By Madison Barnett and Timothy Gustafson

The Missouri Administrative Hearing Commission ruled that interest income and capital gains generated by a “rabbi trust”—a trust established to fund a nonqualified deferred compensation plan for the taxpayer’s officers—constituted nonbusiness income under the Uniform Division of Income for Tax Purposes Act (UDITPA). The trust income failed the transactional

In two separate cases evaluating Massachusetts’ and Oregon’s virtually identical costs-of-performance (COP) rules, the unresolved fundamental difficulties in applying the nearly half-a-century old rules are highlighted in the courts differing conclusions. Under the Uniform Division for Income Tax Purposes Act (UDITPA) (as adopted by both states), receipts from sources “other than sales of tangible personal property” (e.g., services and intangibles) are sourced for income tax apportionment purposes based on a preponderance COP methodology. Specifically, this methodology requires that such receipts be included in the states’ sales factor numerator only if the preponderance of the COP associated with the income producing activity are performed in the state.

The Massachusetts Appellate Tax Board (Board) and Oregon Tax Court (Tax Court) evaluated application of the COP methodology in AT&T Corp. v. Comm’r of Revenue, Mass. ATB Findings of Fact and Reports, 2011-524 and AT&T Corp. v. Dep’t of Revenue, Oregon Tax Court, TC 4814. At issue in both cases was whether AT&T’s receipts from interstate and international voice and data telecommunication services should be included in the states’ sales factor numerator. In providing these services, AT&T utilized its vast network of telecommunications assets, including its Global Network Operations Center in New Jersey. Both states’ Departments of Revenue took the position that AT&T’s income-producing activity consisted of each individual telephone call or data transmission to customers located in the state (referred to as the “Transactional Approach”). AT&T argued that its income-producing activity consisted of its revenue streams from its various services (the “Operational Approach”) rather than the “Transactional Approach.”Continue Reading Two States, One Similar Costs-of-Performance Rule, Different Results

Sutherland’s SALT Poll, “MTC Considering Broad Throwout Rule Under Cloak of Redefining ‘Sales,’” revealed that more than 80% of those surveyed oppose narrowing the scope of the type of “sales” used to calculate the receipts factor. The vast majority of respondents were opposed to altering the sales factor because they believed all receipts used to calculate business income should be reflected in the apportionment formula. The MTC’s proposal and the poll results are not surprising based on Sutherland’s experience with escalating attempts by state auditors to “throwout” certain types of receipts from the sales factor.Continue Reading SALT Poll Results: Most Oppose MTC’s Proposal to “Throwout” Receipts

On April 26, the Multistate Tax Commission (MTC) Income & Franchise Tax Uniformity Subcommittee (Subcommittee) held the first of three scheduled meetings to revise corporate income tax apportionment. Specifically, the MTC is seeking to limit the definition of “sales” under Article IV.1(g) of the Uniform Division of Income for Tax Purposes Act (UDITPA) for purposes

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