Rule: 42.26.807 Prev     Up     Next Rule Title: AIRLINE REGULATION EXAMPLES

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42.26.807    AIRLINE REGULATION EXAMPLES

(1) Assume the following facts for an airline for the tax year:

(a) It has ten 747s ready for flight and in revenue service at an average per unit cost of \$40,000,000 for nine of the aircraft. It rents the remaining 747 from another airline for \$9,000,000 per year. At eight times rents, the latter is valued at \$72,000,000 for apportionment purposes. Total 747 valuation is, therefore, \$432,000,000 for property factor denominator purposes.

(b) It has 20 727s ready for flight and in revenue service at an average per unit cost of \$20,000,000. Total 727 valuation is, therefore, \$400,000,000 for property factor denominator purposes.

(c) It has nonflight tangible property (n.t.p.) valued at original cost of \$200,000,000.

(d) It has the following annual payroll:

 Flight personnel \$ 60,000,000 Nonflight personnel 40,000,000 Total \$100,000,000

(e) From its operations, it has total receipts of \$50,000,000, apportionable net income of \$1,000,000 and no nonapportionable income. The total \$50,000,000 is flight revenue; there is no nonflight revenue.

(f) It has the following within state X:

 (i) 10 percent of its 747 flight departures (.10 x 432,000,000 = \$43,200,000); (ii) 20 percent of its 727 flight departures (.20 x 400,000,000 = \$80,000,000); (iii) 5 percent of its nonflight tangible property (n.t.p.) (.05 x 200,000,000 = \$10,000,000); and (iv) 15 percent of its nonflight personnel payroll (.15 x 40,000,000 = \$6,000,000).

(g) State X has a corporate tax rate of 10 percent. The airline's tax liability to state X would be determined as follows:

 Property Factor: Numerator Denominator 43,200,000 (747s) 432,000,000 (747s) +80,000,000 (727s) + 400,000,000 (727s) +10,000,000 (n.t.p.) + 200,000,000 (n.t.p.) 133,200,000 / 1,032,000,000 = 12.91%

 Receipts Factor: Numerator Denominator 43,200,000 (747s) 432,000,000 (747s) +80,000,000 (727s) + 400,000,000 (727s) 123,200,000 / 832,000,000 = 14.8%

 departure ratio = 14.8% 7,403,846 (14.8% x 50,000,000) / 50,000,000 = 14.81%

 Payroll Factor: Numerator Denominator 6,000,000 (nonflight) 40,000,000 (nonflight) +8,880,000 (14.8% x 60,000,000 flight) + 60,000,000 (flight) 14,880,000 + 100,000,000 = 14.88%

 Average Ratio Equals the sum of the property, receipts, and payroll factors divided by 3. (12.91% + 14.81% + 14.88%) /3 = 14.20% Taxable Income in state X: .1420 x 1,000,000 = \$142,000 Tax Liability to state X: .10 x \$142,000 = \$14,200

(2) Same facts except (1)(f) is changed to read:

(a) It has the following within state Y:

 (i) 6 percent of its 747 flight departures (.06 x 432,000,000 = \$25,920,000); (ii) 31 percent of its 727 flight departures (.31 x 400,000,000 = \$124,000,000); and (iii) 3 percent of its nonflight tangible property (n.t.p.) x (.03 x 20,000,000 = \$6,000,000); and (iv) 7 percent of its nonflight personnel payroll (.07 x 40,000,000 = \$2,800,000)

(b) State Y has a corporate tax rate of 6.5 percent. The airline's tax liability to state Y would be determined as follows:

 Property Factor: Numerator Denominator 25,920,000 (747s) 432,000,000 (747s) +124,000,000 (727s) + 400,000,000 (727s) +    6,000,000 (n.t.p.) + 200,000,000 (n.t.p.) 155,920,000 / 1,032,000,000 = 15.1085%

 Receipts Factor: Numerator Denominator 25,920,000 (747s) 432,000,000 (747s) +124,000,000 (727s) + 400,000,000 (727s) 149,920,000 / 832,000,000 = 18.0192%

 departure ratio = 18.0192% 9,009,600 (18.0192% x 50,000,000) / 50,000,000 = 18.0192 percent

 Payroll Factor: Numerator Denominator 2,800,000 (nonflight) 40,000,000 (nonflight) +10,811,520 (18.0192% x 60,000,000 flight) + 60,000,000 (flight) 13,611,520 / 100,000,000 = 13.6114%

 Average Ratio Equals the sum of the property, receipts, and payroll factors divided by 3. (15.1085% + 18.0192% + 13.6114%) / 3 = 15.5797% Taxable Income in state Y: .155797 x 1,000,000 = \$155,797 Tax Liability to state Y: .065 x \$155,797 = \$10,127

History: 15-1-201, 15-31-313, 15-31-501, MCA; IMP, 15-1-601, 15-31-301, 15-31-302, 15-31-303, 15-31-304, 15-31-305, 15-31-306, 15-31-307, 15-31-308, 15-31-309, 15-31-310, 15-31-311, 15-31-312, MCA; NEW, 1988 MAR p. 401, Eff. 2/26/88; AMD, 1993 MAR p. 572, Eff. 4/16/93; TRANS, from 42.26.286 and AMD, 2001 MAR p. 2469, Eff. 12/21/01; AMD, 2017 MAR p. 2328, Eff. 1/1/18.

MAR Notices Effective From Effective To History Notes
42-2-985 1/1/2018 Current History: 15-1-201, 15-31-313, 15-31-501, MCA; IMP, 15-1-601, 15-31-301, 15-31-302, 15-31-303, 15-31-304, 15-31-305, 15-31-306, 15-31-307, 15-31-308, 15-31-309, 15-31-310, 15-31-311, 15-31-312, MCA; NEW, 1988 MAR p. 401, Eff. 2/26/88; AMD, 1993 MAR p. 572, Eff. 4/16/93; TRANS, from 42.26.286 and AMD, 2001 MAR p. 2469, Eff. 12/21/01; AMD, 2017 MAR p. 2328, Eff. 1/1/18.
12/21/2001 1/1/2018 History: Sec. 15-1-201, 15-31-313, and 15-31-501, MCA; IMP, Sec. 15-1-601, 15-31-301, 15-31-302, 15-31-303, 15-31-304, 15-31-305, 15-31-306, 15-31-307, 15-31-308, 15-31-309, 15-31-310, 15-31-311, and 15-31-312, MCA; NEW, 1988 MAR p. 401, Eff. 2/26/88; AMD, 1993 MAR p. 572, Eff. 4/16/93; TRANS, from 42.26.286 and AMD, 2001 MAR p. 2469, Eff. 12/21/01.
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