What is UDITPA?

The Uniform Division of Income for Tax Purposes Act, abbreviated to UDITPA, is the act that regulates the division of income for tax purposes. In 1957, the Uniform Law Commission developed a standardized method for apportioning income among states for tax purposes. For businesses that operate in multiple states, UDITPA is a crucial tool for determining how much of their income is taxed in each state.

The primary attributes of UDITPA are:

• The Three-Factor Formula utilizes a formula that is based on property, payroll, and sales to divide income.
• The income generated from regular business operations is differentiated from income from other sources.
• UDITPA has been modified by certain states, such as sourcing sales based on the customer's location.
• The Multistate Tax Compact is where UDITPA is incorporated, and it is used by many states as a framework for their tax laws.

The UDITPA requires that interest and dividend be allocated based on the taxpayer's commercial domicile.

• Interest and dividends are determined by the commercial domicile of the taxpayer in accordance with the UDITPA (Uniform Division of Income for Tax Purposes Act).
• The primary place of business or the location where the management of the taxpayer's affairs is mostly carried out is called a commercial domicile.
• Under UDITPA, interest and dividends are classified as non-business income and are allocated to the jurisdiction of the taxpayer's commercial domicile. Not based on the physical location of the income-generating property.