Pennsylvania Leverages MTC Audit Resources
Pennsylvania recently announced it joined the Multistate Tax Commission’s (“MTC”) corporate income tax audit program. Joining the MTC program enables the Department of Revenue (“DOR”) to leverage MTC resources to conduct Pennsylvania corporate income and franchise tax audits on its behalf. The DOR has retained some control as to which taxpayers are to be audited and final approval of the audit results, but it leaves the initial review and evaluation to an MTC auditor.
Pennsylvania is now the 23rd participating state in the MTC program, which includes New Jersey, Illinois, and Michigan. The effective date of its participation was November 2014, and thus was initiated by the previous Administration.
In theory, MTC multistate audits are supposed to be more efficient for both the taxpayer and the taxing authorities, however that is not always the practical reality. Considering Pennsylvania’s two-pronged corporate tax structure, it should be interesting to see how effective and efficient the MTC auditors will be. The DOR’s employees often struggle with technical issues, so there are bound to be challenges for MTC auditors with technical issues such as income producing activity, multiformity, single factor apportionment, and the manufacturing exemption. This can be good or bad for taxpayers depending on the MTC auditors’ approach to the audit: Will they relay technical issues to the DOR, or merely make random assumptions in favor of the Commonwealth (which generally result in adverse assessments taxpayers must formally appeal)?