Allocation and apportionment are ways to assign income to specific tax jurisdictions when dealing with state and local taxation. Their purposes vary based on income and business operations. The following is a breakdown:

Allocation:

• Allocation is a term used to refer to the direct allocation of specific types of income (generally non-business income) to a specific jurisdiction.
• The relationship between the taxpayer and a jurisdiction, such as their commercial domicile or the location of their income-generating property, is the determining factor.

Examples:

• The taxpayer's commercial domicile is eligible for allocation of interest and dividends.
• The rental income can be allocated to the state in which the property is situated.

Apportionment:

• A formula is used to divide a taxpayer's business income between multiple jurisdictions during apportionment.
• Property, payroll, and sales within each jurisdiction are typically taken into account by this formula in relation to total business activity.

Examples:

Income may be distributed according to the percentage of sales, employees, or property in each state by a corporation operating in multiple states.

Key Difference:

• Allocation is the process of assigning certain, identifiable income (e.g., non-business income) to a jurisdiction.
• The process of distributing business income across multiple jurisdictions using a standardized formula is known as apportionment.
• These methods ensure that taxation is fair and prevent double taxation across jurisdictions.