(a) (1) At the option of a corporate taxpayer or a nonresident business entity, such taxpayers may, but are not obliged 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 Municipality) which is taxable under Chapter 181 and to determine the tax payable to the Municipality thereunder.
(2) If the taxpayer did not have a place of business outside the Municipality during the period covered by any declaration or return required under Chapter 181, its business allocation percentage is 100%; in other words the taxpayer is required to pay a tax at the rate in effect under the Ordinance on the entire net profit of the business.
(3) If the taxpayer had a place or places of business outside the Municipality and was doing business in the Municipality during such period, the business allocation percentage shall be computed on the basis as set forth in Section 181.03(h).
(4) The business allocation percentage is computed by determining the percentages which Municipal real and tangible personal property bears to all real and tangible personal property (including that situated in the Municipality) of taxpayer wheresoever situated; which the Municipal business sales bear to taxpayer’s entire business sales wheresoever derived (including those derived from the Municipality); and which payrolls paid by taxpayer within the Municipality bear to taxpayer’s entire payroll wheresoever paid (including the Municipal payrolls); adding together the three percentages so arrived at, and dividing the total by three.
(5) However, if one of the factors (property, sales or payrolls) is missing, the other two percentages are added and the sum is divided by two, and if two of the factors are missing, the remaining percentage is the business allocation percentage.
A. Example 1:
Corporation having places of business in Montpelier, Detroit and Cleveland.
Montpelier real and tangible personal property $10,000. All real and personal property (Montpelier, Detroit, Cleveland) $100,000. Percentage: 10%.
Montpelier sales $15,000. All sales $75,000. Percentage : 20%.
Montpelier payroll $6,000. All payroll $20,000. Percentage: 30%.
Business Allocation Percentage:
10% Plus 20% Plus 30% Equals 20%
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B. Example 2:
Same corporation owning no real or tangible personal property anywhere. Montpelier sales $15,000. All sales $75,000.
Percentage: 20%.
Montpelier payroll $6,000. All payroll $20,000. Percentage: 30%.
Business Allocation Percentage:
20% Plus 30% Equals 25%
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C. Example 3:
Same corporation owning real and tangible personal property in Montpelier valued at $10,000 and owning no real or tangible personal property outside of Montpelier. Other factors same as in Examples 1 and 2 above.
Business Allocation Percentage:
100% Plus 20% Plus 30% Equals 50%
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(6) 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 at the rate in effect under the Ordinance of the resultant taxable net profit.
(7) In case it shall appear to the Finance Director that any income or capital of the taxpayer is improperly or inaccurately reflected, the Finance Director may adjust items of income, expense, 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 equitable to determine the tax.
(b) Explanation of Property Factor. The percentage of the taxpayer’s real and tangible personal property within the Municipality is determined by dividing the net book value (during the period covered by the report) of such property within the Municipality, without deduction of any encumbrances, by the average net book value similarly computed, of all such property within and without the Municipality. Only property owned by the taxpayer is considered in determining such percentage.
(c) Explanation of Sales Factor. Receipts from the following are allocable to the Municipality:
(1) Work done and performed or services rendered in the Municipality.
(2) Rentals from property situated in the Municipality, where the rental of such property is a usual or normal part of the taxpayer’s business activity.
(3) For the purpose of determining business allocation percentage, no account shall be given to receipts, within or without the Municipality, of income derived from intangibles (including stocks, bonds, royalties and the like) the income of which is taxable under the statutes of the State.
(4) Compensation and other receipts for work done or services performed within the Municipality are allocable to the Municipality and taxable under Chapter 181. 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 or by any other person. It is immaterial where such amounts were payable or where they were received.
A. Commissions or fees received by the taxpayer are allocated to the Municipality if the services for which the commissions were paid were performed in the Municipality. 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 Municipal place of business of the taxpayer, the taxpayer’s services will be deemed to have been performed in the Municipality.
B. Where a lump sum is received by the taxpayer in payment for services within and without the Municipality, the amount attributable to services within the Municipality is to be determined on the basis of the relative values of, or amounts of time spent in the performance of, such services within and without the Municipality.
(5) 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 a taxpayer as a dealer for sale to customers in the regular course of business are business receipts and are allocable to the Municipality if the real property was situated in the Municipality. Receipts from sale 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 the Municipality if the sales were made in the Municipality or through a regular place of business of the taxpayer in the Municipality.
(d) Payroll Factor.
(1) The percentage of the taxpayer’s payroll allocable to the Municipality is determined by dividing the wages, salaries and other personal service compensation of the taxpayer’s employees within the Municipality during the period covered by the report, by the total amount of compensation of all taxpayer’s employees during such period.
(2) 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.
(3) Employees within the Municipality usually include all employees regularly connected with or working out of a place of business maintained by the taxpayer in the Municipality.
(4) However, where an employee performed services both within and without the Municipality, the amount treated as compensation for services performed within the Municipality shall be deemed to be in the case of an employee whose compensation depends directly on the volume of business secured by him, such as a salesperson on a commission basis, the amount received by him for the business attributable to his efforts within the Municipality; 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 the Municipality bears to the value of all his services; and 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 the Municipality bears to the total working time.
(e) 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 the Municipality. 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 do justice to the taxpayer or the Municipality. Accordingly, in such cases, the Finance Director may substitute factors calculated to bring about a fair and proper allocation in any case where the taxpayer had adopted the optional use of the business allocation percentage formula.
(Res. 128. Passed 9-3-68.)