Arizona Administrative Code › Title 15 - REVENUE › Chapter 2 - DEPARTMENT OF REVENUE - INCOME AND WITHHOLDING TAX SECTION › Subchapter D - CORPORATIONS › Article 5 - BUSINESS AND NONBUSINESS INCOME › Section R15-2D-502 - Rents from Real and Tangible Personal Property

Current through Register Vol. 30, No. 28, July 12, 2024
Rental income from real and tangible personal property is
					 business income if the property with respect to which the rental income is
					 received is used in the taxpayer's trade or business or is incidental to the
					 trade or business and is includable in the property factor.
Example 1: The taxpayer operates a multistate car rental
					 business. The income from the car rentals is business income.
Example 2: 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.
Example 3: 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.
Example 4: The taxpayer operates a multistate chain of
					 grocery stores. It purchases as an investment an office building in another
					 state with surplus funds and leases the entire building to others. The net
					 rental income is not business income of the grocery store trade or business.
					 Therefore, the net rental income is nonbusiness income.
Example 5: The taxpayer operates a multistate chain of
					 men's clothing stores. The taxpayer invests in a 20-story office building and
					 uses the street floor as one of its retail stores and the second floor for its
					 general corporate headquarters. The remaining 18 floors are leased to others.
					 The rental of the 18 floors is not incidental to but rather is separate from
					 the operation of the taxpayer's trade or business. The net rental income is not
					 business income of the clothing store trade or business. Therefore, the net
					 rental income is nonbusiness income.
Example 6: 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.
Example 7: The taxpayer operates a multistate chain of
					 grocery stores. It owned an office building that it occupied as its corporate
					 headquarters. Because of inadequate space, the 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, the taxpayer sold the building at a gain (or loss). The net rental
					 income received over the lease period is nonbusiness income and the gain (or
					 loss) on the sale of the building is nonbusiness income.