By Todd Lard

While meeting in Denver this week, the MTC’s Income Tax Uniformity Subcommittee advanced two separate projects to develop industry-specific apportionment regulations. The first project will examine the sourcing of electricity. MTC staff presented research on how states source electricity for income tax purposes. The staff concluded that while 31 states treat electricity as tangible personal property for sales factor purposes, there is little uniformity in how sales of electricity are reflected in the factor. The staff also noted that litigation and an increasing number of taxpayers requesting a specific apportionment methodology indicate uncertainty. After hearing the staff presentation, the Subcommittee voted to continue the project in an educational phase. The Subcommittee specifically instructed the staff to examine a prior model regulation drafted by NESTOA, involve industry, and to consider lateral issues like P.L. 86-272 and nexus. The second apportionment project is a newly launched effort to examine whether a model regulation to source cloud services and software is desirable. MTC staff will research the issues and report back to the Subcommittee when they next meet. Several states, including Washington, Idaho and North Dakota, offered to provide the research they have already done on the issue. Separately, the MTC is debating a broader “modernization” of UDITPA’s apportionment methodology, but industry-specific projects like these demonstrate the difficulty of drafting a one-size-fits-all, uniform apportionment rule.