Coalition of

Publicly  

Traded  

Partnerships__________________________________

 

Legislative Information

 

    An important part of the Coalition’s mission has always been to seek changes in current or proposed tax laws that will make them more fair and efficient for publicly traded partnerships.  The Coalition has successfully influenced tax legislation at both the federal level and the state level.   Our primary issue before Congress is currently the tax treatment of mutual funds which invest in PTPs.  Our state efforts are focused on legislative proposals requiring PTPs and other partnerships to withhold tax for nonresident partners or pay tax themselves.

Further detail on our federal and state legislative efforts is provided below.  Coalition members can find additional information and advocacy material on both federal and state legislation on the Members Only page.

Federal Legislation

For a number of years the Coalition’s federal efforts focused on changing a provision in the tax code which makes it difficult for publicly traded partnerships to sell their securities to mutual funds.   On October 22, 2004, this goal was achieved when the President signed into law the American Jobs Creation Act (H.R. 4520), P.L. 108-357.

Mutual funds are required to obtain 90 percent of their income from specific sources listed in the tax code.  No more than 10 percent of their income can come from other sources, or they will lose their “regulated investment company” tax status.   Largely because partnership interests that could be traded on securities markets did not exist when these rules were written, PTP income was not on the list of qualifying sources.   This was a deterrent to PTP investment by mutual funds.

Section 331 of the American Jobs Creation Act adds net income derived from an interest in a PTP to the list of sources from which a regulated investment company (RIC) must derive 90% of its income in order to maintain its tax status as a RIC.   RICs may now invest freely in PTPs as long as such investments do not constitute more than 25% of their assets, and as long as they do not own more than 10% of any one PTP.  

Links to the legislative language of the conference agreement and the statement of managers are below.  The PTP provision is on page 150 of the legislative language and page 94 of the statement of managers (page 77 of the printed copy).   You can also link to answers to the most frequently asked questions about the new law.   

Legislative Language of H.R. 4520 -- Conference Agreement

Statement of Managers

Answers to FAQs

The Coalition is currently developing its legislative agenda for the 109th Congress.  Watch this page for further information.

Link to THOMAS, the U.S. Congress' legislative information page

 

State Legislation 

State Legislation

         The Coalition has also been active in advocating an exemption for PTPs from requirements that partnerships and other passthrough entities withhold tax for nonresident partners, and similar legislative or regulatory requirements.  Over the past two years the Coalition has obtained such exclusions in New Jersey, Michigan, New York, Connecticut, Oklahoma, and Kentucky, as well as provisions for exemption by request in Louisiana; Coalition efforts in earlier years have resulted in similar exclusions in California, Pennsylvania, Ohio, and Georgia.   In addition, the Coalition has actively opposed inclusion of PTPs in the franchise tax in Texas.  Further information is available to Coalition members in the Members Only section.

 For additional information on the legislation and how you can help the legislative effort, e-mail the Coalition’s Executive Director, Mary Lyman at [email protected].  You can also contact the Coalition’s Legislative Committee Co-Chairs Randy Fowler ([email protected]) and Bruce Heine ([email protected]) regarding federal legislative efforts, and State Tax Committee Chair Lindsay Sander ([email protected]) regarding state efforts.

Multistate Tax Commission Proposal

    The Multistate Tax Commission, a multistate agency made up of state taxing authorities whose aim is to encourage uniform state tax laws, has adopted after several months' consideration a  "uniformity recommendation" -- i.e., a model statute-- that requires partnerships to withhold income tax at the state's highest tax rate on each nonresident partner's share of the income distributed to the taxpayer--i.e., on partnership distributions.  Partnerships could file a composite return on behalf of electing nonresident members whose only source of income in the state is from the partnership (or other entity); however, withholding must be done for partners who do not make the election.  This language is only a "uniformity recommendation" which states can choose to adopt or not, and will not become law unless adopted by one or more state legislatures.  

    The Coalition worked for several months to obtain an exclusion from the MTC proposal for publicly traded partnerships.  On October 16, 2003, the Executive Committee of the MTC voted unanimously to add such an exclusion to the proposal.  The exclusion includes a requirement that PTPs provide states each year with a list of unitholders with over $500 of income in the state.  The Executive Committee's action was the result of an analysis performed for the Coalition by PricewaterhouseCoopers which showed that only a very small number of unitholders have PTP income over the proposal's $1,000 threshhold.  The decision was also influenced by the Coalition's arguments regarding the difficulty of compliance and the enormous burden that would be placed not only on PTPs but on state tax administrators.  The proposal was formally adopted by the full MTC on December 18, 2003.

MTC Proposal and Hearing Examiner's Report

Coalition Testimony Submitted to the MTC in December 2002

Final Uniformity Recommendation Adopted by the MTC