Form 3806 - Los Angeles Revitalization Zone Businesses Booklet

Business income is defined as income arising

Property owned by the business is valued at its

Base of operations is the permanent

from transactions and activities in the regular

original cost . Original cost is the basis of the

place from which employees start work

course of the trade or business . Business income

property for federal income tax purposes (prior to

and customarily return in order to

includes income from tangible and intangible

any federal adjustment) at the time of acquisition

receive instruction from the taxpayer or

property if the acquisition, management, and

by the business, adjusted for subsequent

communications from their customers

disposition of the property constitute integral

capital additions or improvements and partial

or persons; to replenish stock or other

parts of the regular trade or business operations .

dispositions because of sale or exchange .

material; to repair equipment; or to

Nonbusiness income is all income other than

Allowance for depreciation is not considered .

perform any other functions necessary in

business income . See Cal . Code Regs ., tit 18,

the exercise of their trade or profession at

Rented property is valued at eight times the net

section 25120 for further references and

some other point or points .

annual rental rate . The net annual rental rate for

examples of nonbusiness income .

any item of rented property is the total rent paid

The numerator of the payroll factor is the

For corporations and entities doing business

for the property, less aggregate annual subrental

taxpayer’s total compensation paid to employees

in and outside of the former LARZ, use

rates paid by subtenants .

for working within the former LARZ during

Worksheet I, Section A, to determine the former

the taxable year . See Worksheet I, Section A,

The numerator of the property factor is the

LARZ apportionment factor to determine the

column (b) .

average value of the taxpayer’s real and tangible

amount of business income attributable to the

personal property owned or rented by the

The denominator of the payroll factor is the

former LARZ .

business and used within the former LARZ during

taxpayer’s total compensation paid to employees

Pass-through entities report to their shareholders,

the taxable year to produce LARZ business

working in California . See Worksheet I, Section A,

beneficiaries, partners, and members the

income . See Worksheet I, Section A, column (b) .

column (a) .

following items:

The denominator of the property factor is the

Corporations Filing a Combined Report

1 . The distributive (or pro-rata for

total average value of all the taxpayer’s real and

When determining the income attributable

S corporations) share of the business income

tangible personal property owned or rented and

to the former LARZ, the business income of

apportioned to the former LARZ .

used during the taxable year within California . See

each corporation doing business in the former

2 . The distributive (or pro-rata for

Worksheet I, Section A, column (a) .

LARZ is the business income apportioned to

S corporations) share of the business capital

California as determined under combined report

Payroll Factor

gains apportioned to the former LARZ

mechanics . Get FTB Pub . 1061, Guidelines for

Payroll is defined as the total amount paid to

included in item 1 .

Corporations Filing a Combined Report, for

the business’s employees as compensation for

3 . The distributive (or pro-rata for S corporation)

more information on combined reports and

the production of business income during the

share of the LARZ property and payroll to

entity income apportionment . Each corporation

taxable year .

corporate partners, members, shareholders,

computes the income attributable to the former

Compensation means wages, salaries,

beneficiaries .

LARZ by multiplying California business income

commissions, and any other form of payment

by the LARZ apportionment factor computed in

Report these items as other information on

paid directly to employees for personal services .

Worksheet I, Section A . The former LARZ property

Schedule K-1 (100S, 541, 565 or 568 .), Share of

Payments made to independent contractors or

and payroll factors used in the determination of the

Income, Deductions, Credits, etc .

any other person not properly classified as an

former LARZ business income includes only the

For an individual, use Worksheet I, Section B to

employee are excluded .

taxpayer’s California amounts in the denominator .

determine business income attributable to the

Compensation Within the Former LARZ

Each corporation doing business in the former

former LARZ . Business income includes but is

Compensation is considered to be within the

LARZ computes the business income attributable

not limited to California business income or loss

former LARZ if any one of the following tests

to the LARZ according to their own apportioned

from federal Form 1040, Schedules C, D, E, F, and

are met:

California business income and intrastate

California Schedule D-1 (or federal Form 4797,

apportionment factors .

1 . The employee’s services are performed

Sales of Business Property, if California

within the geographical boundaries of the

Schedule D-1 is not needed), as well as wages . Be

Instructions for Worksheet I –

sure to include casualty losses, disaster losses,

former LARZ .

Income or Loss Apportionment

2 . The employee’s services are performed within

and any business deductions reported on federal

and outside the former LARZ, but the services

Form 1040, Schedule A as itemized deductions .

Section A – Income

performed outside the former LARZ are

Generally, all income which arises from the

incidental to the employee’s service within the

conduct of trade or business operations of a

Apportionment

former LARZ .

taxpayer is business income .

If the business operates only within the former

Incidental means any temporary or transitory

If you elected to claim part or all of your current

LARZ, enter 100% (1 .00) on line 4, of Section A .

service performed in connection with an

year disaster loss under IRC Section 165(i)(1) on

Do not complete the rest of Worksheet I .

isolated transaction .

prior year’s tax return, do not include the amount

Use Worksheet I, Section A, Income

3 . If the employee’s services are performed

of the loss that was claimed on prior year’s tax

Apportionment, to determine the amount of

both within and outside the former LARZ, the

return in your current year business income from

business income apportioned to the former LARZ .

employee’s compensation is attributed to the

the former LARZ .

The business income apportioned to the former

former LARZ if any one of the following items

Apportionment

LARZ determines the amount of LARZ NOL

is met:

carryover that can be used . A taxpayer’s LARZ

Business income is apportioned to the former

A . The employee’s base of operations is

business income is its California business income

LARZ by multiplying the total California business

within the former LARZ .

multiplied by the specific LARZ apportionment

income of the taxpayer by a fraction, the

B . There is no base of operations in any other

percentage computed in Worksheet I, Section A .

numerator which is the property factor plus the

part of the state in which some part of the

payroll factor, and the denominator which is two .

Property Factor

service is performed, and the place from

When determining the income apportioned to

which the service is directed or controlled

Property Factor

the former LARZ, the numerator of the property

is within the former LARZ .

Property is defined as the average value of all real

factor is the average value of the real and tangible

C . The base of operations or the place

and tangible personal property owned or rented

personal property owned or rented by the business

from which the service is directed or

by the business and used during the taxable year

and used within the former LARZ during the

controlled is not in any other part of the

to produce business income .

taxable year to produce the former LARZ business

state in which some part of the service is

Property is included in the factor if it was available

income, see Worksheet I, Section A, column (b) .

performed and the employee’s residence is

for use during the taxable year .

The denominator of the property factor is the

within the former LARZ .

FTB 3806 Booklet 2016 Page 3

Form 3806 - Los Angeles Revitalization Zone Businesses Booklet - 2016 Page 3

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