Florida Administrative Code › 12 - DEPARTMENT OF REVENUE › 12C - Corporate, Estate and Intangible Tax › Chapter 12C-1 - CORPORATE INCOME TAX › Section 12C-1.016 - Business/Nonbusiness Income

Current through Reg. 50, No. 138; July 16, 2024
(1) "Nonbusiness
				income" means all income other than business income. For a determination of
				nonbusiness income, see section
				220.03(1)(r),
				F.S.
(a) The classification of income by the
				labels occasionally used, such as manufacturing income, compensation for
				services, sales income, interest, dividends, rents, royalties, gains, operating
				income, nonoperating income, etc., is of no import in determining whether
				income is business or nonbusiness income. Income of any type or class and from
				any source is business income if it arises from transactions and activity
				occurring in the regular course of a trade or business. Accordingly, the
				critical element in determining whether income is "business income" or
				"nonbusiness income" is the identification of the transactions and activity
				which are the elements of a particular trade or business. In general, all
				transactions and activities of the taxpayer which are dependent upon or
				contribute to the operations of the taxpayer's economic enterprise as a whole
				constitute the taxpayer's trade or business and will be transactions and
				activity arising in the regular course of, and will constitute integral parts
				of, a trade or business.
(b)
				Examples. The examples below illustrate the provisions of this rule relating to
				whether particular income is business or nonbusiness income. The examples used
				are illustrative only and do not purport to set forth all pertinent facts used
				in determination of whether particular income is business or nonbusiness
				income.
1. Rents from real and tangible
				personal property. Rental income from real and tangible property is business
				income if the property with respect to which the rental income was received is
				used in the taxpayer's trade or business or is incidental thereto and therefore
				is includible in the property factor.
a.
				Example: The taxpayer operates a multistate car rental business. The income
				from car rentals is business income.
b. Example: The taxpayer is engaged in the
				heavy construction business in which it uses equipment such as cranes,
				tractors, and earth-moving vehicles. The taxpayer makes short-term leases of
				the equipment when particular pieces of equipment are not needed on any
				particular project. The rental income is business income.
c. Example: The taxpayer operates a
				multistate chain of men's clothing stores. The taxpayer purchases a five-story
				office building for use in connection with its trade or business. It uses the
				street floor as one of its retail stores and the second and third floors for
				its general corporate headquarters. The remaining two floors are leased to
				others. The rental of the two floors is incidental to the operation of the
				taxpayer's trade or business. The rental income is business income.
d. Example: The taxpayer constructed a plant
				for use in its multistate manufacturing business, and 20 years later the plant
				was closed and put up for sale. The plant was rented for a temporary period
				from the time it was closed by the taxpayer until it was sold 18 months later.
				The rental income is business income, and the gain on the sale of the plant is
				business income.
e. Example: The
				taxpayer operates a multistate chain of grocery stores. It owned an office
				building which it occupied as its corporate headquarters. Because of inadequate
				space, taxpayer acquired a new and larger building elsewhere for its corporate
				headquarters. The old building was rented to an investment company under a
				five-year lease. Upon expiration of the lease, taxpayer sold the building at a
				gain (or loss). The net rental income received over the lease period is
				business income, and the gain (or loss) on the sale of the building is
				nonbusiness income.
2.
				Gains or losses from sales of assets. Gain or loss from the sale, exchange or
				other disposition of real or tangible or intangible personal property
				constitutes business income if the property while owned by the taxpayer was
				used in the taxpayer's trade or business.
a.
				Example: In conducting its multistate manufacturing business, the taxpayer
				systematically replaces automobiles, machines, and other equipment used in the
				business. The gains or losses resulting from those sales constitute business
				income.
b. Example: The taxpayer
				constructed a plant for use in its multistate manufacturing business and 20
				years later sold the property at a gain while it was in operation by the
				taxpayer. The gain is business income.
c. Example: Same as Example b., except that
				the plant was closed and put up for sale but was not in fact sold until a buyer
				was found 18 months later. The gain is business income.
d. Example: Same as Example b., except that
				the plant was rented while being held for sale. The rental income is business
				income, and the gain on the sale of the plant is business
				income.
3. Interest.
				Interest income is business income where the intangible with respect to which
				the interest was received arises out of or was created in the regular course of
				the taxpayer's trade or business operations or where the purpose for acquiring
				and holding the intangible is related to or incidental to such trade or
				business operations.
a. Example: The taxpayer
				operates a multistate chain of department stores, selling for cash and on
				credit. Service charges, interest, or time-price differentials and the like are
				received with respect to installment sales and revolving charge accounts. The
				amounts are business income.
b.
				Example: The taxpayer conducts a multistate manufacturing business. During the
				year the taxpayer receives a federal income tax refund and collects a judgment
				against a debtor of the business. Both the tax refund and the judgment bore
				interest. The interest income is business income.
c. Example: The taxpayer is engaged in a
				multistate manufacturing and wholesaling business. In connection with that
				business, the taxpayer maintains special accounts to cover such items as
				workmen's compensation claims, rain and storm damage, machinery replacement,
				etc. The funds in those accounts are invested. Similarly, the taxpayer
				temporarily invests funds intended for payment of federal, state and local tax
				obligations. The interest income is business income.
d. Example: The taxpayer is engaged in a
				multistate money order and traveler's check business. In addition to the fees
				received in connection with the sale of the money orders and traveler's checks,
				the taxpayer earns interest income by the investment of the funds pending their
				redemption. The interest income is business income.
e. Example: The taxpayer is engaged in a
				multistate manufacturing and selling business. The taxpayer usually has working
				capital and extra cash totaling $200, 000 which it regularly invests in
				short-term interest bearing securities. The interest income is business
				income.
4. Dividends.
				Dividends are business income where the stock with respect to which the
				dividends are received arises out of or was acquired in the regular course of
				the taxpayer's trade or business operations or where the purpose for acquiring
				and holding the stock is related to or incidental to such trade or business
				operations.
a. Example: The taxpayer operates
				a multistate chain of stock brokerage houses. During the year the taxpayer
				receives dividends on stock it owns. The dividends are business
				income.
b. Example: The taxpayer is
				engaged in a multistate manufacturing and wholesaling business. In connection
				with that business the taxpayer maintains special accounts to cover such items
				as workmen's compensation claims, etc. A portion of the moneys in those
				accounts is invested in interest-bearing bonds. The remainder is invested in
				various common stocks listed on national stock exchanges. Both the interest
				income and any dividends are business income.
c. Example: The taxpayer and several
				unrelated corporations own all of the stock of a corporation whose business
				operations consist solely of acquiring and processing materials for delivery to
				the corporate owners. The taxpayer acquired the stock in order to obtain a
				source of supply of materials used in its manufacturing business. The dividends
				are business income.
d. Example:
				The taxpayer is engaged in a multistate heavy construction business. Much of
				its construction work is performed for agencies of the federal government and
				various state governments. Under state and federal laws applicable to contracts
				for these agencies, a contractor must have adequate bonding capacity, as
				measured by the ratio of its current assets (cash and marketable securities) to
				current liabilities. In order to maintain an adequate bonding capacity, the
				taxpayer holds various stocks and interest-bearing securities. Both the
				interest income and any dividends received are business income.
e. Example: The taxpayer receives dividends
				from the stock of its subsidiary or affiliate which acts as the marketing
				agency for products manufactured by the taxpayer. The dividends are business
				income.
f. Example: The taxpayer is
				engaged in a multistate glass manufacturing business. It also holds a portfolio
				of stock and interest-bearing securities, the acquisition and holding of which
				are unrelated to the manufacturing business. The dividends and interest income
				received are nonbusiness income.
5. Patent, trademark, and copyright
				royalties. Patent, trademark and copyright royalties are business income where
				the patent or trademark or copyright with respect to which the royalties were
				received arises out of or was created in the regular course of the taxpayer's
				trade or business operations or where the purpose for acquiring and holding the
				patent or trademark or copyright is related to or incidental to such trade or
				business operations.
a. Example: The taxpayer
				is engaged in the multistate business of manufacturing and selling industrial
				chemicals. In connection with that business the taxpayer obtained patents on
				certain of its products. The taxpayer licensed the production of the chemicals
				in foreign countries, in return for which the taxpayer receives royalties. The
				royalties received by the taxpayer are business income.
b. Example: The taxpayer is engaged in the
				music publishing business and holds copyrights on numerous songs. The taxpayer
				acquires the assets of a smaller publishing company, including music
				copyrights. These acquired copyrights are thereafter used by the taxpayer in
				its business. Any royalties received on these copyrights are business
				income.
c. Example: Same as Example
				b., except that the acquired company also held the patent on a type of
				phonograph needle. The taxpayer does not manufacture or sell phonographs or
				phonograph equipment. Any royalties received on the patent would be nonbusiness
				income.