What is the approach of a multistate corporation regarding income?

A multistate corporation engages in business operations across different states, which requires it to navigate various tax obligations and regulations. The correct approach for such corporations is to allocate nonbusiness income and apportion business income among the states where they operate. This is essential because states taxing corporations often have rules that differentiate between business and nonbusiness income.

Business income is typically considered to be earned from the corporation's trade or business activities, and states use formulas to apportion this income based on factors like sales, payroll, and property in that state. Nonbusiness income, in contrast, is generally allocated to the state of residence or where the income is generated without requiring apportionment. This method ensures that multistate corporations pay taxes fairly based on the activities and income generated within each state, complying with the laws applicable to their operations.

Incorporating in multiple states or limiting sales to one state does not represent a practical approach for a corporation trying to optimize its tax positions while operating in multiple jurisdictions. Keeping all earnings in the state of incorporation would also contradict the nature of a multistate corporation, which by definition operates across state lines and generates income in various locations. Therefore, the process of allocating and apportioning income is critical for compliance with multist