PURPOSE: This rule sets forth the uniform provisions concerning multistate allocation and apportionment of income from railroads which were enacted by the Multistate Tax Commission.

1. (1) General. When a railroad has income from sources both within and without Missouri, the amount of business income from sources within Missouri shall be determined pursuant to this rule, unless the taxpayer elects to apportion pursuant to 12 CSR 10-2

143.451.4, RSMo. In those cases, the first step is to determine what portion of the railroad’s income constitutes business income and which portion constitutes nonbusiness income under section 32.200 (Article IV.1.), RSMo and the rules that interpret those provisions. Nonbusiness income is directly allocable to specific states pursuant to the provisions of section 32.200 (Article IV.4.–8.), RSMo. Business income is apportioned among the states in which the business is conducted pursuant to the property, payroll and sales apportionment factors set forth in this rule. The sum of the items of nonbusiness income directly allocated to this state, plus the amount of business income attributable to this state constitutes the amount of the taxpayer’s entire net income which is subject to tax by this state.

1. (2) Business and Nonbusiness Income. For definitions, rules and examples for determining business and nonbusiness income, see 12 CSR 10–2.075.

2. (3) Apportionment of Business Income. In general, the property factor shall be determined in accordance with section 32.200 (Article IV.10.–12.), RSMo, except as modified in this rule.

   1. (A) The Property Factor. Owned property shall be valued at its original cost and property rented from others shall be valued at eight (8) times the net annual rate in accordance with section 32.200 (Article IV.11.), RSMo and the rules that interpret those provisions. Railroad cars owned and operated by other railroads and temporarily used by the taxpayer in its business and for which a perdiem or mileage charge is made are not included in the property factor as rented property. Railroad cars owned and operated by the taxpayer and temporarily used by other railroads in their business and for which a per-diem charge is made by the taxpayer are included in the property factor of the taxpayer.

   2. (B) General Definitions. The following definitions are applicable to the numerator and denominator of the property factor:

      1. 1. Original cost is deemed to be the

basis of the property for federal income tax purposes (prior to any federal income tax adjustments except for subsequent capital additions, improvements to capital additions or partial dispositions); or, if the property has no basis, the valuation of the property for Interstate Commerce Commission purposes. If the original cost of property is unascertainable under the previously mentioned valuation standards, the property is included in the property factor at its fair market value as of the date of acquisition by the taxpayer (see section 32.200 (Article IV.11.), RSMo);

1. 2. Rent does not include the per-diem

and mileage charges paid by the taxpayer for the temporary use of railroad cars owned or operated by another railroad;

1. 3. The value of owned real and tangible

personal property shall mean its original cost (see section 32.200 (Article IV.11.), RSMo and the rules that interpret those provisions);

1. 4. Average value of property means the

amount determined by averaging the values at the beginning and end of the income tax year, but the Department of Revenue may require the averaging of monthly values during the income year or averaging as necessary to effect properly the average value of the railroad’s property (see section 32.200 (Article IV.12.), RSMo and the rules that interpret those provisions);

1. 5. The value of rented real and tangible

personal property means the product of eight (8) times the net annual rental rate (see section 32.200 (Article IV.11.), RSMo and the rules that interpret those provisions);

1. 6. Net annual rental rate means the

annual rental rate paid by the taxpayer less any annual rental rate received by the taxpayer from subrentals;

1. 7. Property used during the income year

includes property which is available for use in the taxpayer’s trade or business during the income year;

1. 8. A locomotive mile is the movement of

a locomotive (a self-propelled unit of equipment designed solely for moving other equipment) a distance of one (1) mile under its own power; and

1. 9. A car mile is a movement of a unit of

car equipment a distance of one (1) mile.

1. (C) The Denominator and Numerator of the Property Factor. The denominator of the property factor shall be the average value of all of the taxpayer’s real and tangible personal property owned or rented and used during the income year. The numerator of the property factor shall be the average value of the taxpayer’s real and tangible personal property owned or rented and used in Missouri during the income year. In determining the numerator of the property factor, all property except mobile or movable property (for example, passenger cars, freight cars, locomotives and freight containers which are located within and without Missouri during the income year) shall be included in the numerator of the property factor in accordance with section 32.200 (Article IV.10.–12.), RSMo, and the rules that interpret those provisions. Mobile or movable property (for example, passenger cars, freight cars, locomotives and freight containers which are located within and without Missouri during the income year) shall be included in the numerator of the property factor in the ratio which locomotive miles and car miles in the state bear to the total everywhere.
2. (D) The Payroll Factor. The denominator of the payroll factor is the total compensation paid everywhere by the taxpayer during the income year for the production of business income (see section 32.200 (Article IV.13. and 14.), RSMo and the rules that interpret those provisions). The numerator of the payroll factor is the total amount paid in Missouri during the income year by the taxpayer for compensation. With respect to all personnel except enginemen and trainmen performing services on interstate trains, compensation paid to employees shall be included in the numerator as provided in section 32.200 (Article IV.13. and 14.), RSMo and the rules that interpret those provisions. Compensation paid to enginemen and trainmen performing services on interstate trains shall be included in the numerator of the payroll factor in the ratio which their services performed in Missouri bear to their services performed everywhere. Compensation for services performed in Missouri shall be deemed to be the compensation reported or required to be reported by the employees for determining their income tax liability to Missouri.

3. (E) The Sales (Revenue) Factor.

   1. 1. General. All revenue derived from

transactions and activities in the regular course of the trade or business of the taxpayer which produces business income, except perdiem and mileage charges which are collected by the taxpayer, is included in the denominator of the revenue factor (see section 32.200 (Article IV.1.), RSMo and the rules that interpret those provisions). The numerator of the revenue factor is the total revenue of the taxpayer in Missouri during the income year. The total revenue of the taxpayer in Missouri during the income year, other than revenue from hauling freight, passengers, mail and express, shall be attributable to Missouri in accordance with section 32.200 (Article IV.15.–17.), RSMo and the rules that interpret those provisions.

1. 2. Numerator of sales (revenue) factor

from freight, mail and express. The total revenue of the taxpayer in Missouri during the income year for the numerator of the revenue factor from hauling freight, mail and express shall be attributable to Missouri as follows:

1. A. All receipts from shipments which

both originate and terminate within Missouri; and

1. B. That portion of the receipts from

each movement or shipment passing through, into or out of Missouri is determined by the ratio which the miles traveled in Missouri bear to the total miles traveled from origin to destination.

1. 3. Numerator of sales (revenue) factor

from passengers. The numerator of the sales (revenue) factor shall include:

1. A. All receipts from the transporta-

tion of passengers (including mail and express handled in passenger service) which both originate and terminate within Missouri; and

1. B. That portion of the receipts from

the transportation of interstate passengers (including mail and express handled in passenger service) determined by the ratio which revenue passenger miles in Missouri bear to the total everywhere.

AUTHORITY: sections 32.200 (Article VII) and 143.961, RSMo 1994.* Original rule filed Jan. 18, 1989, effective May 11, 1989. *Original authority: 32.200, RSMo 1967 and 143.961, RSMo 1972.