Originally published January 8, 2008

The Multistate Tax Commission kicked off the New Year with its Executive Committee Meetings in San Diego, California on January 3rd and 4th. While numerous projects were on the agenda, the MTC’s working group on revising the Uniform Division for Income Tax Purposes Act (UDITPA) generated the most vivid discussion. The working group clearly indicated that the MTC is determined to forge efforts to review UDITPA.

Ready, Set, Go: MTC’s Push to Revise UDITPA

The MTC wasted no time in continuing its efforts to garner support for the National Conference of Commissioners on Uniform State Tax Laws’ (NCCUSL) review of UDITPA. Charlie Trost, NCCUSL Commissioner for Tennessee and Chair of NCCUSL’s Drafting Committee on the Revised UDITPA, and Dan Robbins, Motion Picture Association of America, NCCUSL Commissioner for California, and a member of the UDITPA Drafting Committee, presented an overview of the NCCUSL process to the MTC Executive Committee. The first step is to pick a draftsman. The position of draftsman is a substantive job and the person chosen is responsible for most of the drafting of the project as well as making substantive comments during committee meetings. Trost indicated that the Drafting Committee has chosen Professor Richard Pomp and Prentiss Wilson (consultant to Ernst & Young) to serve as co-draftsmen.

After the appointment of the draftsmen, an issue statement paper is created. Once the scope of the review is defined, the NCCUSL draftsmen will create a draft based on discussions and committee meetings. Once the first draft is prepared, it is submitted to all NCCUSL members for floor discussion and comment. It is not expected that NCCUSL will have a first draft ready for full Commission discussion until 2009 or 2010.

When a final draft is reached, it will be voted on by the Commissioners, with each state getting one vote. Trost indicated that he was optimistic that with some trade-offs UDITPA could be successfully revised. He did express concern that there is a risk that any revisions to UDITPA could be unraveled in the process of securing votes on the drafts by the full Commission.

The MTC has also formed its own process — a "parallel process"— to ensure that it is providing input to the NCCUSL Drafting Committee and also working toward amending the MTC Compact. The MTC’s working group is headed by MTC staff Shirley Sicilian and Bruce Fort, in addition to representatives from the states including Ben Miller, California Franchise Tax Board; Bruce Johnson, Utah State Tax Commissioner; Ted Spangler, Idaho State Tax Commission; and Joe Garrett, Alabama Department of Revenue. Dan Bucks, Director of the Montana Department of Revenue, stated that the success UDITPA has attained to this point is the result of having had a trustee watching over it – the MTC. The MTC will put together a letter of issues that it would like to see NCCUSL address in its review of UDITPA – which the MTC specifically stated may include items beyond the current scope of UDITPA, like combined reporting.

In further discussions among MTC members, it was recommended that the MTC members actively educate their individual state NCCUSL Commissioners regarding the project and the MTC’s agenda. The MTC staff will provide a white paper to explain the issues to interested NCCUSL Commissioners.

Sutherland Observations: It was clear from the discussion between Trost and Huddleston that the MTC will be a driving force behind efforts to keep NCCUSL’s review of UDITPA progressing and on path. While Trost and Huddleston, along with Bucks, recognize that the business community was not necessarily in support of a revision to UDITPA, they do not appear to be deterred by these reactions. In response, they are targeting early support from the states, commissioners and other state organizations as a key strategy to maintain their momentum.

Furthermore, while UDITPA does not currently address reporting methodologies or nexus, it was clear that the MTC considers these to be potential items that could be within the scope of NCCUSL’s review. While there was some acknowledgement that nexus may not be right for review, filing methods could very well be part of the review. The MTC’s suggestion that additional issues may be reviewed by NCCUSL shows that the MTC has more in mind than just a review of UDIPTA. To the extent that other state tax issues can be "shoe-horned" into the process, the MTC appears willing to take that approach.

Finally, and perhaps most important to the business community, is the decision of the MTC that its "working group" will engage in a "parallel process" to review UDITPA – and possibly expand it? – since the MTC compact incorporates many of the UDITPA provisions. The MTC appears to view itself as the protector of UDITPA and will work in its parallel process to ensure that UDITPA is reviewed and "refreshed."

© 2008 Sutherland Asbill & Brennan LLP. All Rights Reserved.

This article is for informational purposes and is not intended to constitute legal advice.