Unlocking Collaboration and Trust in the Tax Law Community with Nancy Prosser Part 2

Hosts & Guests

Meredith Smith, State and Local Tax Senior Manager

Tram Le,  State and Local Tax Senior Manager

Nancy Prosser, General Counsel at the Multistate Tax Commission

What You Will Discover:

In this episode of the SALTovation podcast, we continue our conversation with Nancy Prosser, General Counsel at the Multistate Tax Commission, on the purpose and work of the MTC in promoting uniformity and assisting taxpayers with compliance in state and local tax matters. She explains how the MTC develops model statutes and regulations, and the challenges they face in getting states to adopt them. Nancy also shares insights into the selection process for uniformity projects and highlights the current projects focused on the taxation of digital products and partnerships. 

Listen this week as Nancy addresses the complexities of adopting and adapting MTC recommendations and the role of stakeholder input in the process.

Topics Discussed in this Episode:

  • The MTC’s purpose is to facilitate the appropriate determination of tax liability, promote uniform tax systems, assist taxpayer compliance, and avoid duplicate taxation.
  • States are sovereign entities and thus decide independently whether to adopt MTC’s model statutes and recommendations.
  • Uniformity projects at the MTC can be initiated by both member states and public stakeholders, showcasing a collaborative effort toward state tax policy refinement.
  • The MTC actively studies tax policy and aims to offer resources and models to better handle emerging and complex tax issues, like the taxation of digital products and partnerships.

    Quotables:

        • “It is an ongoing effort. I don’t know that there’s ever going to be a perfect way for the MTC to spread the word, but we appreciate opportunities again like this podcast and the technology that we have today to reach out and talk to people and do the best we can to explain who we are and what we do. We are hoping to develop good models that show people how to do it well and do it right.” -Nancy Prosser [10:03]
        • “The essence to me of those projects are studying these areas to see, okay, what’s going on in the economy on this front, what are the states doing or not doing and how, you know, collectively with, again, that stakeholder input, can we perhaps make recommendations that will help everybody do it more easily.” -Nancy Prosser [19:05]

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      Transcript

      [00:00:00] Meredith Smith: Welcome to SALTovation. The SALTovation Show is a podcast series featuring the leading voices in salt, where we talk about the issues and strategies to help you make sense of state and local tax. Transitioning to the MTC, you know, we've had a couple, um, MTC colleagues, Helen Hecht, as you had previously mentioned, and Brian Hamer have been, have been lucky.

      [00:00:25] We've been lucky enough to have them. on the podcast and talk with them. But as a reminder, maybe for any of our new listeners who haven't checked out our catalog, um, shameless plug, but what is the purpose of the MTC? And, you know, why should states kind of consider following their recommendations?

      [00:00:45] Nancy Prosser: So I'm going to just be a real nerd here, and I'm just going to read from the multistate tax compact.

      [00:00:50] So again, for those who may not be familiar with the work of the MTC, we are a governmental interstate governmental agency. And the reason we are is because. Of the multi state tax compact, which currently 16 states have adopted into their state laws. Another 10 or so don't have the compact as part of their laws, but they have they basically follow the compact.

      [00:01:19] So they're. There are four purposes to the, the compact and, and which creates then the multi-state tax co commission to, you know, administer the work through of the compact. And that is to facilitate proper determination of state and local tax liability of multi-state tax payers, including the equitable apportionment of tax basis and settlement of apportionment disputes.

      [00:01:43] Secondly, promote uniformity or compatibility in significant components of tax systems. Third, to facilitate taxpayer convenience and compliance in the filing of tax returns and in other phases of tax administration. And fourth, to avoid duplicate taxation. So, in addition, I always like to reference our mission statement, which is.

      [00:02:07] So that's to me another slightly different way to talk about the work of the commission. And that's threefold. The first thing the mission statement says is to promote uniformity. So there's that focus on uniformity again. Second, to assist taxpayers with compliance. And then third, is to advocate for state and local sovereignty over tax policy and tax systems.

      [00:02:29] So, so that's, that's why we exist. Um, one of the other things about the, the compact, um, our members are officially the heads of the departments of revenue across the country. And the compact also mandates that we focus our work on tax types that are, you know, Multi state income and franchise and sales and use tax.

      [00:02:53] So obviously states have lots of different taxes and fees that they impose and administer. But for the MTC purposes, our lane, if you will, is is this multi state business type income, franchise, sales and use tax. So with our, our. Are the focus on uniformity 1 of the things we're known for in our now over 50 year history is development of models, statutes, regulations and other guidance.

      [00:03:24] And because we're government, we, we do it in a very transparent process. We have a very robust public participation policy. So, similar to what you would find in terms of development of state legislation or regulations. Uh, every step along the way, we, we work through, uh, a meetings through the, the uniformity committee, uh, who has, which has meetings in person, but then we've got right now separate work groups, uh, that are established to work on the uniformity projects that we have going.

      [00:03:56] And I know we'll talk a little bit more probably about those. Um, but there's, there's always a notice to the public of our meetings and an opportunity to give public comment again that that desire for stakeholder in this input from whoever and, uh, as our, our model move through the process, they're subject to a public hearing and then ultimately, uh, if they are adopted by the full commission through a vote.

      [00:04:27] Then, they're not mandates to the states, but they're recommendations to the states. And that makes sense, circling back to our mission statement, whereas we're promoting uniformity, but at the same time, we recognize each state is a state. its own, you know, sovereign and makes its own decisions about what it's going to do in terms of its individual, you know, uh, tax policy and, and tax laws.

      [00:04:58] So I know it's an interesting at time, you know, times people think those two things are maybe somewhat in conflict, or they make it challenging that on one hand, we're promoting uniformity. We want states to adopt as much uniformity as they can. That obviously is beneficial to taxpayers, But at the same time, uh, we have to respect that states will make the decisions that are in their best interest.

      [00:05:21] So, um, so does that answer your question about the, the commission and our work? It does.

      [00:05:28] Meredith Smith: Do you think there's ever confusion associated with, right, the idea that the MTC provides model statutes, but it's up to the states? I know. From an MTC perspective, Public Law 86 272 has gotten a lot of publicity, um, and kind of the modernization.

      [00:05:49] And we're not going to dive specifically into that because we talked about it, you know, with Brian and Helen. But we're finding that there's a lot of confusion that, you know, the MTC put this out, but it's up to the states to adopt it. I think New Jersey will You know, California ACMA is a whole other conversation, which we've had.

      [00:06:08] New Jersey has formally adopted that. Do you think there's confusion out there? The states actually have to specifically adopt this into statute? And, you know, how does the MTC go about kind of that, like, gentle reminder of, you know, yes, uniformity and what you all do is on the website and what that, but how do you like really get that out there?

      [00:06:32] Nancy Prosser: Well,

      [00:06:32] Meredith Smith: yeah,

      [00:06:35] Nancy Prosser: and so you're asking, how do we do that as far as with the states to encourage them? Well, again, as from a staff perspective. Right. You know, we, we don't lobby, you know, uh, and, and so, uh, I don't know if there's anything that, that we can do, you know, specifically to, to say, hey, you should do this other than, you know, to say when the issue comes up, you know, remember, you know, the MTC and we will do that from time to time say, remember the, the, the MTC has a model for this, you know, another one of the, you know, Topics that's floating out there through the legislature right now concerns mobile workers and remote workers.

      [00:07:20] And so, you know, from a number of years ago, over a decade. Now, the MTC developed a model with respect to mobile workforce. So, um, those are out there and, you know, all we can do is just. Um, and that's one of the challenges, too, is that even when the MTC has developed these models, you know, we don't track who adopts them and who doesn't.

      [00:07:50] Or in what pieces or parts, because that happens as well, you know, since they're a model, you know, you might look at a piece of of of state law and and you can see bits and pieces or or they've taken the essence of what's been adopted, uh, or excuse me, or, you know, adopted as a recommendation to the state.

      [00:08:08] And, uh, taking pieces and parts of it, um, you also don't know when a legislature might decide to take up these issues. Again, using the mobile workforce, uh, model as an example, that was sitting out there for a long time. I think it was North Dakota was the only state that had adopted any part of it, but now more recently we've seen like Utah used it as part of their law when they, you know, decided to, to do something on this front.

      [00:08:37] So, so that's. The other challenge that I see and just the reality of the, of the work, the world we work in is that you just don't know when a state might want to take a look at something like this. And that's kind of the beauty of the MTC that we can say, look, we have something you can look at. look at as a starting point that can help you.

      [00:08:58] But, but I agree. It's, it's a challenge to, to help people stay informed and aware that, that we have all these models. And I think part of that is just, you've got turnover in the departments of revenue, uh, that, you know, they're just trying to do the best they can with their own state laws and, and trying to keep up With your own state, what's going on there, you know, as opposed to how do you keep up with what the MTC might be doing?

      [00:09:27] So, and, you know, and then and then, but I think part of it too, is we, we are trying, I think, and a lot of ways these days, uh, to make sure that we are staying connected as staff and as an organization with other organizations that work on these issues. For example, we make sure we go to the streamline meetings and we're presence there and like with our.

      [00:09:49] Current uniformity project relating to digital, the taxation of digital products. You know, we've got staff from the streamlined states who are ex officio members of our work group and they, you know, and we're monitoring what's going on and streamline more closely. And CSL national conference of state legislatures has a salt.

      [00:10:07] Task force and so we make sure that that we have a presence there so that we can hear what's going on and share what we can to help legislators to understand the work of the commission. So it's a, it's an ongoing effort. Um, I don't know that there's ever going to be a perfect way that that we can spread the word, um, but certainly appreciate opportunities again like this with podcasts and the technology that we have today to, to reach out and, and talk to people and, um, and do the best we can to explain, you know, who we are, what we do, because again, I, I get it.

      [00:10:43] It's, it's, we're, we're kind of a different group than, than just a regular trade association or, uh, some of the other groups.

      [00:10:52] Meredith Smith: As you've talked about the MTC and you know what it gets involved in so it it does engage in various uniformity projects and how are those projects selected and I'm sure a lot of it has to do with like what the members want to understand and and all of that.

      [00:11:08] Um, but could you give us a little. Insight into kind of those uniformity projects and how they come to be, you know, the evolution of, you know, new public law 86272.

      [00:11:23] Nancy Prosser: Sure. Be happy to. So, and this is 1 of those things again, and I, I've said this regularly, I think when. You know, Helen had moved into this new role of uniformity council.

      [00:11:36] It's really been a game changer because prior to that in 2020, the uniformity committees work, they would meet 3 times a year. Uh, again, I remember going to those meetings. Meetings as a representative from Texas and and that would be the, the, the nature of the meetings were to actually work on actual models and such.

      [00:11:58] And so 1 of the, 1 of the criticisms of the MTC at that time was things move so slowly. But, but with Helen moving to this role and having somebody on the legal team who, you know, was really focused on this, um, we, we've been able to improve, I think, the process and, and how things work, but, but as far as how the, the, the projects are selected, where they come from, yes, it's, you know, we are a member driven organization and, and I always want to say, because Mattson in my head saying, you know, staff are not the MTC.

      [00:12:32] We are not the MTC. Again, it's the, the departments of revenue heads and their staff who, who move, you know, are the, the, the people who make the decisions and determine what happens. So so 1 place where these ideas for the proposals for a uniformity project are. Yes, from the members that come forward and say.

      [00:12:52] Where we're dealing with this issue, this might be something appropriate for the MTC. Um, and, and one of the things that Helen set up was this, um, initial standing subcommittee of the uniformity committee to initially, if somebody has an idea for a project to. Have a group that looks at that to say, you know, is this an appropriate project just generally for the MTC?

      [00:13:15] Um, if so, you know, what might be the scope of it? That's appropriate. Um, do we have enough staff, you know, because yeah, we, we attorneys at the MTC staff, these projects, you know, do we have enough resources that we can reasonably take on this project? But it, you know, really, is this reasonable? And does this make sense?

      [00:13:33] So, So it's member driven, but, but I also want to make sure it's clear that it can also come from the public because we've definitely had, uh, projects that got started or were supported when, uh, taxpayers or practitioners came forward and two that come to mind. There were, um, you know, most recently we had 1 practitioner come forward and say, uh, I've got clients who really could benefit from a.

      [00:14:01] A universal power of attorney form. And rather than having to, you know, work with every state's power of attorney form, they've got, they've got, you know, they've got clients everywhere and can we possibly do this? And so that, that was pitched to the uniformity committee. They agreed. And, you know, in a fairly short amount of time, we're able to, to, to work on that and put something together.

      [00:14:23] And, and that was a, a, a practitioner, um, you know, coming forward. And another one,

      [00:14:28] Meredith Smith: I think for what Colorado. Did adopt that uniform P. O. A. We don't do much when it comes to uniformity. It takes us a while to figure it out. But Colorado, I do believe was one of those adopters. So, yeah,

      [00:14:42] Nancy Prosser: so, but but another another 1, I would point to that's been very successful is.

      [00:14:48] When, uh, the, the, the federal government, when the, when the law passed to put in place the, the new partnership taxation and auditing regime and, uh, the ABA tax, you know, committee and the AICPA came forward to the MTC and said. Yeah, this is going to trickle through when they put in place this new auditing regime and, you know, when there are adjustments, then those are going to flow through to states that conform.

      [00:15:18] And so we, we, we should have something that, you know, is a model that people can that the states can look at and adopt. And and so that's been a very successful. Um, project, which, you know, states are still looking at, but, you know, quite a few states have picked that up and run with it. So, so it's like I said, the ideas can come from members, but also from outside the organization when people come forward and say, because, you know, again, that's 1 of the unique things about the, you know, we are the 1 organization that has the resources and has the infrastructure and a process.

      [00:15:53] To develop these kinds of of projects, but it's primarily member driven and then if the standing subcommittee makes a recommendation, and then the full uniformity committee will will vote. And so the process we've been following at this point is. You know, once there's a approval from the uniformity committee, then they've established work groups to really focus on the individual projects.

      [00:16:19] So, you know, right now, we've got 3 really meaty, uh, uniformity projects that are multi year that will continue for a while if not quite frankly, more than a year. Maybe forever I kind of joke about that, but not necessarily in that on the sales and use tax side. I've mentioned the taxation of digital products, which is a great opportunity to study that developing area of law that as we see through this.

      [00:16:48] Current legislative session in the states, you know, more states are trying to look at that and are saying and realizing that if they've got, if they want to expand their sales tax base for whatever reason, digital is a place to look. And I'm not, you know, in our place, the MTC, you know, we, we don't advocate for.

      [00:17:07] Taxing 1 thing or another as, you know, we are the how people if you want to do it, just we are hoping to develop good models that that show you how to do it. Well, and do it right. But that's been a great project that started in 2021. Um, and then on the, the income tax side, we have taxation of partnerships, which is just a huge project.

      [00:17:30] Um, 1, that's kind of the 1 where I feel like, maybe just be forever that. Uh, you know, that that's just not going to go away anytime soon again, this 1 very complex area of of law where part of what we, for example, have found a staff is that in a lot of the departments of revenue. The, the. The tax staff there just don't have a strong grounding in partnership law, and it's very complex anyway at the federal level, let alone trying to figure out sourcing and apportionment issues, um, at the, at the, at the state level.

      [00:18:06] And so that's one of those really, uh, important projects where looking at different facets of taxation of partnership, also providing the states with training so that their staff can hopefully, uh. Learn more and have a stronger foundation to handle the issues that come before them. And then the third project we're working on also on the income tax side is, uh, looking back at some of our models in terms of, of, of, uh, sourcing or apportionment and services, uh, that, you know, We haven't looked at for a while, even when you're in the Department of Revenue, of course, every once in a while, you need to look back at your old rules and keep those as fresh as you can.

      [00:18:47] So, so this is a project. We thought we had sufficient staff and time, uh, and was a desire of the, of the uniformity committee to look back at some of our, um, model statutes on sourcing of services and, uh, make sure they're as up to date as they can be.

      [00:19:05] Meredith Smith: Well, yeah, and I'm sure, you know, the taxation of partnerships kind of.

      [00:19:10] Uniformity project got a nice little wrench with the pass through entity tax salt parody work around all of that. That is from a practitioner perspective, really difficult. And then also something that we could put a lot of effort into that could potentially go away due to the sunset of the cap. So it's.

      [00:19:30] Right. It's salt state and local tax is a very dynamic field right where, like you said, we thought we had a pretty good feel up on something. Things change. Who knew that, you know, Some tech genius was going to come out with this new product and have to figure out what to do with it. So there is one thing about state and local taxes.

      [00:19:51] It is not a static industry. It's not a static profession as we are constantly evolving and figuring out how to, how to Kind of, unfortunately, kind of catch up once things are done.

      [00:20:05] Nancy Prosser: Well, that was another one of those things that I, I took away from my experience of the, going back to the Texas Comptroller's Office is that working for a Department of Revenue is really a window on the economy in which you operate, uh, because taxes, you know, impact all facets of the economy.

      [00:20:23] And so, uh, when, when legislatures make. choices about how they're going to structure tax policy. Um, sometimes it's to try and benefit the, you know, growth of a certain industry in that economy, maybe to, to, to try and curtail certain aspects of the economy by imposing taxes. But, uh, as you said, it's just ever changing.

      [00:20:46] And the states, as we well know, are always a little behind the curve. Uh, but that's another thing that. That I'm mindful of now with my work at the MTC, uh, and going back to the compact language, one of the, one of the powers, uh, that is specifically identified in the compact is the, the ability to study taxes and tax policy systems.

      [00:21:11] And I think more and more, that's a lot about what these like. You know, the, the, the taxation of digital products and the taxation of partnerships in particular, if you really think about it, the essence to me of those projects are studying these areas to see, okay, what's going on in the economy and on this front, what are the states doing or not doing and how, you know, collectively with, again, that stakeholder input, can we perhaps make recommendations that will help the economy?

      [00:21:44] Everybody do it more easily, whether it's administering taxes or complying with them. And so, um, that that aspect of studying, you know, taxes and tax policy to me is a real, real harm hallmark of what we're doing these days. And in terms of our work at the commission.

      [00:22:04] Meredith Smith: Well, Nancy, I think that's a perfect place to wrap and we really appreciate the work that you're doing at the MTC.

      [00:22:11] I'm sure Tram as a constituent of the state of Texas appreciates what you did in your time with the Texas AG and at the comptroller's office and just really appreciate your time and the work that you're doing and thank you so much for being with us here today.

      [00:22:26] Nancy Prosser: Oh, thank you. I've really enjoyed the conversation.

      [00:22:29] Meredith Smith: And this has been SALTovation, till next time. This podcast is for educational purposes only and is not intended nor should it be relied upon as legal, tax, accounting, or investment advice. You should consult with a competent professional to discuss specifics of your situation and the applicability of the information presented.