Q&A with the Pennsylvania Department of Revenue

Under what circumstances does the DOR believe market sourcing is an appropriate policy?

Jun 30, 2011

In several corporation tax audits the Department has determined the sales factor by applying a customer-location-based market sourcing approach. Under what circumstances does the Department believe market sourcing is an appropriate policy? What is the statutory or other authoritative basis for applying market sourcing in lieu of a cost of performance approach?


Sales of tangible property are sourced to the destination state. Sales of intangibles are sourced to the state where the income producing activity is performed. When we look at the receipt of sales of other than tangible personal property, we first must determine the income producing activity for each individual transaction. Costs of performance are only considered when the income producing activity occurs in more than one state.

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These documents provide a summary of the answers provided by the Department of Revenue to the PICPA Committee on State Taxation at its annual question and answer session. These documents are classified as revenue information issued for informational purposes only for the convenience of PICPA members. Pursuant to 61 Pa. Code Section 3.4, these documents should not be relied upon for any purpose or used in tax appeals. Taxpayers requiring a binding opinion on their specific fact situation may request a written letter ruling under 61 Pa. Code Section 3.3.