Pleasant Services is a service company, located in State A, that is taxable (ie., has nexus) in States A and B. Pleasant provides data analysis services to its customers. Its employees perform all services at the company location in State A, and Pleasant delivers the data analytics reports to its customers via email Pleasant reports $10 million of taxable income on its Federal 1120. Sales by location of customer are, o State A -40% o Slate 8 -60% . Both states use sales-only apportionment formulas. In other words, property and payroll factors are not included in the states apportionment formulas. Please calculate the amount of taxable income apportioned to each state under the following scenarios: 1. Both states have a cost of performance rule for apportioning service revenue 2. Both states have a market-based sourcing rule. 3. State A has a market-based sourcing rule while State B has a cost of performance rule. 4. State B has a market-based sourcing rule while State A has a cost of performance rule Additional Questions: 5. Is the original intent of state apportionment, namely that income be fairly apportioned amongst the states (and not be double-taxed or escape tax altogether) achieved where states have disparate rules for sourcing revenue? 6. Is it a violation of the US Constitution for a cost of performance state to require a resident company to apportion 100% of its revenue to the state, despite the fact that the company makes the vast majority of its sales to customers located in states that have adopted markel-based sourcing rules? See Corporate Executive Board V. Virginia Dept. of Taxation a recent case dealing with this issue available at: Pleasant Services is a service company, located in State A, that is taxable (ie., has nexus) in States A and B. Pleasant provides data analysis services to its customers. Its employees perform all services at the company location in State A, and Pleasant delivers the data analytics reports to its customers via email Pleasant reports $10 million of taxable income on its Federal 1120. Sales by location of customer are, o State A -40% o Slate 8 -60% . Both states use sales-only apportionment formulas. In other words, property and payroll factors are not included in the states apportionment formulas. Please calculate the amount of taxable income apportioned to each state under the following scenarios: 1. Both states have a cost of performance rule for apportioning service revenue 2. Both states have a market-based sourcing rule. 3. State A has a market-based sourcing rule while State B has a cost of performance rule. 4. State B has a market-based sourcing rule while State A has a cost of performance rule Additional Questions: 5. Is the original intent of state apportionment, namely that income be fairly apportioned amongst the states (and not be double-taxed or escape tax altogether) achieved where states have disparate rules for sourcing revenue? 6. Is it a violation of the US Constitution for a cost of performance state to require a resident company to apportion 100% of its revenue to the state, despite the fact that the company makes the vast majority of its sales to customers located in states that have adopted markel-based sourcing rules? See Corporate Executive Board V. Virginia Dept. of Taxation a recent case dealing with this issue available at
