Title 15 . Revenue

Chapter 19 . (Repealed)

Section 191. Valuation of rented property

15 AAC 19.191. Valuation of rented property

(a) Property rented by the taxpayer must be valued at eight times its net annual rental rate. The net annual rental rate for any item of rented property is the annual rental rate paid by the taxpayer for that property, less the aggregate annual subrental rates paid by subtenants of the taxpayer. (See 15 AAC 19.202 for special rules where the use of that net annual rental rate produces a negative or clearly inaccurate value or where property is used by the taxpayer at no charge or rented at a nominal rental rate.)

(b) Subrents are not deducted when the subrents constitute business income because the property which produces the subrents is used in the regular course of a trade or business of the taxpayer when it is producing that income. Accordingly, there is no reduction in its value.

(c) "Annual rental rate" is the amount paid as rental for property for a 12-month period (i.e., the amount of the annual rent). Where property is rented for less than a 12-month period, the rent paid for the actual period of rental constitutes the "annual rental rate" for the tax period. However, where a taxpayer has rented property for a term of 12 or more months and the current tax period covers a period of less than 12 months (due, for example, to a reorganization or change of accounting period), the rent paid for the short tax period must be annualized. If the rental term is for less than 12 months, the rent may not be annualized beyond its term. Rent may not be annualized because of the uncertain duration when the rental term is on a month-to-month basis.

(d) "Annual rent" is the actual sum of money or other consideration payable, directly or indirectly, by the taxpayer or for its benefit for use of the property and includes

(1) any amount payable for the use of real or tangible personal property, or any part of it, whether designated as a fixed sum of money or as a percentage of sales, profits, or otherwise;

(2) any amount payable as additional rent or in lieu of rents, such as interest, taxes, insurance, repairs or any other items which are required to be paid by the terms of the lease or other arrangement, not including amounts paid as service charges, such as utilities, janitor services, etc.; if a payment includes rent and other charges unsegregated, the amount of rent shall be determined by consideration of the relative values of the rent and the other items.

(e) "Annual rent" includes lease bonuses which are to be added to both the numerator and denominator of the property factor, but are not to be capitalized at eight times the lease bonus amount. "Lease bonus" means payments made to acquire an interest in a lease or sublease and includes cash bonuses, advance royalties and other lease acquisition payments.

(f) Leasehold improvements must, for the purposes of the property factor, be treated as property owned by the taxpayer regardless of whether the taxpayer is entitled to remove the improvements or the improvements revert to the lessor upon expiration of the lease. Hence, the original cost of leasehold improvements must be included in the factor.

History: Eff. 5/24/78, Register 66; am 3/31/82, Register 81; am 4/14/82, Register 82

Authority: AS 43.05.080

AS 43.19.010