The Multistate Tax Commission (MTC) advanced several items of interest during its annual fall meetings held in Charleston, South Carolina, this week, including the creation of a new committee to continue gathering support for its transfer pricing program.
MTC Elevates ALAS Program to Formal Committee
Nearly eight months have passed since the MTC Executive Committee approved the Arm’s Length Adjustment Service (ALAS) Final Program Design (Program). In that time, state support of ALAS has remained stagnant, with only six states committing to join the Program (Alabama, Iowa, Kentucky, New Jersey, North Carolina and Pennsylvania). The Program contemplated at least ten states joining to implement the program.
Greg Matson, executive director of the MTC, said that the MTC has met with three additional states regarding their support of the Program. Nevertheless, no additional states have joined. In an effort to elevate the image of the Program, Matson decided to create the ALAS Committee to assist in the ongoing recruitment efforts. The ALAS Committee will be comprised of representatives from the six states that have joined the Program and will have a formal place alongside other MTC committees like the Uniformity and Audit Committees.
Matson identified several reasons why the ALAS Committee is needed. First, the ALAS Committee would emphasize that the Program is “state driven, not [MTC] staff driven” and that the states are serious about implementing the Program. Second, the ALAS Committee would provide interested states with a forum to discuss the Program, including the costs associated with participating. States that have yet to join the Program have expressed concern over the cost of joining, particularly without any evidence of the projected monetary benefit of the Program.
Some concern was expressed over the seemingly endless delay to implement the Program. The Program was approved in May 2015 and has no more member states than it did then. How long will the MTC continue to pursue this effort, particularly if state interest does not grow? Dan Bucks, who has advised the Program since its inception, emphasized the MTC’s intentions to continue pursuing the Program over the course of the next few years. Bucks attempted to allay concerns over the delay by reminding the Executive Committee that the MTC’s Nexus Program took years to implement. Bucks and Matson expressed optimism regarding the ability to recruit more states to join the Program.
Recruiting efforts will continue next week at the NYU Institute on State and Local Taxation.
Survey Time: Model Sales Tax Nexus Statute Goes to the States
The Executive Committee voted to send its Model Sales and Use Tax Nexus Statute to a Bylaw Survey VII study, which gauges state interest in enacting the model. This is the next procedural hurdle to overcome before the proposed statute is adopted by the MTC. In effect, Bylaw VII surveys are a way for the MTC to portend the adoption of a recommendation by the Executive Committee. A Bylaw VII survey is a poll of the MTC member states regarding whether they would “consider adopting” a draft proposal relating to uniform or compatible tax laws, regulations or administrative practices—not whether they will, in fact, adopt the proposal. Should a majority of the MTC member states polled report that they would consider adopting the draft proposal, the proposal is referred to the MTC for possible adoption as a uniformity recommendation.
The Model Sales Tax Nexus Statute articulates several ways in which a remote seller is deemed “engaged in business” in a state in which it is not physically present. The statute extends the U.S. Supreme Court’s holdings in Tyler Pipe v. Washington, 483 U.S. 232 (1987), and Script v. Carson, 362 U.S. 207 (1960)—which held that activities by in-state representatives can attribute nexus to the out-of-state party—to activities conducted through the Internet. With states continuing to express dissatisfaction with the U.S. Supreme Court’s current sales tax jurisprudence, states are looking for new ways to chip away at the physical presence requirement upheld in Quill Corp. v. North Dakota, 504 U.S. 298 (1992). The Model Sales Tax Nexus Statute could be another way of doing so, and the Executive Committee specifically noted that some states have expressed a desire to use the model in that fashion.
If a majority of the states indicate that they would consider adopting this provision, the Model Sales Tax Nexus Statute would likely go before the Executive Committee for a final vote at the July 2016 meeting.
Almost There: Uniformity Committee Completes Draft of Market Sourcing Regulations, Set to Enter Public Comment Phase
Yesterday, the MTC’s Uniformity Committee approved draft market-based sourcing regulations and definitions. Since November 5, 2014, a working group with representatives from across the nation has met weekly to discuss and draft a model market-based sourcing regulation to implement changes to the sourcing of sales other than sales of tangible property under Article IV, Section 17 of the Multistate Tax Compact. The working group used Massachusetts market-based sourcing regulation (830 CMR 63.38.1) as a starting point for draft language and discussion points. After more than a year of meetings, the Uniformity Committee completed and approved the draft market-based sourcing rules and definitions.
Although the Uniformity Committee has completed the draft, the process for finalizing the draft is far from over. Importantly, the MTC must provide a 30-day notice for public comment on the regulations before the Executive Committee can approve the regulations. The Executive Committee does not meet in person again until May 2016. Matson determined that the most efficient way to meet the procedural hurdles to vote on the regulation when the MTC convenes its annual meeting in July 2016 is to finalize the time for public hearing and comment via a teleconference in early 2016. When the period is finalized and announced, the public can submit comments regarding the draft regulations.