R7. Business Apportionment Percentage Formula  


Latest version.
  • The business apportionment formula must be used to determine net profits within the Municipality.

    A. STEP 1: Ascertain the percentage which the original cost of real and tangible personal property, including leasehold improvements, owned or used in the business and situated within the Municipality is of the original cost of all real and tangible personal property, including leasehold improvements, owned or used in the business wherever situated, during the period covered by the return.

    1) The percentage of taxpayer's real and tangible personal property within the Municipality is determined by dividing the original cost of such property within the Municipality (without deduction of any encumbrances) by the original cost of all such property within and without the Municipality. In determining such percentage, property rented to the taxpayer, as well as real and tangible personal property owned by the taxpayer, must be considered.

    A) The original cost of real and tangible personal property rented by the taxpayer shall be determined by multiplying gross annual rents by eight.

    B) Gross rents means the actual sum of money or other consideration payable, directly or indirectly, by the taxpayer for the use or possession of property and includes:

    i) Any amount payable for the use or possession of real and tangible personal property or any part thereof, whether designated as a fixed sum of money or as a percentage of sales, profits, or otherwise; and

    ii) Any amount payable as additional rent or in lieu of rent such as interest, taxes, insurance, repairs, or other amounts required to be paid by the terms of a lease or other arrangement.

    iii) A residence may not be considered an office unless a portion thereof is used exclusively for business purposes and to the extent such item is allocable to a portion of the dwelling unit which is exclusively used on a regular basis as the principal place of business for any trade or business of the taxpayer, as a place of business which is used by patients, clients, or customers in meeting or dealing with the taxpayer in the normal course of his trade or business, or in the case of a separate structure which is not attached to the dwelling unit, in connection with the taxpayer's trade or business.

    C) The basis for allocation of the value of motor vehicles, as well as other mobile equipment is on the actual time used in the trade or business in generating the sales so reported in Step 3. If no records of the time the equipment is used in and out of the Municipality are available, the sales factor percentage is to be used as the determinant for mobile equipment in Step 1.

    B. STEP 2: Ascertain the percentage which the total wages, salaries, commissions and other compensation of employees within the Municipality is of the total wages, salaries, commissions and other compensation of all the taxpayer's employees within and without the Municipality during the period covered by the return.

    1) Salaries and reasonable compensation paid owners or credited to the account of owners or partners during the period covered by the return are considered wages for the purpose of this computation.

    2) Wages, salaries, and other compensation shall be 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) In the case of an employee who performs services both within and without the Municipality the amount treated as compensation for services performed within the Municipality shall be deemed to be:

    A) In the case of an employee whose compensation depends directly on the volume of business secured by him, such as a salesman on a commission basis, the amount received by him for the business attributable to his efforts within the Municipality;

    B) In the case of an employee whose compensation depends on other results achieved, the proportion of the total compensation received which the value of his services within the Municipality bears to the value of all his services; and

    C) In the case of an employee compensated on a time basis, the proportion of the total amount received by him which his working time within the Municipality is of his total working time.

    D) Provided, however, an employee regularly connected with or working out of a place of business maintained by his employer in the Municipality who performs 75 percent or more of his services within the Municipality shall be considered an employee within the Municipality. An employee regularly connected with or working out of a place of business maintained by his employer outside the Municipality who performs 25 percent or less of his services within the Municipality shall be considered an employee outside the Municipality. (The provisions of this subparagraph are not applicable in determining the tax liability of a non-resident who works in and outside the Municipality.)

    C. STEP 3: Ascertain the percentage which the gross receipts of the taxpayer derived from sales made and services rendered in the Municipality is of the total gross receipts wherever derived during the period covered by the return. The following shall be considered Municipality sales:

    1) All sales made through retail stores located within the Municipality to purchasers within or without the Municipality except such sales to purchasers outside the Municipality that are directly attributable to regular solicitations made outside the Municipality personally by taxpayer's employees.

    2) All sales of tangible personal property delivered to purchasers within the Municipality if shipped or delivered from an office, store, warehouse, factory, or place of storage located within the Municipality.

    3) All sales of tangible personal property delivered to purchasers within the Municipality even though transported from a point outside the Municipality if the taxpayer is regularly engaged through its own employees in the solicitation of sales within the Municipality and the sale is directly or indirectly the result of such solicitation.

    4) All sales of tangible personal property shipped from an office, store, warehouse, factory or place of storage within the Municipality to purchasers outside the Municipality if the taxpayer is not, through its own employees, regularly engaged in the solicitation of sales at the place of delivery.

    5) Charges for work done or services performed incident to a sale, whether or not included in the price of the property, shall be considered gross receipts from such sale.

    D. In the application of the foregoing sub-paragraphs of R7 C, a carrier shall be considered the agent of the seller, regardless of the FOB point or other conditions of the sale, and the place at which orders are accepted or contracts legally consummated shall be immaterial. Solicitation of customers outside the Municipality by mail or phone from an office or place of business within the Municipality shall not be considered a solicitation of sales outside the Municipality.

    E. STEP 4: Add the percentages determined in accordance with steps 1, 2, and 3 or such of the aforesaid percentages as may be applicable to the particular taxpayer's business and divide the total so obtained by the number of percentages used in ascertaining said total. The result so obtained is the business apportionment percentage. In determining the average percentage, a factor shall not be excluded from the computation merely because said factor is found to be allocable entirely in or outside the Municipality. A factor is excluded only when it does not exist anywhere.

    F. STEP 5: The business apportionment percentage determined in step 4 above shall be applied to the entire taxable net profits of the taxpayer wherever derived to determine the net profits apportioned to the Municipality.

    G. In the event a just and equitable result cannot be obtained under the business apportionment percentage formula, the tax commissioner may substitute other factors in the business apportionment percentage formula or prescribe other methods of apportioning net income calculated to effect a fair and proper apportionment.

    1) Application to the tax commissioner to use other factors in the business apportionment percentage formula or to use a different method to apportion net profits shall be made in writing before the end of the tax year and shall state the specific grounds on which the substitution of factors or use of a different method is requested and the relief sought to be obtained. No specific form need be followed in making such application. Once a taxpayer has filed under a substitute method, he must continue to so file until given permission to change by the tax commissioner.

    2) In the case of businesses that own rental property located within the Municipality, permission is given to use separate books and records when the records accurately reflect the net profits from rental activity attributable to the Municipality.

    H. In the case of professional people and others furnishing personal services, if their only place of business is within the Municipality all their net profits shall prima facie be attributable to the Municipality.

    I. The tax imposed shall not apply to income derived from interstate commerce within the Municipality if the only business activities within the State of Ohio are either or both the following:

    1) Solicitation of orders by such person, or his representative, in the State of Ohio for sales of tangible personal property, which orders are sent outside the State of Ohio for approval or rejection, and, if approved, are filled by shipment or delivery from a point outside the State of Ohio; and

    2) The solicitation of orders by such person, or his representative in the State of Ohio, in the name of or for the benefit of a prospective customer of such person, if orders by such customer to such person to enable such customer to fill orders resulting from such solicitations are orders described in subsection 1) above; provided, however, that the provisions of this subsection shall not apply to any corporation which is incorporated under the laws of the State of Ohio or any individual who is domiciled in or a resident of the State of Ohio. For the purpose of this subsection a person shall not be considered to have engaged in a business activity within the State of Ohio during any taxable year merely by reason of sales in the State of Ohio, or the solicitation of orders for sales within the State of Ohio, of tangible personal property on behalf of such person by one or more independent contractors or by reason of the maintenance of an office within the State of Ohio by one or more independent contractors whose activities on behalf of such person in the State of Ohio consist solely of making sales or soliciting orders for sales of tangible personal property. For the purpose of this subsection the term "independent contractor" means a commission agent, broker, or other independent contractor who is engaged in selling or soliciting orders for sales of tangible personal property for more than one principal and who holds himself out as such in the regular course of his business activities. For the purpose of this subsection, the term "representative" does not include an independent contractor.