(1) When a taxpayer
elects to use the percentage of completion method of accounting, or the
completed contract method of accounting for long-term contracts (construction
contracts covering a period in excess of one year from the date of execution of
the contract to the date on which the contract is finally completed and
accepted) , and has income from sources both within and without this state from
a trade or business, (for purposes of determining whether a taxpayer's
operations are within or without, the test shall be for each separate entity in
a combined group electing the completed contract method, rather than the
combined group as a whole) , the amount of business income derived from such
long-term contracts from sources within this state shall be determined pursuant
to this regulation. In such cases, the
first step is to determine which portion of the taxpayer's income constitutes
"business income" and which portion constitutes "non-business
income" pursuant to ARM 42.26.206 and 42.26.207. Non-business income is directly allocated to specific states
pursuant to the provisions of ARM 42.26.221 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 this regulation. The sum of the items of non-business 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.