Section 17 & Section 1

--- Current Status ---

Final versionAmendments to the Commission’s Model General Allocation and Apportionment Regulation (approved February 24, 2017)


The Draft Amendments to the Commission’s Model General Allocation and Apportionment Regulations were approved and commended to the Commission for adoption as a uniformity recommendation to the states by the Executive Committee on Oct. 4, 2016 (this triggers a survey of affected Commission states pursuant to Bylaw 7). The Executive Committee approved clarifying amendments necessary to reflect that interest and dividends are not included in the receipts factor (as recommended by the Uniformity Committee), and also approved inclusion of the mediation provision proposed by the ABA, but changing the word “shall” to “may.” 

The final version, with drafters notes (above), was approved at a Special Meeting of the Commission on February 24, 2017.

--- Original Documents ---


Meeting Materials

Agendas from previous meetings, materials, and other project related information:

Please view the links below for more information regarding Section 17 Model Market-Sourcing Regulations and Section 1 Model Definition of “Receipts” Regulations.


Proposed Amendments to Regulations

Public Hearing on Proposed Amendments to Regulations

Wednesday, March 9, 2016

10:30 a.m. Eastern Time 

Hall of the States, Room 231
444 North Capitol Street, N.W.
Washington, DC 20001 

To participate by telephone, dial 1-719-457-1414 access code 258090#.

 
Pursuant to the Multistate Tax Compact Art. VII.(2)(a) and Commission Bylaw 7(c), this is to notify you that the Commission will be holding a public hearing on proposed draft amendments to the Commission’s Model General Allocation and Apportionment Regulations.
 
A copy of those regulations with proposed amendments is available at: 
Hearing Officer: Brian Hamer will preside as hearing officer.  Brian was director of the Illinois Department of Revenue from 2003 to January 2015.  Before that, he was deputy director of the Chicago Department of Revenue and chief assistant corporation counsel at the City’s Department of Law.  The hearing officer can be reached by calling Loretta King at the Multistate Tax Commission, 202-650-0300.
  • Hearing Officer Report on Proposed Draft Amendments to the Commission’s Model Allocation and Apportionment Regulations [129 pgs.]  

Submission of Comments: The Hearing Officer has extended the period for submission of comments by interested state representatives, taxpayers, practitioners and other members of the public until March 16, 2016.  Those comments may be submitted to Ms. Loretta King, by e-mail. 


Section 17 Model Market-Sourcing Regulations

Project Description

This project was approved by the Executive Committee at its meeting on July 31, 2014. The Uniformity Committee subsequently met to discuss the project and consider the scope as well as the make-up of a working group. The working group will draft model regulations to implement changes to the sourcing of sales other than sales of tangible property under Article IV, Section 17 of the Multistate Tax Compact [UDITPA] that were adopted by the Commission in July 2014. The statutory language is as follows:
 
(a) Receipts, other than receipts described in Section 16, are in this State if the taxpayer’s market for the sales is in this state. The taxpayer’s market for sales is in this state:   
(1) in the case of sale, rental, lease or license of real property, if and to the extent the property is located in this state;  
(2) in the case of rental, lease or license of tangible personal property, if and to the extent the property is located in this state;  
(3) in the case of sale of a service, if and to the extent the service is delivered to a location in this state; and  
(4) in the case of intangible property,  
(i) that is rented, leased, or licensed, if and to the extent the property is used in this state, provided that intangible property utilized in marketing a good or service to a consumer is “used in this state” if that good or service is purchased by a consumer who is in this state; and  
(ii) that is sold, if and to the extent the property is used in this state, provided that:   
(A) a contract right, government license, or similar intangible property that authorizes the holder to conduct a business activity in a specific geographic area is “used in this state” if the geographic area includes all or part of this state;  
(B) receipts from intangible property sales that are contingent on the productivity, use, or disposition of the intangible property shall be treated as receipts from the rental, lease or licensing of such intangible property under subsection (a)(4)(i); and  
(C) all other receipts from a sale of intangible property shall be excluded from the numerator and denominator of the receipts factor.  
(b) If the state or states of assignment under subsection (a) cannot be determined, the state or states of assignment shall be reasonably approximated.  
(c) If the taxpayer is not taxable in a state to which a receipt is assigned under subsection (a) or (b), or if the state of assignment cannot be determined under subsection (a) or reasonably approximated under subsection (b), such receipt shall be excluded from the denominator of the receipts factor.  
(d) [The tax administrator may prescribe regulations as necessary or appropriate to carry out the purposes of this section.]
 

Section 17 - Reference Information

Drafting Resources:


Agendas from previous meetings, materials, and other project related information:

 

Section 1 Model Definition of “Receipts” Regulations

t to discuss the project and consider the scope as well s the make-up of a working group.
Project Description

Sec. 1 Model Definition of “Receipts” Regulations

This project was approved by the Executive Committee at its meeting on July 31, 2014. The Uniformity Committee subsequently met to discuss the project and consider the scope as well as the make-up of a working group. The working group will draft model regulations to implement changes to the definition of “receipts” under Article IV, Section 1 (g) of the Multistate Tax Compact [UDITPA] that were adopted by the Commission in July 2014. The statutory language is as follows:  
 
“(g) “Receipts” means all gross receipts of the taxpayer that are not allocated under paragraphs of this article, and that are received from transactions and activity in the regular course of the taxpayer’s trade or business; except that receipts of a taxpayer from hedging transactions and from the maturity, redemption, sale, exchange, loan or other disposition of cash or securities, shall be excluded.”

 

<h2 text-align:="" center;"="" style="text-align: center;"> Section 1 - Reference Information

Drafting Resources:

Issues for Consideration:

 

- Definitions 

- Should there be definitions for terms such as hedging transactions, maturity, redemption,
  sale, exchange, loan, or "other disposition of cash or securities"?

Definitions of "Hedging"January 8, 2015
Definition of Terms v.1December 18, 2014
Definition of Terms v.2December 18, 2014
CA Treasury Function TermsDecember 3, 2014

 

 - Accounts receivable

- Should sales (or other defined dispositions) of accounts receivable be included within the

   definition of “receipts”?

 

 - "Regular Course of Business"

- How should receipts that are received with varying regularity across lines of business be treated?

 

- Is a rule required to clarify how receipts from intangible (or other?) assets not held in the
  regular course of business should be included/excluded from the definition of receipts?  

 

 - Exclusions

- Should there be a definition of receipts that fit only the functional test (and therefore 

  would be excluded from the definition of receipts under the model)?

 

 - Receipts of Brokers

- How should receipts of brokers (or sales of securities in the ordinary course of business)
  be treated in general?
 

 - Should there be a specific rule   for the treatment of such receipts in a combined return
    with other receipts of non-brokers? 

 

- Are additional definitions required for the sale or other disposition of securities by brokers
  in the ordinary course of business? 

 

- Are rules required to address the problem of churning and what should those rules be?
 

 - Nonapportionable Receipts
 

- What should the definition of receipts that are nonapportionable (that meet neither the functional
   or transactional test) be?  Such receipts are excluded from the definition of receipts under the model.

 - Recommendations to Uniformity on other issues (not within the scope of this group),
   such as regulations under Sections 17 or 18.

- Rule for including functional receipts when not doing so would distort (Sec. 18)

- Rule for churning when it comes to treatment of broker receipts (If to be addressed under
  Section 18 rather than Section 1).

Factoring receivables for accrual taxpayers.

Agendas from previous meetings, materials, and other project related information:

  • Agenda, August 20, 2015, August 27, 2015, September 3, 10, 17 & 24, 2015 
  • Redlined draft of Section 1, current as of December 3, 2015 (PDF) - for presentation to Uniformity Committee
  • Fully integrated redlined draft (Section 1 and Section 17), current as of December 3, 2015 (PDF)
  • Redlined draft of Section 1, current as of November 30, 2015 (PDF) - for presentation to Uniformity Committee
  • Working Drafts of Section 1 - current as of October 12, 2015
  • Suggested Hedging Language for UDITPA Section 1
  • Commodities Future Trading Commission - "hedging" definitions
  • Definitions and Synonyms for consideration
  • Draft highlighting terms "trade or business," "unitary business," "business"
  • Draft highlighting the references to Sec. 1(g) and to other provisions within Sec. 17 involving the exclusion of receipts from the receipts factor
  • Proposed edits to working drafts dated May 21, 2015, to ensure language is consistent with cases cited iMemo dated May 3, 2012
  • Working Drafts of Section 1 - current as of October 6, 2015
PDF: Clean and Redlined
Word: Clean and Redlined