Evaluating and locating intangibles

Figuring out the source of income of a cross-border corporation (maybe multinational enterprise is the current lingo) is a task I have left to folks, including some of my best friends, with more patience than I have. The arm’s-length method was a joke, the last time I looked, so worldwide unitary apportionment is my only hope.

The traditional unitary formula weighs property, payroll, and sales equally. That equal weighting may have made sense before we had an information economy, but now, as Charles Kingson pointed out in the inaugural David A. Tillinghast Lecture on International Taxation, 51 Tax. L. Rev. 639, 658 (1996), the property element would force people to “evaluate and locate increasingly elusive intangibles.”

Not only do we have trouble both locating and evaluating intangibles, we may not want to. North Carolina, my State, is racing other States, Commonwealths, and probably the oddly named “State of Rhode Island and Providence Plantations,” http://www.nytimes.com/2009/07/05/opinion/05vowell.html?scp=1&sq=Plantation&st=cse, to the bottom by begging companies to bring in property and payroll. Like a developing country, we are looking for ways to give away our tax base to corporations -- this from the Democrats.

I don’t argue that single-factor apportionment using only sales measures income accurately, but neither does the current system. At some point, even if you know where income arises, measuring it gets so difficult that a VAT looks good.