KRS 136.535 — Calculation of property factor

(1) As used in this section:
(a) "Administration" means the process of managing an account. The process
includes bookkeeping, collecting the payments, corresponding with the
customer, reporting to management regarding the status of the agreement and
proceeding against the borrower or the security interest if the borrower is in
default. The activity is located at the regular place of business that oversees
this activity;
(b) "Approval" means the procedure whereby employees or the board of directors
of the financial institution make the fina l determination whether to enter into
the agreement. The activity is located at the regular place of business which
the financial institution's employees making the final determination are
regularly connected with or working out of, regardless of where the services of
the employees were actually performed. If the board of directors makes the
final determination, the activity is located at the commercial domicile of the
financial institution;
(c) "Investigation" means the procedure whereby employees of the f inancial
institution determine the credit worthiness of the customer as well as the
degree of risk involved in making a particular agreement. The activity is
located at the regular place of business which the financial institution's
employees making the in vestigation are regularly connected with or working
out of, regardless of where the services of the employees were actually
performed;
(d) "Negotiation" means the procedure whereby employees of the financial
institution and its customer determine the terms of the agreement, including
the amount, duration, interest rate, frequency of repayment, currency
denomination, and security required. The activity is located at the regular
place of business which the financial institution's employees are regularly
connected with or out of, regardless of where the services of the employees
were actually performed;
(e) "Participation" means an extension of credit in which an undivided ownership
interest is held on a pro rata basis in a single loan or pool of loans and rela ted
collateral. In a loan participation, the credit originator initially makes the loan
and then subsequently resells all or a portion of it to other lenders. The
participation may or may not be known to the borrower; and
(f) "Solicitation" occurs when:
1. An employee of the financial institution initiates contact with the
customer. The activity is located at the regular place of business which
the financial institution's employee making the contact is regularly
connected with or working out of, regardless of where the services of the
employee were actually performed; or
2. The customer initiates the contact with the financial institution. If the
customer's initial contact was not at a regular place of business of the
financial institution, the regular place of business, if any, where the
solicitation occurred is determined by the facts in each case.
(2) The property factor is a fraction, the numerator of which is the average value of real
property and tangible personal property rented to the financial instit ution that is
located or used within this Commonwealth during the taxable year, the average
value of the financial institution's real and tangible personal property owned that is
located or used within this Commonwealth during the taxable year, and the ave rage
value of the financial institution's loans and credit card receivables that are located
within this Commonwealth during the taxable year, and the denominator of which is
the average value of all such property located or used within and without this
Commonwealth during the taxable year. Average value of property is determined
under subsection (4) of this section.
(3) (a) The value of real property and tangible personal property owned by the
financial institution is the original cost or other basis of pr operty for federal
income tax purposes without regard to depletion, depreciation, or
amortization.
(b) Loans are valued at their outstanding principal balance, without regard to any
reserve for bad debts. If a loan is charged off in whole or in part for federal
income tax purposes, the portion of the loan charged off is not outstanding. A
specifically-allocated reserve established pursuant to regulatory or financial
accounting guidelines which is treated as charged off for federal income tax
purposes shall be treated as charged off for purposes of this section.
(c) Credit card receivables are valued at their outstanding principal balance,
without regard to any reserve for bad debts. If a credit card receivable is
charged off in whole or in part for federal income tax purposes, the portion of
the receivable charged off is not outstanding.
(4) The average value of property owned by the financial institution is computed on an
annual basis by adding the value of the property on the first day of the taxable year
and the value on the last day of the taxable year and dividing the sum by two (2). If
averaging on this basis does not properly reflect average value, the department may
require averaging on a more frequent basis. The financial institution may request
permission from the department to average on a more frequent basis. When
averaging on a more frequent basis is authorized by the department, the same
method of valuation shall be used consistently by the financial institution with
respect to property within and without this Commonwealth and on all subsequent
returns unless the financial institution receives prio r permission from the
department or the department requires a different method of determining average
value.
(5) (a) The average value of real property and tangible personal property that the
financial institution has rented from another and which is not t reated as
property owned by the financial institution for federal income tax purposes
shall be determined annually by multiplying the gross rents payable during the
taxable year by eight (8).
(b) Where the use of the general method described in this subsec tion results in
inaccurate valuations of rented property, any other method which properly
reflects the value may be adopted by the department or by the financial
institution when approved in writing by the department. Once approved, the
alternative method of valuation shall be used on all subsequent returns unless
the financial institution receives prior approval from the department or the
department requires a different method of valuation.
(6) (a) Except as described in paragraph (b) of this subsection, r eal property and
tangible personal property owned by or rented to the financial institution is
considered to be located within this Commonwealth if it is physically located,
situated, or used within this Commonwealth.
(b) Transportation property is include d in the numerator of the property factor to
the extent that the property is used in this Commonwealth. The extent to
which an aircraft shall be deemed to be used in this Commonwealth and the
amount of value that is to be included in the numerator of this
Commonwealth's property factor is determined by multiplying the average
value of the aircraft by a fraction the numerator of which is the number of
landings of the aircraft in this Commonwealth and the denominator of which
is the total number of landings o f the aircraft everywhere. If the extent of the
use of any transportation property within this Commonwealth cannot be
determined, then the property shall be deemed to be used wholly in the state in
which the property has its principal base of operations. A motor vehicle shall
be deemed to be used wholly in the state in which it is registered.
(7) (a) 1. A loan is considered to be located within this Commonwealth if it is
properly assigned to a regular place of business of the financial
institution within this Commonwealth.
2. A loan is properly assigned to the regular place of business with which it
has a preponderance of substantive contacts. A loan assigned by the
financial institution to a regular place of business without the
Commonwealth shall be presumed to have been properly assigned if:
a. The financial institution has assigned, in the regular course of its
business, the loan on its records to a regular place of business
consistent with federal or state regulatory requirements;
b. The assignment on it s records is based upon substantive contacts
of the loan to the regular place of business; and
c. The financial institution uses the records reflecting assignment of
loans for the filing of all state and local tax returns for which an
assignment of loans to a regular place of business is required.
3. The presumption of proper assignment of a loan provided in
subparagraph 2. of this paragraph may be rebutted upon a showing by
the department, supported by a preponderance of the evidence, that the
preponderance of substantive contacts regarding the loan did not occur
at the regular place of business to which it was assigned on the financial
institution's records. When the presumption has been rebutted, the loan
shall then be located within this Commonwealth if the financial
institution had a regular place of business within this Commonwealth at
the time the loan was made and the financial institution fails to show, by
a preponderance of the evidence, that the preponderance of substantive
contacts regarding the loan occurred outside this Commonwealth.
(b) For financial institutions with commercial domicile in this Commonwealth as
defined in KRS 136.500, it shall be presumed, subject to rebuttal by the
financial institution on a showing supported by the preponderan ce of
evidence, that the preponderance of substantive contacts regarding the loan
occurred within this Commonwealth.
(c) To determine the state in which the preponderance of substantive contacts
relating to a loan have occurred, the facts and circumstances regarding the
loan at issue shall be reviewed on a case-by-case basis, and consideration shall
be given to activities such as the solicitation, investigation, negotiation,
approval, and administration of the loan as defined in subsection (1) of this
section.
(8) Credit card receivables shall be treated as loans and shall be subject to the
provisions of subsection (7) of this section.
(9) A loan that has been properly assigned to a state shall, absent any change of
material fact, remain assigned to that sta te for the length of the original term of the
loan. Thereafter, the loan may be properly assigned to another state if that loan has a
preponderance of substantive contacts to a regular place of business there.