Sales Factor: Sales Of Tangible Personal Property In Idaho (Rule 540)

Section 63-3027(12), Idaho Code 01. Gross Receipts. Gross receipts from sales of tangible personal property, except sales to the United States Government as discussed in Rule 545 of these rules, are in Idaho if: (4-6-23) a. The property is delivered or shipped to a purchaser in Idaho regardless of the f.o.b. point or other IDAHO ADMINISTRATIVE CODE IDAPA 35.01.01 Idaho State Tax Commission Income Tax Administrative Rules Section 540 Page 71 conditions of sale; or (4-6-23) b. The property is shipped from an office, store, warehouse, factory, or other place of storage in Idaho and the taxpayer is not taxable in the state of the purchaser. (4-6-23) 02. Destination Sales. (4-6-23) a. Property is deemed to be delivered or shipped to a purchaser in Idaho if the recipient is in Idaho even though the property is ordered from outside Idaho. Example: A taxpayer, with inventory in State A, sold one hundred thousand dollars ($100,000) of its products to a purchaser with branch stores in several states including Idaho. The order for the purchase was placed by the purchaser’s central purchasing department in State B. Twenty- five thousand dollars ($25,000) of the purchase order was shipped directly to purchaser’s branch store in Idaho. The branch store in Idaho is the purchaser in Idaho with respect to twenty-five thousand dollars ($25,000) of the taxpayer’s sales. (4-6-23) b. Property is delivered or shipped to a purchaser in Idaho if the shipment terminates in Idaho, even if the property is subsequently transferred to another state by the purchaser. Example: A taxpayer makes a sale to a purchaser who maintains a central warehouse in Idaho where all merchandise purchases are received. The purchaser reships the goods to its branch stores in other states for sale. All of the taxpayer’s products shipped to the purchaser’s warehouse in Idaho constitute property delivered or shipped to a purchaser in Idaho. (4-6-23) 03. Purchaser. The term purchaser in Idaho includes the ultimate recipient of the property if at the request of the purchaser the taxpayer in Idaho delivers to or has the property shipped to the ultimate recipient in Idaho. Example: A taxpayer in Idaho sold merchandise to a purchaser in State A. The taxpayer directed the manufacturer or supplier of the merchandise in State B to ship the merchandise to the purchaser’s customer in Idaho according to the purchaser’s instructions. The sale by the taxpayer is in Idaho. (4-6-23) 04. Diverted Shipment. If a seller ships property from the state of origin to a consignee in another state, and the property is diverted while en route to a purchaser in Idaho, the sales are in Idaho. Example: The taxpayer, a produce grower in State A, begins shipping perishable produce to the purchaser’s place of business in State B. While en route the produce is diverted to the purchaser’s place of business in Idaho where the taxpayer is subject to tax. The sale by the taxpayer is in Idaho. (4-6-23) 05. Throwback Sales. If a taxpayer is not taxable in the state of the purchaser, the sale is attributed to Idaho if the property is shipped from an office, store, warehouse, factory, or other place of storage in Idaho. Example: A taxpayer has its head office and factory in State A. It has a branch office and inventory in Idaho. The taxpayer’s only activity in State B is the solicitation of orders by a resident salesman. All orders by the State B salesman are sent to the branch office in Idaho for approval and are filled by shipment from the inventory in Idaho. Since the taxpayer is immune from tax in State B by Public Law 86-272, all sales of merchandise to purchasers in State B are attributed to Idaho, the state from which the merchandise was shipped. (4-6-23) 06. Third-Party Throwback Sales. If a taxpayer’s salesman operating from an office in Idaho makes a sale to a purchaser in another state where the taxpayer is not taxable and the property is shipped directly by a third party to the purchaser, the following rules apply: (4-6-23) a. If the taxpayer is taxable in the state from which the third-party ships the property, the sale is in that state. (4-6-23) b. If the taxpayer is not taxable in the state from which the property is shipped, the sale is in Idaho. (4-6-23) c. Example. A taxpayer in Idaho sold merchandise to a purchaser in State A. The taxpayer is not taxable in State A. On direction of the taxpayer, the merchandise was shipped directly to the purchaser by the manufacturer in State B. If the taxpayer is taxable in State B, the sale is in State B. If the taxpayer is not taxable in State B, the sale is in Idaho. (4-6-23) 541. -- 544. (RESERVED) IDAHO ADMINISTRATIVE CODE IDAPA 35.01.01 Idaho State Tax Commission Income Tax Administrative Rules Section 545 Page 72 545. SALES FACTOR: SALES OF TANGIBLE PERSONAL PROPERTY TO THE UNITED STATES GOVERNMENT IN IDAHO (RULE 545). Section 63-3027(12), Idaho Code 01. In General. Gross receipts from sales of tangible personal property to the United States Government are in Idaho if the property is shipped from an office, store, warehouse, factory, or other place of storage in Idaho. For purposes of this rule, only sales for which the United States Government makes direct payment to the seller pursuant to the terms of a contract constitute sales to the United States Government. Generally, sales by a subcontractor to the prime contractor, the party to the contract with the United States Government, are not sales to the United States Government. (4-6-23) 02. Examples. (4-6-23) a. A taxpayer contracts with the General Services Administration to deliver a truck that was paid for by the United States Government. The sale is a sale to the United States Government. (4-6-23) b. A taxpayer as a subcontractor to a prime contractor with the National Aeronautics and Space Administration contracts to build a rocket component for one million dollars ($1,000,000). The sale by the subcontractor to the prime contractor is not a sale to the United States Government. (4-6-23) 546. SALES FACTOR: SALES OTHER THAN SALES OF TANGIBLE PERSONAL PROPERTY IN THIS STATE – GENERAL RULES (RULE 546). Section 63-3027(13), Idaho Code 01. Definitions. For the purposes of this Rules 546 through 551, these terms have the following meanings: (4-6-23) a. Billing address. The location indicated in the books and records of the taxpayer as the primary mailing address relating to a customer’s account as of the time of the transaction as kept in good faith in the normal course of business and not for tax avoidance purposes. (4-6-23) b. Business customer. A customer that is a business operating in any form, including a sole proprietorship. Sales to a non-profit organization, to a trust, to the U.S. Government, to a foreign, state or local government, or to an agency or instrumentality of that government are treated as sales to a business customer and must be assigned consistent with the rules for those sales. (4-6-23) c. Individual customer. A customer that is not a business customer. (4-6-23) d. Intangible property. Generally means property that is not physical or whose representation by physical means is merely incidental and includes, without limitation, copyrights; patents; trademarks; trade names; brand names; franchises; licenses; trade secrets; trade dress; information; know-how; methods; programs; procedures; systems; formulae; processes; technical data; designs; licenses; literary, musical, or artistic compositions; information; ideas; contract rights including broadcast rights; agreements not to compete; goodwill and going concern value; securities; and, except as otherwise provided in these rules, computer software. (4-6-23) e. Place of order. The physical location from which a customer places an order for a sale other than a sale of tangible personal property from a taxpayer, resulting in a contract with the taxpayer. (4-6-23) f. Population. The most recent population data maintained by the U.S. Census Bureau for the year in question as of the close of the taxable period. (4-6-23) g. Related Party. (4-6-23) i. A stockholder who is an individual, or a member of the stockholder's family set forth in section 318 of the Internal Revenue Code if the stockholder and the members of the stockholder's family own, directly, indirectly, beneficially or constructively, in the aggregate, at least fifty percent (50%) of the value of the taxpayer's outstanding IDAHO ADMINISTRATIVE CODE IDAPA 35.01.01 Idaho State Tax Commission Income Tax Administrative Rules Section 546 Page 73 stock; (4-6-23) ii. A stockholder, or a stockholder's partnership, limited liability company, estate, trust or corporation, if the stockholder and the stockholder's partnerships, limited liability companies, estates, trusts and corporations own directly, indirectly, beneficially or constructively, in the aggregate, at least fifty percent (50%) of the value of the taxpayer's outstanding stock; or (4-6-23) iii. A corporation, or a party related to the corporation in a manner that would require an attribution of stock from the corporation to the party or from the party to the corporation under the attribution rules of the Internal Revenue Code if the taxpayer owns, directly, indirectly, beneficially or constructively, at least fifty percent (50%) of the value of the corporation's outstanding stock. The attribution rules of the Internal Revenue Code shall apply for purposes of determining whether the ownership requirements of this definition have been met. (4-6-23) h. State where a contract of sale is principally managed by the customer. The primary location at which an employee or other representative of a customer serves as the primary contact person for the taxpayer with respect to the day-to-day execution and performance of a contract entered into by the taxpayer with the customer. (4-6-23) 02. General Principles of Application – Contemporaneous Records. (4-6-23) a. A taxpayer shall apply the principles set forth in Rules 546 through 551 based on objective criteria and shall consider all sources of information reasonably available to the taxpayer at the time of its tax filing including the taxpayer’s books and records kept in the normal course of the taxpayer’s business. A taxpayer shall determine its method of assigning receipts in good faith and apply it consistently with respect to similar transactions and year to year. A taxpayer shall retain contemporaneous records that explain the determination and application of its method of assigning its receipts, including its underlying assumptions, and shall provide those records to the Tax Commission upon request. (4-6-23) b. Rules 546 through 551 provide various assignment rules that apply sequentially in a hierarchy. For each sale to which a hierarchical rule applies, a taxpayer must make a reasonable effort to apply the primary rule applicable to the sale before seeking to apply the next rule in the hierarchy (and must continue to do so with each succeeding rule in the hierarchy, where applicable). For example, in some cases, the applicable rule first requires a taxpayer to determine the state or states of assignment, and if the taxpayer cannot do so, the rule requires the taxpayer to reasonably approximate the state or states. In these cases, the taxpayer must attempt to determine the state or states of assignment (i.e., apply the primary rule in the hierarchy) in good faith and with reasonable effort before it may reasonably approximate the state or states. (4-6-23) c. A taxpayer’s method of assigning its receipts, including the use of a method of approximation, where applicable, must reflect an attempt to obtain the most accurate assignment of receipts consistent with the standards set forth in Rules 546 through 551, rather than an attempt to lower the taxpayer’s tax liability. A method of assignment that is reasonable for one taxpayer may not necessarily be reasonable for another taxpayer, depending upon the applicable facts. (4-6-23) 03. Rules of Reasonable Approximation. (4-6-23) a. In General. In general, Rules 546 through 551 establish uniform provisions for determining whether and to what extent the market for a sale other than the sale of tangible personal property is in this state. These rules also set forth provisions of reasonable approximation, which apply if the state or states of assignment cannot be determined. In some instances, the reasonable approximation must be made in accordance with specific provisions of approximation prescribed in these rules. In other cases, the applicable provision in these rules permits a taxpayer to reasonably approximate the state or states of assignment, using a method that reflects an effort to approximate the results that would be obtained under the applicable provisions or standards set forth in these rules. (4-6-23) b. Approximation Based Upon Known Sales. In an instance where, applying the applicable provisions set forth in Rule 548 (Sale of a Service), a taxpayer can ascertain the state or states of assignment of a substantial portion of its receipts from sales of substantially similar services (“assigned receipts”), but not all of those sales, and the taxpayer reasonably believes, based on all available information, that the geographic distribution of some or all of IDAHO ADMINISTRATIVE CODE IDAPA 35.01.01 Idaho State Tax Commission Income Tax Administrative Rules Section 547 Page 74 the remainder of those sales generally tracks that of the assigned receipts, it shall include receipts from those sales which it believes tracks the geographic distribution of the assigned receipts in its sales factor in the same proportion as its assigned receipts. This provision also applies in the context of licenses and sales of intangible property where the substance of the transaction resembles a sale of goods or services. See Rule 549.05 and 550.01.c. (4-6-23) c. Related-Party Transactions – Information Imputed from Customer to Taxpayer. Where a taxpayer has receipts subject to these rules from transactions with a related-party customer, information that the customer has that is relevant to the sourcing of receipts from these transactions is imputed to the taxpayer, unless the taxpayer shows that imputing such knowledge is unreasonable. (4-6-23) 547. SALES FACTOR: RENTAL, LEASE, OR LICENSE OF TANGIBLE PERSONAL PROPERTY (RULE 547). Section 63-3027(13)(b), Idaho Code. In the case of a rental, lease or license of tangible personal property, the receipts from the sale are in this state if and to the extent that the property is in this state. If property is mobile property that is located both within and without this state during the period of the lease or other contract, the receipts assigned to this state are the receipts from the contract period multiplied by the fraction computed under Rule 475.03 (as adjusted when necessary to reflect differences between usage during the contract period and usage during the taxable year). (4-6-23)