RSA 12C-1.015 - Apportionment of Adjusted Federal Income
(1) For taxable years beginning on or after
January 1, 1991, corporations will apportion their adjusted federal income in
accordance with Section
RSA
220.15, F.S., only if they are doing business
within and without Florida. A taxpayer will be considered doing business within
and without this state if it has income from business activity which is taxable
both within and without Florida.
(a) In
determining whether or not a taxpayer is doing business within and without
Florida, a taxpayer will be considered doing business without this state if the
corporation is taxable in another state, provided:
1. That state subjects the business to a net
income tax, a franchise tax measured by net income, a franchise tax for the
privilege of doing business, or a corporate stock tax, or,
2. That state has jurisdiction to subject the
taxpayer to a net income tax regardless of whether, in fact, the state does or
does not.
(b)
1. States have the jurisdiction to impose an
income tax on any corporation that incorporates within their state. This is
true regardless of whether the corporation exists or conducts business within
their state. Therefore, corporations that have incorporated outside Florida may
apportion income in accordance with Section
RSA
220.15, F.S.
2. In general, whether a state has
jurisdiction to subject a Florida corporation to a net income tax is dependent
on whether the activities within the state fall within or without the
limitations prescribed under the due process or commerce clauses.
3. The jurisdiction of a state to impose a
net income tax is further limited by P.L. 86-272 ( 15 U.S.C. ss. 381 - 384 ),
which is incorporated by reference in Rule
RSA
12C-1.0511, F.A.C., P.L. 86-272 precludes a
state from taxing income from interstate commerce if a corporation's only
business activity in the state is the solicitation of orders for sales of
tangible personal property and the orders are approved and filled from outside
the state.
4. The taxation by
another state may also be limited by a de minimis exception. If the activity
within a state is de minimis, or the activity that goes beyond the mere
solicitation of orders for sales of tangible personal property is de minimis, a
state is precluded from imposing an income tax. Whether a particular activity
is a de minimis deviation from a prescribed standard must, of course, be
determined with reference to the specific activity and all the facts of a
specific case.
5. If no other state
may tax a Florida corporation because of jurisdictional limitations due to the
due process or commerce clauses, P.L. 86-272 (which is incorporated by
reference in Rule
RSA
12C-1.0511, F.A.C.), or de minimis
exceptions, the corporation will not be considered to be doing business within
and without Florida.
6. If another
state specifically rules that a Florida corporation is subject to a net income
tax, a franchise tax measured by net income, a franchise tax for the privilege
of doing business, or a corporate stock tax within that state, such ruling will
be prima facie evidence that the state does have jurisdiction to tax.
7. The fact that a corporation has
voluntarily filed a return and paid tax in another state will not be conclusive
proof that the state had jurisdiction to impose a corporate income
tax.
8. For purposes of determining
whether a corporation is doing business within and without the state when
engaged in foreign commerce, the state will determine taxability in a foreign
country as though the jurisdictional standards applicable to a state of the
United States applied to that country. Therefore, if a foreign country actually
imposes a tax measured by income on a corporation, the criteria of doing
business within and without the state will be met. The corporation will also
meet the criteria if when applying the standards of due process, the commerce
clause, and P.L. 86-272, which is incorporated by reference in Rule
RSA
12C-1.0511, F.A.C., the foreign country would
have jurisdiction to tax if it were a state of the United States.
(c) Once it is determined that a
corporation is subject to tax within another state or country, it may apportion
income using the property, payroll, and sales factors as prescribed in Section
RSA
220.15, F.S. The denominators of the
apportionment factors will include the property, payroll, and sales everywhere.
The denominators of the factors are not limited to only including the property,
payroll, and sales in states which actually tax or have the jurisdiction to
tax.
(d) There is no throwback rule
in Florida. That is, for a corporation that is doing business within and
without the state, the sales are not considered to be Florida sales solely
because the corporation is not subject to tax within another state.
(e) Sales to the United States government are
not treated differently from sales to individuals, partnerships, or
corporations. That is, if the sale is tangible personal property and the
delivery is within Florida, the sale will be considered a Florida sale. If it
is delivered outside the state, it will not be considered a Florida
sale.
(2) If a taxpayer
is not considered to be doing business within and without Florida under
subsection (1), all of its adjusted federal income will be subject to Florida
corporate income/franchise tax.
(3)
General Method.
(a) All corporations doing
business within and without Florida, except insurance companies, transportation
services, and taxpayers who have been given prior permission to use an
alternate method of apportioning income, are required by Section
RSA
220.15, F.S., to apportion their business
income to Florida based upon a three factor formula. Business income is
adjusted federal income.
(b) The
three factor formula measures Florida's share of adjusted federal income by
ratios of the taxpayer's property, payroll, and sales in Florida to total
property, payroll, and sales located or occurring everywhere. The general
method of apportionment is modified for financial organizations; that is, what
is included in the sales factor and property factor is modified for financial
organizations.
(4) Zero
in Numerator. In the event any of the factors has a numerator which is zero,
the Florida fraction for such factor shall be zero and the apportionment
fraction shall be the sum of the weighted fractions for the other factors.
Example: Corporation W had no property in Florida but the average value of its property everywhere in 1986 was $275,000. We's payroll in Florida in 1986 amounted to $75,000 and the total payroll everywhere was $125,000. W reported sales in Florida in 1986 of $5,000,000 and sales everywhere of $8,000,000. The apportionment fraction is computed as follows:
Property:
$0 | x.25 = 0 |
______ | |
$275,000 |
Payroll:
$75,000 | x.25 =.150000 |
________ | |
$125,000 |
Sales:
$5,000,000 | x.50 =.312500 |
________ | |
$8,000,000 |
Apportionment fraction =.462500
(5) All amounts related to nonbusiness
income, income related to ss. 78 and 862, I.R.C., (which are incorporated by
reference in Rule
RSA
12C-1.0511, F.A.C.) and any other income
which is not included in the adjusted federal income must be excluded from the
apportionment factors.
(6)
Consistency in reporting. If the taxpayer departs from or modifies the manner
of valuing property, or of excluding or including property in the property
factor; departs from or modifies the treatment of compensation paid used in
returns for prior years; or modifies the basis for excluding or including gross
receipts in the sales 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.
(7) Consolidated
Returns.
(a) Section
RSA
220.131(5), F.S., requires members of an
affiliated group which file a Florida consolidated income tax return to use the
general apportionment method prescribed by Section
RSA
220.15, F.S., unless an alternative method is
determined to be more appropriate by the Department of Revenue.
(b) In determining whether members of a
consolidated group are considered to be doing business within and without
Florida, the members will be considered as one "person." Therefore, if any
member of the group meets the criteria set in subsection (1) of this rule for
doing business within and without the state, the group will be entitled to use
the apportionment provisions provided by Section
RSA
220.15, F.S.
(c)
1. A
single consolidated apportionment factor is constructed for the group. The
property, payroll, and sales factors include the property, payroll, and sales
for all members of the consolidated group. The apportionment factors do not
just include the members that are doing business in Florida. The consolidated
apportionment factor constructed is then multiplied by the consolidated
adjusted federal income to determine the adjusted federal income apportioned to
Florida.
2. The members of the
affiliated group may not determine separate apportionment factors to apply to
their portion of the consolidated adjusted federal income.
(d) Where all members of the consolidated
group are subject to a special apportionment formula provided in Section
220.151, F.S., the consolidated group will determine a single consolidated
apportionment factor using the special formula. For example, where the
affiliated group is composed only of insurance companies, the apportionment
factor will be insurance premiums written in Florida for all members of the
consolidated group divided by insurance premiums written everywhere for all
members of the group. Cross reference: Rule
RSA
12C-1.0151, F.A.C.
(e) Where an affiliated group includes one or
more members which are transportation companies or insurance companies
permitted to use the single-factor formula under Section
RSA
220.151, F.S., together with members which
are not permitted to use the Section
RSA
220.151, F.S., formula, it is necessary to
give effect to the single-factor formula for the transportation or insurance
companies when determining the apportionment factor which will be used by the
affiliated group. Cross reference: Rule
RSA
12C-1.0151, F.A.C.
1. In such cases, the denominators of the
property, payroll, and sales factors for transportation or insurance companies
shall be determined according to the general provisions for determining the
denominators.
2. However, to
determine the apportionment factor under the three-factor formula, it is
necessary that the transportation or insurance company construct a numerator
for each of the factors, as follows:
a. The
numerator of the property factor shall be the denominator of the property
factor for the company determined under Sections
RSA
220.15(2) and (3), F.S., and Rule
RSA
12C-1.0153, F.A.C., multiplied by the
percentage derived from the appropriate single-factor prescribed in Section
RSA
220.151, F.S., for such company.
b. The numerator of the payroll factor shall
be the denominator of the payroll factor for the company determined under
Section
RSA
220.15(4), F.S., and Rule
RSA
12C-1.0154, F.A.C., multiplied by the
percentage derived from the appropriate single-factor prescribed in Section
RSA
220.15 1, F.S., for such company.
c. The numerator of the sales factor shall be
the denominator of the sales factor for the company determined under Section
RSA
220.15(5), F.S., and Rule
RSA
12C-1.0155, F.A.C., multiplied by the
percentage derived from the appropriate single-factor prescribed in Section
RSA
220.151, F.S., for such company.
3. The numerators constructed for
each of the factors under subparagraph 2., should be added with the numerators
of the other members of the affiliated group when determining the apportionment
factor which will be used by the affiliated group.
4. The resulting factors shall be weighted as
specified in Section
RSA
220.15(1), F.S., to determine the
apportionment percentage to be used by the affiliated group in determining the
portion of the affiliated group's business income apportioned to
Florida.
(8)
Method for Financial Organizations. When apportioning the income of a financial
organization, a taxpayer will use the three factor apportionment formula
described in Section
RSA
220.15, F.S. The payroll factor is identical
to that applied to every industry. The requirements are set forth in Section
RSA
220.15 (4), F.S. However, the sales and
property factors of a financial organization are calculated differently from
those of a corporation selling real or tangible personal property.
(9) Any corporation whose only activity
consists of holding stock of corporations, bonds, or other securities; earning
interest on accounts maintained in banks, savings and loan associations, credit
unions, mutual funds, trusts; and holding mortgages on real and tangible
personal property will be required to modify the apportionment factors for
property and sales as if the corporation was a financial
organization.
(10) Partnerships.
The amounts of the property, payroll, and sales of a partnership are
attributable to the partners or members of the joint venture. A corporation
that is a partner in a partnership must add its share of the property, payroll,
and sales to its own apportionment factors, regardless of whether the
partnerships are Florida partnerships. Form F-1065 is used in part to
distribute to each partner subject to the tax its share of the apportionment
factors of the partnership or joint venture.
(11) If it appears to the Executive Director,
or the Executive Director's designee, that any agreement, understanding, or
arrangement exists between any taxpayers, or between any taxpayer and any other
person, which causes any taxpayer's income subject to tax to be reflected
improperly, or inaccurately, the Executive Director, or the Executive
Director's designee, is authorized to adjust the sales, property, and payroll
factors to properly reflect the net income of such taxpayer.
(12) Cross references: Rules
RSA
12C-1.0151, F.A.C. (special industries -
transportation and insurance); Rule
RSA
12C-1.0152, F.A.C. (other methods of
apportionment); Rule
RSA
12C-1.0153, F.A.C. (property factor); Rule
RSA
12C-1.0154, F.A.C. (payroll factor); Rule
RSA
12C-1.0155, F.A.C. (sales factor).
Notes
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