Apportionment: Normal Formulas Are Unfair and Can Be Challenged

Tax Executive

For the 2022 tax year, of the forty-five states (plus the District of Columbia) that impose a corporate income tax, more than thirty require the use of a single sales factor normal apportionment formula; and, when we also consider states that put additional weight on the sales factor, that number climbs above forty. The trend is clear, and approaching near unanimity among the states, that the sales factor is the most weighted factor to the near exclusion of all others when apportioning the income of a corporation (and, in several jurisdictions, the income of other entities, including partnerships). When we further consider that most of these jurisdictions also require market-based sourcing for sales, it is evident that, in most states, the location of the corporation’s customers drives the apportionment percentage.

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“Apportionment: Normal Formulas Are Unfair and Can Be Challenged,” by Mitchell A. Newmark and Eugene J. Gibilaro was published in the January/February 2023 edition of Tax Executive, the professional journal of Tax Executives Institute.