The Oklahoma Tax Commission has amended its Regulations to "clarify" or "change" how they apportion receipts from the performance of services.
According to the amendment, which took effect July 11, 2010,
Receipts from the performance of services shall be included in the numerator of the fraction if the receipts are derived from customers within this state or if the receipts are otherwise attributable to this state's marketplace. [See 68 O.S. § 2358(A)(5)].
A "customer within Oklahoma" means a customer that is engaged in a trade or business and maintains a regular place of business in Oklahoma, or a customer that is not engaged in a trade or business whose billing address is in Oklahoma. A "billing address" means the location indicated in the books and records of the taxpayer as the address of record where the bill relating to the customer's account is mailed.
Prior to this amendment, Oklahoma did not provide specific guidance on how to apportion service receipts. Oklahoma's statute, 68 O.S. Sec. 2358(A)(5)(c)(1), did not previously provide guidance nor does it match the current amendment taking effect on July 11, 2010. In other words, the statute is "silent." Therefore, does the Commissioner have the authority to mandate service income to be apportioned using "market based sourcing"?
If this is a "clarification" of a current statute or regulation, and not something new, then does it apply to previous years?
If your company has nexus or a taxable presence in Oklahoma, and has receipts from the performance of services to customers in Oklahoma, these receipts will now be included in the numerator of your Oklahoma apportionment factor regardless of whether the services are performed in Oklahoma.
We are currently assuming this applies to tax years ending after July 11, 2010; however, this has not been made clear. Therefore, you will want to continue to monitor this issue to see if Oklahoma provides any additional guidance or answers to the questions raised.
To view the actual Regulations, go to Regulations 710:50-17-71, page 102.