AIRLINES – SINGLE SALES FACTOR
Special Regulation 1A
The following special regulations are established in respect to the allocation and apportionment of income for airlines.
I. Single Sales Factor Apportionment. For tax years beginning on or after January 1, 2009, a taxpayer must allocate its nonbusiness income pursuant to subsection (A) and (B) and apportion its business income using the sales factor set forth in subsection (D), below. A taxpayer cannot use this single sales factor apportionment methodology for tax years beginning before January 1, 2009.
A. In General. An airline that has income from sources both within and without Colorado shall determine income in accordance with this regulation. Income shall first be categorized as to "business" or "nonbusiness" income pursuant to regulation 39-22-303.5.1A. Nonbusiness income will be directly allocated to specific states in accordance with §39-22-303.5 C.R.S.. Business income will be apportioned to those states in which business is conducted based on the apportionment factor(s) as set forth in this regulation.
B. Definitions:
1. Business and Nonbusiness Income. For definitions and rules for determining business and nonbusiness income, see Regulation 39-22-303.5.1A.
2. "Value" of owned real and tangible personal property shall mean its original cost.
3. "Cost of aircraft by type" means the average original cost or value of aircraft by type which are ready for flight.
4. "Original cost" means the initial federal tax basis of the property plus the value of capital improvements to such property, except that, for this purpose, it shall be assumed that Safe Harbor Leases are not true leases and do not affect the original initial federal tax basis of the property.
5. "Average value" of the property means the amount determined by averaging the values at the beginning and ending of the income year, but the department may require the averaging of monthly values during the income year if such averaging is necessary to reflect properly the average value of the airline's property.
6. The "value" of rented real and tangible personal property means the product of eight (8) times the net annual rental rate.
7. "Net annual rental rate" means the annual rental rate paid by the taxpayer.
8. "Property used during the income year" includes property which is available for use in the taxpayer's trade or business during the income year.
9. "Aircraft ready for flight" means aircraft owned or acquired through rental or lease (but not interchange) which are in the possession of the taxpayer and are available for service on the taxpayer routes.
10. "Revenue service" means the use of aircraft ready for flight for the production of revenue.
11. "Transportation revenue" means revenue earned by transporting passengers, freight and mail as well as revenue earned from other charges associated with transportation such as baggage fees, sales of food and drink, pet crate rentals, etc.
12. "Departures" means, for purposes of these regulations, all takeoffs, whether they be regularly scheduled or charter flights, that occur during (n) 13. “Revenue”, unless otherwise required by context means gross sales or gross receipts.
C. Apportionment of Business Income. The same method in the reporting of items for all factors must be consistent for both the numerator and denominator. For tax years beginning on or after January 1, 2009, the taxpayer shall apportion business income using only the sales factor.
D. The Sales Factor. The transportation revenue derived from transactions and activities in the regular course of the trade or business of the taxpayer and miscellaneous sales of merchandise, etc., are included in the denominator of the sales factor. Passive income items such as interest, rental income, dividends, etc., will not be included in the denominator nor will the proceeds or net gains or losses from the sale of aircraft be included. The numerator of the sales factor is the total revenue of the taxpayer in the State during the income year. The total revenue of the taxpayer in this state during the income year is the result of the following calculation:
The ratio of departures of aircraft in this state weighted as to the cost and value of aircraft by type, as compared to total departures similarly weighted multiplied by the total transportation revenue. The product of this calculation is to be added to any non-flight revenues directly attributable to this state
(3) Records. The taxpayer must maintain the records necessary to arrive at departures by type of aircraft as used in these regulations. Such records are to be subject to review by the respective state taxing authorities or their agents.
EXAMPLES OF THE MANNER IN WHICH THIS REGULATION WOULD APPLY TO SPECIFIC FACT SITUATIONS
Example 1: Assume the following facts for an airline for a tax year:
1. It has ten 747s ready for flight and in revenue service at an average cost per unit of $40,000,000 for nine of the aircraft. It rents the tenth 747 from another airline for $9,000,000 per year. At eight times rents, the latter is valued at $72,000,000 for apportionment purposes. The total 747 valuation is, therefore, $432,000,000.
2. It has twenty 727s ready for flight in revenue service at an average cost per unit of $20,000,000. The total 727 valuation is, therefore, $400,000,000.
3. From its operations, it has total receipts of $50,000,000, business net income of $1,000,000, and no nonbusiness income.
4. It has the following within state X:
a. 10% of its 747 flight departures (.10 x $432,000,000) $43,200,000
b. 20% of its 727 flight departures (.20 x $400,000,000) $80,000,000
5. State X has a corporate tax rate of 10%. The airline's tax liability to state X would be determined as follows:
Sales Factor:
(43,200,000 (747s) + 80,000,000 (727s) = 123,200,000 = .1481
(432,000,000 + 400,000,000) 832,000,000
Taxable Income in State X: 0.1481 x $1,000,000 = $148,100
Tax Liability to State X: .10 x $148,100 = $14,810
Example 2: Same facts except that paragraphs 4 and 5 are changed to read:
4. It has the following within state Y:
a. 6% of its 747 flight departures (.6 x $432,000,000) $25,920,000
b. 31% of its 727 flight departures (.31 x $400,000,000) $124,000,000
5. State Y has a corporate tax rate of 6.5%.
The airline's tax liability to state Y would be determined as follows:
Sales Factor:
25,920,000 (747s) + 124,000,000 (727s) = 149,920,000 = .1802
432,000,000 + 400,000,000 832,000,000
Taxable Income in State Y: .1802 x $1,000,000 = $180,200
Tax Liability to State Y: .065 x $180,200 = $11,713.
E. Alternative Methodologies. If the apportionment and allocation provisions of this methodology do not fairly represent the extent of the taxpayer’s activities in Colorado, the taxpayer may petition for, or the director may require, with respect to all or any part of the taxpayer’s business activities, if reasonable, alternative methodologies as set forth in §39-22-303.5(7)(B), C.R.S.
CONTRACTORS – SINGLE SALES FACTOR
Special Regulation 2A
The following special regulation applies to contractors who elect to report income using the completed contract method; provided, however, that, with respect to contracts with a gross revenue of $100,000 or less, such regulations shall apply only at the option of the taxpayer.
I. Single Sales Factor Apportionment. For tax years beginning on or after January 1, 2009, a taxpayer must allocate its nonbusiness income pursuant to §39-22-303.5(5) C.R.S. and apportion its business income using the sales factor set forth in this regulation. A taxpayer cannot use this single sales factor apportionment methodology for tax years beginning before January 1, 2009.
A. In General. A contractor who has income from sources both within and without Colorado and elects to report income using the completed contract method shall determine income in accordance with this regulation. Net income shall first be categorized as to "business" or "non-business" and non-business income will be directly allocated to specific states in accordance with §39-22-303.5(5) C.R.S. and the regulations thereunder. Gross profits from completed contracts, business administrative income and business administrative expense will be apportioned to those states in which business is conducted based on the sales factor as set forth in this regulation. The amount of net income subject to tax by Colorado will be the sum of (1) the gross profit from completed contracts apportioned to Colorado less business administrative expense apportioned to Colorado plus (2) other business income apportioned to Colorado that is not directly attributable to completed contracts plus (3) the amount of non-business income allocated to Colorado.
B. General Definitions.
1. "Job" means a long-term contract entered into to build, construct, install or manufacture which will not be completed within the tax year in which it is entered into. As used in this regulation a "job" will refer to only those contracts where a taxpayer elects to report income using the completed contract method.
2. "Job Revenue" means gross revenue recorded on the books in accordance with generally accepted accounting principles. Billings shall be adjusted for overbillings or underbillings whenever applicable.
3. "Job Costs" means costs recorded on the books as being paid or accrued that are directly attributable to a specific job.
4. "Job Profit or Loss" means the gross profit or loss attributable to a specific job, which is determined by subtracting "Job Costs" from "Job Revenue".
5. "Gross Profit Apportioned to Colorado" means Colorado's share of the sum of "Job Profits and Losses" of all jobs completed during a specific tax period.
6. "Administrative Expense Apportioned to Colorado" means Colorado's share of expense not directly attributable to a specific job.
7. “Revenue”, unless otherwise required by context means gross sales or gross receipts.
C. Business and Non-business Income. For definitions and rules for determining business and non-business income, see Regulation 39-22-303.5.1(A).
D. Apportionment Factor. The taxpayer shall apportion business income using the sales factor.
1. The Sales Factor. All revenue derived from transactions and activities in the regular course of the trade or business of the taxpayer is included in the denominator of the sales factor. The numerator of the sales factor is the total revenue of the taxpayer in this state during the tax year. When determining the denominator and numerator of the sales factor, revenue directly attributable to contract jobs shall be included in the tax year on the basis of progress billings and receipts from completed and incomplete contracts. When determining the numerator, the typical computation would be:
Total contract price for all jobs completed in this state during the tax year...... $ XXXXXX.
Plus
Total progress payments billed or received
for all incomplete jobs in this state at the end of the tax year...... $ XXXXXX.
Less
Total progress payments billed or received in prior tax years for the above completed and incomplete jobs in this state...... $(XXXXXX.)
Equals
Total revenue directly attributable to all jobs in this state during the tax year...... $ XXXXXX.
Add
Revenue from other business activities in this state not directly attributable to jobs. $ XXXXXX.
Numerator $ XXXXXX
The denominator of the sales factor would be computed in the same manner for all jobs everywhere and includes all other revenue from business activities not directly attributable to contract jobs.
E. Apportionment of Income and Expense. Once the sales factor has been determined, income and expense shall be apportioned to this state as set forth in this regulation.
1. Gross Profit. The gross profit of each and all jobs completed during the tax year shall be apportioned to this state by the sales factor.
2. Administrative Expense. Administrative expense not directly attributable to jobs and not directly related to allocated income shall be apportioned to Colorado by the sales factor.
3. Other Business Income. Other business income not directly attributable to jobs shall be apportioned to Colorado by the sales factor.
F. Colorado Taxable Income.
Gross profit apportioned to Colorado from all jobs completed during the tax year...... $ XXXXX
Less
Administrative expense apportioned to Colorado...... ($ XXXXX)
Plus
Other business income apportioned to Colorado not directly related to jobs...... $.XXXXX
Equal
Total taxable income apportioned to Colorado...... $ XXXXX
Add
Non-business income allocated to Colorado...... $ XXXXX
Colorado Taxable Income...... $ X XXXX
G. Alternative Methodologies. If the apportionment and allocation provisions of this methodology do not fairly represent the extent of the taxpayer’s activities in Colorado, the taxpayer may petition for, or the director may require, with respect to all or any part of the taxpayer’s business activities, if reasonable, alternative methodologies as set forth in §39-22-303.5(7)(B), C.R.S.
PUBLISHING – SINGLE SALES FACTOR
Special Regulation 3A
When a person in the business of publishing, selling, licensing or distributing newspapers, magazines, periodicals, trade journals or other printed material has income from sources both within and without this state, the amount of business income from sources within this state from such business activity shall be determined using the apportionment and allocations rules set forth below.
I. Single Sales Factor Apportionment. For tax years beginning on or after January 1, 2009, a taxpayer must apportion its business income using the sales factor set forth in this regulation. A taxpayer cannot use this single sales factor apportionment methodology for tax years beginning before January 1, 2009.
A. In General: Except as specifically modified by this regulation, when a person in the business of publishing, selling, licensing or distributing newspapers, magazines, periodicals, trade journals or other printed material has income from sources both within and without this state, the amount of business income from sources within this state from such business activity shall be determined pursuant to §39-22-303.5, C.R.S, and the regulations adopted thereunder.
B. Allocation of non-business income. Income shall first be categorized as to "business" or "nonbusiness" income pursuant to regulation 39-22-303.5.1A and nonbusiness income will be directly allocated to specific states in accordance with §39-22-303.5(5) and regulations thereunder. Business income will be apportioned to those states in which business is conducted based on the apportionment factor as set forth in this regulation. The amount of net income subject to tax by Colorado will be the sum of (1) the amount of nonbusiness income allocated to Colorado plus (2) the amount of business income attributable to Colorado.