Ariz. Admin. Code § 15-2D-806

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

Section R15-2D-806 - Sales Other Than Sales of Tangible Personal Property in This State

This Section provides for the inclusion in the numerator of the sales factor of gross receipts from transactions other than sales of tangible personal property (including transactions with the United States Government). Under this Section, gross receipts are attributed to this state if the income-producing activity that gives rise to the receipts is performed wholly within this state. Also, gross receipts are attributed to this state if, with respect to a particular item of income, the income-producing activity is performed within and without this state but the greater proportion of the income-producing activity is performed in this state rather than in any other state, based on costs of performance.

1. The term "income-producing activity" applies to each separate item of income and means the transactions and activities directly engaged in by a taxpayer in the regular course of its trade or business for the ultimate purpose of obtaining gains or profit. Income-producing activity does not include transactions and activities performed on behalf of a taxpayer, such as those conducted on its behalf by an independent contractor. Accordingly, "income-producing activity" includes but is not limited to the following:

a. The rendering of personal services by employees or the use of tangible and intangible property by the taxpayer in performing a service;

b. The sale, rental, leasing, licensing, or other use of real property;

c. The rental, leasing, licensing, or other use of tangible personal property; and

d. The sale, licensing, or other use of intangible personal property. The mere holding of intangible personal property is not, of itself, an income-producing activity.

2. The term "costs of performance" means direct costs determined in a manner consistent with generally accepted accounting principles and in accordance with accepted conditions or practices in the trade or business of the taxpayer.

3. The following are special provisions for determining when receipts from the income-producing activities described are in this state:

a. Gross receipts from the sale, lease, rental, or licensing of real property are in this state if the real property is located in this state.

b. Gross receipts from the rental, lease, or licensing of tangible personal property are in this state if the property is located in this state. The rental, lease, licensing, or other use of tangible personal property in this state is an income-producing activity separate from the rental, lease, licensing, or other use of the same property while located in another state; consequently, if property is within and without this state during the rental, lease, or licensing period, gross receipts attributable to this state are measured by the ratio of the time the property is physically present or is used in this state to the total time the property is present or used anywhere during that period.

Example: The taxpayer is the owner of 10 railroad cars. During the year, the total of the days during which each railroad car is present in this state is 50 days. The receipts attributable to the use of each of the railroad cars in this state are a separate item of income and shall be determined as follows:

[(10 x 50)] (10 x 365)] x Total Receipts = Receipts Attributable to this State

c. Gross receipts for the performance of personal services are attributable to this state to the extent the services are performed in this state. If services relating to a single item of income are performed partly within and partly without this state, the gross receipts from the performance of the services are attributable to this state only if the greater proportion of the services is performed in this state, based on costs of performance. Usually, if services are performed partly within and partly without this state, the services performed in each state constitute a separate income-producing activity; in such a case the gross receipts from the performance of services attributable to this state are measured by the ratio of the time spent performing the services in this state to the total time spent performing the services everywhere. Time spent performing services includes the amount of time expended in the performance of a contract or other obligation that gives rise to the gross receipts. Personal service not directly connected with the performance of the contract or other obligation, such as time expended in negotiating the contract, is excluded from the computations.

Example 1: The taxpayer, a road show, gives theatrical performances at various locations in State X and in this state during the tax period. All gross receipts from performances given in this state are attributed to this state.

Example 2: The taxpayer, a public opinion survey corporation, conducts a poll by means of its employees in State X and in this state for the sum of $9,000. The project required 600 hours to obtain the basic data and prepare the survey report. The taxpayer expended 200 of the 600 hours in this state. The receipts attributable to this state are $3,000 [(200 600) x $9,000].

Ariz. Admin. Code § R15-2D-806

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).