Arkansas Administrative Code › Agency 006 - Department of Finance and Administration › Division 05 - Division of Revenues › 1998-1 - Comprehensive Corporation Income Tax Regulations › Rule 26-51-711 - PROPERTY FACTOR - VALUATION OF PROPERTY › Rule 2.26-51-711 - Rented Property

Current through Register Vol. 49, No. 6, June, 2024
Property rented by the taxpayer is valued at eight (8)
					 times its net annual rental rate. The net annual rental rate for any item of
					 rented property is the annual rental rate paid by the taxpayer for the property
					 less the aggregate annual subrental rates paid by subtenants of the
					 taxpayer.
If the subrents taken into account in determining the net
					 annual rental rate produce a negative or clearly inaccurate value for any item
					 of property, another method which will properly reflect the value of rented
					 property may be required by the Director or requested by the taxpayer. In no
					 case, however, shall the value be less than an amount which bears the same
					 ratio to the annual rental rate paid by the taxpayer for the property as the
					 fair market value of that portion of the property used by the taxpayer bears to
					 the total fair market value of the rented property.
If property owned by others is used by the taxpayer at no
					 charge or rented by the taxpayer for a nominal rate, the net annual rental rate
					 for the property shall be determined on the basis of a reasonable market rental
					 rate for the property.
Subrents are not deducted when they constitute business
					 income because the property which produces the subrents is used in the regular
					 course of the taxpayer's trade or business when it is producing such income.
					 Accordingly, there is no reduction in its value.
The term "annual rental rate" means the amount paid as
					 rental for property for a 12 month period. Where property is rented for less
					 than a 12 month period, the rent paid for the actual period of rental shall
					 constitute the "annual rental rate" for the tax year. However, where a taxpayer
					 has rented property for a term of 12 or more months and the current tax year
					 covers a period of less than 12 months, the rent paid for the short tax year
					 shall be annualized. If the rental term is for less than 12 months, the rent
					 shall not be annualized beyond its term. Rent shall not be annualized because
					 of the uncertain duration when the rental term is on a month-to-month
					 basis.
The term "annual rent" means the actual sum of money or
					 other consideration payable, directly or indirectly, by the taxpayer or for its
					 benefit 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; or
2. 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 other items.
Annual rent does not include the following:
1. Incidental day-to-day expenses such as
				  hotel or motel accommodations, daily rental of automobiles, etc.; or
2. Royalties based on extraction of natural
				  resources, whether represented by delivery or purchase. For this purpose, a
				  royalty includes any consideration conveyed or credited to a holder of an
				  interest in property which constitutes a sharing of current or future
				  production of natural resources from such property, irrespective of the method
				  of payment or how such consideration may be characterized, whether as a
				  royalty, advance royalty, rental or otherwise.
Leasehold improvements shall, for the 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. Hence, the original cost of
					 leasehold improvements shall be included in the property
					 factor.