2012 1113 Market Based Apportionment - Tax Executives Institute_ Inc

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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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posted:8/1/2013
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