5. STATE INCOME TAX
5.02 Change to Apportionment Factors
The presence of an aircraft can change the company apportionment factors.
Essentially all of the states use some kind of apportionment formula in order to compute the income taxable by the state. The traditional formula is the arithmetic average of the following three factors:
- the ratio of sales in the state to total sales
- the ratio of property in the state to total property
- the ratio of payroll in the state to total payroll
The property factor might be computed using either historical cost or net book value. Leased property is generally added to the property factor by using a multiplier, e.g. 4 times the lease payments.
The presence of an aircraft can directly affect both the property and the payroll factors. Where the taxpayer is engaged in air transportation, the taxpayer can be required to use a completely different allocation formula. For example, in some states, a common carrier is required to use an allocation formula based on factors such as revenue miles, revenue tons, or overflight miles.1
A leased aircraft will generally have less impact on the property factor since the multipliers used to convert lease payments to property values generally understate the value of the aircraft, particularly in the early years of the lease.
- See, e.g., Fla. Rule 12C-1.0 151(2)(c). But see Delta Air Lines, Virginia Cir Ct. Arlington County, No. 93-1238 (1/27/98), which says that overflight miles cannot even be considered.