United States

Multistate: 2017 Proposed Market-Based Sourcing Legislation

Feb 06, 2017
From KPMG TaxWatch

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Over the last several years, a number of states have adopted market-based rules for sourcing receipts from services and intangibles. Not surprisingly, certain market-based sourcing proposals have likewise been introduced in 2017. In New Mexico, Senate Bill 274 would amend the Uniform Division of Income for Tax Purposes Act to adopt market-based rules effective for tax years beginning on or after January 1, 2018. If enacted, Senate Bill 274 would source service receipts to New Mexico if the service was delivered to a location in the state and would source receipts from the sale, rental, license or lease of intangible property to New Mexico if the intangible property was used in New Mexico. If a taxpayer was not taxable in the state of assignment or the state of assignment could not be reasonably approximated, the receipt would be excluded from the sales factor entirely. In Oregon, two bills, likewise effective beginning in 2018, would replace the existing costs of performance apportionment methodology with market-based sourcing, House Bill 2048 and House Bill 2274. Both the bills are very similar to the New Mexico legislation in that they would adopt a location of delivery rule for service receipts and generally look to location of use for intangible-related receipts. Both Oregon bills would also exclude sales that cannot be reasonably approximated or are attributable to a state where a taxpayer is not taxable. However, the Oregon bills provide more guidance and detail on the sourcing rules for intangibles and provide a specific throwout rule for receipts from intangibles that are not specifically described. The key difference between the Oregon bills is that House Bill 2274 would replace the term “sales” with “receipts” and would adopt a definition of receipts that excludes hedging transactions and receipts from the maturity, redemption, sale, exchange, loan or other disposition of cash or securities. Market-based sourcing legislation proposed in Virginia, House Bill 1499, failed to advance out of the first committee to which it was referred. Please stay tuned to TWIST for future updates.

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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.