Pennsylvania Code › Title 61 - REVENUE › Part I - Department of Revenue › Subpart B - General Fund Revenues › Article V - Personal Income Tax › Chapter 109 - NONRESIDENT INDIVIDUALS › Section 109.5 - Apportionment and allocation of income from a business carried on partly within and partly without this Commonwealth

Current through Register Vol. 54, No. 28, July 13, 2024
(a) If a nonresident individual, or a
					 partnership of which a nonresident individual is a member, carries on a
					 business, trade, profession, or occupation both within and without this
					 Commonwealth, the items of income, gain, loss and deduction attributable to
					 such business, trade, profession, or occupation shall be apportioned and
					 allocated to this Commonwealth on a fair and equitable basis in accordance with
					 approved methods of accounting.
(b)
					 If the books of the business are kept so as to disclose to the satisfaction of
					 the Department the proportion of the net amount of the items of income, gain,
					 loss and deduction derived from or connected with Commonwealth sources, the
					 return of the taxpayer shall disclose the total amount of such items, the net
					 amount of such items allocated to the Commonwealth, and the basis upon which
					 such allocation is made.
(c) If the
					 books and records of the business do not disclose to the satisfaction of the
					 Department the proportion of the net amount of the items of income, gain, loss
					 and deduction attributable to the activities of the business carried on in this
					 Commonwealth, the proportion shall, except as provided in §
											109.6 (relating to rentals and
					 gains from sale or exchange of real property), be determined by multiplying the
					 net amount of the items of income, gain, loss and deduction of the business by
					 the average of the following percentages:
(1)
Property percentage.
The property percentage shall be computed
					 as follows:
(i)
General.
The
					 percentage shall be computed by dividing the average of values, at the
					 beginning and end of the taxable year, of real and tangible personal property
					 connected with the business and located within this Commonwealth, by the
					 average of the values, at the beginning and end of the taxable year, of all
					 real and tangible personal property connected with the business and located
					 both within and without this Commonwealth. For this purpose, real property
					 shall include real property rented to the taxpayer and used in the business.
					 Real property, the income or gain from which is allocated pursuant to §
													109.6, shall be disregarded in
					 computing the property percentage described in this subparagraph. Property
					 owned by taxpayer shall be valued at original cost. The average value of
					 property shall be determined by averaging the values at the beginning and
					 ending of the tax period but the Department may require the averaging of
					 monthly values during the tax period if reasonably required to reflect properly
					 the average value of the property of the taxpayer.
(ii)
Rented real property.
The rented real property percentage shall be determined as follows:
(A) The fair market value of real property,
					 both within and without this Commonwealth, which is rented to the taxpayer
					 shall be determined by multiplying the gross rents payable during the taxable
					 year by eight.
(B) Gross rents as
					 used in this clause shall be the actual sum of money or other consideration
					 payable directly or indirectly by the taxpayer or for its benefit for the use
					 or possession of the property and includes the following:
(I) Any amount payable for the use or
					 possession of real property, or any part thereof, whether designated as a fixed
					 sum of money or as a percentage of sales, profits or otherwise.
(II) Any amount payable as additional rent or
					 in lieu of rent such as interest, taxes, insurance, repairs or any other amount
					 required to be paid by the terms of a lease or other arrangement.
(III) A proportionate part of the cost of any
					 improvement to real property made by or on behalf of the taxpayer which reverts
					 to the owner or lessor upon termination of a lease or other arrangement, based
					 on the unexpired term of the lease commencing with the date the improvement is
					 completed (or the life of the improvement if its life expectancy is less than
					 the unexpired term of the lease). But if a building is erected on leased land
					 by or on behalf of the taxpayer, the value of the land shall be determined by
					 multiplying the gross rent by eight, and the value of the building shall be
					 determined in the same manner as if owned by the taxpayer. The proportionate
					 part of the cost of an improvement (other than a building on leased land) is
					 generally equal to the amount of amortization allowed in computing Pennsylvania
					 net income, whether the lease does or does not contain an option of
					 renewal.
(C) Gross rents
					 shall not include the following:
(I) Any
					 portion of a payment or credit to the proprietor of the business or to a
					 partner in the partnership conducting the business for the use of real
					 property.
(II) Amounts payable as
					 separate charges for water and electric service furnished by the
					 lessor.
(III) Amounts payable for
					 storage if no designated space under the control of the taxpayer as a tenant is
					 rented for storage purposes.
(IV)
					 That portion of any rental payment which, in the discretion of the Department,
					 is applicable to property subleased by the taxpayer and not used by him or it
					 in the carrying on of the business.