On 24 January 2022, Tax Notes State published SALT Transfer Pricing — What You Need to Know: Part 1. I realize many readers of this blog have an insatiable hunger for all things transfer pricing (with SALT or without). To whet your appetite, here are six salaciously SALTy transfer pricing facts you’ll be longing to read more about in my full coauthored article… Enjoy!

ONE – U.S. states have been apportioning corporate income since before anyone reading this can personally remember (1911).

TWO – Separate (corporate income) tax reporting relies on the arm’s-length standard and many separate reporting states have statutes that either adopt IRC § 482 or contain language that is substantially the same.

THREE – In addition to the more commonly known cluster of 17 states (mostly in the Southeast) that require or permit separate reporting, Oregon also requires separate reporting for corporations that filed a separate federal return.

FOUR – While it is no surprise that transfer pricing is important to taxpayers in separate reporting states, taxpayers in combined reporting states should also be concerned with transfer pricing on transactions between a unitary group and excluded affiliates (for instance, intercompany transactions with foreign affiliates or transactions between two or more unitary groups that have a common owner).

FIVE – “Water’s-edge” combined reporting excludes the income and apportionment factors of unitary group affiliates that are incorporated in a foreign country. In the authors’ effort to stem awkward CPE-training questions, we confirm here that “water’s edge” does indeed exclude such affiliates incorporated in Mexico and Canada…

SIX – States are interested in greater corporate taxpayer information sharing among state departments of revenue and training to identify potentially abusive transfer pricing.^[1]

UPDATE Blog Readers: Part 1 now available ⬇️

---

^[1] Seventy-one percent of state department of revenue representatives who responded to a 2021 Multistate Tax Commission (MTC) State Intercompany Transactions Advisory Service Committee (SITAS) survey were interested in SITAS facilitation of information exchange and audit collaboration between states and indicated it would be extremely valuable to exchange information with members of other states. Ninety-two percent were interested in training to “identify intercompany transactions prone to improper income shifting.”

---

#TransferPricing #SALT #Audit #MTC #SITAS #WTPAdvisors