Payroll factor - Denominator

The denominator of the payroll factor is the total compensation paid everywhere during the tax period. Accordingly, compensation paid to employees whose services are performed entirely in a state where the taxpayer is immune from taxation, for example, by Public Law 86-272, is included in the denominator of the payroll factor. Example: A taxpayer has employees in its state of legal domicile, state A, and is taxable in state B. In addition, the taxpayer has other employees whose services are performed entirely in state C where the taxpayer is immune from taxation by Public Law 86-272. As to these latter employees, the compensation will be assigned to state C where their services are performed, that is, included in the denominator, but not the numerator, of the payroll factor, even though the taxpayer is not taxable in state C.