Maryland to Phase in Single Sales Factor Apportionment Formula for Most Multistate Corporate Taxpayers
By law, Maryland requires most multistate corporations to use a three-factor formula for allocating a certain percentage of their income to Maryland for state income tax purposes, consisting of property, payroll and a double-weighted sales factor. The new legislation provides a four-year phase-in period of the new single-sales factor apportionment formula. For most multistate corporations, the single-sales factor formula will be phased-in as follows:
- For tax years beginning in 2018, the apportionment formula will be property, payroll, the sales factor multiplied by three, and a denominator of five.
- For tax years beginning in 2019, the apportionment formula will be property, payroll, the sales factor multiplied by four, and a denominator of six.
- For tax years beginning in 2020, the apportionment formula will be property, payroll, the sales factor multiplied by five, and a denominator of seven.
- For tax years beginning in 2021, the apportionment formula will be property, payroll, the sales factor multiplied by six, and a denominator of eight.
- For tax years beginning in 2022 and thereafter, the apportionment formula will be a single-sales factor.
The new legislation will permit any taxpayer that qualifies as a “worldwide headquartered company” to elect-out of the single sales factor and use the existing three-factor formula. For this purpose, a “worldwide headquartered company” is a corporation included in a group of corporations that includes a parent corporation, that:
- Filed Form 10-Q with the Securities and Exchange Commission for the quarterly period ending June 30, 2017.
- Has its principal executive office in Maryland?
- Always employs between July 1, 2017 and June 30, 2020, at least 500 full-time employees at the parent corporations’ principal executive office in Maryland.
The election by such a company to use the three-factor formula instead of the single sales factor is to be made annually.
For more information, please contact Henry Chiwaya, Director, State and Local Tax Services, at Henry.Chiwaya@CohnReznick.com or 301-280-1810.
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