During its mid-year meeting (February 2-4), the Executive Committee of the National Conference of Commissioners on Uniform State Laws (NCCUSL) resolved to form a study committee “to revise the Uniform Division of Income for Tax Purposes Act (UDITPA) in conjunction with the Multistate Tax Compact.” Because most states have adopted most or all of UDITPA in imposing a corporate net income tax, the potential revision of UDITPA, now at its 50th anniversary, could have significant consequences for multistate taxpayers.

As Sutherland reported in its January 10, 2007 Legal Alert, the Multistate Tax Commission (MTC) previously requested that NCCUSL amend UDITPA Section 17 (only), which deals with apportionment of service and intangible income. NCCUSL’s recent resolution indicates that a much broader amendment effort may be undertaken.


NCCUSL is a non-profit association formed in 1892. Its purpose is to “promote the principle of uniformity by drafting and proposing specific statutes in areas of the law where uniformity between the states is desirable.” It must be emphasized that the Conference can only propose — “no uniform law is effective until a state legislature adopts it.” In addition to UDITPA, NCCUSL has drafted other uniform statutes (e.g., Uniform Commercial Code, Uniform Limited Partnership Act). NCCUSL adopted UDITPA in 1957, and it has not been amended since its adoption. UDITPA’s provisions (set forth in 18 sections) constitute an income tax apportionment regime that was designed to fairly apportion the income of multistate taxpayers, through measurement of three specific income-generating factors: property, payroll, and sales/gross receipts.

As noted above, the MTC has solicited NCCUSL’s review of only UDITPA Section 17, a provision that requires taxpayers to source income from sales of services and intangibles based on costs of performance (i.e., source to the state where a greater proportion of costs are incurred). The MTC has expressed an interest in eliminating or modifying this costs-of-performance sourcing rule and replacing it with a market-based sourcing rule (i.e., source to the state where the benefit of the service is received). State supporters of the MTC’s amendment initiative argue that market-based sourcing results in a more equitable division of services revenue among the states in which the taxpayer’s customers receive or benefit from a service. In addition, the MTC staff recently circulated a new MTC draft regulation (i.e., independent of its approach to NCCUSL) that would source income from telecommunications services using a market-based approach.

The criteria utilized by NCCUSL to approve a proposed amendment to UDITPA will pertain both to the proposed revisions to Section 17 that the MTC advocates, as well as to any proposals advocated by taxpayers. Grounds for approval of an amendment to UDITPA include: (1) the amendment removes an ambiguity, (2) the amendment conforms the Act to federal law, (3) the amendment corrects a technical error, (4) the amendment meets an unanticipated objection, (5) the amendment conforms the Act to a trend of judicial decisions, or (6) the amendment achieves a similar objective.


Because of the potential impact of changes to UDITPA on today’s state tax systems, Sutherland will closely monitor NCCUSL’s progress. However, because the process for implementing changes to UDITPA is lengthy and could potentially take years, there will likely be significant activity and discussion on this topic over the course of NCCUSL’s review.