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Multistate Tax Commission’s state transfer pricing group meets to discuss design for joint transfer pricing service

By Mark Thomas and Kristina Novak

The Multistate Tax Commission (MTC) recently created an advisory group consisting of representatives from several different states to design a joint transfer pricing audit programme for the states. The advisory group, which is billed as an ‘arm’s-length adjustment service’, met on 2 June in St Louis. Present at the meeting was Dan R Bucks, a former MTC executive director who is a consultant on the project and is facilitating the development of a draft design. Also present at the meeting were state tax officials from Alabama, the District of Columbia, Florida, Georgia, Iowa, Kentucky, New Jersey and North Carolina.

In a memorandum drafted by Bucks identifying potential issues to consider in developing a sustainable project design, Bucks noted the importance of ensuring that corporate income attributable to a particular state is actually reported in that state. Because a corporation within a state benefits from state and local government services, if a corporation fails to report income properly allocable to that state, the corporation is essentially shifting the cost of those services to other taxpayers. In addition, he noted that there has been an increase in corporations aggressively shifting income to other states in an effort to avoid taxation. As a result, the burden on state tax agencies to take corrective action has dramatically risen. The problem, however, is the inability of state tax officials to successfully correct all the returns that they deem inaccurate…

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