Arkansas Administrative Code › Agency 006 - Department of Finance and Administration › Division 05 - Division of Revenues › 1998-1 - Comprehensive Corporation Income Tax Regulations › Rule 26-51-713 - PAYROLL FACTOR › Rule 1.26-51-713 - Payroll Factor Generally

Current through Register Vol. 49, No. 6, June, 2024
The payroll factor of the apportionment formula for each
					 trade or business of the taxpayer shall include the total amount paid by the
					 taxpayer in the regular course of its trade or business for compensation during
					 the tax year. Leased employees' salaries should be included in the payroll
					 factor of the taxpayer which pays the salaries and issues the W-2 forms.
The total amount paid to employees is determined upon the
					 basis of the taxpayer's accounting method. If the taxpayer has adopted the
					 accrual method of accounting, all compensation properly accrued shall be deemed
					 to have been paid. Notwithstanding the taxpayer's method of accounting,
					 compensation paid to employees may, at the election of the taxpayer, be
					 included in the payroll factor by use of the cash method if the taxpayer is
					 required to report such compensation under that method for unemployment
					 compensation purposes.
The compensation of any employee on account of activities
					 which are connected with the production of nonbusiness income shall be excluded
					 from the payroll factor.
The term "compensation" means wages, salaries, commissions
					 and any other form of remuneration paid to employees for their personal
					 services. Payments made to an independent contractor or any other person not
					 properly classifiable as an employee are excluded. Only amounts paid directly
					 to employees are included in the payroll factor. Amounts considered "paid
					 directly" 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 that such amounts constitute income to the
					 recipient under the federal Internal Revenue Code. For those employees employed
					 in foreign countries, the determination of whether such benefits or services
					 would constitute income to the employees shall be made as though such employees
					 were subject to the federal Internal Revenue Code.
The term "employee" means any officer of a corporation, or
					 any individual who, under the usual common-law rules applicable in determining
					 the employer-employee relationship, has the status of an employee. Generally, a
					 person will be considered to be an employee if he is included by the taxpayer
					 as an employee for purposes of the payroll taxes imposed by the Federal
					 Insurance Contributions Act; except that, since certain individuals are
					 included within the term "employee" in the Federal Insurance Contributions Act
					 who would not be employees under the usual common-law rules, it may be
					 established that a person who is included as an employee for purposes of the
					 Federal Insurance Contributions Act is not an employee for purposes of
					 calculating the payroll factor.
The denominator of the payroll factor is the total
					 compensation paid everywhere during the tax year. Accordingly, compensation
					 paid to employees whose services are performed entirely in a state where the
					 taxpayer is protected from taxation, for example, by
					 15 U.S.C. §
											381, is included in the denominator of the
					 payroll factor.