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§ 48-7-31 - Taxation of corporations; allocation and apportionment of income; formula for apportionment

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O.C.G.A.48-7-31 (2010)LexisNexis Practice Insights1.Deciphering the Financial Accounting Standards Board Interpretation (FIN) 482.Apportionment of Georgia Corporate Income Tax: Phase-In of the Single-Factor Sales Formula3.Alternative Apportionment Provisions and the "Fairly Represent Income" Standard4.Apportionment for Special Industries5.Apportionment of Income for Manufacturers, Producers, and Sellers of Tangible Personal Property6.Allocation of Income from Intangible Property: Situs Provisions7.ImplementingFinancial Accounting Standards Board Interpretation (FIN) 48: U.S.Supreme Court Case Law Evaluating Unitary and Non-Unitary Factors8.Implementing FIN 48: Evaluating Business and Non-Business Income Tax Positions and the Operational Connection Test9.Understanding Mead and its Application to Business and Non-Business Income 48-7-31.Taxation of corporations; allocation and apportionment of income; formula for apportionment (a)Thetax imposed by this chapter shall apply to the entire net income, asdefined in this article, received by every foreign or domesticcorporation owning property within this state, doing business withinthis state, or deriving income from sources within this state to theextent permitted by the United States Constitution. A corporation shallbe deemed to be doing business within this state if it engages withinthis state in any activities or transactions for the purpose offinancial profit or gain whether or not:(1)The corporation qualifies to do business in this state;(2)The corporation maintains an office or place of doing business within this state; or(3)Any such activity or transaction is connected with interstate or foreign commerce.(b)(1)Ifthe entire business income of the corporation is derived from propertyowned or business done in this state, the tax shall be imposed on theentire business income.(2)If thebusiness income of the corporation is derived in part from propertyowned or business done in this state and in part from property owned orbusiness done outside this state, the tax shall be imposed only on thatportion of the business income which is reasonably attributable to theproperty owned and business done within this state, such portion to bedetermined as provided in subsections (c) and (d) of this Code section.(c)(1)Interestreceived on bonds held for investment and income received from otherintangible property held for investment are not subject toapportionment. All expenses connected with such investment income shallbe applied against the investment income. The net investment income fromintangible property shall be allocated to this state if the situs ofthe corporation is in this state or if the intangible property wasacquired as income from property held in this state or as a result ofbusiness done in this state.(2)Rentalsreceived from real estate held purely for investment purposes and notused in the operation of any business are not subject to apportionment.All expenses connected with such investment income shall be appliedagainst the investment income. The net investment income from tangibleproperty located in this state shall be allocated to this state.(3)Gainsfrom the sale of tangible or intangible property not held, owned, orused in connection with the trade or business of the corporation norheld for sale in the regular course of business shall be allocated tothis state if the property sold is real or tangible personal propertysituated in this state or intangible property having an actual situs or abusiness situs within this state. Otherwise, the gains shall not beallocated to this state.(d)Net income ofthe classes described in subsection (c) of this Code section having beenseparately allocated and deducted, the remainder of the net businessincome shall be apportioned as follows:(1)Wherethe net business income of the corporation is derived principally fromthe manufacture, production, or sale of tangible personal property, theportion of net income therefrom attributable to property owned orbusiness done within this state shall be taken to be the portion arrivedat by application of the following formula:(A)Gross receipts factor.(i)Thegross receipts factor is a fraction, the numerator of which is thetotal gross receipts from business done within this state during the taxperiod and the denominator of which is the total gross receipts frombusiness done everywhere during the tax period. For the purposes of thissubparagraph, receipts shall be deemed to have been derived frombusiness done within this state only if the receipts are received fromproducts shipped to customers in this state, or from products deliveredwithin this state to customers. In determining the gross receipts withinthis state, receipts from sales negotiated or effected through officesof the taxpayer outside this state and delivered from storage in thisstate to customers outside this state shall be excluded;(ii)Wherea taxpayer's gross receipts are also derived from activities describedin paragraph (2) of this subsection, gross receipts shall also includethe gross receipts from the activities described in paragraph (2) ofthis subsection and shall be attributed to Georgia based upon division(2)(A)(i) of this subsection;(B)Apportionmentformula. The net income of the corporation shall be apportioned to thisstate according to the gross receipts factor pursuant to subparagraph(A) of this paragraph;(2)Except asotherwise provided in paragraph (2.1) or (2.2) of this subsection, wherethe net business income is derived principally from business other thanthe manufacture, production, or sale of tangible personal property, thenet business income of the corporation shall be determined by applyingthe following formula:(A)Gross receipts factor.(i)Thegross receipts factor is a fraction, the numerator of which is thetotal gross receipts from business done within this state during the taxperiod and the denominator of which is the total gross receipts frombusiness done everywhere during the tax period. For purposes of thissubparagraph, the term "gross receipts" means all gross receiptsreceived from activities which constitute the taxpayer's regular tradeor business. Gross receipts are in this state if the receipts arederived from customers within this state or if the receipts areotherwise attributable to this state's marketplace;(ii)Wherea taxpayer's gross receipts are also derived from activities describedin paragraph (1) of this subsection, gross receipts shall also includethe gross receipts from the activities described in paragraph (1) ofthis subsection and shall be attributed to Georgia based upon division(1)(A)(i) of this subsection;(B)Apportionmentformula. The net income of the corporation shall be apportioned to thisstate according to the gross receipts factor pursuant to subparagraph(A) of this paragraph;(C)If theallocation and apportionment provisions provided for in this paragraphdo not fairly represent the extent of the taxpayer's business activityin this state, the taxpayer may petition the commissioner for, or thecommissioner may by regulation require, with respect to all or any partof the taxpayer's business activity, if reasonable:(i)Separate accounting;(ii)The exclusion of any one or more of the factors;(iii)Theinclusion of one or more additional factors that will fairly representthe taxpayer's business activity within this state; or(iv)Theemployment of any other method to effectuate an equitable allocationand apportionment of the taxpayer's income.The denial of a petition under this subparagraph shall be appealable pursuant to either Code Section 48-2-59 or 50-13-12;(2.1)(A)Exceptas otherwise provided in this paragraph, all terms used in thisparagraph shall have the same meaning as such terms are defined in 49U.S.C. Section 1301 and the United States Department of Transportation'sUniform System of Accounts and Reports for Large Certificated AirCarriers, 14 C.F.R. Part 241, as now or hereafter amended.(B)Wherethe net business income of the corporation is derived principally fromtransporting passengers or cargo in revenue flight, the portion of thenet income therefrom attributable to property owned or business donewithin this state shall be taken to be the portion arrived at byapplication of the following three-factor formula:(i)Revenueair miles factor. The revenue air miles factor is a fraction, thenumerator of which shall be equal to the total, for each flight stagewhich originates or terminates in this state, of revenue passenger milesby aircraft type flown in this state and revenue cargo ton miles byaircraft type flown in this state and the denominator of which shall beequal to the total, for all flight stages flown everywhere, of totalrevenue passenger miles by aircraft type and total revenue cargo tonmiles by aircraft type;(ii)Tonshandled factor. The tons handled factor is a fraction, the numerator ofwhich shall be equal to the total of revenue passenger tons by aircrafttype handled in this state and revenue cargo tons by aircraft typehandled in this state and the denominator of which shall be equal to thetotal of revenue passenger tons by aircraft type flown everywhere andrevenue cargo tons by aircraft type flown everywhere. For purposes ofthis division, the term 'handled' means the product of 60 percentmultiplied by the revenue passenger tons flown on each flight stagewhich originates in this state or 60 percent multiplied by the revenuecargo tons flown on each flight stage which originates in this state;(iii)Originatingrevenue factor. The originating revenue factor is a fraction, thenumerator of which shall be equal to the total of passenger and cargorevenue by aircraft type which is attributable to this state and thedenominator of which shall be the total of passenger and cargo revenueby aircraft type everywhere. For purposes of this division, passenger orcargo revenue which is attributable to this state shall be equal to theproduct of passenger or cargo revenue everywhere by aircraft typemultiplied by the ratio of revenue passenger miles or revenue cargo tonmiles in this state to total revenue passenger miles everywhere or totalrevenue cargo ton miles everywhere for each aircraft type as separatelydetermined in division (i) of this subparagraph. If records of totalpassenger revenue everywhere by aircraft type or total cargo revenueeverywhere by aircraft type are not maintained, then for purposes ofthis division, total passenger revenue everywhere for all aircraft typesor total cargo revenue everywhere for all aircraft types shall beallocated to each aircraft type based on the ratio of total revenuepassenger miles everywhere for that aircraft type to all aircraft typesor total revenue cargo ton miles everywhere for that aircraft type toall aircraft types;(iv)Therevenue air miles factor, the tons handled factor, and the originatingrevenue factor shall be separately determined and an apportionmentfraction shall be calculated using the following formula:(I)The revenue air miles factor shall represent 25 percent of the fraction;(II)The tons handled factor shall represent 25 percent of the fraction; and(III)The originating revenue factor shall represent 50 percent of the fraction.The net income of the corporation shall be apportioned to this state according to such average fraction;(2.2)(A)As used in this paragraph, the term:(i)"Creditcard data processing and related services" shall include, but not belimited to, the provision of infrastructure services for bank creditcard and private label card issuers, such as new account applicationprocessing, international and domestic clearing, statement preparation,point-of-sale authorization processing, card embossing, and otherrelated processing services for managing cardholder accounts.(ii)"Customer" means the banks and institutions to whom credit card data processing and related services are provided.(iii)"Grossreceipts factor" means a fraction, the numerator of which is the totalgross receipts from the taxpayer's customers during the tax period, ifthe principal office of the customer's credit card operation is in thisstate or if the principal office of the taxpayer's customer is in thisstate, and the denominator of which is the total gross receipts from allof the taxpayer's customers during the tax period.(B)Wheremore than 60 percent of the total gross receipts of a corporation arederived from the provision of credit card data processing and relatedservices to banks and other institutions, the portion of the net incomeattributable to business done in this state shall be determined bymultiplying the corporation's net income by the gross receipts factor indivision (iii) of subparagraph (A) of this paragraph;(3)Forthe purposes of this subsection, the term "sale" shall include, but notbe limited to, an exchange, and the term "manufacture" shall include,but not be limited to, the extraction and recovery of natural resourcesand all processes of fabricating and curing.(e)Thenet income of a domestic or foreign corporation which is a subsidiaryof another corporation or which is closely affiliated with anothercorporation by stock ownership shall be determined by eliminating allpayments to the parent corporation or affiliated corporation in excessof fair value and by including fair compensation to the domesticbusiness corporation for its commodities sold to or services performedfor the parent corporation or affiliated corporation. For the purposesof determining net income as provided in this subsection, thecommissioner may equitably determine the net income by reasonable rulesof apportionment of the combined income of the subsidiary, its parent,and affiliates, or any combination of the subsidiary, its parent, andany one or more of its affiliates.
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  • O.C.G.A. 48-7-31 (2010)
    LexisNexis Practice Insights

    1. Deciphering the Financial Accounting Standards Board Interpretation (FIN) 48

    2. Apportionment of Georgia Corporate Income Tax: Phase-In of the Single-Factor Sales Formula

    3. Alternative Apportionment Provisions and the "Fairly Represent Income" Standard

    4. Apportionment for Special Industries

    5. Apportionment of Income for Manufacturers, Producers, and Sellers of Tangible Personal Property

    6. Allocation of Income from Intangible Property: Situs Provisions

    7. Implementing Financial Accounting Standards Board Interpretation (FIN) 48: U.S. Supreme Court Case Law Evaluating Unitary and Non-Unitary Factors

    8. Implementing FIN 48: Evaluating Business and Non-Business Income Tax Positions and the Operational Connection Test

    9. Understanding Mead and its Application to Business and Non-Business Income

    48-7-31. Taxation of corporations; allocation and apportionment of income; formula for apportionment


    (a) The tax imposed by this chapter shall apply to the entire net income, as defined in this article, received by every foreign or domestic corporation owning property within this state, doing business within this state, or deriving income from sources within this state to the extent permitted by the United States Constitution. A corporation shall be deemed to be doing business within this state if it engages within this state in any activities or transactions for the purpose of financial profit or gain whether or not:

    (1) The corporation qualifies to do business in this state;

    (2) The corporation maintains an office or place of doing business within this state; or

    (3) Any such activity or transaction is connected with interstate or foreign commerce.
    (b)(1) If the entire business income of the corporation is derived from property owned or business done in this state, the tax shall be imposed on the entire business income.

    (2) If the business income of the corporation is derived in part from property owned or business done in this state and in part from property owned or business done outside this state, the tax shall be imposed only on that portion of the business income which is reasonably attributable to the property owned and business done within this state, such portion to be determined as provided in subsections (c) and (d) of this Code section.
    (c)(1) Interest received on bonds held for investment and income received from other intangible property held for investment are not subject to apportionment. All expenses connected with such investment income shall be applied against the investment income. The net investment income from intangible property shall be allocated to this state if the situs of the corporation is in this state or if the intangible property was acquired as income from property held in this state or as a result of business done in this state.

    (2) Rentals received from real estate held purely for investment purposes and not used in the operation of any business are not subject to apportionment. All expenses connected with such investment income shall be applied against the investment income. The net investment income from tangible property located in this state shall be allocated to this state.

    (3) Gains from the sale of tangible or intangible property not held, owned, or used in connection with the trade or business of the corporation nor held for sale in the regular course of business shall be allocated to this state if the property sold is real or tangible personal property situated in this state or intangible property having an actual situs or a business situs within this state. Otherwise, the gains shall not be allocated to this state.

    (d) Net income of the classes described in subsection (c) of this Code section having been separately allocated and deducted, the remainder of the net business income shall be apportioned as follows:

    (1) Where the net business income of the corporation is derived principally from the manufacture, production, or sale of tangible personal property, the portion of net income therefrom attributable to property owned or business done within this state shall be taken to be the portion arrived at by application of the following formula:

    (A) Gross receipts factor.

    (i) The gross receipts factor is a fraction, the numerator of which is the total gross receipts from business done within this state during the tax period and the denominator of which is the total gross receipts from business done everywhere during the tax period. For the purposes of this subparagraph, receipts shall be deemed to have been derived from business done within this state only if the receipts are received from products shipped to customers in this state, or from products delivered within this state to customers. In determining the gross receipts within this state, receipts from sales negotiated or effected through offices of the taxpayer outside this state and delivered from storage in this state to customers outside this state shall be excluded;

    (ii) Where a taxpayer's gross receipts are also derived from activities described in paragraph (2) of this subsection, gross receipts shall also include the gross receipts from the activities described in paragraph (2) of this subsection and shall be attributed to Georgia based upon division (2)(A)(i) of this subsection;

    (B) Apportionment formula. The net income of the corporation shall be apportioned to this state according to the gross receipts factor pursuant to subparagraph (A) of this paragraph;

    (2) Except as otherwise provided in paragraph (2.1) or (2.2) of this subsection, where the net business income is derived principally from business other than the manufacture, production, or sale of tangible personal property, the net business income of the corporation shall be determined by applying the following formula:

    (A) Gross receipts factor.

    (i) The gross receipts factor is a fraction, the numerator of which is the total gross receipts from business done within this state during the tax period and the denominator of which is the total gross receipts from business done everywhere during the tax period. For purposes of this subparagraph, the term "gross receipts" means all gross receipts received from activities which constitute the taxpayer's regular trade or business. Gross receipts are in this state if the receipts are derived from customers within this state or if the receipts are otherwise attributable to this state's marketplace;

    (ii) Where a taxpayer's gross receipts are also derived from activities described in paragraph (1) of this subsection, gross receipts shall also include the gross receipts from the activities described in paragraph (1) of this subsection and shall be attributed to Georgia based upon division (1)(A)(i) of this subsection;

    (B) Apportionment formula. The net income of the corporation shall be apportioned to this state according to the gross receipts factor pursuant to subparagraph (A) of this paragraph;

    (C) If the allocation and apportionment provisions provided for in this paragraph do not fairly represent the extent of the taxpayer's business activity in this state, the taxpayer may petition the commissioner for, or the commissioner may by regulation require, with respect to all or any part of the taxpayer's business activity, if reasonable:

    (i) Separate accounting;

    (ii) The exclusion of any one or more of the factors;

    (iii) The inclusion of one or more additional factors that will fairly represent the taxpayer's business activity within this state; or

    (iv) The employment of any other method to effectuate an equitable allocation and apportionment of the taxpayer's income.

    The denial of a petition under this subparagraph shall be appealable pursuant to either Code Section 48-2-59 or 50-13-12;
    (2.1)(A) Except as otherwise provided in this paragraph, all terms used in this paragraph shall have the same meaning as such terms are defined in 49 U.S.C. Section 1301 and the United States Department of Transportation's Uniform System of Accounts and Reports for Large Certificated Air Carriers, 14 C.F.R. Part 241, as now or hereafter amended.

    (B) Where the net business income of the corporation is derived principally from transporting passengers or cargo in revenue flight, the portion of the net income therefrom attributable to property owned or business done within this state shall be taken to be the portion arrived at by application of the following three-factor formula:

    (i) Revenue air miles factor. The revenue air miles factor is a fraction, the numerator of which shall be equal to the total, for each flight stage which originates or terminates in this state, of revenue passenger miles by aircraft type flown in this state and revenue cargo ton miles by aircraft type flown in this state and the denominator of which shall be equal to the total, for all flight stages flown everywhere, of total revenue passenger miles by aircraft type and total revenue cargo ton miles by aircraft type;

    (ii) Tons handled factor. The tons handled factor is a fraction, the numerator of which shall be equal to the total of revenue passenger tons by aircraft type handled in this state and revenue cargo tons by aircraft type handled in this state and the denominator of which shall be equal to the total of revenue passenger tons by aircraft type flown everywhere and revenue cargo tons by aircraft type flown everywhere. For purposes of this division, the term 'handled' means the product of 60 percent multiplied by the revenue passenger tons flown on each flight stage which originates in this state or 60 percent multiplied by the revenue cargo tons flown on each flight stage which originates in this state;

    (iii) Originating revenue factor. The originating revenue factor is a fraction, the numerator of which shall be equal to the total of passenger and cargo revenue by aircraft type which is attributable to this state and the denominator of which shall be the total of passenger and cargo revenue by aircraft type everywhere. For purposes of this division, passenger or cargo revenue which is attributable to this state shall be equal to the product of passenger or cargo revenue everywhere by aircraft type multiplied by the ratio of revenue passenger miles or revenue cargo ton miles in this state to total revenue passenger miles everywhere or total revenue cargo ton miles everywhere for each aircraft type as separately determined in division (i) of this subparagraph. If records of total passenger revenue everywhere by aircraft type or total cargo revenue everywhere by aircraft type are not maintained, then for purposes of this division, total passenger revenue everywhere for all aircraft types or total cargo revenue everywhere for all aircraft types shall be allocated to each aircraft type based on the ratio of total revenue passenger miles everywhere for that aircraft type to all aircraft types or total revenue cargo ton miles everywhere for that aircraft type to all aircraft types;

    (iv) The revenue air miles factor, the tons handled factor, and the originating revenue factor shall be separately determined and an apportionment fraction shall be calculated using the following formula:

    (I) The revenue air miles factor shall represent 25 percent of the fraction;

    (II) The tons handled factor shall represent 25 percent of the fraction; and

    (III) The originating revenue factor shall represent 50 percent of the fraction.

    The net income of the corporation shall be apportioned to this state according to such average fraction;
    (2.2)(A) As used in this paragraph, the term:

    (i) "Credit card data processing and related services" shall include, but not be limited to, the provision of infrastructure services for bank credit card and private label card issuers, such as new account application processing, international and domestic clearing, statement preparation, point-of-sale authorization processing, card embossing, and other related processing services for managing cardholder accounts.

    (ii) "Customer" means the banks and institutions to whom credit card data processing and related services are provided.

    (iii) "Gross receipts factor" means a fraction, the numerator of which is the total gross receipts from the taxpayer's customers during the tax period, if the principal office of the customer's credit card operation is in this state or if the principal office of the taxpayer's customer is in this state, and the denominator of which is the total gross receipts from all of the taxpayer's customers during the tax period.

    (B) Where more than 60 percent of the total gross receipts of a corporation are derived from the provision of credit card data processing and related services to banks and other institutions, the portion of the net income attributable to business done in this state shall be determined by multiplying the corporation's net income by the gross receipts factor in division (iii) of subparagraph (A) of this paragraph;

    (3) For the purposes of this subsection, the term "sale" shall include, but not be limited to, an exchange, and the term "manufacture" shall include, but not be limited to, the extraction and recovery of natural resources and all processes of fabricating and curing.

    (e) The net income of a domestic or foreign corporation which is a subsidiary of another corporation or which is closely affiliated with another corporation by stock ownership shall be determined by eliminating all payments to the parent corporation or affiliated corporation in excess of fair value and by including fair compensation to the domestic business corporation for its commodities sold to or services performed for the parent corporation or affiliated corporation. For the purposes of determining net income as provided in this subsection, the commissioner may equitably determine the net income by reasonable rules of apportionment of the combined income of the subsidiary, its parent, and affiliates, or any combination of the subsidiary, its parent, and any one or more of its affiliates.

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