Yesterday, the Multistate Tax Commission (MTC) held its annual meeting in Spokane, Washington. The meeting is the annual event where full MTC member states approve model laws in their final version. The approved versions are then ready for the member states to adopt if they so choose. This year the MTC approved changes to the equitable apportionment provision of the MTC Compact; language edits to use “apportionable” rather than “business” income; edits to the financial institution apportionment regulations; and procedural changes to the MTC bylaws.
Substantive Changes to the MTC Compact and Model Regulations
The Commission voted to adopt changes to Section 18 of the MTC Compact which establishes a burden of proof for equitable apportionment. Although the actual burden of proof is to be determined by each state, this language provides a framework under which the party that is seeking equitable apportionment (either the state or the taxpayer) bears the burden to prove that the standard apportionment method does not fairly represent the extent of the taxpayer’s business activities in the state and that the alternative apportionment method is reasonable. However, the burden of proof does not apply to the state if the state can show that the taxpayer had an apportionment method variance in two of the last five years from the remaining years in the five-year period. The new language also provides that the state cannot impose a penalty for any tax due if the taxpayer reasonably relied on the equitable apportionment provisions of Section 18, and establishes that the state may not revoke written permission it has granted to a taxpayer under this section with respect to transactions that have already occurred. Most of the changes were initially suggested by Professor Rick Pomp in his hearing officer’s report and were not in the Section 18 version originally drafted by the MTC Uniformity Committee.
The Commission also voted to enact amendments to Article IV of the MTC Compact. These amendments change the words “business income,” “nonbusiness income” and “sales” to “apportionable income,” “nonapportionable income” and “receipts.”
Additionally, the Commission voted to adopt the recommended apportionment rules for financial institutions. This language is identical to the language that was recommended by the Executive Committee in December 2014.
Procedural Change to Bylaws
The Commission also voted to make a procedural change to Section 7(b) of its bylaws to allow the Commission to hold votes on items related to uniform or compatible tax laws, regulations or practices at the next meeting of the MTC, rather than the next “regular” meeting. In theory, the MTC has only one “regular” meeting, which is the annual meeting. This change will allow the Commission to hold other votes to adopt uniform laws outside of the regular meeting.
The MTC will conclude its annual meeting today with a meeting of the Executive Committee.
