Multi-state Income Taxes | Companies expanding into Arizona

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If you have recently expanded your business into this state, or if you’re considering doing so, understanding the cost of apportionment is important to help you accurately report earnings to the IRS and local governments.

• S Corporations
  • Filing Requirements
    • Corporations taxed as S Corporations under Subchapter S of the Internal Revenue Code (IRC) must file Arizona Form 120S. Qualified subchapter S subsidiaries are not treated as entities separate from the parent corporation and would be included on a single Arizona Form 120S filed by the parent S Corporation.
  • Allocation and Apportionment
    • Non-air carriers are allowed to use the Standard apportionment formula which double weights Sales, but they may use the Sales factor only method as well 
    • Cost of performance apportionment
      • Arizona follows the cost of performance rule in sourcing receipts from the performance of services to the state. Gross receipts from the performance of services are sourced to Arizona if the income-producing activity takes place wholly within Arizona or, if the activity took place within and without Arizona, the greatest cost of performing the service occurred within Arizona.

• Partnerships
  • Filing Requirements
    • In Arizona, Form 165 is to be filed for every domestic partnership including syndicates, groups, pools, joint ventures, and every foreign partnership (syndicate, pool, etc.) required to file an Arizona Partnership Income Tax Return.
  • Allocation & apportionment
    • Non-air carriers are allowed to use the Standard apportionment formula which double weights Sales, but they may use the Sales factor only method as well
    • Cost of performance apportionment

• Employees & individual filers
  The following individuals are required to file a 2021 Arizona individual income tax return:

• For residents: You, and your spouse if married filing a joint return, may file Form 140 only if you are full-year residents of Arizona. You must use Form 140 rather than Form 140A or Form 140EZ to file for 2021 if any of the following apply to you:
  • Your Arizona taxable income is $50,000 or more.
  • You received active duty military pay as a member of the U.S. Armed Forces.
  • You received pay for active service as a reservist or a National Guard member.
  • You are making adjustments to income.
  • You itemize deductions.
  • You claim tax credits other than the family income tax credit, the property tax credit, or the credit for increased excise taxes.
  • You are claiming estimated payments.

• For non-residents: File a Form 140NR if you were not an Arizona resident but earned income from an Arizona source in 2021.

Keeping a handle on these different laws and tax implications might be difficult for your staff members but can be accomplished by outsourcing a CPA. Allow an expert who deals with business structuring, accounting, and taxation regularly set up accounting software to factor in applicable tax laws for each US state.

Fusion CPA recently expanded into new states bringing us firsthand experience and knowledge. We have a team of certified public accountants who are highly skilled in handling multistate taxes. Our team of professionals understands the federal and state laws in various states and jurisdictions.