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Wrapping Up August – and Looking Forward to September

Upcoming McDermott Will & Emery SALT Activities in September: September 14, 2017: Robin Greenhouse, Kristen Hazel, Sandra McGill and Alysse McLoughlin will be speaking at McDermott Will & Emery’s Tax in the City®: A Women’s Tax Roundtable meeting in New York City about local tax updates and ethics. September 15, 2017: Jane Wells May is speaking in Austin, TX at the ABA Tax Section Meeting about “False Claims Acts and State Taxes.” September 18, 2017: Mary Kay Martire is speaking in San Antonio, TX at the 2017 IPT Sales Tax Symposium about “Third Party Tax Enforcement Actions.” September 19, 2017: Arthur Rosen is speaking in San Antonio, TX at the 2017 IPT Sales Tax Symposium about sales tax nexus –“Son of Quill: The Sequel.” September 19, 2017: Stephen Kranz is speaking in San Antonio, TX at the 2017 IPT Sales Tax Symposium about uncollectible debts – “Breaking Bad from Bad Debt.” September 26, 2017: Cate Battin and Mary Kay Martire are presenting a...

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MTC Marketplace Seller Voluntary Disclosure Initiative Underway

Yesterday, the application period opened for the limited-time MTC Marketplace Seller Voluntary Disclosure Initiative opened and it will close October 17, 2017. Since our last blog post on the topic detailing the initiatives terms, benefits and application procedure, six additional states (listed below) have signed on to participate in varying capacities. The lookback period being offered by each of the six states that joined this week is described below. District of Columbia: will consider granting shorter or no lookback period for applications received under this initiative on a case by case basis. DC’s standard lookback period is 3 years for sales/use and income/franchise tax. Massachusetts: requires compliance with its standard 3-year lookback period. This lookback period in a particular case may be less than 3 years, depending on when vendor nexus was created. Minnesota: will abide by customary lookback periods of 3 years for sales/use tax and 4 years (3...

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MTC Offers 18 State Marketplace Seller Amnesty Initiative

The Multistate Tax Commission (MTC) is moving quickly to implement a multistate amnesty program through its current National Nexus Program (NNP) for sellers making sales through marketplaces. The new MTC marketplace seller amnesty program is limited to remote sellers (3P sellers) that have nexus with a state solely as the result of: (1) having inventory located in a fulfillment center or warehouse in that state operated by a marketplace provider; or (2) other nexus-creating activities of a marketplace provider in the state. Other qualifications include: (1) no prior contact/registration with the state; (2) timely application during the period of August 17, 2017 through October 17, 2017; and (3) registration with the state to begin collecting sales and use tax by no later than December 1, 2017, and income/franchise tax (to the extent applicable) starting with the 2017 tax year. The baseline guarantee is prospective-only (beginning no later than Dec. 1, 2017)...

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Finishing SALT: Inside SALT’s Monthly Recap

Wrapping up July—and Looking Forward to August SALT Activities for August: August 2, 2017: Diann Smith is moderating a panel at the 50th Multistate Tax Commission Annual Conference in Louisville, Kentucky about “The Significance of the MTC – Past, Present, and Future – from the Outside.” August 5, 2017: Stephen Kranz is presenting about Unclaimed Property at the National Conference of State Legislatures (NCSL) SALT Task Force Meeting in Boston, Massachusetts, and will cover the following topics: Lessons learned from the first legislative season in which the Revised Uniform Unclaimed Property Act was considered, and in some cases adopted in part. The MoneyGram case, currently before the United States Supreme Court under its original jurisdiction to handle cases brought by one state against another, which may rewrite the rules regarding which state has priority over custody of unclaimed funds. Wrapping up July: Our July 2017 blog posts are available on...

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MTC Arm’s-Length Adjustment Service (Part II): “An Expression of Grief, Pity, or Concern”

Executive Summary Multistate Tax Commission (MTC) transfer pricing program moving forward in some fashion; Priority includes information sharing among participating states (and possibly their third party vendors) on transfer pricing issues. Because a formal agreement was found necessary, the scope of the information shared is presumed to include taxpayer specific information; and States currently have significant inventory of transfer pricing audits that they admit they do not have the expertise to properly examine or defend in a protest. The inaugural meeting (via conference call) of the Multistate Tax Commission’s Committee (Committee) addressing transfer pricing issues (ALAS) took place on April 7, 2016, and was certainly interesting.  A predecessor Working Group had created an extensive plan that is intended to be implemented by the Committee over 4 years.  The plan initially anticipated that approximately 10 states (at least) would agree to fund the cost...

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A Year’s Review of Massachusetts Tax Cases

Allied Domecq Spirits & Wines USA, Inc. v. Comm’r of Revenue, 85 Mass. App. Ct. 1125 (2014) In a unique case, the Massachusetts Appeals Court affirmed a ruling of the Appellate Tax Board (ATB) that two corporations could not be combined for corporation excise tax purposes for 1996 through 2004. The distinctive aspect of this case was that a company was found not to have nexus with Massachusetts even though it rented property in the state and had employees in the state. If the company had been found to have nexus, it could have applied its losses to offset the income of an affiliated Massachusetts taxpayer in a combined report. The Appeals Court pointed to factual findings of the ATB that the transfer of employees located in Massachusetts to the company “had no practical economic effect other than the creation of a tax benefit and that tax avoidance was its motivating factor and only purpose.” The Massachusetts Supreme Judicial Court denied the taxpayer...

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District of Columbia’s Transfer Pricing Enforcement Program and Combined Reporting Regime: Taking Two Bites of the Same Apple

In his recent article, “A Cursory Analysis of the Impact of Combined Reporting in the District”, Dr. Eric Cook claims that the District of Columbia’s (D.C. or the District) newly implemented combined reporting tax regime is an effective means of increasing tax revenue from corporate taxpayers, but it will have little overlap with D.C.’s ongoing federal-style section 482 tax enforcement.  Dr. Cook is chief executive officer of Chainbridge Software LLC, whose company’s product and services have been utilized by the District to analyze corporations’ inter-company transactions and enforce arm’s length transfer pricing principles.  Combined reporting, (i.e., formulary apportionment, as it is known in international tax circles) and the arm’s length standard, are effectively polar opposites in the treatment of inter-company taxation.  It is inappropriate for the District (and other taxing jurisdictions) to simultaneously pursue both.  To do so seriously risks...

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Let the Training Begin: MTC Transfer Pricing Audits Draw Near

Deputy Executive Director Greg Matson (a nice guy at heart) announced this week that the Multistate Tax Commission (MTC) has hired its first transfer pricing training consultant and is scheduled to begin training state auditors.  The training, titled “Identifying Related Party Issues in Corporate Tax Audits” will be hosted by the North Carolina Department of Revenue from March 31 to April 1, 2015 in Raleigh, North Carolina.  While the much anticipated Arm’s Length Adjustment Service (ALAS, discussed in more depth in our February 6, 2015 blog post, available here) is still pending approval of the MTC Executive Committee and ratification at the annual meeting this summer, it has not stopped MTC officials from moving forward with training state auditors on transfer pricing.  This training (and any subsequent training offered before the annual meeting) will be conducted as part of the MTC’s “regular training” schedule (and is not directly tied to the ALAS program...

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MTC Puts Designs on Increasing State Transfer Pricing Revenues

This past December, the Multistate Tax Commission’s (MTC) transfer pricing advisory committee and its project facilitator Dan Bucks recommended what it calls the “preliminary design” approach for a proposed Arm’s Length Adjustment Services (ALAS) program.  While still subject to approval, states already anticipate that the program will increase their state transfer pricing revenues. The MTC ALAS is an attempt to bring to state governments a comprehensive and coordinated program to address income shifting and the loss of state tax revenues, much along the lines of what the United States and other foreign governments have been trying to do, most recently in their Base Erosion and Profit Shifting (BEPS) initiative.  The ALAS program is intended to address both interstate income shifting, which is never addressed at the federal level, and international income shifting, which the MTC believes is massively under-audited at the federal level.  According to some...

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New Market-Based Sourcing in DC: Major Compliance Date Problem Fixed… For Now

The Problem On September 23, 2014, the District of Columbia Council enacted market-based sourcing provisions for sales of intangibles and services as part of the 2015 Budget Support Act (BSA), as we previously discussed in more detail here.  Most notably the BSA adopts a single sales factor formula for the DC franchise tax, which is applicable for tax years beginning after December 31, 2014.  But the market-based sourcing provisions in the BSA did not align with the rest of the tax legislation.  Specifically, the BSA market-based sourcing provisions were made applicable as of October 1, 2014—creating instant tax implications on 2014 returns.  Absent a legislative fix, this seemingly minor discrepancy will trigger a giant compliance burden that will require a part-year calculation for both taxpayers and the Office of Tax and Revenue (OTR) before the 2014 franchise return deadline on March 15.  For example, taxpayers filing based on the new BSA provisions, as...

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