R15-2D-503 Gains or Losses From Sales of Assets

Gain or loss from the sale, exchange, or other disposition of tangi- ble or intangible personal property or real property constitutes busi- ness income if the property while owned by the taxpayer was used in the taxpayer’s trade or business. However, if the property was used for the production of nonbusiness income or otherwise was removed from the property factor, in accordance with Article 6, before its sale, exchange, or other disposition, the gain or loss con- stitutes nonbusiness income. Example 1: In conducting its multistate manufacturing busi- ness, the taxpayer systematically replaces automobiles, machines, and other equipment used in the business. The gains or losses resulting from those sales constitute business income. Example 2: The taxpayer constructed a plant for use in its mul- tistate manufacturing business and 20 years later sold the prop- erty at a gain while it was in operation by the taxpayer. The gain is business income. Example 3: Same as example two except that the plant was closed and put up for sale but was not in fact sold until a buyer was found 18 months later. The gain is business income. Example 4: Same as example two except that the plant was rented while being held for sale. The rental income is business income and the gain on the sale of the plant is business income. Example 5: The taxpayer operates a multistate chain of gro- cery stores. It owned an office building that it occupied as its corporate headquarters. Because of inadequate space, the tax- payer acquired a new and larger building elsewhere for its cor- porate headquarters. The old building was rented to an unrelated investment company under a five-year lease. Upon expiration of the lease, the taxpayer sold the building at a gain (or loss). The gain (or loss) on the sale is nonbusiness income and the rental income received over the lease period is non- business income. Historical Note Recodified at 6 A.A.R. 2308, filed in the Office of the Secretary of State June 2, 2000 (Supp. 00-2). Amended by final rulemaking at 7 A.A.R. 4973, effective October 5, 2001 (Supp. 01-4).