When the South Dakota Legislature adopted the Multistate Tax Compact but stripped out the line that said Article VIII (interstate audits) would be in force, did the state still get the interstate audit authority, or was that piece left out?
Plain-English summary
In 1975 the South Dakota Legislature passed Senate Bill 81, adopting the Multistate Tax Compact and joining the Multistate Tax Commission. The Compact is twelve articles long. Article VIII spells out the mechanics for joint interstate audits: how state revenue departments can coordinate to audit multistate businesses, share information, and reach consistent tax treatment.
Article VIII has a peculiar opening line: "This article shall be in full force only in those party states as specifically provided therefor by statute." That is, Article VIII says it does not take effect for any given member state unless the state's legislature enacts something extra that says yes, Article VIII applies here.
The Compact as introduced in South Dakota had such a provision tucked into Article XII section 7: "Article VIII of the Multistate Tax Compact relating to interaudits (sic) shall be in force in and with respect to the state of South Dakota." But the South Dakota Senate amended the bill and deleted section 7 of Article XII (along with five other sections). So when SB 81 became law, the express "yes, Article VIII applies here" sentence was missing.
Mr. Wendell, working in state revenue, asked Janklow what that meant. Did South Dakota join Article VIII or didn't it?
Janklow concluded yes, South Dakota joined Article VIII. Two interpretive moves did the work. First, he characterized Article VIII section 1 as "prefatory and explanatory" material rather than a substantive enactment. The opening sentence of Article VIII was a roadmap that came with the model Compact text but was never meant to be enacted into law in the same way Article VIII's operative paragraphs (sections 2 through 9, which actually describe the audit mechanics) were. Second, he pointed to SB 81 section 1: "The multistate tax compact is hereby enacted into law and entered into with all jurisdictions legally joining therein in the form substantially as follows." That comprehensive enactment language picked up Article VIII along with everything else. The Senate amendment removed a belt-and-suspenders clause, but the suspenders (the comprehensive enactment) still held the trousers up.
So Article VIII, sections 2 through 9, took effect when SB 81 took effect. South Dakota could participate in interstate audits with the other Multistate Tax Commission member states.
Currency note
This opinion was issued in 1975. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here. The Multistate Tax Compact has been amended since 1975, the Multistate Tax Commission has restructured several times, and several states have withdrawn from the Compact while others have joined. Anyone evaluating South Dakota's current participation in Article VIII interstate audits should check the current SDCL codification of the Compact and the Multistate Tax Commission's current member rolls.
What the opinion meant at the time
For the South Dakota Department of Revenue, the opinion authorized participation in joint audits. The Department could send auditors to participate in interstate audits coordinated by the Multistate Tax Commission, accept information shared by other member states, and coordinate audit findings.
For multistate corporations doing business in South Dakota, the opinion meant the state revenue agency could leverage interstate audit machinery. A corporation being audited in Iowa by Iowa's tax department might find South Dakota auditors participating in the same audit, and the results would flow back to South Dakota for assessment purposes.
For the broader interpretive question of how to read interstate compacts, the opinion is a small but useful illustration. State legislatures often adopt the text of model compacts wholesale, including model-text language that anticipates multiple states' adoption mechanics. Janklow's approach treated that anticipatory language as prefatory, not substantive, in light of the comprehensive enactment clause. That move parallels the federal courts' approach to model-act adoption: comprehensive enactment language can carry along even unusually worded internal provisions.
Background and statutory framework
The Multistate Tax Compact was drafted in the 1960s to give states a framework for coordinating tax administration of multistate businesses. It established the Multistate Tax Commission, set out the Uniform Division of Income for Tax Purposes Act provisions for apportionment of income, and (in Article VIII) created the joint audit mechanism.
Article VIII's careful drafting reflects a sensitivity to states' worries about sharing tax information across borders. Section 1's "only as specifically provided" language was an opt-in mechanism: states adopting the Compact could choose whether to fully participate in Article VIII or to be members of the Commission while opting out of joint audits.
South Dakota's drafting choice to delete the Article XII section 7 effectuating language could plausibly be read either way: as an intentional opt-out (the Legislature deliberately excluded Article VIII), or as a clerical cleanup (the Article XII provisions were viewed as duplicative of the comprehensive section 1 enactment). Janklow read the legislative history and the surrounding bill structure and concluded the latter. The deletion of Article XII section 7 was not paired with any other language excluding Article VIII; the bill's other parts kept the Compact intact; the comprehensive enactment language remained.
Janklow's interpretive move treats Article VIII section 1 as a textual artifact of a model Compact (drafted to fit fifty different state adoption contexts) rather than as a separately operative South Dakota statute. That's a defensible reading but not the only one; a court could plausibly have said section 1 controlled and required a specific opt-in. The opinion is one of several state AG opinions interpreting Compact adoption mechanics this way.
Citations
- Senate Bill 81 (1975), Multistate Tax Compact (South Dakota adoption)
- Multistate Tax Compact, Article VIII (interstate audits)
- Multistate Tax Compact, Article XII (effectuating language)
Source
Original opinion text
Authority for interstate audits under Multistate Tax Compact
Dear Mr. Wendell:
You have asked my official opinion on Article VIII of Senate Bill 81, known as the Multistate Tax Compact. Specifically, you have inquired as to whether Article VIII is effective in South Dakota so as to permit the cooperation in interstate audits.
The Multistate Tax Compact is a compact of some twelve articles between states whose legislatures have adopted the same, thereby entering the state into the Multistate Tax Commission.
Section 1 of Article VIII reads as follows:
This article shall be in full force only in those party states as specifically provided therefor by statute.
The article then goes on through nine numbered subparagraphs to provide the mechanics, procedures and other arrangements with regard to interstate audits. As originally introduced, section 7 of Article XII read:
Article VIII of the Multistate Tax Compact relating to interaudits (sic) shall be in force in and with respect to the state of South Dakota.
By amendment in the Senate that section, together with five other sections of the Act, was deleted, thus giving rise to your question as to whether or not Article VIII is in effect.
This compact, before introduction as a bill in South Dakota contained certain prefatory and explanatory materials which were not intended to be enacted into law and, in fact, had no substantive effect as far as the bill is concerned. Section 1 of Article VIII is one of these explanatory statements which in this case, in my opinion, is surplusage so far as the legal effect of Article VIII itself is concerned.
Section 1 of Senate Bill 81 reads as follows:
The multistate tax compact is hereby enacted into law and entered into with all jurisdictions legally joining therein in the form substantially as follows.
South Dakota did adopt "substantially" the Compact. Senate Bill 81 expresses the clear intention of the Legislature to adopt the same as laid before it in the twelve articles. Article VIII, paragraphs 2 through 9, spells out the mechanics of interstate audits and it is my opinion that such article is in full force and effect, as well as the balance of the articles, on the effective date of the Act.
Respectfully submitted,
William J. Janklow
Attorney General
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