1. Apportionment

2. Apportionment is a ratio or formula intended to represent the level of business the company is conducting within a state.

3. 3-factor formula Evenly weighted property, payroll, sales States trending away from evenly weighted 3-factor formula Double-weighted sales Single sales factor

4. Property Averages values are used Most states use original cost, some states use NBV (NJ) Rented property is valued at eight times the net annual rate

5. Payroll Compensation is defined as wages, salaries, commissions and any other form of remunerations paid directly to employees for personal services Generally should tie to your IRS Form 940 Some states do not include officer’s compensation in payroll factor Payments made to independent contractors are generally excluded

6. Sales of TPP Sales of Tangible Personal Property (“TPP”) are generally in state if: It is delivered or shipped to a purchaser within the state, regardless of the f.o.b. point or other conditions of the sale.

7. Sales of Services Cost of Performance Market based sourcing

8. Cost of Performance Gross receipts from services are attributed to a state if the activity is performed wholly within the state. If the activity is both within and without a state, it is included in the receipts factor of the state where the greater proportion of the income-producing activity is performed, measured by costs of performance.

9. Analyzing Cost of Performance Taxpayer determines what activity produced the income Cost of performance analysis conducted Determine the costs associated with the activity Determine the states in which those costs were incurred Cost of performance rule is all-or-nothing approach Entire sales are attributed to the single state in which the greater proportion of the costs of performance is incurred

10. Income-producing activity (MTC) Term applies to each separate item of income, examples include: The rendering of personal services by employees or the use of tangible or intangible property by the taxpayer in performing a service The sale, rental, leasing, licensing, or other use of real property The rental, leasing, licensing, or other use of tangible personal property The sale, licensing, or other use of intangible personal property

11. Cost of Performance (MTC) Direct cost that is incurred for a specific purpose and is traceable to that purpose Example: The direct costs associated with a service contract for maintaining business equipment would include both the cost of repair parts and the compensation costs of the service technicians. Indirect costs (including G&A) are not included in cost of performance analysis

12. Market-based sourcing Receipts from services attributed to a state based on where service recipient is located GA, IL, IA, ME, MD, MI, MN, UT, WI CA in 2013 Can create double taxation if you are doing services in a COP state but have customers receiving the benefit in market- based sourcing states MTC currently uses COP, but has proposed an amendment to use market-based sourcing

13. Sourcing of Intangibles States vary widely on sourcing of intangibles Always check state rules here

14. Special industries States may have specific apportionment formulas for the following: Airlines Railroads Trucking companies Financial institutions Television and radio broadcasters Publishers Telecommunication service companies Mutual funds Pipeline companies Ship transportation companies Professional sports franchises

15. Steps to completing apportionment Sum apportionment totals Tie out apportionment to the workpapers Gross receipts and property should tie to the trial balance Payroll should tie to 940s (check against TB for large deviation) Compare to PY apportionment Look for new states that have factors present – consider whether to file there Look for states where factors may have swung largely

16. Steps to completing apportionment (cont.) Input apportionment into ProFx If you have a state where there is everywhere sales, property or payroll, but that respective state does not have any of these factors, input a zero for that state in the Allocation and Apportionment worksheet. Verify that everywhere columns per ProFx tie to apportionment workpapers

17. Inputting apportionment in ProFx

18. Steps to completing apportionment (cont.) Things to watch out for Market-based sourcing versus COP sourcing states Most states are COP, but if you have a market-based sourcing state, you will have to input that numerator separately Everywhere sales may differ by state Sub-part F and Section 78 Gross Up

19. Changing everywhere totals Common State worksheet, A&A – Total everywhere overrides