Section 9: Non-residential Terms and Calculations

Definitions

For purposes of this section, the following definitions or procedures apply.

Net Earnings

Average annual business or farm operation net earnings for fixed payment determination may be calculated using one of the two time periods listed below:
  • One-half of net earnings before taxation for the two taxable years preceding the taxable year of displacement. Net earnings include compensation from the business or farm operation to its owner, the owner’s spouse, and any dependents. For a corporation, net earnings include compensation to the principal owner, the owner’s spouse, and the owner’s children. For the purpose of this compensation, a “loss” for any given year shall be considered “zero” income.
  • An alternate time period for determining net earnings may be used when TxDOT determines such to be more equitable. Written approval for use of an alternate time period must be obtained from the ROW Program Office. Send a full explanation of the reasons why the immediately preceding two year period is not representative of the typical business or farm operation’s earnings with the alternate period request.

Contributes Materially

The phrase “contributes materially” means that during the two taxable years preceding the taxable year in which displacement occurs, or during such other period determined to be equitable, a business or farm operation:
  • had average annual gross receipts of at least $5,000; or
  • had average annual net earnings of at least $1,000; or
  • contributed at least 33 1/3 percent of the owner’s average annual gross income from all sources.
If application of the above criteria creates an inequity or hardship in a given situation, the ROW Program Office may approve use of other appropriate criteria.

Out of Operation

If a business or farm operation has not been in operation for the full two taxable years preceding the displacement year, net earnings must be based on the actual period of operation at the displacement site, projected to an annual rate. An example for making annual projection calculations follows.
A business begun in 1982, and operated for three months during that tax year. It operated for 12 months in the 1983 tax year, and relocated in February 1984.
GIVEN:
  • Net earnings for 1982 = $1,000 (3 months)
  • Net earnings for 1983 = $14,000 (12 months)
FORMULA:
  • Projected annual net earnings = Total net earnings x 12 / Months in operation
CALCULATION:
  • Projected annual net earnings = $15,000 x 12 / 15 = $12,000

Fixed Payment

Copies of certified Federal income tax returns obtained from the Internal Revenue Service should accompany any request for the “fixed payment.” If such returns cannot be obtained or are not available, accountant certified financial statements and other reasonable supporting evidence may be utilized on a case by case basis. A NPO must provide proof of exemption from Federal income taxes under
Internal Revenue Code
(26USC 501)
 and document its nonprofit organization status under Texas law.