Tennessee – Market-based alternative apportionment upheld against taxpayer that followed statutory cost of performance sourcing method

June 2014


In a 2-1 decision, a Tennessee appellate court upheld the Tennessee Commissioner of Revenue’s discretion to use an alternative method of apportionment because the statutory cost of performance method did not fairly represent the extent of the taxpayer’s business activity in the state. Additionally, the method employed by the Commissioner, which was similar to a market-based approach, satisfied regulatory standards for the imposition of alternative apportionment. The dissent asserted that alternative apportionment is only appropriate under ‘unique and nonrecurring’ circumstances and that the majority opinion did not provide facts to support such a finding.

The decision raises numerous questions and concerns regarding the Commissioner’s authority to impose alternative apportionment on Tennessee taxpayers.

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