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 25129 - Property Factor

Current through Register 2024 Notice Reg. No. 28, July 12, 2024
(a)
					 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 income
					 year in the regular course of such 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 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 taxpayer's trade or business and in the
						production of nonbusiness income shall be included in the factor only to the
						extent the property is used in the regular course of 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 reflect the average value of
						property includible in the factor. See Regulation 25131.
(b) 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 income year in the regular course of trade or business of the
					 taxpayer. Property held as reserved 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 includible in the factor. Property or equipment under construction during
					 the income year (except inventoriable goods in the 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 indentifiable 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
					 held for sale.
EXAMPLE (A):
Taxpayer closed its manufacturing plant in State X and
						held such 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.
EXAMPLE (B):
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.
EXAMPLE (C):
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.
EXAMPLE (D):
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 the remodeling of Store A commenced.
(c) Property Factor. Consistency if
					 Reporting. In filing returns with this state, if the taxpayer departs from or
					 modifies the manner of valuing property, or of excluding or including property
					 in the property factor, 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 of Income for
						Tax Purposes Act are not uniform in the valuation of property and in the
						exclusion or inclusion of property in the property factor , the taxpayer shall
						disclose in its return to this state the nature and extent of the
						variance.
(d) Property
					 Factor. Numerator. The numerator of the property factor shall include the
					 average value of the real and tangible personal property owned and rented by
					 the taxpayer and used in this state during the income year in the regular
					 course of the trade or business of the taxpayer. Property in transit between
					 locations of the taxpayer to which it belongs shall be considered to be at the
					 destination for purposes of the property factor. Property in transit between a
					 buyer and seller which is included by a taxpayer in the denominator of its
					 property factor in accordance with its regular accounting practices shall be
					 included in the numerator according to the state of destination. The value of
					 mobile or movable property such as construction equipment, trucks or leased
					 electronic equipment which are located within and without this state during the
					 income year shall be determined for purposes of the numerator of the factor on
					 the basis of the total time within the state during the income year. An
					 automobile assigned to a traveling employee shall be included in the numerator
					 of the factor or in the numerator of the state in which the automobile is
					 licensed.