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 1 - General Provisions › Section 25101 - * Allocation of Income

Current through Register 2024 Notice Reg. No. 28, July 12, 2024
(a)
					 Apportionment and Allocation of Income in General. When a taxpayer has income
					 from sources within the state as well as income from sources outside this
					 state, the division of income and the resulting determination of the portion of
					 the taxpayer's entire net income which has its source in this state shall be
					 determined pursuant to the allocation and apportionment provisions set forth in
					 sections 25120 to
					 25139, inclusive. When the
					 business, whether carried on by a single corporation or by a group of
					 affiliated corporations, conducted both within and without California is
					 unitary in nature, the portion of the business income from that unitary
					 business which is "derived from or attributable to sources within this State"
					 must be determined by formula apportionment. In such cases, the first step is
					 to determine which portion of the taxpayer's entire net income constitutes
					 "business income" and which portion constitutes "nonbusiness income." The
					 various items of nonbusiness income are then directly allocated to specific
					 states pursuant to the provisions of sections
					 25124 to
					 25127, inclusive. The business
					 income of the taxpayer is divided between the states in which the business is
					 conducted pursuant to the apportionment formula set forth in sections
					 25128 to
					 25136, inclusive. The sum of (1)
					 the items of nonbusiness income directly allocated to this state, plus (2) the
					 amount of business income attributable to this state by the apportionment
					 formula constitutes the amount of the taxpayer's entire net income which is
					 subject to tax.
The taxpayer shall be consistent in classifying income as
						business or nonbusiness income in filing return or reports to all states to
						which the taxpayer reports under the Uniform Division of Income for Tax
						Purposes Act. In the event the taxpayer is not consistent in its reporting it
						shall disclose in its return to the state the nature and extent of the
						inconsistency.
The word "apportionment" generally refers to the division
						of business income between states by the use of an apportionment formula, and
						the word "allocation" generally refers to the assignment of nonbusiness income
						to a particular state.
(b)
					 Sea Transportation. A taxpayer engaged in sea transportation service may derive
					 income partly from sources within and partly from sources without the State. In
					 determining the income subject to tax, the following formula allocation shall
					 be employed.
Receipts Factor. The sales or gross receipts of a
						taxpayer from sea transportation shall include all receipts derived from
						carrying cargo, i.e., passengers, freight, mail, etc., and the receipts
						incidental thereto. The sales or gross receipts will be assigned to this State
						in the proportion that the number of voyage days the ship spent within this
						State during the tax period bears to the total number of days of voyages of the
						ship during the tax period.
Income from activities incidental to the transportation
						service, such as income from restaurants, locker rentals, etc., shall be
						assigned to the state or country in which the activity is carried on.
Payroll Factor. The payroll factor is a fraction, the
						denominator of which includes all compensation paid to officers and employees,
						including ocean-going personnel, such as wages, salaries, commissions and
						bonuses. The numerator of this factor shall include all compensation paid to
						officers and employees, other than ocean-going personnel to the extent that
						services of such officers and employees are performed for the taxpayer within
						this State; and, so much of the compensation of ocean-going personnel as is
						determined by applying a ratio of the number of voyage days which the ship was
						within this State bears to the total number of days of voyages of the ship
						during the tax period.
Property Factor. The property factor is a fraction, the
						denominator of which shall include all real and tangible personal property,
						including ships, owned by the taxpayer and used in the unitary business. The
						numerator of this factor shall include all real and personal property owned by
						the taxpayer and used in the unitary business, except ships, to the extent such
						assets are located in the State; and, so much of the value of ships used in the
						unitary business as is determined by applying a ratio of the number of voyage
						days which the ship was within this State bears to the total number of days of
						voyages of the ship during the tax period.
As used in this regulation the terms "voyage days" and
						"days of voyages of the ship" mean the days, or parts of days, that a ship is
						in operation for the purpose of transporting cargo, i.e., freight, mail,
						passengers, etc. The days that a ship is in operation include all sailing days,
						even though a ship is returning empty or is enroute to a port of call to load
						passengers or cargo, all days in port while loading and unloading, and all days
						that the ship is laid up for ordinary repairs, refueling, or provisioning. A
						ship is not in operation when out of service or during the time that is laid up
						for extended repairs, overhaul, modification or is in drydrock. For taxable
						years beginning on or after January 1, 2013, pursuant to Section
						25128.7,
						Revenue and Taxation Code, only the receipts factor references in this
						subsection are applicable, unless subdivision (b) of Section
						25128,
						Revenue and Taxation Code, applies.
__________
*Except for subsections (b),
						(e), and (f), this regulation is substantially the same as title 18, California
						Code of Regulations, chapter 3, subchapter 3, section
						24301. (Note supplied by Franchise
						Tax Board.)
1. New
						section filed 5-19-58; effective thirtieth day thereafter (Register 58, No.
						9).
2. Amendment filed 8-6-62; effective thirtieth day thereafter
						(Register 62, No. 16).
3. Amendment filed 5-28-71; effective
						thirtieth day thereafter (Register 71, No. 22).
4. Change without
						regulatory effect repealing section (Register 87, No. 15).
5.
						Reinstatement of subsection (b) which was inadvertently repealed by order in
						Register 87, No. 15, filed 11-20-90 (Register 91, No. 2).
6. Change
						without regulatory effect adding new subsection (a) designator, amendment of
						subsection (b), repealer of subsection (b)(1), and amendment of subsection
						(b)(2) and NOTE filed 9-11-95 pursuant to section
						100, title 1, California Code of
						Regulations (Register 95, No. 37).
7. Change without regulatory
						effect amending subsections (a) and (b) filed 12-9-2013 pursuant to section
						100, title 1, California Code of
						Regulations (Register 2013, No. 50).
Note: Authority cited: Section
						  19503,
						  Revenue and Taxation Code. Reference: Section
						  25101,
						  Revenue and Taxation Code.