The prevalence of post-pandemic remote working arrangements and increased interstate migration have upended existing personal income taxation regimes. For decades, the current paradigm proved to be an imperfect but workable means to determine which state has the prevailing claim to impose tax on a particular item of income. The individual’s state of residence has a residual claim to all the individual’s worldwide income, but defers to the state in which the income is derived if such a state is determinable. To that end, the state of residence typically provides a credit for income taxes paid on a source basis to other states. Fundamentally, source trumps residence in the context of personal income taxation.

The problem is that taxing jurisdictions can no longer readily determine the source of income or the individual’s state of residence within the existing legal constructs. Existing legal structures designed to tax employment income cannot cope with widespread remote working arrangements. The rise of the digital economy and independent contractor “gig work” allows individuals to shift the source of their income. At the same time, individuals are also shifting their state of residence from high-tax to low-tax states at historic rates. Increased interstate migration, particularly of high-net-worth individuals and profitable closely-held businesses, has allowed income to migrate with individuals. The result is a genuine threat of multiple taxation for individuals and significant revenue losses for taxing jurisdictions. The stakes are enormous, as personal income tax regimes account for approximately one-quarter of all state and local tax revenues.

The solution—formulary apportionment—is a concept with which states are very familiar. Although formulary apportionment has been the prevailing paradigm for multistate corporate income taxation for decades, state legislatures and the existing literature have largely and surprisingly failed to recognize the promise of formulary apportionment for multistate personal income taxation. This Article remedies that oversight.

Tokenization began a fundamental transformation of our laws of ownership, but this transformation is curbed by a lag in the laws of taxation. This Article provides the theory and doctrinal tools to mend this disconnect. Tokenization provides a method to prove and transfer ownership of valuable assets such as art, real property, and equity interests in all types of entities. The tokenization process creates a nominal token that represents the legal ownership rights in the underlying asset. The token, and thus the ownership of the underlying asset, can then be verified and transferred in a process that may be more efficient than doing so with the underlying asset directly.

Blockchain-based tokenization promises to increase efficiency exponentially, which will reduce transaction costs and allow for greater market participation. Blockchain-based tokenization also inherently obscures ownership and transfers of the underlying asset, which may produce significant tax benefits for the asset owner but erode the state and local tax base. State and local governments impose taxes on the ownership and transfer of property. These taxes typically apply only to tangible property, not intangible property. If ownership of tangible property is transferred via an intangible token, such as a blockchain-based non-fungible token (“NFT”), significant transaction taxes may be avoided. In addition, determining which taxing jurisdiction has the statutory and constitutional basis to impose tax on the tokenized transaction is problematic.

This Article answers the crucial tax questions that arise with blockchain-based asset tokenization. First, this Article examines foundational tokenization principles, which implicate many fields of law. Next, this Article analyzes blockchain-based tokenization in several important contexts, focusing on the tax implications of each. In conclusion, this Article resolves jurisdictional and constitutional challenges, and provides a normative approach for taxing blockchain-based tokenized assets.