Ohio State Tax Blog

MTC Adopts Market-Based Sourcing

September 15, 2014    •    < 1 min read

The Multistate Tax Commission (MTC) recently amended Article VI (UDIPTA) of the Multistate Tax Compact as follows:

  1. Adopt market-based sourcing for service and intangible revenue, moving away from traditional cost-of-performance;
  2. Expand the definition of “business income” to encompass all income that is apportionable under the U.S. Constitution;
  3. Narrow the definition of “sales” to exclude hedging transactions and treasury receipts;
  4. Allow states the option to choose their weighting for apportionment purposes, but recommending a double-weighted sales factor; and
  5. 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).

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