The Tax
Lawyer
THE STATE AND LOCAL TAX EDITION
VOL. 67, NO. 4 · SUMMER 2014
Published by American Bar Association Section of Taxation in Collaboration with
the Georgetown University Law Center
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AMERICAN BAR ASSOCIATION SECTION OF TAXATION 2013-2014
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ii
The Tax
Lawyer
THE STATE AND LOCAL TAX EDITION
VOL. 67, NO. 4 · SUMMER 2014
CONTENTS
ARTICLES
A Conceptual Analysis of Nexus in State and Local Taxation
Rick Handel............................................................................................ 623
The Economic Substance Doctrine in Federal and State Taxation
William Joel Kolarik II & Steven Nicholas John Wlodychak....................... 715
A Primer on Income Tax Compliance for Multistate Pass-Through
Entities and Their Owners
William C. Brown................................................................................... 821
Welcome to the Amazon: Leading Online Retail from Local Tax
Avoidance into Your Backyard
Sherry Tehrani......................................................................................... 875
Taxing Manufactured Homes
Ann M. Burkhart.................................................................................... 909
COMMENT
Joyce v. Finnigan: Adoption of the “Best” Approach in Hopes
of Some Uniformity
Lisandra Ortiz........................................................................................ 979
NOTE
Satellite Taxation: The Dormant Commerce Clause in
DirectTV, Inc. v. Levin
Emily Prezioso....................................................................................... 1009
INDEX
Volume 67, Numbers 1, 2, 3, and 4..................................................... 1029
iii
TAXING MANUFACTURED HOMES
909
Taxing Manufactured Homes
ANN M. BURKHART*
Abstract
Manufactured homes (commonly called mobile homes) are the most
important form of unsubsidized affordable housing in this country. They
are home to more than 22 million people. The residents are predominantly
lower-income, including a large proportion of older people. Yet the costs of
purchasing and living in a manufactured home are unnecessarily high because
state laws incorrectly categorize the great majority of them as personal property, rather than as real property. As a result, a purchaser must finance the
purchase with a chattel loan, rather than with a mortgage loan. Chattel loans
have significantly higher interest rates and shorter terms than mortgage
loans and, therefore, require substantially larger monthly payments than a
mortgage loan.
To help make mortgage financing available, the Uniform Law Commission
has promulgated the Uniform Manufactured Housing Act, which provides a
process for converting a manufactured home from personal to real property.
The Act also is designed to create legal parity between the owners of manufactured and site-built homes in matters such as homestead protections, marital
property rights, and creditor’s remedies. Complete legal parity includes tax
parity. However, before creating that parity, understanding the consequences
is essential.
The sale and ownership of a manufactured home potentially implicates
three different types of tax—taxes on the sale and the financing of the home
and the annual ad valorem tax. The tax rates, assessment ratios, exemptions,
and credits often differ for personal and real property, and different government entities normally receive the tax depending on whether it is assessed
against personal or real property. Changing the property classification also
implicates another government charge. If the home is classified as personal
property, 42 states require the purchaser to acquire a certificate of title, as
is required for a car. In contrast, a certificate is not required if the home is
classified as real property. Eliminating the need for a certificate of title also
eliminates the fees to obtain and to cancel it.
To assess the tax consequences of changing a manufactured home’s legal
classification from personal to real property, this Article compares the amount
of taxes on a manufactured home that is classified as personal property with
the taxes on the home if it is classified as real property. The Article analyzes the
* Curtis Bradbury Kellar Professor of Law, University of Minnesota Law School. With
thanks to Professor Kristin Hickman for her insightful review.
Tax Lawyer, Vol. 67, No. 4
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910
SECTION OF TAXATION
relevant tax laws of all 50 states. The comparison also includes the certificate
of title fees that a manufactured home purchaser incurs if the home is classified as personal property. The results may surprise you!
I. Introduction
Manufactured homes (commonly called mobile homes) constitute seven
percent of the national housing stock and are home to 22 million people.1
These homes are the most important form of unsubsidized affordable housing
in this country.2 The median monthly housing cost for a manufactured home
is substantially less than for owners of other types of housing and, surprisingly, even for tenants. The median monthly housing cost for homeowners is
$1,008. For tenants, it is $845. For manufactured home residents, it is $545.3
Moreover, home ownership, with its attendant benefits, is far more achievable for lower-income households when the home is manufactured, rather
than site-built. In 2010, the average cost of a new manufactured home was
$62,800, while the average cost for a new site-built home was $206,560.4 As
a result, the median annual income for manufactured home households is
$27,984, compared to $58,919 for all owner-occupied households.5
The lower cost to own and live in a manufactured home also makes it a
popular housing choice for older people. The median age for a manufactured
home resident is 52 years. One-quarter of the residents are 65 years old or
more, and ten percent are 75 years old or more.6
Despite the economic importance of manufactured homes for people of
limited means, the great majority of states make ownership far more expensive by classifying these homes as personal property rather than as real property.7 When the home is classified as personal property, a purchaser must
finance the purchase with a chattel loan rather than with a mortgage loan.
1
U.S. Census Bureau, American Housing Survey for the United States: 2011
4 tbl.C-01-AH (2013), available at http://www.census.gov/programs-surveys/ahs/data/2011/
h150-11.html [hereinafter American Housing Survey]; The Impact of Dodd-Frank’s Home
Mortgage Reforms: Consumer and Market Perspectives: Hearing Before the Subcomm. on Fin.
Insts. & Consumer Credit of the H. Comm. on Fin. Servs., 112th Cong. 10 (2012) (statement
of Tom Hodges, General Counsel, Clayton Homes, on behalf of the Manufactured Housing
Institute).
2 Katherine MacTavish, Michelle Eley & Sonya Salamon, Housing Vulnerability Among Rural
Trailer-Park Households, 13 Geo. J. on Poverty L. & Pol’y 95, 95 (2006); Corp. for Enter.
Dev., Facts About Manufactured Housing, CFED.ORG, last accessed July 12, 2013, http://
cfed.org/programs/innovations_manufactured_homes/about_manufactured_housing/facts_
about_manufactured_housing/.
3 American Housing Survey, supra note 1, at 29 tbl.C-10-AO.
4 U.S. Census Bureau, Cost & Size Comparisons: New Manufactured Homes and
New Single-Family Site-Built Homes (2013), available at http://www.census.gov/construction/mhs/pdf/sitebuiltvsmh.pdf [hereinafter Cost & Size Comparisons].
5 American Housing Survey, supra note 1, at 27 tbl.C-09-AO.
6 Id. at 23 tbl.C-08-AO.
7 Ann M. Burkhart, Bringing Manufactured Housing into the Real Estate Finance System, 37
Pepp. L. Rev. 427, 428 (2010).
Tax Lawyer, Vol. 67, No. 4
TAXING MANUFACTURED HOMES
911
Chattel loans have significantly higher interest rates and shorter terms than
mortgage loans and, therefore, require substantially larger monthly payments than a mortgage loan.8 To help make mortgage financing available, the
Uniform Law Commission recently promulgated the Uniform Manufactured
Housing Act,9 which provides a process for converting a manufactured home
from personal to real property. The Act also is designed to create legal parity
between the owners of manufactured and site-built homes in matters such
as homestead protections, marital property rights, and creditor’s remedies.10
Complete legal parity includes tax parity. However, before creating that
parity, understanding the consequences is essential. The sale and ownership of
a manufactured home implicates three different types of tax—the taxes on the
sale and financing of the home and the annual ad valorem tax. The tax rates,
assessment ratios,11 exemptions, and credits often differ for personal and real
property, and different government entities normally receive the tax depending on whether it is assessed against personal or real property. Changing the
property classification also implicates another government charge. If the home
is classified as personal property, 42 states require the purchaser to acquire a
certificate of title, as is required for a car.12 In contrast, the home is not titled
if it is classified as real property. Eliminating the need for a certificate of title
also eliminates the government revenue from the fee to obtain it.
To assess the tax consequences of changing a manufactured home’s legal
classification from personal to real property, this Article compares the taxes
on a manufactured home classified as personal property with the taxes on
the home if it is classified as real property. This comparison also includes the
title fees that a manufactured home purchaser incurs if the home is classified as personal property. To lay the groundwork for this analysis, the Article
first explains why manufactured homes should be classified and taxed as
real property.
II. Modern Manufactured Homes
The earliest forebear of the manufactured home was the travel trailer. These
trailers came into existence with the advent of cars and car travel. Some travelers built or bought a two-wheeled trailer to hitch to the back of the car to
8 Howard Banker & Robin LeBaron, Corp. for Enter. Dev., Toward a Sustainable
and Responsible Expansion of Affordable Mortgages for Manufactured Homes 10,
46 (2013), available at http://cfed.org/knowledge_center/resource_directory/cfed_publications/directory/toward_a_sustainable_and_responsible_expansion_of_affordable_mortgages_
for_manufactured_homes.
9 Unif. Manufactured Hous. Act, 7A U.L.A. 54 (Supp. 2013).
10 See id. at 54; Burkhart, supra note 7, at 447-53.
11 The “assessment ratio” is the portion of the property’s value against which a tax is assessed.
For example, a tax may be assessed on 65% of the property’s fair market value. Black’s Law
Dictionary 134 (10th ed. 2014).
12 R. Wilson Freyermuth, Legal and Regulatory Issues in the Creation, Perfection, and Enforcement of Security Interests in Manufactured Homes, in ALI-ABA Course of Study: Commercial Lending and Banking Law 263, 267 (2009).
Tax Lawyer, Vol. 67, No. 4
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SECTION OF TAXATION
carry luggage, camping equipment, and other gear.13 State law appropriately
classified these trailers as personal property.
When the Great Depression of the 1930s threw many people into poverty, they began to use travel trailers as homes.14 This movement accelerated with the substantial housing shortages during and after World War II
because manufactured homes were faster and cheaper to build than site-built
homes.15 Understandably, many manufactured home occupants wanted more
living space than the travel trailer afforded. In response, manufacturers began
increasing the size of these homes, which made them increasingly more difficult to move.16
Today, contrary to popular misconception, manufactured homes normally are not mobile. Like site-built homes, they generally are not moved
after being sited17 because of the expense and substantial potential for damage.18 Although the homes are built with wheels attached, the wheels usually
are removed after the home has been sited.19 Therefore, the key difference
between manufactured and site-built homes is not mobility but whether the
home is built in a factory or on site. As a reflection of this modern reality,
the national trade association changed its name in 1975 from the Mobile
Home Manufacturers Association to the Manufactured Housing Institute.20
Similarly, Congress amended the federal housing laws in 1980 to substitute
the term “manufactured home” for “mobile home.”21
Congress also enacted legislation that directed HUD to promulgate construction, safety, and installation standards for manufactured homes to make
13 Arthur D. Bernhardt, Building Tomorrow: The Mobile/Manufactured Housing
Industry 29 (1980); John Fraser Hart, Michelle J. Rhodes & John T. Morgan, The
Unknown World of the Mobile Home 6 (2002).
14 Bernhardt, supra note 13, at 30.
15 Id.; Hart et al., supra note 13, at 11.
16 William Apgar, Allegra Calder, Michael Collins & Mark Duda, Neighborhood
Reinvestment Corp., An Examination of Manufactured Housing as a Communityand Asset-Building Strategy 2 (2002), available at http://www.jchs.harvard.edu/publications/communitydevelopment/W02-11_apgar_et_al.pdf.
17 See American Housing Survey, supra note 1, at 8 tbl.C-01-AO (presenting data comparing occupied housing units, including on manufactured homes, in the United States).
18 Carolyn L. Carter, Odette Williamson, Elizabeth DeArmond & Johnathan
Sheldon, AARP Pub. Policy Inst., Manufactured Housing Community Tenants:
Shifting the Balance of Power 2 (2004), available at http://assets.aarp.org/rgcenter/consume/d18138_housing.pdf.
19 Apgar et al., supra note 16, at 5; James Milton Brown & Molly A. Sellman, Manufactured Housing: The Invalidity of the “Mobility” Standard, 19 Urb. Law. 367, 376 (1987).
20 Julia O. Beamish, Rosemary C. Goss, Jorge H. Atiles & Youngjoo Kim, Not a Trailer Anymore: Perceptions of Manufactured Housing, 12 Hous. Pol’y Debate 373, 374 (2001).
21 Housing and Community Development Act of 1980, Pub. L. No. 96-399, § 308, 94 Stat.
1614, 1640-41 (1980).
Tax Lawyer, Vol. 67, No. 4
TAXING MANUFACTURED HOMES
913
them safer and more durable.22 As a result of the regulations,23 the construction
quality of manufactured homes now approximates that of site-built homes,24
and they have the same deterioration rate.25 Moreover, a manufactured home
that is sited on land owned by the homeowner appreciates in value at the
same rate as a site-built home on land owned by the homeowner.26
In addition to construction quality, manufactured homes can have many
of the same features as site-built homes. A manufactured home can have
two stories, multiple bedrooms and bathrooms, and an attached garage. The
home’s interior can include a fireplace, swimming pool, vaulted ceiling, and
sauna. Its exterior can be stucco or any other material used on a site-built
home. Many manufactured-home rental communities have pools, community centers, and other amenities.27
Manufactured homes cost so much less than site-built homes not because
the construction and finish quality is substantially inferior but because manufacturing a home is more efficient than building it on site. Manufacturing a
home in a factory enables use of assembly-line methods, deliveries of large
quantities of materials to one site, and protection from weather conditions
that stop production and damage materials. Additionally, all manufactured
homes are built according to HUD’s national construction code, while sitebuilt homes are subject to a variety of local construction codes.28
Despite the functional equivalence of manufactured and site-built homes,
state laws still classify most manufactured homes as personal property. Seventyseven percent of manufactured homes are titled as personal property.29 This
figure is particularly surprising because 70% of manufactured homes are sited
on private land rather than in a manufactured-home community.30 It also is
22 See National Manufactured Housing Construction and Safety Standards Act, 42 U.S.C.
§§ 5401-5426 (2006 & Supp. IV 2010).
23 Mobile Home Construction and Safety Standards, 24 C.F.R. § 3280 (2013); Model Manufactured Home Installation Standards, 24 C.F.R. § 3285 (2013).
24 U.S. Dep’t of Hous. & Urban Dev., Factory and Site-Built Housing: A Comparison for the 21st Century 14 (1998); Diane R. Suchman, Manufactured Housing: An
Affordable Alternative 13 (1995).
25 Thomas P. Boehm & Alan Schlottmann, Is Manufactured Owned Housing a
Good Alternative for Low-Income Households? Evidence from the American Housing Survey 10 Cityscape: J Pol’y Dev. & Res. 159, 163 (2008); Sean West, Manufactured
Housing Finance and the Secondary Market, 2 Community Dev. Inv. Rev. 35, 42 (2006).
26 Apgar et al., supra note 16, at 8; Kevin Jewell, Consumers Union Sw. Reg’l Office,
Manufactured Housing Appreciation: Stereotypes and Data 12 (2003), available at
http://consumersunion.org/research/manufactured-housing-appreciation-stereotypes-anddata/.
27 Apgar et al., supra note 16, at 7; Hart et al., supra note 13, at 25; Michael Collins,
Millenial Hous. Comm’n, Pursuing the American Dream: Homeownership and the
Role of Federal Housing Policy 40 (2002), available at http://govinfo.library.unt.edu/
mhc/papers/collins.pdf; Suchman, supra note 24, at 9.
28 Carter et al., supra note 18, at 2; Suchman, supra note 24, at 2.
29 Cost & Size Comparisons, supra note 4.
30 Id.
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SECTION OF TAXATION
surprising because mobility normally is the key legal factor in classifying an
object as real or personal property.
When a consumer purchases a manufactured home from a dealer, the
home should be classified as real property from the time of sale because the
consumer is purchasing it for use as a home at a fixed location. In fact, the
consumer usually does not acquire title to the home or pay for it until it has
been installed on the consumer’s owned or leased land. The dealer is willing to
defer receipt of the purchase price until after delivery and installation primarily because it does not have a choice. The lender that is financing the purchase
wants to ensure that the loan is adequately secured, so the lender conditions
its funding obligation on proper installation of the home. If it advanced the
loan proceeds sooner, the loan could be substantially under-secured if the
home is damaged during transport or installation, which is not uncommon.31
In recognition of this reality, some states allow a manufactured home to be
classified as real property at the time of sale.32 However, other states classify
the home as personal property at the time of sale and require the purchaser
to acquire a certificate of title for it, typically through the Department of
Motor Vehicles or a similar agency. To convert the home to real property, the
purchaser must complete an administrative process to cancel the title. In all
but one state, the purchaser must pay a fee to obtain the certificate of title or
to cancel it or both.33
Changing existing laws to make manufactured homes real property at the
time of sale can have important economic consequences for consumers, manufactured-home retailers, and the government. The next section examines
these consequences.
III. Economic Impacts of a Manufactured Home’s
Property Classification
As noted above, three types of taxes and two types of titling fees potentially
are affected by the classification of a manufactured home as real or personal
property. The home sale and the financing for the sale may be taxed differently depending on whether the home is real or personal property. Most
states also impose an annual ad valorem tax on real and personal property.
The rates, assessment ratios, exemptions, and credits vary tremendously from
state to state and within a state for all three tax types. The intrastate variation
is largely attributable to local government taxation because counties, cities,
and other local government entities often assess very different amounts than
their counterparts throughout the state. This study uses the state-wide average tax rate.
31 Apgar et al., supra note 16, at 11; Lew Sichelman, Manufactured Called “Opportunity,”
Nat’l Mortgage News, Feb. 26, 2001.
32 E.g., Colo. Rev. Stat. § 38-29-114(2) (2013); Idaho Code Ann. § 63-304 (2013); Tex.
Occ. Code Ann. § 1201.2055 (2013).
33 Burkhart, supra note 7, at 454.
Tax Lawyer, Vol. 67, No. 4
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TAXING MANUFACTURED HOMES
The tax amounts in the following chart are based on a consumer’s purchase from a dealer of a new manufactured home for use as the consumer’s
residence. The purchase price is $62,800, of which $60,000 is financed. The
chart compares the average taxes and fees that a purchaser must pay if the
home is personal property with those for a home that is real property. The
citations for the relevant legal authorities are in the Appendix to this Article.
The “Total” column shows that the total tax liability is greater for a home
classified as personal property in virtually every state. In many states, the
total tax is much greater for personal property, such as in Georgia ($4,175),
Nebraska ($4,125), New Mexico ($4,566), and Washington ($4,910). The
only exceptions are Pennsylvania, where the total tax for real property is $11
more than for personal property, and South Carolina, though only in limited
circumstances. An analysis of each tax type follows the chart.
State
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
Florida
Georgia
Property
Type
Tax on
Sale
Personal
$1,263
Real
Ad
Tax on
Valorem
Financing
Tax
$90
$41
Title
Fees
TOTAL
$43
$1,437
$258
$3
$90
$165
N/A
$1,092
0
Varies
$200
0
0
0-$1,260
N/A
$3,722
0
$590
$7
$2
0
$590
N/A
$592
$3,309
0
$227
$26
$3,562
$207
0
$227
N/A
$434
$2,967
0
$1,158
$112
$4,237
$69
0
$1,158
N/A
$1,227
$2,442
0
$376
$12
$2,830
$6
0
$376
N/A
$382
$2,163
0
$1,113
N/A
$3,276
$628
0
$1,113
N/A
$1,741
Personal
$2,355
0
$1,770
$25
$4,150
Real
$1,570
0
$1,770
N/A
$3,340
Personal
$3,809
$210
$50
$118
$4,187
$439
$330
$568
N/A
$1,337
$4,314
0
$695
$54
$5,063
$68
$180
$640
N/A
$888
Personal
Real
Personal
Real
Personal
Real
Personal
Real
Personal
Real
Personal
Real
Real
Personal
Real
Tax Lawyer, Vol. 67, No. 4
$4,319
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SECTION OF TAXATION
State
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Property
Type
Tax on
Sale
Personal
$2,152
Real
Ad
Tax on
Valorem
Financing
Tax
0
0
Title
Fees
TOTAL
N/A
$2,152
$242
$62
0
$180
N/A
$2,084
0
$406
$4
0
0
$406
N/A
$406
$5,193
0
$1,578
$95
$6,866
$94
0
$1,578
N/A
$1,672
$2,857
0
$582
$25
$3,464
0
0
$319
N/A
$319
Personal
$628
0
$970
$20
$1,618
Real
$100
0
$970
N/A
$1,070
$2,886
0
$947
$20
$3,853
0
$156
$947
N/A
$1,103
$3,768
0
$819
$23
$4,610
$63
0
$819
N/A
$882
$2,553
0
0
$34
$2,587
0
0
0
N/A
0
$1,570
0
$707
N/A
$2,277
$277
0
$707
N/A
$984
Personal
$2,260
0
$834
0
$3,094
Real
$1,267
0
$834
N/A
$2,101
Personal
$3,925
0
$864
N/A
$4,789
$287
0
$864
N/A
$1,151
$3,768
0
$1,040
$180
$4,988
$554
0
$1,040
N/A
$1,594
$2,269
0
$488
$20
$2,777
$207
$138
$488
N/A
$833
$1,884
0
$1,169
$21
$3,074
0
0
$527
N/A
$527
$2,891
0
$571
$22
$3,484
0
0
$571
N/A
$571
Personal
Real
Personal
Real
Personal
Real
Personal
Real
Personal
Real
Personal
Real
Personal
Real
Real
Personal
Real
Personal
Real
Personal
Real
Personal
Real
$2,494
Tax Lawyer, Vol. 67, No. 4
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TAXING MANUFACTURED HOMES
State
Montana
Nebraska
Nevada
New
Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
Property
Type
Tax on
Sale
Ad
Tax on
Valorem
Financing
Tax
0
$510
Title
Fees
TOTAL
$20
$530
Personal
0
Real
0
0
$510
N/A
$510
$4,251
0
$1,194
$15
$5,460
$141
0
$1,194
N/A
$1,335
$2,856
0
$688
$80
$3,624
$283
0
$688
N/A
$971
Personal
0
0
N/A
N/A
Real
0
0
$1,252
N/A
$1,252
$3,406
0
$1,186
$60
$4,652
$252
0
$1,186
N/A
$1,438
$4,543
0
$539
$23
$5,105
0
0
$539
N/A
$539
$3,727
0
$1,162
$175
$5,064
Real
$252
$750
$1,162
N/A
$2,164
Personal
$450
0
$552
$40
$1,042
Real
$126
0
$552
N/A
$678
$1,460
0
$884
$10
$2,354
0
0
$884
N/A
$884
$2,676
0
$1,178
$15
$3,869
$188
0
$1,178
N/A
$1,366
$1,020
0
$768
$16
$1,804
$942
$65
$641
N/A
$1,648
Personal
0
0
$987
$95
$1,082
Real
0
0
$987
N/A
$987
Personal
$1,851
0
$847
$22
$2,720
Real
$1,884
0
$847
N/A
$2,731
Personal
$176
0
$1,078
N/A
$1,254
Real
$176
0
$1,078
N/A
$1,254
Personal
Real
Personal
Real
Personal
Real
Personal
Real
Personal
Personal
Real
Personal
Real
Personal
Real
Tax Lawyer, Vol. 67, No. 4
918
SECTION OF TAXATION
State
South Carolina
Tax on
Sale
Title
Fees
TOTAL
Personal
$1,116
$300
0
0
$744
$65
$1,925
$1,109
$809
$233
0
$744
N/A
$977
$2,512
0
$910
$5
$63
0
$910
N/A
$2,258
$66
$477
$5
$232
$66
$477
N/A
$775
Personal
$1,581
0
$1,136
$110
$2,827
Real
$1,581
0
$1,136
$55
$2,772
Personal
$2,210
0
$473
$6
$2,689
0
0
$473
N/A
$473
$2,637
0
$1,155
N/A
$3,792
$314
0
$1,155
N/A
$1,469
$2,512
0
$584
$10
$3,106
$272
$150
$584
$5,520
0
$739
$803
0
$739
N/A
$93
$193
N/A
$1,006
$6,352
$6,452
$1,542
$1,904
0
$433
$20
$2,357
$218
0
$433
N/A
$651
$2,216
0
$1,295
$63
$3,574
$188
0
$1,244
N/A
$1,432
$2,347
0
$379
$9
$2,735
0
0
$379
N/A
Real
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
Ad
Tax on
Valorem
Financing
Tax
Property
Type
Personal
Real
Personal
Real
Real
Personal
Real
Personal
Real
Personal
Real
Personal
Real
Personal
Real
Personal
Real
$3,427
$973
$2,806
$379
A. Tax on Sale
Most states and many local governments tax the sale of personal and real
property, including manufactured homes. Depending on the jurisdiction,
the personal property tax can be a tax on the retail sale of the home (retail
sales tax), a tax on the seller for the privilege of engaging in business (seller
Tax Lawyer, Vol. 67, No. 4
TAXING MANUFACTURED HOMES
919
privilege tax), or a tax on the seller’s gross receipts (gross receipts tax).34 The
tax on real property sales is characterized as a tax on the title transfer.35
The tax on the sale is by far the biggest reason that a manufactured home
purchaser normally pays so much more tax if the home is personal property,
rather than real property. The disparity exists in part because more states tax
personal property sales than real property sales. Forty-seven states tax the
sale of homes classified as personal property, while only 36 states tax real
property sales.
However, the difference in tax rates for personal and real property is a much
greater cause for the disparity. In all but three states,36 the personal property
tax rate exceeds the real estate tax rate and usually by a substantial amount. For
example, the Illinois state-wide average personal property tax rate is 8.27%,
while the real estate tax rate is 0.15%. Similarly, the Washington state-wide
average personal property tax rate is 8.79%, while the real estate tax rate is
1.66%. Such high personal property tax rates can cause the tax on the sale of
a home valued at $62,800 to be as much as $5,520, which constitutes a substantial economic hurdle for a prospective, typically lower-income, purchaser.
To ameliorate the tax’s effect on affordability, many states statutorily limit
the personal property tax on the sale of a manufactured home in a variety
of ways:
Taxed on Less than 100% of Retail Sale Price
• Arkansas (62% of retail sale price)
• Colorado (52%)
• Idaho (55%)
• Indiana (65%)
• Kansas (60%)
• Louisiana (46%)
• Maryland (60%)
• Missouri (60%)
• Nevada (60%)
• New York (70%)
• Utah (55%)
• Vermont (60%)
• West Virginia (50%)
• Wisconsin (65%)
• Wyoming (70%)
34 Charles W. Swenson, Sanjay Gupta, John E. Karayan & Joseph W. Neff, State and
Local Taxation: Principles and Planning 98-100 (2d ed. 2004). Rather than assessing a
sales tax on the sale of a manufactured home, Delaware charges a “motor vehicle document
fee,” which is equivalent to a sales tax.
35 Id. at 17.
36 In Rhode Island and Texas, the tax amounts for real and personal property manufacturedhome sales are the same. In Pennsylvania, the real estate tax exceeds the personal property tax
by $33 because the personal property tax is assessed on only 60% of the sale price.
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SECTION OF TAXATION
Taxed on Dealer’s Cost
• California (75% of dealer’s cost)
• Connecticut (70%)
• Minnesota (65%)
• New Jersey (100%)
• Ohio (100%)
• Pennsylvania (60%)
Taxed on Cost of Materials
• Maine (but must be taxed on at least 50% of sale price)
Taxed at a Lower Rate than Other Personal Property
• Alabama (2% for manufactured homes versus 4% for other sales)
• Mississippi (3% versus 7%)
• North Carolina (2% to maximum of $300 per section versus 4.75%)
• Rhode Island (0.28% versus 7%)
• Tennessee (3.5% versus 7%)
• Virginia (4% versus 5.3%)
Taxed on Less than 100% of Retail Sale Price and at a Lower Rate than Other
Personal Property
• Iowa (5% tax on 20% of sale price versus 6% tax on 100% of
sale price)
• Oklahoma (3.25% tax on 50% of sale price versus 4.5% tax on 100%
of sale price)
• South Carolina (maximum tax of 2% on 65% of sale price, plus
$300, versus 6% on 100% of sale price)
Taxed on Dealer’s Cost and at a Lower Rate than Other Personal Property
• North Dakota (3% tax on dealer’s cost versus 5% tax on retail
sale price)
• Texas (5% tax on 65% of dealer’s cost versus 8.14%)
In addition to making manufactured homes more affordable, the ameliorating tax statutes increase tax parity between manufactured homes and
site-built homes. The builder of a site-built home pays sales tax on building
materials but not on labor. The tax on the building materials is part of the
home’s sale price. In contrast, the manufacturer of a manufactured home
does not pay tax on its purchase of building materials because every state that
taxes personal property sales exempts materials used to manufacture personal
property for retail sale.37 Instead, the purchaser of a new manufactured home
pays the tax. By taxing a manufactured home sale on a percentage of the price
or at a lower rate, states tax, roughly, only the materials and not the labor that
Swenson et al., supra note 34, at 110.
37 Tax Lawyer, Vol. 67, No. 4
TAXING MANUFACTURED HOMES
921
went into manufacturing the home. Maine most directly creates tax parity by
taxing the actual cost of materials, though tax must be paid on at least half
the sales price.
However, even with these types of adjustments, the tax amount is still substantial. A few states have statutorily addressed this problem in one of two
ways. In Vermont, the personal property tax is due if the purchaser finances
the sale with a chattel loan, while the real estate tax is due if the purchaser
finances the sale with a mortgage loan. In this way, an informed and qualified
purchaser can limit the tax amount by financing the home as real property.
A few other states, such as California, Connecticut, and Ohio, have chosen
an alternative route. They impose the personal property tax on the retailer by
characterizing the retailer as the consumer. Though the tax may be incorporated into the retail sale price, the purchaser more readily can finance it as part
of the purchase price, rather than paying cash for it as part of the sale closing
costs. However, while financing the tax may facilitate the sale, it increases the
home’s overall cost because the purchaser will have to pay interest on the tax
as part of the loan principal.
A legislature that wishes to address the affordability issue by reducing the
tax on the sale of a manufactured home has at least two options. One option
is to exempt retail sales of manufactured homes from the sales tax. Many
states exempt sales of other essentials, such as food, clothing, and prescription drugs.38 Although sales taxes represent roughly a third of state and local
governments’ tax revenue,39 exempting manufactured homes would not have
a significant adverse impact because manufactured home sales generate a
miniscule share of this revenue. For example, in Mississippi, which has more
than double the national percentage of households living in manufactured
homes,40 the sales tax on manufactured-home sales was 0.12% of the total
sales tax revenue in 2012.41
Another solution is to tax these homes as real property at the time of sale,
which is an option that Vermont offers. In those states with a real estate
transfer tax, that tax will offset the loss of sales tax revenue, albeit not completely in most states. However, the loss of sales tax will be further mitigated
in many states by the tax on the resale of the home. When a consumer resells
a manufactured home, only seven states42 tax the sale if the home is personal
property, while 36 states tax the sale if the home is real property. Of course,
Id. at 13.
Jeffrey L. Barnett & Phillip M. Vidal, U.S. Census Bureau, State and Local Government Finances Summary: 2010, at 3 (2012), available at http://www2.census.gov/govs/
estimate/summary_report.pdf.
40 Mobile Homes, Percent of Total Housing Units, 2008, U.S. Census Bureau, last accessed
April 1, 2014, http://www.census.gov/compendia/statab/2010/ranks/rank38.html (stating
that manufactured homes constitute 15.2% of the total housing units).
41 Annual Report Fiscal Year 2012, Miss. Dep’t of Revenue, at 80, 82 (Dec. 2012), available
at http://www.dor.ms.gov/docs/AnnualReportFY12.pdf.
42 Delaware, Florida, Michigan, Ohio, Oklahoma, Rhode Island, and Virginia.
38 39 Tax Lawyer, Vol. 67, No. 4
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SECTION OF TAXATION
taxing the home as real property is not a solution in those few states in which
the real property tax exceeds or equals the personal property tax.
In sum, a manufactured-home purchaser almost always pays a substantially
higher tax on the purchase if the home is classified as personal property, rather
than as real property. Although many states have enacted limitations designed
to decrease the difference, the tax amount is still quite high. Moreover, 12
states43 provide no relief, and one state, Delaware, actually taxes manufactured
home sales at almost five times the rate for most other personal property sales.
B. Tax on Financing
When a manufactured-home purchaser finances the purchase and grants a
security interest in the home to the lender, nine states tax the security interest.
Three states44 tax a security interest in personal property; nine states45 tax a
security interest in real property, including all three that tax personal property
security interests. For a $60,000 loan, which is the amount assumed for purposes of this Article, both types of tax are relatively small, except in two states.
The personal property tax and the real property tax in seven states are $210 or
less. However, the real property taxes are more significant in Florida ($330)
and in New York ($750). Nevertheless, in every state that taxes real property
security interests, a manufactured home purchaser will pay less tax on the
purchase if the home is classified as real property because the real property
sale tax is sufficiently smaller than the personal property sale tax.
C. Ad Valorem Tax
Ad valorem taxes, also called property taxes, are annual taxes on the value
of property. They are the largest source of state and local government tax revenue.46 They supply 75% of local governments’ revenue47 and fund a wide variety of local services, such as schools, libraries, parks, and emergency services.48
Converting a manufactured home from personal to real property will have
no effect on the ad valorem taxes in the great majority of states because tax
parity already exists between manufactured and site-built homes in these
states. Every state taxes a real property manufactured home the same as a
site-built home, and 41 states tax a personal property manufactured home
the same as a site-built home. Most of these states statutorily provide that all
manufactured homes, whether classified as real or personal property, are taxed
43 Arizona, Florida, Georgia, Hawaii, Illinois, Kentucky, Massachusetts, Michigan, Nebraska,
New Mexico, South Dakota, and Washington.
44 Alabama, Florida, and Tennessee.
45 Alabama, Florida, Georgia, Kansas, Minnesota, New York, Oklahoma, Tennessee, and
Virginia.
46 Barnett & Vidal, supra note 39, at 3.
47 Id. at 3.
48 Swenson et al., supra note 34, at 127.
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TAXING MANUFACTURED HOMES
923
as real property unless included in a dealer’s inventory.49 In the other states,
the tax is the same for personal property manufactured homes and site-built
homes because they have the same tax rates and assessment ratios.50
Surprisingly, in five of the nine states that tax personal property and real
property homes differently, the personal property taxes are more than the real
property taxes because the personal property home has a higher assessment
ratio or does not get all the deductions available to a real property home, such
as the homestead deduction.51 These states clearly need to amend their tax
laws to change that result. Homeowners should not pay more ad valorem tax
solely because their home is classified as personal property.
The remaining four states also should consider amending their laws to
equalize the taxes between personal property and real property homes. Two of
these states treat personal property manufactured homes like cars and charge
an annual motor vehicle fee or motor vehicle license tax.52 The third state
does not tax personal property,53 and the fourth makes taxation optional with
the local government where the home is sited.54 These laws are inappropriate
because they do not require the owners of personal property manufactured
homes to share the cost of the public services that they enjoy. Like the members of every other household, manufactured-home residents use the schools,
parks, libraries, and other services that ad valorem taxes fund and should share
the cost of them, whether the home is classified as real or personal property.
D. Title Fees
When a consumer buys a new manufactured home that is classified as
personal property, 42 states require the consumer to obtain a certificate of
title for the home. To later convert the home to real property, virtually all
these states require the owner to surrender the certificate. Each of these states,
except one, requires the owner to pay a fee for the title or to surrender it or
49 E.g., Arizona, Arkansas, Colorado, Connecticut, Delaware, Idaho, Illinois, Iowa, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi,
Missouri, Montana, Nebraska, New Hampshire, New Jersey, New Mexico, New York, Pennsylvania, South Carolina, South Dakota, Tennessee, Utah, Vermont, Virginia, and Washington. A few states, including Illinois, Massachusetts, Michigan, and New Jersey, assess taxes or
fees on a manufactured home in a manufactured-home park or community in a different manner. These assessment amounts are not included in the tax chart in the text, because the chart is
intended to compare similarly situated homes that could be taxed as real or personal property.
The special assessment statutes for homes in communities or parks eliminate that possibility.
The statutes are included in the Citation Appendix.
50 E.g., Nevada, North Carolina, Ohio, and Texas.
51 Georgia, Indiana, Mississippi, Oklahoma, and Wisconsin. A number of states have special
homestead deductions for particular types of owners, such as the elderly or disabled. The tax
chart in the text includes only homestead deductions that are available to all homeowners.
52 Alabama and Florida.
53 Hawaii.
54 Alaska.
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SECTION OF TAXATION
both. In most states, the fees are relatively small. In 25 states, they are $25 or
less, but they can be as much as $200.
Regardless of the amount, these fees unnecessarily add to the expense of
purchasing a manufactured home. The certificate-of-title requirement is a
remnant of an era when these homes were mobile and appropriately were
titled like motor vehicles. This requirement is inappropriate today because a
manufactured home is unlikely to be moved after being sited.55 Moreover, the
often cumbersome process to surrender the title and convert the home to real
property56 has been a significant impediment for many homeowners. Despite
the advantages of converting the home to real property,57 77% are classified as
personal property.58 This system needs to be reformed by classifying all manufactured homes as real property like their site-built counterparts.
IV. Conclusion
In most states, classifying a manufactured home as real property will not
have significant tax consequences because tax parity already generally exists
between manufactured and site-built homes. For a site-built home, a tax is
assessed only on the sale of building materials. Maine most clearly replicates
this tax treatment for a manufactured home by also taxing just the cost of
materials. Many other states have created a rough parity by taxing manufactured-home sales at a lower rate or assessment ratio than for other personal
property sales. In all but a few states, the ad valorem tax is the same for
site-built and manufactured homes. Some differences exist for the taxes on
financing and for resales of manufactured homes, but the incidence of these
taxes and the tax amounts are relatively minor. Though also relatively minor
in most states, title fees for manufactured homes are an anachronism and an
unnecessary expense. Classifying a manufactured home as real property at the
time of consumer purchase would eliminate them.
States that continue to tax manufactured homes like other personal property should amend their laws to treat a manufactured home like a site-built
home. The place where a home is built is a meaningless basis for distinguishing between them. Moreover, the owner of a manufactured home often owes
more taxes when the home is taxed like other personal property, rather than
like a site-built home. This outcome is particularly unfortunate because the
liability often falls on lower-income households.
American Housing Survey, supra note 1, at 8 tbl.C-01-AO.
See Freyermuth, supra note 12, at 268-70.
57 See Burkhart, supra note 7, at 441-53.
58 Cost & Size Comparisons, supra note 4.
55 56 Tax Lawyer, Vol. 67, No. 4
TAXING MANUFACTURED HOMES
925
APPENDIX
CITATIONS
Tax on Sale
Personal
Ala. Code §§ 40-22-1(c), 40-23-2(4)
(2013) (two percent tax rate on retail sales
of manufactured homes and other vehicles
and trailers; four percent sales tax for most
other types of personal property); Ala.
Code § 40-23-2.
Real
Ala. Code § 40-22-1(c) (2013).
Ala. Code § 40-22-2(1)(a) (2013).
Ad Valorem Tax
Personal
Ala. Code § 40-12-255 (2013) (average
annual motor vehicle registration fee);
Ala. Admin. Code r. 810-4-2.03 (2013)
(registration fee must be paid for manufactured home sited on land not owned by
homeowner).
Real
Ala. Const. art. XI, § 214 (state mill
rate); id. §§ 217(a), 217(b) (assessment
ratio); Ala. Code § 40-11-1(b)(15)
(2013) (all manufactured homes sited
on land owned by homeowner subject to
ad valorem tax); Ala. Code § 40-9-19
(2013) (homestead exemption); Property
Tax Incentives, Low Millage Rates, Ala.
Dep’t of Revenue, last accessed July
1, 2013, http://www.ador.state.al.us/
Taxincentives/proptaxincentives.html
(local mill rates).
Personal
Motor Vehicle Division, Vehicle Title FAQs,
Ala. Dep’t of Revenue, last accessed
July 1, 2013, www.revenue.alabama.gov/
motorvehicle/title_faq.html (title registration); Letter from Ala. Dep’t of Revenue
to author (on file with author) (title
cancellation).
ALABAMA
Tax on Financing Personal
& Real
Title Fees
Tax Lawyer, Vol. 67, No. 4
926
SECTION OF TAXATION
Personal
Alaska Stat. §§ 29.45.650, 29.45.700
(2013); Ranking State and Local Sales
Taxes, Tax Found., Sept. 22, 2011,
http://taxfoundation.org/article/rankingstate-and-local-sales-taxes-1; Telephone
Interview with Alaska Tax Assessor (June
17, 2013) (no tax on resale).
Ad Valorem Tax
Personal
Although the mill rates for real and personal property are the same, local governments can exempt personal property from
the ad valorem tax or can impose a flat
tax in lieu of the mill rate. Alaska Stat.
§§ 29.45.050, 29.45.055 (2013).
Real
Alaska Stat. § 29.45.070 (2013)
(manufactured home is real property for
tax purposes when permanently affixed
to real property); id. § 34.85.150 (“A
manufactured home is permanently affixed
when it is (1) anchored to real property
by attachment to permanent foundation;
(2) constructed in accordance with . . .
building code . . .; and (3) connected to a
residential utility.”). The table lists a range
of tax amounts because only 30.6% of
the local jurisdictions have an ad valorem
tax and because a state tax does not exist.
Alaska Dep’t of Commerce, Cmty., &
Econ. Dev., Alaska Taxable 2011, at 9
(2012), available at www.commerce.state.
ak.us/dca/osa/pub/11Taxable.pdf; id. at 29
tbl.5 (local mill rates).
Personal
Alaska Stat. § 28.10.201(b)(2) (2013)
(title registration); Telephone Interview
with Alaska Div. of Motor Vehicles (June
11, 2013) (title cancellation).
ALASKA
Tax on Sale
Title Fees
Tax Lawyer, Vol. 67, No. 4
TAXING MANUFACTURED HOMES
Personal
Ariz. Rev. Stat. § 42-5075(A)
(2013) (tax on retail sales only); id.
§ 42-5075(B), (P)(3), (P)(4) (assessment
ratio); Ariz. Dep’t of Revenue, Fiscal
Year 2011 Annual Report, 29 tbl.5
(item 15: Contracting) (2011), available at www.azdor.gov/ReportsResearch/
AnnualReports.aspx (tax rate).
Real
Ariz. Rev. Stat. § 11-1132(A) (2013).
Ad Valorem Tax
Personal
& Real
Ariz. Const. art. 9, § 18(9)(b) (for ad
valorem tax purposes, “primary residence”
includes owner-occupied manufactured
homes, as well as site-built homes); Ariz.
Rev. Stat. § 15-972 (2013) (owneroccupied home rebate); Ariz. Rev. Stat.
§ 42-15003 (ten percent assessment ratio);
Ariz. Dep’t of Revenue, Fiscal Year
2011 Annual Report, 76 tbl.36, (average state primary tax rate); Ariz. Dep’t
of Revenue, Fiscal Year 2011 Annual
Report, at 77 tbl.37 (average state secondary tax rate).
Title Fees
Personal
Ariz. Rev. Stat. § 28-2003(A)(2) (2013).
Tax on Sale
ARIZONA
927
Tax Lawyer, Vol. 67, No. 4
928
SECTION OF TAXATION
Personal
Ark. Code Ann. § 26-52-802(b) (2012)
(62% of retail sale price of new manufactured home taxed; most other personal
property sales taxed on 100% of retail sale
price); id. § 26-52-301; id. § 26-52-802(c)
(2012) (no tax on resale); State Tax Rates,
Ark. Dep’t of Fin. & Admin., last accessed
July 1, 2013, www.dfa.arkansas.gov/offices/
exciseTax/salesanduse/Pages/StateTaxRates.
aspx (six percent state tax rate); Ranking
State and Local Sales Taxes, Tax Found.,
Sept. 22, 2011, http://taxfoundation.org/
article/ranking-state-and-local-sales-taxes-1
(average local tax rate).
Real
Ark. Code Ann. § 26-60-105 (2012).
Ad Valorem Tax
Personal
& Real
Ark. Code Ann. § 26-3-203(a) (2012)
(manufactured home deemed real property for ad valorem taxation, even if sited
on leased land); id. § 26-26-303 (taxed on
20% of home’s value); id. § 26-26-1118(a)
(1)(A) ($350 homestead credit); Arkansas
2011 Millage Report, Ark. Assessment
Coordination Dep’t (2012) (state-wide
average mill rate).
Title Fees
Personal
Ark. Dep’t of Fin. & Admin., Schedule
Fee Part I (2011), available at http://
www.dfa.arkansas.gov/offices/motorVehicle/Documents/schedule_fee1.pdf
(title registration); Telephone Interview
with Ark. Dep’t of Fin. & Admin. (June 5,
2013) (title cancellation).
ARKANSAS
Tax on Sale
Tax Lawyer, Vol. 67, No. 4
TAXING MANUFACTURED HOMES
Tax on Sale
Personal
Cal. Rev. & Tax. Code §§ 6012.8(a),
6012.9 (2013) (manufactured-home
retailer is characterized as the consumer and
must pay tax on 75% of retailer’s cost); id.
§ 6051 (most other personal property sales
are taxed on 100% of retail sales price);
id. §§ 6012.8(d), 6012.9(d) (no tax on
resale); Ranking State and Local Sales Taxes,
Tax Found., Sept. 22, 2011, http://taxfoundation.org/article/ranking-state-andlocal-sales-taxes-1 (tax rates); Operators of
Residential Mobile Home Sites, Highbeam
Business, last accessed July 10, 2013,
http://business.highbeam.com/industryreports/finance/operators-of-residentialmobile-home-sites (average dealer markup).
Real
Cal. Rev. & Tax. Code § 11911 (2013).
Personal
Cal. Rev. & Tax. Code § 5810 (2013)
(manufactured home classified as personal
property is taxed like all other personal
property); id. § 218(a) (homestead
exemption); Letter from Bradley M.
Heller, Tax Counsel III (Specialist), Cal.
Bd. of Equalization, to author (August 31,
2010) (on file with author) (state tax rate);
California Local Property Tax Rates ¶ 32,510,
Checkpoint, https://checkpoint.riag.com/
app/view/toolItem?usid=30c39723bfff&feat
ure=ttoc&lastCp (local tax rates).
Real
Cal. Rev. & Tax. Code § 5801 (2013)
(manufactured home classified as real
property is taxed like all other real property); id. § 218(a) (homestead exemption);
Letter from Cal. Bd. of Equalization
to author (Aug. 31, 2010) (on file with
author) (state tax rate); California Local
Property Tax Rates ¶ 32,510, Checkpoint,
https://checkpoint.riag.com/app/view/tool
Item?usid=30c39723bfff&feature=ttoc&la
stCp (local tax rates).
Personal
Cal. Health & Safety Code §§ 18114,
18114.1 (2013); Cal. Code Regs. tit.
25, §§ 5660(m), (s) (2013) (title registration); Letter from Bradley M. Heller,
Tax Counsel III (Specialist), Cal. Bd. of
Equalization, to author (Aug. 31, 2010)
(on file with author) (title cancellation).
CALIFORNIA
Ad Valorem Tax
Title Fees
Tax Lawyer, Vol. 67, No. 4
929
930
SECTION OF TAXATION
Personal
Colo. Rev. Stat. § 39-26-106(1)(a)
(II) (2013) (tax rate); id. § 39-26-721(1)
(manufactured home taxed on 52% of
retail sale price); id. § 39-26-104 (most
other personal property sales taxed on
100% of retail sale price); Ranking State
and Local Sales Taxes, Tax Found., Sept.
22, 2011, http://taxfoundation.org/article/
ranking-state-and-local-sales-taxes-1 (tax
rates).
Real
Colo. Rev. Stat. § 39-13-102 (2013).
Ad Valorem Tax
Personal
& Real
Colo. Rev. Stat. § 39-5-201 (2013)
(manufactured homes taxed as real property); CCH, 2012 State Tax Handbook
91 (2012) (assessment ratio); Colo. Dep’t
of Local Affairs, 2011 Annual Report
778 (2012) available at http://dola.
colorado.gov/dpt/publications/docs/2011_
Annual_Report/entire_manual_web.pdf
(state-wide average tax rate).
Title Fees
Personal
E-mail from Renée Bridges, Prop. Tax
Specialist, Colo. Div. of Prop. Taxation,
to author (June 10, 2010) (on file with
author) (title registration); Telephone
Interview with Colo. Div. of Motor
Vehicles, Titles & Registration (title
cancellation).
COLORADO
Tax on Sale
Tax Lawyer, Vol. 67, No. 4
TAXING MANUFACTURED HOMES
CONNECTICUT
Tax on Sale
Ad Valorem Tax
Tax Lawyer, Vol. 67, No. 4
931
Personal
Conn. Gen. Stat. § 12-412c(a) (2013)
(sales tax paid when retailer purchases home from manufacturer); id.
§ 12-408(1)(A) (tax based on 70% of
dealer’s cost; most other personal property
sales taxed on 100% of retail sale price);
id. § 12-412c(b) (no tax on resale); id.
§ 12-408(1)(A) (tax rate); Operators of
Residential Mobile Home Sites, Highbeam
Business, last accessed July 10, 2013,
http://business.highbeam.com/industryreports/finance/operators-of-residentialmobile-home-sites (average dealer
markup).
Real
Conn. Gen. Stat. § 12-494(a)(1) (2013)
(state tax); id. § 12-494(a)(2) (local tax);
Conn. Agencies Regs. § 12-494-2(a)(5)
(2013) (manufactured home in manufactured-home park subject to real estate
transfer tax).
Personal
& Real
Conn. Gen. Stat. § 12-63a(c) (2013)
(manufactured home connected to utilities
and used as residence is taxed as residential
real property); id. § 12-62a (assessment
ratio); Mill Rates, Conn. Office of
Policy & Mgmt., last modified Jan. 17,
2014, http://www.ct.gov/opm/cwp/view.
asp?a=2987&q=385976 (state-wide average mill rate).
932
SECTION OF TAXATION
Personal
Del. Code Ann. tit. 30, § 2909(b)
(2013) (retailer gross receipts tax not
due on sale of motor vehicle, including
manufactured home); id. § 3002 (motor
vehicle document fee of 3.75% applies to
sale of new and used vehicles including
manufactured home); id. § 2905 (for
other retailers, the fee is 0.7543% of
gross receipts after deduction of specified
amount); Mobile Home Title Requirements,
Del. Div. of Motor Vehicles, last
accessed April 20, 2014, www.dmv.de.gov/
services/vehicle_services/titles/ve_title_
mobile.shtml (document fee).
Real
Del. Code Ann. tit. 30, § 5402(a)
(2013).
Ad Valorem Tax
Personal
& Real
Del. Code Ann. tit. 9, § 8351 (2013)
(manufactured homes assessed at
same tax rate as real property); Del.
Econ. Dev. Office, 2013-2014
Property Tax Report (2013), available at http://www.dedo.delaware.gov/
dedo_pdf/NewsEvents_pdf/publications/
DelawarePropertyTaxes_2013_2014.pdf
(state-wide average tax rate).
Title Fees
Personal
Del. Code Ann. tit. 21, § 2305 (2013)
(title registration); Telephone Interview
with Del. Div. of Motor Vehicles (title
cancellation).
DELAWARE
Tax on Sale
Tax Lawyer, Vol. 67, No. 4
TAXING MANUFACTURED HOMES
Tax on Sale
Personal
Fla. Stat. § 212.05 (2013) (state tax
rate; it applies only to retail sales); id.
§ 212.054(2)(b)(1) (local tax); E-mail
from Tammy Miller, Assistant Gen.
Counsel, Fla. Dep’t of Revenue, to author
(Nov. 27, 2012) (on file with author)
(average local tax rate).
Real
Fla. Stat. § 201.02(1)(a)(1)(b) (2013)
(state tax rate; it applies to resale by
consumer as well as to retail sale); Fla.
Dep’t of Revenue, Taxation of Mobile
Homes in Florida 2, available at http://
dor.myflorida.com/dor/forms/current/
gt800047.pdf; Letter from Tammy
S. Miller, Senior Attorney, Technical
Assistance & Dispute Resolution, Fla. Dep’t
of Revenue, to author (June 7, 2010) (on
file with author) (average local tax rate).
FLORIDA
Tax on Financing Personal
Ad Valorem Tax
Tax Lawyer, Vol. 67, No. 4
933
Fla. Stat. § 201.08 (2013).
Real
Fla. Stat. §§ 199.133(1), 201.08 (2013).
Personal
Fla. Stat. § 320.08(11) (2013) (annual
motor vehicle license tax); Letter from
Tammy S. Miller, Senior Attorney,
Technical Assistance & Dispute
Resolution, Fla. Dep’t of Revenue, to
author (June 7, 2010) (on file with
author) (no ad valorem tax on manufactured home classified as personal property
if home is owner-occupied).
Real
Fla. Stat. § 193.075(1) (2013) (if a
manufactured home is permanently
affixed to land owned by homeowner,
home is taxed like a site-built home);
E-mail from Tammy S. Miller, Senior
Attorney, Technical Assistance & Dispute
Resolution, Fla. Dep’t of Revenue, to
author (Nov. 27, 2012) (state-wide
average mill rate); Fla. Dep’t of Educ.,
2013–14 Funding for Florida School
Districts, available at www.fldoe.org/
fefp/pdf/fefpdist.pdf (state-wide average
school-district mill rate).
FLORIDA (continued)
934
SECTION OF TAXATION
Title Fees
Personal
Before You Buy a Mobile Home, Fla.
Dep’t of Highway Safety & Motor
Vehicles, last accessed July 1, 2013,
www.flhsmv.gov/mobilehome/mobile1.
html (need title for each section of
manufactured home); Motor Vehicle
Fee Schedule, Fla. Dep’t of Highway
Safety & Motor Vehicles, last accessed
July 1, 2013, http://www.flhsmv.gov/
DHSMVfees.htm (title fee); Fla. Stat.
§ 320.0815(2) (2013) (title cancellation).
Tax Lawyer, Vol. 67, No. 4
TAXING MANUFACTURED HOMES
Tax on Sale
935
Personal
Ga. Code Ann. § 48-8-30(a) (tax on
retail sales only); Ga. Code Ann. § 48-830(b)(1) (2013) (state tax rate); Ranking
State and Local Sales Taxes, Tax Found.,
Sept. 22, 2011, http://taxfoundation.
org/article/ranking-state-and-local-salestaxes-1 (average local tax rate).
Real
Ga. Code Ann. § 48-6-1 (2013).
Ga. Code Ann. § 48-6-61 (2013).
Ad Valorem Tax
Personal
Ga. Code Ann. §§ 48-5-441, 48-5-7
(2013) (assessment ratio); Ga. Dep’t of
Revenue, Local Gov’t Servs. Div.,
2012 Ga. Cnty. Ad Valorem Tax
Digest Millage Rates (2013), available at https://etax.dor.ga.gov/ptd/cds/
csheets/millrate.aspx (state mill rate); Ga.
Dep’t of Revenue, Georgia County
Government Directory 2013: Millage
Rates by County 147-49 (2013), available at http://www.nxtbook.com/naylor/
ACGD/ACGD0013/index.php#/0 (average local mill rate).
Real
Ga. Code Ann. § 8-2-190 (2013)
(manufactured home classified as real
estate is taxed as real estate); id. § 48-5-7
(assessment ratio); id. § 48-5-44 (homestead exemption applies only to manufactured home classified as real estate); Ga.
Dep’t of Revenue, Local Gov’t Servs.
Div., 2012 Ga. Cnty. Ad Valorem Tax
Digest Millage Rates (2013), available at https://etax.dor.ga.gov/ptd/cds/
csheets/millrate.aspx (state mill rate);
Ga. Dep’t of Revenue, Millage Rates by
County, Georgia County Government
Directory 2013, at 147, 147-49 (2013),
available at http://www.nxtbook.com/
naylor/ACGD/ACGD0013/index.php#/0
(average local mill rate).
Personal
What is Needed to Obtain a Georgia Title
for My Mobile or Manufactured Home, Ga.
Dep’t of Revenue, last accessed July 3,
2013, http://motor.etax.dor.ga.gov/motor/
TitleSection/ts_MfgHome.aspx (title
registration); Ga. Code Ann. § 8-2-191
(2013) (title cancellation).
GEORGIA
Tax on Financing Real
Title Fees
Tax Lawyer, Vol. 67, No. 4
936
SECTION OF TAXATION
Tax on Sale
HAWAII
Ad Valorem Tax
Personal
Haw. Rev. Stat. § 237-13(2)(A) (2013)
(tax rate; tax on retail sales only).
Real
Haw. Rev. Stat. § 247-2(1)(A) (2013).
Personal
CCH, 2012 State Tax Handbook 115
(2012) (personal property exempt).
Real
Haw. Rev. Stat. § 246-1 (2013) (“real
property” includes all buildings and
structures affixed to land that would
be substantially damaged by removal);
Real Property Valuation, Tax Rates and
Exemption by Year, City & Cnty. of
Honolulu, last accessed July 3, 2013,
https://www.realpropertyhonolulu.
com/portal/rpadcms/Reports;jsessio
nid=CB74FE8B884A0048A52B21
528C81482C; Telephone Interview
with Sharlene Tagami, Haw. Dep’t of
Taxation, Technical Section (tax rates; in
Honolulu County, taxed as “Residential;”
in Maui and Hawaii Counties, taxed as
“Homeowner;” in Kauai County, taxed as
“Homestead”); Rev. Ord. of City and
Cnty. of Honolulu 1990 § 8-10.4(1)
(homestead exemption); Rev. Ord. of
City and Cnty. of Honolulu 1990
§ 8-11.1(g) (minimum tax); Code of
Cnty. of Maui § 3.48.450 (homestead
exemption); Hawaii Procedure for Setting
Tax Rates ¶ 32,505, Checkpoint, https://
checkpoint.riag.com/app/main/doc?usid
=30c397z174449&DocID=ia6707f31cf
00c208eebae4287f06a437&collId=T0EI
DHI&docTid=T0SLEXANAM%3A348
57.1dr8&feature=tcheckpoint&lastCpRe
qId=1024102&searchHandle=ia744d05f
0000013f5435bf83ce1c597b (minimum
tax); Hawaii Cnty. Code § 19-71(a)(1)
(homestead exemption); Hawaii Cnty.
Code § 19-90 (minimum tax); Kauai
Cnty. Code § 5A-11.4(a)(1) (homestead exemption); Kauai Cnty. Code
§ 5A-6.3(g) (minimum tax).
Tax Lawyer, Vol. 67, No. 4
TAXING MANUFACTURED HOMES
937
Personal
Idaho Code Ann. § 63-3613(a), (c)
(2013) (new manufactured home taxed
on 55% of retail sale price; most other
personal property sales taxed on 100% of
retail sale price); id. § 63-3619 (state tax
rate; tax on retail sales only); Ranking State
and Local Sales Taxes, Tax Found., Sept.
22, 2011, http://taxfoundation.org/article/
ranking-state-and-local-sales-taxes-1 (average local tax rate).
Ad Valorem Tax
Personal
& Real
Idaho Code Ann. § 63-303 (2013)
(“Manufactured homes shall be assessed
as other residential housing . . . .”); id.
§ 63-701(2) (homestead exemption); id.
§ 63-602G (taxed on 50% of fair market
value); Idaho Tax Rates Currently in Effect
¶ 32,510, Checkpoint, https://checkpoint.riag.com/app/main/doc?usid=30c
397z174449&DocID=ib06e6e2e56f86
302c55cdbaa92392b78&collId=T0EID
ID&docTid=T0SLEXANAM%3A3880
9.1dr8&feature=tcheckpoint&lastCpRe
qId=1034443&searchHandle=ia744d06
40000013f547b3d400870b9f5 (average
local tax rate).
Title Fees
Personal
Idaho Code Ann. § 49-422 (2013) (title
registration); Letter from Jim Husted,
Idaho State Tax Comm’n, Legal/Tax Policy
Section, to author (Apr. 5, 2010) (on file
with author) (title cancellation).
IDAHO
Tax on Sale
Tax Lawyer, Vol. 67, No. 4
938
SECTION OF TAXATION
Tax on Sale
ILLINOIS
Ad Valorem Tax
Title Fees
Personal
35 Ill. Comp. Stat. § 120/2 (2013) (no
tax on resale); id. § 120/2-10 (state tax
rate); Ranking State and Local Sales Taxes,
Tax Found., Sept. 22, 2011, http://taxfoundation.org/article/ranking-state-andlocal-sales-taxes-1 (average local tax rate).
Real
35 Ill. Comp. Stat. § 200/31-10 (2013)
(state tax); 55 Ill. Comp. Stat.
§ 5/5-1031 (2013) (local tax).
Personal
35 Ill. Comp. Stat. § 200/1-130 (2013)
(manufactured home in mobile home park
taxed as chattel); id. § 515/3 (tax rate).
Real
35 Ill. Comp. Stat. § 200/1-130 (2013)
(manufactured home sited outside manufactured home park taxed as real estate);
id. § 200/9-145 (taxed on 33-1/3% of
fair market value); id. § 200/15-175
(homestead exemption); 2011 Property Tax
Statistics, Ill. Dep’t of Revenue, Table
8 Average Tax Rates, 2013, last accessed
April 20, 2014, tax.illinois.gov/AboutIdor/
TaxStats/PropertyTaxStats/2011/index.
htm (state-wide average tax rate).
Personal
Vehicle Services Fees, Ill. Dep’t of Motor
Vehicles, last accessed July 3, 2013,
http://www.cyberdriveillinois.com/
departments/vehicles/basicfees.html (title
registration); Telephone Interview with Ill.
Sec’y of State, Vehicle Servs. Dep’t (title
cancellation).
Tax Lawyer, Vol. 67, No. 4
TAXING MANUFACTURED HOMES
939
Personal
Ind. Code § 6-2.5-5-29 (2013) (manufactured home taxed on 65% of retail
price, which represents cost of materials to
manufacture home; no tax on resale); id.
§ 6-2.5-2-2 (tax rate; most other personal
property sales are taxed on 100% of retail
sale price).
Ad Valorem Tax
Personal
& Real
Ind. Code §§ 6-1.1-12-37, -37.5,
-40.5 (2013) (homestead exemption;
if manufactured home is classified as
personal property, total of homestead
standard deduction and mortgage
deduction must be less than half the
home’s gross assessed value); E-mail from
Eric Bussis, Dir. of Data Analysis & CFO,
Ind. Dep’t of Local Gov’t Fin., to author
(Feb. 11, 2013) (on file with author) (tax
calculations).
Title Fees
Personal
Ind. Code § 9-29-4-3 (2013) (title
registration); Ind. Bureau of Motor
Vehicles, Affidavit to Transfer to
Real Estate Checklist (2013), available
at http://www.in.gov/bmv/files/ATRE_
Packet.pdf (title cancellation).
INDIANA
Tax on Sale
Tax Lawyer, Vol. 67, No. 4
940
SECTION OF TAXATION
Tax on Sale
IOWA
Ad Valorem Tax
Title Fees
Personal
Iowa Code § 423.5 (2013) (5% tax rate
for manufactured homes; 6% for sale of
other types of personal property on 100%
of sale price); id. § 423.6(9) (no tax on
resale); Iowa Admin. Code
r.701-33.10(2)(c) (2013) (manufactured
home taxed on 20% of sale price, which is
cost of materials to manufacture home).
Real
Iowa Code § 428A.1 (2013).
Personal
Iowa Code § 435.22 (2013) (manufactured home sited in manufactured-home
community or park pays tax based on
square footage).
Real
Iowa Code § 435.26 (2013) (manufactured home sited outside manufacturedhome community or park “shall be
converted to real estate . . . and shall be
assessed for real estate taxes;” eligible for
homestead tax credit); id. § 425.1(2)
(homestead tax credit); E-mails from
Theresa Dvorak, Iowa Dep’t of Revenue,
Policy Section, to author (Jan. 15, 2013 &
Apr. 19, 2010) (on file with author).
Personal
Iowa Code § 321.20(1) (2013) (title
registration); E-mail from Theresa Dvorak
to author (Apr. 19, 2010) (on file with
author) (title cancellation).
Tax Lawyer, Vol. 67, No. 4
TAXING MANUFACTURED HOMES
KANSAS
Tax on Sale
Personal
941
Kan. Stat. Ann. § 79-3603 (2012)
(state tax rate; tax on retail sales only); id.
§ 79-3606(ff) (new manufactured home
taxed on 60% of sale price; most other
personal property sales taxed on 100% of
retail sale price); Ranking State and Local
Sales Taxes, Tax Found., Sept. 22, 2011,
http://taxfoundation.org/article/rankingstate-and-local-sales-taxes-1 (average local
tax rate).
Tax on Financing Real
Kan. Stat. Ann. § 79-3102 (2012).
Ad Valorem Tax
Personal
& Real
Kan. Stat. Ann. § 79-1439(b)(1)(A),
(b)(2)(A) (2012) (same assessment ratio
for site-built and manufactured homes);
Kan. Dep’t of Revenue, Div. of Prop.
Valuation, 2012 Statistical Report of
Property Assessment and Taxation tbl.
IV (2013), available at www.ksrevenue.
org/pvdstatewide.html (state-wide average
tax rate).
Title Fees
Personal
Letter from Richard Cram, Dir., Policy and
Research, Kan. Dep’t of Revenue, to author
(April 12, 2010) (on file with author) (title
registration); Kan. Admin. Regs.
§ 92-51-29 (2013) (title cancellation).
Tax Lawyer, Vol. 67, No. 4
942
SECTION OF TAXATION
Personal
Ky. Rev. Stat. Ann. § 139.200 (2012)
(tax rate; tax on retail sales only); 103 Ky.
Admin. Regs. 27:100(3) (2012).
Real
Ky. Rev. Stat. Ann. § 142.050(2) (2012).
Ad Valorem Tax
Personal
& Real
Ky. Rev. Stat. Ann. § 132.751 (2012)
(manufactured homes taxed as real estate
unless held by dealer for resale); Ky.
Dep’t of Revenue, Office of Property
Valuation, Commonwealth of Kentucky
Property Tax Rates 2012, 7, 12 (2013),
available at http://revenue.ky.gov/NR/
rdonlyres/08B1F5AB-D773-41D6BDBE-256058514FD7/0/2012TAXRA
TEBOOKApril252013.pdf (state tax rate
and average local tax rates).
Title Fees
Personal
E-mail from Sarah E. Pence, Revenue
Tax Policy/Research Analyst, Ky. Dep’t
of Revenue, to author (June 9, 2010) (on
file with author) (title registration and
­cancellation).
KENTUCKY
Tax on Sale
Tax Lawyer, Vol. 67, No. 4
TAXING MANUFACTURED HOMES
943
Personal
La. Rev. Stat. Ann. § 47:301(16)(g)
(iv)(dd) (2012) (new manufactured
home taxed on 46% of sale price; no tax
on resale of manufactured home); id.
§ 47:302 (most other personal property
sales taxed on 100% of retail sale price);
Ranking State and Local Sales Taxes, Tax
Found., Sept. 22, 2011, http://taxfoundation.org/article/ranking-state-and-localsales-taxes-1 (state and average local tax
rates).
Ad Valorem Tax
Personal
& Real
La. Const. art. VII, § 18 (assessment
ratio); id. § 20 (occupied manufactured
home eligible for homestead exemption);
La. Rev. Stat. Ann. § 47:2322 (2012)
(manufactured home used as residence,
whether on owned or leased land, taxed
as residential real estate); La. Rev. Stat.
Ann. § 47:1703(A)(1) (homestead exemption applied to state, parish, and special
ad valorem taxes but not to city tax);
Telephone Interview with Jeffrey Crosby,
Dir., La. Tax Comm’n (June 24, 2013)
(most manufactured homes not located in
a city).
Title Fees
Personal
E-mail from Carl Reilly, La. Dep’t of
Revenue, to author (June 18, 2010)
(on file with author) (title registration);
Telephone Interview with La. Office of
Motor Vehicles (title cancellation).
LOUISIANA
Tax on Sale
Tax Lawyer, Vol. 67, No. 4
944
SECTION OF TAXATION
MAINE
Tax on Sale
Ad Valorem Tax
Personal
Me. Rev. Stat. tit. 36, § 1760(40) (2013)
(new manufactured home taxed only on
cost of materials but must be taxed on at
least 50% of sale price; no tax on resale);
id. § 1811 (tax rate; most other personal
property sales taxed on 100% of retail sale
price).
Real
Me. Rev. Stat. tit. 36, § 4641-A(1)
(2013).
Personal
& Real
Me. Rev. Stat. tit. 36, § 551 (2013) (all
manufactured homes taxed as real estate);
id. § 683 (homestead exemption); Me.
Revenue Servs., Estimated Full Value
Tax Rates (2013), available at www.
maine.gov/revenue/propertytax/municipalservices/fullvaluerates.pdf (state-wide
average mill rate).
Tax Lawyer, Vol. 67, No. 4
TAXING MANUFACTURED HOMES
945
Personal
Md. Code Ann., Tax-Gen. § 11-102
(2013) (tax on retail sales only); id.
§ 11-104(a) (tax rate; most other personal
property sales taxed on 100% of retail sale
price); id. § 11-104(d) (first retail sale of
manufactured home taxed on 60% of sale
price).
Real
Md. Code Ann., Tax-Prop. § 13-203(a)
(1) (2013) (state tax rate); id. § 13-401
(county transfer tax); id. § 12-103(a)(1)
(county recordation tax); Maryland Rates
of Tax Set by Local Resolution or Ordinance
¶ 35,118, Checkpoint, https://checkpoint.riag.com/app/main/doc?usid=30c39
7m197d9f&DocID=i872f71ed88c8ed4ef
93891f390407ca6&collId=T0EIDMD&d
ocTid=T0SLEXANAM%3A59565.1dr8&
feature=tcheckpoint&lastCpReqId=13819&searchHandle=ia744d0650000013f5c
8d22558a0e581a (average county transfer
tax rate); Maryland Rates of Tax ¶ 35,117,
Checkpoint, https://checkpoint.riag.
com/app/main/docDocList?usid=30c397
m197d9f&DocID=i4456aaf4731c457dbe
08cc49cadbddc7&collId=T0EIDMD&do
cTid=T0SLEXANAM%3A59561.1dr8&f
eature=tcheckpoint&lastCpReqId=13841
&searchHandle=ia744d0650000013f5c8
d22558a0e581a (average county recordation tax rate); Telephone Interview with
Land Records Office for Balt. City, Md.
($60 surcharge to record deed).
Ad Valorem Tax
Personal
& Real
Md. Code Ann., Tax-Prop. § 8-234
(2013) (manufactured homes taxed as real
estate); 2012–2013 County Tax Rates, Md.
Dep’t of Assessments & Taxation, last
accessed July 3, 2013, http://www.dat.
state.md.us/sdatweb/taxrate.html (state,
county, and municipal tax rates).
Title Fees
Personal
E-mail from Sarah C. Dufresne, Tax
Consultant–Legal, Comptroller of Md.,
Revenue Admin. Div., to author (June
21, 2010, 3:13) (on file with author) (title
registration and cancellation).
MARYLAND
Tax on Sale
Tax Lawyer, Vol. 67, No. 4
946
SECTION OF TAXATION
MASSACHUSETTS
Tax on Sale
Ad Valorem Tax
Personal
Mass. Gen. Laws ch. 64H, § 2 (2013)
(tax rate); Mass. Rev. Rul. 87-2 (Feb. 13,
1986) (sale of used manufactured home).
Real
Mass. Gen. Laws ch. 64D, § 1 (2013);
Massachusetts Basis and Rate of Tax
¶ 35,140, Checkpoint, https://checkpoint.riag.com/app/main/doc?usid=30c39
7m197d9f&DocID=ia1607d5c08c9c2bb
b1dff9ffc4166fc8&collId=T0EIDMA&do
cTid=T0SLEXANAM%3A56720.1dr8&
feature=tcheckpoint&lastCpReqId=18986&searchHandle=ia744d05e0000013f5ca
ee73125fac7cb (tax rates).
Personal
& Real
Mass. Gen. Laws ch. 59, § 2A(b) (2013)
(manufactured home taxed as “[r]esidential” property unless sited in licensed
manufactured-home park); id. § 5(36) (no
ad valorem tax on manufactured home in
a licensed manufactured-home park); id.
ch. 140, § 32G ($6-12 monthly license fee
in lieu of taxes for a manufactured home
in a licensed manufactured-home park);
Statewide Average Single Family Tax Bill,
Mass. Dep’t of Revenue, last accessed
July 3, 2013, https://dlsgateway.dor.state.
ma.us/DLSReports/DLSReportViewer.
aspx?ReportName=SingleFamilyTaxBill
(state-wide average residential tax rate).
Tax Lawyer, Vol. 67, No. 4
TAXING MANUFACTURED HOMES
947
Personal
Mich. Comp. Laws § 205.52 (2013)
(tax on retail sale); id. § 205.179 (tax on
resale).
Real
Mich. Comp. Laws § 207.525 (2013)
(state tax); id. § 207.504 (2013) (local
tax).
Ad Valorem Tax
Personal
& Real
Mich. Const. art. IX, § 3 (assessment
ratio); Mich. Comp. Laws § 211.2a(1)
(2013) (manufactured home taxed as
real estate unless sited in a licensed
manufactured-home park); Mich.
Comp. Laws § 211.7cc, .7dd (Principal
Residence Exemption); Mich. Comp.
Laws § 125.041 ($3 monthly alternative
tax for manufactured home in a licensed
manufactured-home park); Mich. Dep’t
of Treasury, Annual Report of the
Michigan State Treasurer Fiscal
Year 2010–2011, at 21 tbl.13 (2011),
available at http://www.michigan.gov/
documents/treasury/STAR_2010-2011_
final_418790_7.pdf (average homestead
mill rate).
Title Fees
Personal
Mich. Comp. Laws § 125.2330a(1)
(2013) (title registration); id. §
125.2330i(1)(c) (title cancellation).
MICHIGAN
Tax on Sale
Tax Lawyer, Vol. 67, No. 4
948
SECTION OF TAXATION
MINNESOTA
Tax on Sale
Personal
Minn. Stat. § 297A.62 (2013) (state tax
rate; retail sale of manufactured home for
residential use taxed on 65% of dealer’s
cost; most other personal property sales
taxed on 100% of retail sale price); id.
§ 297A.67, subdiv. 20 (no tax on resale);
Ranking State and Local Sales Taxes,
Tax Found., Sept. 22, 2011, http://
taxfoundation.org/article/ranking-stateand-local-sales-taxes-1 (average local tax
rate); Operators of Residential Mobile Home
Sites, Highbeam Business, last accessed
July 10, 2013, http://business.highbeam.
com/industry-reports/finance/operatorsof-residential-mobile-home-sites (average
dealer markup).
Real
Minn. Stat. § 287.21, subdiv. 1 (2013).
Tax on Financing Real
Minn. Stat. § 287.035 (2013).
Ad Valorem Tax
Personal
& Real
Minn. Stat. § 273.125, subdiv. 8 (2013)
(manufactured homes taxed as real estate);
id. § 273.13, subdiv. 22(a) (owneroccupied manufactured home classified as Class 1a (residential homestead
property) with net class rate of 1%); id.
§ 273.13, subdiv. 35 (assessment ratio);
Minn. Prop. Tax Div., Memorandum
Discussing 2011 Law Change:
Homestead Market Value Exclusion
(July 30, 2012), available at http://www.
revenue.state.mn.us/local_gov/prop_tax_
admin/assessment/hmve.pdf; E-mail from
Drew Imes, Senior State Program Adm’r,
Minn. Prop. Tax Div., to author (Mar. 27,
2013) (on file with author) (average local
tax rate and average referendum market
value tax rate).
Title Fees
Personal
Title Transfer Fees, Minn. Dep’t of Pub.
Safety, Div. of Driver & Vehicle
Servs., last accessed July 3, 2013, https://
dps.mn.gov/divisions/dvs/Pages/titletransfer-fees.aspx (title registration: $10
filing fee, $7.25 title fee, and $3.50 public
safety vehicle fee); Minn. R. 7406.0500,
subpt. 5(B) (2013) (title cancellation).
Tax Lawyer, Vol. 67, No. 4
TAXING MANUFACTURED HOMES
949
Personal
Miss. Code Ann. § 27-65-17(1)(a), (d)
(2013) (7% tax rate for most personal
property sales, 3% tax rate for sale of
manufactured homes and other motor
vehicles, and tax on retail sales only).
Ad Valorem Tax
Personal
Miss. Const. art. 4, § 112 (personal
property taxed on 15% of value); Miss.
Code Ann. §§ 27-53-13, -15 (2013)
(manufactured home taxed as personal
property); E-mail from Renae Smith, Dir.,
Mapping & Indus. Personal Prop., Miss.
Dep’t of Revenue, to author (Dec. 13,
2012) (on file with author) (state-wide
average mill rate).
Real
Miss. Const. art. 4, § 112 (owner-occupied residential real estate taxed on 10%
of value); Miss. Code Ann. § 27-53-15
(2013) (manufactured homes taxed as real
property); Miss. Code Ann.
§ 27-33-75(1) (homestead exemption;
applies only to real property); E-mail from
Renae Smith, Dir., Mapping & Indus.
Personal Prop., Miss. Dep’t of Revenue,
to author (Dec. 13, 2012) (on file with
author) (state-wide average mill rate).
Personal
Miss. Code Ann. § 63-21-64 (2013)
(title registration); id. § 27-53-15 (title
cancellation).
MISSISSIPPI
Tax on Sale
Title Fees
Tax Lawyer, Vol. 67, No. 4
MISSOURI
950
SECTION OF TAXATION
Tax on Sale
Personal
Mo. Const. art. IV, § 43(a) (0.125% state
sales tax); id. § 47(a) (0.1% state sales tax);
Mo. Rev. Stat. § 144.020(1)(1) (2013)
(4% state sales tax; most personal property
sales taxed on 100% of retail sale price);
Mo. Rev. Stat. § 144.044 (sale of new
manufactured home taxed on 60% of sale
price); Ranking State and Local Sales Taxes,
Tax Found., Sept. 22, 2011, http://taxfoundation.org/article/ranking-state-andlocal-sales-taxes-1 (average local tax rate).
Ad Valorem Tax
Personal
& Real
Mo. Const. art. 10, § 4(b) (residential
property is Class I, Subclass 1); Mo. Rev.
Stat. § 137.115(5) (2013) (assessment
ratio); Mo. Rev. Stat. § 137.115(6)
(manufactured home used as a dwelling assessed as residential real property);
Missouri Property Taxes 2013, Tax-Rates.
org, last accessed July 3, 2013,
http://www.tax-rates.org/missouri/property-tax (state-wide average tax rate).
Title Fees
Personal
Motor Vehicle Titling, Mo. Dep’t of
Revenue, last accessed July 3, 2013,
http://dor.mo.gov/motorv/titling.php
(title registration); Mo. Code Regs.
Ann. tit. 12, § 10-23.475(5) (2013) (title
cancellation).
Tax Lawyer, Vol. 67, No. 4
TAXING MANUFACTURED HOMES
951
Personal
& Real
Residential, Commercial, and Industrial
Land and Improvements—Class 4, Mont.
Dep’t of Revenue, Jan. 31, 2012, http://
revenue.mt.gov/home/property.aspx
(“land and improvements” includes manufactured homes); E-mail from Ed Caplis,
Dir. of Tax Policy & Research, to author
(Dec. 6, 2012) (on file with author) (statewide average mill rate).
Title Fees
Personal
E-mail from C.A. Daw, Chief Legal
Counsel, Mont. Dep’t of Revenue, to
author (July 7, 2010) (on file with author)
(title registration and cancellation).
MONTANA
Ad Valorem Tax
Tax Lawyer, Vol. 67, No. 4
952
SECTION OF TAXATION
Personal
Neb. Rev. Stat. § 77-2701.02 (2012)
(state tax rate); Neb. Rev. Stat. § 77-2703
(tax on retail sales); Ranking State and
Local Sales Taxes, Tax Found., Sept. 22,
2011, http://taxfoundation.org/article/
ranking-state-and-local-sales-taxes-1 (average local tax rate).
Real
Neb. Rev. Stat. § 76-901 (2012).
Ad Valorem Tax
Personal
& Real
Neb. Rev. Stat. § 77-102(3) (2012)
(all manufactured homes taxed as real
estate); Neb. Dep’t of Revenue, Prop.
Assessment Div., Average Tax Rates by
County (2012), available at http://www.
revenue.ne.gov/PAD/research/valuation/
avg_rates/avgrate2012.pdf (state-wide
average rate).
Title Fees
Personal
Certificate of Title Motor Vehicle, Neb.
Dep’t of Motor Vehicles, Nov. 28,
2011, www.dmv.ne.gov/dvr/mvtitles/
title.html (title registration); Mobile/
Manufactured Homes, Neb. Dep’t of
Motor Vehicles, July 10, 2013, www.
dmv.ne.gov/dvr/mvtitles/mobile_manuf.
html (title cancellation).
NEBRASKA
Tax on Sale
Tax Lawyer, Vol. 67, No. 4
TAXING MANUFACTURED HOMES
Personal
Nev. Rev. Stat. § 372.316 (2012) (manufactured home sales taxed on 60% of sale
price; no tax on resale); Nev. Rev. Stat.
§§ 372.105, 374.110, 377.040 (state
tax rate; most other personal property
sales taxed on 100% of retail sale price);
Ranking State and Local Sales Taxes, Tax
Found., Sept. 22, 2011, http://taxfoundation.org/article/ranking-state-and-localsales-taxes-1 (average local tax rate).
Real
Nev. Rev. Stat. § 375.023 (2012) (state
tax); id. § 375.020 (local tax).
Ad Valorem Tax
Personal
& Real
Nev. Rev. Stat. § 361.225 (real and
personal property taxed on 35% of fair
market value); Nev. Dep’t of Taxation,
Property Tax Rates for Nevada Local
Governments FY 2012–2013 (2012),
available at http://tax.nv.gov/LocalGovt/
PolicyPub/ArchiveFiles/Redbooks/2012_
LGF_Redbook_2012-13/ (state-wide
average tax rate).
Title Fees
Personal
Nev. Admin. Code § 489.380(1) (2012)
(title registration and cancellation).
Tax on Sale
NEVADA
953
Tax Lawyer, Vol. 67, No. 4
NEW HAMPSHIRE
954
SECTION OF TAXATION
Tax on Sale
Real
N.H. Rev. Stat. Ann. § 78-B:4, subpt.
IV (2013) (retailer’s sale of new manufactured home tax exempt; sale of used
manufactured home taxable); id. § 78-B:1
(tax rate).
Ad Valorem Tax
Personal
Only statutorily enumerated types of
personal property are taxed. See N.H. Rev.
Stat. Ann. § 72 (2013). Because § 72:7-a,
subpt. I provides that all manufactured
homes are taxed as real property, whether
the state legislature would tax a manufactured home that is classified as personal
property is unknown.
Real
N.H. Rev. Stat. Ann. § 72:7-a, subpt.
I (2013) (all manufactured homes
taxed as real estate); N.H. Dep’t of
Revenue Admin., 2012 Annual
Report 106 (2012), available at www.
revenue.nh.gov/publications/reports/
documents/2012annualreportfinal.pdf
(state-wide average tax rate).
Tax Lawyer, Vol. 67, No. 4
TAXING MANUFACTURED HOMES
Tax on Sale
NEW JERSEY
Ad Valorem Tax
Title Fees
Tax Lawyer, Vol. 67, No. 4
955
Personal
N.J. Stat. Ann. § 54:4-1.7 (2013) (tax
on sale of new manufactured home is on
dealer’s cost; it only applies to first retail
sale); id. § 54:32B-3 (tax rate; most other
personal property sales taxed on 100% of
retail sale price); Operators of Residential
Mobile Home Sites, Highbeam Business,
last accessed July 10, 2013, http://business.highbeam.com/industry-reports/
finance/operators-of-residential-mobilehome-sites (average dealer markup).
Real
N.J. Stat. Ann. § 46:15-7, -7.1 (2013).
Personal
N.J. Stat. Ann. § 54:4-1.5 (2013) (manufactured home in mobile-home park is not
taxed as real estate); id. § 54:4-1.6 (2013)
(municipal service fee for water and sewer
is included in park lot rental fee).
Real
N.J. Stat. Ann. § 54:4-1.5 (2013) (manufactured home taxed as real estate when
affixed to land by permanent foundation
or affixed by nonpermanent foundation and connected to utilities); General
Property Tax Information, N.J. Dep’t of
the Treasury, Division of Taxation,
Sept. 13, 2012, www.state.nj.us/treasury/
taxation/lpt/genlpt.shtml (all counties
assess on 100% of fair market value); New
Jersey Property Taxes 2013, Tax-Rates.org,
last accessed July 5, 2013, http://www.
tax-rates.org/new_jersey/property-tax
(state-wide average tax rate).
Personal
Vehicle Titles, N.J. Motor Vehicle
Comm’n, last accessed Feb. 3, 2012, www.
state.nj.us/mvc/Vehicle/VehiclesTitles.htm
(title registration); Titling Homes as Real
Property, Corp. for Enter. Dev., January
2009, http://cfed.org/assets/pdfs/mh_realproperty.pdf (title cancellation).
956
SECTION OF TAXATION
Personal
N.M. Stat. Ann. § 7-9-4 (2013) (state
tax rate); id. § 7-9-76.1 (no tax on resale);
N.M. Code R. § 3.2.109.11 (2013) (tax
applies to retail sale of manufactured
home); Ranking State and Local Sales Taxes,
Tax Found., Sept. 22, 2011, http://taxfoundation.org/article/ranking-state-andlocal-sales-taxes-1 (average local tax rate).
Ad Valorem Tax
Personal
& Real
N.M. Stat. Ann. § 7-35-2(J) (2013)
(manufactured home is “residential
property”); id. § 7-37-3 (taxed on onethird of fair market value); id. § 7-37-4
(head-of-family exemption); N.M. Code
R. § 3.6.1.11 (2013) (sample property
tax calculation); N.M. Dep’t of Fin. &
Admin., Annual Report 2011, at 11
tbl.6, available at http://nmdfa.state.
nm.us/uploads/FileLinks/ff1373ca37bb
4c4f800f868687821827/Property_Tax_
Facts_for_Web.pdf (state-wide average tax
rate).
Title Fees
Personal
E-mail from MVD Now to author (Dec.
13, 2012) (on file with author) (title
registration); Telephone Interview with
Anderson Factory Built Homes, Truth or
Consequences, N.M (Dec. 13, 2012) (title
cancellation).
NEW MEXICO
Tax on Sale
Tax Lawyer, Vol. 67, No. 4
TAXING MANUFACTURED HOMES
NEW YORK
Tax on Sale
957
Personal
N.Y. Tax Law § 1105 (2013) (state tax
rate; most other personal property sales
taxed on 100% of retail sale price); id. §
1111(f ) (sale of new manufactured home
taxed on 70% of sale price); id. § 1115(a)
(23) (no tax on resale); Ranking State and
Local Sales Taxes, Tax Found., Sept. 22,
2011, http://taxfoundation.org/article/
ranking-state-and-local-sales-taxes-1 (average local tax rate).
Real
N.Y. Tax Law § 1402 (2013).
Tax on Financing Real
N.Y. State Dep’t of Taxation & Fin.,
Mortgage Recording Tax Return
4 (2009), available at http://www.tax.
ny.gov/pdf/2009/mortgage/mt15_1209.
pdf.
Ad Valorem Tax
Personal
& Real
N.Y. Real Prop. Tax Law § 102(12)(g)
(2013) (manufactured home is “real property”); id. § 425 (homestead exemption);
N.Y. State Dep’t of Taxation & Fin.,
New York State’s School Tax Relief
Program (2012), available at www.tax.
ny.gov/pdf/publications/orpts/star.pdf (tax
relief program for school property taxes);
Statewide Full-Value Tax Rates 2003–2013,
N.Y. State Dep’t of Taxation & Fin.,
last accessed May 3, 2014, http://www.
tax.ny.gov/research/property/reports/
fvtaxrates/statewide_12.htm (state-wide
average tax rate and state-wide school tax
rate).
Title Fees
Personal
Q & A About Your Certificate of Title, N.Y.
Dep’t of Motor Vehicles, last accessed
July 5, 2013, www.dmv.ny.gov/broch/
c19.htm (title registration); Telephone
Interview with N.Y. Dep’t of Motor
Vehicles, Title Bureau (title cancellation).
Tax Lawyer, Vol. 67, No. 4
958
SECTION OF TAXATION
Personal
N.C. Gen. Stat. § 105-164.4(a)(1)
(2013) (4.75% sales tax for most personal
property sales); id. § 105-164.4(a)(1a)
(sale of new manufactured home taxed at
2%, up to maximum of $300 per home
section; no tax on resale); Sales and Use
Tax, N.C. Dep’t of Revenue, Apr. 1,
2013, www.dornc.com/taxes/sales/salesanduse.html (manufactured homes not
subject to local tax).
Real
N.C. Gen. Stat. § 105-228.30(a) (2013).
Ad Valorem Tax
Personal
& Real
N.C. Dep’t of Revenue, North
Carolina State and Local Taxes 2011
(2012), available at http://www.dornc.
com/publications/stateandlocal2011.pdf
(manufactured homes taxed on 100%
of fair market value whether classified as
real or personal property); N.C. Dep’t
of Revenue, Statistical Abstract of
North Carolina Taxes 2011 tbl.68
(2012), available at www.dornc.com/
publications/abstract/2011/part5.html
(state-wide average tax rate; same rate for
real and personal property).
Title Fees
Personal
Titles, N.C. Div. of Motor Vehicles,
last accessed July 5, 2013, www.ncdot.
gov/dmv/vehicle/title/ (title registration);
Telephone Interview with N.C. Div. of
Motor Vehicles (title cancellation).
NORTH CAROLINA
Tax on Sale
Tax Lawyer, Vol. 67, No. 4
NORTH DAKOTA
TAXING MANUFACTURED HOMES
959
Tax on Sale
Personal
N.D. Cent. Code § 57-39.2-02.1(1)
(a) (2011) (tax on most sales of personal property is 5% of retail price); id.
§ 57-39.2-02.1(2) (tax on sale of new
manufactured home to be installed in
state is 3% of dealer’s cost); id. § 57-39.204(35) (no tax on resale); Operators of
Residential Mobile Home Sites, Highbeam
Business, last accessed July 10, 2013,
http://business.highbeam.com/industryreports/finance/operators-of-residentialmobile-home-sites (average dealer
markup).
Ad Valorem Tax
Personal
& Real
N.D. Cent. Code § 57-02-27 (2011)
(assessment ratio); N.D. Office of State
Tax Comm’r, Taxation of Mobile
Homes Guideline (2009), available at
www.nd.gov/tax/property/pubs/guide/
taxationofmobilehomes.pdf (assessment ratio); N.D. Office of State Tax
Comm’r, 2011 Property Tax Statistical
Report Tables 8, 11 (2012), available at
www.nd.gov/tax/property/pubs/statrep-11.pdf (state-wide average mill rate).
Title Fees
Personal
N.D. Dep’t of Motor Vehicles,
Manufactured Homes and Mobile
Homes, available at www.dot.nd.gov/divisions/mv/docs/faqhomes.pdf (title registration and cancellation).
Tax Lawyer, Vol. 67, No. 4
960
SECTION OF TAXATION
Personal
Ohio Rev. Code Ann. § 5739.02(A)(1)
(2013) (tax rate; most personal property
sales taxed on 100% of retail sale price);
id. § 5739.02(B)(39) (no tax on resale);
id. § 5739.0210(E) (tax for sale of new
manufactured home is on dealer’s cost and
is paid by dealer; dealer can include tax
amount in retail sale price); id. § 322.06
(transfer tax on sale of used manufactured
home classified as personal property; same
rate as real estate transfer tax); Ranking State
and Local Sales Taxes, Tax Found., Sept.
22, 2011, http://taxfoundation.org/article/
ranking-state-and-local-sales-taxes-1 (average local tax rate); Operators of Residential
Mobile Home Sites, Highbeam Business,
last accessed July 10, 2013, http://business.
highbeam.com/industry-reports/finance/
operators-of-residential-mobile-home-sites
(average dealer markup).
Real
Ohio Rev. Code Ann. § 319.54(G)(3)
(2013) (state tax rate); id. §§ 319.54(G)
(2), 322.02 (local tax rates); Ohio
Additional County Taxes ¶ 35,120,
Checkpoint, https://checkpoint.riag.
com/app/main/doc?usid=30c397w1af1c7
&DocID=i11aef4a95a566f8ae4f3e6f46c5
6a828&collId=T0EIDOH&docTid=T0S
LEXANNW%3A28282.1dr8&feature=tc
heckpoint&lastCpReqId=168526&search
Handle=ia744d05e0000013f62433b6898
3ac99f (average local tax rate).
Ad Valorem Tax
Personal
& Real
Ohio Rev. Code Ann. § 4503.06
(2013) (assessment ratio); Ohio Dep’t
of Taxation, 2012 Annual Report,
Property Tax—Real Property 96–97
(2012), available at http://www.tax.
ohio.gov/Portals/0/communications/
publications/annual_reports/2012_
annual_report/2012_AR_Section_2_
Property_Tax-Real_Property.pdf
(state-wide average effective tax rate; 10%
rollback; 2.5% homestead rollback; taxation of homes classified as personal property and first sited in Ohio before 2000).
Title Fees
Personal
Ohio Rev. Code Ann. § 4505.09 (2013)
(title registration).
OHIO
Tax on Sale
Tax Lawyer, Vol. 67, No. 4
TAXING MANUFACTURED HOMES
OKLAHOMA
Tax on Sale
961
Personal
Okla. Stat. tit. 68, § 1354(A) (2013)
(tax for most personal property sales is
4.5% of retail price); id. § 1355(2) (tax on
manufactured home is excise tax, rather
than sales tax); id. § 2103 (3.25% tax rate
for new manufactured home and other
new vehicles; tax on used manufactured
home and other used vehicles is $20 on
first $1,500 of sale price, plus 3.25%
on remainder); id. § 2104.3 (new
manufactured home taxed on 50% of
retail price; used manufactured home
classified as personal property taxed on
65% of 50% of retail price when home
was new).
Real
Okla. Stat. tit. 68, § 3201 (2013).
Tax on Financing Real
Okla. Stat. tit. 68, § 1904(A)(1), (B)
(2013).
Ad Valorem Tax
Personal
E-mail from Teresa Strawther, Okla. Tax
Comm’n, Ad Valorem Div., to author
(March 20, 2013) (on file with author)
(effective mill rate and assessment ratio).
Real
E-mail from Teresa Strawther, Okla. Tax
Comm’n, Ad Valorem Div., to author
(March 20, 2013) (on file with author)
(effective mill rate and assessment ratio);
Okla. Admin. Code § 710:10-9-10
(2013) (homestead exemption; applies
only to real property); Okla. Tax Comm’n
Ad Valorem Div., Oklahoma Property
Taxes 2014 Taxpayer’s Rights, Remedies
and Responsibilities 18 (2013), available at www.tax.ok.gov/advform/TES-14.
pdf.
Personal
MV: General Title Information, Okla.
Tax Comm’n, July 1, 2008, www.tax.
ok.gov/mv5a.html (title registration);
Okla. Tax Comm’n, Ad Valorem
Div., Manufactured Home Quick
Reference Guide 16 (2011), available at www.tax.ok.gov/advform/2011_
MFGGUIDE.pdf (title cancellation).
Title Fees
Tax Lawyer, Vol. 67, No. 4
OREGON
962
SECTION OF TAXATION
Ad Valorem Tax
Personal
& Real
Or. Rev. Stat. § 308.232 (2013) (taxed
on 100% fair market value); Or. Dep’t
of Revenue, Property Tax Statistics
Fiscal Year 2012–13 30 (2013), available at http://www.oregon.gov/dor/
STATS/docs/303-405-13/property-taxstats_303-405_2012-13.pdf (state-wide
average tax rate).
Title Fees
Personal
Or. Rev. Stat. § 446.646 (2013) (title
registration); E-mail from Greg Kramer,
Prop. Tax Div., ATS, Or. Dep’t of
Revenue, to author (Sept. 7, 2010) (on file
with author) (title cancellation).
Tax Lawyer, Vol. 67, No. 4
TAXING MANUFACTURED HOMES
Personal
72 Pa. Stat. Ann. § 7201(g)(1) (2013)
(most personal property sales taxed on
100% of retail sale price); id. § 7201(g)
(8) (sale of new manufactured home taxed
on 60% of dealer’s cost); id. § 7202(a)
(state tax rate); id. § 7204(60) (no tax
on resale); Ranking State and Local Sales
Taxes, Tax Found., Sept. 22, 2011, http://
taxfoundation.org/article/ranking-stateand-local-sales-taxes-1 (average local tax
rate); Operators of Residential Mobile Home
Sites, Highbeam Business, last accessed
July 10, 2013, http://business.highbeam.
com/industry-reports/finance/operatorsof-residential-mobile-home-sites (average
dealer markup).
Real
72 Pa. Stat. Ann. § 8102-C (2013) (state
tax rate); E-mail from Amy Gill, Pa. Dep’t
of Revenue, to author (Apr. 12, 2010) (on
file with author) (average local tax rate).
Ad Valorem Tax
Personal
& Real
72 Pa. Stat. Ann. § 5020-201 (2013)
(“real estate” includes manufactured
home permanently attached to land or
connected to a utility); id. § 5020-402.1
(tax assessed on 100% fair market value);
Pennsylvania Property Taxes 2013, TaxRates.org, last accessed July 5, 2013,
http://www.tax-rates.org/pennsylvania/
property-tax (state-wide average effectivetax rate).
Title Fees
Personal
Pa. Dep’t of Transp., Certificate of
Title and Lien Fees (2009), available at
www.dmv.state.pa.us/pdotforms/
fact_sheets/fs-ctlf.pdf (title registration);
Telephone Interview with Pa. Dep’t of
Motor Vehicles (June 24, 2013) (title
cancellation).
Tax on Sale
PENNSYLVANIA
963
Tax Lawyer, Vol. 67, No. 4
RHODE ISLAND
964
SECTION OF TAXATION
Tax on Sale
Personal
& Real
R.I. Gen. Laws § 31-44-20 (2012) (every
conveyance of title to manufactured
home is subject to “mobile home conveyance tax” of 0.28%); id. § 44-18-30(50)
(manufactured home sales exempt from
sales tax); id. § 44-18-18 (7% sales tax on
retail price for most personal property).
Ad Valorem Tax
Personal
& Real
Rhode Island Tax Rate by Class of Property,
State of R.I. Dep’t of Revenue, last
accessed July 5, 2013, www.muni-info.
ri.gov/finances/taxrates.php; E-mail from
Linda Cweik, N. Kingstown, R.I. Tax
Assessor, to author (Mar. 22, 2013) (on
file with author); E-mail from Patricia
S. Picard, Coventry, R.I. Tax Assessor,
to author (Mar. 22, 2013) (on file
with author); E-mail from Elaine M.
Mondillo, Lincoln, R.I. Tax Assessor,
to author (Mar. 22, 2013) (on file with
author); E-mail from Charlene Randall,
W. Greenwich, R.I. Assessor/Collector,
to author (Mar. 22, 2013) (on file with
author); E-mail from George Durgin,
Middletown, R.I. Tax Assessor, to author
(Mar. 22, 2013) (on file with author);
E-mail from Susan Makar, Burrillville,
R.I. Tax Assessor, to author (Mar. 22,
2013) (on file with author); E-mail from
Matthew A. Helfand, Portsmouth, R.I.
Tax Assessor/Collector, to author (Mar.
22, 2013) (on file with author); E-mail
from John-Paul Bouchard, S. Kingstown,
R.I. Town Assessor, to author (Mar. 22,
2013) (on file with author); E-mail from
David Robert, Tiverton, R.I. Tax Assessor,
to author (Mar. 21, 2013) (on file with
author); Telephone Interview with James
Savage, Supervisor, Fin. Reporting, State
Aid & Prop. Tax Analysis, R.I. Dep’t of
Revenue (March 21, 2013) (municipalities either tax manufactured homes
as residential real estate or have same tax
rate for residential real estate and personal
property).
Tax Lawyer, Vol. 67, No. 4
TAXING MANUFACTURED HOMES
Personal
S.C. Code Ann. § 12-36-2110(B)
(2012); S.C. Code Ann. Regs. § 117-335
(2013) (tax is 2% on 65% of sale price,
plus $300, if manufactured home does
not satisfy energy-efficiency standards,
$300 if home satisfies statutory energyefficiency standards, or 0 if home satisfies
Environmental Protection Agency and
Department of Energy energy-efficiency
standards); S.C. Code Ann.
§§ 12-36-910, -1110 (2012) (tax on retail
sale; 6% state sales tax on retail price for
most personal property).
Real
S.C. Code Ann. § 12-24-10(A) (2012)
(state tax); id. § 12-24-90 (county tax).
Ad Valorem Tax
Personal
& Real
S.C. Code Ann. § 12-43-230(b)
(2012) (all manufactured homes taxed
as real estate); id. § 12-43-220(c)
(1) (assessment ratio); S.C. Dep’t of
Revenue, South Carolina Property
Tax 2012, at 2 (2012), available at www.
sctax.org/NR/rdonlyres/6FDEC0684A31-4BC2-B89B-60A63836F0E7/0/
SCPropertyTaxBook2012Edition.pdf
(state-wide average mill rate).
Title Fees
Personal
Manufactured Home Titling, S.C. Dep’t
of Motor Vehicles, last accessed July
5, 2013, http://www.scdmvonline.com/
DMVNew/default.aspx?n=manufactured_
home_titling (title registration and cancellation).
Tax on Sale
SOUTH CAROLINA
965
Tax Lawyer, Vol. 67, No. 4
966
SECTION OF TAXATION
Personal
S.D. Codified Laws § 10-45-5 (2013)
(manufactured home exempt from sales
tax); id. § 32-5-16.1 (manufactured home
subject to initial registration fee of 4% on
100% of fair market value); id. § 10-45-2
(4% sales tax on retail price for most personal property).
Real
S.D. Codified Laws § 43-4-21 (2013).
Ad Valorem Tax
Personal
& Real
S.D. Codified Laws §§ 10-4-2.4 (2013)
(manufactured home taxed as real estate);
id. § 10-13-39 (manufactured home is
“owner-occupied single family dwelling” for property taxation); S.D. Dep’t
of Revenue, 2012 Annual Report 29
(2012), available at http://dor.sd.gov/
Publications/Annual_Reports/ (state-wide
average effective tax rate for owner-occupied property).
Title Fees
Personal
S.D. Dep’t of Revenue, 2012 Annual
Report 13 (2012), available at
http://dor.sd.gov/Publications/Annual_
Reports/ (title registration); Telephone
Interview with S.D. Dep’t of Motor
Vehicles (title cancellation).
SOUTH DAKOTA
Tax on Sale
Tax Lawyer, Vol. 67, No. 4
TAXING MANUFACTURED HOMES
TENNESSEE
Tax on Sale
967
Personal
Tenn. Code Ann. § 67-6-216 (2013)
(state tax on retail sale of manufactured
home is one-half of sales tax that applies
to other retail sales); id. § 67-6-202 (7%
state tax; local tax for all personal property,
including manufactured home); Ranking
State and Local Sales Taxes, Tax Found.,
Sept. 22, 2011, http://taxfoundation.
org/article/ranking-state-and-local-salestaxes-1 (average local tax rate).
Real
Tenn. Code Ann. § 67-4-409(a) (2013).
Tax on Financing Personal
& Real
Tenn. Code Ann. § 67-4-409(b) (2013).
Ad Valorem Tax
Personal
& Real
Tenn. Code Ann. § 67-5-802 (2013)
(manufactured home taxed as real estate);
id. § 67-5-801(a)(3) (assessment ratio);
Tenn. Bd. of Equalization, 2011
Tax Aggregate Report 69-78 (2012),
available at www.comptroller.tn.gov/pa/
pdf/2011TaxAggregateReport.pdf (statewide average effective tax rate).
Title Fees
Personal
Tenn. Dep’t of Revenue, Vehicle Title
& Registration Reference Guide,
Titling Fees (2013), available at www.
tn.gov/revenue/vehicle/referenceguide/
titleregfees.pdf (title registration);
Manufactured Homes Affixed to Real
Property, Tenn. Dep’t of Revenue, last
accessed July 5, 2013, http://www.tn.gov/
revenue/vehicle/generalinfo/mobilehomes.
shtml (title cancellation).
Tax Lawyer, Vol. 67, No. 4
TEXAS
968
SECTION OF TAXATION
Tax on Sale
Personal
& Real
Tex. Tax Code Ann. § 158.051 (2013)
(5% tax on sale of new manufactured
home; no tax on resale); id. § 158.052
(tax paid by retailer when purchased home
from manufacturer; tax assessed on 65%
of retailer’s cost); id. § 158.154(a) (no
local tax on sale of new manufactured
home); id. § 151.051 (6.25% state tax
on sale of most other personal property);
Ranking State and Local Sales Taxes, Tax
Found., Sept. 22, 2011, http://taxfoundation.org/article/ranking-state-and-localsales-taxes-1 (1.89% average local tax rate
on sales of most other personal property);
Operators of Residential Mobile Home
Sites, Highbeam Business, last accessed
July 10, 2013, http://business.highbeam.
com/industry-reports/finance/operatorsof-residential-mobile-home-sites (average
dealer markup).
Ad Valorem Tax
Personal
Tex. Tax Code Ann. § 11.14(a) (2013)
(taxation of manufactured home classified as personal property); id. § 11.13
(homestead exemption); id. § 11.432
(homestead exemption); Texas Property
Taxes 2013, Tax-Rates.org, last accessed
July 5, 2013, http://www.tax-rates.org/
texas/property-tax (state-wide average
effective tax rate); E-mail from Ed Wolff,
Residential Analyst, Residential Prop.
Div., Harris Cnty., Tex. Appraisal Dist.,
to author (Mar. 18, 2013) (on file with
author) (same tax rate and exemptions for
manufactured homes classified as real or
personal property).
Real
Tex. Tax Code Ann. § 1.04(3)(B) (2013)
(manufactured home taxed as real property
if sited on land owned by homeowner);
id. § 11.13 (homestead exemption); id.
§ 11.432 (homestead exemption); Texas
Property Taxes 2013, Tax-Rates.org,
last accessed July 5, 2013, http://www.
tax-rates.org/texas/property-tax (state-wide
average effective tax rate).
Tax Lawyer, Vol. 67, No. 4
TAXING MANUFACTURED HOMES
TEXAS (continued)
Title Fees
Tax Lawyer, Vol. 67, No. 4
Personal
& Real
969
Tex. Occ. Code Ann. § 1201.205 (2013)
(Statement of Ownership and Location
must be issued for new manufactured
home whether classified as real or personal
property); id. § 1201.2075 (to convert
manufactured home from personal
property to real property, new Statement
of Ownership and Location must be
issued); Tex. Dep’t of Hous. & Cmty.
Affairs Manufactured Hous. Div., Fee
Schedule (2012), available at www.tdhca.
state.tx.us/mh/docs/1022-solfees.pdf.
970
SECTION OF TAXATION
Personal
Utah Code Ann. § 59-12-104(34)(a), (b)
(2013) (new manufactured home taxed
on 55% of sale price; no tax on resale);
id. § 59-12-103 (sales of most other
personal property taxed on 100% of sale
price); State of Utah, Utah Combined
Sales and Use Tax Rates (2013),
available at www.tax.utah.gov/salestax/
rate/13q2combined.pdf (state-wide average tax rate).
Ad Valorem Tax
Personal
& Real
Utah Code Ann. § 59-2-102(31) (2013)
(“residential property” is any property used
as primary residence); id. § 59-2-103(2)
(“residential property” taxed on 55% of
fair market value); id. § 59-2-1503 (for
tax purposes, a manufactured home is
personal property if sited on leased land
in a manufactured-home park and real
property if it is permanently affixed to
land not in a manufactured-home park);
Utah State Tax Comm’n, 2012 Annual
Report 61 (2012), available at www.tax.
utah.gov/commission-office/reports (statewide average tax rate).
Title Fees
Personal
Utah Division of Motor Vehicles Fee
Summary, Utah State Tax Comm’n
Motor Vehicle Div., Feb. 8, 2013,
http://dmv.utah.gov/site-menu/feesummary?highlight=WyJmZWVzI10=
(title registration); E-mail from Andre
Baksh, Econ. & Statistical Unit, Utah
State Tax Comm’n, to Daniel Nordin
(June 16, 2010) (on file with author) (title
cancellation).
UTAH
Tax on Sale
Tax Lawyer, Vol. 67, No. 4
TAXING MANUFACTURED HOMES
VERMONT
Tax on Sale
Ad Valorem Tax
Tax Lawyer, Vol. 67, No. 4
971
Personal
Vt. Stat. Ann. tit. 32, § 9741(32) (2013)
(manufactured home taxed on 60% of sale
price); id. § 9771 (tax rate; tax on retail
sales only; most other personal property
taxed on 100% of sale price); id. tit.
24, § 138(b) (2013) (local option tax);
Business Taxes - Local Option, Vt. Dep’t of
Taxes Agency of Admin., June 1, 2012,
http://www.state.vt.us/tax/businesslocaloption.shtml (local option tax rates).
Real
Vt. Stat. Ann. tit. 32, § 9602(1) (2013);
1-3-106 Vt. Code R. § 1.9601(1)-1(c)
(2013); Memorandum: Property Transfer
Tax Returns and Mobile Homes, Vt. Dep’t
of Taxes Agency of Admin. (2011),
available at http://www.state.vt.us/tax/pdf.
word.excel/pvr/PTTR%20mobile%20
home%20memo.pdf (when dealer sells
manufactured home, sales tax due if home
financed as chattel but transfer tax due if
home financed as real estate).
Real
Vt. Stat. Ann. tit. 32, § 5401(7)(C)
(2013) (owner-occupied manufactured
home is a “homestead”); id. § 5402(a)
(2) (state education property tax);
Vt. Dep’t of Taxes Div. of Prop.
Valuation & Review, 2013 Annual
Report 5 (2013), available at www.
state.vt.us/tax/pdf.word.excel/pvr/
reports/2013/2013AnnualReport_
Rev20130118.pdf (school, municipal, and total effective tax rates);
Vt. Dep’t of Taxes Div. of Prop.
Valuation & Review, Education
Tax Rates Frequently Asked
Questions (2012), available at http://
www.state.vt.us/tax/pdf.word.excel/
pvr/FY13%20FREQUENTLY%20
ASKED%20QUESTIONS%20ON%20
EDUCATION%20TAX%20RATESfinal.pdf; E-mail from Kenneth Jones,
Policy Analysis, Vt. Dep’t of Taxes, to
author (Apr. 16, 2010) (on file with
author) (all owner-occupied manufactured
homes taxed as real property).
972
SECTION OF TAXATION
VIRGINIA
Tax on Sale
Personal
Va. Code Ann. § 58.1-2401 (2013)
(manufactured home is a “motor vehicle”
for sales tax); id. § 58.1-2402 (4% motor
vehicle sales tax rate); id. § 58.1-2403(6)
(tax does not apply to manufactured home
permanently attached to real estate and
included in sale of real estate); id. § 58.12405 (unless exempted by § 58.1-2403(6),
tax due on sale of used manufactured
home); id. § 58.1-603 (5.3% tax rate on
most other personal property sales).
Real
Va. Code Ann. § 58.1-801 (2013) (state
tax); id. § 58.1-802(A) (grantor tax); id.
§ 58.1-3800 (local tax).
Tax on Financing Real
Va. Code Ann. § 58.1-803(A) (2013)
(state tax); id. § 58.1-3800 (local tax).
Ad Valorem Tax
Personal
& Real
Va. Code Ann. § 58.1-3201 (2013)
(real estate taxed on 100% of fair market
value); id. § 58.1-3522 (manufactured
home installed in accordance with
building code assessed as real estate); Op.
Va. Att’y Gen. (Dec. 28, 2001), 2001 WL
1943928 (manufactured home classified
as personal property assessed and taxed at
same rate as manufactured home classified
as real property); Va. Dep’t of Taxation,
2012 Annual Report 43 (2012), available at http://www.tax.virginia.gov/
Documents/Annual%20Report%20
FY%202012%2002282013%20905.pdf
(state-wide average tax rate).
Title Fees
Personal
Titling a Vehicle in Virginia, Va. Dep’t of
Motor Vehicles Now, last accessed July
5, 2013, dmvnow.com/vehicles/#titling.
asp (title registration); Telephone Interview
with Va. Dep’t of Motor Vehicles (June 27,
2013) (title cancellation).
Tax Lawyer, Vol. 67, No. 4
TAXING MANUFACTURED HOMES
973
Personal
Wash. Rev. Code § 82.08.020 (2013)
(state tax rate); id. § 82.08.033(1) (no
tax on sale of used manufactured home);
Ranking State and Local Sales Taxes, Tax
Found., Sept. 22, 2011, available at
http://taxfoundation.org/article/rankingstate-and-local-sales-taxes-1 (average local
tax rate).
Real
Wash. Rev. Code § 82.45.060 (2013).
Ad Valorem Tax
Personal
& Real
Wash. Rev. Code § 84.04.090 (2013)
(for purposes of property tax, “real property” includes manufactured home on
owned or leased land); id. § 84.40.030
(taxed on 100% of fair market value);
Wash. State Dep’t of Revenue, Assessment
of Mobile and Manufactured Homes, 14
Prop. Tax Rev. 1, 3 (2013), available at
http://dor.wa.gov/docs/pubs/prop_tax/
newsletterwinter2013.pdf (manufactured homes taxed as real property);
Wash. State Dep’t of Rev., Property
Tax Statistics 2012, at 19 tbl.7
(2012), available at http://dor.wa.gov/
docs/reports/2012/Property_Tax_
Statistics_2012/PropTx2012.pdf (statewide average tax rate).
Title Fees
Personal
Fees: Vehicle and Boats, Wash. State Dep’t
of Licensing, last accessed July 5, 2013,
http://www.dol.wa.gov/vehicleregistration/
fees.html (title registration and cancellation; extra $100 fee if manufactured home
sited in manufactured-home park).
WASHINGTON
Tax on Sale
Tax Lawyer, Vol. 67, No. 4
974
SECTION OF TAXATION
Personal
W. Va. Code § 11-15-3 (2013) (tax
rate; manufactured home to be used
as principal residence taxed on 50% of
sale price; most other personal property
sales taxed on 100% of sale price); id.
§ 11-15-4c (additional $20 fee); id. §
37-15-2 (manufactured home is “factorybuilt home” for purposes of $20 fee); id.
§ 11-15-2(b)(17) (tax on retail sales only).
Real
W. Va. Code § 11-22-2 (2013).
Ad Valorem Tax
Personal
& Real
W. Va. Code § 11-1A-3(a) (2013)
(assessment ratio); id. § 11-4-2
(manufactured home permanently affixed
to land owned by homeowner is real
property); id. § 11-5-11 (owner-occupied
manufactured home on leased land is
personal property and is taxed as Class II);
W. Va. State Auditor, Rates of Levy
State, County, School, and Municipal
2012 Tax Year 1 (2012), available at
http://www.wvsao.gov/localgovernment/
files/reports/Rate_Book_2012_VALUES_
revised_6_25_2012.pdf (property used
and occupied by owner exclusively for
residential purposes is Class II); W. Va.
Tax Comm’r, W. Va. Tax Law FortyNinth Biennial Report 90 (2011),
available at http://www.state.wv.us/taxrev/
publications/taxLawReport.pdf (state-wide
average tax rate).
Title Fees
Personal
Titling a New Vehicle, W. Va. Dep’t of
Motor Vehicles, last accessed July 5,
2013, www.transportation.wv.gov/dmv/
vehicles/Pages/VehicleLicenseInfo.aspx
(title registration); Telephone Interview
with W. Va. Dep’t of Motor Vehicles (title
cancellation).
WEST VIRGINIA
Tax on Sale
Tax Lawyer, Vol. 67, No. 4
TAXING MANUFACTURED HOMES
Tax on Sale
Personal
Wis. Stat. § 77.51(12m)(b)(7) (2013)
(new manufactured home taxed on 65%
of sale price); id. § 77.52(1)(a) (state tax
rate; most personal property sales taxed on
100% of sale price); id. § 77.54(31) (no
tax on sale of used manufactured home);
Ranking State and Local Sales Taxes, Tax
Found., Sept. 22, 2011, available at
http://taxfoundation.org/article/rankingstate-and-local-sales-taxes-1 (average local
tax rate).
Real
Wis. Stat. § 77.22 (2013).
Personal
Wis. Stat. § 70.043(2) (2013) (manufactured home is personal property if sited
on leased land); id. § 70.34 (assessed on
100% of fair market value); id. § 70.112(7)
(if municipality imposes monthly permit
fee, property taxes are not assessed); id.
§ 66.0435(3)(c) (monthly permit fee is
equivalent to property tax amount); Wis.
Dep’t of Revenue Div. of State & Local
Fin. Bureau of Local Gov’t Servs.,
Town, Village, and City Taxes 2012,
at T-6, available at http://www.revenue.
wi.gov/pubs/slf/tvc12.pdf (state-wide average tax rate); First Dollar Credit, Question
4, Wis. Dep’t of Revenue, Jan. 12, 2012,
www.revenue.wi.gov/faqs/slf/fdolcred.
html#fdcq4 (manufactured home classified
as personal property does not qualify for
First Dollar Credit).
Real
Wis. Stat. § 70.043(1) (2013) (manufactured home is real estate if sited on land
owned by homeowner and connected to
utilities); id. § 70.32 (assessed on 100% of
fair market value); Wis. Dep’t of Revenue
Div. of State & Local Fin. Bureau of
Local Gov’t Servs., Town, Village, and
City Taxes 2012 at T-6, available at http://
www.revenue.wi.gov/pubs/slf/tvc12.pdf
(state-wide average tax rate); First Dollar
Credit, Question 4, Wis. Dep’t of Revenue,
Jan. 12, 2012, www.revenue.wi.gov/faqs/
slf/fdolcred.html#fdcq4 (manufactured
home classified as real estate qualifies for
First Dollar Credit).
WISCONSIN
Ad Valorem Tax
Tax Lawyer, Vol. 67, No. 4
975
976
SECTION OF TAXATION
WISCONSIN (continued)
Title Fees
Personal
Wis. Dep’t of Safety & Prof ’l Servs.,
Wisconsin Manufactured Home
Certificate of Title Application
(2012), available at http://dsps.wi.gov/
sb/docs/sb-FormManufacturedHome10687.pdf (title registration);
Wis. Dep’t of Safety & Prof ’l Servs.,
Wisconsin Acknowledgment of
Manufactured Home Title Surrender
(2012), available at http://dsps.
wi.gov/Documents/Credentialing%20
Forms/Manufactured%20Homes%20
Application%20Forms/10885.pdf (title
cancellation).
Tax Lawyer, Vol. 67, No. 4
WYOMING
TAXING MANUFACTURED HOMES
977
Tax on Sale
Personal
Wyo. Stat. Ann. § 39-15-103(a)(i)(A)
(2013) (most personal property sales taxed
on 100% of sale price); id. § 39-15-103(b)
(iv) (manufactured home sale taxed on
70% of sale price; no tax on resale); id.
§ 39-15-104 (tax rate); Ranking State and
Local Sales Taxes, Tax Found., Sept. 22,
2011, http://taxfoundation.org/article/
ranking-state-and-local-sales-taxes-1 (average local tax rate).
Ad Valorem Tax
Personal
& Real
Wyo. Stat. Ann. § 39-13-104(a)
(2013) (state tax); id. § 39-13-103(b)
(iv) (assessment ratio); Wyo. Bd. of
Equalization, Abstract and Mill Levy
Report (2012), available at
http://taxappeals.state.wy.us/2012%20
Abstract%20and%20Mill%20Levy%20
Report.xls (state-wide average tax rate).
Title Fees
Personal
Wyo. Stat. Ann. § 31-3-102(a) (2013)
(title registration); Telephone Interview
with Albany Cnty., Wyo. Clerk’s Office
(title cancellation).
Tax Lawyer, Vol. 67, No. 4
978
SECTION OF TAXATION
Tax Lawyer, Vol. 67, No. 4
COMMENT
979
COMMENT
Joyce v. Finnigan: Adoption of the “Best”
Approach in Hopes of Some Uniformity
I. Introduction
Nowadays, a company is almost certain to conduct business across state
lines, which may subject the company to tax in multiple jurisdictions. This,
in turn, leads to the issue of state taxation of a multistate corporate taxpayer,
where one of the concerns is the apportionment of the taxpayer’s income in a
way that accurately and fairly reflects the taxpayer’s activity within the state.1
Because of the practical difficulties of determining precisely how much of the
tax base corresponds to each state where the taxpayer is subject to tax, state
laws provide for formulary apportionment.
Historically, the most common apportionment formula was the equallyweighted, three-factor formula composed of a property factor, payroll factor,
and sales factor. The sales factor has proven to be the center of controversy,
especially as states continue to weigh it more heavily in their apportionment
formulas or, in some cases, rely on it exclusively.
One of the main controversies surrounding the sales factor composition in
states that adopt a combined reporting regime is the ongoing Joyce–Finnigan
debate,2 which centers around the question of whose sales ought to be
included in the sales factor numerator of a group of corporations subject to
combined reporting, where some members of the group have nexus3 with the
taxing state and other members do not. California took the lead in this area,
first holding in Joyce that only sales of taxable members (i.e., those companies
that individually have nexus in the state) of the unitary group are included in
1 The Commerce Clause and the Due Process Clause limit a state’s power to tax a corporation conducting business both within and without the state. See infra Part II.A.
2 Joyce and Finnigan refer to the two California cases setting the foundation for this issue.
See In re Joyce, Inc., No. 66-SBE-070, 1966 WL 1411 (Cal. State Bd. of Equalization Nov.
23, 1966), overruled by In re Finnigan Corp., No. 88-SBE-022-A, 1990 WL 15164 (Cal. State
Bd. of Equalization Jan. 24, 1990), overruled by In re Huffy Corp., No. 99-SBE-005, 1999
WL 386938 (Cal. State Bd. of Equalization Apr. 22, 1999); In re Finnigan Corp. (Finnigan
I), No. 88-SBE-022, 1988 WL 152336 (Cal. State Bd. of Equalization Aug. 25, 1988), aff’d
(Finnigan II), No. 88-SBE-022-A, 1990 WL 15164 (Cal. State Bd. of Equalization Jan. 24,
1990), overruled by In re Huffy Corp., No. 99-SBE-005, 1999 WL 386938 (Cal. State Bd. of
Equalization Apr. 22, 1999).
3 The term nexus refers to the constitutional requirement that there be a “substantial nexus”
(some minimal connection) between the taxed activity and the taxing jurisdiction before a
state may impose a tax on a business. See Complete Auto Transit, Inc. v. Brady, 430 U.S. 274,
279 (1977); Adam B. Thimmesch, The Illusory Promise of Economic Nexus, 13 Fla. Tax Rev.
157, 158 (2012) (“Under the Dormant Commerce Clause, a state can only tax a business that
has a ‘substantial nexus’ within it.”).
Tax Lawyer, Vol. 67, No. 4
979
980
SECTION OF TAXATION
the sales factor numerator.4 California then switched positions in Finnigan,
finding that all sales into the taxing state made by members of the group are
included in the sales factor numerator so long as any member of the unitary
group has nexus within the taxing state, even if the selling entity is not independently taxable in the jurisdiction.5
Not surprisingly, there is substantial inconsistency in states’ adoption of
the Joyce or Finnigan approach.6 But, this is not the only area in state taxation
of multistate corporations where lack of uniformity is prominent. Rather,
nonuniformity exists in a significant number of areas, such as the formulation
of apportionment formulas, sourcing of receipts for purposes of computing
the sales factor, and classification of business income that should be apportioned as opposed to nonbusiness income that should be allocated, among
others. Such nonuniformity has been somewhat lessened by the drafting
of two model acts—the Uniform Division of Income for Tax Purposes Act
(UDITPA)7 and the Multistate Tax Compact (Compact)8—which have been
adopted by a number of states9 and address many of the mentioned areas of
nonuniformity, but neither addresses the Joyce–Finnigan issue.
This Comment explores the Joyce–Finnigan debate. It argues that Joyce is
the better rule and should be incorporated in the Compact’s apportionment
provisions in order to achieve some uniformity on this issue in the area of
state taxation of corporations engaged in interstate commerce for states that
have adopted the Compact. Part II provides the necessary context for analyzing the Joyce–Finnigan debate. It discusses the restraints imposed on states’
taxing power by the Constitution, the steps that have been taken to achieve
some uniformity in state taxation of multistate corporations, and the unitary
business concept of formulary apportionment. Part III traces the origins and
development of the Joyce–Finnigan debate from California to other jurisdictions. This Comment argues in Part IV.A that while complete uniformity in
the area of state taxation of multistate corporations is the ideal solution, it is
likely an unrealistic goal. However, a significant area of nonuniformity that
leads to problematic results for multistate corporations is the Joyce–Finnigan
issue. The achievement of consistency in this area would be beneficial in
terms of providing for more equitable taxation and reduced complexity.
Part IV.B proposes that even though neither the Joyce nor Finnigan rule is
free of flaws, Joyce is the better rule primarily because Finnigan effectively
results in a state taxing income that would otherwise be out of its reach due
See Joyce, 1966 WL 1411, at *4.
See Finnigan I, 1988 WL 152336, at *3.
6 As discussed in Part III.C of this Comment, the Joyce rule is currently followed by approximately 15 of the states with combined reporting regimes, while Finnigan is followed by about
ten of those states.
7 Unif. Div. of Income for Tax Purposes Act (1957).
8 Multistate Tax Compact (Multistate Tax Comm’n 1967).
9 A state is not required to comply with the provisions of the Compact or UDITPA unless
the respective state’s legislature specifically adopts the model acts in full or in part.
4 5 Tax Lawyer, Vol. 67, No. 4
COMMENT
981
to federal or constitutional limitations. Finally, Part IV.C argues that there
are two options for achieving uniformity in the Joyce–Finnigan area. One is
through Congress; however, given Congress’s history of latitude toward the
states and general inaction in the area of state taxation of multistate corporations, Congress is unlikely to take any steps imposing on states’ taxing powers. Therefore, the most realistic option for settling the Joyce–Finnigan debate
is for the Multistate Tax Commission to revise its apportionment provisions
to adopt the Joyce rule.
II. Background
Part II provides the necessary background underlying the Joyce–Finnigan
debate. Part II.A discusses the federal constitutional constraints imposed on
states’ power to tax a corporation engaged in interstate commerce with a
focus on the requirement that a multistate corporation’s tax base be fairly
apportioned among the taxing jurisdictions. Part II.B explores the three significant steps that have been taken toward uniformity in the area of state
corporate taxation. One of these steps was taken by Congress in enacting
Public Law 86-272; the other two are model acts, which have been adopted
by a fair number of states imposing a corporate income tax. Finally, Part II.C
provides a general overview of three common methods of reporting, focusing
on the combined reporting regime for a group of corporations engaged in a
unitary business.
A. Federal Constitutional Constraints on States’ Taxing Power
When a corporation does business solely within one state, there is not a lot
of controversy over the fact that the state has the power to tax the corporate
profits arising from the entity’s in-state activities, assuming the state levies a
corporate income tax.10 However, when a corporation conducts business in
several states, it will likely be subject to a corporate income tax in more than
one jurisdiction.11 Federal constitutional provisions, primarily the Commerce
10 Forty-five jurisdictions, including the District of Columbia, levy a corporate income tax.
See Walter Hellerstein, State Taxation ¶ 8.11 (3d ed. 2013).
11 See, e.g., Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 288 (1977) (citations omitted) (“‘It is a truism that the mere act of carrying on business in interstate commerce does
not exempt a corporation from state taxation. It was not the purpose of the commerce clause
to relieve those engaged in interstate commerce from their just share of state tax burden even
though it increases the cost of doing business.’”).
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Clause12 and the Due Process Clause,13 place constraints on a state’s power
to tax a corporation conducting business both within and without the state.
Under the Commerce Clause, a state tax imposed on an out-of-state corporation engaged in interstate commerce is constitutional when (1) there is
a substantial nexus between the taxed activity and the taxing jurisdiction,
(2) the tax is fairly apportioned, (3) the tax is nondiscriminatory, and (4) the
tax “is fairly related to the services provided by the State.”14 The Due Process
Clause generally limits the territorial reach of a state’s taxing power, requiring “some definite link, some minimum connection, between a state and the
person, property or transaction it seeks to tax.”15 The Due Process Clause
has also been invoked to ensure that the tax base upon which the state tax is
imposed includes only the portion of the taxpayer’s income or property fairly
apportioned to the taxpayer’s in-state activities.16
There is overlap between the restraints imposed by the Commerce and Due
Process Clauses, both requiring some minimum nexus and fair apportionment. The Supreme Court has indicated that often, the requirements under
these constitutional provisions are substantially similar.17 For purposes of this
Comment, the focus is on the fair apportionment requirement, which basically mandates that a corporation engaged in interstate commerce is entitled
to a division of income if it is taxable with respect to that income in more than
12 U.S. Const. art. I, § 8, cl. 3 (“The Congress shall have Power . . . [t]o regulate Commerce
. . . among the several States . . . .”). The affirmative grant of power provided in the Commerce
Clause has long been held to embody implied restraints on permissible state action even if
there is no congressional legislation imposing such limits. This concept is referred to as the dormant Commerce Clause. See Dep’t of Revenue of Ky. v. Davis, 553 U.S. 328, 337-38 (2008)
(explaining that even though the text of the Commerce Clause does not explicitly restrain the
states, the Court has “sensed a negative implication in the provision since the early days”).
13 U.S. Const. amend. XIV, § 1 (“[N]or shall any State deprive any person of life, liberty, or
property, without due process of law . . . .”).
14 Complete Auto, 430 U.S. at 279; see Nw. States Portland Cement Co. v. Minnesota, 358
U.S. 450, 452 (1959).
15 Miller Bros. v. Maryland, 347 U.S. 340, 344-45 (1954).
16 See, e.g., Mobil Oil Corp. v. Commissioner of Taxes of Vt., 445 U.S. 425, 436-37 (1980)
(citing Moorman Mfg. v. G.D. Bair, 437 U.S. 267, 272-73 (1978)) (“For a state to tax income
generated in interstate commerce, the Due Process Clause of the Fourteenth Amendment
imposes two requirements: a ‘minimal connection’ between the interstate activities and the
taxing State, and a rational relationship between the income attributed to the State and the
intrastate values of the enterprise.”).
17 See Ott v. Miss. Valley Barge Line Co., 336 U.S. 169, 174 (1949) (noting that both Commerce Clause and Due Process Clause requirements are satisfied “if the tax is fairly apportioned
to the commerce carried on within the State”). For the substantial nexus requirement, the
Court has differentiated between the nexus required by the Commerce Clause and the Due
Process Clause. See Quill Corp. v. North Dakota, 504 U.S. 298, 305 (1992).
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one state.18 The difficulty arises in the application of this requirement—how
is a state supposed to ascertain a multistate corporation’s tax base precisely
attributable to that state? Are taxpayers engaged in business in multiple states
supposed to track exactly how much of their income arises within each state?
Given the probably inescapable practical difficulties of ascertaining exactly
what a multistate corporation’s tax base is within each particular state,19 the
Supreme Court has permitted the states to determine the corporation’s tax
base attributable to the state by the use of formulary apportionment.20 The
Court has upheld a variety of apportionment methods, declining to mandate
a uniform formula for all the states.21 Although the lack of uniformity in this
area might expose taxpaying corporations to a risk of overlapping taxes (or
result in nowhere income22), the Court has emphasized that it is Congress’s
job, not the Court’s, to require uniformity among states in the area of apportionment.23 As explained in Container Corp. of America v. Franchise Tax Board,
[E]liminating all overlapping taxation would require this Court to establish
. . . a single constitutionally mandated method of taxation . . . . Because
that task was thought to be essentially legislative, we declined to undertake
it, and held that a fairly apportioned tax would not be found invalid simply
because it differed from the prevailing approach adopted by the States.24
Not only has the Court declined to impose a uniform method of apportionment, it has also made it relatively difficult for a taxpayer to prevail on
a challenge to a state’s apportionment formula. In order to successfully challenge a state’s tax assessment resulting from the application of its formulary
apportionment method, the taxpayer has to prove by “clear and cogent evidence” that the tax base attributable to the state under the formula is “out
of all appropriate proportions to the business transacted” in-state or “led to
18 See, e.g., Cent. R.R. v. Pennsylvania, 370 U.S. 607, 612 (1962) (citations omitted) (internal quotation marks omitted) (noting that it is “multiple taxation of interstate operations that
offends the Commerce Clause”); see also Hellerstein, supra note 10, ¶ 8.02[1] (“If a taxpayer
is taxable in more than one state, denial by either state of the right to a division of the tax base
would expose the taxpayer to an unconstitutional risk of multiple taxation.”).
19 See Container Corp. of Am. v. Franchise Tax Bd., 463 U.S. 159, 164 (1983) (citations
omitted) (“In the case of a more-or-less integrated business enterprise operating in more than
one State, however, arriving at precise territorial allocations of ‘value’ is often an elusive goal,
both in theory and in practice.”).
20 See, e.g., Moorman Mfg., 437 U.S. at 273 (upholding Iowa’s single-factor apportionment
formula and reasoning that, although the use of formulary apportionment leads to a “rough
approximation” of the taxpayer’s income attributable to the state, the Court has declined “to
impose strict constitutional restraints on a State’s selection of a particular formula”).
21 Container Corp. of Am., 463 U.S. at 165; Moorman Mfg., 437 U.S. at 273, 280-81.
22 Nowhere income refers to income that escapes state taxation. See Ilya A. Lipin, Corporate
Taxpayers’ Sore Arm: Throw-Out Rule Litigation in State and Local Taxation, 66 Tax Law. 901,
902-03 (2013).
23 See Container Corp. of Am., 463 U.S. at 171; Moorman Mfg., 437 U.S. at 278-81.
24 Container Corp. of Am., 463 U.S. at 171 (citations omitted).
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a grossly distorted result.”25 As expected from the formulation of this standard, it is a difficult showing for a corporation to make. In fact, the Court
has never held an apportionment formula facially unconstitutional, though
it has invalidated a state’s apportionment formula’s application to a multistate
taxpayer on rare occasions.26
With the Court’s inaction and hence, apparent blessing, states have devised
a variety of apportionment formulas to apportion a multistate taxpayer’s
tax base among the various taxing jurisdictions.27 While multistate corporate taxpayers should have their income fairly apportioned among the taxing
jurisdictions,28 apportionment does not necessarily provide a uniform division of their tax base because each state is free to choose its own apportionment formula and sourcing provisions. Congress has yet to act on the Court’s
invitation in Container Corp. of America to impose a uniform method of state
apportionment, except for its enactment of Public Law 86-272, discussed
in Part II.B. Other organizations have taken more significant steps toward
uniformity, with the two leading projects being UDITPA and the Compact,
also discussed in Part II.B.
B. Steps Toward Uniformity: Public Law 86-272, UDITPA, and the
Multistate Tax Compact
Public Law 86-27229 was enacted in 1959 in response to the Court’s decision
in Northwestern States Portland Cement Co. v. Minnesota.30 In Northwestern,
25 Moorman Mfg., 437 U.S. at 274 (internal quotations omitted) (citations omitted); see
Underwood Typewriter Co. v. Chamberlain, 254 U.S. 113, 121 (1920) (footnote omitted)
(in challenging the state’s use of a single-factor formula to apportion net income, the taxpayer
failed to carry its burden of showing that “the method of apportionment adopted by the state
was inherently arbitrary, or that its application to this corporation produced an unreasonable
result”).
26 For situations where the Court has held the application of an apportionment formula to
an individual taxpayer unconstitutional, see Hans Rees’ Sons, Inc. v. North Carolina, 283 U.S.
123, 136 (1931) (invalidating the tax under the Due Process Clause where proof showed that
while the state’s single-factor property formula produced a tax on 66% to 85% of the taxpayer’s
income, only 17% of that income was on average actually sourced in state) and Norfolk & W.
Ry. v. Mo. State Tax Comm’n, 390 U.S. 317, 326 (1968) (holding that the tax violated the
Due Process and Commerce Clauses where the taxpayer successfully bore its “heavy burden”
of showing that application of the formula resulted in “gross overreaching, beyond the values
represented by the intrastate assets purported to be taxed”).
27 See Moorman Mfg., 437 U.S. at 273 (affirming that a three-factor apportionment formula
is not constitutionally required and that a single-factor formula is presumptively valid).
28 See Container Corp. of Am., 463 U.S. at 169 (“[A] State must then apply a formula apportioning the income of that business within and without the State. Such an apportionment formula must, under both the Due Process and Commerce Clauses, be fair.” (citations omitted)).
29 15 U.S.C. §§ 381-84 (2012).
30 See Nw. States Portland Cement Co. v. Minnesota, 358 U.S. 450, 465 (1959); Hellerstein, supra note 10, ¶ 6.16 (footnote omitted) (“Congress reacted with astonishing speed [to
the Northwestern case] and, for the first time in its history, adopted an act restricting the states’
power to tax interstate businesses.”); Michael T. Fatale, Federalism and State Business Activity
Tax Nexus; Revisiting Public Law 86-272, 21 Va. Tax Rev. 431, 474-79 (2002).
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both corporations challenging the constitutionality of the corporate income
taxes were engaged in the solicitation of orders within the states through sales
persons who maintained offices in the states, but the orders were accepted,
filled, and delivered outside of the taxing states.31 The Court upheld the state
taxation of the two companies and for the first time held that a tax on the
net income of an out-of-state corporation engaged exclusively in an interstate
business within the taxing state is constitutional, provided that the tax is “not
discriminatory and is properly apportioned to local activities within the taxing State forming sufficient nexus to support the same.”32
The Northwestern case led to “alarm and protest among businesses” and
resulted in Congress adopting, for the first time, a statute that limited the
states’ power to tax interstate businesses.33 Under Public Law 86-272, a state
cannot impose a tax on the income derived within the state by an out-ofstate corporation engaged exclusively in interstate commerce if (1) the corporation’s activities within the state are limited to the solicitation of orders34
for sales of tangible personal property, (2) the orders are processed outside
the state, and (3) the orders are filled and delivered from outside the state.35
Public Law 86-272 is important for purposes of this Comment because, as
discussed in Part III, the Joyce–Finnigan debate arose, and still typically arises,
in the context of attributing the sales made by a member of a group of corporations when that member is not subject to tax in the state in which it is
making the sales; one typical reason why an entity is not subject to tax in a
state is because its activities are protected under Public Law 86-272.
Aside from Public Law 86-272, Congress has mostly opted for inaction
and latitude toward the states in the area of apportionment of multistate taxpayers’ income (and state corporate taxation generally). In recent years, efforts
by the business community have led to repeated introduction in Congress
See Northwestern, 358 U.S. at 454-56.
See id. at 452. The significance of the case is highlighted by the precedent that existed prior
to Northwestern. In an earlier case, the Court had held unconstitutional a state tax measured by
net income and imposed on an out-of-state corporation engaged exclusively in interstate business because the state could not impose a tax “on the privilege of doing business” despite the tax
being nondiscriminatory and fairly apportioned. See Spector Motor Serv., Inc. v. O’Connor,
340 U.S. 602, 603 (1951), overruled by Complete Auto Transit, Inc. v. Brady, 430 U.S. 274
(1977). After Northwestern, states promptly modified their tax regimes to avoid any Spector
challenges and instead fall within Northwestern—states “replac[ed] their franchise taxes on
the privilege of doing business by direct net income taxes” although generally, the same rates,
apportionment methods, and tax base were used. Hellerstein, supra note 10, ¶ 4.11[1].
33 Hellerstein, supra note 10, ¶ 6.16; see Mark R. Nethers, Putting the Nexus Into Public
Law 86-272, 66 Wash. U. L. Rev. 595, 601-02 (1988) (discussing Congress’s swift enactment
of Public Law 86-272 in response to the business community’s “sharp reaction” to Northwestern).
34 Congress did not define the term “solicitation of orders” in the statute, leaving it up to the
states to interpret this term. This has led to a variety of interpretations and yet another area of
nonconformity in state corporate taxation. See Nethers, supra note 33, at 603-04.
35 15 U.S.C. § 381(a) (2012).
31 32 Tax Lawyer, Vol. 67, No. 4
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of the Business Activity Tax Simplification Act (BATSA).36 One of BATSA’s
main features is the provision of definite and specific standards governing
the states’ ability to impose a business activity tax.37 Under BATSA’s nexus
standards, a state can impose a business activity tax only on those businesses
that have a physical presence within the state.38 Most important for purposes
of this Comment, BATSA also provides for use of the Joyce rule for certain
combined and consolidated returns.39 Although passage of BATSA would
result in a significant amount of simplification and uniformity, commentators are of the opinion that the bill is unlikely to pass mainly because of the
bill’s taxpayer-friendly nature and resulting opposition from those supporting
the states on this issue.40
Unlike Congress, other organizations have seen the appeal of and need
for uniformity in the area of state taxation of multistate corporations and
taken more affirmative steps towards uniformity, leading to the creation of
36 BATSA has been introduced in Congress in various forms since 2000. Maria Koklanaris,
U.S. House Subcommittee Hears Conflicting Testimony on BATSA, 71 St. Tax Notes (TA) 515,
515 (Mar. 3, 2014); see H.R. 2992, 113th Cong. (2013); H.R. 1439, 112th Cong. (2011);
H.R. 1083, 111th Cong. (2009); H.R. 5267, 110th Cong. (2008); S. 1726, 110th Cong.
(2007). The House Judiciary Subcommittee on Regulatory Reform, Commercial and Antitrust Law held hearings on February 26, 2014 on the 2013 bill. See Koklanaris, supra, at 515;
Congress Holds Hearing on the Business Activity Tax Simplification Act, PricewaterhouseCoopers, Feb. 27, 2014, http://www.pwc.com/en_US/us/state-local-tax/newsletters/salt-insights/
assets/pwc-congress-holds-hearing-business-activity-tax-simplificatio.pdf. See generally American Bar Association, Report of the Task Force on Business Activity Taxes and Nexus of the ABA
Section of Taxation State and Local Taxes Committee, 62 Tax Law. 935, 935 (2009) [hereinafter
ABA Report] (providing a detailed discussion on business activity taxes and the business activity
tax nexus debate).
37 See ABA Report, supra note 36, at 981; H.R. 2992, § 3. BATSA also provides for the modernization of Public Law 86-272 so that it applies to all sales and transactions (not only sales of
tangible personal property) and to all business activity taxes. H.R. 2992, § 2.
38 H.R. 2992, § 3.
39 See H.R. 2992, § 4 (emphasis added) (“If, in computing the net income tax or other business activity tax liability of a person for a taxable year, the net income or other economic results
of affiliated persons is taken into account, . . . and, if [the state’s] generally applicable methodology employs an apportionment formula . . . the numerator or numerators shall include the
factors attributable to the state of only those persons that are themselves subject to taxation by the
State pursuant to the provisions of this Act and subject to all other legal constraints on State
taxation of interstate or foreign commerce.”); Koklanaris, supra note 36, at 515 (“[BATSA
would] limit the apportionment of income of a unitary group of affiliated businesses to only
that portion of the business activity conducted by physically present businesses.”).
40 See Federal Legislation — Business Activity Tax Simplification Act of 2013 Introduced, PricewaterhouseCoopers, Aug. 29, 2013, http://www.pwc.com/en_US/us/state-local-tax/newsletters/mysto/assets/pwc-business-activity-tax-simplification-act-2013-introduced.pdf (noting
that “[a]lthough the likelihood of passage as a standalone bill remains questionable, it remains
possible that BATSA may be included in a larger package addressing multiple state issues”);
Business Activity Tax Simplification Act of 2011, WTAS, June 2011, http://www.wtas.com/
newsletter/2011/june/simplification.php (discussing the 2011 bill and how “[g]iven the taxpayer friendly nature of The Bill, it likely faces stiff opposition in Congress”). The unlikelihood
of BATSA’s passage is evidenced by the fact that it has been introduced in Congress repeatedly
since the year 2000.
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UDITPA41 and the Multistate Tax Compact.42 Both of these model acts,
none of which has any legal effect unless adopted by the state legislatures,
have common objectives: achieve uniformity in state taxation of multistate
corporations, establish an equitable apportionment of tax bases, and avoid
multiple taxation.43 UDITPA has been adopted, in whole or in part, by
approximately 20 states,44 and the Compact has the following membership:
17 compact members,45 6 sovereignty members,46 and 25 associate and project members.47
The Compact incorporates UDITPA, which provides a model and uniform
method for dividing the total tax base of a multistate corporation among the
Unif. Div. of Income for Tax Purposes Act (1957). UDITPA was adopted by the
Commissioners on Uniform State Laws and the American Bar Association in 1957. It is incorporated into Article IV of the Multistate Tax Compact.
42 Multistate Tax Compact (Multistate Tax Comm’n 1967). The Supreme Court upheld
the constitutionality of the Compact in U.S. Steel Corp. v. Multistate Tax Comm’n, 434 U.S.
452, 452 (1978). The Compact was drafted in 1966 by a group of state officials and became
effective in 1967. The Compact created the Multistate Tax Commission, see Multistate Tax
Compact art. VI (Multistate Tax Comm’n 1967), “an intergovernmental state agency working
on behalf of states and taxpayers to administer, equitably and efficiently, tax laws that apply to
multistate and multinational enterprises.” About the Multistate Tax Commission, Multistate
Tax Comm’n, last accessed Mar. 15, 2014, http://www.mtc.gov/About.aspx?id=40.
43 See M. Bernadette Welch, Annotation, Construction and Application of Uniform Division
of Income for Tax Purposes Act (UDITPA)—Determination of Business Income, 74 A.L.R. 6th 1
(2012); Multistate Tax Compact art. I (Multistate Tax Comm’n 1967).
44 As of April 21, 2014, of the states imposing a corporate income tax, 20 (including the
District of Columbia) have adopted UDITPA. See Legislative Fact Sheet - Division of Income for
Tax Purposes, Uniform Law Commission, last accessed Apr. 21, 2014, http://www.uniformlaws.org/LegislativeFactSheet.aspx?title=Division%20of%20Income%20for%20Tax%20Purposes. Despite adoption of UDITPA, a fair number of states have later enacted laws modifying
certain UDITPA provisions. See R. Gregory Roberts & Rebecca M. Ulich, To Be or Not to
Be: Nonbusiness Income, Morrison & Foerster News - State + Local Tax Insights, at 2,
Summer 2012 (explaining how many of the states that have adopted UDITPA have modified
UDITPA’s definition of business income).
45 Compact members are states that have incorporated the Compact into their state law.
Definition of Member States, Multistate Tax Comm’n, last accessed Apr. 21, 2014, http://
www.mtc.gov/About.aspx?id=1818.
46 Sovereignty members are states that support the Compact by participating in and providing financial support for the general activities of the Multistate Tax Commission. Definition of
Member States, Multistate Tax Comm’n, last accessed Apr. 21, 2014, http://www.mtc.gov/
About.aspx?id=1818.
47 “Associate members are states that participate in Commission meetings and otherwise
consult and cooperate with the Commission and its other member states or, as project members, participate in Commission programs or projects.” Definition of Member States, Multistate Tax Comm’n, last accessed Apr. 21, 2014, http://www.mtc.gov/About.aspx?id=1818.
Although not noted in the Multistate Tax Commission’s website regarding Compact membership, there are a number of states that have repealed the Compact from their codes. See Amy
Hamilton, Multistate Tax Compact Roundup: Utah Set to Withdraw from Multistate Tax Compact, 71 St. Tax Notes (TA) 441 (Feb. 24, 2014); Amy Hamilton, District of Columbia Set to
Repeal Multistate Tax Compact, 69 St. Tax Notes (TA) 264 (Jul. 29, 2013).
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states in which it does business.48 One of the UDITPA features is the provision
for the apportionment of “business income” and allocation of “nonbusiness income.”49 For apportionment purposes, UDITPA provides an equallyweighted three-factor formula: “All business income shall be apportioned . . .
by multiplying the income by a fraction the numerator of which is the property factor plus the payroll factor plus the sales factor and the denominator of
which is three.”50 Each factor is calculated by dividing the taxpayer’s property
(or payroll or sales) within the state by the taxpayer’s property (or payroll or
sales) everywhere.51 Many states still use a multifactor apportionment formula to apportion income;52 however, there is a trend toward weighing the
sales factor more heavily than the other factors53 or alternatively, switching to
a single-factor apportionment formula based on sales.54
The apportionment–allocation distinction provided for in UDITPA and
reflected in most states’ taxation regimes is a consequence of the unitary business requirement explored in Part II.C—finding the existence of a unitary
business is a prerequisite to applying an apportionment formula; the business
income of that unitary business can be apportioned, while the nonbusiness
income has to be allocated.55
C. Methods of Reporting and the Unitary Business Concept
States employ different methods to compute the tax liability of a corporation that is part of a group of related corporations: separate reporting, consolidated reporting, and combined reporting.56 Under the separate reporting
method, each corporation with nexus with the state files its own corporate
See Multistate Tax Compact art. IV (Multistate Tax Comm’n 1967).
Id. The apportionment of business income and allocation of nonbusiness income are
explored in more detail in Part III.A.
50 Unif. Div. of Income for Tax Purposes Act § 9 (1957).
51 Id. §§ 10, 13, 15.
52 See Hellerstein, supra note 10, ¶ 9.02 tbl.9–3.
53 Arizona, District of Columbia, Florida, Maryland, Massachusetts, and Virginia are some
of the states providing for the apportionment of income using a three-factor formula based on
property, payroll, and double-weighted sales. See id.
54 For example, Colorado, Georgia, Illinois, Indiana, Iowa, Maine, Nebraska, Oregon,
South Carolina, and Wisconsin have adopted a single-sales factor apportionment formula. See
id. New Jersey, for instance, used to have a three-factor formula with double-weighted sales but
starting on January 2, 2014, it is on 100% sales apportionment formula. See Deloitte, New Jersey Phases in Single Sales Factor, Apr. 28, 2011, https://www.deloitte.com/assets/Dcom-UnitedStates/Local%20Assets/Documents/Tax/us_tax_multistate_New%20Jersey_04-29-2011.pdf.
Other states, like California, Missouri, and Utah allow corporations to apply the single-sales
factor method on an elective basis. See Hellerstein, supra note 10, ¶ 9.02 tbl. 9-3.
55 See Hellerstein, supra note 10, ¶ 9.01 (explaining that “the unitary business principle
finds expression in the line that the states have drawn between allocable and apportionable
income”).
56 States vary on their requirements on reporting methods; this is just a basic categorization
of reporting methods. See Timothy C. Kimmel, An Overview of the Group Reporting Regimes in
Use Today, 2008 St. & Loc. Tax Law. 21, 23 (2008).
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COMMENT
989
tax return, regardless of whether the corporation is part of a group of related
corporations.57 If the group of related corporations qualifies as an affiliated
group,58 it may have the option to elect to file a consolidated state tax return,
depending on the provisions of each state.59 Mostly, whether the state allows
a corporation to file a consolidated return turns on whether that corporation was part of a federal consolidated return.60 If the election is made, the
state corporate tax return includes all of the affiliates that are taxable within
the state.61
The third most common method of reporting employed by states is combined reporting.62 While a consolidated return depends on the degree of stock
ownership within the affiliated group, a combined return depends on the
existence of a unitary business.63 Also, a consolidated return is often confined
to those members of a corporate group that have nexus with the state,64 but
a combined return may include entities that are not separately taxable in the
state but who are part of the unitary group.65 For purposes of this Comment,
the issue of the Joyce–Finnigan debate only arises in those situations where
Id.
Generally, an affiliated group is a group of corporations connected through stock ownership and that has a common parent corporation, which directly owns at least 80% of the stock
in at least one of the corporations in the group. See I.R.C. § 1504(a). At least 80% of the stock
of every other corporation in the group must also be owned directly by one or more of the
other corporations in the group. § 1504(a).
59 The meaning of a consolidated return is inconsistent in the state tax context. Kimmel,
supra note 56, at 43.
60 Hellerstein, supra note 10, ¶ 8.11[1]; see, e.g., Ala. Code § 40–18–39(c)(1) (West,
Westlaw through Act 2014-68 of the 2014 Reg. Sess.); Ark. Code Ann. § 26–51–805 (West,
Westlaw through 2013 Reg. and 1st Ex. Sess.); Iowa Code Ann. § 422.37 (West, Westlaw
through 2013 Reg. Sess.); Ky. Rev. Stat. Ann. § 141.200(9)–(14) (West, Westlaw through
2013 Sess.).
61 But see Ariz. Rev. Stat. Ann. § 43–947(A) (West, Westlaw through the 1st Reg. and 1st
Special Sess. of the 51st Leg. (2013)) (providing that the common parent of an affiliated group
filing a federal consolidated return is permitted to file an Arizona consolidated return regardless of whether each member of the affiliated group is subject to Arizona tax).
62 The following states have combined reporting provisions: Alaska, Arizona, California,
Colorado, District of Columbia, Hawaii, Idaho, Illinois, Kansas, Maine, Massachusetts,
Michigan, Minnesota, Mississippi, Montana, Nebraska, New Hampshire, New Mexico, New
York, North Dakota, Oregon, Utah, Vermont, Virginia, West Virginia, and Wisconsin. Hellerstein, supra note 10, ¶ 8.11 n.1125.
63 Hellerstein, supra note 10, ¶ 8.11[1]. When the group of related corporations is
engaged in a unitary business, combined reporting is often mandatory. Id.; see, e.g., Ariz.
Admin. Code § 15–2D–401(B) (West, Westlaw through June 2013); Cal. Code Regs. tit.
18, § 25106.5–11(a) (West, Westlaw through Register 2014, No. 33).
64 Generally, states with consolidated return reporting regimes either follow the federal consolidated affiliated group or allow a nexus-based consolidated return where only those entities
in the federal consolidated group with nexus in the state are included in the state consolidated
return. See William L. Goldman, Kenneth C. Brown & Laura L. Farrell-Legrand, Income Taxes:
Consolidated Returns and Combined Reporting, Detailed Analysis, 1130-2d Tax Mgmt. Port.
(BNA) B-8 (2009).
65 Hellerstein, supra note 10, ¶ 8.11[1]; see Kimmel, supra note 56, at 31.
57 58 Tax Lawyer, Vol. 67, No. 4
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the state requires combined reporting for a unitary group. The Joyce–Finnigan
issue arises when formulary apportionment is permitted, and a unitary business must be present before formulary apportionment can be required.
The unitary business principle provides the “minimum link” required by
the Constitution before a state can impose an income tax.66 If a corporate
taxpayer is engaged in separate and discrete activities in different states, then
separate accounting can be used to calculate the taxpayer’s income within
each state, and application of a formula is neither necessary nor appropriate.67
On the other hand, when the taxpayer is engaged in a unitary business across
different states, separate accounting is neither practical nor appropriate.68
The unitary combined reporting method looks beyond the legal distinctness of individual entities and treats the group as one business enterprise.69
The definition of what constitutes a unitary business varies among jurisdictions but generally, it involves a business that has “a high degree of interrelationship and interdependence among the activities of the company or related
companies.”70 The Court has come short of providing a precise definition of
a unitary business; however, it has given some guidance, although ultimately
deferring to the states’ judgment of what qualifies as a unitary group.71 Some
of the considerations relevant in determining whether there is a unitary business include unity of ownership,72 unity of use and management,73 and unity
See Mobil Oil Corp. v. Commissioner of Taxes of Vt., 445 U.S. 425, 439 (1980) (“[T]
he linchpin of apportionability in the field of state income taxation is the unitary business
principle.”).
67 For a general discussion of separate accounting, see Hellerstein, supra note 10, ¶ 8.03.
In the early years of the corporate income tax, separate accounting was perceived as the most
accurate method of determining the income attributable to each state. Id. With the expansion
of multistate businesses and increasing complexity of their activities across state lines, separate
accounting seemed less and less of a viable and practical option. Today, all states imposing a
corporate income tax require apportionment of income from unitary businesses. Id.
68 See Container Corp. of Am. v. Franchise Tax Bd., 463 U.S. 159, 165 (1983) (“The unitary
business/formula apportionment method . . . rejects geographical or transactional accounting,
and instead calculates the local tax base by first defining the scope of the ‘unitary business’ of
which the taxed enterprise’s activities in the taxing jurisdiction form one part, and then apportioning the total income of that ‘unitary business’ between the taxing jurisdiction and the rest
of the world on the basis of a formula . . . .”).
69 Kimmel, supra note 56, at 32.
70 Id.
71 See Container Corp. of Am., 463 U.S. at 175.
72 Butler Bros. v. McColgan, 111 P.2d 334, 341 (Cal. 1941), aff’d, 315 U.S. 501 (1942).
73 Id. (finding evidence of unity of use in the entity’s “centralized executive force and general
system of operation”).
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of operations.74 Furthermore, the presence within the group of “functional
integration, centralization of management, and economies of scale” has also
been emphasized by the Court as evidencing a unitary business.75 Given the
Court’s vague and general guidance, the Multistate Tax Commission adopted
a definition of unitary business76 with the goal of providing more precision
to this inquiry; however, the relevance of the Multistate Tax Commission’s
definition is questionable as states continue to diverge on their definition and
interpretation of the unitary business concept.77
Part II of this Comment has provided the context underlying the Joyce–
Finnigan debate. States are constrained by federal constitutional provisions
in their taxation of corporate taxpayers engaged in interstate commerce,
but the Court has repeatedly upheld the use of formulary apportionment
for purposes of dividing a multistate taxpayer’s income among taxing jurisdictions. Furthermore, the discussion in Part II previewed the many areas
where the states diverge and introduced the three main steps that have been
taken toward uniformity. Finally, this Part also discussed the concept of a
unitary business, which is a prerequisite for a state to apply an apportionment formula. With this context in mind, Part III introduces and analyzes
74 Butler Bros. v. McColgan, 315 U.S. 501, 508 (1942) (finding unity of operations as a
result of the entity’s functional integration and centralized purchasing division). The “three
unities” test was articulated by the California Supreme Court in 1941 and became one of
the most frequently used definitions of a unitary business. See Butler Bros., 111 P.2d at 341;
Hellerstein, supra note 10, ¶ 8.09[1]. The California Supreme Court also articulated the
“dependency and contribution” test, which provides that there is a unitary business when “the
operation of the portion of the business done within the state is dependent upon or contributes
to the operation of the business done without the state.” Edison Cal. Stores, Inc. v. McColgan,
183 P.2d 16, 21 (Cal. 1947); accord In re Nat’l Coop. Refinery Ass’n, 44 P.3d 398, 404 (Kan.
2002); see Hellerstein, supra note 10, ¶ 8.09[1].
75 See ASARCO Inc. v. Idaho State Tax Comm’n, 458 U.S. 307, 317 (1982) (citing Mobil
Oil Corp. v. Commissioner of Taxes of Vt., 445 U.S. 425, 438 (1980)); F.W. Woolworth Co. v.
Taxation and Revenue Dep’t of N.M., 458 U.S. 354, 364 (1982) (citing Mobil Oil Corp., 445
U.S. at 438). More recently, yet another component of the unitary business inquiry has developed, which highlights the degree of nonconformity and variability on this issue. Under the
“operational function” test, there is a unitary business when “the capital transaction serve[s] an
operational rather than an investment function,” even if there is no “unitary relation between
the payor and the payee.” Allied-Signal, Inc. v. Director, Div. of Taxation, 504 U.S. 768, 787
(1992) (citations omitted); see also MeadWestvaco Corp. ex. rel. Mead Corp. v. Ill. Dep’t of
Revenue, 553 U.S. 16, 29 (2008) (citations omitted) (clarifying that the concept of operational function does not “modify the unitary business principle by adding a new ground for
apportionment” but rather “simply recognizes that an asset can be part of a taxpayer’s unitary
business even if . . . a ‘unitary relationship’ does not exist between the ‘payor and payee.’).
See generally Stuart R. Harding, The Scoop on the Unitary Business Principle: How Blue Bell’s
Corporate Restructuring Increased the Scope of Out-of-State Taxation in Blue Bell Creameries, LP
v. Roberts, 64 Tax. Law. 989, 992-95 (2011) (discussing the origins and development of the
unitary business principle).
76 Multistate Tax Comm’n Regulations, Reg. IV.1(b)(1).
77 See William F. Fox & LeAnn Luna, Combined Reporting with the Corporate
Income Tax: Issues for State Legislatures 12-13 (Nov. 2010) (noting the significant variation in the way states and courts define unitary business).
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the Joyce–Finnigan debate, its origins in California, and how it has developed
in California and other jurisdictions.
III. The Joyce–Finnigan Debate
Part III of this Comment explores the Joyce–Finnigan debate. First, Part
III.A provides an overview of how states generally divide the income of a multistate corporate taxpayer: allocation of nonbusiness income and apportionment of business income through use of a formula. Part III.B discusses how
the Joyce–Finnigan debate has developed in California, where it originated.
Finally, Part III.C explores the Joyce–Finnigan debate in other jurisdictions
and comments on how its scope has extended beyond the limited context in
which it arose in California.
A. Basics of Division of Income Statutes
Once the unitary group is identified, the group calculates its tax base
and tax liability on a combined basis. Generally, states follow the UDITPA
approach and provide for allocation and apportionment to divide the corporation’s tax base among the various taxing jurisdictions.78 Approximately
two-thirds of the states, including the District of Columbia, that levy a corporate income tax classify income as business or nonbusiness pursuant to
UDITPA.79 Nonbusiness income—defined as all income other than business
income80—is allocated to the particular state or states that are considered the
source of the income.81 For instance, rents and capital gains or losses from
real property that constitute nonbusiness income are allocated to the state in
which the property is located.82
On the other hand, when income is apportioned, it is divided among the
several states based on an apportionment formula. UDITPA provides for an
equally-weighted three-factor formula based on the property, payroll, and
sales factors, but the majority of states weigh the sales factor more heavily
and some have even transitioned to a single-factor apportionment formula
based on sales.83 There is no doubt that the sales factor, which is the focus of
this Comment, is the most controversial of the factors employed to apportion
Hellerstein, supra note 10, ¶ 9.01.
Roy E. Crawford & Russell D. Uzes, Income Taxes: The Distinction Between Business and
Nonbusiness Income, 1140-2d Tax Mgmt. Port. (BNA) 1140.01 (2014).
80 Unif Div. of Income for Tax Purposes Act § 1(e) (1957). “‘Business income’ means
income arising from transactions and activity in the regular course of the taxpayer’s trade or
business and includes income from tangible and intangible property if the acquisition, management and disposition of the property constitute integral parts of the taxpayer’s regular trade
or business operations.” Id. § 1(a).
81 Id. § 4.
82 Id. §§ 4-6.
83 See supra notes 52-54 and accompanying text.
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income,84 especially as the states continue to give it greater weight in their
apportionment formulas. One controversy is with respect to what exactly goes
into the sales factor and not surprisingly, there is variation in how the states
define sales (or receipts).85 In general, the sales factor “covers receipts from
services, rentals, royalties, sales of stock, and business operations generally.”86
Another controversy—the one explored in this Comment—is whether the
state follows the Joyce or Finnigan approach, which governs which members
of the unitary group must include their sales in the state’s sales factor numerator. An illustration is helpful to exemplify the ongoing Joyce–Finnigan debate:
A unitary group must file a combined corporate tax return in State X, and
the unitary group includes entities that are not taxable in State X (either
because of lack of nexus or Public Law 86-272). If the entities that are not
separately taxable in State X make sales into the state, are these sales included
in the numerator of the unitary group’s sales factor? As discussed in Part III.B,
California has switched positions on this question several times, first answering “no” in Joyce and later taking the opposite position in Finnigan.
B. The Joyce–Finnigan Debate in California
The Joyce–Finnigan debate arose in the context of sales of tangible personal
property and the application of the throwback rule. When a corporation is
engaged in the sale of goods in multiple states, the states with the power to tax
the corporation must have a way of assigning each sale made by the corporation to a particular state in order to properly compute the corporation’s sales
factor. There used to be a host of different tests for attributing these sales,87
but currently, the vast majority of states follow the destination rule when
attributing receipts from sales of tangible personal property for purposes of
calculating the sales factor of the apportionment formula;88 the destination
rule is also the approach taken in UDITPA.89
Under the destination rule, sales are attributed to the state where the goods
are shipped (i.e., the state where the customer is located).90 Accordingly,
receipts from the sale of tangible personal property are included in the
numerator of the sales factor of the destination state. One problem is evident:
when the corporation whose sales are being attributed to a destination state
in which the corporation is not taxable, we have the problem of nowhere
84 Hellerstein, supra note 10, ¶ 9.18 (“The receipts or sales factor has been the focal point
of the major controversies that have arisen over the implementation of the apportionment
factors.”).
85 Id.
86 Id. UDITPA defines “sales” as “all gross receipts of the taxpayer not allocated.” Unif. Div.
of Income for Tax Purposes Act § 1(g) (1957).
87 John S. Warren, Income Taxes: Principles of Formulary Apportionment, 1150.07 Tax Mgmt.
Port. (BNA) C-1 (1994).
88 See Hellerstein, supra note 10, ¶ 9.18[1].
89 Unif. Div. of Income for Tax Purposes Act § 16 (1957).
90 “Nowhere Income” and the Throwback Rule, Inst. on Tax & Econ. Pol’y, Aug. 2011,
http://www.itepnet.org/pdf/pb39throw.pdf.
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income—absent some other mechanism, those sales would escape taxation. A
corporation may not be taxable in the destination state because it either lacks
the minimum connection (nexus) required by the Federal Constitution or is
protected from taxation under Public Law 86-272.
The most common mechanism by which states deal with the problem of
nowhere income is through application of the throwback rule.91 Under the
throwback rule, when sales of tangible personal property are not taxable in
the destination state, the sales are “thrown back” to the state of origin (i.e., the
state that is the source of the sale).92 In the context of combined reporting by a
unitary group, application of the throwback rule is complicated by the inconsistency in how states interpret who is a “taxpayer” for purposes of applying
the destination state and throwback rules. For example, Corporations X and
Y are engaged in a unitary business and are taxable in State A. Corporation
X is involved in the sale of tangible personal property shipped from State
A (the origin state) to State B (the destination state); Corporation X is not
independently taxable in State B, but Corporation Y is and both States A and
B have combined reporting regimes for unitary groups. When determining
whether the throwback rule is applicable, who is the taxpayer: Corporation
X individually or the unitary group as a whole? If only Corporation X is the
taxpayer, then the sales to State B must be thrown back to State A (origin
state) because Corporation X is not taxable in the destination state, resulting
in the problem of nowhere income. However, if both Corporations X and Y
are viewed as a unit (i.e., as one taxpayer), then the throwback rule should not
apply because Corporation Y is taxable in State B. In a nutshell, the former is
the approach taken in Joyce, and the latter is the approach taken in Finnigan.
1. Joyce
In In re Joyce, Inc., Joyce was a California corporation involved in the
manufacture and sale of footwear and operated as a member of a unitary
group with activities both within and without the state.93 The company had
its principal office in Ohio and manufacturing plants in Ohio and Indiana.
The corporation’s sole contact in California was the presence in that state
of two sale representatives who solicited orders but did not accept them; all
orders were accepted and processed in the company’s headquarters in Ohio.
Joyce’s stock was virtually entirely owned by United States Shoe Corporation
(U.S. Shoe), whose principal office and manufacturing plants were outside
California. Because U.S. Shoe was an Ohio corporation and its activities in
California were limited to the solicitation of sales, the company was exempt
91 There is also a throwout rule, which “excludes from overall sales any sales that are not
assigned to any state.” Id. The throwout rule is currently followed by only two states. Id.
92 Id.
93 In re Joyce, Inc., No. 66-SBE-070, 1966 WL 1411 (Cal. State Bd. of Equalization Nov.
23, 1966), overruled by Finnigan II, No. 88-SBE-022-A, 1990 WL 15164 (Cal. State Bd.
of Equalization Jan. 24, 1990), overruled by In re Huffy Corp., No. 99-SBE-005, 1999 WL
386938 (Cal. State Bd. of Equalization Apr. 22, 1999).
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from taxation in California under Public Law 86-272.94 Joyce was not protected by the federal statute because it was incorporated in California, and the
protections of Public Law 86-272 do not preclude a state from imposing an
income tax on corporations incorporated under the laws of the state.95
The California State Board of Equalization (SBE) found that Joyce and
U.S. Shoe (along with three other subsidiaries of U.S. Shoe) were engaged
in a unitary business.96 However, unlike the determination issued by the
California Franchise Tax Board (FTB), the SBE held that the receipts from
the sale of goods shipped to California customers by U.S. Shoe could not
be included in the sales factor numerator, unless the corporation itself was
subject to an income tax in California, even though a member of the unitary
group (Joyce) was taxable in the state.97
2. Finnigan
In In re Finnigan Corp., the SBE dealt with the throwback rule in the
context of two corporations engaged in a unitary business.98 Finnigan was
a California corporation engaged in a unitary business that manufactured
and sold scientific instruments in various states through subsidiaries. Disc,
one of Finnigan’s subsidiaries, was also a California corporation, and it sold
goods manufactured in California to customers inside and outside the state.
Disc was only taxable in California; however, Finnigan was taxable both in
California and in the other states into which Disc’s sales were made.
The FTB, relying on Joyce, applied the throwback rule to this situation.99 It
concluded that because Disc, a separate legal entity, was not taxable in states
other than California, Disc’s out-of-state sales were thrown back to California
and therefore included in the combined group’s sales factor numerator.100 The
FTB interpreted the term taxpayer as used in the throwback rule as referring only to the company that made the sales (Disc).101 The SBE reversed
the FTB’s determination and overruled Joyce.102 It held that the term taxpayer referred to the combined unitary group as a whole.103 Because another
member of the unitary group (Finnigan) was taxable in other states besides
Id.
See 15 U.S.C. § 381(b) (2012).
96 Joyce, 1966 WL 1411, at *3.
97 See id. at *4.
98 See (Finnigan I), No. 88-SBE-022, 1988 WL 152336 (Cal. State Bd. of Equalization Aug.
25, 1988), aff’d (Finnigan II), No. 88-SBE-022-A, 1990 WL 15164 (Cal. State Bd. of Equalization Jan. 24, 1990), overruled by In re Huffy Corp., No. 99-SBE-005, 1999 WL 386938
(Cal. State Bd. of Equalization Apr. 22, 1999).
99 See id. at *1.
100 See id.
101 See id.
102 See Finnigan II, 1990 WL 15164, at *3.
103 See Finnigan I, 1988 WL 152336, at *3.
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California where Disc made sales, the sales should not be thrown back to
California and included in the sales factor numerator.104
3. Present State of the Law in California
California has been at the forefront of the Joyce–Finnigan debate and
has switched sides a number of times. After the Finnigan decision in 1990,
California followed the Finnigan approach105 until 1999 when it decided In re
Huffy Corp.106 In Huffy Corp., the SBE was confronted with basically the same
fact pattern as in Joyce (a member of a unitary group filing a combined return
in California made sales into California but the member was protected from
taxation under Public Law 86-272) and decided to leave Finnigan behind and
once again follow the Joyce approach.107 The SBE reasoned that despite the
“theoretically good reasons” for the Finnigan rule, California should go back
to Joyce in the interest of uniformity given that nearly all other states at the
time continued to follow Joyce.108 Finally, since January 1, 2011, California
is back to the Finnigan rule, given its amendment to section 25135 of its
Revenue and Taxation Code.109
Under section 25135, inbound sales of tangible personal property (i.e.,
California-destination sales) by a member of a unitary group are included in
the California sales factor whenever a member of the unitary group is taxable
in California, regardless of whether the member making the sale is independently subject to tax in California.110 For outbound sales of tangible personal
property (i.e., where California is the origin state), sales are not thrown back
to California even though the member making the sale is not taxable in the
See id.
See In re NutraSweet Co., No. 87N-1645-PS, 1992 WL 321383 (Cal. State Bd. of Equalization Oct. 29, 1992). In NutraSweet Co., the SBE was presented with the same fact scenario
as in Joyce but this time, it held, following Finnigan, that the California-destination sales of a
group member that was not taxable in California under Public Law 86-272 were included in
the combined group’s sales factor numerator because another member of the group was taxable
in California.
106 In re Huffy Corp., No. 99-SBE-005, 1999 WL 386938 (Cal. State Bd. of Equalization
Apr. 22, 1999).
107 Id. at *3. However, because taxpayers had relied on the Finnigan decision for the past
eight years, the SBE’s decision to readopt the Joyce rule was prospective only. Id. at *4.
108 Id. at *3.
109 See Cal. Rev. & Tax. Code § 25135 (West, Westlaw through Ch. 299 of Reg. Sess., Res.
Ch. 1 of 2013-2014 2d Ex. Sess.).
110 Id. § 25135(b).
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destination state so long as at least one member of the unitary group is taxable
in that state.111
C. The Joyce–Finnigan Debate Beyond California
The Joyce rule is currently followed by approximately 15 of the states with
combined reporting provisions,112 while Finnigan is followed by about ten
states.113 However, in recent years, there has been a trend toward adoption of the Finnigan rule, and commentators expect more states to adopt
Finnigan, primarily for revenue-raising purposes.114 Furthermore, while the
Joyce–Finnigan debate originated in a limited context—sales of tangible personal property and the throwback rule—its application today by the states is
much broader.
One example of how the Joyce–Finnigan debate is no longer limited to
application of the throwback rule is In re Disney Enterprises, Inc. v. Tax Appeals
Tribunal of the State.115 In Disney Enterprises, Inc., Disney filed a combined
tax return in New York.116 One of Disney’s subsidiaries, Buena Vista Home
Video (Video), sold movie cassettes to retailers in New York, but Video’s
receipts from these sales were not included in the combined group’s sales factor numerator because Video’s New York activities were protected by Public
Law 86-272.117 New York does not have a throwback rule; however, it referred
to “the California experience” and applied the Finnigan rule.118 The court held
that Video’s receipts from the New York-destination sales should be included
in the group’s sales factor numerator.119 First, the court reasoned, including
Video’s receipts in the sales factor numerator was not a tax on Video itself
but rather, it was just an attempt to “best measure the combined group’s
111 Id. Even though California now follows Finnigan for the treatment of sales of tangible
personal property, it is still a Joyce state for other purposes. Besides sales of tangible personal
property, the Joyce–Finnigan issue also affects other tax attributes, like net operating losses and
credits. See Fox & Luna, supra note 77, at 14. States may require one approach for apportionment purposes while applying the other approach for other purposes. Id. (providing an
example of the application of Joyce–Finnigan in the context of NOLs and credits; under Joyce,
NOLs and credits generated by an entity would be available only to the entity generating the
loss or credit, while under Finnigan, it would be available to the group as a whole).
112 Colorado, Hawaii, Idaho, Illinois, Minnesota, Mississippi, Montana, Nebraska, New
Hampshire, New Mexico, North Dakota, Oregon, Vermont, Virginia, and West Virginia.
113 Arizona, California, Indiana, Kansas, Maine, Massachusetts, Michigan, New York, Utah,
and Wisconsin. But see, supra note 111 (regarding California).
114 See Fox & Luna, supra note 77, at 14.
115 See Disney Enters., Inc. v. Tax Appeals Tribunal of the State, 888 N.E.2d 1029 (N.Y.
2008).
116 Id. at 1030-31.
117 Id. at 1031-32. Video’s only activities in New York were solicitation of sales; it did not
take orders, collect money, or accept returned items, and it did not own or rent any property
in the state. Id. at 1033.
118 See id. at 1038-40.
119 See id. at 1033.
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taxable in-state activities” under unitary business principles.120 Second, the
court concluded that Public Law 86-272 did not preclude including Video’s
receipts in the numerator of the sales factor because the combined group as
a whole—rather than Video alone—exceeded the protections of Public Law
86-272.121 Accordingly, Video’s New York-destination sales should be taken
into account when computing the unitary group’s apportionment percentage,
increasing Video’s New York tax liability from the minimum of $1,500 to
over $1.3 million for the six years at issue (including interest).122
One example of how the Joyce–Finnigan debate has expanded beyond sales
of tangible personal property to include other revenue streams is the recent
legislative enactments by Maine,123 Massachusetts,124 and Wisconsin.125 With
states like these three switching to combined reporting and adopting the
Finnigan rule, it is increasingly important for states to achieve some uniformity by at least settling on either Joyce or Finnigan, as analyzed in Part IV.
Finally, UDITPA, which endorses the destination and throwback rules,
does not address the problem of whether Joyce or Finnigan should be followed. The Multistate Tax Commission did embrace the Joyce approach but
120 Id. at 1033-36. The concurring opinion disagreed with this part of the court’s reasoning,
concluding that “including a company’s receipts in the numerator of the apportionment fraction effectively imposes a tax on that company.” Id. at 1041 (concurring opinion).
121 See id. at 1036-38 (majority opinion). Specifically, Public Law 86-272 provides that no
state has the power to impose an income tax on the income derived within the state by any
person from interstate commerce if the only business activities conducted within the state are
protected under the statute. See 15 U.S.C. § 381 (2012). In Disney Enterprises, Inc., the court
held that the term “person” as used in the statute referred to the Disney unitary group, not
Video alone. See Disney Enters., Inc., 888 N.E.2d at 1036. This interpretation of Public Law
86-272 is in accord with Arizona’s interpretation of the statute, and Arizona also follows the
Finnigan approach. See Ariz. Dep’t of Revenue v. Cent. Newspapers, Inc., 222 Ariz. 626, 633
(Ct. App. 2009); Airborne Navigation Corp. v. Ariz. Dep’t of Revenue, No. 395-85-I, 1987
WL 50031, at *2 (Ariz. B.T.A. Feb. 5, 1987) (“It would not be stretching [the definition of
“person” in Public Law 86-272] to say that [Airborne] and the other companies in the unitary
business group could be considered one ‘person’ for purposes of this law.”).
122 See Disney Enters., Inc., 888 N.E.2d at 1033.
123 See Me. Rev. Stat. Ann. tit. 36, § 5211(14) (West, Westlaw through Ch. 453 of the
2013 2d Reg. Sess. of the 126th Leg.) (providing that the numerator of the sales factor is the
total sales of the taxpayer in Maine and the denominator is the total sales of the taxpayer everywhere, where “total sales of the taxpayer” includes sales of the taxpayer and of any member of
its affiliated group with which the taxpayer conducts a unitary business). Maine also exemplifies the recent trend toward adoption of the Finnigan rule. Prior to January 1, 2010, Maine followed the Joyce approach. See Great N. Nekoosa Corp. v. State Tax Assessor, 675 A.2d 963, 964
(Me. 1996) (holding that sales by a Maine taxpayer to a destination state where the taxpayer
was not taxable were thrown back to Maine even though an affiliate of the taxpayer was taxable in the destination state); see also Mandy Rafool & Todd Haggerty, State Tax Actions 2010,
Appendix E 60 St. Tax Notes (TA) 795, 808 (June 13, 2011) (noting that Maine’s adoption
of the Finnigan approach results in tax revenue of $3.0 million for fiscal year 2011 and $3.2
million for fiscal year 2012).
124 Mass. Gen. Laws Ann. ch. 63, § 32B(a) (West, Westlaw through Ch. 43 of the 2014
2d Ann. Sess.).
125 Wis. Stat. Ann. § 71.255 (West, Westlaw through 2013 Act 135).
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only in the context of sales of tangible personal property for purposes of
determining whether activities conducted within a state are protected by
Public Law 86-272.126
IV. Analysis
This Comment argues in Part IV.A that though complete uniformity in the
area of state taxation of multistate corporations is likely an unrealistic goal,
a significant area of nonuniformity that leads to problematic results is the
Joyce–Finnigan issue. Achieving consistency in this area would benefit taxpayers and states alike by establishing a more equitable taxation regime and
reducing complexity. Part IV.B proposes that even though neither the Joyce
nor the Finnigan rule is free of flaws, Joyce is the better rule primarily because
Finnigan effectively results in a state taxing income that would otherwise
be out of its reach under federal or constitutional limitations. Finally, Part
IV.C argues that the most realistic and practical option for settling the Joyce–
Finnigan debate is for the Multistate Tax Commission to revise its apportionment provisions to adopt the Joyce rule.
A. Ideal Solution: Uniformity
Uniformity is generally desirable in most areas of the law,127 and state taxation of multistate taxpayers is no exception.128 However, achieving complete
uniformity in this area seems highly unlikely (if not entirely unrealistic) given
the significant areas of nonuniformity currently present in state taxation of a
combined group of corporations. For example, states differ on what constitutes a unitary business, composition of their apportionment formulas, classification of business and nonbusiness income, the definition of sales, and of
course, the adoption of Joyce or Finnigan. With an increasing number of states
adopting combined reporting regimes for a group of corporations engaged
in a unitary business,129 the Joyce–Finnigan debate is increasingly important
126 Statement of Information Concerning Practices of Multistate Tax Commission and Signatory States under Public Law 86-272, Multistate Tax Comm’n, last accessed Mar. 1, 2014,
http://www.mtc.gov/uploadedFiles/Multistate_Tax_Commission/Uniformity/Uniformity_
Projects/A_-_Z/StatementofInfoPublicLaw86-272.pdf.
127 For example, in the field of commercial and business law, the Uniform Commercial Code
(UCC) plays a crucial role. Unif. Commercial Code, http://www.law.cornell.edu/ucc; see
Lawrence J. Bugge, Commercial Law, Federalism, and the Future, 17 Del. J. Corp. L. 11, 13
(1992) (describing the UCC as “the most spectacular success story in the history of American
law”).
128 See Kimberley Reeder et al., The Unitary Group’s Identity Crisis: Is There Really an ”I” in
Unitary?, 2008 St. & Loc. Tax Law. 83, 113-14 (2008) (“Until states unanimously adopt Joyce
or Finnigan, a unitary group member will continue to suffer from an identity crisis, facing the
tax problems inherent in being simultaneously a separate entity and a member of a group.”).
129 See Eric L. Stein, States Look to Combined Reporting to Generate Revenue, J. St. Tax’n
2011, https://www.ryan.com/Assets/Downloads/Articles/States_Look_to_Combined_
Reporting.pdf.
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to multistate businesses.130 Accordingly, achieving uniformity in the Joyce–
Finnigan area would be a significant step toward uniformity in state taxation.
Uniformity in the Joyce–Finnigan area would be desirable in order to
achieve more equitable taxation of a unitary group of corporations doing
business across state lines.131 The current inconsistency in states’ adoption of
Joyce or Finnigan can lead to two problematic results: double taxation of certain sales or nowhere income.132 For example, assume Corporations X and Y
are engaged in a unitary business and both are taxable in State A. Corporation
Y makes sales of goods into State B, but it is protected from taxation in that
state under Public Law 86-272; however, Corporation X is taxable in State
B and files a combined return in that state, which includes Corporation Y
and its other unitary subsidiaries. If State A follows Joyce and State B follows
Finnigan, the end result is double taxation: State A will include Corporation
Y’s sales to State B in its sales factor numerator under the throwback rule
since Corporation Y is not taxable in State B, and State B will also include
Corporation Y’s sales into the state because another member of its unitary
group (Corporation X) is taxable in the state. On the other hand, if State
A is a Finnigan state and State B is a Joyce state, the end result is nowhere
income: State A will not include Corporation Y’s sales to State B in its sales
factor numerator because it believes the sales are properly attributed to State
B where other members of the unitary group are taxable; State B will also
exclude Corporation Y’s sales into the state because under Joyce, Corporation
Y is not separately taxable in the state.
As discussed in Part II.A, multistate taxpayers have a constitutional right to
division of income when they are taxable in more than one state. The Court
has acknowledged that the use of apportionment formulas leads to a “rough
approximation of a corporation’s income” attributable to a state133 and that a
“risk of duplicative taxation exists whenever the [taxing states] do not follow
130 See Jeffrey A. Friedman & Michele Borens, A Pinch of SALT: Applying P.L. 86-272 in a
Modern Economy, 57 St. Tax Notes (TA) 49, 51 (July 5, 2010) (noting that with the “recent
wave of states that have adopted combined reporting along with the Finnigan method,” the
complexity and importance of the Joyce–Finnigan debate increases along with virtually certain
future challenges to the Finnigan rule).
131 Lack of uniformity in corporate tax rules as that created by states’ inconsistent apportionment methods leads to inequitable treatment that “undermines the perceived legitimacy of the
tax system by arbitrarily discriminating in favor of certain corporations . . . . Returning to a
more uniform set of apportionment rules is an important first step in preventing widespread
tax avoidance and ensuring that state corporate income taxes are applied fairly.” Corporate
Income Tax Apportionment and the Single Sales Factor, Inst. on Tax & Econ. Pol’y, Aug. 2012,
http://itepnet.org/pdf/pb11ssf.pdf.
132 See In re Huffy Corp., No. 99-SBE-005, 1999 WL 386938, at *3 (Cal. State Bd. of
Equalization Apr. 22, 1999) (explaining that California should abandon Finnigan and go back
to the Joyce rule because the majority of states still followed Joyce, and this nonuniformity
resulted in nowhere income or double taxation). For a series of examples illustrating the consequences of the lack of uniformity in states’ adoption of Joyce or Finnigan, see Reeder et al.,
supra note 128, at 108-10.
133 Moorman Mfg. v. G.D. Bair, 437 U.S. 267, 273 (1978).
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identical rules for the division of income.”134 The Court’s recognition of this
issue does not mean that subjecting corporations doing business in interstate
commerce to double taxation is acceptable. Rather, it is a consequence of the
use of formulary apportionment, which is the best solution when separate
accounting is theoretically and practically impossible. The Court has, likely
appropriately, refused to mandate uniform rules of state taxation when it
believes that such action is best suited for Congress. Furthermore, counting the same sale receipts in multiple jurisdictions is bad policy and may
potentially disadvantage those corporations engaged in a multistate business
as compared to their local competitors doing business solely within one state.
On the other hand, nowhere income resulting from nonconformity in
states’ use of Joyce or Finnigan is similarly bad policy and provides another
reason why uniformity in this area is necessary. States have a right to tax those
corporations doing business within their state borders, so long as the minimum link or connection required by the Constitution is present. Businesses
engaging in activities within a state enjoy the many benefits accorded to them
by state laws.135 In addition, states have significant revenue needs, and taxing
multistate corporations is certainly an important source of tax revenue for
the states.136
Achieving uniformity with respect to the Joyce–Finnigan issue would also
lead to less complexity and thus increased efficiency and administrability for
taxpayers engaged in business activities in multiple states, especially when the
taxpayer is a member of a unitary group. Imagine a multinational corporation doing business across the United States and abroad. Depending on its
business activities within each state, it is not difficult to establish the requisite
nexus necessary for a state to have taxing jurisdiction; hence, this hypothetical multinational corporation can relatively easily be subject to taxation in a
significant number of states, at the federal level, and in other countries. At
least having a uniform rule when it comes to the Joyce–Finnigan issue would
alleviate some of the immense complexity faced by taxpayers and tax practitioners engaged in state tax consulting and compliance for multistate and
multinational corporations.
Id. at 278.
See Hellerstein, supra note 10, ¶ 8.01 (noting that states have competing claims for
taxing a multistate taxpayer doing business in several states who obtain “the benefits and protection of the states’ markets, their public services, and their legal and other institutions”).
136 See id. ¶ 1.02 (“Individual and corporate income taxes . . . combined are currently the
leading source of state tax revenue. They produced $153 million, or 8.1 percent of total state
tax revenues, in 1932 compared with $329.2 billion, or 40.9 percent of total state tax revenues,
in 2012.”).
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B. Better Approach: Joyce v. Finnigan
While uniformity in states’ adoption of Joyce or Finnigan is highly desirable,
neither approach is without flaws, both having benefits and detriments.137
That neither can be said to be the best approach is evident from the states’
inconsistency in adoption of one of the two approaches. California itself
has switched positions several times. Nonetheless, adopting one not entirely
perfect approach is better in order to achieve some uniformity among the
states.138 Because Joyce respects legal entities and state boundaries and apportions a multistate taxpayer’s unitary income while complying with federal and
constitutional limitations, it should be uniformly adopted by all states imposing a corporate income tax and a combined reporting regime.
One of the strongest arguments in support of Finnigan, and against Joyce,
is that the Finnigan rule is in accord with the unitary business concept,
while Joyce merely elevates form over substance.139 Perhaps this argument has
some truth to it since entities involved in a multistate unitary business share
resources and knowledge and benefit from centralized operations and economies of scale.140 Although states differ in the definition of a unitary business,
137 See Charolette Noel & Carolyn Joy Lee, Would States Adopt a Uniform Model Combined
Reporting Statute in a New Wave of Combined Reporting?, 2008 St. & Loc. Tax Law. 137, 158
(2008) (“The theme thus recurs: Achieving the ideal of uniformity will require significant
compromise and changes in policy, with no one approach clearly standing out as the normative ‘right’ answer.”).
138 California saw the benefit of achieving uniformity in this area and abandoned the Finnigan rule in Huffy Corp. to go back to Joyce, maybe in part because it believed Joyce was the
better rule, but primarily because most states still followed Joyce, making California’s approach
inconsistent with that of nearly all other states with similar rules. See In re Huffy Corp., No.
99-SBE-005, 1999 WL 386938, at *3 (Cal. State Bd. of Equalization Apr. 22, 1999). But see
Citicorp N. Am., Inc. v. Franchise Tax Bd., 100 Cal. Rptr. 2d 509, 522 (Cal. Ct. App. 2000)
(emphasis added) (“[T]he mere fact that other bodies and jurisdictions did not follow the
Finnigan rule is not a valid basis for this court to disregard [it]. Adherence to an outmoded
rule for the sake of consistency in the face of compelling reasons to change is not a virtue. Valid
principled reasons support the rationale of Joyce and the rationale of Finnigan. In the absence of
legislative direction to the contrary, the SBE is empowered to interpret cases before it in a manner that is consistent with the purposes of the state’s tax code.”).
139 See Finnigan I, No. 88-SBE-022, 1988 WL 152336, at *3 (Cal. State Bd. of Equalization
Aug. 25, 1998) (concluding that “basic unitary theory” supported the Finnigan approach);
Finnigan II, No. 88-SBE-022-A, 1990 WL 15164 at *1 (Cal. State Bd. of Equalization Jan.
24, 1990) (“[T]he [Joyce] rule defeats the basic purpose of the sales factor, which is to reflect the
markets for the unitary business’s goods and services . . . . [B]y focusing on the state’s jurisdiction to tax the seller as a separate entity, the [Joyce] rule elevates form over substance . . . .”);
Hellerstein, supra note 10, ¶ 9.18 (arguing that Finnigan is correct from a unitary theory
standpoint and Joyce “permits corporate form to govern economic substance”).
140 For instance, one of the primary reasons why the New York Court of Appeals followed
Finnigan in Disney Enterprises, Inc. was the unitary business concept. The court concluded that
the unitary group’s tax would be distorted if the court “disregard[ed] the millions of dollars in
Video’s New York destination sales achieved through the group’s cross-promotional activities.”
See Disney Enters., Inc. v. Tax Appeals Tribunal of the State, 888 N.E.2d 1029, 1036 (N.Y.
2008).
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all states agree that there is some level of integration and benefits flowing
throughout the group. Accordingly, Finnigan supporters argue that looking
at the group as a whole better reflects unitary business principles. However,
a complete disregard of corporate legal entities is not necessarily the correct
result simply because a group of corporations is engaged in a unitary business.
It is an established principle of corporate law that a corporation is a distinct
and individual entity, respected in the eyes of the law as such.141 Accordingly,
the Joyce rule’s tendency to view the corporation as a distinct taxpayer is in
accord with established corporate law principles.
Furthermore, and more importantly, following Finnigan effectively results
in a state taxing income that would otherwise be exempt from taxation under
federal or constitutional limitations.142 A corporation engaged in interstate
commerce may be exempt from taxation in a particular state because its instate activities are protected under Public Law 86-272, or it lacks the necessary nexus required by the Constitution before a state can impose an income
tax. In the case of inbound sales, a Finnigan state will include in the sales factor numerator the destination sales made by a member of the unitary group
so long as any member of the group is taxable in the state, even if the selling
entity is not independently taxable in the jurisdiction. In other words, nonnexus entities that separately would owe no tax to the state are required to
include their sales to the state in the sales factor numerator for apportionment purposes, and thus, such entities are being subjected to tax. The Joyce
approach, on the other hand, respects corporate legal entities and determines
which sales are included in the sales factor numerator on the basis of the selling entity’s individual nexus to the taxing jurisdiction.
Finnigan supporters would argue that following the Finnigan approach
is not the same as taxing income that would otherwise not be taxable.143
For example, in Disney Enterprises, Inc., the New York Court of Appeals
was of the view that the inclusion in the sales factor numerator of the New
141 For instance, for tax purposes, there is no question that a corporation, even a one-shareholder corporation, is a distinct and separate legal entity provided that the corporation is
actually engaged in business activity and has not checked the box electing to be a disregarded
entity under Treasury Regulation section 301.7701-1. See Fletcher Cyclopedia of the Law
of Corporations § 40. Parent corporations and wholly-owned subsidiaries are also generally
viewed as distinct and separate entities. See id.
142 See Great N. Nekoosa Corp. v. State Tax Assessor, 675 A.2d 963, 966 (Me. 1996) (noting
that if the Joyce rule was not followed, the state “would inevitably and unconstitutionally tax
the entire income of the multistate unitary business”); Reeder, supra note 128, at 102 (“[A]
state using the [Finnigan] method indirectly taxes that which it cannot tax directly . . . . Or . . .
one might view [Finnigan] as requiring an entity to pay a tax on another’s income.”). Hellerstein, supra note 10, ¶ 9.18 (noting that “there is a serious problem with abandoning [Joyce],”
namely, “that income of a taxpayer that is not subject to state tax under Public Law 86-272 is
being attributed to a group member that is taxable”).
143 See Disney Enters., Inc., 888 N.E.2d at 1039; Citicorp N. Am., Inc., 100 Cal. Rptr. 2d at,
519-20 (concluding that by considering the California-destination sales made by a member of
a combined group not separately taxable in California, the state was not taxing that entity but
rather apportioning income attributable to California).
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York-destination sales of a corporation whose New York activities were protected under Public Law 86-272 was not a tax on the selling corporation;
rather, it was a way of better measuring the group’s in-state activities.144 This
argument is not very persuasive since the larger the sales factor numerator, the
larger the apportionment percentage and hence, the larger the tax liability.
As Judge Smith pointed out in his concurring opinion in Disney Enterprises,
Inc., “including a company’s receipts in the numerator of the apportionment
fraction effectively imposes a tax on that company.”145
The recent wave of states adopting combined reporting regimes incorporating the Finnigan rule may be due to revenue-raising considerations.146 While
the revenue impact of tax laws is a valid state concern, it should not determine
the best approach when a competing one seems more proper from a policy
perspective. Furthermore, Finnigan does not always result in more revenue to
the state and the Joyce rule is not always taxpayer-friendly. When the taxing
state is the destination state (i.e., in the case of inbound sales), Finnigan does
result in more revenue because the sales factor numerator will include the sales
made by all members of the combined unitary group, regardless of whether
each selling member is separately taxable in the state. However, in the case
of outbound sales (i.e., when the taxing state is the origin state) of tangible
personal property and application of the throwback rule, Finnigan does not
necessarily result in more revenue because the sales would be included in the
destination state’s sales factor so long as any member of the group was taxable
in that state.147 On the contrary, if the origin state followed the Joyce rule, the
sales by a member of the group into a state in which that member was not
separately taxable would be thrown back to the origin state, hence leading to
a larger apportionment factor and a higher tax liability.148
C. Achieving (Some) Uniformity: Congress or the Multistate Tax Commission
Having established that uniformity is highly desirable in the area of state
taxation of multistate corporations and that one significant step toward uniformity would be for states to settle on the Joyce approach, the next issue is
how such a goal can be accomplished. The two clearest options are (1) for
Congress to finally take a significant step in this area and mandate uniform
rules for state apportionment, or (2) for the Multistate Tax Commission to
update UDITPA’s model apportionment rules and accompanying regulations
to address the adoption of the Joyce rule for state apportionment purposes
based on the assumption that those states that have adopted UDITPA would
continue to do so and that other states will also adopt UDITPA.
Disney Enters., Inc., 888 N.E.2d at 1033.
Id. at 1041 (Smith, J., concurring).
146 See Rofool & Haggerty, supra note 123.
147 This was the fact pattern presented in Finnigan I.
148 See Great N. Nekoosa Corp. v. State Tax Assessor, 675 A.2d 963 (Me. 1996); Hartmarx
Corp. v. Bower, 723 N.E.2.d. 820 (Ill. App. Ct. 1999).
144 145 Tax Lawyer, Vol. 67, No. 4
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Congress is unlikely to impose uniform tax apportionment rules on the
states. As the Court pointed out in Moorman Manufacturing v. Bair, “It is clear
that the legislative power granted to Congress by the Commerce Clause of the
Constitution would amply justify the enactment of legislation requiring all
States to adhere to uniform rules for the division of income.”149 Moreover, the
Court has repeatedly indicated that it is Congress’s job, and not the Court’s, to
require such uniformity.150 Despite having the power to do so and the Court’s
invitation on several occasions to take these steps, Congress has not taken any
significant actions in the area of state apportionment. Public Law 86-272 is
the only action Congress has taken, and it was in great part due to the reaction of the business community to the Court’s decision in Northwestern.
Reaffirming the unlikelihood that Congress will take steps toward uniformity in the area of state apportionment is the experience surrounding Public
Law 86-272. As mentioned above and discussed in Part II.B, the statute
was enacted in large part because of businesses’ lobbying for Congress to
impose some “minimal jurisdictional standards to limit the states’ power to
tax the net income of interstate corporations.”151 Congress swiftly enacted
Public Law 86-272, which was originally meant to be “a temporary, or stopgap, measure” until further study of the issues involved in state taxation of
interstate businesses.152 Further study actually took place; in fact, a five-year
analysis of state taxation of interstate business was conducted by the Willis
Committee, resulting in “the most comprehensive analysis ever of the state
corporate income tax.”153 The Committee made a series of proposals,154 which,
if adopted, would have led to uniformity in most areas of state taxation of
interstate taxpayers.155 Despite such comprehensive analysis and proposals,
Congress did not enact any of them, probably because of states’ aversion
to the loss of sovereignty that would have resulted from enactment of the
proposals, fear that they would lose control over their revenue-raising power,
and other opposition to specific proposals.156 If Congress did not act back
when there was significant momentum resulting from the recent enactment
Moorman Mfg. v. Bair, 437 U.S. 267, 280 (1978).
See Container Corp. of Am. v. Franchise Tax Bd., 463 U.S. 159, 169-71 (1983); Moorman Mfg., 437 U.S. at 278-80.
151 Nethers, supra note 33, at 602.
152 Disney Enters., Inc. v. Tax Appeals Tribunal of the State, 888 N.E.2d 1029, 1037 (N.Y.
2008); Nethers, supra note 33, at 602.
153 Charles E. McLure, Jr., The Difficulty of Getting Serious About State Corporate Tax Reform,
67 Wash. & Lee L. Rev. 327, 335-37 (2010); see Nethers, supra note 33, at 602.
154 See H.R. Rep. No. 89-11798 (1966).
155 McLure, supra note 153, at 336 (noting that the Willis Committee made both substantive and administrative proposals that, although not perfect, were better than the current state
of affairs because “uniformity would [have] prevail[ed]; the distortions and complexity that
result from nonuniformity would not exist”).
156 See id. at 337.
149 150 Tax Lawyer, Vol. 67, No. 4
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of Public Law 86-272 and it had at its disposal a comprehensive set of proposals to increase uniformity in state taxation, there is no reason to think that
Congress would act now.157
Given the unlikelihood of Congress taking any steps to achieve uniformity
in state apportionment rules, the remaining option is action by the Multistate
Tax Commission. The Multistate Tax Commission already embraces the Joyce
approach but only for purposes of determinations under Public Law 86-272
for sales of tangible personal property.158 The Multistate Tax Commission
should update the model apportionment rules in Article IV of the Compact
to embrace Joyce for all purposes, which would better reflect the developments in state law and provide some uniformity in the area of state apportionment rules.159 This course of action is not as satisfactory as action by
Congress given that the Compact has no legal effect unless adopted by state
legislatures; however, because Congress acting on this issue is unlikely, this
seems to be the best option.160
Additionally, recent efforts by the Multistate Tax Commission with respect
to UDITPA’s model apportionment provisions suggest that the Multistate
Tax Commission is more willing than Congress to act to achieve uniformity.
In 2006, the Multistate Tax Commission recommended to the Uniform
Law Commission (ULC) that UDITPA should be revised to better reflect
the developments that had taken place in the state law apportionment area
since UDITPA’s original drafting in 1957.161 Although the ULC followed the
Multistate Tax Commission’s recommendation and formed a drafting committee to revise UDITPA, the committee was discharged in 2009 and no further work took place.162 After the ULC abandoned this project, the Multistate
Tax Commission decided to take charge, referring the UDITPA revision task
157 The current situation with BATSA, see supra Part II.B, is evidence of the unlikelihood of
Congress taking some action regulating state taxation of multistate taxpayers.
158 See supra note 126.
159 As discussed in Part III.C, while the Joyce–Finnigan debate originated in the context of
sale of tangible personal property and application of the throwback rule, its scope has expanded
tremendously as states, either judicially or legislatively, have considered this issue outside the
context of the throwback rule and for revenue streams other than just sales of tangible personal
property.
160 In addition, the Compact has already been adopted by a fair number of states. See supra
notes 45-47.
161 See Report of the Hearing Officer, Multistate Tax Compact Article IV (UDITPA) Proposed
Amendments, Multistate Tax Comm’n, Oct. 25, 2013, http://www.mtc.gov/uploadedFiles/
Multistate_Tax_Commission/Pomp%20final%20final3.pdf; see also UDITPA Rewrite Necessary, But Will States Listen?, Leverage Salt LLC, Dec. 5, 2013, http://www.leveragestateandlocaltax.com/2013/12/uditpa-rewrite-necessary-but-will.html (noting that revision of UDITPA
“is designed to result not in a perfect solution (which doesn’t exist), but in the best rules” and
is necessary “because UDITPA is 56 years old and has become outdated”).
162 Report of the Hearing Officer, supra note 161, at 2; McLure, supra note 153, at 337-38
(footnote omitted) (noting that the ULC drafting committee’s effort to revise UDITPA was
abandoned when representatives of state legislatures “made it clear that it was not welcome and
that any revision of the model statute would be widely rejected by the states”).
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to its Uniformity Committee in 2009; the Committee completed the proposals in March 2012, and public hearing on the revised model was held March
28, 2013.163
The proposals made by the Uniformity Committee are: (1) double-weighting of the sales factor in the apportionment formula,164 (2) amending the
equitable apportionment provision,165 (3) revising the definition of business
income,166 (4) market-based sourcing for receipts from sales of property other
than tangible personal property,167 and (5) limiting the sales factor to receipts
from transactions and activities in the ordinary course of business.168 The
proposals, while addressing significant areas of nonuniformity in states’ division of income rules, do not address the Joyce–Finnigan debate. However,
this undertaking by the Multistate Tax Commission illustrates its willingness to work toward uniformity in state taxation of multistate corporations.
Accordingly, inclusion by the Multistate Tax Commission in Article IV of a
provision adopting the Joyce rule for attribution of sales by members in a unitary group seems to be the most practical way of achieving uniformity in this
particular area and settling the Joyce–Finnigan debate to some extent.
V. Conclusion
Uniformity is a desirable goal in the area of state taxation of corporations engaged in interstate commerce, as it is in many other areas of the law.
However, complete uniformity in this area is a fiction, despite the drafting of
UDITPA and the Compact, which have been incorporated by a number of
states into their law. Nonetheless, some consistency could be achieved if states
finally resolved the Joyce–Finnigan debate that originated in California in
1966. After decades of controversy, nonuniformity, and inaction by Congress,
the Multistate Tax Commission should bring some clarity by incorporating
the Joyce rule into its apportionment provisions, and hopefully, the states will
see that although Joyce is not a perfect rule, it is preferable and consistent with
the Constitution.
Lisandra Ortiz169
Report of the Hearing Officer, supra note 161, at 3.
See Report of the Hearing Officer, supra note 161, at 8-18.
165 See Report of the Hearing Officer, supra note 161, at 18-37.
166 See Report of the Hearing Officer, supra note 161, at 37-54.
167 Market-based sourcing essentially mirrors the destination rule for sourcing sales of tangible personal property. See Report of the Hearing Officer, supra note 161, at 54-96.
168 See Report of the Hearing Officer, supra note 161, at 96-113.
169 Georgetown University Law Center, J.D. 2014. The author thanks her mentor from the
ABA Section of Taxation, Brandee A. Tilman, Senior Manager, State Tax Controversies at The
Walt Disney Company, for her valuable guidance and feedback. The author also thanks the
editorial staff of The Tax Lawyer for its editorial contributions.
163 164 Tax Lawyer, Vol. 67, No. 4
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