Every state – with the exception of three states – has a form of business income tax including corporate income tax, franchise tax, or gross receipts tax. The extent (if any) that a Company will need to pay additional State business income tax will depend on three factors. These factors include the percentage of sales, property, or payroll the Company has in a particular state. States have different policies for how a Company’s net income is allocated across these three factors. For example, Alabama has a 3-factor formula where it equally weights sales, property, and payroll in the State. On the other hand, Nebraska has allocates 100% into sales. States with an extra weighting on sales are attractive to capital intensive industries. These industries tend to have a lot of payroll and property in a state with most of their sales generated from other states.
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