Terry Barrett, Keiter Tax Senior Manager and Leader in Keiter’s State and Local Tax team, shared her insights on revenue sourcing rules in the November/December 2017 issue of VSCPA’s Disclosures Magazine article, “Will market-based sourcing affect you?” This includes physical and economic nexus considerations as well as tax filing requirements according to individual state laws.
Year-end tax planning meetings are upon us, and a likely discussion item may be where a business should be filing income and/or franchise tax returns for 2017. Some of the key factors in that determination are (1) nexus, where there is sufficient connection with a state to create a filing requirement (think physical presence as well as economic presence), (2) revenue, and (3) the nature of the business(product- or service-oriented).
But one factor that may be overlooked is the revenue-sourcing requirement in those states where a company may have nexus, particularly if the company provides services. For sellers of tangible products, federal law (specifically Public Law 86-272) provides protections from state income tax to the extent that a business’s only activity in the state is the solicitation of sales of those tangible products. These protections, however, do not extend to franchise taxes (a topic for another article) or businesses that are providing services.
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