Current through Register Vol. 42, No. 11, August 30, 2024
(1) The payroll factor of the apportionment
formula for each trade or business of the taxpayer shall include the total
amount paid by the taxpayer in the regular course of its trade or business for
compensation during the tax period.
(2) Definitions: For purposes of Rule
810-27-1-.13, the following terms have the following meanings unless the
context requires otherwise.
(a)
Employee. Any person 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 presumed to be an employee
if such person is included by the taxpayer as an employee for purposes of the
payroll taxes imposed by the Federal Insurance Contributions Act. However, for
purposes of this rule, a leased employee is an employee of the client (lessee)
organization. A leased employee is also treated as an employee of the employee
leasing company.
(b)
Employee Leasing Company. A business that contracts
with a client company to supply workers to perform services for the client
company. The term "employee leasing company" does not include private
employment agencies that provide workers to employers on a temporary help basis
or entities such as driver-leasing companies which lease employees to another
business to perform a specific service unless the total amount of compensation
paid to the employee leasing company during the tax period exceeds 5% of
compensation paid everywhere during the tax period. This threshold should be
calculated excluding the amount of compensation paid to the employee leasing
company.
(c)
Independent contractor. Any person who performs
services for a taxpayer but who is not an employee of the taxpayer, and who is
not otherwise subject to the supervision or control of the taxpayer in the
performance of the services. In general, a person is treated as an independent
contractor with respect to a taxpayer if that person's actions would not
represent an employer- employee relationship for federal tax
purposes.
(3)
The total amount paid to employees: 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
compensation of any employee on account of activities which are connected with
the production of nonbusiness income shall be excluded from the
factor.
(4) Payroll Factor:
Denominator: The denominator of the payroll factor is the total compensation
paid everywhere during the tax period. Accordingly, compensation paid to
employees whose services are performed entirely in a state where the taxpayer
is immune from taxation, for example, Public Law 86-272, is included in the
denominator of the payroll factor.
(a)
EXAMPLE: A taxpayer has employees in its state of legal domicile (State A) and
is taxable in State B. In addition the taxpayer has other employees whose
services are performed entirely in State C where the taxpayer is exempt from
taxation under the provisions of Public Law 86 272. As to these latter
employees, the compensation will be assigned to State C where their services
are performed (i.e., included in the denominator but not the numerator of the
payroll factor) even though the taxpayer is not taxable in State C.
(5) Payroll Factor: Numerator. The
numerator of the payroll factor is the total amount paid in Alabama during the
tax period by the taxpayer for compensation in the production of business
income. The tests in §
40-27-1,
Code of Ala. 1975, Rule
810-27-1-.14 should be applied in determining whether compensation is paid in
Alabama.
(6) Items Included:
Compensation in the payroll factor includes wages, salaries, commissions, and
any other form of remuneration paid to employees for personal services
rendered.
(7) Treatment of Leased
and Temporary Employees:
(a)
Leased Employees. Compensation paid for personal
services rendered by leased employees is includible in the payroll factor of
the taxpayer if the taxpayer is the recipient of the services of the leased
employee. Compensation for personal services rendered by leased employees to
client companies is also included in the payroll factor of employee leasing
companies.
(b)
Temporary Employees. Compensation paid for personal
services rendered to client companies by employees of temporary help agencies
is included in the payroll factor of the temporary agency and is generally
excluded from the payroll factor of the client company. If compensation paid to
temporary employees is included in the payroll factor of a client company (see
subparagraph (2)(b)), such compensation shall be eighty-five percent of the
payments during the taxable year by the client company to the temporary help
agency or agencies providing the temporary employees. Any adjustment to the
payroll factor of a client company shall not affect the payroll factor of the
temporary help agency or agencies providing the temporary employees.
(8) Items Excluded: For purposes
of the payroll factor, compensation excludes payments that are not made by a
taxpayer to its employees for personal services rendered. The following items
are excluded without limitation:
(a) Payments
to or on behalf of employees (including amounts paid for insurance or
annuities) for sickness or accident disability, hospitalization, or death.
(b) Payments to or from qualified
trusts under
26 U.S.C.
§
401(a) (other than
employer contributions under qualified cash or deferred arrangements as defined
in
26 U.S.C.
§
401(k)), payments to
or from qualified annuity plans or contracts under
26 U.S.C. §
403, and payments to or from simplified
employee pensions under
26 U.S.C. §
408(k).
(c) Employer's payments of employee's FICA
taxes.
(d) Tips paid in any medium
other than cash, and cash tips which are less than $20 a month and not reported
to the employer pursuant to
26 U.S.C. §
6053(a).
(e) Non-cash payments to employees for
services not in the course of the taxpayer's trade or business.
(f) Payments made to independent contractors,
retirees, or other persons not properly classified as
employees.
(9) Affiliated
Corporations. In order to prevent distortions in the payroll factor, the
Commissioner may require compensation paid to a related member's employee to be
included in the payroll factor of a taxpayer regardless of which entity
actually paid the compensation or if the related member was reimbursed if there
is evidence that a related member's employees provided services to or
maintained the property of a taxpayer and the payroll factor is inconsistent
with the other components of the apportionment factor. A related member is any
person considered a "related member" pursuant to, §
40-18-1;
Code of Ala. 1975.
(10)
Payroll
Consistency: A taxpayer must use the same rules for determining
compensation paid in both the numerator and the denominator of the payroll
factor. If a taxpayer changes its method of determining compensation paid,
including, but not limited to, its method of accounting of such compensation,
from the method used in its return for the prior year, the taxpayer must
disclose in the return for the current year the presence of the change, the
nature and extent of the change, and the reason for the change. The
Commissioner may disregard changes in the current year or in future tax years
if they have not been adequately disclosed.
(11)Payroll Factor: Under
the Completed Contract Method of Accounting
: For taxpayers utilizing the completed contract method of
accounting, the payroll factor shall include all payroll costs attributed to
the contracts completed during the tax period. Payroll costs not directly
attributed to the completed contract projects, such as administrative salaries,
shall be reported as otherwise provided in this rule.
(12) Applicability:
(a) For tax periods beginning on or after
January 1, 2021, the payroll factor is no longer considered in calculating a
taxpayer's Alabama apportionment factor.
(b) The provisions of this rule are
applicable for tax periods beginning on or after January 1, 2021, when:
1. A taxpayer petitions and is granted
approval from the Commissioner to employ an alternative apportionment method in
accordance with §
40-27-1,
Code of Ala.1975.
2. Measuring against nexus thresholds
pursuant to §
40-18-31.2,
Code of Ala. 1975.
Authors: Holly H. Coon, Jennifer Reynolds,
Christina Hall, CPA, Kathleen Abrams
Statutory Authority:
Code of Ala.
1975, §§
40-2A-7(a)(5),
40-18-57;
U.S.C. §401,
26 U.S.C.
§
401(k), U.S.C.
§403,
26 U.S.C. §
408(k),
26 U.S.C. §
6053.
