Current through Register Vol. 43, No. 02, November 27, 2024
(1) SCOPE. This
rule applies to financial institutions subject to the Alabama financial
institution excise tax and to any determination of net income from multistate
operations to which Section
40-16-1, Code of Ala.
1975, applies and to the related supporting statements required to
be filed pursuant to the Department's authority under Section
40-16-3.
(2) APPORTIONMENT AND ALLOCATION.
(a) Business and Nonbusiness Income Defined.
1. "Business income" is income arising from
transactions and activity in the regular course of the taxpayer's trade or
business and includes income from tangible and intangible property if the
acquisition, management, and disposition of the property constitute integral
parts of the taxpayer's regular trade or business operations. In essence, all
income which arises from the conduct of trade or business operations of a
taxpayer is business income. For purposes of administration of Section
40-16-1, the income of the
taxpayer is business income unless clearly classifiable as nonbusiness
income.
2. Nonbusiness income means
all income other than business income.
3. The classification of income by the labels
occasionally used, such as manufacturing income, compensation for services,
sales income, interest, dividends, rents, royalties, gains, operating income,
nonoperating income, etc., is of no aid in determining whether income is
business or non-business income. Income of any type or class and from any
source is business income if it arises from transactions and activity occurring
in the regular course of a trade or business. Accordingly, the critical element
in determining whether income is "business income" or "nonbusiness income" is
the identification of the transactions and activity which are the elements of a
particular trade or business. In general all transactions and activities of the
taxpayer which are dependent upon or contribute to the operations of the
taxpayer's economic enterprise as a whole constitute the taxpayer's trade or
business and will be transactions and activity arising in the regular course
of, and will constitute integral parts of, a trade or business.
(b) Business and Nonbusiness
Income: Application of Definitions. The following are rules and examples for
determining whether particular income is business or nonbusiness income:
1. Rents and Royalties from real and tangible
personal property. Rental and royalty income from real and tangible property is
business income if the property with respect to which the income was received
is used in the taxpayer's trade or business or incidental thereto and therefore
is includable in the property factor under paragraph (5).
(i) EXAMPLE: The taxpayer is a financial
institution and also operates a multistate car rental/leasing business. The
income from car rentals/leases is business income.
(ii) EXAMPLE: The taxpayer is a multistate
lender and also engages in the business of leasing heavy construction equipment
such as cranes, tractors, and earth-moving vehicles. The rental income is
business income.
(iii) EXAMPLE: The
taxpayer operates a multistate chain of branch offices. The taxpayer purchases
a five-story office building for use in connection with its trade or business.
It uses the street floor as one of its public offices and the second and third
floors for its general corporate headquarters. The taxpayer manages and leases
the remaining two floors to others. The rental of the two floors is incidental
to the operation of the taxpayer's trade or business. The rental income is
business income.
(iv) EXAMPLE: The
taxpayer operates a multistate chain of consumer loan offices. It purchases as
an investment an office building in another state with surplus funds and hires
an unrelated property management company to manage and lease the entire
building to others. The net rental income is not business income of the loan
trade or business. Therefore, the net rental income is nonbusiness
income.
(v) EXAMPLE: The taxpayer
is a bank and operates branch offices in several states. The taxpayer invests
in a 20-story office building and uses the street floor as one of its branch
offices and the second floor for its general corporate headquarters. The
taxpayer hires an unrelated property management company to manage and lease the
remaining 18 floors to others. The rental of the eighteen floors is not
incidental to but rather is separate from the operation of the taxpayer's trade
or business. The net rental income is not business income of the banking trade
or business. Therefore, the net rental income is nonbusiness income.
(vi) EXAMPLE: The taxpayer constructed a
branch office for use in its multistate banking business and 20 years later the
branch was closed and put up for sale. The branch office was rented for a
temporary period from the time it was closed by the taxpayer until it was sold
18 months later. The rental income is business income and the gain on the sale
of the plant is business income.
(vii) EXAMPLE: The taxpayer operates a
multistate chain of loan offices. It owned an office building, which it
occupied as its corporate headquarters. Because of inadequate space, the
taxpayer acquired a new and larger building elsewhere for its corporate
headquarters. The taxpayer hired an unrelated property management company to
manage and lease the old building. The property management company leased the
building to an unrelated investment company under a five-year lease. Upon
expiration of the lease, taxpayer sold the building at a gain (or loss). The
net rental income received over the lease period is nonbusiness income and the
gain (or loss) on the sale of the building is nonbusiness income.
(viii) EXAMPLE: The taxpayer acquires
undeveloped land for future expansion of its multistate lending business. The
expansion plans are later discarded and mineral rights under the land are
leased to others. The corporation receives royalties based on units extracted.
The royalty income is nonbusiness income.
2. Gains or losses from sales of assets. Gain
or loss from the sale, exchange or other disposition of real property or of
tangible or intangible personal property constitutes business income if the
property while owned by the taxpayer was used in the taxpayer's trade or
business. However, if the property was utilized for the production of
nonbusiness income or otherwise was removed from the property factor before its
sale, exchange or other disposition, the gain or loss will constitute
nonbusiness income.
(i) EXAMPLE: In conducting
its multistate banking business, the taxpayer systematically replaces
automobiles, machines, and other equipment used in the business. The gains or
losses resulting from those sales constitute business income.
(ii) EXAMPLE: The taxpayer constructed a
building for use in its multistate lending business and 20 years later sold the
property at a gain while it was in operation by the taxpayer. The gain is
business income.
(iii) EXAMPLE:
Same as (ii) except that the building was closed and put up for sale but was
not in fact sold until a buyer was found 18 months later. The gain is business
income.
(iv) EXAMPLE: Same as (ii)
except that the building was rented while being held for sale. The rental
income is business income and the gain on the sale of the building is business
income.
(v) EXAMPLE: The taxpayer
operates a multistate chain of branch banking offices. It owned an office
building, which it occupied as its corporate headquarters. Because of
inadequate space, taxpayer acquired a new and larger building elsewhere for its
corporate headquarters. The taxpayer hired an unrelated property management
company to manage and lease the old building. The property management company
leased the building to an unrelated investment company under a five-year lease.
Upon expiration of the lease, taxpayer sold the building at a gain (or loss).
The gain (or loss) on the sale is nonbusiness income and the rental income
received over the lease period is nonbusiness income.
(vi) EXAMPLE: The taxpayer is a multistate
lender and also issues credit cards. The taxpayer sells its loans and credit
card accounts receivable. The gain or loss is business income.
3. Interest. Interest income is
business income where the intangible with respect to which the interest was
received arises out of or was created in the regular course of the taxpayer's
trade or business operations or where the purpose for acquiring and holding the
intangible is related to or incidental to such trade or business operations.
(i) EXAMPLE: The taxpayer is a multistate
mortgage lender and also issues credit cards. The taxpayer receives interest
income from its secured and unsecured loans. These amounts are business
income.
(ii) EXAMPLE: The taxpayer
conducts a multistate lending business. During the year the taxpayer receives a
federal income tax refund and collects a judgment against a debtor of the
business. Both the tax refund and the judgment bear interest. The interest
income is business income.
(iii)
EXAMPLE: The taxpayer is engaged in a multistate lending and financing
business. In connection with that business, the taxpayer maintains special
accounts to cover such items as workmen's compensation claims, rain and storm
damage, machinery replacement, etc. The moneys in those accounts are invested
at interest. Similarly, the taxpayer temporarily invests funds intended for
payment of federal, state and local tax obligations. The interest income is
business income.
(iv) EXAMPLE: The
taxpayer is engaged in a multistate money order and traveler's check business.
In addition to the fees received in connection with the sale of the money
orders and traveler's checks, the taxpayer earns interest income by the
investment of the funds pending their redemption. The interest income is
business income.
(v) EXAMPLE: The
taxpayer is engaged in a multistate banking business. The taxpayer usually has
working capital and extra cash totaling $200,000.00 which it regularly invests
in short-term interest bearing securities. The interest income is business
income.
(vi) EXAMPLE: In January,
the taxpayer sold all of the stock of a subsidiary not involved in the same
trade or business of the taxpayer for $20,000,000. The funds are placed in an
interest-bearing account pending a decision by management as to how the funds
are to be utilized. The interest income is nonbusiness income.
4. Dividends. Dividends are
business income where the stock with respect to which the dividends are
received arises out of or was acquired in the regular course of the taxpayer's
trade or business operations or where the purpose of acquiring and holding the
stock is related to or incidental to such trade or business operations.
(i) EXAMPLE: The taxpayer operates a
multistate chain of stock brokerage houses. During the year, the taxpayer
receives dividends on stock that it owns. The dividends are business
income.
(ii) EXAMPLE: The taxpayer
is engaged in a multistate lending business. In connection with that business,
the taxpayer maintains special accounts to cover such items as workmen's
compensation claims, etc. A portion of the moneys in those accounts is invested
in interest-bearing bonds. The remainder is invested in various common stocks
listed on national stock exchanges. Both the interest income and any dividends
are business income.
(iii) EXAMPLE:
The taxpayer and several unrelated corporations own all of the stock of a
corporation whose business operations consist solely of providing services or
products for delivery or use to or by the corporate owners. The taxpayer
acquired the stock in order to obtain a resource for services or products for
use in its business. The dividends are business income.
(iv) EXAMPLE: The taxpayer is engaged in a
multistate banking business. The taxpayer is chartered under the auspices of
the federal government and/or various state governments. Under state and
federal laws applicable to the taxpayer, the taxpayer must maintain minimum
ratios of certain assets to liability in order to comply with regulatory rules.
As a result the taxpayer holds various stocks and interest-bearing securities.
Both the interest income and any dividends received are business
income.
(v) EXAMPLE: The taxpayer
receives dividends from the stock of its subsidiary or affiliate which acts as
the marketing agency for products manufactured for or services provided to the
taxpayer. The dividends are business income.
5. Patent and copyright royalties. Patent and
copyright royalties are business income where the patent or copyright with
respect to which the royalties were received arises out of or was created in
the regular course of the taxpayer's trade or business operations or where the
purpose for acquiring or holding the patent or copyright is related to or
incidental to such trade or business operations.
(i) EXAMPLE: The taxpayer is engaged in the
multistate business of banking. In connection with that business, the taxpayer
obtained patents and copyrights, directly or indirectly, in the course of
making loans to customers. The royalties received by the taxpayer are business
income.
(c)
Proration of Deductions. In most cases, an allowable deduction of a taxpayer
will be applicable to only the business income arising from a particular trade
or business or to a particular item of nonbusiness income. In some cases, an
allowable deduction may be applicable to business income or several items of
nonbusiness income. In such cases, the deduction shall be prorated among those
items of nonbusiness income in a manner which fairly distributes the deduction
among the classes of income to which it is applicable. Any allowable deduction
that is applicable both to business and nonbusiness income of the taxpayer
shall be prorated to each class of income in determining income subject to tax
as provided below:
1. Interest Expense.
Interest expense shall be prorated to nonbusiness assets by multiplying total
interest expense by the ratio of average cost of the nonbusiness assets to the
average cost of the total assets. If any assets were acquired with stock of the
taxpayer corporation, the value of such assets to the extent attributed to the
taxpayer's stock shall be excluded from the computations.
2. Other Expenses. Other type expenses
applicable both to business and nonbusiness income shall be prorated in such a
manner as to equitably assign such expenses to business or nonbusiness
categories, as appropriate.
3. Year
to year consistency. In filing returns with this state, if the taxpayer departs
from or modifies the manner of prorating any such deduction used in returns for
prior years, the taxpayer shall disclose in the return for the current year the
nature and extent of the modification.
4. State to state consistency. If the returns
or reports filed by a taxpayer with all states to which the taxpayer reports
under the Recommended Formula for the Apportionment and Allocation Of Net
Income of Financial Institutions, as adopted November 17, 1994, are not uniform
in the application or proration of any deduction, the taxpayer shall disclose
in its return to this state the nature and extent of the variance.
(d) Except as otherwise
specifically provided, a financial institution whose business activity is
taxable both within and without this state shall allocate and apportion its net
income as provided in this rule. All items of nonbusiness income (income which
is not includable in the apportionable income tax base) shall be allocated
pursuant to the provisions of paragraph (7) of this rule. A financial
institution organized under the laws of a foreign country, the Commonwealth of
Puerto Rico, or a territory or possession of the United States whose
effectively connected income (as defined under the Federal Internal Revenue
Code) is taxable both within this state and within another state, other than
the state in which it is organized, shall allocate and apportion its net income
as provided in this rule.
(e) All
business income (income which is includable in the apportionable income tax
base) shall be apportioned to this state by multiplying such income by the
apportionment percentage. The apportionment percentage is determined by adding
the taxpayer's receipts factor (as described in paragraph (4) of this rule),
property factor (as described in paragraph (5) of this rule), and payroll
factor (as described in paragraph (6) of this rule) together and dividing the
sum by three. If one of the factors is missing, the two remaining factors are
added and the sum is divided by two. If two of the factors are missing, the
remaining factor is the apportionment percentage. A factor is missing if both
its numerator and denominator are zero, but it is not missing merely because
its numerator is zero.
(f) Each
factor shall be computed according to the method of accounting (cash or accrual
basis) used by the taxpayer for the taxable year.
(g) If the allocation and apportionment
provisions of this rule do not fairly represent the extent of the taxpayer's
business activity in this state, 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:
2. the exclusion of any
one or more of the factors,
3. the
inclusion of one or more additional factors which will fairly represent the
taxpayer's business activity in this State; or
4. the employment of any other method to
effectuate an equitable allocation and apportionment of the taxpayer's
income.
(3)
DEFINITIONS. As used in this rule, unless the context otherwise requires:
(a) Billing address. The location indicated
in the books and records of the taxpayer on the first day of the taxable year
(or on such later date in the taxable year when the customer relationship
began) as the address where any notice, statement and/or bill relating to a
customer's account is mailed.
(b)
Borrower or credit card holder located in this state.
1. A borrower, other than a credit card
holder, that is engaged in a trade or business which maintains its commercial
domicile in this state; or
2. a
borrower that is not engaged in a trade or business or a credit card holder
who's billing address is in this state.
(c) Card issuer's reimbursement fee. The fee
a taxpayer receives from a merchant's bank because one of the persons to whom
the taxpayer has issued a credit, debit, or similar type of card has charged
merchandise or services to the card.
(d) Commercial domicile.
1. The headquarters of the trade or business,
that is, the place from which the trade or business is principally managed and
directed; or
2. if a taxpayer is
organized under the laws of a foreign country, or of the Commonwealth of Puerto
Rico, or any territory or possession of the United States, such taxpayer's
commercial domicile shall be deemed for the purposes of this rule to be the
state of the United States or the District of Columbia from which such
taxpayer's trade or business in the United States is principally managed and
directed. It shall be presumed, subject to rebuttal, that the location from
which the taxpayer's trade or business is principally managed and directed is
the state of the United States or the District of Columbia to which the
greatest number of employees are regularly connected or out of which they are
working, irrespective of where the services of such employees are performed, as
of the last day of the taxable year.
(e) Compensation. Wages, salaries,
commissions and any other form of remuneration paid to employees for personal
services that are included in such employee's gross income under the Federal
Internal Revenue Code. In the case of employees not subject to the Federal
Internal Revenue Code, e.g., those employed in foreign countries, the
determination of whether such payments would constitute gross income to such
employees under the Federal Internal Revenue Code shall be made as though such
employees were subject to the Federal Internal Revenue Code.
(f) Credit Card. A card, or other means of
providing information, that entitles the holder to charge the cost of
purchases, or a cash advance, against a line of credit.
(g) Debit Card. A card, or other means of
providing information, that enables the holder to charge the cost of purchases,
or a cash withdrawal, against the holder's bank account or a remaining balance
on the card.
(h) Employee. With
respect to a particular taxpayer, any individual who, under the usual
common-law rules applicable in determining the employer-employee relationship,
has the status of an employee of that taxpayer.
(i) Gross rents. The actual sum of money or
other consideration payable for the use or possession of property. "Gross
rents" shall include, but not be limited to:
1. any amount payable for the use or
possession of real property or tangible property whether designated as a fixed
sum of money or as a percentage of receipts, profits or otherwise,
2. 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,
and
3. 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. The amount to be included in "gross rents" is the amount of
amortization or depreciation allowed in computing the taxable income base for
the taxable year. However, where a building is erected on leased land by or on
behalf of the taxpayer, the value of the land is determined by multiplying the
gross rent by eight and the value of the building is determined in the same
manner as if owned by the taxpayer.
4. The following are not included in the term
"gross rents":
(i) reasonable amounts payable
as separate charges for water and electric service furnished by the
lessor;
(ii) reasonable amounts
payable as service charges for janitorial services furnished by the
lessor;
(iii) reasonable amounts
payable for storage, provided such amounts are payable for space not designated
and not under the control of the taxpayer; and
(iv) that portion of any rental payment which
is applicable to the space subleased from the taxpayer and not used by
it.
(j) Loan.
Any extension of credit resulting from direct negotiations between the taxpayer
and its customer, or the purchase, in whole or in part, of such extension of
credit from another or both. "Loans" include participation, syndications, and
leases treated as loans for federal income tax purposes. "Loans" shall not
include: futures or forward contracts; options; notional principal contracts
such as swaps; credit card receivables, including purchased credit card
relationships; non-interest bearing balances due from depository institutions;
cash items in the process of collection; federal funds sold; securities
purchased under agreements to resell; assets held in a trading account;
securities; interests in a REMIC, or other mortgage-backed or asset-backed
security; and other similar items.
(k) Loan secured by real property. A loan
when fifty percent or more of the aggregate value of the collateral used to
secure a loan or other obligation, when valued at fair market value as of the
time the original loan or obligation was incurred, was real property.
(l) Merchant discount. The fee (or
negotiated discount) charged to a merchant by the taxpayer for the privilege of
participating in a program whereby a credit, debit, or similar type of card is
accepted in payment for merchandise or services sold to the card holder, net of
any cardholder charge-back and unreduced by any interchange transaction or
issuer reimbursement fee paid to another for charges or purchases made its
cardholder.
(m) Participation. An
extension of credit in which an undivided ownership interest is held on a pro
rata basis in a single loan or pool of loans and related collateral. In a loan
participation, the credit originator initially makes the loan and then
subsequently resells all or a portion of it to other lenders. The participation
may or may not be known to the borrower.
(n) Person. An individual, estate, trust,
partnership, corporation and any other business entity.
(o) Principal base of operations.
1. With respect to transportation property,
the place of more or less permanent nature from which said property is
regularly directed or controlled.
2. With respect to an employee, the place of
more or less permanent nature from which the employee regularly:
(i) starts his or her work and to which he or
she customarily returns in order to receive instructions from his or her
employer, or
(ii) communicates with
his or her customers or other persons, or
(iii) performs any other functions necessary
to the exercise of his or her trade or profession at some other point or
points.
(p)
Real property owned and tangible personal property owned. Real and tangible
personal property, respectively, (1) on which the taxpayer may claim
depreciation for federal income tax purposes, or (2) property to which the
taxpayer holds legal title and on which no other person may claim depreciation
for federal income tax purposes (or could claim depreciation if subject to
federal income tax). Real and tangible personal property do not include coin,
currency, or property acquired in lieu of or pursuant to a
foreclosure.
(q) Regular place of
business. An office at which the taxpayer carries on its business in a regular
and systematic manner and which is continuously maintained, occupied and used
by employees of the taxpayer.
(r)
State. A state of the United States, the District of Columbia, the Commonwealth
of Puerto Rico, any territory or possession of the United States or any foreign
country.
(s) Syndication. An
extension of credit in which two or more persons fund and each person is at
risk only up to a specified percentage of the total extension of credit or up
to a specified dollar amount.
(t)
Taxable. When either:
1. a taxpayer is
subject in another state to a net income tax, a franchise tax measured by net
income, a franchise tax for the privilege of doing business, a corporate stock
tax (including a bank shares tax), a single business tax, or an earned surplus
tax, or any tax which is imposed upon or measured by net income; or
2. another state has jurisdiction to subject
the taxpayer to any of such taxes regardless of whether, in fact, the state
does or does not.
(u)
Transportation property. Vehicles and vessels capable of moving under their own
power, such as aircraft, trains, water vessels and motor vehicles, as well as
any equipment or containers attached to such property, such as rolling stock,
barges, trailers or the like.
(4) RECEIPTS FACTOR.
(a) General. The receipts factor is a
fraction, the numerator of which is the receipts of the taxpayer in this state
during the taxable year and the denominator of which is the receipts of the
taxpayer within and without this state during the taxable year. The method of
calculating receipts for purposes of the denominator is the same as the method
used in determining receipts for purposes of the numerator. The receipts factor
shall include only those receipts described herein which constitute business
income and are included in the computation of the apportionable income base for
the taxable year.
(b) Receipts from
the lease of real property. The numerator of the receipts factor includes
receipts from the lease or rental of real property owned by the taxpayer if the
property is located within this state or receipts from the sublease of real
property if the property is located within this state.
(c) Receipts from the lease of tangible
personal property.
1. Except as described in
subparagraph 2. of this subparagraph, the numerator of the receipts factor
includes receipts from the lease or rental of tangible personal property owned
by the taxpayer if the property is located within this state when it is first
placed in service by the lessee.
2.
Receipts from the lease or rental of transportation property owned by the
taxpayer are included in the numerator of the receipts factor to the extent
that the property is used in this state. The extent an aircraft will be deemed
to be used in this state and the amount of receipts that is to be included in
the numerator of this state's receipts factor is determined by multiplying all
the receipts from the lease or rental of the aircraft by a fraction, the
numerator of which is the number of landings of the aircraft in this state and
the denominator of which is the total number of landings of the aircraft. If
the extent of the use of any transportation property within this state cannot
be determined, then the property will be deemed to be used wholly in the state
in which the property has its principal base of operations. A motor vehicle
will be deemed to be used wholly in the state in which it is
registered.
(d)
Interest, fees and penalties imposed in connection with loans secured by real
property.
1. The numerator of the receipts
factor includes interest, fees, and penalties imposed in connection with loans
secured by real property if the property is located within this state. If the
property is located both within this state and one or more other states, the
receipts described in this subparagraph are included in the numerator of the
receipts factor if more than fifty percent of the fair market value of the real
property is located within this state. If more than fifty percent of the fair
market value of the real property is not located within any one state, then the
receipts described in this subparagraph shall be included in the numerator of
the receipts factor if the borrower is located in this state.
2. The determination of whether the real
property securing a loan is located within this state shall be made as of the
time the original agreement was made and any and all subsequent substitutions
of collateral shall be disregarded.
(e) Interest, fees, and penalties imposed in
connection with loans not secured by real property. The numerator of the
receipts factor includes interest, fees, and penalties imposed in connection
with loans not secured by real property if the borrower is located in this
state.
(f) Net gains from the sale
of loans. The numerator of the receipts factor includes net gains from the sale
of loans. Net gains from the sale of loans includes income recorded under the
coupon stripping rules of Section 1286 of the Internal Revenue Code.
1. The amount of net gains (but not less than
zero) from the sale of loans secured by real property included in the numerator
is determined by multiplying such net gains by a fraction the numerator of
which is the amount included in the numerator of the receipts factor pursuant
to subparagraph (d) of this paragraph and the denominator of which is the total
amount of interest and fees or penalties in the nature of interest from loans
secured by real property.
2. The
amount of net gains (but not less than zero) from the sale of loans not secured
by real property included in the numerator is determined by multiplying such
net gains by a fraction the numerator of which is the amount included in the
numerator of the receipts factor pursuant to subparagraph (e) of this paragraph
and the denominator of which is the total amount of interest and fees or
penalties in the nature of interest from loans not secured by real
property.
(g) Receipts
from fees, interest, and penalties charged to card holders. The numerator of
the receipts factor includes fees, interest and penalties charged to credit,
debit, or similar card holders, including but not limited to annual fees and
overdraft fees, if the billing address of the card holder is in this
state.
(h) Net gains from the sale
of credit card receivables. The numerator of the receipts factor includes net
gains (but not less than zero) from the sale of credit card receivables
multiplied by a fraction, the numerator of which is the amount included in the
numerator of the receipts factor pursuant to subparagraph (g) of this paragraph
and the denominator of which is the taxpayer's total amount of interest and
fees or penalties in the nature of interest from credit card receivables and
fees charged to card holders.
(i)
Card issuer's reimbursement fees. The numerator of the receipts factor
includes:
(I) all credit card issuer's
reimbursement fees multiplied by a fraction, the numerator of which is the
amount of fees, interest, and penalties charged to credit card holders included
in the numerator of the receipts factor pursuant to subparagraph (g) of this
paragraph and the denominator of which is the taxpayer's total amount of fees,
interest and penalties charged to credit card holders.
(II) all debt card issuer's reimbursement
fees multiplied by a fraction, the numerator of which is the amount of fees,
interest, and penalties charged to debit card holders included in the numerator
of the receipts factor pursuant to subparagraph (g) of this paragraph and the
denominator of which is the taxpayer's total amount of fees, interest, and
penalties charged to debit card holders.
(III) all other card issuer's reimbursement
fees multiplied by a fraction, the numerator of which is the amount of fees,
interest, and penalties charged to all other card holders included in the
numerator of the receipts factor pursuant to subparagraph (g) of this paragraph
and the denominator of which is the taxpayer's total amount of fees, interest,
and penalties charged to all other card holders.
(j) Receipts from merchant discount.
1. If the taxpayer can readily determine the
location of the merchant and if the merchant is in this state, the numerator of
the receipts factor includes receipts from merchant discount.
2. If the taxpayer cannot readily determine
the location of the merchant, the numerator of the receipts factor includes
such receipts from the merchant discount multiplied by a fraction:
(i) in the case of a merchant discount
related to the use of a credit card, the numerator of which is the amount of
fees, interest, and penalties charged to credit card holders that is included
in the numerator of the receipts factor pursuant to subparagraph (g) of this
paragraph and the denominator of which is the taxpayer's total amount of fees,
interest, and penalties charged to credit card holding, and
(ii) in the case of a merchant discount
related to the use of a debit card, the numerator of which is the amount of
fees, interest, and penalties charged to debit card holders that is included in
the numerator of the receipts factor pursuant to subparagraph (g) of this
paragraph and the denominator of which is the taxpayer's total amount of fees,
interest, and penalties charged to debit card holders.
(iii) in the case of a merchant discount
related to the use of other type of cards, the numerator of which is the amount
of fees, interest, and penalties charged to all other card holders that is
included in the numerator of the receipts factor pursuant to subparagraph (g)
of this paragraph and the denominator of which is the tax payer's total amount
of fees, interest, and penalties charged to all other card holders.
3. The taxpayer's method for
sourcing each receipt from a merchant discount must be consistently applied to
such receipt in all states that have adopted sourcing methods substantially
similar to subparagraphs 1. and 2. of this paragraph and must be used on all
subsequent returns for sourcing receipts from such merchant unless the
Commissioner permits or requires application of the alternative
method.
(k) Receipts
from ATM fees. The receipts factor includes all ATM fees that are not forwarded
directly to another bank.
1. The numerator of
the receipts factor includes fees charged to a cardholder for the use at an ATM
of a card issued by the taxpayer if the cardholder's billing address is in this
state.
2. The numerator of the
receipts factor incudes fees charged to a cardholder, other than the taxpayer's
cardholder, for the use of such card at an ATM owned or rented by the taxpayer,
if the ATM is in the state.
(l) Loan servicing fees.
1. The numerator of the receipts factor
includes:
(i) loan servicing fees derived
from loans secured by real property multiplied by a fraction the numerator of
which is the amount included in the numerator of the receipts factor pursuant
to subparagraph (d) of this paragraph and the denominator of which is the total
amount of interest and fees or penalties in the nature of interest from loans
secured by real property, and
(ii)
loan servicing fees derived from loans not secured by real property multiplied
by a fraction the numerator of which is the amount included in the numerator of
the receipts factor pursuant to subparagraph (e) of this paragraph and the
denominator of which is the total amount of interest and fees or penalties in
the nature of interest from loans not secured by real property.
2. In circumstances in which the
taxpayer receives loan servicing fees for servicing either the secured or the
unsecured loans of another, the numerator of the receipts factor shall include
such fees if the borrower is located in this state.
(m) Receipts from services. The numerator of
the receipts factor includes receipts from services not otherwise apportioned
under this rule, which receipts shall be sourced in accordance with Alabama
Administrative Rule
810-27-1-.17.
(n) Receipts from the financial institution's
investment assets and activity and trading assets and activity.
1. Interest, dividends, net gains (but not
less than zero) and other income from investment assets and activities and from
trading assets and activities that are reported on the taxpayer's financial
statements, call reports, or similar reports shall be included in the receipts
factor. Investment assets and activities and trading assets and activities
include but are not limited to: investment securities; trading account assets;
federal funds; securities purchased and sold under agreements to resell or
repurchase; options; futures contracts; forward contracts; notional principal
contracts such as swaps; equities; and foreign currency transactions. With
respect to the investment and trading assets and activities described in
subparagraphs (i) and (ii) of this paragraph, the receipts factor shall include
the amounts described in such subparagraphs.
(i) The receipts factor shall include the
amount by which interest from federal funds sold and securities purchased under
resale agreements exceeds interest expense on federal funds purchased and
securities sold under repurchase agreements.
(ii) The receipts factor shall include the
amount by which interest, dividends, gains and other income from trading assets
and activities, including but not limited to assets and activities in the
matched book, in the arbitrage book, and foreign currency transactions, exceed
amounts paid in lieu of interest, amounts paid in lieu of dividends, and losses
from such assets and activities.
2. The numerator of the receipts factor
includes interest, dividends, net gains (but not less than zero) and other
income from investment assets and activities and from trading assets and
activities described in subparagraph 1. of this subparagraph that are
attributable to this state.
(i) The amount of
interest, dividends, net gains (but not less than zero) and other income from
investment assets and activities in the investment account to be attributed to
this state and included in the numerator is determined by multiplying all such
income from such assets and activities by a fraction, the numerator of which is
the average value of such assets which are properly assigned to a regular place
of business of the taxpayer within this state and the denominator of which is
the average value of all such assets.
(ii) The amount of interest from federal
funds sold and purchased and from securities purchased under resale agreements
and securities sold under repurchase agreements attributable to this state and
included in the numerator is determined by multiplying the amount described in
subparagraph (i) of subparagraph 1. of this subparagraph from such funds and
such securities by a fraction, the numerator of which is the average value of
federal funds sold and securities purchased under agreements to resell which
are properly assigned to a regular place of business of the taxpayer within
this state and the denominator of which is the average value of all such funds
and such securities.
(iii) The
amount of interest, dividends, gains and other income from trading assets and
activities, including but not limited to assets and activities in the matched
book, in the arbitrage book and foreign currency transactions, (but excluding
amounts described in subparagraphs (i) or (ii) of this subparagraph),
attributable to this state and included in the numerator is determined by
multiplying the amount described in subparagraph (ii) of subparagraph 1. of
this subparagraph by a fraction, the numerator of which is the average value of
such trading assets which are properly assigned to a regular place of business
of the taxpayer within this state and the denominator of which is the average
value of all such assets.
(iv) For
purposes of this paragraph, average value shall be determined using the rules
for determining the average value of tangible personal property set forth in
subparagraphs (c) and (d) of paragraph (5).
3. In lieu of using the method set forth in
subparagraph 2. of this subparagraph, the taxpayer may elect, or the
Commissioner may require in order to fairly represent the business activity of
the taxpayer in this state, the use of the method set forth in this paragraph.
(i) The amount of interest, dividends, net
gains (but not less than zero) and other income from investment assets and
activities in the investment account to be attributed to this state and
included in the numerator is determined by multiplying all such income from
such assets and activities by a fraction, the numerator of which is the gross
income from such assets and activities which are properly assigned to a regular
place of business of the taxpayer within this state and the denominator of
which is the gross income from all such assets and activities.
(ii) The amount of interest from federal
funds sold and purchased and from securities purchased under resale agreements
and securities sold under repurchase agreements attributable to this state and
included in the numerator is determined by multiplying the amount described in
subparagraph (i) of subparagraph 1. of this subparagraph from such funds and
such securities by a fraction, the numerator of which is the gross income from
such funds and such securities which are properly assigned to a regular place
of business of the taxpayer within this state and the denominator of which is
the gross income from all such funds and such securities.
(iii) The amount of interest, dividends,
gains and other income from trading assets and activities, including but not
limited to assets and activities in the matched book, in the arbitrage book and
foreign currency transactions (but excluding amounts described in subparagraphs
(i) or (ii) of this subparagraph), attributable to this state and included in
the numerator is determined by multiplying the amount described in subparagraph
(ii) of subparagraph 1. of this subparagraph by a fraction, the numerator of
which is the gross income from such trading assets and activities which are
properly assigned to a regular place of business of the taxpayer within this
state and the denominator of which is the gross income from all such assets and
activities.
4. If the
taxpayer elects or is required by Commissioner to use the method set forth in
subparagraph 3. of this subparagraph, it shall use this method on all
subsequent returns unless the taxpayer receives prior permission from the
Commissioner to use, or the Commissioner requires a different method.
5. The taxpayer shall have the burden of
proving that an investment asset or activity or trading asset or activity was
properly assigned to a regular place of business outside of this state by
demonstrating that the day-to-day decisions regarding the asset or activity
occurred at a regular place of business outside this state. Where the
day-to-day decisions regarding an investment asset or activity or trading asset
or activity occur at more than one regular place of business and one such
regular place of business is in this state and one such regular place of
business is outside this state, such asset or activity shall be considered to
be located at the regular place of business of the taxpayer where the
investment or trading policies or guidelines with respect to the asset or
activity are established. Unless the taxpayer demonstrates to the contrary,
such policies and guidelines shall be presumed to be established at the
commercial domicile of the taxpayer.
(o) All other receipts. The numerator of the
receipts factor includes all other receipts pursuant to the rules set forth in
Alabama Administrative Rule
810-27-1-.16 and Alabama
Administrative Rule 810-27-1-17.
(p) Attribution of certain receipts to
commercial domicile. All receipts which would be assigned under this rule to a
state in which the taxpayer is not taxable shall be included in the numerator
of the receipts factor, if the taxpayer's commercial domicile is in this
state.
(5) PROPERTY
FACTOR.
(a) General. The property factor is a
fraction, the numerator of which is the average value of real property and
tangible personal property rented to the taxpayer that is located or used
within this state during the taxable year, and the average value of the
taxpayer's loans and credit card receivables that are located within the state
during the taxable year, and the average value of the taxpayer's real and
tangible personal property owned that is located or used within this state
during the taxable year, and the denominator of which is the average value of
all such property located or used within and without this state during the
taxable year.
(b) Property
included. The property factor shall include only property the income or
expenses of which are included (or would have been included if not fully
depreciated or expensed, or depreciated or expensed to a nominal amount) in the
computation of the apportionable income base for the taxable year.
(c) Value of property owned by the taxpayer.
1. The value of real property and tangible
personal property owned by the taxpayer is the original cost or other basis of
such property for Federal income tax purposes without regard to depletion,
depreciation or amortization.
2.
Loans are valued at their outstanding principal balance, without regard to any
reserve for bad debts. If a loan is charged-off in whole or in part for Federal
income tax purposes, the portion of the loan charged off is not outstanding. A
specifically allocated reserve established pursuant to regulatory or financial
accounting guidelines which is treated as charged-off for Federal income tax
purposes shall be treated as charged-off for purposes of this paragraph.
3. Credit card receivables are
valued at their outstanding principal balance, without regard to any reserve
for bad debts. If a credit card receivable is charged-off in whole or in part
for Federal income tax purposes, the portion of the receivable charged-off is
not outstanding.
(d)
Average value of property owned by the taxpayer. The average value of property
owned by the taxpayer is computed on an annual basis by adding the value of the
property on the first day of the taxable year and the value on the last day of
the taxable year and dividing the sum by two. If averaging on this basis does
not properly reflect average value, the Commissioner may require averaging on a
more frequent basis. The taxpayer may elect to average on a more frequent
basis. When averaging on a more frequent basis is required by the Commissioner
or is elected by the taxpayer, the same method of valuation must be used
consistently by the taxpayer with respect to property within and without this
state and on all subsequent returns unless the taxpayer receives prior
permission from the Commissioner or the Commissioner requires a different
method of determining average value.
(e) Average value of real property and
tangible personal property rented to the taxpayer.
1. The average value of real property and
tangible personal property that the taxpayer has rented from another and which
is not treated as property owned by the taxpayer for Federal income tax
purposes, shall be determined annually by multiplying the "gross rents" payable
during the taxable year by eight.
2. Where the use of the general method
described in this subparagraph results in inaccurate valuations of rented
property, any other method which properly reflects the value may be adopted by
the Commissioner or by the taxpayer when approved in writing by the
Commissioner. Once approved, such other method of valuation must be used on all
subsequent returns unless the taxpayer receives prior approval from the
Commissioner or the Commissioner requires a different method of
valuation.
(f) Location
of real property and tangible personal property owned by or rented to the
taxpayer.
1. Except as described in
subparagraph 2. of this subparagraph, real property and tangible personal
property owned by or rented to the taxpayer is considered to be located within
this state if it is physically located, situated or used within this
state.
2. Transportation property
is included in the numerator of the property factor to the extent that the
property is used in this state. The extent an aircraft will be deemed to be
used in this state and the amount of value that is to be included in the
numerator of this state's property factor is determined by multiplying the
average value of the aircraft by a fraction, the numerator of which is the
number of landings of the aircraft in this state and the denominator of which
is the total number of landings of the aircraft everywhere. If the extent of
the use of any transportation property within this state cannot be determined,
then the property will be deemed to be used wholly in the state in which the
property has its principal base of operations. A motor vehicle will be deemed
to be used wholly in the state in which it is registered.
(g) Location of loans. A loan is considered
to be located in this state if the interest receipts associated with such loan
are or would be sourced to this state pursuant to paragraph (4) RECEIPTS FACTOR
of this rule.
(6)
PAYROLL FACTOR.
(a) General. The payroll
factor is a fraction, the numerator of which is the total amount paid in this
state during the taxable year by the taxpayer for compensation and the
denominator of which is the total compensation paid both within and without
this state during the taxable year. The payroll factor shall include only that
compensation which is included in the computation of the apportionable income
tax base for the taxable year.
(b)
Compensation relating to nonbusiness income and independent contractors. The
compensation of any employee for services or activities which are connected
with the production of nonbusiness income (income which is not includable in
the apportionable income base) and payments made to any independent contractor
or any other person not properly classifiable as an employee shall be excluded
from both the numerator and denominator of the factor.
(c) When compensation paid in this state.
Compensation is paid in this state if any one of the following tests, applied
consecutively, is met:
1. The employee's
services are performed entirely within this state.
2. The employee's services are performed both
within and without the state, but the service performed without the state is
incidental to the employee's service within the state. The term "incidental"
means any service which is temporary or transitory in nature, or which is
rendered in connection with an isolated transaction.
3. If the employee's services are performed
both within and without this state, the employee's compensation will be
attributed to this state:
(i) if the
employee's principal base of operations is within this state; or
(ii) if there is no principal base of
operations in any state in which some part of the services are performed, but
the place from which the services are directed or controlled is in this state;
or
(iii) if the principal base of
operations and the place from which the services are directed or controlled are
not in any state in which some part of the service is performed but the
employee's residence is in this state.
(7) NONBUSINESS ALLOCATION. The
various items of nonbusiness income, rents and royalties from real property or
tangible personal property, capital gains, interest, dividends, or royalties
from intangible property, to the extent that they constitute nonbusiness
income, are directly allocated to specific jurisdictions as provided below:
(a) Rents and royalties from real property or
tangible personal property.
1. Rental and
royalty income from real and tangible property is business income if the
property with respect to which the income was received is used in the
taxpayer's trade or business or incidental thereto and therefore is includable
in the property factor under this rule.
2. Net rents and royalties from real property
located in this state are allocable to this state.
3. Net rents and royalties from tangible
personal property are allocable to this state:
(i) if and to the extent that the property is
utilized in this state, or
(ii) in
their entirety if the taxpayer's commercial domicile is in this state and the
taxpayer is not organized under the laws of or taxable in the state in which
the property is utilized.
4. The extent of utilization of tangible
personal property in a state is determined by multiplying the rents and
royalties by a fraction, the numerator of which is the number of days of
physical location of the property in the state during the rental or royalty
period in the taxable year and the denominator of which is the number of days
of physical location of the property everywhere during all rental or royalty
periods in the taxable year. If the physical location of the property during
the rental or royalty period is unknown or unascertainable by the taxpayer
tangible personal property is utilized in the state in which the property was
located at the time the rental or royalty payer obtained possession.
(b) Capital gains and losses.
1. Gain or loss from the sale, exchange or
other disposition of real property or of tangible or intangible personal
property constitutes business income if the property while owned by the
taxpayer was used in the taxpayer's trade or business. However, if the property
was utilized for the production of nonbusiness income or otherwise was removed
from the property factor before its sale, exchange or other disposition, the
gain or loss will constitute nonbusiness income.
2. Capital gains and losses from sales of
real property located in this state are allocable to this state.
3. Capital gains and losses from sales of
tangible personal property are allocable to this state if:
(i) the property had a situs in this state at
the time of the sale, or
(ii) the
taxpayer's commercial domicile is in this state and the taxpayer is not taxable
in the state in which the property had a situs.
4. Capital gains and losses from sales of
intangible personal property are allocable to this state if the taxpayer's
commercial domicile is in this state.
(c) Interest and dividends.
1. Interest income is business income where
the intangible with respect to which the interest was received arises out of or
was created in the regular course of the taxpayer's trade or business
operations or where the purpose for acquiring or holding the intangible is
related to or incidental to such trade or business operations.
2. Dividends are business income where the
stock with respect to which the dividends are received arises out of or was
acquired in the regular course of the taxpayer's trade or business operations
or where the purpose of acquiring or holding the stock is related to or
incidental to such trade or business operations.
3. Interest and dividends are allocable to
this state if the taxpayer's commercial domicile is in this state.
(d) Royalties from intangible
property.
1. Royalties are business income
where the intangible property with respect to which the royalties were received
arises out of or was created in the regular course of the taxpayer's trade or
business operations or where the purpose for acquiring or holding the
intangible property is related to or incidental to such trade or business
operations.
2. Royalties from
intangible property are allocable to this state:
(i) if and to the extent that the related
intangible property is utilized by the payer in this state, or
(ii) if and to the extent that the related
intangible property is utilized by the payer in a state in which the taxpayer
is not taxable and the taxpayer's commercial domicile is in this
state.
3. A patent is
utilized in a state to the extent that it is employed in the production,
fabrication, manufacturing, or other processing in the state or to the extent
that a patented product is produced in the state. If the basis of receipts from
patent royalties does not permit allocation to states or if the accounting
procedures do not reflect states of utilization, the patent is utilized in the
state in which the taxpayer's commercial domicile is located.
4. A copyright is utilized in a state to the
extent that printing or other publication originates in the state. If the basis
of receipts from copyright royalties does not permit allocation to states or if
the accounting procedures do not reflect states of utilization, the copyright
is utilized in the state in which the taxpayer's commercial domicile is
located.
(8)
APPLICABILITY. This rule without the amendments made in 2016 and further
amended in 2017, shall apply to all operating years beginning after December
31, 1999, and before January 1, 2017. This rule, as amended in 2016 and as
further amended in 2017, shall become effective December 31, 2017, and shall
apply to all operating years beginning on or after January 1, 2017.
(a) EXAMPLE: Bank B has an operating year
that begins January 1, 2016 and ends December 31, 2016. Bank B operates in
several states. Bank B will file its excise tax return for operating year 2016,
on April 15, 2017, and use the rules of allocation and apportionment contained
in this rule without the amendments made in 2016 and 2017 to determine income
attributable to this state. Bank C has an operating year that begins January 1,
2017, and ends December 31, 2017. Bank C operates in several states. Bank C
will file its excise tax return for operating year 2017, on April 15, 2018, and
use rules of allocation and apportionment contained in this rule as amended in
2016 and 2017 to determine income attributable to this state.