Neb. Admin. Code § 316-24-315 — Sales Factor; Business Entities as Owners in A Partnership or Joint Venture

315.01 A business entity which is required to apportion income and has income from a partnership or joint venture (partnership), will calculate its Nebraska sales factor under this regulation. The entire federal taxable income of a corporate taxpayer is subject to apportionment in this state. Nebraska apportionable income includes any income or loss received due to a business entity's interest in a partnership. If neither the corporation nor the partnership is subject to tax in another state, the entire federal taxable income of the business entity is subject to Nebraska tax and will not be apportioned. 315.02 When a business entity is an owner in a partnership, the business entity's apportionment factor must be calculated based on whether or not the business entity and partnership are considered unitary. A unitary determination must be made for each business entity. 315.02A When a partnership has sufficient contacts with a business entity to be considered unitary if it were a corporation, the partnership will be considered unitary with the business entity regardless of the ownership share of the business entity. 315.02A(1) When a business entity and a partnership are considered unitary, the sales factor of the business entity must include the business entity's share of the partnership's sales determined by multiplying the partnership's sales factor numerator and denominator by the business entity's ownership percentage. 315.02A(2) Intercompany sales will be eliminated using calculations made in the following order: 315.02A(2)(a) Intercompany sales will be eliminated based on the percentage of the business entity's ownership of the partnership; except that sales from the partnership to the business entity or members of the unitary group will be eliminated only to the extent of the business entity's or unitary group's share of total sales of the partnership (See Reg‑24‑315.02A(4)); and 315.02A(2)(b) If all of the sales from the partnership to the business entity or unitary group are not eliminated based on Reg-24-315.02A(2)(a), the remaining sales in each state will be the same percentage of the sales in the state before any eliminations. (See Reg-24-315.02A(6)) 315.02A(2)(c) Any partnership agreements that identify particular activities to a specific owner will not be considered when determining the income of each owner subject to tax in Nebraska. 315.02A(3) Example 1- Facts. X is a multistate corporation domiciled outside Nebraska and is an owner of AX, a multistate partnership. X has a 40 percent ownership interest in AX. X and AX would be considered unitary if both were corporations. Corporation X has total sales of $10,000,000, $2,000,000 of which were made to Partnership AX, and Nebraska sales of $5,000,000, $400,000 of which were made to Partnership AX. Partnership AX has sales of $3,000,000, $700,000 of which were to Corporation X, and total Nebraska sales of $40,000. 315.02A(4) Example 1 - Denominator Calculation. The sales factor denominator to be used in the combined report of income with the corporate return is calculated as follows - Sales Factor Denominator Sales of Corporation X $10,000,000 Sales of Partnership AX $1,200,000 ($3,000,000 sales X 40% ownership) Total sales $11,200,000 Minus intercompany sales eliminations Corporation X sales to AX ($800,000) ($2,000,000 sales X 40% ownership) Partnership AX sales to X ($700,000) (Actual sales, not limited) Denominator $9,700,000 315.02A(5) Example 1 - Numerator calculation. The sales factor numerator to be used in the combined report of income with the corporate return is calculated as follows- Sales Factor Numerator Nebraska sales of Corporation X $5,000,000 Partnership AX $6,500 (see computation in 315.02A(6) below) Minus intercompany sales eliminations Corporation X sales to AX ($160,000) ($400,000 Nebraska sales X 40% ownership) Partnership AX sales to X 0 (after eliminations) Numerator $4,846,500\ 315.02A(6) Example 1 - Numerator Calculation when Partnership's Sales Are Not Totally Eliminated. Since Corporation X's share of Partnership AX's total sales were not totally eliminated in the denominator, the Nebraska sales by Partnership AX are determined by multiplying Partnership AX's remaining sales by its percentage of Nebraska sales (before any eliminations) as shown below- Numerator Calculation when Partnership's Sales Are Not Totally Eliminated Corporation X's share of Partnership AX's total sales $1,200,000 ($3,000,000 sales X 40% ownership) Partnership AX sales to Corporation X eliminated in the denominator $700,000 Partnership AX sales not eliminated $500,000 ($1,200,000 - $700,000) Partnership AX % of Nebraska sales 1.30% ($40,000 Nebraska sales / $3,000,000 Partnership AX Nebraska sales eliminated $6,500 ($500,000 X 1.30%) 315.02B When a partnership does not have sufficient contacts with a business entity to be considered unitary, the business entity's sales factor must include its share of income from the partnership. The net income distributed from the partnership to the business entity will be included in the denominator and the Nebraska source net income distributed from the partnership to the business entity will be included in the numerator. 315.02B(1) Example 2 – Non-Unitary Facts. Y is a multistate corporation domiciled outside Nebraska and is an owner in AY, a multistate partnership. Corporation Y has a 40 percent ownership interest in Partnership AY. Y and AY are not considered unitary. Corporation Y has sales of $10,000,000, $5,000,000 of which were made in Nebraska. Partnership AY has federal taxable income of $400,000 and Nebraska taxable income of $8,000- Sales Factor Denominator Sales Factor Numerator Corporation Y $10,000,000 $5,000,000 Partnership AY $160,000 ($400,000 X 40% ownership interest) $3,200 ($8,000 X 40% ownership interest) Totals $10,160,000 $5,003,200 315.02B(2) The business entity's sales factor does not include sales made by the partnership. Therefore, the business entity's sales factor is not adjusted to eliminate sales made between the business entity and the partnership. (Neb. Rev. Stat. §§ 77-2729, 77-2734.14, 77-2734.15, and 77-2734.16. December 27, 2015.)