Risks of Apportionment
February 21, 2020
While apportionment issues present challenges they also present opportunities. Proper planning can help to manage your overall tax liabilities, and knowledge of these issues can help mitigate potential exposures and combat aggressive taxing authorities on audit.
This can lead to a lack of understanding and a lot of confusion in the area, which again can lead to you misapplying the rules and overpaying your taxes. Under the cost of performance method, there was a lot of record keeping that was required where your costs were incurred, what type of cost to include. Under the market sourcing approach, it may be equally confusing and that you may need to determine where your market is or where your ultimate market is or your customer's customers market. Often you don't have that type of information readily available or at hand at all, so you may find yourself having to gather more information from your customers themselves. Whereas previously you only needed to look at information that was more readily available like where your property and payroll was. Often, if you lack some of these records, you may find yourself facing an initial assessment from the state. And one of the issues with that is that then the burden of proof falls on you to prove that assessment is incorrect because such assessments are generally deemed to be correct until proven otherwise in many states.