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Income Taxes: Special Problems Formulary Apportionment (Portfolio 1180)

Product Code: TPOR44
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Income Taxes: Special Problems in Formulary Apportionment , focuses on advanced apportionment principles and special problems. The portfolio includes a review of constitutional principles and focuses on distortion in the apportionment of income. It is not intended to be an exhaustive review of basic state apportionment principles. Rather, references are made to the laws of certain jurisdictions for illustrative purposes. As with all state taxation, relevant statutes, regulations, administrative decisions and case law should be consulted for specific guidance.

For a general discussion of the three–factor formula contained in UDITPA and important variations and distortions from the formula, see 1150 T.M., Income Taxes: Principles of Formulary Apportionment. For a state–by–state discussion of apportionment formulas, see 1160 T.M., Income Taxes: State Formulary Apportionment Methods (Alabama Through Michigan) and 1170 T.M., Income Taxes: State Formulary Apportionment Methods (Minnesota Through Wyoming). For additional relevant Bloomberg BNA Tax Management Portfolios consult the “Multistate Tax Portfolio Classification Guide,” in the Bloomberg BNA Tax Management Multistate Tax Portfolio Index binder.

Updates to the print version of the Portfolio will be included on Changes and Analysis pages or incorporated directly into the Detailed Analysis as appropriate. The Changes and Analysis pages should be filed immediately following the Table of Contents. All updates to the CD and Internet version of the Portfolio will be incorporated directly into the Detailed Analysis.

Subscribers to the print or CD version of the Portfolio will find late-breaking developments reported in the Bloomberg BNA Tax Management Multistate Tax Report. Subscribers to the Internet version of the Portfolio will find late-breaking developments reported in the Bloomberg BNA Tax Management Weekly State Tax Report.

This Portfolio may be cited as Burgner, 1180–2nd T.M., Income Taxes: Special Problems in Formulary Apportionment. Within the Multistate Tax Portfolio Series, however, references to the portfolios will include only the portfolio numbers and titles.

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.

Portfolio Description

Authors

Description

Detailed Analysis

1180.01. INTRODUCTION & OVERVIEW

1180.02. PURPOSE AND COMMON METHODS OF APPORTIONMENT

Introductory Material

A. Receipts

B. Property

C. Payroll

1180.03. CONSTITUTIONAL REQUIREMENTS

Introductory Material

A. Internal and External Consistency

1180.04. REVISING THE APPORTIONMENT FORMULA

Introductory Material

A. Filing Returns Adopting Alternative Methods Consistent With Ethical Guidelines Of The Return Preparer

B. Petition for a Change in Method

C. Change During Audit Initiated By Taxpayer Or Tax Administrator

1180.05. MEASURING AND PROVING DISTORTION

Introductory Material

A. Reference to Other Factors or the Tax Base

B. Reference to Other Jurisdictions

C. Separate Accounting

D. Multiple Taxation

E. Alternative Formula

F. Burden of Proof/Calculation of Measurement

1180.06. COMBINED & CONSOLIDATED REPORTING

Introductory Material

A. Combination of Disparately Profitable Businesses

B. Receipts Factor/Jurisdictional Issue

C. Combination of General and Specialized Corporations

1. Forced Combination of General and Specialized Corporations

2. Statutory Preclusion/Unusual Combinations for General and Specialized Corporations

D. Intercompany Transactions

E. Elective Combination

1180.07. FACTORS THAT DO NOT FAIRLY REPRESENT BUSINESS ACTIVITY

Introductory Material

A. Condition Precedent/Earning the Right to Apportion

1. Value Added Tax Base

2. Activities of Corporate Officers

3. Higher Apportionment Standard

B. Receipts

1. Reflection of Unusual Sales Transactions in Receipts Factor

2. Dock Sales Transactions

3. Sales of Tangible Personal Property vs. Sales of Services

C. Property

1. Property Used by the Taxpayer

2. Safe Harbor Leased Property

3. Property not Producing Income

4. Property not in Taxing Jurisdiction

D. Payroll

1. Wages Paid Outside the State

E. "Unusual" Business Income

F. Timing & Order of Calculation Issues

1180.08. ATTRIBUTIONAL APPORTIONMENT

Introductory Material

A. Flow-through Entities

1. Combination of Factors and Income

2. Apportionment at Flow-through Entity Level

3. Ignore Flow-through Entity Factors

B. Factor Relief or Representation

1. Modern Analytical Approach

2. Factor Representation Constitutionally Required

3. Factor Representation Used to Cure Defective Tax Base

C. Apportionment by Reference to Payor's Factors

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 HANS REES' SONS, INC. v. NORTH CAROLINA 283 U. S. 123 (1931)

Opinion

Worksheet 4 MOORMAN MANUFACTURING CO. v. BAIR, DIRECTOR OF REVENUE OF IOWA 437 U.S. 267 (1978)

Opinion

Worksheet 5 CONTAINER CORPORATION OF AMERICA v. FRANCHISE TAX BOARD 463 U.S. 159 (1983)

Opinion

Worksheet 6 TRINOVA CORPORATION v. MICHIGAN DEPARTMENT OF TREASURY 498 U.S. 358 (1983)

Opinion

Worksheet 7 McDONNELL DOUGLAS CORPORATION v. FRANCHISE TAX BOARD, 26 Cal. App. 4th 1789, 33 Cal. Rptr. 2d 129 (Cal. Ct. App. 1994)

Opinion

Worksheet 8 IN RE BRITISH LAND (MARYLAND) INC. V. TAX APPEALS TRIBUNAL OF THE STATE OF NEW YORK ET AL., 647 N.E.2d 1280 (N.Y. 1995)

Opinion

Bibliography

Bibliography

Bobby Burgner
Bobby L. Burgner is Tax Counsel and Director of State and Local Taxes for General Electric Company in Atlanta, Georgia. Prior to joining GE, he was a partner and Southeast Region Director of State and Local Services with Arthur Andersen & Co. in Atlanta, Georgia. He is a CPA and attorney, and has been appointed a member of both the AICPA and ABA committees on state and local taxation. Mr. Burgner graduated from the University of West Florida (B.A. accounting; Phi Kappa Phi; magna cum laude) and Georgetown University Law Center (J.D.; magna cum laude; Order of the Coif; Sewell Key Award). While attending Georgetown, he served as state tax manager for MCI Communications Corporation, and later as state tax manager in the national tax office of another national accounting firm. From 1989 through 1995 Mr. Burgner resided in Atlanta, where he headed the state and local tax practice for Arthur Andersen in the Southeast Region. In 1995, he joined General Electric Company as Tax Counsel and Director of State and Local Taxes.