In 2020, Consolidated Lint had nexus in New Jersey, the lint capital of the world. The Company stores 90 percent of its raw lint inventory in New Jersey warehouses. New Jersey apportions taxable income using a formula that utilizes inventory property in New Jersey divided by inventory property all over the world. Accordingly, Consolidated lint has a 90 percent apportionment factor in New Jersey. If the Company’s plant and equipment, mines, labor force and management are entirely located outside New Jersey does the issue arise as to whether the Company is being subjected to “fair apportionment?” Yes. .Why yea?
Yes, the issue of "fair apportionment" arises in this scenario because the apportionment formula used by New Jersey may not accurately reflect the extent of Consolidated Lint's business activities within the state. Fair apportionment is a constitutional requirement under the Commerce Clause of the U.S. Constitution, which mandates that state taxation must not create an undue burden on interstate commerce. The apportionment of income for tax purposes must be fair and reasonable, reflecting to a reasonable extent the in-state business activity that generates taxable income. Here's why the issue of fair apportionment is raised in this case: 1. **Disproportionate Apportionment**: If Consolidated Lint's plant, equipment, mines, labor force, and management are all located outside New Jersey, then the state's use of an inventory-based apportionment formula that results in a 90 percent apportionment factor may not fairly represent the company's business activity in New Jersey. The formula heavily weights the presence of inventory without considering where the actual production, management, and sales activities take place. 2. **Potential Over-taxation**: By using an apportionment formula that is heavily weighted towards inventory, New Jersey could be taxing a disproportionate amount of Consolidated Lint's income relative to its actual economic presence in the state. This could lead to over-taxation and potentially violate the internal consistency test, which requires that if every state were to apply the same apportionment formula, it would not result
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