42.26.807 AIRLINE REGULATION EXAMPLES (1) Assume the following facts for an airline for the tax year: (a) It has ten 747s ready for flight and in revenue service at an average per unit cost of $40,000,000 for nine of the aircraft. It rents the remaining 747 from another airline for $9,000,000 per year. At eight times rents, the latter is valued at $72,000,000 for apportionment purposes. Total 747 valuation is, therefore, $432,000,000 for property factor denominator purposes. (b) It has 20 727s ready for flight and in revenue service at an average per unit cost of $20,000,000. Total 727 valuation is, therefore, $400,000,000 for property factor denominator purposes. (c) It has nonflight tangible property (n.t.p.) valued at original cost of $200,000,000. (d) It has the following annual payroll: Flight personnel  $ 60,000,000  Nonflight personnel  40,000,000  Total  $100,000,000  (e) From its operations, it has total receipts of $50,000,000, apportionable net income of $1,000,000 and no nonapportionable income. The total $50,000,000 is flight revenue; there is no nonflight revenue. (f) It has the following within state X: (i)  10 percent of its 747 flight departures   (.10 x 432,000,000 = $43,200,000);  (ii)  20 percent of its 727 flight departures   (.20 x 400,000,000 = $80,000,000);  (iii)  5 percent of its nonflight tangible property   (n.t.p.) (.05 x 200,000,000 = $10,000,000); and  (iv)  15 percent of its nonflight personnel payroll   (.15 x 40,000,000 = $6,000,000).  (g) State X has a corporate tax rate of 10 percent. The airline's tax liability to state X would be determined as follows: Property Factor:  Numerator   Denominator  43,200,000 (747s)   432,000,000 (747s)  +80,000,000 (727s)  +  400,000,000 (727s)  +10,000,000 (n.t.p.)  +  200,000,000 (n.t.p.)  133,200,000  /  1,032,000,000 = 12.91%  Receipts Factor:  Numerator   Denominator  43,200,000 (747s)   432,000,000 (747s)  +80,000,000 (727s)  +  400,000,000 (727s)  123,200,000  /  832,000,000 = 14.8%  departure ratio = 14.8%   7,403,846 (14.8% x 50,000,000) / 50,000,000 = 14.81% 
Payroll Factor:  Numerator   Denominator  6,000,000 (nonflight)   40,000,000 (nonflight)  +8,880,000 (14.8% x 60,000,000 flight)  +  60,000,000 (flight)  14,880,000  +  100,000,000 = 14.88%  Average Ratio Equals the sum of the property, receipts, and payroll factors divided by 3.   (12.91% + 14.81% + 14.88%) /3 = 14.20%   Taxable Income in state X: .1420 x 1,000,000 = $142,000  Tax Liability to state X: .10 x $142,000 = $14,200  (2) Same facts except (1)(f) is changed to read: (a) It has the following within state Y: (i)  6 percent of its 747 flight departures   (.06 x 432,000,000 = $25,920,000);  (ii)  31 percent of its 727 flight departures   (.31 x 400,000,000 = $124,000,000); and  (iii)  3 percent of its nonflight tangible property   (n.t.p.) x (.03 x 20,000,000 = $6,000,000); and  (iv)  7 percent of its nonflight personnel payroll   (.07 x 40,000,000 = $2,800,000)  (b) State Y has a corporate tax rate of 6.5 percent. The airline's tax liability to state Y would be determined as follows: Property Factor:  Numerator   Denominator  25,920,000 (747s)   432,000,000 (747s)  +124,000,000 (727s)  +  400,000,000 (727s)  + 6,000,000 (n.t.p.)  +  200,000,000 (n.t.p.)  155,920,000  /  1,032,000,000 = 15.1085%  Receipts Factor:  Numerator   Denominator  25,920,000 (747s)   432,000,000 (747s)  +124,000,000 (727s)  +  400,000,000 (727s)  149,920,000  /  832,000,000 = 18.0192%    
departure ratio = 18.0192%   9,009,600 (18.0192% x 50,000,000) / 50,000,000 = 18.0192 percent  Payroll Factor:  Numerator   Denominator  2,800,000 (nonflight)   40,000,000 (nonflight)  +10,811,520 (18.0192% x 60,000,000 flight)  +  60,000,000 (flight)  13,611,520  /  100,000,000 = 13.6114%  Average Ratio Equals the sum of the property, receipts, and payroll factors divided by 3.   (15.1085% + 18.0192% + 13.6114%) / 3 = 15.5797%   Taxable Income in state Y: .155797 x 1,000,000 = $155,797   Tax Liability to state Y: .065 x $155,797 = $10,127  History: 151201, 1531313, 1531501, MCA; IMP, 151601, 1531301, 1531302, 1531303, 1531304, 1531305, 1531306, 1531307, 1531308, 1531309, 1531310, 1531311, 1531312, MCA; NEW, 1988 MAR p. 401, Eff. 2/26/88; AMD, 1993 MAR p. 572, Eff. 4/16/93; TRANS, from 42.26.286 and AMD, 2001 MAR p. 2469, Eff. 12/21/01; AMD, 2017 MAR p. 2328, Eff. 1/1/18.
