Knowledge Center

Thursday, October 30, 2014

HMB's Marilyn Wethekam Quoted in Tax Analysts on Cost-of-Performance Rule

"Cost-of-Performance Rule Still Relevant, Experts Say "

Excerpt from Tax Notes/State Tax Today, Thursday, October 30, 2014

Even with states moving fast toward single-sales-factor apportionment and market-based sourcing, the cost-of-performance method of sourcing is still used by most states and remains relevant, members of an expert panel said October 29.

Speaking at the Paul J. Hartman State and Local Tax Forum in Nashville, Tennessee, the panelists said the reasons why states are moving toward market-based sourcing are clear -- the cost-of-performance rule may have defects in operation or definition, it does not reflect today's market of online transactions, and it double counts the property and payroll factors in apportionment at a time of increased reliance on the sales factor.

"Apportionment is a big issue," said Marilyn Wethekam of Horwood Marcus & Berk. "Why? Because we are moving away from traditional bricks-and-mortar operations. We're moving away from the traditional three factors. We're going to single sales factor or to a heavily weighted sales factor."

But even with all those issues, cost-of-performance methods remain applicable, the panelists said.

The panelists said cost-of-performance methods remain in place in more than half the states, although the momentum toward market-based sourcing is clear. In 2015 at least three more states and the District of Columbia are scheduled to move to market-based sourcing.

To read more, please visit the Tax Analysts website.

Copyright 2014 Tax Analysts. Reprinted with permission.

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