To market sourcing we go

Inside Deloitte

This edition of Inside Deloitte provides a general overview of the corporate tax, market-based sourcing rules as applied to sales of services; discusses the ambiguities surrounding the market determination; and offers approaches a company may consider to strengthen its market position if challenged by a state tax agency.

Determining the "market"

For sales other than sales of tangible personal property for corporate tax purposes, states are moving away from cost-of-performance to market-based sourcing. Many states also now require multistate corporate taxpayers to apportion income using a single-sales-factor formula. However, determining the ‘‘market’’ is sometimes difficult in terms of fact gathering and compliance with varying definitions of what constitutes the market. Without proper substantiation, taxpayers potentially expose themselves to audits that may turn into full-blown controversies, which can involve costly and time-consuming litigation. But if you don’t know where you are going, how do you know when you get there?1

Although revenue from sales other than sales of tangible personal property generally includes earnings from both services and intangible property, this article focuses primarily on sourcing service revenue. It explores practical considerations for business taxpayers in determining the proper method for sourcing receipts from services using market-based sourcing, and suggests steps that may help companies support their filing positions upon audit by a state tax authority. It provides an overview of market-based sourcing rules, discusses the ambiguities surrounding the market determination, and offers approaches companies may consider to strengthen their market position.

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If you have questions regarding this edition of Inside Deloitte, please contact:


Shirley Wei, senior manager, Deloitte Tax LLP


Valerie Dickerson, partner, Deloitte Tax LLP


The authors thank Fred Paladino, Robert Carleo, and Moira Pollard for their helpful review and editorial guidance.

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