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MULTISTATE APPORTIONMENT

MULTISTATE APPORTIONMENT. Carmen Guzman. STATE IMPOSED CORPORATE TAX. All states except five (*Michigan & Washington) No Corporate Tax: Nevada, South Dakota & Wyoming 2 Forms: Direct Income Tax Franchise Tax (ex. Texas). APPORTIONMENT. Use apportionment formula

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MULTISTATE APPORTIONMENT

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  1. MULTISTATEAPPORTIONMENT Carmen Guzman

  2. STATE IMPOSEDCORPORATE TAX • All states except five • (*Michigan & Washington) • No Corporate Tax: • Nevada, South Dakota & Wyoming • 2 Forms: • Direct Income Tax • Franchise Tax (ex. Texas)

  3. APPORTIONMENT • Use apportionment formula • To prevent double-taxation • Only apportion business income • Apportion income among nexus states

  4. APPORTIONMENT FORMULAS • Based on Property, Payroll &/or Sales • ratio of in-state to everywhere • 3 General Approaches: • a) Equally Weighted-3 Factor • b) Double Weighted Sales • c) Single Factor

  5. EQUALLY WEIGHTED • Each factor is given a weight of 33 1/3 % • In state: Property+Payroll+Sales Total: Property Payroll Sales • Most Common • Ex. Alabama, Utah , Vermont 3

  6. 2 4 DOUBLE WEIGHTED • More weight is placed on sales • In state: Property+Payroll+Sales Total: Property Payroll Sales • Property & payroll factor =25% Sales factor = 50% • Tax Incentive • Ex. California, Florida, New York, Arizona

  7. SINGLE FACTOR • Sales only • In State Sales Total Sales • More extreme approach • Ex. Iowa, Nebraska, Illinois* (*effective until 2001) % =

  8. In Between Approach EXCEPTIONS • Minnesota: • Sales factor = 70% • Illinois: • Sales factor = 83 1/3 % • Property & Payroll = 8 1/3% • Michigan*: • Sales factor = 90% • (*value added tax) • Different industries

  9. MISSINGFACTOR • Numerator = 0 • Different approaches depending on state • Most states…divide by # of factors • Michigan: Property 10% x 5% = 0.5% Payroll none Sales 50% x 90% = 45% 95% 45.5% 45.5% ÷ 95% = 47.8947%

  10. SALES • Sales from Inventory • Less returns • Commissions & fees from services • Rents & royalties • Other income • interest, dividends, • gain on sales of intangible property

  11. PROPERTY • Included: • Inventory • Buildings • Machinery & Equip. • Land • Furniture & Fixtures • Constructions in Progress* • Valued: • Average of Beg. + End of Yr. cost amounts

  12. PAYROLL • Wages, salaries, commissions • Excludes: • payments to independent contractors • non-taxable fringe benefits • Executive Compensation*

  13. CORPORATE STATE INCOME TAX FORMULA Federal Taxable Income (Form 1120, line 28 or 30) +/- State Modifications Income Subject to Allocation & Apportionment - all Non-Business Income Business Income x State Apportionment Percentage Business Income Apportioned to State

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