6.26 Ark. Code R. 51-718(d)
Every taxpayer operating a pipeline for the transportation of oil or gas both inside and outside of Arkansas shall apportion its net operating income attributable to Arkansas by multiplying the net income by a fraction, the numerator of which is the property factor plus the payroll factor plus double the sales factor and the denominator of which is four.
Property factor - The property factor is a fraction, the numerator of which is the average value of the taxpayer's real and personal property owned or rented and used in Arkansas and the denominator of which is the average value of all the taxpayer's real and personal property owned or rented during the tax year.
Average value of the property owned by the taxpayer means the average of the original cost of the property at the beginning and ending of the tax year. Rental property is valued at eight times the net annual rental.
Payroll factor - The payroll factor is a fraction, the numerator of which is compensation paid for services performed entirely within Arkansas plus a ratable part of compensation paid for services performed both inside and outside of Arkansas, based on the total number of barrel or unit miles in Arkansas, divided by the total barrel or unit miles system wide and the denominator of which is the total compensation paid everywhere during the tax year.
Sales factor - The sales factor is a fraction, the numerator of which is the total sales within Arkansas plus a proportionate part of system revenue earned in Arkansas determined on the basis of the total barrel or unit miles within Arkansas to the total barrel or unit miles in the system during the tax year, and the denominator of which is the total revenue everywhere during the tax year.
Example: Pipeline Company
Property Factor:
Total Property | $1,000,000 |
Arkansas Property | $ 100,000 |
($100,000 ÷,000,000) = 10.000000%
Payroll Factor: (Assuming one pipeline and constant volume)
Total Payroll | $ 200,000 |
Multistate Payroll | $ 100,000 |
Arkansas Payroll | $ 20,000 |
Total Barrels | 500,000 |
Arkansas Barrels | 50,000 |
Total Pipeline Miles | 1,000 |
Arkansas Pipeline Miles | 100 |
$20,000 + ([50,000 x 100 miles] ÷ [500,000 x 1,000 miles] x $100,000) ÷ $200,000 = ($20,000 + $1,000) ÷ $00,000 = 10.500000%
Sales Factor:
Total Sales | $1,000,000 |
Arkansas Sales | $ 200,000 |
Multistate Sales | $ 500,000 |
Barrel Miles Ratio (from the payroll factor) | .01 |
$200,000 + (.01 x $500,000) ÷ $1,000,000 = 20.500000% x 2 = 41.000000%
Apportionment Factor:
10% (property) + 10.5% (payroll) + 41% (sales) = 61.5%
61.500000% ÷ 4 = 15.375000%
$100,000 (net operating income) x 15.375000% = $15,375
6.26 Ark. Code R. 51-718(d)