Ariz. Admin. Code § 15-2D-903

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

Section R15-2D-903 - Special Provisions for the Sales Factor

The following special provisions apply to the sales factor of the apportionment formula:

1. If substantial amounts of gross receipts arise from an incidental or occasional sale of a fixed asset used in the regular course of the taxpayer's trade or business, those gross receipts are excluded from the sales factor. For example, gross receipts from the sale of a factory or plant are excluded.

2. Insubstantial amounts of gross receipts, arising from incidental or occasional transactions or activities, may be excluded from the sales factor, unless their exclusion would materially affect the amount of income apportioned to this state. For example, the taxpayer ordinarily may include or exclude from the sales factor gross receipts from transactions such as the sale of office furniture, business automobiles, or other similar items.

3. If the income-producing activity with respect to business income from intangible personal property can be readily identified, the income is included in the denominator of the sales factor and, if the income-producing activity occurs in this state, in the numerator of the sales factor as well. For example, usually the income-producing activity can be readily identified with respect to interest income received on deferred payments on sales of tangible property and income from the sale, licensing, or other use of intangible personal property. If business income from intangible property cannot readily be attributed to any particular income-producing activity of the taxpayer, the income is not assigned to the numerator of the sales factor for any state and is excluded from the denominator of the sales factor. For example, if business income in the form of dividends received on stock, royalties received on patents or copyrights, or interest received on bonds, debentures, or government securities results from the mere holding of the intangible personal property by the taxpayer, the dividends and interest shall be excluded from the denominator of the sales factor.

4. Items of income that are not subject to taxation under A.R.S. Title 43 or judicial decision is excluded from the sales factor. Examples of these items include controlled corporation dividends, gross-up dividends, Subpart F dividends, and interest from federal obligations.

Ariz. Admin. Code § R15-2D-903

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).