The Florida second circuit court ruled that the taxpayer, a Target corporation subsidiary (TEI), properly sourced its service revenue under the state’s cost-of-performance (COP) rule. The court rejected the Department of Revenue’s attempt to source such revenue based on a formula that considered the square footage of Target stores located in the state.
The takeaway: Although the decision fundamentally concerns the court rejecting the Department’s assertion of alternative apportionment due to the taxpayer’s purported lack of documentary support, the court’s summary of the state’s COP rule may provide Florida taxpayers with guidance on how to source service revenue. In supporting the taxpayer’s use of COP, the court stated that “[f]or provision of the services at issue, the most relevant cost of performance is payroll” and that “the best evidence of the costs to perform these services” was the taxpayer’s apportionment workpapers.