Ariz. Admin. Code § 15-2D-403

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

Section R15-2D-403 - Taxable in Another State

A. A taxpayer is subject to the allocation and apportionment provisions of A.R.S. §§ 43-1131 through 43-1148 if it has income from business activity that is taxable both within and without this state. A taxpayer's income from business activity is taxable without this state if the taxpayer, by reason of the business activity, is taxable in another state under either one of the two tests specified in A.R.S. § 43-1133. A taxpayer is not taxable in another state with respect to a particular trade or business merely because the taxpayer conducts activities in that other state pertaining to the production of nonbusiness income or business activities relating to a separate trade or business.

B. A taxpayer is "subject to" one of the taxes specified in A.R.S. § 43-1133(1) if it carries on business activities in a state and that state imposes one of the taxes on the taxpayer. Any taxpayer that asserts that it is subject to one of the taxes specified in A.R.S. § 43-1133(1) in another state shall furnish to the Department upon its request evidence to support that assertion. The Department may request that the evidence include proof that the taxpayer has filed the requisite tax return in the other state and has paid any taxes imposed under the laws of the other state. The taxpayer's failure to produce this proof may be taken into account in determining whether the taxpayer is subject to one of the taxes specified in A.R.S. § 43-1133(1) in the other state.

1. A taxpayer that voluntarily files and pays one or more of the taxes specified in A.R.S. § 43-1133(1) when not required to do so by the laws of the other state or pays a minimal fee for qualification, organization, or the privilege of doing business in that state is not "subject to" one of the taxes specified in A.R.S. § 43-1133(1) if the taxpayer:

a. Does not engage in business activity in that state; or

b. Engages in some business activity, not sufficient for nexus, and the minimum tax bears no relationship to the taxpayer's business activity within that state.

2. The concept of taxability in another state is based upon the premise that every state in which the taxpayer is engaged in business activity may impose an income tax even though every state does not do so. In states that do not impose an income tax, other types of taxes may be imposed as a substitute. Therefore, the Department shall consider only those taxes enumerated in A.R.S. § 43-1133(1) that are basically revenue raising rather than regulatory measures in determining whether the taxpayer is "subject to" one of the taxes in another state.

Example 1: State A requires all nonresident corporations that qualify or register in State A to pay to the Secretary of State an annual license fee or tax for the privilege of doing business in the state regardless of whether the privilege is in fact exercised. The amount paid is determined according to the total authorized capital stock of the corporation; the rates are progressively higher by bracketed amounts. The statute sets a minimum fee of $50 and a maximum fee of $500. Failure to pay the tax bars a corporation from using the state courts for enforcement of its rights. State A also imposes a corporation income tax. Nonresident Corporation X is qualified in State A and pays the required fee to the Secretary of State but does not carry on any business activity in State A (although it may use the courts of State A). Corporation X is not "taxable" in State A.

Example 2: The facts are the same as example one except that Corporation X is subject to and pays the corporation income tax. Payment is prima facie evidence that Corporation X is "subject to" the net income tax of State A and is "taxable" in State A.

Example 3: State B requires all nonresident corporations qualified or registered in State B to pay to the Secretary of State an annual permit fee or tax for doing business in the state. The base of the fee or tax is the sum of outstanding capital stock, and surplus and undivided profits. The fee or tax base attributable to State B is determined by a three-factor apportionment formula. Nonresident Corporation X, which operates a plant in State B, pays the required fee or tax to the Secretary of State. Corporation X is "taxable" in State B.

Example 4: State A has a corporation franchise tax measured by net income for the privilege of doing business in that state. Corporation X files a return based on its business activity in the state but the amount of computed liability is less than the minimum tax. Corporation X pays the minimum tax. Corporation X is subject to State A's corporation franchise tax.

C. A.R.S. § 43-1133(2) applies if the taxpayer's business activity is sufficient to give the state jurisdiction to impose a net income tax by reason of the business activity. Jurisdiction to tax is not present if the state is prohibited from imposing the tax by reason of the provisions of Public Law 86-272, 15 U.S.C.A. §§ 381-384.

Ariz. Admin. Code § R15-2D-403

Recodified at 6 A.A.R. 2308, filed in the Office of the Secretary of State June 2, 2000 (Supp. 00-2). Amended by final rulemaking at 7 A.A.R. 4973, effective October 5, 2001 (Supp. 01-4). Correction to manifest typographical error, under subsection R15-2D-403(B), deleted "2" between "A.R.S." and "§" as adopted at 5 A.A.R. 3766 (Supp. 08-4).