A Florida court has issued a ruling on cost-of-performance sourcing, the method multistate businesses use to determine how much of their income Florida can tax. Grant Thornton reported the decision, which lands squarely on the desk of any softgoods company — brand, licensee, or supplier with US sales entities — that apportions income to the Sunshine State.

Cost of performance is not a fashion-world term, but it decides real money. When a company earns revenue from services or intangibles — design fees, licensing royalties, sourcing-management charges, distribution services — it must decide which state gets to tax that income. Under a cost-of-performance rule, the income lands where the work producing it actually occurs, judged by where the direct costs of that work are incurred.

For the softgoods supply chain, that test cuts close to the bone. A brand headquartered in New York may run its design studio in Los Angeles, its sourcing office in Hong Kong, and its distribution out of Savannah, Georgia. Royalties from licensing a trademark to a factory, or management fees charged to an affiliate, all have to be sourced somewhere. Where the court draws the line on which costs count as "direct" changes the apportionment formula — and therefore the state tax bill.

Florida is one of a shrinking number of states that still applies cost-of-performance sourcing rather than the market-based sourcing most states have adopted for services and intangibles. That mismatch creates complexity for apparel and footwear groups operating across state lines. The same royalty stream may be sourced to the customer's state under one regime and to the performer's state under the other, producing double taxation risk or, conversely, planning opportunities.

The Grant Thornton report on the ruling signals that Florida taxpayers now have a judicial data point on how the state's courts interpret the sourcing standard. Companies with pending Florida filings, amended returns, or contested assessments involving service revenue or intangible income will need to measure their positions against the court's reasoning.

The compliance decision is concrete. Softgoods businesses with Florida nexus — whether through a showroom, a distribution node, an employee, or licensing activity — should task their state-and-local tax advisers with three actions: review how they currently source service and royalty income to Florida; test whether the court's interpretation of cost of performance supports or undermines that position; and quantify the exposure or refund opportunity across open tax years. States typically keep three to four years of returns open to adjustment, and interest accrues from the original due date.

For sourcing and finance teams already stretched by tariff classification work and customs valuation reviews, this adds one more item to the compliance ledger. It is a reminder that in the softgoods trade, tax sourcing — like cotton sourcing — depends entirely on where you can prove the work happened.