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New York State Conforms to the Market Based Sourcing Approach for the Sourcing of Receipts from Services and the Use of Intangibles

Anchin AlertJanuary 6, 2015

Clarence Kehoe, Partner-in-Charge, Tax Department and Tara Burek, Director, State and Local Taxation Services Group

New York State Conforms to the Market Based Sourcing Approach for the Sourcing of Receipts from Services and the Use of Intangibles

For tax years beginning on or after January 1, 2015, receipts from services and intangibles will be sourced to where the customer receives the economic benefit and not where the service was performed. This is more commonly known as "market-based" sourcing of receipts. New York State’s change applies only to corporations. Unincorporated businesses are not affected. Previously, New York State applied a quasi market-based approach only to certain limited types of receipts such as those earned by broker-dealers registered with the SEC.

This change affects only New York State. New York City has yet not adopted any of these changes and is studying the impact of any changes on future tax revenues.

Under a market-based approach, receipts from services and intangibles are assigned to the state in which the customer, or customer’s marketplace, is located: where the "economic benefit" was received. Determining where the economic benefit of the service was received is not simple. The definition of "market" can vary substantially among states. The term can simply mean the customer’s actual location or commercial domicile, or it can even mean a different geographical area where the benefit of the service was provided to a customer of the customer.

As with California and Ohio, New York State adopted a hierarchical-based methodology in determining where the benefit was received although each state’s emphasis differs. Forthcoming guidance is expected from the New York State Department of Taxation and Finance.

The following table summarizes the states that have adopted market-based sourcing for receipts from services and intangibles and the type of entity the rules would apply to:

Applies to Incorporated and
Unincorporated Businesses?
Alabama YES
Arizona Beginning 1/1/14 YES
California YES
Georgia YES
Illinois YES
Iowa YES
Maine YES
Maryland YES
Massachusetts Beginning 1/1/14 YES
Michigan YES
Minnesota YES
Nebraska Beginning 1/1/14 CORPORATIONS ONLY
New York Beginning 1/1/15 CORPORATIONS ONLY
Ohio YES
Oklahoma YES
Pennsylvania Beginning 1/1/14 CORPORATIONS ONLY
Utah YES
Washington YES
Wisconsin YES

For more information, contact Clarence Kehoe, Partner-in-Charge of Anchin’s Tax Department, or Tara Burek with our State and Local Taxation Services Group at 212.840.3456.

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