Utah court favors businesses in company-county tax dispute By Steven Oberbeck

The Salt Lake Tribune
First published Jun 14 2011 02:03PM
Updated Jun 14, 2011 11:29PM

The Utah Supreme Court has ruled in favor of T-Mobile USA in a property tax dispute with 15 Utah counties that dates back to 2003.

In a ruling handed down earlier this month that could have wide-ranging implications for many of the state’s employers and local governments, the state’s high court found that the “goodwill” carried on T-Mobile’s balance sheet could not be taxed under Utah law.

“Many businesses increasingly are generating goodwill on their books due to mergers and evolving accounting rules. The [Utah] Supreme Court has now made it clear that goodwill and other intangible property is not subject to taxation,” said Mark Buchi, an attorney with Holland & Hart, who along with Steven Young represented T-Mobile.

Goodwill typically appears on balance sheets after one company buys another for more than the value of its tangible assets. The difference between the purchase price and the value of the those assets is listed on the balance sheet of the surviving business as the goodwill of the acquired company.

The dispute arose in 2003 after the Utah State Tax Commission assessed T-Mobile’s taxable property. T-Mobile appealed the assessment in district court, which under Utah law serves as a tax court. And the tax court ruled that T-Mobile’s accounting goodwill was exempt from taxation.

In response to that ruling, the 15 Utah counties where T-Mobile had operations appealed the district court’s decision. At stake was several millions of dollars in potential tax revenue for county treasuries and for many companies’ bottom lines. The counties contended that the company’s goodwill was taxable based on the “unitary business principle,” Buchi said.

That concept relies on the contention that two interrelated, physical assets create an enhanced value through synergy, Buchi said. “The counties claimed that T-Mobile’s goodwill enhanced the value of the tangible property, and therefore, was not tax-exempt.”

Utah’s high court disagreed.

It noted that corporations operating in Utah are taxed based upon their “taxable income,” which is defined as income from tangible or intangible property located in the state.

“Because goodwill is property and because Utah’s corporate income tax imposes a tax on the income derived from all property, including both tangible and intangible property, the income derived from goodwill is already being taxed,” the Utah Supreme Court said in its ruling.

steve@sltrib.com Twitter: OberbeckBiz