Alabama Administrative Code › Title 810 - ALABAMA DEPARTMENT OF REVENUE › Chapter 810-27-1-4 - MULTISTATE TAX COMPACT › Section 810-27-1-4-.09 - Apportionment Formula

Current through Register Vol. 42, No. 9, June 28, 2024
All business income of the taxpayer shall be apportioned to
				this state by use of the apportionment formula set forth in section
				40-27-1,
				Article IV.9. The elements of the apportionment formula are the property factor
				(see Regulation
				810-27-1-4-.10), the payroll factor (see Regulation
				810-27-1-4-.13) 
				and the sales factor (see Regulation
				810-27-1-4-.15)  of
				the trade or business of the taxpayer. For taxpayers with a business interest
				in an unincorporated entity (e.g., partnership, unincorporated joint-venture,
				limited liability company taxed as a partnership, etc.), the elements of the
				apportionment formula shall include the pro rata share of the unincorporated
				entity's factor data. If any factor is not utilized in the production of
				business income, it shall be eliminated and the denominator reduced
				accordingly. The taxpayer may request, or the Commissioner may require, the use
				of a replacement factor in lieu of the eliminated factor where appropriate. See
				regulation
				810-27-1-4-.18.
(i) EXAMPLE: Corporation C has a 20%
			 distributive share of Partnership P's income which is included in C's
			 apportionable business income. There are no transactions between C and P. Using
			 the regulations for computing the elements of the apportionment formula, C has
			 its own apportionment factor data as follows:
Alabama Everywhere
Property 550,000 600,000
Payroll 1,800,000 2,000,000
Sales 1,500,000 7,000,000
Using the regulations for computing the elements of the
				apportionment formula at the partnership level, C's 20% share of P's
				apportionment factor data is as follows:
Alabama Everywhere
Property (20% of 100,000) 20,000 (20% of 275,000) 55,000
Payroll (20% of 50,000) 10,000 (20% of 125,000) 25,000
Sales (20% of 75,000) 15,000 (20% of 350,000) 70,000
C must compute its apportionment formula as follows:
Alabama Everywhere
Property (550,000+20,000) 570,000 (600,000+55,000)
				655,000
Payroll (1,800,000+10,000) 1,810,000 (2,000,000+25,000)
				2,025,000
Sales (1,500,000+15,000) 1,515,000 (7,000,000+70,000)
				7,070,000
Property (570,000/655,000) (division) 87.0229%
Payroll (1,810,000/2,025,000) (division) 89.3827%
Sales (1,515,000/7,070,000) (division) 21.4286%
Sum of Factor Percentages 197.8342%
Divide by Number of Factors Used 3 ___ (division)
Apportionment Factor Average
Percentage 65.9447%
(ii) EXAMPLE: Assume same facts as in (i)
			 except that C owns a building costing $100,000 that is rented to P for $12,000
			 per year. C must include the original cost of the building ($100,000) in its
			 property factor. Therefore, no portion of the value of P's rented property will
			 be reflected in the property factor of C. C would eliminate intercompany rents
			 (20% of $12,000 is $2,400) to the extent of its partnership interest from the
			 net annual rental rate.
(iii)
			 EXAMPLE: Assume same facts as in (ii) except that P owns the building at the
			 same original cost and rents it to C. C will include $20,000 (20% of $100,000)
			 in its property factor because of its interest in P. In addition, C must
			 include its rental expense in its property factor in order to give weight to
			 the rented building used in C's operations. C would eliminate intercompany
			 rental expense of $2,400 (20% of $12,000) from its rent expense in its property
			 factor before applying the multiplier of eight. Thus, the value of the building
			 which is to be included in C's property factor is $96,800 ($20,000 plus $76,800
			 [8 x $9,600 ($12,000 less $2,400)]).
(iv) EXAMPLE: Same facts as in (i) except
			 that C sells $30,000 to P. In the computation of the sales factor of C, $6,000
			 (20% of C's $30,000 sales to P) will be eliminated. Thus, the amount of sales
			 which is to be included in C's sales factor is $7,064,000 ($7,000,000 plus
			 partnership sales of $70,000 less eliminated sales of $6,000).
(v) EXAMPLE: Same facts as in (i) except that
			 P sells $60,000 to C. In the computation of C's sales factor, $12,000 (20% of
			 P's $60,000 sales to C) will be eliminated. Thus, the amount of sales which is
			 to be included in C's sales factor is $7,058,000 ($7,000,000 plus partnership
			 sales of $70,000 less eliminated sales of $12,000).
Author:
Peter M. Petrillo, Jr.
Statutory Authority:
Code of Ala.
				  1975
, §§
										40-2A-7(a)(5),
				  40-18-57.