Drieser Corporation’s manufacturing facility, distribution center, and retail store are located in State K. Drieser sells its products to residents located in States K, M, and N.Sales to residents of K are conducted through a retail store. Sales to residents of M are obtained by Drieser’s sales representative, who has the authority to solicit, accept, and approve sales orders in State M. Residents of N can purchase Drieser’s product only if they place an order online and arrange to take delivery of the product at Drieser’s shipping dock.Drieser’s sales this year were reported as follows: 

Sales to residents of State K$1,000,000
Sales to residents of State M600,000
Sales to residents of State N   900,000
Total$2,500,000
?
Drieser’s activities within the three states are limited to those described above. All of the states have adopted a throwback provision and utilize a three-factor apportionment formula under which sales, property, and payroll are equally weighted. State K sources dock sales to the destination state.
?
Determine Drieser’s sales factors for States K, M, and N.

What will be an ideal response?

Sales Factor for State K?

Sales to residents of K$1,000,000 
Sales thrown back to K   900,000*
Sales attributed to K$1,900,000 
?Sales factor: $1,900,000/$2,500,000 = 76.00%?* The throwback rule is an exception to the ultimate destination test. This rule ensures the taxation of sales made to a destination state in which the seller is not taxable. Since Drieser is not subject to tax in N (the destination state), dock sales made to residents of N are treated as in-state sales of K (the origination state).?Sales Factor for State M?
Sales to residents of M$600,000
?Sales factor: $600,000/$2,500,000 = 24.00%?Drieser’s salesperson has the authority to accept and approve sales to customers located in M. Accordingly, the activities of the salesperson exceed that immune under Public Law 86-272, thereby creating nexus. Drieser is subject to tax in M.?Sales Factor for State N?Since Drieser’s connection with State N is limited to residents of that state taking delivery of Drieser’s product at Drieser’s shipping dock after placing an online order, insufficient nexus is established to subject Drieser to taxation in N. Accordingly, a zero sales factor is created for N.?Summary?Because K has adopted a throwback provision, sales to residents of N are attributed to K, and they are used in determining the K sales factor. The sales factors total to 100%. Drieser has no “nowhere sales.”

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