At its inception, membership in the Multistate Tax Commission (MTC) was straightforward. It consisted of each state that was a party to the Multistate Tax Compact – that is, each state that had statutorily enacted it. Those members, including the District of Columbia, are referred to as “compact states.” Because the Compact defines “state” to include not only the fifty states, but also the District of Columbia, the Commonwealth of Puerto Rico, and any U.S. territory or possession, MTC staff have occasionally indulged in the parlor game of imagining Puerto Rico or, say, the Northern Mariana Islands as compact members. States that were interested in, or considering legislation to enact, the Compact were called “associate members.”
So, compact members – there are currently 16 – form the backbone of the organization. By statute, they fund the general operations of the MTC through an annual membership assessment (apportioned by a formula, naturally). The complication is that through the years, the MTC developed several ways for states to participate without becoming compact members.
Associate membership gradually lost any requirement that a state be actively considering enacting the Compact. And in 1986, the MTC opened the Joint Multistate Audit Program to non-compact states by contract, with Nebraska joining first. Thus, “program members” became a thing. Then the 1990s brought temporary projects in which any state could participate, creating “project members.” The Nexus program followed. And, recognizing the difficulty of adding new party states to the Compact, the MTC came up with sovereignty membership.
Sovereignty member states joined compact members in funding the MTC’s general operations and shared the annual membership assessment burden with them – not by statute, but by choice. Twenty years ago, the MTC simplified things by intentionally referring only to compact, sovereignty, and associate member states.
Only compact members have a statutory obligation to fund the MTC. Program fees for the Audit and Nexus programs are paid by the state tax agencies that choose to participate. Over time, states have shifted in and out of programs and membership categories as those relationships have become more or less of a fit with their tax administration plans. That flexibility is a particular challenge for the MTC’s executive director, but it is better understood not as a complicated design flaw, but as a strength of the organization and a source of its resilience – after all, every state now participates with the MTC in some way.
Whether a state is a compact member, a sovereignty member, or some variation of associate member can affect how much weight that state’s tax agency gives to an MTC position, and how a company should think about responding to a finding or an assertion coming out of that state. Understanding a state’s actual relationship with the MTC, rather than assuming all states relate to the MTC in the same way, is a useful first step before deciding how to engage.