(a) Definition. The term "business of
franchising" means a trade or business which includes the granting of a license
by the taxpayer (franchisor) of a trademark, trade name or service mark, to
market or use a product or service under such trademark, trade name or service
mark in accordance with methods and procedures prescribed by the
taxpayer.
(b) Apportionment of
Business Income. Apportionment Factors. The property, payroll and sales factors
of the apportionment formula for franchisors shall be computed pursuant to
Sections
25128
through
25137
of the Revenue and Taxation Code and the regulations adopted pursuant thereto
except as provided in this regulation.
(1)
Payroll Factor. For purposes of determining the numerator of the payroll
factor, compensation paid to traveling employees regularly providing
administrative or advisory services at the franchisee's place of business shall
be determined on the basis of the ratio which the time spent in performing such
services in this state bears to the total time spent in performing such
services everywhere.
(2) Sales
Factor. For purposes of determining the numerator of the sales factor:
(A) The following receipts shall be
attributed to the state in which the franchisee's place of business is located
provided the taxpayer is taxable in such state:
(i) Fees received from the franchisee for
national or regional advertising placed by the franchisor.
(ii) Fees received for providing
administrative or advisory services.
(iii) Fees received for site investigation,
selection, and acquisition of a place of business, or potential place of
business, of the franchisee, or potential franchisee.
If the taxpayer is not taxable in the state in which the
franchisee's place of business is, or would have been, located, the receipts
shall be attributed to the state in which the principal office of the
taxpayer's employee or employees performing such services is located, except
that if such services are performed by an independent contractor the receipts
shall be attributed to the state of the taxpayer's commercial
domicile.
(B) Fees
or royalties received for the use of the franchisor's trademark, trade name or
service mark or the right to market a product or service shall be attributed to
the state in which the franchisee's place of business is located if the
taxpayer is taxable in such state. If the taxpayer is not taxable in the state
in which the franchisee's place of business is located, the receipts shall be
attributed to the state of the taxpayer's commercial
domicile.
