Current through Register Vol. 48, No. 38, September 20, 2024
a) In general
1) The payroll factor of the apportionment
formula for each trade or business of an employer shall include the total
amount paid by the employer in the regular course of its trade or business for
compensation during the tax period.
2) The total amount "paid" to employees is
determined upon the basis of the employer's accounting method. If the employer
has adopted the accrual method of accounting, all compensation properly accrued
shall be deemed to have been paid. The compensation of any employee on account
of activities which are connected with the production of nonbusiness income
shall be excluded from the factor.
A) Example
A: A corporation uses some of its employees in the construction of a storage
building which, upon completion, is used in the regular course of the
corporation's trade or business. The wages paid to those employees are treated
as a capital expenditure by the corporation. The amount of such wages is
included in the payroll factor.
B)
Example B: A corporation owns various securities which it holds as an
investment separate and apart from its trade or business. The management of the
corporation's investment portfolio is the only duty of Mr. X, an employee. The
salary paid to Mr. X is excluded from the payroll factor.
3) The term "compensation" is defined in
Section
100.3100
of this Part.
4) The term
"employee" is defined in Section
100.3100
of this Part.
5) In filing returns
with this state, if the employer departs from or modifies the treatment of
compensation paid used in returns for prior years, the employer shall disclose
in the return for the current year the nature and extent of the modification.
If the returns or reports filed by the employer with all states to which the
employer reports under Article IV of the Multistate Tax Compact or the Uniform
Division of Income for Tax Purposes Act are not uniform in the treatment of
compensation paid, the employer shall disclose in its return to this state the
nature and extent of the variance.
b) 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 employer is immune from taxation, by Public Law
86-272 for example, is included in the denominator of the payroll factor.
Example: A corporation has employees in its state of legal domicile (State A)
and is taxable in State B. In addition the corporation has other employees
whose services are performed entirely in State C where the corporation is
immune from taxation by 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 corporation is not taxable in State C.
c) Numerator. The numerator of the payroll
factor is the total amount paid in this State during the tax period by the
employer for compensation. The tests in IITA Section 304(a)(2) to be applied in
determining whether compensation is paid in this State are derived from the
Model Unemployment Compensation Act.
d) Compensation paid in this State. The term
"compensation paid in this State" is explained in Section
100.3120
of this Part.
