58 The issue of historical liabilities is also relevant to income tax. However, it does not come up as often because many companies are either in loss positions or have losses available to offset income. With that said, there are certainly ways to address any historical income tax liability, along with other taxes where historical obligations may exist. 5. State Tax Credits and Incentives Having the state pay YOU to do business in their state. Many states welcome companies that create jobs and make substantial capital investment in the state. Often, they are willing to provide tax credits, property tax abatements, sales tax abatements and other incentives in exchange for the companies’ presence, employees, and investment in the state. If your company is looking to enter the U.S. market or expand into another state, the potential for such tax credits and incentives should not be overlooked and may be an important factor in choosing in which states to establish your presence or make capital investments. 6. SALT Corporate Income Taxes: Apportionment and Allocation How to slice a pizza so every state does not get the largest slice! You should consider if your company is apportioning income or allocating certain income to the correct state tax jurisdiction. This is important since, when a company has nexus for corporate income taxes with multiple states, each state vies for its slice of the federal taxable income pie! States can constitutionally impose their corporate income tax on apportioned net income or certain allocable receipts to the state. States use one or more of the following factors for purposes of such formulary apportionment: a. property factor (compares value of real and personal property owned or leased in the state to such property located everywhere) b. payroll factor (compares wages paid to employees located in the state to total wages paid to employees everywhere) c. sales factor (compares receipts from sales of tangible goods, from services and for specific types of income sourced to the state vs. total income from everywhere). States also differ on whether to source to the state or elsewhere income/fees earned from providing services based on (i) the cost/ place of performance in the state or (ii) market-based sourcing to the state in which the customer derives the benefit of such services.
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