SECTION 405. DIVISION OF INCOME.
Method of division of income. Income shall be divided as follows:
Business income is apportioned, subject to the limitations set forth in subsection (2).
Nonbusiness income is allocated.
Taxability of Business Income.
All of the business income of taxpayers engaged in business solely within Pennsylvania is taxed on an apportioned basis to reflect business income attributable to doing business in Philadelphia.
For taxpayers engaged in business both within and without Pennsylvania, all business income is presumed to be taxable on an apportioned basis to reflect business income attributable to doing business in Philadelphia. However, this presumption is subject to the "unitary business principle" as interpreted by the courts. A taxpayer may exclude certain business income from apportionable income if the taxpayer can establish:
that such income was earned outside of Pennsylvania;
that such income was earned in the course of activities wholly unrelated (in business and economic sense) to the taxpayer's activities in Pennsylvania; and
generally, that the income was earned in a discrete business enterprise which is not a part of a unitary business of which the taxpayer's Pennsylvania activities form a part.
It is the taxpayer's burden to overcome the presumption that its activities both within and without Pennsylvania are all part of a single unitary business the income of which is fully taxable, on an apportioned basis, in Philadelphia.
Applications. The applications below illustrate the provisions of this rule relating to whether particular income is business or nonbusiness income. The applications used are illustrative only and do not purport to set forth all pertinent facts used in determination of whether particular income is business or nonbusiness income.
Rents from real and tangible personal property. Rental income from real and tangible property is business income if the property with respect to which the rental income was received is used in the taxpayer's trade or business or is incidental thereto and therefore is includible in the property apportionment factor.
Gains or losses from sales of assets. Gain or loss from the sale, exchange or other disposition of real or tangible or intangible personal property constitutes business income if the property, while owned by the taxpayer, was used in the taxpayer's trade or business.
Interest. Interest income is business income where the intangible with respect to which the interest was received arises out of or was created in the regular course of the taxpayer's trade or business operations or where the purpose for acquiring and holding the intangible is related to or incidental to such trade or business operations.