N.D. Admin. Code § 81-03-09-36 — Special rules - Airlines

The following special rules are established with respect to airlines: 1. In general. Where an airline has income from sources both within and without this state, the amount of business income from sources within this state shall be determined pursuant to 24 North Dakota Century Code chapter 57 -38.1 and article IV of North Dakota Century Code section 57-59-01 of the multistate tax compact, except as modified by this section. 2. Apportionment of business income. a. General definitions. The following definitions are applicable to the terms used in the apportionment factor descriptions: (1) "Value" of owned real and tangible personal property means its original cost. See North Dakota Century Code section 57 -38.1-11 and article IV(11) of North Dakota Century Code section 57-59-01 and section 81-03-09-19. (2) "Cost of aircraft by type" means the average original cost or value of aircraft by type which are ready for flight. (3) "Original cost" means the initial federal tax basis of the property plus the value of capital improvements to such property, except that, for this purpose, it must be assumed that safe harbor leases are not true leases and do not effect the original initial federal tax basis of the property. See section 81-03-09-19. (4) "Average value" of property means the amount determined by averaging the values at the beginning and ending of the income year, but the office of the state tax commissioner may require the averaging of monthly values during the income year if such averaging is necessary to reflect properly the average value of the airline's property. See North Dakota Century Code section 57 -38.1-12 and article IV(12) of North Dakota Century Code section 57-59-01 and section 81-03-09-21. (5) The "value" of rented real and tangible personal property means the product of eight times the net annual rental rate. See North Dakota Century Code section 57-38.1-11 and article IV(11) of North Dakota Century Code section 57 -59-01 and section 81-03-09-20. (6) "Net annual rental rate" means the annual rental rate paid by the taxpayer. (7) "Property used during the income year" includes property that is available for use in the taxpayer's trade or business during the income year. (8) "Aircraft ready for flight" means aircraft owned or acquired through rental or lease (but not interchange) which are in the possession of the taxpayer and are available for service on the taxpayer routes. (9) "Revenue service" means the use of aircraft ready for flight for the production of revenue. (10) "Transportation revenue" means revenue earned by transporting passengers, freight, and mail, as well as revenue earned from liquor sales, and pet crate rentals, and so forth. (11) "Departures" means, for purposes of this section, all takeoffs, whether they be regularly scheduled or charter flights, that occur during revenue service. b. Property factor. (1) Property valuation. Owned aircraft must be valued at its original cost and rented aircraft must be valued at eight times the net annual rental rate in accordance with North Dakota Century Code section 57 -38.1-11 and article IV(11) of North Dakota Century Code section 57 -59-01 and sections 81 -03-09-19 and 81 -03-09-20. The 25 use of the taxpayer's owned or rented aircraft in an interchange program with another air carrier will not constitute a rental of such aircraft by the airline to the other participating airline. Such aircraft must be accounted for in the property factor of the owner. Parts and other expendables, including parts for use in contract overhaul work, will be valued at cost. (2) The denominator and numerator of the property factor. The denominator of the property factor must be the average value of all of the taxpayer's real and tangible personal property owned or rented and used during the income year. The numerator of the property factor must be the average value of the taxpayer's real and tangible personal property owned or rented and used in this state during the income year. In determining the numerator of the property factor, all property except aircraft ready for flight must be included in the numerator of the property factor in accordance with North Dakota Century Code sections 57 -38.1-10 through 57 -38.1-12 and article IV(10)(11)(12) of North Dakota Century Code section 57 -59-01, inclusive. Aircraft ready for flight must be included in the numerator of the property factor in the ratio calculated as follows: Departures of aircraft from locations in this state weighted as to the cost and value of aircraft by type compared to total departures similarly weighted. c. The payroll factor. The denominator of the payroll factor is the total compensation paid everywhere by the taxpayer during the income year. The numerator of the payroll factor is the total amount paid in this state during the income year by the taxpayer for compensation. See North Dakota Century Code sections 57 -38.1-13 and 57-38.1-14 and article IV(13)(14) of North Dakota Century Code section 57 -59-01. With respect to nonflight personnel, compensation paid to such employees must be included in the numerator as provided in North Dakota Century Code sections 57 -38.1-13 and 57-38.1-14 and article IV(13)(14) of North Dakota Century Code section 57 -59-01. With respect to flight personnel (the air crew aboard an aircraft assisting in the operations of the aircraft or the welfare of passengers while in the air), compensation paid to such employees must be included in the ratio that departures of aircraft from locations in this state, weighted as to the cost and value of aircraft by type compared to total departures similarly weighted, multiplied by the total flight personnel compensation. d. Sales (transportation revenue) factor. The transportation revenue derived from transactions and activities in the regular course of the trade or business of the taxpayer and miscellaneous sales of merchandise, and so forth, are included in the denominator of the revenue factor. See North Dakota Century Code section 57 -38.1-01 and article IV(1) of North Dakota Century Code section 57 -59-01 and sections 81 -03-09-03 through