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On November 16th and 17th, 2020, the Multistate Tax Commission’s (“MTC”) Nexus and Audit Committees met to consider several topics. The biggest developments from these meetings are that: (1) the Nexus Committee shared their proposed, revised draft of its Uniform Sales and Use Tax Exemption/Resale Certificate – Multijurisdiction, which reflects the Wayfair decision and recent economic nexus laws; and (2) the Audit Committee approved revisions to their income tax audit manual.
During this meeting, the Nexus Committee discussed: (1) updates regarding Wayfair implementation, marketplace facilitator laws, and nexus law developments since its July 28, 2020 meeting; (2) tracking of voluntary disclosure case status and tax payments; and, most importantly, (3) updates to the Uniform Sales and Use Tax Resale Certificate – Multijurisdiction Form to reflect the Wayfair decision and the states’ subsequent economic nexus laws.
The primary role of the Nexus Committee is the oversight of the National Nexus Program, which provides a forum for 38 participating states to exchange information and manage a multistate voluntary disclosure program. The Committee heard a presentation from the Director, noting that taxpayer participation in the voluntary disclosure program has soared after Wayfair. The MTC received 208 voluntary disclosure applications in 2019 and expect to receive more than 300 by the end of 2020, which represents close to a 50% increase.
The Nexus Committee also discussed updates to the MTC’s Uniform Sales & Use Tax Exemption/Resale Certificate – Multijurisdiction form, which it has made available to taxpayers for decades. It is a simple form that a seller registered in one state may use to claim the resale or ingredient/component part exemption when purchasing inventory tax-free from a supplier located in another state. The seller would not be required to register in the other state if it did not have nexus. A seller registered in multiple states can use this form to claim the exemption on a multistate basis. 37 states allow sellers to use this uniform certificate, albeit often with additional requirements.
The MTC is now updating the form to reflect the Wayfair decision and states’ new sales and use tax economic nexus laws. The proposed draft of the revised form can be found here. The MTC is requesting responses and revisions from the participating states by November 30th, 2020. Any states that request to be removed or do not respond will be removed from the revised form.
The Audit Committee met to approve edits to its income tax audit manual and multistate statute of limitations waiver extension. The Audit Committee oversees the MTC’s joint audits where MTC staff audit taxpayers on behalf of multiple states. The program currently has 19 income tax audits and 29 sales tax audits in progress.
The MTC’s income tax audit manual is a 133-page document that details every aspect of an MTC audit—from the pre-audit stage through the transmittal of a completed audit report to the participating states. It also provides a high-level discussion of state income tax concepts. It is not intended, however, to be a restatement of the laws of every state. The audit manual was last updated in 2013. Some of the approved changes relate to process, such as what happens when a taxpayer refuses to sign a waiver. Other changes were made to sections of the manual that discuss concepts, like clarifying how Joyce applies when conducting a nexus investigation and the addition of throw-out. A complete copy of the approved manual can be found here.