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Multistate Tax Alert: Multistate Tax Commission Continues to Explore Transfer Pricing



The Multistate Tax Commission (MTC) Arm’s-length Adjustment Service (ALAS) Advisory Group – the group designated to lead the MTC’s project to develop a multistate transfer pricing service – convened in Albuquerque, New Mexico on July 28 for its second in-person meeting. Although the project is still in its development phase, a recurring theme throughout the meetings has been the need for states to secure economic experts to support transfer pricing issues on audit and during litigation. In this Tax Alert we provide background regarding the ALAS project, summarize the July 28 meeting and the project timeline and suggest additional considerations.


Many states have the ability to evaluate and potentially challenge intercompany transfer pricing arrangements through arm’s-length statutes and regulations similar to IRC §482, including the Treasury regulations thereunder. States also may have statutes providing discretionary authority to adjust income, statutes requiring the add-back of certain intercompany payments and statutory or judicial economic nexus principles.

State taxing authorities have had varying levels of success challenging and litigating transfer pricing arrangements. The ALAS project came about in an effort to enable states to pool resources to secure economic expertise to support arm’s-length issues on audit and during litigation. The project may cover both domestic and international transfer pricing issues. Nine jurisdictions are officially participating in the project: Alabama, the District of Columbia, Florida, Georgia, Hawaii, Iowa, Kentucky, New Jersey and North Carolina.1

July 28 meeting

Economic Expertise

Project facilitator Dan Bucks2 has indicated that a top priority of the ALAS project is obtaining joint economic expertise. Whether this should take the form of one or more economic experts employed directly by the MTC, third-party contractors engaged for economic support or some combination of the two is currently under consideration. On October 6 in Atlanta, Georgia the ALAS Advisory Group will meet directly with several firms that have expressed an interest in providing third-party expertise.

Bucks discussed several ways to potentially improve the cost-effectiveness of retaining third-party expertise, including: (1) making sure auditors have obtained the appropriate background information before reaching out to third-party contractors; (2) training state or MTC audit staff to conduct first-level reviews to help identify inconsistencies and technical errors in taxpayer-provided transfer pricing studies; and (3) the MTC’s direct employment of one or more economists.3

Information Sharing

Bucks suggested that the ALAS Advisory Group should consider adopting an information exchange policy for transfer pricing issues based on the model used by the Southeastern Association of Tax Administrators. The goal would be to make information sharing proactive; in other words, when one state taxing authority identifies a transfer pricing consideration during a taxpayer audit, it would notify the other participating taxing authorities and provide relevant information (such as its transfer pricing study), so they could take a coordinated audit approach.

Optional Joint Audit Models

Bucks proposed three possible models for providing joint audit services:

  • Joint audits limited to transfer pricing issues only, separate from the regular MTC Audit Program;
  • Joint audits that cover all corporate tax issues, including transfer pricing issues, separate from the regular MTC Audit Program; and
  • Joint audits that cover all corporate tax issues, including transfer pricing issues, integrated with and conducted through the regular MTC Audit Program.4

While Bucks indicated a preference for the third option, there was no clear consensus as to which option might prevail. These joint audit services are being considered as a component that individual state taxing authorities could opt into or out of, since each state’s interest in such services may vary.

Other Matters

The ALAS Advisory Group discussed several approaches that could be used to train existing auditors to handle transfer pricing issues and to coordinate with potential third-party contractors. The group is considering modeling a joint case resolution process (for disputes between states) on the MTC’s existing Alternative Dispute Resolution process.5 The group also discussed whether advance pricing agreements between taxpayers and state taxing authorities may be implemented.


The project plan proposes that the program will be designed in three phases, described as follows:

  • A draft service design produced by mid-November 2014 for initial review by the MTC Executive Committee in December 2014.
  • A revised service design completed by early April 2015, to be approved by the MTC Executive Director and then submitted for review by the tax administrators of interested states.
  • A final service design accompanied by signed commitments by interested states completed by June 20, 2015, to be considered by the MTC in July 2015. Participating states will be asked to commit to a six-month start-up period and an initial operating period of three or three-and-a-half years. If the service design is adopted in July 2015, the MTC anticipates implementation of the final service design (or a portion thereof) shortly thereafter.

The ALAS Advisory Group anticipates holding several additional meetings to further develop the project as the mid-November 2014 draft design deadline approaches, including the October 6 meeting with third-party contractors.

Additional considerations

Although the full scope and potential implications of the MTC transfer pricing program are unclear at this time, state taxing authorities are likely to continue to conduct transfer pricing audits and may explore various approaches to enhance their transfer pricing audit capabilities. In the interim, taxpayers may wish to consider preparing exam-ready transfer pricing documentation, to the extent it has not been prepared previously and conducting a review of any existing transfer pricing studies to determine whether an update is advisable given any changes to the taxpayer’s business activities.


If you have questions regarding the ALAS project or other MTC matters, please contact either of the following multistate tax specialists.

Valerie Dickerson
Managing Partner, WNT Multistate
Deloitte Tax LLP, Washington, D.C.
+1 202 220 2693
Michael Paxton
Manager, WNT Multistate
Deloitte Tax LLP, Washington, D.C.

+1 202 220 2123

For questions regarding transfer pricing matters, please reach out to any of the following transfer pricing specialists.

Darcy Alamuddin
Deloitte Tax LLP, Chicago
+1 312 486 2049
Kerwin Chung
Deloitte Tax LLP, Washington, D.C.
+1 202 879 3108
Robert Plunkett
Deloitte Tax LLP, Jericho
+1 212 436 5261
Ron Saake
Deloitte Tax LLP, San Francisco
+1 415 783 6589

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As used in this document, “Deloitte” means Deloitte Tax LLP, a subsidiary of Deloitte LLP. Please see for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.

1 For more background information regarding the ALAS Advisory Group and the items discussed during the group’s earlier (June 2, 2014), in-person meeting, see our previously issued Tax Alert.
2 Dan Bucks was formerly the MTC Executive Director and Montana Director of Revenue.
3 See Maximizing Cost-Benefit of Economics Expertise: Item III.A for July 28 Meeting, available at: on Maximizing Cost-Benefit of Economics Expertise 7-21-2014.pdf.
4 See Summary of Issues for Joint Audit Models: Item III.D for July 28 Meeting, available at: on Audit Issues 07-21-2014.pdf.
5 That process is available on the MTC website at: ADR Process Info and Procedures.pdf.

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