(1) Property rented by the taxpayer is valued at eight times its net annual rental rate.

(a) The net annual rental rate for any item of rented property is the annual rental rate paid by the taxpayer for such property, with the exception of (1) (b) , less the aggregate annual sub-rental rates paid by subtenants of the taxpayer. (ARM 42.26.262 addresses special rules where the use of such net annual rental rate produces a negative or clearly inaccurate value or where property is used by the taxpayer at no charge or rented at a nominal rental rate) .

(b) Sub-rents are not deducted when the sub-rents constitute business income because the property that produces the sub-rents is used in the regular course of a trade or business of the taxpayer when it is producing such income.   Accordingly, there is no reduction in its value.

(2) ARM 42.26.202 provides the definitions that apply to valuing rental property.

(3) Leasehold improvements shall, for the purposes of the property factor, be treated as property owned by the taxpayer regardless of whether the taxpayer is entitled to remove the improvements or the improvements revert to the lessor upon expiration of the lease.   Hence, the original cost of leasehold improvements shall be included in the factor.