§ 153.28. Property factor.
(a) Definitions. The following words and terms, when used in this section, have the following meanings, unless the context clearly indicates otherwise:
(1) Net annual rental rate—The annual rental rate paid by the taxpayer for an item of real or tangible personal property less annual rental income received by the taxpayer from subrentals, but not less than zero.
(2) Original cost—The basis of the real or tangible personal property for Federal income tax purposes at the time of acquisition by the taxpayer and adjusted by subsequent capital additions or improvements thereto and partial disposition thereof, by reason of sale, exchange, abandonment and the like.
(3) Owned—Property to which the taxpayer has both legal and equitable title, property to which the taxpayer has legal title subject to the security interest of another and property which the taxpayer is purchasing under an installment sales agreement or similar agreement under the terms of which legal title remains in the seller for security purposes until the purchase price is paid.
(4) Owned or rented and used—Property owned by the taxpayer and used by the taxpayer. Property rented to the taxpayer and used by the taxpayer.
(5) Real and tangible personal property—Land, buildings, machinery, equipment, furniture, fixtures, automobiles, trucks, inventory and other similar property. The term does not include coin, currency, shares of stock or evidence of indebtedness.
(6) Used—Actually used or available for or capable of being used during the taxable year by the taxpayer.
(b) General. The property factor is a fraction, the numerator of which is the average value of the taxpayer’s real and tangible personal property owned or rented and used in this Commonwealth during the taxable year and the denominator of which is the average value of all of the taxpayer’s real and tangible personal property owned or rented and used during the taxable year.
(c) Inclusions.
(1) Mineral interests. A leasehold interest in minerals in place, however the interest may be designated, described or characterized by the law of the situs state, is included in the property factor as owned property.
(2) Minerals. Minerals which have been severed or extracted are included in the property factor.
(3) Partially used construction in progress. The average value of the real and tangible personal property owned by the taxpayer and partially used by the taxpayer while construction is being completed shall, to the extent used, be included in the property factor. A schedule detailing the basis of the value of partially used construction in progress shall be submitted to the Department.
(4) Mobile and movable property. The value of mobile and movable property, such as construction equipment, trucks, automobiles or leased electronic equipment, which are located and used within and without this Commonwealth during the taxable year is determined for the purposes of the numerator of the factor on an equitable and reasonable basis, such as on a time used or mileage basis. Property in transit between locations of the taxpayer to which it belongs shall be considered to be at the destination for purposes of the property factor. Property in transit between a seller and buyer which is included by a taxpayer in the denominator of its property factor in accordance with its regular accounting practices shall be included in the numerator according to the state of destination.
(d) Exclusions.
(1) Construction in progress. Real and tangible personal property owned but not used by the taxpayer because the property is in the process of construction is excluded from the property factor.
(2) Security interests. The security interest of a taxpayer as seller or lessor in personal property sold or leased under a conditional sale, bailment lease, chattel mortgage or other contract providing for the retention of a lien or title as security for the sale price of the property is excluded from the property factor.
(3) Idle property. Property which is not actually used or available for or capable of being used during the taxable year by the taxpayer is excluded from the property factor.
Example 1. The taxpayer closes one of its facilities with the intention that the closing will be permanent. The facility remains closed for several years, until it can be disposed of. The property would be included in the property factor the year the facility is closed, but would thereafter be excluded. Example 2. The taxpayer closes its manufacturing facility for a 3-month period during which the facility is refurbished. The property would remain in the property factor. Example 3. The taxpayer owns certain mineral interests which have been depleted of reasonably recoverable minerals. The mineral interests should be excluded from the property factor thereafter.
(e) Valuation of owned property.
(1) General rule. Real and tangible personal property owned by the taxpayer, other than inventories, shall be valued at original costs.
(2) Mineral interests. Mineral interests shall be included in the property factor at original cost. Delay rentals, to the extent not treated as a part of original cost, shall be included in the property factor as rents. Payments, however designated, which are based on the level or rate of production are not considered rent for property factor purposes.
(3) Inventories. Inventories shall be included in the property factor in accordance with the valuation method used for Federal Income Tax purposes.
(f) Valuation of rented property. Real and tangible personal property rented to the taxpayer shall be valued at eight times the net annual rental rate.
(g) Averaging property values.
(1) Owned property.
(i) Annual averaging. The average value of real and tangible personal property owned by the taxpayer is determined by averaging the values at the beginning and ending of the taxable year.
(ii) Monthly averaging. The Department may require the averaging of monthly values during the taxable year of real and tangible personal property owned by the taxpayer if the method is reasonably required to reflect properly the average value of the taxpayer’s property. Monthly averaging will be necessary if substantial fluctuations in the value of the real and tangible personal property exist during the taxable year or if property is acquired after the beginning of the taxable year or disposed of before the end of the taxable year or if property is acquired after the beginning of the taxable year and disposed of before the end of the taxable year or for a similar circumstance.
(2) Rented property. The value of property rented for only a portion of the taxable year shall be eight times the net rent paid.
Authority The provisions of this § 153.28 issued and amended under section 408 of the Tax Reform Code of 1971 (72 P. S. § 7408).
Source The provisions of this § 153.28 adopted March 9, 1984, effective March 10, 1984, 14 Pa.B. 853; amended January 16, 1987, effective January 17, 1987, 17 Pa.B. 273. Immediately preceding text appears at serial pages (96403) to (96404).
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