Cal. Code Regs. tit. 18 § 25101

Current through Register 2024 Notice Reg. No. 23, June 7, 2024

Section 25101 - * Allocation of Income

(a) Apportionment and Allocation of Income in General. When a taxpayer has income from sources within the state as well as income from sources outside this state, the division of income and the resulting determination of the portion of the taxpayer's entire net income which has its source in this state shall be determined pursuant to the allocation and apportionment provisions set forth in sections 25120 to 25139, inclusive. When the business, whether carried on by a single corporation or by a group of affiliated corporations, conducted both within and without California is unitary in nature, the portion of the business income from that unitary business which is "derived from or attributable to sources within this State" must be determined by formula apportionment. In such cases, the first step is to determine which portion of the taxpayer's entire net income constitutes "business income" and which portion constitutes "nonbusiness income." The various items of nonbusiness income are then directly allocated to specific states pursuant to the provisions of sections 25124 to 25127, inclusive. The business income of the taxpayer is divided between the states in which the business is conducted pursuant to the apportionment formula set forth in sections 25128 to 25136, inclusive. The sum of (1) the items of nonbusiness income directly allocated to this state, plus (2) the amount of business income attributable to this state by the apportionment formula constitutes the amount of the taxpayer's entire net income which is subject to tax.

The taxpayer shall be consistent in classifying income as business or nonbusiness income in filing return or reports to all states to which the taxpayer reports under the Uniform Division of Income for Tax Purposes Act. In the event the taxpayer is not consistent in its reporting it shall disclose in its return to the state the nature and extent of the inconsistency.

The word "apportionment" generally refers to the division of business income between states by the use of an apportionment formula, and the word "allocation" generally refers to the assignment of nonbusiness income to a particular state.

(b) Sea Transportation. A taxpayer engaged in sea transportation service may derive income partly from sources within and partly from sources without the State. In determining the income subject to tax, the following formula allocation shall be employed.

Receipts Factor. The sales or gross receipts of a taxpayer from sea transportation shall include all receipts derived from carrying cargo, i.e., passengers, freight, mail, etc., and the receipts incidental thereto. The sales or gross receipts will be assigned to this State in the proportion that the number of voyage days the ship spent within this State during the tax period bears to the total number of days of voyages of the ship during the tax period.

Income from activities incidental to the transportation service, such as income from restaurants, locker rentals, etc., shall be assigned to the state or country in which the activity is carried on.

Payroll Factor. The payroll factor is a fraction, the denominator of which includes all compensation paid to officers and employees, including ocean-going personnel, such as wages, salaries, commissions and bonuses. The numerator of this factor shall include all compensation paid to officers and employees, other than ocean-going personnel to the extent that services of such officers and employees are performed for the taxpayer within this State; and, so much of the compensation of ocean-going personnel as is determined by applying a ratio of the number of voyage days which the ship was within this State bears to the total number of days of voyages of the ship during the tax period.

Property Factor. The property factor is a fraction, the denominator of which shall include all real and tangible personal property, including ships, owned by the taxpayer and used in the unitary business. The numerator of this factor shall include all real and personal property owned by the taxpayer and used in the unitary business, except ships, to the extent such assets are located in the State; and, so much of the value of ships used in the unitary business as is determined by applying a ratio of the number of voyage days which the ship was within this State bears to the total number of days of voyages of the ship during the tax period.

As used in this regulation the terms "voyage days" and "days of voyages of the ship" mean the days, or parts of days, that a ship is in operation for the purpose of transporting cargo, i.e., freight, mail, passengers, etc. The days that a ship is in operation include all sailing days, even though a ship is returning empty or is enroute to a port of call to load passengers or cargo, all days in port while loading and unloading, and all days that the ship is laid up for ordinary repairs, refueling, or provisioning. A ship is not in operation when out of service or during the time that is laid up for extended repairs, overhaul, modification or is in drydrock. For taxable years beginning on or after January 1, 2013, pursuant to Section 25128.7, Revenue and Taxation Code, only the receipts factor references in this subsection are applicable, unless subdivision (b) of Section 25128, Revenue and Taxation Code, applies.

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^*Except for subsections (b), (e), and (f), this regulation is substantially the same as title 18, California Code of Regulations, chapter 3, subchapter 3, section 24301. (Note supplied by Franchise Tax Board.)

Cal. Code Regs. Tit. 18, § 25101

1. New section filed 5-19-58; effective thirtieth day thereafter (Register 58, No. 9).
2. Amendment filed 8-6-62; effective thirtieth day thereafter (Register 62, No. 16).
3. Amendment filed 5-28-71; effective thirtieth day thereafter (Register 71, No. 22).
4. Change without regulatory effect repealing section (Register 87, No. 15).
5. Reinstatement of subsection (b) which was inadvertently repealed by order in Register 87, No. 15, filed 11-20-90 (Register 91, No. 2).
6. Change without regulatory effect adding new subsection (a) designator, amendment of subsection (b), repealer of subsection (b)(1), and amendment of subsection (b)(2) and NOTE filed 9-11-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 37).
7. Change without regulatory effect amending subsections (a) and (b) filed 12-9-2013 pursuant to section 100, title 1, California Code of Regulations (Register 2013, No. 50).

Note: Authority cited: Section 19503, Revenue and Taxation Code. Reference: Section 25101, Revenue and Taxation Code.

1. New section filed 5-19-58; effective thirtieth day thereafter (Register 58, No. 9).
2. Amendment filed 8-6-62; effective thirtieth day thereafter (Register 62, No. 16).
3. Amendment filed 5-28-71; effective thirtieth day thereafter (Register 71, No. 22).
4. Change without regulatory effect repealing section (Register 87, No. 15).
5. Reinstatement of subsection (b) which was inadvertently repealed by order in Register 87, No. 15, filed 11-20-90 (Register 91, No. 2).
6. Change without regulatory effect adding new subsection (a) designator, amendment of subsection (b), repealer of subsection (b)(1), and amendment of subsection (b)(2) and Note filed 9-11-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 37).
7. Change without regulatory effect amending subsections (a) and (b) filed 12-9-2013 pursuant to section 100, title 1, California Code of Regulations (Register 2013, No. 50).