On November 5, the Uniformity Committee of the Multistate Tax Commission (MTC) met virtually—the first of its 2020 Fall Committee Meetings that will be held virtually throughout the month. The Eversheds Sutherland SALT group attended this meeting, where updates were provided on uniformity efforts, the RAR/partnership model and new projects, and approximately 20 states provided updates during the state roundtable.
The Committee MTC staff provided a few minor updates on the uniformity front, noting that the MTC was closely following the OECD’s Pillar One and Pillar Two Blueprints based on the OECD’s reliance on state-like sourcing and nexus rules. The OECD sourcing rules have some similarities with the approach taken by the MTC’s model apportionment regulations.
The RAR/partnership working group also provided a report on technical corrections to the MTC’s model, which would allow partners (and possibly partnerships) to seek refunds where an administrative adjustment report (AAR) results in a negative tax amount as opposed to an imputed underpayment. The Uniformity Committee voted unanimously to approve the amendments, and the updated model will now move to the Executive Committee for approval.
The Committee also considered the possibility of starting seven new projects presented by the MTC staff. The Committee previously discussed the viability of several of these projects, but a few new possibilities were also discussed. Two of the new possible projects were prompted by the expectation that COVID-19 will lead to more taxpayer losses and new taxes. Specifically, the Committee discussed whether they should study how the federal net operating loss affects states and how individual state net operating losses should be tracked. They also discussed a possible project on the best practices for enacting gross receipts taxes, which they expect to be considered by some states in reaction to COVID-19-related revenue downturns.
The Committee also discussed whether to work on regulations for sourcing receipts derived from multi-channel networks and unique marketing relationships and whether to research how to best source digital goods and services in a post-Quill environment. Among those projects the committee had previously discussed but deferred action on included uniform rules for the sourcing and tax treatment of pass-through income and revising special industry apportionment rules to be consistent with the MTC’s recent changes to UDITPA.
In the end, the Committee voted to have the Standing New Project Subcommittee and MTC staff begin studying the state treatment pass-through entities. The subcommittee will compile an issue list to identify state conformity to federal pass-through treatment, gaps, inconsistencies, and other issues that may warrant guidance or uniformity, which will be presented to the Uniformity Committee at the next meeting.
The meeting ended with the state roundtable, during which states were asked to provide updates on legislative activity since the COVID-19 pandemic began. Some states reported 2020 sessions wrapped up as the pandemic lockdown began without further activity during the year, a few states reported special sessions that were held virtually, and many states reported significant uncertainty related to how the 2021 sessions would playout. Also noteworthy, Idaho reported it may seek legislation that would move the state to market-based sourcing during 2021, and Kansas reported it would again seek economic nexus and marketplace facilitator legislation in 2021 and was exploring proposals to expand the sales tax to cover digital products, to move to market-based sourcing, and to possibly implement a single sales factor.
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