July 11 and July 25, 2022 Meetings

During the last two meetings, MTC Staff has continued to discuss and receive feedback on the draft model rules applicable to investment partnerships.  To date, the draft has been amended twice, and the current version can be found here. As currently drafted, the model would only apply to individual (not corporate) partners of qualified investment partnerships, and the income from qualified investment partnerships would be sourced the state of residency.

Understanding this phase of the project is nearing its end, the working group will now start to analyze a new area of partnership law. The survey conducted by the MTC in November of 2021 suggested that the next area of interest is sourcing for partnerships.

The Project’s short-term plan is to use the time after the MTC’s annual meeting to: (1) develop one of more examples to illustrate the issues in the taxation of investment partnerships; (2) explore the use of tax-preparation software; and (3) determine whether the use of examples will facilitate practice development.  MTC Staff will report back on its findings in September.

June 27, 2022 Meeting

On June 2, MTC staff released an updated draft model rule on behalf of the Partnership Project, implementing changes and adding additional draft notes based on the discussion from the June 13 Meeting.

Given that there were additional comments provided by the state and business representatives, including refining definitions and clarifying certain terms, MTC staff will revise the rules and circulate an updated version for additional discussion.

During the meeting, MTC staff agreed that approval of the rules would imply some finality.  Instead, the work group and Uniformity Committee would like to treat the draft model rule as a working draft that is frequently updated. As a result, MTC staff has stated that the draft model rule will not be put to a vote at this time.

There was some discussion on what the Partnership’s Projects next steps will be. MTC staff suggested a follow-up survey to determine the project’s next direction.  Ultimately, it was decided that the workgroup would implement the changes to the draft model rule first, and determine more concrete next steps thereafter.

June 13, 2022 Meeting

On June 13, MTC staff released the first proposed draft model rule on behalf of the Partnership Project.  This first draft focus on investment partnerships and contains the following four sections:

  • Section 1 provides the purpose of the rule, which is designed to create equity in the treatment of partnership investment income;
  • Section 2, the definition section, includes definitions of “nonresident QIP Partner” “partnership, “qualified investment partnership” (QIP), “qualified investment partnership income,” and “qualified investments”;
  • Section 3 is the meat of the rule, allowing nonresident QIP partners to exclude their distributive share of certain qualified investment partnership income from their personal income tax; and
  • Section 4 delegates rulemaking authority to the state taxing agency.

While these model draft rules are preliminary, MTC staff has acknowledged they could be put to a vote of the working group as early as next meeting. MTC staff clarified, however, that if the working group decides to move the model draft rule, the rule will not be finalized (i.e., approved by the Uniformity and Executive Committees) until the work group’s work is completed.

January 18 and February 14, 2022 Meetings

During the January and February meetings, MTC Staff provided additional background on the Investment Partnership’s White Paper and confirmed that MTC-sponsored trainings on Subchapter K will be available starting on March 1.

Updates on Investment Partnership White Paper

The purpose of the Partnership Project’s last two meetings has been to provide an overview of and obtain input on the Investment Partnership White Paper.  Overall, MTC Staff has found a lack of clear rules for state tax treatment of tiered entities, allocation, audit, and enforcement (among others areas).

In spite of the lack of guidance available, the Partnership Project’s representatives have continued to update the Investment Partnership White Paper, identifying five main areas of the state partnership taxation puzzle:

  1. State Taxation of Partnership Income, Generally;
  2. Types of Investment Partnership, Generally;
  3. Treatment of Income of Investment Partnerships & Variations;
  4. Effect on Multistate Investment Partnership & Portfolio Companies; and
  5. Evaluations of the Effects – Do the pieces fit?

One of the white paper’s general goals is to highlight the majority rules shared among the states. As an example, the Partnership Project’s representatives have concluded that the majority of the states do not discern between limited or passive partners for purposes of determining a pass through entity’s nexus.

Separately, MTC staff also considered the effect multistate investment partnerships have on state taxation rules.  Based on their research, MTC Staff concluded that most investment partnerships have partners that reside in multiple states and general partners with offices in multiple states.  General partners who own an interest in investment partnerships may also have related entities that engage in non-investment activities.

Training Update

During the February 14 meeting, MTC Staff confirmed that trainings on Subchapter K would officially begin on March 1, 2022.  MTC staff has confirmed the trainings will be available to the public at some point in the future.  No additional information was provided.

January 4, 2022 Meeting

The Partnership Project’s first meeting of 2022 was eventful.  During the meeting, MTC staff went over the preliminary outline for the Partnership Project’s first white paper (which focuses on investment partnerships (“Investment Partnership White Paper”)), discussed the survey on state tax rules related to partnership taxation, and provided an update on the MTC-sponsored partnership tax trainings.

Investment Partnership White Paper Outline

The Investment Partnership White Paper focuses on three topics: (1) general partnership categories and descriptions; (2) data analysis; and (3) future evolution and projected industry changes. MTC staff only covered the first two topics.

  • General Partnership Categories and Descriptions. The Investment Partnership White Paper shows two categories of investment partnerships—those with registered investment advisors (such as private equity and hedge funds, real estate funds and venture capital funds), and closely held partnerships and holding companies (such as special purpose entities, family limited partnerships and other similar entities). The MTC will expand their analysis on both categories as the Partnership Project progresses.
  • Data Analysis. The second theme in the current Investment Partnership White Paper outline focuses on data analysis. MTC staff acknowledged that most of the accessible data is self-reported by the pass-through entities themselves.  During the meeting, MTC staff went over some of the information published by the Securities and Exchange Commission, as well as the Internal Revenue Service.  MTC hopes to research partnership size, asset ownership, entity activities, and income distribution, among other items.  This information is imperative to analyze state partnership taxation.

Survey of State Tax Rules

The Partnership Project’s second goal is to conduct a survey of state tax rules related to partnership taxation in order to determine the commonalities and differences between the states’ definitions, qualifications or limitations, and treatment of investment partnerships. During the meeting, MTC staff showed a state survey example for Alabama.

December 10, 2021 Meeting

During the first meeting following the MTC’s Uniformity Committee Fall Meeting, MTC staff provided an update on the Project’s latest developments.  The Project’s first step—identifying and generally describing a comprehensive list of potential issues—is now complete. The next step involves creating a white paper that analyzes one of the areas identified in the issues outline. The white paper will develop generally recommended practices and positions.

After internal discussions, MTC staff chose to cover investment partnerships first—a subject matter where states generally share policy aims but differ in tax treatment and rules.  Moreover, MTC staff has recognized that investment partnership issues touch on many of the other points of contention such as how partner nature affects tax treatment, how non-investment income is sourced and how the rules applied to a tiered partnership structure.

MTC staff also confirmed that they would provide general Subchapter K trainings.  The trainings will be publically available and—for the time being—free of charge. MTC staff projects that both the investment partnership white paper and the trainings will be finalized before the MTC’s April in-person meeting.

November 9, 2021 – Uniformity Committee Fall Meeting

The MTC held its Uniformity Committee Fall Meeting on November 9. During the meeting, MTC staff presented the Partnership Project’s issues outline and provided a status update.  The presentation consisted of a general overview of the project’s history, an analysis of the issues outline, a discussion on the project’s survey results, and the proposal of a project roadmap and next steps.

The Partnership Project’s long-term goal is to analyze each issue set forth in the outline in detail, in order to determine whether the states would benefit from model statutory language. One of the project’s more imminent next steps involves the creation of MTC-sponsored trainings on federal partnership taxation. It is not clear whether such trainings will be available to the public sector, or which area of state partnership taxation will be dealt with first.

During the meeting, both state and business representatives communicated their respective industries’ interest in continuing to pursue the project.

October 26, 2021 Meeting

MTC staff will present an issues outline during the MTC’s November 9 Uniformity Committee Meeting.  On October 26, the MTC held a final Partnership Project meeting, focusing on administrative and enforcement issues as well as a discussion of the survey results.

With respect to the administrative and enforcement issues existing in partnership taxation, MTC staff highlighted three topics: withholding, pass-through entity taxes and audit procedures and adjustments.

The current MTC withholding model does not address procedures for withholding proceeds from sales of a partnership interest, as the federal rules for foreign partners now require. According to MTC staff, those states that impose withholding requirements typically do so in the context of distributive share income and guaranteed payments, but not for sales of a partnership interest.

Moreover, MTC staff highlighted that pass-through entity taxes are generally imposed on income derived within the state (whether the partners are residents or not) and sourced under general sourcing rules applied at the entity level.  There are, however, differences in the way such taxes have been implemented by each state, as well as each state’s audit and adjustment procedures.

During the last portion of the meeting, MTC staff went over the state survey results, noting that jurisdiction, nexus, sourcing and credits tied as the most important issues in the realm of partnership taxation.  The current order of the issues outline aligns with subject matter importance, according to the survey results. In addition, the taxation of partnership income and sales of partnership interest were voted as the subjects for which training would be most valuable.

Eversheds Sutherland attorneys plan to attend the November 9 meeting and provide timely updates thereafter.

October 5, 2021 Meeting

MTC staff resumed their discussion on sourcing the sale of partnership interests, considering administrative and enforcement issues in the area of partnership taxation.

During the discussion of the sale of partnership interests, which begun last week, MTC staff considered federal treatment of such sales under IRC § 741.  The statute provides that gain or loss from the sale of a partnership interest is treated as a capital asset, unless overridden by IRC § 751.  States generally conform and source the sale of a partnership interest as an intangible.  In spite of this, state adjustments to the “outside basis” are not uniform.

As foreshadowed in previous meetings, states source the gain (or loss) arising from the sale of a partnership interest differently—some states look at the partnership’s assets to determine the sourcing methodology, whereas other states look at individual partners activities, or the partner’s domicile.

The fifth meeting also covered administration and enforcement issues.  MTC staff highlighted the importance of reporting by providing examples of serious repercussions that arise because of insufficient enforcement.  The meeting wrapped up with a brief discussion on withholding; while most states have some form of withholding, the methods and exceptions employed by each state vary.

September 28, 2021 Meeting

MTC staff resumed the discussion on the two methods used when sourcing partnership income: situs-based sourcing and apportionment-based sourcing.  MTC staff recognized that situs-based sourcing is especially appealing for states when the state lacks nexus over the partner or the income in question, as well as when the income is nonbusiness income in the hands of the partner.  The issues outline includes a section on sourcing income from investment partnerships, even though only a minority of the states have specific treatment for investment partnerships.

With respect to apportionment-based sourcing, MTC staff highlighted that additional complications arise when the states take into account the type of partner—that is, whether the partner is a managing partner, general partner, limited partner, et cetera.  As an example, MTC staff stated that some states treat limited partners differently than general partners.  MTC staff disagreed with this conclusion, explaining that “limited partners” are limited only with respect to their liabilities and the type or label of a partner should not be indicia of their involvement in the partnership’s business.  Moreover, there is little authority for treating partners differently in other areas of state partnership taxation.

MTC staff also focused on two topics: credits for taxes paid, and sale of partnership interests.  The discussion on credits was brief—MTC staff acknowledged that states do not credit partnership taxes in the same way.

In contrast, the discussion on sale of partnership interests was lengthy.  Existing case law was highlighted, which suggests that: (1) the existence (or lack thereof) a unitary relationship is the turning point in determining whether the gain may be taxed by a state, and (2) if a due process connection exists with respect to the partnership’s operating income, there should be sufficient nexus for the state to tax any gain resulting from the sale of the partnership interest.

September 14, 2021 Meeting

On September 14, 2021, the MTC held its bi-weekly meeting for the Partnership Project.  The discussion started with MTC staff acknowledging that no U.S. Supreme Court case has addressed the application of general sourcing rules, or formulary apportionment, to partnership operating income taxed on a pass-through basis.  As a result, MTC staff looked to the application of general constitutional principles as applied to partnership taxation.

As with other areas of the outline for the Partnership Project, the partnership’s attributes will determine how the constitutional principles are applied.  For example, consider a hypothetical Partnership “AB” formed by Partner A and Partner B.  Partner A lives in State 1 and Partner B lives in State 2; both State 1 and State 2 use single sales factor apportionment.  Partnership AB produces 90% of its sales in State 2.  In addition to its share of partnership items, Partner A receives a guaranteed payment for services done for the partnership—entirely in State 1.  Under federal partnership rules, this guaranteed payment would reduce partnership income.  Modeling a uniform way to treat guaranteed payments, however, is not an easy endeavor.  Conflicting interests amongst the states threaten uniformity; this predicament exists in most areas of state partnership taxation.

MTC staff provided other examples to highlight the potential challenges that exist in applying constitutional principles to state partnership taxation.  The examples provided by Ms. Hecht demonstrate that differences in the partnership or partner’s information as well as the selected approach to sourcing may lead to very different results.

August 31, 2021 Meeting

On August 31, 2021, the MTC held another Partnership Project meeting.  During the meeting, MTC staff went over two issues: first, the implications that arise from conformity with the federal partnership rules; and, second, the importance of sourcing partnership income.

When evaluating the potential issues in conforming to the federal partnership rules, MTC staff highlighted themes that could disrupt uniformity amongst the states, including: (1) guaranteed payments for partners of a partnership, (2) deductible partnership expenses, (3) offsetting income and loss from other partnerships or sources, and (4) anti-abuse rules to prevent abusive tax planning.  During the discussion of the fourth item, MTC staff acknowledged that the MTC has a disclosure model that would apply to the Partnership Project.

The second topic of the meeting, sourcing of partnership income, touched on the importance of sourcing partnership income for state tax purposes.  Using a diagram and data from the Outline, MTC staff demonstrated that a state could tax anywhere from 0 to 100% of a partnership’s income, depending on which sourcing approach is used.  Five different types of sourcing methods were considered for this hypothetical illustration: (1) situs-based sourcing based on the partnership’s location, (2) situs-based sourcing based on partner location, (3) apportionment-based sourcing based on partnership location, (4) apportionment-based sourcing based on a corporate partner’s location, and (5) apportionment-based sourcing using a combination of the partnership and the corporate partner’s apportionment factors.

August 17, 2021 Meeting

On August 17, 2021, the MTC held its first meeting of the Partnership Project, during which the work group discussed a draft outline of partnership issues.  The Partnership Project is being chaired by Laurie McEhatton (California Franchise Tax Board) and staffed by Helen Hecht (General Counsel at the MTC).

As an introduction, MTC staff (Hecht) provided an overview of the Partnership Project.  The project’s first step is the creation of an outline that identifies and describes a list of comprehensive issues existing in the area of state partnership taxation.  Thus far, the current draft is divided into four sections: (1) General Terminology, (2) Taxation of Partnership Income and Items; (3) Taxation of Gain (Loss) from Sales of a Partnership Interest; and (4) Administrative Enforcement. MTC staff reiterated that the outline is a working draft, and ongoing changes will be made to the outline as the Partnership Project advances.

MTC staff then went into a more in-depth discussion of the first and second sections of the outline (General Terminology and Taxation of Partnership Income and Items).  First, the discussion of the General Terminology section consisted of an overview of certain terms defined in the outline.  Given that each state interprets terms differently, uniform definitions/understanding of concepts will be imperative for the Partnership Project’s success.  Next, with respect to the second section of the outline, jurisdiction, nexus and sourcing were discussed.  Specifically, MTC staff noted these issues vary significantly amongst the states, and each state has its own rules to determine the partnership tax base.  Thus, the Partnership Project will consider ways in which the states can achieve uniformity as it relates to these matters.

Digging Deep: a discussion and update on two MTC uniformity projects 

On August 12, 2021, Helen Hecht, Uniformity Counsel at the MTC joined host and Eversheds Sutherland Partner Nikki Dobay for an episode of the SALT Shaker Podcast policy series.  Helen and Nikki engaged in a discussion of the Partnership Project.  Listen to the podcast here.

Introductory Meeting

On June 15, 2021, the Multistate Tax Commission (MTC) held an introductory meeting to discuss the State Taxation of Partnerships Project (the Partnership Project).  The work group intends to focus on the “underdeveloped” state partnership tax rules and provide guidance and structure in the state partnership taxation realm.  The Partnership Project will hold bi-weekly meetings, and Eversheds Sutherland SALT attorneys plan to attend all meetings and provide timely updates.

The work group focused on an issue outline drafted by MTC staff that contemplates areas where state partnership taxation rules either differ from one another or lack specificity.  Based on feedback received from the states and the MTC Standing Subcommittee, the issue outline is divided into three general categories: (1) issues related to taxing partnership income, (2) issues related to gain or loss on the sale of a partnership interest, and (3) administration and other issues.

  1. Issues Related to Taxing Partnership Income. The issue outline discusses the states’ conflicting jurisdictional rules that affect administrative obligations imposed on partnerships.  Similarly, it discusses the confusion regarding nexus rules for nonresident and corporate partners as well as how the factor presence nexus standard might apply.  In addition, the outline notes that the states have distinct sourcing and apportionment rules, exceptions and exemptions, transfer pricing statues and state income adjustments that should be contemplated in pursuit of uniformity, and the working group’s discussion seemed to hone in on the need for guidance in the transfer pricing area.
  2. Issues Related to Gain or Loss on Sale of a Partnership Interest. The issue outline acknowledges that nexus is considered when determining whether a state can tax gain or loss on the sale of a partnership interest.  Likewise, the outline notes that sourcing and reporting rules regarding the sale of partnership interest could be harmonized.
  3. Administration and other Issues. The issue outline concludes that the states’ rules lack guidance on the application of tax credits for partnership income, centralized audits and the functionality of the state and local tax deduction cap.

The Partnership Project’s goal is to finalize an outline and present it to the MTC Uniformity Committee.

In this episode of the SALT Shaker Podcast policy series, Eversheds Sutherland Partner and host Nikki Dobay welcomes Stephanie Gilfeather, Director of Indirect Tax at Expedia Group.

Together, they discuss the recently released STRI (State Tax Research Institute, an affiliate of COST) study entitled Locally Administered Sales and Accommodations Taxes: Do They Comport with Wayfair? The study addresses the compliance challenges faced by businesses subject to locally administered taxes, and features a forward authored by Nikki and fellow SALT Partner Jeff Friedman. Stephanie and Nikki cover the legal framework and constitutional concerns surrounding locally administered taxes, focusing on locally administered accommodation taxes. They also discuss the possible solutions to ease the burdens businesses required to comply with these taxes face.

This week, Nikki’s surprise nontax question goes west. What is your favorite thing about the Pacific Northwest?

The Eversheds Sutherland SALT team has been engaged in state tax policy work for years, tracking tax legislation, helping clients gauge the impact of various proposals, drafting talking points and rewriting legislation. This series, which is focused on SALT policy issues, is hosted by Partner Nikki Dobay, who has an extensive background in tax policy.

Questions or comments? Email SALTonline@eversheds-sutherland.com. You can also subscribe to receive our regular updates hosted on the SALT Shaker blog.





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Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award prizes for the smartest (and fastest) participants.

This week’s question: Which state’s Department of Revenue recently ruled that fees a marketplace facilitator charges for connecting buyers and sellers and processing payments are not subject to sales tax?

E-mail your response to SALTonline@eversheds-sutherland.com.

The prize for the first response to today’s question is a $25 UBER Eats gift card. Answers will be posted on Saturdays in our SALT Shaker Weekly Digest. Be sure to check back then!

Pennsylvania recently codified the state’s corporate income tax economic nexus threshold, making corporations with no physical presence in Pennsylvania responsible for corporate income tax if they have sales of $500,000 or more per year sourced to Pennsylvania for tax years beginning after December 31, 2022. The legislation also includes a non-exhaustive list of other nexus creating activities. This change to the Pennsylvania tax law is similar to the Department’s substantial nexus position originally published in Corporation Tax Bulletin 2019-4 on September 30, 2019 which deemed $500,000 in gross receipts sourced to Pennsylvania to create a rebuttable presumption of substantial nexus. The new law does not address the interim period between the new law’s effective date for the 2023 tax year and the issuance of Bulletin 2019-4.

This week, the MTC will host its 55th Annual Meeting & Seminar, including meetings of its standing committees, between August 1 and 4 in Anchorage, AK.

On August 2, Eversheds Sutherland Partners Michele Borens, Nikki Dobay and Jeff Friedman will present during the Uniformity Committee Meeting.

Topics include:

  • Uniform Power of Attorney Proposal – Nikki Dobay
  • Marketplace Implementation Issues – Michele Borens, Jeff Friedman

For more information and to register, click here.

In this episode of the SALT Shaker Podcast, Eversheds Sutherland Associates Jeremy Gove and Chelsea Marmor dive in to the history of New York’s corporate tax reform, including a discussion of the anticipated “final draft” apportionment regulations the Department released on July 1.

They discuss the regulations, the New York State Department of Taxation and Finance’s process and different avenues taxpayers may use to find guidance in the absence of finalized regulations.

Jeremy’s overrated/underrated question this week is a bit more metaphorical. Is nostalgia overrated, or underrated?

Questions or comments? Email SALTonline@eversheds-sutherland.com. You can also subscribe to receive our regular updates hosted on the SALT Shaker blog.






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The New York State Tax Appeals Tribunal upheld an income tax assessment and disallowed taxpayers’ claim of resident tax credits (RTCs) to the extent such RTCs were claimed for taxes paid to Connecticut on the taxpayers’ carried interest income. The taxpayers, both of whom were residents of New York, were employed by an affiliate of two investment hedge funds. Both taxpayers received flow-through investment income in the form of carried interest, consisting of interest income, dividends, capital gains and ordinary business income or loss generated by such hedge funds. During the periods at issue in the case, the taxpayers paid income tax in both Connecticut and New York on all of their carried interest income and each taxpayer claimed an RTC in New York for income taxes paid in Connecticut.  The Division of Taxation disallowed the RTCs and issued assessments. The taxpayers’ argued that they were entitled to the RTC because the carried interest constituted income derived from property employed in a business, trade, profession or occupation within another jurisdiction. The Tribunal disagreed, finding that, as an initial matter, the taxpayers had not met their burden in demonstrating that the operations of the hedge funds were solely based in Connecticut rather than New York. In addition, the Tribunal held that the carried interest income was intangible income derived from the trading of intangible property. As a result, the income could not be generated from a business in any jurisdiction and that New York taxed such income based on the taxpayers’ residency in New York. The Tribunal determined that the resulting double taxation in both Connecticut and New York was not a violation of the U.S. Constitution’s Commerce Clause because New York did not tax the intangible income of nonresidents.

Matter of Allison Greenberg and Scott J. and Martha M. Farrell, DTA Nos. 829737, 829738 (N.Y.S. Tax. App. Trib., July 14, 2022).

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award prizes for the smartest (and fastest) participants.

This week’s question: Which California Office of Tax Appeals decision did Eversheds Sutherland Senior Counsel Eric Coffill discuss in his recent article for Bloomberg Tax?

E-mail your response to SALTonline@eversheds-sutherland.com.

The prize for the first response to today’s question is a $25 UBER Eats gift card. Answers will be posted on Saturdays in our SALT Shaker Weekly Digest. Be sure to check back then!

The New York State Tax Appeals Tribunal affirmed an Administrative Law Judge determination that two taxpayers remained New York residents because the taxpayers did not establish that they had changed their domicile to Florida during the relevant tax years. Because the taxpayers spent “more than 30 but less than 184 days in New York,” the Tribunal looked to whether the taxpayers changed their domicile, as illustrated by their “general habit of life.”   Through their representative, an accountant, the taxpayers alleged several actions were taken that would support a change of their domicile to Florida, including: registering to vote in Florida, changing their driver’s licenses, buying a car from a Florida dealer, executing wills in Florida, and moving other “near and dear” personal property, including an antique car collection, to Florida. However, the evidence provided by the taxpayers consisted entirely of a few formal declarations and unsworn, unsubstantiated statements. The Tribunal agreed with the Administrative Law Judge that such evidence should be given little weight and was insufficient to meet the taxpayers’ burden of proof. The Tribunal specifically noted that the evidentiary burden to establish the taxpayers’ intent to change their domicile to Florida could not be met without sworn statements or testimony to establish the veracity and significance of the other evidence that had been submitted.

Matter of Thomas A. & Jean Boniface, DTA No. 829018 (N.Y.S. Tax App. Trib., June 30, 2022).