26 CAR § 131-106. Examples

The following examples are provided as guidance for purposes of determining whether an intangible income measuring activity is deemed to be readily identifiable to a specific activity occurring within a unique geographic location. Example 1: A licensing agreement provides that royalty income is to be based upon a percentage of licensee’s total sales. Such a measuring activity accurately reflects the licensor’s business activity occurring within Arkansas due to the fact a licensor may determine the specific geographic location of the sales which generated the licensor’s entitlement to income as outlined in 26 CAR § 131-105(b)(1). Example 2: A licensing agreement provides that royalty income is to be based upon the number of stores displaying a licensed trademark. Such a measuring activity accurately reflects the licensor’s business activity occurring within Arkansas due to the fact a licensor may determine the specific geographic location of the stores which generated the licensor’s entitlement to income as outlined in 26 CAR § 131-105(b)(1). Example 3: A licensing agreement provides that royalty income is to be based upon a fixed quarterly amount. Such a measuring activity is not readily identifiable to a specific activity occurring within a unique geographic location due to the fact the royalty income is not based upon an identifiable activity. If the licensee’s business activity generates sales or receipts, the numerator of the licensor’s sales factor shall be calculated as outlined in 26 CAR § 131- 105(b)(2)(A). If the licensee’s business activity does not produce sales or receipts, then the numerator of the licensor’s sales factor shall be calculated as outlined in 26 CAR § 131-105(b)(2)(B).