The Multistate Tax Commission (“MTC”) recently held its Executive Committee Meeting in Washington, DC. As part of this meeting, MTC members visited House and Senate members to discuss their positions on federal legislation concerning state taxation. The MTC members met and discussed a variety of state tax issues, including a potential re-write of the Uniform Division of Income for Tax Purposes Act (UDITPA).
In response to the National Conference of Commissioners on Uniform State Laws (“NCCUSL”) Study Committee’s request to review and amend UDITPA, the MTC submitted its recommendations to NCCUSL regarding the scope and necessity of revisiting UDITPA. UDITPA, drafted in 1957 by NCCUSL, is a model state income tax law that governs the allocation and apportionment of a multistate taxpayer’s income. The MTC previously requested NCCUSL revisit UDITPA. MTC’s letter strongly encourages NCCUSL to review UDITPA with a focus on UDITPA section 17, which sets forth the costs-of-performance (COP) sourcing method for sales of services and intangibles.
In its comments, the MTC provided little explanation as to what the specific problems were with section 17; instead, it provided broad-based justifications for its proposed revisions, such as the “unacceptable risk of uncertainty, nonuniformity, administrative burden, and revenue loss” that MTC assigns to COP sourcing.
While the MTC has made it a priority to amend section 17, the MTC also encouraged NCCUSL to consider three other changes: (1) apportionment factor weighting (i.e., reviewing the equally weighted property, payroll and sales factors that a majority of states have rejected); (2) the definition of “business income”; and (3) the definition of gross receipts for purposes of calculating the sales factor. In addition, the MTC believes a clarification of the relief provision in section 18 (concerning alternative or equitable apportionment) may also be helpful. The MTC believes that UDITPA should be amended to explicitly apply section 18 on both a case-by-case basis and on an industry-wide basis. The MTC has already taken steps to amend its own Compact to reflect many of these changes.
The MTC has not yet received a response from NCCUSL on its comments. NCCUSL has met with representatives from state taxpayer organizations (e.g., COST and TEI) and is expected to identify the scope of its review of UDITPA in June.
New MTC Member States
Indiana recently enacted legislation (Indiana Senate Bill 502, signed by the Governor on May 3, 2007), instructing the Governor and Department of Revenue to take the necessary steps to become an MTC Associate Member. Associate Members share the purposes and goals of the Multistate Tax Compact by participating in MTC meetings, but do not have the same level of participation as “Sovereignty” or Full Members. Maryland recently became a Sovereignty Member of the MTC. Sovereignty Members are states that support the purposes of the Multistate Tax Compact and work with the MTC and its member states to fulfill those purposes through regular participation in committees and financial support for the general activities of the Commission. Interestingly, Maryland’s corporate income tax system contains significant deviations from UDITPA. West Virginia, currently an Associate Member, will seek legislation to enable it become a Sovereignty Member by the end of next year.
Information Sharing with the Internal Revenue Service
The MTC and the IRS are currently working on executing a Memorandum of Understanding to share information. The MTC and the IRS are close to an agreement and expect to have an update at the July meeting. Sutherland’s SALT group will monitor this arrangement.
Changes to the Bank and Financial Apportionment Regulation
The Audit Committee report discussed problems states have encountered in auditing bank and finance companies, including the assignment of receivables to the numerator of the property factor. The MTC seeks to address this problem with amendments to the existing MTC Bank and Financial Institution Regulation, but did not elaborate on what types of changes they would pursue. The Uniformity Committee has been tasked with this job. MTC General Counsel Shirley Sicilian noted that the MTC would seek industry feedback in this process and the MTC would establish a working group to ensure that industry comments are incorporated into the proposed regulation. The proposal should be ready for review by the Executive Committee by January.