(a)
Property Factor. In General. The property factor of the apportionment formula
for each trade or business of the taxpayer shall include all real and tangible
personal property owned or rented by the taxpayer and used during the income
year in the regular course of such trade or business. The term "real and
tangible personal property" includes land, buildings, machinery, stocks of
goods, equipment, and other real and tangible personal property but does not
include coin or currency.
Property used in connection with the production of
nonbusiness income shall be excluded from the property factor. Property used
both in the regular course of taxpayer's trade or business and in the
production of nonbusiness income shall be included in the factor only to the
extent the property is used in the regular course of taxpayer's trade or
business. The method of determining that portion of the value to be included in
the factor will depend upon the facts of each case.
The property factor shall reflect the average value of
property includible in the factor. See Regulation 25131.
(b) Property Factor. Property Used for the
Production of Business Income. Property shall be included in the property
factor if it is actually used or is available for or capable of being used
during the income year in the regular course of trade or business of the
taxpayer. Property held as reserved or standby facilities or property held as a
reserve source of materials shall be included in the factor. For example, a
plant temporarily idle or raw material reserves not currently being processed
are includible in the factor. Property or equipment under construction during
the income year (except inventoriable goods in the process) shall be excluded
from the factor until such property is actually used in the regular course of
the trade or business of the taxpayer. If the property is partially used in the
regular course of the trade or business of the taxpayer while under
construction, the value of the property to the extent used shall be included in
the property factor. Property used in the regular course of the trade or
business of the taxpayer shall remain in the property factor until its
permanent withdrawal is established by an indentifiable event such as its
conversion to the production of nonbusiness income, its sale, or the lapse of
an extended period of time (normally, five years) during which the property is
held for sale.
EXAMPLE (A):
Taxpayer closed its manufacturing plant in State X and
held such property for sale. The property remained vacant until its sale one
year later. The value of the manufacturing plant is included in the property
factor until the plant is sold.
EXAMPLE (B):
Same as above except that the property was rented until
the plant was sold. The plant is included in the property factor until the
plant is sold.
EXAMPLE (C):
Taxpayer closed its manufacturing plant and leased the
building under a five-year lease. The plant is included in the property factor
until the commencement of the lease.
EXAMPLE (D):
The taxpayer operates a chain of retail grocery stores.
Taxpayer closed Store A, which was then remodeled into three small retail
stores such as a dress shop, dry cleaning, and barber shop, which were leased
to unrelated parties. The property is removed from the property factor on the
date the remodeling of Store A commenced.
(c) Property Factor. Consistency if
Reporting. In filing returns with this state, if the taxpayer departs from or
modifies the manner of valuing property, or of excluding or including property
in the property factor, used in returns for prior years, the taxpayer shall
disclose in the return for the current year the nature and extent of the
modification.
If the returns or reports filed by the taxpayer with all
states to which the taxpayer reports under the Uniform Division of Income for
Tax Purposes Act are not uniform in the valuation of property and in the
exclusion or inclusion of property in the property factor, the taxpayer shall
disclose in its return to this state the nature and extent of the
variance.
(d) Property
Factor. Numerator. The numerator of the property factor shall include the
average value of the real and tangible personal property owned and rented by
the taxpayer and used in this state during the income year in the regular
course of the trade or business of the taxpayer. Property in transit between
locations of the taxpayer to which it belongs shall be considered to be at the
destination for purposes of the property factor. Property in transit between a
buyer and seller which is included by a taxpayer in the denominator of its
property factor in accordance with its regular accounting practices shall be
included in the numerator according to the state of destination. The value of
mobile or movable property such as construction equipment, trucks or leased
electronic equipment which are located within and without this state during the
income year shall be determined for purposes of the numerator of the factor on
the basis of the total time within the state during the income year. An
automobile assigned to a traveling employee shall be included in the numerator
of the factor or in the numerator of the state in which the automobile is
licensed.
