Sole Proprietorships Operating Within And Without Idaho (Rule 265)

Section 63-3026A(3), Idaho Code 01. In General. A sole proprietorship that operates within and without Idaho will apply the principles of allocation and apportionment of income set forth in Section 63-3027, Idaho Code, and related rules to determine the extent of proprietorship income that is derived from or related to Idaho sources. The use of a combined report, however, is available only to C corporations. (4-6-23) 02. Application of Rule. This rule also applies to farming activities operated as a sole proprietorship. (4-6-23) 03. Alternative Method. If the method described in Subsection 265.01 does not fairly represent the extent of the business activity in Idaho, the taxpayer may propose or the Tax Commission may require an alternative method. (4-6-23) a. The taxpayer will fully explain the alternative method in a statement attached to his Idaho individual income tax return. (4-6-23) b. The method proposed by the taxpayer may be used in lieu of the method in Subsection 265.01 unless the Tax Commission expressly denies its use. (4-6-23) 266. IDAHO SOURCE INCOME OF NONRESIDENT AND PART-YEAR RESIDENT INDIVIDUALS -- INCOME FROM INTANGIBLE PROPERTY (RULE 266). Section 63-3026A(3), Idaho Code 01. In General. Gross income from intangible property generally is sourced to the state of the owner’s domicile. The following are exceptions to this rule. (4-6-23) a. If the intangible property is employed in the owner’s trade, business or profession carried on within Idaho, any income derived from or related to the property, including gains from the sale thereof, constitutes income from Idaho sources. For example, if a nonresident pledges stocks, bonds or other intangible personal property as security for the payment of indebtedness incurred in connection with the nonresident’s Idaho business operations, the intangible property has an Idaho situs and the income derived therefrom constitutes Idaho source income. (4-6-23) IDAHO ADMINISTRATIVE CODE IDAPA 35.01.01 Idaho State Tax Commission Income Tax Administrative Rules Section 267 Page 39 b. Interest income from the sale of real or tangible personal property on the installment method is treated as income from the sale of the underlying property and is therefore sourced to Idaho if the underlying property was located in Idaho when sold. (4-6-23) c. Interest income paid by an S corporation to a shareholder or by a partnership to a partner is sourced to Idaho in proportion to the Idaho apportionment factor of the partnership or S corporation. (4-6-23) d. Gains or losses from the sale or other disposition of a partnership interest or stock in an S corporation are sourced to Idaho by using the Idaho apportionment factor for the entity for the taxable year immediately preceding the year of the sale of the interest or stock. However, a gain or loss from the sale of an interest in a publicly traded partnership transacting business in Idaho is Idaho source income to the extent of the gain or loss determined under Section 751, Internal Revenue Code, multiplied by the Idaho apportionment factor of the partnership for the year in which the sale occurred. (4-6-23) 02. Interest Income Earned on a Bank Account. (4-6-23) a. Personal Bank Accounts. Interest income earned on a personal bank account is sourced to the owner’s state of domicile. A personal bank account is an account that is not used in connection with a business. (4-6-23) b. Business Bank Accounts. If the business is a sole proprietorship, see Rule 265 of these rules. If the business is an S corporation or partnership, see Rule 263 of these rules. (4-6-23) 03. Payment of Penalties. Payment of penalties is sourced to Idaho the same as interest income. This includes penalties arising from the prepayment or late payment of an installment contract. If the installment contract is for the sale of Idaho property, any penalty paid is Idaho source income. (4-6-23) 04. Covenant Not to Compete. Income from a covenant not to compete is sourced to Idaho based on the Idaho apportionment factor of the entity sold for the taxable year immediately preceding the year of the sale. (4-6-23) 05. Goodwill. Gain or loss from the sale of goodwill from a business transacting business in Idaho is sourced to Idaho based on the Idaho apportionment factor of the business sold for the taxable year immediately preceding the year of the sale. (4-6-23) 06. Timing of Sourcing Determination for Intangible Personal Property. The source of gains and losses from the sale or other disposition of intangible personal property is determined at the time of the sale or disposition of the property. For example, if an Idaho resident sells intangible personal property under the installment method, and subsequently becomes a nonresident, gain attributable to any installment payment receipts relating to that sale will be sourced to Idaho even though the individual is a nonresident when a payment is received. If the intangible personal property was employed in the owner’s business, trade, profession, or occupation conducted or carried on in Idaho as described in Paragraph 266.01.a., of this rule, at the time of the sale, any subsequent installment payments is Idaho source income. (4-6-23) 267. IDAHO SOURCE INCOME OF NONRESIDENT AND PART-YEAR RESIDENT INDIVIDUALS -- PASSIVE ACTIVITY LOSSES (RULE 267). Section 63-3026A(6), Idaho Code 01. In General. Losses from a passive activity incurred while an individual is a nonresident are included in Idaho taxable income only to the extent the losses were from Idaho activity. (4-6-23) 02. Idaho Activity. An activity is an Idaho activity only to the extent the income from that activity would be included in the Idaho taxable income of a nonresident pursuant to Section 63-3026A, Idaho Code. If a passive activity is engaged in both within and without Idaho, the principles of allocation and apportionment of income set forth in Section 63-3027, Idaho Code, and related rules must be applied to determine the extent of Idaho activity. (4-6-23) IDAHO ADMINISTRATIVE CODE IDAPA 35.01.01 Idaho State Tax Commission Income Tax Administrative Rules Section 268 Page 40 03. Prior Year Losses. Suspended passive activity losses from prior years included in federal taxable income for the current year are included in Idaho taxable income only to the extent the losses were from Idaho activity. (4-6-23) 04. Current Year Losses. Non-Idaho passive activity losses incurred in the current taxable year are included in Idaho taxable income only to the extent the losses were incurred while the individual was an Idaho resident. The portion of the losses incurred while an Idaho resident is determined by prorating the losses based on the proportion of the year the individual resided in Idaho. (4-6-23) 268. IDAHO SOURCE INCOME OF NONRESIDENT AND PART-YEAR RESIDENT INDIVIDUALS -- SUSPENDED LOSSES FROM PASS-THROUGH ENTITIES (RULE 268). Section 63-3026A, Idaho Code 01. In General. A nonresident individual’s suspended losses from a pass-through entity are included in Idaho taxable income in the year included in federal taxable income only to the extent the losses were from an Idaho source in the year incurred. (4-6-23) a. Suspended Loss. For purposes of this rule, a suspended loss is a loss required to be carried over to a succeeding taxable year due to Section 465(a), Section 704(d), or Section 1366(d) of the Internal Revenue Code. (4-6-23) b. Idaho Source. A suspended loss is from an Idaho source in the year incurred to the extent provided by Section 63-3026A, Idaho Code, and related rules. For purposes of this rule, the Idaho source portion of a suspended business loss subject to apportionment is determined by multiplying the loss by the Idaho apportionment factor of the pass-through entity in the year the loss was incurred. The Idaho apportionment factor is determined pursuant to Section 63-3027, Idaho Code, and related rules. (4-6-23) c. Nonbusiness Losses. A suspended nonbusiness loss is from an Idaho source in the year incurred to the extent the loss is allocable to Idaho pursuant to Section 63-3027, Idaho Code and Rule 263.02 of these rules. (4-6-23) d. Year Loss Incurred. For purposes of this rule, “year incurred” means the tax year the loss was first suspended. (4-6-23) 02. Losses from Multiple Years. For purposes of this rule, losses from a pass-through entity are considered used in the order incurred. (4-6-23) 03. Examples. Available at Income Tax Rules Examples. (4-6-23) 269. (RESERVED) 270. IDAHO SOURCE INCOME OF NONRESIDENT AND PART-YEAR RESIDENT INDIVIDUALS -- IDAHO COMPENSATION -- IN GENERAL (RULE 270). Section 63-3026A(3), Idaho Code 01. In General. If a nonresident individual performs personal services, either as an employee, agent, independent contractor, partner, or otherwise, both within and without Idaho, the portion of his total compensation that constitutes Idaho source income is determined by multiplying that total compensation by the Idaho compensation percentage. (4-6-23) 02. Definitions. (4-6-23) a. The Idaho compensation percentage is the percentage computed by dividing Idaho workdays by total workdays. (4-6-23) b. The term Idaho workdays means the total number of days the taxpayer provided personal services IDAHO ADMINISTRATIVE CODE IDAPA 35.01.01 Idaho State Tax Commission Income Tax Administrative Rules Section 271 Page 41 in Idaho for a particular employer or principal during the calendar year. If personal services were provided both within and without Idaho on the same day, that day is an Idaho workday unless the taxpayer establishes that less than fifty percent (50%) of the services were performed within Idaho that day. If an employee works in Idaho part of the day on a regular full-time basis, working hours must be used to determine the amount of Idaho compensation. (4-6-23) c. Total workdays means the total number of days the taxpayer provided personal services for that employer or principal both within and without Idaho during the calendar year. For example, a taxpayer working a five (5) day work week may assume total workdays of two hundred sixty (260) less any vacation, holidays, sick leave days and other days off. (4-6-23) d. Total compensation means all salary, wages, commissions, contract payments, and other compensation for services, including sick leave pay, holiday pay and vacation pay, that is taxable pursuant to the Internal Revenue Code. (4-6-23) 03. WorkDays. Workdays include only those days the taxpayer actually performs personal services for the benefit of the employer or principal. Vacation days, sick leave days, holidays, and other days off from work are considered non-workdays whether compensated or not. Total workdays must equal Idaho workdays plus non-Idaho workdays. The taxpayer has the burden of establishing non-Idaho workdays. Documentation establishing non-Idaho workdays may be required to support the Idaho compensation percentage used by the taxpayer. (4-6-23) 04. Multiple Employers. If a taxpayer performs personal services both within and without Idaho for more than one (1) employer or principal, he must determine an Idaho compensation percentage separately for each employer or principal. (4-6-23) 05. Alternative Method. If the Idaho compensation percentage does not fairly represent the extent of the taxpayer's personal service activities in Idaho, the taxpayer may propose or the Tax Commission may require an alternative method. For example, working hours may be a more appropriate measure than workdays in some cases. (4-6-23) a. The taxpayer must fully explain the alternative method in a statement attached to his Idaho individual income tax return. (4-6-23) b. The alternative method may be used in lieu of the method in Subsection 270.01 unless the Tax Commission expressly denies its use. (4-6-23)