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State Taxation of Service Providers (Portfolio 1820)

Product Code: TPOR44
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State Taxation of Service Providers discusses income tax issues that have arisen as the United States' economic base has shifted from manufacturing to services. The discussion focuses on two major issues: (1) the problems of apportioning the income of multistate service providers, and (2) the nexus issues that taxpayers must confront.  The Portfolio discusses both of these topics generally, paying particular attention to the applicable pronouncements of the U.S. Supreme Court.  

The authors, Timothy H. Gillis, Esq., with KPMG LLP, and W. Scott Wright, Esq., with Sutherland, begin with an overview and introduction detailing the UDITPA provisions applicable to service providers. They then examine in detail the major state income tax issues faced by service providers, including: 

  • Choice of entity,
  • Nexus issues, particularly those regarding the Due Process Clause, the Commerce Clause, and Public Law 86–272, and
  • Allocation and apportionment of income, including formulary apportionment, other apportionment schemes, and other approaches used by North Carolina, New Jersey, and New York. 

State Taxation of Service Providers also details the general rules for personal services as well as the rules for specific professional services, including professional athletes; lawyers and law firms; architectural, engineering, and design services; and entertainers. 

The discussion covers nexus and apportionment as applied on an industry-specific basis. 

Among this Portfolio’s worksheets, readers will find an annotated version of the Uniform Division of Income for Tax Purposes Act as well as excerpts from the Multistate Tax Commission Regulations. 

State Taxation of Service Providers allows you to benefit from: 

  • Hundreds of hours of original research on specific tax planning topics from leading practitioners in this area.
  • Invaluable practice documents including tables, charts and lists.
  • Plain-English guidance from world-class experts.
  • Real-world and in-depth analysis that lets you explore various options.
  • Time-saving access to relevant sections of tax laws, regulations, court cases, IRS documents and more.
  • Alternative approaches to both common and unique tax scenarios.

This Portfolio is part of the Premier State Tax Library, a comprehensive series, which covers major state tax transactions and issues with expert, in-depth analysis, and offers commentary on a wide range of multi-state and state-specific taxation topics, including Sales and Use, Corporate Income, Individual Income, Property, Gross Receipts, Limitations on States' Authorities to Tax, Credits and Incentives, Electronic Commerce, Mergers and Acquisitions, Procedure and Administration, Special Industries, and more.

 

Detailed Analysis

1820.01. OVERVIEW

1820.02. INTRODUCTION: THE UDITPA PROVISIONS APPLICABLE TO SERVICE PROVIDERS

1820.03. MAJOR STATE INCOME TAX ISSUES FACED BY SERVICE PROVIDERS (GENERAL DISCUSSION)

A. Choice of Entity

B. Nexus Issues

1. The Due Process Clause

a. Quill Corp. v. North Dakota

b. The Judicial Jurisdiction Cases

c. Post–Quill Developments

2. The Commerce Clause

3. Public Law 86–272

4. Internal Nexus Review

C. Allocation and Apportionment of Income

1. Allocation

2. Apportionment

a. Formulary Apportionment - General Discussion

(1) UDITPA

(2) Variations Increasing Weight of Sales Factor

(3) General Service–Based Variations

b. Other Apportionment Schemes

c. Property Factor

d. Payroll Factor

e. Sales Factor

(1) The Income–Producing Activity/Costs of Performance Approaches

(a) Income–Producing Activity

(b) Costs of Performance

(2) Solicitation Approach

(3) Market–State Approach

(4) Other Approaches Used by Specific States

(a) North Carolina

(b) New Jersey

(c) New York

1820.04. PERSONAL & PROFESSIONAL SERVICES

A. General Rules for Personal Services

B. Professional Athletes

C. Lawyers and Law Firms

D. Architectural, Engineering, & Design Services

E. Entertainers

Working Papers

Table of Worksheets

Worksheet 1 Uniform Division of Income for Tax Purposes Act– Annotated

Worksheet 2 Multistate Tax Commission Regulations – Excerpts

Worksheet 3 Quill Corp. v. North Dakota 112 S. Ct. 1904 (1992)

Opinion

Worksheet 4 National Bellas Hess, Inc. v. Department of Revenue of the State of Illinois 386 U.S. 753 (1967)

Opinion

Bibliography

Bibliography

Timothy Gillis
Tim Gillis practices in the Atlanta office of Sutherland, Asbill & Brennan in the area of federal, state, and local taxation, with considerable work in the tax controversy and litigation areas. Prior to attending law school, Mr. Gillis practiced as a CPA in the Atlanta office of a Big 6 accounting firm. Mr. Gillis received his B.S. in accounting, summa cum laude, from Pensacola Christian College in 1985. He received his J.D., magna cum laude, from the Georgetown University Law Center in 1991. At Georgetown, Mr. Gillis was a member of the Order of the Coif, served on the Georgetown Law Journal, and received the Tamm Memorial Award for his note entitled, “Collecting the Use Tax on Mail–Order Sales.”Mr. Gillis has written a number of articles in the multistate tax area, including ones published in International Legal Strategy and The Atlanta Lawyer. In addition, Mr. Gillis is a co–author of the Georgia chapter of the ABA Sales and Use Tax Deskbook. Mr. Gillis is a member of the State and Local Tax Committee of the American Bar Association's Tax Section and has taught Tax Accounting Methods as an adjunct professor in the Emory Law School's LLM program. He has also lectured on various topics in taxation at various continuing education seminars. 
W. Scott Wright
Scott Wright practices in the Atlanta office of Sutherland, Asbill & Brennan in the federal, state, and local tax areas, with an emphasis on tax controversies and litigation. Mr. Wright graduated from Emory University in 1990 and received his J.D., magna cum laude, from the University of Georgia School of Law in 1993. While in law school, Mr. Wright was Articles Editor of the Georgia Law Review and was a member of the Order of the Coif. He served as a law clerk to the Hon. H. Ted Milburn of the United States Court of Appeals for the Sixth Circuit from 1993 to 1994. Mr. Wright is a member of the American Bar Association, the State Bar of Georgia, and the Atlanta Bar Association.