What Is a State Transfer Pricing Audit?

Transfer pricing is a growing and contentious issue for states trying to protect their tax revenues. In response, many states have increased their efforts to curb revenue loss through increased transfer pricing audits and examining intercompany transactions.

Broadly, transfer pricing focuses on the pricing of intercompany transactions and the allocation of income and expenses between related entities. State Department of Revenues (DOR), focused on capturing lost revenues, are prepared to audit more intercompany transactions between related parties.   Most of the new audits are expected to be focused in the 17 separate-reporting states, which allow each business entity to submit a tax return separate from its affiliated group. Whereas, in the 28 combined-reporting states, the parent company and all of the subsidiary companies are treated as one entity for state income purposes.

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