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Apportionment is the determination of the percentage of a business’ profits subject to a given jurisdiction’s corporate income or other business taxes. U.S. states apportion business profits based on some combination of the percentage of company property, payroll, and sales located within their borders.


The traditional evenly weighted three-factor apportionment method weighs property, payroll, and sales in equal measure. Increasingly, many states have shifted to single sales factor apportionment, where only a company’s sales are taken into account, with the intention of benefiting in-state production while exporting more of the tax to foreign (out-of-state) companies. Courts have granted states substantial leeway in adopting competing approaches to apportionment but some requirements must be met, most notably:

  1. The tax must bear some rational relationship to companies’ activities in the state (external consistency); and
  2. The apportionment formula must ensure that no more than 100 percent of a corporation’s income would be taxed if every state chose the same formula—even if, in practice, the interaction of differing standards can yield double taxation (internal consistency).


There is not an obviously “correct” approach to corporate apportionment. A company’s payroll and property in a state are more closely related to its operations there, the costs they impose, and the benefits they receive from good governance, but all states include sales into the state as a factor, and the majority (29 states) use it as the sole factor.

Many states have adopted single sales factor apportionment as a way to “export” the state’s corporate income tax burden. In other words, single sales factor apportionment reduces tax burdens for businesses that have most of their property and payroll in the state but only a small proportion of their national sales in the state, while increasing tax burdens for out-of-state companies that have minimal property or payroll in the state but a large proportion of their national sales in the state.

Sales of tangible property are sourced to the destination of the sale, but accounting for the sale of services is more complex. Twenty-six of the 45 corporate income-taxing states emphasize, in varying ways, the location where a service’s benefit is received. This is known as market or benefit sourcing and contrasts to sourcing rules that emphasize the location where a greater proportion of a company’s income-producing activity takes place.

State Primary Apportionment Factors for Tax Year 2020
Three-Factor (6) 50% Sales (8) > 50% Sales Factor (3) Single Sales (29)
Alaska Alabama Delaware Arizona*
Hawaii Arkansas Maryland California
Kansas Florida Tennessee Colorado
Montana Idaho   Connecticut
North Dakota* New Hampshire Georgia
Oklahoma Vermont Illinois
  Virginia* Indiana
West Virginia Iowa
New Jersey
New Mexico
New York
North Carolina
Rhode Island
South Carolina
District of Columbia

* State offers alternative apportionment factors as well, either as an optional election or as a requirement for select industries

** Texas’ Margin Tax, a gross receipts tax, uses single sales factor apportionment. Gross receipts taxes in other states do not follow corporate apportionment formulae.

Source: Federation of Tax Administrators

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