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Costs of Performance, Market-Based Approach
By Jason Watson, CPA
Posted Monday, October 18, 2021
Prior to Al Gore inventing all the internets, most states used the costs of performance as the method to determine nexus. If your butt was in Colorado and you provided a service to people in California, the costs of performing the service would be in Colorado and therefore you would not have nexus to California. You would only be subjected to Colorado income taxes.
Given the latest Bloomberg survey, there is a growing minority of states that are using the market-based approach. This can be loosely defined as the assignment of revenue based on the location of either
- the service provider’s customers, or
- where the customers received benefit from the service provided.
Consider a web server. As of 2016, 38 states plus the District of Columbia and New York City would consider a web server physically located in their taxing jurisdiction as enough of a presence to find income tax nexus. And most would find sales tax nexus as well. Wow. 38 is a high number, and it is old.
There is an executive summary for 2018 available from Bloomberg, and it is only 20 pages (nice!)-
Taxpayer's Comprehensive Guide to LLCs and S Corps 2023-2024 Edition
This KB article is an excerpt from our 400+ page book (some picture pages, but no scatch and sniff) which is available in paperback from Amazon, as an eBook for Kindle and as a PDF from ClickBank. We used to publish with iTunes and Nook, but keeping up with two different formats was brutal. You can cruise through these KB articles online, click on the fancy buttons below or visit our webpage which provides more information at-