Ala. Admin. Code r. 810-2-7-.05

Current through Register Vol. 43, No. 1, October 31, 2024

Section 810-2-7-.05 - Determination Of Qualifying Project Income

(1) Scope. This regulation applies to the method by which a Reporting Company shall specify the method by which income generated by or arising out of a Qualifying Project will be determined.

(2) Definitions. The following terms have the meaning ascribed to them for purposes of this regulation, unless the context clearly indicates otherwise.

(a) Project Property Factor. The Project Property Factor is a fraction, the numerator of which is the total average Project property in Alabama owned during the tax period by the Investing Company, and the denominator of which is the total average property in Alabama (generally, the numerator of the property factor in the Alabama income tax return) during the tax period. The numerator of this Project factor shall be computed in a like manner as provided for the property factor in Chapter 27 of Title 40.

(b) Project Payroll Factor. The Project Payroll Factor is a fraction, the numerator of which is the total amount paid in Alabama during the tax period by the Investing Company for compensation paid those employees employed at the Qualifying Project site, and the denominator of which is the Total Compensation paid in Alabama for the production of business income (generally, the numerator of this Project factor shall be computed in a like manner as provided for the payroll factor in Chapter 27 of Title 40.

(c) Project Sales Factor. The Project Sales Factor is a fraction, the numerator of which is the total Project sales in Alabama made during the tax period by the Corporation, and the denominator of which is the total sales in Alabama (generally, the numerator of the sales factor in the Alabama income tax return) during the tax period. The numerator of this Project factor shall be computed in a like manner as provided for the sales factor in Chapter 27 of Title 40.

(3) Purpose. the purpose of this regulation is to provide guidelines necessary to determine the income generated by and arising out of the Qualifying Project.

(4) Procedure. The Department of Revenue and the Reporting Company shall agree in writing to use one of the following methods to determine income generated by or arising out of the Qualifying Project:

(a) Two Factor Method. Where the Project is a Headquarters Facility or has sales from the Project's operations principally to affiliated or related Persons or; has no sales of its own, the Reporting Company will apportion the total amount of its Alabama taxable apportionable income, including related federal income tax deduction, to the Project by multiplying the income by a fraction, the numerator of which is the Project's property factor plus the Project's payroll factor, and the divisor of which is two (2). If any factor is not used in the production of business income, it shall be eliminated and the divisor reduced accordingly. Form AR which shows the two factor calculations shall be filed with the project entity's income tax return to reflect the income generated by or arising out of the project.

(b) Three Factor Method. Where the Project has sales from the Project's operations principally to unaffiliated or unrelated Persons, the Reporting Company will apportion the total amount of its Alabama taxable apportionable income, including related federal income tax deduction, to the Project by multiplying the income by a fraction, the numerator of which is the Project's property factor plus the Project's payroll factor plus the Project's sales factor, and the divisor of which is three (3). If any factor is not used in the production of business income, it shall be eliminated and the divisor reduced accordingly. Form AR which shows the three factor calculations shall be filed with the project entity's income tax return to reflect the income generated by or arising out of the project.

(c) Separate Accounting. If the methods listed above do not effectuate an equitable determination income generated by or arising out of the Qualifying Project, in a fair and equitable manner, the Reporting Company may request or the Department may require such income to be calculated using a separate accounting method. The Reporting Company will determine the total amount of the Qualifying Project's income, including the related federal income tax deduction, allocable to the Project by sing a separate accounting method, agreed upon by the Department. Such separate accounting method will require the accounting and related records to be maintained in a manner showing the Project's separate income and operations in Alabama and utilize "arm's length" pricing to the sales of good or services between the Project and either affiliated legal entities or other accounting units in the Corporation. Form AR shall be filed with the project entity's income tax return to reflect the income generated by or arising out of the project.

(5) The Reporting Company will indicate the preference of the two factor method, three factor method, or a separate accounting method when filing the statement of intent (FORM INT) with the Department. After the statement of intent (Form INT) has been filed indicating which method is preferred, the Alabama Department of Revenue will initiate an agreement outlining the appropriate method of accounting to be used at the project. This agreement shall serve as the written agreement required by Section 40-18-192, Code of Ala. 1975, as amended, between the Department of Revenue and the Investing Company or Companies specifying the method by which income generated by or arising out of the Project will be determined.

(6) Record Keeping Requirements. Each Investing Company receiving a Capital Credit shall maintain or caused to be maintained records with respect to the Qualifying Project sufficient to allow the income of the Investing Company to be identified separately from other income of such Investing Company subject to Alabama income taxation.

(7) Year to Year Consistency. In filing income tax with Alabama, the Investing Company shall not depart from or modify the accounting treatment of any material component used in computing the income tax credit without the prior written consent from the Department. The taxpayer shall show the nature and extent of the modification in the return for the year in which the change occurs.

Authors: Verlon Frost, Melody Moncrief, Jeff Taylor

Ala. Admin. Code r. 810-2-7-.05

New Rule: Filed June 17, 1996; effective July 22, 1996. Amended: Filed January 26, 1998; effective March 2, 1998.

Statutory Authority:Code of Ala. 1975, §§ 40-2A-7(A)(5), 40-18-197.