Interstate Apportionment of Business Income.

The U.S. Supreme Court early in 1959 ruled explicitly on the scope of state jurisdiction under the Constitution to tax income from purely interstate business activity. The Court decided that states have significantly broader power than they have been exercising. A nondiscriminatory, properly apportioned state tax on net income can now be imposed on a foreign business when the activities in the state constitute a sufficient "netus." The contact necessary to sustain tax is decidedly less than formerly assumed. There is no doubt about the emergence-more accurately the accentuation--of a problem with economic, as well as legal and accounting, aspects. In principle the extension of state taxes as now permitted would not be cause for concern if compliance costs could be kept modest and if a proper basis for apportionment were utilized. Yet it seems inevitable that compliance costs will often be high in relation to tax, not infrequently more than the tax itself. For many decades states have sought to allocate, i.e., to divide up for tax purposes, the income of a corporation or unincorporated business among the states in which the firm carries on its activities.