Multistate Tax Commission Says House Tax Bill Will 'Legalise Tax Sheltering'

by Mike Godfrey, Tax-News.com, Washington

13 May 2004

A bill pending in the House of Representatives aimed at encouraging states to adopt uniform tax laws will have the effect of “legalizing tax shelters”, according to the Multistate Tax Commission.

The Commission, a joint agency of state governments established in 1967 to study state tax issues, was referring to the Business Activity Tax Simplification Act of 2003, which it alleges will “severely limit” the ability of state governments to levy “reasonable” taxes on corporations, and will allow "income-shifting games made notorious by a handful of companies."

“The bill would free all companies to follow the lead of the most aggressive tax-sheltering corporations in shifting income to low or no-tax jurisdictions,” accused the MTC.

The Commission was joined in its attack by the tax boards of several cash-strapped states, including the Californian Franchise Tax Board, which claims that the bill will “devastate” state tax revenues, reducing them by $525 million when fully enacted.

In response, the bill’s sponsor, Rep. Bob Goodlatte, (R-Va), told Dow Jones Newswires that the MTC’s comments were “outrageous”, adding that the measures would in actual fact have the opposite effect.

He went on to add that the intention of the bill is to address the problem of states inappropriately imposing business activity taxes on firms located in other states.

The bill would ensure that a firm must have a strong physical presence in a state before it can be taxed on out-of-state business.

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