(a) At the option of a corporate taxpayer or of a nonresident business entity, such taxpayers may, but are not obligated to, use the formula set forth in Section 181.03 to compute the percentage of their entire net profits (derived from activities both within and outside the Village) which is taxable under the chapter, and to determine the tax payable to the Village thereunder.
If the taxpayer did not have a place of business outside Middleport during the period covered by the declaration and/or return required under the chapter, its business allocation percentage is one hundred percent (100%), in other words, the taxpayer is required to pay a tax of one percent (l %) on the entire net profits of the business.
If the taxpayer had a place of business outside of Middleport and was doing business in Middleport during such period the business allocation percentage shall be computed on the following basis:
(1) In the taxation of income which is subject to taxation by the provision of this chapter, if the books and records of a taxpayer conducting a business or profession both within and without the boundaries of the Village, shall disclose with reasonable accuracy what portion of its net profit is attributable to that part of the business or profession conducted within the boundaries of the Village. Then only such portion shall be considered as having a taxable situs in the Village for purposes of Village income taxation. In the absence of such records, net profit from a business or profession conducted both within and without the boundaries of the Village shall be considered as having a taxable situs in the Village for the purpose of Village income taxation in the same proportion as the average ratio of:
A. The average net book value of the real and tangible personal property owned or used by the taxpayer in the business or profession in the Village during the taxable period to the average net book value of all the real and tangible personal property owned or used by the taxpayer in the business or profession during the same period, wherever situated.
As used in the preceding paragraph, real property shall include property rented or leased by the taxpayer and the value of such property shall be determined by multiplying the annual rental thereon by eight.
B. Wages, salaries and other compensation paid during the taxable period to persons employed in the business or profession for services performed in the Village to wages, salaries and other compensation paid during the same period to persons employed in the business or profession, wherever their services are performed.
C. Gross receipts of the business or profession from sales made and services performed during the taxable period in the Village to gross receipts of the business or profession during the same period from sales and services wherever made or performed.
In the event that the foregoing allocation formula does not produce an equitable result, another basis may, under uniform regulations be substituted so as to produce such result.
(2) As used in subsection (a)(l)C., "sales made in the Village" means:
A. All sales of tangible personal property delivered within the Village regardless of where title passes if shipped or delivered from stock of goods within the Municipal Corporation.
B. All sales of tangible personal property delivered within the Village regardless of where title passes, even though transported from a point outside the Village, if the taxpayer is regularly engaged through its own employees, in the solicitation, or promotion of sales which result from such solicitation or promotion.
C. All sales of tangible personal property shipped from a place within the Village to purchasers outside the Village regardless of where title passes if the taxpayer is not, through its own employees, regularly engaged in the solicitation or promotion of sales at the place where delivery is made.
The business allocation percentage is computed by determining the percentages (1) which Middleport real and tangible personal property bears to all real and tangible personal property (including that situated in Middleport) of taxpayer wheresoever situated; (2) which Middleport business sales bear to taxpayer's entire business sales wheresoever derived (including those derived from Middleport) and (3) which payrolls paid by taxpayer within Middleport bear to taxpayer's entire payroll wheresoever paid (including Middleport payrolls), adding together the three percentages so arrived at and dividing the total by 3.
However, if one of the factors (property sales and payrolls) is missing, the other two percentages are added and the sum is divided by 2, and if 2 of the factors are missing, the remaining percentage is the business allocation percentage.
EXAMPLE 1:
Corporation having places of business in Middleport, Detroit and Cleveland.
Middleport real and tangible personal property: $10,000.00
All real and personal property (Middleport, Detroit, Cleveland) $100,000.00
Percentage: 10 percent
Middleport sales: $15,000
All sales: $75,000
Percentage: 20 percent
Middleport payroll: $6,000
All payroll: $20,000
Percentage: 30 percent
Business allocation percentage: 10 percent plus 20 percent plus 30 percent over 3 equals 20 percent.
EXAMPLE 2:
Same corporation owning real and tangible personal property anywhere:
Middleport sales: $15,000
All sales: $75,000
Percentage: 20 percent
Middleport payroll: $6,000
All payroll: $20,000
Percentage: 30 percent
Business allocation percentage: 20 percent plus 30 percent over 2 equals 25 percent.
EXAMPLE 3:
Same corporation owning real and tangible personal property in Middleport valued at $10,000 and owning no real and tangible personal property outside Middleport.
Other factors same as in Example 1 and 2.
Business allocation percentage: 100 percent plus 20 percent plus 30 percent over 3 equals 50 percent.
After determining such business allocation percentage, the tax shall be determined by applying that percentage to the entire net profits of the taxpayer, wherever derived (thus arriving at the taxable net profit), and computing one percent (1%) of the resultant taxable net profit.
In case it should appear to the Village Tax Administrator that any agreement, understanding or arrangement exists between the taxpayer and any other person, firm or corporation, whereby the activity, business, income or capital of the taxpayer is improperly or inaccurately reflected, the Village Tax Administrator may adjust items of income, deductions and capital, and disregard assets in computing any allocation percentage, provided any income directly traceable thereto is also excluded from entire net income, so as to equitably determine the tax.
(b) Explanation of "property factor". The percentage of the taxpayer's real and tangible personal property within the Village is determined by dividing the net book value (during the period covered by the report) of such property within Middleport without deduction of any encumbrances, by the average net book value similarly computed, of all such property within and without Middleport. Only property owned by the taxpayer is considered in determining such percentage.
(c) Explanation of "business receipts factor". Receipts from the following are also allocable to Middleport.
(1) Work done or performed or services rendered in Middleport.
(2) Rentals from property situated in Middleport where the rental of such property, is a usual or normal part of the taxpayer's business activity.
(3) All other business receipts earned in Middleport, for the purpose of determining business allocation percentage, no account shall be given to receipts, within or without Middleport, of income derived from intangibles (including stocks, bonds, royalties and the like), the income of which is taxable under the statutes of the State of Ohio.
All receipts of the period covered by the report (computed on the cash or accrual basis, in accordance with the method of accounting used in the computation of the taxpayer's entire net income) must be taken into account.
(d) Compensation for work done and performed or services rendered.
(1) Compensation and other receipts for work done or services performed within Middleport are allocable to Middleport and taxable under this chapter. All amounts so received, credited or charged by taxpayer in payment for such work or services are so allocable, irrespective of whether done or performed by employees or agents of taxpayer, by sub-contractors, or by any other persons, it is immaterial where such amounts were payable or where they were received.
(2) Commission or fees received by the taxpayer are allocated to Middleport if the services for which the commissions were paid were performed in Middleport, if the taxpayer's services for which commissions or fees were paid were performed for the taxpayer by salesmen or other agents or employees attached to or working out of a Middleport place of business of the taxpayer, the taxpayer's services will be deemed to have been performed in Middleport.
Where a lump sum is received by the taxpayer in payment of services within and without Middleport, the amount attributable to services within Middleport, is to be determined on the basis of such services within and without Middleport.
(3) Other business receipts. Receipts from sale of capital assets (property not held by the taxpayer for sale to customers in the regular course of business) are not business receipts. Receipts from the sale of real property held by the taxpayer as a dealer for sale to customers in the regular course of business are business receipts and are allocable to Middleport if the real property was situated in Middleport. Receipts from sales of intangibles included in business capital, held by the taxpayer as a dealer for sale to customers in the regular course of business, are business receipts and are allocable to Middleport if the sales were made in Middleport or through a regular place of business of the taxpayer in Middleport.
(e) Payroll factor. The percentage of the taxpayer's payroll allocable to Middleport is determined by dividing the wages, salaries and other personal service compensation of the taxpayer's employees during such period.
Wages, salaries and other compensation are computed on the cash or accrual basis in accordance with the method of accounting used in the computation of the entire net income of the taxpayer.
Employees within Middleport include all employees regularly connected with or working out of a place of business maintained by the taxpayer in Middleport, irrespective of where the services of such employee were performed. However, if the taxpayer establishes to the satisfaction of the Tax Administrator that because of the fact that a substantial part of payroll was paid to employees attached to a Middleport place of business who performed a substantial part of their services outside Middleport, the computation of the payroll factor according to the general rule stated above would not produce an equitable result, then the Administrator may, in his discretion, permit the payroll factor to be computed on the basis of the amount of compensation paid for services rendered within and without the Village. On the other hand, wherever, it appears that because of substantial part of the taxpayer's payroll was paid to employees attached to places of business outside Middleport who performed a substantial part of their services within Middleport, the computation of the payroll factor according to the general rule would not properly reflect the amount of the taxpayer's business done within Middleport by its employees, the Village's Tax Administrator may require the payroll factor to be computed on the basis of the amount of compensation paid for services performed within and without the Village. In any such case, where an employee performed services both within and without Middleport, the amount treated as compensation for services performed within Middleport shall be deemed to be:
(1) In the case of an employee whose compensation depends directly on the volume of business secured by him, such as a salesman on a commission basis, the amount received by him for business attributable to his efforts within Middleport;
(2) In the case of an employee whose compensation depends on other results achieved, the proportion of the total compensation which the value of his services within Middleport bears to the value of all his services; and
(3) In the case of an employee compensated on a time basis, the proportion of the total amount received by him which the working time employed in Middleport bears to the total working time.
(f) Adjustment of business allocation percentage formula. Generally, the business allocation percentage formula will result in a fair apportionment of the taxpayer's net profits within and without Middleport. However, due to the peculiar circumstances of certain businesses, the formula may work a hardship in some cases, or result in a tax evasion in others, thus not to do justice to the taxpayer or the Village. Accordingly in such cases, the Village's Tax Administrator may substitute factors calculated to bring about a fair and proper allocation in any case where the taxpayer has adopted the optional use of the business allocation percentage formula. (Ord. 1195-88. Passed 4-11-88.)