(a)
Payroll Factor. In General.
(1) The payroll
factor of the apportionment formula for each trade or business of the taxpayer
shall include the total amount paid by the taxpayer in the regular course of
its trade or business for compensation during the income year.
(2) The total amount "paid" to employees is
determined upon the basis of the taxpayer's accounting method. If the taxpayer
has adopted the accrual method of accounting, all compensation properly accrued
shall be deemed to have been paid. Notwithstanding the taxpayer's method of
accounting, at the election fo the taxpayer, compensation paid to employees may
be included in the payroll factor by used of the cash methods if the taxpayer
is required to report such compensation under such method for unemployment
compensation purposes.
The compensation of any employee on account of activities
which are connected with the production of nonbusiness income shall be excluded
from the factor.
EXAMPLE (A):
The taxpayer uses some of its employees in the
construction of a storage building which, upon completion, is used in the
regular course of taxpayer's trade or business. The wages paid to those
employees are treated as a capital expenditure by the taxpayer. The amount of
such wages is included in the payroll factor.
EXAMPLE (B):
The taxpayer owns various securities which 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 on Mr. X, an employee. The
salary paid to Mr. X is excluded from the payroll factor.
(3) The term "compensation" means wages,
salaries, commissions and any other form of remuneration paid to employees for
personal services. Payments made to an independent contractor or any other
person not properly classifiable as an employee are excluded. 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 such amounts constitute income to the recipient
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 benefits or services would
constitute income to the employees shall be made as though such employees were
subject to the Federal Internal Revenue Code.
(4) The term "employee" means
(A) any officer of a corporation,
or
(B) and individual who, under
the usual common-law rules applicable in determining the employer-employee
relationship, has the status if an employee. Generally, a person will be
considered to be an employee if he is included by the taxpayer as an employee
for purposes of the payroll taxes imposed by the Federal Insurance
Contributions Act; except that, since certain individuals are included within
the term "employees" in the Federal Insurance Contributions Act who would not
be employees under the usual common-law rules, it may be established that a
person who is included as an employee for purposes of the Federal Insurance
Contributions Act is not an employee for purposes of this
regulation.
(5) In filing
returns with this state, if the taxpayer departs from or modifies the treatment
of compensation paid 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 if Income for
Tax Purposes Act are not uniform in the treatment of compensation paid, the
taxpayer shall disclose in its return to this state the nature and extent of
the variance.
(b)
Payroll Factor. Denominator. The denominator of the payroll factor is the total
compensation paid everywhere during the income year. Accordingly, compensation
paid to employees whose services are performed entirely in a state where the
taxpayer is immune from taxation, for example, by Public Law
86-272, are
included in the denominator of the payroll factor.
EXAMPLE:
A taxpayer has employees in its state of legal domicile
(State A) and is taxable in State B. In addition the taxpayer has other
employees whose services are performed entirely in State C where the taxpayer
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 that taxpayer is not taxable in State C.
(c) Payroll Factor. Numerator. The numerator
of the payroll factor is the total amount paid in this state during the income
year by the taxpayer for compensation. The tests in Section
25133 to be applied in determining
whether compensation is paid in this state are derived from the Model
Unemployments Compensation Act. Accordingly, if compensation paid to employees
is included in the payroll factor by use of the cash method of accounting of if
the taxpayer is required to report such compensation under such methods for
unemployment compensation purposes, it shall be presumed that the total wages
reported by the taxpayer to this state for unemployment compensation purposes
constitutes compensation paid in this state except for compensation excluded
under paragraphs (2) and (4) of subsection (a). The presumption may be overcome
by satisfactory evidence that an employee's compensation is not properly
reportable to this state for unemployment compensation purposes.
