Section 1320-06-01-.27 - PROPERTY FACTOR(1) In General. The property factor of the apportionment formula for the trade or business of the taxpayer shall include all real and tangible personal property owned or rented by the taxpayer and used during the tax period in the regular course of such trade or business. The term "real and tangible personal property" includes land, buildings, machinery, stocks of goods, equipment, and other real and tangible personal property but does not include coin or currency. Property used in connection with the production of nonbusiness earnings shall be excluded from the property factor. Property used both in the production of business earnings and in the production of nonbusiness earnings shall be included in the property factor only to the extent the property is used in the production of business earnings. The method of determining that portion of the value to be included in the factor will depend upon the facts of each case. The property factor shall include the average value of property includable in the factor. See Rule 1320-06-01-.29.(2) Property Factor - Property Used for the Production of Business Earnings. Property shall be included in the property factor if it is actually used or is available for use or capable of being used during the tax period for the production of business earnings. Property held as reserves or standby facilities or property held as a reserve source of materials shall be included in the factor. For example, a plant temporarily idle or raw material reserves not currently being processed are includable in the factor. Property or equipment under construction during the tax period (except inventoriable goods in process) shall be excluded from the factor until such property is actually used to produce business earnings. If the property is partially used to produce business earnings while under construction, the value of the property to the extent used shall be included in the property factor. Property used to produce business earnings shall remain in the property factor until its permanent withdrawal is established by an identifiable event such as its conversion to the production of nonbusiness earnings or its sale. Example 1: Taxpayer closed its manufacturing plant in State X and held such property for sale. The property remained vacant until its sale one year later. The value of the manufacturing plant is included in the property factor until the plant is sold.
Example 2: Same as above except that the property was rented until the plant was sold. The plant is included in the property factor until the plant is sold.
(3) Property Factor - Numerator. The numerator of the property factor shall include the average value of the real and tangible personal property owned or rented by the taxpayer and used in this state during the tax period to produce business earnings. Property in transit between locations of the taxpayer to which it belongs shall be considered to be at the destination for purposes of the property factor. Property in transit between a buyer and seller which is included by a taxpayer in the denominator of its property factor in accordance with its regular accounting practices shall be included in the numerator according to the state of destination. The value of mobile or movable property such as construction equipment, trucks or leased electronic equipment which are located within and without this state during the tax period shall be determined for purposes of the numerator of the factor on the basis of total time within the state during the tax period. An automobile assigned to a traveling employee shall be included in the numerator of the factor of the state to which the employee's compensation is assigned under the payroll factor or in the numerator of the state in which the automobile is licensed.(4) Zero Denominator. In the use of any apportionment formula, where the denominator of a factor is zero, such factor must be eliminated entirely and the average then computed from the remaining factor or factors.Tenn. Comp. R. & Regs. 1320-06-01-.27
Original rule certified June 7, 1974. Repealed and refiled July 22, 1977; effective August 22, 1977. Amendments filed June 28, 2016; effective 9/26/2016.Authority: T.C.A. §§ 67-101(2), 67-1-102, and 67-4-2012.