On August 17, 2021, the Multistate Tax Commission (MTC) held its first meeting of the State Taxation of Partnerships Project (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 has been 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.

The Partnership Project will hold bi-weekly meetings. During the next meeting, MTC staff will continue to go over the outline and analyze the potential issues existing in state partnership tax. Eversheds Sutherland attorneys plan to attend all meetings and provide timely updates.