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DanielleCPA
DanielleCPA, Certified Public Accountant (CPA)
Category: Tax
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Experience:  Years of Experience in Business & Personal Taxes
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Regarding state formula apportionment I am reading a

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Regarding state formula apportionment I am reading a statement that says that if rather than rely on a sales factor for apportioning multi-state business income, a state uses a property and/or payroll factor that the state is adopting a cost of performance (origin) approach for sourcing income. More to the point: in this context :is the term cost of performance strictly related to the use of these two (property and payroll) factors?
Submitted: 12 months ago.
Category: Tax
Expert:  DanielleCPA replied 12 months ago.

The concept of cost of performance does not apply strictly to the use of property and payroll factors. It also applies to sales factors in determining where a "sale is earned." Cost of performance as it applies to sales states that income is earned where the service is performed. As an example, under cost of performance if a service is performed in Illinois, the revenue is apportioned to Illinois; if it is performed in Indiana, the revenue is apportioned to Indiana.

Expert:  DanielleCPA replied 12 months ago.

To generalize and simplify:

The idea of using payroll as an apportionment factor is that employees contribute to an organization's ability to revenues. If employees are located in a particular state, they are contributing to the revenue-generating activity and the organization's overall income.

The idea of using property as an apportionment factor is similar - property/assets contributes to an organization's ability to generate revenues.

Expert:  DanielleCPA replied 12 months ago.

Please let me know if this answers your question or if I can clarify or be of further assistance in any way. Thank you and have a wonderful evening!

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