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TEI-MTC liaison meeting report.

The following report has been adapted from the minutes of a meeting of the Multistate Tax Commission's Executive Committee on November 11, 2004.

On Veterans' Day 2004, a delegation from Tax Executives Institute met with the Executive Committee of the Multistate Tax Commission (MTC). Janet M. Wilson, Chair of the Institute's State & Local Tax Committee, led the Institute's delegation. R. Bruce Johnson, Chair of the MTC Executive Committee and Utah State Tax Commissioner, presided.

MTC Audits

Ms. Wilson thanked the MTC for the opportunity for the meeting, noting that it was the first formal liaison meeting between the two organizations in several years. Dan Bucks, MTC's Executive Director, thanked TEI for coming and expressed high regard for TEI. Particularly, he expressed appreciation to the Institute for inviting Les Koenig, Director of MTC's Joint Audit Program, to speak at the Institute's 2004 Midyear Conference about Hewlett-Packard Company's MTC audit. (An article on this audit, Unprecedented Taxpayer-Initiated MTC Joint Audit Program Yields Benefits to All Parties, appeared in the January-February 2004 issue of The Tax Executive.)

Ms. Wilson contrasted the positive experience of the HP audit with the negative feedback received regarding MTC audits in general. A recurring issue is the lack of initial planning or communicated expectations on how- the audit will proceed. Mr. Koenig responded that, in the HP audit, the MTC sat down with the taxpayer at the beginning and work out a plan. He then described a typical MTC audit process, noting that while a basic time schedule is set for the audit, the auditors frequently are not aware of issues that might come up, and so are unable to present a fully-worked-out plan at the start. He said that they have noticed it is hard for an auditor to devote the requisite attention to three audits at a time with the increased number of states involved in each audit, and is considering limiting auditor workload to two audits at a time.

Ms. Wilson suggested that MTC auditors could profitably sit down with the taxpayer after a week's preliminary work to develop an audit plan. Mr. Koenig noted that an occasional problem is getting the consolidated federal Form 1120 from a taxpayer, which slows auditors' efforts to focus on the issues. Rick Clayburgh, North Dakota State Tax Commissioner, said that North Dakota uses the MTC because it represents an added resource to the state's own auditors, and his presumption is that participating in MTC audits makes it easier for the taxpayer than if it faced several separate state audits.

Ms. Wilson responded that while MTC joint audits may make it easier, one advantage of individual state audits is that the taxpayer's workload can be staggered by scheduling one state at a time. In contrast, an MTC audit on behalf of several states all at once can significantly drain on taxpayer resources. Since there the taxpayer has no assurance that the audit will ultimately be accepted by states, the increased effort involved is less desirable. Finally, the taxpayer can thee multiple, simultaneous deadlines to protest the assessments stemming from an MTC audit for many states, which is more work all at once than if separate audits were staggered.

Gregory S. Matson, TEI Tax Counsel, stated that replicating the positive experience and efficiency of the HP audit would not be possible if the states re-audited that taxpayer after the MTC completed its audit. In the HP audit, he noted, the MTC secured agreement from the states that they would abide by the MTC's result, an important part of the audits success from the taxpayer's perspective. He also suggested that demystifying MTC's audit process would be very helpful.

Mr. Johnson asked for TEI to provide specific recommendations, working with representatives of the MTC audit committee and Mr. Koenig to resolve the issues. Mr. Bucks then summarized the discussion, as follows:

* TEI wants more up-front communication on audits.

* The MTC audit program will be making more time for auditors, but needs some early information up front to know issues and do proper planning.

* The MTC needs further information on whether there is a problem with states accepting audits and assessing the taxpayer all at the same time.

Mr. Bucks added that taxpayers could explore the MTC's Multistate Dispute Resolution Process--which has been dormant--as a way of working through some of the protest time pressures.

Withholding on Transient Employees

Ms. Wilson raised the question of withholding on employees who infrequently enter a state. She asked whether the MTC might create a uniform policy for a de minimis number of days before withholding would be required. Elizabeth Harchenko, Director of Oregon's Department of Revenue, noted that Oregon was able to work out withholding requirements based on how the Oregon personal income tax is structured, recognizing that the minimum bracket amount under their statute sets a de minimis level of earnings before a withholding requirement is triggered. The employer can then figure out the length of time that an employee can be in the state before withholding must be reported. She added that the FTA has a uniform rule in effect for high-income type folks coming into a state for a short period. Mr. Bucks noted that the Multistate Compact does permit the Commission to address multistate personal income tax issues. Mr. Johnson suggested that TEI could determine which states handle this issue particularly well, and perhaps those states would be willing to spearhead a uniformity rule. Ms. Harchenko pointed out, however, that any de minimis standard likely depends on each state's minimum bracket amount. Mr. Johnson suggested that if TEI would go jointly with tax administrators before a state's legislature, they could succeed in simplification efforts such as this that would not cost the states much in revenue. Mr. Bucks noted that TEI could request a uniformity project.

Uniform Reporting Deadlines

Ms. Wilson next discussed a need to foster a uniform deadline for reporting federal tax adjustments. Ted Spangler, Deputy Attorney General with the Idaho State Tax Commission, responded that the MTC has already promulgated such a uniformity proposal that standardizes the time limit to 180 days. He said the uniformity proposal was the first of a list of state tax administrative simplification suggestions that did not particularly implicate tax policy or revenues. The MTC had selected it as an easy one to start with, but the MTC received so little outside help or enthusiasm on the effort that the Uniformity Committee did not proceed on others. He noted that there hasn't been much of an effort to get the MTC's uniform standard for reporting federal adjustments enacted. Ms. Wilson stated that TEI's State and Local Tax Committee would review the Model Uniform Statute for Reporting Federal Tax Adjustments and follow up with the MTC.

Other Issues

Finally, Ms. Wilson asked for an update on current MTC projects, and whether there might be some on which TEI could get involved. Mr. Johnson noted that MTC uniformity recommendations go through a public hearing process through which we do receive comments and that these comments have been invariably helpful, greatly strengthening the projects. He explained that the MTC would like to get more such comments and requested that TEI help by "spreading the word" about the hearings to the relevant members and committees.

Mr. Bucks noted that the Commission is developing a broad centralized, one-stop registration system for taxpayers who zare required to register in states. He said the MTC is going to be entering a testing phase for sales and use tax registration, and the next step would be to add alcohol and tobacco taxes, and then withholding taxes. The MTC is looking for volunteers to test an updated version in mid-2005.

Mr. Johnson noted that the Combined Reporting and Affiliate Nexus uniformity proposals are on the agenda for approval and would go to the hearing process next. He said they are also working on a listed transaction statute, an educational database and training program for pass-through entitles, and a joint information sharing database on pass-through ownership and income flow. Finally, he suggested consideration be given to establishing an ongoing liaison between MTC and TEI, which would be in furtherance of the MTC's goals to reduce burdens on taxpayers and improve communications with stakeholders. Ms. Wilson, on behalf of TEI, thanked the MTC for the opportunity to meet and she expressed agreement that TEI and the MTC should maintain a regular, on-going dialogue.
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Title Annotation:Tax Executives Institute, Multistate Tax Commission
Publication:Tax Executive
Date:Jan 1, 2005
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