Florida Monthly Tax Tip: A Glimpse into Multi-State Income Taxation
A Glimpse into Multi-State Income Taxation
Today, let's embark on another adventure as we unravel the labyrinth of state income tax when doing business in more than one state.
Unlike sales tax, where the regulatory dance floor has been guided by US Supreme Court Rulings, Congress decided to play DJ in 1959 with Public Law 86-272, bringing a bit of rhythm to the taxation of income in the multi-state chaos. This law waltzes in, specifically guarding out-of-state businesses, but there's a catch—it's a dance exclusively for those twirling in the realm of soliciting sales of tangible personal property.
So, what are the three main moves in this Public Law 86-272 dance of protection?
1. The Type of Tax:
It's a dance floor for income taxes only. Corporate Income Tax or Franchise Tax get the spotlight, while net worth or gross receipts taxes take a backseat. Sales and use taxes? They're off enjoying a different party.
2. The Type of Activity:
This dance is for those skilled in the art of solicitation. States watch the dance floor closely, defining solicitation with a narrow and strict lens.
3. The Type of Product:
The protection is extended only to the sale of tangible personal property. Sorry services, you have to find another dance partner.
But wait, there's more to this tax tale!
In the grand scheme of multi-state taxation, income gets apportioned to specific states, and each state has its own unique dance steps. In Florida, it's what I fondly call a "vanilla apportionment formula" featuring property, payroll, and sales. Vanilla, but with a zesty twist!
Now, here's where the plot thickens. Recent developments, inspired perhaps by the Wayfair case, have seen the Florida Department of Revenue adopting a market-based sourcing stance. In the Target Enterprise, Inc. case, the Department tried to source receipts based on Target's store square footage. The court, however, did a quick two-step, rejecting this notion and emphasizing the importance of focusing on TEI’s activities, not Target's real estate prowess.
As we navigate these intricacies, especially in our post-COVID remote work era, it's crucial to stay in the loop. These nuances translate into significant dollars, and we're here to help you waltz through them seamlessly.
Looking forward to the tax tango!
Nydia - The Florida Tax Girl
