A new California tax regulation provides rules for space transportation companies on how to apportion their business income. The corporation franchise and income tax regulations apply starting January 1, 2016. In the rules, the California Franchise Tax Board (FTB) sets forth a special apportionment formula for space transportation companies. When determining the numerator of the sales factor, gross receipts must be attributed to California based on:
- a mileage factor, weighted at 80%; and
- a departure factor, weighted at 20%.
To determine the mileage factor, taxpayers must compute the mileage ratio for each launch contract under which the taxpayer recognizes revenue that year.
The numerator of the mileage ratio will be the total projected mileage that all launch vehicles launched or planned to be launched under that launch contract will travel within California. If a launch occurs or is planned to occur in California, the mileage of that launch will be 62 statute miles. If a launch occurs or is planned to occur outside of California, the mileage of that launch will be zero. Once determined, the mileage ratio is multiplied by the revenue from that contract. The product is the projected mileage from the launch contract. The numerator of the mileage factor is the sum of all the products, i.e., the total projected mileage from all launch contracts for that year.
The denominator of the mileage factor will be the total revenue recognized from all launch contracts during the taxable year. The Internal Revenue Service or the FTB may be prevented by reasons of governmental secrecy or confidentiality from determining the projected mileage of a launch contract. In that case, the mileage ratio denominator will be conclusively presumed to be 310 statute miles multiplied by the number of launches under the contract.
For the departure factor, the numerator will include the number of launches in California as specified in all contracts executed in the tax year. Taxpayers must include launches even if the launches occur or are planned to occur in another tax year.
The denominator of the departure factor will be the number of launches everywhere as specified in all contracts executed in the tax year. As with the numerator, taxpayers must include launches even if the launches occur or are planned to occur in another tax year.
Reg. 25137-15, California Franchise Tax Board, effective September 28, 2017
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