MTC Executive Committee Fall meeting update - SITAS Committee regroups and amended P.L. 86-272 statement moves forward

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Eversheds Sutherland (US) LLPOn November 20, the Executive Committee of the Multistate Tax Commission (MTC) met via videoconference for its final meeting of 2020. During the meeting, the Committee heard updates from Greg Matson (MTC Executive Director) and each of the MTC’s standing committees, including the State Intercompany Transactions Advisory Service (SITAS) Committee. Here are the highlights.

Krystal Bolton (Louisiana Department of Revenue) presented to the Committee, noting she recently agreed to serve as chair of the SITAS Committee and described Louisiana as having “been a state on the forefront of using transfer pricing as a tool in its audit program” in her report. She also noted that the Committee plans to hold a meeting January 2021, during which the Committee intends “to discuss ways the Committee can support member states and to discuss the possibility of holding a training and information session in 2021.”

The Committee also received a report from the hearing officer for the updates to the MTC’s P.L. 86-272 Statement of Information, Robert J. Desiderio. Since the MTC first launched the project in November of 2018, an MTC work group has drafted amendments to the MTC’s “Statement of Information Concerning Practices of the Multistate Tax Commission and Signatory States under Public Law 86-272.” The statement was last updated in 2001, and it acts as the MTC’s and the signatory states’ position on the application of P.L. 86-272. Spurred by the Wayfair decision, the work group was tasked with considering how P.L 86-272 “applies to modern business activities,” according to a June 17, 2020 Memo by Brian Hamer (MTC). The ultimate result of the revisions was the gutting of any P.L. 86-272 protection for any company with an interactive website, based on the customer’s activity with the company’s website.

The bulk of Desiderio’s report was spent responding to comments filed by COST and Professor Philip Tatarowicz (Georgetown) in opposition to the proposed amendments to the statement, which were the only comments filed in support of the business community’s position. Tatarowicz’s comments took issue with the work group’s general authority to interpret business activity pursuant to P.L. 86-272, while COST argued the work group was conflating a “business’s activities within a state” with that of its customers. Desiderio ultimately concluded that the work group’s interpretation of “business activity” in the revised statement was “rational,” and his report ultimately supported the proposed amendments to the MTC’s statement. Following Desiderio’s report, the Executive Committee voted to move the amended P.L. 86-272 statement forward, and the Commission will now conduct a Bylaw 7 survey of the states.

Eversheds Sutherland Observation: Although Desiderio’s report and ultimate findings are not surprising, it is another step by the MTC to eviscerate protection of P.L. 86-272. The business community has remained adamantly opposed to this project since it began in early 2019. There was engagement throughout this process by industry and practitioners voicing disagreement and, frankly, frustration; however, the MTC and the work group forged ahead dismissing these concerns every step along the way. The ultimate conclusions of the revised P.L. 86-272 statement are disappointing, but the statement itself holds no force of law. Even if approved in a Bylaw 7 survey, this statement is ultimately nothing more than the position of the states that engaged in the work group, and if the revised statement does ultimately get adopted by some states, the positions being asserted would likely end in litigation.

Finally, the Committee also provided an update on the Bylaw 7 survey for the recently finalized Finnigan Combined Reporting Model that has been underway since the MTC’s Annual meeting in July. A work group had been making updates to the MTC’s Joyce Combined Reporting Model for approximately two years. The model is meant to be an alternative to the MTC’s Joyce Model and not a replacement. Apparently, several states have yet to return their Bylaw 7 survey, which Matson opined may be based on the recent change to include non-Compact members (who previously have not had voting rights) in the Bylaw 7 survey. There was no indication that the Finnigan Model would not ultimately be approved; however, Matson did note that most Bylaw 7 surveys are completed within approximately a month. Matson also stated that the MTC was looking into whether a training should be offered to elevate the confusion over the Bylaw 7 voting requirements. 

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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