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Market-Based Sourcing Continues to Be Vexing, Panelists Say

Law360 Tax Authority

Only 11 states with a corporate income tax have not yet moved to market-based sourcing, which sources receipts to where a business' customer is, but even basic concepts such as definition of the market remain a struggle, panelists said Wednesday.


Increasingly, in accordance with model rules for sourcing service receipts offered by the Multistate Tax Commission, states are choosing a secondary market for sourcing service receipts. The secondary market, focusing on where the product is ultimately used, may be different than the first market, where it was purchased.

Mitchell Newmark, tax partner at Blank Rome LLP, said some states switched to market sourcing because the older method, cost of performance, was deemed too complex. With that, states and businesses haggled over where the service was performed to determine which state the receipts should be sourced to. But with all the intricacies and inconsistencies in market-based sourcing, one set of complexities has been traded for another, he said.

"One of the answers that I was always given is that market-based sourcing is going to simplify everything," Newmark said. "But we're not one simple world."

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"Market-Based Sourcing Continues to Be Vexing, Panelists Say," by Maria Koklanaris was published in Law360 Tax Authority on October 25, 2023.