Ala. Admin. Code r. 810-27-1-4-.15

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

Section 810-27-1-4-.15 - Sales Factor

(a) Sales Factor: In General.

(1) Section 40-27-1, Article IV.1(g) defines the term "sales" to mean all gross receipts of the taxpayer not allocated under paragraphs (5) through (8) of Section 40-27-1, Article IV. Thus, for the purposes of the sales factor of the apportionment formula, the term "sales" means generally all gross receipts derived by the taxpayer from transactions and activity in the course of its regular trade or business operations which produce business income within the meaning of paragraph (1)(a) of Section 40-27-1, Article IV. The following are rules for determining "sales" in various situations:

(A) 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 (or other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the tax period) 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 all interest income, service charges, carrying charges, or time-price differential charges incidental to such sales. Federal and state excise taxes (including sales taxes) shall be included as part of such receipts if the taxes are passed on to the buyer or included as part of the selling price of the product.

(B) In the case of cost plus fixed fee contracts, such as the operation of a government-owned plant for a fee, "sales" includes the entire reimbursed cost plus the fee.

(C) In the case of a taxpayer engaged in providing services, such as the operation of an advertising agency or the performance of equipment service contracts or research and development contracts, "sales" includes the gross receipts from the performance of such services, including fees, commissions, and similar items.

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

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

(F) If a taxpayer derives receipts from the sale of equipment used in its business, those receipts constitute sales. For example, a truck express company owns a fleet of trucks and sells its trucks under a regular replacement program. The gross receipts from the sales of the trucks are included in the sales factor.

(2) Exceptions. In some cases certain gross receipts should be disregarded in determining the sales factor in order that the apportionment formula will operate fairly to apportion to this state the income of the taxpayer's trade or business. See Regulation 810-27-1-4-.18(c).

(3) Year to year consistency. In filing returns with this state, if the taxpayer departs from 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.

(4) State to state consistency. If the returns or reports filed by the taxpayer with all states to which the taxpayer reports under Article IV of the Multistate Tax Compact or the Uniform Division of Income for Tax Purposes Act are not uniform in the inclusion or exclusion of gross receipts, the taxpayer shall disclose in its return to this state the nature and extent of the variance.

(b) Sales Factor: Denominator. The denominator of the sales factor shall include the total gross receipts from sales, except receipts excluded under Regulation 810-27-1-4-.18(c).

(c) Sales Factor: Numerator. The numerator of the sales factor shall include gross receipts from sales attributable to this state. All interest income, service charges, carrying charges, or time-price differential charges incidental to such gross receipts shall be included regardless of (1) the place where the accounting records are maintained or (2) the location of the contract or other evidence of indebtedness.

(d) Sales Factor: Under the Completed Contract Method of Accounting. For taxpayers utilizing the completed contract method of reporting income, the receipts from such contracts completed during the tax period shall be included in the sales factor. Other receipts not directly attributable to the completed contracts shall be included in the sales factor as otherwise provided in this regulation.

Author: Peter M. Petrillo, Jr.

Ala. Admin. Code r. 810-27-1-4-.15

Filed with LRS March 22, 1994. New Rule: Filed June 10, 1994; effective July 15, 1994.

Statutory Authority:Code of Ala. 1975, §§ 40-2A-7(a)(5), 40-18-57.