More States Adopt Market Based Sourcing

Long time readers of my newsletter have seen many posts about market based sourcing. In recent years, I have not written about market based sourcing as every major state (except Texas) has adopted market based sourcing for sourcing receipts for tax purposes.

Under a market-based approach, sales of services (including digital services and intangibles such as software) are assigned to the state in which the services or benefits of the services are received, or where the customer or marketplace is located. This allows states to tax a businesses even if there is no physical connection to that state.

Starting 2026, Arkansas will use market-based sourcing for sales other than sales of tangible personal property. So if you provide services to Walmart you may now be subject to Arkansas tax.

Starting 2027, Kansas will use market-based sourcing for sales other than sales of tangible personal property. In addition, starting 2027 Kansas will use a single sales factor to determine tax apportionment (which is the percentage of income taxed by that state).