New Hampshire Enacts Market-Based Sourcing

New Hampshire enacted market-based sourcing for sales of intangible property for the business profits and business enterprise taxes. The changes take effect January 1, 2021 and apply to tax periods ending after 2021.

Adoption of Market-Based Sourcing

New Hampshire will source sales of intangibles to the state if the business organization’s or enterprise’s market is in New Hampshire.

A taxpayer’s market for sales is in New Hampshire if the receipts are from:

  • the sale, rental lease or license of property in New Hampshire;
  • the rental, lease or license of tangible personal property located in New Hampshire;
  • a service delivered to a location in New Hampshire;
  • the sale, rental, lease or license of intangible property, if the property is used in New Hampshire;
  • interest income, if the debtor or encumbered property is in New Hampshire;
  • dividend income, if the business organization’s commercial domicile is in New Hampshire; and
  • other income derived from sources in New Hampshire.

When New Hampshire cannot determine the states of assignment it will approximate the states.

Throwout Rule

New Hampshire also adopted a throwout rule.

New Hampshire’s rule excludes a sale from the denominator if:

  • the taxpayer is not taxable in the state the sale is assigned to; or
  • if the state cannot be determined or approximated.

New Hampshire’s Current Costs-of-Performance Sourcing

New Hampshire currently sources intangibles to New Hampshire if:

  • the income producing activity is performed in New Hampshire; or
  • the income producing activity is performed both in and outside New Hampshire and a greater proportion of the income-producing activity is performed in New Hampshire than in any other state based on costs of performance.

New Hampshire attributes services to the state if the activity:

  • is completely performed in New Hampshire; or
  • the service is performed both in and outside New Hampshire and a greater proportion of the costs directly associated with performing the service is incurred in New Hampshire.

States that Have Adopted Market Based Sourcing

Several more states have chosen to adopt market-based sourcing in the past year. These include:

In total, 30 states have now adopted market-based sourcing. Many of these states have adopted throwout rules. Throwout rules generally take two forms, either the rule excludes sales from:

  • the numerator and denominator; or
  • the denominator, like New Hampshire has enacted.

Possible Future Changes

The law also establishes a committee to:

  • study apportionment under the business profits tax; and
  • track other states’ laws and legislation about market-based sourcing.

New Hampshire based the enacted law on the recommendation of a past committee. That committee was also tasked with studying apportionment under the business profits tax. The committee recommended some form of market-based sourcing. But it did not rule out moving New Hampshire to single sales factor apportionment.

The current committee must report its results by November 1, 2020.

By Andrew Soubel, J.D.

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