Neb. Admin. Code § 316-24-301 — Apportionable and Nonapportionable Income

301.01 In General. A business entity or unitary group generating income from a business activity that is taxable within Nebraska and subject to tax in at least one other state must apportion its income. The income is apportioned using the sales factor only, as provided in Reg-24-301 through Reg-24-350. 301.02 Apportionable Income. The entire federal taxable income of a corporation, a unitary group, or a partnership is presumed to be apportionable income. The apportionable income includes income arising from transactions and activity of the business, and income arising from tangible and intangible property if the acquisition, management, employment, development, or disposition of the property was related to the operation of the business entity's trade or business. 301.03 Nonapportionable Income. Nonapportionable income is any income the taxpayer has shown is not subject to apportionment. Income that is claimed to be nonapportionable must be supported by: 301.03A A detailed description of the source and nature of the income; and 301.03B An affidavit attached to the return and signed by a corporate officer attesting- 301.03B(1) That the income is not a part of the unitary business; and 301.03B(2) That the taxpayer has not claimed the same income as part of the unitary business and subject to apportionment in any other state with substantially the same law on apportionability of income. 301.04 Any nonapportionable income is subtracted from federal taxable income prior to apportioning the income to Nebraska. The amount subtracted must be reduced, but not below zero, by a portion of the interest expense and any expense incurred in the production of the nonapportionable income. 301.04A The interest expense for the reduction is determined by dividing the taxpayer's average investment in the activities producing the nonapportionable income by the taxpayer's average total assets and multiplying the result by the total interest deduction allowed in computing federal taxable income. 301.04A(1) For the purposes of this subsection, investment in activities producing the income means the tax basis of the assets, both tangible and intangible, that are used in the activities or that are the basis of receiving the income. 301.04A(2) Whenever it is necessary to properly reflect the ratio of the average investment in activities producing the nonapportionable income to the average total assets, the Tax Commissioner may permit or require computing the averages using amounts from interim balance sheets. 301.04A(3) In lieu of the tax basis, the taxpayer may use amounts from an income statement included with the federal return or required to be reported to federal or state regulatory agencies if: 301.04A(3)(a) The amounts are not materially different from the tax basis; 301.04A(3)(b) The amounts are prepared consistently from year to year; and 301.04A(3)(c) Absent a change in circumstances, the amounts are consistently used by the corporation from year to year. 301.04A(4) The Tax Commissioner may require a taxpayer to use the alternative amounts in order to maintain consistency. 301.04B The amount subtracted under this section cannot include any amounts deducted from federal taxable income under any other section of the Nebraska Revenue Act. For example: interest, rents, royalties, and license fees taxed by a foreign country in excess of the maximum federal corporate rates cannot be deducted as nonapportionable income if the same amounts are included in the calculation of the special foreign tax credit deduction. 301.05 A business entity or unitary group engaged in business in Nebraska which is not subject to tax in any other state cannot apportion its income, and must report its entire taxable income to Nebraska. (Neb. Rev. Stat. §§ 77-2716, 77-2734.05, and 77-2734.06, Mobil Oil Corp. v. Commissioner of Taxes of Vermont , 445 U.S. 425, (1980), ASARCO, Inc. v. Idaho State Tax Commission , 458 U.S. 307 (1982), and Allied Signal, Inc. v. Director, Division of Taxation , 504 U.S. 768 (1992). December 27, 2015)