What is the Single Sales Factor?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 29 April 2020
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The single sales factor is a type of taxation that makes use of a specific approach to determining the amount that companies owe in taxes for each period they are in operation. Typically, this method of determining taxes is based on the amount of sales that the company generates within a defined geographic region, such as a state, parish, or province. Proponents of the single sales factor see this approach to taxation as being beneficial to businesses and consumers alike, while others question whether this method of calculating taxes is inherently more productive than other methods.

With a single sales factor, the focus is on determining the amount of taxes owed based on the sales generated by the business within a specific time frame. In addition, the process normally calls for identifying where those sales take place. For example, if a state chose to assess taxes using the single sales factor, the tax formula would be applied to all sales that occur within that state. The assumption is that any sales taking place in other jurisdictions would be subject to taxation according to the regulations that are in force within those areas.

Proponents of the single sales factor as the basis for calculating taxes due point to the fact that this approach tends to adjust the amount of taxes owed in a manner that is more equitable than basing the process on the number of employees or the percentage of payroll generated by a given business. This in turn helps to promote the establishment and operation of more businesses within the community, a factor that only serves to enhance the economy within the area. A stable economy means a higher standard of living for everyone living in the community, which in turn is likely to motivate consumers to make additional purchases of goods and services offered by those businesses.

Critics of the single sales factor tend to wonder if the benefits associated with the approach are really any different from those generated using other criteria to determine the taxes owed. Some note that what is known as the three-factor apportionment formula, which allows for the amount of payroll as well as the value of property owned along with the sales generated by a company, is in the long run better for the economy. While some jurisdictions find that one approach is a better strategy for ensuring the welfare of both commercial and private interests within the area, others find that other methods of calculating taxes are more effective over the long run. There are examples of both the single sales factor and the three-factor approach being used successfully in many nations around the world.

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