Spring 2013 issue of Horizons

PROFESSIONAL SERVICES

Market Sourced Apportionment for Professional Services Firms by Bob Neu, CPA

W hen a professional services firm performs services in more than one state, the professional services firm may be subject to income tax in multiple states. For service-oriented organizations, nexus, or the status of having sufficient contact with a state to owe an income tax often is crossed by merely meeting the client or visiting the client job site in the other state. Having an income tax filing requirement and apportioning income to that other state are two totally different concepts.

Cost of Performance Method Generally, the historic method used to apportion revenue among the states where business is being conducted is called the “cost of performance” method. Under this method, service receipts from multistate activities are sourced to the state where the “greater proportion” of cost to perform the project took place. It is an all-or- nothing test.

page 44 | horizons Spring 2013