STOP IFRS - Increased State Business Taxes

Catching up with my classes; I had time today to do another one! This class was titled "Increased State Business Taxes: Adjusting the Sales Factor."


In 1957 the Uniform Division of Income for Tax Purposes Act (UDITPA) recommended the apportionment of business income using a three-factor formula, using property, payroll and sales. The idea was to have a uniform division of income for income tax purposes. However, based on a survey it was found that three quarters of the states used the receipts based method.


How does apportionment work? Personal property - sales are assigned to the state where the property was shipped. Services - assigned to the states based on where the cost to perform the service were incurred. Cost of performance is implemented in two different ways. Some states, uses the proportional method and other states uses a "plurality concept" i.e. the state with the most costs, gets the entire receipt assigned to it.

It was noted that the majority of states have now adopted the "single receipts factor".

Other points noted are: - it is difficult for out of state businesses to get a fair say in state court; acknowledgement of the principle of comity; use of the Tax Injunction Act.

Federal courts have ruled that companies cannot be denied tax benefits resulting from special purpose entities created to encourage economic development.

Pending bills before Congress are the Business Activity Tax Simplification Act and the Mobile Workforce Tax Fairness Act.