Multi-Jurisdictional Tax Issues

Question 1

What is the INTERSTATE INCOME ACT OF 1959?

Answer 1

1. aka Public Law 86-272
2. Restricts a state’s authority to tax interstate commerce
   o A state can’t collect income tax on sales within its borders as long as the orders are filled and shipped outside of the state
   o Applies to tangible personal property only
   Services and Intangibles are not protected
   o Does not protect a Corporation in the state where incorporated
   o Does not protect from taxes using metrics other than income (e.g. Sales Tax)

Question 2

What is UNIFORM DIVISION OF INCOME FOR TAX PURPOSES ACT (UDITPA)?

Answer 2

1. aka the Multi-State Tax Compact
2. Uniform criteria for determining taxable income of multi-state corporations
3. Designed to ensure a company is not taxed more than once on its income
4. Forces a corporation to segregate
   o Business Income
   Part of the corporation’s regular course of business
   Includes acquisition of tangible and intangible property if such activities are part of the regular trade or business
   o Non-Business Income
   All income other than Business Income