Ala. Admin. Code r. 810-27-1-.18.04

Current through Register Vol. 42, No. 10, July 31, 2024

Section 810-27-1-.18.04 - Special Rules: Railroads

The following special rules are established in respect to railroads

(1)In General. Where a railroad has income from sources both within and without Alabama, the amount of business income from sources within Alabama must be determined pursuant to this rule. In such cases, the first step is to determine what portion of the railroad's income constitutes "business" income and which portion constitutes "nonbusiness" income. Nonbusiness income is directly allocable to specific states pursuant to the provisions of § 40-27-1, Code of Ala. 1975, inclusive. Business income is apportioned among the states in which the business is conducted. The sum of (1) the items of nonbusiness income directly allocated to Alabama and (2) the amount of business income attributable to Alabama constitutes the amount of the taxpayer's entire net income which is subject to tax by Alabama.

(2)Business and Nonbusiness Income. For definitions, rules and examples for determining business and nonbusiness income, see Rule 810-27-1-.01. "Business income" must be determined in accordance with § 40-27-1.1, Code of Ala. 1975. Nonbusiness income is defined in § 40-27-1, Code of Ala. 1975.

(3)Apportionment of Business Income.

(a) In General. Business income is apportioned to Alabama in accordance with the calculation provided in § 40-27-1, Code of Ala. 1975, and Rule 810-27-1-.09. The apportionment percentage is then applied to business income to determine the amount apportioned to Alabama.

1. For tax periods beginning on or after January 1, 2021, the property factor and the payroll factor are no longer considered in calculating a taxpayer's Alabama apportionment factor.

2. The industry specific definitions and guidance provided in this rule for property and payroll are applicable for tax periods beginning on or after January 1, 2021, when:

(i) A taxpayer petitions and is granted approval from the department to employ an alternative apportionment method in accordance with § 40-27-1, Code of Ala. 1975.

(ii) Measuring against nexus thresholds pursuant to § 40-18-31.2, Code of Ala. 1975.

(b) The Property Factor. For tax years prior to January 1, 2021, or if the taxpayer is granted approval from the Commissioner to employ an alternative apportionment method that includes the use of the property factor. The property factor shall be determined in accordance with Rule 810-27-1-.10 through 810-27-1-.12, inclusive, except as modified in this rule.

1. Property Valuation. Owned property must be valued at its original cost and property rented from others must be valued at eight (8) times the net annual rental rate in accordance with Rule 810-27-1-.11. Railroad cars owned and operated by other railroads and temporarily used by the taxpayer in its business and for which a per diem or mileage charge is made are not included in the property factor as rented property. Railroad cars owned and operated by the taxpayer and temporarily used by other railroads in their business and for which a per diem charge is made by the taxpayer are included in the property factor of the taxpayer.

2. General Definitions. The following definitions are applicable to the numerator and denominator of the property factor:

(i) "Original cost" is deemed to be the basis of the property for federal income tax purposes (prior to any federal income tax adjustments except for subsequent capital additions, improvements thereto or partial dispositions); or, if the property has no such basis, the valuation of such property for Interstate Commerce Commission purposes. If the original cost of property is unascertainable under the foregoing valuation standards, the property is included in the property factor at its fair market value as of the date of acquisition by the taxpayer (Rule 810-27-1-.11).

(ii) "Rent" does not include the per diem and mileage charges paid by the taxpayer for the temporary use of railroad cars owned or operated by another railroad.

(iii) The "value" of owned real and tangible personal property means its original cost. (See Rule 810-27-1-.11).

(iv) "Average value" of property means the amount determined by averaging the values at the beginning and ending of the income tax year, but the Commissioner may require the averaging of monthly values during the income year or such averaging as necessary to effect properly the average value of the railroad's property. (See Rule 810-27-1-.12.)

(v) The "value" of rented real and tangible personal property means the product of eight (8) times the net annual rental rate. (Rule 810-27-1-.11(2)).

(vi) "Net annual rental rate" means the annual rental rate paid by the taxpayer less any annual rental rate received by the taxpayer from subrentals.

(vii) "Property used during the income year" includes property which is available for use in the taxpayer's trade or business during the income year.

(viii) A "locomotive-mile" is the movement of a locomotive (a self-propelled unit of equipment designed solely for moving other equipment) a distance of one mile under its own power.

(ix) A "car-mile" is a movement of a unit of car equipment a distance of one mile.

3. The Denominator and Numerator of the Property Factor. The denominator of the property factor must be the average value of all of the taxpayer's real and tangible personal property owned or rented and used during the income year. The numerator of the property factor must be the average value of the taxpayer's real and tangible personal property owned or rented and used in Alabama during the income year.

(i) In determining the numerator of the property factor, all property except mobile or movable property such as passenger cars, freight cars, locomotives and freight containers which are located within and without Alabama during the income year must be included in the numerator of the property factor in accordance with Rule 810-27-1-.11 through 810-27-1-.12, inclusive.

(ii) Mobile or movable property such as passenger cars, freight cars, locomotives and freight containers which are located within and without Alabama during the income year must be included in the numerator of the property factor in the ratio which "locomotive-miles" and "car-miles" in Alabama bear to the total everywhere.

(a) The Payroll Factor. For tax years prior to January 1, 2021, or if the taxpayer is granted approval from the Commissioner to employ an alternative apportionment method that includes the use of the payroll factor. The denominator of the payroll factor is the total compensation paid everywhere by the taxpayer during the income year for the production of business income. (See Rule 810-27-1-.13 through 810-27-1-.14) The numerator of the payroll factor is the total amount paid in Alabama during the income year by the taxpayer for compensation. With respect to all personnel except enginemen and trainmen performing services on interstate trains, compensation paid to such employees must be included in the numerator as provided in Rules 810-27-1-.13 and 810-27-1-.14.

1. With respect to enginemen and trainmen performing services on interstate trains, compensation paid to such employees must be included in the numerator of the payroll factor in the ratio which their services performed in Alabama bear to their services performed everywhere. Compensation for services performed in Alabama should be deemed to be the compensation reported or required to be reported by such employees for determination of their income tax liability to Alabama.

(d) The Sales (Revenue) Factor.

1. In General. All revenue derived from transactions or activities in the regular course of the trade or business of the taxpayer which produces business income, except per diem and mileage charges which are collected by the taxpayer, is included in the denominator of the revenue factor. (See §§ 40-27-1, and 40-27-1.1, Code of Ala. 1975, and Rule 810-27-1-.01) The numerator of the revenue factor is the total revenue of the taxpayer in Alabama during the income year. The total revenue of the taxpayer in Alabama during the income year, other than revenue from hauling freight, passengers, mail and express, must be attributable to Alabama in accordance with § 40-27-1, Code of Ala.1975, and Rules 810-27-1-.15 and 810-27-1-.17.

2. Numerator of Sales (Revenue) Factor from Freight, Mail and Express. The total revenue of the taxpayer in Alabama during the income year for the numerator of the revenue factor from hauling freight, mail and express must be attributable to Alabama as follows:

(i) All receipts from shipments which both originate and terminate within Alabama.

(ii) The portion of the receipts from each movement or shipment passing through, into, or out of Alabama is determined by the ratio which the miles traveled by such movement or shipment in Alabama bear to the total miles traveled by such movement or shipment from point of origin to destination.

3. Numerator of Sales (Revenue) Factor from Passengers. The numerator of the sales (revenue) factor includes:

(i) All receipts from the transportation of passengers (including mail and express handled in passenger service) which both originate and terminate within Alabama.

(ii) The portion of the receipts from the transportation of interstate passengers (including mail and express handled in passenger service) determined by the ratio which revenue passenger miles in Alabama bear to the total everywhere.

Ala. Admin. Code r. 810-27-1-.18.04

Amended by Alabama Administrative Monthly Volume XXXV, Issue No. 01, October 30, 2016, eff. 11/20/2016.

Amended by Alabama Administrative Monthly Volume XL, Issue No. 05, February 28, 2022, eff. 4/14/2022.

Authors: Kathleen Abrams, Holly H. Coon, Christina Hall. CPA, Jennifer Reynolds

Statutory Authority:Code of Ala. 1975, §§ 40-2A-7(a)(5), 40-18-57; Rules 810-27-1-.11 through 810-27-1-.17.