State Tax Snapshot: What are the Burdens of Proof for Alternative Apportionment Regimes?


Eleven states have no written guidance available on when a taxpayer or a jurisdiction can invoke or require an alternative apportionment formula, according to the results of the 2011 and 2012 Bloomberg BNA Survey of State Tax Departments.

BBNA began asking each state in 2011 if it had written guidelines on when the jurisdiction or taxpayer could require or invoke the use of an alternative apportionment formula. Commenting on the lack of state guidance on this issue in 2011 was Jane May, a partner with McDermott Will & Emery in Chicago. "Several states have been extremely aggressive in using alternative apportionment when auditors are simply unhappy with the statutory result,'' May said. ''Particularly when a state's statute and regulations do not appropriately specify when and how alternative apportionment can be used by the state, such a widespread default to a major weapon is highly inappropriate,'' she added.

For the 2013 Survey of State Tax Departments, which will be published on April 26, BBNA expanded its questions about alternative apportionment formulas to include queries about the burden of proof necessary to establish the need to invoke such a formula. Specifically, in situations in which the taxpayer petitions for the use of an alternative formula, BBNA asked each state if:

  •   taxpayer has the burden of proof,
  •   the taxpayer's burden of proof is clear and convincing evidence, or
  •   the taxpayer's burden of proof is preponderance of the evidence.

 In situations in which the state seeks to impose an alternative formula on the taxpayer, BBNA asked each state if:

  •   the state has the burden of proof,
  •   the state's burden of proof is preponderance of the evidence, or
  •   the state's burden of proof is clear and convincing evidence.

 For 2013, Pennsylvania , one of the 11 states that last year said it has no guidance on alternative apportionment, has indicated that a taxpayer seeking an alternative apportionment formula must prove that such relief is necessary by clear and convincing evidence. The same standard of proof would apply when the state seeks to impose an alternative apportionment formula on the taxpayer.  

By Steven Roll

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