A recent article (A Key to Full and Fair Apportionment, Dan Bucks, Tax Analysts, State Tax Notes, October 7, 2013) argues that "full and fair apportionment" is possible resulting in 100 percent of a business' income being subject to tax.  For example, "if 4 percent of the real business activity of an enterprise is conducted in a state, 4 percent of its income should be reported there. Fifty percent of its income should not be reported to a location with .25 percent of its real economic activity."

The problem with the prospect of "full and fair apportionment" is in how a state defines "real economic activity" and how it implements and applies economic nexus, apportions service income and utilizes a three factor, single sales factor or some type of hybrid apportionment formula.

The article also argues that "full and fair apportionment ties the tax payments of a corporation to the public services they use in the state.  The greater a corporation's business activities in a state, the more public service costs they require."

A corporation with a large physical presence in a state (i.e., more property, more employees, etc.) most likely uses more public services and should probably pay more tax; however, that does not correlate with current state tax policies.  The author appears to agree with me in that current state tax policies do not support the "full and fair apportionment" idea; however, he appears to blame that result on corporate America.  I believe the blame falls on the states.  Aren't the states the ones with the power to make the rules?  Aren't the states the ones who choose to implement single sales factor apportionment or market-based sourcing for service revenue? These are examples of policies that place more of the tax burden on out-of-state companies, not in-state companies that most likely use more public services.

The article discusses how corporations and taxpayers "actively attempt to exploit weaknesses and differences in state corporate tax systems to shift income away from where it is earned."  I wouldn't call that "exploiting," I would say that is a corporation's right and obligation to pay the least amount of tax legally possible.  The taxpayer's perspective of this "tug of war" is that the states continually attempt to tax income that has no connection to their state via nexus rules, unitary arguments, business or nonbusiness income positions, etc.  Hence, taxpayers must fight (or pull) back to simply pay what is fair based on the law.

There are large corporations and groups that lobby against and for state tax legislation, but not all taxpayers do.  Regardless, most taxpayers are simply trying to comply with the maze and complexity of non-uniform multistate tax laws.  Hence, it would be easier if the states had the same rules, but it is up to the states, not taxpayers.  It's like going to a football game and blaming the players for the rules.

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Brian Strahle is the owner of LEVERAGE SALT, LLC where he provides state and local tax technical services to accounting firms, law firms and tax research organizations across the United States.  He also writes a weekly column in Tax Analysts State Tax Notes entitled, "The SALT Effect."  For more info, visit his website:

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Because state and local taxes are deceptively simple and endlessly complicated.

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Brian Strahle is the owner of LEVERAGE SALT, LLC where he provides state and local tax technical services to accounting firms, law firms and tax research organizations across the United States. He also writes a weekly column in Tax Analysts State tax Notes entitled, "The SALT Effect." For more info, visit his website:
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