Today, the Department of Revenue held a hearing for the public to present comment regarding the Department’s proposed market-based sourcing regulation. In addition, the proposed special industry apportionment regulations for Airline Corporations, Motor Carriers, and Courier and Package Delivery Services; and the proposed corporate nexus regulation were also addressed at today’s hearing. The proposed regulations were released on October 30, 2014.

The Department started the hearing by providing a brief summary of each proposed regulation and indicated that four sets of written comments have been provided thus far (our understanding is that further written comments will be submitted). The Department then turned over the hearing to the public; two oral comments were presented.

First, a representative of the Motion Picture Association of America (“MPAA”) spoke to critique the Department’s tiered sourcing rules, focusing especially on the sourcing of broadcaster’s advertising receipts. The draft regulation sources receipts delivered electronically through or on behalf of an individual or business customer to the location of the customer “intended audience”; and has several tiered secondary rules of approximation for determining audience location. For example, if a cable provider is unable to determine the actual location of an audience for an advertisement and cannot reasonably approximate that location, it is required to source advertising receipts based on the percentage of its subscribers in Massachusetts compared to total subscribers in the advertising region. The MPAA argued that basing sourcing on the location of subscribers or audience does not reflect business reality—for example, arguing that advertisers care about demographics of viewership, not the location of the viewers—and that an alternative method should be used.

Reed Smith spoke next and presented comments regarding the Department’s methodology for determining that, for a particular industry, the standard statutory apportionment rules are not reasonable to approximate income derived from Massachusetts, and whether that method met their statutory burden.

With no further comments presented, the Department concluded the hearing in an efficient 19 minutes. The next step will be the promulgation of final regulations.

For taxpayers who were not able to attend today’s hearing, written comments on the proposed regulations can still be submitted to the Department, though the Department has indicated that comments provided later than this week risk being submitted to late.

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