Articles Posted in Apportionment

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On July 23-24, members of Pillsbury SALT will lead discussions at COST’s much anticipated state and local tax technology workshop in Foster City, Calif. This one-and-a-half day event promises to deliver in-depth state and local tax content tailored to technology businesses—everything from startups to long established companies. The varied presentations are for those new to tax and those who are tax savvy.

Pillsbury SALT members will lead discussions on a number of topics, including:

  • “Market-Based Sourcing for Tech Companies: Identifying ‘Customers’ and Locating Their ‘Benefits'” (Marc Simonetti)
  • “Beware of the Locals—They Might Take You by Surprise” (Carley Roberts)
  • “All Things Property Tax for Tech Companies” (Craig Becker)
  • “Ask The Experts” (Jeffrey Vesely)

For more information and to register, please visit the event page.

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(Note this originally appeared in March 26, 2018, edition of State Tax Notes)

Nearly every state that imposes a corporate income tax includes a sales factor in its apportionment formula. Generally, the sales factor in computed by comparing a taxpayer’s “in-state” sales to its total sales. Determining in-state sales of tangible personal property is a straightforward concept—good shipped to a customer’s location are included as in-state sales only in the state of the customer’s location. It is more complicated to determine an in-state sale regarding the provision of multistate services or licenses of intangibles. Historically, states looked to a taxpayer’s costs of performing the service of licensing the intangible. Some states have become critical of this cost-of-performance method and replaced it with a market-based method of computing in-state sales.

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The California Franchise Tax Board has issued a chief counsel ruling stating that a registered broker-dealer must include the entire sales price received from the sale of securities—including the return of capital—in the sales apportionment factor. Interestingly, the chief counsel determined that California’s alternative apportionment provisions do not apply to the combined group’s intrastate apportionment result.

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Franchise Income Tax: Apportionment and Allocation of Business and Nonbusiness Income
In General Motors Corp. v. Franchise Tax Board, the first of the six “gross receipts” cases in court in California to be decided in the Court of Appeal, the Second Appellate District addressed the issue of what the term “sales” means, as used and defined in Revenue and Taxation Code sections 25120 and 25134. The court affirmed the ruling of the trail court that:

“the return of the principal from securities transactions in the repurchase agreements and maturities categories should not be included as ‘gross receipts’ in the denominator of the sales factor in apportioning income to California. The reason for this conclusion is that such return of principal does not arise out of a sales transaction.”

(The remainder of this article can be accessed in the 2005 edition of the ABA’s State and Local Tax Lawyer.)

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Income and Franchise Taxation: Apportionment/Allocation and Business/NonBusiness Income

In Appeal of Polaroid Corp., the State Board of Equalization (SBE) held that proceeds received by the taxpayer from apatent infringement lawsuit were business income and must be included in the (numerator and the denominator of the) sales factor. The SBE also held that only net income from the taxpayer’s investment of excess short-term financial instruments may be included in the sales factor

(The remainder of this article can be accessed in the 2004 edition of the ABA’s State and Local Tax Lawyer.)