market-based sourcing to be analyzed by MTC special subcommittee

The Multistate Tax Commission (MTC) has formed a Special Subcommittee to review market-based sourcing regulations in the context of separate-entity filing and related party transactions. The first meeting will be held Friday, August 28, 2015 at 3:30 pm EST via teleconference. The meetings will be held every Friday at 3:30 pm until further notice.

According to media reports, the special subcommittee was formed to examine concerns about the possible impact on taxpayers filing separate-entity income tax returns. The MTC is concerned that taxpayers may manipulate market-based sourcing methodology through the use of related party transactions, distorting the result. 

The taxpayer and tax professional community must accept that market-based sourcing is here to stay and will eventually be adopted by all states. Therefore, we must be proactive in how the rules are crafted and implemented. The majority of the economy in the U.S. is derived of service providing companies, or companies that provide services along with selling tangible goods. Technology allows companies to provide several types of services across the U.S. without physically delivering the service into each state (i.e., services are performed in one state, while customers are in multiple states). Consequently, market-based sourcing in-conjunction with "factor-presence" nexus or "economic" nexus (a subject for another day) will create greater tax liability and/or compliance burdens for companies.

Be prepared. Be involved.

For more information, check out my previous posts on market-based sourcing.