Ariz. Admin. Code § 15-2C-601

Current through Register Vol. 30, No. 25, June 21, 2024

Section R15-2C-601 - Income of a Non-resident

A. Gross income

1. Non-residents of the state are required to include in the Arizona gross income only that portion of their federal adjusted gross income which is relevant in determining the amount of net income derived from sources within this state.

2. The gross income of a non-resident of the state who is a member of a partnership, pool, or syndicate includes the member's distributive share of the net income of the partnership, pool, or syndicate in addition to any other income from sources within this state to the extent that the member's distributive share is derived from sources within this state.

3. A non-resident beneficiary of an estate or trust must include in gross income, income from the estate or trust which is deductible by the estate or trust and which is derived from sources within this state.

B. Income from sources within this state includes:

1. Income from real or tangible personal property located in this state.

2. Income from a business, trade, or profession carried on within this state.

3. Income from stocks, bonds, notes, bank deposits, and other intangible personal property having a business or taxable situs in this state.

4. Rentals or royalties for the use of or for the privilege of using in this state patents, copyrights, secret processes and formulas, good will, trade marks, trade brands, franchises, and other like property having a taxable or business situs in this state.

C. Income from real or tangible personal property. Income of a non-resident from sources within this state includes rents from real or tangible personal property in this state, gains realized from the sale or transfer of such property regardless of where the sale or transfer is consummated, and any other type of income derived from the ownership, control, or management of real and tangible personal property located in this state irrespective of whether a trade, business, or profession is carried on within this state.

D. Income from a business, trade, or profession

1. If a non-resident's business, trade, or profession is carried on entirely without the state, no portion of the gross income therefrom should be reported. If, on the other hand, the non-resident's business, trade, or profession is conducted wholly within the state, the entire gross income therefrom must be reported.

2. If the non-resident's business, trade, or profession is conducted partly within and partly without the state, and the part within the state is so separate and distinct from and unconnected with the part without the state that the net income from the part within the state can be determined without regard to the part without the state, only the gross income from the business, trade, or profession within the state should be reported. Thus, if a non-resident operates hotels both in this state and elsewhere for example, he should report only the gross income from the hotels in this state.

3. Unitary business

a. The gross income from the entire business, trade, or profession must be reported if a business, trade, or profession carried on within this state is an integral part of a unitary business carried on both within and without the state, or if the part within the state is so connected with the part without the state that the net income from the part within the state cannot be accurately determined independently of the part without the state. Thus, if a non-resident engaged in the business of manufacturing and selling goods for example maintains a factory outside this state and sales offices in this state or vice versa, he must report the gross income from the entire business.

b. The net income from sources within this state subject to the tax imposed by the law should be determined by subtracting from gross income the deductions allowed by the law and by apportioning the remaining net income to sources within and without the state in the manner described in subsection (D)(4).

4. Every non-resident who conducts a business, trade, or profession within and without the state of the character described in subsection (D)(3) should accompany his return with a schedule of statement showing the following:

a. The total value of real and tangible personal property

i. Within the state

ii. Within and without the state

b. The total wages, salaries, and other compensation paid for personal services performed

i. Within the state

ii. Within and without the state

c. The total gross sales or charges for personal services performed

i. Within the state

ii. Within and without the state

d. "Total gross sales within the state" shall include all sales relating to Arizona business even though the sales may be subject to confirmation at an out-of- state office and even though title may actually pass at some point outside of this state. Such sales shall include all sales where the product sold is to be used in Arizona. The value of real and tangible personal property generally should be determined by taking the average of the value of such property at the beginning of the taxable year and at the end of the taxable year. Only property used in the business, trade, or profession should be included.

e. Generally, the amount of net income from a business, trade, or profession of the character described in (D)(3) above which is derived from sources within the state may be determined by taking that portion of the total net income equal to the average percentage of subsections (D)(4)(a)(i), (b)(i) and (c)(i) to subsections (D)(4)(a)(ii), (b)(ii) and (c)(ii) respectively as shown by the schedule or statement accompanying the return.

f. The use of the foregoing factors shall not be exclusive, and, if the Department believes that the net income from sources within this state cannot properly be determined by the above method, it may require additional factors to be used in making the allocation such as purchases or expenses of manufacture. If a non-resident taxpayer believes that the net income from sources within this state cannot properly be determined by the above method, he may employ another method after 1st receiving the consent of the Department.

g. Wages, salaries and other compensation for personal services performed in this state

i. The gross income from commissions earned by a non-resident traveling salesman, agent, or other employee for services performed or sales made whose compensation depends directly on the volume of business transacted by him includes that proportion of the compensation received which the volume of business transacted by that employee with this state bears to the total volume of business transacted by him within and without the state.

ii. Non-resident actors, singers, performers, entertainers, wrestlers, boxers, etc., must include in gross income as income from sources within this state the gross amount received for performances in this state.

iii. Non-resident attorneys, physicians, account ants, engineers, etc., even though not regularly engaged in carrying on their professions in this state, must include in gross income as income from sources within this state the entire amount of fees or compensation for services performed in this state on behalf of their clients.

iv. If non-resident employees including officers of corporations but excluding employees mentioned in subsection (D)(4)(g)(i) above are employed continuously in this state for a definite portion of any taxable year, the gross income of the employees from sources within this state includes the total compensation for the period employed in this state.

v. If non-resident employees are employed in this state at intervals throughout the year, as would be the case if employed in operating trains, boats, planes, motor buses, truck, etc., between this state and other states, and foreign countries, and are paid on a daily, weekly, or monthly basis; the gross income from sources within this state includes that portion of the total compensation for personal services which the total amount of working time within this state bears to the total amount of working time both within and without the state. If the employees are paid on a mileage basis, the gross income from sources within this state includes that portion of the total compensation for personal services which the number of miles traversed in this state bears to the total number of miles traversed within and without the state. If the employees are paid on some other basis, the total compensation for personal services must be apportioned between this state and other states and foreign countries in such a manner as to allocate to this state that portion of the total compensation which is reasonably attributable to personal services performed in this state.

Ariz. Admin. Code § R15-2C-601

Recodified at 6 A.A.R. 2308, filed in the Office of the Secretary of State June 2, 2000 (Supp. 00-2). Correction to manifest typographical error, under subsection R15-2C-601(D)(4)(d), deleted "0" between "sales" and "within" (Supp. 08-4).