Corporate Income Tax
Attribution of Sales to the Sales Factor of the Apportionment Percentage
Revenue Ruling 12-91-1
Corporate Income Taxes - Attribution of Sales
to the Sales Factor of the Apportionment Percentage
This revenue ruling is issued to clarify and establish uniform corporate income tax apportionment procedures and to address the concerns raised by
Airborne Navigation Corp. v. Arizona Department of Revenue
, Feb. 5, 1987, CCH Ariz. Tax Reports ¶200-744 and by
Appeal of Finnigan
, Cal. St. Bd. Of Equal., Jan. 24, 1990, Cal. Tax Reports ¶401-797, overruling
Appeal of Joyce, Inc.
, Cal. St. Bd. Of Equal., Nov. 23, 1966, CCH Cal. Tax Reports ¶203-523. These cases have developed new principles of law which alter the prior interpretation of 15 U.S.C. Sec. 381 and application of U.D.I.T.P.A. Sec. 16(b)(2) [K.S.A. 79-3286(b)(2)] by the U.D.I.F.P.A. states and multistate taxpayers. Under the prior interpretation and application, tax nexus was based solely on the activities of the selling corporate entity.
Retroactive application of the apportionment procedure in this ruling would cause substantial inequitable results. For the years prior to the effective date of this ruling, inconsistent application would result in sales being double included in the sales factor numerators of both the origination and destination states or result in sales being omitted entirely from the numerators of both states. This would not effectuate U.D.I.T.P.A.'s purpose to make uniform the laws of the states which have enacted it and to the apportion no more or less than 100% of the taxable income. Therefore, this ruling shall be applied prospectively to the taxable years beginning after December 31, 1990. For years beginning prior to January 1, 1991 nexus is determined under the former rule, which based nexus solely on the activities of the corporate entity which made the interstate sale.
(a) With regard to any corporation which is a member of a unitary group of associated corporations, the phrase "activities within such state by or on behalf of such person" in 15 U.S.C. Sec. 381 is construed to mean the activities of any unitary group member. Nexus of a corporation in a sales destination state is determined by the activities of the unitary group of which it is a member.
(b) Treatment of sales of tangible property under K.S.A. 79-3286(b)(2). If sales are made by one member of a unitary group from an out-of-state location into Kansas and the activities of any one or more members of the unitary group in Kansas exceed the activity protected by 15 U.S.C. Sec. 381, these sales shall be treated as Kansas sales for Kansas sales factor numerator purposes and used in the computation of Kansas income taxes. Conversely, if sales are made by one member of a unitary group from a Kansas location into a state in which the activities of any one or more members of the unitary group exceed the activity protected by 15 U.S.C. Sec. 381, these sales shall be treated as sales in the destination state for its sales factor numerator purposes.
Effective Date. The procedures in this notice shall be utilized prospectively for the taxable years beginning after December 31, 1990. For years beginning prior to January 1, 1991, nexus shall be determined under the former rule, which based nexus solely on the activities of the corporate entity which made the interstate sale.
(d) Corporate income taxpayers which fail to file Kansas returns or pay any tax due within 60 days of the time they are due will be assessed a penalty of at least 25% of the unpaid tax plus interest pursuant to K.S.A. 79-3228(b).
(e) This notice shall also apply to the Multistate Tax Compact, K.S.A. 79-4301, Article IV(16)(b)(2).
Mark A. Beshears
Secretary of Revenue
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