Evolution of the unitary tax apportionment method

              The Accounting Historians Journal Vol. 15, No. 1 Spring 1988
Nancy Foran THE WICHITA STATE UNIVERSITY
and Dahli Gray
Peat Marwick Research Fellow UNIVERSITY OF NOTRE DAME
THE EVOLUTION OF THE UNITARY TAX APPORTIONMENT METHOD
Abstract: Taxpayers and taxing jurisdictions are, by definition and motivation, opposing forces and, therefore, in continual conflict. Taxpayers strive to minimize their tax liabilities while taxing jurisdictions seek ways to maximize their tax revenues. The unit-ary tax apportionment method was conceived by taxing jurisdic-tions as a method to prevent taxpayers from avoiding their fair share of the tax burden. The method evolved from a fairly insig-nificant procedure for the assessment of local property taxes to a very controversial means of apportioning the worldwide income of multinational corporate groups. Taxpayers have challenged the unitary tax apportionment method by utilizing economic sanc-tions, the legal system and the political process.
This paper traces the effect of taxpayers' judicial, political and economic actions on the evolution of the unitary tax apportion-ment method. The study demonstrates that although taxpayers challenged this expansion numerous times in the courts and through the political process, it was not until taxpayers used economic sanctions that the states began to restrict the reach of the unitary method.
Public law, case law, position statements, interviews and journal and newspaper articles provided the data for this study.
INTRODUCTION
When a business has operations within one tax jurisdic-tion, the resources and activities of that business are subject to tax only in that jurisdiction. However, when a business has operations in more than one tax jurisdiction, it is necessary to determine and tax the income and property values attributable to each jurisdiction in which the business operates. Three methods may be used in this determination: separate ac-counting, formula apportionment and specific allocation. The method used depends on the nature of the taxpayer's business and the laws of the tax jurisdiction.
If the business activity within a tax jurisdiction is not connected with the business activity outside the jurisdiction, separate accounting is the appropriate method for dividing the