TEI holds inaugural liaison meeting with Multistate Tax Commission; April 27, 1995.

On April 27, 1995, under the leadership of President Linda B. Burke, Tax Executives Institute held its first-ever liaison meeting with representatives from the Multistate Tax Commission (MTC). In connection with its regularly scheduled meeting in Perdido Beach, the Board of Trustees of the MTC invited representatives from TEI to make presentations and discuss issues of mutual concern to both organizations.

In addition to President Burke, TEI's delegation was headed by its Senior Vice President, Jack R. Skinner, and the Institute's State and Local Tax Committee Chair, Christopher W. Baldwin. Other members participating in the meeting were: Kathy M. Blankley, Charles W. Shewbridge, III, Manuel Davila, and Larry L. Ramsey. In addition, TEI's Executive Director, Michael J. Murphy, and Timothy J. McCormally and Jeffery P. Rasmussen from the Institute's legal staff also attended.

Timothy J. Leathers, Commissioner of Revenue for Arkansas, chaired the MTC delegation. Mr. Leathers was joined by numerous state tax officials, including Bob Hanson, North Dakota State Tax Commissioner; Val Oveson, Chair of the Utah State Tax Commission; John Chavez, Secretary of the New Mexico Department of Revenue; Ralph Eagerton, Alabama Commissioner of Revenue; Michael Southcombe, Chair of the Idaho State Tax Commission; Jack Harper, Assistant Secretary for Tax Administration for North Carolina; Jesse Weaver, Director of Business Taxes in Michigan; Wade Anderson, Assistant Director of Revenue for Texas; Burton Oliver, Executive Director of the California Board of Equalization; and Gerald Goldberg of the California Franchise Tax Board. In addition, Dan R. Bucks, MTC Executive Director; Alan Friedman, MTC General Counsel; Les Koenig, Director of MTC's Audit Division; and Paull Mines from the MTC legal staff also participated. The MTC delegation also included representatives from the staffs of a number of other state tax commissioners' offices.

Description of TEI's and MTC's Missions and Activities

Ms. Burke opened the meeting by describing of the Institute's activities and mission in the development of state tax policy and administrative procedures. State tax policy and administration were highly important areas for TEI members, she said--an integral part of their responsibility for administering their companies' overall tax liability. Specifically, tax executives are charged with the responsibility to manage the burden of state and local taxes and to ensure compliance with the manifold forms of income, excise, payroll, sales and use, and alternative tax systems. Ms. Burke explained that the primary objectives of the Institute included: (i) educating its members through conferences, seminars, and meetings; (ii) educating legislators and tax administrators through targeted advocacy on administrative matters; (iii) providing opportunities for networking among members at the Institute's 47 local chapters; and (iv) promoting high ethical standards and principles in interpreting the tax law, complying faithfully with its requirements, and dealing fairly with tax administrators.

Mr. Murphy stated that TEI members accept the duty to comply with the tax laws and continually strive to balance that burden with the counterpart obligation of minimizing their companies' tax liabilities. Mr. Baldwin next summarized the Institute's recent efforts in respect of education for its members and in advocating specific improvements in state and local tax matters.

Mr. Bucks outlined the MTC's twin goals of promoting (i) state sovereignty within the federal system and (ii) compliance with state tax codes. He summarized the historical and political underpinnings leading to the creation of the Multistate Tax Compact and the Commission. He explained that the multistate compact legislation was adopted at the urging of the States to forestall federal legislation responding to the need for greater uniformity in substantive and administrative tax rules affecting interstate commerce. Given its history, he said, the Commission is devoted to preserving the independent tax policy role and authority of the States within the federal system. Mr. Bucks also stressed the MTC's other goal of promoting compliance by ensuring fairness among all business taxpayers, whether large or small, or whether engaged in interstate or wholly in-state commerce.

Mr. Bucks next described the constitution and operating organization of the MTC, explaining that there were 20 full members of the Multistate Tax Compact (including the District of Columbia), 15 associate members, and 5 project members. Much like TEI, he said, the work of the organization is divided among functional committees including the Uniformity Committee, the Audit Committee, the Nexus Committee, a Litigation Committee, the Property Tax Committee, and the Education Committee.

Mr. Leathers inquired about the "forces" impelling TEI to undertake its 1994 State and Local Tax Task Force initiative. Ms. Burke responded that there were no specific "statistics" regarding state and local tax burdens that led to the establishment of the task force. Rather, she said, the task force was a result of feedback at many TEI conferences and chapter meetings regarding the need to refocus the national organization on state and local tax matters. She added that the business downturn of the early nineties had underscored how important the burden of state and local income, sales and use, and property taxes had become. While federal tax liabilities had diminished with the decline in business revenues, she said, many state taxes either declined less or remained at the same level as before, causing a significant reevaluation of the importance of, and the need for continuous attention to, state and local tax matters. Mr. Baldwin added that, with the growth of unfunded mandates from the federal government, the proportion of a company's total tax burden from state and local tax had been increasing, and consequently the Institute had constituted its task force to determine whether and how it could be more effective in state and local tax matters. TEI, he said, was continually identifying common themes and shared goals among companies and between taxpayers and tax administrators.

In response to a question, Mr. Leathers said that the MTC and the Federation of Tax Administrators (FTA) work together in many ways though the focus of the two organizations was very different. He explained that the FTA is oriented more toward policy matters while the MTC is calibrated toward providing regulatory guidance and conducting audits of taxpayers. Mr. Bucks added that the FTA has a broad research, education, and policy orientation encompassing all aspects of state and local taxation. The FTA, he said, is much more specialized in the taxation of interstate commerce.

In response to a question, Ms. Burke compared the roles of TEI and the Committee on State Taxation (COST), whose membership overlaps with the companies represented by TEI's membership. She explained that COST was devoted exclusively to state tax matters, and generally was more active in state legislative and tax litigation matters than TEI. TEI, she said, is concerned with the entire spectrum of federal, international, and state taxation. She added that, whereas TEI is composed of individual members and COST has corporate members, both organizations focus on the taxation of business enterprises. Mr. Baldwin reiterated that the primary goal of TEI is the overall education and representation of the tax executive, whereas COST specialized exclusively in state and local tax matters. TEI, he explained, "picked its spots" in state and local tax matters.

Refund of Unconstitutionally Collected Taxes

Ms. Burke summarized the Institute's involvement in various U.S. Supreme Court state tax cases and stated that the Institute was adamant concerning the refund of unconstitutionally collected state taxes. Following further discussion of the issue of retroactive relief versus the retroactive imposition of additional state taxes (e.g., if the Supreme Court were to expand the scope of permissible state taxation), Mr. Bucks said that the MTC had conducted research into various forms of "meaningful backward-looking relief" that may be afforded to taxpayers upon a court's declaring a statute invalid. In response to a question, Mr. Friedman said that the research required "freshening up" prior to its release to TEI and other taxpayer groups. Mr. Shewbridge suggested that the project could be meaningfully discussed at the MTC's annual "Dialogue Day" in the fall.

Mr. Anderson suggested that regardless of whether the business taxpayers and the States agreed on the issue of refunds of unconstitutionally collected state taxes, there should be sufficient common ground between the two groups to productively discuss a wide range of (potentially less contentious) substantive and procedural matters. Mr. Bucks agreed, asserting that the MTC had in the past taken up the TEI banner, for example, in respect of uniform protest periods.

MTC Rulemaking Procedures

Mr. Bucks averred that an unfortunate perception is created when the press casts a draft staff document as an "MTC proposal." He explained that the MTC, as a public agency, is required to circulate drafts of staff documents, inviting public comment. Proposals are issued, he said, to obtain comments and feedback rather than position papers. The staff draft of a proposal, he added, is often revised following public comment. Moreover, when the MTC Executive Committee reviews a proposal to consider whether to hold a public hearing, the draft is often sent back to the staff for further issue development. After a public hearing is held, the document may be revised further before it is circulated to the States for their review. If a majority of States indicate that they would likely adopt the proposal, he said, the proposal is then forwarded to the Commission for a vote of the entire membership. A regulation is formally adopted only where a majority of States--with votes weighted by population--approves the proposal. The MTC, he concluded, in keeping with its mission of ensuring uniform treatment of interstate commerce, strives to achieve as near a consensus as possible before issuing a regulation.

Ongoing MTC Projects

Mr. Bucks next explained that, in an effort to develop commentary and open communication with taxpayers and taxpayer groups on various proposals, the MTC was exploring the possibility of conducting informal hearings. In this regard, the MTC was working on various proposals concerning (i) uniform nexus guidelines, (ii) uniform definitions of business and non-business income, (iii) a uniform definition of a unitary business, and (iv) uniform apportionment standards for telecommunications income. Mr. Mines added that the MTC staff was also working with the MITRE Corporation in connection with its study and development of a harmonized wage code for the IRS's Simplified Tax and Wage Reporting System. He said that the MTC would be interested in seeing a list of areas where taxpayers desire to see more uniform rules among the States.

Mr. Murphy expressed the view that if the Institute participated in informal hearings or commented with respect to MTC proposals, the MTC might infer, or even tout, the Institute's support for a particular proposal. He contended that TEI would be reluctant to express a view on a particular proposal without following its internal procedures for adopting Institute positions. Mr. Mines replied that if, in the course of an informal hearing TEI expressed the view that it had come to no formal conclusion or position--neither endorsing nor rejecting an MTC proposal--that the Institute's views would be respected.

Financial Institution Regulations

Mr. Leathers cited the cooperation between taxpayers and the MTC staff in developing the uniform apportionment regulations for financial institutions as a paradigm for how the MTC guidance process should work--to the benefit of both taxpayers and the States. Ms. Burke demurred, saying that if the Institute were commenting on a draft proposal, it might be required to take a formal position. Mr. Goldberg replied that the MTC is more interested in the content of TEI's ideas than in the Institute's taking a position in a formal submission. He added that if the MTC failed to respond to the legitimate concerns of the affected parties, its initiatives were likely to fail, hence, it wanted to hear those concerns (regardless of whether they are formally ascribed to the Institute). Mr. Baldwin suggested that the MTC might wish to use the Institute as a conduit through which to disseminate information to, and solicit input from, business taxpayers. He added that the Institute often acted in this capacity where it was unable to achieve a consensus view with respect to a particular matter.

In response to a question, Mr. Friedman explained the process employed in developing the uniform income apportionment regulations for financial institutions. He said that the guiding principle for any MTC proposal is whether it is (i) fair, (ii) administrable, and (iii) likely to be accepted by a majority of the States. He acknowledged that in any MTC proposal there would likely be taxpayer lawsuits testing the outer boundaries of various provisions, and that the MTC understood and accepted that. With respect to the financial institution income apportionment regulations, Mr. Friedman acknowledged that a key compromise was the agreement to omit the MTC's "economic presence" nexus standard from the proposal. When the nexus standard was assumed to be coextensive with the current, amorphous constitutional standard (whatever it is), the task force was able to reach consensus on the balance of the substantive issues.

Concluding Thoughts

Ms. Burke acknowledged that there were areas where TEI could provide useful feedback to the MTC. Mr. Baldwin agreed, though he expressed the reservation that, with respect to uniform income apportionment rules, representatives from the affected industry should be the principal participants rather than broad-based taxpayer groups such as TEI. Ms. Burke suggested that, at a minimum, the staffs of TEI and the MTC should work out a procedure to exchange information and views. Mr. Murphy summarized the discussion by saying that if TEI is not formally involved then it should identify taxpayers who should providing input to the States and the MTC. Mr. Bucks agreed, adding that the MTC was looking for input regarding the proper application of sales and use taxes to telecommunications and information services providers.

On behalf of the MTC, Mr. Leathers thanked the TEI delegation for traveling to Perdido Beach to hold the first ever liaison meeting. On behalf of the Institute, Ms. Burke thanked the representatives of the MTC for the opportunity for a frank exchange of views.

RELATED ARTICLE: Denver Chapter Meets with IRS 

On April 26, 1995, representatives of TEI's Denver Chapter met with officials of the Internal Revenue Service's Denver District. The chapter submitted questions on a full array of technical and organization issues in advance of the meeting, and the IRS responded by providing written answers, as we]l aS addressing the questions in detail during the meeting. Among the subjects discussed during the meeting were the IRS's effort to improve the currency of audits, the likely consequences of the IRS's then-impending (and since-announced) reorganization. Counsel involvement in audits, the involvement of taxpayers in the field service advice process, recent initiatives involving Appeals (including early referral), employee plan audits. and taxpayer involvement in the examination planning process.

Because the subjects covered during the Denver Chapter's liaison meeting overlap with the topics of other local liaison meetings sponsored by TEI chapters (the minutes of which are reprinted elsewhere in this issue), the IRS's w-ritten responses to the Denver Chapter's questions are not being published in The Tax Executive. Anyone wishing a copy of' the responses should send a written response to TEI Headquarters.