(1) The completed contract method of accounting requires that the reporting of income (or loss) be deferred until the year the construction project is completed or accepted. Accordingly, a separate computation is made for each such contract completed during the income year regardless of whether the project is located within or without this state, in order to determine the amount of income which is attributable to sources within this state. The amount of income from each contract completed during the income year apportioned to this state, plus other apportionable income apportioned to this state by the regular three-factor formula such as interest income, rents, royalties, income from short-term contracts, etc., plus all nonapportionable income allocated to this state is the measure of income for the income year.

(2) The amount of income (or loss) from each contract which is derived from sources within this state using the completed contract method of accounting is computed as follows:

(a) In the income year the contract is completed the income (or loss) therefrom is determined.

(b) The income (or loss) determined in (2)(a) is apportioned to this state by the following method:

(i) A fraction is determined for each year the contract was in progress. The numerator is the amount of construction costs paid or accrued each year the contract was in progress and the denominator is the total of all such construction costs for the project.

(ii) Each percentage determined in (2)(a)(i) is multiplied by the apportionment formula percentage for that particular year as determined in ARM 42.26.903.

(iii) The percentages determined in (ii) for each year the contract was in progress are totaled. The amount of total income (or loss) from the contract is multiplied by the total percentage. The resulting income (or loss) is the amount of apportionable income from such contract derived from sources within this state.