Knowledge Center

Monday, October 13, 2014

Alternative Apportionment and the Erosion of Due Process - Part 1

State Tax Notes, October 2014

by Christopher T. Lutz and Breen M. Schiller

State tax laws simply cannot keep up with the everchanging, sophisticated economy in which we live. Most states' treatment of corporate income, for instance, is still rooted in statutes and regulations that were promulgated when the U.S. economy was primarily driven by manufacturing. With the proliferation of the digital and service economy, states have haphazardly approached emerging business models, sometimes using archaic rules, and sometimes using completely new and made-up rules. The general trend has been to apply an approach that serves to export the tax base out of a particular state and to increase overall revenue based on artificial justifications. Perhaps the most important consideration is the ability of states, as well as taxpayers, to propose alternative income apportionment...

Christopher T. Lutz is an associate and Breen M. Schiller is a senior associate in the Chicago office of Horwood Marcus & Berk. Lutz concentrates his practice on multistate tax issues, while Schiller is in the State and Local Tax (SALT) Group, where she concentrates on state and local tax planning and the resolution of state and local tax controversies for multistate and multinational corporations.

In this article, the first of two parts, the authors discuss the principles of alternative apportionment. They cite difficulties caused by states using different procedures to petition for the use of an industrywide alternative apportionment formula.

To read the full article, please click HERE.

Copyright 2014 Tax Analysts. Reprinted with permission.

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