Canco, which carries on a freight transportation business in Canada and the U.S., is subject to New York State franchise tax. CRA noted that in determining the “qualifying income” of Canco:
The general rules for determining the source of income, losses and deductions provided for in paragraph 4(1)(b) must therefore be applied, all as specified in subsection 4(3). Paragraph 4(1)(b) could be textually interpreted to require the computation of items of income distinctly with respect to each of the places where the business of a taxpayer is carried on. In practice, however, this provision is generally applied to allocate the income, losses and deductions of a taxpayer on a jurisdictional basis.
… Income allocation based on the ratio of distance traveled in a jurisdiction over the total distance traveled is generally not acceptable under subsection 126(2). That is a simplified method that does not take into account all the facts applicable to a particular case.