax year, S.B. 219 should be helpful to many companies closely aligned with the financial institution industry by ensuring that any sales from investment activities and assets and trading activities and assets are not sourced to Utah. Companies that are classified as financial institutions under this legislation that currently have significant Utah physical or market presence should accordingly examine their income streams to see whether they may be entitled to apportionment relief in 2026 and beyond. The legislation also directs the Utah Tax Commission to promulgate a rule to establish the receipts to be included in a financial institution’s sales factor, which may have additional implications with respect to the calculation of a financial institution’s sales factor.

The elimination of the transaction threshold for remote sellers also is a positive development for taxpayers. This legislation follows the state trend of repealing this threshold. Tax administration should be simplified by eliminating the filing requirement for remote sellers that have over 200 sales transactions in the state but fall below the $100,000 threshold.

1 H.B. 60, H.B. 264, S.B. 47, and S.B. 219, enacted on March 25, 2025; H.B. 106 and S.B. 213, enacted on March 26, 2025. This SALT Alert is intended to highlight the major tax provisions of the legislation enacted in March 2025.
2 UTAH CODE ANN. §§ 59-7-104(2); 59-7-201(2); 59-10-104(2)(b).
3 UTAH CODE ANN. § 59-7-317(1). The statute provides a broad and detailed definition of a “financial institution,” which in addition to traditional types of financial institutions like banks, includes a corporation or other business entity that derives from finance leases more than 50% of its total gross income from financial accounting purposes: (i) using the average of the gross income in the current tax year and immediately preceding two tax years; and (ii) disregarding gross income from incidental or occasional transactions. UTAH CODE ANN. § 59-7-317(1)(b). A “finance lease” is a lease transaction that is the functional equivalent of an extension of credit and that transfers substantially all the benefits and risks incident to the ownership of property. UTAH CODE ANN. § 59-7-317(1)(a)(i).
4 UTAH CODE ANN. § 59-7-317(4)(b).
5 UTAH CODE ANN. § 59-7-317(4)(a).
6 UTAH CODE ANN. § 59-7-317(1)(c)(i). The definition includes: (i) the amount by which interest from federal funds sold and securities purchased under resale agreements exceeds interest expense on federal funds purchased and securities sold under repurchase agreements; and (ii) the amount by which interest, dividends, gains, and other income from foreign currency transactions and trading assets and activities, including activities in the matched book and arbitrage book, exceed amounts paid in lieu of interest, amounts paid in lieu of dividends, and losses from trading assets and activities. UTAH CODE ANN. § 59-7-317(1)(c)(ii).
7 UTAH CODE ANN. § 59-7-317(1)(c)(iii).
8 H.B. 264, § 4.
9 UTAH CODE ANN. §§ 59-7-614(2); 59-10-1014(2); 59-10-1106(2).
10 UTAH CODE ANN. § 59-10-1045(3)(a).
11 UTAH CODE ANN. §§ 59-12-107(2)(c)(ii); 59-12-107.6(2).
12 UTAH CODE ANN. § 59-12-104(98). A “qualifying energy storage manufacturing facility” is a facility that manufactures, in Utah, equipment or devices that store and discharge energy for the purpose of providing electrical power. UTAH CODE ANN. § 59-12-102(110).
13 UTAH CODE ANN. § 59-7-311.
14 UTAH ADMIN. CODE R865-6F-32(2)-(5).