Current through Register Vol. 43, No. 02, November 27, 2024
(1) Scope. This regulation applies to the
method by which a Reporting Company shall specify the method by which income
generated by or arising out of a Qualifying Project will be
determined.
(2) Definitions. The
following terms have the meaning ascribed to them for purposes of this
regulation, unless the context clearly indicates otherwise.
(a) Project Property Factor. The Project
Property Factor is a fraction, the numerator of which is the total average
Project property in Alabama owned during the tax period by the Investing
Company, and the denominator of which is the total average property in Alabama
(generally, the numerator of the property factor in the Alabama income tax
return) during the tax period. The numerator of this Project factor shall be
computed in a like manner as provided for the property factor in Chapter 27 of
Title 40.
(b) Project Payroll
Factor. The Project Payroll Factor is a fraction, the numerator of which is the
total amount paid in Alabama during the tax period by the Investing Company for
compensation paid those employees employed at the Qualifying Project site, and
the denominator of which is the Total Compensation paid in Alabama for the
production of business income (generally, the numerator of this Project factor
shall be computed in a like manner as provided for the payroll factor in
Chapter 27 of Title 40.
(c) Project
Sales Factor. The Project Sales Factor is a fraction, the numerator of which is
the total Project sales in Alabama made during the tax period by the
Corporation, and the denominator of which is the total sales in Alabama
(generally, the numerator of the sales factor in the Alabama income tax return)
during the tax period. The numerator of this Project factor shall be computed
in a like manner as provided for the sales factor in Chapter 27 of Title
40.
(3) Purpose. the
purpose of this regulation is to provide guidelines necessary to determine the
income generated by and arising out of the Qualifying Project.
(4) Procedure. The Department of Revenue and
the Reporting Company shall agree in writing to use one of the following
methods to determine income generated by or arising out of the Qualifying
Project:
(a) Two Factor Method. Where the
Project is a Headquarters Facility or has sales from the Project's operations
principally to affiliated or related Persons or; has no sales of its own, the
Reporting Company will apportion the total amount of its Alabama taxable
apportionable income, including related federal income tax deduction, to the
Project by multiplying the income by a fraction, the numerator of which is the
Project's property factor plus the Project's payroll factor, and the divisor of
which is two (2). If any factor is not used in the production of business
income, it shall be eliminated and the divisor reduced accordingly. Form AR
which shows the two factor calculations shall be filed with the project
entity's income tax return to reflect the income generated by or arising out of
the project.
(b) Three Factor
Method. Where the Project has sales from the Project's operations principally
to unaffiliated or unrelated Persons, the Reporting Company will apportion the
total amount of its Alabama taxable apportionable income, including related
federal income tax deduction, to the Project by multiplying the income by a
fraction, the numerator of which is the Project's property factor plus the
Project's payroll factor plus the Project's sales factor, and the divisor of
which is three (3). If any factor is not used in the production of business
income, it shall be eliminated and the divisor reduced accordingly. Form AR
which shows the three factor calculations shall be filed with the project
entity's income tax return to reflect the income generated by or arising out of
the project.
(c) Separate
Accounting. If the methods listed above do not effectuate an equitable
determination income generated by or arising out of the Qualifying Project, in
a fair and equitable manner, the Reporting Company may request or the
Department may require such income to be calculated using a separate accounting
method. The Reporting Company will determine the total amount of the Qualifying
Project's income, including the related federal income tax deduction, allocable
to the Project by sing a separate accounting method, agreed upon by the
Department. Such separate accounting method will require the accounting and
related records to be maintained in a manner showing the Project's separate
income and operations in Alabama and utilize "arm's length" pricing to the
sales of good or services between the Project and either affiliated legal
entities or other accounting units in the Corporation. Form AR shall be filed
with the project entity's income tax return to reflect the income generated by
or arising out of the project.
(5) The Reporting Company will indicate the
preference of the two factor method, three factor method, or a separate
accounting method when filing the statement of intent (FORM INT) with the
Department. After the statement of intent (Form INT) has been filed indicating
which method is preferred, the Alabama Department of Revenue will initiate an
agreement outlining the appropriate method of accounting to be used at the
project. This agreement shall serve as the written agreement required by
Section 40-18-192, Code of
Ala. 1975, as amended, between the Department of Revenue and the
Investing Company or Companies specifying the method by which income generated
by or arising out of the Project will be determined.
(6) Record Keeping Requirements. Each
Investing Company receiving a Capital Credit shall maintain or caused to be
maintained records with respect to the Qualifying Project sufficient to allow
the income of the Investing Company to be identified separately from other
income of such Investing Company subject to Alabama income taxation.
(7) Year to Year Consistency. In filing
income tax with Alabama, the Investing Company shall not depart from or modify
the accounting treatment of any material component used in computing the income
tax credit without the prior written consent from the Department. The taxpayer
shall show the nature and extent of the modification in the return for the year
in which the change occurs.
Authors: Verlon Frost, Melody Moncrief, Jeff
Taylor
Statutory Authority:
Code of Ala.
1975, §§
40-2A-7(A)(5),
40-18-197.
