• Apportionment is a ratio or formula intended to represent the
level of business the company is conducting within a state.
3-factor formula
• Evenly weighted property, payroll, sales
• States trending away from evenly weighted 3-factor formula
• Double-weighted sales
• Single sales factor
• Averages values are used
• Most states use original cost, some states use NBV (NJ)
• Rented property is valued at eight times the net annual rate
• Compensation is defined as wages, salaries, commissions and
any other form of remunerations paid directly to employees
for personal services
• Generally should tie to your IRS Form 940
• Some states do not include officer’s compensation in payroll
• Payments made to independent contractors are generally
Sales of TPP
• Sales of Tangible Personal Property (“TPP”) are generally in
state if:
• It is delivered or shipped to a purchaser within the state,
regardless of the f.o.b. point or other conditions of the sale.
Sales of Services
• Cost of Performance
• Market based sourcing
Cost of Performance
• Gross receipts from services are attributed to a state if the
activity is performed wholly within the state.
• If the activity is both within and without a state, it is included
in the receipts factor of the state where the greater
proportion of the income-producing activity is performed,
measured by costs of performance.
Analyzing Cost of Performance
• Taxpayer determines what activity produced the income
• Cost of performance analysis conducted
Determine the costs associated with the activity
Determine the states in which those costs were incurred
• Cost of performance rule is all-or-nothing approach
Entire sales are attributed to the single state in which the
greater proportion of the costs of performance is incurred
Income-producing activity (MTC)
• Term applies to each separate item of income, examples
• The rendering of personal services by employees or the use of
tangible or intangible property by the taxpayer in performing a
• The sale, rental, leasing, licensing, or other use of real property
• The rental, leasing, licensing, or other use of tangible personal
• The sale, licensing, or other use of intangible personal property
Cost of Performance (MTC)
• Direct cost that is incurred for a specific purpose and is
traceable to that purpose
• Example: The direct costs associated with a service contract
for maintaining business equipment would include both the
cost of repair parts and the compensation costs of the service
• Indirect costs (including G&A) are not included in cost of
performance analysis
Market-based sourcing
• Receipts from services attributed to a state based on where
service recipient is located
• GA, IL, IA, ME, MD, MI, MN, UT, WI
• CA in 2013
• Can create double taxation if you are doing services in a COP
state but have customers receiving the benefit in marketbased sourcing states
• MTC currently uses COP, but has proposed an amendment to
use market-based sourcing
Sourcing of Intangibles
• States vary widely on sourcing of intangibles
• Always check state rules here
Special industries
• States may have specific apportionment formulas for the
Trucking companies
Financial institutions
Television and radio broadcasters
Telecommunication service companies
Mutual funds
Pipeline companies
Ship transportation companies
Professional sports franchises
Steps to completing apportionment
• Sum apportionment totals
• Tie out apportionment to the workpapers
• Gross receipts and property should tie to the trial balance
• Payroll should tie to 940s (check against TB for large deviation)
• Compare to PY apportionment
• Look for new states that have factors present – consider whether
to file there
• Look for states where factors may have swung largely
Steps to completing apportionment
• Input apportionment into ProFx
• If you have a state where there is everywhere sales, property or
payroll, but that respective state does not have any of these
factors, input a zero for that state in the Allocation and
Apportionment worksheet.
• Verify that everywhere columns per ProFx tie to apportionment
Inputting apportionment in ProFx
Steps to completing apportionment
• Things to watch out for
• Market-based sourcing versus COP sourcing states
• Most states are COP, but if you have a market-based sourcing state,
you will have to input that numerator separately
• Everywhere sales may differ by state
• Sub-part F and Section 78 Gross Up
Changing everywhere totals
Common State worksheet, A&A – Total everywhere overrides
Changing everywhere totals
Common State worksheet, A&A – Total everywhere overrides

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