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Regarding state formula apportionment I am reading a

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Regarding state formula apportionment...
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: 2 years ago.Category: Tax
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12/7/2015
Tax Professional: DanielleCPA, Certified Public Accountant (CPA) replied 2 years ago
DanielleCPA
DanielleCPA, Certified Public Accountant (CPA)
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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.

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Tax Professional: DanielleCPA, Certified Public Accountant (CPA) replied 2 years 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.

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Tax Professional: DanielleCPA, Certified Public Accountant (CPA) replied 2 years 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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