Apportionment is how states choose to calculate your business income.  It’s how you figure out how much is taxed by each state.  The problem is the states don’t all get together and decide on one method.  Each one picks their own apportionment methods.  For a C Corporation it’s very possible that you could do business in 5 states and have apportionment percentages of 25, 25, 30, 20, 35, for a total of 135% of your income being taxed by the various states.  It’s also quite possible you could be doing business in 5 states and end up with apportionment that looks like 50, 2, 3, 2, 3 for a 60% total.  It’s all over the board.

For pass-through entities, all the business income is going to end up being taxed in the resident state of the individual and then a credit allowed for taxes paid to other states so the total income apportioned doesn’t make as big a difference.

Generally states are going to more of a sales-based apportionment system.  In recent years MN has been phasing in a new apportionment system which more heavily weights sales, while reducing the weighting of payroll and property apportionment.  Some states like IA, IL, NE, and WI have already gone to 100% sales apportionment.

Sales, payroll and property are the big 3 when it comes to apportionment.  Some states weight each equally, but more and more states are double or triple weighting the sales, or even changing to a 100% sales apportionment system.  MN has changed over the past few years and is now at 93% sales apportionment for 2012, on their way to 100% for the 2014 tax year. 

So what is the point in changing to sales-based apportionment factor?  The goal is to snag more taxes from outstate companies and less from the instate job producers.  For example, Best Buy has their headquarters in MN but they have stores presumably in all 50 states.  By having the headquarters in MN the apportionment for property and payroll would be higher than the states that have no corporate offices.  That would increase the tax that Best Buy needs to pay in MN.  By going to a 100% sales based apportionment, the MN apportionment for Best Buy will decrease and less tax will be paid.  For companies based outside of MN, like a Home Depot that only have sales in MN, their MN apportionment is increasing so their tax bill will increase.