Special rules - Railroads

The following special rules are established in respect to railroads: 1. In general. Where a railroad has income from sources both within and without this state, the amount of business income from sources within this state must be determined pursuant to this section. In such cases, the first step is to determine what portion of the railroad's income constitutes "business" income and which portion constitutes "nonbusiness" income under North Dakota Century Code section 57-38.1-01 and article IV(1) of North Dakota Century Code section 57-59-01 and section 81-03-09-03. Nonbusiness income is directly allocable to specific states pursuant to the provisions of North Dakota Century Code sections 57-38.1-05 through 57-38.1-08 and article IV(5) to IV(8) of North Dakota Century Code section 57-59-01, inclusive. Business income is apportioned among the states in which the business is conducted pursuant to the property, payroll, and sales apportionment factors set forth in the regulation. The sum of the items of nonbusiness income directly allocated to this state, plus the amount of business income attributable to this state constitutes the amount of the taxpayer's entire net income which is subject to tax by this state. 2. Business and nonbusiness income. For definitions, rules, and examples for determining business and nonbusiness income, see sections 81-03-09-03 through 81-03-09-06. 3. Apportionment of business income. a. In general. The property factor shall be determined in accordance with sections 81-03-09-15 through 81-03-09-2l, inclusive, the payroll factor in accordance with sections 81-03-09-22 through 81-03-09-25, and the sales factor in accordance with sections 81-03-09-26 through 81-03-09-31, inclusive, except as modified in this regulation. b. The property factor. (1) Property valuation. Owned property shall be valued at its original cost and property rented from others shall be valued at eight times the net annual rental rate in accordance with North Dakota Century Code section 57-38.1-11 and article IV(11) of North Dakota Century Code section 57-59-01 and sections 81-03-09-19 and 81-03-09-20. Railroad cars owned and operated by other railroads and temporarily used by the taxpayer in its business and for which a per diem or mileage charge is made are not included in the property factor as rented property. Railroad cars owned and operated by the taxpayer and temporarily used by other railroads in their business and for which a per diem charge is made by the taxpayer are included in the property factor of the taxpayer. (2) General definitions. The following definitions are applicable to the numerator and denominator of the property factor: (a) "Original cost" is deemed to be the basis of the property for federal income tax purposes (prior to any federal income tax adjustments except for subsequent capital additions, improvements thereto or partial dispositions); or, if the property has no such basis, the valuation of such property for interstate commerce commission purposes. If the original cost of property is unascertainable under the foregoing valuation standards, the property is included in the property factor at its fair market value as of the date of acquisition by the taxpayer. Section 81-03-09-19. (b) "Rent" does not include the per diem and mileage charges paid by the taxpayer for the temporary use of railroad cars owned or operated by another railroad. (c) The "value" of owned real and tangible personal property shall mean its original cost. See North Dakota Century Code section 57-38.1-11 and article IV(11) of North Dakota Century Code section 57-59-01 and section 81-03-09-19. (d) "Average value" of property means the amount determined by averaging the values at the beginning and ending of the income tax year, but the office of state tax commissioner may require the averaging of monthly values during the income year or such averaging as necessary to effect properly the average value of the railroad's property. See North Dakota Century Code section 57-38.1-12 and article IV(12) of North Dakota Century Code section 57-59-01 and section 81-03-09-21. (e) The "value" of rented real and tangible personal property means the product of eight times the net annual rental rate. See North Dakota Century Code section 57-38.1-11 and article IV(11) of North Dakota Century Code section 57-59-01 and section 81-03-09-20. (f) "Net annual rental rate" means the annual rental rate paid by the taxpayer less any annual rental rate received by the taxpayer from subrentals. (g) "Property used during the income year" includes property that is available for use in the taxpayer's trade or business during the income year. (h) A "locomotive mile" is the movement of a locomotive (a self-propelled unit of equipment designed solely for moving other equipment) a distance of one mile [1.61 kilometers] under its own power. (i) A "car mile" is a movement of a unit of car equipment a distance of one mile [1.61 kilometers]. (3) The denominator and numerator of the property factor. The denominator of the property factor must be the average value of all of the taxpayer's real and tangible personal property owned or rented and used during the income year. The numerator of the property factor must be the average value of the taxpayer's real and tangible personal property owned or rented and used in this state during the income year. In determining the numerator of the property factor, all property except mobile or movable property such as passenger cars, freight cars, locomotives, and freight containers which are located within and without this state during the income year must be included in the numerator of the property factor in accordance with North Dakota Century Code sections 57-38.1-10 through 57-38.1-12 and article IV(10)(11) (12) of North Dakota Century Code section 57-59-01, inclusive and sections 81-03-09-15 through 81-03-09-21, inclusive. Mobile or movable property such as passenger cars, freight cars, locomotives, and freight containers which are located within and without this state during the income year must be included in the numerator of the property factor in the ratio which "locomotive miles" and "car miles" in the state bear to the total everywhere. c. The payroll factor. The denominator of the payroll factor is the total compensation paid everywhere by the taxpayer during the income year for the production of business income. See North Dakota Century Code sections 57-38.1-13 and 57-38.1-14 and article IV(13)(14) of North Dakota Century Code section 57-59-01 and sections 81-03-09-22 through 81-03-09-25. The numerator of the payroll factor is the total amount paid in this state during the income year by the taxpayer for compensation. With respect to all personnel except enginemen and trainmen performing services on interstate trains, compensation paid to such employees must be included in the numerator as provided in North Dakota Century Code sections 57-38.1-13 and 57-38.1-14, and article IV(13)(14) of North Dakota Century Code section 57-59-01 and sections 81-03-09-22 through 81-03-09-25. With respect to enginemen and trainmen performing services on interstate trains,compensation paid to such employees must be included in the numerator of the payroll factor in the ratio which their services performed in this state bear to their services performed everywhere. Compensation for services performed in this state must be deemed to be the compensation reported or required to be reported by such employees for determination of their income tax liability to this state. d. The sales (revenue) factor. (1) In general. All revenue derived from transactions and activities in the regular course of the trade or business of the taxpayer which produces business income, except per diem and mileage charges which are collected by the taxpayer, is included in the denominator of the revenue factor. See North Dakota Century Code section 57-38.1-01 and article IV(1) of North Dakota Century Code section 57-59-01 and sections 81-03-09-03 through 81-03-09-06. The numerator of the revenue factor is the total revenue of the taxpayer in this state during the income year. The total revenue of the taxpayer in this state during the income year, other than revenue from hauling freight, passengers, mail, and express must be attributable to this state in accordance with North Dakota Century Code sections 57-38.1-15 through 57-38.1-17 and article IV(15)(16)(17) of North Dakota Century Code section 57-59-01 and sections 81-03-09-26 through 81-03-09-31. (2) Numerator of sales (revenue) factor from freight, mail, and express. The total revenue of the taxpayer in this state during the income year for the numerator of the revenue factor from hauling freight, mail, and express must be attributable to this state as follows: (a) All receipts from shipments which both originate and terminate within this state. (b) That portion of the receipts from each movement or shipment passing through, into, or out of this state is determined by the ratio which the miles traveled by such movement or shipment in this state bears to the total miles traveled by such movement or shipment from point of origin to destination. (3) Numerator of sales (revenue) factor from passengers. The numerator of the sales (revenue) factor must include: (a) All receipts from the transportation of passengers (including mail and express handled in passenger service) which both originate and terminate within this state; and (b) That portion of the receipts from the transportation of interstate passengers (including mail and express handled in passenger service) determined by the ratio which revenue passenger miles in this state bear to the total everywhere.