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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.
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.
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