(1) In General.
(a) The payroll factor of the apportionment
formula shall include the total amount paid by the taxpayer in the regular
course of its trade or business for compensation during the tax
period.
(b) 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 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. The compensation of any employee
on account of activities which are connected with the production of nonbusiness
earnings shall be excluded from the factor.
Example 1: The taxpayer used 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 2: 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 of Mr. X, an
employee. The salary paid to Mr. X is excluded from the payroll factor.
(c) 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.
(d) 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; 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 rule,
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.
(2)
Denominator. The denominator of the payroll factor is the total compensation
paid everywhere during the tax period. 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, is 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 the taxpayer is not taxable in State C.
(3) Numerator. The numerator of
the payroll factor is the total amount paid in this state during the tax period
by the taxpayer for compensation. The tests in T.C.A. §
67-4-2012 to be
applied in determining whether compensation is paid in this state are derived
from the Model Unemployment Compensation Act. Accordingly, if compensation paid
to employees is included in the payroll factor by use of the cash method of
accounting or if the taxpayer is required to report such compensation under
such method for unemployment compensation purposes, it shall be presumed that
the total wages reported by the taxpayer to this state for unemployment
compensation purposes constitute compensation paid in this state except for
compensation excluded under Rule
1320-06-01-.30. The presumption may be
overcome by satisfactory evidence that an employee's compensation is not
properly reportable to this state for unemployment compensation
purposes.
(4) Zero Denominator. In
the use of any apportionment formula, where the denominator of a factor is
zero, such factor must be eliminated entirely and the average then computed
from the remaining factor or factors.
Notes
Tenn. Comp. R. & Regs. 1320-06-01-.30
Original
rule certified June 7, 1974. Repealed and refiled July 22, 1977; effective
August 22, 1977. Amendment filed November 6, 1984; effective December 6, 1984.
Amendments filed June 28, 2016; effective
9/26/2016.
Authority: T.C.A. §§
67-1-102(a),
67-1-102, 67-4-811, 67-4-2012.
