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

Current through Register Vol. 42, No. 9, June 28, 2024
(1)
Property Factor: In General.
The property factor
			 of the apportionment formula for each trade or business of the taxpayer shall
			 include all real and tangible personal property owned or rented by the taxpayer
			 and used during the tax period in the regular course of the trade or business.
			 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
			 both in the regular course of the taxpayer's trade or business and in the
			 production of nonbusiness income shall be included in the factor only to the
			 extent that the property is used in the regular course of the taxpayer's trade
			 or business. 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.
(2)
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 in the regular course of the trade
			 or business of the taxpayer. 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 in the
			 regular course of the trade or business of the taxpayer. If the property is
			 partially used in the regular course of the trade or business of the taxpayer
			 while under construction, the value of the property to the extent used shall be
			 included in the property factor. Property used in the regular course of the
			 trade or business of the taxpayer 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
			 no longer held for use in the trade or business.
(a) EXAMPLE: Taxpayer closed its
			 manufacturing plant in State X and held 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.
(b) EXAMPLE: Same as above except that the
			 property was rented until the plant was sold. The plant is included in the
			 property factor until the plant is sold.
(c) 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.
(d) 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.