Instructions For Maryland Form 500 - Corporation Income Tax Return

developed

Cther

service

NOTE:

Wnving apportionment formulas:

items

* Airline operations should see Administrative

tbr address and phone numbers.)

factora

INSTRUCTIONS FOR

Gross receipts from the rental, leasing or

OTHER APPORTIONMENT FORMULAS

licensing of real or tangible personal property

Double-weighted receipts factor provisions

COMPUTATION OF

are included in the numerator if the property is

are not applicable for corporations subject to the

located within Maryland. If tangible personal prop

APPORTIONMENT

erty is located in this State for a portion of the tax

Corporations

engaged

primarily

leasing

FACTOR - 2002

year, only the income received for that portion is

rental operations are required to use an equally

included

the

numerator.

weighted two-factor formula of receipts and prop-

Capital gains from the sale of real and tangible

erty. The receipts and property factors are calcu-

Multistate corporations are those that are

personal property are included in the numerator

lated in accordance with the provisions for those

operating in more than one state and beyond the

if the property is located within Maryland. Ordinary

factors of the three-factor formula, except that

protection of U.S.C.A. Title 15, Section 381 of the

net gain or loss derived from the sale of deprecia-

receipts from intangible

are excluded.

interstate Commerce Tax Act (P.L. 86-272). Multi-

ble assets is excluded from the factor.

state corporations operating in Maryland as a uni-

Corporations engaged primarily in certain types

income items are included in accordance

tary business must allocate income using an

of transportation operations are required to use a

with the provisions previously stated depending

apportionment formula.

one-factor formula as follows:

upon the nature and type of each item.

Unistate corporations are those that are oper-

Trucking operations (motor freight carriers)

ating in only one state, or are operating in more

must use total road mileage traveled in Maryland

PROPERTY FACTOR The property factor

than one state but the extent of the activity in the

divided by total road mileage traveled every-

includes owned

as well as rented tangible personal

other states is within the protection of P.L. 86-

where.

property used in the trade or business during the

272. Unistate corporations subject to the

Mary-

Railroad operations must use total track

taxable year. Such properties are inventory,

land income tax law may not apportion income.

mileage traveled in Maryland divided by total

machinery and equipment, buildings and land, and

Allocation means the assignment of income to

track mileage traveled everywhere.

other tangible assets. Property is included in the

a particular state. Apportionment means the allo-

numerator i f it has a situs within Maryfand.

Shipping operations must use total voyage

cation of income among states by the use of a for-

days in Maryland divided by total voyage days

Property owned by the corporation is valued at

mula containing apportionment factors.

everywhere. Voyage days are the number of days

its original cost and is reflected in the factor at the

All factors of the apportionment formula are

that ships spend in ports and on waterways.

average of the tax year beginning and ending

as fractions, the numerator of which is

amounts. If there are material changes during the

the total of Maryland items and the denominator is

tax year and the yearly average is not a fair rep-

Release No. 22 for instructions.

the total of items everywhere during the tax year.

resentation, the average must be calculated on a

Banks and sfmilar

institutions are subject to

Each factor

is calculated to six decimal places and

monthly or daily basis.

special

apportionment

rules.

review

these

rules,

the number of factors used is averaged to arrive

Property in transit is considered to be at its

see Maryland Regulation 03.04.08 or contact the

the final apportionment factor. The items of both

destination for purposes of the factor. Property

Maryland Revenue Administration Division for

numerator and denominator should reconcile to

under construction during the tax year is excluded

instructions. (See back cover of booklet for

the items as categorized and reported on the fed-

from the factor until actually placed in service.

address and phone number.)

eral income tax return.

Property leased or rented by the corporation

All

manufacturing

corporations

are subject to

If a return is filed by a multistate corporation

is included in the factor at a capitalized value. To

a special single factor formula of receipts. The

which reflects a loss and there is no income to be

arrive at the capitalized value, expenses are asso-

rules for calculating the single factor can be found

apportioned, an apportionment factor must be cal-

dated with the privilege of occupying or using the

in Maryland Regulation 03.04.03.10 or contact the

culated for the filing to be complete.

property, including such items as fixed rent, per-

Maryland Revenue Administration Division for

centage rent, real estate taxes, insurance and

forms and instructions. (See back cover of booklet

THREE-FACTOR FORMULA

maintenance,

are

multiplied

eight.

Expenses

for

gas, electricity, oil, water or other items normally

Multistate corporations are generally required to

In addition, manufacturing corporations with

consumed are excluded.

use a three-factor formula of property, payroll and

more than 25 employees must complete Form

double-weighted receipts. The sum of the property

Lease or rental expense below the market

500MC if apportionment is used. All three (3) fat-

factor, payroll factor and twice the receipts factor is

rate must be adjusted to reflect a reasonable mar-

tors must be completed on page 2 of Form 500 for

divided by four to arrive at the final apportionment

ket rate and then capitalized. Sublease income

the purpose of completing Form 6OOMC.

factor. Speck% requirements regarding each factor

cannot be used to arrive at the capitalized value of

are set forth below:

leased or rented property, but m u s t b e i n c l u d e d i n

SPECIAL RULES

the

receipts

factor.

RECEIPTS

FACTOR

The

receipts factor

If the apportionment formula does not Siriy

rep

Improvements to the leased or rented prop-

i n c l u d e s t h e amounts of income reported during

resent the extent of the corporation’s actiity within

erty that revert to the owner at expiration of the

the taxable year as gross receipts or sales less

Maryland, the Maryland Revenue Administration

lease or rental term are amortized and not capital-

returns and allowances, dividends, interest, gross

Division may alter the formula or components

ized. The actual cost of the improvements is divid-

rents, royalties, capital gains and other income on

accordingly.

ed by the number of years remaining for the lease

the federal return.

The corporation’s share of receipts, property

or rental term and the result is included in the fat-

Gross receipts from sales of tangible personal

and wages of a partnership or joint venture is

tor for each tax year.

property are included in the numerator if the prop-

included

in the

corporation’s receipts, property and

Property that has remained idle and has not

erty is delivered or shipped to a purchaser that

wage factors as if they were the direct receipts,

produced any revenue for a period of five or more

takes possession in Maryland, regardless of f.o.b.

property and wages of the corporation. The part-

years i s

not included in the factor.

point or other condiions

of sale. Sales of tangible

nership share is induded only to the extent of the

personal property to an out-of-state purchaser are

required for the corporation.

All compensation is to be

PAYROLL

FACTOR

also included in the numerator if the purchaser

Income may be allocated by separate account-

included in the numerator, both when the indi-

takes possession in Maryland. Sales of property in

ing when the activity of the corporation within

vidual’s service is performed entirely within Mary-

transit which are destined to Maryland are indud-

Maryland is nonunitary. A corporation may not use

land, and when the individual’s service is per-

ed in the numerator.

the separate accounting method without prior

formed both within and without Maryland but the

Gross receipts from service-related activities

approval of the Revenue Administration Division.

performed outside Maryland is incidental

are included in the numerator if the receipts are

to the individual’s service within.

An Internal Revenue Code Section 338(h) (10)

derived from customers within this State. There are

election is also recognized by the State

Compensation is also induded in the numerator

specific

rules

determine

“Customers

Within

this

of Maryland. Contact the Maryland Revenue

if some part of the service is performed within

State.” To review these rules see Maryland Regu-

Administration Division for instructions. (See back

Maryland and the base of operations or place from

lation 03.04.03.08

cover of the tax booklet for address and phone

which the service is controlled is in Maryland. If the

Gross income from intangible items such as

numbers.)

base of operations or place from which the service

dividends, interest, royalties and capital gains from

is controlled is not in any state where the service

the sale of intangiMe

property are included in the

is performed but the individual’s residence is in

numerator based upon the average of the property

Maryland, the compensation is also induded in the

and

payroll

factors.

numerator.

Instructions For Maryland Form 500 - Corporation Income Tax Return - 2002 Page 6

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