61 Pa. Code § 155.10 — Single factor apportionment

APPORTIONMENTS (a) General. (1) All corporations. Corporations subject to either the Capital Stock or Foreign Franchise Tax, except regulated investment companies, shall be entitled each taxable year to use the single factor fraction. Taxpayers electing to use the single factor fraction for a taxable year shall be prohibited from simultaneously using three factor apportionment for the same taxable year, and use of the single factor fraction shall be limited to the Capital Stock or Foreign Franchise Tax, and will have no applicability to the Corporate Net Income Tax. See the act of June 22, 1931 (P. L. 685, No. 250) (72 P. S. § 1896). (2) Foreign corporations. Foreign corporations may elect to compute and pay Foreign Franchise Tax on a property tax basis and utilize the single factor fraction. A foreign corporation electing to do so shall be treated as if it were a domestic corporation for the purpose of determining which of its assets are exempt from taxation and for the purpose of determining the proportion of the value of its capital stock which is subject to taxation. (b) Definitions. The following words and terms, when used in this section, have the following meanings, unless the context clearly indicates otherwise: (1) Asset —Real property and tangible and intangible personal property. (2) Book value —The value at which a particular asset was included in determining net worth as defined in § 155.27 (relating to net worth-fixed formula). (3) Exempt assets —Assets owned by a taxpayer which are exempt from property taxation as set forth in subsection (d), including assets exempt for constitutional, statutory or public policy reasons. (4) Intangible personal property —Checking and savings accounts, advances, notes and accounts receivable, promissory notes, investments in common or preferred stock, bonds, patents, trademarks, goodwill, prepaid and deferred expenses and the like. The term does not include intangible personal property of a purely contingent character, such as claims for damage, including choses in action and contracts not reduced to judgment or treasury stock. (5) Located —The situs of real and tangible personal property. (6) Real and tangible personal property —Land, buildings, machinery, equipment, furniture, fixtures, automobiles, trucks, inventories, leasehold improvements, mineral interests and the like. The term does not include property leased to a taxpayer. (7) Taxable assets —Total assets less exempt assets. (c) Taxable assets fraction. The taxable assets fraction is a fraction, the numerator of which is the average book value of taxable assets owned by the taxpayer during the taxable year and the denominator of which is the average book value of the total assets owned by the taxpayer during the taxable year. (d) Exempt and taxable assets. The following assets are exempt or taxable, as specified, for purposes of the taxable assets fraction. This listing is not exclusive. (1) Real and tangible personal property having a taxable situs outside this Commonwealth is exempt, including: (i) Real and tangible personal property located outside this Commonwealth. (ii) The allocated value of tangible personal property crossing state lines. The value of mobile assets, such as equipment, trucks, automobiles, railroad cars, buses, ships and the like, is exempt to the extent the assets are utilized in another state, if the corporation is subject to tax outside this Commonwealth. The assets shall be allocated to the Commonwealth on an equitable and reasonable basis, such as, on a time used or mileage basis. (2) Intangible personal property is not exempt based on situs. The taxable situs of a corporation’s intangible personal property is the domiciliary state of the corporation. Since a foreign corporation electing to utilize the taxable assets fraction is required to compute its taxable assets fraction as if it were a domestic corporation, no intangible personal property of a corporation, whether foreign or domestic, is exempt based on situs. (3) Certain assets are specifically exempt by Commonwealth statute. These include: (i) Assests actually and exclusively employed in manufacturing, processing or research and development in this Commonwealth, except if employed by a corporation which enjoys the right of eminent domain. (ii) Equipment, machinery, facilities and other assets employed or utilized within this Commonwealth for water and air pollution control or abatement devices for the benefit of the general public. See § 155.11 (relating to exemption). (iii) Obligations of the Commonwealth, a public authority, commission, board or other agency created by the Commonwealth, a political subdivision of the Commonwealth or a public authority created by the Commonwealth. (iv) In the case of a corporation owning, directly or through subsidiaries or subsidiary corporation, a majority of the total issued and outstanding shares of voting stock of a corporation, shares of stock owned in the other corporation are exempt. See the act of April 20, 1927 (P. L. 311, No. 177) (72 P. S. § 1894). In the case of a corporation owning less than a majority of the total and outstanding shares of voting stock in a foreign corporation, the shares of stock owned in the other corporation are not exempt by reason of 72 P. S. § 1894. (v) Student loan assets that are owned or held by an entity created for the securitization of student loans, or by a trustee on its behalf, including: (A) Student loan notes. (B) Federal, State or private subsidies or guarantees of student loans. (C) Instruments that represent a guarantee of debt, certificates or other securities issued by an entity created for the securitization of student loans, or by a trustee on its behalf. (D) Contract rights to acquire or dispose of student loans and interest rate swap agreements related to student loans. (E) Interests in or debt obligations of other student loan securitization trusts or entities. (F) Cash or cash equivalents representing reserve funds or payments on or with respect to student loan notes, the securities issued by an entity created for the securitization of student loans, or the other student loan related assets. Solely for purposes of this exemption for student loan assets, ‘‘cash or cash equivalents’’ shall include: (I) Direct obligations of the United States Department of the Treasury. (II) Obligations of Federal agencies which obligations represent the full faith and credit of the United States of America. (III) Investment grade debt obligations or commercial paper. (IV) Deposit accounts. (V) Federal funds and banker’s acceptances. (VI) Prefunded municipal obligations. (VII) Money market instruments and money market funds. (4) Certain assets are exempt by reason of public policy. These include: (i) Stock of domestic corporations which are subject to or relieved from Capital Stock Tax. (ii) Stock of banks, title insurance companies, trust companies and other companies subject to a tax on shares. (iii) Stock of nonprofit corporations. (iv) Stock and obligations of cooperative agricultural associations and agricultural credit associations. (v) Stock of credit unions. (5) Certain assets are exempt by reason of constitutional interpretation. These include obligations of the United States government, its agencies, instrumentalities, possessions and territories unless taxation is specifically authorized. This exemption, reflected in 31 U.S.C.A. § 3124, does not apply to obligations of the United States which are secondary, indirect, contingent or mere guarantees. Certain other obligations issued under Federal statutes are specifically exempted from state taxation by the Federal statute authorizing issuance of the obligation. Stock of national banks is not exempt. (e) Averaging property values. (1) Annual averaging. The average value of real and tangible and intangible personal property owned by the taxpayer during the taxable year shall be determined by averaging book values at the beginning and ending of the taxable year. (2) Monthly or daily averaging. The Department may require the monthly or daily averaging of book values of real and tangible and intangible personal property owned by the taxpayer during the taxable year where the averaging is reasonably required to reflect the average value of the taxpayer’s property. The Department may require or the taxpayer may request a monthly or daily averaging if substantial property is acquired or disposed of during the taxable year. (f) Computation of taxable assets fraction. (1) The taxable assets fraction of corporations engaged in manufacturing, processing or research and development in this Commonwealth is computed as follows: the numerator is the average book value of taxable assets and the denominator is the average book value of total assets. Example. The taxpayer owns the following exempt and taxable assets: Beginning of Year End of Year Average Book value of taxable assets $100,000 $150,000 $125,000 Book value of exempt assets $400,000 $600,000 $500,000 Book value of total assets $500,000 $750,000 $625,000 The taxpayer’s taxable fraction is $125,000 $625,000 The decimal equivalent, .200000, which represents the proportion of taxable assets, is then multiplied by the capital stock value to determine the taxable value of the taxpayer’s capital stock. (2) The taxable assets fraction of corporations not engaged in manufacturing, processing or research and development within this Commonwealth is computed as follows: the numerator is the average book value of total assets less the average book value of exempt assets and the denominator is the average book value of total assets. Example. The taxpayer owns the following exempt and taxable assets: Average book value of total assets: $1 million Less: Average book value of exempt assets: (a) Tangible property outside this Commonwealth ($40,000 at beginning of year and $20,000 at end of year) $30,000 (b) Stocks of other Common- wealth corporations ($150,000 held for 122/365 of year) $50,000 (c) United States Securities of $20,000 held for the entire year $ 20,000 $ 100,000 Average book value of taxable assets $ 900,000 The taxpayer’s taxable assets fraction is: $ 900,000 $1,000,000 The decimal equivalent, .900000, which represents the proportion of taxable assets, is then multiplied by the capital stock value to determine the taxable value of the taxpayer’s capital stock. Authority The provisions of this § 155.10 issued under section 408 of the Tax Reform Code of 1971 (72 P. S. § 7408); amended under sections 408 and 603 of the Tax Reform Code of 1971 (72 P. S. § § 7408 and 7603). Source The provisions of this § 155.10 adopted January 16, 1987, effective January 17, 1987, 17 Pa.B. 273; amended December 4, 1998, effective December 5, 1998, 28 Pa.B. 5986. Immediately preceding text appears at serial pages (205439) to (205440), (216363) to (216364) and (236143). Notes of Decisions Exemptions A corporation providing scientific analysis of samples provided by clients does not fall under the manufacturing or research and development exemption. Lancaster Laboratories, Inc. v. Commonwealth , 578 A.2d 988 (1990); vacated in part 611 A.2d 815 (Pa. Cmwlth. 1992); affirmed in part 631 A.2d 739 (Pa. Cmwlth. 1993). Foreign Corporations Although assets such as the interest from United States obligations is excluded from the property tax imposed by Pennsylvania on its domestic corporations under this regulation, because the company elected to compute its tax as a foreign corporation, the company placed itself on the same footing as a foreign corporation paying its franchise tax. Thus, the interest income was not exempt in calculating the capital stock tax. Consolidated Rail Corp. v. Commonwealth , 670 A.2d 722 (Pa. Cmwlth. 1996); affirmed 691 A.2d 456 (Pa. 1997). No part of the information on this site may be reproduced for profit or sold for profit. This material has been drawn directly from the official Pennsylvania Code full text database. Due to the limitations of HTML or differences in display capabilities of different browsers, this version may differ slightly from the official printed version.