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REFERENCE TITLE: corporate income tax; apportionable income |
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State of Arizona Senate Fifty-third Legislature Second Regular Session 2018
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SB 1479 |
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Introduced by Senators Mendez: Quezada
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AN ACT
amending sections 43‑1139 and 43‑1147, Arizona Revised Statutes; relating to business income for tax purposes.
(TEXT OF BILL BEGINS ON NEXT PAGE)
Be it enacted by the Legislature of the State of Arizona:
Section 1. Section 43-1139, Arizona Revised Statutes, is amended to read:
43-1139. Allocation of business income or apportionable income
A. Except as provided in subsection B of this section, the taxpayer shall elect to apportion all business income to this state for taxable years beginning from and after:
1. December 31, 2006 through December 31, 2007 by either:
(a) Multiplying the income by a fraction, the numerator of which is the property factor plus the payroll factor plus two times the sales factor, and the denominator of which is four.
(b) Multiplying the income by a fraction, the numerator of which is two times the property factor plus two times the payroll factor plus six times the sales factor, and the denominator of which is ten.
2. December 31, 2007 through December 31, 2008 by either:
(a) Multiplying the income by a fraction, the numerator of which is the property factor plus the payroll factor plus two times the sales factor, and the denominator of which is four.
(b) Multiplying the income by a fraction, the numerator of which is one and one‑half times the property factor plus one and one‑half times the payroll factor plus seven times the sales factor, and the denominator of which is ten.
3. December 31, 2008 through December 31, 2013 by either:
(a) Multiplying the income by a fraction, the numerator of which is the property factor plus the payroll factor plus two times the sales factor, and the denominator of which is four.
(b) Multiplying the income by a fraction, the numerator of which is the property factor plus the payroll factor plus eight times the sales factor, and the denominator of which is ten.
4. December 31, 2013 through December 31, 2014 by either:
(a) Multiplying the income by a fraction, the numerator of which is the property factor plus the payroll factor plus two times the sales factor, and the denominator of which is four.
(b) Multiplying the income by a fraction, the numerator of which is seven and one-half times the property factor plus seven and one-half times the payroll factor plus eighty-five times the sales factor, and the denominator of which is one hundred.
5. December 31, 2014 through December 31, 2015 by either:
(a) Multiplying the income by a fraction, the numerator of which is the property factor plus the payroll factor plus two times the sales factor, and the denominator of which is four.
(b) Multiplying the income by a fraction, the numerator of which is five times the property factor plus five times the payroll factor plus ninety times the sales factor, and the denominator of which is one hundred.
6. December 31, 2015 through December 31, 2016 by either:
(a) Multiplying the income by a fraction, the numerator of which is the property factor plus the payroll factor plus two times the sales factor, and the denominator of which is four.
(b) Multiplying the income by a fraction, the numerator of which is two and one-half times the property factor plus two and one-half times the payroll factor plus ninety-five times the sales factor, and the denominator of which is one hundred.
7. December 31, 2016 through december 31, 2017 by either:
(a) Multiplying the income by a fraction, the numerator of which is the property factor plus the payroll factor plus two times the sales factor, and the denominator of which is four.
(b) Multiplying the income by the sales factor.
8. December 31, 2017 by multiplying the apportionable income by the sales factor.
B. All business income of a taxpayer that is engaged in air commerce shall be apportioned to this state by multiplying the income by a fraction, the numerator of which is the revenue aircraft miles flown within this state for flights beginning or ending in this state and the denominator of which is the total revenue aircraft miles flown by the taxpayer's aircraft everywhere. This subsection applies to each taxpayer, including a combined group filing a combined return or an affiliated group electing to file a consolidated return under section 43‑947, if fifty per cent percent or more of that taxpayer's gross income is derived from air commerce. For the purposes of this subsection:
1. "Air commerce" means transporting persons or property for hire by aircraft in interstate, intrastate or international transportation.
2. "Revenue aircraft miles flown" has the same meaning prescribed by the United States department of transportation uniform system of accounts and reports for large certificated air carriers (14 Code of Federal Regulations part 241).
Sec. 2. Section 43-1147, Arizona Revised Statutes, is amended to read:
43-1147. Situs of sales or receipts of other than tangible personal property; rules; definitions
A. For taxable years beginning before December 31, 2017, except as provided by subsection B of this section, sales, other than sales of tangible personal property, are in this state if either of the following applies:
1. The income producing income‑producing activity is performed in this state.
2. The income producing income‑producing activity is performed both in and outside this state and a greater proportion of the income producing income‑producing activity is performed in this state than in any other state, based on costs of performance.
B. For taxable years beginning from and after December 31, 2013 through December 31, 2017, a multistate service provider may elect to treat sales from services as being in this state based on a combination of income producing income‑producing activity sales and market sales. If the election under this subsection is made pursuant to subsection C F of this section, the sales of services that are in this state shall be determined for taxable years beginning from and after:
1. December 31, 2013 through December 31, 2014, by the sum of the following:
(a) Eighty‑five per cent percent of the market sales.
(b) Fifteen per cent percent of the income producing income‑producing activity sales.
2. December 31, 2014 through December 31, 2015, by the sum of the following:
(a) Ninety per cent percent of the market sales.
(b) Ten per cent percent of the income producing income‑producing activity sales.
3. December 31, 2015 through December 31, 2016, by the sum of the following:
(a) Ninety‑five per cent percent of the market sales.
(b) Five per cent percent of the income producing income‑producing activity sales.
4. December 31, 2016 through December 31, 2017, by one hundred per cent percent of the market sales.
C. For taxable years beginning from and after December 31, 2017, sales, other than sales of tangible personal property, are in this state if the taxpayer's market for the sales is in this state. the taxpayer's market for sales is in this state if and to the extent:
1. In the case of sale, rental, lease or license of real property, the property is located in this state.
2. In the case of rental, lease or license of tangible personal property, the property is located in this state. The location of tangible personal property is determined when the property is first placed in service, except that for transportation property the location is in this state to the extent the property is used in this state. Aircraft is considered to be used in this state based on a fraction the numerator of which is the number of landings of the aircraft in this state and the denominator of which is the total number of landings of the aircraft.
3. In the case of interest, fees and penalties in connection with loans secured by real property and the sale of the loans secured by real property, the market is in this state if the property is located in this state. the determination of real property securing a loan is made at the time of the original agreement without regard to subsequent substitutions of collateral.
4. In the case of interest, fees, and penalties in connection with loans not secured by real property and the sale of the loans not secured by real property, the market is in this state if the borrower is located in this state.
5. In the case of interest, dividends and other income from investment and trading assets and activities, the market is in this state if the asset is properly assigned to a regular place of business of the taxpayer in this state. An asset is properly assigned to a regular place of business in this state if the trading policies or guidelines with respect to the asset or activity are established in this state. The market for the sale of the investment or trading assets is in this state if the customer is in this state.
6. In the case of sale of a service, the service is delivered to a location in this state.
7. In the case of intangible property that is:
(a) Rented, leased or licensed, the property is used in this state, provided that Intangible property used in marketing a good or service to a consumer is used in this state if that good or service is purchased by a consumer who is in this state.
(b) Sold, the property is used in this state, provided that:
(i) A contract right, government license or similar intangible property that authorizes the holder to conduct a business activity in a specific geographic area is used in this state if the geographic area includes all or part of this state.
(ii) Receipts from intangible property sales that are contingent on the productivity, use or disposition of the intangible property are treated as receipts from the rental, lease or licensing of such intangible property under subdivision (a) of this paragraph.
(iii) Unless otherwise provided in this section, all other receipts from a sale of intangible property are excluded from the numerator and denominator of the sales factor.
D. If the state or states of assignment under subsection C of this section cannot be determined, the state or states of assignment shall be reasonably approximated.
E. If the taxpayer is not taxable in a state to which a receipt is assigned under subsection C or D of this section, or if the state of assignment cannot be determined under subsection C of this section or reasonably approximated under subsection D of this section, the receipt shall be excluded from the denominator of the sales factor.
C. F. A multistate service provider may elect to treat sales from services as being in this state under subsection B of this section as follows:
1. The election must be made on the taxpayer's timely filed original income tax return. The election is:
(a) Effective retroactively for the full taxable year of the income tax return on which the election is made.
(b) Binding on the taxpayer for at least five consecutive taxable years, regardless of whether the taxpayer no longer meets the percentage threshold of a multistate service provider during that time period, except as provided by paragraph 2 of this subsection. To continue with the election after the five consecutive taxable years, the taxpayer must meet the qualifications to be considered a multistate service provider and renew the election for another five consecutive taxable years.
2. During the election period, the election may be terminated as follows:
(a) Without the permission of the department on the acquisition or merger of the taxpayer.
(b) With the permission of the department before the expiration of five consecutive taxable years.
D. G. For a multistate service provider under subsection E H, paragraph 3, subdivision (b) of this section, an election under subsection B of this section is limited to the treatment of sales for educational services.
H. The director shall adopt rules pursuant to section 42-1005, subsection A, paragraph 1 as necessary for the purposes of this section.
E. I. For the purposes of this section:
1. "Income producing Income‑producing activity sales" means the total sales from services that are sales in this state under subsection A of this section.
2. "Market sales" means the total sales from services for which the purchaser received the benefit of the service in this state.
3. "Multistate service provider" means either:
(a) A taxpayer that derives more than eighty‑five per cent percent of its sales from services provided to purchasers who receive the benefit of the service outside this state in the taxable year of election, and includes all taxpayers required to file a combined report pursuant to section 43‑942 and all members of an affiliated group included in a consolidated return pursuant to section 43‑947. In calculating the eighty‑five per cent percent, sales to students receiving educational services at campuses physically located in this state shall be excluded from the calculation.
(b) A taxpayer that is a regionally accredited institution of higher education with at least one university campus in this state that has more than two thousand students residing on the campus, and includes all taxpayers required to file a combined report pursuant to section 43‑942 and all members of an affiliated group included in a consolidated return pursuant to section 43‑947.
4. "Received the benefit of the service in this state" means the services are received by the purchaser in this state. If the state where the services are received cannot be readily determined, the services are considered to be received at the home of the customer or, in the case of a business, the office of the customer from which the services were ordered in the regular course of the customer's trade or business. If the ordering location cannot be determined, the services are considered to be received at the home or office of the customer to which the services were billed.
5. "Sales for educational services" means tuition and fees required for enrollment and fees required for courses of instruction, transcripts and graduation.