[Code of Federal Regulations]

[Title 48, Volume 7]

[Revised as of October 1, 2005]

From the U.S. Government Printing Office via GPO Access

[CITE: 48CFR9904.403-61]



[Page 363-364]

 

            TITLE 48--FEDERAL ACQUISITION REGULATIONS SYSTEM

 

     CHAPTER 99--COST ACCOUNTING STANDARDS BOARD, OFFICE OF FEDERAL 

           PROCUREMENT POLICY, OFFICE OF MANAGEMENT AND BUDGET

 

PART 9904_COST ACCOUNTING STANDARDS--Table of Contents

 

Sec. 9904.403-61  Interpretation.



    (a) Questions have arisen as to the requirements of 9904.403, Cost 

Accounting Standard, Allocation of Home Office Expenses to Segments, for 

the purpose of allocating State and local income taxes and franchise 

taxes based



[[Page 364]]



on income (hereinafter collectively referred to as income taxes) from a 

home office of an organization to its segments.

    (b) By means of an illustrative allocation base in 9904.403-60, the 

Standard provides that income taxes are to be allocated by ``any base or 

method which results in an allocation that equals or approximates a 

segment's proportionate share of the tax imposed by the jurisdiction in 

which the segment does business, as measured by the same factors used to 

determine taxable income for that jurisdiction.'' This provision 

contains two essential criteria for the allocation of income taxes from 

a home office to segments. First, the taxes of any particular 

jurisdiction are to be allocated only to those segments that do business 

in the taxing jurisdiction. Second, where there is more than one segment 

in a taxing jurisdiction, the taxes are to be allocated among those 

segments on the basis of ``the same factors used to determine the 

taxable income for that jurisdiction.'' The questions that have arisen 

relate primarily to whether segment book income or loss is a ``factor'' 

for this purpose.

    (c) Most States tax a fraction of total organization income, rather 

than the book income of segments that do business within the State. The 

fraction is calculated pursuant to a formula prescribed by State 

statute. In these situations the book income or loss of individual 

segments is not a factor used to determine taxable income for that 

jurisdiction. Accordingly, in States that tax a fraction of total 

organization income, rather than the book income of segments within the 

State, such book income is irrelevant for tax allocation purposes. 

Therefore, segment book income is to be used as a factor in allocating 

income tax expense from a home office to segments only where this amount 

is expressly used by the taxing jurisdiction in computing the income 

tax.