H. B. 2191
(By Mr. Speaker, Mr. Chambers, and Delegate Burk)
[By Request of the Executive]
[Introduced February 19, 1993; referred to the
Committee on Finance.]
A BILL to amend and reenact section five, article twenty-three,
and section seven, article twenty-four, both of chapter
eleven of the code of West Virginia, one thousand nine
hundred thirty-one, as amended, all relating to providing
that for taxable years beginning after the thirty-first day
of December, one thousand nine hundred ninety-two, taxpayers
shall use a three factor formula composed of a single
weighted sales factor, a property factor and a payroll
factor to apportion capital for purposes of the business
franchise tax, and to apportion business income for purposes
of the corporation net income tax; preserving prior law for
taxable years beginning before such date specifying
effective dates; and making other technical nonsubstantive
changes in such laws.
Be it enacted by the Legislature of West Virginia:
That section five, article twenty-three and section seven,
article twenty-four, both of chapter eleven of the code of WestVirginia, one thousand nine hundred thirty-one, as amended, be
amended and reenacted, all to read as follows:
ARTICLE 23. BUSINESS FRANCHISE TAX.
§11-23-5. Apportionment of tax base.
(a) General rule. -- Except as otherwise provided in this
article, a taxpayer subject to the tax imposed by this article
and also taxable in another state shall, for the purposes of this
tax, apportion its tax base to this state by multiplying its tax
base by a fraction, the numerator of which is the sum of the
property factor, plus the payroll factor, plus two times the
sales factor, all of which shall be determined as hereinafter
provided in this section, and the denominator of which is four,
reduced by the number of factors, if any, having no denominator,
with the sales factor counting as two factors: Provided, That,
for taxable years beginning after the thirty-first day of
December, one thousand nine hundred ninety-two, a taxpayer
subject to the tax imposed by this article and also taxable in
another state shall, for the purposes of this tax, apportion its
tax base to this state by multiplying its tax base by a fraction,
the numerator of which is the sum of the property factor, plus
the payroll factor, plus a single weighted sales factor, all of
which shall be determined as hereinafter provided in this
section, and the denominator of which is three, reduced by the
number of factors, if any, having no denominator.
(b) Property factor. -- The property factor is a fraction,
the numerator of which is the average value of the taxpayer'sreal and tangible personal property owned or rented and used by
it in this state during the taxable year, and the denominator of
which is the average value of all real and tangible personal
property owned or rented by the taxpayer and used by it during
the taxable year, which is reported on Schedule L of Federal Form
1120 (or 1065 for partnerships), plus the average value of all
real and tangible personal property leased and used by the
taxpayer during the taxable year.
(c) Value of property. -- Property owned by the taxpayer
shall be valued at its original cost, adjusted by subsequent
capital additions or improvements thereto and partial disposition
thereof, by reason of sale, exchange, abandonment, etc.:
Provided, That where records of original cost are unavailable or
cannot be obtained without unreasonable expense, property shall
be valued at original cost as determined under regulations of the
tax commissioner. Property rented by the taxpayer from others
shall be valued at eight times the net annual rental rate. Net
annual rental rate is the annual rental paid, directly or
indirectly, by the taxpayer, or for its benefit, in money or
other consideration for the use of the property and includes:
(1) Any amount payable for the use of real or tangible
personal property, or any part thereof, whether designated as a
fixed sum of money or as a percentage of sales, profits or
otherwise.
(2) Any amount payable as additional rent or in lieu of
rents, such as interest, taxes, insurance, repairs or any otheritems which are required to be paid by the terms of the lease or
other arrangement, not including amounts paid as service charges,
such as utilities, janitor services, etc. If a payment includes
rent and other charges unsegregated, the amount of rent shall be
determined by consideration of the relative values of the rent
and the other items.
(d) Movable property. -- The value of movable tangible
personal property used both within and without this state shall
be included in the numerator to the extent of its utilization in
this state. The extent of such utilization shall be determined
by multiplying the original cost of such property by a fraction,
the numerator of which is the number of days of physical location
of the property in this state during the taxable period, and the
denominator of which is the number of days of physical location
of the property everywhere during the taxable year. The number
of days of physical location of the property may be determined on
a statistical basis or by such other reasonable method acceptable
to the tax commissioner.
(e) Leasehold improvements. -- Leasehold improvements shall,
for the purposes of the property factor, be treated as property
owned by the lessee regardless of whether the lessee is entitled
to remove the improvements or the improvements revert to the
lessor upon expiration of the lease. Leasehold improvements
shall be included in the property factor at their original cost.
(f) Average value of property. -- The average value of
property shall be determined by averaging the values at thebeginning and ending of the taxable year: Provided, That the tax
commissioner may require the averaging of monthly values during
the taxable year if substantial fluctuations in the values of the
property exist during the taxable year, or where property is
acquired after the beginning of the taxable year, or is disposed
of, or whose rental contract ceases, before the end of the
taxable year.
(g) Payroll factor. -- The payroll factor is a fraction, the
numerator of which is the total compensation paid in this state
during the taxable year by the taxpayer, and the denominator of
which is the total compensation paid by the taxpayer during the
taxable year as shown on the taxpayer's federal income tax return
as filed with the Internal Revenue Service, as reflected in the
schedule of wages and salaries and that portion of cost of goods
sold which reflects compensation, or as shown on a pro forma
return.
(h) Compensation. -- The term "compensation" means wages,
salaries, commissions and any other form of remuneration paid to
employees for personal services. Payments made to an independent
contractor or to any other person not properly classifiable as an
employee shall be excluded. Only the amounts paid directly to
employees shall be included in the payroll factor. Amounts
considered paid directly to employees include the value of board,
rent, housing, lodging and other benefits or services furnished
to employees by the taxpayer in return for personal services,
provided such amounts constitute income to the recipient forfederal income tax purposes.
(i) Employee. -- The term "employee" means:
(1) Any officer of a corporation; or
(2) Any individual who, under the usual common-law rules
applicable in determining the employer-employee relationship, has
the status of an employee.
(j) Compensation paid in this state. -- Compensation is paid
in this state if:
(1) The employee's service is performed entirely within the
state;
(2) The employee's service is performed both within and
without the state, but the service performed without the state is
incidental to the individual's service within the state. The
word "incidental" means any service which is temporary or
transitory in nature, or which is rendered in connection with an
isolated transaction; or
(3) Some of the service is performed in the state and:
(A) The employee's base of operations or, if there is no
base of operations, the place from which the service is directed
or controlled is in the state; or
(B) The base of operations or the place from which the
service is directed or controlled is not in any state in which
some part of the service is performed, but the employee's
residence is in this state.
The term "base of operations" is the place of more or less
permanent nature from which the employee starts his work and towhich he customarily returns in order to receive instructions
from the taxpayer or communications from his customers or other
persons or to replenish stock or other materials, repair
equipment, or perform any other functions necessary to the
exercise of his trade or profession at some other point or
points. The term "place from which the service is directed or
controlled" refers to the place from which the power to direct or
control is exercised by the taxpayer.
(k) Sales factor. -- The sales factor is a fraction, the
numerator of which is the gross receipts of the taxpayer derived
from transactions and activity in the regular course of its trade
or business in this state during the taxable year (business
income), less returns and allowances. The denominator of the
fraction shall be the total gross receipts derived by the
taxpayer from transactions and activity in the regular course of
its trade or business during the taxable year (business income),
and reflected in its gross income reported and as appearing on
the taxpayer's Federal Form 1120 or 1065, and consisting of those
certain pertinent portions of the (gross income) elements set
forth: Provided, That if either the numerator or the denominator
includes interest or dividends from obligations of the United
States government which are exempt from taxation by this state,
the amount of such interest and dividends, if any, shall be
subtracted from the numerator or denominator in which it is
included.
(l) Allocation of sales of tangible personal property. --
(1) Sales of tangible personal property are in this state
if:
(i) The property is received in this state by the purchaser,
other than the United States government, regardless of the f.o.b.
point or other conditions of the sale. In the case of delivery
by common carrier or other means of transportation, the place at
which such property is ultimately received after all
transportation has been completed shall be considered as the
place at which such property is received by the purchaser.
Direct delivery in this state, other than for purposes of
transportation, to a person or firm designated by the purchaser,
constitutes delivery to the purchaser in this state, and direct
delivery outside this state to a person or firm designated by the
purchaser does not constitute delivery to the purchaser in this
state, regardless of where title passes or other conditions of
sale; or
(ii) The property is shipped from an office, store,
warehouse, factory or other place of storage in this state and
the purchaser is the United States government.
(2) All other sales of tangible personal property delivered
or shipped to a purchaser within a state in which the taxpayer is
not taxed as defined in subsection (b), section seven, article
twenty-four of this chapter shall be excluded from the
denominator of the sales factor.
(m) Allocation of other sales. -- Sales, other than sales of
tangible personal property, are in this state if:
(1) The income-producing activity is performed in this
state;
(2) The income-producing activity is performed both in and
outside this state and a greater proportion of the income-
producing activity is performed in this state than in any other
state, based on costs of performance; or
(3) The sale constitutes business income to the taxpayer, or
the taxpayer is a financial organization not having its
commercial domicile in this state, and in either case the sale is
a receipt described as attributable to this state in section
five-a of this article.
(n) Income-producing activity. -- The term "income-producing
activity" applies to each separate item of income and means the
transactions and activity directly engaged in by the taxpayer in
the regular course of its trade or business for the ultimate
purpose of obtaining gain or profit. Such activity does not
include transactions and activities performed on behalf of the
taxpayer, such as those conducted on its behalf by an independent
contractor. "Income-producing activity" includes, but is not
limited to, the following:
(1) The rendering of personal services by employees with
utilization of tangible and intangible property by the taxpayer
in performing a service;
(2) The sale, rental, leasing, licensing or other use of
real property;
(3) The sale, rental, leasing, licensing or other use oftangible personal property; or
(4) The sale, licensing or other use of intangible personal
property. The mere holding of intangible personal property is
not, in itself, an income-producing activity: Provided, That the
conduct of the business of a financial organization shall
constitute an income-producing activity.
(o) Cost of performance. -- The term "cost of performance"
means direct costs determined in a manner consistent with
generally accepted accounting principles and in accordance with
accepted conditions or practices in the trade or business of the
taxpayer.
(p) Other methods of allocation. --
(1) General. -- If the allocation and apportionment
provisions of subsection (a) do not fairly represent the extent
of the taxpayer's business activities in this state, the taxpayer
may petition for, or the tax commissioner may require, in respect
to all or any part of the taxpayer's business activities, if
reasonable:
(A) Separate accounting;
(B) The exclusion of one of the factors;
(C) The inclusion of one or more additional factors which
will fairly represent the taxpayer's business activity in this
state; or
(D) The employment of any other method to effectuate an
equitable allocation or apportionment of the taxpayer's tax base.
Such petition shall be filed no later than the due date of theannual return for the taxable year for which the alternative
method is requested, determined without regard to any extension
of time for filing such return, and the petition shall include a
statement of the petitioner's objections and of such alternative
method of allocation or apportionment as it believes to be proper
under the circumstances with such detail and proof as the tax
commissioner may require.
(2) Burden of proof. -- In any proceeding before the tax
commissioner or in any court in which employment of one of the
methods of allocation or apportionment provided for in
subdivision (1) of this subsection is sought, on the ground that
the allocation and apportionment provisions of subsection (a) do
not fairly represent the extent of the taxpayer's business
activities in this state, the burden of proof shall:
(A) If the tax commissioner seeks employment of one of such
methods, be on the tax commissioner; or
(B) If the taxpayer seeks employment of one of such other
methods, be on the taxpayer.
(3) Notwithstanding any other provisions of this section,
financial organizations shall use only the special apportionment
rules set forth in section five-a of this article.
(q) Effective date. -- The amendments to this section made
by this article in Chapter 179, Acts of the Legislature, 1990,
shall apply to all taxable years ending after the effective date
of this article thereof. The provisions of paragraph (3),
subsection (p) of this section enacted in one thousand ninehundred ninety-one, shall apply to all taxable years beginning on
or after the first day of January, one thousand nine hundred
ninety-one.
ARTICLE 24. CORPORATION NET INCOME TAX.
§11-24-7. Allocation and apportionment.
(a) General. -- Except as otherwise provided in this
article, any taxpayer having income from business activity which
is taxable both in this state and in another state shall allocate
and apportion its net income as provided in this section. For
purposes of this section, the term "net income" means the
taxpayer's federal taxable income adjusted as provided in section
six.
(b) "Taxable in another state" defined. -- For purposes of
allocation and apportionment of net income under this section, a
taxpayer is taxable in another state if:
(1) In that state the taxpayer is subject to a net income
tax, a franchise tax measured by net income, a franchise tax for
the privilege of doing business, or a corporation stock tax; or
(2) That state has jurisdiction to subject the taxpayer to
a net income tax, regardless of whether, in fact, that state does
or does not subject the taxpayer to such tax.
(c) Business activities entirely within West Virginia. -- If
the business activities of a taxpayer take place entirely within
this state, the entire net income of such taxpayer is subject to
the tax imposed by this article. The business activities of a
taxpayer shall be deemed to have taken place in their entiretywithin this state if such taxpayer is not "taxable in another
state": Provided, That the business activities of a financial
organization having its commercial domicile in this state shall
be deemed to take place entirely in this state, notwithstanding
that such organization may be "taxable in another state":
Provided, however, That the income from the business activities
of a financial organization not having its commercial domicile in
this state shall be apportioned according to the applicable
provisions of this article.
(d) Business activities partially within and partially
without West Virginia; allocation of nonbusiness income. -- If
the business activities of a taxpayer take place partially within
and partially without this state and such taxpayer is also
taxable in another state, rents and royalties from real or
tangible personal property, capital gains, interest, dividends or
patent or copyright royalties, to the extent that they constitute
nonbusiness income of the taxpayer, shall be allocated as
provided in subdivisions (1) through (4): Provided, That to the
extent such items constitute business income of the taxpayer,
they shall not be so allocated but they shall be apportioned to
this state according to the provisions of subsection (e) of this
section and to the applicable provisions of section seven-b of
this article.
(1) Net rents and royalties. --
(A) Net rents and royalties from real property located in
this state are allocable to this state.
(B) Net rents and royalties from tangible personal property
are allocable to this state:
(i) If and to the extent that the property is utilized in
this state; or
(ii) In their entirety if the taxpayer's commercial domicile
is in this state and the taxpayer is not organized under the laws
of or taxable in the state in which the property is utilized.
(C) The extent of utilization of tangible personal property
in a state is determined by multiplying the rents and royalties
by a fraction, the numerator of which is the number of days of
physical location of the property in the state during the rental
or royalty period in the taxable year and the denominator of
which is the number of days of physical location of the property
everywhere during all rental or royalty periods in the taxable
year. If the physical location of the property during the rental
or royalty period is unknown or unascertainable by the taxpayer,
tangible personal property is utilized in the state in which the
property was located at the time the rental or royalty payer
obtained possession.
(2) Capital gains. --
(A) Capital gains and losses from sales of real property
located in this state are allocable to this state.
(B) Capital gains and losses from sales of tangible personal
property are allocable to this state if:
(i) The property had a situs in this state at the time of
the sale; or
(ii) The taxpayer's commercial domicile is in this state and
the taxpayer is not taxable in the state in which the property
had a situs.
(C) Capital gains and losses from sales of intangible
personal property are allocable to this state if the taxpayer's
commercial domicile is in this state.
(D) Gains pursuant to section 631 (a) and (b) of the
Internal Revenue Code of 1986, as amended, from sales of natural
resources severed in this state shall be allocated to this state
if they are nonbusiness income.
(3) Interest and dividends are allocable to this state if
the taxpayer's commercial domicile is in this state.
(4) Patent and copyright royalties. --
(A) Patent and copyright royalties are allocable to this
state:
(i) If and to the extent that the patent or copyright is
utilized by the payer in this state; or
(ii) If and to the extent that the patent or copyright is
utilized by the payer in a state in which the taxpayer is not
taxable and the taxpayer's commercial domicile is in this state.
(B) A patent is utilized in a state to the extent that it is
employed in production, fabrication, manufacturing or other
processing in the state or to the extent that a patented product
is produced in the state. If the basis of receipts from patent
royalties does not permit allocation to states or if the
accounting procedures do not reflect states of utilization, thepatent is utilized in the state in which the taxpayer's
commercial domicile is located.
(C) A copyright is utilized in a state to the extent that
printing or other publication originates in the state. If the
basis of receipts from copyright royalties does not permit
allocation to states or if the accounting procedures do not
reflect states of utilization, the copyright is utilized in the
state in which the taxpayer's commercial domicile is located.
(5) Corporate partner's distributive share. --
(A) Persons carrying on business as partners in a
partnership, as defined in section 761 of the Internal Revenue
Code of 1986, as amended, are liable for income tax only in their
separate or individual capacities.
(B) A corporate partner's distributive share of income,
gain, loss, deduction or credit of a partnership shall be
modified as provided in section six of this article for each
partnership. Such distributive share shall then be allocated and
apportioned as provided in section seven of this article, using
the corporation's proportionate share of the partnership's
property, payroll and sales factors. The sum of that portion of
the distributive share allocated and apportioned to this state
shall then be treated as distributive share allocated to this
state; and that portion of distributive share allocated or
apportioned outside this state shall be treated as distributive
share allocated outside this state, unless the taxpayer requests
or the tax commissioner, under subsection (h) of this sectionrequires that such distributive share be treated differently.
(e) Business activities partially within and partially
without this state; apportionment of business income. -- All net
income, after deducting those items specifically allocated under
subsection (d), shall be apportioned to this state by multiplying
such net income by a fraction, the numerator of which is the
property factor plus the payroll factor plus two times the sales
factor, and the denominator of which is four, reduced by the
number of factors, if any, having no denominator: Provided,
That, for taxable years beginning after the thirty-first day of
December, one thousand nine hundred ninety-two, all net income,
after deducting those items specifically allocated under
subsection (d), shall be apportioned to this state by multiplying
such net income by a fraction, the numerator of which is the
property factor plus the payroll factor plus a single weighted
sales factor and the denominator of which is three, reduced by
the number of factors, if any, having no denominator.
(1) Property factor. -- The property factor is a fraction,
the numerator of which is the average value of the taxpayer's
real and tangible personal property owned or rented and used by
it in this state during the taxable year and the denominator of
which is the average value of all the taxpayer's real and
tangible personal property owned or rented and used by the
taxpayer during the taxable year, which is reported on Schedule
L Federal Form 1120, plus the average value of all real and
tangible personal property leased and used by the taxpayer duringthe taxable year.
(2) Value of property. -- Property owned by the taxpayer
shall be valued at its original cost, adjusted by subsequent
capital additions or improvements thereto and partial disposition
thereof, by reason of sale, exchange, abandonment, etc.:
Provided, That where records of original cost are unavailable or
cannot be obtained without unreasonable expense, property shall
be valued at original cost as determined under regulations of the
tax commissioner. Property rented by the taxpayer from others
shall be valued at eight times the annual rental rate. The term
"net annual rental rate" is the annual rental paid, directly or
indirectly, by the taxpayer, or for its benefit, in money or
other consideration for the use of property and includes:
(A) Any amount payable for the use of real or tangible
personal property, or any part thereof, whether designated as a
fixed sum of money or as a percentage of sales, profits or
otherwise.
(B) Any amount payable as additional rent or in lieu of
rents, such as interest, taxes, insurance, repairs or any other
items which are required to be paid by the terms of the lease or
other arrangement, not including amounts paid as service charges,
such as utilities, janitor services, etc. If a payment includes
rent and other charges unsegregated, the amount of rent shall be
determined by consideration of the relative values of the rent
and the other items.
(3) Movable property. -- The value of movable tangiblepersonal property used both within and without this state shall
be included in the numerator to the extent of its utilization in
this state. The extent of such utilization shall be determined
by multiplying the original cost of such property by a fraction,
the numerator of which is the number of days of physical location
of the property in this state during the taxable period, and the
denominator of which is the number of days of physical location
of the property everywhere during the taxable year. The number
of days of physical location of the property may be determined on
a statistical basis or by such other reasonable method acceptable
to the tax commissioner.
(4) Leasehold improvements. -- Leasehold improvements shall,
for purposes of the property factor, be treated as property owned
by the taxpayer regardless of whether the taxpayer is entitled to
remove the improvements or the improvements revert to the lessor
upon expiration of the lease. Leasehold improvements shall be
included in the property factor at their original cost.
(5) Average value of property. -- The average value of
property shall be determined by averaging the values at the
beginning and ending of the taxable year: Provided, That the tax
commissioner may require the averaging of monthly values during
the taxable year if substantial fluctuations in the values of the
property exist during the taxable year, or where property is
acquired after the beginning of the taxable year, or is disposed
of, or whose rental contract ceases, before the end of the
taxable year.
(6) Payroll factor. -- The payroll factor is a fraction, the
numerator of which is the total compensation paid in this state
during the taxable year by the taxpayer for compensation, and the
denominator of which is the total compensation paid by the
taxpayer during the taxable year, as shown on the taxpayer's
federal income tax return as filed with the Internal Revenue
Service, as reflected in the schedule of wages and salaries and
that portion of cost of goods sold which reflects compensation,
or as shown on a pro forma return.
(7) Compensation. -- The term "compensation" means wages,
salaries, commissions and any other form of remuneration paid to
employees for personal services. Payments made to an independent
contractor or to any other person not properly classifiable as an
employee shall be excluded. Only amounts paid directly to
employees are included in the payroll factor. Amounts considered
as paid directly to employees include the value of board, rent,
housing, lodging and other benefits or services furnished to
employees by the taxpayer in return for personal services,
provided such amounts constitute income to the recipient for
federal income tax purposes.
(8) Employee. -- The term "employee" means:
(A) Any officer of a corporation; or
(B) Any individual who, under the usual common-law rule
applicable in determining the employer-employee relationship, has
the status of an employee.
(9) Compensation. -- Compensation is paid or accrued in thisstate if:
(A) The employee's service is performed entirely within this
state; or
(B) The employee's service is performed both within and
without this state, but the service performed without the state
is incidental to the individual's service within this state. The
word "incidental" means any service which is temporary or
transitory in nature, or which is rendered in connection with an
isolated transaction; or
(C) Some of the service is performed in this state and:
(i) The employee's base of operations or, if there is no
base of operations, the place from which the service is directed
or controlled is in the state; or
(ii) The base of operations or the place from which the
service is directed or controlled is not in any state in which
some part of the service is performed, but the employee's
residence is in this state.
The term "base of operations" is the place of more or less
permanent nature from which the employee starts his work and to
which he customarily returns in order to receive instructions
from the taxpayer or communications from his customers or other
persons or to replenish stock or other materials, repair
equipment, or perform any other functions necessary to the
exercise of his trade or profession at some other point or
points. The term "place from which the service is directed or
controlled" refers to the place from which the power to direct orcontrol is exercised by the taxpayer.
(10) Sales factor. -- The sales factor is a fraction, the
numerator of which is the gross receipts of the taxpayer derived
from transactions and activity in the regular course of its trade
or business in this state during the taxable year (business
income), less returns and allowances. The denominator of the
fraction shall be the total gross receipts derived by the
taxpayer from transactions and activity in the regular course of
its trade or business during the taxable year (business income),
and reflected in its gross income reported and as appearing on
the taxpayer's Federal Form 1120, and consisting of those certain
pertinent portions of the (gross income) elements set forth:
Provided, That if either the numerator or the denominator
includes interest or dividends from obligations of the United
States government which are exempt from taxation by this state,
the amount of such interest and dividends, if any, shall be
subtracted from the numerator or denominator in which it is
included.
(11) Allocation of sales of tangible personal property. --
(A) Sales of tangible personal property are in this state
if:
(i) The property is received in this state by the purchaser,
other than the United States government, regardless of the f.o.b.
point or other conditions of the sale. In the case of delivery
by common carrier or other means of transportation, the place at
which such property is ultimately received after alltransportation has been completed shall be considered as the
place at which such property is received by the purchaser.
Direct delivery in this state, other than for purposes of
transportation, to a person or firm designated by the purchaser,
constitutes delivery to the purchaser in this state, and direct
delivery outside this state to a person or firm designated by the
purchaser does not constitute delivery to the purchaser in this
state, regardless of where title passes or other conditions of
sale; or
(ii) The property is shipped from an office, store,
warehouse, factory or other place of storage in this state and
the purchaser is the United States government.
(B) All other sales of tangible personal property delivered
or shipped to a purchaser within a state in which the taxpayer is
not taxed (as defined in subsection (b) of this section) shall be
excluded from the denominator of the sales factor.
(12) Allocation of other sales. -- Sales, other than sales
of tangible personal property are in this state if:
(A) The income-producing activity is performed in this
state; or
(B) The income-producing activity is performed both in and
outside this state and a greater proportion of the income-
producing activity is performed in this state than in any other
state, based on costs of performance; or
(C) The sale constitutes business income to the taxpayer, or
the taxpayer is a financial organization not having itscommercial domicile in this state, and in either case the sale is
a receipt described as attributable to this state in subsection
(b), section seven-b of this article.
(13) Financial organizations and other taxpayers with
business activities partially within and partially without this
state. -- Notwithstanding anything contained in this section to
the contrary, in the case of financial organizations and other
taxpayers, subject to special business income apportionment rules
provided elsewhere in this article, not having their commercial
domicile in this state, the rules of this subsection shall apply
to the apportionment of income from their business activities
except as expressly otherwise provided in subsection (b), section
seven-b of this article.
(f) Income-producing activity. -- The term "income-producing
activity" applies to each separate item of income and means the
transactions and activity directly engaged in by the taxpayer in
the regular course of its trade or business for the ultimate
purpose of obtaining gain or profit. Such activity does not
include transactions and activities performed on behalf of the
taxpayer, such as those conducted on its behalf by an independent
contractor. "Income-producing activity" includes, but is not
limited to, the following:
(1) The rendering of personal services by employees with
utilization of tangible and intangible property by the taxpayer
in performing a service;
(2) The sale, rental, leasing, licensing or other use ofreal property;
(3) The sale, rental, leasing, licensing or other use of
tangible personal property; or
(4) The sale, licensing or other use of intangible personal
property.
The mere holding of intangible personal property is not, in
itself, an income-producing activity: Provided, That the conduct
of the business of a financial organization shall constitute an
income-producing activity.
(g) Cost of performance. -- The term "cost of performance"
means direct costs determined in a manner consistent with
generally accepted accounting principles and in accordance with
accepted conditions or practices in the trade or business of the
taxpayer.
(h) Other methods of allocation and apportionment. --
(1) General. -- If the allocation and apportionment
provisions of subsections (d) and (e) of this section do not
fairly represent the extent of the taxpayer's business activities
in this state, the taxpayer may petition for or the tax
commissioner may require, in respect to all or any part of the
taxpayer's business activities, if reasonable:
(A) Separate accounting;
(B) The exclusion of one or more of the factors;
(C) The inclusion of one or more additional factors which
will fairly represent the taxpayer's business activity in this
state; or
(D) The employment of any other method to effectuate an
equitable allocation or apportionment of the taxpayer's income.
Such petition shall be filed no later than the due date of the
annual return for the taxable year for which the alternative
method is requested, determined without regard to any extension
of time for filing such return, and the petition shall include a
statement of the petitioner's objections and of such alternative
method of allocation or apportionment as it believes to be proper
under the circumstances with such detail and proof as the tax
commissioner may require.
(2) Alternative method for public utilities. -- If the
taxpayer is a public utility and if the allocation and
apportionment provisions of subsections (d) and (e) do not fairly
represent the taxpayer's business activities in this state, the
taxpayer may petition for, or the tax commissioner may require,
as an alternative to the other methods provided for in paragraph
(1) of this subsection, the allocation and apportionment of the
taxpayer's net income in accordance with any system of accounts
prescribed by the public service commission of this state
pursuant to the provisions of section eight, article two, chapter
twenty-four of this code, provided the allocation and
apportionment provisions of such system of accounts fairly
represent the extent of the taxpayer's business activities in
this state for the purposes of the tax imposed by this article.
(3) Burden of proof. -- In any proceeding before the tax
commissioner or in any court in which employment of one of themethods of allocation or apportionment provided for in paragraph
(1) or (2) of this subsection is sought, on the ground that the
allocation and apportionment provisions of subsections (d) and
(e) do not fairly represent the extent of the taxpayer's business
activities in this state, the burden of proof shall:
(A) If the tax commissioner seeks employment of one of such
methods, be on the tax commissioner; or
(B) If the taxpayer seeks employment of one of such other
methods, be on the taxpayer.
NOTE: The purpose of this bill is to eliminate use of the
double-weighted sales factor when determining the business
franchise tax liability of a partnership or corporation doing
business in two or more states, and when determining the
corporation net income tax liability of a corporation doing
business in two or more states, for taxable years beginning after
December 31, 1992. The standard three factor formula composed of
property, payroll and single weighted sales factors would be used
instead.
Strike-throughs indicate language that would be stricken
from the present law, and underscoring indicates new language
that would be added.