Cal. Code Regs. Tit. 18, § 25137-4-1 - Banks and Financial Corporations-Allocation and Apportionment of Income-for Income Years Beginning Before January 1, 1996

(a) Definitions.

(1) "Receipts" for sales factor purposes means gross income including net taxable gain on disposition of assets derived from transactions and activities in the regular course of the taxpayer's trade or business which produce business income.

(2) "Participation loans" means joint loans by more than one bank to a common borrower.

(3) "Business situs" shall be the place at which intangible personal property is employed as capital; or the place where the property is located if possession and control of the property is localized in connection with the taxpayer's business so that substantial use or value attaches to the property.

(b) Business and Nonbusiness Income. All income of banks and financial corporations shall be "business income" unless the income arises from an investment or activity which is not a banking function.

(c) Apportionment of Business Income.

The property, payroll and sales factors of the apportionment formula for banks and financial corporations 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) Property Factor.

(A) In General.

(i) Owned intangible personal property shall be included at its tax basis for federal income tax purposes. Goodwill shall not be included in the property factor.

(ii) Coin and currency shall be taken into account for property factor purposes.

(B) The numerator of the property factor shall include, in addition to items otherwise assigned thereto, the following:

(i) Coin and currency located in this state.

(ii) Intangible personal property owned and used in the business determined as follows:

(I) Assets in the nature of loans (including federal funds sold and banker's acceptances) and installment obligations shall be attributed to this state if the office of the bank or financial corporation at which the customer applied for the loan is located in this state except in cases where the loan is recognized by appropriate banking regulatory authority as being made from and as an asset of an office located in another state, in which case it shall be attributed to the state where that office is located. For purposes of this subclause, the word "applied" means initial inquiry (including customer assistance in preparing the loan application) or submission of a completed loan application, whichever occurs first in time.

(II) A participating bank's portion of a participation loan shall be attributed to this state if the office which enters into the participation is located in this state.

(III) Loans initiated through solicitation by traveling loan officers shall be attributed to this state if the office out of which such officer operates is located in this state except in cases where the loan is recognized by appropriate banking regulatory authority as being made from and as an asset of an office located in another state, in which case it shall be attributed to the state where that office is located.

(IV) Bank credit card and travel and entertainment credit card receivables shall be attributed to the state in which the credit card holder resides in the case of an individual or, if a corporation, to the state of the corporation's commercial domicile, provided the taxpayer is taxable in such state. If the taxpayer is not taxable in the state of the individual card holder's residence or commercial domicile of the corporate card holder, such receivables shall be attributed to this state if the taxpayer's commercial domicile is in this state.

(V) Investments of a bank in securities, the income from which constitutes business income, shall be attributed to its commercial domicile except that:

a. Securities used to maintain reserves against deposits to meet federal and state reserve deposit requirements shall be attributed to each state based upon the ratio that total deposits in the state bear to total deposits everywhere.

b. Securities owned by a bank but held by a state treasurer or other public official or pledged to secure public or trust funds deposited in such bank shall be attributed to the banking office at which such secured deposit is maintained.

(VI) Investments of a financial corporation in securities, the income from which constitutes business income, shall be attributed to its commercial domicile unless the securities have acquired a business situs elsewhere in which case they shall be attributed to the state of such situs.

(iii) Where the taxpayer leases tangible personal property to another the entire cost of such property shall be attributed to the state of the taxpayer's commercial domicile unless the taxpayer establishes, or the Franchise Tax Board is able to establish the location of such property in another state or states for the entire year and the taxpayer is taxable in the state or states where the property is located.

(2) Sales Factor. Numerator. The numerator of the sales factor shall include, in addition to items otherwise assignable, the following:

(A) Receipts from the lease or rental of tangible personal property shall be attributed to the state of the taxpayer's commercial domicile unless the taxpayer or the Franchise Tax Board is able to establish the location of such property in another state or states for the entire year and the taxpayer is taxable in the state or states where the property is located.

(B) Receipts from intangible personal property shall be included in the numerator as follows:

(i) Interest and other receipts from assets in the nature of loans (including federal funds sold and banker's acceptances) and installment obligations shall be attributed to this state if the office at which the customer applied for the loan is located in this state except in cases where the loan is recognized by appropriate banking regulatory authority as being made from and as an asset of an office located in another state, in which case it shall be attributed to the state where that office is located. For purposes of this clause, the word "applied" means initial inquiry (including customer assistance in preparing the loan application or submission of a completed loan application) whichever occurs first in time.

(ii) Interest income from a participating bank's portion of participation loan shall be attributed to this state if the office which enters into the participation is located in this state.

(iii) Interest income from loans solicited by traveling loan officers shall be attributed to this state if the office out of which such officer operates is located in this state except in cases where the loan is recognized by appropriate banking regulatory authority as being made from and as an asset of an office located in another state, in which case it shall be attributed to the state where that office is located.

(iv) Interest or service charges from bank, travel and entertainment credit card receivables and credit card holders' fees shall be attributed to the state in which the credit card holder resides in the case of an individual or, if a corporation, to the state of the corporation's commercial domicile, provided the taxpayer is taxable in such state. If the taxpayer is not taxable in the state of the individual card holder's residence or commercial domicile of the corporate card holder, the receipts shall be attributed to the state of the taxpayer's commercial domicile.

(v) Merchant discount income derived from bank and financial corporation credit card holder transactions with a merchant shall be attributed to the state in which the merchant is located, provided the taxpayer is taxable in such state. If the taxpayer is not taxable in the state in which the merchant is located, the merchant discount income shall be attributed to the state in which the taxpayer's commercial domicile is located.

(vi) Receipts for the performance of fiduciary services are attributable to this state if the services are principally performed in this state.

(vii) Receipts from investments of a bank in securities, the income from which constitutes business income, shall be attributed to its commercial domicile except that:

(I) Receipts from securities used to maintain reserves against deposits to meet federal and state reserve deposit requirements shall be attributed to each state based upon the ratio that total deposits in the state bear to total deposits everywhere.

(II) Receipts from securities owned by a bank but held by a state treasurer or other public official or pledged to secure public or trust funds deposited in such bank shall be attributed to the banking office at which such secured deposit is maintained.

(viii) Receipts (fees or charges) from the issuance of travelers checks and money orders shall be attributed to the state where the taxpayer's office is located that issued the travelers checks. If the travelers checks are issued by an independent representative or agent of the taxpayer, the following rules apply:

(I) If the taxpayer is taxable in the state in which the independent representative or agent issues the travelers checks or money orders, the receipts (fees or charges) shall be attributed to that state.

(II) If the taxpayer is not taxable in the state in which the independent representative or agent issues the travelers checks or money orders, the receipts (fees or charges) shall be attributed to the state of commercial domicile of the taxpayer.

(ix) Receipts from investments of a financial corporation, the income from which constitutes business income, shall be attributed to its commercial domicile unless the securities have acquired a business situs elsewhere in which case they shall be attributed to the state of such situs.

(d) This regulation applies to income years beginning on or after January 1, 1973 and beginning before January 1, 1996.

Notes

Cal. Code Regs. Tit. 18, § 25137-4-1

1. Editorial correction renumbering and amending former Section 25137(j) to Section 25137-4 filed 3-27-85; effective upon filing pursuant to Government Code Section 11346.2(d) (Register 85, No. 13). For prior history, see Registers 82, No. 46 and 82, No. 28. OK,
2. Renumbering of Section 25137-4 to 25137-4 - 1, amendment of section heading, new subsection (d) and amendment of NOTE filed 3-21-96; operative 4-20-96 (Register 96, No. 12).

Note: Authority cited: Section 19503, Revenue and Taxation Code. Reference: Section 25137, Revenue and Taxation Code.

1. Editorial correction renumbering and amending former Section 25137(j) to Section 25137-4 filed 3-27-85; effective upon filing pursuant to Government Code Section 11346.2(d) (Register 85, No. 13). For prior history, see Registers 82, No. 46 and 82, No. 28. OK,
2. Renumbering of Section 25 1 37-4 to 25137-4-1, amendment of section heading, new subsection (d) and amendment of Note filed 3-21-96; operative 4-20-96 (Register 96, No. 12).