Showing papers on "Apportionment published in 1994"

Appointment Methods for the House of Representatives and the Court Challenges

Abstract: Four different methods have been used to apportion the seats in the United States House of Representatives among the states following the decennial census. The current method, the method of equal proportions, has been used for each census since 1940. In 1991, for the first time in U.S. history, the constitutionality of an apportionment method was challenged in court, by Montana and Massachusetts in separate cases. Montana proposed two methods as alternatives to equal proportions, the methods of harmonic means and smallest divisors, while Massachusetts proposed the method of major fractions. On March 31, 1992, in a unanimous decision, the U.S. Supreme Court upheld the constitutionality of equal proportions. This author wrote the declarations on the mathematical and statistical issues used by the defense in these cases. The declarations in the Massachusetts case contain several new theoretical and empirical results. This paper discusses the technical issues in these cases together with a brief history of the apportionment problem.

Probabilistic Approach to the Rounding Problem with Applications to Fair Representation

Abstract: Failure to add to 100% occurs frequently for sums of percentages in reported sets of tables. It occurs so frequently, that if many sums of percentages add to exactly 100% in a reported set of tables, one begins to suspect the reporter of forcing the situation. Extending the pioneer works of Mosteller, Youtz and Zahn (1967) and of Diaconis and Freedman (1979) who assess the probability that a table of conventionally (MYZ) rounded proportions adds to 1, Balinski and Rachev (1992) introduced some rules of rounding that can improve the conventional rule. Investigating and developing further the so-called K-stationary divisor rules of rounding we compute, for several of these rules, the limiting probability that the rounded percentages add to 100%. We build up a bridge between the problem of rounding and the problem of apportionment. We apply the theory of apportionment in allocating representation among geographical regions in Greece and among states in U.S.A. We investigate and comment on the methods of apportionment currently being used in the two countries, as well as on other possible options including some K-stationary methods.

Issues in the Design of Formulary Apportionment in the Context of NAFTA

Abstract: This article responds to Professor Paul McDaniel’s Formulary Taxation in the North American Free Trade Zone. In his article, Professor Paul McDaniel addresses whether the NAFTA countries should adopt a system of formulary apportionment taxation. My commentary serves to highlight, with an emphasis on the state tax experience, the unnecessary restrictions imposed on Professor McDaniel’s proposal, the issues inherent in any formulary system, and the NAFTA-specific problems that could arise.Professor McDaniel adopted two unnecessary constraints in his proposal. The first, the “water’s edge” constraint, which applies formulary apportionment only to income sourced within NAFTA countries and uses only NAFTA factors in the apportionment formula. He defends this water’s edge approach on the grounds that it may be both a requirement of existing tax treaties and a necessary concession to foreign countries that may resist worldwide unitary measures, though no case law exists to support the former; the latter is a political judgment call. A water’s edge approach would require source rules and arm’s length pricing rules to determine NAFTA sourced income. Sourcing in general is incompatible with a formulary system, and to do so negates one of the inherent benefits of formulary apportionment: eliminating the need to monitor transfer prices. Second, Professor McDaniel’s emphasis on the existence of a unitary business presumably borrows that concept from U.S. Supreme Court cases dealing with state taxation of multistate income. He does not define a unitary business or defend its use. In the state context, the Due Process and Commerce Clauses require the existence of a unitary business in the context of formulary apportionment. There is no similar concept in the federal system and no need to incorporate the concept should NAFTA adopt formulary apportionment. There are technical issues in any system of formulary apportionment, three of which are particularly relevant here. First, states are permitted to impose combined reporting requirements only on members of a unitary business. These combined reports require the in-state business to consolidate its income and factors with the income and factors of its unitary subsidiaries, regardless of whether or not those subsidiaries have any direct nexus with the taxing state. Combined reporting essentially treats out-of-state unitary subsidiaries as branches or divisions. Contrary to Professor McDaniel, a NAFTA approach should be free of the state condition that the members of the combined report be part of a unitary business. The only constraint on what entities should be included in the combined group is the threshold matter of a minimum ownership requirement.Combined reporting must resolve the level of stock ownership of entities that must be included in a combined report. There are two common thresholds: a minimum 50% ownership test, or a “more than 50%” ownership test. The latter is more subject to manipulation by taxpayers seeking to avoid a combined report. These taxpayers can reduce their level of ownership to 50% while still maintaining control over the subsidiary. Fifty-fifty joint ventures would not be subject to combined reporting under a “more than 50% test Designing an effective apportionment formula will likely be a complicated objective. The state experience suggests that the traditional three-factor formula composed of sales, property, and payroll is inefficient for activities that don’t constitute traditional manufacturing or merchandising. The state response has been the adoption of specific formulas particularly tailored to individual activities, though this solution necessitates the correct characterization of the taxed activity and an emphasis on arm’s length transactions between related businesses subject to different formulas. Any apportionment formula must be built on the principles of administrative simplicity, neutrality, economic nexus, inclination to tax, and sovereign control of tax. A final issue is that of nexus, that is, the application of jurisdictional threshold rules. Professor McDaniel supports the traditional permanent establishment approach, but under this approach the use of receipts in an apportionment formula could assign income to countries without the jurisdiction to tax it. A preferred approach might be a threshold based on a predetermined amount of gross receipts, regardless of a significant physical presence. As long as the NAFTA countries maintain their dissimilar tax codes, formulary apportionment applied in a NAFTA context has the unique effect of substituting treaty shopping for “rule shopping.” Mexico, for example, lacks provisions equivalent to the U.S. subpart F treatment of controlled foreign corporations. A U.S. parent could merge with its Mexican subsidiary to form a Mexican entity, avoiding subpart F. Ideally, the NAFTA countries would adopt uniform or equivalent provisions in their tax codes to avoid this kind of rule shopping, while also ensuring their revenue administrations are highly competent to avoid potential administration shopping.Finally, Professor McDaniel suggests that dividends paid between two NAFTA corporations that are not part of the same combined report should be excluded from taxation, treating the distribution as though it occurred between two entities in the same combined report. While I question the logic of a 100% exemption, it is clear that transitional and tracing rules would be required to decide the order in which profits from the pre- and post-formulary regimes are considered to be distributed.

Chapter 15 Apportionment

Abstract: Publisher Summary This chapter describes apportionment. Apportionment determines the number of seats each state will receive. Redistricting refers to the drawing of congressional district boundaries within a state, one for each representative. The districts should have approximately ‘equal populations'. These considerations place severe restrictions on the districting plans, and make districting a quite difficult computational problem. All of the major historical methods except Hamilton's fall into the specific computational framework implied by a common divisor. The approach to measure bias suggests a mathematical model for theoretical analysis. Mathematics, through the axiomatic method, gives a precise statement about the consistency or inconsistency and thus provides a sensible basis for choosing the method that seems right for a given application. Population monotonicity implies house monotonicity. Not only do the Hamilton and Quota methods violate population monotonicity, so does any method that satisfies quota.

Issues in the Design of Formulary Apportionment in the Context of NAFTA

Abstract: This article responds to Professor Paul McDaniel’s Formulary Taxation in the North American Free Trade Zone. In his article, Professor Paul McDaniel addresses whether the NAFTA countries should adopt a system of formulary apportionment taxation. My commentary serves to highlight, with an emphasis on the state tax experience, the unnecessary restrictions imposed on Professor McDaniel’s proposal, the issues inherent in any formulary system, and the NAFTA-specific problems that could arise.Professor McDaniel adopted two unnecessary constraints in his proposal. The first, the “water’s edge” constraint, which applies formulary apportionment only to income sourced within NAFTA countries and uses only NAFTA factors in the apportionment formula. He defends this water’s edge approach on the grounds that it may be both a requirement of existing tax treaties and a necessary concession to foreign countries that may resist worldwide unitary measures, though no case law exists to support the former; the latter is a political judgment call. A water’s edge approach would require source rules and arm’s length pricing rules to determine NAFTA sourced income. Sourcing in general is incompatible with a formulary system, and to do so negates one of the inherent benefits of formulary apportionment: eliminating the need to monitor transfer prices. Second, Professor McDaniel’s emphasis on the existence of a unitary business presumably borrows that concept from U.S. Supreme Court cases dealing with state taxation of multistate income. He does not define a unitary business or defend its use. In the state context, the Due Process and Commerce Clauses require the existence of a unitary business in the context of formulary apportionment. There is no similar concept in the federal system and no need to incorporate the concept should NAFTA adopt formulary apportionment. There are technical issues in any system of formulary apportionment, three of which are particularly relevant here. First, states are permitted to impose combined reporting requirements only on members of a unitary business. These combined reports require the in-state business to consolidate its income and factors with the income and factors of its unitary subsidiaries, regardless of whether or not those subsidiaries have any direct nexus with the taxing state. Combined reporting essentially treats out-of-state unitary subsidiaries as branches or divisions. Contrary to Professor McDaniel, a NAFTA approach should be free of the state condition that the members of the combined report be part of a unitary business. The only constraint on what entities should be included in the combined group is the threshold matter of a minimum ownership requirement.Combined reporting must resolve the level of stock ownership of entities that must be included in a combined report. There are two common thresholds: a minimum 50% ownership test, or a “more than 50%” ownership test. The latter is more subject to manipulation by taxpayers seeking to avoid a combined report. These taxpayers can reduce their level of ownership to 50% while still maintaining control over the subsidiary. Fifty-fifty joint ventures would not be subject to combined reporting under a “more than 50% test Designing an effective apportionment formula will likely be a complicated objective. The state experience suggests that the traditional three-factor formula composed of sales, property, and payroll is inefficient for activities that don’t constitute traditional manufacturing or merchandising. The state response has been the adoption of specific formulas particularly tailored to individual activities, though this solution necessitates the correct characterization of the taxed activity and an emphasis on arm’s length transactions between related businesses subject to different formulas. Any apportionment formula must be built on the principles of administrative simplicity, neutrality, economic nexus, inclination to tax, and sovereign control of tax. A final issue is that of nexus, that is, the application of jurisdictional threshold rules. Professor McDaniel supports the traditional permanent establishment approach, but under this approach the use of receipts in an apportionment formula could assign income to countries without the jurisdiction to tax it. A preferred approach might be a threshold based on a predetermined amount of gross receipts, regardless of a significant physical presence. As long as the NAFTA countries maintain their dissimilar tax codes, formulary apportionment applied in a NAFTA context has the unique effect of substituting treaty shopping for “rule shopping.” Mexico, for example, lacks provisions equivalent to the U.S. subpart F treatment of controlled foreign corporations. A U.S. parent could merge with its Mexican subsidiary to form a Mexican entity, avoiding subpart F. Ideally, the NAFTA countries would adopt uniform or equivalent provisions in their tax codes to avoid this kind of rule shopping, while also ensuring their revenue administrations are highly competent to avoid potential administration shopping.Finally, Professor McDaniel suggests that dividends paid between two NAFTA corporations that are not part of the same combined report should be excluded from taxation, treating the distribution as though it occurred between two entities in the same combined report. While I question the logic of a 100% exemption, it is clear that transitional and tracing rules would be required to decide the order in which profits from the pre- and post-formulary regimes are considered to be distributed.

The Role of Congressional Silence in a Foreign Commerce Clause Analysis: The Example of Barclays Bank and the Unitary Taxation of Foreign-Parent Corporations

Abstract: I. Introduction The Barclays Bank case is likely to be the final part of the U.S. Supreme Court's effort to piece together a constitutional analysis applicable to the unitary taxation of foreign-parent multinational corporations (MNCs).(1) At stake is current Foreign Commerce Clause doctrine as it applies to the unitary taxation of foreign-parent MNCs not only in Barclays Bank, but also in future cases likely to be brought in other states.(2) If the Supreme Court finds that unitary taxation is unconstitutional, California could lose up to $4 billion at a time when it faces a severe budget crisis.(3) At least fourteen other states face the possibility of losing large amounts of past and future tax revenue.(4) The case will also affect international economic relations between the United States and its primary trading partners, most notably the United Kingdom.(5) The Barclays Bank case, therefore, involves far-reaching policy issues, both domestic and international. Unitary taxation is one of two methodologies that states use to determine an MNC's in-state taxable income. The other and more popular method is the arm's length/separate accounting (AL/SA) method.(6) The AL/SA method distinguishes between parent corporations and their affiliates, and treats the income of affiliates as separate from that of the parent if the two entities deal with each other at arm's length.(7) States using the less popular unitary approach, on the other hand, combine an MNC's worldwide earnings, including the earnings of its domestic and foreign subsidiaries, and then apply a formula to determine the portion of income attributable to the state.(8) States use unitary taxation primarily to prevent transfer pricing, which MNCs use to minimize tax liability,(9) and to capture fully the benefits of integration and economies of scale that often escape the AL/SA methodology.(10) The use of unitary taxation, therefore, typically generates substantially more tax revenue than does the AL/SA method."(11) Beginning in the late 1970s, MNCs challenged the states' use of various taxing devices designed to increase state revenue.(12) The MNCs' primary target was the states' application of formula apportionment and unitary taxation to MNCs.(13) The arguments challenging formula apportionment typically rested on two constitutional premises: the dormant Foreign Commerce Clause and the Due Process Clause.(14) Thus far, neither doctrinal approach has been successful in barring the application of formula apportionment to unitary businesses.(15) Constitutional challenges to state income taxation of MNCs have focused particularly on California's use of unitary taxation.(16) U.S.-parent MNCs doing business in California failed to overthrow California's taxing scheme, despite the recent attempt to do so in Container Corp.(17) When the U.S. Supreme Court resolved the U.S.-parent corporation issue in Container Corp., however, it explicitly left open the question of whether California's application of unitary taxation to foreign-parent MNCs violates the Constitution.(18) After overcoming procedural barriers,(19) foreign-parent MNCs began their attack on California's use of unitary taxation.(20) In 1992 the California courts temporarily filled the gap left open by the U.S. Supreme Court in Container Corp. by upholding the constitutionality of unitary taxation as applied to foreign-parent MNCs.(21) This Note focuses on the constitutional analysis that the California courts employed in the Barclays Bank case. Part II sets forth the doctrinal background of the U.S. Supreme Court's treatment of formula apportionment and the California courts' disposition of the constitutional issues in Barclays Bank. Part III critically analyzes the California courts' use of Wardair to infer congressional acquiescence in the use of unitary taxation, thus circumventing a dormant Foreign Commerce Clause analysis. Part IV places the doctrinal discussion of congressional silence in the context of recent domestic and international developments. …

The Problem of Correct Source Apportionment in the Decisional Processes of Pollution Control

Abstract: In enviromental policy-making the source apportionment is becoming of fundamental importance. In order to support a certain environmental quality it is important to established which anthropogenetic activity should be reduced, elimineted or not started at all.