In Apple Inc. and U.S. Subsidiaries v. Nebraska Department of Revenue, Case No. CI 24-4186 (Lancaster Cnty. Dist. Ct., July 13, 2026), a Nebraska district court reversed the Tax Commissioner’s order, finding that the Department’s apportionment formula did not fairly represent the Nebraska taxable income of the taxpayer, Apple Inc. (“Apple”), and remanded the case with instructions for the Commissioner to develop an equitable alternative. This is a significant victory for Apple and a reminder that a well-supported challenge to an inequitable apportionment methodology can succeed.
The Facts: By way of background, the 2017 Tax Cuts and Jobs Act (“TCJA”) imposed a one-time “transition tax” under Section 965 of the Internal Revenue Code. The transition tax required U.S. shareholders of controlled foreign corporations (“CFCs”) to include in income their share of the CFCs’ accumulated post-1986 deferred foreign earnings. In effect, this was a deemed repatriation of up to 13 years of previously untaxed offshore profits, all recognized at once in a single tax year.
Apple, headquartered in California with subsidiaries in over 50 countries, earns more revenue abroad than domestically and maintains a small business presence in Nebraska (one retail store with few employees). On its 2017 Nebraska return, Apple reported a sales factor of 0.1269% and did not include Section 965 income. The Nebraska Department of Revenue (“NDOR”) adjusted the return, disallowing approximately $281.7 billion in dividends-received deductions, roughly tripling Apple’s Nebraska tax liability from about $1.5 million to over $5.3 million. Apple protested and, after an unsuccessful administrative hearing, sought judicial review.
The Law: Nebraska uses a single-sales-factor apportionment formula. Adjusted federal taxable income is multiplied by a fraction whose numerator is Nebraska sales and whose denominator is total sales everywhere, measured during the tax period. Neb. Rev. Stat. §§ 77-2734.05(1), 77-2734.14(1). CFC gross receipts are excluded from this fraction under Nebraska’s standard apportionment statutes.
Nebraska also includes an alternative apportionment statute that can override the standard formula in certain circumstances. If the standard formula “does not fairly represent the taxable income that is reasonably attributable to the business operations conducted within this state,” the Commissioner or the taxpayer may use “any other method to effectuate an equitable apportionment.” The statute is meant for “unique and nonrecurring factual situations” that would otherwise produce “incongruous results.”
The Decision: The Court agreed that the TCJA’s one-time transition tax was the exact sort of “unique and nonrecurring” situation that triggers alternative apportionment. Once Section 965 income entered Apple’s tax base, the standard, single-year sales factor could no longer fairly represent the income attributable to Apple’s Nebraska operations.
The Court found that both parties’ proposed alternative formulas shared a basic flaw, which the Court called a “temporal mismatch.” Each formula paired a numerator and denominator confined to a single tax year, 2017, with a foreign addition reflecting 13 years of accumulated CFC activity, from 2005 through 2017. In the Court’s words, “[a]ny method that introduces multi-period amounts into only one component of the fraction, while confining every other component to a single year, does not compare like with like.”
NDOR’s formula had additional problems. While acknowledging that the standard apportionment statutes do not use incomein computing an apportionment factor, NDOR added an income figure, the $281.7 billion Section 965(a) inclusion, into a denominator built entirely on gross receipts, mixing apples and oranges. The Court also found a calibration defect. The denominator reflected the full $281.7 billion Section 965(a) inclusion amount, while the income that actually entered Apple’s tax base was a smaller net figure of $163.5 billion, after the Section 965(c) deduction.
According to the Court, Apple’s proposed formula had a temporal mismatch of its own, pairing 13 years of CFC gross receipts against a single year of Nebraska sales, a structure the Court described as presenting the mismatch “in its most pronounced form.” It also had its own calibration problem. Apple’s proposed denominator included the full $884.2 billion in CFC gross receipts tied to the $281.7 billion Section 965(a) inclusion amount, even though roughly $118.1 billion of that amount was later removed from Apple’s tax base through the Section 965(c) deduction. In other words, receipts tied to income that never actually entered Apple’s Nebraska tax base were still being used to shrink Apple’s apportionment factor.
The Court reversed the Commissioner’s order and remanded with specific parameters for a new formula. On remand, the formula must use gross receipts rather than an income proxy, must calibrate the denominator to the income actually entering the tax base, and must reconcile the mismatched time periods on a principled basis. The Court emphasized that the goal is “an equitable approximation, not perfection.” Apple’s constitutional arguments, including its Commerce Clause, Foreign Commerce Clause, and Due Process claims, were expressly preserved should Apple disagree with the result on remand.
The Takeaway: This decision is a reminder that taxpayers can, and do, prevail when challenging a state’s apportionment methodology. Apple succeeded by demonstrating that the Commissioner’s formula did not fairly represent its Nebraska income. The key was identifying specific structural mismatches. Apple pointed to the disconnect between a single-year factor and multi-year income, the use of an income proxy in a gross-receipts-based formula, and the failure to calibrate the denominator to the tax base actually being apportioned.
For multistate taxpayers facing similar issues, particularly those still working through the state-level ramifications of the TCJA’s transition tax, this case offers a roadmap. Identify the structural defects, support them with the facts, and hold the taxing authority to the standard that alternative apportionment must be equitable in both directions.
This update is one in a series of updates written for the August 2026 edition of The BR State + Local Tax Spotlight.
© 2026 Blank Rome LLP. All rights reserved. Please contact Blank Rome for permission to reprint. Notice: The purpose of this update is to identify select developments that may be of interest to readers. The information contained herein is abridged and summarized from various sources, the accuracy and completeness of which cannot be assured. This update should not be construed as legal advice or opinion, and is not a substitute for the advice of counsel.