Alabama Administrative Code › Title 810 - ALABAMA DEPARTMENT OF REVENUE › Chapter 810-27-1-4 - MULTISTATE TAX COMPACT › Section 810-27-1-4-.13 - Payroll Factor

Current through Register Vol. 42, No. 9, June 28, 2024
(a)
			 Payroll Factor: In General.
(1) The payroll
			 factor is a fraction, the numerator of which is the total amount paid in this
			 state during the tax period by the taxpayer for compensation in the production
			 of business income, and the denominator of which is the total compensation paid
			 for the production of business income everywhere during the tax
			 period.
(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, compensation paid to employees may, at the
			 election of the taxpayer, be included in the payroll factor by use of the cash
			 method if the taxpayer is required to report such compensation under that
			 method for unemployment compensation purposes.
The payroll factor includes only compensation which is
				attributable to the business income subject to apportionment. The compensation
				of any employee on account of activities which are connected with the
				production of nonbusiness income shall be excluded from the factor.
(i) EXAMPLE: The taxpayer uses some of its
			 employees in the construction of a storage building which, upon completion, is
			 used in the regular course of the taxpayer's trade or business. The wages paid
			 to those employees are treated as a capital expenditure by the taxpayer. The
			 amount of those wages is included in the payroll factor.
(ii) EXAMPLE: The taxpayer owns various
			 securities from which nonbusiness income is derived. The management of the
			 taxpayer's investment portfolio is the only duty of 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) any individual who, under the usual common-law rules
			 applicable in determining the employer-employee relationship, has the status of
			 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) Year to year
			 consistency. 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.
(6)
			 State to state consistency. If the returns or reports filed by the taxpayer
			 with all states to which the taxpayer reports under Article IV of the
			 Multistate Tax Compact or the Uniform Division of 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.