(a) Net Business Profits in General.
(1) In amplification of the definition of the term “net profits” as set forth in Section 181.02, but not in limitation thereof, the following additional information and requirements respecting net business profits are furnished:
A. Where necessary to properly reflect income, inventories must be used. The basis of pricing used for the purpose of the Federal income tax must in each instance be used.
B. Where the books and records are kept on an accrual basis, long-term contract basis, or installment basis, and said basis is used in the filing of Federal income tax returns, the same basis must be used for the purpose of this tax.
C. If the return is made on a cash basis, gross profit shall include commissions, fees, and interest earned, plus the gross profit or loss from sales of merchandise, chattels, goods, wares, securities, notes, closes-in-action, and services, except as hereinafter provided.
D. If the return is made on an accrual basis, gross profit shall include commissions, fees, and interest earned, plus the gross profit or loss from sales of merchandise, chattels, goods, wares, securities, notes, closes-in-action, and services, except as hereinafter provided.
E. From gross profit there shall be subtracted allowable expense to arrive at the net profits subject to tax.
F. All ordinary and necessary expense of doing business, including reasonable compensation paid employees, shall be allowed (but no deduction may be claimed for salary or withdrawals of a proprietor or of the partners, members or other co-owners of an unincorporated business or enterprise).
G. If not claimed as part of the cost of goods sold or elsewhere in the return filed, there may be claimed and allowed a reasonable deduction for depreciation, depletion, obsolescence, losses resulting from theft or casualty not compensated for by insurance or otherwise, or property used in the trade or business, but the amount may not exceed that recognized for the purpose of Federal income tax.
H. Bad debts in a reasonable amount may be allowed in the year ascertained worthless and charged off, but in no event shall the amount allowed exceed the amount recognized as a deduction for the purpose of the Federal income tax.
I. Only taxes directly connected with the taxpayer’s business may be claimed as a deduction. If for any reason the income from property is not subject to tax, then the tax on and other expenses of said property are not deductible. In any event, the following taxes are not deductible from income:
2. Any Federal taxes based upon income;
3. Gifts, estate or inheritance taxes; and
4. Taxes or special assessments for local benefits or improvements to property which tend to appreciate the value thereof.
J. Capital gains and losses (including gains or losses from the sale, exchange or other disposition of depreciable business property, and real property used in the taxpayer’s trade or business) shall not be taken into consideration in arriving at net profits earned.
K. If the taxpayer is a nonresident, only the amount of net profits applicable to the activities of the business in the Municipality shall be subjected to tax. If the nonresident taxpayer’s records do not disclose the actual net profits for the Municipal branch, office, store or activity, separately, then the basis of allocation shall be disclosed in the return. If such basis of allocation is not deemed correct, in view of all the known circumstances, the Finance Director will make a reallocation based upon gross receipts or any other basis which shall, under the circumstances of the case, more accurately reflect the net profits.
L. In general, all business expense recognized and to the extent allowed as such for the purpose of determining Federal income tax will be recognized and allowed for, determining Municipal income tax under the provisions of this chapter. However, all expense connected with the acquisition or carrying of securities, the income from which is not recognized as taxable under this chapter, may not be deducted in determining taxable net profits hereunder.
M. In general, unearned income is not to be included in computing the tax levied hereunder. Income from intangibles by way of dividends, interest and the like, should not be included if the property from which such income is derived is subject to taxation under the Intangible Personal Property Tax Laws of the State, or is specifically exempted from taxation under said laws.
N. Rentals received by the taxpayer are to be included only if and to the extent that the rental, ownership, management or operation of the real estate from which such rentals are derived (whether so rented, managed or operated by taxpayer individually or through agents or other representatives) constitutes a business activity of the taxpayer in whole or in part.
(2) Following are the circumstances under which, in any instance, the rental of any real property shall or shall not be deemed to be a business activity:
A. Where the gross monthly rental of any and all real properties, regardless of number and value, aggregates in excess of $100 per month, it shall be prima facie evidence that the rental, ownership, management or operation of such properties is a business activity of such taxpayer, and the net income of such rental property shall be subject to tax; provided that in case of commercial property, the owner shall be considered engaged in a business activity when the rental is based upon a fixed or fluctuating percentage of gross or net sales, receipts or profits of the lessee, whether or not such rental exceeds $100 per month; provided further that in the case of farm property, the owner shall be considered engaged in a business activity when he shares in the crops or when the rental is based on a percentage of the gross or net receipts derived from the farm, whether or not the gross income exceeds $100 per month; and provided further that the person who operates a rooming house shall be considered in business whether or not the gross income exceeds $100 per month.
B. In determining the amount of gross monthly rental of any real property, periods during which (by reason of vacancy or any other cause) rentals are not received shall not be taken into consideration by the taxpayer.
C. Rentals received by a taxpayer engaged in the business of buying and selling real estate shall be considered as part of business income.
D. Real property, as the term is used in this chapter, shall include commercial property, residential property, farm property, and any and all other types of real estate.
E. In determining the taxable net income from rentals, the deductible expense shall be of the same nature, extent and amount as are allowed by the Internal Revenue Department for Federal income tax purposes.
F. 1. Residents of the Municipality are subject to taxation upon net income from rentals (to the extent above specified) on all properties located in the Municipality, and on all properties located outside the Municipality, the net income of which is not subject to city income tax in said other community. In the case of residents of the Municipality, if the net income of properties located outside the Municipality is subject to city income tax in another community, then said net income will not be subject to City income tax in the Municipality.
2. Nonresidents of the Municipality are subject to such taxation only if the real property is situated within the Municipality. Nonresidents, in determining whether gross monthly rentals exceed $100, shall take into consideration only real estate situated within the Municipality.
G. Income from royalties or copyrights is not to be included.
(b) Residents.
(1) In the case of trades, businesses, professions, other activities, enterprises or undertakings conducted, operated, engaged in, prosecuted, or carried on by residents of the Municipality, there is imposed an annual tax at the rate in effect under the Ordinance, on the net profits earned or accruing on and after October 1, 1968.
(2) For the purpose of construing Section 181.03(c) and (d), the term residents in the phrase conducted by residents of the Municipality, will ordinarily be construed to have reference to the business entity itself, as distinguished from the partners, proprietors, or other participants in its profits.
(3) Generally, a partnership, association or other unincorporated enterprise owned by two or more persons will be taxed as an entity. However, in the case of a nonresident partnership, association, or unincorporated enterprise which cannot be reached or taxed directly by the Municipality, or if only part of its earnings may be directly taxed, then in either such case, resident partners, co-owners, proprietors, or other participants in the profits thereof must include in their declaration and tax return or returns their distributive shares of such profits, or portion thereof not taxed to the business enterprise as an entity, and must pay the tax thereon.
(4) The tax imposed under Section 181.03(c) is levied upon the entire net profits of the resident trade, business, profession, other activity, enterprise, or undertaking, wherever earned, paid or accrued and regardless of the fact that any part of such business or professional activity may have been conducted at or through a place or places of business located outside the Municipality.
(c) Nonresidents.
(1) In the case of a nonresident individual, partnership, association, fiduciary, or other entity (other than a corporation) engaged in the conduct, operation or prosecution of any trade, business, profession, enterprise, undertaking or other activity, there is imposed an annual tax at the rate in effect under the Ordinance on the net profits (earned or accruing on and after October 1, 1968) of such trade, business, profession, enterprise, undertaking or other activity if, and to the extent, conducted in or derived from activity in the Municipality.
(2) A nonresident entity within the meaning of Section 181.03(e) which has a branch, office, store, warehouse or other place or places in which the entity’s business is transacted, located in the Municipality, shall be considered to be conducting, operating, prosecuting, or carrying on a trade, business, profession, enterprise, undertaking or other activity to the full extent of the sum total of all transactions originating or consummated in, by or through such Municipal branch, office, store, warehouse or other place of business, including billings made on such transactions, services rendered, shipments made, goods, chattels, merchandise and the like, sold, or commissions, fees or other remuneration or payments earned.
(3) In the case of the partnership, association or other unincorporated business owned by one or more persons the tax, generally, shall be upon said partnership, association or business enterprise as an entity and not ordinarily upon the partners or members thereof. However, the provisions of subsection (b) hereof are applicable to render taxable against such resident partners or members their distributive share of any profits of such nonresident entity not taxable under this chapter.
(4) In determining the proportion or amount of the taxable net profits of a nonresident business entity having a place or places of business within and outside the Municipality, such business entity may at its option use and apply the business allocation percentage formula set forth in Section 181.03(h). For explanation of formula, see Section 183.05.
(d) Corporations.
(1) In the case of a corporation doing business in the Municipality, whether domestic or foreign, and whether domiciled in the Municipality or elsewhere, there is imposed an annual tax at the rate in effect under the Ordinance on that part of the net profits (earned or accruing on and after October 1, 1968) of such corporations, which is earned by such corporations as a result of work done or services performed or rendered and business or other activities conducted in the Municipality.
(2) The provisions of subsection (c)(2) hereof are applicable to such corporations.
(3) A corporation doing business both within and outside the Municipality may, in determining the part of the net profits which are taxable under Chapter 181, at its option:
A. Use the usual accounting system of the taxpayer corporation, so long as said usual accounting system shall be one acceptable to the Federal Internal Revenue Department as evidenced by acceptance and approval of income tax returns filed therein; or
(Res. 128. Passed 9-3-68; Res. 452. Passed 7-13-88.)