Question

Why is nonbusiness income seperately allocated as opposed to being apportioned by the state?

Some states require a throwback of sales under its apportionment provisions when the sales involve tangible personal property shipped from that state to a purchaser in a state where the taxpayer is protected from taxation under PL 86-272. Is this fair?

Answer 1

1. Non business income is separately allocated as state presume that the corporate partners tend to distribute share of income or sometimes incure loss in non business income, therefore they seperately allocate the income.

2. It also works as a lynchpin of state apportionment to determine the unitary relationship before allowing the corporate taxpayers to flow through before the partnership apportionment factors are combined.

3. The practice of throwback of sales under its apportionment provisions when the sales involve tangible personal property shipped from that state to a purchaser in a state where the taxpayer is protected is fair due to following reasons :

a. It provides state the unity of operation as a evidence and use of centralized execution of sales.

b. Functions as the requirement for sharing and exchanging the value beyond only flow of the funds to form the unitary relationship.