Section 35-3-08-06-302.01 - The following are general rules for determining whether specific income is business or non-business income1. RENTS FROM REAL AND TANGIBLE PERSONAL PROPERTY. Rental income from real and tangible property is business income if the income producing property is used by the taxpayer's trade or business. If rental income is from an asset which is purely an investment, then it is non-business.2. GAINS OR LOSSES FROM SALES OF ASSETS. Gain or loss from the sale, exchange or other disposition of real, tangible, or intangible personal property constitutes business income if the property while owned by taxpayer was used in the taxpayer's trade or business, or was used to produce business income, regardless of whether the asset has actually produced income. However, if such property was utilized for the production of non-business income, the gain or loss will constitute non-business income.3. INTEREST. Interest income is business income where the intangible, with respect to which the interest was received, arises out of or was created in the regular course of the taxpayer's trade or business operations or where the purpose for acquiring and holding the intangible is related to or incidental to such trade or business operations. Business income shall not, however, include interest income on loans to subsidiaries or affiliates which are not organized under the laws either of the United States, or any state, district, territory or possession thereof.4. FOREIGN SOURCE INTEREST. a. Interest that is derived from a source outside of the United States, or any state, district, territory or possession of the United States is non-business interest.b. In general, all other interest is business income. A partial listing for illustrative purposes of interest that is considered to be business income is interest on accounts receivable, certificates of deposit, money market accounts, tax refunds, and municipal obligations. Municipal obligations of the state of Mississippi are exempt.5. DIVIDENDS. a. Dividends are business income where the stock, with respect to which the dividends are received, arises out of or was acquired in the regular course of the taxpayer's trade or business operations or where the purpose for acquiring and holding the stock is related to or incidental to such trade or business operations. Business income shall not, however, include foreign source dividends realized from stock ownership in a corporation not organized under the laws either of the United States, or any state, district, territory or possession thereofb. Dividends from domestic, unitary, and controlled subsidiaries are business income. Dividends from foreign, non-unitary, and/or non-controlled corporations are non-business income. Dividends from Domestic International Sales Corporation (DISC's) are business income. For treatment of dividends from a Foreign Sales Corporation (FSC's) see the regulation on FSC's. Dividends from a DISC are business income to the extent actually received, not deemed as is used for federal purposes. Descriptions of domestic, controlled, and unitary corporations are as follows: i. DOMESTIC. Means any corporation organized under the laws of the United States, or any other state, territory or possession thereofii. CONTROLLED. In this context, controlled is defined as being: * Where one corporation owns more than 50% of another corporation; or
* If ownership by one corporation of another is 50% or less, then the question is whether the first corporation has effective control of the second. If the first corporation does not have effective control of the second, then dividends paid by the second corporation to the first is non-business income. For example, if the first corporation owns 40% of the second corporation, but the remaining 60% is owned by one entity unrelated to the first corporation, then the first corporation does not have effective control. But, if the first corporation owns 40% of the second corporation, and the remaining 60% is owned by the thousands of unrelated shareholders, each with a small percentage, then, in that circumstance, the first corporation would have effective control. If a corporation is controlled or effectively controlled, then the dividends may be business income, depending upon whether this corporation is also domestic and unitary.
iii. UNITARY. In general, unitary depends upon the extent that the different entities have been integrated into one economic operation. Some of the items to be considered include autonomy of officers and directors of the different corporations; lines of business; number, size, and type of inter-company transactions, and jointly used services such as accounting or tax department. The above list is not all inclusive. It is only for the purpose of illustrating some of the points to be considered in determining whether the entity paying the dividends is unitary with the entity receiving the dividend.6. PATENT AND COPYRIGHT ROYALTIES. Patent and copyright royalties, including royalties from non-patented items such as "know-how", technical assistance, and use of product name, are business income where the patent or copyright arises out of or was created in the regular course of the taxpayer's trade or business operations, or where the purpose for acquiring and holding the patent or copyright is related to or incidental to such trade or business operations.7. MISCELLANEOUS INCOME. In general, miscellaneous income, such as scrap sales or collections of bad debts written off, is business income.8. EXCEPTIONS. Royalty income from mineral production must be allocated to the state where production occurred. Partnership income is allocated directly to the state where the partnership gross income or loss occurred.35 Miss. Code. R. § 3-08-06-302.01