State Apportionment - Brokerage Income

By Liz Krause, CPA

How is your company allocating brokerage derived income for state apportionment purposes?

In February 2019, the Iowa Department of Revenue issued a declaratory order on how transportation brokerage and other similar transportation service providers allocate revenues for state income tax apportionment. In that case, the taxpayer was a transportation brokerage specialist who connected clients needing goods transported with transportation providers. The taxpayer did not physically transport any goods, however, it apportioned its revenues using the specific allocation rules allowed for transportation service companies, which based the allocation on miles in a state compared to total miles. The Director of the Iowa Department of Revenue concluded that since the taxpayer did not physically move the goods, the allocation should be based on the service provider rules. Under these rules, the revenue should be allocated based on where the benefit of the service was received, which in this case was the location of where the delivery was received. For example, if the delivery of goods the brokerage company coordinated was made to an Iowa location, the revenue from that delivery would be allocated to Iowa and therefore be considered Iowa revenue for the brokerage company.

In 2018, the first tax year that the new Iowa service company rules were in place for, we saw many transportation companies benefit from the new allocation of income at a state level. With adequate financial records, we were able to appropriately apply these new rules to our transportation clients. It should be noted that this does not impact the apportionment for transportation companies who only physically haul goods. MHCS has an experienced transportation team along with a knowledgeable state and local tax team who are willing to discuss how this may apply to you and any other questions you may have.

Liz Krause, CPA | Supervisor