Industry Model to Pave Way for Tax Group’s Partnership Project

Daily Tax Report: State provides authoritative coverage of state and local tax developments across the 50 U.S. states and the District of Columbia, tracking legislative and regulatory updates,...

By Tripp Baltz

An industry proposal addressing the new federal partnership audit regime will be the starting point for the Multistate Tax Commission’s draft model uniform partnership statute and rule.

The MTC Uniformity Committee voted Aug. 1 during the MTC’s Annual Meeting in Louisville, Ky., that the partnership work group should develop a statute and regulation using a draft proposal presented by several “interested parties"—the Council On State Taxation, the Taxpayer Executives Institute Inc., the Institute for Professionals in Taxation, the American Institute of CPAs, and a task force of the American Bar Association tax section’s State and Local Taxes Committee.

The draft statute addresses both procedures for reporting changes under the federal partnership audit regime and procedures for reporting federal income tax changes. Few states opted to enact the MTC’s 2003 Model Uniform Statute for Reporting Federal Tax Adjustments (RAR), which the interested parties have said should be revised.

The interested parties have presented the draft statute to the MTC, the Federation of Tax Administrators, and a National Conference of State Legislatures task force.

Partnership Group

The partnership work group has been working for the last several months on addressing the state-side impact from the new default regime enacted through the 2015 Bipartisan Budget Act (BBA). It generally provides for assessment and adjustments at the entity level, rather than among individual partners, and has generated rampant questions and concerns over the flow-through impact at the state level. The law goes into effect in 2018.

Some Uniformity Committee members raised concerns that expanding the project’s scope beyond the partnership issues might be taking on too much work.

“We should be careful here, and consider taking baby steps,” said Lee Baerlocher, administrator of the Business & Income Tax Division of the Montana Department of Revenue. “I’d hesitate to make this harder in the first fight.”

Others said it might be best to begin with a comprehensive proposal, seeing the RAR and partnership audit adjustments issues as closely tied together. “It might be an easier story to tell” state legislators, said Phil Horwitz, director of tax policy analysis in the Colorado Department of Revenue.

The work group is to report back to the Uniformity Committee on the status of the project.

Other Developments

In other developments, Hecht said MTC staff is working with representatives of the online hospitality marketplace industry that includes companies like Airbnb Inc. and HomeAway Inc. to consider changes to the MTC model rules addressing accommodations intermediaries.

Additionally, she said, the MTC has been seeing an increase in the number of states adopting laws and rules patterned after the compact’s market-based sourcing rules as they update their business income apportionment formulas.

Conversely, states are becoming increasingly less likely to adopt the MTC’s Sales and Use Tax Nexus Model as they approve laws designed to abrogate or challenge the U.S. Supreme Court’s 1992 decision in Quill Corp. v. North Dakota, Hecht said. Quill prohibits states from imposing sales and use tax collection obligations on vendors without a physical presence in-state.

To contact the reporter on this story: Tripp Baltz in Denver at abaltz@bna.com

To contact the editor responsible for this story: Jennifer McLoughlin at jmcloughlin@bna.com

For More Information

The agenda for the MTC's 50th Annual Meeting is at http://src.bna.com/riA.

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