A. The payroll
factor, as defined in A.R.S. §
43-1143, for each
trade or business of a taxpayer includes the total amount paid by the taxpayer
in the regular course of its trade or business for compensation during the tax
period.
1. The total amount "paid" to
employees is determined upon the basis of the taxpayer's accounting method.
a. If the taxpayer has adopted the accrual
method of accounting, all compensation properly accrued is deemed to have been
paid.
b. 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 the compensation under that method
for unemployment compensation purposes.
2. The compensation of any employee for
activities that are connected with the production of nonbusiness income is
excluded from the payroll factor.
Example 1: The taxpayer uses some of its employees in the
construction of a storage building which, upon completion, is used in the
regular course of the taxpayer's trade or business. The wages paid to those
employees are treated as a capital expenditure by the taxpayer. The amount of
those wages is included in the payroll factor.
Example 2: The taxpayer owns various securities that it
holds as an investment separate and apart from its trade or business. The
management of the taxpayer'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. Payments made to an independent
contractor or any other person not properly classifiable as an employee are
excluded from the payroll factor.
4. Only amounts paid directly to employees
are included in the payroll factor. Amounts considered paid directly include
the value of board, rent, housing, lodging, and other benefits or services
furnished to employees by the taxpayer in return for personal services,
provided that the amounts constitute income to the recipient under the Internal
Revenue Code. In the case of employees not subject to the Internal Revenue
Code, such as those employed in foreign countries, the determination of whether
benefits or services would constitute income to the employees shall be made as
though the employees were subject to the Internal Revenue Code.
B. Generally, a person is
considered to be an employee if the person is treated by the taxpayer as an
employee for purposes of the payroll taxes imposed by the Federal Insurance
Contributions Act. However, because certain individuals are included within the
term "employees" in the Federal Insurance Contributions Act who are not
employees under the usual common-law rules, a taxpayer may establish that a
person who is treated as an employee for purposes of the Federal Insurance
Contributions Act is not an employee for purposes of this Section.
Notes
Ariz. Admin. Code §
R15-2D-701
Recodified at 6 A.A.R.
2308, filed in the Office of the Secretary of State June 2, 2000 (Supp. 00-2).
Amended by final rulemaking at 7 A.A.R. 4973, effective October 5, 2001 (Supp.
01-4).
