State Lawmakers Look to Change How Business Income is Apportioned

Legislators have introduced a considerable number of bills changing how business income is apportioned to their states, either by changing corporate apportionment formulas or establishing new combined reporting regimes. Generally, apportionment is how a business determines how much of their total income is subject to tax in a state when the business operates in multiple states Combined reporting is a related concept where some states require unitary groups (on other words, separate legal entities such as subsidiaries of a parent company) -to “combine” the income of all of the companies in its single group in order to determine the amount of income attributed to that state. Lawmakers pursuing the former of these two options have had more political success, but both are worth closer examination.

Apportionment Legislation in 2023

We are currently tracking 27 bills from 20 jurisdictions that would change the apportionment rules businesses use to allocate their tax liability. Thirteen of those bills were filed by Republican lawmakers and Massachusetts lawmakers alone were responsible for 8 introductions. Apart from a handful of bills aimed at specific industries, these bills fall into four categories: single sales factor apportionment (12 bills), throwback repeal (4 bills), double-weighted sales factor (3 bills), and three-factor apportionment (one bill). 

Combined Reporting Legislation in 2023

We are currently tracking 19 bills from 12 jurisdictions that mandate or broaden combined filing requirements. These bills fall into three general categories:

• Mandating combined reporting - Nearly half of these bills would establish new mandates that businesses filed combined returns. None of these bills have made it out of the committee phase yet.
   

• Worldwide Combined Reporting - There has been a marked increase in worldwide combined reporting bills this session. So far, legislators have introduced nine bills providing for the taxation of foreign income by requiring worldwide combined reporting or making other changes to the water's edge election. 

• Technical/Administrative Changes - The remaining bills in this category make general changes to how a pre-existing combined reporting regime is administered. 

Track State Tax Legislation

Tax policy can be one of the most challenging areas for government affairs executives. In the wake of significant changes in the economy and federal tax laws, state and local tax policy has become a top priority for large businesses and trade associations. MultiState’s team understands the issues, knows the key players, and can help you effectively track, navigate, and engage. Learn more.