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formulary apportionment
Formulary apportionment is a method of allocating profit earned (or loss incurred) by a corporation or corporate group to a particular tax jurisdiction in which the corporation or group has a taxable presence. It is an alternative to separate entity accounting, under which a branch or subsidiary within the jurisdiction is accounted for as a separate entity, requiring prices for transactions with other parts of the corporation or group to be assigned according to the arm's length standard commonly used in transfer pricing. In contrast, formulary apportionment attributes the corporation's total worldwide profit (or loss) to each jurisdiction, based on factors such as the proportion of sales, assets or payroll in that jurisdiction. When applied to a corporate group, formulary apportionment requires combined reporting of the group's results. The parent and all of its subsidiaries are viewed as though they were a single entity (''unitary combination''), and the method is then also known as ''worldwide unitary taxation''. In the US, most states have adopted water's edge combined reporting which restricts the taxable group to just US domestic corporations and excludes "overseas business organization", i.e., unitary foreign affiliates and foreign parents.
==In domestic taxation==
Formulary methods are used in both the United States and Canada to apportion income of corporations between the sub-national jurisdictions in which they operate. In many U.S. states formulary apportionment is also used to apportion the combined income of a related group of companies. Tax in each US state is thus assessed based on the unitary combination of all related entities. The related entities included in the unitary combination may be worldwide entities or only entities within the United States, depending on the state. The latter is known as water's edge combined reporting. Worldwide unitary combined reporting was first approved by the US Supreme Court in 1983 in Container Corp. v. Franchise Tax Board (CA) by a vote of 5-3 (Justice Stevens did not participate). The court re-visited worldwide combined reporting in 1994 in Barclays Bank v. Franchise Tax Board (CA) and Colgate-Palmolive v. Franchise Tax Board (CA) and again approved its use by California but this time by larger majorities. The votes were 7-2 and 9-0, respectively.
The use of formulary apportionment in the United States dates back to the late 19th century. At that time, there was no state or federal corporate income tax, but the states did assess property and capital stock taxes. With the growth of the transcontinental railroads, state taxation authorities faced companies which had not just immovable property (tracks) but also non-trivial movable property (rolling stock) operating across state lines. The property value of a company assessable to state tax was thus assessed by examining the proportion of value of railway lines within the state, and then taking that proportion of the company's total value (including the movable property) as the portion of value located within a certain state. When Wisconsin adopted a state income tax in 1911, it also used formulary apportionment (based on property, cost of manufacture, and sales), pointing to the impracticality of otherwise calculating separate accounts for companies operating in multiple states.
By the mid-20th century, the "Massachusetts Formula" had become a commonly used standard of formulary apportionment. The formula placed an equal weight on three factors: group sales, payroll, and property within each jurisdiction.〔 Out of the forty-four states (plus one more jurisdiction, the District of Columbia) which imposed a corporate income tax in 1978, all but Iowa used the Massachusetts Formula.〔; see also ''Moorman Mfg. Co. v. Bair'' ((437 US 267 ))〕 Iowa's formula ignored payroll and property, looking solely at sales; the constitutionality of this formula was challenged in the ''Moorman'' case in Iowa, and it was held invalid by a trial court under the Due Process Clause of the Fourteenth Amendment as well as the Commerce Clause of Article One; however, the Iowa Supreme Court reversed the trial court in 1978. This marked the beginning of a trend towards increasing weight on sales at the expense of the other two factors; by 2004, there were only twelve states still using an equally weighted formula.〔
抄文引用元・出典: フリー百科事典『 ウィキペディア（Wikipedia）』
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