The Multistate Tax Commission (“MTC”) held its Annual Commission Meeting today. Of note, the MTC voted to adopt the Model Sales and Use Tax Nexus Statute. In addition, the Arm’s-Length Adjustment Service Committee (“ALAS”) met and reported on the status of its transfer-pricing project.
Model Sales and Use Tax Nexus Statute After more than five years of development, the MTC voted today to adopt its Model Sales and Use Tax Nexus Statute (the “Model Statute”).
The Uniformity Committee began its work on drafting the Model Statute in 2011. At that time, the Model Statute was intended to be a click-through nexus statute, based primarily on New York’s “Amazon” law. However, with the rise of state statutes and regulations challenging Quill’s physical presence rule, the scope of the Model Statute was expanded to define additional activities that indicate a retailer is “engaged in business” in a state.
Importantly, the Model Statute does not, without modification, clearly subvert the U.S. Supreme Court’s bright-line physical presence rule announced in Quill. However, MTC General Counsel Helen Hecht (and hearing officer for the Model Statute project) previously noted that states can modify the statute to challenge Quill simply by expanding the definition of “engaged in business” in the Model Statute to include the following:
“Retailer engaged in business in this state” as used in [this Article or Act imposing tax] means a retailer, whether or not authorized to do business in this state, that has made more than [amount] of sales into this state in the prior 12-month period, including sales of any related part. “Retailer engaged in business in this state” specifically includes a retailer that has purposefully availed itself of [State’s] markets…1
States such as Alabama and South Dakota have not waited for the adoption of the Model Statute to directly challenge Quill (see our previous coverage here). Accordingly, if either Alabama or South Dakota is successful in bringing a challenge to Quill before the U.S. Supreme Court, and the Court overturns Quill, other states would be able to adopt the Model Statute—with these modifications—without fear of further constitutional challenge.
Arm’s-Length Adjustment Service Committee The ALAS Committee reported today on its progress toward developing a comprehensive transfer-pricing service. Although the program has yet to garner 10 participating states (the number originally believed necessary to make the program financially feasible), the committee has been working to develop and refine an information-sharing agreement between participating states. This agreement is designed to permit states to share otherwise-confidential taxpayer information with each other to (1) identify taxpayers for audit and (2) provide the auditing-state with more information regarding a taxpayer’s multistate business. The ALAS Committee intends to meet in October 2016 in Indianapolis, Indiana.
The ALAS Committee is continuing to move forward with its transfer-pricing program, even though only five states have signed onto the program. Although a formal audit program has not yet been developed, the participating states intend to share taxpayer information at the October 2016 meeting. This information could be used by states to identify taxpayers for future audit.
For more information on the Model Statute and the activities of the ALAS Committee and the effect that either may have on your business, please contact one of the authors of this alert or another member of the Reed Smith State Tax Group.
- See Helen Hecht, Report of the Hearing Officer Regarding Proposed Model Sales and Use Tax Nexus Statute Made to the Executive Committee of the Multistate Tax Commission (Dec. 11, 2015) (emphasis in original).
Client Alert 2016-204