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Market-Based Apportionment Nick Niemann McGrath North Mullin & Kratz, PC LLO Omaha, NE Apportionment Nationally Sale of TPP Sale of Services Initially Initially • 3 factors • Cost of Performance – Property – Cliff (All-or-Nothing) – Payroll – Sales Trend Trend • Single factor • Cost of Performance • Some combination of – Percentage 1-3 factors • Market-State – Single, double or triple weighting Sales Factor: Sourcing of Services 2007 2009 2007 Effective 2003 2014 2009 2009 2011 Phase-In 2010 2014-2017 2011 2005 COP – Cliff (All-or-Nothing) COP - Percentage Market-sourcing approach Note: Year shown = States enacting market-state in past 10 years. No Income Tax Other Nebraska’s Apportionment Rule History TPP Services • 1967: 3 factor • 1967: COP – Cliff • 1987: Single factor (Sales) • 2012 Single factor (Sales) – LB 772: Phase In (1988- 1992) - LB 872: Market-State – LB 775: Immediate for (Eff. 1-1-14) Nebraska incentive package Nebraska Market-State Rules Nebraska Market-State Rules • Sale of Intangibles: . . . . . . . Location of Use • Treasury Function: . . . . . . Extent of Management Loan: . . . . . . . . . . . . . . . . . . Location of Security or Debtor’s Address • Credit Card: . . . . . . . . . . . . . Billing Address • Lease or License of TPP: . . Property Location . • Sale, Lease or License of Property Location Real Property: . . . . . . . . . . . Extent of NE Business Activity • Other Sales: . . . . . . . . . . . . Keep COP - Cliff • Telecom Companies: . . . . . Market-State for Services - Tax Perspective - Pros Cons • In-state service providers • Increases taxable jurisdictions – Avoid >100% taxation for out-of-state service providers – No tax penalty for engaging in a service • More nexus enforcement • Multiple Market Based • Less TPP v. Service Sourcing tests controversies • Retaining / obtaining user or • Less “Income-producing customer information activity” controversies – Benefits received • Cost of compliance • No more COP interpretation • Introduces new sourcing issues interpretation issues Market-State for Services - Economic Development Perspective - Pros Cons • No tax penalty for having • Certain in-State companies jobs and capital investment may prefer COP – Cliff if in the taxing State results in -0- tax • Puts emphasis on exporting • May cause some out-of- services (and importing state service providers to revenue) using in-State not make services available employees and capital to in-State customers investment Market-Based Apportionment Nick Niemann Thank You Nick Niemann • Partner - McGrath North Law Firm • Member - American & Nebraska Bar Association - American Institute & Nebraska Society of CPA’s - Council On State Taxation (Practitioner) • Creighton - College of Business 1978 (Summa Cum Laude) - School of Law 1981 (Magna Cum Laude) - Adjunct Faculty – State Tax • Best Lawyers In America (Tax Law and Litigation & Controversy – Tax) • Principal designer and drafter of most of Nebraska’s economic development tax incentive programs (e.g., 1987’s LB775 Employment and Investment Growth Act and 2005’s LB312 Nebraska Advantage Programs, the Nebraska capital gains exclusion and the single factor corporate apportionment formula). • Nick works with company tax department personnel and their outside CPA firms and/or legal counsel, to address site selection, state tax planning opportunities, tax audits and appeals, refund claims and appeals, and tax and other incentives. • Contact Info: nniemann@McGrathNorth.com Website: www.McGrathNorth.com (402) 633-1489 Nick’s partner, Matt Ottemann, of McGrath North assisted in the creation of this presentation. Market-Based Apportionment Presentation Disclaimer Disclaimer •This presentation should not be considered as legal, tax, business or financial advice. This presentation is designed to provide information about the subject matter covered. It is provided with the understanding that while the speaker/author is a practicing state tax and incentive advisor, neither he nor his firm has been engaged by the attendee/reader to render legal or other professional services (unless a specific engagement agreement has been executed). If legal advice or other expert assistance is required by the attendee/reader, the services of a competent professional should be sought. Circular 230 Disclosure •The following statement is required by the U.S. Treasury Department Regulations: Any U.S. tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed here.
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