California Code of Regulations › Title 18 - Public Revenues › Division 3 - Franchise Tax Board › Chapter 3.5 - Bank and Corporation Tax › Subchapter 17 - Allocation of Income › Article 2.5 - Uniform Division of Income for Tax Purposes Act › Section 25130 - Property Factor. Valuation of Owned and Rented Property

Current through Register 2024 Notice Reg. No. 28, July 12, 2024
(a) Property Factor. Valuation of Owned
					 Property.
(1) Property owned by the taxpayer
					 shall be valued at its original cost. As a general rule "original cost" is
					 deemed to be the basis of the property for federal income tax purposes (prior
					 to any federal adjustments) at the time of acquisition by the taxpayer and
					 adjusted by subsequent capital additions or improvements thereto and partial
					 disposition thereof, by reason of sale, exchange, abandonment, etc. However,
					 for taxable income years beginning on or after January 1, 1990, capitalized
					 intangible drilling and development costs shall be included in the property
					 factor whether or not they have been expensed for either federal or state tax
					 purposes.
EXAMPLE (1): The taxpayer acquired a factory building in
						this state at a cost of $500,000 and 18 months later expended $100,000 for
						major remodeling of the building. Taxpayer files its return for the current
						income year on the calendar year basis. Depreciation deduction in the amount of
						$22,000 was claimed on the building for its return for the current income year.
						The value of the building includible in the numerator and denominator of the
						property factor is $600,000 as the depreciation deduction is not taken into
						account in determining the value of the building for purposes of the
						factor.
EXAMPLE (2): During the current income year, X
						Corporation merges into Y Corporation in a tax-free reorganization under the
						Internal Revenue Code. At the time of the merger, X Corporation owns a factory
						which X built five year earlier at a cost of $1,000,000. X has been
						depreciating the factory at the rate of two percent per year, and its basis in
						X's hands at the time of the merger is $900,000. Since the property is acquired
						by Y in a transaction in which, under the Internal Revenue Code, its basis in
						Y's hands is the same as its basis in X's, Y includes the property in Y's
						property factor at X's original cost, without adjustment for depreciation,
						i.e., $1,000,000.
EXAMPLE (3): Corporation Y acquires the assets of
						Corporation X in a liquidation by which Y is entitled to use its stock cost as
						the basis of the X assets under Internal Revenue Code section
						334(b)(2) (i.e.
						stock possessing 80 percent control is purchased and liquidated within two
						years). Under these circumstances, Y's cost of the assets is the purchase price
						of the X stock, prorated over the X assets.
If original cost of property is unascertainable, the
						property is included in the factor at its fair market value as of the date of
						acquisition by the taxpayer.
(2) Inventory of stock of goods shall be
					 included in the factor in accordance with the valuation method used for federal
					 income tax purposes.
(3) Property
					 acquired by gift or inheritance shall be included in the factor at its basis
					 for determining depreciation for federal income tax
					 purposes.