Which apportionment formula does a partnership use where a state offers a choice, keys the formula to an industry code, or meets a factor with a zero denominator?

Whose formula: the partnership's rule is a partnership rule

The model act sets no formula. The Multistate Tax Commission's 2015 revision of Article IV leaves the fraction blank for each state to fill and recommends double-weighted receipts only in a drafter's note. Most partnerships pay no income tax of their own, so the formula a state prescribes for a partnership measures what its nonresident partners report, what it withholds and what it pays on a composite basis. States reach that formula by three routes.

1. The partnership follows the corporate formula and moves when it moves. Massachusetts computes a pass-through entity's apportionment percentage under the corporate statute and its regulation, and for taxable years beginning on or after January 1, 2025 the percentage "is equal to the sales factor" (M.G.L. c. 63, section 38; 830 CMR 62.5A.1(6)(a); St. 2023, c. 50, sections 31 and 47). Missouri reaches the corporate formula through its form. The statute leaves the Missouri-source part of a nonresident partner's share to the director's regulations (Mo. Rev. Stat. section 143.421), and Form MO-NRP applies separate accounting where "accompanying records clearly reflect income from Missouri sources" and otherwise directs that "all business income should be apportioned by using Method Two A Receipts Factor Apportionment," the section 143.455.2 receipts factor a corporation uses. The form, not the statute, names the method, and the director's regulation was not read. California reaches the same place for most businesses: a partnership's apportioning trade or business uses the single sales factor on Schedule R-1, and for a nonresident individual partner the partnership's business income is apportioned at the partnership level under the corporate apportionment sections (Cal. Code Regs., tit. 18, section 17951-4(d)(1)).
2. The partnership has its own formula. New Jersey's partnership allocation is a single sales fraction for tax years beginning on or after January 1, 2023 (Form NJ-NR-A; Form NJ-1065 instructions). The statute leaves allocation to the director's regulations and the regulation prescribes the Business Allocation Schedule without naming a fraction, so the fraction is stated from the schedule (N.J.S.A. 54A:5-8(a)(3); N.J.A.C. 18:35-1.3(d)4). New York's Article 22 regulation, issued under Tax Law sections 631(c) and 632(a)(1), applies by its terms to "a partnership of which a nonresident individual is a member." After a books and records method, it averages three percentages: property, payroll, and a gross income percentage sourced to the office, branch or agency through which the sale or service is made, subject to the exceptions in sections 132.16 and 112.7(b) (20 NYCRR 132.15(c)). Pennsylvania's personal income tax regulation also averages property, payroll and sales where the books do not separate Pennsylvania income (61 Pa. Code section 109.5(c)).
3. The choice is between separate accounting and the formula. Missouri, New York and Pennsylvania put the partnership's books first and the formula second, and none gives the partnership a choice between formulas.

Two computations from one partnership

A partnership's formula governs its individual partners. It does not govern a corporate partner that combines the partnership's factors with its own; that partner applies its own formula to the combined figures. Utah's instructions say so expressly: partners of pass-through entities include their pro rata share of the entity's property, payroll and sales in their own Schedule J, and a corporation with interests in tiered pass-through entities includes its ownership-weighted share of each entity's factors.

• New York. A corporate partner receiving a complete Form IT-204-CP must use the aggregate method, includes its distributive share of the partnership's receipts within and outside New York, and relies on the partnership to report information computed under the netting and sourcing rules of section 210-A. Article 9-A apportions by receipts alone (Tax Law section 210-A.1). The same partnership therefore produces two New York percentages: the Article 22 average for its individuals, and Article 9-A receipts, sourced under section 210-A, for its corporate partners. The two do not reconcile and are not meant to.
• California. Two rules, one for each partner type. A unitary corporate partner adds its share of the partnership's property, payroll and sales to its own and applies "an apportionment formula, pursuant to either Section 25128, Section 25128.5 or Section 25128.7, Revenue and Taxation Code, whichever is applicable," which is the partner's formula, not the partnership's (Cal. Code Regs., tit. 18, section 25137-1(f)); a non-unitary corporate partner takes the partnership's own result (section 25137-1(g)). A nonresident individual partner is governed by section 17951-4(d): the partnership apportions at its own level, and the partner's distributive share of the California-apportioned business income is California-source income. Only where the partnership and the partner's own business are one unitary business, which the regulation presumes against below a 20 percent interest, does the computation move to the partner level ((d)(5), (d)(6)). A corporate partner whose combined apportioning trade or business derives more than 50 percent of its gross business receipts from agricultural or extractive activity uses three factors, with the partnership's property and payroll in them, even though the partnership files on the sales factor (Rev. and Tax. Code section 25128(b), (c); Cal. Code Regs., tit. 18, section 25137-1(f)); that exception is covered by a separate article.
• Maryland and Missouri. Maryland's regulation includes a corporation's share of partnership receipts, property and wages "[i]n the same manner as if they were direct receipts, property, and wages of the corporation" (COMAR 03.04.03.08(F)(2)); Missouri's corporate instructions multiply partnership factors by the ownership percentage.
• Utah. The nonresident individual partner takes the partnership's Schedule A fraction on the Schedule K-1; the corporate partner runs its own tests and choice on the combined figures.
• Massachusetts blends a unitary lower tier's factors into the upper tier's in proportion to ownership and applies the result to the combined income (830 CMR 62.5A.1(6)(b)).

The partnership therefore owes its corporate partners factor data in each state's own measure, not its own percentage. Pennsylvania's corporate side is covered by a separate article on investment partnerships.

Elections: who chooses, and what binds

Where a state offers a choice, the partnership makes it on its return.

• Arizona. The statute makes every apportioning taxpayer "elect" between the standard formula (property plus payroll plus twice sales, over four) and the sales factor alone, except a taxpayer deriving 50 percent or more of its gross income from air commerce, which uses revenue aircraft miles (A.R.S. section 43-1139). The Department's partnership instructions apply the statute to a multistate partnership "according to UDITPA, A.R.S. §§ 43-1131 through 43-1150," and Form 165 carries the choice as a box on line F (air carrier, standard, or sales factor only), with the result flowing to each nonresident partner's Schedule K-1(NR). The statute sets no multi-year commitment. The chapter 14 section applying the corporate apportionment article to a partnership was not found, so the application is cited from the instructions. Whether a corporate partner's Arizona return follows the partnership's box or makes its own choice on combined factors was not answered by anything read.
• Utah. The choice exists only for an "optional apportionment taxpayer," and two different NAICS lists do two different jobs. The sales factor is mandatory for a "sales factor weighted taxpayer": one that apportioned on the sales factor in the previous taxable year, or that generates more than 50 percent of its sales everywhere from activities classified, in the 2002 or 2007 NAICS, outside Sector 21 (mining), industry group 2212 (natural gas distribution), Sector 31-33 (manufacturing, except 3254, 3333, subsector 334 and code 336111), Sector 48-49 (transportation and warehousing), Sector 51 (information, except subsector 519) and Sector 52 (finance and insurance) (Utah Code section 59-7-302(2)(a)). A taxpayer not forced onto the sales factor is an optional apportionment taxpayer if the average of two fractions exceeds .50: Utah property and Utah payroll attributable to the ten "excluded NAICS codes" of the 2017 edition, each over all Utah property or payroll, dividing by one where a fraction's denominator is zero (section 59-7-302(1)(g), (3)(b)). The ten codes are crude petroleum extraction (211120), coal mining (2121), natural gas distribution (2212), food manufacturing (subsector 311), beverage manufacturing (3121), cement manufacturing (327310), rail transportation (subsector 482), motion picture and video production (512110), broadcasting (subsector 515) and commercial banking (522110).
• Utah, the election itself. An optional apportionment taxpayer chooses, by the extended due date, between the equally weighted three factors, whose statutory denominator is three, and the sales factor alone (section 59-7-311(3), (5)). A filer that chooses the sales factor is a sales factor weighted taxpayer the next year under the previous-year test, which the instructions state as a rule that the next return must use the sales factor only. The choice therefore carries forward by statute. The 2018 act that built this framework allowed a return only on "a qualifying status change"; the current section 59-7-311 contains no such clause, so the article states no route back. Nonresident individuals and pass-through entities apportion "using the same methods, procedures, and requirements of Sections 59-7-311 through 59-7-320" (section 59-10-118(8)).
• Missouri. The elective corporate methods in section 143.451 apply only "[f]or all tax years ending on or before December 31, 2019"; "[f]or all tax years beginning on or after January 1, 2020" corporations apportion by the receipts factor of section 143.455, with special methods kept for railroads, telephone and telegraph companies and investment funds service corporations. The partnership form offers no formula choice: its only alternative to the receipts factor is separate accounting where the records support it. On the Department's likely position, a fiscal year that began in 2019 and ended in 2020 falls within neither sentence on its face; the Department's treatment of that year was not read.

Two consequences follow for a partnership whose partners differ. The election is the partnership's: individual partners take the percentage the return computes, and nothing read gives an individual partner a separate choice. An aggregating or unitary corporate partner is outside the election where it applies its own formula to combined factors, and in Utah the instructions say so in terms, so a corporate partner cannot rely on the partnership's box to fix its own.

Other industry keys exist: Missouri keeps mileage-based methods for railroads and telephone and telegraph companies, and the model act excludes financial organizations and public utilities from its scope. For a partnership the test is run on the partnership's own activities at the level the state names, so a holding partnership can fall on a different side of an industry line from its partners.

When a factor's denominator is zero

The Multistate Tax Commission's model act has no rule for a zero denominator, and its section 18 relief is the general answer. Where states have written a rule, three patterns appear.

1. The factor is excluded and the divisor shrinks. Utah's Commission instructs the filer to divide by the number of factors present, and a factor with a zero numerator but a positive denominator stays in the count. The statute's three-factor denominator is three, so the drop rule is the Commission's instruction (section 59-7-311(3); 2025 Form TC-65 instructions). Utah's statute applies the same idea inside the eligibility test, dividing by one when the property or payroll fraction has no denominator (section 59-7-302(3)(b)(iii)(B)). Arizona's partnership instructions say a partnership must exclude a factor if both its numerator and denominator are zero; the statute has no such text. New York's Department applies the Article 22 formula the same way on its forms: the average is taken by three, or by the actual number of percentages if less than three (Form IT-203-A instructions, line 8; the same on the Form IT-204 MCTD worksheets; the Form IT-204 line itself was not read). The regulation itself averages "the percentages" without a missing-percentage rule (20 NYCRR 132.15(c)), and on the Department's likely position the form instruction is its practice. California's three-factor filers under Rev. and Tax. Code section 25128(b) exclude a factor with zero in both columns of Schedule R-1; that convention is covered by a separate article, and a single-sales-factor partnership has no factor to drop.
2. A statutory fallback formula. Massachusetts treats the sales factor as inapplicable when its numerator and denominator are both zero, when its denominator is less than 10 percent of one third of the taxable net income, or when the commissioner finds it insignificant, and then apportions by property and payroll; a zero numerator alone does not make the factor inapplicable (M.G.L. c. 63, section 38(g)). For an individual's own business the regulation reweights the remaining factors and, with one left, uses it alone (830 CMR 62.5A.1(5)(d)(2)); how the Department applies that subparagraph now that the corporate statute has no three-factor formula for 2025 and later is open.
3. Silence. Pennsylvania's personal income tax regulation, Maryland's corporate regulation, New Jersey's partnership forms and regulation and New York's Article 9-A statute have no zero-denominator text. Maryland's sentence that "the number of factors used shall be averaged" reads naturally as dividing by the factors in use, but it does not say what happens to a factor with no denominator, and whether Maryland keeps such a factor in the divisor could not be confirmed either way.

A single-sales-factor state that meets a zero denominator has nothing to reweight; a separate article covers that case.

Law that moved

Maryland's corporate formula became a single sales factor for tax years beginning after December 31, 2021 (COMAR 03.04.03.08(C)(2)). Utah's NAICS framework took its present shape for taxable years beginning on or after January 1, 2018, and its phased-in option became the sales factor for taxable years beginning on or after January 1, 2021. The New Jersey, Missouri and Massachusetts dates are stated above.

A worked example

A food manufacturing partnership (NAICS subsector 311) has $8,000,000 of apportionable business income. It has no employees, because an affiliated management company employs everyone, so its payroll is zero everywhere. Everywhere: property $10,000,000 and sales $50,000,000. It has two partners, individuals holding 60 percent and a corporation holding 40 percent. The partnership did not use Utah's sales factor in the prior year. The facts are invented.

Utah, year one. Sales test: all of the partnership's sales come from food manufacturing, which sits inside Sector 31-33 and is not one of the four manufacturing exceptions, so none of its sales come from activities outside the listed sectors and the 50 percent test does not force it onto the sales factor. Optional test: subsector 311 is one of the ten excluded codes, so Utah property attributable to excluded codes over all Utah property is $4,000,000 / $4,000,000 = 1.0; the payroll fraction has a zero denominator, so the average divides by one: 1.0, more than .50. The partnership is an optional apportionment taxpayer.

• Utah property $4,000,000 / $10,000,000 = 0.40. Payroll: not present. Utah sales $5,000,000 / $50,000,000 = 0.10.
• Three factors under the Commission's instructions, dividing by the factors present: (0.40 + 0.10) / 2 = 0.25; Utah income $8,000,000 x 0.25 = $2,000,000.
• The statute's denominator is three: (0.40 + 0 + 0.10) / 3 = 0.166667; Utah income $1,333,333 (rounded). The example follows the instructions.
• Sales factor: 0.10; Utah income $800,000.

The partnership chooses the sales factor by its extended due date and reduces its Utah-source income by $1,200,000 against the three-factor result.

Utah, year two. Utah sales rise to $25,000,000 of $50,000,000 (0.50); property is unchanged at 0.40. Three factors would give (0.40 + 0.50) / 2 = 0.45, or $3,600,000. Because it apportioned on the sales factor in year one, the partnership is a sales factor weighted taxpayer and must file on the sales factor: 0.50, or $4,000,000. The year one choice costs $400,000 of Utah-source income in year two.

Utah, the corporate partner. The partnership's choice does not reach its corporate partner. The corporation includes 40 percent of the partnership's property, payroll and sales in its own Schedule J (year one: Utah property $1,600,000 of $4,000,000; Utah sales $2,000,000 of $20,000,000) alongside its own figures, and runs the sales test, the optional test and any choice on the combined totals. The individual partners take the partnership's Schedule A fraction on their Schedules K-1.

New York. New York property is $2,000,000 of $10,000,000, or 20 percent; gross income through its New York office is $15,000,000 of $50,000,000, or 30 percent; there is no payroll. The books do not separate New York income.

• Individual partners (20 NYCRR 132.15(c); Form IT-203-A instructions): the average of the percentages present, (20 + 30) / 2 = 25 percent, or $2,000,000 of New York income. Dividing by three with a zero for the missing payroll percentage, (20 + 0 + 30) / 3 = 16.67 percent, or $1,333,333, is arithmetic the Department's instructions do not follow; the regulation's text does not address the point.
• Corporate partner (aggregate method): the partnership reports receipts sourced under section 210-A, which follow the customer, not the office: say $12,000,000 in New York of $50,000,000. The partner's 40 percent share is $4,800,000 / $20,000,000. Its own receipts are $10,000,000 in New York of $100,000,000. Combined: ($10,000,000 + $4,800,000) / ($100,000,000 + $20,000,000) = $14,800,000 / $120,000,000 = 12.33 percent, applied to the partner's own combined business income under Article 9-A.

The industry key decides whether a choice exists. The zero payroll denominator is handled by statute in Utah's eligibility test and by instruction in the Utah formula and in New York. A one-year saving can lock in a later cost, and one partnership produces two computations in each of two states for two kinds of partner. The example leaves out composite tax and withholding amounts, the corporate partner's own Utah result, New York City and any alternative apportionment petition.

Practice notes

Build the formula map per state and per partner type before computing any percentage: the partnership rule, the individual partner rule and the corporate partner rule. Run both Utah tests on the partnership's own figures every year, the sales test on the 2002 or 2007 sectors and the optional test on the ten 2017 codes, and model the following year before choosing the sales factor, because the choice carries forward by statute. Make the Arizona choice on the partnership's original Form 165, line F, record why, and do not assume a corporate partner's return follows it. Deliver corporate partners factor data in each state's own measure (in New York, receipts sourced under section 210-A; in Utah, the pro rata share of property, payroll and sales).

Where a factor has no denominator, apply the state's written rule and cite it at its level: Utah and New York by Commission or Department instruction (the statute and regulation say three), Arizona by Department instruction, Massachusetts by the section 38(g) fallback. Where the text is silent (Pennsylvania, Maryland, New Jersey), document the treatment and consider the state's equitable relief provision rather than defaulting. Re-read each state's current partnership form each year, because New Jersey (2023), Maryland (2022), Missouri (2020) and Massachusetts (2025) all moved after the formulas most templates were built on. In Missouri, keep the records that would support separate accounting on Form MO-NRP Part 3 if that result is better than the receipts factor. G&G State Tax Group provides multistate partnership apportionment and withholding reviews alongside its state and local tax practice.