In March, Louisiana enacted sweeping updates to its sourcing and apportionment rules. In doing so, it became the latest state to use market-based sourcing to source receipts from the sales of services. In total, 24 states and jurisdictions use this method, meaning receipts from services are sourced to the state if the taxpayer’s “market for service” is in the state (the remaining states that impose corporate income tax use the cost of performance method or place of performance method to source receipts from the sales of services), according to Bloomberg BNA’s Corporate Income Tax Navigator. However, what constitutes the market for service differs among the states.


The market for service can be one of four different locations:


  • 1.Where the benefit of the service is received.
  • 2.Where the service itself is received.
  • 3.Where the service is delivered.
  • 4.Where the customer making the purchase is located.


The states adopting each definition are as follows:


Where the benefit of the service is received: Arizona (elective for multistate providers), California, Iowa, Michigan, Missouri, New York, Ohio, Rhode Island, Utah and Wisconsin.


Where the service itself is received: Connecticut, Illinois, Maine and Minnesota.


Where the service is delivered: Alabama, the District of Columbia, Louisiana, Massachusetts, Pennsylvania and Tennessee.


Where the customer making the purchase is located: Georgia, Maryland, Nebraska and Oklahoma.


Each interpretation has at least four states or jurisdictions adhering to it, meaning none of the interpretations is an outlier, and it is unlikely the states will achieve uniformity in the near future.


Continue the discussion on LinkedIn: Which interpretation of a “market for service” should be used?


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