1. Market-Based Apportionment
Nick Niemann
McGrath North Mullin & Kratz, PC LLO
Omaha, NE

2. Apportionment Nationally
Sale of TPP
Sale of Services
Initially
3 factors
Property
Payroll
Sales
Trend
Single factor
Some combination of 1-3 factors
Single, double or triple weighting
Initially
Cost of Performance
Cliff (All-or-Nothing)
Trend
Percentage
Market-State

5. Sales Factor: Sourcing of Services
2007
2009
2007
Effective
2014
2003   
2009
2009
2011
Phase-In
2010
2011
2005
COP – Cliff (All-or-Nothing)
COP - Percentage
Market-sourcing approach
No Income Tax
Other
Note: Year shown = States enacting market-state in past 10 years.

6. Nebraska’s Apportionment Rule History
TPP
Services
1967: 3 factor
1987: Single factor (Sales)
LB 772: Phase In ( )
LB 775: Immediate for Nebraska incentive package
1967: COP – Cliff
2012 Single factor (Sales)
- LB 872: Market-State
(Eff )

7. Nebraska Market-State Rules

8. Nebraska Market-State Rules
Sale of Intangibles:
Treasury Function: Loan:
Credit Card:
Lease or License of TPP: . . .
Sale, Lease or License of Real Property:
Other Sales:
Telecom Companies:
Location of Use
Extent of Management
Location of Security or Debtor’s Address
Billing Address
Property Location
Extent of NE Business Activity
Keep COP - Cliff

9. Market-State for Services - Tax Perspective -
Pros
Cons
In-state service providers
Avoid >100% taxation
No tax penalty for engaging in a service
Less TPP v. Service controversies
Less “Income-producing activity” controversies
No more COP interpretation issues
Increases taxable jurisdictions for out-of-state service providers
More nexus enforcement
Multiple Market Based Sourcing tests
Retaining / obtaining user or customer information
Benefits received
Cost of compliance
Introduces new sourcing interpretation issues

10. Market-State for Services - Economic Development Perspective -
Pros
Cons
No tax penalty for having jobs and capital investment in the taxing State
Puts emphasis on exporting services (and importing revenue) using in-State employees and capital investment
Certain in-State companies may prefer COP – Cliff if results in -0- tax
May cause some out-of-state service providers to not make services available to in-State customers

11. Market-Based Apportionment
Nick Niemann
Thank You

12. Nick Niemann Partner - McGrath North Law Firm
Member - American & Nebraska Bar Association
- American Institute & Nebraska Society of CPA’s
- Council On State Taxation (Practitioner)
Creighton - College of Business 1978 (Summa Cum Laude)
- School of Law 1981 (Magna Cum Laude)
- Adjunct Faculty – State Tax
Best Lawyers In America (Tax Law and Litigation & Controversy – Tax)
Principal designer and drafter of most of Nebraska’s economic development tax incentive programs (e.g., 1987’s LB775 Employment and Investment Growth Act and 2005’s LB312 Nebraska Advantage Programs, the Nebraska capital gains exclusion and the single factor corporate apportionment formula).
Nick works with company tax department personnel and their outside CPA firms and/or legal counsel, to address site selection, state tax planning opportunities, tax audits and appeals, refund claims and appeals, and tax and other incentives.
Contact Info: Website:
(402)
Nick’s partner, Matt Ottemann, of McGrath North assisted in the creation of this presentation.

13. Market-Based Apportionment Presentation Disclaimer
This presentation should not be considered as legal, tax, business or financial advice. This presentation is designed to provide information about the subject matter covered. It is provided with the understanding that while the speaker/author is a practicing state tax and incentive advisor, neither he nor his firm has been engaged by the attendee/reader to render legal or other professional services (unless a specific engagement agreement has been executed). If legal advice or other expert assistance is required by the attendee/reader, the services of a competent professional should be sought.
Circular 230 Disclosure
The following statement is required by the U.S. Treasury Department Regulations: Any U.S. tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed here.