Complying with Expanding State Transfer Pricing Rules

Strategies for Multistate Corporations

Harvey Poniachek, PhD

Aggressive state audits and adjustments relating to intercompany transactions—specifically those involving intercompany royalty payments and service charges—could affect multistate corporations that engage in transfer pricing. Many states generally follow the transfer-pricing methodology under Internal Revenue Code (IRC) section 482 by enacting laws that adopt IRC section 482 or by granting analogous authority to their revenue commissioners (Cara Griffith, “States' No-Holds-Barred Approach to Auditing Transfer Pricing Arrangements,” BNA Tax Analysts Practice Notes, Feb. 13, 2012). In order to challenge advanced-pricing agreements and other IRS taxpayer agreements for state tax purposes (specifically those related to the ownership and location of intangible property), some states have extended their authority (Technical Advisory Memorandum [TAM] 2012-1, New Jersey Division of Taxation, Feb. 16, 2012, http://www.state.nj.us/treasury/taxation/pdf/pubs/tams/tam2012-1.pdf; Brian Trauman and Nicole Crighton, “United States: State Tax Implications of Transfer Pricing Issues,” KPMG Tax News Flash 2011–49, Aug. 15, 2011).