Section 100.3360 Payroll Factor (IITA Section 304)

Section 100

TITLE 86: REVENUE

CHAPTER I: DEPARTMENT OF REVENUE

PART 100 INCOME TAX

SECTION 100.3360 PAYROLL FACTOR (IITA SECTION 304)

Section 100.3360 Payroll

Factor (IITA Section 304)

a)         In

general

1)         The payroll factor of the apportionment formula for each trade

or business of an employer shall include the total amount paid by the employer

in the regular course of its trade or business for compensation during the tax

period.

2)         The total amount "paid" to employees is determined

upon the basis of the employer's accounting method. If the employer has adopted

the accrual method of accounting, all compensation properly accrued shall be

deemed to have been paid. The compensation of any employee on account of

activities which are connected with the production of nonbusiness income shall be

excluded from the factor.

A)        Example A: A corporation uses some of its employees in the

construction of a storage building which, upon completion, is used in the regular

course of the corporation's trade or business. The wages paid to those

employees are treated as a capital expenditure by the corporation. The amount

of such wages is included in the payroll factor.

B)        Example B: A corporation owns various securities which it holds

as an investment separate and apart from its trade or business. The management

of the corporation's investment portfolio is the only duty of Mr. X, an employee.

The salary paid to Mr. X is excluded from the payroll factor.

3)         The term "compensation" is defined in Section

100.3100 of this Part.

4)         The term "employee" is defined in Section 100.3100

of this Part.

5)         In filing returns with this state, if the employer departs from

or modifies the treatment of compensation paid used in returns for prior years,

the employer shall disclose in the return for the current year the nature and

extent of the modification

"compensation" is defined in Section

100.3100 of this Part.

4)         The term "employee" is defined in Section 100.3100

of this Part.

5)         In filing returns with this state, if the employer departs from

or modifies the treatment of compensation paid used in returns for prior years,

the employer shall disclose in the return for the current year the nature and

extent of the modification. If the returns or reports filed by the employer with

all states to which the employer reports under Article IV of the Multistate Tax

Compact or the Uniform Division of Income for Tax Purposes Act are not uniform

in the treatment of compensation paid, the employer shall disclose in its return

to this state the nature and extent of the variance.

b)         Denominator. The denominator of the payroll factor is the

total compensation paid everywhere during the tax period. Accordingly,

compensation paid to employees whose services are performed entirely in a state

where the employer is immune from taxation, by Public Law 86-272 for example,

is included in the denominator of the payroll factor. Example: A corporation

has employees in its state of legal domicile (State A) and is taxable in State

B. In addition the corporation has other employees whose services are performed

entirely in State C where the corporation is immune from taxation by Public Law

86-272. As to these latter employees, the compensation will be assigned to State

C where their services are performed (i.e., included in the denominator – but

not the numerator – of the payroll factor) even though the corporation is not

taxable in State C.

c)         Numerator. The numerator of the payroll factor is the total

amount paid in this State during the tax period by the employer for compensation.

The tests in IITA Section 304(a)(2) to be applied in determining whether

compensation is paid in this State are derived from the Model Unemployment

Compensation Act.

d)         Compensation paid in this State

ration is not

taxable in State C.

c)         Numerator. The numerator of the payroll factor is the total

amount paid in this State during the tax period by the employer for compensation.

The tests in IITA Section 304(a)(2) to be applied in determining whether

compensation is paid in this State are derived from the Model Unemployment

Compensation Act.

d)         Compensation paid in this State. The term "compensation

paid in this State" is explained in Section 100.3120 of this Part.