News & Insights

Maryland Adopts Single Sales Factor Apportionment

Tax Development May 07, 2018

Maryland became the latest state to adopt single sales factor apportionment on April 24, 2018 when Governor Larry Hogan signed Senate Bill 1090 and House Bill 1794. These bills revised the existing three-factor apportionment with double-weighted sales factor to phase in single sales apportionment over five years, beginning with tax years after December 31, 2017.   

Under prior law, all multistate corporate taxpayers, other than manufacturers, were required to use a three-factor apportionment formula consisting of a property factor, a payroll factor, and a double-weighted sales factor to apportion income to Maryland. Under the new law, the single sales factor apportionment formula will be phased in as follows: 

  • For tax years beginning in 2018, the apportionment formula will be a property factor, a payroll factor, and three times sales factor, with a denominator of five.
  • For tax years beginning in 2019, the apportionment formula will be a property factor, a payroll factor, and four times sales factor, with a denominator of six.
  • For tax years beginning in 2020, the apportionment formula will be a property factor, a payroll factor, and five times sales factor, with a denominator of seven.
  • For tax years beginning in 2021, the apportionment formula will be a property factor, a payroll factor, and six times sales factor, with a denominator of eight.
  • For tax years beginning in 2022 and thereafter, the apportionment formula will be single sales factor.

Under both the new and old tax law, manufacturers are required to use the single sales factor apportionment formula.

An annual election is available to a taxpayer who qualifies as a “Worldwide Headquartered Company” in Maryland to continue to use the prior law method of three-factor apportionment with double-weighted sales. In order to qualify for this election, the statute defines a “Worldwide Headquartered Company” as a corporation included in a group of corporations, including a parent corporation that: 

  1. filed a Form 10-Q with the Securities and Exchange Commission for the quarterly period ended on June 30, 2017;
  2. has its principal executive office in Maryland; and
  3. employs at all times between July 1, 2017 and June 30, 2020, at least 500 full-time employees at its principal executive office.

At this time, no definition of “principal executive office” has been provided by statute or regulation. Guidance may clarify the issue but could raise constitutional issues by favoring in-state headquartered taxpayers over out-of-state companies.

TECHNICAL INFORMATION CONTACT: 

Mary Bernard
Director
Ryan
401.272.3363
mary.bernard@ryan.com