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Explanation of the Discussion Draft, 18 Cal. Code of Reg. Section 25137(b)(1)(C)

18 Cal. Code of Reg. Section 25137(b)(1)(C). Nonjurisdictional Property—Special Rules. Property Factor.

Attached is a discussion draft of a proposed addition to the regulation addressing special rules for the property factor. The proposed addition, if adopted, will be added to the current Reg. Section 25137 as Section 25137(b)(1)(C).

The addition to the regulations will apply to nonjurisdictional property, e.g., orbiting satellites and undersea transmission cables. The proposed addition excludes such property from the property factor of the apportionment formula.

The draft reflects the fact that such property is not physically located in any state. If standard apportionment rules were applied to assign the property to its physical location, the property would be included in the denominator of the property factor of the apportionment formula, but would not be represented in the numerator of the property factor for any state. The effect would be that a portion of the taxpayer's business income would not be apportioned to any state, resulting in "nowhere income." The proposed addition to the regulation will provide for a uniform method within California for treatment of this type of tangible personal property.