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].
Notes
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).
