35 Miss. Code. R. 3-08-06-402.09 - Apportionment Factors

1. Property Factor Defined.

a. Except as otherwise provided, 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 tax period in the regular course of such trade or business. The term "real and tangible personal property" includes land, buildings, machinery, stock of goods, equipment, and other real and tangible personal property, but does not include such properties owned or rented and used for general and administrative functions, transportation equipment (automobiles, trucks, and trailers, aircraft and other mobile equipment), coin or currency, or properties used in the production of non-business or exempt income. The includable property in the property factor shall include the average net book value of property owned, plus the value of rented property computed as provided in the "valuation of rental property" portion of this section of the Regulation.

b. PROPERTY USED IN 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 tax period in the regular course of the trade or business of the taxpayer unless expressly excluded. Property held as reserves or standby facilities or property held as a reserve source of materials shall be included in the factor. Property or equipment under construction during the tax period (except inventoriable goods in 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 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 identifiable event such as conversion to the production of non-business income, its sale or its abandonment.

c. NUMERATOR. The numerator of the property factor shall include rented by the taxpayer and used in this state during the tax period 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 his property factor in accordance with his regular accounting practices shall be included in the numerator according to the state of destination. The value of transportation equipment such as automobiles, trucks and trailers, aircraft, etc. shall be excluded completely from the property factor.

d. DENOMINATOR. The denominator of the property factor is the total of such property described in the above three paragraphs wherever located during the tax year.

e. VALUATION OF OWNED PROPERTY.

i. Property owned by the taxpayer shall be valued at net book value.

As a general rule "net book value" is deemed to be the original cost of the property less the depreciation as reflected on the books of the taxpayer and includes the net book value of subsequent capital additions or improvements to the includable property as well as adjustment or partial disposition thereof, by reason of sale, exchange, abandonment, etc.

ii. Inventory of stock of goods shall be included in the factor in accordance with the valuation method acceptable for federal income tax purposes and used by the taxpayer for book purposes.

iii. Property acquired by gift or inheritance shall be included in the factor as its net book value as reflected on the books of the taxpayer.

f. VALUATION OF RENTED PROPERTY. Property rented by the taxpayer is valued at eight times the net annual rental rate. The net annual rental rate for any item of rented property is the annual rental rate paid by the taxpayer for such property, less the aggregate annual subrental rates paid by subtenants of the taxpayer.

g. SUBRENTALS. Subrents are not deducted when subrents constitute business income because the property which produces the subrents is used in the regular course of a trade or business of the taxpayer when it is producing such income.

h. ANNUAL RENTALS. "Annual rental rate" is the amount paid as rental for property for a 12-month period. Where property is rented for less than a 12-month period, the rent paid for the actual period of rental shall constitute the "annual rental rate" for the tax period. Where a taxpayer has rented property for a term of 12 or more months and the current tax period covers a period of less than twelve months, the rent paid for the short tax period shall be annualized. If the rental term is for less than 12 months, the rent shall not be annualized beyond its term. Rent shall not be annualized because of the uncertain duration when the rental term is on a month to month basis. Annual rent is the actual sum of money or other consideration payable, directly or indirectly, by the taxpayer or for its benefit for the used of the property. Leasehold improvements shall, for the purposes of the property factor, be treated as property owned by the taxpayer regardless of whether the taxpayer is entitled to remove the improvements or the improvements revert to the lessor upon expiration of the lease. Hence, the net book value of leasehold improvements shall be excluded in the factor.

i. AVERAGING PROPERTY. As a general rule the average value of property owned by the taxpayer shall be determined by averaging the values at the beginning and ending of the tax period. However, the Commissioner may require or allow averaging by monthly values, or other periodic values, if such method of averaging is required to property reflect the average values of the taxpayer's property for the tax period. Averaging by monthly values, or other periodic values, will generally be applied if substantial fluctuations in the values of the property exist during the tax period or where property is acquired after the beginning of the tax period or disposed of before the end of the tax period. Averaging with respect to rented property is achieved automatically by the method of determining the net annual rental rate of such property.

2. Payroll Factor Defined. Except as otherwise provided, 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 tax period. There shall be excluded from the payroll factor amounts paid as compensation for general and administrative functions and amounts paid for the production of non-business or exempt income.

a. PAID. 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 to have been paid. Notwithstanding the taxpayer's method of accounting, at the election of the taxpayer, compensation paid to employees may be included in the payroll factor by use of the cash method if the taxpayer is required to report such compensation under such method for unemployment compensation purposes.

b. COMPENSATION. The term "compensation" means wages, salaries, commissions and other form of remuneration paid to employees for personal services. 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. Payments made to an independent contractor or any other person for personal services rendered for the taxpayer may, with the approval or requirement of the Commission, be classified as compensation.

c. EMPLOYEES. Except as otherwise provided, the term "employee" means any officer of a corporation, or any individual who, under the usual common-law rules applicable in determining the employer-employee relationship, has the status of 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.

d. NUMERATOR. The numerator of the payroll factor is the total amount paid in this state during the tax period by the taxpayer for compensation.

e. DENOMINATOR. The denominator of the payroll factor is the total compensation paid everywhere during the tax period.

f. Compensation paid in this state. Compensation is paid in this state if any one of the following tests, applied consecutively, are met:

i. The employee's service is performed entirely within this state.

ii. The employee's service is performed both within and without the state, but the service performed without the state is incidental to the employee' s service within the state. The word "incidental" means any service which is temporary or transitory in nature, or which is rendered in connection with an isolated transaction.

g. If the employee's services are performed both within and without this state, the employee's compensation will be attributed to this state:

i. If the employee's base of operations is in the state; or

ii. If there is no base of operations in any instance in which some part of the service is performed, but the place from which the service is directed or controlled is in this state; or

iii. If the base of operations or the place from which the service is directed or controlled is not in any state in which some part of the service is performed but the employee's residence is in this state.

h. The term "base of operations" is the place of more or less permanent nature from which the employee starts his work and to which customarily returns in order to receive instructions from the taxpayer or communications from his customers or other persons or to replenish stock or other materials, repair equipment, or perform any other functions necessary to the exercise of this trade or profession at some other point or points. The term "place from which the service is directed or controlled" refers to the place from which the power to direct or control is exercised by the taxpayer.

3. Sales Factor Defined.

a. For the purpose of the sales factor of the apportionment formula for each trade or business of the taxpayer, the term "sales" means all gross receipts derived by the taxpayer from transactions and activity in the regular course of such trade or business during the tax period which have not been directly assigned, allocated or excluded as provided in this Regulation. The following are rules for determining "sales" in various situations:

i. In the case of a taxpayer engaged in manufacturing and selling or purchasing and reselling goods or products, "sales" includes all gross receipts from the sales of such goods or products held by the taxpayer primarily for sale to customers in the ordinary course of its trade or business. Gross receipts for this purpose means gross sales, less returns and allowances, and includes interest income, service charges, carrying charges, or time-priced differential charges incidental to such sales. Federal and state excise taxes (including sales taxes) shall be included as part of such receipts if such taxes are passed on to the buyer or included as part of the selling price of the product.

ii. In the case of cost plus fixed fee sales or service contracts, "sales" include the entire reimbursed cost, plus the fee.

iii. In the case of a taxpayer engaged in providing services, "sales" includes the gross receipts from the performances of such services including fees, commissions, and similar items.

iv. In the case of a taxpayer engaged in renting real and tangible property "sales" includes the gross receipts from the rental, lease, or licensing the use of the property.

v. In the case of a taxpayer engaged in the sale, assignment, or licensing of intangible personal property such as patents and copyrights, "sales" include the gross receipts therefrom.

vi. In the case of business income derived from interest and dividends, such receipts constitute "sales".

vii. In the case of business income derived from the sale of capital assets (sale of equipment used in business, sales of stocks, bonds, etc.), such receipts constitute "sales" but only to the extent of the gain realized from such sales.

b. SALES OF TANGIBLE PERSONAL PROPERTY ARE IN THIS STATE. Gross receipts from sales of tangible personal property (except sale to the United States Government) are in this state:

i. If the property is delivered or shipped to a purchase, within this state regardless of the f o. b. point or other conditions of sale, or

ii. If the property is shipped from an office, store, warehouse, factory, or other place of storage in this state and the taxpayer is not taxable in the state of the purchaser.

iii. Property shall be deemed to be delivered or shipped to a purchaser within this state if the recipient is located in this state, even though the property is ordered from outside this state.

iv. Property is delivered or shipped to a purchaser within the state if the shipment terminates in this state, even though the property is subsequently transferred by the purchaser to another state.

v. The term "purchaser within this state" shall include the ultimate recipient of the property if the taxpayer in this state, at the designation of purchases, delivers to or has the property shipped to the ultimate recipient within this state.

vi. When the property being shipped by a seller from the state of origin to a consignee in another state is diverted while en route to a purchaser in this state, the sales are in this state.

vii. If the taxpayer is not taxable in the state of the purchaser, the sale is attributed to this state if the property is shipped from an office, store, warehouse, factory, or other place of storage in this state.

viii. If a taxpayer, whose salesman operates from an office located in this state, makes a sale to a purchaser in another state in which the taxpayer is not taxable, and the property shipped directly by a third party to the purchaser, the following rules apply:

* If the taxpayer is taxable in the state from which the third party ships the property, then the sale is in such state.

* If the taxpayer is not taxable in the state from which the property is shipped, then the sale is in this state.

c. SALES OF TANGIBLE PERSONAL PROPERTY TO THE UNITED STATES GOVERNMENT ARE IN THIS STATE. Gross receipts from the sales of tangible personal property to the United States Government are in this state if the property is shipped from an office, store, warehouse, factory, or other place of storage in this state. For purposes of this Regulation, only sales for which the United States Government makes direct payment to the seller pursuant to the terms of a contract constitute sales to the United States Government. Thus, as a general rule, sales by a subcontractor to the prime contractor (the prime contractor being party to the contract with the United States Government) do not constitute sales to the United States Government.

d. SALES OTHER THAN SALES OF TANGIBLE PERSONAL PROPERTY ARE IN THIS STATE. SECTION 27-7-23(c)(3) provides for the inclusion in the numerator of the sales factor, gross receipts from transactions other than sales of tangible personal property (including transactions with the United States Government). Under this section gross receipts are attributed to this state if the income-producing activity is performed wholly within this state. Gross receipts, with respect to a particular item of income, derived from income-producing activity performed within and without this state shall be attributed to this state to the extent of such gross receipts which represent services or activities actually performed within this state.

e. INCOME-PRODUCING ACTIVITY DEFINED. The term "income-producing activity" applies to each separate item of income and means the transactions and activity directly engaged in by the taxpayer in the regular course of its trade or business for the ultimate purpose of obtaining gains or profits. Accordingly, the income-producing activity includes but is not limited to the following:

i. The rendering of personal services by employees or the utilization of tangible and intangible property by the taxpayer in performing a service.

ii. The performance, execution or subletting of a construction contract by the taxpayer to whom a construction contract has been awarded.

iii. The sale, rental, leasing, or licensing or other use of real property.

iv. The rental, leasing, licensing or other use of tangible personal property. v. The sale, licensing or otherwise of intangible personal property.

f. SPECIFIC APPLICATIONS. The following are special rules for determining when receipts from income-producing activities described below are in this state:

i. Gross receipts from the sale, lease, rental or licensing of real property are in this state if the real property is located in this state.

ii. Gross receipts from the rental, lease or licensing of tangible personal property are in this state if the property is located in this state. The rental, lease, licensing or other use of tangible personal property in this state is a separate income-producing activity from the rental, lease, licensing or other use of the same property while located in another state; consequently, if property is within and without this state during the rental, lease or licensing period, gross receipts attributable to this state shall be measured by a ratio of the time the property was physically present or was used in this state bears to the total time or use of the property everywhere during such period.

iii. Gross receipts for the performance of personal services are attributable to this state to the extent such services are performed in this state. Usually where services are performed partly within and partly without this state, the services performed in each state will constitute a separate income-producing activity; in such case the gross receipts for the performance of services attributable to this state shall be measured by a ratio of the time spent in performing such services in this state bears to the total time spent in performing services everywhere. Time spent in performing services includes the amount of time expended in the performance of a contract or other obligation which produced such gross receipts. Personal service not directly connected with the performance of the contract or other obligation, as for example, time expended in negotiating the contract, is excluded from the computation.

iv. In the case of a construction contract performed partly within and partly without this state, gross receipts attributable to this state shall be the amount of the construction contract allocable to Mississippi for Mississippi sales tax purposes.

g. NUMERATOR. The numerator of the sales factor shall include the gross receipts attributable to this state and derived by the taxpayer from transactions and activity in the regular course of its trade or business. All interest income, service charges, carrying charges, or time-price differential charges incidental to such gross receipts shall be included regardless of the place where the accounting records are maintained or the location of the contract or other evidence of indebtedness.

h. DENOMINATOR. The denominator of the sales factor shall include the total gross receipts derived by the taxpayer from transactions and activity in the regular course of its trade or business, except receipts directly assigned, allocated or excluded by the provision of this Regulation.

i. UNIFORMITY. It is the purpose and intent of this Regulation to include in both the numerator and denominator of the factors described in the above sections only those properties, payrolls and sales which are comparable.

Notes

35 Miss. Code. R. 3-08-06-402.09