The Multistate Tax Commission (MTC) is proposing to significantly change how the sales factor is calculated for apportioning corporate income. Currently, most states define “sales” includable in the sales factor as “all gross receipts of the taxpayer” (except those receipts related to nonbusiness income). MTC members are considering a proposal to limit the definition of “sales” to include only those gross receipts from activity that meets the “transactional test” of the definition of “business income.” Under this proposal, all other receipts—including receipts from sales that satisfy the “functional test”—would be excluded from the sales factor (even though the related income would remain subject to apportionment).
Thus, under this MTC proposal, the sales factor would include only those receipts arising from sales of inventory or services. Examples of receipts that would be excluded are receipts from treasury or hedging transactions and the proceeds from the sale of a unitary subsidiary.