The speakers did an excellent job covering the issues from a theoretical and practical standpoint. They presented both sides of the arguments amicably, sometimes agreeing and other times agreeing to disagree.
The rewrite project attempts to address five key areas:
- apportionment formula factor weighting (Compact Art. IV.9);
- equitable apportionment (Compact Art. IV.18);
- definitions of business and nonbusiness income (Compact Art. IV.1(a));
- market-based sourcing (Compact Art. IV.17); and
- the receipts factor (Compact Art. IV.1(g)).
The panelists noted that the rewrite and proposed amendment process is designed to result not in a perfect solution (which doesn’t exist), but in the best rules.
So why change the rules? According to the panel, because UDITPA is 56 years old and has become outdated. States have been moving away from it by playing follow-the-leader; one state changes its rules, and other states observe the revenue effects and make the same change. One example is the move away from an equally weighted, three-factor apportionment formula to a double-weighted sales and then to a single-sales-factor formula. Other examples include the trend toward market-based sourcing for sales of services and some states’ repeal of the Multistate Tax Compact as a result of Gillette. Historically, states have enacted statutes and regulations that negate or customize their application of the compact. Only a few states ‘‘unconditionally follow the Act’s apportionment formula.’’UDITPA needs to be changed to catch up with what states are already doing, and possibly even to lead them.
To read more, check out my article in Tax Analysts State Tax Notes on November 11, 2013. (the link to the article is in the background section of my LinkedIn profile)