States Ramp Up Transfer Pricing Audits in Search of Tax Revenue

A number of state tax departments are gearing up to scrutinize transactions between units of multistate businesses—probing the deals’ economic substance for income distortions that can cost states millions in lost revenue.

Corporate tax dispute specialists point to trends that suggest state audit teams are taking sterner looks at intercompany transactions: amplified enforcement after the closure of several high-profile settlement programs, better trained armies of auditors aided by outside consultants, and economic clouds foreshadowing state revenue declines.

The result is a new and uncomfortable cycle of audits and post-audit disputes over manipulation of the substance, or transfer pricing, of the ...