The Multistate Tax Commission (MTC) held its Fall Uniformity Committee Meetings in Atlanta, Georgia on December 7-9. With a significant turnover in state tax commissioners expected as a result of the November elections, it will be interesting to see if any of the decisions made by MTC representatives the last few years are revisited at the Winter Committee Meetings to be held in Kansas City, Missouri, March 1-4, 2011.
Income and Franchise Tax Uniformity Subcommittee:
- Amending UDITPA. The two issues discussed at this meeting were: (a) implementation of market sourcing for the license or sale of intangible property and (b) revising the definition of “sales” for purposes of determining what to include in the receipts factor. The Subcommittee directed its drafting group to revise the draft UDITPA amendments to:
- Adopt a distinction between a marketing intangible and a manufacturing (or non-marketing) intangible similar to what Massachusetts has implemented and California has proposed. The result would be that receipts from a marketing intangible would be included in the numerator of the state in which the ultimate consumer is located, while receipts from a manufacturing intangible would be in the numerator of the state in which taxpayer’s customer’s production activity occurs.
- Provide a rule for determining who is the ultimate customer whose activity determines the sourcing of receipts.
- Include in the sourcing rule a cascade approach so that if the ultimate customer cannot be determined, alternative sourcing rules are provided, including a default rule to sourcing based on some type of population percentage.
- Draft both a narrow and a broad version of the definition of “sales” for consideration by the Subcommittee at its next meeting. The narrow definition would include in sales only receipts from the sale of inventory.
- Offer options to the Subcommittee for sourcing of business income from one-time sales of subsidiaries or business assets, particularly if the narrow definition of sales is ultimately adopted. One suggestion is to source such receipts based on the apportionment formula of the subsidiary sold or the location of the asset sold.
- Model Withholding Statute. A surprisingly contentious discussion regarding a previously resolved issue erupted at this meeting. Montana representatives continue to insist that employers must report, though not remit, on all employees entering a state to work, regardless of the days spent in the state. This suggestion was voted down at a previous meeting but was brought up again at this meeting – with the same result. At the MTC’s Executive Committee Meeting, Montana Commissioner Dan Buck announced that he had lodged an official complaint that the Subcommittee had not sufficiently considered Montana’s proposal. A separate Executive Committee phone call will be scheduled to consider Montana’s complaint.
- Amendments to Tax Haven Provision in MTC Model Combined Reporting Statute. The MTC’s Model Statute, as well as the statutes of several states, includes a provision that a water’s edge reporting group will include non-domestic affiliated entities that are doing business in tax haven countries. The definition of a tax haven country is outdated because it relies on an Organization for Economic Co-operation and Development list that is no longer kept up-to-date. The preference of the group seemed to be to allow states to independently determine what a tax haven country is, based on the existing criteria in the model statute. This could clearly create uniformity issues. One member noted that the United States might be a tax haven country based on the criteria used.
Sales and Use Tax Uniformity Subcommittee
- Model Sales and Use Tax Notice and Reporting Statute. The Subcommittee continued its work on crafting a model statute, a project initially motivated by Colorado’s adoption of such a statute. A significant part of the discussion involved the imposition of penalties and how to calculate penalties. Later, during a full Uniformity Committee State Roundtable discussion, a representative from Kentucky said that his state was specifically interested in adopting such a statute.