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State Tax Trend: Market-based Sourcing to Apportion Sales of Services

According to a report by Michael Schadewald in the AICPA Tax Adviser, more and more states are requiring multistate corporate taxpayers to apportion sales of services using a market-based sourcing method instead of a cost-of-performance method. Under a market-based approach, sales of services are assigned to the state in which the services or benefits of the services are received or delivered, or where the customer or marketplace is located. Most states that have adopted market-based sourcing are requiring or allowing taxpayers to use single-factor sales apportionment formulas to apportion sales among the various states in which they do business. The specific rules for market-based sourcing can vary widely from state to state and, within a particular state, may vary by industry. For details, see The Tax Adviser.