Bills to force ‘convincing’ need before using alternative tax methods clear key committees
by Ted Carter
Published: March 7,2014
Mississippi legislators are moving ahead with plans to raise the bar on the state Department of Revenue’s use of alternative tax methods.
Though the two Republican-sponsored bills clear key committee votes Tuesday, whether the measures make it to conference committee is far from certain. And what any final bill that comes out conference would look like is equally uncertain.
Mostly at issue are cost consequences bills, say both supporters and opponents of HB799 and SB2487.
The DOR projects a more than $300 million price tag would accompany a requirement that it present a “clear and convincing” need to justify taxing multistate service providers on income earned in Mississippi rather than the statutorily allowed cost-performance apportionment method.
Scott Waller, executive vice president and COO of the Mississippi Economic Council, is skeptical of the cost projections but conceded they are a concern as the bills moved toward possible conference consideration.
“The last thing we want to do is something that costs a lot of money,” he said.
With that in mind, Waller said business leaders know any final bill that comes out of the conference committee will be substantially changed to address the issues raised by the DOR.
The DOR says it can document and present data to support all of its cost projections. “We’re standing by those numbers,” said DOR spokeswoman Kathy Waterbury after Tuesday’s committee votes.
HB799 cleared the Senate Finance Committee Tuesday as did SB2487 the House Ways and Means Committee. Both moved forward on procedural moves by which each bill replaced the other. The House panel struck the language of HB799 and replaced it with that of SB2487, while the Senate committee struck HB799’s wording and replaced it with SB2487’s language.
Each of the committees had previously approved their own legislative body’s versions of the bill before passing the bills on for floor votes, where both measures passed by wide margins.
Each bill must go back to its respective house for another floor vote and decision by the chairs of the originating committees to send them to conference. The conference is where the hard compromises will have to be achieved, Waller said Tuesday.
“The key is to get them to conference,” he said after the committee votes.
Waller said based on sentiment in the Capitol he expects the bills will get votes by their respective bodies but anything beyond that is limited to “hopeful.”
If a bill does emerge from conference, it will be absent the reverse repealers that have afforded comfort to many lawmakers that compromises, especially on the costs side, are reached before the measures go to the conference committee that is to include the originating chairs and selected other members of each body. The chairs have another week to request conference committee consideration.
The MEC and business groups such as the Mississippi Manufactures Association and Mississippi Poultry Association have pushed for passage of limits on alternative tax apportionment standards since last summer’s Mississippi Supreme Court ruling upholding the state Department of Revenue’s use of a non-statutory market-based apportionment method in assessing taxes for Georgia-based Equifax Financial Reporting Services. The non-standard apportionment method, which the DOR argued more accurately reflected Equifax’s business in the state, sent the credit reporting company’s annual income tax bill from zero to over $700,000.
The business organization and other supporters of the apportionment bills argue that without new limits on DOR discretion, the state’s image as a friendly destination for businesses could suffer.
The bills that cleared their committees Tuesday require that a taxing authority or taxpayer can use the market-based standard only when they can present “clear and convincing evidence” that the standard apportionment method does not fairly represent the taxpayer’s activity.
The bills also ask for a temporary halt to the DOR’s authority to demand to see a multistate company’s combined tax returns, though when the authority is returned it will be limited to instances in which the DOR can show a “clear and convincing need” to review combined returns. The DOR would be prohibited from making such demands until regulations have been enacted specifying the criteria and circumstances required for showing a clearing and convincing need.
That criteria would include a requirement that the convincing evidence supports a conclusion that intercompany transaction have resulted in shifting of taxable income to another member or members of the affiliated group not subject to Mississippi taxes.
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