Multistate Tax Group Mulls Merits of Receipts Throw-Out Rule

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By Tripp Baltz

A work group of the Multistate Tax Commission is deliberating whether to add to the commission’s model regulations a throw-out rule for receipts that would be assigned to a jurisdiction in which a taxpayer isn’t taxable.

Some members of the MTC Uniformity Committee’s Section 18 Model Regulation Working Group continue to have concerns as to whether a throw-out rule is workable, they said in a Feb. 7 teleconference. A memorandum prepared for the meeting by MTC staff detailed the proposed rule, included in the Special Apportionment Regulations of the Multistate Tax Compact, Article IV, the Uniform Division of Income for Tax Purposes Act.

The memo noted the throw-out rule could benefit from more clarity. In current form, it reads: “Receipts which are or would be assigned under this regulation to a jurisdiction in which taxpayer is not taxable [as defined in Article IV, Section 3] shall be eliminated from the receipts factor.”

Apportionment Changes

Section 18 of UDITPA concerns distortion. Changes to the section were necessitated by recent amendments to Section 17 of the model act, reflecting a market-based approach to sourcing corporate income, as well as Section 1, which concerns overall definitions of terms. The full commission will consider giving final approval to amendments to the MTC’s model allocation and apportionment regulations during a special meeting Feb. 24.

At the MTC’s annual meeting in July, the Executive Committee approved a Uniformity Committee recommendation to exclude interest and dividends from hedging and lending transactions from the receipts factor for purposes of apportionment.

The committee directed the Section 18 work group to examine, among other issues, how to handle situations where a taxpayer’s receipts are less than 3.33 percent of the taxpayer’s gross receipts and how that should be applied in calculating the taxpayer’s receipts factor.

Related Entities

Concerns raised about the proposed throw-out rule pertained to whether the “taxable” standard would apply to actual taxation imposed by the states, and whether the taxable standard would apply to related entities. Several examples were included along with the receipts factor rule.

Bruce Fort, MTC counsel, said he thought the rule would be workable but needed to be clarified. “It works in broad form,” he said.

Work group chair Holly Coon, business audit manager in the Alabama Department of Revenue, said she was concerned about how the rule would apply to a special purpose entity.

Fort said he believed the throw-out would apply not to the “proxy” entity used to create a receipts factor in some instances, but only to the separate-entity taxpayer. He said such treatment would be appropriate, since the purpose of the provision is to avoid “nowhere” apportionable income.

“We don’t want to assign it to a jurisdiction where the taxpayer is not subject to tax,” he said.

Coon said the work group will continue examining the rule after MTC staff has submitted more language changes.

To contact the reporter on this story: Tripp Baltz in Denver at

To contact the editor responsible for this story: Ryan C. Tuck at

For More Information

An MTC staff memo on the throwout rule is at

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