Sourcing sales across states to reduce state income tax. (State & Local Taxes).Companies engaged in selling services might miss an opportunity to minimize their statewide income tax liabilities. By sourcing sales to states where they incur costs, companies may realize significant tax saving.
Under many state laws, companies may allocate income derived from sales of services to states based on where the seller incurs costs, rather than on the customer's location. By analyzing where the greatest cost of services is incurred, where services are solicited and where customers are located, taxpayers can determine where they can source the sale of services. To the extent taxpayers source gross receipts the total of the receipts, before they are diminished by any deduction, as for expenses; - distinguished from net profits.
See under Gross,
See also: Gross Receipt from services to states with lower income tax rates, they may realize significant tax savings. Sourcing is not always obvious, and the correct application of the rules often depends on business operating practices.
In general, a multistate mul·ti·state
Of, relating to, or involving several states: a multistate environmental campaign. business determines its state income tax liability by distributing its total business income across the states in which it does business. Typically, a state uses a formula apportionment The process by which legislative seats are distributed among units entitled to representation; determination of the number of representatives that a state, county, or other subdivision may send to a legislative body. The U.S. to accomplish this distribution. Under this method, a business distributes its total income among the states based on the percentage of sales, property and payroll in each.
The sourcing of sales to a state, represented in the apportionment formula as the sales factor, is a relatively simple process when a business sells tangible personal property. It merely assigns Individuals to whom property is, will, or may be transferred by conveyance, will, Descent and Distribution, or statute; assignees.
The term assigns is often found in deeds; for example, "heirs, administrators, and assigns to denote the assignable nature of sales to the customer's location. However, when a business provides services, it does not necessarily source the income it receives in the same manner. According to according to
1. As stated or indicated by; on the authority of: according to historians.
2. In keeping with: according to instructions.
3. most state laws, a company must source its sales of services and intangibles to a state in which its income-producing activities are located, based on costs of performance. Other states employ alternative methods, such as sourcing sales based on solicitation solicitation
In criminal law, the act of asking, inducing, or directing someone to commit a crime. The person soliciting another becomes an accomplice to the crime. The term also refers to the act of obtaining bribes, as well as to the crime of a prostitute who offers sexual or using the "market approach."
Sourcing Sales on Costs of Performance
The Uniform Division of Income for Tax Purposes Act (UDITPA UDITPA Uniform Division of Income for Tax Purposes Act (US) ) is a model act governing gov·ern
v. gov·erned, gov·ern·ing, gov·erns
1. To make and administer the public policy and affairs of; exercise sovereign authority in.
2. the allocation of income among states. Most states follow UDITPA's sales-factor rules, which provide that sales of other than tangible personal property are attributed to a state if the income-producing activity is performed in that state, based on costs of performance. Generally, any activity whose performance creates an obligation of a particular customer to pay a specific price is an income-producing activity. Therefore, to determine the states to which it should apportion ap·por·tion
tr.v. ap·por·tioned, ap·por·tion·ing, ap·por·tions
To divide and assign according to a plan; allot: "The tendency persists to apportion blame as suits the circumstances" its sales, a company should determine where it performs services that give rise to its income. For example, a company may agree to perform certain services with a customer located in state X, but it may actually perform most of the activities in state Y. After identifying the location of its income-producing activity, the next step is to measure the proportionate pro·por·tion·ate
Being in due proportion; proportional.
tr.v. pro·por·tion·at·ed, pro·por·tion·at·ing, pro·por·tion·ates
To make proportionate. level of activity, determined by the costs of performance. Put simply, a company uses the direct costs associated with performing the income producing-activities to measure that level of activity. Depending on the states' rules, the company could source its revenue in whole or in part to Y, even though its customer is located in X.
While most states use the UDITPA method, many vary their application of the rule. Some states employ an "all or nothing approach," by which they attribute all of the sales to a state where the business performs its income-producing activity totally. Other states have a pro-rata allocation, in which they divide a company's sales among states, depending on the performance level in a particular state, as measured by costs of performance.
Other Sourcing Rules
At least one state, Ohio, adopts a solicitation approach to sourcing service receipts. As its name suggests, the solicitation approach requires a taxpayer to source sales to the state in which the sale was principally solicited. Alternatively, several states source the sales of services similar to the sale of tangible goods by using a market approach, which sources sales to the state in which customers receive the services.
Compliance and Planning
Given the complexities of complying with tax laws across the country, many companies simply settle on the simplest (but not necessarily the most correct or beneficial) method when calculating their multistate income tax. However, following careful analysis and planning, a business may enjoy tax savings to the extent it is able to source sales to states with lower effective tax rates.
FROM MONICA MONICA Cardiology A WHO initiative–Multinational Monitoring of Trends & Determinants of Cardiovascular Disease–which evaluated the effects of various factors on mortality in Pts MIs TILLETT, J.D., LOS ANGELES Los Angeles (lôs ăn`jələs, lŏs, ăn`jəlēz'), city (1990 pop. 3,485,398), seat of Los Angeles co., S Calif.; inc. 1850. , CA, AND MICHAEL SANTORO, J.D., CHICAGO, IL