Current through Register Vol. 42, No. 11, August 30, 2024
(1)
Special Rules: In General. If the allocation and
apportionment provisions of §
40-27-1,
Code of Ala. 1975, do not fairly represent the extent
of the taxpayer's business activity in Alabama, the taxpayer may petition for
or the Commissioner may require, in respect to all or any part of the
taxpayer's business activity, if reasonable:
(a) separate accounting;
(b) the exclusion of any one or more of the
factors;
(c) the inclusion of one
or more additional factors which will fairly represent the taxpayer's business
activity in this state; or
(d) the
employment of any other method to effectuate an equitable allocation and
apportionment of the taxpayer's income.
(2)
Taxpayer petition to employ
an alternative method of allocation or apportionment:
(a) Before a taxpayer may employ the use of
an alternative method of allocation or apportionment on a return a taxpayer
must file a petition and such petition must have been approved or denied by the
Department.
(b) All petitions must
be in written form and submitted directly to the attention of the Department
Secretary. A petition attached to an original or amended return will not be
considered a valid petition. Should the Department process an original or
amended return which uses an unapproved alternative method, such
action should not be construed as the Department's acceptance of the taxpayer's
proposed alternative method.
(c) To
the extent approved, the Department will notify the taxpayer, in writing, that
an alternative method has been approved. The taxpayer may then file an amended
or original return utilizing the approved alternative method.
(d) Proposed alternative methods not approved
within ninety (90) days of the post mark date of the petition, described in
subparagraph (b), are denied unless the taxpayer and the Department agree in
writing to extend this period.
1. A taxpayer
wishing to appeal the denial of a petition should file an amended return using
the proposed alternative method. If such return constitutes a petition for
refund, such refund petition must be filed in accordance with the time period
prescribed by §
40-2A-7,
Code of Ala. 1975. A taxpayer may file such petition
for refund prior to the Department's notification in this subparagraph (d) if
there is less than ninety-one days remaining to timely file such petition for
refund in accordance with the time periods provided by §
40-2A-7,
Code of Ala. 1975. The taxpayer may appeal its denial
or deemed denial of its petition for refund, as applicable, either to the
Alabama Tax Tribunal or Circuit Court as provided in §
40-2A-7(c)(5),
Code of Ala. 1975.
2. Taxpayers may not use an unapproved
alternative method on an original return.
(e) The petition and approval requirements of
this subparagraph (e) do not apply to situations where the Department and the
taxpayer agree to an alternative allocation or apportionment methodology as
part of an audit resolution.
(3)
Special Rules: Payroll
Factor. If the petition to employ an alternative apportionment
method includes the addition of the payroll factor, Rules
810-27-1-.13 and
810-27-1-.14 apply.
(4)
Special
Rules: Property Factor. If the petition to employ an alternative
apportionment method includes the addition of the property factor, Rules
810-27-1-.10,
810-27-1-.11,
and
810-27-1-.12 apply and the following special rules are established in respect to the
property factor of the apportionment formula:
(a) If the subrents taken into account in
determining the net annual rental rate under Section
40-27-1,
Article IV.11,
Code of Ala. 1975, or any rules
promulgated thereunder produce a negative or clearly inaccurate value for any
item of property, another method which will properly reflect the value of
rented property may be required by the Commissioner or requested by the
taxpayer.
1. In no case, however, shall the
value be less than an amount which bears the same ratio to the annual rental
rate paid by the taxpayer for the property as the fair market value of that
portion of the property used by the taxpayer bears to the total fair market
value of the rented property.
EXAMPLE: The taxpayer rents a 10-story building at an annual
rental rate of $1,000,000. Taxpayer occupies two stories and sublets eight
stories for $1,000,000 a year. The net annual rental rate of the taxpayer must
not be less than two-tenths of the taxpayer's annual rental rate for the entire
year, or $200,000.
(b) If property owned by others is used by
the taxpayer at no charge or rented by the taxpayer for a nominal rate, the net
annual rental rate for the property shall be determined on the basis of a
reasonable market rental rate for the property.
(5)
Special Rules: Sales
Factor. The following special rules are established in respect to
the sales factor of the apportionment formula:
(a) Insubstantial amounts of gross receipts
arising from incidental or occasional transactions or activities may be
excluded from the sales factor unless their exclusion would materially affect
the amount of income apportioned to Alabama. For example, the taxpayer
ordinarily may include in or exclude from the sales factor gross receipts from
transactions such as the sale of office furniture, business automobiles,
etc.
(b) Where gains and losses on
the sale of liquid assets are not excluded from the sales factor by other
provisions under §
40-27-1,
Code of Ala. 1975, or any rules promulgated
thereunder, such gains or losses shall be treated as provided in this
subparagraph. This subparagraph does not provide rules relating to the
treatment of other receipts produced from holding or managing such assets. If a
taxpayer holds liquid assets in connection with one or more treasury functions
of the taxpayer, and the liquid assets produce business income when sold,
exchanged or otherwise disposed, the overall net gain from those transactions
for each treasury function for the tax period is included in the sales factor.
For purposes of this subparagraph, each treasury function will be considered
separately.
1. For purposes of subparagraph
(b), a liquid asset is an asset (other than functional currency or funds held
in bank accounts) held to provide a relatively immediate source of funds to
satisfy the liquidity needs of the trade or business. Liquid assets include
foreign currency (and trading positions therein) other than functional currency
used in the regular course of the taxpayer's trade or business; marketable
instruments (including stocks, bonds, debentures, options, warrants, futures
contracts, etc.); and mutual funds which hold such liquid assets. An instrument
is considered marketable if it is traded in an established stock or securities
market and is regularly quoted by brokers or dealers in making a market. Stock
in a corporation which is unitary with the taxpayer, or which has a substantial
business relationship with the taxpayer is not considered marketable
stock.
2. For purposes of
subparagraph (b), a treasury function is the pooling and management of liquid
assets for the purpose of satisfying the cash flow needs of the trade or
business, such as providing liquidity for a taxpayer's business cycle,
providing a reserve for business contingencies, business acquisitions, etc. A
taxpayer principally engaged in the trade or business of purchasing and selling
instruments or other items included in the definition of liquid assets set
forth herein is not performing a treasury function with respect to income so
produced.
3. Overall net gain
refers to the total net gain from all transactions incurred at each treasury
function for the entire tax period, not the net gain from a specific
transaction.
(6)
Special Rules: Adoption of
Multistate Tax Commission Special Industry Rules. In the case of
certain industries, the general provisions of §
40-27-1,
Code of Ala. 1975, and the rules promulgated
thereunder in respect to the apportionment formula do not set forth appropriate
procedures for determining a taxpayer's business activity in Alabama.
(a) The following Alabama administrative
rules will provide the appropriate procedures to determine the industries'
property, payroll, and sales attributable to Alabama:
1. Airlines - 810.27-1-.18.01
2. Construction Contractors -
810-27-1-.18.02
3. Publishing -
810-27-1-.18.03
4. Railroads -
810-27-1-.18.04
5. Television and Radio
Broadcasting -
810-27-1-.18.05
6. Trucking -
810-27-1-.18.06
7. Telecommunications and
Ancillary Service Providers -
810-27-1-.18.07
(b) All business income
shall be apportioned to Alabama in accordance with the calculation provided in
§
40-27-1,
Code of Ala. 1975, and Rule
810-27-1-.09.
(c) Nexus Determination: A business, whose
property, payroll and sales attributable to Alabama are determined by a special
rule shall also consistently apply such rule when measuring against nexus
thresholds pursuant to §
40-18-31.2,
Code of Ala. 1975.
Authors: Kathleen Abrams, Holly H. Coon,
Christina Hall, CPA, Jennifer Reynolds
Statutory Authority:
Code of Ala.
1975, §§
40-2A-7(a)(5),
40-27-1,
40-18-57.
