KRS 141.901 — Division of income of interstate business for tax purposes -- Apportionment

The provisions of this section are the same as appeared in KRS 141.120 prior to its repeal
and reenactment in Section 60 of 2018 Ky. Acts chs. 171 and 207. This sectio n applies to
all corporations for taxable years beginning prior to January 1, 2018, and to a provider, as
defined in KRS 141.121, for taxable years beginning on or after January 1, 2018.
(1) As used in this section, unless the context requires otherwise:
(a) "Business income" means income arising from transactions and activity in the
regular course of a trade or business of the corporation and includes income
from tangible and intangible property if the acquisition, management, or
disposition of the propert y constitutes integral parts of the corporation's
regular trade or business operations;
(b) "Commercial domicile" means the principal place from which the trade or
business of the corporation is managed;
(c) "Compensation" means wages, salaries, commission s, and any other form of
remuneration paid or payable to employees for personal services;
(d) "Financial organization" means any bank, trust company, savings bank,
industrial bank, land bank, safe deposit company, private banker, savings and
loan association, credit union, cooperative bank, investment company, or any
type of insurance company;
(e) "Nonbusiness income" means all income other than business income;
(f) "Public service company" means any business entity subject to taxation under
KRS 136.120;
(g) "Sales" means all gross receipts of the corporation not allocated under
subsections (3) to (7) of this section, except as provided by KRS 141.121; and
(h) "State" means any state of the United States, the District of Columbia, the
Commonwealth of Puerto Rico, any territory or possession of the United
States, and any foreign country or political subdivision thereof.
(2) Any corporation which is required by KRS 141.900 to allocate and apportion its net
income shall allocate and apportion its net income as provided in this section.
(3) Rents and royalties from real property, intangible or tangible personal property,
capital gains and losses, interest, or patent or copyright royalties, to the extent that
they constitute nonbusiness income, shall be allocated as provided in subsections
(4) to (7) of this section.
(4) (a) Net rents and royalties from real property located in this state are allocable to
this state.
(b) Net rents and royalties from tangible personal property are allocable to this
state if and to the extent that the property is utilized in this state; or in their
entirety if the corporation's commercial domicile is in this state and the
corporation is not organized under the laws of or taxable in the state in which
the property is utilized.
(c) The extent of utilization of tangible personal property in a state is determined
by multiplying the rents and royalties by a fraction, the numerator of which is
the number of days of physical location of the property in the state during the
rental or royalty period in the taxable year and the denominator of which is
the number of days of physical location of the property everywhere during all
rental or royalty peri ods in the taxable year. If the physical location of the
property during the rental or royalty period is unknown or unascertainable by
the corporation, the tangible personalty is utilized in the state in which the
property was located at the time the renta l or royalty payer obtained
possession.
(d) Net rents and royalties from intangible personal property located in this state
are allocable to this state. For purposes of this section, royalties from property
leased in Kentucky shall be considered as royalti es from intangible personal
property.
(5) (a) Capital gains and losses from sales or other dispositions of real property
located in this state are allocable to this state.
(b) Capital gains and losses from sales or other dispositions of tangible personal
property are allocable to this state if the property had a situs in this state at the
time of the sale, or the corporation's commercial domicile is in this state and
the corporation is not taxable in the state in which the property had a situs.
(c) Capital gains and losses from sales or other dispositions of intangible personal
property are allocable to this state if the corporation's commercial domicile is
in this state.
(6) Interest is allocable to this state if the corporation's commercial domicile is in this
state.
(7) (a) Patent and copyright royalties are allocable to this state if and to the extent
that the patent or copyright is utilized by the payer in this state; or if and to the
extent that the patent or copyright is utilized by the payer in a stat e in which
the corporation is not taxable and the corporation's commercial domicile is in
this state.
(b) A patent is utilized in a state to the extent that it is employed in production,
fabrication, manufacturing, or other processing in the state or to the extent that
a patented product is produced in the state. If the basis of receipts from patent
royalties does not permit allocation to states or if the accounting procedures
do not reflect states of utilization, the patent is utilized in the state in whic h
the corporation's commercial domicile is located.
(c) A copyright is utilized in a state to the extent that printing or other publication
originates in the state. If the basis of receipts from copyright royalties does not
permit allocation to states or i f the accounting procedures do not reflect states
of utilization, the copyright is utilized in the state in which the corporation's
commercial domicile is located.
(8) (a) Except as provided in subsection (9) of this section, all business income shall
be a pportioned to this state by multiplying the income by a fraction, the
numerator of which is the property factor, representing twenty -five percent
(25%) of the fraction, plus the payroll factor, representing twenty -five percent
(25%) of the fraction, plus the sales factor, representing fifty percent (50%) of
the fraction, and the denominator of which is four (4), reduced by the number
of factors, if any, having no denominator, provided that if the sales factor has
no denominator, then the denominator shall be reduced by two (2).
(b) 1. The property factor is a fraction, the numerator of which is the average
value of the corporation's real and tangible personal property owned or
rented and used in this state during the tax period and the denominator
of which i s the average value of all the corporation's real and tangible
personal property owned or rented and used during the tax period;
provided, however, that property which has been certified as a pollution
control facility as defined in KRS 224.1 -300 shall be excluded from the
property factor.
2. Property owned is valued at its original cost. If the original cost of any
property is not determinable or is nominal or zero (0) the property shall
be valued by the department pursuant to administrative regulations
promulgated by the department. Property rented is valued at eight (8)
times the net annual rental rate. Net annual rental rate is the annual
rental rate paid by the corporation less any annual rental rate received by
the corporation from subrentals, provided that the rental and subrentals
are reasonable. If the department determines that the annual rental or
subrental rate is unreasonable, or if a nominal or zero (0) rate is charged,
the department may determine and apply the rental rate as will
reasonably reflect the value of the property rented by the corporation.
3. The average value of property shall be determined by averaging the
values at the beginning and ending of the tax period but the department
may require the averaging of monthly values during the tax period if
reasonably required to reflect properly the average value of the property.
(c) The payroll factor is a fraction, the numerator of which is the total amount
paid or payable in this state during the tax period by the corporation for
compensation, and the denominator of which is the total compensation paid or
payable by the corporation everywhere during the tax period. Compensation is
paid or payable in this state if:
1. The individual's service is performed entirely within the state;
2. The individual's service is performed both within and without the state,
but the service performed without the state is incidental to the
individual's service within the state; or
3. Some of the service is performed in the state and the base of operations
or, if there is no base of operations, the place from which the service is
directed or controlled is in the state, or the base of operations or the
place from which the service is directed or controlled is not in any state
in which some part of the service is perf ormed, but the individual's
residence is in this state.
(d) 1. The sales factor is a fraction, the numerator of which is the total sales of
the corporation in this state during the tax period, and the denominator
of which is the total sales of the corporat ion everywhere during the tax
period.
2. Sales of tangible personal property are in this state if:
a. The property is delivered or shipped to a purchaser, other than the
United States government, or to the designee of the purchaser
within this state regardless of the f.o.b. point or other conditions of
the sale; or
b. The property is shipped from an office , store, warehouse, factory,
or other place of storage in this state and the purchaser is the
United States government.
3. Sales, other than sales of tangible personal property, are in this state if
the income-producing activity is performed in this state; or the income-
producing activity is performed both in and outside this state and a
greater proportion of the income -producing activity is performed in this
state than in any other state, based on costs of performance.
(9) (a) If the allocation and apporti onment provisions of this section do not fairly
represent the extent of the corporation's business activity in this state, the
corporation may petition for or the department may require, in respect to all or
any part of the corporation's business activity, if reasonable:
1. Separate accounting;
2. The exclusion of any one (1) or more of the factors;
3. The inclusion of one (1) or more additional factors which will fairly
represent the corporation's business activity in this state; or
4. The employment of an y other method to effectuate an equitable
allocation and apportionment of income.
(b) A corporation may elect the allocation and apportionment methods for the
corporation's business income provided for in subparagraphs 1. and 2. of this
paragraph. The elec tion, if made, shall be irrevocable for a period of five
years.
1. All business income derived directly or indirectly from the sale of
management, distribution, or administration services to or on behalf of
regulated investment companies, as defined under the Internal Revenue
Code of 1986, as amended, including trustees, and sponsors or
participants of employee benefit plans which have accounts in a
regulated investment company, shall be apportioned to this state only to
the extent that shareholders of the investment company are domiciled in
this state as follows:
a. Total business income shall be multiplied by a fraction, the
numerator of which shall be Kentucky receipts from the services
for the tax period and the denominator of which shall be the total
receipts everywhere from the services for the tax period;
b. For purposes of subdivision a. of this subparagraph, Kentucky
receipts shall be determined by multiplying total receipts for the
tax period from each separate investment company for which the
services are performed by a fraction. The numerator of the fraction
shall be the average of the number of shares owned by the
investment company's shareholders domiciled in this state at the
beginning of and at the end of the investment company's taxable
year, and the denominator of the fraction shall be the average of
the number of the shares owned by the investment company
shareholders everywhere at the beginning of and at the end of the
investment company's taxable year; and
c. Nonbusiness income shall be all ocated to this state as provided in
subsections (4) to (7) of this section.
2. All business income derived directly or indirectly from the sale of
securities brokerage services by a business which operates within the
boundaries of any area of the Commonwea lth, which on June 30, 1992,
was designated as a Kentucky Enterprise Zone, as described in KRS
154.655(2) before that statute was renumbered in 1992, shall be
apportioned to this state only to the extent that customers of the
securities brokerage firm are domiciled in this state. The portion of
business income apportioned to Kentucky shall be determined by
multiplying the total business income from the sale of these services by
a fraction determined in the following manner:
a. The numerator of the fraction shall be the brokerage commissions
and total margin interest paid in respect of brokerage accounts
owned by customers domiciled in Kentucky for the brokerage
firm's taxable year;
b. The denominator of the fraction shall be the brokerage
commissions and total margin interest paid in respect of brokerage
accounts owned by all of the brokerage firm's customers for that
year; and
c. Nonbusiness income shall be allocated to this state as provided in
subsections (4) to (7) of this section.
(10) Public service com panies and financial organizations required by KRS 141.900 to
allocate and apportion net income shall allocate and apportion such income as
follows:
(a) Nonbusiness income shall be allocated to this state as provided in subsections
(4) to (7) of this section;
(b) Business income shall be apportioned to this state by multiplying the business
income by a fraction, the numerator of which is the property factor,
representing twenty-five percent (25%) of the fraction, plus the payroll factor,
representing twenty-five percent (25%) of the fraction, plus the sales factor,
representing fifty percent (50%) of the fraction, and the denominator of which
is four (4), reduced by the number of factors, if any, having no denominator,
provided that if the sales factor has n o denominator, then the denominator
shall be reduced by two (2). The payroll factor shall be determined as
provided in subsection (8)(c) of this section. The property factor and sales
factor shall be determined as provided by administrative regulations
promulgated by the department.
(c) An affiliated group electing to file a consolidated return under KRS
141.200(4) or required to file a consolidated return under KRS 141.200(11)
that includes a public service company, a provider of communications
services or multichannel video programming services as defined in KRS
136.602, or a financial organization shall determine the amount of payroll to
be included in the apportionment factor as provided in subsection (8)(c) of
this section. The amount of property and sa les of the public service company,
provider of communications services or multichannel video programming
services as defined in KRS 136.602, or financial organization to be included
in the apportionment factors of the affiliated group shall be determined i n
accordance with administrative regulations promulgated by the department
under paragraph (b) of this subsection.
(11) For taxable years beginning on or after January 1, 2007, a corporation that:
(a) Owns an interest in a limited liability pass-through entity; or
(b) Owns an interest in a general partnership organized or formed as a general
partnership after January 1, 2006;
shall include the proportionate share of sales, property, and payroll of the limited
liability pass-through entity or general partne rship when apportioning income, and
shall include the proportionate share of sales in calculating the tax due pursuant to
KRS 141.0401. The phrases "an interest in a limited liability pass -through entity"
and "an interest in a general partnership organized or formed as a general
partnership after January 1, 2006," shall extend to each level of multiple -tiered
pass-through entities.