Alabama Administrative Code › Title 810 - ALABAMA DEPARTMENT OF REVENUE › Chapter 810-27-1-4 - MULTISTATE TAX COMPACT › Section 810-27-1-4-.10 - Property Factor

Current through Register Vol. 42, No. 9, June 28, 2024
(a)
			 Property Factor: In General. The property factor of the apportionment formula
			 shall include all real and tangible personal property owned or used during the
			 tax period to produce business income. The term "real and tangible personal
			 property" includes land, buildings, machinery, stocks of goods, equipment, and
			 other real and tangible personal property used in connection with the
			 production of business income but does not include coin or currency. Property
			 used in connection with the production of nonbusiness income shall be excluded
			 from the property factor. Property used in connection with both the production
			 of business and nonbusiness income shall be included in the factor only to the
			 extent that the property was used in connection with the production of business
			 income. The method of determining that portion of the value to be included in
			 the factor will depend upon the facts of each case. The property factor shall
			 include the average value of property includable in the factor. See Regulation
			 810-27-1-4-.12.
(b) Property Factor: Property Used for the
			 Production of Business Income. Property shall be included in the property
			 factor if it is actually used or is available for or capable of being used
			 during the tax period for the production of business income. Property held as
			 reserves or standby facilities or property held as a reserve source of
			 materials shall be included in the factor. For example, a plant temporarily
			 idle or raw material reserves not currently being processed are includable in
			 the factor. Property or equipment under construction during the tax period,
			 (except inventoriable goods in process) shall be excluded from the factor until
			 such property is actually used for the production of business income. If the
			 property is partially used for the production of business income while under
			 construction, the value of the property to the extent used shall be included in
			 the property factor. Property used in the production of business income shall
			 remain in the property factor until its permanent withdrawal is established by
			 an identifiable event such as its conversion to the production of nonbusiness
			 income, its sale, or the lapse of an extended period of time (normally, five
			 years) during which the property is held for sale.
(i) EXAMPLE: Taxpayer closed its
			 manufacturing plant in State X and yield the property for sale. The property
			 remained vacant until its sale one year later. The value of the manufacturing
			 plant is included in the property factor until the plant is sold.
(ii) EXAMPLE: Same as above except that the
			 property was rented until the plant was sold. The rental income is business
			 income and the plant is included in the property factor until the plant is
			 sold.
(iii) EXAMPLE: Taxpayer
			 closed its manufacturing plant and leased the building under a five-year lease.
			 The plant is included in the property factor until the commencement of the
			 lease.
(iv) EXAMPLE: The taxpayer
			 operates a chain of retail grocery stores. Taxpayer closed Store A, which was
			 then remodeled into three small retail stores such as a dress shop, dry
			 cleaning, and barber shop, which were leased to unrelated parties. The property
			 is removed from the property factor on the date on which the remodeling of
			 Store A commenced.
(v) EXAMPLE: The
			 plant was sold shortly after it was put up for sale. Cases will vary as to the
			 lapse of time until there is a sale. If a closed plant remains unsold for five
			 years after it is put up for sale, it is to be removed from the property
			 factor.