Alabama Administrative Code › Title 810 - ALABAMA DEPARTMENT OF REVENUE › Chapter 810-27-1 - MULTISTATE TAX COMPACT › Section 810-27-1-.18.02 - Special Rules: Construction Contractors

Current through Register Vol. 42, No. 9, June 28, 2024
The following special rules are established in respect to the
				apportionment of income of long-term construction contractors:
(1) In General. When a taxpayer elects to use
			 the percentage of completion method of accounting, or the completed contract
			 method of accounting for long-term contracts (construction contracts covering a
			 period in excess of one year from the date of execution of the contract to the
			 date on which the contract is finally completed and accepted), and has income
			 from sources both within and without Alabama from a trade or business, the
			 amount of business income derived from such long-term contracts from sources
			 within Alabama shall be determined pursuant to this rule. In such cases, the
			 first step is to determine which portion of the taxpayer's income constitutes
			 "business income" and which portion constitutes "nonbusiness income".
			 Nonbusiness income is directly allocated to specific states pursuant to the
			 provisions of §
								40-27-1,
Code of Ala. 1975
, inclusive. Business income is
			 apportioned among the states in which the business is conducted. The sum of (1)
			 the items of nonbusiness income directly allocated to Alabama and (2) the
			 amount of business income attributable to Alabama constitutes the amount of the
			 taxpayer's entire net income which is subject to tax by Alabama.
(2) Business and Nonbusiness Income. For
			 definitions, rules and examples for determining business and nonbusiness
			 income, see Rule
			 810-27-1-.01.
			 "Business income" must be determined in accordance with §
								40-27-1.1,
Code of Ala. 1975
.
(3) Methods of Accounting and Year of
			 Inclusion. For general rules of accounting, definitions and methods of
			 accounting for long-term construction contracts see §
								40-18-13,
Code of Ala. 1975
, and the rules promulgated
			 thereunder.
(4) Apportionment of
			 Business Income.
(a) In General. Business
			 income is apportioned to Alabama in accordance with the calculation provided in
			 §
									40-27-1,
Code of Ala. 1975
, and Rule
			 810-27-1-.09,
			 regardless of the method of accounting for long-term contracts elected by the
			 taxpayer. The apportionment percentage is then applied to business income to
			 determine the amount apportioned to Alabama.
1. For tax periods beginning on or after
			 January 1, 2021, the property factor and the payroll factor are no longer
			 considered in calculating a taxpayer's Alabama apportionment factor.
2. The industry specific definitions and
			 guidance provided in this rule for property and payroll are applicable for tax
			 periods beginning on or after January 1, 2021, when:
(i) A taxpayer petitions and is granted
			 approval from the department to employ an alternative apportionment method in
			 accordance with §
											40-27-1,
Code of Ala. 1975
.
(ii) Measuring against nexus thresholds
			 pursuant to §
											40-18-31.2,
Code of Ala. 1975
.