Instructions For Form 165 - Arizona Partnership Income Tax Return

Arizona Form 165

The partnership automatically achieves averaging for rented

For taxable years beginning from and after December 31,

property by the method of determining the net annual rental

2013, a multistate service provider may elect to treat sales

rate of such property.

from services as being in Arizona based on a combination of

Report real property situated in and tangible personal

income producing activity sales and market sales prescribed

property permanently located in Arizona as property within

under A.R.S. § 43-1147(B). Taxpayers who want to make

Arizona, if connected with the business activity. Allocate the

the election should check the applicable boxes on line H on

value of mobile property to Arizona based on the total time

page 1 of the return and include the completed Schedule MSP

the property was within Arizona.

with the tax return. See A.R.S. § 43-1147 and Schedule MSP

instructions for more information.

Compute the property factor numerator by multiplying the

total amount of Arizona property (on line C1c, column A) by

Taxpayers who are not qualified for the election should use

7.5. Enter the result on line C1d, column A. Do not multiply

line C3c for the sales from services and are not required to

the property factor denominator (on line C1c, column B) by

include the Schedule MSP with the tax return.

7.5. Next, for line C1e, divide column A by column B and

enter the resulting ratio in column C. Express the ratio as a

NOTE: Multiply the amount entered on line C3d, column A,

decimal carried out to six places. The property factor on line

of Schedule C (the total Arizona sales) by 85 on line C3e,

C1e, column C, may exceed 100 percent.

column A. Enter the result on line C3f, column A. Do not

Line C2 - Payroll Factor

multiply the amount entered on line C3d, column B, of

Schedule C (the everywhere sales of the taxpayer) by 85.

Refer to A.A.C. R15-2D-701 through R15-2D-705. Report

salaries, wages, or other compensation of officers, employees,

EXAMPLE: The partnership has total Arizona sales of

etc., as within Arizona if performance of the services occurs

$100,000 and total everywhere sales of $1,000,000. On line

here. This rule applies regardless of where payment is made or

C3f, column A, enter $8,500,000 of Arizona sales. On line

control exercised. This rule also applies regardless of whether

C3f, column B, enter $1,000,000 of everywhere sales for the

the performance of the services is partly or wholly in

partnership.

connection with the apportionable business carried on outside

The sales factor on line C3f, column C, may, in certain

the state or in interstate or foreign commerce.

circumstances, exceed 100 percent. However, since the total

Allocate the compensation of officers and employees who

ratio (line C4) is divided by 100, the average ratio (line C5)

perform services partly within and partly without Arizona to

will not exceed 100 percent.

this state when:

Line C5 - Average Apportionment Ratio

 The services performed outside of Arizona are incidental

Divide the total ratio, line C4, column C, by 100. Enter the

to the employee's service within Arizona; or

average ratio here and on Form 165, Schedule K-1(NR), column

 The employee's base of operation is in Arizona; or

(b), in Part I, II, and III. Express the ratio as a decimal carried out

 The employee has no base of operation in any state but the

to six places.

direction or control of the employee is from Arizona; or

NOTE: The partnership must exclude a factor if both the

 The employee has no base of operation in any state, and

numerator and the denominator of a factor are zero. Do not

there is no direction or control from a state in which the

exclude a factor from the total ratio if the numerator of a

employee performs some part of his services, but the

factor is zero and the denominator of a factor is greater than

employee's residence is in Arizona.

zero. If the property or payroll factor is excluded, determine

Compute the payroll factor numerator by multiplying the total

the average ratio (line C5, column C) by dividing the total

amount of Arizona payroll (on line C2a, column A) by 7.5. Do

ratio by 92.5. If the sales factor is excluded, determine the

not multiply the payroll factor denominator (on line C2a,

average ratio by dividing the total ratio by 15. If two of the

column B) by 7.5. Next, for line C2c, divide column A by

factors are excluded, the remaining factor, without respect to

column B and enter the resulting ratio in column C. Express

any weighting, is the apportionment ratio.

the ratio as a decimal carried out to six places. The property

ADMINISTRATIVE RELIEF REQUESTS

factor on line C2c, column C, may exceed 100 percent.

A.R.S. § 43-1148 provides administrative relief if the

Line C3 - Sales Factor

allocation and apportionment provisions do not fairly

Refer to A.A.C. R15-2D-801 through R15-2D-807 and

represent the extent of the taxpayer's business activity in

R15-2D-903. The term "sales" includes all gross receipts

Arizona. The taxpayer may petition for, or the department

from transactions and activities in the course of the regular

may require, in respect to all or any part of the taxpayer's

trade or business that produce income.

business activity, if reasonable:

Determine sales within Arizona on a destination sales basis.

 Separate accounting.

NEW: Line C3b is only for the multistate service providers

 The exclusion of any one or more of the factors.

who want to make the election under A.R.S. § 43-1147(B).

 The inclusion of one or more additional factors which will

Enter on line C3b, column A, the Arizona sales from services

fairly represent the taxpayer's business activity in this state.

from the Schedule MSP, line B5.

Instructions For Form 165 - Arizona Partnership Income Tax Return - 2014 Page 8

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