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 25132 - Payroll Factor

Current through Register 2024 Notice Reg. No. 28, July 12, 2024
(a)
					 Payroll Factor. In General.
(1) 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 income year.
(2) 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, at the election fo the taxpayer, compensation paid to employees may
					 be included in the payroll factor by used of the cash methods if the taxpayer
					 is required to report such compensation under such 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 factor.
EXAMPLE (A):
The taxpayer uses some of its employees in the
						construction of a storage building which, upon completion, is used in the
						regular course of taxpayer's trade or business. The wages paid to those
						employees are treated as a capital expenditure by the taxpayer. The amount of
						such wages is included in the payroll factor.
EXAMPLE (B):
The taxpayer owns various securities which it holds as an
						investment separate and apart from its trade or business. The management of the
						taxpayer's investment portfolio is the only duty on Mr. X, an employee. The
						salary paid to Mr. X is excluded from the payroll factor.
(3) The term "compensation" means wages,
					 salaries, commissions and any other form of remuneration paid to employees for
					 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. In the case of employees not subject
					 to the Federal Internal Revenue Code, e.g., those 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.
(4) The term "employee" means
(A) any officer of a corporation,
					 or
(B) and individual who, under
					 the usual common-law rules applicable in determining the employer-employee
					 relationship, has the status if 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 "employees" 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 this
					 regulation.
(5) In filing
					 returns with this state, if the taxpayer departs from or modifies the treatment
					 of compensation paid used in returns for prior years, the taxpayer shall
					 disclose in the return for the current year the nature and extent of the
					 modification.
If the returns or reports filed by the taxpayer with all
						states to which the taxpayer reports under the Uniform Division if Income for
						Tax Purposes Act are not uniform in the treatment of compensation paid, the
						taxpayer shall disclose in its return to this state the nature and extent of
						the variance.