On March 23, the State Intercompany Transactions Advisory Service (SITAS) Committee of the Multistate Tax Commission (MTC) hosted its first meeting in four years to discuss the Committee's history, purpose and results from its multistate survey on transfer pricing. The Committee met with representatives from state revenue agencies, practitioners, taxpayers, and other members of the public to discuss its future objectives, state training possibilities, the Committee's information-sharing agreement and a review of survey data from Committee members.
State survey results
Eighteen percent of the participating states responded that they currently utilize an advance pricing agreement (APA) process, where taxpayers currently under audit can reach an agreement with the state on a specific transfer pricing methodology to be used over a particular timeframe. Forty-five percent of the members surveyed indicated they do not currently have an APA process but would like to, and 23% did not believe they have statutory authority in their state to engage in APAs.
Ultimately, the survey revealed that most states and local tax authorities are interested in training possibilities, information exchange and collaboration for audits, and improved communication and coordination regarding transfer pricing. The survey responses also indicate that member states do not believe they are working very effectively. Interestingly, the respondents indicated an interest in training regarding identifying intercompany transactions prone to improper income shifting and training regarding other methods of addressing improper income shifting such as economic substance and alternative apportionment.
The renewed efforts of the SITAS Committee reflect the states' renewed emphasis on transfer pricing in recent years. In recent years, some states, including Alabama, Connecticut, DC, Georgia, Indiana, Louisiana, Mississippi, North Carolina and Rhode Island, have emphasized transfer pricing in their corporate income tax audits, with many governments hiring third-party transfer pricing experts in the hopes of generating more revenue.
While much of the recent survey responses align with what we would expect, this is the SITAS Committee's first formal step in years to bring states together and begin a collective approach to transfer pricing enforcement. Looking further ahead, we expect the SITAS Committee to continue leveraging its new staff's experience in transfer pricing enforcement (for example, state programs in Indiana and North Carolina have been successful) to revamp its transfer pricing initiatives. Furthermore, we expect the SITAS Committee to receive the financial backing of member states to move the program forward with renewed interest.
The transfer pricing team at RSM will continue monitoring the activities of the MTC SITAS Committee and other developments in the state and local tax landscape regarding transfer pricing and provide further updates as they occur.