Alabama Administrative Code
Title 810 - ALABAMA DEPARTMENT OF REVENUE
Chapter 810-27-1-4 - MULTISTATE TAX COMPACT
Section 810-27-1-4-.09 - Apportionment Formula

(i) EXAMPLE: Corporation C has a 20% distributive share of Partnership P's income which is included in C's apportionable business income. There are no transactions between C and P. Using the regulations for computing the elements of the apportionment formula, C has its own apportionment factor data as follows:

Alabama Everywhere

Property 550,000 600,000

Payroll 1,800,000 2,000,000

Sales 1,500,000 7,000,000

Using the regulations for computing the elements of the apportionment formula at the partnership level, C's 20% share of P's apportionment factor data is as follows:

Alabama Everywhere

Property (20% of 100,000) 20,000 (20% of 275,000) 55,000

Payroll (20% of 50,000) 10,000 (20% of 125,000) 25,000

Sales (20% of 75,000) 15,000 (20% of 350,000) 70,000

C must compute its apportionment formula as follows:

Alabama Everywhere

Property (550,000+20,000) 570,000 (600,000+55,000) 655,000

Payroll (1,800,000+10,000) 1,810,000 (2,000,000+25,000) 2,025,000

Sales (1,500,000+15,000) 1,515,000 (7,000,000+70,000) 7,070,000

Property (570,000/655,000) (division) 87.0229%

Payroll (1,810,000/2,025,000) (division) 89.3827%

Sales (1,515,000/7,070,000) (division) 21.4286%

Sum of Factor Percentages 197.8342%

Divide by Number of Factors Used 3 ___ (division)

Apportionment Factor Average

Percentage 65.9447%

(ii) EXAMPLE: Assume same facts as in (i) except that C owns a building costing $100,000 that is rented to P for $12,000 per year. C must include the original cost of the building ($100,000) in its property factor. Therefore, no portion of the value of P's rented property will be reflected in the property factor of C. C would eliminate intercompany rents (20% of $12,000 is $2,400) to the extent of its partnership interest from the net annual rental rate.

(iii) EXAMPLE: Assume same facts as in (ii) except that P owns the building at the same original cost and rents it to C. C will include $20,000 (20% of $100,000) in its property factor because of its interest in P. In addition, C must include its rental expense in its property factor in order to give weight to the rented building used in C's operations. C would eliminate intercompany rental expense of $2,400 (20% of $12,000) from its rent expense in its property factor before applying the multiplier of eight. Thus, the value of the building which is to be included in C's property factor is $96,800 ($20,000 plus $76,800 [8 x $9,600 ($12,000 less $2,400)]).

(iv) EXAMPLE: Same facts as in (i) except that C sells $30,000 to P. In the computation of the sales factor of C, $6,000 (20% of C's $30,000 sales to P) will be eliminated. Thus, the amount of sales which is to be included in C's sales factor is $7,064,000 ($7,000,000 plus partnership sales of $70,000 less eliminated sales of $6,000).

(v) EXAMPLE: Same facts as in (i) except that P sells $60,000 to C. In the computation of C's sales factor, $12,000 (20% of P's $60,000 sales to C) will be eliminated. Thus, the amount of sales which is to be included in C's sales factor is $7,058,000 ($7,000,000 plus partnership sales of $70,000 less eliminated sales of $12,000).

Author: Peter M. Petrillo, Jr.