Business vs. Nonbusiness Income: When to Allocate and When to Apportion

UDITPA Standards, Transactional and Functional Tests for Income Characterization

Recording of a 110-minute CPE webinar with Q&A

Conducted on Thursday, November 16, 2017

Recorded event now available

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Program Materials

This webinar will provide corporate tax advisers and compliance professionals with a thorough and practical guide to distinguishing between business and nonbusiness income for purposes of determining multistate allocation vs. apportionment. The panel will discuss UDITPA distinctions between business income which must be apportioned and allocable (nonbusiness) income, detail states that vary from UDITPA rules, demonstrate various tests for distinguishing income, and outline possible tax advantages to structuring nonbusiness income by domicile.


To minimize their company’s multistate tax liabilities, corporate tax advisers and professionals should identify opportunities to allocate nonbusiness income to lower-tax jurisdictions, rather than apportion income among the states in which the firm does business.

UDITPA and many state statutes require companies to allocate nonbusiness income to the company’s domicile. However, some states apply different definitions of nonbusiness income.

The definition of “business income” is generally based on two tests: the “transactional test” and the “functional test.” Business income includes revenue derived from the regular course of the taxpayer’s trade or business, as well as income from property integral to the taxpayer’s regular business or trade. Nonbusiness income is generally all other income.

There is significant disagreement among taxpayers and state taxing authorities on what constitutes allocable income. Tax advisers must grasp and apply the relevant tests to avoid penalties, and identify opportunities to mitigate state income tax.

Listen as our panel provides a thorough and practical guide to identifying allocable nonbusiness income for state income tax purposes.



  1. Allocation vs. apportionment principles
  2. Determining business income
    1. Transactional test
    2. Functional test
    3. Multistate Tax Commission definition
    4. Other tests and standards
  3. State tests
  4. Characterization of specific types of income
  5. Domicile questions


The panel will discuss these and other issues:

  • Dividend, interest, capital gains and royalty income as business vs. nonbusiness income
  • Income from partnership interests owned by a corporation
  • Classification of rents
  • State trends in following or deviating from UDITPA principles


Michael J. Cataldo
Michael J. Cataldo

Special Counsel
Pillsbury Winthrop Shaw Pittman

Mr. Cataldo represents corporate and individual clients in state and local tax controversies across the country during...  |  Read More

Richie, Carl
Carl N. Richie, CPA

Mr. Richie has almost 20 years of experience with state & local income taxation. His experience ranges from tax...  |  Read More

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