Section 25137 permits a departure from the allocation and apportionment provisions of the Uniform Division of Income for Tax Purposes Act only in limited and specific cases.
Section 25137 may be invoked only in specific cases where unusual fact situations (which ordinarily will be unique and nonrecurring) produce incongruous results under the apportionment and allocation provisions contained in these regulations.
In the case of certain industries such as air transportation, rail transportation, ship transportation, trucking, television, radio, motion pictures, various types of professional athletics, and so forth, the foregoing regulations in respect to the apportionment formula do not set forth appropriate procedures for determining the apportionment factors. Nothing in Section 25137 or in this Regulation shall preclude the Franchise Tax Board from establishing appropriate procedures under Sections 25129 to 25136 inclusive, for determining the apportionment factors for each such industry, but such procedures shall be applied uniformly.
In no case however shall such value be less than an amount which bears the same ratio to the annual rental rate paid by the taxpayer for such property as the fair market value of that portion of the property used by the taxpayer bears to the total fair market value of the rented property.
EXAMPLE:
The taxpayer rents a 10-story building at an annual rental rate of $1,000,000. Taxpayer occupies two stories and sublets eight stories for $1,000,000 a year. The net annual rental rate of the taxpayer must not be less than two-tenths of the taxpayer's annual rental rate for the entire year, or $200,000.
EXAMPLE: On December 31, 2000, a taxpayer engaged in the paper products business enters into a 50-year forest management agreement with a government entity to commence January 1, 2001, that allows it to extract 100,000 cords of timber per year from forests owned by that government entity. In exchange for the right to enter the government's land and extract timber, the taxpayer agrees to pay a royalty fee of $10.00 per cord extracted, plus a $10,000 per year access fee, $10,000 fire protection fee for any fires caused by the taxpayer, and an additional reforestation fee of 10 percent of the royalty fee paid. The forest management agreement also requires the taxpayer to make $1 million worth of improvements to an existing mill facility owned by the government entity. In taxable year 2001, the taxpayer extracts 50,000 cords and does not cause any fires to occur. It also makes the $1 million in improvements to the existing mill facility. The taxpayer therefore pays the government entity the $10,000 access fee, $500,000 in royalty fees ($10.00 per cord times 50,000 cords), and an additional $50,000 for the reforestation fee (10 percent of the $500,000 royalty fee). Under these facts, the taxpayer is entitled to claim $560,000 as the net annual rental rate. The taxpayer reports $4,480,000 ($560,000 multiplied by 8) for property factor purposes for this property for taxable year 2001. In addition, the taxpayer reports the $1 million in improvements in the property factor as property owned by the taxpayer in accordance with California Code of Regulations, title 18, section 25130, subsection (b)(5), for taxable year 2001.
Where business income from intangible property cannot readily be attributed to any particular income producing activity of the taxpayer, such income cannot be assigned to the numerator of the sales factor for any state and shall be excluded from the denominator of the sales factor. For example, where business income in the form of dividends received on stock, royalties received on patents or copyrights, or interest received on bonds, debentures or government securities results from the mere holding of the intangible personal property by the taxpayer, such dividends and interest shall be excluded from the denominator of the sales factor.
After the taxpayer has submitted its opening brief, Franchise Tax Board staff shall have thirty (30) calendar days to submit its opening brief. Thereafter, the taxpayer shall have thirty (30) calendar days to submit a reply brief. Further briefing may be required by the Franchise Tax Board, itself. All briefs are subject to the following requirements:
Cal. Code Regs. Tit. 18, § 25137
Note: Authority cited: Section 19503, Revenue and Taxation Code. Reference: Section 11430.10, Government Code; and Section 25137, Revenue and Taxation Code.
Note: Authority cited: Section 19503, Revenue and Taxation Code. Reference: Section 25137, Revenue and Taxation Code.
2. Repealer and new subsection (e)(6)(C) filed 11-10-76; effective thirtieth day thereafter (Register 76, No. 46).
3. New subsection (g) filed 2-17-78; effective thirtieth day thereafter (Register 78, No. 7).
4. New subsections (i)-(n) filed 7-7-82; effective thirtieth day thereafter (Register 82, No. 28).
5. Editorial correction of subsections (i)-(n) filed 11-10-82 (Register 82, No. 46).
6. Editorial correction adding new subsection (d), and renumbering and amendment of former Section 25137(e)-(n) to Sections 25137-1 through 25137-7 and 25137-10 filed 3-27-85; effective upon filing pursuant to Government Code Section 11346.2(d) (Register 85, No. 13).
7. Amendment of subsection (c)(1)(A) and new subsections (c)(1)(A)1.-2. filed 1-30-2001; operative 1-1-2001 (Register 2001, No. 5).
8. Editorial correction inserting proper operative date in History 7 (Register 2001, No. 9).
9. Amendment of section and Note filed 1-28-2005; operative 2-27-2005 (Register 2005, No. 4).
10. New subsections (c)(1)(D)-(c)(1)(D)3. filed 4-29-2008; operative 5-29-2008 (Register 2008, No. 18).
11. Amendment of subsection (d), new subsections (d)(1)-(d)(4)(D) and amendment of NOTE filed 11-3-2023; operative 11/3/2023 pursuant to Government Code section 11343.4(b)(3) (Register 2023, No. 44).