42.26.807 AIRLINE REGULATION EXAMPLES (1) Assume the following facts for an airline for the tax year: (a) It has ten 747s ready for flight and in revenue service at an average per unit cost of $40,000,000 for nine of the aircraft. It rents the remaining 747 from another airline for $9,000,000 per year. At eight times rents, the latter is valued at $72,000,000 for apportionment purposes. Total 747 valuation is, therefore, $432,000,000 for property factor denominator purposes. (b) It has 20 727s ready for flight and in revenue service at an average per unit cost of $20,000,000. Total 727 valuation is, therefore, $400,000,000 for property factor denominator purposes. (c) It has nonflight tangible property (n.t.p.) valued at original cost of $200,000,000. (d) It has the following annual payroll: � � | Flight personnel | $ 60,000,000 | | Nonflight personnel | �� 40,000,000 | | Total | $100,000,000 | � (e) From its operations, it has total receipts of $50,000,000, apportionable net income of $1,000,000 and no nonapportionable income. The total $50,000,000 is flight revenue; there is no nonflight revenue. (f) It has the following within state X: � | (i) | 10 percent of its 747 flight departures | | � | (.10 x 432,000,000 = $43,200,000); | | (ii) | 20 percent of its 727 flight departures | | � | (.20 x 400,000,000 = $80,000,000); | | (iii) | 5 percent of its nonflight tangible property | | � | (n.t.p.) (.05 x 200,000,000 = $10,000,000); and | | (iv) | 15 percent of its nonflight personnel payroll | | � | (.15 x 40,000,000 = $6,000,000). � | (g) State X has a corporate tax rate of 10 percent. The airline's tax liability to state X would be determined as follows: � � | Property Factor: | | �Numerator | � | Denominator | | ��43,200,000 (747s) | � | �432,000,000 (747s) | | �+80,000,000 (727s) | + | �400,000,000 (727s) | | �+10,000,000 (n.t.p.) | + | �200,000,000 (n.t.p.) | | �133,200,000 | / | 1,032,000,000 = 12.91% | � | Receipts Factor: | | �Numerator | � | Denominator | | ��43,200,000 (747s) | � | �432,000,000 (747s) | | �+80,000,000 (727s) | + | �400,000,000 (727s) | | �123,200,000 | / | 832,000,000 = 14.8% | � � | departure ratio = 14.8% | | � | | 7,403,846 (14.8% x 50,000,000) / 50,000,000 = 14.81% | �
| Payroll Factor: | | �Numerator | � | Denominator | | �6,000,000 (nonflight) | � | 40,000,000 (nonflight) | | +8,880,000 (14.8% x 60,000,000 flight) | + | 60,000,000 (flight) | | �14,880,000 | + | 100,000,000 = 14.88% | � | Average Ratio Equals the sum of the property, receipts, and payroll factors divided by 3. | | � | | (12.91% + 14.81% + 14.88%) /3 = 14.20% | | � | | Taxable Income in state X: .1420 x 1,000,000 = $142,000 � | | Tax Liability to state X: .10 x $142,000 = $14,200 � | � (2) Same facts except (1)(f) is changed to read: (a) It has the following within state Y: � | (i) | 6 percent of its 747 flight departures | | � | (.06 x 432,000,000 = $25,920,000); | | (ii) | 31 percent of its 727 flight departures | | � | (.31 x 400,000,000 = $124,000,000); and | | (iii) | 3 percent of its nonflight tangible property | | � | (n.t.p.) x (.03 x 20,000,000 = $6,000,000); and | | (iv) | 7 percent of its nonflight personnel payroll | | � | (.07 x 40,000,000 = $2,800,000) � | (b) State Y has a corporate tax rate of 6.5 percent. The airline's tax liability to state Y would be determined as follows: � | Property Factor: | | �Numerator | � | Denominator | | ��� 25,920,000 (747s) | � | �� 432,000,000 (747s) | | +124,000,000 (727s) | + | �� 400,000,000 (727s) | | +��� 6,000,000 (n.t.p.) | + | ��200,000,000 (n.t.p.) | | �155,920,000 | / | 1,032,000,000 = 15.1085% | � | Receipts Factor: | | �Numerator | � | Denominator | | ��� 25,920,000 (747s) | � | �� 432,000,000 (747s) | | +124,000,000 (727s) | + | �� 400,000,000 (727s) | | �149,920,000 | / | �� 832,000,000 = 18.0192% | | � | � | � |
| departure ratio = 18.0192% | | � | | 9,009,600 (18.0192% x 50,000,000) / 50,000,000 = 18.0192 percent | � | Payroll Factor: | | �Numerator | � | Denominator | | ���� 2,800,000 (nonflight) | � | �40,000,000 (nonflight) | | �+10,811,520 (18.0192% x 60,000,000 flight) | + | �60,000,000 (flight) | | �� 13,611,520 | / | 100,000,000 = 13.6114% | � | Average Ratio Equals the sum of the property, receipts, and payroll factors divided by 3. | | � | | (15.1085% + 18.0192% + 13.6114%) / 3 = 15.5797% | | � | | Taxable Income in state Y: .155797 x 1,000,000 = $155,797 | | � | | Tax Liability to state Y: .065 x $155,797 = $10,127 | � History: 15-1-201, 15-31-313, 15-31-501, MCA; IMP, 15-1-601, 15-31-301, 15-31-302, 15-31-303, 15-31-304, 15-31-305, 15-31-306, 15-31-307, 15-31-308, 15-31-309, 15-31-310, 15-31-311, 15-31-312, MCA; NEW, 1988 MAR p. 401, Eff. 2/26/88; AMD, 1993 MAR p. 572, Eff. 4/16/93; TRANS, from 42.26.286 and AMD, 2001 MAR p. 2469, Eff. 12/21/01; AMD, 2017 MAR p. 2328, Eff. 1/1/18.
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