Weekly Roundup: What's in Store for the MTC?

California's quick repeal of the Multistate Tax Compact to protect the state from a huge revenue loss in the Gillette case leaves in doubt the strength of the Multistate Tax Commission, according to Bloomberg BNA Daily Tax Report's Laura Mahoney. 

In a July 19 article, "California Repeal of Multistate Tax Compact Raises Doubts about States and MTC's Future," (138 DTR GG-1) Mahoney reports on California's Senate Bill 1015, and Gillette Co. & Subsidiaries v. Franchise Tax Board (No. A130803 Cal. Ct. App.), noting that a favorable ruling for the taxpayer "could threaten the viability of the compact, especially in other states that have amended the compact to deviate from its original terms."  The state court of appeal is expected to issue a ruling by Aug. 8, which Mahoney will cover.   

  • The underlying issue in Gillette is whether the compact obligates states to provide taxpayers with the option of using the compact formula in apportioning income to the state or whether, notwithstanding adoption of the MTC provisions, the states may bind taxpayers to a different formula. 
  • S.B. 1015 repeals all provisions related to the compact and declares that an election affecting the computation of tax must be made on an original timely filed return.  Such election requirement, according to the statute, “does not constitute a change in, but is declaratory of, existing law.”
  • As relevant to the Gillette case, taxpayer elected to allocate and apportion its income in accordance with the compact’s three-factor apportionment formula on an amended return.

A taxpayer victory in Gillette coupled with California’s withdrawal from the MTC Compact might start a chain reaction in other states that adopt the compact, but deviate from its standard three-factor apportionment formula. 

However, MTC Executive Director Joe Huddleston told Bloomberg BNA July 13, that California's repeal has little significance for now. With a potentially damaging court ruling on the horizon, Huddleston said he understands that California officials were not willing to roll the dice. “It would have a bigger impact if California came forward and said it disagreed with the philosophy and actions of MTC,” Huddleston said. “If California was now repudiating that it would be different. They are not.”

Two other cases present an MTC election issue: 

  • IBM Corp. v. Dep’t of Treasury, Michigan, No. 11-33-MT (Ct of Claims July 20, 2011)( whether the MTC Compact three-factor apportionment election could be available for either the business income tax or modified gross receipts tax base); and
  • TX Comptroller Hearing No. 104,752 (2011)(whether statutes providing for a single-factor formula preclude a taxable entity from electing to use the MTC three-factor formula). 

Other developments:

Why New York has seen the biggest exodus in the country. 

Federal bill on online sales tax approached with caution, but retailers are confident that Congress will eventually pass the legislation, as growing pressure from governors is having a impact. 

Compiled by Deborah Swann 
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