All States ~ Multiple Taxes: MTC Executive Committee Advances Model Notice and Reporting Statute

During a conference call, the Executive Committee of the Multistate Tax Commission (MTC) agreed to forward two model statute proposals for review by MTC states. If a sufficient number of MTC states indicate that they will consider adopting the model statutes, the entire Commission may vote on whether to formally adopt the proposals during its annual meeting in July. The committee also reluctantly agreed to withhold action on a third model statute while awaiting additional comments.

A divided committee voted to forward to the states a proposed model sales and use tax notice and reporting statute modeled on existing Colorado law. The statute would require sellers that do not collect sales or use tax on items delivered to a state that has adopted the statute to provide (1) notice to purchasers at the time of the transaction that tax may be due, (2) an annual report to purchasers listing the transactions on which tax was not collected, and (3) an annual report to the state’s department of revenue providing dollar amounts and customer information (such as name and address) for each transaction on which tax was not collected. The statute includes a de minimis exception.

MTC general counsel Shirley Sicilian disputed suggestions raised during the public hearing on this proposal that it was inconsistent with the Streamlined Sales Tax (SST) effort and that MTC action should await the resolution of federal litigation currently challenging the Colorado law on which the proposal is based. (TAXDAY, 2011/05/19, S.1) Her position was supported by Warren Townsend, Wal-Mart Stores, Inc., who said the model statute does not undermine the SST effort. He added that Wal-Mart favors tax reform to create a level playing field between online-only retailers and brick-and-mortar retailers and, therefore, it supports this model statute. Russ Brubaker, Washington State Department of Revenue, said he supports the direction of this proposal, but he does not think it is ready for final action. Ultimately, the committee voted to forward the model statute with five states voting in favor of doing so, Washington voting against doing so, and California and Montana abstaining.

Separately, the committee voted unanimously to forward to the states for review an amendment to the existing model combined reporting statute regarding the definition of a “tax haven” for purposes of including a foreign entity in a water’s-edge combined group. The amendment would eliminate a reference to the Organization for Economic Cooperation and Development (OECD) as the source for the criteria used in that definition because the OECD no longer maintains a list of “tax havens.” (TAXDAY, 2011/03/11, S.1)

Finally, the committee agreed to withhold action for now on a model statute to impose state income tax on partnerships or disregarded entities that are at least 50% owned by entities that are not themselves subject to income tax (e.g.,insurance companies). (TAXDAY, 2011/05/17, S.1) Several representatives of the insurance industry expressed opposition to the proposal and objected to the process by which it was developed. A representative of the National Association of Insurance Commissioners (NAIC) asked for additional time for insurance regulators to examine the proposal and offer comments. Bruce Johnson, Utah State Tax Commission, expressed his disappointment that the insurance industry had not provided greater input previously, and said that he would welcome legal research on the retaliatory tax implications of the proposal from the industry experts. Montana Director of Revenue Dan Bucks, saying that he was “speaking bluntly out of frustration,” commented that the NAIC was entering at a very late point in the process. Bucks, Johnson, Sicilian, and MTC Executive Director Joe Huddleston all defended the process used in developing this proposal. The committee plans to take the proposed model statute back up at the July annual meeting of the MTC.

Copies of the proposals considered during the conference call and related material can be found at http://www.mtc.gov/Executive.aspx?id=5124.

Conference call, Multistate Tax Commission Executive Committee, June 6, 2011

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