Single Sales Factor Apportionment: Market-Based Sourcing vs. Cost of Performance, Business Dispositions, State Nuances

This webinar will review the nuances and calculations of single sales factor apportionment. Our panel of state income tax consultants will explain differences in market-based sourcing and cost of performance, outline the impact of the sales factor on the disposition of a business, and point out variances in states' application of single sales factor apportionment to avoid unexpected tax and minimize overall state tax paid by multistate companies.

Multistate businesses must apportion income in the states where they have nexus. Earlier states often used a three-factor apportionment method, including sales, payroll, and property. Now, more than 30 states use single sales factor apportionment to determine taxable income within their state. Most recently, Montana and Vermont have joined these states, beginning in 2025 and 2023, respectively. At first glance, these calculations appear simple, with businesses paying tax on the percentage of income generated in each state; however, the nuances of these calculations are complex.

Most states that utilize single sales factor apportionment use market-based sourcing, dividing income based on the location of the customer receiving the benefit. However, many of these states still use the three-factor apportionment method. Adding to this complication, in New York, service businesses that are C and S corporations must use market-based sourcing, while partnerships and LLCs must use the three-factor method. Virginia has historically used the three-factor apportionment method, with double-weighted sales, but, beginning Jan. 1, 2023, will allow retailers to elect to use single-factor apportionment for consolidated retail groups that include other types of entities.

Listen as our panel of SALT technical experts explains the critical considerations of single sales factor apportionment in particular states and by business type. These calculations have a dramatic impact on taxes paid by multistate businesses. SALT practitioners working with these taxpayers need to understand the intricacies of these rules.