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2007 California Revenue and Taxation Code Article 2. Uniform Division Of Income For Tax Purposes Act 25120-25141
CA Codes (rtc:25120-25141)
REVENUE AND TAXATION CODESECTION 25120-25141
25120. As used in Sections 25120 to 25139, inclusive, which shall hereafter be referred to as "this act," unless the context otherwise requires: (a) "Business income" means income arising from transactions and activity in the regular course of the taxpayer's trade or business and includes income from tangible and intangible property if the acquisition, management, and disposition of the property constitute integral parts of the taxpayer's regular trade or business operations. (b) "Commercial domicile" means the principal place from which the trade or business of the taxpayer is directed or managed. (c) "Compensation" means wages, salaries, commissions and any other form of remuneration paid to employees for personal services. (d) "Nonbusiness income" means all income other than business income. (e) "Sales" means all gross receipts of the taxpayer not allocated under Sections 25123 through 25127 of this code. (f) "State" means any state of the United States, the District of Columbia, the Commonwealth of Puerto Rico, any territory or possession of the United States, and any foreign country or political subdivision thereof. 25121. Any taxpayer having income from business activity which is taxable both within and without this state shall allocate and apportion its net income as provided in this act. 25122. For purposes of allocation and apportionment of income under this act, a taxpayer is taxable in another state if (a) in that state it is subject to a net income tax, a franchise tax measured by net income, a franchise tax for the privilege of doing business, or a corporate stock tax, or (b) that state has jurisdiction to subject the taxpayer to a net income tax regardless of whether, in fact, the state does or does not. 25123. Rents and royalties from real or tangible personal property, capital gains, interest, dividends, or patent or copyright royalties, to the extent that they constitute nonbusiness income, shall be allocated as provided in Sections 25124 through 25127 of this act. 25124. (a) Net rents and royalties from real property located in this state are allocable to this state. (b) Net rent and royalties from tangible personal property are allocable to this state: (1) If and to the extent that the property is utilized in this state, or (2) In their entirety if the taxpayer's commercial domicile is in this state and the taxpayer is not organized under the laws of or taxable in the state in which the property is utilized. (c) The extent of utilization of tangible personal property in a state is determined by multiplying the rents and royalties by a fraction, the numerator of which is the number of days of physical location of the property in the state during the rental or royalty period in the taxable year and the denominator of which is the number of days of physical location of the property everywhere during all rental or royalty periods in the taxable year. If the physical location of the property during the rental or royalty period is unknown or unascertainable by the taxpayer, tangible personal property is utilized in the state in which the property was located at the time the rental or royalty payer obtained possession. 25125. (a) Capital gains and losses from sales of real property located in this state are allocable to this state. (b) Capital gains and losses from sales of tangible personal property are allocable to this state if: (1) The property had a situs in this state at the time of the sale, or (2) The taxpayer's commercial domicile is in this state and the taxpayer is not taxable in the state in which the property had a situs. (c) Except in the case of the sale of a partnership interest, capital gains and losses from sales of intangible personal property are allocable to this state if the taxpayer's commercial domicile is in this state. (d) Gain or loss on the sale of a partnership interest is allocable to this state in the ratio of the original cost of partnership tangible property in the state to the original cost of partnership tangible property everywhere, determined at the time of the sale. In the event that more than 50 percent of the value of partnership's assets consist of intangibles, gain or loss from the sale of the partnership interest is allocated to this state in accordance with the sales factor of the partnership for its first full tax period immediately preceding the tax period of the partnership during which the partnership interest was sold. 25126. Interest and dividends are allocable to this state if the taxpayer's commercial domicile is in this state. 25127. (a) Patent and copyright royalties are allocable to this state: (1) If and to the extent that the patent or copyright is utilized by the payor in this state, or (2) If and to the extent that the patent or copyright is utilized by the payor in a state in which the taxpayer is not taxable and the taxpayer's commercial domicile is in this state. (b) A patent is utilized in a state to the extent that it is employed in production, fabrication, manufacturing, or other processing in the state or to the extent that a patented product is produced in the state. If the basis of receipts from patent royalties does not permit allocation to states or if the accounting procedures do not reflect states of utilization, the patent is utilized in the state in which the taxpayer's commercial domicile is located. (c) A copyright is utilized in a state to the extent that printing or other publication originates in the state. If the basis of receipts from copyright royalties does not permit allocation to states or if the accounting procedures do not reflect states of utilization, the copyright is utilized in the state in which the taxpayer's commercial domicile is located. 25128. (a) Notwithstanding Section 38006, all business income shall be apportioned to this state by multiplying the business income by a fraction, the numerator of which is the property factor plus the payroll factor plus twice the sales factor, and the denominator of which is four, except as provided in subdivision (b) or (c). (b) If an apportioning trade or business derives more than 50 percent of its "gross business receipts" from conducting one or more qualified business activities, all business income of the apportioning trade or business shall be apportioned to this state by multiplying business income by a fraction, the numerator of which is the property factor plus the payroll factor plus the sales factor, and the denominator of which is three. (c) For purposes of this section, a "qualified business activity" means the following: (1) An agricultural business activity. (2) An extractive business activity. (3) A savings and loan activity. (4) A banking or financial business activity. (d) For purposes of this section: (1) "Gross business receipts" means gross receipts described in subdivision (e) of Section 25120 (other than gross receipts from sales or other transactions within an apportioning trade or business between members of a group of corporations whose income and apportionment factors are required to be included in a combined report under Section 25101, limited, if applicable, by Section 25110), whether or not the receipts are excluded from the sales factor by operation of Section 25137. (2) "Agricultural business activity" means activities relating to any stock, dairy, poultry, fruit, furbearing animal, or truck farm, plantation, ranch, nursery, or range. "Agricultural business activity" also includes activities relating to cultivating the soil or raising or harvesting any agricultural or horticultural commodity, including, but not limited to, the raising, shearing, feeding, caring for, training, or management of animals on a farm as well as the handling, drying, packing, grading, or storing on a farm any agricultural or horticultural commodity in its unmanufactured state, but only if the owner, tenant, or operator of the farm regularly produces more than one-half of the commodity so treated. (3) "Extractive business activity" means activities relating to the production, refining, or processing of oil, natural gas, or mineral ore. (4) "Savings and loan activity" means any activities performed by savings and loan associations or savings banks which have been chartered by federal or state law. (5) "Banking or financial business activity" means activities attributable to dealings in money or moneyed capital in substantial competition with the business of national banks. (6) "Apportioning trade or business" means a distinct trade or business whose business income is required to be apportioned under Sections 25101 and 25120, limited, if applicable, by Section 25110, using the same denominator for each of the applicable payroll, property, and sales factors. (7) Paragraph (4) of subdivision (c) shall apply only if the Franchise Tax Board adopts the Proposed Multistate Tax Commission Formula for the Uniform Apportionment of Net Income from Financial Institutions, or its substantial equivalent, and shall become operative upon the same operative date as the adopted formula. (8) In any case where the income and apportionment factors of two or more savings associations or corporations are required to be included in a combined report under Section 25101, limited, if applicable, by Section 25110, both of the following shall apply: (A) The application of the more than 50 percent test of subdivision (b) shall be made with respect to the "gross business receipts" of the entire apportioning trade or business of the group. (B) The entire business income of the group shall be apportioned in accordance with either subdivision (a) or (b), as applicable. 25129. The property factor is a fraction, the numerator of which is the average value of the taxpayer's real and tangible personal property owned or rented and used in this state during the taxable year and the denominator of which is the average value of all the taxpayer's real and tangible personal property owned or rented and used during the taxable year. 25130. Property owned by the taxpayer is valued at its original cost. Property rented by the taxpayer is valued at eight times the net annual rental rate. Net annual rental rate is the annual rental rate paid by the taxpayer less any annual rental rate received by the taxpayer from subrentals. 25131. The average value of property shall be determined by averaging the values at the beginning and ending of the taxable year but the Franchise Tax Board may require the averaging of monthly values during the taxable year if reasonably required to reflect properly the average value of the taxpayer's property. 25132. The payroll factor is a fraction, the numerator of which is the total amount paid in this state during the taxable year by the taxpayer for compensation, and the denominator of which is the total compensation paid everywhere during the taxable year. 25133. Compensation is paid in this state if: (a) The individual's service is performed entirely within the state; or (b) The individual's service is performed both within and without the state, but the service performed without the state is incidental to the individual's service within the state; or (c) Some of the service is performed in the state and (1) the base of operations or, if there is no base of operations, the place from which the service is directed or controlled is in the state, or (2) the base of operations or the place from which the service is directed or controlled is not in any state in which some part of the service is performed, but the individual's residence is in this state. 25134. The sales factor is a fraction, the numerator of which is the total sales of the taxpayer in this state during the taxable year, and the denominator of which is the total sales of the taxpayer everywhere during the taxable year. 25135. Sales of tangible personal property are in this state if: (a) The property is delivered or shipped to a purchaser, other than the United States government, within this state regardless of the f.o.b. point or other conditions of the sale. (b) The property is shipped from an office, store, warehouse, factory, or other place of storage in this state and (1) the purchaser is the United States government or (2) the taxpayer is not taxable in the state of the purchaser. (c) This section shall become operative on December 1, 2000. 25136. Sales, other than sales of tangible personal property, are in this state if: (a) The income-producing activity is performed in this state; or (b) The income-producing activity is performed both in and outside this state and a greater proportion of the income-producing activity is performed in this state than in any other state, based on costs of performance. 25137. If the allocation and apportionment provisions of this act do not fairly represent the extent of the taxpayer's business activity in this state, the taxpayer may petition for or the Franchise Tax Board may require, in respect to all or any part of the taxpayer's business activity, if reasonable: (a) Separate accounting; (b) The exclusion of any one or more of the factors; (c) The inclusion of one or more additional factors which will fairly represent the taxpayer's business activity in this state; or (d) The employment of any other method to effectuate an equitable allocation and apportionment of the taxpayer's income. 25138. This act shall be so construed as to effectuate its general purpose to make uniform the law of those states which enact it. Enactment of Article IV of the Multistate Tax Compact (as set forth in Section 38006 of the code) pertaining to the allocation and apportionment of income shall be construed as a reenactment of Sections 25120 to 25137, inclusive, without any inference that a change in interpretation is implied by such enactment. 25139. Sections 25120 to 25139, inclusive, may be cited as the Uniform Division of Income for Tax Purposes Act. 25140. Accounting procedures shall be adopted which will separately reflect the revenues attributable to dividends received by corporations having commercial domiciles in this state. In view of pending litigation concerning the proper treatment of intercompany dividends, it is not intended by enactment of this act that any inference be drawn from it in such litigation. 25141. (a) For purposes of this section, the following definitions shall apply: (1) "Entity" means an individual, corporation, association, partnership, limited liability company, estate, trust, or any combination thereof. (2) "Person" means an individual or corporation. (3) "Professional athletic team" means any entity which has all of the following characteristics: (A) Employs concurrently during the taxable year five or more persons, who are compensated for being participating members of an athletic team engaging in public contests. (B) Is a member of a league composed of at least five entities which are engaged in the operation of an athletic team and which are located in this and other states or in other countries. (C) Has total minimum paid attendance in the aggregate for all contests wherever played during the taxable year of 40,000 persons. (D) Has minimum gross income in the taxable year of one hundred thousand dollars (0,000). (b) For purposes of this chapter, a team shall be considered to have its operations based in the state or country in which the team derives its territorial rights under the rules of the league of which it is a member. (c) The business income of a professional athletic team derived directly or indirectly from its operations as a professional athletic team shall be allocated to this state pursuant to the following three-factor formula: (1) Computation of the property factor under Section 25129: (A) For a team that has its operations based in this state, the average value of all real and tangible personal property, wherever located, and owned or rented and used during the taxable year, shall be deemed to have been owned or rented and used in this state during the taxable year. (B) For a team that has its operations based outside of this state, the average value of all real and tangible personal property, wherever located, and owned or rented and used during the taxable year, shall be deemed to have been owned or rented and used outside this state during the taxable year. (2) Computation of the payroll factor under Section 25132: (A) For a team that has its operations based in this state, the total compensation paid everywhere during the taxable year shall be deemed to have been paid in this state during the taxable year. (B) For a team that has its operations based outside of this state, the total compensation paid everywhere during the taxable year shall be deemed to have been paid outside this state during the taxable year. (3) Computation of the sales factor under Section 25134: (A) For a team that has its operations based in this state, the total sales everywhere during the taxable year shall be deemed to have been made in this state during the taxable year. (B) For a team that has its operations based outside of this state, the total sales everywhere during the taxable year shall be deemed to have been made outside this state during the taxable year. (d) If any team that has its operations based in this state is required to allocate or apportion a part of its business income derived directly or indirectly from its operations as a professional athletic team to another state or country by the laws, regulations, or requirements of the other state or country and pays an income or franchise tax measured by income thereon as a result of the allocation or apportionment, then all of the following shall apply: (1) The business income of the team otherwise subject to this section shall be reduced for purposes of this section by the amount of the business income which is allocated or apportioned to and taxed by the other state or country. (2) This section shall not apply to any team in the same league that has its operations based in the other state or country, and the business income of any such team derived directly or indirectly from its operations as a professional athletic team shall be allocated or apportioned to this state in a manner consistent with the method of allocation or apportionment imposed by the other state or country on the business income of the team that has its operations based in this state. (e) For purposes of the minimum tax imposed under Sections 23151 and 23151.1, an entity which operates a professional athletic team shall be treated as a corporation. The liability under Sections 23151 and 23151.1 of any corporation owning any portion or share of an entity shall be satisfied by payment of the minimum tax by that entity, if the corporation is not otherwise doing business in this state.
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