What is state tax apportionment and how do you calculate it?


The person who actually negotiates and effects an order is the person who sells the property. The person who sells the property is generally not the person who performs mere clerical approval acceptance, or processing, including a routine credit check of the purchaser. The taxpayer has the burden of proving who sold the property. Employer contributions under a qualified cash or deferred arrangement as defined in Code § 401 and employer contributions to nonqualified deferred compensation plans are generally included in the payroll factor. Net annual rent is the annual rental paid by the taxpayer, less the aggregate annual subrentals paid by subtenants of the taxpayer. The net annual rent may not be less than an amount which bears the same relation to the annual rent paid by the taxpayer as the property used by the taxpayer bears to the total property. As a general rule, the annual rental is the amount paid as rent for property for a 12-month period.

How do you calculate allocation?

  1. Calculate the total amount of the costs needing assignment. For example, a company wants to allocate electricity costs for producing two products.
  2. Determine the base to use and the percentages to allocate based on the base.
  3. Multiply the total cost by the allocation base.

In New York, local corporate income taxes raised more revenue ($6.3 billion) than its state corporate income tax ($4.3 billion). In no other state did local corporate tax collections exceed $600 million in 2019.

( Related Business Activities

Leased Employee, a person who performs services for a client company pursuant to a contract between the client company and an employee leasing company. California net income is apportioned business income plus allocated nonbusiness income to California. Allocation refers to the assignment of nonbusiness income to a particular state. Of the states that have the rules, 25 use throwback and two use throwout. The Multistate Tax alert archive includes external tax alerts issued by Deloitte Tax LLP’s Multistate Tax practice during the last three years.


If you live or work in more than one state, you must allocate your income to those states to determine your state income taxes due to each. Assets are properly assigned to a regular place of business in the State if the day-to-day decisions regarding the asset or activity occurred at a regular place of business in this State. Unless the taxpayer demonstrates to the contrary, those policies and guidelines are presumed to be established at the commercial domicile of the taxpayer. Available to eligible businesses that, within three years from a negotiated state date, create 25 or more jobs or increase employment by 20 percent. Every new full-time job will result in a $1,000 tax credit that businesses can use against most business taxes. “EisnerAmper” is the brand name under which EisnerAmper LLP and Eisner Advisory Group LLC, independently owned entities, provide professional services in an alternative practice structure in accordance with applicable professional standards. EisnerAmper LLP is a licensed CPA firm that provides attest services, and Eisner Advisory Group LLC and its subsidiary entities provide tax and business consulting services.

Indiana: Where Market-Based Sourcing and Income-Producing Activity Collide

Banking and financial corporations are subject to the Corporation Business Tax Act at the rate of 9% on net income or to the lesser rates stated above if their income meets those thresholds. 89, increases the amount of State tax credits granted to businesses providing funding to qualified neighborhood revitalization projects. A surtax of 0.417% was invoked for privilege periods ending between July 1, 1990, and June 30, 1991; and 0.375% for privilege periods ending between July 1, 1989, and June 30, 1990, and July 1, 1991, through June 30, 1993.

Small businesses with an e-commerce presence may be responsible for collecting and remitting sales tax to several states. There is no common definition of nexus that applies to all states or universal rules for determining nexus change. So it’s important to be aware of rules that apply in states where you do business. Businesses that operate in more than one state may also be asking their tax departments or preparers, “Why do we owe state taxes in multiple states? ” Similar to individuals, businesses must allocate their profits to different taxing jurisdictions. The employee’s services are performed both in and outside the State, but the service performed outside the State is incidental to the employee’s service in the State.

Treasury and Financial Systems

None of these suggestions has been adopted. Formulary apportionment, also known as unitary taxation, is a method of allocating profit earned by a corporation or corporate group to a particular tax jurisdiction in which the corporation or group has a taxable presence. It is an alternative to separate entity accounting, under which a branch or subsidiary within the jurisdiction is accounted for https://personal-accounting.org/ as a separate entity, requiring prices for transactions with other parts of the corporation or group to be assigned according to the arm’s length standard commonly used in transfer pricing. In contrast, formulary apportionment attributes the corporation’s total worldwide profit to each jurisdiction, based on factors such as the proportion of sales, assets or payroll in that jurisdiction.


There are other cost of goods sold allowances for certain industries. Taxable entities that only sell services will not generally have a cost of goods sold deduction. “Solicitation” is either active or passive. Active solicitation occurs when an employee of the taxpayer initiates the contact with the customer. The activity is located at the regular place of business with which the taxpayer’s employee is regularly connected or out of which the employee is working, regardless of the where the services of the employee are actually performed.

Apportionment formulas

States can let companies use specific apportionment formulas that are suitable for their situation. There is not an obviously “correct” approach to corporate apportionment. A company’s payroll and property in a state are more closely related to its operations there, the costs they impose, and the benefits they receive from good governance, but all states include sales into the state as a factor, and the majority use it as the sole factor. Three factors with double-weighted sales for income derived from manufacturing, sale, or use of tangible personal property. Manufacturers that derive 75% or more of their income from sales to the U.S. government may elect to use this formula. S in-state to its total sales.


No portion of the value of the property as rental property of the partnership is included in C’s property factor. Where the taxpayer cannot determine the state or states where the service is actually delivered, but has sufficient information regarding the place of delivery from which it can reasonably approximate the state or states where the service is delivered, it shall reasonably approximate such state or states. Landscape Corp provides landscaping and gardening services in Massachusetts and in neighboring states. Landscape Corp provides landscaping services at the Massachusetts vacation home of an individual who is a resident of another state and who is located outside Massachusetts at the time the services are performed. The sale of services provided at the Massachusetts location is in Massachusetts. “Billing address” means the location indicated in the books and records of the taxpayer as the primary mailing address relating to a customer’s account as of the time of the transaction as kept in good faith in the normal course of business and not for tax avoidance purposes. In the case of an agent who spends 50% or more of his or her time at a taxpayer’s owned or rented business premises, the agent is chiefly situated at that business location.

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Under prior law, multistate corporation income was allocated to New Jersey based on equally weighted New Jersey property, payroll, and sales compared to total property, payroll, and sales. The new formula counts sales twice, so that sales account for half the allocation formula (P.L. 1995, c. 245). For tax years beginning on or after May 1, 2003 and before July 1, 2005, the apportionment formula is 10 percent of the property factor, plus 10 percent of the payroll factor, plus 80 percent of the sales factor. State governments collected $58 billion in revenue from corporate income taxes in 2019, or 3 percent of state general revenue. Local governments collected $8 billion in revenue from corporate income taxes, or less than 1 percent of local general revenue. Local government corporate income tax revenue is low in part because only seven states allowed local governments to levy the tax in 2019.

For tax years beginning on or after January 1, 2011, California requires that receipts from the sale of tangible personal property of all members of a combined reporting group be assigned (i.e., sourced) to California, regardless of whether a specific member has nexus in the state. The Business Tax Reform Act (P.L. 2002, c. 40) provides for two significant changes regarding corporate estimated tax.

Under prior law, a taxpayer was required to have a regular place of business outside New Jersey in order to allocate income. 120 repealed the “regular place of business” requirement for taxpayers to allocate income. 288, requires partners and other owners of pass-through entities to credit payments made on their behalf against estimated taxes to end double withholding. Secondly, for large corporations with sales of over $50 million, beginning with the year 2003, the second and third quarter payments, normally due on the 15th day of the 6th and 9th months, will be combined into a single 50% payment due on the 15th day of the 6th month. No payments will be due for such corporations on the 15th day of the 9th month, and normal 25% payments will be due in the 4th and 12th months. Taxpayers are required to make installment payments of estimated tax.

Without limitation, property owned by a taxpayer includes property leased to another, provided that the transaction is treated as a lease, rather than as a conditional sale, for federal income tax purposes. A. Generally, non-profit organizations who are recognized by the IRS as a 501 non-profit organization do not have to file a Delaware corporate income tax return. Please see Section 1902, Title 30, Delaware Code, for a detailed list of exempt corporations. Please note, most non-profit organizations are required to file an annual report with the Delaware Division of Corporations. Delaware requires every corporation filing a Delaware corporate income tax return to attach a completed copy of a pro forma federal tax return, including all schedules and attachments. Multi-state apportionment can be a concern.

How is business income apportioned?

This article identifies common themes in these new sourcing rules and analyzes the practical application of the general-purpose apportionment rules that apply to taxpayers, with a special focus on the New York reforms. It does not address the specialized apportionment rules that many states provide for certain industries, such as broadcasting, construction, financial institutions, telecommunications, and transportation.

  • Using the same example, just 10 percent of the corporation’s net profit would be taxed instead of 20 percent under the three-factor formula or 17.5 percent under the double-weighted sales factor.
  • Common fallback rules include the customer’s billing address, the location of the office from which the services were ordered, and use of a reasonable approximation.
  • Key deductions include those for home office expenses, health insurance premiums, and startup costs.
  • It uses artificial intelligence and machine learning to deliver fast, accurate answers, updated forms and state-specific IRS insights to your thorniest tax questions.
  • This tax is capped in Georgia at a maximum amount of $5,000 annually.
  • A corporation incorporated in another state, territory, or nation.

Gary Bingel, Partner-in-Charge of the National State and Local Tax Group, with expertise focuses on state and local income taxation, and sales and use tax consulting. He has significant experience serving clients in the manufacturing, retail, pharmaceutical, biotechnology, technology and service industries. Where a corporation CORPORATION TAX INCOME APPORTIONMENT FORMULAS rents property to the partnership, it must include the original cost of the property in its property factor. No portion of the value of this property as rental property of the partnership is included. The corporation uses thirty-five percent or more of its tangible property in manufacturing during the taxable year.

State and local governments collected a combined $66 billion in revenue from corporate income taxes in 2019, or 2 percent of general revenue. The share of state and local general revenue from corporate income taxes was far smaller than the share from property taxes, general sales taxes, and individual income taxes. Forty-four states and the District of Columbia levy a corporate income tax. Ohio, Nevada, and Washington tax corporations’ gross receipts instead of income. Texas levies a franchise taxon a business’s income or “margin” but the tax otherwise operates like a gross receipts tax . South Dakota and Wyoming do not levy a corporate income tax or gross receipts taxon businesses.

  • Landscape Corp provides landscaping services at the Massachusetts vacation home of an individual who is a resident of another state and who is located outside Massachusetts at the time the services are performed.
  • For example, compensation would generally include employee travel or other allowances in excess of expenses, or the value of board, housing, or the personal use of an automobile, provided that the Code includes these benefits in the gross income of the recipient.
  • Tax periods of less than 12 months qualify for the 6.5% rate if the prorated if the prorated amount of entire net income plus nonoperational income with New Jersey Nexus does not exceed $4,166 per month.
  • Manufacture, Manufacturing or Manufacturing Activity, the process of transforming raw or finished physical materials by hand or machinery, and through human skill and knowledge, into a new product possessing a new name, nature and adapted to a new use.