Tax Group Approves Report on ‘No Receipts’ Apportionment Proposal

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By Tripp Baltz

The Multistate Tax Commission’s Executive Committee approved a hearing officer’s report on two proposed model rules concerning apportionment of income for the purposes of taxation.

The April 26 approval of a report from Bill Thompson, retired Chief Judge of the Alabama Tax Tribunal, means the commission will now survey its member states to determine whether a majority will consider adopting such regulations. The Executive Committee met along with other MTC committees in Bloomington, Minn.

Thompson’s report concerned proposed amendments to the Multistate Tax Compact, Article IV, Section 18.(c), relating to apportioning gross receipts of taxpayers with no or de minimis receipts, and Section 18(d) relating to apportioning income of bank holding companies and their subsidiaries.

The changes to Section 18 were triggered by amendments the MTC adopted to its market-based sourcing rules for assigning receipts from sales of services and intangible property. Situations could occur in which an entity would have no functional receipts.

3.33 Percent Trigger

The Section 18 proposal would apply when such receipts, for example from securities or hedging, are less than 3.33 percent of the taxpayer’s gross receipts. In his report, Thomson recommended removing language from the draft that proposed an “insignificant in producing income” test and letting the more “objective” less than 3.33 percent test govern.

Bruce Fort, MTC counsel, explained to the Uniformity Committee that the alternative “insignificant” test language applied only in limited circumstances, and not in most cases where the original trigger applies. He recommended including a drafter’s note with the proposed rule that would explain the distinction.

The committee agreed with Fort’s recommendation and adopted the hearing officer’s report with that change. It also adopted the amendments to Section 18.(d) with no changes. Under MTC’s Bylaw 7, a survey of the states will now occur to gauge interest in adopting the rules, Fort said.

Reporting and Notice

The Executive Committee also approved a draft model statute similar to a 2010 Colorado law that imposes certain notice and reporting requirements on remote sellers that don’t collect and remit state sales and use taxes. The proposed model rule will now be the focus of a public hearing, said John Valentine, chair of the committee and of the Utah State Tax Commission.

In other news, several MTC stalwarts have recently retired or announced job changes that will create some vacancies in leadership positions at the commission. Executive Committee Vice Chair Mike Kadas announced he will be retiring May 11 from his position as director for the Montana Department of Revenue. His MTC spot will have to filled, Greg Matson, commission executive director, told Bloomberg Tax.

Another Montana tax official, Tracee Abel, is leaving the department to take a position as a senior tax accountant with a Helena, Mont. accounting firm, JCCS, beginning May 1. Abel told Bloomberg Tax she also will be starting a 3-year term on the board of the Montana Society of CPAs in June. Abel will have to step away from her chairmanship of an MTC Uniformity Committee work group on partnerships.

More Departures

The Use Tax Information work group chair, Phil Horwitz, will be stepping down just as the group has successfully gained the approval of its reporting and notice model by the MTC Uniformity Committee. Horwitz will be leaving his position as Director of Tax Policy at the Colorado Department of Revenue May 9 to join the Denver office of Moss Adams LLP.

Sheldon Laskin, who was the MTC staffer for the Use Tax Work group, retired Feb. 28 with more than 19 years of service to the commission, Matson said. And another long-term MTC participant, Lennie Collins, is retiring Aug. 1 as the director of the Income Tax Division of the North Carolina Department of Revenue. Collins is a former chair of the MTC Nexus Committee.

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

To contact the editor responsible for this story: Ryan C. Tuck at rtuck@bloombergtax.com

For More Information

The hearing officer's report is at http://src.bna.com/yk2.

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