The Multistate Tax Commission is an intergovernmental agency, made up of state tax administrators, that helps states coordinate how they tax businesses operating across state lines. More than 40 states participate at some level. For a company with activity in multiple states, the commission matters in four practical ways: it sets the terms of the Multistate Tax Compact on how business income is divided among states, it issues guidance on when a state can tax you, it runs a voluntary disclosure program for cleaning up past filing gaps, and it conducts joint audits on behalf of participating states.1Multistate Tax Commission. MTC History
What the Commission Does
The commission’s work sits in four buckets. It administers the Multistate Tax Compact, which contains the rules its member states use to apportion a multistate business’s income. It develops model regulations through its Uniformity Committee so states aren’t each writing conflicting rules on the same issue. It runs the National Nexus Program, which includes both published guidance and the multistate voluntary disclosure process. And it runs the Joint Audit Program, in which a single MTC-led audit team examines a company on behalf of several states at once.
Adoption of any MTC product is voluntary. A model regulation may be in force in some states and absent in others, and an audit finding is a recommendation to each participating state, which then applies its own tax law and issues its own assessment.2Multistate Tax Commission. Audit Program
How States Participate
States join at one of three levels, and the level affects how much weight the state carries in commission decisions but not, from a business’s perspective, whether the state can use MTC programs.
- Compact members (16 states) have enacted the Multistate Tax Compact into their own law, govern the commission, and hold full voting rights.3Multistate Tax Commission. Member States
- Sovereignty members (10 states) haven’t adopted the Compact but pay full dues and vote on committees, though they can’t hold elected seats on the Executive Committee.4Multistate Tax Commission. Bylaws
- Associate members (25 states) participate in meetings and can opt into specific programs like the National Nexus Program or the Joint Audit Program without the full financial commitment of the higher tiers.3Multistate Tax Commission. Member States
The Compact and How Income Gets Apportioned
Article IV of the Multistate Tax Compact contains the rules for dividing a company’s income among the states where it operates. It draws a threshold distinction between business income, which comes from a company’s regular trade or business (including income from property whose acquisition and management is part of that business), and non-business income, which is everything else. Business income is spread across the states where the company operates. Non-business income is typically assigned to a single state.5Multistate Tax Commission. Multistate Tax Compact
For the spreading, Article IV incorporates the Uniform Division of Income for Tax Purposes Act (UDITPA). The original UDITPA formula compares each of three factors, property, payroll, and sales, in a state to the total everywhere, then averages the three at equal one-third weights.5Multistate Tax Commission. Multistate Tax Compact
Most states no longer use equal weighting. The MTC’s 2014–2015 recommended amendments call for double-weighting sales, and many states have gone further to a single sales factor that ignores property and payroll entirely. Compact membership does not lock a state into the original formula; the state is free to use a different weighting in its own tax code, and most do. A business apportioning income should look to each state’s statute rather than assume the Compact’s original three-factor average applies.
When a State Can Tax You: Nexus Guidance
Nexus is the legal connection between a business and a state that lets the state tax it. Two rules drive most of the current questions, and the MTC has weighed in on both.
Economic Nexus After Wayfair
For decades, a state couldn’t require a company to collect sales tax without physical presence in the state. The Supreme Court overturned that rule in 2018 in South Dakota v. Wayfair, Inc., holding that enough economic activity is itself a sufficient connection.6Supreme Court of the United States. South Dakota v. Wayfair, Inc. South Dakota’s law used a threshold of $100,000 in sales or 200 transactions annually. Most states adopted similar thresholds, and several have since dropped the transaction count and kept only the dollar figure. There is no single national threshold, and states continue to adjust theirs.
P.L. 86-272 and Internet Activities
Public Law 86-272 shields a business from state income tax when its only in-state activity is soliciting orders for tangible goods, with orders approved and filled from outside the state.7Office of the Law Revision Counsel. 15 U.S. Code 381 – Imposition of Net Income Tax The MTC’s guidance says several common website features go beyond “mere solicitation” and forfeit that protection.
According to the MTC, the following activities cost you the P.L. 86-272 shield: providing post-sale help through live chat or email, accepting applications for a branded credit card on the site, placing cookies that gather data used to adjust production or develop new products, remotely updating or fixing products by sending code over the internet, selling extended warranties online, streaming digital content for a fee, and contracting with a marketplace facilitator that keeps your inventory at in-state fulfillment centers.8Multistate Tax Commission. Statement of Information Concerning Practices of Multistate Tax Commission States Under Public Law 86-272
Activities the MTC says don’t cross the line include a static FAQ page, cookies used only to remember shopping cart items or saved login information, and a standard e-commerce site selling only tangible goods with no additional services. Note that P.L. 86-272 covers income tax only and applies only to sales of tangible personal property; it never shielded services, and it does not shield sales tax collection duties after Wayfair.8Multistate Tax Commission. Statement of Information Concerning Practices of Multistate Tax Commission States Under Public Law 86-272
The Multistate Voluntary Disclosure Program
A business that finds it should have been filing returns in states where it has nexus can use the Multistate Voluntary Disclosure Program to resolve the past liability on standardized terms. Participating states generally waive penalties in exchange for the company filing returns and paying back taxes and interest for a limited lookback period.
Who Can Use It
The program is closed for a given tax in a given state if the state has already contacted you about that tax type. Contact includes filing a return, paying tax, or receiving any inquiry from the state on that tax. Disqualification is tax-by-tax and state-by-state, so you may still qualify elsewhere or for other taxes.9Multistate Tax Commission. Multistate Voluntary Disclosure Program
Anonymity
You can stay anonymous while the application is processed. Many businesses apply through an attorney or tax advisor who handles all communication without identifying the company. The MTC is prohibited from disclosing a taxpayer’s identity to any state until a voluntary disclosure contract takes effect, and participating states agree not to compel the MTC to reveal the identity outside the established process.10Multistate Tax Commission. Procedures of Multistate Voluntary Disclosure
Lookback Periods
Each state sets its own lookback. For income and franchise taxes, the range is typically three to five years. For sales and use taxes, the lookback is usually 36 to 48 months, and some states require up to 60. The lookback also picks up the current incomplete tax period, for which a return must be timely filed once the agreement is in place.11Multistate Tax Commission. Lookback Periods for States Participating in National Nexus Program
Applying
Applications go through the commission’s online portal.12Multistate Tax Commission. Multistate Voluntary Disclosure Application Before starting, gather the tax types involved, the date your taxable presence began in each state, estimated tax liabilities for the applicable lookback periods, and gross receipts and taxable sales broken down by jurisdiction. The application lists every state where you’re seeking a penalty waiver and identifies a representative who can answer detailed questions on the numbers.
The Joint Audit Program
The Joint Audit Program lets several states run a single coordinated audit of a multistate business instead of each state examining the company separately. Audits cover corporate income, sales and use, franchise, and gross receipts taxes.2Multistate Tax Commission. Audit Program
How Businesses End Up in the Program
Selection runs on an annual cycle. In July, the audit director sends nomination forms to participating states. States return candidates by September, the director circulates a combined summary by November, and states vote on the final audit inventory in March. The Nexus Committee can also refer businesses. And a taxpayer can request a joint audit through the Audit Committee if it would rather deal with one coordinated exam than multiple state inquiries.2Multistate Tax Commission. Audit Program
How the Audit Runs
Once multiple states sign on, an MTC auditor manages the fieldwork and serves as the single point of contact, requesting documents and clarifying entries. The auditor stays in regular contact with the company or its representative to discuss preliminary findings and explain the basis for any proposed adjustments.
Statute of Limitations
MTC auditors are instructed to begin fieldwork at least a year before the earliest state statute of limitations expires and to request a waiver from the taxpayer whenever any state’s limitations period is set to expire within nine months. If a taxpayer declines to sign, the MTC may complete the audit on available information, and a participating state may issue a subpoena to compel document production.13Multistate Tax Commission. Income and Franchise Tax Audit Manual
Pushing Back on Findings
You don’t have to wait for state assessments to challenge proposed adjustments. During the audit, a taxpayer can request a meeting with the MTC audit supervisor, audit director, or audit committee. That window matters, because once the auditor’s final report goes to the participating states, each state issues its own assessment under its own law and you’re into that state’s administrative appeals process rather than the MTC’s.2Multistate Tax Commission. Audit Program