As used in this part:

1. (1)

   1. (A) "Eligible trade or business" shall mean a trade or business in which the principal business activity is described in a North American Industry Classification System (NAICS) code other than an ineligible NAICS code.

   2. (B) Ineligible NAICS trades or businesses are as follows:

      1. (i) Codes 31 – 33 (manufacturing):
      2. (ii) Code 42 (wholesale trade);
      3. (iii) Codes 44 and 45 (retail trade);
      4. (iv) Codes 211 and 212 (mining activities); and
      5. (v) Codes 5111 and 5122 (information industries).

   3. (C)

      1. (i) A farming operation is also considered to be an ineligible trade or business.
      2. (ii) However, if a qualifying small business taxpayer is engaged in farming, the cash basis method may apply to the taxpayer's nonfarming trades or businesses, if any; and

2. (2)

   1. (A) "Qualifying small business taxpayer" shall mean any taxpayer with "average annual gross receipts" of greater than one million dollars ($1,000,000) but less than or equal to ten million dollars ($10,000,000) that is not prohibited from using the cash method of accounting under I.R.C. § 448.

   2. (B)

      1. (i) A taxpayer's average annual gross receipts of ten million dollars ($10,000,000) or less is determined by averaging the annual gross receipts for a period of three (3) tax years ending immediately prior to the tax year electing the cash method of accounting.
      2. (ii) Taxpayers are required to recalculate their average annual gross receipts each tax year.
      3. (iii) The election to change to the cash method of accounting may be made for tax years ending on or after December 31, 2001. Example: The averaging is based upon the three (3) years prior to the tax year electing the change. If electing for tax year 12/31/01, the averaging is based upon tax years 12/31/98, 12/31/99, and 12/31/00. If electing for tax year 12/31/02, the averaging is based upon tax years 12/31/99, 12/31/00, and 12/31/01. A "short" year will be considered a tax year in the averaging calculation.

Codification Notes: I.R.C. § 448 can be found codified at 26 U.S.C. § 448.