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MULTISTATE APPORTIONMENT. Carmen Guzman. STATE IMPOSED CORPORATE TAX. All states except five (*Michigan & Washington) No Corporate Tax: Nevada, South Dakota & Wyoming 2 Forms: Direct Income Tax Franchise Tax (ex. Texas). APPORTIONMENT. Use apportionment formula

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state imposed corporate tax
STATE IMPOSEDCORPORATE TAX
  • All states except five
    • (*Michigan & Washington)
  • No Corporate Tax:
    • Nevada, South Dakota & Wyoming
  • 2 Forms:
    • Direct Income Tax
    • Franchise Tax (ex. Texas)
apportionment
APPORTIONMENT
  • Use apportionment formula
  • To prevent double-taxation
  • Only apportion business income
  • Apportion income among nexus states
apportionment formulas
APPORTIONMENT FORMULAS
  • Based on Property, Payroll &/or Sales
    • ratio of in-state to everywhere
  • 3 General Approaches:
    • a) Equally Weighted-3 Factor
    • b) Double Weighted Sales
    • c) Single Factor
equally weighted
EQUALLY WEIGHTED
  • Each factor is given a weight of 33 1/3 %
  • In state: Property+Payroll+Sales

Total: Property Payroll Sales

  • Most Common
  • Ex. Alabama, Utah , Vermont

3

double weighted

2

4

DOUBLE WEIGHTED
  • More weight is placed on sales
  • In state: Property+Payroll+Sales

Total: Property Payroll Sales

  • Property & payroll factor =25%

Sales factor = 50%

  • Tax Incentive
  • Ex. California, Florida, New York, Arizona
single factor
SINGLE FACTOR
  • Sales only
  • In State Sales

Total Sales

  • More extreme approach
  • Ex. Iowa, Nebraska, Illinois*

(*effective until 2001)

%

=

exceptions

In Between Approach

EXCEPTIONS
  • Minnesota:
    • Sales factor = 70%
  • Illinois:
    • Sales factor = 83 1/3 %
    • Property & Payroll = 8 1/3%
  • Michigan*:
    • Sales factor = 90%
    • (*value added tax)
  • Different industries
missing factor
MISSINGFACTOR
  • Numerator = 0
  • Different approaches depending on state
  • Most states…divide by # of factors
  • Michigan:

Property 10% x 5% = 0.5%

Payroll none

Sales 50% x 90% = 45%

95% 45.5%

45.5% ÷ 95% = 47.8947%

sales
SALES
  • Sales from Inventory
    • Less returns
  • Commissions & fees from services
  • Rents & royalties
  • Other income
    • interest, dividends,
    • gain on sales of intangible property
property
PROPERTY
  • Included:
    • Inventory
    • Buildings
    • Machinery & Equip.
    • Land
    • Furniture & Fixtures
    • Constructions in Progress*
  • Valued:
    • Average of Beg. + End of Yr. cost amounts
payroll
PAYROLL
  • Wages, salaries, commissions
  • Excludes:
    • payments to independent contractors
    • non-taxable fringe benefits
  • Executive Compensation*
corporate state income tax formula
CORPORATE STATE INCOME TAX FORMULA

Federal Taxable Income (Form 1120, line 28 or 30)

+/- State Modifications

Income Subject to Allocation & Apportionment

- all Non-Business Income

Business Income

x State Apportionment Percentage

Business Income Apportioned to State