Section 22 Classification of Particular Items of Income

• Library: Tax Law 2009

The regulations provide the following guidelines for the classification of particular items of income:

• Rents from real and tangible personal property are business income if the property is used directly or incidentally in the taxpayer’s business. 12 C.S.R. § 10-2.075(5)(A). For example, the car rental income of a car rental business is business income, as is rental income from short-term leases of equipment generally used in the taxpayer’s business but temporarily not needed. 12 C.S.R. § 10-2.075(5)(A)1 and 2. Other examples in the regulations imply a very mechanical approach

( If a clothing store chain owns a 5-story
office building and uses the street floor as a retail store and 2 additional floors as its corporate headquarters, the rental income
of the remaining 2 floors is incidental to
the taxpayer’s trade or business, and the rental income is business income. 12 C.S.R. § 10-2.075(5)(A)3.

( But if the chain owns a 20-story office building and uses the street floor as a retail store
and the second floor as a corporate headquarters, the rental of the remaining 18 floors is considered as separate from the operation of the taxpayer’s business, and the rental income is nonbusiness income. 12 C.S.R. § 10-2.075(5)(A)5.

• The gain or loss from the disposition of an asset is nonbusiness income or loss if the asset was used for the production of nonbusiness income, but is business income if the property was used in the taxpayer’s business. 12 C.S.R. § 10-2.075(5)(B). Although the AHC applied 12 C.S.R. § 10-2.075(5)(B) literally in L.A.F. Delaware...