TX Corp. prepares market analysis surveys from its offices in State Pink.work is carried out within several offices of the STX corporation. The work is performed: a. 40% in Alabama b. 25% in Mississippi c. 24% in Pennsylvania d. 11% in Connecticut If Alabama and Mississippi both adopt UDITPA, to which of these two states is the $50,000 sale included in the numerator of STX’s receipt factor? All of the receipts are sourced to Alabama as that is where a plurality of the work is done. Why all resourced to alabama?
Under the Uniform Division of Income for Tax Purposes Act (UDITPA), the receipts factor (often referred to as the sales factor) is used to determine the portion of a business's income that is apportioned to a particular state for tax purposes. The receipts factor is a fraction, with the numerator representing the total sales within the state and the denominator representing the total sales everywhere. When a service is performed in multiple states, the determination of which state's numerator includes the receipts from that service can depend on the specific sourcing rules adopted by each state. Some states use a "cost of performance" approach, while others use a "market-based sourcing" approach. Under the "cost of performance" approach, which was more common historically and is mentioned in your scenario, sales are sourced to the state where the greatest proportion of the service is performed based on costs of performance. If Alabama and Mississippi both adopt UDITPA and use the cost of performance approach, then the receipts from the sale would be included in the numerator of the receipts factor for the state where the plurality (the greatest percentage) of the work is done. In your example, 40% of the work is performed in Alabama, which is the highest percentage among the listed states. Therefore, under the cost of performance approach, all of the receipts from the $50,000 sale would be sourced to Alabama for the purpose of calculating STX's receipts factor. This is because Alabama is the state where the greatest cost of performing
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