103 KAR 16:270. Apportionment; sales

factor.

 

      RELATES TO: KRS 141.120, 141.040(5)(b)1,

141.206

      STATUTORY AUTHORITY: KRS 131.130,

141.018, 141.120(10)(b)

      NECESSITY, FUNCTION, AND CONFORMITY: KRS

141.120(8) requires that all business income of multi-state corporations be

apportioned to Kentucky by multiplying the income by a fraction, the numerator

of which is the property factor plus the payroll factor plus a weighted sales

factor and the denominator of which is four (4). KRS 141.120(10)(b) requires

the cabinet to promulgate administrative regulations providing how to determine

the sales factor used in the multi-state business income apportionment formula.

This administrative regulation provides guidelines for determining the sales

factor of a multistate corporation.

 

      Section 1. Definition. (1) "Gross

receipts" means the total amount of consideration, including cash, credit,

property, and services, paid for the sale, lease, rental, or use of property.

 

      Section 2. The following shall be

examples of activities that result in the assignments of gross receipts to

Kentucky and shall be included in the numerator described in KRS 141.120(8)(c),

if the receipts are business income:

      (1) The sale, lease, rental, or other use

of tangible personal property in this state;

      (2) The sale of real property located in

Kentucky;

      (3) The lease, rental or other use of

real property located in Kentucky;

      (4) The provision of services performed

entirely in Kentucky during the tax period;

      (5) The provision of services performed

within and without Kentucky during the tax period;

      (6) Intangible property received by a

business with a commercial domicile in Kentucky;

      (7) Intangible property, if the

intangible has acquired a Kentucky business situs;

      (8) Franchise fees received from a

franchisee located in Kentucky; and

      (9) The distributive share of net income

received from a general partnership that is required to file a Kentucky income

tax return under the provisions of KRS 141.206.

 

      Section 3. Assignment of Sales to

Kentucky. (1) Sales of real or tangible personal property shall be assigned to

Kentucky if the property is in Kentucky or is shipped or delivered to a

purchaser in Kentucky.

      (2) Sales of goods destined for delivery

outside of Kentucky shall not be assigned to Kentucky, irrespective of method

of shipment or delivery.

      (3) Sales of tangible personal property

to the U.S. Government shall be assigned to Kentucky if the property is shipped

from Kentucky.

      (4) Receipts from intangibles shall be

assigned to Kentucky if the corporation’s commercial domicile is in Kentucky or

the intangible has acquired a Kentucky business situs. Examples of receipts

from intangibles which are deemed to have acquired a Kentucky business situs

shall be franchise fees from a franchisee located in Kentucky and a

corporation’s Kentucky distributive share of net income from a general

partnership doing business in Kentucky.

      (5) Rents or royalties from real or

tangible personal property shall be assigned to Kentucky if the property is

located in Kentucky or in the case of mobile property the rent is assigned to

Kentucky, if the lessee’s base of operations for the property is in Kentucky.

      (6) Receipts from the performance of

services shall be assigned to Kentucky if the services are performed entirely

in Kentucky, or the services are performed both within and without Kentucky but

a greater portion is performed in Kentucky than in any other state based on

cost of performance.

      (7) If the corporation has income from a

general partnership, the distributive share income shall be included in the

sales factor. The denominator shall include the total distributive share; the

numerator shall include the amount of the distributive share apportioned to

Kentucky pursuant to KRS 141.206(9).

 

      Section 4.(1) Receipts from intangible

property shall be assigned to Kentucky, regardless of the corporation’s or

general partnership’s commercial domicile, if possession and control of the intangible

personal property is localized in connection with a trade or business, creating

business situs with Kentucky, so that substantial use or value attaches to the

intangible property in Kentucky.

      (2) In determining if possession and

control is localized in connection with a trade or business, the following

factors shall be considered:

      (a) The use of the intangible property in

the continuous course of the trade or business in Kentucky;

      (b) The permanency of the location of the

intangible property in Kentucky;

      (c) The independent control and

management of the intangible property in Kentucky;

      (d) The possession and control of the

intangible property in Kentucky by an independent local agent for the purpose

of transacting a permanent business; and

      (e) The establishment or use of the

intangible property in Kentucky in a manner that attaches substantial use and

value of the intangible property to the Kentucky trade or business.

 

      Section 5. This administrative regulation

shall apply to tax periods beginning on or after January 1, 2005. (32 Ky.R.

1830; 2290; 33 Ky.R. 71; eff. 8-7-2006.)