MTC Adopts Market-Based Sourcing
The Multistate Tax Commission (MTC) recently amended Article VI (UDIPTA) of the Multistate Tax Compact as follows:
- Adopt market-based sourcing for service and intangible revenue, moving away from traditional cost-of-performance;
- Expand the definition of “business income” to encompass all income that is apportionable under the U.S. Constitution;
- Narrow the definition of “sales” to exclude hedging transactions and treasury receipts;
- Allow states the option to choose their weighting for apportionment purposes, but recommending a double-weighted sales factor; and
- Alternative apportionment.
The most significant amendment was the adoption of market-based sourcing for services and intangibles. Market-based sourcing is intended to measure a taxpayer’s access to the particular state’s market. Ohio has already adopted market-based sourcing in 2005 through the enactment of the Commercial Activity Tax (CAT) and for Ohio personal income tax purposes, which applies to business income generated by pass-through entities. See R.C. 5751.033 and R.C. 5733.05(B)(2)(c)(ii).