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Every year, there are new states that transition to a single sales factor method for income apportionment or a market-based sales factor sourcing for service income. Nonetheless, there are still many inconsistencies among states pertaining to the sourcing of very common lines of revenue, such as service income and sales of tangible personal property. Beginning with the 2015 tax year, New York has implemented a single sales factor apportionment regime and sourced sales from services to the location of the benefit received and sales from tangible personal property to their destination.  

N.Y. Comp. Codes R. & Regs. tit. 20 Section 132.15 reveals quite an interesting nuance related to the sales factor sourcing of service income and sales of tangible personal property for entities taxed as partnerships. 

In particular, N.Y. Comp. Codes R. & Regs. tit. 20 §132.15(f) states: 

Gross income percentage. The gross income percentage is computed by dividing (1) the gross sales or charges for services performed by or through an office, branch or agency of the business located within New York State, by (2) the total of all gross sales or charges for services performed within and without New York State. The sales or charges to be allocated to New York State include all sales negotiated or consummated, and charges for services performed, by an employee, agent, agency or independent contractor chiefly situated at, connected by contract or otherwise with, or sent out from, offices, branches of the business, or other agencies, situated within New York State.

A careful examination reveals that gross sales are distinct from charges for services. Presumably, “gross sales” is referring to sales of tangible personal property. Further examination shows that sales of tangible personal property are essentially sourced based on origin rather than destination and sales of services are sourced based on the place of performance rather than the market. N.Y. Comp. Codes R. & Regs. tit. 20 §132.15(f) has many implications for partnerships. For example, a partnership thought to be exceeding the protection of Public Law 86-272 may find that it has no income to source to New York. Taxpayers should carefully review past filings for potential refund claims. 

If you or your client would like assistance with apportionment, please contact our State & Local Tax Services group. For more information, reach out to your advisor or submit the Contact Us form below. 

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