The Bloomberg BNA Tax Management Weekly State Tax Report filters through current state developments and analyzes those critical to multistate tax planning.
May 12 — The Multistate Tax Commission's draft market sourcing rules are returning to the Uniformity Committee for reexamination of provisions that elicited concerns among practitioners during an Executive Committee meeting.
During a May 12 session, the Executive Committee voted to direct further study and consideration by the Uniformity Committee of proposed regulations that track the MTC's 2014 adoption of legislation shifting from a cost-of-performance (COP) regime to market sourcing under Article IV, Section 17 of the Multistate Tax Compact (incorporating the Uniform Division of Income for Tax Purposes Act (UDITPA)).
The Uniformity Committee had approved and advanced the rules and related regulatory definitions to the Executive Committee during the December 2015 committee meetings.
Practitioners raised issues relating to the Section 1 definition of “receipts,” including its scope and exceptions, which excludes receipts from hedging and lending of cash or security transactions.
Other concerns arose from Hearing Officer Brian Hamer's May 1 report, rejecting some practitioner recommendations and proposing language to incorporate others or clarify regulatory provisions after a March 9 hearing (2016 Weekly State Tax Report 17, 5/6/16).
The Uniformity Committee is now charged with digesting the public commentary and Hamer's report, and reporting back to the Executive Committee during the July meeting.
A primary target of the public comments was the regulatory scope of “receipts,” including specific remarks documented and discussed by the Council On State Taxation (COST) and the Financial Institutions State Tax Coalition (FISTC).
Voicing similar concerns regarding the definition's removal of receipts from hedging and lending transactions, Joe Huddleston highlighted how excluding prevalent transactions from the sales factor, but treating themas apportionable income, runs counter to both MTC and constitutional principles.
“Derivatives and hedging markets play a vital role in today's economy, and also businesses engage in various types of lending transactions, including security lending or overall lending,” said Huddleston, an executive director for Ernst & Young LLP’s Indirect Tax group in the National Tax office and former MTC executive director.
“Today's business activities actively engage in products in the regular course of business to manage risk and increase profit.”
While acknowledging the complexities and concerns with such transactions, he identified four primary areas of concern relating to an exclusion:
Recognizing the MTC's Section 18 work group, which is addressing potential income distortion from the exclusion of functional receipts from the receipts factor, Huddleston, COST and FISTC suggested that a resolution incorporated in Section 17 may be more appropriate.
Speaking on behalf of the American Bar Association Section of Taxation, Shirley Sicilian responded to Hamer's reasons for rejecting a dispute resolution tool to resolve potential duplicate taxation.
Originally recommended in a March 1 letter, the tax section's proposal suggested nonbinding mediation as a mechanism to address multiple taxation arising from varying apportionment methodologies, all the while respecting states' sovereign authority to adopt individual sourcing regimes (2016 Weekly State Tax Report 16, 3/4/16).
Sicilian observed that “states are nearing the halfway point in the transition” from COP to market-based sourcing, arriving at the “apex” for potential multiple taxation. While Hamer encouraged uniform adoption of sourcing rules among states, Sicilian noted that significant time will pass before that could happen – notwithstanding whether people consider it a good or bad solution. And mediation facilitates the Compact's objective of avoiding duplicate taxation and aligns with the MTC’s current internal program to assist in resolving controversies.
Michael Fatale, deputy general counsel with the Massachusetts Department of Revenue, also raised issue with Hamer's suggested removal of language that requires a taxpayer to determine a modified approximation method on a prospective basis improves accuracy. Noting that another provision imposes such a burden on states, Fatale urged inclusion of the language to foster an “even-handed approach.”
Helen Hecht, MTC general counsel,, and Wood Miller, chair of the Uniformity Committee, updated the group on other uniformity projects:
To contact the reporter on this story: Jennifer McLoughlin in Washington at firstname.lastname@example.org
To contact the editor responsible for this story: Ryan Tuck at email@example.com
\Information on the MTC Executive Committee meeting is at http://src.bna.com/eXl.
The Hearing Officer report is at http://src.bna.com/eXF.
The COST comments are at http://src.bna.com/eXi.
The Financial Institutions State Tax Coalition comments are at http://src.bna.com/eXj.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)