Allocation & Apportionment

Effective planning and recordkeeping in the apportionment area call for an in-depth understanding of a taxpayer’s business model, including technology-based processes and the related cost accounting systems used, in order to source revenues to the appropriate jurisdiction.

Beginning January 1, 2011, multistate businesses may elect to use a single sales factor method of apportionment for purposes of their California corporate income tax return.

In MeadWestvaco Corp. v. Illinois Dep’t of Revenue, the Supreme Court held that the operational function test was not intended to modify the unitary business principle by adding a new ground for apportionment.

Every state taxing authority has some measure of discretion to determine a taxpayer’s income under alternative methods if the taxing authority believes the taxpayer’s income, as determined under the state’s tax code, does not fairly represent the extent of the taxpayer’s activity in the state. Several recent cases highlight this trend.

This article covers some of the more important developments in apportionment formulas, unitary groups/filing methods, administration, flowthrough entities, and other significant corporate state tax issues.

This two-part article discusses myriad recent state tax activities in the corporate income tax area. Part II addresses apportionment, unitary groups/filing methods, administration and other significant issues.