Background
The Multistate Tax Commission, a multistate agency made up of state taxing authorities whose aim is to encourage uniform state tax laws, has adopted after several months’ consideration a “uniformity recommendation” — i.e., a model statute — that requires partnerships to withhold income tax at the state’s highest tax rate on each nonresident partner’s share of the income distributed to the taxpayer — i.e., on partnership distributions. Partnerships could file a composite return on behalf of electing nonresident members whose only source of income in the state is from the partnership (or other entity); however, withholding must be done for partners who do not make the election. This language is only a “uniformity recommendation” which states can choose to adopt or not, and will not become law unless adopted by one or more state legislatures.
The MLPA worked for several months to obtain an exclusion from the MTC proposal for publicly traded partnerships. On October 16, 2003, the Executive Committee of the MTC voted unanimously to add such an exclusion to the proposal. The exclusion includes a requirement that MLPs provide states each year with a list of unitholders with over $500 of income in the state. The Executive Committee’s action was the result of an analysis performed for the MLPA by PricewaterhouseCoopers which showed that only a very small number of unitholders have MLP income over the proposal’s $1,000 threshold. The decision was also influenced by the Association’s arguments regarding the difficulty of compliance and the enormous burden that would be placed not only on MLPs but on state tax administrators. The proposal was formally adopted by the full MTC on December 18, 2003. In the years since, it has been adopted by a number of states.
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