TaxAnalysts – State Tax Notes (February 26, 2025): Single-sales-factor apportionment has significant drawbacks, and taxpayers shouldn’t be shy in seeking alternative apportionment when state rules prove distortionary, according to tax attorneys. Although single-sales-factor apportionment has been adopted by the majority of states that tax corporate income, the method represents a potentially discriminatory tax policy, and its tendency to cause distortion continues to be a problem, said panelists on a February 20 panel at the American Bar Association’s 2025 Midyear Tax Meeting.

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Marty Dakessian of Dakessian Law noted that there were many unsuccessful legislative attempts to transition California to mandatory single-sales-factor apportionment before voters approved it in 2012 under Proposition 39. He said lawmakers made it clear that the switch was not to provide a fair representation of taxpayers’ presence and activity in the state, but was intended to specifically reward in-state investments and bolster revenue. Proponents of those bills were “very open about this being a protectionist measure, that this was going to punish out-of-state businesses,” he said. “They didn’t say it quite that way, but what they said is ‘No in-state business will pay more in tax. The burden will be borne by out-of-state companies, it’s going to raise X amount of dollars, and we’re doing this because we want to protect California businesses.’”

“You will rarely see . . . a greater admission in any legislative committee analysis, that something has discriminatory intent,” Dakessian said.

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Dakessian noted that Justice Harty Blackmun’s disset in Moorman had also argued in favor of three-factor apportionment. “He refers to single-factor formulas as relics of the early days of state income taxation, and says that the three-factor formula was an inevitable improvement.”

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