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Fair Apportionment at a Glance

Fair Apportionment

Fair Apportionment is a factor in tax law which is described in the Commerce Clause. The Commerce Clause gives the federal government the power to intercede in tax issues on an intrastate and interstate level. In the courts decision in Complete Auto Transit v. Brady, it was determined that taxation must be equally divided between states that are involved in interstate commerce. However, the ruling has caused great controversy. Many corporations believe that interstate commerce is unfairly taxed based on that division of taxation.

Businesses that have a presence in more than one state, are allowed to apportion their taxation across all states in which they have a legitimate presence. Fair apportionment allows businesses to base their taxes on income as a percentage in each state. In addition to being affirmed in the Commerce Clause, fair apportionment was also found in

Uniform Division of Income for Tax Purposes Act in 1957. While the manner in which divided taxation percentages are reached has changed, the idea remains the same. The Commerce Clause states that taxation must be fair while being equally divided, according to income, by states in which a company conducts business.

Many factors, including percentage of sales in each state, as well as amount of company locations within a state, are used to determine fair apportionment of taxes. Some states utilize several factors for determining a fair apportionment of taxes, while other states utilize a single factor. In either case, the factors utilized, are able to be changed or overturned by theFederal courts, according the Commerce Clause.

For example, a tax law that seems to implement unfair taxation on a company, by a state in which it does business, can be overturned by the Federal government if the taxation does not comply with all applicable laws. Generally, businesses receive better tax rates, due to various tax breaks, in states where their headquarters are located.

Sales are a major determination in fair apportionment of taxes. However, the source of the merchandise is also a factor utilized in the fair apportionment of taxation formula. Each state makes its own determinations for fair apportionment, utilizing differing factors, but each fair appointment must adhere to the Commerce Clause.

No state may impose taxes that undermine fair business, or discourage business in that state or in other states. If a business receives better treatment in a specific state, they may be more likely to conduct their business in that state. Those types of situations go against the Commerce Clause.

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