Spring 2013 issue of Horizons

Accordingly, if your business is located in only one state, say Missouri, but you visit a project site in another state, meet with the client in another state, or even perform some of your services in another state, but perform the majority of your services in your home state, all the revenue would be apportioned to your home state, Missouri. In this case, by physically visiting other states you may have an income tax filing requirement with that other state, but the revenue apportionment percentage to that state would be zero. You would not owe any income tax to the other state. Market Sourced Apportionment In the last ten years or so, states have looked at this situation and enacted an alternative method of apportionment based on where the services are received. This alternative method is generally called “market sourced apportionment.” Under this method of apportionment, if part of the expended effort or the benefit of the project is in the “other state,” then all or a portion of the project revenue shall be apportioned to that “other state.” For example, since 2009, Illinois uses a “market sourced apportionment.” Illinois looks to see where your service project will benefit the recipient. If Illinois is the state where the benefit will be received, even if the majority of the costs to perform that service project was performed in a state other than Illinois, 100% of that project’s revenue would be apportioned to Illinois. Accordingly, if your business performs most of the cost of performance for that project in a state that uses the cost of performance test for apportionment, like Missouri, then 100% of the revenue could also be apportioned to that state. Yes, the revenue is counted twice – once in Missouri and once in Illinois!

apportioning receipts from professional service firms or organizations. A common variance from apportioning 100% to the other state is to require the service provider to apportion based upon a “time spread” method. The service provider is to estimate the hours physically worked in the “other state” versus the hours physically worked in the resident state. Obviously, this becomes quite complex as many service providers do not require their employees to actively track their time by project.

Example Dr. Joe maintains a specialty medical

practice, teaches at a University and consults in his specialty area of medicine. His medical practice and teaching services are all within his resident state.

Currently, over twenty states use some form of “market sourced apportionment” when

www.RubinBrown.com | page 45